UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For The Fiscal Year Ended June 30, 2022OR☐ TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For The Transition Period From _______ To _______Commission File Number 001-36092 Premier, Inc.(Exact name of registrant as specified in its charter)Delaware 35-2477140(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)13034 Ballantyne Corporate Place 28277Charlotte,North Carolina(Zip Code)(Address of principal executive offices) Registrant's telephone number, including area code: (704) 357-0022_____________________________________________________________________Securities Registered Pursuant to Section 12(b) of the Act: Title of Each ClassTrading SymbolsName of Each Exchange on Which RegisteredClass A Common Stock, $0.01 Par ValuePINCNASDAQ Global Select MarketSecurities Registered Pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large accelerated filer☒ Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the Registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financialreporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the Class A common stock held by non-affiliates of the Registrant as of the last business day of the Registrant's most recently completed second
fiscal quarter was approximately $4,893.5 million. For purposes of the foregoing calculation only, executive officers and directors of the registrant have been deemed to be
affiliates.
As of August 11, 2022, there were 118,066,513 shares of the Registrant's Class A common stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement for its 2022 Annual Meeting of Stockholders to be held on or about December 2, 2022 is incorporated by reference into Part III
hereof to the extent described herein.
2
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PREMIER, INC
FORM 10-K
TABLE OF CONTENTS
PART I
PART II
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
RESERVED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
SIGNATURES
PART IV
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ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements made in this annual report for the fiscal year ended June 30, 2022 for Premier, Inc. (this “Annual Report”) that are not statements of historical or
current facts, such as those under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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 our actual results, performance or achievements to be materially different from historical results or from
any future results or projections expressed or implied by such forward-looking statements. In addition to statements that explicitly describe such risks and
uncertainties, readers are urged to consider statements in 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 our beliefs and expectations
regarding future events and trends affecting our business and are necessarily subject to uncertainties, many of which are outside our control. Factors that could
cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:
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the impact of the continuing financial and operational uncertainty due to the coronavirus pandemic or other pandemics and associated supply chain
disruptions and inflation;
global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial
condition or results of operations, including issues such as rising inflation and global supply-chain disruption;
competition which could limit our ability to maintain or expand market share within our industry;
consolidation in the healthcare industry;
potential delays recognizing or increasing revenue if the sales cycle or implementation period takes longer than expected;
the impact to our business if members of our group purchasing organization (“GPO”) programs reduce activity levels or terminate or elect not to renew
their contracts on substantially similar terms or at all;
the rate at which the markets for our software as a service (“SaaS”) or licensed-based clinical analytics products and services develop;
the dependency of our members on payments from third-party payors;
our reliance on administrative fees that we receive from GPO suppliers;
our ability to maintain third-party provider and strategic alliances or enter into new alliances;
our ability to timely offer new and innovative products and services;
the portion of revenues we receive from our largest members;
risks and expenses related to future acquisition opportunities and integration of previous or future acquisitions;
financial and operational risks associated with non-controlling investments in other businesses or other joint ventures that we do not control, particularly
early-stage companies;
pending and potential litigation;
our reliance on Internet infrastructure, bandwidth providers, data center providers and other third parties and our own systems for providing services to our
users;
data loss or corruption due to failures or errors in our systems and service disruptions at our data centers, or breaches or failures of our security measures;
the financial, operational and reputational consequences of cyber-attacks or other data security breaches that disrupt our operations or result in the
dissemination of proprietary or confidential information about us or our members or other third parties;
our ability to use, disclose, de-identify or license data and to integrate third-party technologies;
our use of “open source” software;
our dependency on contract manufacturing facilities located in various parts of the world;
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inventory risk we face in the event of a potential material decline in demand or price for the personal protective equipment or other products we may have
purchased at elevated market prices or fixed prices;
our ability to attract, hire, integrate and retain key personnel;
adequate protection of our intellectual property and potential claims against our use of the intellectual property of third parties;
potential sales and use tax liability in certain jurisdictions;
changes in tax laws that materially impact our tax rate, income tax expense, anticipated tax benefits, deferred tax assets, cash flows and profitability;
our indebtedness and our ability to obtain additional financing on favorable terms, including our ability to renew or replace our existing long-term credit
facility at maturity;
fluctuation of our quarterly cash flows, revenues and results of operations;
changes and uncertainty in the political, economic or regulatory environment affecting healthcare organizations, including with respect to the status of the
Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act of 2010 and pandemic-related public health
and reimbursement measures;
our compliance with complex international, federal and state laws, rules and regulations governing financial relationships among healthcare providers and
the submission of false or fraudulent healthcare claims;
interpretation and enforcement of current or future antitrust laws and regulations;
compliance with complex federal, state and international privacy, security and breach notification laws;
compliance with current or future laws, rules or regulations relating to information blocking provisions of the 21st Century Cures Act issued by the Office
of the National Coordinator for Health Information Technology (the “ONC Rules”) that may cause our certified Health Information Technology products
to be regulated by the ONC Rules;
compliance with current or future laws, rules or regulations adopted by the Food and Drug Administration applicable to our software applications that may
be considered medical devices;
the impact of payments required under notes payable to former limited partners related to the early termination of the Unit Exchange and Tax Receivable
Acceleration Agreements (the “Unit Exchange Agreements”) issued in connection with our August 2020 Restructuring on our overall cash flow and our
ability to fully realize the expected tax benefits to match such fixed payment obligations under those notes payable;
provisions in our certificate of incorporation and bylaws and provisions of Delaware and other applicable laws that discourage or prevent strategic
transactions, including a takeover of us;
failure to maintain an effective system of internal controls over financial reporting or an inability to remediate any weaknesses identified and the related
costs of remediation;
the impact on the price of our Class A common stock if we cease paying dividends or reduce dividend payments from current levels;
the number of shares of Class A common stock repurchased by us pursuant to any then existing Class A common stock repurchase program and the timing
of any such repurchases;
the number of shares of Class A common stock eligible for sale after the issuance of Class A common stock in our August 2020 Restructuring and the
potential impact of such sales; and
the risk factors discussed under the heading “Risk Factors” in Item 1A herein.
More information on potential factors that could affect our 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” or similarly captioned sections of
this Annual Report and our other periodic and current filings made from time to time with the Securities and Exchange Commission (“SEC”), which are
available on our website at http://investors.premierinc.com/. You should not place undue reliance on any of our forward-looking statements which speak only
as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or
future events or otherwise. Furthermore, we cannot guarantee future results, events, levels of activity, performance or achievements.
5
Market Data and Industry Forecasts and Projections
We use market data and industry forecasts and projections throughout this Annual Report and in particular, under Item 1. Business. We have obtained the
market data from certain publicly available sources of information, including industry publications. We believe the data others have compiled are reliable, but
we have not independently verified the accuracy of this information. While we are not aware of any misstatements regarding the industry data presented herein,
forecasts and projections involve risks and uncertainties and are subject to change based on various factors, including those discussed under Item 1A. Risk
Factors of this Annual Report. You should not place undue reliance on any such market data or industry forecasts and projections. We undertake no obligation
to publicly update or revise any such market data or industry forecasts and projections, whether as a result of new information, future events or otherwise.
Trademarks, Trade Names and Service Marks
TM
,” “Conductiv,” “Contigo Health,” “Essensa,” “Health Design Plus,” “Innovatix,” “InterSectta
This Annual Report includes trademarks, trade names and service marks that we either own or license, such as but not limited to “Acurity,” “ASCEND,”
“ASCENDrive
,” “Premier,”
“PremierPro,” “ProvideGx,” “QUEST,” “Remitra
,” “STOCKD,” “SURPASS,” “S2S Global” and “TheraDoc” which are protected under applicable
TM
intellectual property laws. Solely for convenience, trademarks, trade names and service marks referred to in this Annual Report may appear without the ®,
symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the
or
right of the applicable licensor to these trademarks, trade names and service marks. This Annual Report also may contain trademarks, trade names and service
marks of other parties, and we do not intend our use or display of other parties' trademarks, trade names or service marks to imply, and such use or display
should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
TM
,” “KIINDO ,” “PINC AI
TM
TM
TM
SM
Certain Definitions
For periods prior to August 11, 2020, references to “member owners” are references to participants in our GPO programs that were also limited partners of
Premier Healthcare Alliance L.P. (“Premier LP”), sometimes referred to as “LPs,” that held Class B common units of Premier LP and shares of our Class B
common stock.
For periods on or after August 11, 2020, references to “members” are references to health systems and other customers that utilize any of our programs or
services, some of which were formerly member owners.
References to the “August 2020 Restructuring” are references to our corporate restructuring on August 11, 2020 in which we (i) eliminated our dual-class
ownership structure, through an exchange under which member owners converted their Class B common units in Premier LP and corresponding Class B
common shares of Premier, Inc. into our Class A common stock, on a one-for-one basis, and (ii) exercised our right to terminate the Tax Receivable Agreement
(the “TRA”) by providing all former limited partners a notice of termination and the amount of the expected payment to be made to each limited partner
pursuant to the early termination provisions of the TRA with a determination date of August 10, 2020. For additional information and details regarding the
August 2020 Restructuring, see our 2021 Annual Report.
References to the “Subsidiary Reorganization” are references to an internal legal organization of our corporate subsidiaries in December 2021 for the purpose
of simplifying our subsidiary reporting structure. For additional information and details regarding the Subsidiary Reorganization, see our Quarterly Report for
the period ended December 31, 2021.
References to “Prior Premier GP” are references to our former wholly owned subsidiary Premier Services, LLC, which was merged with and into Premier, Inc,
with Premier, Inc. being the surviving entity as part of the Subsidiary Reorganization.
6
Item 1. Business
PART I
The following discussion should be read in conjunction with our audited consolidated financial statements and accompanying notes thereto included elsewhere
in this Annual Report on Form 10-K. The following discussion includes certain forward-looking statements. For a discussion of important factors which could
cause actual results to differ materially from the results referred to in the historical information and the forward-looking statements presented herein, see “Item
1A. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” contained in this Annual Report.
Our Company
Premier, Inc. (“Premier”, the “Company”, “we”, “us” or “our”), a publicly held, for-profit corporation, incorporated in Delaware on May 14, 2013, is a leading
healthcare improvement company, uniting an alliance of U.S. hospitals, health systems and other providers and organizations to transform healthcare. We
partner with hospitals, health systems, physicians, employers, product suppliers, service providers, and other healthcare providers and organizations with the
common goal of improving and innovating in the clinical, financial and operational areas of their businesses to meet the demands of a rapidly evolving
healthcare industry. With integrated data and analytics, collaboratives, supply chain services, consulting and other services, Premier enables healthcare
providers to deliver better care and outcomes at a lower cost. We believe that we play a critical role in the rapidly evolving healthcare industry, collaborating
with members and other customers to co-develop long-term innovative solutions that reinvent and improve the way care is delivered to patients nationwide. We
deliver value through a comprehensive technology-enabled platform that offers critical supply chain services, clinical, financial, operational and value-based
care software as a service (“SaaS”) as well as clinical and enterprise analytics licenses, consulting services, performance improvement collaborative programs,
third-party administrator services, access to our centers of excellence program and digital invoicing and payment processes for healthcare product suppliers and
service providers and continue to expand our capabilities to more fully address and coordinate care improvement and standardization in the employer, payor
and life sciences markets. We also provide services to other businesses including food service, schools and universities.
As a healthcare alliance, our mission, products and services, and long-term strategy have been developed in partnership with hospitals, health systems,
physicians and other healthcare providers and organizations. We believe that this partnership-driven business model creates a relationship between our
members and us that is characterized by aligned incentives and mutually beneficial collaboration. This relationship affords us access to critical de-identified
proprietary data and encourages member participation in the development and introduction of new products and services. Our interaction with our members
provides us additional insights into the latest challenges confronting the healthcare industry and innovative best practices that we can share broadly across the
healthcare industry, including throughout our membership. This model has enabled us to develop size and scale, data and analytics assets, expertise and
customer engagement required to accelerate innovation, provide differentiated solutions and facilitate growth.
We seek to address challenges facing healthcare providers through our comprehensive suite of solutions that we believe:
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improve the efficiency and effectiveness of the healthcare supply chain;
deliver improvement in cost, quality and safety;
innovate and enable success in emerging healthcare delivery and payment models to manage the health of populations;
utilize data and analytics to drive increased connectivity, and clinical, financial and operational improvement; and
through employers, payors and life sciences, expand the capabilities within these markets to improve healthcare.
Our business model and solutions are designed to provide our members and other customers access to scale efficiencies while focusing on optimization of
information resources and cost containment, provide actionable intelligence derived from anonymized data provided by our members and included in our data
warehouse, mitigate the risk of innovation, and disseminate best practices that will help our member organizations and other customers succeed in their
transformation to higher quality and more cost-effective healthcare.
We deliver our integrated platform of solutions that address the areas of clinical intelligence, margin improvement and value-based care through two business
segments: Supply Chain Services and Performance Services. The Supply Chain Services segment includes our group purchasing organization (“GPO”)
program, supply chain co-management, purchased services and direct sourcing activities. The Performance Services segment consists of three sub-brands:
, Contigo Health and Remitra . PINC AI is the Company’s technology and services platform with offerings that help optimize performance in
PINC AI
three main areas – clinical intelligence, margin improvement and value-based care. PINC AI utilizes advanced analytics to identify improvement opportunities,
consulting services for clinical and operational design, and workflow solutions to hardwire
TM
TM
®
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sustainable change in the provider, life sciences and payer markets. Contigo Health is the Company’s direct-to-employer business, which provides third party
administrator services and management of health benefit programs that allow employers to contract directly with healthcare providers as well as partners with
healthcare providers to provide employers access to a specialized care network through Contigo Health’s centers of excellence program. Remitra is the
Company’s digital invoicing and payables business which provides financial support services to healthcare product suppliers and service providers.
Fiscal 2022 Developments
In fiscal year 2022, the U.S. and global economies experienced unprecedented challenges resulting from the ongoing consequences and impact of the COVID-
19 pandemic, including supply chain bottlenecks and escalating inflation. These challenges were exacerbated by the Russia-Ukraine war which has led to
further supply chain disruptions, rising energy costs and further inflationary impacts. These challenges have impacted our business as discussed below.
COVID-19 Pandemic, Variants Thereof, Recurrences or Similar Pandemics
The novel coronavirus (“COVID-19”) global pandemic and its variants continue to create challenges throughout the United States and the rest of the world.
The full extent to which the COVID-19 pandemic may impact our business, operating results, financial condition and liquidity will depend on future
developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and variants
thereof, the continued actions to contain it or treat its impact, including the success of COVID-19 vaccination programs, or recurrences of COVID-19 variants
thereof or similar pandemics. As discussed in detail under “Item 1A. Risk Factors” below, as a result of the COVID-19 pandemic and potential future pandemic
outbreaks, we face material risks including, but not limited to the following:
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The impact of the COVID-19 pandemic and any variants thereof and associated supply chain disruptions and inflation could result in a prolonged
recession or depression in the United States or globally that could harm the banking system, limit or delay demand for many products and
services and cause other foreseen and unforeseen events and circumstances, all of which could negatively impact us.
• We experienced and may continue to experience demand uncertainty from both material increases and decreases in demand and pricing for
personal protective equipment (“PPE”), drugs and other supplies directly related to treating and preventing the spread of COVID-19 and any
variants thereof as well as a decline in demand and pricing for many supplies and services not related to COVID-19.
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Labor shortages and the resulting increases to cost of labor are a continued challenge to the healthcare providers we serve and could negatively
affect our business.
• While some of our hospital customers have increased access to their facilities for non-patients, including our field teams, consultants and other
professionals, there are many that are still not allowing onsite access outside of their staff. Hospital imposed travel restrictions are also impacting
some customers’ ability to participate in face-to-face events with us, such as committee meetings and conferences.
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The global supply chain has been materially disrupted due to personnel shortages associated with ongoing COVID-19 rates of infection, stay-at-
home orders, border closings, rapidly escalating shipping costs, raw material availability and material logistical delays due to port congestion.
• We have and may continue to receive requests for contract modifications, payment waivers and deferrals, payment reductions or amended
payment terms from our contract counterparties. Inflation in such contract prices may impact member utilization of items and services available
through our GPO contracts, with uncertain impact on our net administrative fees revenue and direct sourcing revenue. In addition, several
pharmacy suppliers have exercised force majeure clauses related to failure to supply clauses in their contracts with us.
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In response to COVID-19 and variants thereof, federal, state and local governments are issuing new rules, regulations, changing reimbursement
eligibility rules, orders and advisories on a regular basis. These government actions can impact us, our members, other customers and suppliers.
Russia-Ukraine War
In February 2022, Russia invaded Ukraine. As military activity continues and sanctions, export controls and other measures are imposed against Russia,
Belarus and specific areas of Ukraine, the war is increasingly affecting the global economy and financial markets, as well as exacerbating ongoing economic
challenges, including issues such as rising inflation and energy costs and global supply-chain disruption. We continue to monitor the impacts of the Russia-
Ukraine war on macroeconomic conditions and prepare for any implications that the war may have on member demand, our suppliers’ ability to deliver
products, cybersecurity risks and our liquidity and access to capital. See “Risk Factors — Risks Related to Our Business Operations” below.
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Impact of Inflation
The U.S. economy is experiencing the highest rates of inflation since the 1980s. Historically, we have not experienced significant inflation risk in our business
arising from fluctuations in market prices across our diverse product portfolio. However, our ability to raise our selling prices depends on market conditions
and there may be periods during which we are unable to fully recover increases in our costs. In fiscal year 2022, our GPO business was not materially impacted
by pricing inflation as we used our members’ aggregated purchasing power to negotiate firm prices in many of our contracts. In our direct sourcing business,
we were able to partially offset increases in cost through temporary adjustments to selling prices and through various cost reduction initiatives while ensuring
our products remain competitively priced. See “Risk Factors — Risks Related to Our Business Operations” below.
Industry Overview
According to data from the Centers for Medicare & Medicaid Services (“CMS”), healthcare expenditures are a large component of the U.S. economy and are
expected to grow by an average of 5.1% per year for the period 2021-2030, reaching 19.6% of gross domestic product, or GDP, by 2030. According to data
from the 2020 American Hospital Association’s Annual Survey, published in the 2022 edition of the AHA Hospital Statistics™, there were more than 5,100
U.S. community hospitals with approximately 789,400 staffed beds in the United States. Of these acute care facilities, approximately 3,500 were part of either
multi-hospital or diversified single hospital systems, meaning they were owned, leased, sponsored or contract managed by a central organization. Based upon
2021 reporting from the United States Department of Labor and healthcare industry sources, in addition to U.S. hospitals, there were approximately 817,000
facilities and providers across the continuum of care in the United States. These facilities include primary/ambulatory care and post-acute care providers.
Healthcare Supply Chain Services Industry
According to CMS data, total spending on hospital services in the United States is projected to be $1.4 trillion, or approximately 32% of total healthcare
expenditures, in calendar year 2022. Expenses associated with the hospital supply chain, such as supplies as well as operational and capital expenditures,
typically represent a material portion of a hospital’s budget. With continued reimbursement rate pressure across government and managed care payors, a
transitioning payment model from fee-for-service to value-based payment, and national health expenditures representing a material portion of the economy,
healthcare providers are examining all sources of cost savings, with supply chain spending a key area of focus. We believe opportunities to drive cost out of the
healthcare supply chain include improved pricing for medical supplies, pharmaceuticals, purchased services, facilities expenditures, food service supplies, and
information technology, as well as appropriate resource utilization, mitigating pharmaceuticals and medical device shortages and increased operational
efficiency.
From origination at the supplier to final consumption by the provider or patient, healthcare products pass through an extensive supply chain incorporating
manufacturers, wholesalers, distributors, GPOs, pharmacy benefit managers, and retail, long-term care and integrated pharmacies, among others. In response to
the national focus on health spending and managing healthcare costs, supply chain participants are seeking more convenient and cost-efficient ways to deliver
products to patients and providers. We believe that improvements to the healthcare supply chain to bring it on par with other industries that have more
sophisticated supply chain management can drive out material inefficiencies and cost.
Healthcare Performance Services Industry
State and federal budget pressures stemming from increased deficit spending and employer and consumer demands for lower costs, and the need for improved
quality and outcomes have generated greater focus among healthcare providers on cost management, quality and safety, and value-based care. As a result, the
Department of Health and Human Services (“HHS”) has embarked on an aggressive effort over the past three administrations to move from fee-for-service to
alternative payment models (“APMs”). APMs, such as accountable care organizations (“ACOs”), capitated and bundled payment arrangements, make
healthcare providers more accountable for cost and quality goals. This movement was advanced further with the bipartisan enactment of the Medicare Access
and CHIP Reauthorization Act, which created incentives for physicians to move to APMs. Even with the possibility of changes to the ACA, this movement has
and will likely continue given the strong bipartisan support for these models. Over the long-term, health systems will need to continually monitor performance
and manage costs, while demonstrating high levels of quality and implementing new care delivery models.
We expect information technology to continue to play a key enabling role in workflow efficiency and cost reduction, performance improvement and care
delivery transformation across the healthcare industry. In particular, the trends toward value-based payment models and healthcare require more sophisticated
business intelligence, expanded data sets and technology solutions. To achieve higher-quality outcomes and control total cost of care, providers exhibit a strong
and continuing need for more comprehensive data and analytic capabilities to help them understand their current and future performance, identify opportunities
for improvement and manage value-based care risk. We expect demand for data
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management and data analytics products to complement the focus on electronic health record adoption. Similarly, our consulting services business is growing
in the areas of business model strategy and redesign, process and margin improvement, labor productivity, non-labor cost management, clinical integration and
change management.
Our Membership
Our current membership base includes many of the country’s most progressive and forward-thinking healthcare organizations. The participation of these
organizations in our membership provides us additional insights into the latest challenges confronting the industry we serve and innovative best practices that
we can share broadly throughout our membership. We continually seek to add new members that are at the forefront of innovation in the healthcare industry. At
June 30, 2022, our members included more than 4,400 U.S. hospitals and health systems and approximately 250,000 other providers and organizations. Over
430 individuals, representing approximately 140 of our U.S. hospital members, sit on 29 of our strategic and sourcing committees, and as part of these
committees, use their industry expertise to advise on ways to improve the development, quality and value of our products and services. In addition, at June 30,
2022, four senior executives from our U.S. hospital member systems served on our Board of Directors providing valuable and unique insights into the
challenges faced by hospitals and hospital systems and the innovations necessary to address these challenges. No individual member or member systems
accounted for more than 5% of our net revenue for the fiscal years ended June 30, 2022 and 2021. Total GPO purchasing volume by all members participating
in our GPO was more than $82 billion and $69 billion for the calendar years 2021 and 2020, respectively.
The following table sets forth certain information with respect to retention rates for members participating in our GPO in the Supply Chain Services segment
and renewal rates for our SaaS informatics products subscriptions and licenses in the Performance Services segment for the fiscal years shown:
GPO retention rate
SaaS institutional renewal rate
(a)(b)
(c)
_________________________________
Year Ended June 30,
2022
97%
96%
2021
94%
96%
2020
99%
95%
3 Year Average
97%
96%
(a) The GPO retention rate is calculated based upon the aggregate purchasing volume among all members participating in our GPO for such fiscal year less the annualized GPO purchasing volume
for departed members for such fiscal year, divided by the aggregate purchasing volume among all members participating in our GPO for such fiscal year.
(b) Fiscal 2021 GPO retention rate decreased primarily as a result of amendments to GPO participation agreements, effective July 1, 2020, and the August 2020 Restructuring.
(c) The SaaS institutional renewal rate is calculated based upon the total number of members that have SaaS or license revenue in a given period that also have revenue in the corresponding prior
year period divided by the total number of members that have SaaS or license revenue in the same period of the prior year.
Our Business Segments
We deliver our integrated platform of solutions that address the areas of clinical intelligence, margin improvement and value-based care and manage our
business through two business segments: Supply Chain Services and Performance Services. Refer to Note 19 - Segments to the accompanying audited
consolidated financial statements for further information. We have no significant foreign operations or revenues.
Supply Chain Services
Our Supply Chain Services segment assists our members and other customers in managing their non-labor expense and capital spend through a combination of
products, services and technologies, including one of the largest national healthcare GPO programs in the United States serving acute, non-acute and non-
healthcare sites, and providing supply chain co-management, purchased services and direct sourcing activities. Membership in our GPO also provides access to
certain SaaS informatics products related to the supply chain and the opportunity to participate in our ASCEND and SURPASS performance groups. Our
Supply Chain Services segment consists of the following products and solutions:
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Group Purchasing. Our portfolio of over 3,000 contracts with over 1,460 suppliers provides our members with access to a wide range of products and
services, including medical and surgical products, pharmaceuticals, laboratory supplies, capital equipment, information technology, facilities and
construction, food and nutritional products and purchased services (such as clinical engineering and workforce solutions). We use our members’ aggregate
purchasing power to negotiate pricing discounts and improved contract terms with suppliers. Contracted suppliers pay us administrative fees based on the
purchase volume of goods and services sold to our members under the contracts we have negotiated. We also partner with other organizations, including
regional GPOs, to extend our network base to their members.
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Our contract portfolio is designed to offer our members a flexible solution comprised of multi-sourced supplier contracts, as well as pre-commitment
and/or single-sourced contracts that offer higher discounts. Our multi-sourced contracts offer pricing tiers based on purchasing volume and/or commitment
and multiple suppliers for many products and services. Our pre-commitment contracts require that a certain amount of our members commit in advance to
a specified amount or percentage of purchasing volume before we enter into a contract with a particular supplier. Our single-source contracts are entered
into with a specified supplier, and through this exclusive relationship, allow us to contract for products that meet our members’ specifications. In the case
of pre-commitment contracts, we provide the particular supplier with a list of members that have pre-committed to a specified amount or percentage of
purchasing volume and the supplier directly handles the tracking and monitoring of fulfillment of such purchasing volume. In the case of single and multi-
sourced contracts, we negotiate and execute the contracts with suppliers on behalf of our members and make such contracts available to our members to
access. The utilization of such single and multi-sourced contracts is determined by each particular member with assistance from our field force. Since there
are no specific fulfillment requirements needed in our single and multi-source contracts in order to obtain certain pricing levels, each particular member
and supplier agree on the appropriate pricing tier based on expected purchasing volume with tracking and ongoing validation of such purchasing volume
provided by the supplier. The flexibility provided by our expansive contract portfolio allows us to effectively address the varying needs of our members
and the significant number of factors that influence and dictate these needs, including overall size, service mix, and the degree of integration between
hospitals in a healthcare system.
We continually innovate our GPO programs and supply chain platforms while targeting multiple markets, including acute and non-acute care and non-
healthcare site settings. In addition to our core base of approximately 4,400 acute care healthcare providers, our Premier Continuum of Care Program, one
of the largest in the United States, which covers over 80 classes of trade, had approximately 250,000 active members as of June 30, 2022, which represents
an increase of approximately 25,000 members, or 11%, over fiscal year 2021. A number of these members in our Premier Continuum of Care Program are
affiliated, owned, leased, or managed by our members and received a revenue share from us based upon our collected gross administrative fees on their
members’ purchases.
Our Premier Continuum of Care Program includes the following:
Premier Continuum of Care - Non-Acute Care. This program includes direct members, group affiliates and healthcare provider offices owned, leased
or managed by health systems. Key classes of trade include long-term care dispensing pharmacies, skilled nursing and assisted living facilities, home
infusion providers, home health providers and surgery centers. Premier Continuum of Care members have access to most of our GPO supplier
contracts, including, but not limited to, pharmaceuticals, medical and surgical supplies, facilities, food and nutritional products and other purchased
services.
Premier Business and Industry - Non-Healthcare. This program includes direct members and group affiliates. Key classes of trade include non-
healthcare entities, such as education (e.g. K-12 schools, colleges and universities), hospitality, recreation (e.g. stadiums, parks and fairgrounds), and
employee food programs. Our Business and Industry members have access to most of our GPO supplier contracts, including administrative services,
facilities, food service, and informational services.
The Premier Continuum of Care Program provides business operations and technology to ensure members and other customers are connected to
agreements and receiving proper contracted pricing.
Supply Chain Co-Management. We manage and co-manage the supply chain operations for members to drive down costs through processes, including
value analysis, product standardization and strategic resource allocation and improved operational efficiency.
Purchased Services Contracts. Our purchased services contracts business, which is separate from the purchased services under our national contract
portfolio, includes Conductiv, Inc. (“Conductiv”) and Conductiv Contracts, LLC (“Conductiv Contracts”). Conductiv is a SaaS provider of technology
solutions and expert services that enable hospitals and other organizations to analyze, benchmark and source purchased service contracts independent of
any existing GPO affiliation. Combined with our purchased services spend data and our performance improvement technology suite, we are able to be a
single source provider for healthcare margin improvement. Conductiv Contracts is a regionally focused group purchasing organization independent of any
existing GPO affiliation that exclusively focuses on purchased services contracting.
Direct Sourcing. Our direct sourcing business, SVS, LLC d/b/a S2S Global (“S2S Global”), helps our members and other customers access a diverse
product portfolio and helps provide transparency to manufacturing costs and competitive pricing. Through our consolidated subsidiary, S2S Global, we
facilitate the development of product specifications with our members and other customers, source or contract manufacture the products to member
specifications and sell products directly to our members, other customers or distributors. By engaging with our members and other customers at the
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beginning of the sourcing process to define product specifications and then sourcing, or contract manufacturing, products to meet the exact needs of our
members, we eliminate the need for unnecessary product features and specifications that may typically be included by suppliers and result in higher prices
for our members without providing incremental value. Therefore, our direct sourcing activities benefit our members and other customers by providing
them with an expanding portfolio of medical products through more efficient means, and with greater cost transparency, than if such products were
purchased from other third-party suppliers. We market our direct sourcing activities to our members primarily under the PREMIERPRO brand.
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Supply Chain Resiliency Program. In partnership with our members, we have created a program designed to promote domestic and geographically diverse
manufacturing and ensure a robust and resilient supply chain for essential medical products. The program is intended to provide a means to invest in or
partner with businesses that can supply shortage products, co-fund the development of affordable products that address specific market needs and create
strategic sourcing contracts to ensure continuous supply for our members and customers. We believe this program is most successful when we are able to
partner with our members through investments or long-term purchasing commitments on these initiatives.
Our Supply Chain Resiliency Program includes, but is not limited to, the following:
PRAM Holdings, LLC. We formed PRAM Holdings, LLC (“PRAM”) in 2020 in partnership with our members to invest in Prestige Ameritech Ltd.
(“Prestige”), a domestic manufacturer of masks and other PPE, whereby our members obtain a direct domestic source to critical PPE.
DePre Holdings, LLC. We formed DePre Holdings, LLC (“DPH”) in 2021 in partnership with our members to invest in DePre, LLC (“DePre”), a joint
venture between DPH and DeRoyal Industries Inc., a global medical manufacturer, whereby our members obtain a direct source dedicated to the
domestic production of isolation gowns.
ExPre Holdings, LLC. We formed ExPre Holdings, LLC (“ExPre”) in 2022 in partnership with our members to invest in Exela Holdings, Inc.
(“Exela”), a domestic manufacturer of proprietary and generic sterile injectable products, whereby our members obtain a direct source to certain
critical pharmaceutical products.
SaaS Informatics Products. Members of our GPO have access to certain SaaS informatics products related to the supply chain and have the ability to
purchase additional elements that are discussed in more detail below under “Our Business Segments - Performance Services”.
Performance Groups. Our Performance Groups are highly committed purchasing programs, which enable members to benefit from coordinated purchasing
decisions and maintain standardization across their facilities. Our Performance Groups include the ASCEND and the SURPASS Performance Groups.
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as of July 1, 2022, has developed a
ASCEND Performance Group. Our ASCEND Performance Group, which was rebranded as ASCENDrive
process to aggregate purchasing data for our members, enabling such members to benefit from committed group purchases within the Performance
Group. Through our ASCEND Performance Group, members receive group purchasing programs, tiers and prices specifically negotiated for them and
knowledge sharing with other member participants. As of June 30, 2022, approximately 1,300 U.S. hospital members, which represent over 113,000
hospital beds, participated in the ASCEND Performance Group. These hospital member participants have identified approximately $712.0 million in
additional savings as compared to their U.S. hospital peers not participating in the ASCEND Performance Group since its inception in 2009. For
calendar year 2021, these member participants had approximately $21.3 billion in annual supply chain purchasing spend.
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SURPASS Performance Group. Our SURPASS Performance Group builds upon and complements our legacy ASCEND Performance Group and
drives even greater savings for members at a correspondingly higher level of commitment. The SURPASS Performance Group brings together our
most committed members that are able to coordinate purchasing decisions, review utilization and achieve and maintain standardization across their
facilities. The SURPASS Performance Group utilizes our PACER (Partnership for the Advancement of Comparative Effectiveness Review)
methodology, which brings together clinically led cohorts to make evidence-based decisions about physician and clinician preference items with the
goal of materially reducing the total cost of care. As of June 30, 2022, a group of 23 members representing approximately 470 acute care sites and
9,700 alternate sites participate in our SURPASS Performance Group. These hospital member participants have identified over $206.0 million in
additional savings via their efforts in more than 150 categories. The SURPASS Performance Group has another 30 potential categories slated for the
coming year as well as select initiatives related to utilization and standardization. For calendar year 2021, these member participants had
approximately $11.2 billion in annual supply chain purchasing spend.
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E-Commerce Platform. Our E-Commerce platform, STOCKD , is part of our multi-channel supply chain strategy, which provides a digital sales channel
where members and other customers can purchase products under our PREMIERPRO brand as well as utilize limited savings programs from Premier GPO
suppliers utilizing an e-commerce platform.
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PROVIDEGX Program. The PROVIDEGX program identifies high-quality supply sources for drugs that are on or may be at risk of being added to the
national drug shortage list or that are vulnerable to pricing volatility. The PROVIDEGX program is the next step in our ongoing effort to help facilitate the
availability of high-quality pharmaceutical products, including drugs for which there may be supply challenges.
Performance Services
Our Performance Services segment consists of three sub-brands: PINC AI, Contigo Health and Remitra. Each serves different markets but are all united in our
vision to optimize provider performance and accelerate industry innovation for better, smarter healthcare. Our PINC AI platform enables us to better reflect our
current product offerings and strategy to expand and incorporate artificial intelligence (“AI”) across our portfolio of solutions. This platform further enables
connectivity and scale between providers, the life sciences industry and payors, including large employers, to help lower the cost and improve the quality of
care. We believe that we house one of the largest clinical, operational and financial datasets in the United States which enables actionable insight and real-
world evidence needed to accelerate healthcare improvements. We currently incorporate AI into prior authorization between payors and providers and clinical
intelligence through the decision support process which helps key healthcare stakeholders improve the quality, efficiency and value of healthcare delivery.
Using our data and scale, we seek to expand our AI capabilities, grow our overall portfolio of solutions and provide our members and customers with
technologically advanced products so they can provide better, smarter healthcare.
PINC AI:
With a broad provider network, advanced analytics, and the incorporation and desired expansion of AI-powered technology backed by our large dataset,
we believe PINC AI has the ability to accelerate ingenuity in healthcare.
PINC AI helps optimize provider performance in three main areas – clinical intelligence, margin improvement and value-based care – using advanced
analytics to identify improvement opportunities, consulting services for clinical and operational design and workflow solutions to hardwire sustainable
change.
Clinical intelligence solutions help drive greater clinical effectiveness and efficiency across the care continuum by:
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Surfacing analytics and peer benchmarking on hard-to-find, high-value quality improvement areas, helping providers improve care delivery;
Delivering real-time clinical surveillance to help providers drive faster, more informed decisions around patient safety, including ongoing
infection prevention (like COVID-19), antimicrobial stewardship, and reduction of hospital acquired conditions;
Using AI-enabled clinical decision support integrated into the provider workflow (EHR) to support evidence-based decisions by providers at the
point of care, and improve prior authorization automation;
Operating the QUEST Collaborative, which works to develop quality, safety and cost metrics with a consistency and standardization. We believe
participation in the QUEST Collaborative better prepares providers to deal with evolving and uncertain healthcare reform requirements and
differentiate on care delivery in their markets; and
Providing life sciences services through Premier Applied Science for the development of research, real-world evidence and clinical trials
innovation for medical device, diagnostic and pharmaceutical companies.
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Margin improvement solutions help lower total costs and improve provider operating margins by:
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Surfacing analytics and peer benchmarking on hard-to-find, supply savings and workforce management opportunities that lower costs without
impacting quality;
Optimizing workforce management with integrated financial reporting and budgeting across the continuum of care;
Providing savings through an enterprise resource planning solution built specifically for healthcare;
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Deploying consulting services to deliver clinically integrated, margin improvement transformation throughout a health system; and
Providing management services to insurance programs to assist U.S. hospital and healthcare system members with liability and benefits insurance
services, along with risk management services to improve their quality, patient safety and financial performance while lowering costs.
Value-based care solutions help health systems implement effective models of care to succeed in new, value-based payment arrangements by:
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Surfacing analytics and peer benchmarking to help identify hard-to-find, population-based improvement opportunities necessary to take financial
risk and succeed in value-based care;
Optimizing and managing the Physician enterprise to rationalize medical group investment via revenue enhancement, cost reduction strategies
and implementation of sustainable evidence-based practices; and
Participating in the Population Health Management, Bundled Payment and Physician Enterprise Collaboratives, for the opportunity to share
value-based care and payment developmental strategies, programs and best practices.
The data yielded through PINC AI is de-identified and aggregated in what we believe to be the nation’s leading comprehensive database, representing over
20 years of data from more than 1,000 hospitals spanning multiple therapeutic areas. A research team including clinicians, epidemiologists, health
economists, health services researchers, statisticians and other subject matter experts leverage the dataset to deliver real world evidence, in partnership
with Life Science innovators. Studies, test methods, strategies and tools created can promote the adoption and integration of evidence-based practices to
help improve outcomes and the quality and effectiveness of care.
Contigo Health:
Contigo Health creates new ways for clinicians, health systems and employers to work together supporting a common goal for all stakeholders: to help
increase access to high-quality care, enhance employee engagement, control costs and get employees back to work and life faster. Contigo Health delivers
comprehensive services for optimizing employee health benefits, including:
The Contigo Health Employer Centers of Excellence Network, which through partnerships with some of the nation’s top clinicians, helps to
provide care through access to the highest quality outcomes for a bundled cost;
The Contigo Health Sync Health Plan Administration, which empowers self-funded employers with a flexible approach to employee benefits to
help improve access to quality care, achieve cost savings and improve member satisfaction; and
The Contigo Health Network, which is expected to provide health systems with the ability to sell and participate in employer-focused products.
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Remitra:
Remitra provides health systems and suppliers cost management solutions with our cloud-based procure-to-pay technology designed to support greater
efficiencies in the procurement process through automated purchasing and payment solutions.
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Remitra’s Procure-to-Pay platform, a cloud-based platform which powers supplier and provider networks and uses optical character recognition to
automate invoicing and payables. Remitra seeks to streamline financial processes, reduce errors and fraud, unlock cost and labor efficiencies and
become a leading digital invoicing and payables platform for all of healthcare, agnostic of ERP, GPO or treasury partner.
Remitra’s Cash Flow Optimizer platform, a financial solution for suppliers and providers which leverages Remitra’s cloud-based procure to pay
platform and provides opportunities for financial improvements including a reduction in days sales outstanding, on-time payments, improved
working capital and a potential reduction over time of allowance of credit losses associated with bad debt.
Pricing and Contracts
We generate revenue from our Supply Chain Services segment through administrative fees received from suppliers based on the total dollar volume of goods
and services purchased by our members and other customers in connection with our GPO programs, service fees from supply chain co-management,
subscription fees from purchased services and through product sales
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in connection with our direct sourcing activities. We generate revenue from our Performance Services segment through our three sub-brands: PINC AI, Contigo
Health and Remitra.
Supply Chain Services
Our GPO generates revenue through administrative fees received from contracted suppliers for a percentage of the purchase price of goods and services,
including purchased services activities, sold to members under negotiated supplier contracts. Pursuant to the terms of GPO participation agreements entered
into by the members, our members currently receive revenue share based upon purchasing by such member’s owned, leased, managed and affiliated facilities
through our GPO supplier contracts.
The majority of our current GPO participation agreements with our members have terms that commenced in July 2020 and primarily range from five to seven
years. Generally, our GPO participation agreements may not be terminated except for cause or in the event of a change of control of the GPO member. The
GPO member can terminate the GPO participation agreement at the end of the then-current term by notifying Premier LP of the member’s decision not to
renew. Our GPO participation agreements generally provide for liquidated damages in the event of a termination not otherwise permitted under the agreement.
Due to competitive market conditions, we have experienced, and expect to continue to experience requests, at times, to provide existing and prospective
members increases in revenue share on incremental and/or overall purchasing volume.
In our supply chain co-management activities, we earn revenue in the form of a service fee for services performed under the supply chain management
contracts. Service fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed.
In our purchased services activities, we generate revenue through administrative fees, as described above, and subscription fees. Subscription fees, which we
generate through our SaaS-based products, are typically billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over
the remaining contractual period following implementation.
In our direct sourcing activities, we earn revenue from product sales, including sales from aggregated purchases of certain products, as well as, in some cases,
service or licensing fees. Products are sold to our members and other customers through direct shipment and distributor and wholesale channels. Products are
also sold to regional medical-surgical distributors and other non-healthcare industries (i.e., foodservice). We have contracts with our members and other
customers that buy products through our direct shipment option, which usually do not provide a guaranteed purchase or volume commitment requirement.
Performance Services
Performance Services revenue consists of revenue generated through our three sub-brands: PINC AI, Contigo Health and Remitra. The main sources of revenue
under PINC AI are (i) subscription agreements to our SaaS-based clinical analytics products, (ii) enterprise analytics licensing revenue, (iii) professional fees
for our consulting services and (iv) other miscellaneous revenue including annual subscriptions to our performance improvement collaboratives, insurance
management service fees and commissions from insurance carriers for sponsored insurance programs. Contigo Health’s main sources of revenue are third party
administrator fees and fees from the centers of excellence program and Remitra’s main source of revenue is fees from healthcare product suppliers and service
providers.
PINC AI:
SaaS-based clinical analytics products subscriptions include the right to access our proprietary hosted technology on a SaaS basis, training and member
support to deliver improvements in cost management, margin improvement, quality and safety, value-based care and provider analytics. Pricing varies by
application and size of the healthcare system. Clinical analytics products subscriptions are generally three- to five-year agreements with automatic renewal
clauses and annual price escalators that typically do not allow for early termination. These agreements do not allow for physical possession of the software.
Subscription fees are typically billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining
contractual period following implementation. Implementation involves the completion of data preparation services that are unique to each member's data
set and, in certain cases, the installation of member site-specific software, in order to access and transfer member data into our hosted SaaS-based clinical
analytics products. Implementation is generally 60 to 240 days following contract execution before the SaaS-based clinical analytics products can be fully
utilized by the member.
Enterprise analytics licenses include term licenses that range from three to ten years and offer clinical analytics products, improvements in cost
management, quality and safety, value-based care and provider analytics. Pricing varies by application and size of healthcare system. Revenue on licensing
is recognized upon delivery of the license and revenue from hosting and maintenance is recognized ratably over the life of the contract.
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Professional fees for consulting services are sold under contracts, the terms of which vary based on the nature of the engagement. These services typically
include general consulting, report-based consulting and cost savings initiatives. Fees are billed as stipulated in the contract, and revenue is recognized on a
proportional performance method as services are performed or when deliverables are provided. In situations where the contracts have significant contract
performance guarantees or member acceptance provisions, revenue recognition occurs when the fees are fixed and determinable and all contingencies,
including any refund rights, have been satisfied. Fees are based either on the savings that are delivered or a fixed fee.
Revenue from performance improvement collaboratives that support our offerings in cost management, quality and safety and value-based care is
recognized over the service period as the services are provided, which is generally one year.
Insurance management service fees are recognized in the period in which such services are provided. Commissions from insurance carriers for sponsored
insurance programs are earned by acting as an intermediary in the placement of effective insurance policies. Under this arrangement, revenue is recognized
at a point in time on the effective date of the associated policies when control of the policy transfers to the customer and is constrained for estimated early
terminations.
Contigo Health:
Contigo Health revenue consists of third party administrator fees and fees from the centers of excellence program. Third party administrator fees consist of
integrated fees for the processing of self-insured health care plan claims. Third party administrator fees are invoiced to customers monthly and typically
collected in that period. Revenue is recognized in the period in which the services have been provided. Fees from the centers of excellence program consist
of administrative fees for access to a specialized care network of proven healthcare providers. Centers of excellence fees are invoiced to customers a
month in arrears and typically collected in that period. Revenue is recognized in the period in which the services have been provided.
Remitra
Revenue for Remitra primarily consists of fees from healthcare product suppliers and service providers. Fees for services are invoiced to our customers
monthly and typically collected in the following period. For fixed fee contracts, revenue is recognized in the period in which the services have been
provided. For variable rate contracts, revenue is recognized as customers are invoiced. Additional revenue consists of fees from check replacement services
which consist of monthly rebates from bank partners.
Revenue Concentration
Our customers consist of members and other healthcare businesses and non-healthcare businesses such as food service, schools and universities. Our top five
customers generated revenue of approximately 21% and 28% of our consolidated net revenues for the years ended June 30, 2022 and 2021, respectively. For
the fiscal year ended June 30, 2021, revenue generated from our largest customer, a non-healthcare customer in the Supply Chain Services segment, was
approximately 15% of our consolidated net revenues for the year ended June 30, 2021. The significant increase in revenue concentration and revenue generated
from our largest customer was due to the greater than normal purchases of products through our direct sourcing business by such customer primarily as of
result of the COVID-19 pandemic.
Other than the aforementioned customer, no other customers accounted for more than 10% of our net revenue during each of the years ended June 30, 2022 and
2021.
Intellectual Property
We offer our members a range of products to which we have appropriate intellectual property rights, including online services, best practices content,
databases, electronic tools, web-based applications, performance metrics, business methodologies, proprietary algorithms, software products and consulting
services deliverables. We own and control a variety of trade secrets, confidential information, trademarks, trade names, copyrights, domain names and other
intellectual property rights that, in the aggregate, are of material importance to our business.
We protect our intellectual property by relying on federal, state and common law rights, as well as contractual arrangements. We are licensed to use certain
technology and other intellectual property rights owned and controlled by others, and, similarly, other companies are licensed to use certain technology and
other intellectual property rights owned and controlled by us.
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Research and Development
Our research and development (“R&D”) expenditures primarily consist of our strategic investment in internally developed software to develop new and
enhance existing SaaS- and license-based products offerings and new product development in the areas of cost management, quality and safety and value-based
care. From time to time, we may experience fluctuations in our research and development expenditures, including capitalized software development costs,
across reportable periods due to the timing of our software development life cycles, with new product features and functionality, new technologies and
upgrades to our service offerings.
Information Technology and Cybersecurity Risk Management
We rely on digital technology to conduct our business operations and engage with our members and business partners. The technology we, our members, and
business partners use grows more complex over time as do threats to our business operations from cyber intrusions, denial of service attacks, manipulation and
other cyber misconduct. Through a risk management approach that continually assesses and improves our Information Technology (IT) and cybersecurity risk
deterrence capabilities, our Information Security and Risk Management groups have formed a functional collaboration to provide leadership and oversight
when managing IT and cybersecurity risks.
Through a combination of Governance, Risk and Compliance (GRC) resources, we (i) proactively monitor IT controls to better ensure compliance with legal
and regulatory requirements, (ii) assess adherence by third parties we partner with to ensure that the appropriate risk management standards are met, (iii) ensure
essential business functions remain available during a business disruption, and (iv) monitor and continually develop and update response plans to address
potential weaknesses and IT or cyber incidents should they occur. Our GRC resources are designed to prioritize IT and cybersecurity risks areas, identify
solutions that minimize such risks, pursue optimal outcomes and maintain compliance with contractual obligations. We also maintain an operational security
function that has a real time 24x7x365 response capability that triages incident management and triggers impact mitigation protocols. These capabilities allow
us to apply best practices and reduce exposure in the case of a security incident. For more information regarding the risks associated with these matters, see
“Item 1A. Risk Factors-We could suffer a loss of revenue and increased costs, exposure to material liability, reputational harm, and other serious negative
consequences if we sustain cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential
information about us or our members or other third parties.”
