Premier Q2 2025 Earnings Call Transcript

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Provided by Quartr
February 4, 2025

Key Takeaways

  • Premier reaffirmed its total net revenue guidance and raised its adjusted EPS guidance by $0.08 despite Performance Services not meeting objectives, driven by stronger-than-expected results in its Supply Chain Services segment.
  • In Supply Chain Services, the company signed its first major partner under the digital supply chain strategy, using AI to automate back-office processes, enhance end-to-end spend visibility, embed evidence-based decision making, and leverage its data for FDA 503 program shortage mitigation.
  • The Performance Services segment saw a 19% revenue decline amid lower consulting demand and a shift toward SaaS, prompting the appointment of healthcare veteran David Zito to revitalize advisory capabilities, expand performance collaboratives, and accelerate AI-enabled workflow solutions.
  • For Q2, Premier reported net revenue of $240 million, adjusted EBITDA of $50 million (20.8% margin), a GAAP net loss of $46 million due to a $127 million goodwill impairment, and repurchased over $600 million of shares under its $1 billion buyback authorization.
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Earnings Conference Call
Premier Q2 2025
00:00 / 00:00

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Operator

Good morning, and welcome to Premier's Fiscal 2025 Second Quarter Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ben Krasinski, Senior Director, Investor Relations. Please go ahead.

Benjamin Krasinski
Benjamin Krasinski
Director, Investor Relations at Premier

Thank you, and welcome to Premier's fiscal 2025 Second Quarter Conference Call. Our speakers this morning are Mike Alkire, Premier's President and CEO and Glenn Coleman, our Chief Administrative and Financial Officer. Before we get started, I want to remind everyone that our earnings release and the supplemental presentation accompanying this call are available in the Investors section of our website at investors. Premierinc.com. Please be advised that management's remarks today contain certain forward looking statements, such as statements regarding our strategies, plans, prospects, expectations and future performance, and actual results could differ materially from those discussed today.

Benjamin Krasinski
Benjamin Krasinski
Director, Investor Relations at Premier

These forward looking statements speak as of today, and we undertake no obligation to update them. Factors that might affect future results are discussed in our filings with the SEC, including our most recent Form 10 ks and our Form 10 Q for the quarter, which we expect to file soon. We encourage you to review the detailed forward looking statement and risk factor disclosures in these reports. Also during this presentation, we will refer to adjusted and other non GAAP financial measures, including free cash flow, to evaluate our business. Information on why we use these measures in addition to GAAP financial measures and reconciliations of these measures to our GAAP financial measures are included in our earnings release and in the appendix of the supplemental presentation accompanying this call.

Benjamin Krasinski
Benjamin Krasinski
Director, Investor Relations at Premier

Information on our non GAAP financial measures will also be included in our Form 10 Q for the quarter and our earnings Form 8 ks, both of which we expect to file soon. Now turning the call over to Mike Alacire.

Michael Alkire
Michael Alkire
President & CEO at Premier

Thanks, Ben. Good morning and thank you for joining us for our fiscal 2025 Q2 earnings call. This morning, I'll spend a few minutes giving you an update on our business strategy and performance, then pass it over to Glenn for a more detailed review of our financials. As a preview, overall revenue and profitability for the first half of fiscal twenty twenty five were in line with our expectations resulting from better than expected results in our Supply Chain Services segment. As a result, we are reaffirming total net revenue guidance and increasing our adjusted earnings per share guidance despite not achieving our objectives in the Performance Services segment.

Michael Alkire
Michael Alkire
President & CEO at Premier

Overall, the team continues to execute and deliver on our long term vision of technology enabling performance improvement and supply chain excellence for healthcare. In the second quarter, we continue to make the progress advancing our strategies and remain committed to our goal of enabling better, smarter and faster healthcare. In the Supply Chain Services segment, we are excited to announce the successful transition of our digital supply chain strategy beyond the pilot phase, marked by the signing of our first agreement with a major partner. This partner is one of many in our pipeline that will leverage our unique clinical and supply chain datasets for innovation across research, development, clinical utilization and supply chain resiliency. As we have shared previously, the digitization of invoicing and payables for healthcare providers is a critical step towards creating a more transparent and efficient healthcare supply chain.