Competition
The markets for our products and services in both our Supply Chain Services segment and Performance Services segment are fragmented, highly competitive
and characterized by rapidly evolving technology and product standards, user needs and the frequent introduction of new products and services. We have
experienced and expect to continue to experience intense competition from a number of companies.
Our Supply Chain Services segment’s competitors primarily compete with our group purchasing and direct sourcing activities. Our group purchasing business
competes with other large GPOs such as HealthTrust Purchasing Group (a subsidiary of HCA Holdings, Inc.), Managed Health Care Associates, Inc. and
Vizient, Inc. In addition, we compete against certain healthcare provider-owned GPOs and on-line retailers in this segment. Our direct sourcing business
competes primarily with private label offerings/programs, product manufacturers, and distributors, such as Cardinal Health, Inc., McKesson Corporation,
Medline Industries, Inc. and Owens & Minor, Inc.
Our Performance Services segment’s competitors compete with our three sub-brands: PINC AI, Contigo Health and Remitra. The primary competitors of PINC
AI range from smaller niche companies to large, well-financed and technologically sophisticated entities. Our primary competitors for PINC AI include (i)
information technology providers such as Allscripts Healthcare Solutions, Inc., Change Healthcare, Epic Systems Corporation, Health Catalyst, Inc., IBM
Corporation, Infor, Inc. and Oracle Corporation, and (ii) consulting and outsourcing firms such as Deloitte & Touche LLP, Evolent Health, Inc., Healthagen,
LLC (a subsidiary of Aetna, Inc.), Huron Consulting, Inc., Guidehouse Consulting, Inc., Optum, Inc. (a subsidiary of UnitedHealth Group, Inc.) and Vizient,
Inc. The primary competitors for Contigo Health include AmeriBen, Meritan Health, UMR, WebTPA and Benefit and Risk Management Services for our third
party administrative services product, and Carrum Health, Bridge Health, Edison Healthcare, AccessHope and MSK Direct for our Centers of Excellence
product. The primary competitors for Remitra include Global Healthcare Exchange, LLC and Prodigo Solutions, Inc. for our digital invoicing product and
Coupa Software Inc. and Taulia for our digital payables product.
With respect to our products and services across both segments, we compete on the basis of several factors, including breadth, depth and quality of product and
service offerings, ability to deliver clinical, financial and operational performance improvements through the use of products and services, quality and
reliability of services, ease of use and convenience, brand
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recognition and the ability to integrate services with existing technology. With respect to our products and services across both of our business segments, we
also compete on the basis of price.
Government Regulation
General
The healthcare industry is highly regulated by federal and state authorities and is subject to changing legal, political, economic and regulatory influences.
Factors such as changes in reimbursement policies for healthcare expenses, consolidation in the healthcare industry, regulation, litigation and general economic
conditions affect the purchasing practices, operations and the financial health of healthcare organizations. In particular, changes in laws and regulations
affecting the healthcare industry, such as increased regulation of the purchase and sale of medical products, or restrictions on permissible discounts and other
financial arrangements, could require us to make unplanned and costly modifications to our products and services, and may result in delays or cancellations of
orders or a reduction of funds and demand for our products and services.
We are subject to numerous risks arising from governmental oversight and regulation. You should carefully review the following discussion and the risks
discussed under “Item 1A. Risk Factors” for a more detailed discussion.
Affordable Care Act
The Patient Protection and Affordable Care Act (“ACA”) is a sweeping law designed to expand access to affordable health insurance, control healthcare
spending and improve healthcare quality. The law includes provisions to tie Medicare provider reimbursement to healthcare quality and incentives, mandatory
compliance programs, enhanced transparency disclosure requirements, increased funding and initiatives to address fraud and abuse and incentives to state
Medicaid programs to promote community-based care as an alternative to institutional long-term care services. In addition, the law created of an innovation
center to test and scale new APMs and ACOs. These programs are creating fundamental changes in the delivery of healthcare. Likewise, many states have
adopted or are considering changes in healthcare policies in part due to state budgetary shortfalls. Ongoing uncertainty regarding implementation of certain
aspects of the ACA makes it difficult to predict the impact the ACA or state law proposals may have on our business. While certain aspects of the ACA remain
subject to uncertainty in implementation, in a shift from the ACA’s treatment under the previous administration, which sought to repeal the ACA and eliminate
many of its key provision by any means possible, the Biden administration has promoted and expressed support for the ACA. Moreover, in June 2021, the U.S.
Supreme Court dismissed, for lack of standing, a challenge to the ACA brought by the Trump administration and a group of state Attorneys General thereby
leaving the ACA intact. The Biden administration has identified that it will seek to undo certain of the restrictions placed on the ACA under the Trump
administration, which may result in further changes to and re-broadening of formerly limited provisions. Any future changes may ultimately impact the
provisions of the ACA or other laws or regulations that either currently affect, or may in the future affect, our business. We believe it is important to note that
most of the controversy related to the ACA relates to coverage expansion and not the issues related to quality improvement and cost reduction.
U.S. Food and Drug Administration Regulation
The U.S. Food and Drug Administration (“FDA”) extensively regulates, among other things, the research, development, testing, manufacture, quality control,
approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of pharmaceuticals and medical
devices. To the extent that functionality or intended use in one or more of our current or future software products causes the software to be regulated as a
medical device under existing or future FDA laws or regulations including the 21 Century Cures Act, which addresses, among other issues, the patient safety
concerns generated by cybersecurity risks to medical devices and the interoperability between medical devices, we could be required to:
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register our company and list our FDA-regulated products with the FDA;
obtain pre-market approval establishing the safety and efficacy of our regulated products or clearance from the FDA based on demonstration of
substantial equivalence to a legally marketed device before marketing our regulated products;
obtain an investigational device exemption (“IDE”) prior to conducting clinical trials with the regulated products;
obtain FDA approval by demonstrating the safety and effectiveness of the regulated products prior to commercial marketing;
submit to pre-market approval or post-market inspections by the FDA; and
comply with various FDA regulations, including the agency’s quality system regulation, complaint handling and medical device reporting
regulations, requirements for medical device modifications, increased rigor of the secure development life cycle in the development of medical
devices and the interoperability of medical devices and
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electronic health records, requirements for clinical investigations or post-market studies, corrections and removal reporting regulations, and post-
market surveillance regulations.
A new medical device must be cleared or approved by FDA through the pre-market approval (“PMA”) or 510(k) clearance. For medical devices that require a
PMA, clinical studies performed under an IDE will become part of a PMA for a medical device.
Once a medical device product requiring a PMA is identified for development, it enters the feasibility study stage. For significant risk devices, including
devices that are substantially important in diagnosing, curing, mitigating or treating disease or in preventing impairment to human health, sponsors must submit
an investigational plan to the FDA as part of the IDE. The IDE automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the
30-day time period, places the clinical trial on a clinical hold. An IDE sponsor typically must submit results of feasibility studies to FDA to receive approval to
proceed with a pivotal study. A pivotal study is generally intended as the primary clinical support for a marketing application.
All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with good clinical practice (“GCP”)
regulations. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the
safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IDE, and progress reports detailing the results of the
clinical trials must be submitted at least annually. In addition, timely safety reports must be submitted to the FDA and the investigators for serious and
unexpected adverse events. Medical devices typically rely on one or a few pivotal studies. Clinical trials are subject to extensive monitoring, recordkeeping and
reporting requirements. Clinical trials must be conducted under the oversight of an institutional review board (“IRB”). An IRB responsible for the research
conducted at each institution participating in the clinical trial must review and approve each protocol before a clinical trial commences at that institution and
must also approve the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor
the study until completed and otherwise comply with IRB regulations.
The FDA, the IRB, or we could suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the
anticipated benefits or a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB's requirements or if the device has
been associated with unexpected serious harm to patients.
During the development of a new medical device, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to
submission of an IDE and before a PMA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to
share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and FDA to reach agreement on the next phase of
development. Sponsors typically use the end of feasibility studies to plan for their pivotal trial or trials for a medical device.
Appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo
unacceptable deterioration over its shelf life. Before approving a PMA, the FDA typically will inspect the facility or facilities where the product is
manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in full compliance with Current
Good Manufacturing Practices (“cGMP”) requirements and adequate to assure consistent production of the product within required specifications.
Manufacturers and others involved in the manufacture and distribution of FDA regulated products must also register their establishments with the FDA and
certain state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the FDA upon their initial
participation in the manufacturing process. Any product manufactured by or imported from a facility that has not registered, whether foreign or domestic, is
deemed misbranded under the Federal Food, Drug, and Cosmetic Act (“FDCA”) (21 U.S.C. § 301 et seq.).
Establishments may be subject to periodic unannounced inspections by government authorities to ensure compliance with cGMP and other laws. Manufacturers
may have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying, limiting, or refusing inspection by the FDA
may lead to a product being deemed to be adulterated.
U.S. Review and Approval Processes for Medical Devices
Unless an exemption applies, medical devices commercially distributed in the United States require either premarket notification, or 510(k) clearance, or
approval of a PMA application from the FDA. The FDA classifies medical devices into one of three classes. Class I devices, considered to have the lowest risk,
are those for which safety and effectiveness can be assured by adherence to the FDA’s general regulatory controls for medical devices, which include
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portions of the FDA’s Quality System Regulation (“QSR”) facility registration and product listing, reporting of adverse medical events, and appropriate,
truthful and non-misleading labeling, advertising, and promotional materials (“General Controls”). Class II devices are subject to the FDA's General Controls,
and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device (“Special Controls”). Manufacturers of
most Class II and some Class I devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA, requesting permission to
commercially distribute the device. This process is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatest risks, such as life-
sustaining, life-supporting or implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to
that of a legally marketed device, are placed in Class III, requiring approval of a PMA. The submission of a 510(k) or PMA is subject to the payment of user
fees; a waiver of such fees may be obtained under certain limited circumstances.
510(k) Clearance Pathway for Medical Devices
When a 510(k) clearance is required, an applicant is required to submit a 510(k) application demonstrating that the proposed device is substantially equivalent
to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the
submission of PMAs. By regulation, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application. As a
practical matter, clearance may take longer. Typically, the FDA’s response after reviewing a 510(k) application is a request for additional data or clarification.
Depending on the complexity of the application and the amount of data required, the process may be lengthened by several months or more. If additional data,
including clinical data, are needed to support our claims, the 510(k) application process may be significantly lengthened.
If the FDA issues an order declaring the device to be Not Substantially Equivalent (“NSE”), the device is placed into a Class III or PMA category. At that time,
a manufacturer can request a de novo classification of the product. De novo generally applies where there is no predicate device and the FDA believes the
device is sufficiently safe so that no PMA should be required. The request must be in writing and sent within 30 days from the receipt of the NSE
determination. The request should include a description of the device, labeling for the device, reasons for the recommended classification and information to
support the recommendation. The de novo process has a 60-day review period. If the FDA classifies the device into Class II, a company will then receive an
approval order to market the device. This device type can then be used as a predicate device for future 510(k) submissions. However, if the FDA subsequently
determines that the device will remain in the Class III category, the device cannot be marketed until the manufacturer has obtained an approved PMA.
Any modification to a 510(k)-cleared device that would constitute a major change in its intended use, or any change that could significantly affect the safety or
effectiveness of the device, requires a new 510(k) clearance and may even, in some circumstances, require a PMA if the change raises complex or novel
scientific issues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k)
submission in the first instance, but the FDA may review any manufacturer's decision. If the FDA were to disagree with a manufacturer's determination that
changes did not require a new 510(k) submission, it could require the manufacturer to cease marketing and distribution or recall the modified device until
510(k) clearance or PMA approval is obtained. If the FDA requires the manufacturer to seek 510(k) clearance or PMA approval for any modifications, the
manufacturer may be required to cease marketing or recall the modified device, if already in distribution, until 510(k) clearance or PMA approval is obtained.
Premarket Approval (PMA) Pathway for Medical Devices
While we believe that if any functionality in one or more of our current or future software products causes the software to be regulated as a medical device, our
software products will be subject to the 510(k) clearance pathway, FDA could evaluate our product under the PMA pathway if it believes the device component
raises sufficiently complex or novel scientific issues.
A PMA application must be submitted to the FDA if the device cannot be cleared through the 510(k) process, or is not otherwise exempt from the FDA’s
premarket clearance and approval requirements. A PMA application must generally be supported by extensive data, including, but not limited to, technical,
preclinical, clinical trial, manufacturing and labeling, to demonstrate to the FDA's satisfaction the safety and effectiveness of the device for its intended use.
During the review period, the FDA will typically request additional information or clarification of the information already provided. Also, an advisory panel of
experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the
device. The FDA may or may not accept the panel's recommendation. In addition, the FDA will generally conduct a pre-approval inspection of the
manufacturer or third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR. Once a PMA is approved, the
FDA may require that certain conditions of approval be met, such as conducting a post-market clinical trial.
New PMAs or PMA supplements are required for modifications that affect the safety or effectiveness of the device, including, for example, certain types of
modifications to the device’s indication for use, manufacturing process, labeling and design. PMA
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supplements often require submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any
changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory panel.
Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require an application
for an IDE, which is approved in advance by the FDA for a specified number of patients and study sites, unless the product is deemed a non-significant risk
device eligible for more abbreviated IDE requirements. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare
of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating, or treating disease or
otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject.
Post-Approval Regulation of Medical Devices
After a product is placed on the market, numerous regulatory requirements continue to apply. In addition to the requirements below, adverse event reporting
regulations require that manufacturers report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in
which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Additional regulatory
requirements include:
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product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action;
QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, validation, testing, control, documentation
and other quality assurance procedures during all aspects of the design and manufacturing process;
labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved, or off-label use or indication;
clearance of product modifications that could significantly affect safety or effectiveness or that would constitute a major change in intended use of
one of our cleared or approved devices;
notice or approval of product or manufacturing process modifications or deviations that affect the safety or effectiveness of one of our cleared or
approved devices;
post-approval restrictions or conditions, including post-approval study commitments;
post-market surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness
data for the device;
the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is
in violation of governing laws and regulations;
during a public health emergency, notification of permanent discontinuation of a device or a supply disruption due to an interruption in the
manufacturing of a device, and the reasons for such discontinuance or supply disruption;
regulations pertaining to voluntary recalls; and
notices of corrections or removals.
Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the U.S. Federal Trade Commission, or FTC,
and by state regulatory and enforcement authorities. Promotional activities for FDA-regulated products of other companies have been the subject of
enforcement action brought under healthcare reimbursement laws and consumer protection statutes. Furthermore, under the federal U.S. Lanham Act and
similar state laws, competitors and others can initiate litigation relating to advertising claims. In addition, manufacturers are required to meet regulatory
requirements in countries outside the United States, which can change rapidly with relatively short notice. If the FDA determines that our promotional materials
or training constitutes promotion of an unapproved or uncleared use, it could request that we modify our training or promotional materials or be subjected to
regulatory or enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take enforcement actions against us if
they consider our promotional or training materials to constitute promotion of an unapproved use, which could result in material fines or penalties under other
statutory authorities, such as laws prohibiting false claims for reimbursement.
Failure by us or by our third-party manufacturers and suppliers to comply with all applicable regulatory requirements can result in enforcement action by the
FDA or other regulatory authorities, which may result in sanctions including, but not limited to:
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untitled letters, warning letters, fines, injunctions, consent decrees and civil monetary penalties;
customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
refusing or delaying requests for 510(k) clearance or PMA approvals of new products or modified products;
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withdrawing 510(k) clearances or PMA approvals that have already been granted;
refusing to grant export approval for our products; or
criminal prosecution.
Civil and Criminal Fraud and Abuse Laws
We are subject to federal and state laws and regulations designed to protect patients, governmental healthcare programs and private health plans from
fraudulent and abusive activities. These laws include anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims. These laws
are complex and broadly worded, and their application to our specific products, services and relationships may not be clear and may be applied to our business
in ways that we do not anticipate. Federal and state regulatory and law enforcement authorities have over time increased enforcement activities with respect to
Medicare and Medicaid fraud and abuse regulations and other reimbursement laws and rules. These laws and regulations include:
Anti-Kickback Laws. The federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation or receipt of remuneration, directly or
indirectly, in return for the referral of patients or arranging for the referral of patients, or in return for the recommendation, arrangement, purchase, lease or
order of items or services that are covered, in whole or in part, by a federal healthcare program such as Medicare or Medicaid. The definition of "remuneration"
has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of payments or providing anything at less than its fair market
value. Many states have adopted similar prohibitions against kickbacks and other practices that are intended to influence the purchase, lease or ordering of
healthcare items and services regardless of whether the item or service is covered under a governmental health program or private health plan. Certain statutory
and regulatory safe harbors exist that protect specified business arrangements from prosecution under the Anti-Kickback Statute if all elements of an applicable
safe harbor are met, however these safe harbors are narrow and often difficult to comply with. Congress has appropriated an increasing amount of funds in
recent years to support enforcement activities aimed at reducing healthcare fraud and abuse.
The U.S. Department of Health and Human Services, or HHS, created certain safe harbor regulations which, if fully complied with, assure parties to a
particular arrangement covered by a safe harbor that they will not be prosecuted under the Anti-Kickback Statute. We attempt to structure our group purchasing
services, pricing discount arrangements with suppliers, and revenue share arrangements with applicable members to meet the terms of the safe harbor for GPOs
set forth at 42 C.F.R. § 1001.952(j) and the discount safe harbor set forth at 42 C.F.R. § 1001.952(h). Although full compliance with the provisions of a safe
harbor ensures against prosecution under the Anti-Kickback Statute, failure of a transaction or arrangement to fit within a safe harbor does not necessarily mean
that the transaction or arrangement is illegal or that prosecution under the Anti-Kickback Statute will be pursued. From time to time, HHS, through its Office of
Inspector General, makes formal and informal inquiries, conducts investigations and audits the business practices of GPOs, including our GPO, the result of
which could be new rules, regulations or in some cases, a formal enforcement action.
To help ensure regulatory compliance with HHS rules and regulations, our members that report their costs to Medicare are required under the terms of the
Premier Group Purchasing Policy to appropriately reflect all elements of value received in connection with our IPO, including under the various agreements
entered into in connection therewith, on their cost reports. We are required to furnish applicable reports to such members setting forth the amount of such value,
to assist their compliance with such cost reporting requirements. There can be no assurance that the HHS Office of Inspector General or the U.S. Department of
Justice, or DOJ, will concur that these actions satisfy their applicable rules and regulations.
False Claims Act. Our business is also subject to numerous federal and state laws that forbid the submission or “causing the submission” of false or fraudulent
information or the failure to disclose information in connection with the submission and payment of claims for reimbursement to Medicare, Medicaid or other
governmental healthcare programs or private health plans. In particular, the False Claims Act, or FCA, prohibits a person from knowingly presenting or causing
to be presented a false or fraudulent claim for payment or approval by an officer, employee or agent of the United States. In addition, the FCA prohibits a
person from knowingly making, using, or causing to be made or used a false record or statement material to such a claim. Violations of the FCA may result in
treble damages, material monetary penalties, and other collateral consequences including, potentially, exclusion from participation in federally funded
healthcare programs. A claim that includes items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for
purposes of the FCA.
Privacy and Security Laws. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, contains substantial restrictions and requirements with
respect to the use and disclosure of certain individually identifiable health information, referred to as “protected health information.” The HIPAA Privacy Rule
prohibits a covered entity or a business associate (essentially, a third party engaged to assist a covered entity with enumerated operational and/or compliance
functions) from using or disclosing protected health information unless the use or disclosure is validly authorized by the individual or is specifically required or
permitted under the HIPAA Privacy Rule and only if certain complex requirements are met. In addition
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to following these complex requirements, covered entities and business associates must also meet additional compliance obligations set forth in the HIPAA
Privacy Rule. The HIPAA Security Rule establishes administrative, organizational, physical and technical safeguards to protect the privacy, integrity and
availability of electronic protected health information maintained or transmitted by covered entities and business associates. The HIPAA Security Rule
requirements are intended to mandate that covered entities and business associates regularly re-assess the adequacy of their safeguards in light of changing and
evolving security risks. Finally, the HIPAA Breach Notification Rule requires that covered entities and business associates, under certain circumstances, notify
patients/beneficiaries, media outlets and HHS when there has been an improper use or disclosure of protected health information.
Our self-funded health benefit plan and our healthcare provider members (provided that these members engage in HIPAA-defined standard electronic
transactions with health plans, which will be all or the vast majority) are directly regulated by HIPAA as “covered entities.” Additionally, because most of our
U.S. hospital members disclose protected health information to us so that we may use that information to provide certain data analytics, benchmarking,
consulting or other operational and compliance services to these members, we are a “business associate” of those members. In these cases, in order to provide
members with services that involve the use or disclosure of protected health information, HIPAA requires us to enter into “business associate agreements” with
our covered entity members. Such agreements must, among other things, provide adequate written assurances:
(i) as to how we will use and disclose the protected health information within certain allowable parameters established by HIPAA,
(ii) that we will implement reasonable and appropriate administrative, organizational, physical and technical safeguards to protect such information
from impermissible use or disclosure,
(iii) that we will enter into similar agreements with our agents and subcontractors that have access to the information,
(iv) that we will report breaches of unsecured protected health information, security incidents and other inappropriate uses or disclosures of the
information, and
(v) that we will assist the covered entity with certain of its duties under HIPAA.
With the enactment of the Health Information Technology for Economic and Clinical Health, or HITECH Act, the privacy and security requirements of HIPAA
were modified and expanded. The HITECH Act applies certain of the HIPAA privacy and security requirements directly to business associates of covered
entities. Prior to this change, business associates had contractual obligations to covered entities but were not subject to direct enforcement by the federal
government. In 2013, HHS released final rules implementing the HITECH Act changes to HIPAA. These amendments expanded the protection of protected
health information by, among other things, imposing additional requirements on business associates, further restricting the disclosure of protected health
information in certain cases when the disclosure is part of a remunerated transaction, and modifying the HIPAA Breach Notification Rule, which has been in
effect since September 2009, to create a rebuttable presumption that an improper use or disclosure of protected health information under certain circumstances
requires notice to affected patients/beneficiaries, media outlets and HHS.
Transaction Requirements. HIPAA also mandates format, data content and provider identifier standards that must be used in certain electronic transactions,
such as claims, payment advice and eligibility inquiries. Although our systems are fully capable of transmitting transactions that comply with these
requirements, some payors and healthcare clearinghouses with which we conduct business may interpret HIPAA transaction requirements differently than we
do or may require us to use legacy formats or include legacy identifiers as they make the transition to full compliance. In cases where payors or healthcare
clearinghouses require conformity with their interpretations or require us to accommodate legacy transactions or identifiers as a condition of successful
transactions, we attempt to comply with their requirements, but may be subject to enforcement actions as a result. In 2009, CMS published a final rule adopting
updated standard code sets for diagnoses and procedures known as ICD-10 code sets and changing the formats to be used for electronic transactions subject to
the ICD-10 code sets, known as Version 5010. All healthcare providers are required to comply with Version 5010 and use the ICD-10 code sets.
Other Federal and State Laws. In addition to our obligations under HIPAA there are other federal laws that impose specific privacy and security obligations,
above and beyond HIPAA, for certain types of health information and impose additional sanctions and penalties. These rules are not preempted by HIPAA.
Most states have enacted patient and/or beneficiary confidentiality laws that protect against the disclosure of confidential medical information, and many states
have adopted or are considering adopting further legislation in this area, including privacy safeguards, security standards, data security breach notification
requirements, and special rules for so-called “sensitive” health information, such as mental health, genetic testing results, or Human Immunodeficiency Virus,
or HIV, status. These state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements, and we are required to comply with
them as well.
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We are unable to predict what changes to HIPAA or other federal or state laws or regulations might be made in the future or how those changes could affect our
business or the associated costs of compliance.
Antitrust Laws
The Sherman Antitrust Act and related federal and state antitrust laws are complex laws that prohibit contracts in restraint of trade or other activities that are
designed to or that have the effect of reducing competition in the market. The federal antitrust laws promote fair competition in business and are intended to
create a level playing field so that both small and large companies are able to compete in the market. In their 1996 Statements of Antitrust Enforcement Policy
in Health Care, or the Healthcare Statements, the DOJ and the Federal Trade Commission, or FTC, set forth guidelines specifically designed to help GPOs
gauge whether a particular purchasing arrangement may raise antitrust concerns and established an antitrust safety zone for joint purchasing arrangements
among healthcare providers. Under this antitrust safety zone, the DOJ and FTC will not challenge, except in extraordinary circumstances, joint purchasing
arrangements among healthcare providers that meet two basic conditions: (i) the purchases made by the healthcare providers account for less than 35% of the
total sales of the purchased product or service in the relevant market; and (ii) the cost of the products and services purchased jointly account for less than 20%
of the total revenues from all products and services sold by each competing participant in the joint purchasing arrangement.
We have attempted to structure our contracts and pricing arrangements in accordance with the Healthcare Statements and believe that our GPO supplier
contracts and pricing discount arrangements should not be found to violate the antitrust laws. No assurance can be given that enforcement authorities will agree
with this assessment. In addition, private parties also may bring suit for alleged violations under the U.S. antitrust laws. From time to time, the group
purchasing industry comes under review by Congress and other governmental bodies with respect to antitrust laws, the scope of which includes, among other
things, the relationships between GPOs and their members, distributors, manufacturers and other suppliers, as well as the services performed and payments
received in connection with GPO programs.
Congress, the DOJ, the FTC, the U.S. Senate or another state or federal entity could at any time open a new investigation of the group purchasing industry, or
develop new rules, regulations or laws governing the industry, that could adversely impact our ability to negotiate pricing arrangements with suppliers, increase
reporting and documentation requirements, or otherwise require us to modify our arrangements in a manner that adversely impacts our business. We may also
face private or government lawsuits alleging violations arising from the concerns articulated by these governmental factors or alleging violations based solely
on concerns of individual private parties.
Health IT Certification Program
In 2009, Congress included in the American Recovery and Reinvestment Act a program to incentivize the adoption of health information technology by
hospitals and ambulatory providers who participate in the Medicare and Medicaid programs. Congress further modified the incentive program for ambulatory
providers under the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”). Any developer of health information technology seeking to offer a
product to assist hospitals or ambulatory health care providers to meet the requirements of these programs must obtain certification under the applicable
certification criteria established by the Office of the National Coordinator for Health Information Technology (“ONC”). There are two types of certification for
health information developers seeking to participate in the certification program: 1) certification to all the certification criteria required to meet the definition of
a “2015 Edition Base EHR”; or 2) certification as a Health IT Module, meeting specific certification criteria. Meeting the certification criteria as a “2015
Edition Base EHR” allows a developer of health information technology to offer a product that has all the capabilities needed for a hospital or an ambulatory
provider to meet the requirements of the health IT incentive programs. A Health IT Module provides a specific set of capabilities. Hospitals or ambulatory
providers seeking to avoid potential payment reductions must either implement a 2015 Base EHR using a single product, or multiple Health IT Modules that
together have all of the capabilities of a 2015 Base EHR.
We currently have two products that are certified as Health IT Modules. To retain our certification, we must: 1) meet applicable conditions of certification and
maintenance of certification requirements established by ONC; 2) pass testing conducted by an ONC-Authorized Testing Laboratory pursuant to test
procedures developed by ONC; and 3) obtain certification from an ONC-Authorized Certification Body. ONC’s conditions of certification and maintenance of
certification requirements include communication restrictions that largely prevent us from limiting our customer's ability to communicate about the usability,
interoperability, security or user experiences relating to our Health IT Modules. These regulations require us to review and modify current contract terms or
inform customers that offending contract terms we previously entered into are no longer effective. We are also required to develop and execute a real-world
testing plan, which would require us to demonstrate to our ONC-Authorized Certification Body that our Health IT Modules operate as designed when
implemented in the field. Failure to properly implement these requirements could result in our two products losing their status as Health IT Modules, which
could jeopardize the utility of the products for our customers. We work closely with our selected ONC-Authorized Testing Laboratory
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and ONC-Authorized Certification Body to meet these and other requirements of Health IT Certification Program. We are unable to predict what changes to the
certification program might be made in the future or how those changes could affect our business or the associated costs of compliance.
ERISA and Laws Impacting Employer Group Health Plans
Many of the clients we serve sponsor employer group health plans, which are subject to the Employee Retirement Income Security Act of 1974 (ERISA), the
Internal Revenue Code, Medicare Secondary Payer statute, HIPAA privacy, and in some cases, state insurance laws. While compliance for these various rules
falls on the employer-sponsor of the health plan, in some cases, compliance is delegated to a vendor, such as us. We protect ourselves from liability for these
client health plans by virtue of contractual provisions insulating us from exposure and responsibility for the employer-sponsor's legal obligations.
Governmental Audits
Because we act as a GPO for healthcare providers that participate in governmental programs, our group purchasing services have in the past and may again in
the future be subject to periodic surveys and audits by governmental entities or contractors for compliance with Medicare and Medicaid standards and
requirements. We will continue to respond to these government reviews and audits but cannot predict what the outcome of any future audits may be or whether
the results of any audits could materially or negatively impact our business, our financial condition or results of operations.
Corporate Compliance Department
We execute and maintain a compliance and ethics program that is designed to assist us and our employees in conducting operations and activities ethically with
the highest level of integrity and in compliance with applicable laws and regulations and, if violations occur, to promote early detection and prompt resolution.
These objectives are achieved through education, monitoring, disciplinary action and other remedial measures we believe to be appropriate. We provide all of
our employees with education that has been developed to communicate our standards of conduct, compliance policies and procedures as well as policies for
monitoring, reporting and responding to compliance issues. We also provide all of our employees with a third-party toll-free number and Internet website
address in order to report any compliance or privacy concerns. In addition, our Chief Ethics & Compliance Officer individually, and along with the Audit and
Compliance Committee of the Board of Directors, helps oversee compliance and ethics matters across our business operations.
Human Capital Management
Our employees are our most critical assets. The success and growth of our business depends on our ability to attract, reward, retain, and develop diverse,
talented, and high-performing employees at all levels of our organization, while sustaining an environment of anti-discrimination that ensures equal access to
opportunities. To succeed in an ever-changing and competitive labor market, we have developed human capital management strategies, objectives and
measures that drive recruitment and retention, support business performance, advance innovation, foster employee development and support our Mission — to
improve the health of our communities, our Vision — to lead the transformation to high quality, cost effective healthcare, and our Values — integrity, passion
for performance, innovation and a focus on people.
Our Mission, Vision and Values, together with our human capital strategies, objectives and measures, form a framework advanced through the following
programs and initiatives:
25
Support Employees’ Financial, Health, and Social Well-Being
Promote a Diverse, Equitable and Inclusive Workplace
•
•
•
•
•
•
•
•
•
Competitive, reasonable, and equitable compensation programs
designed to align pay and performance and attract and retain
employees who are passionate about our mission and exemplify our
values.
•
•
Annual and long-term incentives designed to drive business and
individual achievement.
Comprehensive, competitive, and innovative health and welfare and
retirement benefits to support our employees’ physical and financial
health.
Employee Stock Purchase Plan and equity compensation to provide
financial value, align employees’ interests with those of our
shareholders and drive talent retention.
Comprehensive benefits and well-being programs to support all
aspects of employee well-being, including physical, emotional,
financial and social health.
Generous time off programs.
Social Responsibility Programs including paid Annual Volunteer
Afternoon, volunteering hours and matching gifts to give back to the
communities in which we serve.
Flexible work environments - including remote and hybrid work
options where possible - and enabled technology to enhance
employee experience and connectedness in both virtual and in-person
settings.
Robust and adaptive COVID-19 response to support the health and
safety of our staff.
Recognize Employees’ Performance and Contributions
•
•
•
•
Premier Individual and Team Values Awards to recognize employees
who best exemplify Premier’s core values.
Susan D. DeVore President’s Award to recognize the significant
career accomplishments of select employees.
Shirley T. Wang Wellness Warrior Award to recognize employees’
commitment to and passion for well-being.
Values in Action online portal to encourage employees in real time to
their peers for performance,
publicly recognize and reward
innovation, focus on people and integrity.
Council on Diversity, Equity, Inclusion and Belonging.
Network of executive-sponsored, employee-led Employee Resource
Groups (“ERGs”) designed to build community and foster belonging
and advancement of business strategy and employee experience
through sharing of diverse thought and perspective. Groups include
W.O.M.E.N, Military Veterans, Black Professionals, LGBTQ+, Asian
Employees, Latin, Asian Indian Professionals, Disabled Employees
and Generations and their Allies groups. We also have a Field
Services Advisory Council ERG comprised of employees dedicated
to supporting our members.
•
Regular and ongoing review of compensation equity.
• Mentoring and networking programs.
•
•
Recruiting outreach to drive diverse representation within our
communities.
Continuous listening strategies including semi-annual People First
employee engagement survey to seek feedback on a variety of topics
to continuously improve our human resources programs, practices
and employee experience.
Create Opportunities to Grow and Develop
•
•
•
•
•
Comprehensive
learning and development
programs to foster connections, leadership competency and team and
individual development.
technology-enabled
Leadership and Management development programs.
Performance Management program including a formal, quarterly
employee performance feedback cadence to drive high performance
and reward excellence.
Enterprise talent planning and career pathing.
Tuition reimbursement program to support continuing education.
Company Recognition
• World’s Most Ethical Company by the Ethisphere Institute for the
15th consecutive year.
•
•
•
•
•
•
2020 Golden Peacock Award for Global Excellence in Corporate
Governance.
Healthiest Employers of Charlotte by Charlotte Business Journal (1st
place).
2021 Healthiest 100 Workplaces in America (49th place).
2021 Cigna Well-Being Award (Honorable Culture).
LinkedIn’s 2021 Top Companies in Charlotte.
2021 Prism International Diversity Impact Award for Top 25 National
ERGs
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Employees
As of June 30, 2022, we employed approximately 2,600 people, all in the United States. We also engage contractors and consultants. Additionally, we regularly
track and report internally on key talent metrics including workforce demographics, talent pipeline, diversity data and the engagement of our employees. None
of our employees are working under a collective bargaining arrangement.
We conduct sales through our embedded field force, our dedicated national sales team, our Premier consultants, and our Continuum of Care team, collectively
comprised of approximately 600 employees as of June 30, 2022.
Our field force works closely with our U.S. hospital members and other members to target new opportunities by developing strategic and operational plans to
drive cost management and quality and safety improvement initiatives. As of June 30, 2022, our field force was deployed to seven geographic regions and
several strategic/affinity members across the United States. This field force works at our member sites to identify and recommend best practices for both supply
chain and clinical integration cost savings opportunities. The regionally deployed field force is augmented by a national team of subject matter specialists who
focus on key areas such as lab, surgery, cardiology, orthopedics, imaging, pharmacy, information technology and construction. Our field force assists our
members in growing and supporting their Continuum of Care facilities.
Our national sales team provides national sales coverage for establishing initial member relationships and works with our field force to increase sales to
existing members. Our regional sales teams are aligned with the seven regions in our field force model.
Our Premier consulting team identifies and targets consulting engagements and wrap-around services for our major SaaS-based clinical analytics products and
our GPO to enhance the member value from these programs.
Our Continuum of Care team provides service to these classes of trade and serve a dual role of both enhancing contract penetration (selling current members
additional contracts) as well as bringing on new providers to the program.
Available Information
We file or furnish, as applicable, annual, quarterly and current reports, proxy statements and other information with the SEC. You may access these reports and
other information without charge at a website maintained by the SEC. The address of this site is https://www.sec.gov. In addition, our website address is
www.premierinc.com. We make available through our website the documents identified above, free of charge, promptly after we electronically file such
material with, or furnish it to, the SEC.
also
about
We
(https://www.facebook.com/premierhealthcarealliance),
(https://www.youtube.com/user/premieralliance), and Instagram (https://instagram.com/premierha).
company
LinkedIn
information
through:
provide
our
Twitter
(https://twitter.com/premierha),
(https://www.linkedin.com/company/6766),
Facebook
YouTube
Except as specifically indicated otherwise, the information available on our website, the SEC’s website and the social media outlets identified above, is not and
shall not be deemed a part of this Annual Report.
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Item 1A. Risk Factors
Our business, operations, and financial position are subject to various risks. Before making an investment in our Class A common stock or other securities we
may have outstanding from time to time, you should carefully consider the following risks, as well as the other information contained in this Annual Report.
Any of the risks described below could materially harm our business, financial condition, results of operations and prospects, and as a result, the value of an
investment in our Class A common stock or other securities we may have outstanding from time to time could decline, and you may lose part or all of such
investment value. This section does not describe all risks that are or may become applicable to us, our industry or our business, and it is intended only as a
summary of certain material risk factors. Some statements in this Annual Report, including certain statements in the following risk factors, constitute forward-
looking statements. See the section titled “Cautionary Note Regarding Forward-Looking Statements” for a discussion of such statements and their limitations.
More detailed information concerning other risks or uncertainties we face, as well as the risk factors described below, is contained in other sections of this
Annual Report.
Risk Factors Summary
The following is a summary of the risk factors that could adversely affect our Company and the value of an investment in our Company’s securities.
Risks Related to our Business Operations
•
Continuing uncertain economic conditions, including inflation and the risk of a global recession could impair our ability to forecast and may harm our
business, operating results, including our revenue growth and profitability, financial condition and cash flows.
• We may continue to face financial and operational uncertainty due to the COVID-19 pandemic, variants thereof, or other pandemics and associated
supply chain disruptions.
• We may face financial and operational uncertainty due to global economic and political instability and conflicts, such as the conflict between Russia
and Ukraine.
• We face risks related to competition and consolidation in the healthcare industry.
• We may experience delays recognizing or increasing revenue if the sales cycle or implementation period takes longer than expected.
•
•
•
The risk of loss of one or more of our larger members which could reduce activity levels or that members elect to terminate or not to renew their
contracts.
The markets for our software as a service (“SaaS”) or licensed-based products and services may develop more slowly than we expect, or we may
convert more SaaS-based products to license-based products, which could adversely affect our revenue, growth rates and our ability to maintain or
increase our profitability.
Our members are highly dependent on payments from third-party payors, such as Medicare and Medicaid, the denial or reduction of which could
adversely affect demand for our products and services.
• We rely on administrative fees that we receive from GPO suppliers.
•
Our growth may be affected by our ability to offer new and innovative products and services as well as our ability to maintain third-party provider and
strategic alliances or enter into new alliances.
• We face risks and expenses related to future acquisition opportunities and integration of acquisitions, as well as risks associated with non-controlling
investments in other businesses or joint ventures.
• We rely on Internet infrastructure, bandwidth providers, data center providers and other third parties and face risks related to data loss or corruption
and cyber-attacks or other data security breaches.
• We depend on our ability to use, disclose, de-identify or license data and to integrate third-party technologies.
• We face risks related to our use of “open source” software.
• We face risks associated with our reliance on contract manufacturing facilities located in various parts of the world.
• We may face inventory risk for (i) the personal protective equipment or other products we may purchase at elevated prices during a supply shortage,
and (ii) items we purchase in bulk or pursuant to fixed price purchase commitments if we cannot sell such inventory at or above our cost.
• We depend on our ability to attract, hire, integrate and retain key personnel.
• We face risks related to our current and future indebtedness, including our existing long-term credit facility.
• We experience fluctuation in our quarterly cash flows, revenues and results of operations.
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Regulatory Risks
• We are subject to changes and uncertainty in the legal, political, economic and regulatory environment affecting healthcare organizations.
• We must comply with complex international, federal and state laws and regulations governing financial relationships among healthcare providers and
the submission of false or fraudulent healthcare claims, antitrust and employee benefit laws and regulations and privacy, security and breach
notification laws.
•
Certain of our software products may be subject to regulation regarding health information technology and medical devices.
Legal and Tax-Related Risks
• We are subject to litigation from time to time, including the pending shareholder derivative action against certain of our current and former officers
and directors.
• We must adequately protect our intellectual property, and we face potential claims against our use of the intellectual property of third parties.
• We face tax risks, including potential sales and use, franchise and income tax liability in certain jurisdictions, future changes in tax laws and potential
material tax disputes.
Risks Related to our Corporate Structure
• We are obligated to make payments under our Unit Exchange and Tax Receivable Acceleration Agreements, and we may not realize all of the
expected tax benefits corresponding to the termination of our prior Tax Receivable Agreement.
•
Provisions in our certificate of incorporation and bylaws and provisions of Delaware law may impede or prevent strategic transactions, including a
takeover of the company.
• We are required to maintain an effective system of internal controls over financial reporting and remediate any material weaknesses and significant
deficiencies identified.
• We face risks related to our Class A common stock, including potentially dilutive issuances and uncertainty regarding future dividend payments and
stock repurchases.
For a more complete discussion of the material risks facing our business, see below.
Risks Related to Our Business Operations
Continued uncertain economic conditions, including inflation and the risk of a global recession could impair our ability to forecast and may harm our
business, operating results, including our revenue growth and profitability, financial condition and cash flows.
Continued global economic uncertainty, political conditions and fiscal challenges in the U.S. and abroad, such as inflation and potential economic recession,
have, among other things, limited our ability to forecast future demand for our products and services, contributed to increased periodic volatility in customer
demand, impacted availability of supplies and could constrain future access to capital for our suppliers, customers and partners. The impacts of these
circumstances are global and pervasive, and the timing and nature of any ultimate resolution of these matters remain highly uncertain. Adverse macroeconomic
conditions, including inflation, slower growth or recession, new or increased trade sanctions, tariffs or other barriers to global trade, changes to fiscal and
monetary policy and higher interest rates, could materially adversely impact the demand for our products and our operating results. In particular, in fiscal 2022,
we experienced inflationary pressure and other constraints in our supply chain. Consequently, these concerns have challenged our business and we expect them
to continue to challenge our business for the foreseeable future, which could cause harm to our operating results. Such conditions may result in the failure to
meet our forecasted financial expectations and to achieve historical levels of revenue growth.
Our financial condition and results of operations for fiscal year 2023 and beyond may continue to be materially and adversely affected by the coronavirus
(“COVID-19”) pandemic, reoccurrences of COVID-19 or variants thereof, or similar pandemics, or other future widespread public health epidemics.
The COVID-19 pandemic spread throughout the United States and the rest of the world beginning in early 2020. In addition to those who were directly
affected, millions more have been affected by government and voluntary efforts around the world to slow the spread of the pandemic through quarantines,
travel restrictions, business shut-downs, heightened border security and other measures. While the health consequences for the U.S. population have been
mitigated to some degree by the availability of vaccines and therapeutics to treat COVID-19 infections, adverse economic impacts continue both domestically
and
29
internationally, including the potential for new and extended government imposed lock-downs, border restrictions and transportation and other bottlenecks.
As a result of the COVID-19 pandemic, variants thereof, and potential future pandemic outbreaks, we face material risks including, but not limited to:
• Overall economic and capital markets decline. The impact of the COVID-19 pandemic and variants thereof and associated supply chain disruptions
could result in a prolonged recession or depression in the United States or globally that could harm the banking system, limit demand for many products
and services and cause other foreseen and unforeseen events and circumstances, all of which could negatively impact us. The continued spread of COVID-
19 and variants thereof has led to and could continue to lead to severe disruption and volatility in the United States and global capital markets, which could
increase our cost of capital and adversely affect our ability to access the capital markets in the future. In addition, trading prices on the public stock market,
as well as that of our Class A common stock, have been highly volatile as a result of the COVID-19 pandemic.
•
•
•
Changes in the demand for our products and services. We experienced and may continue to experience demand uncertainty from both material
increases and decreases in demand and pricing for our products and services as a result of the COVID-19 pandemic. There was a material increase in
demand and pricing for personal protective equipment (“PPE”), drugs and other supplies directly related to treating and preventing the spread of COVID-
19 and variants thereof during fiscal 2020 and 2021. In the second half of fiscal 2022, demand and pricing for PPE, drugs and other supplies decreased
resulting in a decline in revenue relative to the previous two years. Patients, hospitals and other medical facilities continued to defer some elective
procedures and routine medical visits due to ongoing and continuing uncertainty from COVID-19 outbreaks or variants or as a result of restrictive
government orders or advisories. While demand for many supplies and services not related to COVID-19 may continue to decline into fiscal 2023, rolling
shortages of products and drugs needed for routine procedures, such as, contrast media and syringes, could have an impact on demand for hospital services
and the financial conditions of providers, particularly those forced to procure such products through resellers.
Increased labor costs. Labor shortages and the resulting increases to the cost of labor are a continued challenge to the health care providers we serve.
Limited availability of staff resources and rolling staff shortages may continue to impair the ability of existing staff to manage product and service
procurement. While our non-acute and non-healthcare business such as education and hospitality customers, experienced a rebound in fiscal year 2022, the
recovery in the business may be hampered by future COVID-19 variants or outbreaks, which are highly uncertain and cannot be accurately predicted.
Limited access to our members’ facilities that impacts our ability to fulfill our contractual requirements. While some of our hospital customers have
increased access to their facilities for non-patients, including our field teams, consultants and other professionals, there are many that still are not allowing
onsite access outside of their staff. Hospital imposed travel restrictions are also impacting some customers’ ability to participate in face-to-face events with
us, such as committee meetings and conferences, which limits our ability to build on customer relationships. The long-term continuation, or any future
recurrence of these circumstances may negatively impact the ability of our employees to effectively deliver existing or sell new products and services to
our members and could negatively affect our performance of our existing contracts.
• Materials and personnel shortages and disruptions in supply chain, including manufacturing and shipping. The global supply chain has been
materially disrupted due to personnel shortages associated with ongoing COVID-19 rates of infection, stay-at-home orders, border closings, rapidly
escalating shipping costs, raw material availability and material logistical delays due to port congestion. Borders closings, lock-down orders and other
restrictions in response to COVID-19, particularly regarding China, have impacted and continue to impact our access to products for our members.
Staffing or personnel shortages due to shelter-in-place orders and quarantines, or other public health measures, have impacted and, in the future, may
impact us and our members, other customers or suppliers. In addition, due to unprecedented demand during the COVID-19 pandemic, there have been
widespread shortages in certain product categories. If the supply chain for materials used in the products purchased by our members through our GPO or
products contract manufactured through our direct sourcing business continue to be adversely impacted by the COVID-19 pandemic, our supply chain may
continue to be disrupted. Failure of our suppliers, contract manufacturers, distributors, contractors and other business partners to meet their obligations to
our members, other customers or to us, or material disruptions in their ability to do so due to their own financial or operational difficulties, may adversely
impact our operations.
•
Requests for contract modifications, payment deferrals or exercises of force majeure clauses. We have and may continue to receive requests for
contract modifications, payment waivers and deferrals, payment reductions or amended payment terms from our contract counterparties. We have and may
continue to receive requests to delay service or payment on performance service contracts. In addition, we have and may continue to receive requests from
our suppliers for
30
increases to their contracted prices, and such requests may be implemented in the future. Inflation in such contract prices may impact member utilization of
items and services available through our GPO contracts, which could adversely impact our net administrative fees revenue and direct sourcing revenue. In
addition, several pharmacy suppliers have exercised force majeure clauses related to failure to supply clauses in their contracts with us because they are
unable to obtain raw materials for manufacturing from India and China. The standard failure to supply language in our contracts contains financial
penalties to suppliers if they are unable to supply products, which such suppliers may not be able to pay. In addition, we may not be able to source products
from alternative suppliers on commercially reasonable terms, or at all.
• Managing the evolving regulatory environment. In response to COVID-19 pandemic and variants thereof, federal, state and local governments are
issuing new rules, regulations, changing reimbursement eligibility rules, orders and advisories on a regular basis. These government actions can impact us
and our members, customers and suppliers.
The ultimate impact of COVID-19, variants thereof, recurrences, or similar pandemics on our business, results of operations, financial condition and cash flows
is dependent on future developments, including the duration of any pandemic and the related length of its impact on the United States and global economies
and their healthcare systems, which are uncertain and cannot be predicted at this time. The impact of the COVID-19 pandemic, variants thereof, recurrences, or
future similar pandemics may also exacerbate many of the other risks described in this “Risk Factors” section. Despite our efforts to manage these impacts,
their ultimate impact depends on factors beyond our knowledge or control, including the duration and severity of any variants or outbreaks and actions taken to
contain its spread and mitigate its public health effects. The foregoing and other continued disruptions in our business as a result of the COVID-19 pandemic,
variants thereof, recurrences or similar pandemics could result in a material adverse effect on our business, results of operations, financial condition, cash
flows, prospects and the trading prices of our securities in the future.
We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical
instability due to the ongoing military conflict between Russia and Ukraine. Our business, financial condition and results of operations may be materially
and adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical
tensions.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between
Russia and Ukraine. On February 24, 2022, Russian troops began a full-scale military invasion of Ukraine. In response, many nations, including the United
States, imposed economic, financial and other sanctions on Russia, certain of its allies, and certain individuals. Although the length and impact of the ongoing
military conflict and associated sanctions regime is highly unpredictable, the conflict in Ukraine has, and may continue to lead to market disruptions, including
significant volatility in commodity prices, energy, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation
in Ukraine and prepare for any implications on our business. In addition, Russian military actions and the resulting sanctions could adversely affect the global
economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional
capital.
We face intense competition, which could limit our ability to maintain or expand market share within our industry and harm our business and operating
results.
The market for products and services in each of our operating segments is fragmented, intensely competitive and characterized by rapidly evolving technology
and product standards, dynamic user needs and the frequent introduction of new products and services. We face intense competition from a number of
companies, including the companies listed under “Item 1 - Business - Competition.” The primary competitors for our Supply Chain Services segment compete
with our group purchasing and direct sourcing activities. Our group purchasing business competes with other national and regional GPOs, including in certain
cases GPOs owned by healthcare providers, distributors and wholesalers. Our direct sourcing business competes primarily with private label offerings and
programs, product manufacturers and distributors.
The competitors in our Performance Services segment compete with our three sub-brands: PINC AI, Contigo Health and Remitra. The primary competitors of
PINC AI range from smaller niche companies to large, well-financed and technologically sophisticated entities, and include information technology providers
and consulting and outsourcing firms. The primary competitors for Contigo Health are smaller niche and larger well-financed healthcare and insurance
companies. The primary competitors for Remitra are smaller niche and larger technology companies and financial institutions.
With respect to our products and services in both segments, we compete on the basis of several factors, including breadth, depth and quality of our product and
service offerings, ability to deliver clinical, financial and operational performance improvement through the use of our products and services, quality and
reliability of services, ease of use and convenience, brand recognition and the ability to integrate services with existing technology. Some of our competitors
have larger scale, benefit from greater name recognition, and have substantially greater financial, technical and marketing resources. Other of our competitors
have proprietary technology that differentiates their product and service offerings from our offerings. As a result of these competitive
31
advantages, our competitors and potential competitors may be able to respond more quickly to market forces, undertake more extensive marketing campaigns
for their brands, products and services and make more attractive offers to our current members and customers and potential new members and customers.
We also compete on the basis of price, primarily in our Supply Chain Services business. We may be subject to pricing pressures as a result of, among other
things, competition within the industry, consolidation of healthcare industry participants, practices of managed care organizations, changes in laws and
regulations applicable to our business operations, government action affecting reimbursement, financial stress experienced by our members and customers, and
increased revenue share obligations to members. In our Supply Chain Services segment, competitive pressure is likely to result in increases in revenue share
obligations, some of which may be material, particularly as our current GPO participation agreements approach renewal or if a member undergoes a change of
control that triggers a termination right, or as new GPO members join our GPO programs. Material increases in revenue share obligations to existing or new
GPO members could adversely impact our business, financial condition and results of operations. In this competitive environment, we cannot be certain that we
will be able to retain our current GPO members or expand our member base on historical terms, favorable terms or at all, and the failure to do so may adversely
impact our business, financial condition and results of operations. Furthermore, if pricing of our other products and services experiences material downward
pressure, our business will be less profitable, and our results of operations will be adversely affected.
Our Performance Services business also competes, to an extent, on the basis of price and to a greater extent on features and functionality of the solutions we
offer through our PINC AI, Contigo Health and Remitra brands.
Moreover, we expect that competition will continue to increase as a result of consolidation in both the healthcare information technology and healthcare
services industries. If one or more of our competitors or potential competitors were to merge or partner with another of our competitors, or if new competitors
were to enter the healthcare space, the change in the competitive landscape could also adversely affect our ability to compete effectively and could harm our
business, financial condition, and results of operations.
Consolidation in the healthcare industry could have a material adverse effect on our business, financial condition and results of operations.
Many healthcare industry participants are consolidating to create larger and more integrated healthcare delivery systems with greater market power. We expect
legal, regulatory and economic conditions to lead to additional consolidation in the healthcare industry in the future. As consolidation accelerates, the
economies of scale of our members’ organizations may grow. If a member experiences sizable growth following consolidation, it may determine that it no
longer needs to rely on us and may reduce its demand for our products and services. Some of these large and growing healthcare systems and non-acute care
providers may choose to contract directly with suppliers for certain supply categories, and some suppliers may seek to contract directly with the healthcare
providers rather than with GPOs such as ours. In connection with any consolidation, our members may move their business to another GPO, particularly when
the acquiring hospital or hospital system is a member of a competing GPO or where the post-acquisition management of our member is aligned with a
competing GPO. In addition, as healthcare providers consolidate to create larger and more integrated healthcare delivery systems with greater market power,
these providers may try to use their market power to negotiate materially increased revenue share obligations and fee reductions for our products and services
across both of our business segments. Finally, consolidation may also result in the acquisition or future development by our members of products and services
that compete with our products and services. Any of these potential results of consolidation could have a material adverse effect on our business, financial
condition, and results of operations.
32
We may experience material delays in recognizing revenue or increasing revenue, or be required to reverse prior revenue recognition, if the sales cycle or
implementation period with potential new members takes longer than anticipated or our related project estimates are not accurate.
A key element of our strategy is to market the various products and services in our Supply Chain Services and Performance Services segments directly to
healthcare providers and to increase the number of our products and services utilized by existing members. The evaluation and purchasing process is often
lengthy and involves material technical evaluation and commitment of personnel by these organizations. Further, the evaluation process depends on a number
of factors, many of which we may not be able to control, including potential new members’ internal approval processes, budgetary constraints for technology
spending, member concerns about implementing new procurement methods and strategies and other timing effects. In addition, the contract or software
implementation process for new products or services can take six months or more and, accordingly, delay our ability to recognize revenue from the sale of such
products or services. If we experience an extended or delayed implementation cycle in connection with the sale of additional products and services to existing
or new members, it could have a material adverse effect on our business, financial condition and results of operations. In addition, we are required to use
estimates to determine revenue recognition for performance-based consulting engagements. These estimates are based on a number of inputs from management
regarding project timing, milestone and goal achievement and expected completion dates, each of which may change during the course of the engagement and
could result in either delayed revenue recognition or revenue reversals resulting in out of period revenue adjustments, which could have a material adverse
effect on our results of operations. In addition, changes in accounting standards that impact revenue recognition as well as conversion of SaaS-based products
to licensed-based products, as discussed in the below risk factor “The markets for our SaaS- or licensed-based products and services may develop more slowly
than we expect, or we may convert more SaaS-based products to license-based products, which could adversely affect our revenue, growth rates and our ability
to maintain or increase our profitability” could adversely impact our ability to recognize revenue consistent with our historical practices and could have a
material adverse effect on our business, financial condition and results of operations.
If members of our GPO programs reduce activity levels or terminate or elect not to renew their contracts, our revenue and results of operations may
decrease materially.
We have GPO participation agreements with all of our GPO members. Our GPO participation agreements may generally be terminated for cause or in the event
of a change of control of the GPO member. In addition, the GPO member can terminate the GPO participation agreement at the end of the then-current term by
notifying us of the member’s decision not to renew. Although we renewed most of our then existing GPO participation agreements primarily for terms of five
to seven years at the beginning of fiscal 2021, there can be no assurance that our GPO members will extend or renew their GPO participation agreements on the
same or similar economic terms at the end of the term of the agreement, or at all, or that the GPO members will not terminate their GPO participation
agreements for cause or due to a change of control of the GPO member. Failure of our GPO members to maintain, extend or renew their GPO participation
agreements on the same or similar economic terms, or at all, may have a material adverse impact on our business, financial condition and results of operations.
Our success in retaining member participation in our GPO programs depends upon our reputation, strong relationships with such GPO members and our ability
to deliver consistent, reliable and high-quality products and services, and a failure in any of these areas may result in the loss of GPO members. Some of our
GPO competitors offer higher revenue share arrangements compared to our average arrangements. Our ability to retain and expand participation in our GPO
programs depends upon our ability to provide overall value to GPO members, including competitive revenue share arrangements, in an economically
competitive environment. In addition, GPO members may seek to modify or elect not to renew their contracts due to factors that are beyond our control and are
unrelated to our performance, including a change of control of the GPO member, changes in their strategies or business plans, changes in their supply chain
personnel or management, or economic conditions in general. When contracts are reduced by modification or not renewed for any reason, we lose the
anticipated future revenue associated with such contracts and, consequently, our revenue and results of operations may decrease materially.
Historically, we have enjoyed a strong strategic alignment with our GPO members, in many cases as a result of such GPO members being significant equity
owners of both us and Premier LP. As a result of the August 2020 Restructuring, our former member-owners’ equity holdings in Premier LP were canceled and
converted into shares of our Class A common stock which is publicly traded on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol
“PINC.” Furthermore, former member-owners who received shares of our Class A common stock as part of the August 2020 Restructuring are free to sell those
shares at any time. Any material reduction in our member-owners’ equity holdings in us could result in reduced alignment between us and such member-
owners, which may make it more difficult to retain these GPO members or to ensure that they extend or renew their GPO participation agreements on the same
or similar economic terms, or at all, the failure of which may have a material adverse impact on our business, financial condition and results of operations.
33
We derive a material portion of our revenues from our largest members and certain other customers and the sudden loss of one or more of these members
or customers could materially and adversely affect our business, financial condition and results of operations.
Our top five customers generated revenue of approximately 21% and 28% of our consolidated net revenues for the fiscal years ended June 30, 2022 and 2021.
The sudden loss of any material customer or a number of smaller customers that are participants in our group purchasing programs, or utilize any of our
programs or services, or a material change in revenue share or other economic terms we have with such customers could materially and adversely affect our
business, financial condition and results of operations.
The markets for our SaaS- or licensed-based products and services may develop more slowly than we expect, or we may convert more SaaS-based products
to license-based products, which could adversely affect our revenue, growth rates and our ability to maintain or increase our profitability.
Our success will depend on the willingness of existing and potential new customers to increase their use of our SaaS- or licensed-based products and services
as well as our ability to sell license-based products to existing and potential new customers at rates sufficient to offset the loss of SaaS-based product sales.
Fluctuating member demand for SaaS- or license-based products that materially alter our mix of SaaS- and licensed-based product sales and conversion of
SaaS-based products to license-based products can result in volatility of revenue and lower growth rates in any given year which could materially adversely
affect our business, financial condition and results of operations. Furthermore, many companies have invested substantial resources to integrate established
enterprise software into their businesses and therefore may be reluctant or unwilling to switch to our products and services and some companies may have
concerns regarding the risks associated with the security and reliability of the technology delivery model associated with these services. If companies do not
perceive the benefits of our products and services, then the market for these products and services may not expand as much or develop as quickly as we expect,
which would materially adversely affect our business, financial condition and results of operations.
Our members are highly dependent on payments from third-party healthcare payors, including Medicare, Medicaid and other government-sponsored
programs, and reductions or changes in third-party reimbursement could adversely affect these members and consequently our business.
Our members derive a substantial portion of their revenue from third-party private and governmental payors, including Medicare, Medicaid and other
government sponsored programs. Our sales and profitability depend, in part, on the extent to which coverage of and reimbursement for our products and
services our members purchase or otherwise obtain through us is available to our members from governmental health programs, private health insurers,
managed care plans and other third-party payors. These third-party payors are increasingly using their enhanced bargaining power to secure discounted
reimbursement rates and may impose other requirements that adversely impact our members’ ability to obtain adequate reimbursement for our products and
services. If third-party payors do not approve our products and services for reimbursement or fail to reimburse for them adequately, our members may suffer
adverse financial consequences which, in turn, may reduce the demand for and ability to purchase our products or services.
In addition, government actions or changes in laws or regulations could limit government spending generally for the Medicare and Medicaid programs, limit
payments to healthcare providers and increase emphasis on financially accountable payment programs such as accountable care organizations, bundled
payments and capitated primary care that could have an adverse impact on our members and, in turn, on our business, financial condition and results of
operations.
We rely on the administrative fees we receive from our GPO suppliers, and the failure to maintain contracts with these GPO suppliers could have a
generally negative effect on our relationships with our members and could adversely affect our business, financial condition and results of operations.
Historically, we have derived a substantial amount of our revenue from the administrative fees that we receive from our GPO suppliers. We maintain
contractual relationships with these suppliers which provide products and services to our members at reduced costs and which pay us administrative fees based
on the dollars spent by our members for such products and services. Our contracts with these GPO suppliers generally may be terminated upon 90 days’ notice.
A termination of any relationship or agreement with a GPO supplier would result in the loss of administrative fees pursuant to our arrangement with that
supplier, which could adversely affect our business, financial condition and results of operations. In addition, if we lose a relationship with a GPO supplier we
may not be able to negotiate similar arrangements for our members with other suppliers on the same terms and conditions or at all, which could damage our
reputation with our members and adversely impact our ability to maintain our member agreements or expand our membership base and could have a material
adverse effect on our business, financial condition and results of operations.
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In addition, CMS, which administers the Medicare and federal aspects of state Medicaid programs, has issued complex rules requiring pharmaceutical
manufacturers to calculate and report drug pricing for multiple purposes, including the limiting of reimbursement for certain drugs. These rules generally
exclude from the pricing calculation administrative fees paid by pharmaceutical manufacturers to GPOs to the extent that such fees meet CMS’s “bona fide
service fee” definition. There can be no assurance that CMS will continue to allow exclusion of GPO administrative fees from the pricing calculation, which
could negatively affect the willingness of pharmaceutical manufacturers to pay administrative fees to us, which could have a material adverse effect on our
member retention, business, financial condition and results of operations.
If we are unable to maintain our relationships with third-party providers or maintain or enter into new strategic alliances, we may be unable to grow our
current base business.
Our business strategy includes entering into and maintaining strategic alliances and affiliations with leading service providers. These companies may pursue
relationships with our competitors, develop or acquire products and services that compete with our products and services, experience financial difficulties, be
acquired by one of our competitors or other third party or exit the healthcare industry, any of which may adversely affect our relationship with them. In
addition, in many cases, these companies may terminate their relationships with us for any reason with limited or no notice. If existing relationships with third-
party providers or strategic alliances are adversely impacted or are terminated or we are unable to enter into relationships with leading healthcare service
providers and other GPOs, we may be unable to maintain or increase our industry presence or effectively execute our business strategy.
If we are not able to timely offer new and innovative products and services, we may not remain competitive and our revenue and results of operations may
suffer.
Our success depends on providing products and services within our Supply Chain Services and Performance Services segments that healthcare providers use to
improve clinical, financial and operational performance. Information technology providers and other competitors are incorporating enhanced analytical tools
and functionality and otherwise developing products and services that may become viewed as more efficient or appealing to our members. If we cannot adapt
to rapidly evolving industry standards, technology, member and other customers’ needs, including changing regulations and provider reimbursement policies,
we may be unable to anticipate changes in our current and potential new members’ and other customers’ requirements that could make our existing technology,
products or service offerings obsolete. We must continue to invest material resources in research and development or acquisitions in order to enhance our
existing products and services, maintain or improve our product category rankings and introduce new high-quality products and services that members and
potential new members and customers will want. If our enhanced existing or new products and services are not responsive to the needs of our members or
potential new members and customers, are not appropriately timed with market opportunity or are not effectively brought to market, we may lose existing
members and be unable to obtain new members and customers, which could have a material adverse effect on our business, financial condition or results of
operations.
Our acquisition activities could result in operating difficulties, dilution, unrecoverable costs and other negative consequences, any of which may adversely
impact our financial condition and results of operations.
Our business strategy includes growth through acquisitions of additional businesses and assets. Future acquisitions may not be completed on preferred terms
and acquired assets or businesses may not be successfully integrated into our operations or provide anticipated financial or operational benefits. Any
acquisitions we complete will involve risks commonly encountered in acquisitions of businesses or assets. Such risks include, among other things:
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failing to integrate the operations and personnel of the acquired businesses in an efficient, timely manner, which can be exacerbated by
pandemics, such as COVID-19;
failure of a selling party to produce all material information during the pre-acquisition due diligence process, or to meet their obligations under
post-acquisition agreements;
potential liabilities of or claims against an acquired company or its assets, some of which may not become known until after the acquisition;
an acquired company’s lack of compliance with applicable laws and governmental rules and regulations, and the related costs and expenses
necessary to bring such company into compliance;
an acquired company’s general information technology controls or their legacy third-party providers may not be sufficient to prevent unauthorized
access or transactions, cyber-attacks or other data security breaches;
• managing the potential disruption to our ongoing business;
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distracting management focus from our existing core businesses;
encountering difficulties in identifying and acquiring products, technologies, or businesses that will help us execute our business strategy;
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entering new markets in which we have little to no experience;
impairing relationships with employees, members, and strategic partners;
failing to implement or remediate controls, procedures and policies appropriate for a public company at acquired companies lacking such
financial, disclosure or other controls, procedures and policies, potentially resulting in a material weakness in our internal controls over financial
reporting;
unanticipated changes in market or industry practices that adversely impact our strategic and financial expectations of an acquired company,
assets or business and require us to write-off or dispose of such acquired company, assets, or business;
the amortization of purchased intangible assets;
incurring expenses associated with an impairment of all or a portion of goodwill and other intangible assets due to the failure of certain
acquisitions to realize expected benefits; and
diluting the share value and voting power of existing stockholders.
In addition, anticipated benefits of our previous and future acquisitions may not materialize. Future acquisitions or dispositions of under-performing businesses
could result in the incurrence of debt, material exit costs, contingent liabilities or amortization expenses, impairments or write-offs of goodwill and other
intangible assets, any of which could harm our business, financial condition and results of operations. In addition, expenses associated with potential
acquisitions, including, among others, due diligence costs, legal, accounting, technology and financial advisory fees, travel and internal resources utilization,
can be material. These expenses may be incurred regardless of whether any potential acquisition is completed. In instances where acquisitions are not
ultimately completed, these expenses typically cannot be recovered or offset by the anticipated financial benefits of a successful acquisition. As we pursue our
business strategy and evaluate opportunities, these expenses may adversely impact our results of operations and earnings per share.
Numerous potential acquisition targets that had previously expressed an interest in commencing strategic discussions with us prior to or early into the COVID-
19 pandemic delayed or deferred indefinitely their exploration of strategic alternatives. Our ability to execute our growth strategy may be materially impacted
if COVID-19 variants or future pandemics, or general market conditions, materially reduce the number of target companies willing to evaluate strategic
alternatives and start a process for the sale of part or all of their equity or assets.
Our business and growth strategies also include non-controlling investments in other businesses and joint ventures. In the event the companies or joint
ventures we invest in do not perform as well as expected, we could experience the loss of some or all of the value of our investment, which loss could
adversely impact our financial condition and results of operations.
Although we conduct accounting, financial, legal and business due diligence prior to making investments, we cannot guarantee that we will discover all
material issues that may affect a particular target business, or that factors outside the control of the target business and outside of our control will not later arise.
Occasionally, current and future investments are, and will be, made on a non-controlling basis, in which case we have limited ability to influence the financial
or business operations of the companies in which we invest. To the extent we invest in a financially underperforming or unstable company or an entity in its
development stage that does not successfully mature, we may lose the value of our investment. We have in the past and may in the future be required to write
down or write off our investment or recognize impairment or other charges that could adversely impact our financial condition or results of operations and our
stock price. Even though these charges may be non-cash items and not have a material impact on our liquidity, the fact that we report charges of this nature
could contribute to negative market perceptions about us and our business strategy and our Class A common stock.
We rely on Internet infrastructure, bandwidth providers, data center providers and other third parties and our own systems for providing services to our
users, and any failure or interruption in the services provided by these third parties or our own systems, including from a cyber or other catastrophic event,
could expose us to litigation and negatively impact our relationships with users, adversely affecting our brand, our business and our financial
performance.
Our ability to deliver our Performance Services segment products is dependent on the development and maintenance of the infrastructure of the Internet and
other telecommunications services by third parties. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and
security for providing reliable Internet access and services and reliable telephone, Wi-Fi, facsimile and pager systems. We have experienced and expect that we
will experience in the future interruptions and delays in these services and availability from time to time. We rely on internal systems as well as third-party
suppliers, including bandwidth and telecommunications equipment providers, to provide our services. We have also migrated some of our data center
operations to third-party data-hosting facilities. We do not maintain redundant systems or facilities for some of these services. In the event of a material cyber-
attack or catastrophic event with respect to one or more of these providers, systems or facilities, we may experience an extended period of system
unavailability, which could negatively impact our relationship with users. To operate without interruption, both we and our service providers must guard
against:
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damage from fire, power loss, and other natural disasters;
communications failures;
software and hardware errors, failures, and crashes;
cyber-attacks, viruses, worms, malware, ransomware and other malicious software programs;
security breaches and computer viruses and similar disruptive problems; and
other potential interruptions.
Any disruption in the network access, telecommunications or co-location services provided by our third-party providers or any failure of or by these third-party
providers or our own systems to handle current or higher volume of use could materially harm our business. We exercise limited control over these third-party
suppliers, which increases our vulnerability to problems with services they provide. Any errors, failures, interruptions or delays experienced in connection with
these third-party technologies and information services or our own systems could negatively impact our relationships with users and adversely affect our
business and financial performance and could expose us to third-party liabilities, some of which may not be adequately insured.
Data loss or corruption due to failures or errors in our systems and service disruptions at our data centers may adversely affect our reputation and
relationships with existing members, which could have a negative impact on our business, financial condition and results of operations.
Because of the large amount of data that we collect and manage, it is possible that hardware failures or errors in our systems could result in data loss or
corruption or cause the information that we collect to be incomplete or contain inaccuracies that our members regard as material. Complex software such as
ours may contain errors or failures that are not detected until after the software is introduced or updates and new versions are released. Despite testing by us,
from time to time we have discovered defects or errors in our software, and such defects or errors may be discovered in the future. Any defects or errors could
expose us to risk of liability to members and the government and could cause delays in the introduction of new products and services, result in increased costs
and diversion of development resources, require design modifications, decrease market acceptance or member satisfaction with our products and services or
cause harm to our reputation.
Furthermore, our members might use our software together with products from other companies. As a result, when problems occur, it might be difficult to
identify the source of the problem. Even when our software does not cause these problems, the existence of these errors might cause us to incur material costs,
divert the attention of our technical personnel from our product development efforts, impact our reputation and lead to material member relations problems.
Moreover, our data centers and service provider locations store and transmit critical member data that is essential to our business. While these locations are
chosen for their stability, failover capabilities and system controls, we do not directly control the continued or uninterrupted availability of every location. In
addition to the services we provide from our offices, we have migrated the majority of our data center operations to a third-party data-hosting facility. Data
center facilities are vulnerable to damage or interruption from natural disasters, fires, power loss, telecommunications failures, acts of terrorism, acts of war,
and similar events. They are also subject to break-ins, sabotage, intentional acts of vandalism, cyber-attacks and similar misconduct. Despite precautions taken
at these facilities, the occurrence of a natural disaster or an act of terrorism, could result in a decision to close the facilities without adequate notice or other
unanticipated problems, which could cause lengthy interruptions in our service. These service interruption events could impair our ability to deliver services or
deliverables or cause us to fail to achieve service levels required in agreements with our members, which could negatively affect our ability to retain existing
members and attract new members.
If our cyber and other security measures are breached or fail and unauthorized access to a member’s data is obtained, or our members fail to obtain proper
permission for the use and disclosure of information, our services may be perceived as not being secure, members may curtail or stop using our services
and we may incur material liabilities.
Our services involve the web-based storage and transmission of members’ proprietary information, personal information of employees and protected health
information of patients. From time to time we may detect vulnerabilities in our systems, which, even if not resulting in a security breach, may reduce member
confidence and require substantial resources to address. If our security measures are breached or fail as a result of third-party action, employee error,
malfeasance, insufficiency, defective design or otherwise, someone may be able to obtain unauthorized access to member or patient data. As a result, our
reputation could be damaged, our business may suffer, and we could face damages for contract breach, penalties and fines for violation of applicable laws or
regulations and material costs for notification to affected individuals, remediation and efforts to prevent future occurrences.
In addition to our cyber and other security measures, we rely upon our members as users of our system for key activities to promote security of the system and
the data within it. On occasion, our members have failed to perform these activities. Failure of members to perform these activities may result in claims against
us that could expose us to material expense and harm our
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reputation. In addition, our members may authorize or enable third parties to access their data or the data of their patients on our systems. Because we do not
control such access, we cannot ensure the complete propriety of that access or integrity or security of such data in our systems. In addition, although our
development infrastructure is based in the United States, we outsource development work for a portion of our products and services to persons outside the
United States, particularly India. We cannot guarantee that the cyber and other security measures and regulatory environment of our foreign partners are as
robust as in the United States. Any breach of our security by our members or foreign partners could have a material adverse effect on our business, financial
condition and results of operations.
Additionally, we require our members to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of the information
that we receive. If our members do not obtain necessary permissions and waivers, then our use and disclosure of information that we receive from them or on
their behalf may be limited or prohibited by state, federal, or international privacy laws or other laws. Any such failure to obtain proper permissions and
waivers could impair our functions, processes and databases that reflect, contain or are based upon such data and may prevent use of such data. Moreover, we
may be subject to claims or liability for use or disclosure of information by reason of our lack of a valid notice, permission or waiver. These claims or liabilities
could subject us to unexpected costs and adversely affect our business, financial condition and results of operations.
We could suffer a loss of revenue and increased costs, exposure to material liability, reputational harm, and other serious negative consequences if we are
subject to cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information
about us or our members or other third parties.
We manage and store proprietary information and sensitive or confidential data relating to our operations. We may be subject to cyber-attacks on and breaches
of the information technology systems we use for these purposes. Experienced computer programmers and hackers may be able to penetrate our network
security and misappropriate or compromise our confidential information or that of third parties, create system disruptions, or cause shutdowns. Computer
programmers and hackers also may be able to develop and deploy viruses, worms, malware, ransomware and other malicious software programs that attack our
systems or products or otherwise exploit security vulnerabilities of our systems or products. In addition, sophisticated hardware and operating system software
and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could
unexpectedly interfere with the operation of our systems.
We expend material capital to protect against the threat of security breaches, including cyber-attacks, viruses, worms, malware, ransomware and other
malicious software programs. Substantial additional expenditures may be required before or after a cyber-attack or breach to mitigate in advance or to alleviate
any problems caused by cyber-attacks and breaches, including unauthorized access to or theft of personal or patient data and protected health information
stored in our information systems and the introduction of computer viruses, worms, malware, ransomware and other malicious software programs to our
systems. Our remediation efforts may not be successful and could result in interruptions, delays or cessation of service and loss of existing or potential
members.
While we provide our domestic and foreign employees and contractors training and regular reminders on important measures they can take to prevent breaches,
we often identify attempts to gain unauthorized access to our systems. Given the rapidly evolving nature and proliferation of cyber threats, there can be no
assurance our training and network security measures or other controls will detect, prevent or remediate security or data breaches in a timely manner or
otherwise prevent unauthorized access to, damage to, or interruption of our systems and operations. For example, it has been widely reported that many well-
organized international interests, in certain cases with the backing of sovereign governments, are targeting the theft of patient information through the use of
advance persistent threats. In recent years, a number of hospitals have reported being the victim of ransomware attacks in which they lost access to their
systems, including clinical systems, during the course of the attacks. We are likely to face attempted attacks in the future. Accordingly, we may be vulnerable to
losses associated with the improper functioning, security breach or unavailability of our information systems as well as any systems used in acquired
operations.
Breaches of our security measures and the unapproved use or disclosure of proprietary information or sensitive or confidential data about us or our members or
other third parties could expose us, our members or other affected third parties to a risk of loss or misuse of this information, result in litigation, governmental
inquiry and potential liability for us, damage our brand and reputation or otherwise harm our business. Furthermore, we are exposed to additional risks because
we rely in certain capacities on third-party data management providers whose possible security problems and security vulnerabilities are beyond our control.
We may experience cyber-security and other breach incidents that remain undetected for an extended period. Because techniques used to obtain unauthorized
access or to sabotage systems change frequently and generally are not recognized until launched, we may be unable to anticipate these techniques or to
implement adequate preventative measures to stop or mitigate any potential damage in a timely manner. Given the increasing cyber security threats in the
healthcare industry, there can be no assurance we will not experience business interruptions; data loss, ransom, misappropriation or corruption; theft or misuse
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proprietary or patient information; or litigation and investigation related to any of those, any of which could have a material adverse effect on our financial
position and results of operations and harm our business reputation.
Any restrictions on our use of, or ability to license, data, or our failure to license data and integrate third-party technologies, could have a material adverse
effect on our business, financial condition and results of operations.
We depend upon licenses from third parties, most of which are non-exclusive, for some of the technology and data used in our applications, and for some of the
technology platforms upon which these applications are built and operate. We also obtain a portion of the data that we use from government entities and public
records and from our members for specific member engagements. We cannot assure that our licenses for information will allow us to use that information for
all potential or contemplated applications and products. In addition, if our members revoke their consent for us to maintain, use, de-identify and share their
data, our data assets could be degraded.
In the future, data providers could withdraw their data from us or restrict our usage due to competitive reasons or because of new legislation or judicial
interpretations restricting use of the data currently used in our products and services. In addition, data providers could fail to adhere to our quality control
standards in the future, causing us to incur additional expense to appropriately utilize the data. If a substantial number of data providers were to withdraw or
restrict their data, or if they fail to adhere to our quality control standards, and if we are unable to identify and contract with suitable alternative data suppliers
and integrate these data sources into our service offerings, our ability to provide products and services to our members would be materially and adversely
impacted, resulting in a material adverse effect on our business, financial condition and results of operations.
We also integrate into our proprietary applications and use third-party software to maintain and enhance, among other things, content generation and delivery,
and to support our technology infrastructure. Some of this software is proprietary and some is open source. Our use of third-party technologies exposes us to
increased risks, including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of our resources from
development of our own proprietary technology and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and
maintenance costs. These technologies may not be available to us in the future on commercially reasonable terms or at all and could be difficult to replace once
integrated into our own proprietary applications. Our inability to obtain, maintain or comply with any of these licenses could delay development until
equivalent technology can be identified, licensed and integrated, which would harm our business, financial condition and results of operations.
Most of our third-party licenses are non-exclusive and our competitors may obtain the right to access any of the technology covered by these licenses to
compete directly with us. Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of
new technology into our solutions, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue
from licensed technology sufficient to offset associated acquisition and maintenance costs. In addition, if our data suppliers choose to discontinue support of
the licensed technology in the future, we might not be able to modify or adapt our own solutions.
Our use of “open source” software could adversely affect our ability to sell our products and subject us to possible litigation.
The products or technologies acquired, licensed or developed by us may incorporate so-called “open source” software, and we may incorporate open source
software into other products in the future. There is little or no legal precedent governing the interpretation of many of the terms of certain of these licenses, and
therefore the potential impact of these terms on our business is unknown and may result in unanticipated obligations or litigation regarding our products and
technologies. For example, we may be subjected to certain conditions, including requirements that we offer our products that use particular open source
software at no cost to the user, that we make available the source code for modifications or derivative works we create based upon, incorporating or using the
open source software, and/or that we license such modifications or derivative works under the terms of the particular open source license. In addition, if we
combine our proprietary software with open source software in a certain manner, under some open source licenses we could be required to release the source
code of our proprietary software, which could substantially help our competitors develop products that are similar to or better than ours. If an author or other
party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be
required to incur material legal costs defending ourselves against such allegations and could be subject to material damages.
Our direct sourcing activities depend on contract manufacturing facilities located in various parts of the world, and any physical, financial, regulatory,
environmental, labor or operational disruption or product quality issues could result in a reduction in sales volumes, the incurrence of substantial
expenditures and the loss of product availability.
As part of our direct sourcing activities, we contract with manufacturing facilities in various parts of the world, including facilities in Bangladesh, Cambodia,
China, India, Malaysia, Sri Lanka, Taiwan, Thailand and Vietnam. Operations at and
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securing products from these manufacturing facilities could be curtailed or partially or completely shut down as the result of a number of circumstances, most
of which are outside of our control, such as unscheduled maintenance, power conservation/shortages, an earthquake, hurricane, flood, tsunami or other natural
disaster, material labor strikes or work stoppages, government implementation of export limitations or freezes, port or other shipping delays, political unrest or
pandemics, such as COVID-19. We are also subject to some of these risks with manufacturers we contract with in the United States. Any material curtailment
of production at these facilities, or production issue resulting in a substandard product, could result in litigation or governmental inquiry or materially reduced
revenues and cash flows in our direct sourcing activities. In addition, our business practices in international markets are subject to the requirements of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, any violation of which could subject us to material fines, criminal sanctions and other penalties. We expect
all of our contracted manufacturing facilities to comply with all applicable laws, including labor, safety and environmental laws, and to otherwise meet our
standards of conduct. Our ability to find manufacturing facilities that uphold these standards is a challenge, especially with respect to facilities located outside
the United States. We also are subject to the risk that one or more of these manufacturing facilities will engage in business practices in violation of our
standards or applicable laws, which could damage our reputation and adversely impact our business and results of operations.
A material portion of the manufacturing for our direct sourcing activities is conducted in China. As a result, our business, financial condition, results of
operations and prospects are affected significantly by economic, political and legal developments in China as well as trade disputes between China and the
United States and the potential imposition of bilateral tariffs. In addition, during the COVID-19 pandemic, China imposed export restrictions and new
regulatory requirements on PPE and other medical equipment needed by our member hospitals. The imposition of tariffs or export restrictions on products
imported by us from China could require us to (i) increase prices to our members or (ii) locate suitable alternative manufacturing capacity or relocate our
operations from China to other countries. In the event we are unable to increase our prices or find alternative manufacturing capacity or relocate to an
alternative base of operation outside of China on favorable terms, we would likely experience higher manufacturing costs and lower gross margins, which
could have an adverse effect on our business and results of operations. The Chinese economy differs from the economies of most developed countries in many
respects, including the degree of government involvement, the level of development, the growth rate, the control of foreign exchange, access to financing and
the allocation of resources.
Additionally, the facilities in Malaysia with which we contract are particularly susceptible to labor shortages, labor disputes and interruptions, rising labor costs
as a result of minimum wage laws, scheduling and overtime requirements and forced or child labor.
Validation of our direct sourcing suppliers around the world can be challenging and our vetting process may not eliminate all associated risks, particularly since
the information shared is largely dependent on the supplier level of transparency. If one or more of the manufacturing facilities we contract with engage in
business practices in violation of our standards or applicable laws, we could experience damage to our reputation and suffer an adverse impact our business,
results of operations and reputation.
We may have inventory risk for (i) the PPE or other product inventory we purchase at elevated market prices, and (ii) items we purchase in bulk or
pursuant to fixed price purchase commitments if we are unable to sell such inventory at or above our cost. As a result, we may experience a material
adverse effect on our business, financial condition and results of operations.
As part of our efforts to satisfy PPE demands of our GPO members during the COVID-19 pandemic, we purchased PPE product inventory in forward buys at
then current global market prices, which were elevated due to the volatility of global market prices for PPE products. In addition, as we strive to create a
healthier global supply chain with more diversification in the country of origin, including a focus on supporting PPE and medical product manufacturing in the
United States with our domestic sourcing initiative, we may source more of our products from US-based or near shore manufacturers, which may come at a
higher acquisition cost than sourcing from Asia or other lower cost countries. From time to time, we also purchase other items as part of bulk purchases to
resell to our members. If we are unable to sell the PPE or other products for more than our inventory cost, we could experience a material adverse effect on our
business, financial condition and results of operations. In addition, if our GPO members are unwilling to pay higher prices for products made in the United
States, or if they choose to buy lower cost products manufactured in lower cost countries, now or in the future, this may impact our customer growth and results
of operations if we have to lower prices to compete or sell our higher-cost inventory.
If we lose key personnel or if we are unable to attract, hire, integrate and retain key personnel, our business would be harmed.
Our future success depends in part on our ability to attract, hire, integrate and retain key personnel, including our executive officers and other highly skilled
technical, managerial, editorial, sales, marketing and customer service professionals. Competition for such personnel is intense and the labor market has
tightened considerably as a consequence of the COVID-19 pandemic. We have from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty
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in hiring and retaining highly skilled employees with appropriate qualifications. We cannot be certain of our ability to identify, hire and retain adequately
qualified personnel, if we lose key personnel unexpectedly. In addition, to the extent we lose an executive officer or senior manager, we may incur increased
expenses in connection with the hiring, promotion or replacement of these individuals and the transition of leadership and critical knowledge. Failure to
identify, hire and retain necessary key personnel could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Capital Structure and Liquidity
We may need to obtain additional financing which may not be available or may be on unfavorable terms and result in dilution to, or a diminution of the
rights of, our stockholders and cause a decrease in the price of our Class A common stock.
We may need to raise additional funds in order to, among other things:
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finance unanticipated working capital requirements;
develop or enhance our technological infrastructure and our existing products and services;
fund strategic relationships;
respond to competitive pressures; and
acquire complementary businesses, assets, technologies, products or services.
Additional financing may not be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our
ability to fund our expansion strategy, take advantage of unanticipated opportunities, develop or enhance technology or services or otherwise respond to
competitive pressures would be materially limited. If we raise additional funds by issuing equity or convertible debt securities, our then-existing stockholders
may be diluted and holders of these newly issued securities may have rights, preferences or privileges senior to those of our then-existing stockholders. The
issuance of these securities may cause a material decrease in the trading price of our Class A common stock or the value of your investment in us.
If we cannot refinance or replace our existing credit facility at maturity, it could have a material adverse effect on our ability to fund our ongoing cash
requirements. Current or future indebtedness could adversely affect our business and our liquidity position.
We have a five-year $1 billion unsecured revolving credit facility. The Credit Facility also provides us the ability to incur incremental term loans and request an
increase in the revolving commitments under the credit facility, up to an additional aggregate of $350.0 million, subject to the approval of the lenders under the
credit facility. As of June 30, 2022, we had $150.0 million outstanding under this credit facility. Our current credit facility matures on November 9, 2023 and
any outstanding indebtedness would be payable on or before that date. If we are not able to refinance or replace our existing credit facility at or before maturity
or do so on acceptable terms, it would have a material adverse effect on our ability to fund our ongoing working capital requirements, business strategies,
acquisitions and related business investments, future cash dividend payments, if any, or repurchases of Class A common stock under any then existing or future
stock repurchase programs, if any.
Our indebtedness may increase from time to time in the future for various reasons, including fluctuations in operating results, capital expenditures and potential
acquisitions. Any indebtedness we incur and restrictive covenants contained in the agreements related thereto could:
• make it difficult for us to satisfy our obligations, including making interest payments on our other debt obligations;
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limit our ability to obtain additional financing to operate our business;
require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing our ability to use our cash flow to fund capital
expenditures and working capital and other general operational requirements;
limit our flexibility to execute our business strategy and plan for and react to changes in our business and the healthcare industry;
place us at a competitive disadvantage relative to some of our competitors that have less debt than us;
limit our ability to pursue acquisitions; and
increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates or a downturn in our business
or the economy.
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The occurrence of any one of these events could cause us to incur increased borrowing costs and thus have a material adverse effect on our cost of capital,
business, financial condition and results of operations or cause a material decrease in our liquidity and impair our ability to pay amounts due on our
indebtedness.
Our unsecured revolving credit facility contains, among other things, restrictive covenants that will limit our and our subsidiaries’ ability to finance future
operations or capital needs or to engage in other business activities. The credit facility restricts, among other things, our ability and the ability of our
subsidiaries to incur additional indebtedness or issue guarantees, create liens on our assets, make distributions on or redeem equity interests, make investments,
transfer or sell properties or other assets, and engage in mergers, consolidations or acquisitions. Furthermore, the credit facility includes cross-default
provisions and requires us to meet specified financial ratios and tests. In addition, any debt securities we may issue or indebtedness we incur in the future may
have similar or more restrictive financial or operational covenants that may limit our ability to execute our business strategies or operate our Company.
Our quarterly revenues and results of operations have fluctuated in the past and may continue to fluctuate in the future which could adversely affect the
value of our Class A common stock, our revenues and our liquidity.
Fluctuations in our quarterly results of operations may be due to a number of factors, some of which are not within our control, including:
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our ability to offer new and innovative products and services;
regulatory changes, including changes in healthcare laws;
unforeseen legal expenses, including litigation and settlement costs;
the purchasing and budgeting cycles of our members;
the lengthy sales cycles for our products and services, which may cause material delays in generating revenues or an inability to generate
revenues;
pricing pressures with respect to our future sales;
the timing and success of new product and service offerings by us or by our competitors;
the timing of enterprise license agreements;
• member decisions regarding renewal or termination of their contracts, especially those involving our larger member relationships;
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the amount and timing of costs related to the maintenance and expansion of our business, operations and infrastructure;
the amount and timing of costs related to the development, adaptation, acquisition, or integration of acquired technologies or businesses;
the financial condition of our current and potential new members;
general economic and market conditions and economic conditions specific to the healthcare industry; and
the impact of COVID-19 and future pandemics on the economy and healthcare industry.
Our quarterly results of operations may vary materially in the future and period-to-period comparisons of our results of operations may not be meaningful. You
should not rely on the results of one quarter as an indication of future performance. If our quarterly results of operations fall below the expectations of
securities analysts or investors, the price of the Class A common stock could decline substantially. In addition, any adverse impacts on the Class A common
stock may harm the overall reputation of our organization, cause us to lose members and impact our ability to raise additional capital in the future.
Risks Related to Healthcare and Employee Benefit Regulation
The healthcare industry is highly regulated. Any material changes in the political, economic or regulatory environment that affect the GPO business or the
purchasing practices and operations of healthcare organizations, or that lead to consolidation in the healthcare industry, could reduce the funds available
to providers to purchase our products and services or otherwise require us to modify our services.
Our business, financial condition and results of operations depend upon conditions affecting the healthcare industry generally and hospitals and health systems
particularly, as well as our ability to increase the number of programs and services that we sell to our members and other customers. The life sciences and
healthcare industry is highly regulated by federal and state authorities and is subject to changing political, economic and regulatory influences. Factors such as
changes in reimbursement policies for healthcare expenses, consolidation in the healthcare industry, regulation, litigation and general economic conditions
affect the purchasing practices, operations and the financial health of healthcare organizations. In particular, changes in regulations affecting the healthcare
industry, such as increased regulation of the purchase and sale of medical products, tariffs,
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new quality measurement and payment models, data privacy and security, government price controls, modification or elimination of applicable regulatory safe
harbors, regulation of third-party administrators or restrictions on permissible discounts and other financial arrangements, could require us to make unplanned
modifications of our products and services, result in delays or cancellations of orders or reduce funds and demand for our products and services.
In March 2010, President Barack Obama signed into law the Patient Protection and Affordable Care Act (“ACA”). The ACA is a sweeping measure designed to
expand access to affordable health insurance, control healthcare spending and improve healthcare quality. In addition, many states have adopted or are
considering changes in healthcare laws or policies in part due to state budgetary shortfalls. The ACA set the industry moving in a clear direction on access to
health insurance, payment, quality and cost management.
With the election of President Joe Biden, as well the 2021 U.S. Supreme Court decision upholding the ACA, there appears to be greater certainty and a
continuation of the policies and directions set forth in the ACA. While these developments will create greater certainty regarding the continued existence of the
ACA and its reforms to the health insurance and healthcare market, healthcare will continue to be a highly partisan and contentious area. This environment is
creating risks for healthcare providers and our business that could adversely affect our business and financial performance.
If we fail to comply with complex federal and state laws and regulations governing financial relationships among healthcare providers and submission of
false or fraudulent claims to government healthcare programs, we may be subject to civil and criminal penalties or loss of eligibility to participate in
government healthcare programs.
Anti-Kickback Regulations
We are subject to federal and state laws and regulations designed to protect patients, government healthcare programs and private health plans from fraudulent
and abusive activities. These laws include anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims. These laws are complex,
and their application to our specific products, services and relationships may not be clear and may be applied to our business in ways that we do not anticipate.
Federal and state regulatory and law enforcement authorities have over time increased enforcement activities with respect to Medicare and Medicaid fraud and
abuse regulations and other reimbursement laws and rules. From time to time, we and others in the healthcare industry have received inquiries or requests to
produce documents in connection with such activities. We could be required to expend material time and resources to comply with these requests, and the
attention of our management team could be diverted to these efforts. Furthermore, if we are found to be in violation of any federal or state fraud and abuse
laws, we could be subject to civil and criminal penalties and we could be excluded from participating in federal and state healthcare programs such as Medicare
and Medicaid. The occurrence of any of these events could materially harm our business, financial performance and financial condition.
Provisions in Title XI of the Social Security Act, commonly referred to as the federal Anti-Kickback Statute, prohibit the knowing and willful offer, payment,
solicitation or receipt of remuneration, directly or indirectly, in return for the referral of patients or arranging for the referral of patients, or in return for the
recommendation, arrangement, purchase, lease or order of items or services that are covered, in whole or in part, by a federal healthcare program such as
Medicare or Medicaid. The definition of “remuneration” has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of
payments or providing anything at less than its fair market value. Many states have adopted similar prohibitions against kickbacks and other practices that are
intended to influence the purchase, lease or ordering of healthcare items and services regardless of whether the item or service is covered under a governmental
health program or private health plan. Although certain statutory and regulatory safe harbors exist, these safe harbors are narrow and often difficult to comply
with. Congress has appropriated an increasing amount of funds in recent years to support enforcement activities aimed at reducing healthcare fraud and abuse.
We cannot assure you that our arrangements will be protected by such safe harbors or that such increased enforcement activities will not directly or indirectly
have an adverse effect on our business, financial condition or results of operations. Any determination by a state or federal agency that any of our activities
violate any of these laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business or
could disqualify us from providing services to healthcare providers doing business with government programs and, thus, could have a material adverse effect
on our business, financial condition and results of operations.
CMS has provided specific guidance on the proper treatment on Medicare cost reports of revenue distributions received from GPOs, including us. To assist our
members that report their costs to Medicare to comply with these guidelines, such members are required under the terms of the Premier Group Purchasing
Policy to appropriately reflect all elements of value received in connection with our IPO, including under agreements entered into in connection therewith, on
their cost reports. We furnish applicable reports to such members setting forth the amount of such value, to assist their compliance with such cost reporting
requirements. Any determination by a state or federal agency that the provision of such elements of value violate any of these laws could subject us to civil or
criminal penalties, could require us to change or terminate some portions of our operations or
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business, or could disqualify us from providing services to healthcare providers doing business with government programs, and, thus could have a material
adverse effect on our business, financial condition and results of operations.