Michael Alkire
Michael Alkire
President & CEO at Premier

Our strategy encompasses the following key areas. First, we are AI enabling manual back office processes for providers and suppliers, delivering significant time improvement and cost savings. 2nd, we are enhancing our data to deliver a comprehensive view of total non labor healthcare spend to further enable actionable performance improvement insights for providers. 3rd, we are leveraging our extensive data set to embed evidence based decision making into workflows, ensuring the right product is available for the right patient at the right time. And finally, by enhancing supply chain transparency, we are helping the industry anticipate and address potential shortages before they impact patient care.

Michael Alkire
Michael Alkire
President & CEO at Premier

On the topic of shortages, we are encouraged by the growing demand for Premier's provider focused data, market intelligence and expertise in objectively navigating the 503 program, which is a key differentiator for us in the market. As background, suppliers typically rely on the FDA drug shortage list to target which drugs to manufacture, but often lack the actionable insights to act quickly. However, they can leverage our market leading capabilities to shorten the time it takes to bring new supply to market providing much needed relief to healthcare providers experiencing shortages. In the Performance Services segment, we remain confident in our long term strategy to deliver technology enabled services that enhance care delivery and optimize total cost of care for providers, payers and suppliers. We are thrilled to welcome David Zito as our new President of Performance Services.

Michael Alkire
Michael Alkire
President & CEO at Premier

Dave brings an impressive 40 years of healthcare consulting expertise with deep experience and financial turnaround and revenue diversification strategies for providers. His leadership and insights will be invaluable as we continue to innovate and grow. We also continue to strongly believe in the transformative potential of automation and AI enabled guidance to streamline workflows and enhance satisfaction for providers. This will ultimately lead to better care for patients. In addition, our pipeline of providers eager to modernize through digitization remains robust.

Michael Alkire
Michael Alkire
President & CEO at Premier

Both Glenn and Dave joined me at the JPMorgan Healthcare Conference last month, where we participated in over 2 dozen meetings with investors, customers and key prospects. Their feedback was overwhelmingly positive, reinforcing Premier's ability to harness our healthcare data to drive provider performance improvements and deliver real world evidence that drives appropriate utilization of the most efficacious products at the right price for the right patients. I remain confident in our team's ability to deliver strong results and navigate the dynamic healthcare landscape effectively. With our strategic direction and talented leadership team, we are well positioned for continued success. With that, I'll now turn the call over to Glenn.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Thanks, Mike. Good morning, everyone. As a reminder, all results discussed during this call reflect continuing operations and do not reflect S2S Global, which was divested on October 1, 2024. I'm also pleased to report that we completed the sale of the network assets of Contigo Health in January of 2025, and we continue to work towards divesting the remaining assets before the end of this fiscal year. As such, actual results for the quarter include contributions from the Contigo business.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

However, we are continuing to exclude the results in our guidance. Now turning to Q2 consolidated results. Our 2nd quarter revenue and adjusted EBITDA were below our expectations. However, for the 1st 6 months of fiscal year 2025, we are on track with these metrics and ahead of our expectations for adjusted EPS. Net revenue of $240,000,000 for the quarter decreased from the prior year period, driven by a decline in net administrative fees revenue and supply chain services.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

In addition, we experienced lower revenue in consulting services and an unfavorable product mix in applied sciences within the Performance Services segment. GAAP net loss from continuing operations of $46,000,000 was mainly due to an impairment charge to goodwill of $127,000,000 related to our data and technology business in the Performance Services segment. This was partially offset by profitability from continuing operations, which included an $18,000,000 cash distribution from one of our minority investments. Adjusted EBITDA was $50,000,000 translating to a margin of 20.8% and declined largely due to lower revenue. Adjusted earnings per share was $0.25 and excluding the impact of Contigo Health was $0.27 and in line with our expectations.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Adjusted EPS benefited from a lower weighted average share count as a result of the share repurchases under our $1,000,000,000 authorization. As of January 2025, we repurchased over 29,000,000 shares of Class A common stock for $600,000,000 Turning to segment results. In our Supply Chain Services segment, lower net administrative fees revenue was driven by the expected increase in the aggregate blended fee share to the low 60% level in the quarter. However, gross administrative fees grew as existing members continued to increase penetration of contract spend and as we recruit and onboard new members. The group of GPO members that were part of the August 2020 structure represent approximately 70% of our total gross administrative fees.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