We periodically receive and respond to questions from government agencies on various matters, and we responded to an informal request in July 2014 from the
United States Department of Health and Human Services (“HHS”) Office of Inspector General to analyze and discuss how the GPO participation agreements
comply with the discount safe harbor to the Anti-Kickback Statute. We have had no further correspondence or interaction, oral or written, with the HHS Office
of Inspector General regarding Anti-Kickback Statute compliance since that time. There is no safe harbor to the Anti-Kickback Statute that is applicable in its
entirety across all of the agreements with our members, and no assurance can be given that the HHS Office of Inspector General or other regulators or
enforcement authorities will agree with our assessment. Any determination by a state or federal agency that the terms, agreements and related communications
with members, or our relationships with our members violates the Anti-Kickback Statute or any other federal or state laws could subject us to civil or criminal
penalties, could require us to change or terminate some portions of our operations or business and could disqualify us from providing services to healthcare
providers doing business with government programs and, thus, result in a material adverse effect on our business, financial condition and results of operations.
False Claims Regulations
Our business is also subject to numerous federal and state laws that forbid the submission or “causing the submission” of false or fraudulent information or the
failure to disclose information in connection with the submission and payment of claims for reimbursement to Medicare, Medicaid, other federal healthcare
programs or private health plans. In particular, the False Claims Act, or FCA, prohibits a person from knowingly presenting or causing to be presented a false
or fraudulent claim for payment or approval by an officer, employee or agent of the United States. In addition, the FCA prohibits a person from knowingly
making, using, or causing to be made or used a false record or statement material to such a claim. Violations of the FCA may result in treble damages, material
monetary penalties and other collateral consequences, potentially including exclusion from participation in federally funded healthcare programs. The
minimum and maximum per claim monetary damages for FCA violations occurring on or after November 2, 2015 and assessed after May 9, 2022 are from
$12,537 to $25,076 per claim, respectively, and will be periodically readjusted for inflation. If enforcement authorities find that we have violated the FCA, it
could have a material adverse effect on our business, financial condition and results of operations. Pursuant to the ACA, a claim that includes items or services
resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA.
These laws and regulations may change rapidly and it is frequently unclear how they apply to our business. Errors created by our products or consulting
services that relate to entry, formatting, preparation or transmission of claim or cost report information by our members may be determined or alleged to be in
violation of these laws and regulations. Any failure of our businesses or our products or services to comply with these laws and regulations, or the assertion that
any of our relationships with suppliers or members violated the Anti-Kickback Statute and therefore caused the submission of false or fraudulent claims, could
(i) result in substantial civil or criminal liability, (ii) adversely affect demand for our services, (iii) invalidate all or portions of some of our member contracts,
(iv) require us to change or terminate some portions of our business, (v) require us to refund portions of our services fees, (vi) cause us to be disqualified from
serving members doing business with government payors, and (vii) have a material adverse effect on our business, financial condition and results of operations.
ERISA Regulatory Compliance
As a threshold matter, the obligation for compliance with the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”), the Internal
Revenue Code (the “Code”), the ACA, the Heath Insurance Portability and Accountability Act (together with its amendments related to the Health Information
Technology for Economic and Clinical Health Act, “HIPAA”), the Mental Health Parity and Addiction Equity Act, the Newborns’ and Mothers’ Health
Protection Act, the Women’s Health and Cancer Rights Act, the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), the Genetic Information
Nondiscrimination Act of 2008, and other laws governing self-funded group health plans (collectively “Employee Benefit Laws”) generally rests with our
clients as plan sponsors to whom we provide third party administrative (“TPA”) services). That is, employers/clients that sponsor group health plans generally
bear the obligation of complying with Employee Benefit Laws, rather than entities, like us, that provide TPA services related to the group health plans. In
certain cases, however, TPAs to ERISA plans can become “co-fiduciaries” with their clients and, therefore, can be liable for ERISA compliance in a limited
capacity. We could become a co-fiduciary either by (1) entering a contractual obligation to be an ERISA fiduciary or (2) by acting as an ERISA fiduciary based
on functions performed. Under ERISA, fiduciary status flows from actions, and TPAs who exercise certain functions, including any discretionary authority or
discretionary responsibility over plan administration or exercise any authority or control respecting management or disposition of plan assets are generally
“functional fiduciaries” with respect to (and limited to) the functions performed by the TPA that trigger fiduciary status.
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We undertake no express liability under ERISA for our clients’ ERISA-governed plans in our template contracts. However, deviations from this standard
language contained in final contracts could subject us to liability for breaches of fiduciary duty under ERISA (and related claims, such as ERISA prohibited
transactions).
If current or future antitrust laws and regulations are interpreted or enforced in a manner adverse to us or our business, we may be subject to enforcement
actions, penalties and other material limitations on our business.
We are subject to federal and state laws and regulations designed to protect competition which, if enforced in a manner adverse to us or our business, could
have a material adverse effect on our business, financial condition and results of operations. Over the last decade or so, the group purchasing industry has been
the subject of multiple reviews and inquiries by the U.S. Senate and its members with respect to antitrust laws. Additionally, the U.S. General Accounting
Office, or GAO, has published several reports examining GPO pricing, contracting practices, activities and fees. We and several other operators of GPOs have
responded to GAO inquiries in connection with the development of such reports. No assurance can be given regarding any further inquiries or actions arising or
resulting from these examinations and reports, or any related impact on our business, financial condition or results of operations.
Congress, the DOJ, the Federal Trade Commission, or FTC, the U.S. Senate or another state or federal entity could at any time open a new investigation of the
group purchasing industry, or develop new rules, regulations or laws governing the industry, that could adversely impact our ability to negotiate pricing
arrangements with suppliers, increase reporting and documentation requirements, or otherwise require us to modify our arrangements in a manner that
adversely impacts our business, financial condition and results of operations. We may also face private or government lawsuits alleging violations arising from
the concerns articulated by these governmental factors or alleging violations based solely on concerns of individual private parties.
If we are found to be in violation of the antitrust laws, we could be subject to civil and criminal penalties or damages. The occurrence of any of these events
could materially harm our business, financial condition and results of operations.
Complex international, federal and state, as well as international, privacy, security and breach notification laws may increase the costs of operation and
expose us to civil and criminal government sanctions and third-party civil litigation.
We must comply with extensive federal and state requirements regarding the use, retention, security and re-disclosure of patient/beneficiary healthcare
information. The Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations that have been issued under it, which we refer
to collectively as HIPAA, contain substantial restrictions and complex requirements with respect to the use and disclosure of certain individually identifiable
health information, referred to as “protected health information.” The HIPAA Privacy Rule prohibits a covered entity or a business associate (essentially, a third
party engaged to assist a covered entity with enumerated operational and/or compliance functions) from using or disclosing protected health information unless
the use or disclosure is validly authorized by the individual or is specifically required or permitted under the HIPAA Privacy Rule and only if certain complex
requirements are met. The HIPAA Security Rule establishes administrative, organizational, physical and technical safeguards to protect the privacy, integrity
and availability of electronic protected health information maintained or transmitted by covered entities and business associates. The HIPAA Breach
Notification Rule requires that covered entities and business associates, under certain circumstances, notify patients/beneficiaries and HHS when there has been
an improper use or disclosure of protected health information.
Our self-funded health benefit plan, the Premier, Inc. Health & Welfare Plan, and our healthcare provider members (provided that these members engage in
HIPAA-defined standard electronic transactions with health plans, which will be all or the vast majority) are directly regulated by HIPAA as “covered entities.”
Most of our U.S. hospital members disclose protected health information to us so that we may use that information to provide certain data analytics,
benchmarking, consulting or other operational and compliance services to these members and accordingly, we are a “business associate” of those members and
are required to protect such health information under HIPAA. With the enactment of the HITECH Act of 2009 and subsequent promulgation of the HIPAA
Omnibus Rule in March 2013, the privacy and security requirements of HIPAA were modified and expanded, and, by way of example, further restrict the
disclosure of protected health information by business associates and covered entities for marketing purposes or as part of a sale of the information to a third
party, and require notification of affected individuals in the event of a breach. The Breach Notification Rule, included within the HIPAA Omnibus Rule, creates
a rebuttable presumption that any acquisition, access, use or disclosure of protected health information not permitted under the Privacy Rule requires notice to
affected patients/beneficiaries and HHS.
Any failure or perceived failure of our products or services to meet HIPAA standards and related regulatory requirements could expose us to certain
notification, penalty and/or enforcement risks, damage our reputation and adversely affect demand for our products and services and force us to expend
material capital, research and development and other resources to modify our products or services to address the privacy and security requirements of our
members and HIPAA.
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In addition to our obligations under HIPAA, there are other federal laws that include specific privacy and security obligations, above and beyond HIPAA, for
certain types of health information and impose additional sanctions and penalties. These rules are not preempted by HIPAA. All 50 states, the District of
Columbia, Guam, Puerto Rico and the Virgin Islands have enacted legislation requiring notice to individuals of security breaches of information involving
personal health information, which is not uniformly defined amongst the breach notification laws. Organizations must review each state’s definitions, mandates
and notification requirements and timelines to appropriately prepare and notify affected individuals and government agencies, including the attorney general in
many states, in compliance with such state laws. Further, most states have enacted patient and/or beneficiary confidentiality laws that protect against the
disclosure of confidential medical information, and many states have adopted or are considering adopting further legislation in this area, including privacy
safeguards, security standards and special rules for so-called “sensitive” health information, such as mental health, genetic testing results, HIV status and
biometric data. These state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements, and we are required to comply
with them as well. The federal government also regulates the confidentiality of substance use disorder treatment records. These regulations, promulgated under
42 C.F.R. Part 2, apply to federally supported substance use disorder treatment programs and lawful holders of substance use disorder treatment records as a
result of an individual consenting to their disclosure to such record holders. We may be considered a lawful holder of treatment records protected 42 C.F.R. Part
2 and therefore have responsibilities to protect such treatment records in ways that go beyond the HIPAA requirements. For example, we may be restricted
from disclosing substance use disorder treatment records in response to requests from law enforcement agencies without first receiving a court order, or we
may be prohibited from disclosing such records to third parties to whom we could typically disclose protected health information under HIPAA. We may be
required to develop additional policies and procedures to address the requirements of 42 C.F.R. Part 2 and more stringent state laws, and we cannot guarantee
that we have all such policies and procedures in place.
On June 28, 2018, California passed the California Consumer Privacy Act (“CCPA”), which imposes material changes in data privacy regulation in response to
consumer demand for better protection of personal data and privacy. CCPA imposes consumer protections that are comparable to the European Union’s General
Data Protection Regulation (“GDPR”) and took effect on January 1, 2020. In the wake of the CCPA’s passage, approximately 22 other states have either
introduced, proposed or passed similar privacy legislation. Virginia was the second state to create sweeping consumer data privacy protections through the
passage of the Consumer Data Protection Act (“CDPA”) which will go into effect on January 1, 2023. On June 8, 2021, Colorado passed the Colorado Privacy
Act (“CPA”) which will go into effect on July 1, 2023. These consumer data privacy laws are similar in nature while maintaining specific unique requirements
and definitions that require close analysis and application of each law to our business practices and related data protections. Similar proposals are also being
considered at the federal level. The CCPA, the most stringent of the state privacy laws, applies to a wide range of businesses that handle Californians’ personal
information and is not limited in scope to entities that have physical operations in California. It applies to for-profit entities “doing business” in the state that
either: (i) have a gross annual revenue in excess of $25 million; or (ii) annually buy, receive for commercial purposes, sell or share for commercial purposes
personal information of 50,000 or more California consumers, households or devices; or, (iii) derive 50% or more of their annual revenues from selling
California consumers’ personal information. CCPA broadens the definition of personal information to include data elements not previously considered under
any U.S. law, and we believe that we have taken the steps necessary to comply with new requirements governing the collection, use and sharing of personal
information, including updating the disclosures in our privacy notices, establishing processes for responding to consumer rights requests, observing restrictions
on data monetization practices, revisiting relationships and, where necessary, revising our agreements with vendors that handle personal information on our
behalf. Violations of the CCPA are subject to enforcement by the California Attorney General’s office, which can seek civil penalties of $2,500 for each
violation or $7,500 for each intentional violation after notice and a 30-day opportunity to cure have been provided. Enforcement activities under the CCPA by
the Attorney General became effective July 1, 2020.
The implementation of GDPR on May 25, 2018, a regulation in European Union (“EU”) law on data protection and privacy for all individuals within the EU
and the European Economic Area (“EEA”), can affect our obligations on the receipt, storage and use of personally identifiable information (Personal Data)
attributed to individuals residing in the EU and EEA. GDPR applies to all enterprises, regardless of location, that are doing business in the EU, or that collect
and analyze data tied to EU and EEA residents in connection with goods/services offered to such individuals. Some of our products and solutions are accessible
internationally and such services collect Personal Data attributed to EU and EEA individuals when they engage in the use of our products and solutions. GDPR
requires stringent technical and security controls surrounding the storage, use and disclosure of Personal Data, including the right to revoke consent to use,
maintain, share or identify the individual through their Personal Data. GDPR is a regulation, not a directive; therefore, it does not require national governments
to pass any enabling legislation and is directly binding and applicable. Sanctions under GDPR for violations of certain provisions range from a warning in
writing to €20 million or up to 4% of the annual worldwide turnover of the preceding financial year for that organization, whichever is greater.
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We are unable to predict what changes to HIPAA, the GDPR, the CCPA, CDP, CPA or other federal or state laws or regulations might be made in the future or
how those changes could affect the demand for our products and services, our business or the associated costs of compliance.
Failure to comply with any of the federal and state standards regarding patient privacy, identity theft prevention and detection and data security may subject us
to penalties, including civil monetary penalties and, in some circumstances, criminal penalties. In addition, such failure may materially injure our reputation
and adversely affect our ability to retain members and attract new members and, accordingly, adversely affect our financial performance.
New requirements related to the interoperability of health information technology promulgated by the Office of the National Coordinator for Health
Information Technology and enforced by the HHS Office of Inspector General could increase the costs of operation and expose us to civil government
sanctions.
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On May 1, 2020, the Office of the National Coordinator (“ONC”) for Health Information Technology promulgated final regulations under the authority of the
21 Century Cures Act (“ONC Rules”) to impose new conditions to obtaining and maintaining certification of certified health information technology and
prohibit certain actors - developers of certified health information technology, health information networks, health information exchanges and health care
providers - from engaging in activities that are likely to interfere with the access, exchange or use of electronic health information (information blocking). The
final regulations further defined exceptions for activities that are permissible, even though they may have the effect of interfering with the access, exchange or
use of electronic health information. The information subject to the information blocking restrictions is limited to electronic individually identifiable health
information to the extent that it would be included in a designated record set. Until October 6, 2022, the information subject to the information blocking
restrictions is further limited to the data elements represented in the United States Core Data for Interoperability standard.
Under the ONC Rules, we are considered a “health IT developer” because of the government certifications we hold in our TheraDoc and eCQM solutions. As
such, we have evaluated and assessed the applicability of the ONC Rules to our TheraDoc and eCQM solutions, and we have determined that the ONC Rules
currently do not apply to the data we hold on TheraDoc and eCQM solutions because the data is not part of any designated record set. Further, our customers
contractually agree that the data that we maintain and process on behalf of our customers does not qualify as a designated record set. We will continue to assess
our products and services to discern whether or not they fall under the purview of the ONC Rules. On April 24, 2020, the HHS Office of Inspector General
published a proposed rule to incorporate its new civil monetary penalty authority for activities that constitute information blocking. When finalized, the HHS
Office of Inspector General may impose information blocking penalties against developers of certified health information technology, health information
networks or health information exchanges of up to $1 million per violation. The HHS Office of Inspector General proposed that its civil monetary penalty
authority for information blocking will begin 60 days after it issues a final rule and has indicated that it intends to issue a final rule in September 2022. Any
application of ONC Rules or similar regulations to our business could adversely affect our financial results by increasing our operating costs, slowing our time
to market for our solutions, and making it uneconomical to offer some products.
If we become subject to regulation by the Food and Drug Administration because the functionality in one or more of our software applications causes the
software to be regulated as a medical device, our financial results may be adversely impacted due to increased operating costs or delayed commercialization
of regulated software products.
The Food and Drug Administration (“FDA”) has the authority to regulate products that meet the definition of a medical device under the Federal Food, Drug,
and Cosmetic Act. To the extent that functionality or intended use in one or more of our current or future software products causes the software to be regulated
as a medical device under existing or future FDA laws or regulations including the 21 Century Cures Act, which addresses, among other issues, the patient
safety concerns generated by cybersecurity risks to medical devices and the interoperability between medical devices, we could be required to:
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register our company and list our FDA-regulated products with the FDA;
obtain pre-market clearance from the FDA based on demonstration of substantial equivalence to a legally marketed device before marketing our
regulated products;
obtain FDA approval by demonstrating the safety and effectiveness of the regulated products prior to marketing;
submit to inspections by the FDA; and
comply with various FDA regulations, including the agency’s quality system regulation, compliant handling and medical device reporting
regulations, requirements for medical device modifications, increased rigor of the secure development life cycle in the development of medical
devices and the interoperability of medical devices and electronic health records, requirements for clinical investigations, corrections and removal
reporting regulations, and post-market surveillance regulations.
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The FDA can impose extensive requirements governing pre- and post-market activities, such as clinical investigations involving the use of a regulated product,
as well as conditions relating to clearance or approval, labeling and manufacturing of a regulated product. In addition, the FDA can impose extensive
requirements governing development controls and quality assurance processes. Any application of FDA regulations to our business could adversely affect our
financial results by increasing our operating costs, slowing our time to market for regulated software products, subjecting us to additional government oversight
and regulatory inspections and making it uneconomical to offer some software products.
Legal and Tax-Related Risks
We are subject to litigation from time to time, which could have a material adverse effect on our business, financial condition and results of operations.
We participate in businesses and activities that are subject to substantial litigation. We are from time to time involved in litigation, which may include claims
relating to contractual disputes, product liability, torts or personal injury, employment, antitrust, intellectual property or other commercial or regulatory matters.
Additionally, if current or future government regulations are interpreted or enforced in a manner adverse to us or our business, specifically those with respect to
antitrust or healthcare laws, we may be subject to enforcement actions, penalties, damages and other material limitations on our business.
Furthermore, as a public company, we may become subject to stockholder inspection demands under Delaware law, and derivative or other similar litigation
that can be expensive, divert human and financial capital to less productive uses, and result in potential reputational damage. The August 2020 Restructuring
resulted in (i) the announcement of several investigations by private law firms of possible securities law violations; (ii) stockholder inspection demands seeking
to investigate possible breaches of fiduciary duties; and (iii) the filing of a shareholder derivative complaint on March 4, 2022, captioned City of Warren
General Employees’ Retirement System v. Michael Alkire, et al., Case No. 2022-0207-JTL. The complaint, purportedly brought on behalf of Premier, was filed
in the Delaware Court of Chancery against our current and former Chief Executive Officers and current and certain former directors. We are named as a
nominal defendant in the complaint. The lawsuit alleges that the named officers and directors breached their fiduciary duties and committed corporate waste by
approving agreements between Premier and certain of the former LPs that provided for accelerated payments as consideration for the early termination of the
tax receivable agreement (“TRA”) with such LPs. (See “Item 3. Legal Proceedings”). In the event that the City of Warren General Employees’ Retirement
System case, or any of the other matters referenced above that results in formal litigation, ultimately result in an adverse judgment, we may experience an
adverse impact on our financial condition, results of operations or stock price.
From time to time, we have been named as a defendant in class action antitrust lawsuits brought by suppliers or purchasers of medical products. Typically,
these lawsuits have alleged the existence of a conspiracy among manufacturers of competing products, distributors and/or operators of GPOs, including us, to
deny the plaintiff access to a market for certain products, to raise the prices for products and/or to limit the plaintiff’s choice of products to buy. No assurance
can be given that we will not be subjected to similar actions in the future or that any such existing or future matters will be resolved in a manner satisfactory to
us or which will not harm our business, financial condition or results of operations.
We may become subject to additional litigation or governmental investigations in the future. These claims may result in material defense costs or may compel
us to pay material fines, judgments or settlements, which, if uninsured, could have a material adverse effect on our business, financial condition, results of
operations and cash flows. In addition, certain litigation matters could adversely impact our commercial reputation, which is critical for attracting and retaining
customers, suppliers and member participation in our GPO programs. Further, stockholder and other litigation may result in adverse investor perception of our
company, negatively impact our stock price and increase our cost of capital.
Failure to protect our intellectual property and claims against our use of the intellectual property of third parties could cause us to incur unanticipated
expense and prevent us from providing our products and services, which could adversely affect our business, financial condition and results of operations.
Our success depends in part upon our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of
intellectual property rights, including trade secrets, copyrights and trademarks, as well as customary contractual and confidentiality protections and internal
policies applicable to employees, contractors, members and business partners. These protections may not be adequate, however, and we cannot assure you that
they will prevent misappropriation of our intellectual property. In addition, parties that gain access to our intellectual property might fail to comply with the
terms of our agreements and policies and we may not be able to enforce our rights adequately against these parties. The disclosure to, or independent
development by, a competitor of any trade secret, know-how or other technology not protected by a patent could materially and adversely affect any
competitive advantage we may have over such competitor. The process of enforcing our intellectual property rights through legal proceedings would likely be
burdensome and expensive and our ultimate success
48
cannot be assured. Our failure to adequately protect our intellectual property and proprietary rights could adversely affect our business, financial condition and
results of operations.
In addition, we could be subject to claims of intellectual property infringement, misappropriation or other intellectual property violations as our applications’
functionalities overlap with competitive products, and third parties may claim that we do not own or have rights to use all intellectual property used in the
conduct of our business or acquired by us. We could incur substantial costs and diversion of management resources defending any such claims. Furthermore, a
party making a claim against us could secure a judgment awarding substantial damages as well as injunctive or other equitable relief that could effectively
block our ability to provide products or services. Such claims also might require indemnification of our members at material expense.
A number of our contracts with our members contain indemnity provisions whereby we indemnify them against certain losses that may arise from third-party
claims that are brought in connection with the use of our products.
Our exposure to risks associated with the protection and use of intellectual property may be increased as a result of acquisitions, as we have limited visibility
into the development process of acquired entities or businesses with respect to their technology or the care taken by acquired entities or businesses to safeguard
against infringement risks. In addition, third parties may make infringement and similar or related claims after we have acquired technology that had not been
asserted prior to our acquisition thereof.
If we are required to collect sales and use taxes on the products and services we sell in certain jurisdictions or online, we may be subject to tax liability for
past sales, future sales may decrease and our financial condition may be materially and adversely affected.
Sales tax is currently not imposed on the administrative fees we collect in connection with our GPO programs. If sales tax were imposed in the future on such
fees, the profitability of our GPO programs may be materially and adversely affected.
Rules and regulations applicable to sales and use tax vary materially by tax jurisdiction. In addition, the applicability of these rules given the nature of our
products and services is subject to change.
We may lose sales or incur material costs should various tax jurisdictions be successful in imposing sales and use taxes on a broader range of products and
services than those currently so taxed, including products and services sold online. A successful assertion by one or more taxing authorities that we should
collect sales or other taxes on the sale of our solutions could result in substantial tax liabilities for past and future sales, decrease our ability to compete and
otherwise harm our business.
If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our products and services, including products and
services sold online, we may be liable for past taxes in addition to taxes going forward. Liability for past taxes may also include very substantial interest and
penalty charges. If we are required to collect and pay back taxes (and the associated interest and penalties) and if our members fail or refuse to reimburse us for
all or a portion of these amounts, we will have incurred unplanned costs that may be substantial. Moreover, imposition of such taxes on our services going
forward will effectively increase the cost of such services to our members and may adversely affect our ability to retain existing members or to gain new
members in the areas in which such taxes are imposed.
Changes in tax laws could materially impact our effective tax rate, income tax expense, anticipated tax benefits, deferred tax assets, cash flows and
profitability.
Continued economic and political conditions in the United States could result in changes in U.S. tax laws beyond those enacted in connection with the TCJA on
December 22, 2017 and the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) on March 27, 2020. Further changes to U.S. tax laws could
impact how U.S. corporations are taxed. Although we cannot predict whether or in what form such changes will pass, if enacted into law, they could have a
material impact on our effective tax rate, income tax expense, ability to fully realize anticipated tax benefits that correspond to our fixed payment obligations
associated with the acceleration of our TRA, deferred tax assets, results of operations, cash flows and profitability.
A loss of a major tax dispute could result in a higher tax rate on our earnings, which could result in a material adverse effect on our financial condition
and results of operations.
Income tax returns that we file are subject to review and examination. We recognize the benefit of income tax positions we believe are more likely than not to
be sustained upon challenge by a tax authority. If any tax authority successfully challenges our positions or if we lose a material tax dispute, our effective tax
rate on our earnings could increase substantially and result in a material adverse effect on our financial condition.
49
Risks Related to Our Corporate Structure
Payments required under the Unit Exchange and Tax Receivable Acceleration Agreements will reduce the amount of overall cash flow that would
otherwise be available to us. In addition, we may not be able to realize all or a portion of the expected tax benefits that correspond to our fixed payment
obligations associated with the acceleration of our TRA.
We entered into Unit Exchange and Tax Receivable Acceleration Agreements, effective as of July 1, 2020 (the “Unit Exchange Agreements”), with a
substantial majority of our member-owners. Pursuant to the terms of the Unit Exchange Agreements, we elected to terminate the TRA upon payment to the
member-owners of the discounted present value of the tax benefit payments otherwise owed to them over a 15-year period under the TRA. As a result of the
acceleration and termination of the TRA, we are obligated to pay our member-owners approximately $472.6 million in aggregate. Of that amount, an aggregate
of $299.0 million remains payable in equal quarterly installments through the quarter ending June 30, 2025. Due to the payments required under the Unit
Exchange Agreements, our overall cash flow and discretionary funds will be reduced, which may limit our ability to execute our business strategies or deploy
capital for preferred use. In addition, if we do not have available capital on hand or access to adequate funds to make these required payments, our financial
condition would be materially adversely impacted.
The payments required upon termination of the TRA are based upon the present value of all forecasted future payments that would have otherwise been made
under the TRA. These payments are fixed obligations of ours and could ultimately exceed the actual tax benefits that we realize. Additionally, if our actual
taxable income were insufficient or there were adverse changes in applicable law or regulations, we may be unable to realize all or a portion of these expected
benefits and our cash flows and stockholders’ equity could be negatively affected.
Our certificate of incorporation and bylaws and provisions of Delaware law may discourage or prevent strategic transactions, including a takeover of our
company, even if such a transaction would be beneficial to our stockholders.
Provisions contained in our certificate of incorporation and bylaws and provisions of the Delaware General Corporation Law, or DGCL, could delay or prevent
a third party from entering into a strategic transaction with us, even if such a transaction would benefit our stockholders. For example, our certificate of
incorporation and bylaws:
•
•
•
•
•
•
•
•
divide our Board of Directors into three classes with staggered three-year terms, which may delay or prevent a change of our management or a
change in control;
authorize our Board of Directors to issue “blank check” preferred stock in order to increase the aggregate number of outstanding shares of capital
stock and thereby make a takeover more difficult and expensive;
do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director
candidates;
do not permit stockholders to take action by written consent;
provide that special meetings of the stockholders may be called only by or at the direction of the Board of Directors, the chair of our Board or the
chief executive officer;
require advance notice to be given by stockholders of any stockholder proposals or director nominees;
require a super-majority vote of the stockholders to amend our certificate of incorporation; and
allow our Board of Directors to make, alter or repeal our bylaws but only allow stockholders to amend our bylaws upon the approval of 66 / % or
more of the voting power of all of the outstanding shares of our capital stock entitled to vote.
3
2
In addition, we are subject to the provisions of Section 203 of the DGCL which limits, subject to certain exceptions, the right of a corporation to engage in a
business combination with a holder of 15% or more of the corporation’s outstanding voting securities or certain affiliated persons.
These restrictions could limit stockholder value by impeding the sale of our company and discouraging potential takeover attempts that might otherwise be
financially beneficial to our stockholders.
50
Risks Related to Our Class A Common Stock
If we fail to maintain an effective system of integrated internal controls, we may not be able to report our financial results accurately, we may determine
that our prior financial statements are not reliable, or we may be required to expend material financial and personnel resources to remediate any
weaknesses, any of which could have a material adverse effect on our business, financial condition and results of operations.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a
timely basis is a costly and time-consuming effort that needs to be evaluated frequently. Section 404 of the Sarbanes-Oxley Act requires public companies to
conduct an annual review and evaluation of their internal controls and attestations of the effectiveness of internal controls by independent auditors. Maintaining
effective internal controls has been and will continue to be costly and may divert management’s attention.
We have identified material weaknesses in our internal controls over financial reporting in the past. Our future evaluation of our internal controls over financial
reporting may identify additional material weaknesses that may cause us to (i) be unable to report our financial information on a timely basis or (ii) determine
that our previously issued financial statements should no longer be relied upon because of a material error in such financial statements, and thereby result in
adverse regulatory consequences, including sanctions by the SEC, violations of NASDAQ listing rules or stockholder litigation. In the event that we identify a
material weakness in our internal control over financial reporting, we may need to amend previously reported financial statements and will be required to
implement a remediation plan to address the identified weakness, which will likely result in our expending material financial and personnel resources to
remediate the identified weakness. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability
of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm
were to report a material weakness in our internal controls over financial reporting. The occurrence of any of these events could materially adversely affect our
business, financial condition and results of operations and could also lead to a decline in the price of our Class A common stock.
There can be no assurance we will pay dividends on our Class A common stock at current levels or at all, and failure to pay any such dividends could have
a material adverse impact on our stock price and your investment in Premier.
Since September 2020, we have paid quarterly cash dividends on our Class A common stock. The continued payment of dividends and the rate of any such
dividends will be at the discretion of our Board of Directors after taking into account various factors, including our business, operating results and financial
condition, current and anticipated capital requirements and cash needs, plans for expansion and any legal or contractual limitations on our ability to pay
dividends. If we cease paying dividends, we could experience a material adverse impact on our stock price and your investment may materially decline, and as
a result, capital appreciation in the price of our Class A common stock, if any, may be your only source of gain on an investment in our Class A common stock.
Our future issuance of common stock, preferred stock, limited partnership units or debt securities could have a dilutive effect on our common stockholders
and adversely affect the market value of our Class A common stock.
In the future, we could issue a material number of shares of Class A common stock, which could dilute our existing stockholders materially and have a material
adverse effect on the market price for the shares of our Class A common stock. Furthermore, the future issuance of shares of preferred stock with voting rights
may adversely affect the voting power of our common stockholders, either by diluting the voting power of our common stock if the preferred stock votes
together with the common stock as a single class or by giving the holders of any such preferred stock the right to block an action on which they have a separate
class vote even if the action were approved by the holders of our common stock. The future issuance of shares of preferred stock with dividend or conversion
rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our Class A
common stock by making an investment in the Class A common stock less attractive. In addition to potential equity issuances described above, we also may
issue debt securities that would rank senior to shares of our Class A common stock.
Upon our liquidation, holders of our preferred shares, if any, and debt securities and instruments will receive a distribution of our available assets before
holders of shares of our Class A common stock. We are not required to offer any such additional debt or equity securities to existing stockholders on a
preemptive basis. Therefore, additional issuances of our Class A common stock, directly or through convertible or exchangeable securities, warrants or options,
will dilute the holders of shares of our existing Class A common stock and such issuances, or the anticipation of such issuances, may reduce the market price of
shares of our Class A common stock. Any preferred shares, if issued, would likely have a preference on distribution payments, periodically or upon liquidation,
which could limit our ability to make distributions to holders of shares of our Class A common stock. Because our decision to issue debt or equity securities or
otherwise incur debt in the future will depend on market
51
conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future capital raising efforts.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of June 30, 2022, we occupy our Charlotte, North Carolina headquarters under a long-term lease which expires in 2026 and includes options for us, at our
discretion, to renew the lease for up to 15 years in total beyond that date. We also lease or sublease nine smaller facilities across five states. We believe that our
headquarters, as well as our smaller leased facilities, are suitable for our use and are, in all material respects, adequate for our present and expected needs. In
connection with COVID-19 and related temporary closures, we continue to evaluate our real estate needs.
We generally conduct the operations of our Supply Chain Services segment and our Performance Services segment across our property locations. See Note 18 -
Commitments and Contingencies to the accompanying audited consolidated financial statements for more information about our operating leases.
Item 3. Legal Proceedings
We operate businesses that are subject to substantial litigation from time to time. We are periodically involved in litigation, arising in the ordinary course of
business or otherwise, which from time to time may include claims relating to contractual disputes, product liability, tort or personal injury, employment,
antitrust, intellectual property or other commercial or regulatory matters. If current or future government regulations are interpreted or enforced in a manner
adverse to us or our business, including without limitation those with respect to antitrust or healthcare laws, we may be subject to enforcement actions,
penalties, damages and material limitations on our business.
From time to time we have been named as a defendant in class action antitrust lawsuits brought by suppliers or purchasers of medical products. Typically, these
lawsuits have alleged the existence of a conspiracy among manufacturers of competing products, distributors and/or operators of GPOs, including us, to deny
the plaintiff access to a market for certain products, to raise the prices for products and/or limit the plaintiff’s choice of products to buy. We believe that we
have at all times conducted our business affairs in an ethical and legally compliant manner and have successfully resolved all such actions. No assurance can be
given that we will not be subjected to similar actions in the future or that any such existing or future matters will be resolved in a manner satisfactory to us or
which will not harm our business, financial condition or results of operations.
On March 4, 2022, a shareholder derivative complaint captioned City of Warren General Employees’ Retirement System v. Michael Alkire, et al., Case No.
2022-0207-JTL, purportedly brought on behalf of Premier, was filed in the Delaware Court of Chancery against our current and former Chief Executive
Officers and current and certain former directors. We are named as a nominal defendant in the complaint. The lawsuit alleges that the named officers and
directors breached their fiduciary duties and committed corporate waste by approving agreements between Premier and certain of the former LPs that provided
for accelerated payments as consideration for the early termination of the TRA with such LPs. The complaint asserts that the aggregate early termination
payment amounts of $473.5 million exceeded the alleged value of the tax assets underlying the TRA by approximately $225.0 million.
The complaint seeks unspecified damages, costs and expenses, including attorney fees, and declaratory and other equitable relief. Since the lawsuit is
purportedly brought on behalf of Premier, and we are only a nominal defendant, the alleged damages were allegedly suffered by us. We and the individual
defendants deny the allegations in the complaint and intend to vigorously defend the litigation. In light of the fact that the lawsuit is in an early stage and the
claims do not specify an amount of damages, we cannot predict the ultimate outcome of the suit.
Additional information relating to certain legal proceedings in which we are involved is included in Note 18 - Commitments and Contingencies, to the
accompanying audited consolidated financial statements, which is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not Applicable.
52
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Class A common stock is publicly traded on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “PINC.”
Based on the records of our Class A common stock transfer agent, as of August 11, 2022, there were 118,066,513 shares of our Class A common stock issued
and outstanding, held by 82 holders of record. Because a substantial portion of our Class A common stock is held by brokers and other institutions on behalf of
shareholders, we are unable to estimate the total number of beneficial owners currently holding our Class A common stock.
Dividend Policy
During fiscal year 2022, our Board of Directors declared regular quarterly cash dividends of $0.20 per share on our outstanding shares of Class A common
stock, which were paid on September 15, 2021, December 15, 2021, March 15, 2022 and June 15, 2022.
On August 4, 2022, our Board of Directors declared a quarterly cash dividend of $0.21 per share, payable on September 15, 2022 to stockholders of record on
September 1, 2022.
The actual declaration of any future cash dividends, and the setting of record and payment dates as well as the per share amounts, will be at the discretion of
our Board of Directors each quarter after consideration of various factors, including our results of operations, financial condition and capital requirements,
earnings, general business conditions, restrictions imposed by our current credit facility and any future financing arrangements, legal restrictions on the
payment of dividends and other factors our Board of Directors deems relevant. We currently expect quarterly dividends to continue to be paid on or about
December 15, March 15, June 15 and September 15, respectively.
Recent Sales of Unregistered Securities
All sales of unregistered securities during the fiscal year ended June 30, 2022 have been previously reported in filings with the SEC.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by Item 201(d) of Regulation S-K is provided under “Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters—Equity Compensation Plan Information”, incorporated herein by reference.
Purchase of Equity Securities
On August 5, 2021, our Board of Directors authorized the repurchase of up to $250.0 million of our outstanding Class A common stock during fiscal year 2022
through open market purchases or privately negotiated transactions. As of June 30, 2022, we had completed our stock repurchase program and repurchased 6.4
million shares of Class A common stock at an average price of $38.88 per share for a total purchase price of $250.0 million. No shares of Class A common
stock were repurchased during the three months ended June 30, 2022.
Company Stock Performance
The performance graph below shows a five-year comparison of the total cumulative return, assuming reinvestment of all dividends, had $100 been invested at
the close of business on June 30, 2017, in each of:
•
•
•
•
our Class A common stock;
the NASDAQ Composite stock index (“NASDAQ Composite Index”);
a customized peer group of companies previously used by us (the “Prior Peer Group”); and
a customized peer group of 12 companies selected by us that we believe is better aligned with our company (the “Peer Group”).
We have used the Peer Group, a group selected in good faith and used by our compensation committee of the Board of Directors (“compensation committee”)
for peer comparison benchmarking purposes because we believe this group provides an accurate representation of our peers. Our compensation committee
reviewed and, in consultation with its independent
53
consultant, selected the companies in our fiscal year 2022 Peer Group in April 2022. Our compensation committee determined it appropriate to reconfigure our
peer group to a more representative group of appropriately sized companies that reflect our diverse and growing business model. As the companies in our Peer
Group change, our compensation committee will continue to review and reconfigure our Peer Group as it deems necessary in consultation with its independent
consultant.
The Peer Group graph line consists of the following 12 companies: Allscripts Healthcare Solutions Inc., AMN Healthcare Services, Inc., ASGN Inc., Change
Healthcare Inc., Evolent Health, Inc., FTI Consulting Inc., Huron Consulting Group Inc., Mednax Inc., Omnicell Inc., Owens & Minor Inc., Patterson
Companies, Inc. and R1 RCM Inc. Compared to our the Prior Peer Group, our current Peer Group includes: Change Healthcare Inc., Evolent Health, Inc., and
R1 RCM Inc. which our compensation committee believed were similar in size and business operations to us and excludes Cerner Corp., Hill-Rom Holdings
Inc., HMS Holdings Corp., Magellan Health, Inc., and NextGen Healthcare, Inc. HMS Holdings Corp. was included in the initial Prior Peer Group but was
excluded from the graph below because it was acquired during our fiscal year 2021.
The information contained in the performance graph below shall not be deemed “soliciting material” or to be “filed” with the SEC nor shall such information
be deemed incorporated by reference into any future filing under the Securities Act or the Exchange Act except to the extent we specifically incorporate it by
reference into such filing.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
Research Data Group, Inc. provided the data for the indices presented below. We assume no responsibility for the accuracy of the indices’ data, but we are not
aware of any reason to doubt its accuracy.
(a)
Value of Investment as of June 30 :
Company/Index Name
Premier, Inc. Class A Common Stock
NASDAQ Composite Index
Prior Peer Group
Peer Group
2017
2018
2019
2020
2021
2022
$
$
$
$
100.00 $
100.00 $
100.00 $
100.00 $
101.06 $
123.60 $
95.12 $
95.63 $
108.64 $
133.22 $
90.20 $
88.55 $
95.22 $
169.11 $
83.90 $
82.78 $
98.84 $
245.60 $
147.06 $
152.77 $
103.58
188.07
140.73
149.44
54
_________________________________
(a) Assumes $100 invested on June 30, 2017, including reinvestment of dividends for periods from 2017-2022. We began paying cash dividends in September 2020.
We will neither make nor endorse any predictions as to future stock performance or whether the trends depicted in the graph above will continue or change in
the future. The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this
Annual Report. This discussion is designed to provide the reader with information that will assist in understanding our consolidated financial statements, the
changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain
accounting principles affect our consolidated financial statements. In addition, the following discussion includes certain forward-looking statements. For a
discussion of important factors, including the continuing development of our business and other factors which could cause actual results to differ materially
from the results referred to in the forward-looking statements, see “Item 1A. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements”
contained in this Annual Report. Unless otherwise indicated, information in Management’s Discussion and Analysis of Financial Condition and Results of
Operations has been retrospectively adjusted to reflect continuing operations for all periods presented. See Note 4 - Discontinued Operations and Exit Activities
to the audited consolidated financial statements included in this Annual Report for further information.
Business Overview
Our Business
Premier, Inc. (“Premier”, the “Company”, “we”, or “our”) is a leading healthcare improvement company, uniting an alliance of U.S. hospitals, health systems
and other providers and organizations to transform healthcare. We partner with hospitals, health systems, physicians, employers, product suppliers, service
providers, and other healthcare providers and organizations with the common goal of improving and innovating in the clinical, financial and operational areas
of their businesses to meet the demands of a rapidly evolving healthcare industry. We deliver value through a comprehensive technology-enabled platform that
offers critical supply chain services, clinical, financial, operational and value-based care software-as-a-service (“SaaS”) as well as clinical and enterprise
analytics licenses, consulting services, performance improvement collaborative programs, third-party administrator services, access to our centers of excellence
program and digital invoicing and payment processes for healthcare product suppliers and service providers and continue to expand our capabilities to more
fully address and coordinate care improvement and standardization in the employer, payor and life sciences markets. We also provide services to other
businesses including food service, schools and universities.
We generated net revenue, net income and Adjusted EBITDA (a financial measure not determined in accordance with generally accepted accounting principles
(“Non-GAAP”)) for the periods presented as follows (in thousands):
Net revenue
Net income
Non-GAAP Adjusted EBITDA
Year Ended June 30,
2022
2021
$
1,432,901 $
268,318
498,682
1,721,152
304,584
473,230
See “Our Use of Non-GAAP Financial Measures” and “Results of Operations” below for a discussion of our use of Non-GAAP Adjusted EBITDA and a
reconciliation of net income to Non-GAAP Adjusted EBITDA.
Our Business Segments
Our business model and solutions are designed to provide our members and other customers access to scale efficiencies while focusing on optimization of
information resources and cost containment, provide actionable intelligence derived from anonymized data in our data warehouse provided by our members,
mitigate the risk of innovation, and disseminate best practices that will help our member organizations and other customers succeed in their transformation to
higher quality and more cost-effective healthcare. We deliver our integrated platform of solutions that address the areas of clinical intelligence, margin
improvement and value-based care through two business segments: Supply Chain Services and Performance Services.
55
Segment net revenue was as follows (in thousands):
Net revenue:
Supply Chain Services
Performance Services
Segment net revenue
Year Ended June 30,
% of Net Revenue
2022
2021
Change ($)
Change (%)
2022
2021
$
$
1,031,946 $
400,983
1,432,929 $
1,343,634 $
377,518
1,721,152 $
(311,688)
23,465
(288,223)
(23) %
6 %
(17)%
72 %
28 %
100 %
78 %
22 %
100 %
Our Supply Chain Services segment includes one of the largest healthcare group purchasing organization programs (“GPO”) in the United States, serving
acute, non-acute and non-healthcare sites and providing supply chain co-management, purchased services and direct sourcing activities. We generate revenue in
our Supply Chain Services segment from administrative fees received from suppliers based on the total dollar volume of goods and services purchased by our
members and other customers, service fees from supply chain co-management, subscription fees from purchased services and through product sales in
connection with our direct sourcing activities.
Our Performance Services segment consists of three sub-brands: PINC AI
, our technology and services platform with offerings that help optimize
performance in three main areas – clinical intelligence, margin improvement and value-based care – using advanced analytics to identify improvement
opportunities, consulting services for clinical and operational design, and workflow solutions to hardwire sustainable change in the provider, life sciences and
payor markets; Contigo Health , our direct-to-employer business which provides third party administrator services and management of health benefit programs
that allow employers to contract directly with healthcare providers as well as partners with healthcare providers to provide employers access to a specialized
care network through Contigo Health’s centers of excellence program; and Remitra , our digital invoicing and payables business which provides financial
support services to healthcare product suppliers and service providers. Each sub-brand serves different markets but are all united in our vision to optimize
provider performance and accelerate industry innovation for better, smarter healthcare. For additional information, please see “Performance Services” above.
TM
®
TM
Acquisitions and Divestitures
Acquisition of Invoice Delivery Services, LP Assets
On March 1, 2021, we acquired, through our indirect, wholly owned subsidiary, Premier IDS, LLC, substantially all the assets and assumed certain liabilities of
Invoice Delivery Services, LP (“IDS”) for an adjusted purchase price of $80.7 million, subject to certain adjustments, of which $80.0 million was paid at
closing with borrowings under our Credit Facility (as defined in Note 10 - Debt and Notes Payable to the accompanying audited consolidated financial
statements). IDS has been integrated within Premier under the brand name Remitra and is reported as part of the Performance Services segment. See Note 3 -
Business Acquisitions to the accompanying audited consolidated financial statements for further information.
Market and Industry Trends and Outlook
We expect that certain trends and economic or industrywide factors will continue to affect our business, both in the short- and long-term. We have based our
expectations described below on assumptions made by us and on information currently available to us. To the extent our underlying assumptions about, or
interpretation of, available information prove to be incorrect, our actual results may vary materially from our expected results. See “Cautionary Note Regarding
Forward-Looking Statements” and “Risk Factors.”
Trends in the U.S. healthcare market affect our revenues and costs in the Supply Chain Services and Performance Services segments. The trends we see
affecting our current healthcare business include the impact of the implementation of current or future healthcare legislation, particularly the potential for the
Affordable Care Act (“ACA”) to be materially altered by Congress, through regulatory action by government agencies, or in the event of a change of party
control in Congress. Actions related to the ACA could be disruptive for Premier and our customers, impacting revenue, reporting requirements, payment
reforms, shift in care to the alternate site market and increased data availability and transparency. To meet the demands of this environment, there will be
increased focus on scale and cost containment and healthcare providers will need to measure and report on and bear financial risk for outcomes. Over the long-
term, we believe these trends will result in increased demand for our Supply Chain Services and Performance Services solutions in the areas of cost
management, quality and safety, and value-based care; however, there are uncertainties and risks that may affect the actual impact of these anticipated trends,
expected demand for our services or related assumptions on our business. See “Cautionary Note Regarding Forward-Looking Statements” for more
information.
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COVID-19 Pandemic, Variants Thereof, Recurrences or Similar Pandemics
In addition to the trends in the U.S. healthcare market discussed above, we face known and unknown uncertainties arising from the outbreak of the novel
coronavirus (“COVID-19”) and the resulting global pandemic and financial and operational uncertainty, including its impact on the overall economy, our sales,
operations and supply chains, our members and other customers, workforce and suppliers, and countries. As a result of the COVID-19 pandemic, variants
thereof, and potential future pandemic outbreaks, we face significant risks including, but not limited to:
• Overall economic and capital markets decline. The impact of the COVID-19 pandemic and variants thereof and associated supply chain disruptions
could result in a prolonged recession or depression in the United States or globally that could harm the banking system, limit demand for many products
and services and cause other foreseen and unforeseen events and circumstances, all of which could negatively impact us. The continued spread of COVID-
19 and variants thereof has led to and could continue to lead to severe disruption and volatility in the United States and global capital markets, which could
increase our cost of capital and adversely affect our ability to access the capital markets in the future. In addition, trading prices on the public stock market,
as well as that of our Class A common stock, have been highly volatile as a result of the COVID-19 pandemic.
•
•
•
Changes in the demand for our products and services. We experienced and may continue to experience demand uncertainty from both material
increases and decreases in demand and pricing for our products and services as a result of the COVID-19 pandemic. There was a material increase in
demand and pricing for personal protective equipment (“PPE”), drugs and other supplies directly related to treating and preventing the spread of COVID-
19 and variants thereof during fiscal 2020 and 2021. In the second half of fiscal 2022, demand and pricing for PPE, drugs and other supplies decreased
resulting in a decline in revenue relative to the previous two years. Patients, hospitals and other medical facilities continued to defer some elective
procedures and routine medical visits due to ongoing and continuing uncertainty from COVID-19 outbreaks or variants or as a result of restrictive
government orders or advisories. While demand for many supplies and services not related to COVID-19 may continue to decline into fiscal 2023, rolling
shortages of products and drugs needed for routine procedures, such as, contrast media and syringes, could have an impact on demand for hospital services
and the financial conditions of providers, particularly those forced to procure such products through resellers.