As of December 31, we've addressed members representing approximately 69% of this group's fees and we expect to address greater than 75% by the end of fiscal year 2025, with the majority of the remainder occurring in fiscal 2026. In addition, we continue to expect our aggregate funded fee share to be in the low 60% range for the full fiscal year 2025 and that it will likely stabilize in the high 60s once we've completed the renewal process. To date, while the increase in our aggregate funded fee share has negatively impacted our year over year results, it has been less of a headwind versus our expectations and as a result is one of the reasons we're increasing our revenue guidance for supply chain services. Also, we experienced growth in other supply chain services revenue, driven by new agreements in our supply chain co management business, where members continue to express interest in leveraging Premier's expertise to help manage their end to end supply chain operations. Moving to the Performance Services segment, the revenue decline of 19% was due to lower demand in consulting services and product mix in Applied Sciences.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

In addition, we've begun to see a gradual shift in member interest favoring SaaS subscription engagements versus license agreements. To echo what Mike said, despite these current short term headwinds and timing related items, we remain confident in our long term strategy. And under Dave's leadership, we plan to reinvigorate this business by recruiting new talent with a strong track record of delivering broad based performance improvement at large health systems, refocusing our solutions and go to market strategy around key areas of differentiation, leveraging our performance improvement collaboratives more broadly in the market and extending our unique AI capabilities to new use cases, while continuing to further penetrate the market in the areas we already serve. Shifting to the balance sheet. In the first half of fiscal year twenty twenty five, free cash flow of $74,000,000 increased by $33,000,000 from the prior year period.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

This improvement was largely driven by cash received from the derivative lawsuit settlement and the distribution from a minority investment. These are partially offset by the timing of payments to Omnia and higher performance related compensation payments. Cash and cash equivalents totaled $86,000,000 as of December 31, 2024. We ended the quarter with an outstanding balance of $100,000,000 on our $1,000,000,000 revolving credit facility, of which $65,000,000 was repaid in January. With respect to capital deployment, we continue to remain disciplined and focused on taking a balanced approach and returning capital to stockholders in the near term.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

We completed the $200,000,000 share repurchase in early January of 2025. We also continued to return capital through our quarterly dividend, which totaled $42,000,000 in the first half of fiscal year twenty twenty five and represented a 4% yield in calendar year 2024. In addition, our board recently declared a dividend of $0.21 per share payable in March. Our priority in capital deployment will be driving revenue growth through organic investments as well as potential tuck in acquisitions to differentiate our core offerings in the marketplace. Turning to guidance.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Based on actual performance for the first half of fiscal year twenty twenty five, which was in line with our overall expectations and the outlook for the remainder of the year, we are reaffirming the midpoint of our consolidated revenue guidance range, updating the underlying segment expectations and tightening all ranges. In Supply Chain Services, we're increasing the midpoint of our revenue guidance range by $25,000,000 to reflect higher net administrative fees, resulting from a favorable blended fee share. In addition, we've added new members, including Allspire Health Partners, in a recent competitive GPL win. Lastly, we expect a payment in the Q4 from a member that entered into a joint venture with another health system, which will require a phased termination of their agreement through fiscal 2028. In Performance Services, we're lowering the midpoint of our revenue guidance range by $25,000,000 resulting from the previously discussed short term headwinds that we're experiencing.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

In terms of profitability, we're tightening our ranges as well as reaffirming the midpoint of our adjusted EBITDA guidance due to better performance in Supply Chain Services and increasing the midpoint of our adjusted earnings per share guidance by $0.08 to reflect the favorable impact of the $200,000,000 share repurchase completed in early January. For the second half of the year, we expect our GPO business to have flat to slightly higher net administrative fees in the 3rd quarter as compared to the 2nd quarter. Then in the 4th quarter, we anticipate a sequential increase resulting from the expected member payment and ramping up of new member spend. In Performance Services, we anticipate our revenue will be more back end weighted in the 4th quarter. For profitability, we expect adjusted EBITDA and adjusted earnings per share to be slightly more 4th quarter weighted, mainly due to the timing and mix of revenue.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

In summary, we remain on track for the year. Supply Chain Services is doing better than expected. We have an action plan to reinvigorate Performance Services. We believe we have the right strategy and differentiation in the market, and we have a flexible balance sheet and meaningful cash flow that provides us with the ability to continue to grow our business and return value to stockholders. We appreciate your time today, and now we'll open the call for questions.

Operator

We will now begin the question and answer session. The first question comes from Michael Cherny with Leerink Partners. Please go ahead.

Michael Cherny
Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

Good morning and thanks for taking the question. Maybe just a big picture question for Mike first. Obviously, we had a lot of discussion debate over the weekend and yesterday regarding tariffs, which I know are not off of the radar. What are the discussions that you're having with your customers now to potentially prepare for a world of tariffs given some of the supply constraints or supply components that come from areas that would be affected by tariffs? And I guess what can you do or what are you doing proactively now to make sure that your customers have the best purchasing leverage, most opportunity for savings as possible?

Michael Alkire
Michael Alkire
President & CEO at Premier

Thank you, Michael. And I think the number one thing we've got to continue to focus on is just continue to build the resiliency and diversification of the suppliers in the supply chain. So obviously, like you all, I've been we have been following this issue incredibly closely. I mean, it is constantly changing. I've read about what's happened in Canada and what's happened in Mexico and the potential of tariffs and maybe not having tariffs.

Michael Alkire
Michael Alkire
President & CEO at Premier

I think at the end of the day, and you know this, the full impact of the tariffs are going to depend on the countries that have the tariffs. And so we obviously are being very, very focused on trying to understand that. In general, as it relates to us, most of our contracts have firm for the term pricing, which includes protections against taxes and tariffs to help mitigate any short term impacts on the healthcare providers. So that's number 1. Number 2, and I think again, as you've heard over the years from me, our focus has really been how are we diversifying, not having an overreliance on a country in Southeast Asia, but truly being able to spread some of that, if not most of that production to other countries.

Michael Alkire
Michael Alkire
President & CEO at Premier

We think that by doing that, that it will lessen the potential for tariffs. And so there's a number of things that obviously we're doing to ensure that the healthcare systems are not impacted truly to ensure we're writing contracts that are firm for the term and that we're also creating as much diversification in the supply chain as possible.

Michael Cherny
Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

Thanks, Mike. Appreciate that given your broad view of the world. And then maybe just as a secondary question on the dynamics behind the net administrative fees. Glenn, you mentioned you came out a little better than you had anticipated to start the year. Obviously, a lot going on with the broad based recontracting.

Michael Cherny
Michael Cherny
Senior Managing Director & Senior Research Analyst at Leerink Partners

Can you give us a little sense as to the drivers that led you to that point as we work our way through the finalization of this recontracting effort?

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Yes. Thanks for the question, Mike. And overall, we are very happy with the performance of Supply Chain Services. So I want to give you a couple of pieces in addition to the net administrative fees. We continue to see really good growth in our gross administrative fees.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

If you remember last quarter, Craig had highlighted this as a positive. So that continued into the Q2. We actually grew close to 4% overall on the gross administrative fees, which puts us close to 5% year to date and it's pretty broad based. If I look at food, pharmacy, diagnostics, medical, surgical, construction facilities, all categories that were growing. So that was a very positive sign for us.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

When we look at the fee share situation, obviously, we're going through the renegotiation. We're actually 69% of the way through now, which is also a positive. And I did highlight also that the remainder should pretty much be complete by the end of fiscal 2026. So we're trying to get these wrapped up by the end of fiscal year 2026. We're making good progress.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

And so far, yes, I would say relative to what we had laid out as a budget and our expectations, we're seeing some favorable fee share impacts. And so those are the key drivers about why we're confident in terms of raising our numbers for supply chain services, coupled with the fact we're now going to see some upticks in additional members coming on board. We talked previously about the big Allspire win that's now kicking in January 1. So that's going to help us here in the back half of the year. And we also had another new member win that we're not disclosing the name of the member, but that's going to help us as well.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

So on the whole, while the numbers are down year over year, things are trending in a positive direction when you look at our supply chain services business.

Michael Alkire
Michael Alkire
President & CEO at Premier

Thank you, Michael.

Operator

The next question comes from Eric Percher with Nephron Research. Please go ahead.