Increased labor costs. Labor shortages and the resulting increases to the cost of labor are a continued challenge to the health care providers we serve.
Limited availability of staff resources and rolling staff shortages may continue to impair the ability of existing staff to manage product and service
procurement. While our non-acute and non-healthcare business such as education and hospitality customers, experienced a rebound in fiscal year 2022, the
recovery in the business may be hampered by future COVID-19 variants or outbreaks, which are highly uncertain and cannot be accurately predicted.
Limited access to our members’ facilities that impacts our ability to fulfill our contractual requirements. While some of our hospital customers have
increased access to their facilities for non-patients, including our field teams, consultants and other professionals, there are many that still are not allowing
onsite access outside of their staff. Hospital imposed travel restrictions are also impacting some customers’ ability to participate in face-to-face events with
us, such as committee meetings and conferences, which limits our ability to build on customer relationships. The long-term continuation, or any future
recurrence of these circumstances may negatively impact the ability of our employees to effectively deliver existing or sell new products and services to
our members and could negatively affect our performance of our existing contracts.
• Materials and personnel shortages and disruptions in supply chain, including manufacturing and shipping. The global supply chain has been
materially disrupted due to personnel shortages associated with ongoing COVID-19 rates of infection, stay-at-home orders, border closings, rapidly
escalating shipping costs, raw material availability and material logistical delays due to port congestion. Borders closings, lock-down orders and other
restrictions in response to COVID-19, particularly regarding China, have impacted and continue to impact our access to products for our members.
Staffing or personnel shortages due to shelter-in-place orders and quarantines, or other public health measures, have impacted and, in the future, may
impact us and our members, other customers or suppliers. In addition, due to unprecedented demand during the COVID-19 pandemic, there have been
widespread shortages in certain product categories. If the supply chain for materials used in the products purchased by our members through our GPO or
products contract manufactured through our direct sourcing business continue to be adversely impacted by the COVID-19 pandemic, our supply chain may
continue to be disrupted. Failure of our suppliers, contract manufacturers, distributors, contractors and other business partners to meet their obligations to
our members, other customers or to us, or material disruptions in their ability to do so due to their own financial or operational difficulties, may adversely
impact our operations.
•
Requests for contract modifications, payment deferrals or exercises of force majeure clauses. We have and may continue to receive requests for
contract modifications, payment waivers and deferrals, payment reductions or amended
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payment terms from our contract counterparties. We have and may continue to receive requests to delay service or payment on performance service
contracts. In addition, we have and may continue to receive requests from our suppliers for increases to their contracted prices, and such requests may be
implemented in the future. Inflation in such contract prices may impact member utilization of items and services available through our GPO contracts,
which could adversely impact our net administrative fees revenue and direct sourcing revenue. In addition, several pharmacy suppliers have exercised
force majeure clauses related to failure to supply clauses in their contracts with us because they are unable to obtain raw materials for manufacturing from
India and China. The standard failure to supply language in our contracts contains financial penalties to suppliers if they are unable to supply products,
which such suppliers may not be able to pay. In addition, we may not be able to source products from alternative suppliers on commercially reasonable
terms, or at all.
• Managing the evolving regulatory environment. In response to COVID-19 pandemic and variants thereof, federal, state and local governments are
issuing new rules, regulations, changing reimbursement eligibility rules, orders and advisories on a regular basis. These government actions can impact us
and our members, customers and suppliers.
The ultimate impact of COVID-19, variants thereof, recurrences, or similar pandemics on our business, results of operations, financial condition and cash flows
is dependent on future developments, including the duration of any pandemic and the related length of its impact on the United States and global economies,
which are uncertain and cannot be predicted at this time. The impact of the COVID-19 pandemic, variants thereof, recurrences, or future similar pandemics
may also exacerbate many of the other risks described in this “Item 1A. Risk Factors” section. Despite our efforts to manage these impacts, their ultimate
impact depends on factors beyond our knowledge or control, including the duration and severity of any outbreak and actions taken to contain its spread and
mitigate its public health effects. The foregoing and other continued disruptions in our business as a result of the COVID-19 pandemic, variants thereof,
recurrences or similar pandemics could result in a material adverse effect on our business, results of operations, financial condition, cash flows, prospects and
the trading prices of our securities in the near-term and through fiscal 2022 and beyond.
Russia-Ukraine War
In February 2022, Russia invaded Ukraine. As military activity proceeds and sanctions, export controls and other measures are imposed against Russia, Belarus
and specific areas of Ukraine, the war is increasingly affecting the global economy and financial markets, as well as exacerbating ongoing economic
challenges, including rising inflation and global supply-chain disruption. We will continue to monitor the impacts of the Russia-Ukraine war on
macroeconomic conditions and continually assess the effect these matters may have on member demand, our suppliers’ ability to deliver products,
cybersecurity risks and our liquidity and access to capital. See “Risk Factors”.
Critical Accounting Policies and Estimates
Below is a discussion of our critical accounting policies and estimates. These and other significant accounting policies are set forth under Note 2 - Significant
Accounting Policies to the accompanying audited consolidated financial statements for more information.
Business Combinations
We account for acquisitions of a business using the acquisition method. All the assets acquired, liabilities assumed, contractual contingencies and contingent
consideration are generally recognized at their fair value on the acquisition date. Any excess of the purchase price over the estimated fair values of the net
assets acquired is recorded as goodwill. Acquisition-related costs are recorded as expenses in the Consolidated Statements of Income and Comprehensive
Income.
Several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we typically use the income
method. This method starts with a forecast of all of the expected future net cash flows for each asset. These cash flows are then adjusted to present value by
applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and
assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows, the discount rate selected to
measure the risks inherent in the future cash flows and the assessment of the asset's life cycle and the competitive trends impacting the asset, including
consideration of any technical, legal, regulatory or economic barriers to entry. Determining the useful life of an intangible asset also requires judgment as
different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives.
Goodwill
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. We perform our annual goodwill impairment
testing on the first day of the last fiscal quarter of our fiscal year unless impairment indicators are present, which could require an interim impairment test.
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Under accounting rules, we may elect to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. This
qualitative assessment requires an evaluation of any excess of fair value over the carrying value for a reporting unit and significant judgment regarding
potential changes in valuation inputs, including a review of our most recent long-range projections, analysis of operating results versus the prior year, changes
in market values, changes in discount rates and changes in terminal growth rate assumptions. If it is determined that an impairment is more likely than not to
exist, then we are required to perform a quantitative assessment to determine whether or not goodwill is impaired and to measure the amount of goodwill
impairment, if any.
A goodwill impairment charge is recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value. We determine the fair value of
a reporting unit using a discounted cash flow analysis as well as market-based approaches. Determining fair value requires the exercise of significant judgment,
including judgment about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The cash flows
employed in the discounted cash flow analyses are based on the most recent budget and long-term forecast. The discount rates used in the discounted cash flow
analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. The market comparable approach estimates fair
value using market multiples of various financial measures compared to a set of comparable public companies and recent comparable transactions.
Our most recent annual impairment testing as of April 1, 2022 consisted of a quantitative assessment and did not result in any goodwill impairment charges.
Revenue Recognition
We account for a contract with a customer when the contract is committed, the rights of the parties, including payment terms, are identified, the contract has
commercial substance and consideration is probable of collection.
Revenue is recognized when, or as, control of a promised product or service transfers to a customer, in an amount that reflects the consideration to which we
expect to be entitled in exchange for transferring those products or services. If the consideration promised in a contract includes a variable amount, we estimate
the amount to which we expect to be entitled using either the expected value or most likely amount method. Our contracts may include terms that could cause
variability in the transaction price, including, for example, revenue share, rebates, discounts, and variable fees based on performance.
We only include estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates require management to make complex,
difficult or subjective judgments, and to make estimates about the effect of matters inherently uncertain. As such, we may not be able to reliably estimate
variable fees based on performance in certain long-term arrangements due to uncertainties that are not expected to be resolved for a long period of time or
when our experience with similar types of contracts is limited. Estimates of variable consideration and the determination of whether to include estimated
amounts of consideration in the transaction price are based on information (historical, current and forecasted) that is reasonably available to us, taking into
consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement. Additionally, management performs
periodic analyses to verify the accuracy of estimates for variable consideration.
Although we believe that our approach in developing estimates and reliance on certain judgments and underlying inputs is reasonable, actual results could
differ which may result in exposure of increases or decreases in revenue that could be material.
Performance Obligations
A performance obligation is a promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct
performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Contracts may have a single performance obligation as
the promise to transfer individual goods or services is not separately identifiable from other promises, and therefore, not distinct, while other contracts may
have multiple performance obligations, most commonly due to the contract covering multiple deliverable arrangements (licensing fees, subscription fees,
professional fees for consulting services, etc.).
Net Administrative Fees Revenue
Net administrative fees revenue is a single performance obligation earned through a series of distinct daily services and includes maintaining a network of
members to participate in the group purchasing program and providing suppliers efficiency in contracting and access to our members. Revenue is generated
through administrative fees received from suppliers and is included in service revenue in the accompanying Consolidated Statements of Income and
Comprehensive Income.
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Through our GPO programs, we aggregate member purchasing power to negotiate pricing discounts and improve contract terms with suppliers. Contracted
suppliers pay us administrative fees which generally represent 1% to 3% of the purchase price of goods and services sold to members under the contracts we
have negotiated. Administrative fees are variable consideration and are recognized as earned based upon estimated purchases by our members utilizing
analytics based on historical member spend and updates for current trends and expectations. Administrative fees are estimated due to the difference in timing of
when a member purchases on a supplier contract and when we receive the purchasing information. Member and supplier contracts substantiate persuasive
evidence of an arrangement. We do not take title to the underlying equipment or products purchased by members through our GPO supplier contracts.
Administrative fee revenue receivable is included in contract assets in the accompanying Consolidated Balance Sheets.
Generally, we pay a revenue share to members equal to a percentage of gross administrative fees, which is estimated according to the members’ contractual
agreements with us using a portfolio approach based on historical revenue fee share percentages and adjusted for current or anticipated trends. Revenue share is
recognized as a reduction to gross administrative fees revenue to arrive at a net administrative fees revenue, and the corresponding revenue share liability is
included in revenue share obligations in the accompanying Consolidated Balance Sheets.
Products Revenue
Direct sourcing generates revenue primarily through products sold to our members, other customers or distributors. Revenue is recognized once control of
products has been transferred to the customer and is recorded net of discounts and rebates offered to customers. Discounts and rebates are estimated based on
contractual terms and historical trends.
Software Licenses, Other Services and Support Revenue
We generate software licenses, other services and support revenue through Performance Services and Supply Chain Services.
Within Performance Services, which provides technology with wrap-around service offerings, revenue is generated through our three sub-brands: PINC AI,
Contigo Health and Remitra. The main sources of revenue under PINC AI consists of SaaS-based clinical analytics products subscriptions, enterprise analytics
licenses, professional fees for consulting services and other miscellaneous revenue including performance improvement collaboratives, insurance management
service fees and commissions from insurance carriers for sponsored insurance programs. Contigo Health’s main sources of revenue are third-party
administrator fees and fees from the centers of excellence program. Remitra’s main source of revenue is fees from healthcare product suppliers and service
providers.
PINC AI
SaaS-based Products Subscriptions. SaaS-based clinical analytics subscriptions include the right to access our proprietary hosted technology on a SaaS
basis, training and member support to deliver improvements in cost management, margin improvement, quality and safety, value-based care and provider
analytics. SaaS arrangements create a single performance obligation for each subscription within the contract in which the nature of the obligation is a
stand-ready obligation, and each day of service meets the criteria for over time recognition. Pricing varies by application and size of healthcare system.
Clinical analytics products subscriptions are generally three- to five-year agreements with automatic renewal clauses and annual price escalators that
typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed
on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following
implementation. Implementation involves the completion of data preparation services that are unique to each member’s data set and, in certain cases, the
installation of member site-specific software, in order to access and transfer member data into our hosted SaaS-based clinical analytics products.
Implementation is generally 60 to 240 days following contract execution before the SaaS-based clinical analytics products can be fully utilized by the
member.
Software Licenses. Enterprise analytics licenses include term licenses that range from three to ten years and offer clinical analytics products, improvements
in cost management, quality and safety, value-based care and provider analytics. Pricing varies by application and size of healthcare system. Revenue on
licensing is recognized upon delivery of the license, and revenue from hosting and maintenance is recognized ratably over the life of the contract.
Consulting Services. Professional fees for consulting services are sold under contracts, the terms of which vary based on the nature of the engagement.
These services typically include general consulting, report-based consulting and cost savings initiatives. Promised services under such consulting
engagements are typically not considered distinct and are regularly combined and accounted for as one performance obligation. Fees are billed as
stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed or when deliverables are provided. In
situations where the contracts have significant contract performance guarantees, the performance guarantees are estimated
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and accounted for as a form of variable consideration when determining the transaction price. In the event that guaranteed savings levels are not achieved,
we may have to perform additional services at no additional charge in order to achieve the guaranteed savings or pay the difference between the savings
that were guaranteed and the actual achieved savings. Occasionally, our entitlement to consideration is predicated on the occurrence of an event such as the
delivery of a report for which client acceptance is required. However, except for event-driven point-in-time transactions, the majority of services provided
within this service line are delivered over time due to the continuous benefit provided to our customers.
Consulting arrangements can require significant estimates for the transaction price and estimated number of hours within an engagement. These estimates
are based on the expected value which is derived from outcomes from historical contracts that are similar in nature and forecasted amounts based on
anticipated savings for the new agreements. The transaction price is generally constrained until the target transaction price becomes more certain.
Other Miscellaneous Revenue. Revenue from performance improvement collaboratives that support our offerings in cost management, quality and safety,
and value-based care is recognized over the service period as the services are provided, which is generally one year. Performance improvement
collaboratives revenue is considered one performance obligation and is generated by providing customers access to online communities whereby data is
housed and available for analytics and benchmarking.
Insurance management service fees are recognized in the period in which such services are provided. Commissions from insurance carriers for sponsored
insurance programs are earned by acting as an intermediary in the placement of effective insurance policies. Under this arrangement, revenue is recognized
at a point in time on the effective date of the associated policies when control of the policy transfers to the customer and is constrained for estimated early
terminations.
Contigo Health
Contigo Health revenue consists of third party administrator fees and fees from the centers of excellence program. Third party administrator fees consist of
integrated fees for the processing of self-insured health care plan claims. Third party administrator fees are invoiced to customers monthly and typically
collected in that period. Revenue is recognized in the period in which the services have been provided. Fees from the centers of excellence program consist
of administrative fees for access to a specialized care network of proven healthcare providers. Centers of excellence fees are invoiced to customers a
month in arrears and typically collected in that period. Revenue is recognized in the period in which the services have been provided.
Remitra
Revenue for Remitra primarily consists of fees from healthcare product suppliers and service providers. Fees for services are invoiced to our customers
monthly and typically collected in the following period. For fixed fee contracts, revenue is recognized in the period in which the services have been
provided. For variable rate contracts, revenue is recognized as customers are invoiced. Additional revenue consists of fees from check replacement services
which consist of monthly rebates from bank partners.
Within Supply Chain Services, revenue is generated through supply chain co-management and SaaS-based purchased services activities.
Supply Chain Co-Management. Supply chain co-management activities generate revenue in the form of a service fee for services performed under the
supply chain management contracts. Service fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method
as services are performed.
Purchased Services. Purchased services generate revenue through subscription fees for SaaS-based products. Subscription fees are typically billed on a
monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation.
Multiple Deliverable Arrangements
We enter into agreements where the individual deliverables discussed above, such as SaaS subscriptions and consulting services, are bundled into a single
service arrangement. These agreements are generally provided over a time period ranging from approximately three months to five years after the applicable
contract execution date. Revenue, including both fixed and variable consideration, is allocated to the individual performance obligations within the
arrangement based on the stand-alone selling price when it is sold separately in a stand-alone arrangement.
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Software Development Costs
Costs associated with internally developed computer software that are incurred in the preliminary project stage are expensed as incurred. During the
development stage and once the project has reached technological feasibility, direct consulting costs and payroll and payroll-related costs for employees that
are directly associated with each project are capitalized. Capitalized software costs are included in property and equipment, net in the accompanying
Consolidated Balance Sheets. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the related software applications of up to
five years and amortization is included in cost of revenue or selling, general and administrative expenses in the accompanying Consolidated Statements of
Income and Comprehensive Income, based on the software’s end use. Replacements and major improvements are capitalized, while maintenance and repairs
are expensed as incurred. Some of the more significant estimates and assumptions inherent in this process involve determining the stages of the software
development project, the direct costs to capitalize and the estimated useful life of the capitalized software.
Income Taxes
We account for income taxes under the asset and liability approach. Deferred tax assets or liabilities are determined based on the differences between the
financial statement and tax basis of assets and liabilities as measured by the enacted tax rates as well as net operating losses and credit carryforwards, which
will be in effect when these differences reverse. We provide a valuation allowance against net deferred tax assets when, based upon the available evidence, it is
more likely than not that the deferred tax assets will not be realized.
We prepare and file tax returns based on interpretations of tax laws and regulations. Our tax returns are subject to examination by various taxing authorities in
the normal course of business. Such examinations may result in future tax, interest and penalty assessments by these taxing authorities.
In determining our tax expense for financial reporting purposes, we establish a reserve when there are transactions, calculations, and tax filing positions for
which the tax determination is uncertain, and it is more likely than not that such positions would not be sustained upon examinations.
We adjust tax reserve estimates periodically based on the changes in facts and circumstances, such as ongoing examinations by, and settlements with, varying
taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated tax expense of any given year includes adjustments to prior
year income tax reserve and related estimated interest charges that are considered appropriate. Our policy is to recognize, when applicable, interest and
penalties on uncertain income tax positions as part of income tax expense.
New Accounting Standards
New accounting standards that we have recently adopted as well as those that have been recently issued but not yet adopted by us are included in Note 2 -
Significant Accounting Policies to the accompanying audited consolidated financial statements, which is incorporated herein by reference.
Key Components of Our Results of Operations
Net Revenue
Net revenue consists of services and software licenses revenue, which includes net administrative fees revenue and software licenses, other services and
support revenue, and products revenue.
Supply Chain Services
Supply Chain Services revenue is comprised of:
•
•
•
net administrative fees revenue which consists of GPO net administrative fees (gross administrative fees received from suppliers, reduced by the
amount of revenue share paid to members);
software licenses, other services and support revenue which consist of supply chain co-management and purchased services revenue; and
products revenue which consists of direct sourcing sales.
The success of our Supply Chain Services revenue streams are influenced by our ability to negotiate favorable contracts with suppliers and members, the
number of members that utilize our GPO supplier contracts and the volume of their purchases, the impact of changes in the defined allowable reimbursement
amounts determined by Medicare, Medicaid and other managed care plans and the number of members and other customers that purchase products through our
direct sourcing activities and the impact of competitive pricing. Refer to “Impact of Inflation” within “Liquidity and Capital Resources” section of Item 7 -
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Management’s Discussion and Analysis of Financial Condition and Results of Operations for discussion of inflation and its impact on our Supply Chain
Services’ businesses.
Performance Services
Performance Services revenue is comprised of the following software licenses, other services and support revenue:
•
•
•
health care information technology license and SaaS-based clinical, margin improvement and value-based care products subscriptions, license fees,
professional fees for consulting services, performance improvement collaborative and other service subscriptions and insurance services management
fees and commissions from endorsed commercial insurance programs under our PINC AI technology and services platform;
third-party administrator fees and fees from the centers of excellence program for Contigo Health; and
fees from healthcare product suppliers and service providers for Remitra.
Our Performance Services growth will depend upon the expansion of our PINC AI technology and services platform to new and existing members and other
customers, expansion of our Contigo Health and Remitra businesses to new and existing members, renewal of existing subscriptions to our SaaS and licensed
software products, our ability to sell enterprise analytics licenses to new and existing customers at rates sufficient to offset the loss of recurring SaaS-based
revenue due to the conversion to an enterprise analytics license and expansion into new markets.
Cost of Revenue
Cost of revenue consists of cost of services and software licenses revenue and cost of products revenue.
Cost of services and software licenses revenue includes expenses related to employees, consisting of compensation and benefits, and outside consultants who
directly provide services related to revenue-generating activities, including consulting services to members and other customers, third-party administrator
services and implementation services related to our SaaS and licensed software products along with associated amortization of certain capitalized contract
costs. Amortization of contract costs represent amounts that have been capitalized and reflect the incremental costs of obtaining and fulfilling a contract
including costs related to implementing SaaS informatics tools. Cost of services and software licenses revenue also includes expenses related to hosting
services, related data center capacity costs, third-party product license expenses and amortization of the cost of internally developed software applications.
Cost of products revenue consists of purchase and shipment costs for direct sourced medical and commodity products and is influenced by the manufacturing
and transportation costs associated with direct sourced medical and commodity products. Refer to “Impact of Inflation” within “Liquidity and Capital
Resources” section of Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations for discussion of inflation and its
impact on our Supply Chain Services’ businesses.
Operating Expenses
Operating expenses includes selling, general and administrative expenses, research and development expenses and amortization of purchased intangible assets.
Selling, general and administrative expenses are directly associated with selling and administrative functions and support of revenue-generating activities
including expenses to support and maintain our software-related products and services. Selling, general and administrative expenses primarily consist of
compensation and benefits related costs, travel-related expenses, business development expenses, including costs for business acquisition opportunities, non-
recurring strategic initiative and financial restructuring-related expenses, indirect costs such as insurance, professional fees and other general overhead
expenses, and amortization of certain contract costs. Amortization of contract costs represent amounts, including sales commissions, that have been capitalized
and reflect the incremental costs of obtaining and fulfilling a contract.
Research and development expenses consist of employee-related compensation and benefit expenses and third-party consulting fees of technology
professionals, net of capitalized labor, incurred to develop our software-related products and services prior to reaching technological feasibility.
Amortization of purchased intangible assets includes the amortization of all identified intangible assets.
Other Income (Expense), Net
Other income (expense), net, includes equity in net income of unconsolidated affiliates that is generated from our equity method investments. Our equity
method investments primarily consist of our interests in FFF Enterprises, Inc. (“FFF”), Exela Holdings, Inc. (“Exela”), and Prestige Ameritech Ltd.
(“Prestige”) (see Note 5 - Investments). Other income (expense), net, also includes
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the fiscal 2021 change in fair value of our FFF Put and Call Rights and the fiscal year 2022 gain recognized due to the termination of the FFF Put Right and
derecognition of the associated liability (see Note 6 - Fair Value Measurements), interest income and expense, realized and unrealized gains or losses on
deferred compensation plan assets, gains or losses on the disposal of assets, and any impairment on our assets or held-to-maturity investments.
Income Tax Expense (Benefit)
See Note 16 - Income Taxes for discussion of income tax expense.
Net Income Attributable to Non-Controlling Interest
We recognize net income attributable to non-controlling interest for non-Premier ownership in our consolidated subsidiaries which hold interest in our equity
method investments. At June 30, 2022, we recognized net income attributable to non-controlling interest for the 74%, 79% and 85% interest held in PRAM
Holdings, LLC (“PRAM”), DePre Holdings, LLC (“DePre”) and ExPre Holdings, LLC (“ExPre”), respectively, by member health systems or their affiliates.
PRAM, DePre and ExPre are investments we made as part of our long-term supply chain resiliency program to promote domestic and geographically diverse
manufacturing and to help ensure a robust and resilient supply chain for essential medical products.
As of June 30, 2022, we owned 93% of the equity interest in Contigo Health and recognized net income attributable to non-controlling interest for the 7% of
equity held by certain customers of Contigo Health.
In addition to our non-controlling interest for non-Premier ownership in PRAM and DePre, for the year ended June 30, 2021, we recognized net income
attributable to the limited partners of Premier LP through the date of the August 2020 Restructuring.
Our Use of Non-GAAP Financial Measures
The other key business metrics we consider are EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings per Share
and Free Cash Flow, which are all Non-GAAP financial measures.
We define EBITDA as net income before income or loss from discontinued operations, net of tax, interest and investment income or expense, net, income tax
expense, depreciation and amortization and amortization of purchased intangible assets. We define Adjusted EBITDA 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. For all Non-
GAAP financial measures, we consider non-recurring items to be income or expenses and other items that have not been earned or incurred within the prior
two years and are not expected to recur within the next two years. Such items include certain strategic initiative and financial restructuring-related expenses.
Non-operating items include gains or losses on the disposal of assets and interest and investment income or expense.
We define Segment Adjusted EBITDA as the segment’s net revenue less cost of revenue and 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. Segment Adjusted EBITDA also
excludes any income and expense that has been classified as discontinued operations.
We define Adjusted Net Income as net income attributable to Premier (i) excluding income or loss from discontinued operations, net, (ii) excluding income tax
expense, (iii) excluding the impact of adjustment of redeemable limited partners’ capital to redemption amount, (iv) excluding the effect of non-recurring or
non-cash items, including certain strategic initiative and financial restructuring-related expenses, (v) assuming, for periods prior to our August 2020
Restructuring, the exchange of all the Class B common units for shares of Class A common stock, which resulted in the elimination of non-controlling interest
in Premier LP and (vi) reflecting an adjustment for income tax expense on Non-GAAP net income before income taxes at our estimated annual effective
income tax rate, adjusted for unusual or infrequent items. We define Adjusted Earnings per Share as Adjusted Net Income divided by diluted weighted average
shares (see Note 13 - Earnings Per Share).
We define Free Cash Flow as net cash provided by operating activities from continuing operations less distributions and TRA payments to limited partners for
periods prior to our August 2020 Restructuring, early termination payments to certain former limited partners that elected to execute a Unit Exchange and Tax
Receivable Acceleration Agreement (“Unit Exchange Agreement”) in connection with our August 2020 Restructuring and purchases of property and
equipment. Free Cash Flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayments.
Adjusted EBITDA and Free Cash Flow are supplemental financial measures used by us and by external users of our financial statements and are considered to
be indicators of the operational strength and performance of our business. Adjusted EBITDA
64
and Free Cash Flow measures allow us to assess our performance without regard to financing methods and capital structure and without the impact of other
matters that we do not consider indicative of the operating performance of our business. More specifically, Segment Adjusted EBITDA is the primary earnings
measure we use to evaluate the performance of our business segments.
We use Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per Share to facilitate a comparison of our operating
performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more
complete understanding of factors and trends affecting our business. We believe Adjusted EBITDA and Segment Adjusted EBITDA assist our Board of
Directors, management and investors in comparing our operating performance on a consistent basis from period to period because they remove the impact of
earnings elements attributable to our asset base (primarily depreciation and amortization), certain items outside the control of our management team, e.g. taxes,
other non-cash items (such as impairment of intangible assets, purchase accounting adjustments and stock-based compensation), non-recurring items (such as
strategic initiative and financial restructuring-related expenses) and income and expense that has been classified as discontinued operations from our operating
results. We believe Adjusted Net Income and Adjusted Earnings per Share assist our Board of Directors, management and investors in comparing our net
income and earnings per share on a consistent basis from period to period because these measures remove non-cash (such as impairment of intangible assets,
purchase accounting adjustments and stock-based compensation) and non-recurring items (such as strategic initiative and financial restructuring-related
expenses), and eliminate the variability of non-controlling interest that primarily resulted from member owner exchanges of Class B common units for shares
of Class A common stock. We believe Free Cash Flow is an important measure because it represents the cash that we generate after payment of tax distributions
to limited partners prior to our August 2020 Restructuring, payments to certain former limited partners that elected to execute a Unit Exchange Agreement in
connection with our August 2020 Restructuring and capital investment to maintain existing products and services and ongoing business operations, as well as
development of new and upgraded products and services to support future growth. Our Free Cash Flow allows us to enhance stockholder value through
acquisitions, partnerships, joint ventures, investments in related businesses and debt reduction.
Despite the importance of these Non-GAAP financial measures in analyzing our business, determining compliance with certain financial covenants in our
Credit Facility, measuring and determining incentive compensation and evaluating our operating performance relative to our competitors, EBITDA, Adjusted
EBITDA, Segment Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings per Share and Free Cash Flow are not measurements of financial performance
under GAAP, may have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income, net cash provided by
operating activities, or any other measure of our performance derived in accordance with GAAP.
Some of the limitations of the EBITDA, Adjusted EBITDA and Segment Adjusted EBITDA measures include that they do not reflect: our capital expenditures
or our future requirements for capital expenditures or contractual commitments; changes in, or cash requirements for, our working capital needs; the interest
expense or the cash requirements to service interest or principal payments under our Credit Facility; income tax payments we are required to make; and any
cash requirements for replacements of assets being depreciated or amortized. In addition, EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA and Free
Cash Flow are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flows from operating activities.
Some of the limitations of the Adjusted Net Income and Adjusted Earnings per Share measures are that they do not reflect income tax expense or income tax
payments we are required to make. In addition, Adjusted Net Income and Adjusted Earnings per Share are not measures of profitability under GAAP.
We also urge you to review the reconciliation of these Non-GAAP financial measures included elsewhere in this Annual Report. To properly and prudently
evaluate our business, we encourage you to review the consolidated financial statements and related notes included elsewhere in this Annual Report and to not
rely on any single financial measure to evaluate our business. In addition, because the EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Net
Income, Adjusted Earnings per Share and Free Cash Flow measures are susceptible to varying calculations, such Non-GAAP financial measures may differ
from, and may therefore not be comparable to, similarly titled measures used by other companies.
Non-recurring and non-cash items excluded in our calculation of Adjusted EBITDA, Segment Adjusted EBITDA and Adjusted Net Income consist of stock-
based compensation, acquisition- and disposition-related expenses, strategic initiative and financial restructuring-related expenses, gain or loss on FFF Put and
Call Rights, income and expense that has been classified as discontinued operations and other reconciling items. More information about certain of the more
significant items follows below.
Income tax expense on adjusted income
Adjusted Net Income, a Non-GAAP financial measure as defined below in “Our Use of Non-GAAP Financial Measures”, is calculated net of taxes based on
our estimated annual effective tax rate for federal and state income tax, adjusted for unusual or
65
infrequent items, as we are a consolidated group for tax purposes with all of our subsidiaries’ activities included. Prior to the August 2020 Restructuring,
Adjusted Net Income was calculated as if we were one consolidated group for tax purposes. The tax rate used to compute the Adjusted Net Income was 26%
and 22% for the years ended June 30, 2022 and 2021, respectively. The 22% tax rate in fiscal year 2021 was primarily due to the benefit from the valuation
allowance release as a result of the August 2020 Restructuring. In fiscal year 2022, the tax rate increased to 26% as a result of an increase in non-GAAP
adjusted income before income taxes and a lesser benefit from the valuation allowance release as a result of the Subsidiary Reorganization as compared to
fiscal 2021.
As a result of the Subsidiary Reorganization, one of our consolidated subsidiaries is expected to have sufficient income to utilize its net operating loss and
research and development credit carryforwards. During the first quarter of fiscal 2022, we assessed the future realization of our deferred tax assets as a result of
our plan to complete the Subsidiary Reorganization by the end of the second quarter of fiscal year 2022. On December 1, 2021, we completed the Subsidiary
Reorganization. We reassessed the valuation allowance release as of June 30, 2022. In fiscal year 2022, we released $32.3 million of deferred tax valuation
allowance primarily related to finite-lived net operating losses and research and development credit carryforwards. As a result of the Subsidiary
Reorganization, we have offset ordinary income of $3.1 million during fiscal year 2022. The remaining $29.2 million of valuation allowance related to finite-
lived net operating losses and research and development credit carryforwards is expected to be released and utilized in future periods.
Stock-based compensation
In addition to non-cash employee stock-based compensation expense, this item includes non-cash stock purchase plan expense of $0.6 million and $0.5 million
for the years ended June 30, 2022 and 2021, respectively (see Note 14 - Stock-Based Compensation to the accompanying consolidated financial statements).
Acquisition- and disposition-related expenses
Acquisition-related expenses include legal, accounting and other expenses related to acquisition activities and gains and losses on the change in fair value of
earn-out liabilities. Disposition-related expenses include severance and retention benefits and financial advisor fees and legal fees related to disposition
activities.
Strategic initiative and financial restructuring-related expenses
Strategic initiative and financial restructuring-related expenses include legal, accounting and other expenses related to strategic initiative and financial
restructuring-related activities.
Gain or loss on FFF Put and Call Rights
See Note 6 - Fair Value Measurements to the accompanying consolidated financial statements.
Impairment of assets
Impairment of assets relates to impairment of long-lived assets.
Other reconciling items
Other reconciling items includes, but is not limited to, gains and losses on disposals of long-lived assets and imputed interest on notes payable to former limited
partners.
66
Results of Operations for the Years Ended June 30, 2022 and 2021
The following table presents our results of operations for the fiscal years presented (in thousands, except per share data):
Year Ended June 30,
2022
2021
Amount
% of Net Revenue
Amount
% of Net Revenue
Net revenue:
Net administrative fees
Software licenses, other services and support
Services and software licenses
Products
Net revenue
Cost of revenue:
Services and software licenses
Products
Cost of revenue
Gross profit
Operating expenses
Operating income
Other income (expense), net
Income before income taxes
Income tax expense (benefit)
Net income
Net income attributable to non-controlling interest
Adjustment of redeemable limited partners' capital to redemption amount
Net income attributable to stockholders
Earnings per share attributable to stockholders:
Basic
Diluted
$
$
$
$
601,128
438,267
1,039,395
393,506
1,432,901
183,984
363,878
547,862
885,039
624,966
260,073
66,827
326,900
58,582
268,318
(2,451)
—
265,867
2.21
2.19
42 % $
31 %
73 %
27 %
100 %
13 %
25 %
38 %
62 %
44 %
18 %
5 %
23 %
4 %
19 %
— %
nm
19 % $
572,700
404,330
977,030
744,122
1,721,152
170,773
713,045
883,818
837,334
580,417
256,917
(6,276)
250,641
(53,943)
304,584
(17,062)
(26,685)
260,837
$
$
2.24
2.22
34 %
23 %
57 %
43 %
100 %
10 %
41 %
51 %
49 %
34 %
15 %
— %
15 %
(3) %
18 %
(1) %
(2) %
15 %
For the following Non-GAAP financial measures and reconciliations of our performance derived in accordance with GAAP to the Non-GAAP financial
measures, refer to “Our Use of Non-GAAP Financial Measures” for further information regarding items excluded in our calculation of Adjusted EBITDA,
Segment Adjusted EBITDA, Non-GAAP Adjusted Net Income and Non-GAAP Adjusted Earnings Per Share.
The following table provides certain Non-GAAP financial measures for the fiscal years presented (in thousands, except per share data).
Certain Non-GAAP Financial Data:
Adjusted EBITDA
Non-GAAP Adjusted Net Income
Non-GAAP Adjusted Earnings Per Share
Year Ended June 30,
2022
2021
Amount
% of Net Revenue
Amount
% of Net Revenue
$
498,682
302,738
2.49
$
35%
21%
nm
473,230
305,974
2.48
27%
18%
nm
67
The following table provides the reconciliation of net income to Adjusted EBITDA and the reconciliation of income before income taxes to Segment Adjusted
EBITDA (in thousands).
Net income
Interest expense, net
Income tax expense (benefit)
Depreciation and amortization
Amortization of purchased intangible assets
EBITDA
Stock-based compensation
Acquisition- and disposition-related expenses
Strategic initiative and financial restructuring-related expenses
(Gain) loss on FFF Put and Call Rights
Impairment of assets
Other reconciling items, net
(a)
Adjusted EBITDA
Income before income taxes
Equity in net income of unconsolidated affiliates
Interest expense, net
(Gain) loss on FFF Put and Call Rights
Other expense (income), net
Operating income
Depreciation and amortization
Amortization of purchased intangible assets
Stock-based compensation
Acquisition- and disposition-related expenses
Strategic initiative and financial restructuring-related expenses
Equity in net income of unconsolidated affiliates
Deferred compensation plan (expense) income
Impairment of assets
Other reconciling items, net
Adjusted EBITDA
Segment Adjusted EBITDA:
Supply Chain Services
Performance Services
Corporate
Adjusted EBITDA
_________________________________
(a) Other reconciling items, net is primarily attributable to loss on disposal of long-lived assets.
68
Year Ended June 30,
2022
2021
268,318 $
11,142
58,582
85,171
43,936
467,149
46,809
11,453
18,005
(64,110)
18,829
547
498,682 $
326,900 $
(23,505)
11,142
(64,110)
9,646
260,073
85,171
43,936
46,809
11,453
18,005
23,505
(9,401)
18,829
302
498,682 $
304,584
11,964
(53,943)
76,309
44,753
383,667
35,915
18,095
6,990
27,352
—
1,211
473,230
250,641
(21,073)
11,964
27,352
(11,967)
256,917
76,309
44,753
35,915
18,095
6,990
21,073
12,745
—
433
473,230
500,854 $
126,938
(129,110)
498,682 $
467,868
132,225
(126,863)
473,230
$
$
$
$
$
$
The following table provides the reconciliation of net income attributable to stockholders to Non-GAAP Adjusted Net Income and the reconciliation of the
numerator and denominator for earnings per share attributable to stockholders to Non-GAAP Adjusted Earnings per Share for the years presented (in
thousands).
Year Ended June 30,
2022
2021
Net income attributable to stockholders
Adjustment of redeemable limited partners' capital to redemption amount
Net income attributable to non-controlling interest
Income tax expense (benefit)
Amortization of purchased intangible assets
Stock-based compensation
Acquisition- and disposition-related expenses
Strategic initiative and financial restructuring-related expenses
(Gain) loss on FFF Put and Call Rights
Impairment of assets
Other reconciling items, net
(a)
Non-GAAP adjusted income before income taxes
Income tax expense on adjusted income before income taxes
(b)
Non-GAAP Adjusted Net Income
$
$
265,867 $
—
2,451
58,582
43,936
46,809
11,453
18,005
(64,110)
18,829
7,284
409,106
106,368
302,738 $
Reconciliation of denominator for earnings per share attributable to stockholders to Non-GAAP Adjusted Earnings per Share
Weighted average:
Basic weighted average shares outstanding
Dilutive securities
Weighted average shares outstanding - diluted
Class B shares outstanding
(c)
Non-GAAP weighted average shares outstanding - diluted
_________________________________
120,220
1,448
121,668
—
121,668
260,837
26,685
17,062
(53,943)
44,753
35,915
18,095
6,990
27,352
—
8,529
392,275
86,301
305,974
116,527
1,005
117,532
5,638
123,170
(a) Other reconciling items, net is primarily attributable to loss on disposal of long-lived assets and imputed interest on notes payable to former limited partners.
(b) Reflects income tax expense at an estimated effective income tax rate of 26% and 22% of non-GAAP adjusted net income before income taxes for the years ended June 30, 2022 and 2021,
respectively.
(c)
For the year ended June 30, 2021, the effect of 5.6 million Class B common shares were excluded from the GAAP diluted weighted average shares outstanding as they had an anti-dilutive effect.
On a non-GAAP basis, the effect of 5.6 million Class B common shares were included in the non-GAAP diluted weighted average shares outstanding for the year ended June 30, 2021.
69
The following table provides the reconciliation of basic earnings per share attributable to stockholders to Non-GAAP Adjusted Earnings per Share for the
periods presented.
Basic earnings per share attributable to stockholders
Adjustment of redeemable limited partners' capital to redemption amount
Net income attributable to non-controlling interest
Income tax expense (benefit)
Amortization of purchased intangible assets
Stock-based compensation
Acquisition- and disposition-related expenses
Strategic initiative and financial restructuring-related expenses
(Gain) loss on FFF Put and Call Rights
Impairment of assets
Other reconciling items, net
Impact of corporation taxes
(c)
Impact of dilutive shares
(b)
(a)
Non-GAAP Adjusted Earnings Per Share
_________________________________
Year Ended June 30,
2022
2021
$
$
2.21 $
—
0.02
0.49
0.37
0.39
0.10
0.15
(0.53)
0.16
0.06
(0.88)
(0.05)
2.49 $
2.24
0.23
0.15
(0.46)
0.38
0.31
0.16
0.06
0.23
—
0.07
(0.74)
(0.15)
2.48
(a) Other reconciling items, net is primarily attributable to loss on disposal of long-lived assets and imputed interest on notes payable to former limited partners.
(b) Reflects income tax expense at an estimated effective income tax rate of 26% and 22% of non-GAAP adjusted net income before income taxes for the years ended June 30, 2022 and 2021,
respectively. The change in the estimated effective income tax is as a result of the Subsidiary Reorganization.
(c) Reflects impact of dilutive shares on a non-GAAP basis, primarily attributable to the assumed conversion of all Class B common units for the year ended June 30, 2021 for Class A common
stock.
Consolidated Results - Comparison of the Years Ended June 30, 2022 to 2021
The variances in the material factors contributing to the changes in the consolidated results are discussed further in “Segment Results” below.
Net Revenue
Net revenue decreased by $288.3 million, or 17%, during the year ended June 30, 2022 compared to the year ended June 30, 2021 primarily due to a decrease
of $350.6 million in products revenue. This decrease was partially offset by increases of $34.0 million in software licenses, other services and support revenue
and $28.4 million in net administrative fees revenue.
Cost of Revenue
Cost of revenue decreased by $335.9 million, or 38%, during the year ended June 30, 2022 compared to the year ended June 30, 2021 primarily due to a
decrease of $349.1 million in cost of products revenue partially offset by an increase of $13.2 million in cost of services and software licenses revenue.
Operating Expenses
Operating expenses increased by $44.6 million, or 8%, during the year ended June 30, 2022 compared to the year ended June 30, 2021 due to increases of
$44.6 million in selling, general and administrative expenses and $0.9 million in research and development expenses partially offset by an decrease of $0.9
million in amortization of intangible assets.
Other Income (Expense), Net
Other income (expense), net increased by $73.1 million during the year ended June 30, 2022 compared to the year ended June 30, 2021, primarily due to the
current year gain on the FFF Put Right as a result of the termination and corresponding derecognition of the FFF Put Right liability on July 29, 2021 compared
to the loss on the FFF put and call rights in the prior period (see Note 6 - Fair Value Measurements to the accompanying consolidated financial statements for
further information). The increase was partially offset by a deferred compensation plan expense.
70
Income Tax Expense (Benefit)
We recorded an income tax expense of $58.6 million for the year ended June 30, 2022 compared to an income tax benefit of $53.9 million for the year ended
June 30, 2021. The income tax expense and benefit resulted in effective tax rates of 18% and (22)% for the years ended June 30, 2022 and 2021, respectively.
The change in the effective tax rate is primarily attributable to the prior year’s one-time deferred tax benefit associated with the remeasurement of the deferred
tax asset and valuation allowance release as a result of the August 2020 Restructuring (see Note 16 - Income Taxes to the accompanying consolidated financial
statements for further information).
Net Income Attributable to Non-Controlling Interest
Net income attributable to non-controlling interest decreased by $14.6 million during the year ended June 30, 2022 compared to the year ended June 30, 2021,
primarily due to the August 2020 Restructuring, whereby net income attributable to non-controlling interest in Premier LP was not recorded after August 11,
2020.
Adjusted EBITDA
Adjusted EBITDA, a Non-GAAP financial measure as defined in “Our Use of Non-GAAP Financial Measures”, increased by $25.5 million, or 5%, during the
year ended June 30, 2022 compared to the year ended June 30, 2021 driven by an increase of $33.0 million in Supply Chain Services partially offset by
decreases of $5.3 million and $2.2 million in Performance Services and Corporate Adjusted EBITDA, respectively.
71
Segment Results
Supply Chain Services
The following table presents our results of operations and Adjusted EBITDA, a Non-GAAP financial measure, in the Supply Chain Services segment for the
fiscal years presented (in thousands):
Net revenue:
Net administrative fees
Software licenses, other services and support
Services and software licenses
Products
Net revenue
Cost of revenue:
Services and software licenses
Products
Cost of revenue
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
Amortization of intangibles
Operating expenses
Operating income
Depreciation and amortization
Amortization of purchased intangible assets
Acquisition- and disposition-related expenses
Equity in net income of unconsolidated affiliates
Impairment of assets
Other reconciling items, net
Segment Adjusted EBITDA
Net Revenue
2022
2021
Change
Year Ended June 30,
$
$
601,128 $
37,312
638,440
393,506
1,031,946
572,700 $
26,812
599,512
744,122
1,343,634
14,869
363,878
378,747
653,199
212,436
397
32,428
245,261
407,938
22,996
32,428
1,915
22,869
12,695
13
500,854 $
4,238
713,045
717,283
626,351
195,094
164
32,342
227,600
398,751
4,731
32,342
10,938
20,854
—
252
467,868 $
28,428
10,500
38,928
(350,616)
(311,688)
10,631
(349,167)
(338,536)
26,848
17,342
233
86
17,661
9,187
5 %
39 %
6 %
(47) %
(23)%
251 %
(49) %
(47) %
4 %
9 %
142 %
— %
8 %
2 %
32,986
7 %
Supply Chain Services segment revenue decreased by $311.7 million, or 23%, during the year ended June 30, 2022 compared to the year ended June 30, 2021
driven by a decrease of $350.6 million in products revenue, which was partially offset by increases of $28.4 million and $10.5 million in net administrative fees
and software licenses, other services and support revenue, respectively.
Net Administrative Fees Revenue
Net administrative fees revenue increased $28.4 million, or 5%, during the year ended June 30, 2022 compared to the year ended June 30, 2021, driven by an
increase in the demand for supplies and services, increased utilization of our contracts by our existing members, the addition of new categories and suppliers
and the addition of new members to our contract portfolio. These increases in net administrative fees revenue were partially offset by an increase in revenue
share paid to members and the departure of members from our contract portfolio.
Products Revenue
Products revenue decreased by $350.6 million, or 47%, during the year ended June 30, 2022 compared to the year ended June 30, 2021. The decrease was
primarily driven by lower demand for and pricing of PPE and other high demand supplies as a result of the state of the COVID-19 pandemic, which was
partially offset by growth in commodity products under our
72
PREMIERPRO brand. As the COVID-19 pandemic continues to subside and become more manageable, we expect further stabilization of the market for some
of these products and, accordingly, a decrease in period-over-period products revenue.
®
Software Licenses, Other Services and Support Revenue
Software licenses, other services and support revenue increased by $10.5 million, or 39%, during the year ended June 30, 2022 compared to the year ended
June 30, 2021, primarily due to an increase in supply chain co-management fees and SaaS-based purchased services revenue.
Cost of Revenue
Supply Chain Services segment cost of revenue decreased by $338.5 million, or 47%, during the year ended June 30, 2022 compared to the year ended June 30,
2021, primarily attributable to the decrease in products revenue of $349.2 million due to the prior year increase in demand as well as fluctuations in product
costs partially offset by escalating transportation costs due to continued global supply chain issues. In addition, cost of services and software licenses revenue
increased by $10.6 million primarily due to an increase in depreciation and amortization expense as well as the aforementioned increase in software licenses,
other services and support revenue. As the COVID-19 pandemic continues to subside and become more manageable, we expect further stabilization of the
market for some of these products and, accordingly, a decrease in period-over-period cost of products revenue.
Operating Expenses
Operating expenses increased by $17.7 million, or 8%, during the year ended June 30, 2022 compared to the year ended June 30, 2021. The increase was
primarily due to an increase in selling, general and administrative expenses of $17.3 million driven by increases in depreciation and amortization expenses and
personnel costs as well as the impairment of property and equipment (see Note 8 - Supplemental Balance Sheet Information) partially offset by a decrease in
acquisition- and disposition-related expenses.
Segment Adjusted EBITDA
Segment Adjusted EBITDA in the Supply Chain Services segment increased by $33.0 million, or 7%, during the year ended June 30, 2022 compared to the
year ended June 30, 2021, primarily due to the aforementioned increase in net administrative fees revenue and favorable product mix in our direct sourcing
business.