Eric Percher
Research Analyst - Pharma Supply Chain and HCIT at Nephron Research LLC

Thanks for the detail, Glenn. I'd like to go a little bit further on that, which is I'm looking out at fiscal year 'twenty six and there's a wide range of guidance. And my concern is that the commentary around stabilizing in the high 60s maybe leading us a little bit ahead of ourselves. Can I ask you, when you look at this year and where you progressed so far, how does that what's your expectation as you get into Q3 and Q4? And then as you step off from that, the high 60s target, how much of that is because you see lower retention falling off?

Eric Percher
Research Analyst - Pharma Supply Chain and HCIT at Nephron Research LLC

And any commentary you can give us on the kind of absolute value we should be looking for in the future versus kind of netting any groups leading versus the new members you've announced?

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Yes. Thanks for the question, Eric. I think first and foremost, we do expect to see higher contract penetration on all of our contracts. So as we look at the situation with supply chain services going into next year, I'm encouraged by the momentum we have in terms of our contract penetration. And there's even some really nice growth areas on the non acute side, seeing some really good growth in some of the non acute categories.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

So that's encouraging. On the fee share piece of it, I would just tell you from Q1 to Q2 is relatively stable. So we didn't see a big uptick. I would expect some increase in the fee share as we get into the back half of the year, albeit very modest. And then we'll have to see where it ends up in fiscal year 2026.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

But in my prepared remarks, I did mention we expect it to end in the high 60s. And I don't think our view has changed around that. Is it possible it could be a little bit better given where we are today? It's possible. But until we get through all the negotiations, I'm going to be careful on setting an expectation that's anything other than the high 60s for the moment.

Michael Alkire
Michael Alkire
President & CEO at Premier

And Eric, this is Mike. Just real quickly, we've been making some pretty significant investment in the technology enablement of the supply chain. And what does that mean? It means that we're getting really after all of the spend from a technology standpoint. And so having that as the opportunity to continue to build contracts and design models that can drive additional value from an admin fee perspective.

Michael Alkire
Michael Alkire
President & CEO at Premier

We think that obviously that's going to be a very significant tailwind at least to the gross admin fees.

Eric Percher
Research Analyst - Pharma Supply Chain and HCIT at Nephron Research LLC

And to put a fine point on that, you're saying that high 60s is through addition of opportunity, not through subtraction of lower retention customers?

Michael Alkire
Michael Alkire
President & CEO at Premier

Say that one more time? Yes.

Eric Percher
Research Analyst - Pharma Supply Chain and HCIT at Nephron Research LLC

Yes. I was saying that it's coming through addition of it's getting to a higher share of the customers you have today, not that you're seeing the roll off of lower retention customers?

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Yes. I think that's a fair assessment.

Eric Percher
Research Analyst - Pharma Supply Chain and HCIT at Nephron Research LLC

Thank you.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Yes.

Operator

The next question comes from Kevin Caliendo with UBS. Please go ahead.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Good morning, guys. Thanks for taking my question.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Good morning.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Good morning. The Performance Services, Glenn, you mentioned it's going to be a little bit more 4th quarter weighted. I just want to maybe just understand sort of where the confidence lies in the improvement in that segment. Is it related to the new business win or Allspire? Or is there just something around the seasonality of that, just some comfort around the sort of ramp to get to guidance there?

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Yes, sure. And some of my comments is going to play into why Q2 was a soft quarter and why we think the second half of the year is actually going to be stronger. So if I look at the different parts of our Performance Services business, I'll start off with Applied Sciences. December is typically a very strong quarter. It's the biggest quarter usually for life sciences companies in the market overall, and we didn't see that this year.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

It was a softer market in Q4 calendar year than was typical. And so we have an actual really strong funnel in applied sciences and we think that we'll see some of those deals come to fruition in our fiscal Q3 and fiscal Q4. So with the strong funnel, the fact we didn't see the uptick at the end of the calendar year, we actually feel pretty good about the momentum going into calendar year 2025. The other thing that we're seeing in Applied Sciences is a shift and some of these deals that were typically licensed deals where we sell raw data or customized data moving more towards a data access type engagement and this is more akin to a subscription model. So we actually have won a couple of deals where the revenue is going to be spread out over multiple periods versus upfront.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

And so that gives us some confidence that we'll see some of that come through later this year. On the enterprise license agreements in our performance improvement technology area, we did see some of these deals shift from our fiscal Q2 into fiscal Q3 and Q4. We actually just closed one of them in the month of January that was supposed to happen last quarter. So some of it is timing around these enterprise license deals and when they get completed. And obviously, we're really focusing very hard with Dave's leadership on building out a significant funnel of new opportunities and new logos and new customers.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

And so that's a big focus for us right now to continue to drive better momentum in the second half of the year.

Michael Alkire
Michael Alkire
President & CEO at Premier

Yes. Just a couple of other things. Dave has been on board here for a couple of months now. I will tell you he has a much stronger focus on really building out our collaborative capabilities. So it's something that historically Premier has had a very, very significant focus on.

Michael Alkire
Michael Alkire
President & CEO at Premier

And for us, obviously, it's an opportunity for us to work with health systems, help them benchmark against each other, drive improvements. And then also for those that are interested, potentially use more capabilities for Premier like 1 on 1 advisory and those kinds of things. So excited about getting that really refocused around and that's again, that's the collaboratives. I also think obviously with Dave's background, he's a very experienced industry veteran. I think his focus is how are we going to continue to build up capability in our advisory business.

Michael Alkire
Michael Alkire
President & CEO at Premier

And that will only help us with the ability to sell additional technologies and additional services and those kinds of things. So really excited to see what happens here over the next couple of months as Dave gets his feet under them.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

That's great. If I can ask a follow-up on the tariffs, I kind of don't understand how this would all work. If the tariffs were to, let's just say, kicked in on February 1, right? Can you just sort of take me through how it impacts the channel?

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Like who actually gets impacted as a product that costs $100 would have been costs $125 Like who takes on that responsibility? Where does that cost end up from you, from a sourcing perspective, the distributor that might have the product, the provider that might have to use that product or the insurer that would have to reimburse the product or the consumer? Like where does that extra money where who gets affected by that? Because it's somewhat unclear.

Michael Alkire
Michael Alkire
President & CEO at Premier

So just look, it depends on how the tariff is actually implemented. So I'm going to answer it with a bit of a comment that sort of covers my answer. So it depends on how the tariff actually gets implemented. That's number 1. Number 2, if a tariff actually gets applied to a product and you know this, even if there's political commentary about how we're going to do a tariff on a country, there's always this subtext of well, maybe it doesn't apply to medical devices or medical spend or different things.

Michael Alkire
Michael Alkire
President & CEO at Premier

So there you have to really pay attention to the detail of what actually is going to be included in that tariff. Having said that, a tariff is just like you would think. If there's a 10% tariff on a product that's $1 then that product is going to be $1.10 to the consumer to the seller of that product. And so for example, if somebody has a product that gets manufactured partially in China, their cost to actually produce that product is going to go up that commensurate amount. That's the reason that it's really important that we have these firm for term pricing in our agreements so that that price as much as possible does not end up with having the health systems, the hospitals and the providers pay for that given that they're not getting increased reimbursement to cover that cost.

Michael Alkire
Michael Alkire
President & CEO at Premier

So those contracts do matter in terms of how you contract those. But that's the best I can give you an answer around just because it's such a it's a volatile sort of situation in terms of what's really happening and how these things get applied.

Kevin Caliendo
Kevin Caliendo
Managing Director at UBS Group

Thank you.

Operator

The next question comes from Eric Coldwell with Robert W. Baird. Please go ahead.

Eric Coldwell
Eric Coldwell
Senior Research Analyst at Baird

Thanks very much. I have 2 or 3, if you don't mind. First one coming in from an investor and something we were curious about as well. The $17,600,000 distribution from the minority investment, was that Omnia or something else? And could you talk about its recurring or one time nature?

Eric Coldwell
Eric Coldwell
Senior Research Analyst at Baird

And then most specifically, is that included adjusted EBITDA, net income or earnings? Or is a little bit of confusion about where that distribution wound up in your adjusted numbers or how it's embedded in your guidance going forward?

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Yes. So that distribution came from one of our minority partners. It did not come from Omnia. It is really one time. I say one time, it could happen every couple of years, but it's not an annual type distribution.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

And we did adjust it out of our numbers. So it's not included in our results.

Eric Coldwell
Eric Coldwell
Senior Research Analyst at Baird

Perfect. Thanks very much. And then for me more specifically, there was a mention of in the end of the prepared remarks, there was a mention of a number of member departure that's going to be phased over multiple years it sounds. Could you provide any more detail on that and why it's a multiyear phase out? And then were there one time payments associated with that departure or will there be in the future?