73
Performance Services
The following table presents our results of operations and Adjusted EBITDA in the Performance Services segment for the fiscal years presented (in thousands):
Net revenue:
Software licenses, other services and support
SaaS-based products subscriptions
Consulting services
Software licenses
Other
Net revenue
Cost of revenue:
Services and software licenses
Cost of revenue
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
Amortization of intangibles
Operating expenses
Operating income
Depreciation and amortization
Amortization of purchased intangible assets
Acquisition- and disposition-related expenses
Equity in net income of unconsolidated affiliates
Impairment of assets
Other reconciling items, net
Segment Adjusted EBITDA
Net Revenue
2022
2021
Change
Year Ended June 30,
$
$
193,586 $
64,087
65,621
77,689
400,983
169,116
169,116
231,867
170,677
3,754
11,508
185,939
45,928
53,166
11,508
9,538
636
6,134
28
126,938 $
198,512 $
58,851
56,157
63,998
377,518
166,535
166,535
210,983
146,005
3,174
12,411
161,590
49,393
62,980
12,411
7,157
219
—
65
132,225 $
(4,926)
5,236
9,464
13,691
23,465
2,581
2,581
20,884
24,672
580
(903)
24,349
(3,465)
(2) %
9 %
17 %
21 %
6 %
2 %
2 %
10 %
17 %
18 %
(7) %
15 %
(7)%
(5,287)
(4)%
Net revenue in our Performance Services segment increased by $23.5 million, or 6%, during the year ended June 30, 2022 compared to the year ended June 30,
2021. The increase was primarily driven by growth of $9.5 million and $5.2 million in software licenses and consulting services revenue, respectively, under
our PINC AI platform as well as growth of $13.7 million in other net revenue which includes the growth in Contigo Health and incremental revenue and
growth from our Remitra business. These increases in net revenue were partially offset by a decrease in SaaS-based products subscriptions revenue due to the
conversion of SaaS-based products to licensed-based products.
Cost of Revenue
Cost of services and software licenses revenue in our Performance Services segment increased by $2.6 million, or 2%, during the year ended June 30, 2022
compared to the year ended June 30, 2021, primarily due to an increase in personnel costs related to growth in our Contigo Health business and incremental
expenses associated with our Remitra business.
Operating Expenses
Performance Services segment operating expenses increased by $24.3 million, or 15%, during the year ended June 30, 2022 compared to the year ended June
30, 2021. The increase was primarily due to an increase in selling, general and administrative expenses of $24.7 million driven by increases in personnel costs
and professional fees associated with a decrease in capitalized labor costs and intangible asset impairment (see Note 9 - Goodwill and Intangible Assets) as well
as increase in acquisition- and disposition-related expenses. These increases were partially offset by a decrease in depreciation and amortization expense.
74
Segment Adjusted EBITDA
Segment Adjusted EBITDA in the Performance Services segment decreased by $5.3 million, or 4%, during the year ended June 30, 2022 compared to the year
ended June 30, 2021, primarily due to the aforementioned increases in cost of revenue and operating expenses partially offset by the aforementioned increase in
net revenue.
Corporate
The following table summarizes corporate expenses and Adjusted EBITDA for the fiscal years presented (in thousands):
Operating expenses:
Selling, general and administrative
Operating expenses
Operating loss
Depreciation and amortization
Stock-based compensation
Strategic initiative and financial restructuring-related expenses
Deferred compensation plan (expense) income
Other reconciling items, net
Adjusted EBITDA
Operating Expenses
2022
2021
Change
Year Ended June 30,
$
$
193,794 $
193,794
(193,794)
9,009
46,809
18,005
(9,401)
262
(129,110) $
191,227 $
191,227
(191,227)
8,598
35,915
6,990
12,745
116
(126,863) $
2,567
2,567
(2,567)
1 %
1 %
1 %
(2,247)
2 %
Corporate operating expenses increased by $2.6 million, or 1%, during the year ended June 30, 2022 compared to the year ended June 30, 2021 primarily due
to increases in stock-based compensation expense as a result of higher achievement of performance share awards, professional fees related to strategic initiative
and financial restructuring-related activities and employee-related expenses, including employee travel and meeting expenses as travel and meeting limitations
due to the COVID-19 pandemic began to subside. These increases were partially offset by deferred compensation plan expense in the current year compared to
deferred compensation income in the prior year due to market changes.
Adjusted EBITDA
Adjusted EBITDA decreased by $2.2 million, or 2%, during the year ended June 30, 2022 compared to the year ended June 30, 2021 primarily due to an
increase in employee-related expenses, including employee travel and meeting expenses.
75
Results of Operations for the Years Ended June 30, 2021 and 2020
A discussion of changes in our results of operations from fiscal year 2020 to fiscal year 2021 has been omitted from this Annual Report but may be found in
“Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended June 30, 2021,
filed with the SEC on August 17, 2021, which is available free of charge on the SECs website at www.sec.gov and our website at
http://investors.premierinc.com.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any off-balance sheet arrangements.
Liquidity and Capital Resources
Our principal source of cash has been primarily cash provided by operating activities. From time to time we have used, and expect to use in the future,
borrowings under our Credit Facility (as defined in Note 10 - Debt and Notes Payable to the accompanying consolidated financial statements for more
information) as a source of liquidity. Our primary cash requirements include operating expenses, working capital fluctuations, revenue share obligations, tax
payments, capital expenditures, dividend payments on our Class A common stock, if and when declared, repurchases of Class A common stock pursuant to
stock repurchase programs in place from time to time, acquisitions and related business investments, and general corporate activities. Our capital expenditures
typically consist of internally developed software costs, software purchases and computer hardware purchases.
As of June 30, 2022 and 2021, we had cash and cash equivalents of $86.1 million and $129.1 million, respectively. As of June 30, 2022 and 2021, there was
$150.0 million and $75.0 million, respectively, of outstanding borrowings under our Credit Facility. During the year ended June 30, 2022, we borrowed $325.0
million and repaid $250.0 million of borrowings under the Credit Facility, which were used to partially fund the $250.0 million share repurchase program and
other general corporate purposes.
We expect cash generated from operations and borrowings under our Credit Facility to provide us with adequate liquidity to fund our anticipated working
capital requirements, revenue share obligations, tax payments, capital expenditures, dividend payments on our Class A common stock, if and when declared,
and repurchases of Class A common stock pursuant to stock repurchase programs in place from time to time. Our capital requirements depend on numerous
factors, including funding requirements for our product and service development and commercialization efforts, our information technology requirements and
the amount of cash generated by our operations. We believe that we have adequate capital resources at our disposal to fund currently anticipated capital
expenditures, business growth and expansion, and current and projected debt service requirements. However, strategic growth initiatives will likely require the
use of one or a combination of various forms of capital resources including available cash on hand, cash generated from operations, borrowings under our
Credit Facility and other long-term debt and, potentially, proceeds from the issuance of additional equity or debt securities.
On August 4, 2022, our Board of Directors declared a cash dividend of $0.21 per share, payable on September 15, 2022 to stockholders of record on
September 1, 2022.
Discussion of Cash Flows for the Years Ended June 30, 2022 and 2021
A summary of net cash flows follows (in thousands):
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash flows
Net (decrease) increase in cash and cash equivalents
Year Ended June 30,
2022
2021
$
$
444,234 $
(139,440)
(347,789)
(3)
(42,998) $
407,402
(174,568)
(202,997)
—
29,837
Net cash provided by operating activities increased by $36.8 million for the year ended June 30, 2022 compared to the year ended June 30, 2021. The increase
in cash provided by operating activities was primarily due to the net increase in cash from our direct sourcing business of $132.3 million driven by a higher
cash inflows from the collection of accounts receivable and reduction in inventory purchases from fiscal year 2021. The increase in cash was partially offset by
an increase of $75.8 million in payments of operating expenses and $20.0 million in miscellaneous payments including taxes and interest.
76
Net cash used in investing activities decreased by $35.1 million for the year ended June 30, 2022 compared to the year ended June 30, 2021. The decrease in
cash used in investing activities was primarily due to higher cash outlay in the prior year for the fiscal 2021 acquisition of IDS compared to cash paid in the
current year for investments in Exela and Qventus, Inc. The decrease was partially offset by a net increase in purchases of property and equipment and other
investing activities.
Net cash used in financing activities increased by $144.8 million for the year ended June 30, 2022 compared to the year ended June 30, 2021. The increase in
net cash used in financing activities was primarily driven by $250.0 million for repurchases of Class A common stock under the fiscal 2022 stock repurchase
program and an increase of $48.5 million in payments made on notes payable driven by an increase in early termination payments to certain former limited
partners that elected to execute a Unit Exchange Agreement in connection with the August 2020 Restructuring as quarterly payments commenced during the
quarter ended March 31, 2021. The increase in net cash used in financing activities was partially offset by an increase of $75.0 million in net proceeds under
our Credit Facility, an increase of $28.4 million in proceeds from the issuance of Class A common stock in connection with the exercise of outstanding stock
options, a reduction of $34.2 million in distributions to limited partners of Premier LP and payments to limited partners of Premier LP related to tax receivable
agreements as both distributions and payments were eliminated in connection with the August 2020 Restructuring and an increase of $19.2 million in other
financing activities. The increase in other financing activities is primarily driven by proceeds from member health systems that acquired membership interests
in ExPre.
Discussion of Non-GAAP Free Cash Flow for the Years Ended June 30, 2022 and 2021
We define Non-GAAP Free Cash Flow as net cash provided by operating activities from continuing operations less distributions and TRA payments to limited
partners for periods prior to our August 2020 Restructuring, early termination payments to certain former limited partners that elected to execute a Unit
Exchange Agreement in connection with our August 2020 Restructuring and purchases of property and equipment. Non-GAAP Free Cash Flow does not
represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayments under our Credit Facility. A summary
of Non-GAAP Free Cash Flow and reconciliation to net cash provided by operating activities for the periods presented follows (in thousands):
Net cash provided by operating activities
Purchases of property and equipment
Early termination payments to certain former limited partners that elected to execute a Unit Exchange Agreement
(a)
$
Distributions to limited partners of Premier LP
Payments to limited partners of Premier LP related to tax receivable agreements
Non-GAAP Free Cash Flow
_________________________________
$
Year Ended June 30,
2022
2021
444,234 $
(87,440)
(95,948)
—
—
260,846 $
407,402
(88,876)
(44,024)
(9,949)
(24,218)
240,335
(a) Early termination payments to certain former limited partners that elected to execute a Unit Exchange Agreement in connection with our August 2020 Restructuring are presented in our
Consolidated Statements of Cash Flows under “Payments made on notes payable”. During the year ended June 30, 2022, we paid $102.7 million to members including imputed interest of $6.7
million which is included in net cash provided by operating activities. During the year ended June 30, 2021, we paid $51.3 million to members including imputed interest of $7.3 million which is
included in net cash provided by operating activities. See Note 10 - Debt and Notes Payable to the accompanying audited consolidated financial statements for further information.
Non-GAAP Free Cash Flow increased by $20.5 million for the year ended June 30, 2022 compared to the year ended June 30, 2021. The increase in Non-
GAAP Free Cash Flow was driven by the aforementioned increase of $36.8 million in net cash provided by operating activities and no distributions to limited
partners of Premier LP or payments to limited partners of Premier LP related to tax receivable agreements during the year ended June 30, 2022 as both were
eliminated in connection with the August 2020 Restructuring. These increases in Non-GAAP Free Cash Flow were partially offset by an increase of $51.9
million in early termination payments to certain former limited partners in connection with the August 2020 Restructuring.
See “Our Use of Non-GAAP Financial Measures” above for additional information regarding our use of Non-GAAP Free Cash Flow.
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Contractual Obligations
The following table presents our contractual obligations as of June 30, 2022 (in thousands):
Contractual Obligations
Notes payable to former limited partners
(b)
Other notes payable
Operating lease obligations
Deferred consideration
(c)
(d)
Total contractual obligations
_________________________________
Total
Less Than 1 Year
1-3 Years
3-5 Years
Payments Due by Period
(a)
$
$
308,055 $
5,333
47,027
60,000
420,415 $
102,685 $
3,053
12,131
30,000
147,869 $
205,370 $
2,280
24,568
30,000
262,218 $
Greater Than 5 Years
—
—
—
—
—
— $
—
10,328
—
10,328 $
(a) Notes payable to former limited partners represent the amount of the expected payment to be made to each former limited partner pursuant to the early termination provisions of the TRA (each
such amount an “Early Termination Payment”). See Note 10 - Debt and Notes Payable to the accompanying consolidated financial statements for more information.
(b) Other notes payable are non-interest bearing and generally have stated maturities of three to five years from the date of issuance. See Note 10 - Debt and Notes Payable to the accompanying
consolidated financial statements for more information.
(c)
Future contractual obligations for leases represent future minimum payments under noncancelable operating leases primarily for office space. See Note 18 - Commitments and Contingencies to
the accompanying consolidated financial statements for more information.
(d) Deferred consideration to be paid pursuant to the purchase agreement for the acquisition of substantially all of the assets and certain liabilities of Acurity, Inc. and Nexera, Inc. in fiscal year
2020.
Credit Facility
Outstanding borrowings under the Credit Facility (as defined in Note 10 - Debt and Notes Payable to the accompanying consolidated financial statements for
more information) bear interest on a variable rate structure with borrowings bearing interest at either the London Interbank Offered Rate (“LIBOR”) plus an
applicable margin ranging from 1.000% to 1.500% or the prime lending rate plus an applicable margin ranging from 0.000% to 0.500%. We pay a commitment
fee ranging from 0.100% to 0.200% for unused capacity under the Credit Facility. At June 30, 2022, the interest rate on outstanding borrowings under the
Credit Facility was 2.178% and the commitment fee was 0.100%.
The Credit Facility contains customary representations and warranties as well as customary affirmative and negative covenants. We were in compliance with all
such covenants at June 30, 2022. The Credit Facility also contains customary events of default, including a cross-default of any indebtedness or guarantees in
excess of $75.0 million. If any event of default occurs and is continuing, the administrative agent under the Credit Facility may, with the consent, or shall, at
the request of a majority of the lenders under the Credit Facility, terminate the commitments and declare all of the amounts owed under the Credit Facility to be
immediately due and payable.
Proceeds from borrowings under the Credit Facility may generally be used to finance ongoing working capital requirements, including permitted acquisitions,
repurchases of Class A common stock pursuant to stock repurchase programs, in place from time to time, dividend payments, if and when declared, and other
general corporate activities. At June 30, 2022, we had outstanding borrowings of $150.0 million under the Credit Facility with $849.9 million of available
borrowing capacity after reductions for outstanding borrowings and outstanding letters of credit.
The above summary does not purport to be complete, and is subject to, and qualified in its entirety by reference to, the complete text of the Credit Facility, as
amended, which is filed as Exhibit 10.1 in our quarterly report for the period ended December 31, 2021. See also Note 10 - Debt and Notes Payable to the
accompanying condensed consolidated financial statements.
Cash Dividends
In each of September 15, 2021, December 15, 2021, March 15, 2022 and June 15, 2022, we paid a cash dividend of $0.20 per share on outstanding shares of
Class A common stock. On August 4, 2022, our Board of Directors declared a cash dividend of $0.21 per share, payable on September 15, 2022 to stockholders
of record on September 1, 2022.
We currently expect quarterly dividends to continue to be paid on or about December 15, March 15, June 15 and September 15, respectively. However, the
actual declaration of any future cash dividends, and the setting of record and payment dates as well as the per share amounts, will be at the discretion of our
Board of Directors each quarter after consideration of various factors, including our results of operations, financial condition and capital requirements,
earnings, general business conditions, restrictions imposed by our current credit facility and any future financing arrangements, legal restrictions on the
payment of dividends and other factors our Board of Directors deems relevant.
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Stock Repurchase Program
On August 5, 2021, our Board of Directors authorized the repurchase of up to $250.0 million of our outstanding Class A common stock during fiscal year 2022
through open market purchases or privately negotiated transactions. At June 30, 2022, we had completed our stock purchase program and purchased
approximately 6.4 million shares of Class A common stock at an average price of $38.88 per share for a total purchase price of $250.0 million.
Fiscal 2022 Developments
In fiscal year 2022, the U.S. and global economies experienced unprecedented challenges resulting from the ongoing consequences of the COVID-19
pandemic, including supply chain bottlenecks and escalating inflation. These challenges were exacerbated by the Russia-Ukraine war which has led to further
supply chain disruptions and rising energy costs and led to further inflationary impacts. These challenges have impacted our business as discussed below.
COVID-19 Pandemic, Variants Thereof, Recurrences or Similar Pandemics
The COVID-19 global pandemic and its variants continue to create challenges throughout the United States and the rest of the world. The full extent to which
the COVID-19 pandemic may impact our business, operating results, financial condition and liquidity in the future will depend on future developments that are
highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and variants thereof, the continued
actions to contain it or treat its impact, including the success of COVID-19 vaccination programs, or recurrences of COVID-19, variants thereof or similar
pandemics. As discussed in detail under “Item 1A. Risk Factors”, as a result of the COVID-19 pandemic and potential future pandemic outbreaks, we face
material risks including but not limited to the following:
•
The impact of the COVID-19 pandemic and any variants thereof and associated supply chain disruptions and inflation could result in a prolonged
recession or depression in the United States or globally that could harm the banking system, limit or delay demand for many products and
services and cause other foreseen and unforeseen events and circumstances, all of which could negatively impact us.
• We experienced and may continue to experience demand uncertainty from both material increases and decreases in demand and pricing for
personal protective equipment (“PPE”), drugs and other supplies directly related to treating and preventing the spread of COVID-19 and any
variants thereof as well as a decline in demand and pricing for many supplies and services not related to COVID-19.
•
Labor shortages and the resulting increases to cost of labor are a continued challenge to the healthcare providers we serve and could negatively
affect our business.
• While some of our hospital customers have increased access to their facilities for non-patients, including our field teams, consultants and other
professionals, there are many that are still not allowing onsite access outside of their staff. Hospital imposed travel restrictions are also impacting
some customers’ ability to participate in face-to-face events with us, such as committee meetings and conferences.
•
The global supply chain has been materially disrupted due to personnel shortages associated with ongoing COVID-19 rates of infection, stay-at-
home orders, border closings, rapidly escalating shipping costs, raw material availability and material logistical delays due to port congestion.
• We have and may continue to receive requests for contract modifications, payment waivers and deferrals, payment reductions or amended
payment terms from our contract counterparties. Inflation in such contract prices may impact member utilization of items and services available
through our GPO contracts, with uncertain impact on our net administrative fees revenue and direct sourcing revenue. In addition, several
pharmacy suppliers have exercised force majeure clauses related to failure to supply clauses in their contracts with us.
•
In response to COVID-19 and variants thereof, federal, state and local governments are issuing new rules, regulations, changing reimbursement
eligibility rules, orders and advisories on a regular basis. These government actions can impact us, our members, other customers and suppliers.
Russia-Ukraine War
In February 2022, Russia invaded Ukraine. As military activity continues and sanctions, export controls and other measures are imposed against Russia,
Belarus and specific areas of Ukraine, the war is increasingly affecting the global economy and financial markets, as well as exacerbating ongoing economic
challenges, including issues such as rising inflation and energy costs and global supply-chain disruption. We continue to monitor the impacts of the Russia-
Ukraine war on macroeconomic conditions and prepare for any implications that the war may have on member demand, our suppliers’ ability to deliver
products, cybersecurity risks and our liquidity and access to capital. See “Risk Factors — Risks Related to Our Business Operations”.
79
Impact of Inflation
The U.S. economy is experiencing the highest rates of inflation since the 1980s. Historically, we have not experienced significant inflation risk in our business
arising from fluctuations in market prices across our diverse product portfolio. However, our ability to raise our selling prices depends on market conditions
and there may be periods during which we are unable to fully recover increases in our costs. In fiscal year 2022, our GPO business was largely unaffected by
pricing inflation as we used our members’ aggregated purchasing power to negotiate firm prices in many of our contracts. In our Direct Sourcing business, we
were able to partially offset increases in cost through temporary adjustments to selling prices and through various cost reduction initiatives while ensuring our
products remain competitively priced. See “Risk Factors — Risks Related to Our Business Operations”.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our exposure to market risk related primarily to the increase or decrease in the amount of any interest expense we must pay with respect to outstanding debt
instruments. At June 30, 2022, we had $150.0 million outstanding borrowings under our Credit Facility. At June 30, 2022, a one-percent increase or decrease in
the interest rate charged on outstanding borrowings under the Credit Facility would increase or decrease interest expense over the next 12 months by $1.5
million.
We invest our excess cash in a portfolio of individual cash equivalents. We do not hold any material derivative financial instruments. We do not expect changes
in interest rates to have a material impact on our results of operations or financial position. We plan to mitigate default, market and investment risks of our
invested funds by investing in low-risk securities.
Foreign Currency Risk.
Substantially all of our financial transactions are conducted in U.S. dollars. We do not have significant foreign operations and, accordingly, do not believe we
have market risk associated with foreign currencies.
80
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements and related notes are filed together with this Annual Report. See the index to financial statements under Item 15(a) for a
list of financial statements filed with this report, and under this item.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Report of Independent Registered Public Accounting Firm on Internal Controls Over Financial Reporting (PCAOB ID: 42))
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
82
84
85
86
88
90
91
81
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Premier, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Premier, Inc. (the Company) as of June 30, 2022 and 2021, the related consolidated
statements of income and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended June 30, 2022,
and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2022 and 2021, and
the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal
control over financial reporting as of June 30, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August 16, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to
be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosures to which it relates.
82
Valuation of Goodwill
Description of the
Matter
At June 30, 2022, the Company’s goodwill was $999.9 million. As discussed in Note 2 to the consolidated financial statements,
goodwill is tested for impairment annually at the reporting unit level on the first day of the last fiscal quarter of the fiscal year unless
impairment indicators are present which could require an interim impairment test. The Company’s goodwill is initially assigned to its
reporting units as of the acquisition date.
Auditing management’s annual goodwill impairment test was complex and highly judgmental due to the estimation required to
determine the fair value of the reporting units. Fair value is estimated by management based on an income approach using a
discounted cash flow model as well as market-based approaches. In particular, the fair value estimates are sensitive to changes in
significant assumptions, such as the amount and timing of expected future cash flows, perpetual growth rates, and discount rates,
which are affected by expected future market or economic conditions.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill
impairment testing process. For example, we tested controls over management’s review of the significant inputs and assumptions
discussed above used in determining the reporting unit fair values.
To test the estimated fair value of the Company’s reporting units, our audit procedures included, among others, assessing the
methodologies used and testing the significant assumptions discussed above, including the completeness and accuracy of the
underlying data used by the Company. For example, we compared the significant assumptions used by management to current
industry and economic trends, historical financial results and other relevant factors. We performed sensitivity analyses of significant
assumptions to evaluate the change in the fair value of the reporting units resulting from changes in the inputs and assumptions. We
assessed the historical accuracy of management’s projections and involved our valuation specialists to assist in our evaluation of the
significant assumptions. We also evaluated the reconciliation of the estimated aggregate fair value of the reporting units to the market
capitalization of the Company.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1991.
Raleigh, North Carolina
August 16, 2022
83
Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors of Premier, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Premier, Inc.’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion,
Premier, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the June 30, 2022
consolidated financial statements of the Company and our report dated August 16, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Raleigh, North Carolina
August 16, 2022
84
PREMIER, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
June 30,
2022
2021
Assets
Cash and cash equivalents
Accounts receivable (net of $2,043 and $2,284 allowance for credit losses, respectively)
Contract assets (net of $755 and $0 allowance for credit losses, respectively)
Inventory
Prepaid expenses and other current assets
Total current assets
Property and equipment (net of $578,644 and $518,332 accumulated depreciation, respectively)
Intangible assets (net of $217,582 and $289,912 accumulated amortization, respectively)
Goodwill
Deferred income tax assets
Deferred compensation plan assets
Investments in unconsolidated affiliates
Operating lease right-of-use assets
Other assets
Total assets
Liabilities and stockholders' equity
Accounts payable
Accrued expenses
Revenue share obligations
Accrued compensation and benefits
Deferred revenue
Current portion of notes payable to former limited partners
Line of credit and current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt, less current portion
Notes payable to former limited partners, less current portion
Deferred compensation plan obligations
Deferred consideration, less current portion
Operating lease liabilities, less current portion
Other liabilities
Total liabilities
Commitments and contingencies (Note 18)
Stockholders' equity:
Class A common stock, $0.01 par value, 500,000,000 shares authorized; 124,481,610 shares issued and 118,052,235
outstanding at June 30, 2022 and 122,533,051 shares issued and outstanding at June 30, 2021
Treasury stock, at cost; 6,429,375 and 0 shares at June 30, 2022 and 2021, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes to the consolidated financial statements.
85
$
$
$
$
86,143 $
114,129
260,061
119,652
65,581
645,566
213,379
356,572
999,913
725,032
47,436
215,545
39,530
114,154
3,357,127 $
44,631 $
40,968
245,395
93,638
30,463
97,806
153,053
47,183
753,137
2,280
201,188
47,436
28,702
32,960
42,574
1,108,277
1,245
(250,129)
2,166,047
331,690
(3)
2,248,850
3,357,127 $
129,141
141,447
267,283
176,376
68,049
782,296
224,271
396,642
999,913
781,824
59,581
153,224
48,199
76,948
3,522,898
85,413
48,144
226,883
100,713
34,058
95,948
78,295
47,330
716,784
5,333
298,995
59,581
56,809
43,102
112,401
1,293,005
1,225
—
2,059,194
169,474
—
2,229,893
3,522,898
PREMIER, INC.
Consolidated Statements of Income and Comprehensive Income
(In thousands, except share data)
Net revenue:
Net administrative fees
Software licenses, other services and support
Services and software licenses
Products
Net revenue
Cost of revenue:
Services and software licenses
Products
Cost of revenue
Gross profit
Other operating income:
Remeasurement of tax receivable agreement liabilities
Other operating income
Operating expenses:
Selling, general and administrative
Research and development
Amortization of purchased intangible assets
Operating expenses
Operating income
Equity in net income of unconsolidated affiliates
Interest and investment loss, net
Gain (loss) on FFF Put and Call Rights
Other (expense) income, net
Other income (expense), net
Income before income taxes
Income tax expense (benefit)
Net income from continuing operations
Income from discontinued operations, net of tax
Net income
Net income from continuing operations attributable to non-controlling interest
Net income from discontinued operations attributable to non-controlling interest
Net income attributable to non-controlling interest
Adjustment of redeemable limited partners' capital to redemption amount
Net income attributable to stockholders
86
Year Ended June 30,
2022
2021
2020
$
$
601,128 $
438,267
1,039,395
393,506
1,432,901
572,700 $
404,330
977,030
744,122
1,721,152
183,984
363,878
547,862
885,039
—
—
576,879
4,151
43,936
624,966
260,073
23,505
(11,142)
64,110
(9,646)
66,827
326,900
58,582
268,318
—
268,318
(2,451)
—
(2,451)
—
265,867 $
170,773
713,045
883,818
837,334
—
—
532,326
3,338
44,753
580,417
256,917
21,073
(11,964)
(27,352)
11,967
(6,276)
250,641
(53,943)
304,584
—
304,584
(17,062)
—
(17,062)
(26,685)
260,837 $
670,593
359,054
1,029,647
269,945
1,299,592
188,275
244,516
432,791
866,801
24,584
24,584
459,859
2,376
55,530
517,765
373,620
12,537
(11,313)
4,690
4,153
10,067
383,687
92,561
291,126
1,054
292,180
(161,318)
(498)
(161,816)
468,311
598,675
PREMIER, INC.
Consolidated Statements of Income and Comprehensive Income
(In thousands, except share data)
Comprehensive income:
Net income
Comprehensive income attributable to non-controlling interest
Foreign currency translation loss
Comprehensive income attributable to stockholders
Weighted average shares outstanding:
Basic
Diluted
Earnings per share attributable to stockholders:
Basic earnings per share
Continuing operations
Discontinued operations
Basic earnings per share attributable to stockholders
Diluted earnings per share
Continuing operations
Discontinued operations
Diluted earnings per share attributable to stockholders
Year Ended June 30,
2022
2021
2020
268,318 $
(2,451)
(3)
265,864 $
304,584 $
(17,062)
—
287,522 $
292,180
(161,816)
—
130,364
120,220
121,668
116,527
117,532
67,035
123,614
2.21 $
—
2.21 $
2.19 $
—
2.19 $
2.24 $
—
2.24 $
2.22 $
—
2.22 $
8.92
0.01
8.93
2.03
0.01
2.04
$
$
$
$
$
$
See accompanying notes to the consolidated financial statements.
87
PREMIER, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
(In thousands, except share data)
Class A
Common Stock
Class B
Common Stock
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional
Paid-In
Capital
Accumulated Other
Comprehensive Loss
(Accumulated
Deficit) Retained
Earnings
Total
Stockholders'
Equity (Deficit)
Balance at June 30, 2019
Balance at July 1, 2019
Impact of change in accounting principle
Adjusted balance at July 1, 2019
Exchange of Class B units for Class A
common stock by member owners
Redemption of limited partners
Increase in additional paid-in capital related to
quarterly exchange by member owners,
including associated TRA revaluation
Issuance of Class A common stock under
equity incentive plan
Issuance of Class A common stock under
employee stock purchase plan
Treasury stock
Stock-based compensation expense
Repurchase of vested restricted units for
employee tax-withholding
Net income
Net income attributable to non-controlling
interest in Premier LP
Adjustment of redeemable limited partners'
capital to redemption amount
Balance at June 30, 2020
Balance at July 1, 2020
Impact of change in accounting principle
Adjusted balance at July 1, 2020
Exchange of Class B common units for Class
A common stock by member owners
Increase in additional paid-in capital related to
quarterly exchange by member owners,
including associated TRA revaluation
Increase in additional paid-in capital related to
final exchange by member owners, including
TRA termination
Issuance of Class A common stock under
equity incentive plan
Issuance of Class A common stock under
employee stock purchase plan
Stock-based compensation expense
Repurchase of vested restricted units for
employee tax-withholding
Net income
Net income attributable to non-controlling
interest
Adjustment of redeemable limited partners'
capital to redemption amount
Reclassification of redeemable limited
partners' capital to permanent equity
Final exchange of Class B common units for
Class A common stock by member owners
Early termination payments to former member
owners
Dividends ($0.19 per share)
61,938 $
61,938
—
61,938
13,552
—
—
703
80
(4,646)
—
—
—
—
—
71,627 $
71,627
—
71,627
70
—
—
598
94
—
—
—
—
—
—
644
644
—
644
65
—
—
7
—
—
—
—
—
—
—
716
716
—
716
1
—
—
6
1
—
—
—
—
—
—
64,548 $
64,548
—
64,548
(13,553)
(782)
—
—
—
—
—
—
—
—
—
50,213 $
50,213
—
50,213
(70)
—
—
—
—
—
—
—
—
—
—
50,144
501
(50,143)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,419 $
2,419
—
2,419
(87,220) $
(87,220)
—
(87,220)
— $
—
—
—
(7,065)
—
237,313
—
223,215
—
71,568
6,654
2,832
—
20,706
(8,530)
—
—
(177,898)
138,547 $
138,547
—
138,547
2,436
37,319
517,526
9,350
3,245
35,425
(3,114)
—
5,217
—
1,750,840
(501)
(438,967)
—
—
—
—
4,646
—
—
—
—
(150,093)
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
88
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(775,674) $
(775,674)
(899)
(776,573)
—
—
—
—
—
—
—
—
292,180
(862,250)
(862,250)
(899)
(863,149)
460,593
—
71,568
6,661
2,832
(150,093)
20,706
(8,530)
292,180
(161,816)
(161,816)
646,209
— $
—
(1,228)
(1,228)
—
—
—
—
—
—
—
304,584
(17,062)
(26,685)
468,311
139,263
139,263
(1,228)
138,035
2,437
37,319
517,526
9,356
3,246
35,425
(3,114)
304,584
(11,845)
(26,685)
3,767
1,754,607
—
—
(93,584)
—
(438,967)
(93,584)
PREMIER, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
(In thousands, except share data)
Class A
Common Stock
Class B
Common Stock
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional
Paid-In
Capital
Accumulated Other
Comprehensive Loss
(Accumulated
Deficit) Retained
Earnings
Total
Stockholders'
Equity (Deficit)
—
—
—
—
318
(4,095)
1,958
3,690
—
—
—
—
(318)
—
—
—
—
(4,095)
1,958
3,690
— $
2,059,194 $
— $
169,474 $
2,229,893
Adjustment in additional paid-in capital
related to consolidated investment
Distribution of investment in unconsolidated
affiliate to non-controlling interests
Capital contributions
Non-controlling interest in consolidated
investments
Balance at June 30, 2021
Issuance of Class A common stock under
equity incentive plan
Issuance of Class A common stock under
employee stock purchase plan
Treasury Stock
Stock-based compensation expense
Repurchase of vested restricted units for
employee tax-withholding
Net income
Net income attributable to non-controlling
interest
Change in ownership of consolidated entity
Dividends ($0.20 per share)
Distribution of investment in unconsolidated
affiliate to non-controlling interests
Non-controlling interest in consolidated
investments
Foreign currency translation adjustment
Balance at June 30, 2022
—
—
—
—
—
—
—
—
—
—
—
—
122,533 $
1,225
— $
1,843
105
(6,429)
—
—
—
—
—
—
—
—
—
118,052 $
18
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,245
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
6,429 $
—
37,748
—
6,429
—
—
(250,129)
—
3,849
—
46,229
(10,866)
—
2,451
202
—
4,095
23,145
—
—
—
—
—
—
—
—
—
(250,129) $
2,166,047 $
See accompanying notes to the consolidated financial statements.
89
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
268,318
(2,451)
(142)
(97,082)
37,766
3,851
(250,129)
46,229
(10,866)
268,318
—
60
(97,082)
(6,427)
(2,332)
—
(3)
(3) $
—
—
331,690 $
23,145
(3)
2,248,850
PREMIER, INC.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations, net of tax
Depreciation and amortization
Equity in net income of unconsolidated affiliates
Deferred income taxes
Stock-based compensation
Remeasurement of tax receivable agreement liabilities
Impairment of assets
(Gain) loss on FFF Put and Call Rights
Other
Changes in operating assets and liabilities, net of the effects of acquisitions:
Accounts receivable, inventories, prepaid expenses and other assets
Contract assets
Accounts payable, accrued expenses, deferred revenue, revenue share obligations and other
liabilities
Net cash provided by operating activities from continuing operations
Net cash provided by operating activities from discontinued operations
Net cash provided by operating activities
Investing activities
Purchases of property and equipment
Acquisition of businesses and equity method investments, net of cash acquired
Investment in unconsolidated affiliates
Other
Net cash used in investing activities
Financing activities
Payments made on notes payable
Proceeds from credit facility
Payments on credit facility
Cash dividends paid
Repurchase of Class A common stock (held as treasury stock)
Payments on deferred consideration related to acquisition of business
Proceeds from exercise of stock options under equity incentive plan
Distributions to limited partners of Premier LP
Payments to limited partners of Premier LP related to tax receivable agreements
Other
Net cash used in financing activities
Effect of exchange rate changes on cash flows
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
Year Ended June 30,
2022
2021
2020
$
268,318 $
304,584 $
292,180
—
129,107
(23,505)
56,792
46,229
—
18,829
(64,110)
5,803
124,659
(47,219)
(70,669)
444,234
—
444,234
(87,440)
(26,000)
(16,000)
(10,000)
(139,440)
(99,243)
325,000
(250,000)
(96,455)
(250,129)
(28,586)
37,766
—
—
13,858
(347,789)
(3)
(42,998)
129,141
86,143 $
—
121,062
(21,073)
(83,692)
35,425
—
—
27,352
9,358
(68,008)
(51,685)
134,079
407,402
—
407,402
(88,876)
(84,463)
—
(1,229)
(174,568)
(50,713)
225,000
(225,000)
(92,898)
—
(29,217)
9,356
(9,949)
(24,218)
(5,358)
(202,997)
—
29,837
99,304
129,141 $
(1,054)
152,827
(12,537)
67,980
20,706
(24,584)
8,500
(4,690)
853
(121,735)
(8,205)
(30,353)
339,888
9,636
349,524
(94,397)
(121,640)
(10,165)
3,880
(222,322)
(2,419)
400,000
(350,000)
—
(150,093)
—
6,661
(48,904)
(17,425)
(6,773)
(168,953)
—
(41,751)
141,055
99,304
$
See accompanying notes to the consolidated financial statements.
90
Information presented in the Notes to the Consolidated Financial Statements are as of June 30, 2022 unless otherwise specifically noted.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PREMIER, INC.
(1) ORGANIZATION AND BASIS OF PRESENTATION
Organization
Premier, Inc. (“Premier” or the “Company”) is a publicly held, for-profit Delaware corporation located in the United States. The Company is a holding
company with no material business operations of its own. Following the Subsidiary Reorganization, the Company’s primary asset is its equity interest in its
wholly owned subsidiary Premier Healthcare Solutions, Inc., a Delaware corporation (“PHSI”). The Company conducts substantially all of its business
operations through PHSI and its other consolidated subsidiaries, including Premier Healthcare Alliance L.P. (“Premier LP”). The Company, together with its
subsidiaries and affiliates, is a leading healthcare performance improvement company that unites hospitals, health systems, physicians, employers, product
suppliers, service providers, and other healthcare providers and organizations to improve and innovate in the clinical, financial and operational areas of their
businesses to meet the demands of a rapidly evolving healthcare industry and continues to expand its capabilities to more fully address and coordinate care
improvement and standardization in the employer, payor and life sciences markets. The Company also provides services to other businesses including food
service, schools and universities.
The Company’s business model and solutions are designed to provide its members and other customers access to scale efficiencies, spread the cost of their
development, provide actionable intelligence derived from anonymized data in the Company’s enterprise data warehouse, mitigate the risk of innovation and
disseminate best practices to help the Company’s members and other customers succeed in their transformation to higher quality and more cost-effective
healthcare.
The Company, together with its subsidiaries and affiliates, delivers its integrated platform of solutions through two business segments: Supply Chain Services
and Performance Services. See Note 19 - Segments for further information related to the Company’s reportable business segments. The Supply Chain Services
segment includes one of the largest healthcare group purchasing organization (“GPO”) programs in the United States, supply chain co-management, purchased
services and direct sourcing activities. The Performance Services segment consists of three sub-brands: PINC AI
, the Company’s technology and services
platform with offerings that help optimize performance in three main areas – clinical intelligence, margin improvement and value-based care – using advanced
analytics to identify improvement opportunities, consulting services for clinical and operational design, and workflow solutions to hardwire sustainable change
in the provider, life sciences and payer markets; Contigo Health , the Company’s direct-to-employer business which provides third party administrator services
and management of health benefit programs that allow employers to contract directly with healthcare providers as well as partners with healthcare providers to
provide employers access to a specialized care network through Contigo Health’s centers of excellence program; and Remitra , the Company’s digital
invoicing and payables business which provides financial support services to healthcare product suppliers and service providers.
TM
TM
®
Principles of Consolidation
The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC and in accordance with U.S.
generally accepted accounting principles (“GAAP”) and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the
Company exercised control and when applicable, entities for which the Company had a controlling financial interest or was the primary beneficiary. All
intercompany transactions have been eliminated upon consolidation. Accordingly, the consolidated financial statements reflect all adjustments that, in the
opinion of management, are necessary for a fair presentation of results of operations and financial condition for the periods shown, including normal recurring
adjustments.
91
Supplementary Cash Flows Information
The following table presents supplementary cash flows information for the years ended June 30, 2022, 2021 and 2020 (in thousands):
Supplemental schedule of non-cash investing and financing activities:
Non-cash additions to property and equipment
Accrued dividend equivalents
Increase (decrease) in redeemable limited partners' capital for adjustment to fair value, with
offsetting decrease (increase) in stockholders' equity
Decrease in redeemable limited partners' capital, with offsetting increase in stockholders'
equity related to quarterly exchanges by member owners
Net increase in deferred tax assets related to departures and quarterly exchanges by member
owners and other adjustments
Net increase in deferred tax assets related to final exchange by member owners
Reclassification of redeemable limited partners' capital to additional paid in capital
Decrease in additional paid-in capital related to notes payable to members, net of discounts
Net increase in additional paid-in capital related to departures and quarterly exchanges by
member owners and other adjustments
Increase in additional paid-in capital related to final exchange by member owners
Variable Interest Entities
Year Ended June 30,
2022
2021
2020
$
402 $
963
755 $
686
—
—
—
—
—
—
—
—
26,685
(2,437)
331
284,852
1,754,607
438,967
37,319
517,526
5,000
—
(468,311)
(460,593)
62,776
—
—
—
71,568
—
At June 30, 2021, as a result of the August 2020 Restructuring, Premier LP no longer met the definition of a variable interest entity (“VIE”), as defined in
Accounting Standards Codification (“ASC”) Topic 810. The results of operations of Premier LP are included in the consolidated financial statements.
At June 30, 2020, Premier LP was a VIE as the limited partners did not have the ability to exercise a substantive removal right with respect to the general
partner. The Company, through Premier GP, had the exclusive power and authority to manage the business and affairs of Premier LP, to make all decisions with
respect to driving the economic performance of Premier LP, and had both an obligation to absorb losses and a right to receive benefits. As such, the Company
was the primary beneficiary of the VIE and consolidated the operations of Premier LP under the Variable Interest Model.
Net income attributable to Premier LP, including income and expense that has been classified as discontinued operations, during the year ended June 30, 2020
was as follows (in thousands):
Premier LP net income
Year Ended June 30, 2020
$
359,978
Premier LP’s cash flows, including cash flows attributable to discontinued operations, for the year ended June 30, 2020 consisted of the following (in
thousands):
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
92
Year Ended June 30, 2020
$
$
339,894
(222,322)
(159,948)
(42,376)
131,210
88,834
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company’s consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Significant estimates are
evaluated on an ongoing basis, including but not limited to estimates for net administrative fees revenue, software licenses, other services and support revenue,
contract assets, deferred revenue, contract costs, allowances for credit losses, reserves for net realizable value of inventory, obsolete inventory, useful lives of
property and equipment, stock-based compensation, deferred tax balances including valuation allowances on deferred tax assets, uncertain tax positions, values
of investments not publicly traded, projected future cash flows used in the evaluation of asset impairments, values of put and call rights, values of earn-out
liabilities and the allocation of purchase prices. These estimates are based on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates.
(2) SIGNIFICANT ACCOUNTING POLICIES
Business Combinations
The Company accounts for acquisitions of a business using the acquisition method. All of the assets acquired, liabilities assumed, contractual contingencies and
contingent consideration are recognized at their fair value on the acquisition date. Any excess of the purchase price over the estimated fair values of the net
assets acquired is recorded as goodwill. Acquisition costs are recorded as expenses in the Consolidated Statements of Income and Comprehensive Income.
Several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, the Company typically uses
the income method. This method starts with a forecast of all of the expected future net cash flows for each asset. These cash flows are then adjusted to present
value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and
assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows, the discount rate selected to
measure the risks inherent in the future cash flows and the assessment of the asset’s life cycle and the competitive trends impacting the asset, including
consideration of any technical, legal, regulatory or economic barriers to entry. Determining the useful life of an intangible asset also requires judgment as
different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments with remaining maturities of three months or less at the time of acquisition.
Fair Value of Financial Instruments
The fair value of an asset or liability is based on the assumptions that market participants would use in pricing the asset or liability. Valuation techniques
consistent with the market approach, income approach and/or cost approach are used to measure fair value. The Company follows a three-tiered fair value
hierarchy when determining the inputs to valuation techniques. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels in
order to maximize the use of observable inputs and minimize the use of unobservable inputs. The levels of the fair value hierarchy are as follows:
Level 1: consists of financial instruments whose values are based on quoted market prices for identical financial instruments in an active market;
Level 2: consists of financial instruments whose values are determined using models or other valuation methodologies that utilize inputs that are
observable either directly or indirectly, including (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or
similar assets or liabilities in markets that are not active, (iii) pricing models whose inputs are observable for substantially the full term of the financial
instrument and (iv) pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other
means for substantially the full term of the financial instrument; and
Level 3: consists of financial instruments whose values are determined using pricing models that utilize significant inputs that are primarily
unobservable, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires
significant management judgment or estimation.
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Accounts Receivable
Financial instruments, other than marketable securities, that subject the Company to potential concentrations of credit risk consist primarily of the Company’s
receivables and contract assets (see below for discussion of contract assets). Receivables consist largely of amounts due from hospital and healthcare system
members for services and products. The Company maintains an allowance for expected credit losses. This allowance is an estimate and is regularly evaluated
by the Company for adequacy by taking into consideration factors such as past experience, credit quality of the member and other customer base and age of the
receivable balances, both individually and in the aggregate. As receivables are generally due within one year, changes to economic conditions are not expected
to have a significant impact on our estimate of expected credit losses. However, economic conditions are monitored on a quarterly basis to determine if any
adjustments are deemed necessary. Provisions for the allowance for expected credit losses attributable to bad debt are recorded in selling, general and
administrative expenses in the accompanying Consolidated Statements of Income and Comprehensive Income. Accounts deemed uncollectible are written off,
net of actual recoveries. If circumstances related to specific customers change, the Company’s estimate of the recoverability of receivables could be further
adjusted.
Contract Assets
Supply Chain Services contract assets represents estimated member and other customer purchases on supplier contracts for which administrative fees have been
earned, but not collected. Historically, the Company has not recognized a provision for contract assets. Performance Services contract assets represents revenue
earned for services provided but which the Company is not contractually able to bill as of the end of the respective reporting period. Under ASC Topic 326, the
Company includes Performance Services’ contract assets in the reserving process and assess the risk of loss similar to the methodology of the Company’s
receivables, since the contract assets are reclassified to receivables when the Company becomes entitled to payment. Accordingly, a reserve is applied upon
recognition of the contract asset. Certain contract assets are due for periods greater than one year and changes to economic conditions may have an impact on
these receivables. The Company monitors economic conditions on a quarterly basis to determine if changes to the reserve are deemed necessary.
Inventory
Inventory consisting of finished goods, primarily medical products, are stated at the lower of cost or net realizable values on an average cost basis. The
Company performs periodic assessments to determine the existence of obsolete, slow-moving and unusable inventory and records necessary provisions to
reduce such inventory to net realizable value.
Property and Equipment, Net
Property and equipment is recorded at cost, net of accumulated depreciation. Expenditures for major additions and improvements are capitalized and minor
replacements, maintenance and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the Consolidated Statements of Income and
Comprehensive Income for the respective period. Depreciation is calculated over the estimated useful lives of the related assets using the straight-line method.
Capitalized modifications to leased properties are amortized using the straight-line method over the shorter of the lease term or the assets’ estimated useful
lives. See Note 8 - Supplemental Balance Sheet Information.
Costs associated with internally developed computer software that are incurred in the preliminary project stage are expensed as incurred. During the
development stage and once the project has reached technological feasibility, direct consulting costs and payroll and payroll-related costs for employees that
are directly associated with each project are capitalized. Capitalized software costs are included in property and equipment, net in the accompanying
Consolidated Balance Sheets. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the related software applications of up to
five years and amortization is included in cost of revenue or selling, general and administrative expenses in the accompanying Consolidated Statements of
Income and Comprehensive Income, based on the software’s end use. Replacements and major improvements are capitalized, while maintenance and repairs
are expensed as incurred. Some of the more significant estimates and assumptions inherent in this process involve determining the stages of the software
development project, the direct costs to capitalize and the estimated useful life of the capitalized software. The Company capitalized costs related to internally
developed software of $48.7 million and $77.0 million during the years ended June 30, 2022 and 2021, respectively.
The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an
asset or asset group may not be recoverable from the estimated cash flows expected to result from its use and eventual disposition. In cases where the
undiscounted cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair
value of the asset or asset group. The factors considered by the Company in performing this assessment include current and projected operating results, trends
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and prospects, the manner in which the asset or asset group is used, and the effects of obsolescence, demand, competition and other economic factors.