Michael Alkire
Michael Alkire
President & CEO at Premier

Yes, this is Mike. So a couple of things that obviously that scenario is still kind of moving around as well. So that partnership that occurred, we are still providing services in there. So that's the reason you saw that part that multi year sort of comment. Like for example, there are parts of the portfolio they still want to leverage because they're the strongest in the industry.

Michael Alkire
Michael Alkire
President & CEO at Premier

And so they want to leverage those for as long as they can leverage those. But so that's the reason that you're going to see this over time. And I still think it's very fluid. So we're still working through what that looks like. Having said that, yes, there was a one time contractual I think Glenn, go ahead.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

I would just say the one time payment we haven't received yet. It's coming in the Q4.

Eric Coldwell
Eric Coldwell
Senior Research Analyst at Baird

How much Glenn, how much is that payment? And I assume that is embedded in the guidance?

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

It's embedded in the guidance and we are not disclosing the actual amount of payment, but it's in the guidance and it's one of the reasons why we're taking our supply chain services number up by $25,000,000 at the midpoint.

Eric Coldwell
Eric Coldwell
Senior Research Analyst at Baird

Okay. Thanks very much.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Thank you.

Operator

The next question comes from Jessica Tassos with Piper Sandler. Please go ahead.

Jessica Tassan
Jessica Tassan
Senior Equity Research Analyst at Piper Sandler Companies

Hi, guys. Thank you for taking the question and congrats on the strong results. I was just hoping to come back to just the firm for the term pricing comments. So can you just be clear on that? Does that imply that Premier would be on the hook for tariffs and that the customers or your member organizations would be kind of insulated from pricing pressure?

Jessica Tassan
Jessica Tassan
Senior Equity Research Analyst at Piper Sandler Companies

Or is the firm for the term embedded in your supplier contracts that Premier would maintain unchanged price guarantees for whatever period of time?

Michael Alkire
Michael Alkire
President & CEO at Premier

No, good question. No, that is embedded in the contracts. So that's not something that Premier is on the hook for. That is a that's the supplier who provides those products. They're the ones that have to absorb those tariffs, not Premier.

Michael Alkire
Michael Alkire
President & CEO at Premier

And then obviously, if it's firm for the term, not the health systems as well.

Jessica Tassan
Jessica Tassan
Senior Equity Research Analyst at Piper Sandler Companies

Got it. That's really helpful. And then I wanted to ask just kind of in light of the tariff environment, can you comment on the extent to which you think that within gross purchasing volume you saw any pull forward? And then the extent to which guidance kind of contemplates that that pull forward moderates with or without yes, moderates in the second half of your fiscal year? Thanks.

Michael Alkire
Michael Alkire
President & CEO at Premier

I think the answer to that, Jessica, is it's too early to tell. I will have to get back to you with any specifics if in fact we felt any of that. But at this point, I think it's going to be too early to tell as to whether or not there was any substantial purchasing in light of people worried about a tariff.

Jessica Tassan
Jessica Tassan
Senior Equity Research Analyst at Piper Sandler Companies

Okay. That's helpful. And then I guess maybe my last one. I think you mentioned just that in your prospecting conversations, the kind of 2 dozen year to JPMorgan, you guys were selling SBS digital supply chain services. Can you just remind us like how that is distinct from the initial offering or just what additional kind of wraparounds are provided there that are appealing to prospects? Thanks.

Michael Alkire
Michael Alkire
President & CEO at Premier

Sure. So I think the number one most appealing opportunity for our supplier partners is really focused around what Glenn was talking about, which is access to the data. And then we do a whole bunch of stuff for like around real world evidence studies, which is really all about how to ensure that products that are being launched are actually driving the clinical value that they're supposed to be driving and that there really is true innovation that's actually happening. So then when you start to sort of layer in also some of the supply data, it also gives perspective on what's happening from a cost basis. So are there real world evidence, opportunities that also are having a dramatic impact on the cost associated with the category.

Michael Alkire
Michael Alkire
President & CEO at Premier

So those are some of the nuances of what we're talking to these suppliers around. But it's really just combining the 2 different data cycles with 2 different data points.

Jessica Tassan
Jessica Tassan
Senior Equity Research Analyst at Piper Sandler Companies

Thanks again.

Michael Alkire
Michael Alkire
President & CEO at Premier

Appreciate it. Thank you.