Intangible Assets
Definite-lived intangible assets consist primarily of member relationships, technology, customer relationships, trade names and non-compete agreements, and
are amortized on a straight-line basis over their estimated useful lives. See Note 9 - Goodwill and Intangible Assets.
The Company reviews the carrying value of definite-lived intangible assets subject to amortization for impairment whenever events and circumstances indicate
that the carrying value of the intangible asset subject to amortization may not be recoverable from the estimated cash flows expected to result from its use and
eventual disposition. In cases where the undiscounted cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by
which the carrying value exceeds the fair value of the intangible asset subject to amortization on the measurement date. The factors considered by the Company
in performing this assessment include current and projected operating results, trends and prospects, the manner in which the definite-lived intangible asset is
used, and the effects of obsolescence, demand and competition, as well as other economic factors.
Goodwill
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. The Company performs its annual goodwill
impairment testing on the first day of the last fiscal quarter of its fiscal year unless impairment indicators are present which could require an interim
impairment test.
Under accounting rules, the Company may elect to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred.
This qualitative assessment requires an evaluation of any excess of fair value over the carrying value for a reporting unit and significant judgment regarding
potential changes in valuation inputs, including a review of the Company’s most recent long-range projections, analysis of operating results versus the prior
year, changes in market values, changes in discount rates and changes in terminal growth rate assumptions. If it is determined that an impairment is more likely
than not to exist, then the Company is required to perform a quantitative assessment to determine whether or not goodwill is impaired and to measure the
amount of goodwill impairment, if any.
A goodwill impairment charge is recognized for the amount by which the reporting unit's carrying amount exceeds its fair value. The Company determines the
fair value of a reporting unit using a discounted cash flow analysis as well as market-based approaches. Determining fair value requires the exercise of
significant judgment, including judgment about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows.
The cash flows employed in the discounted cash flow analyses are based on the most recent budget and long-term forecast. The discount rates used in the
discounted cash flow analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. The market comparable
approach estimates fair value using market multiples of various financial measures compared to a set of comparable public companies and recent comparable
transactions.
The Company’s most recent annual impairment testing as of April 1, 2022 consisted of a quantitative assessment and did not result in any goodwill impairment
charges.
Contract Costs
Contract costs represent amounts the Company has capitalized and reflect the incremental costs of obtaining and fulfilling a contract, which include sales
commissions and costs related to implementing SaaS informatics tools. For commissions on new contracts, these costs are amortized over the life of the
expected relationship with the customer for the respective performance obligation. For renewals, commissions are amortized over the contract life with the
customer. Implementation costs are amortized on a straight-line basis, once the tool is implemented, over the life of the expected relationship with the customer
for the respective performance obligation, which is consistent with the transfer of services to the customer to which the implementation relates. The Company’s
contract costs are included in other assets in the Consolidated Balance Sheets, while the associated amortization related to sales commissions is included in
selling, general and administrative expenses and the associated amortization related to implementation costs is included in cost of revenue in the Consolidated
Statements of Income and Comprehensive Income.
Deferred Revenue
Deferred revenue consists of unrecognized revenue related to advanced customer invoicing or member payments received prior to fulfillment of the Company’s
revenue recognition criteria. Substantially all deferred revenue consists of deferred subscription fees and deferred consulting fees. Subscription fees for
Company-hosted SaaS applications are deferred until the customer’s
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unique data records have been incorporated into the underlying software database, or until customer site-specific software has been implemented and the
customer has access to the software. Deferred consulting fees arise upon invoicing to customers prior to services being performed.
Deferred Compensation Plan Assets and Related Liabilities
The Company maintains a non-qualified deferred compensation plan for the benefit of eligible employees. This plan is designed to permit employee deferrals
in excess of certain tax limits and provides for discretionary employer contributions in excess of the tax limits applicable to the Company’s 401(k) plan. The
amounts deferred are invested in assets at the direction of the employee. Company assets designated to pay benefits under the plan are held by a rabbi trust and
are subject to the general creditors of the Company.
The assets, classified as trading securities, and liabilities of the rabbi trust are recorded at fair value and are accounted for as assets and liabilities of the
Company. The assets of the rabbi trust are designated to fund the deferred compensation liabilities owed to current and former employees. The deferred
compensation plan contains both current and non-current assets. The current portion of the deferred compensation plan assets is comprised of estimated
amounts to be paid within one year to departed participants following separation from the Company. The current portion, $5.3 million and $5.5 million at
June 30, 2022 and 2021, respectively, is included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets. The
corresponding current portion of deferred compensation plan liabilities is included in other current liabilities in the accompanying Consolidated Balance Sheets
at June 30, 2022 and 2021. The non-current portion of the deferred compensation plan assets, $47.4 million and $59.6 million at June 30, 2022 and 2021,
respectively, is included in long-term assets in the accompanying Consolidated Balance Sheets. The corresponding non-current portion of deferred
compensation plan liabilities is included in long-term liabilities in the accompanying Consolidated Balance Sheets at June 30, 2022 and 2021. Realized and
unrealized (losses) and gains of $(9.4) million, $12.7 million and $3.9 million on plan assets as of the years ended June 30, 2022, 2021 and 2020, respectively,
are included in other (expense) income, net in the accompanying Consolidated Statements of Income and Comprehensive Income. Deferred compensation
expense from the change in the corresponding liability of $(9.4) million, $12.7 million and $3.9 million, respectively, is included in selling, general and
administrative expense in the accompanying Consolidated Statements of Income and Comprehensive Income for the years ended June 30, 2022, 2021 and
2020, respectively.
Leases
The Company enters into lease contracts in which the Company is the lessee, substantially all of which are related to office space leased in various buildings
used for general corporate purposes. The terms of these non-cancelable operating leases typically require the Company to pay rent and a share of operating
expenses and real estate taxes, generally with an inflation-based rent increase included. The Company's lease agreements do not contain any material residual
value guarantees or material restrictive covenants.
Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease
term beginning at the commencement date. Operating lease right-of-use assets are adjusted for lease incentives, deferred rent and initial direct costs, if incurred.
The Company’s leases generally do not include an implicit rate; therefore, the Company determined the present value of future minimum lease payments using
an incremental borrowing rate based on information available as of July 1, 2019, the transition date. The related lease expense is recognized on a straight-line
basis over the lease term.
Redeemable Limited Partners’ Capital
The fair value of redeemable limited partners’ capital at July 31, 2020 was reclassified from temporary equity in the mezzanine section of the Consolidated
Balance Sheets to additional paid-in capital as a component of permanent equity. Prior to July 31, 2020, the Company recorded redeemable limited partners’
capital as temporary equity in the mezzanine section of the Consolidated Balance Sheets at the redemption amount, which represented the greater of the book
value or redemption amount of Class B common units per the Amended and Restated Limited Partnership Agreement at the reporting date.
Revenue Recognition
The Company accounts for a contract with a customer when the contract is committed, the rights of the parties, including payment terms, are identified, the
contract has commercial substance and consideration is probable of collection.
Revenue is recognized when, or as, control of a promised product or service transfers to a customer, in an amount that reflects the consideration to which the
Company expects to be entitled in exchange for transferring those products or services. If the consideration promised in a contract includes a variable amount,
the Company estimates the amount to which it expects to be entitled using either the expected value or most likely amount method. The Company’s contracts
may include terms that could
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cause variability in the transaction price, including, for example, revenue share, rebates, discounts, and variable fees based on performance.
The Company only includes estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates require management to make
complex, difficult or subjective judgments, and to make estimates about the effect of matters inherently uncertain. As such, the Company may not be able to
reliably estimate variable fees based on performance in certain long-term arrangements due to uncertainties that are not expected to be resolved for a long
period of time or when the Company’s experience with similar types of contracts is limited. Estimates of variable consideration and the determination of
whether to include estimated amounts of consideration in the transaction price are based on information (historical, current and forecasted) that is reasonably
available to the Company, taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement.
Additionally, management performs periodic analyses to verify the accuracy of estimates for variable consideration.
Although the Company believes that its approach in developing estimates and reliance on certain judgments and underlying inputs is reasonable, actual results
could differ which may result in exposure of increases or decreases in revenue that could be material.
Performance Obligations
A performance obligation is a promise to transfer a distinct good or service to a customer. A contract's transaction price is allocated to each distinct performance
obligation and recognized as revenue when, or as, the performance obligation is satisfied. Contracts may have a single performance obligation as the promise to
transfer individual goods or services is not separately identifiable from other promises, and therefore, not distinct, while other contracts may have multiple
performance obligations, most commonly due to the contract covering multiple deliverable arrangements (licensing fees, subscription fees, professional fees
for consulting services, etc.).
Net Administrative Fees Revenue
Net administrative fees revenue is a single performance obligation earned through a series of distinct daily services and includes maintaining a network of
members to participate in the group purchasing program and providing suppliers efficiency in contracting and access to the Company’s members. Revenue is
generated through administrative fees received from suppliers and is included in service revenue in the accompanying Consolidated Statements of Income and
Comprehensive Income.
The Company, through its GPO programs, aggregates member purchasing power to negotiate pricing discounts and improve contract terms with suppliers.
Contracted suppliers pay the Company administrative fees which generally represent 1% to 3% of the purchase price of goods and services sold to members
under the contracts the Company has negotiated. Administrative fees are variable consideration and are recognized as earned based upon estimated purchases
by the Company’s members utilizing analytics based on historical member spend and updates for current trends and expectations. Administrative fees are
estimated due to the difference in timing of when a member purchases on a supplier contract and when the Company receives the purchasing information.
Member and supplier contracts substantiate persuasive evidence of an arrangement. The Company does not take title to the underlying equipment or products
purchased by members through its GPO supplier contracts. Administrative fee revenue receivable is included in contract assets in the accompanying
Consolidated Balance Sheets.
Generally, the Company pays a revenue share to members equal to a percentage of gross administrative fees, which is estimated according to the members’
contractual agreements with the Company using a portfolio approach based on historical revenue fee share percentages and adjusted for current or anticipated
trends. Revenue share is recognized as a reduction to gross administrative fees revenue to arrive at a net administrative fees revenue, and the corresponding
revenue share liability is included in revenue share obligations in the accompanying Consolidated Balance Sheets.
Products Revenue
Direct sourcing generates revenue primarily through products sold to the Company’s members, other customers or distributors. Revenue is recognized once
control of products has been transferred to the customer and is recorded net of discounts and rebates offered to customers. Discounts and rebates are estimated
based on contractual terms and historical trends.
Software Licenses, Other Services and Support Revenue
The Company generates software licenses, other services and support revenue through Performance Services and Supply Chain Services.
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Within Performance Services, which provides technology with wrap-around service offerings, revenue consists of revenue generated through three sub-brands:
PINC AI, Contigo Health and Remitra. The main sources of revenue under PINC AI consists of SaaS-based clinical analytics products subscriptions, enterprise
analytics licenses, professional fees for consulting services and other miscellaneous revenue including performance improvement collaboratives, insurance
management service fees and commissions from group-sponsored insurance programs. Contigo Health’s main sources of revenue are third-party administrator
fees and fees from the centers of excellence program. Remitra’s main source of revenue fees from healthcare product suppliers and service providers.
PINC AI:
SaaS-based Products Subscriptions: SaaS-based clinical analytics subscriptions include the right to access the Company’s proprietary hosted technology
on a SaaS basis, training and member support to deliver improvements in cost management, margin improvement, quality and safety, value-based care and
provider analytics. SaaS arrangements create a single performance obligation for each subscription within the contract in which the nature of the obligation
is a stand-ready obligation, and each day of service meets the criteria for over time recognition. Pricing varies by application and size of healthcare system.
Clinical analytics products subscriptions are generally three- to five-year agreements with automatic renewal clauses and annual price escalators that
typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed
on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following
implementation. Implementation involves the completion of data preparation services that are unique to each member’s data set and, in certain cases, the
installation of member site-specific software, in order to access and transfer member data into the Company’s hosted SaaS-based clinical analytics
products. Implementation is generally 60 to 240 days following contract execution before the SaaS-based clinical analytics products can be fully utilized
by the member.
Software Licenses: Enterprise analytics licenses include term licenses that range from three to ten years and offer clinical analytics products,
improvements in cost management, quality and safety, value-based care and provider analytics. Pricing varies by application and size of healthcare system.
Revenue on licensing is recognized upon delivery of the license, and revenue from hosting and maintenance is recognized ratably over the life of the
contract.
Consulting Services: Professional fees for consulting services are sold under contracts, the terms of which vary based on the nature of the engagement.
These services typically include general consulting, report-based consulting and cost savings initiatives. Promised services under such consulting
engagements are typically not considered distinct and are regularly combined and accounted for as one performance obligation. Fees are billed as
stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed or when deliverables are provided. In
situations where the contracts have significant contract performance guarantees, the performance guarantees are estimated and accounted for as a form of
variable consideration when determining the transaction price. In the event that guaranteed savings levels are not achieved, the Company may have to
perform additional services at no additional charge in order to achieve the guaranteed savings or pay the difference between the savings that were
guaranteed and the actual achieved savings. Occasionally, the Company’s entitlement to consideration is predicated on the occurrence of an event such as
the delivery of a report for which client acceptance is required. However, except for event-driven point-in-time transactions, the majority of services
provided within this service line are delivered over time due to the continuous benefit provided to the Company’s customers.
Consulting arrangements can require significant estimates for the transaction price and estimated number of hours within an engagement. These estimates
are based on the expected value which is derived from outcomes from historical contracts that are similar in nature and forecasted amounts based on
anticipated savings for the new agreements. The transaction price is generally constrained until the target transaction price becomes more certain.
Other Miscellaneous Revenue: Revenue from performance improvement collaboratives that support the Company’s offerings in cost management,
quality and safety, and value-based care is recognized over the service period as the services are provided, which is generally one year. Performance
improvement collaboratives revenue is considered one performance obligation and is generated by providing customers access to online communities
whereby data is housed and available for analytics and benchmarking.
Insurance management service fees are recognized in the period in which such services are provided. Commissions from insurance carriers for sponsored
insurance programs are earned by acting as an intermediary in the placement of effective insurance policies. Under this arrangement, revenue is recognized
at a point in time on the effective date of the associated policies when control of the policy transfers to the customer and is constrained for estimated early
terminations.
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Contigo Health:
Contigo Health revenue consists of third-party administrator fees and fees from the centers of excellence program. Third party administrator fees consist of
integrated fees for the processing of self-insured health care plan claims. Third party administrator fees are invoiced to customers monthly and typically
collected in that period. Revenue is recognized in the period in which the services have been provided. Fees from the centers of excellence program consist
of administrative fees for access to a specialized care network of proven healthcare providers. Centers of excellence fees are invoiced to customers a
month in arrears and typically collected in that period. Revenue is recognized in the period in which the services have been provided.
Remitra:
Revenue for Remitra primarily consists of fees from healthcare product suppliers and service providers. Fees for services are invoiced to our customers
monthly and typically collected in the following period. For fixed fee contracts, revenue is recognized in the period in which the services have been
provided. For variable rate contracts, revenue is recognized as customers are invoiced. Additional revenue consists of fees from check replacement services
which consist of monthly rebates from bank partners.
Within Supply Chain Services, revenue is generated through supply chain co-management and SaaS-based purchased services activities.
Supply Chain Co-Management. Supply chain co-management activities generate revenue in the form of a service fee for services performed under the
supply chain management contracts. Service fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method
as services are performed.
Purchased Services. Purchased services generate revenue through subscription fees for SaaS-based products. Subscription fees are typically billed on a
monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation.
Multiple Deliverable Arrangements
The Company enters into agreements where the individual deliverables discussed above, such as SaaS subscriptions and consulting services, are bundled into a
single service arrangement. These agreements are generally provided over a time period ranging from approximately three months to five years after the
applicable contract execution date. Revenue, including both fixed and variable consideration, is allocated to the individual performance obligations within the
arrangement based on the stand-alone selling price when it is sold separately in a stand-alone arrangement.
Cost of Revenue and Operating Expenses
Cost of Revenue
Cost of services and software licenses revenue includes expenses related to employees (including compensation and benefits) and outside consultants who
directly provide services related to revenue-generating activities, including consulting services to members and capitalized implementation services related to
SaaS informatics products. Cost of services and software licenses revenue also includes expenses related to hosting services, related data center capacity costs,
third-party product license expenses and amortization of the cost of internally developed software.
Cost of product revenue consists of purchase and shipment costs for direct sourced medical products.
Operating Expenses
Selling, general and administrative expenses consist of expenses directly associated with selling and administrative employees and indirect expenses associated
with employees that primarily support revenue generating activities (including compensation and benefits) and travel-related expenses, as well as occupancy
and other indirect expenses, insurance expenses, professional fees, and other general overhead expenses.
Research and development expenses consist of employee-related compensation and benefits expenses, and third-party consulting fees of technology
professionals, incurred to develop, support and maintain the Company’s software-related products and services.
Amortization of purchased intangible assets includes the amortization of all identified definite-lived intangible assets resulting from acquisitions.
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Advertising Costs
Advertising costs are expensed as incurred. Advertising costs are reflected in selling, general and administrative expenses in the accompanying Consolidated
Statements of Income and Comprehensive Income and were $6.5 million, $4.8 million and $5.0 million for the years ended June 30, 2022, 2021 and 2020,
respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability approach. Deferred tax assets or liabilities are determined based on the differences
between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates as well as net operating losses and credit
carryforwards, which will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets when, based
upon the available evidence, it is more likely than not that the deferred tax assets will not be realized.
The Company prepares and files tax returns based on interpretations of tax laws and regulations. The Company’s tax returns are subject to examination by
various taxing authorities in the normal course of business. Such examinations may result in future tax, interest and penalty assessments by these taxing
authorities.
In determining the Company’s tax expense for financial reporting purposes, the Company establishes a reserve when there are transactions, calculations, and
tax filing positions for which the tax determination is uncertain, and it is more likely than not that such positions would not be sustained upon examinations.
The Company adjusts its tax reserve estimates periodically based on the changes in facts and circumstances, such as ongoing examinations by, and settlements
with, varying taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated tax expense of any given year includes
adjustments to prior year income tax reserve and related estimated interest charges that are considered appropriate. The Company’s policy is to recognize, when
applicable, interest and penalties on uncertain income tax positions as part of income tax expense.
Comprehensive Income
Comprehensive income includes all changes in stockholders’ deficit during a period from non-owner sources. Net income and other comprehensive income are
reported, net of their related tax effect, to arrive at comprehensive income.
Basic and Diluted Earnings per Share (“EPS”)
Basic EPS is calculated by dividing net income attributable to stockholders by the weighted average number of shares of common stock outstanding during the
period. Diluted EPS assumes the conversion, exercise or issuance of all potentially issuable dilutive shares of Class A common stock, unless the effect of such
inclusion would result in the reduction of a loss or the increase in income per share. Diluted EPS is computed by dividing net income attributable to
stockholders by the weighted average number of shares of common stock increased by the dilutive effects of potentially issuable dilutive shares of Class A
common stock during the period. The number of potential common shares outstanding is determined in accordance with the treasury stock method.
Recently Issued Accounting Standards Not Yet Adopted
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08 Business Combinations
(Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, (“ASU 2021-08”), which requires that an acquirer
recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with
Customers. ASU 2021-08 will be effective for the Company for the fiscal year beginning July 1, 2023. Early adoption is permitted including adoption in
interim periods. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related
disclosures.
(3) BUSINESS ACQUISITIONS
Acquisition of Invoice Delivery Services, LP Assets
On March 1, 2021, the Company acquired, through its indirect, wholly owned subsidiary Premier IDS, LLC, substantially all the assets and assumed certain
liabilities of Invoice Delivery Services, LP (“IDS”) for an adjusted purchase price of $80.7 million, subject to certain adjustments, of which $80.0 million was
paid at closing with borrowings under the Company’s Credit Facility (as defined in Note 10 - Debt and Notes Payable).
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The Company accounted for the IDS acquisition as a business combination whereby the purchase price was allocated to tangible and intangible assets acquired
and liabilities assumed based on their fair values. The total fair value assigned to intangible assets acquired was $22.4 million, consisting primarily of
developed technology.
The IDS acquisition resulted in the recognition of $57.7 million of goodwill based on the purchase price paid in the acquisition compared to the fair value of
the assets acquired. The IDS acquisition was considered an asset acquisition for income tax purposes. Accordingly, the Company expects tax goodwill to be
deductible for tax purposes. The purchase price allocation was finalized during the three months ended March 31, 2022. IDS has been integrated within
Premier under the brand name Remitra and is reported as part of the Performance Services segment.
Pro forma results of operations for the acquisition have not been presented because the effects on revenue and net income were not material to the Company’s
historic consolidated financial statements.
(4) DISCONTINUED OPERATIONS AND EXIT ACTIVITIES
In connection with the sale of certain assets and wind down and exit from the specialty pharmacy business, the Company met the criteria for classifying certain
assets and liabilities of its specialty pharmacy business as a discontinued operation as of June 30, 2019. Prior to its classification as a discontinued operation,
the specialty pharmacy business was included as part of the Supply Chain Services segment.
As of June 30, 2020, the Company had completed the wind down and exit from the specialty pharmacy business and had no net income or loss from
discontinued operations for the years ended June 30, 2022 and 2021.
The following table summarizes the major components of net income from discontinued operations for the year ended June 30, 2020 (in thousands):
Operating income from discontinued operations
Net gain on disposal and impairment of assets
Income from discontinued operations before income taxes
Income tax expense
Income from discontinued operations, net of tax
Net income from discontinued operations attributable to non-controlling interest in Premier LP
Net income from discontinued operations attributable to stockholders
(5) INVESTMENTS
Investments in Unconsolidated Affiliates
The Company’s investments in unconsolidated affiliates consisted of the following (in thousands):
Year Ended June 30, 2020
—
(1,697)
1,697
643
1,054
(498)
556
$
$
FFF
Exela
Prestige
Qventus
Other investments
Total investments
Carrying Value
June 30,
Equity in Net Income
Year Ended June 30,
2022
2021
2022
2021
2020
$
$
137,162 $
27,733
15,597
16,000
19,053
215,545 $
120,548 $
—
14,478
—
18,198
153,224 $
16,614 $
1,733
4,303
—
855
23,505 $
11,344 $
—
8,856
—
873
21,073 $
12,299
—
—
—
238
12,537
The Company, through its indirect, wholly owned subsidiary Premier Supply Chain Improvement, Inc. (“PSCI”), held a 49% interest in FFF Enterprises, Inc.
(“FFF”) through its ownership of stock of FFF at June 30, 2022 and 2021. On July 29, 2021, the FFF shareholders’ agreement was amended resulting in the
termination of the FFF Put Right, which had previously provided the majority shareholder of FFF a right to require the Company to purchase such
shareholder’s interest in FFF, on an all or nothing basis, on or after April 15, 2023 (“FFF Put Right”). The termination of the FFF Put Right resulted in the
derecognition of the FFF Put Right liability and the recognition of a corresponding non-cash gain of $64.1 million in the
101
accompanying Consolidated Statements of Income and Comprehensive Income (see Note 6 - Fair Value Measurements for additional information).
The Company, through its consolidated subsidiary, ExPre Holdings, LLC (“ExPre”), held an approximate 6% interest in Exela Holdings, Inc. (“Exela”) through
its ownership of Exela Class A common stock at June 30, 2022. At June 30, 2022, the Company owned approximately 15% of the membership interest of
ExPre, with the remainder of the membership interests held by 11 member health systems or their affiliates.
The Company, through its consolidated subsidiary, PRAM Holdings, LLC (“PRAM”), held an approximate 20% interest in Prestige Ameritech Ltd.
(“Prestige”) through its ownership of Prestige limited partnership units at June 30, 2022. The Company owns approximately 26% of the membership interest of
PRAM, with the remainder of the membership interests held by 16 member health systems.
The Company accounts for its investments in FFF, Exela and Prestige using the equity method of accounting and includes the investment as part of the Supply
Chain Services segment.
On January 31, 2022, the Company, through PHSI, purchased an approximate 7% interest in Qventus, Inc. (“Qventus”) through its ownership of Qventus
Series C preferred stock. The Company accounts for its investment in Qventus at initial cost less impairments, if any, plus or minus any observable changes in
fair value. The Company includes Qventus as part of the Performance Services segment.
Unconsolidated Significant Subsidiaries
In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, the Company must determine which of its unconsolidated investments, if any, are considered
“significant subsidiaries.” In evaluating these investments, there are three tests utilized to determine if any unconsolidated subsidiaries are considered
significant subsidiaries: the investment test, the asset test and the income test. Rule 3-09 of Regulation S-X requires the Company to include separate audited
financial statements of any unconsolidated majority-owned subsidiary (unconsolidated subsidiaries in which the Company owns greater than 50% of the voting
securities) in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information of
unconsolidated subsidiaries in an annual report if any of the three tests exceeds 10%, and summarized financial information in a quarterly report if any of the
three tests exceeds 20% pursuant to Rule 10-01(b)(1) of Regulation S-X.
As of June 30, 2022, 2021, and 2020 the Company held one unconsolidated investment whose assets represented greater than 10% of its total assets.
The following table shows summarized unaudited financial information for FFF, which met the 10% asset test for the years ended June 30, 2022 and 2021 (in
thousands):
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Non-controlling equity
$
June 30,
2022
2021
841,555 $
103,298
463,863
325,693
76,096
635,642
86,783
348,477
251,866
59,820
The following table shows summarized unaudited results of operations information for FFF, which met the 10% asset test for the years ended June 30, 2022,
2021, and 2020 (in thousands):
Revenue
Gross profit
Income from operations
Net income
Net income attributable to non-controlling interest
$
Year Ended June 30,
2022
2,728,855 $
150,980
55,379
33,215
16,275
2021
2,047,494 $
122,890
41,643
23,841
11,682
2020
1,990,282
108,733
35,624
22,565
11,057
102
(6) FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following table represents the Company's financial assets and liabilities, which are measured at fair value on a recurring basis (in thousands):
Fair Value of Financial Assets
and Liabilities
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other Observable
Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
June 30, 2022
Cash equivalents
Deferred compensation plan assets
Total assets
Earn-out liabilities
Total liabilities
June 30, 2021
Cash equivalents
Deferred compensation plan assets
Total assets
Earn-out liabilities
FFF put right
Total liabilities
$
$
$
$
75 $
52,718
52,793
22,789
22,789 $
75 $
65,051
65,126
24,249
64,110
88,359 $
75 $
52,718
52,793
—
— $
75 $
65,051
65,126
—
—
— $
— $
—
—
—
— $
— $
—
—
—
—
— $
—
—
—
22,789
22,789
—
—
—
24,249
64,110
88,359
Deferred compensation plan assets consisted of highly liquid mutual fund investments, which were classified as Level 1. The current portion of deferred
compensation plan assets ($5.3 million and $5.5 million at June 30, 2022 and 2021, respectively) was included in prepaid expenses and other current assets in
the accompanying Consolidated Balance Sheets.
Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
FFF Put and Call Rights
On July 29, 2021, the FFF shareholders’ agreement was amended resulting in the termination of the FFF Put Right and the derecognition of the FFF Put Right
liability.
In the event of a Key Man Event (generally defined in the shareholders’ agreement as the resignation, termination for cause, death or disability of the majority
shareholder), the Company has a call right that requires the majority shareholder to sell its remaining interest in FFF to the Company, and is exercisable at any
time within the later of 180 calendar days after the date of a Key Man Event (the “Call Right”, together with the FFF Put Right, the “Put and Call Rights”). As
of June 30, 2022 and 2021, the Call Right had zero value. In the event that either of these rights are exercised, the purchase price for the additional interest in
FFF will be at a per share price equal to the earnings before interest, taxes, depreciation and amortization (“FFF EBITDA”) over the twelve calendar months
prior to the purchase date multiplied by a market adjusted multiple, adjusted for any outstanding debt and cash and cash equivalents, divided by the number of
shares of FFF common stock then outstanding (“Equity Value per Share”).
At June 30, 2021, the fair values of the Put and Call Rights were determined using a Monte Carlo simulation in a risk-neutral framework based on the Equity
Value per Share calculation using unobservable inputs, which included the estimated FFF Put and Call Rights’ expiration dates, the forecast of the FFF
EBITDA and enterprise value over the option period, forecasted movements in the overall market and the likelihood of a Key Man Event. FFF’s enterprise
value over the option period was valued utilizing expected annual FFF EBITDA and revenue growth rates, among other assumptions. The resulting FFF
enterprise value was an assumption utilized in the valuation of the Put and Call Rights.
103
The Company utilized the following assumptions to estimate the fair value of FFF Put and Call Rights at June 30, 2021:
Annual FFF EBITDA growth rate
Annual revenue growth rate
Correlation
Weighted average cost of capital
Asset volatility
Credit spread
June 30, 2021
2.5-10.8%
2.5-6.3%
80.0 %
14.0 %
30.0 %
0.8 %
The significant assumptions using the Monte Carlo simulation approach for valuation of the Put and Call Rights are:
(i)
(ii)
Annual FFF EBITDA growth rate: The forecasted FFF EBITDA growth range over six years;
Annual revenue growth rate: The forecasted revenue growth range over six years;
(iii) Correlation: The estimated correlation between future Business Enterprise Value and FFF EBITDA;
(iv) Weighted average cost of capital: The expected rate paid to security holders to finance debt and equity;
(v)
Asset volatility: Based on the asset volatility of guideline public companies in the healthcare industry; and
(vi) Credit spread: Based on term-matched BBB yield curve.
At June 30, 2021, the Company recorded the FFF Put and Call Rights within long-term other liabilities and long-term other assets, respectively, within the
accompanying Consolidated Balance Sheets. Net changes in the fair values of the FFF Put and Call Rights, including the gain recorded as a result of the
termination of the FFF Put Right, were recorded within other (expense) income, net in the accompanying Consolidated Statements of Income and
Comprehensive Income.
Earn-out liabilities
An earn-out liability was established in connection with the acquisition of substantially all of the assets and certain liabilities of Acurity, Inc. and Nexera, Inc.
(the “Acurity and Nexera asset acquisition”) in February 2020. The earn-out liability was classified as Level 3 of the fair value hierarchy.
The earn-out liability arising from expected earn-out payments related to the Acurity and Nexera asset acquisition was measured on the acquisition date using a
probability-weighted expected payment model and are remeasured periodically due to changes in management’s estimates of the number of transferred member
renewals and market conditions. In determining the fair value of the contingent liabilities, management reviews the current results of the acquired business,
along with projected results for the remaining earn-out period, to calculate the expected earn-out payment to be made based on the contractual terms set out in
the acquisition agreement. The Acurity and Nexera earn-out liability utilized a credit spread of 1.6% and 0.9% at June 30, 2022 and 2021, respectively. As of
June 30, 2022 and 2021, the undiscounted range of outcomes is between $0 and $30.0 million. A significant decrease in the probability could result in a
significant decrease in the value of the earn-out liability. The fair value of the Acurity and Nexera earn-out liability at June 30, 2022 and 2021 was
$22.8 million and $24.2 million, respectively.
Acurity and Nexera Earn-out
Input assumptions
Probability of transferred member renewal percentage < 50%
Probability of transferred member renewal percentage between 50% and 65%
Probability of transferred member renewal percentage between 65% and 80%
Probability of transferred member renewal percentage > 80%
Credit spread
104
As of June 30,
2022
2021
5.0 %
10.0 %
25.0 %
60.0 %
1.6 %
5.0 %
10.0 %
25.0 %
60.0 %
0.9 %
A reconciliation of the FFF Put Right and earn-out liabilities is as follows (in thousands):
Year Ended June 30, 2022
Earn-out liabilities
FFF put right
Total Level 3 liabilities
(a)
Year Ended June 30, 2021
(b)
Earn-out liabilities
FFF put right
Total Level 3 liabilities
_________________________________
Beginning Balance
Settlements
(Gain)/Loss
(c)
Ending Balance
$
$
$
24,249 $
64,110
88,359 $
33,151
36,758
69,909 $
— $
(64,110)
(64,110) $
(13,733)
—
(13,733) $
(1,460) $
—
(1,460) $
4,831
27,352
32,183 $
22,789
—
22,789
24,249
64,110
88,359
(a)
Settlements for the year ended June 30, 2022 includes non-cash gain recognized as a result of the termination of the FFF Put Right and the derecognition of the FFF Put Right liability.
(b) Settlements for the year ended June 30, 2021, includes earnout liabilities from previous acquisitions which were earned and paid during the period.
(c) A gain on level 3 liability balances will decrease the liability ending balance and a loss on level 3 liability balance will increase the liability ending balance.
Non-Recurring Fair Value Measurements
During the year ended June 30, 2021, the Company recorded notes payable to former limited partners as a result of the August 2020 Restructuring. Although
these notes are non-interest bearing, they include a Level 2 input associated with the implied interest rate of 1.8% and are calculated as of August 11, 2020. (see
Note 10 - Debt and Notes Payable).
During the year ended June 30, 2022, no non-recurring fair value measurements were required relating to the measurement of goodwill and intangible assets
for impairment.
Financial Instruments For Which Fair Value Only is Disclosed
The fair values of non-interest bearing notes payable, classified as Level 2, were less than their carrying value by $0.1 million at both June 30, 2022 and 2021,
based on assumed market interest rates of 1.6% for both periods.
Other Financial Instruments
The fair values of cash, accounts receivable, accounts payable, accrued liabilities, and the Credit Facility (as defined in Note 10 - Debt and Notes Payable)
approximated carrying value due to the short-term nature of these financial instruments.
(7) CONTRACT BALANCES
Contract Assets, Deferred Revenue and Revenue Share Obligations
The timing of revenue recognition, billings and cash collections results in accounts receivables, contract assets (unbilled receivables) and deferred revenue on
the Consolidated Balance Sheets. Contract assets increased by $47.2 million during the year ended June 30, 2022 compared to the year ended June 30, 2021
primarily due to the acceleration of revenue recognition from licensing contracts in Performance Services and increased gross administrative fees driven by
higher members’ purchases. The acceleration of revenue recognition from licensing contracts represents performance obligations that have been satisfied prior
to customer invoicing offset by the timing of invoicing related to certain cost management consulting services and performance-based engagements where
revenue is recognized as work is performed. Revenue share obligations increased by $18.5 million during the year ended June 30, 2022 compared to the year
ended June 30, 2021 primarily due to the underlying revenue share arrangements which include a higher average revenue fee share percentage.
Revenue recognized during the year ended June 30, 2022 that was included in the opening balance of deferred revenue at June 30, 2021 was $25.4 million,
which is a result of satisfying performance obligations within the Performance Services segment.
105
Performance Obligations
A performance obligation is a promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct
performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Contracts may have a single performance obligation as
the promise to transfer individual goods or services is not separately identifiable from other promises and, therefore, not distinct, while other contracts may
have multiple performance obligations, most commonly due to the contract covering multiple phases or deliverable arrangements (licensing fees, SaaS
subscription fees, maintenance and support fees, and professional fees for consulting services).
Net revenue of $5.3 million was recognized during the year ended June 30, 2022 from performance obligations that were satisfied or partially satisfied on or
before June 30, 2021. The net revenue recognized was driven by an increase of $4.8 million in net administrative fees revenue related to under-forecasted cash
receipts received in the current period and an increase of $0.5 million associated with revised forecasts from underlying contracts that include variable
consideration components as well as additional fluctuations due to input method contracts which occur in the normal course of business.
The reduction to net revenue recognized during the year ended June 30, 2021 from performance obligations that were satisfied or partially satisfied on or
before June 30, 2020 was $2.9 million. The reduction in net revenue recognized was driven by $3.3 million associated with revised forecasts from underlying
contracts that include variable consideration components as well as additional fluctuations due to input method contracts which occur in the normal course of
business partially offset by $0.4 million of net administrative fees revenue related to under-forecasted cash receipts received in the current period.
Remaining performance obligations represent the portion of the transaction price that has not yet been satisfied or achieved. As of June 30, 2022, the aggregate
amount of the transaction price allocated to remaining performance obligations was $752.7 million. The Company expects to recognize 40% of the remaining
performance obligations over the next 12 months and an additional 25% over the following 12 months, with the remainder recognized thereafter.
Contract Costs
The Company capitalizes the incremental costs of obtaining and fulfilling a contract, which include costs associated with implementing SaaS informatics tools
and sales commissions. At June 30, 2022, the Company had $22.9 million in capitalized contract costs, including $10.7 million related to implementation costs
and $12.2 million related to sales commissions. The Company recognized $8.9 million of related amortization expense for the year ended June 30, 2022.
At June 30, 2021, the Company had $21.7 million in capitalized contract costs, including $10.2 million related to implementation costs and $11.5 million
related to sales commissions. The Company recognized $7.6 million of related amortization expense for the year ended June 30, 2021.
106
(8) SUPPLEMENTAL BALANCE SHEET INFORMATION
Accounts Receivable, Net
Trade accounts receivable consisted of amounts due from hospital and healthcare system members as well as non-healthcare customers services and products.
Managed services receivable consisted of amounts receivable related to fees for services provided to members to support contract negotiation and
administration, claims data, rebate processing and evaluation of pharmacy formulary and utilization.
Accounts receivable, net consisted of the following (in thousands):
Trade accounts receivable
Managed services receivable
Other
Total accounts receivable
Allowance for credit losses
Accounts receivable, net
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
Capitalized software
Computer hardware
Furniture and other equipment
Leasehold improvements
Total property and equipment
Accumulated depreciation and amortization
Property and equipment, net
Useful life
2-5 years
3-5 years
5 years
Lesser of estimated useful life or
term of lease
June 30,
2022
2021
114,214 $
1,422
536
116,172
(2,043)
114,129 $
June 30,
2022
2021
705,319 $
60,399
7,097
19,208
792,023
(578,644)
213,379 $
131,246
11,972
513
143,731
(2,284)
141,447
653,515
62,930
7,097
19,061
742,603
(518,332)
224,271
$
$
$
$
Depreciation and amortization expense related to property and equipment was $85.2 million, $76.3 million and $97.3 million for the years ended June 30,
2022, 2021 and 2020, respectively. Unamortized capitalized software costs were $177.6 million and $178.4 million at June 30, 2022 and 2021, respectively.
During the year ended June 30, 2022, the Company incurred an impairment of long-lived assets of $12.7 million associated with capitalized software assets in
the Supply Chain Services segment as the carrying value of the assets was not recoverable. The Company did not incur a material loss on disposal or
impairment of long-lived assets during the years ended June 30, 2021 and 2020.
Other Long-Term Assets
Other long-term assets consisted of the following (in thousands):
Contract assets, less current portion
Acurity prepaid contract administrative fee share, less current portion
Capitalized contract costs
Other
(a)
Total other long-term assets
107
June 30,
2022
2021
$
$
54,441 $
29,099
22,894
7,720
114,154 $
—
48,498
21,686
6,764
76,948
_________________________________
(a)
Includes deferred loan costs, net of $0.9 million and $1.5 million as of June 30, 2022 and 2021, respectively.
Pursuant to the Acurity and Nexera asset acquisition, the Company capitalized one-time rebates pursuant to the purchase agreement with Acurity, Inc. as
prepaid contract administrative fee share.
Contract costs include capitalized sales commissions and implementation costs. See Note 7 - Contract Balances for further information.
The Company recorded $0.6 million in amortization expense on deferred loan costs for each of the years ended June 30, 2022, 2021 and 2020. Amortization
expense on deferred loan costs was recognized based on the straight-line method, which approximates the effective interest method, and was included in
interest expense, net in the Consolidated Statements of Income and Comprehensive Income.
Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
Earn-out liability, less current portion
Reserve for uncertain tax positions
FFF Put Right
Other
Total other long-term liabilities
June 30,
2022
2021
22,789 $
18,799
—
986
42,574 $
24,249
18,524
64,110
5,518
112,401
$
$
On July 29, 2021, the Company executed an amendment to the FFF shareholders’ agreement which resulted in the termination of the Put Right (see Note 5 -
Investments and Note 6 - Fair Value Measurements).
Earn-out liabilities were established in connection with the Acurity and Nexera asset acquisition. See Note 6 - Fair Value Measurements for further information.
(9) GOODWILL AND INTANGIBLE ASSETS
Goodwill
At June 30, 2022 and 2021, the Company had goodwill balances recorded at Supply Chain Services and Performance Services of $388.5 million and $611.4
million, respectively.
Intangible Assets, Net
Intangible assets, net consisted of the following (in thousands):
Member relationships
Technology
Customer relationships
Trade names
Non-compete agreements
Other
(a)
Total intangible assets
Accumulated amortization
Total intangible assets, net
_________________________________
(a)
Includes a $1.0 million indefinite-lived asset.
Useful Life
14.7 years
7.2 years
10.4 years
6.9 years
5.2 years
10.2 years
$
$
June 30,
2022
2021
386,100 $
98,017
47,830
17,210
17,315
7,682
574,154
(217,582)
356,572 $
386,100
186,017
70,830
24,610
11,315
7,682
686,554
(289,912)
396,642
108
The net carrying value of intangible assets by segment was as follows (in thousands):
Supply Chain Services
Performance Services
(a)
Total intangible assets, net
_________________________________
June 30,
2022
2021
$
$
301,611 $
54,961
356,572 $
334,038
62,604
396,642
(a)
Includes a $1.0 million indefinite-lived asset that was acquired through the HDP acquisition.
The Company reviews the carrying value of definite-lived intangible assets subject to amortization for impairment whenever events and circumstances indicate
that the carrying value of the intangible asset subject to amortization may not be recoverable. During the year ended June 30, 2022, the carrying value of
$4.4 million in customer relationships and $1.7 million in trade names in the Performance Services segment were not recoverable and the Company recorded
an impairment on assets of $6.1 million in the accompanying Consolidated Statements of Income and Comprehensive Income. During the years ended June 30,
2021 and 2020, no impairment of assets was recorded in the accompanying Consolidated Statements of Income and Comprehensive Income.
Intangible asset amortization expense was $43.9 million, $44.8 million and $55.5 million for the years ended June 30, 2022, 2021 and 2020, respectively.
The estimated amortization expense for each of the next five fiscal years and thereafter is as follows (in thousands):
2023
2024
2025
2026
2027
Thereafter
Total amortization expense
109
$
$
40,714
39,543
38,135
36,920
34,268
165,992
355,572
(10) DEBT AND NOTES PAYABLE
Long-term debt and notes payable consisted of the following (in thousands):
Credit Facility
Notes payable to members, net of discount
Other notes payable
Total debt and notes payable
Less: current portion
Total long-term debt and notes payable
Credit Facility
June 30,
2022
2021
$
$
150,000 $
298,994
5,333
454,327
(250,859)
203,468 $
75,000
394,943
8,628
478,571
(174,243)
304,328
PHSI, along with its consolidated subsidiaries, Premier LP and PSCI, as Co-Borrowers, Prior Premier GP and certain domestic subsidiaries of the Co-
Borrowers, as guarantors, entered into an unsecured Credit Facility, dated as of November 9, 2018 (the “Credit Facility”). The Credit Facility has a maturity
date of November 9, 2023, subject to up to two one-year extensions at the request of the Co-Borrowers and approval of a majority of the lenders under the
Credit Facility. The Credit Facility provides for borrowings of up to $1.0 billion with (i) a $50.0 million sub-facility for standby letters of credit and (ii) a
$100.0 million sub-facility for swingline loans. The Credit Facility also provides that Co-Borrowers may from time to time (i) incur incremental term loans and
(ii) request an increase in the revolving commitments under the Credit Facility, together up to an aggregate $350.0 million, subject to the approval of the
lenders providing such term loans or revolving commitment increases. The Credit Facility includes an unconditional and irrevocable guaranty of all obligations
under the Credit Facility by Premier GP, certain domestic subsidiaries of Premier GP and future guarantors, if any, Premier, Inc. is not a guarantor under the
Credit Facility.
Outstanding borrowings under the Credit Facility bear interest on a variable rate structure with borrowings bearing interest at either London Interbank Offered
Rate (“LIBOR”) plus an applicable margin ranging from 1.000% to 1.500% or the prime lending rate plus an applicable margin ranging from 0.000% to
0.500%. At June 30, 2022, the weighted average interest rate on outstanding borrowings under the Credit Facility was 2.178%. The Co-Borrowers are required
to pay a commitment fee ranging from 0.100% to 0.200% per annum on the actual daily unused amount of commitments under the Credit Facility. At June 30,
2022, the commitment fee was 0.100%. The Credit Facility contains customary representations and warranties as well as customary affirmative and negative
covenants, including, among others, limitations on liens, indebtedness, fundamental changes, dispositions, restricted payments and investments. Premier GP
was in compliance with all such covenants at June 30, 2022. The Credit Facility also contains customary events of default, including cross-defaults of any
indebtedness or guarantees in excess of $75.0 million. If any event of default occurs and is continuing, the administrative agent under the Credit Facility may,
with the consent, or shall, at the request of a majority of the lenders under the Credit Facility, terminate the commitments and declare all of the amounts owed
under the Credit Facility to be immediately due and payable.
Proceeds from borrowings under the Credit Facility may generally be used to finance ongoing working capital requirements, including permitted acquisitions,
repurchases of Class A common stock pursuant to any then-existing stock repurchase programs, dividend payments, if and when declared, and other general
corporate activities. During the year ended June 30, 2022, the Company borrowed $325.0 million and repaid $250.0 million of borrowings under the Credit
Facility. The Company had $150.0 million in outstanding borrowings under the Credit Facility at June 30, 2022 with $849.9 million of available borrowing
capacity after reductions for outstanding borrowings and outstanding letters of credit.
During the year ended June 30, 2022, interest expense on borrowings under the Credit Facility was $2.8 million and interest paid during the period was
$2.6 million. During the year ended June 30, 2021 interest expense on borrowings under the Credit Facility and interest paid during the period was $2.2 million
Notes Payable
Notes Payable to Former Limited Partners
At June 30, 2022, the Company had $299.0 million of notes payable to former limited partners, net of discounts on notes payable of $9.1 million, of which
$97.8 million was recorded to current portion of notes payable to former limited partners in the accompanying Consolidated Balance Sheets. At June 30, 2021,
the Company had $394.9 million of notes payable to former limited partners, net of discounts on notes payable of $15.8 million, of which $95.9 million was
recorded to current portion of notes payable to former limited partners in the accompanying Consolidated Balance Sheets. The notes payable to former limited
110
partners were issued in connection with the early termination of the TRA as part of the August 2020 Restructuring. Although the notes payable to former
limited partners are non-interest bearing, pursuant to GAAP requirements, they were recorded net of imputed interest at a fixed annual rate of 1.8%. During the
year ended June 30, 2022, the Company paid $102.7 million to members including imputed interest of $6.7 million. During the year ended June 30, 2021, the
Company paid $51.3 million to members including imputed interest of $7.3 million.
Other
At June 30, 2022 and 2021, the Company had $5.3 million and $8.6 million in other notes payable, respectively, of which $3.1 million and $3.3 million,
respectively, were included in current portion of long-term debt in the accompanying Consolidated Balance Sheets. Other notes payable do not bear interest and
generally have stated maturities of three to five years from their date of issuance.
Future minimum principal payments on the notes as of June 30, 2022 are as follows (in thousands):
2023
2024
2025
2026
2027
Total principal payments
(11) REDEEMABLE LIMITED PARTNERS' CAPITAL
$
$
105,738
104,231
103,419
—
—
313,388
The fair value of redeemable limited partners’ capital was reclassified from temporary equity in the mezzanine section of the Consolidated Balance Sheets to
additional paid in capital as a component of permanent equity at July 31, 2020. As a result, there were no adjustments to the fair value of redeemable limited
partners’ capital for the year ended June 30, 2022.
For the years ended June 30, 2021 and 2020, the Company recorded adjustments of $(26.7) million and $468.3 million, respectively, to the fair value of
redeemable limited partners’ capital as an adjustment of redeemable limited partners’ capital to redemption amount in the accompanying Consolidated
Statements of Income and Comprehensive Income. Subsequent to July 31, 2020, there were no adjustments to the fair value of redeemable limited partners’
capital recorded in the accompanying Consolidated Statements of Income and Comprehensive Income.
111
The table below provides a summary of the changes in the redeemable limited partners’ capital for the years ended June 30, 2021 and 2020 (in thousands).
There were no changes in redeemable limited partners’ capital for the year ended June 30, 2022.
June 30, 2019
Distributions applied to receivables from limited partners
Redemption of limited partners
Net income attributable to non-controlling interest in Premier LP
Non-controlling interest due to acquisition
Distributions to limited partners
Exchange of Class B common units for Class A common stock by member owners
Adjustment of redeemable limited partners' capital to redemption amount
June 30, 2020
Distributions applied to receivables from limited partners
Net income attributable to non-controlling interest in Premier LP
Distributions to limited partners
Exchange of Class B common units for Class A common stock by member owners
Adjustment of redeemable limited partners' capital to redemption amount
Reclassification to permanent equity
June 30, 2021
(12) STOCKHOLDERS' EQUITY
Receivables From
Limited Partners
Redeemable Limited
Partners’ Capital
Total Redeemable
Limited Partners’
Capital
$
$
(1,204) $
209
—
—
—
—
—
—
(995)
141
—
—
—
—
854
— $
2,524,474 $
—
(1,372)
161,816
9,004
(43,714)
(460,593)
(468,311)
1,721,304
—
11,845
(1,936)
(2,437)
26,685
(1,755,461)
— $
2,523,270
209
(1,372)
161,816
9,004
(43,714)
(460,593)
(468,311)
1,720,309
141
11,845
(1,936)
(2,437)
26,685
(1,754,607)
—
As of June 30, 2022, there were 118,052,235 shares of the Company’s Class A common stock, par value $0.01 per share, outstanding.
On August 5, 2021, the Company’s Board of Directors authorized the repurchase of up to $250.0 million of our outstanding Class A common stock during
fiscal year 2022 through open market purchases or privately negotiated transactions. As of June 30, 2022, the Company completed its stock repurchase
program and purchased approximately 6.4 million shares of Class A common stock at an average price of $38.88 per share for a total purchase price of $250.0
million.
Holders of Class A common stock are entitled to (i) one vote for each share held of record on all matters submitted to a vote of stockholders, (ii) receive
dividends, when and if declared by the Board of Directors out of funds legally available, subject to any statutory or contractual restrictions on the payment of
dividends and subject to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock or any class of series of stock
having a preference over or the right to participate with the Class A common stock with respect to the payment of dividends or other distributions and (iii)
receive pro rata, based on the number of shares of Class A common stock held, the remaining assets available for distribution upon the dissolution or
liquidation of Premier, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences,
if any.
The Company paid quarterly cash dividends of $0.20 per share on outstanding shares of Class A common stock to stockholders on each of September 15, 2021,
December 15, 2021, March 15, 2022 and June 15, 2022. On August 4, 2022, the Board of Directors declared a quarterly cash dividend of $0.21 per share,
payable on September 15, 2022 to stockholders of record on September 1, 2022.
(13) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income attributable to stockholders by the weighted average number of shares of common stock
outstanding for the period. Net income attributable to stockholders includes the adjustment recorded in the period to reflect redeemable limited partners’ capital
at the redemption amount, which was due to the exchange benefit obtained by former limited partners through the ownership of Class B common units, which
were canceled in conjunction with the August 2020 Restructuring. Except when the effect would be anti-dilutive, the diluted earnings per share calculation,
which is calculated using the treasury stock method, includes the impact of all potentially issuable dilutive shares of Class A common
112
stock and the effect of the assumed redemption of Class B common units through the issuance of Class A common shares.
The following table provides a reconciliation of the numerator and denominator used for basic and diluted earnings per share (in thousands, except per share
amounts):
Numerator for basic earnings per share:
Net income from continuing operations attributable to stockholders
Net income from discontinued operations attributable to stockholders
Net income attributable to stockholders
(a)
Numerator for diluted earnings per share:
Net income from continuing operations attributable to stockholders
Adjustment of redeemable limited partners’ capital to redemption amount
Net income from continuing operations attributable to non-controlling interest
Net income from continuing operations
Tax effect on Premier, Inc. net income
Adjusted net income from continuing operations attributable to stockholders
(b) (c)
(a)
Net income from discontinued operations attributable to stockholders
Net income from discontinued operations attributable to non-controlling interest
Adjusted net income from discontinued operations attributable to stockholders
Adjusted net income attributable to stockholders
Denominator for earnings per share:
(d)
(e)
Basic weighted average shares outstanding
Effect of dilutive securities:
Stock options
Restricted stock
Performance share awards
Class B shares outstanding
Diluted weighted average shares and assumed conversions
Basic earnings per share:
Basic earnings per share from continuing operations
Basic earnings per share from discontinued operations
Basic earnings per share attributable to stockholders
Diluted earnings per share:
Diluted earnings per share from continuing operations
Diluted earnings per share from discontinued operations
Diluted earnings per share attributable to stockholders
_________________________________
113
Year Ended June 30,
2022
2021
2020
265,867 $
—
265,867 $
260,837 $
—
260,837 $
598,119
556
598,675
265,867 $
—
—
265,867
—
265,867 $
— $
—
— $
260,837 $
—
—
260,837
—
260,837 $
— $
—
— $
598,119
(468,311)
161,318
291,126
(40,154)
250,972
556
498
1,054
265,867 $
260,837 $
252,026
120,220
116,527
67,035
206
510
732
—
121,668
301
376
328
—
117,532
2.21 $
—
2.21 $
2.19 $
—
2.19 $
2.24 $
—
2.24 $
2.22 $
—
2.22 $
329
248
67
55,935
123,614
8.92
0.01
8.93
2.03
0.01
2.04
$
$
$
$
$
$
$
$
$
$
$
(a) Net income from continuing operations attributable to stockholders was calculated as follows (in thousands):
Net income from continuing operations
Net income from continuing operations attributable to non-controlling interest
Adjustment of redeemable limited partners’ capital to redemption amount
Net income from continuing operations attributable to stockholders
Year Ended June 30,
2022
2021
2020
$
$
268,318 $
(2,451)
—
265,867 $
304,584 $
(17,062)
(26,685)
260,837 $
291,126
(161,318)
468,311
598,119
(b) For the years ended June 30, 2022 and 2021, the tax expense related to Premier, Inc. retaining the portion of net income from continuing operations attributable to income from non-controlling
interest was calculated as a component of the income tax provision for the years ended June 30, 2022 and 2021.
(c)
For the year ended June 30, 2020, tax effect on Premier, Inc. net income represents income tax expense related to Premier, Inc. retaining the portion of net income attributable to income from
non-controlling interest in Premier LP for the purpose of diluted earnings per share.
(d) Weighted average number of common shares used for basic earnings per share excludes the impact of all potentially issuable dilutive shares of Class A common stock and Class B shares
outstanding for the years ended June 30, 2021 and 2020. For the year ended June 30, 2022, there were no Class B shares outstanding as all of the issued and outstanding Class B shares were
canceled in conjunction with the August 2020 Restructuring.
(e)
For the year ended June 30, 2022, the effect of 0.6 million stock options and restricted stock units was excluded from diluted weighted average shares outstanding as it had an anti-dilutive effect.
For the year ended June 30, 2021, the effect of 1.8 million stock options and restricted stock units and 5.6 million Class B common units were excluded from diluted weighted average shares
outstanding as they had an anti-dilutive effect and the effect of less than 0.1 million performance share awards was excluded from diluted weighted average shares outstanding as the awards had
not satisfied the applicable performance criteria at the end of the period.
For the year ended June 30, 2020, the effect of 0.8 million stock options and restricted stock units were excluded from diluted weighted average shares outstanding as they had an anti-dilutive
effect.
(14) STOCK-BASED COMPENSATION
Stock-based compensation expense is recognized over the requisite service period, which generally equals the stated vesting period. The associated deferred tax
benefit was calculated at a rate of 25% for the years ended June 30, 2022 and 2020 and 26% for the year ended June 30, 2021, which represents the expected
effective income tax rate at the time of the compensation expense deduction and differs from the Company’s current effective income tax rate. See Note 16 -
Income Taxes for further information.
Stock-based compensation expense and the resulting deferred tax benefits were as follows (in thousands):
Pre-tax stock-based compensation expense
(a)
Deferred tax benefit
Total stock-based compensation expense, net of tax
_________________________________
Year Ended June 30,
2022
2021
2020
$
$
46,229 $
8,787
37,442 $
35,425 $
6,167
29,258 $
20,706
3,014
17,692
(a)
For the years ended June 30, 2022 and 2021, the deferred tax benefit was reduced by $3.0 million attributable to stock-based compensation expense that is nondeductible for tax purposes
pursuant to Section 162(m) as amended by the Tax Cuts and Jobs Act of 2017.
Premier 2013 Equity Incentive Plan
The Premier 2013 Equity Incentive Plan, as amended and restated (and including any further amendments thereto, the “2013 Equity Incentive Plan”) provides
for grants of up to 14.8 million shares of Class A common stock, all of which are eligible to be issued as non-qualified stock options, incentive stock options,
stock appreciation rights, restricted stock, restricted stock units or performance share awards. As of June 30, 2022, there were approximately 4.7 million shares
available for grant under the 2013 Equity Incentive Plan.
114
The following table includes information related to restricted stock, performance share awards and stock options for the year ended June 30, 2022:
Outstanding at June 30, 2021
Granted
Vested/exercised
Forfeited
Outstanding at June 30, 2022
Restricted Stock
Performance Share Awards
Stock Options
Number of Awards
Weighted Average
Fair Value at Grant
Date
Number of Awards
Weighted Average
Fair Value at Grant
Date
Number of Options
Weighted Average
Exercise Price
990,301 $
658,389
(295,854)
(151,706)
1,201,130 $
35.27
37.74
40.16
33.96
35.59
1,731,002 $
651,392
(588,142)
(215,457)
1,578,795 $
35.56
37.22
43.74
32.18
33.66
2,163,006 $
—
(1,252,486)
(14,166)
896,354 $
30.32
—
30.21
36.77
30.38
Stock options outstanding and exercisable at June 30, 2022
896,354 $
30.38
Restricted stock units and restricted stock awards issued and outstanding generally vest over a three-year period for employees and a one-year period for
directors. Performance share awards issued and outstanding generally vest over a three-year period if performance targets are met. Stock options have a term of
ten years from the date of grant. Vested stock options will generally expire either twelve months after an employee’s termination with the Company or 90 days
after an employee’s termination with the Company, depending on the termination circumstances. Stock options generally vest in equal annual installments over
three years.
Unrecognized stock-based compensation expense at June 30, 2022 was as follows (in thousands). At June 30, 2022, there was no unrecognized stock-based
compensation expense for outstanding stock options.
Restricted stock
Performance share awards
Total unrecognized stock-based compensation expense
The aggregate intrinsic value of stock options at June 30, 2022 was as follows (in thousands):
Outstanding and exercisable
Exercised during the year ended June 30, 2022
(15) POST-RETIREMENT BENEFITS
Unrecognized Stock-Based
Compensation Expense
$
$
22,082
20,553
42,635
Weighted Average
Amortization Period
1.9 years
1.6 years
1.8 years
Intrinsic Value of Stock
Options
$
4,768
9,765
The Company maintains a defined contribution 401(k) retirement savings plan which covers employees who meet certain age and service requirements. This
plan allows for employee contributions of up to 30% and matching employer contributions of up to 4% of the total contributions, not to exceed certain limits.
The Company’s 401(k) expense related to such matching of employee contributions was $12.1 million, $11.2 million and $10.1 million for the years ended
June 30, 2022, 2021 and 2020, respectively.
The Company also maintains a non-qualified deferred compensation plan for the benefit of eligible employees. This plan is designed to permit employee
deferrals in excess of certain tax limits and provides for discretionary employer contributions in excess of certain tax limits.
(16) INCOME TAXES
At the consummation of the Subsidiary Reorganization on December 1, 2021, the Company recorded a one-time deferred tax benefit of $33.5 million,
primarily driven by deferred tax remeasurement due to tax rate changes and a valuation allowance release.
115
Significant components of consolidated income tax expense (benefit) are as follows (in thousands):
Current:
Federal
State
Total current tax expense
Deferred:
Federal
State
Total deferred tax expense (benefit)
Total income tax expense (benefit)
Year Ended June 30,
2022
2021
2020
$
$
864 $
926
1,790
49,335
7,457
56,792
58,582 $
22,356 $
7,393
29,749
22,165
(105,857)
(83,692)
(53,943) $
11,394
12,545
23,939
35,768
32,854
68,622
92,561
The reconciliation between the Company’s income tax expense (benefit) and taxes computed at the federal statutory tax rate of 21.0% for fiscal years ended
June 30, 2022, 2021 and 2020, is as follows (in thousands):
Tax at federal statutory rate
Partnership income not subject to tax
State taxes (net of federal benefit)
Remeasurement adjustments and other permanent items
Change in valuation allowance
Deferred tax remeasurement
Uncertain tax position
Change in tax status
Other
Total income tax expense (benefit)
Effective tax rate
Year Ended June 30,
2022
2021
2020
$
$
68,649
(701)
14,138
8,118
(31,361)
(242)
842
—
(861)
58,582
$
$
52,635
(4,375)
9,880
7,124
(25,328)
(113,213)
1,293
19,514
(1,473)
(53,943)
$
$
80,814
(40,154)
7,072
(1,570)
12,472
34,447
7,472
—
(7,992)
92,561
17.9 %
(21.5)%
24.1 %
The fiscal year 2022 effective tax rate of 17.9% differs from the statutory income tax rate of 21.0% largely driven by the aforementioned one-time deferred tax
remeasurement and valuation allowance release as a result of the Subsidiary Reorganization.
The fiscal year 2021 effective tax rate of (21.5)% differs from the statutory income tax rate of 21.0% primarily driven by the consummation of the merger on
August 11, 2020. The Company simplified its tax structure, resulting in the Company and its subsidiaries forming one consolidated filing group for federal
income tax purposes. As a result, the Company recorded a one-time deferred tax benefit of $108.8 million, primarily driven by deferred tax remeasurement due
to tax rate changes and a valuation allowance release.
The fiscal year 2020 effective tax rate of 24.1% differs from the statutory income tax rate of 21.0% primarily due to the remeasurement of deferred tax assets
and liabilities as a result of a change to the State of North Carolina income tax law, partially offset by Premier LP income which is not subject to federal, state
and local income taxes.
116
Deferred Income Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of June 30, 2022 and 2021
are presented below (in thousands):
Deferred tax asset
Purchased intangible assets and depreciation
Stock compensation
Accrued expenses
Net operating losses and credits
Other
Total deferred tax assets
Valuation allowance for deferred tax assets
Net deferred tax assets
Deferred tax liability
Other liabilities
Net deferred tax asset
June 30,
2022
2021
$
$
631,415 $
15,125
49,161
50,742
5,787
752,230
(4,552)
747,678
(22,646)
725,032 $
689,810
16,943
41,474
66,782
22,513
837,522
(35,913)
801,609
(19,785)
781,824
As of June 30, 2022 and 2021, the Company had net deferred tax assets of $725.0 million and $781.8 million, respectively. The decrease is largely attributable
to deferred tax assets recorded in connection with the final exchange of Class B common units pursuant to the August 2020 Restructuring.
At June 30, 2022, the Company had federal and state net operating loss carryforwards of $156.3 million and $130.4 million, respectively, primarily attributable
to PHSI and PSCI. The resulting federal and state deferred tax assets are $32.7 million and $7.3 million, respectively. The federal and state net operating loss
carryforwards generated prior to fiscal year 2019 expire between the years ending June 30, 2022 through June 30, 2038 while the net operating losses generated
in fiscal year 2019 and beyond can be carried forward indefinitely, until utilized. A valuation allowance was established for federal and state losses as the
Company believes it is more likely than not that a portion of these losses will not be realized in the near future.
At June 30, 2022, the Company had federal research and development credit carryforwards of $12.4 million. The federal credit carryforwards expire at various
times between the years ended June 30, 2023 through June 30, 2040, until utilized. As a result of the Subsidiary Reorganization, the Company believes it is
more likely than not that the federal and state credit carryforwards will be realized in the near future, so the previously recorded valuation allowance was
released during the year ended June 30, 2022.
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and income tax purposes. The Company assessed the future realization of the tax benefit of its existing deferred tax assets and concluded that it is more likely
than not that a portion of the deferred tax assets will not be realized in the future. As a result, the Company recorded a valuation allowance of $4.6 million
against its deferred tax assets at June 30, 2022. The valuation allowance decreased by $31.3 million from the $35.9 million valuation allowance recorded as of
June 30, 2021. The decrease is primarily driven by the utilization of the net operating loss carryforward as a result of the aforementioned Subsidiary
Reorganization.
117
Unrecognized Tax Benefits
The Company recognizes income tax benefits for those income tax positions determined more likely than not to be sustained upon examination, based on the
technical merits of the positions. The reserve for uncertain income tax positions is included in other liabilities in the Consolidated Balance Sheets. A
reconciliation of the beginning and ending gross amounts of the Company’s uncertain tax position reserves for the years ended June 30, 2022, 2021 and 2020
are as follows (in thousands):
Beginning of year balance
Increases in prior period tax positions
Decreases in prior period tax positions
Reductions on settlements and lapse in statute of limitations
Increases in current period tax positions
End of year balance
Year Ended June 30,
2022
2021
2020
$
$
16,704 $
120
(63)
(21)
384
17,124 $
15,596 $
111
—
(27)
1,024
16,704 $
8,266
7,734
(48)
(2,276)
1,920
15,596
If the Company were to recognize the benefits of these uncertain tax positions, the income tax provision would be impacted by $15.6 million, $14.8 million and
$12.8 million, including interest and penalties and net of the federal and state benefit for income taxes, for the years ended June 30, 2022, 2021 and 2020,
respectively. The Company recognizes interest and penalties accrued on uncertain income tax positions as part of the income tax provision. The amount of
accrued interest and penalties was $4.4 million, $4.1 million, and $2.5 million at 2022, 2021 and 2020, respectively.
Federal tax returns for tax years June 30, 2018 through 2021 remain open as of June 30, 2022. The Company is subject to ongoing state and local examinations
for various periods. Activity related to these examinations did not have a material impact on the Company’s financial position or results of operations.
The Company made cash tax payments of $3.1 million and $44.0 million during the years ended June 30, 2022 and 2021, respectively.
(17) RELATED PARTY TRANSACTIONS
The Company’s 49% ownership share of net income of FFF, which was acquired on July 26, 2016, included in equity in net income of unconsolidated affiliates
in the accompanying Consolidated Statements of Income and Comprehensive Income was $16.6 million, $11.3 million and $12.3 million for the years ended
June 30, 2022, 2021 and 2020, respectively. The Company maintains group purchasing agreements with FFF and receives administrative fees for purchases
made by the Company’s members and other customers pursuant to those agreements. Net administrative fees revenue recorded from purchases under those
agreements was $6.3 million, $6.0 million and $7.4 million during the years ended June 30, 2022, 2021 and 2020, respectively.
(18) COMMITMENTS AND CONTINGENCIES
Operating Leases
Operating lease expense was $10.1 million, $10.8 million and $12.3 million for the years ended June 30, 2022, 2021 and 2020, respectively. As of June 30,
2022, the weighted average remaining lease term was 3.8 years and the weighted average discount rate was 4%.
118
Future minimum lease payments under noncancelable operating leases with initial lease terms in excess of one year were as follows (in thousands):
2023
2024
2025
2026
2027
Total future minimum lease payments
Less: imputed interest
Total operating lease liabilities
(a)
_________________________________
$
$
12,131
12,267
12,301
9,005
1,323
47,027
3,445
43,582
(a) As of June 30, 2022, total operating lease liabilities included $10.6 million within other liabilities, current in the Consolidated Balance Sheets.
Other Matters
The Company is not currently involved in any litigation it believes to be material. The Company is periodically involved in litigation, arising in the ordinary
course of business or otherwise, which from time to time may include stockholder derivative or other similar litigation, claims relating to commercial, product
liability, tort and personal injury, employment, antitrust, intellectual property, or other regulatory matters. If current or future government regulations, including
but not limited to those with respect to antitrust or healthcare laws, are interpreted or enforced in a manner adverse to the Company or its business, the
Company may be subject to regulatory inquiries or investigations, enforcement actions, penalties and other material limitations which could have a material
adverse effect on the Company’s business, financial condition and results of operations.
(19) SEGMENTS
The Company delivers its solutions and manages its business through two reportable business segments, the Supply Chain Services segment and the
Performance Services segment. The Supply Chain Services segment includes the Company’s GPO, supply chain co-management, purchased services and direct
sourcing activities. The Performance Services segment consists of three sub-brands: PINC AI, the Company’s technology and services platform; Contigo
Health, the Company’s direct-to-employer business; and Remitra, the Company’s digital invoicing and payables business.
The following table presents disaggregated revenue by reportable business segment and underlying source (in thousands):
Net revenue:
Supply Chain Services
Net administrative fees
Software licenses, other services and support
Services and software licenses
Products
Total Supply Chain Services
Performance Services
(a)(b)
Software licenses, other services and support
SaaS-based products subscriptions
Consulting services
Software licenses
Other
Total Performance Services
Total segment net revenue
(a)
Eliminations
(a)
Net revenue
_________________________________
119
Year Ended June 30,
2022
2021
2020
$
$
601,128
37,312
638,440
393,506
1,031,946
193,586
64,087
65,621
77,689
400,983
1,432,929
(28)
1,432,901
$
$
572,700
26,812
599,512
744,122
1,343,634
198,512
58,851
56,157
63,998
377,518
1,721,152
—
1,721,152
$
$
670,593
12,225
682,818
269,945
952,763
203,390
56,936
42,556
43,947
346,829
1,299,592
—
1,299,592
(a)
Includes intersegment revenue that is eliminated in consolidation. Intersegment revenue is not separately identified in Segments as the amounts are not material.
(b) Consolidated net revenues for the fiscal year ended June 30, 2021 includes revenue generated from our largest customer, a non-healthcare customer, which accounted for approximately 15% of
our consolidated net revenues. The significant increase in revenue generated from our largest customer in the fiscal year ended June 30, 2021 is due to the increase in products revenue primarily
as of result of the COVID-19 pandemic.
Additional segment information related to depreciation and amortization expense, capital expenditures and total assets was as follows (in thousands):
Depreciation and amortization expense
Supply Chain Services
Performance Services
Corporate
(a)
:
Total depreciation and amortization expense
Capital expenditures:
Supply Chain Services
Performance Services
Corporate
Total capital expenditures
Total assets:
Supply Chain Services
Performance Services
Corporate
Total assets
Eliminations
(b)
Total assets, net
Year Ended June 30,
2022
2021
2020
$
$
$
$
55,424 $
64,674
9,009
129,107 $
29,677 $
51,298
6,465
87,440 $
37,073 $
75,391
8,598
121,062 $
10,408 $
72,068
6,400
88,876 $
25,968
118,556
8,303
152,827
7,143
78,231
9,023
94,397
Year Ended June 30,
2022
1,406,108
1,054,687
896,336
3,357,131
(4)
3,357,127
$
$
2021
1,550,300
1,043,608
928,939
3,522,847
51
3,522,898
$
$
_________________________________
(a)
(b)
Includes amortization of purchased intangible assets.
Includes eliminations of intersegment transactions which occur during the ordinary course of business.
The Company uses Segment Adjusted EBITDA (a financial measure not determined in accordance with generally accepted accounting principles (“Non-
GAAP”)) as its primary measure of profit or loss to assess segment performance and to determine the allocation of resources. The Company also uses Segment
Adjusted EBITDA to facilitate the comparison of the segment operating performance on a consistent basis from period to period. The Company defines
Segment Adjusted EBITDA as the segment’s net revenue less cost of revenue and 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. Segment Adjusted EBITDA also
excludes any income and expense that has been classified as discontinued operations.
For more information on Segment Adjusted EBITDA and the use of Non-GAAP financial measures, see “Our Use of Non-GAAP Financial Measures” within
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
120
A reconciliation of income before income taxes to the unaudited Segment Adjusted EBITDA, a Non-GAAP financial measure, is as follows (in thousands):
Income before income taxes
Equity in net income of unconsolidated affiliates
Interest expense, net
(Gain) loss on FFF put and call rights
Other expense (income), net
(b)
(a)
Operating income
(c)
Depreciation and amortization
Amortization of purchased intangible assets
Stock-based compensation
Acquisition- and disposition-related expenses
Strategic initiative and financial restructuring-related expenses
Remeasurement of tax receivable agreement liabilities
Equity in net income of unconsolidated affiliates
(e)
Deferred compensation plan (expense) income
Impairment of assets
Other reconciling items, net
(d)
(a)
Adjusted EBITDA
Segment Adjusted EBITDA:
(f)
Supply Chain Services
(f)
Performance Services
Corporate
Adjusted EBITDA
_________________________________
(a) Refer to Note 5 - Investments for further information.
(b) Refer to Note 6 - Fair Value Measurements for more information.
Year Ended June 30,
2022
2021
2020
326,900 $
(23,505)
11,142
(64,110)
9,646
260,073
85,171
43,936
46,809
11,453
18,005
—
23,505
(9,401)
18,829
302
498,682 $
250,641 $
(21,073)
11,964
27,352
(11,967)
256,917
76,309
44,753
35,915
18,095
6,990
—
21,073
12,745
—
433
473,230 $
383,687
(12,537)
11,313
(4,690)
(4,153)
373,620
97,297
55,530
21,132
19,319
4,228
(24,584)
12,537
3,904
—
1,057
564,040
500,854 $
126,938
(129,110)
498,682 $
467,868 $
132,225
(126,863)
473,230 $
570,298
111,282
(117,540)
564,040
$
$
$
$
(c) Represents non-cash employee stock-based compensation expense and stock purchase plan expense of $0.6 million, $0.5 million and $0.4 million for the years ended June 30, 2022, 2021 and
2020, respectively.
(d) The adjustments to TRA liabilities for the year ended June 30, 2020 are primarily attributable to decreases in the Premier, Inc. effective tax rate related to state tax liabilities and the TCJA,
respectively.
(e) Represents realized and unrealized gains and losses and dividend income on deferred compensation plan assets.
(f)
Includes intersegment revenue which is eliminated in consolidation.
121
(20) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present unaudited summarized financial data by quarter for the years ended June 30, 2022 and 2021 (in thousands, except per share data):
Fiscal Year 2022
Net revenue
Gross profit
Net income
Net loss (income) attributable to non-controlling interest
Net income attributable to stockholders
Weighted average shares outstanding:
Basic
Diluted
Earnings per share attributable to stockholders:
Basic
Diluted
Fiscal Year 2021
Net revenue
Gross profit
Net income
Net income attributable to non-controlling interest
Adjustment of redeemable limited partners' capital to redemption amount
Net income attributable to stockholders
Weighted average shares outstanding:
Basic
Diluted
Earnings per share attributable to stockholders:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
365,147 $
211,976
121,306
698
122,004
379,215 $
236,500
77,232
(1,687)
75,545
347,833 $
212,477
39,069
(654)
38,415
122,945
124,573
121,181
122,473
118,697
119,813
0.99 $
0.97 $
0.62 $
0.62 $
0.32 $
0.32 $
340,706
224,086
30,711
(808)
29,903
118,001
119,760
0.25
0.25
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
346,887 $
194,709
157,528
(11,845)
(26,685)
118,998
422,827 $
210,983
44,904
(935)
—
43,969
469,923 $
211,807
51,444
(3,123)
—
48,321
99,575
100,130
122,127
122,919
122,254
123,116
1.20 $
1.19 $
0.36 $
0.36 $
0.40 $
0.39 $
481,515
219,835
50,708
(1,159)
—
49,549
122,341
124,055
0.41
0.40
$
$
$
$
$
$
122
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that are designed to ensure that information required to be
disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms
and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives.
As of the end of the period covered by this Annual Report, our chief executive officer and chief financial officer carried out an evaluation of the effectiveness
of our disclosure controls and procedures. Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure
controls and procedures were effective as of June 30, 2022.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f)
under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of
America. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on its financial statements. Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies
or procedures may deteriorate.
Our chief executive officer and chief financial officer conducted an assessment of the effectiveness of our internal control over financial reporting as of
June 30, 2022. In making this assessment, the chief executive officer and chief financial officer used the criteria set forth in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, the COSO framework. Based upon this evaluation, our
chief executive officer and chief financial officer concluded that, as of June 30, 2022, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of June 30, 2022 has been audited by Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended
June 30, 2022, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
Item 9B. Other Information
None.
123
PART III
We expect to file a definitive proxy statement relating to our 2022 Annual Meeting of Stockholders with the SEC pursuant to Regulation 14A, not later than
120 days after the end of our most recent fiscal year. Accordingly, certain information required by Part III of this Annual Report has been omitted under
General Instruction G(3) to Form 10-K. Only the information from the definitive proxy statement that specifically addresses disclosure requirements of
Items 10-14 below is incorporated by reference.
Item 10. Directors, Executive Officers and Corporate Governance
We will provide information that is responsive to this Item 10 in our definitive proxy statement for our 2022 Annual Meeting of Stockholders or in an
amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the captions “Item
1 - Election of Directors,” “Corporate Governance and Board Structure,” “Delinquent Section 16(a) Reports” and “Executive Officers,” and possibly elsewhere
therein. That information is incorporated in this Item 10 by reference.
Code of Ethics
We maintain a Corporate Code of Conduct for all of our employees and officers, including the principal executive officer, principal financial officer, and
principal accounting officer or controller, or persons performing similar functions, and, where applicable, to directors. In addition, the Board of Directors is
subject to a separate Board Code of Ethics and Board Conflict of Interest Policy (collectively, the “Board Codes”). The Corporate Code of Conduct, along with
the Board Codes, can be found on our Investor Relations website at investors.premierinc.com under “Corporate Governance-Governance Documents.” A copy
of the Corporate Code of Conduct is available to any stockholder who requests it by writing to Investor Relations, Premier, Inc., 13034 Ballantyne Corporate
Place, Charlotte, North Carolina 28277. We will disclose any substantive amendments to, or waivers (for directors or executive officers) from, certain
provisions (relating to one or more elements of Item 4.06(b) of Regulation S-K) of the Corporate Code of Conduct and Board Codes on our website promptly
following the date of such amendment or waiver.
Our website and information contained on it or incorporated in it are not intended to be incorporated in this Annual Report or other filings with the SEC.
Item 11. Executive Compensation
We will provide information that is responsive to this Item 11 in our definitive proxy statement for our 2022 Annual Meeting of Stockholders or in an
amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the captions
“Executive Compensation” and “Corporate Governance and Board Structure,” and possibly elsewhere therein. That information is incorporated in this Item 11
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We will provide information that is responsive to this Item 12 in our definitive proxy statement for our 2022 Annual Meeting of Stockholders or in an
amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption
“Security Ownership of Certain Beneficial Owners and Management” and possibly elsewhere therein. That information is incorporated in this Item 12 by
reference.
Equity Compensation Plan Information
We have granted equity awards to employees and directors under the Amended and Restated Premier, Inc. 2013 Equity Incentive Plan, which initially was
approved by our stockholders prior to our IPO and was approved most recently by our stockholders in December 2018. The following table sets forth certain
information as of June 30, 2022 concerning the shares of Class A common stock authorized for issuance under this equity incentive plan. No shares of Class B
common stock are authorized for issuance under this plan, and we have no equity compensation plans under which shares may be issued that have not been
approved by our stockholders.
124
Plan Category
Equity compensation plans approved by security holders:
Amended and Restated Premier, Inc. 2013 Equity Incentive Plan
Equity compensation plans not approved by security holders
Total
_________________________________
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
(a)
Weighted-average exercise
price of outstanding options,
warrants and rights
(b)
Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities reflected
in first column)
(c)
3,676,279
n/a
3,676,279
$30.38
n/a
$30.38
4,669,729
n/a
4,669,729
(a) Assumes restricted stock unit (RSU), performance share (PSA) and stock option awards are paid at target. Actual shares awarded may be higher or lower based upon actual performance over the
measurement period. For more detailed information, see Note 14 - Stock-Based Compensation to our Consolidated Financial Statements.
(b) This calculation only reflects outstanding stock option awards.
(c) As of June 30, 2022, reflects shares reserved for future grants of stock options, RSUs, RSAs, PSAs and/or other equity awards. Any shares withheld to satisfy tax withholding obligations or
tendered to pay the exercise price of an option shall again be available for grant under the terms of the plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence
We will provide information that is responsive to this Item 13 in our definitive proxy statement for our 2022 Annual Meeting of Stockholders or in an
amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the captions
“Related Person Transactions,” and “Corporate Governance and Board Structure,” and possibly elsewhere therein. That information is incorporated in this Item
13 by reference.
Item 14. Principal Accounting Fees and Services
We will provide information that is responsive to this Item 14 in our definitive proxy statement for our 2022 Annual Meeting of Stockholders or in an
amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Item 2
- Ratification of Appointment of Independent Registered Public Accounting Firm,” and possibly elsewhere therein. That information is incorporated in this
Item 14 by reference.
125
PART IV
Item 15. Exhibits and Financial Statement Schedules
Documents as part of this Report:
(a) (1) The following consolidated financial statements are filed herewith in Item 8 of Part II above.
(i) Report of Independent Registered Public Accounting Firm
(ii) Consolidated Balance Sheets
(iii) Consolidated Statements of Income and Comprehensive Income
(iv) Consolidated Statements of Stockholders' Equity (Deficit)
(v) Consolidated Statements of Cash Flows
(vi) Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
(in thousands)
Year ended June 30, 2022
Allowance for credit losses
Deferred tax assets valuation allowance
Year ended June 30, 2021
Allowance for credit losses
Deferred tax assets valuation allowance
Year ended June 30, 2020
Allowance for credit losses
Deferred tax assets valuation allowance
$
$
$
Beginning Balance
Additions/(Reductions)
to Expense or Other
Accounts
Deductions
Ending Balance
2,284
35,913
731
61,241
739
48,769
1,244
(31,361)
1,883
(25,328)
669
12,472
730 $
—
330 $
—
677 $
—
2,798
4,552
2,284
35,913
731
61,241
All other supplemental schedules are omitted because of the absence of conditions under which they are required.
(3) Exhibits
The exhibits listed in the accompanying Exhibit Index at the end of this Item 15 are filed as a part of this report.
(b) Exhibits
See Exhibit Index at the end of this Item 15.
(c) Separate Financial Statements and Schedule
None.
126
Exhibit
No.
3.1
3.2
4.1
4.1.1
10.1
10.2
10.3
10.3.1
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
EXHIBIT INDEX
Description
Certificate of Incorporation of Premier, Inc. (Incorporated by reference to Exhibit 3.1 of our Registration Statement on Form S-1 filed on
August 26, 2013)
Amended and Restated Bylaws of Premier, Inc., effective as of January 20, 2022 (Incorporated by reference to Exhibit 3.2 of our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2022)
Form of Class A common stock certificate (Incorporated by reference to Exhibit 4.1 of our Registration Statement on Form S-1, Amendment
No. 1, filed on September 16, 2013)
Description of Securities (Incorporated by reference to Exhibit 4.1.1 of our Annual Report on Form 10-K filed on August 25, 2020)
Amended and Restated Premier, Inc. 2013 Equity Incentive Plan, effective December 7, 2018 (Incorporated by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed on December 7, 2018)+
Form of Performance Share Award Agreement under the Amended and Restated Premier, Inc. 2013 Equity Incentive Plan (Incorporated by
reference to Exhibit 10.7 of our Annual Report on Form 10-K filed on August 23, 2019)+
Form of Restricted Stock Unit Agreement under the Amended and Restated Premier, Inc. 2013 Equity Incentive Plan (Incorporated by
reference to Exhibit 10.8 of our Annual Report on Form 10-K filed on August 23, 2019)+
Form of Special Restricted Stock Unit Agreement under the Amended and Restated Premier, Inc. 2013 Equity Incentive Plan (Incorporated
by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on April 26, 2022)+
Form of Restricted Stock Unit Agreement for Non-Employee Directors under the Amended and Restated Premier, Inc. 2013 Equity Incentive
Plan (Incorporated by reference to Exhibit 10.9 of our Annual Report on Form 10-K filed on August 23, 2018)+
Form of Stock Option Agreement under the Amended and Restated Premier, Inc. 2013 Equity Incentive Plan (Incorporated by reference to
Exhibit 10.8 of our Annual Report on Form 10-K filed on August 23, 2017)+
Premier, Inc. Annual Incentive Compensation Plan, amended and restated effective August 5, 2020 (Incorporated by reference to Exhibit
10.8 of our Annual Report on Form 10-K filed on August 25, 2020)+
Senior Executive Employment Agreement dated as of September 13, 2013, by and between Craig S. McKasson and Premier Healthcare
Solutions, Inc. (Incorporated by reference to Exhibit 10.23 of our Registration Statement on Form S-1, Amendment No. 1, filed on
September 16, 2013)+
Senior Executive Employment Agreement dated as of February 1, 2021 (effective May 1, 2021) by and between Michael J. Alkire and
Premier Healthcare Solutions, Inc. (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K, filed on February 2,
2021)+
Executive Employment and Restrictive Covenant Agreement dated as of December 16, 2020 (effective January 1, 2021), by and between
Lindsay Powers and Premier Healthcare Solutions, Inc. (Incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q,
filed on February 2, 2021)+
Executive Employment Agreement dated as of July 1, 2016, by and between Leigh Anderson and Premier Healthcare Solutions, Inc.
(Incorporated by reference to Exhibit 10.21 of our Annual Report on Form 10-K filed on August 25, 2016)+
Executive Employment Agreement effective as of July 1, 2016, by and between David Klatsky and Premier Healthcare Solutions, Inc.
(Incorporated by reference to Exhibit 10.22 of our Annual Report on Form 10-K filed on August 25, 2016)+
Executive Employment Agreement effective as of July 1, 2017, by and between David A. Hargraves and Premier Healthcare Solutions, Inc.
(Incorporated by reference to Exhibit 10.21 of our Annual Report on Form 10-K filed on August 23, 2017)+
Premier, Inc. Directors' Compensation Policy, as amended on January 23, 2020 (Incorporated by reference to Exhibit 10.1 of our Current
Report on Form 8-K filed on January 23, 2020)+
Premier, Inc. Form of Director Cash Award Agreement under the Premier, Inc. Directors' Compensation Policy (Incorporated by reference to
Exhibit 10.2 of our Current Report on Form 8-K filed on August 11, 2016)+
Form of Indemnification Agreement by and between each director and executive officer and Premier, Inc. (Incorporated by reference to
Exhibit 10.29 of our Registration Statement on Form S-1, Amendment No. 1, filed on September 16, 2013)+
127
Exhibit
No.
10.16
10.17
10.18
10.19
10.20
10.21
10.22
21
23
24
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Description
Premier, Inc. 2015 Employee Stock Purchase Plan (as amended and restated effective August 4, 2020) (Incorporated by reference to Exhibit
10.19 of our Annual Report on Form 10-K filed on August 25, 2020)+
Premier Healthcare Solutions, Inc. Amended and Restated Deferred Compensation Plan, dated September 26, 2014 (effective January 1,
2015), as amended on September 25, 2015 and October 24, 2018 (Incorporated by reference to Exhibit 10.20 of our Annual Report on Form
10-K filed on August 25, 2020)+
First Amendment to Credit Agreement, dated as of December 1, 2021, by and among Premier Healthcare Alliance, L.P., Premier Supply
Chain Improvement, Inc. and Premier Healthcare Solutions, Inc., as Co-Borrowers, Premier Services, LLC and certain other subsidiaries, as
Guarantors, Wells Fargo Bank, National Association, as Administrative Agent and certain other parties thereto (Incorporated by reference to
Exhibit 10.1 of our Current Report on Form 8-K filed December 1, 2021)
Consulting Agreement, effective September 1, 2021, between Stephen R. D’Arcy and Premier, Inc. (Incorporated by reference to Exhibit
10.1 of our Current Report on Form 8-K filed on September 7, 2021)
Consulting Agreement, effective September 1, 2021, between David H. Langstaff and Premier, Inc. (Incorporated by reference to Exhibit
10.2 of our Current Report on Form 8-K filed on September 7, 2021)
Consulting Agreement, effective September 1, 2021, between William E. Mayer and Premier, Inc. (Incorporated by reference to Exhibit 10.3
of our Current Report on Form 8-K filed on September 7, 2021)
Form of Restricted Stock Unit Agreement for Consultants (Incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K
filed on September 7, 2021)
Subsidiaries of the Company*
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm*
Power of Attorney (included on the signature page hereof)*
Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Certification required by 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002‡
Certification required by 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002‡
XBRL Instance Document*
XBRL Taxonomy Extension Schema Document*
XBRL Taxonomy Extension Calculation Linkbase Document*
XBRL Taxonomy Extension Definition Linkbase Document*
XBRL Taxonomy Extension Label Linkbase Document*
XBRL Taxonomy Extension Presentation Linkbase Document*
* Filed herewith
+ Indicates a management contract or compensatory plan or arrangement
‡ Furnished herewith
Our SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-36092. The SEC file number for
our Registration Statement on Form S-1 is 333-190828.
Item 16. Form 10-K Summary
We have elected not to provide a summary.
128
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SIGNATURES
PREMIER, INC.
By:
/s/ MICHAEL J. ALKIRE
Name:
Title:
Date:
Michael J. Alkire
President and Chief Executive Officer
August 16, 2022
POWER OF ATTORNEY
Each person whose signature appears below hereby severally constitutes and appoints each of Craig S. McKasson and David L. Klatsky his/her true and lawful
attorney-in-fact and agent with full power of substitution and re-substitution, for him/her in his/her name, place and stead, in any and all capacities, to sign any
and all amendments to this report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to each such attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that each said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature
Capacity
Date
/s/ MICHAEL J. ALKIRE
Michael J. Alkire
/s/ CRAIG S. MCKASSON
Craig S. McKasson
/s/ JOHN T. BIGALKE
John T. Bigalke
/s/ HELEN M. BOUDREAU
Helen M. Boudreau
/s/ JODY R. DAVIDS
Jody R. Davids
/s/ PETER S. FINE
Peter S. Fine
/s/ MARC D. MILLER
Marc D. Miller
/s/ MARVIN R. O’QUINN
Marvin R. O'Quinn
President and Chief Executive Officer and Director
(principal executive officer)
Chief Administrative and Financial Officer and Senior Vice President
(principal financial and accounting officer)
Director
Director
Director
Director
Director
Director
129
August 16, 2022
August 16, 2022
August 16, 2022
August 16, 2022
August 16, 2022
August 16, 2022
August 16, 2022
August 16, 2022
/s/ TERRY D. SHAW
Terry D. Shaw
/s/ RICHARD J. STATUTO
Richard J. Statuto
/s/ ELLEN C. WOLF
Ellen C. Wolf
Director
Director
Director
130
August 16, 2022
August 16, 2022
August 16, 2022
SUBSIDIARIES OF PREMIER, INC.
As of August 16, 2022
Name of Subsidiary
State/Province of Incorporation
Exhibit 21
Premier Healthcare Solutions, Inc. (1)
Premier Services II, LLC (2)
Premier Healthcare Alliance, L.P. (3)
Premier Supply Chain Improvement, Inc. (4)
Premier Marketplace, LLC (4)
Premier Supply Chain Holdings, LLC (4)
NS3Health, LLC (5)
SVS LLC (5)
Commcare Pharmacy - FTL, LLC (6)
Premier Specialty Pharmacy Solutions, LLC (6)
Acro Pharmaceutical Services LLC (6)
Innovatix, LLC (5)
InnovatixCares, LLC (7)
Innovatix Network, LLC (7)
Essensa Ventures, LLC (5)
Premier Insurance Management Services, Inc. (2)
Premier Pharmacy Benefit Management, LLC (2)
TheraDoc, Inc. (2)
Healthcare Insights, LLC (2)
CECity.com, Inc. (2)
ProvideGx, LLC (5)
Contigo Health, LLC (9)
Stanson Health, Inc. (2)
Intersectta, LLC (5)
Conductiv, Inc. (5)
Acurity, LLC (5)
Nexera, LLC (5)
Conductiv Contracts, LLC (5)
Elements Canada, LLC (5)
Premier IDS, LLC (2)
Contigo Health Holdings LLC (2)
Catavert, LLC (10)
(1) Wholly owned by Premier, Inc.
Delaware
Delaware
California
Delaware
Delaware
Delaware
Florida
North Carolina
Florida
Florida
Pennsylvania
Delaware
Delaware
Delaware
New York
California
Delaware
Delaware
Illinois
Pennsylvania
Delaware
Ohio
Delaware
Delaware
North Carolina
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
North Carolina
(2) Wholly owned by Premier Healthcare Solutions, Inc.
(3) Premier Healthcare Solutions, Inc. is the sole general partner, and Premier Services II, LLC is the sole limited partner of Premier Healthcare Alliance, L.P.
(4) Wholly owned by Premier Healthcare Alliance, L.P. (5) Wholly owned by Premier Supply Chain Improvement, Inc.
(6) Wholly owned by NS3Health, LLC.
(7) Wholly owned by Innovatix, LLC.
(8) CECity.com, Inc. holds a 50% interest.
(9) Contigo Health Holdings, LLC holds a 93% interest.
(10) Wholly owned by Contigo Health Holdings, LLC
Exhibit 21
Exhibit 23
We consent to the incorporation by reference in the following Registration Statements:
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(1) Registration Statement (Form S-8 No. 333-191484) pertaining to the 2013 Equity Incentive Plan of Premier, Inc.,
(2) Registration Statement (Form S-8 No. 333-229531) pertaining to the 2013 Equity Incentive Plan of Premier, Inc. (as amended and restated effective
December 7, 2018),
(3) Registration Statement (Form S-3 No. 333-199158) of Premier, Inc.,
(4) Registration Statement (Form S-8 No. 333-204628) pertaining to the 2015 Employee Stock Purchase Plan of Premier, Inc.,
(5) Registration Statement (Form S-3/ASR No. 333-244415) of Premier, Inc., and
(6) Registration Statement (Form S-3/ASR No. 333-249826) of Premier, Inc.
of our reports dated August 16, 2022, with respect to the consolidated financial statements of Premier, Inc. and the effectiveness of internal control over
financial reporting of Premier, Inc. included in this Annual Report (Form 10-K) of Premier, Inc. for the year ended June 30, 2022.
/s/ Ernst & Young LLP
Raleigh, North Carolina
August 16, 2022
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Michael J. Alkire, certify that:
1.
2.
3.
4.
I have reviewed this quarterly report on Form 10-Q of Premier, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 16, 2022
/s/ Michael J. Alkire
Michael J. Alkire
President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Craig S. McKasson, certify that:
1.
2.
3.
4.
I have reviewed this quarterly report on Form 10-Q of Premier, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 16, 2022
/s/ Craig S. McKasson
Craig S. McKasson
Chief Administrative and Financial Officer and Senior Vice President
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Quarterly Report of Premier, Inc. (“Premier”) on Form 10-Q for the period ended June 30, 2022, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Michael J. Alkire, President and Chief Executive Officer of Premier, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of Premier.
/s/ Michael J. Alkire
Michael J. Alkire
President and Chief Executive Officer
August 16, 2022
A signed original of this written statement required by Section 906 has been provided to Premier, Inc. and will be retained by Premier, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request. This written statement shall not be deemed filed by Premier, Inc. for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to liability under that section, and will not be
deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Premier,
Inc. specifically incorporates it by reference.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Quarterly Report of Premier, Inc. (“Premier”) on Form 10-Q for the period ended June 30, 2022, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”, I, Craig S. McKasson, Chief Administrative and Financial Officer and Senior Vice President of
Premier, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge
and belief:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of Premier.
/s/ Craig S. McKasson
Craig S. McKasson
Chief Administrative and Financial Officer and Senior Vice President
August 16, 2022
A signed original of this written statement required by Section 906 has been provided to Premier, Inc. and will be retained by Premier, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request. This written statement shall not be deemed filed by Premier, Inc. for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to liability under that section, and will not be
deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Premier,
Inc. specifically incorporates it by reference.