Operator

The next question comes from Richard Close with Canaccord Genuity. Please go ahead.

Richard Close
Richard Close
Managing Director at Canaccord Genuity Group

Yes. Thanks for the question. Just curious to dig in a little bit more on the consulting services. It seems more negative than in the past, commenting on a turnaround here. Just if you could just dig in a little bit deeper on that, what exactly is going on in that business and what are the proposed changes?

Michael Alkire
Michael Alkire
President & CEO at Premier

Yes. I think I hit it a little bit. I think a couple of things that when as we refresh the business, I think it's probably a better way to say that. There's still a significant need on behalf of the health systems From a performance improvement standpoint, obviously, significant opportunities around helping our health systems deal with issues associated with labor. Obviously, huge opportunities as our health systems are thinking through using advanced technology and the like.

Michael Alkire
Michael Alkire
President & CEO at Premier

We're just constantly looking at ways that we can refresh our advisory services capability to bring that additional value to the customer, that's all around performance improvement. What are those things that historically, especially those back office functions that historically have been manual, are there ways that we can technology enable those things? Are there ways that we can do co management capabilities to obviously reduce the overall cost for these providers in a time where they're looking for any way to really reduce those cost curves. So it's really all about building up those capabilities and making the appropriate investment in those so that for the long term, we've got a robust offering that's really meeting the needs of the market.

Richard Close
Richard Close
Managing Director at Canaccord Genuity Group

Okay. And then, Glenn, maybe on Applied Sciences, you talked about license going to subscription. Is that the product mix that you're talking about or is it something else?

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Yes, that's the product mix.

Richard Close
Richard Close
Managing Director at Canaccord Genuity Group

Okay. And then final question with respect to Contigo. Can you talk a little bit about that sale? And then you said there's some additional assets ongoing. What's left? Any details there?

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Sure. So we did sell the network assets of Contigo in January for $15,000,000 It's obviously subject to normal working capital adjustments. So we've disclosed that in our 10 Q filing. We are still moving forward with selling the 3rd party administrative aspect of the business and COE or center of excellence. So that's still in process of being divested.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

I don't have an update on that at this point in time.

Richard Close
Richard Close
Managing Director at Canaccord Genuity Group

Okay. Thank you.

Michael Alkire
Michael Alkire
President & CEO at Premier

Thank you.

Operator

The next question comes from Alan Lutz with Bank of America. Please go ahead.

Allen Lutz
Allen Lutz
Analyst at Bank of America

Good morning and thanks for taking the questions. One for Glenn. You talked about gross admin fees of about 5% year to date. Can you talk about what's embedded in the updated net admin fee guide as it relates to gross admin fees? And then as we think about the utilization in the business in the tail end of calendar 2024 versus 2025, is there anything different you're expecting as we flip the calendar year? Thanks.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

I think in terms of our guide, we're being a little bit conservative on our gross admin fees, meaning I'm assuming a slower or lower number than what we saw in the first half of the year. Not based on anything terms of what I'm seeing in the business, but more just to be a bit conservative. So there's an opportunity to potentially overachieve there. But in the guide, I would say we've got a lower number versus the 5% that we generated in the first half of the year. And then obviously when we look at kind of the 24 versus 25 numbers, we do have the one time member payment that's coming in Q4 of this year.

Allen Lutz
Allen Lutz
Analyst at Bank of America

Great. Thanks.

Michael Alkire
Michael Alkire
President & CEO at Premier

Thank you.

Operator

The next question comes from Bill Sutherland with The Benchmark Company. Please go ahead.

Bill Sutherland
Director of Research at The Benchmark Company LLC

Thank you. Hey, good morning, guys. Good morning.

Glenn Coleman
Glenn Coleman
CFO & CAO at Premier

Good morning.

Bill Sutherland
Director of Research at The Benchmark Company LLC

Thinking about the your sourcing percentages, have you all ever talked about kind of where you stand in terms of the geographies that you're sourcing from at this point?

Michael Alkire
Michael Alkire
President & CEO at Premier

Yes. We don't get into specifics, but over time, you've heard us refer to having an overdependence on one specific country, for example, like China. And that our focus has been to create more diversity in that. And so, yes, we don't get into specific numbers, but like for example, we are very supportive of moving Exempla production to Malaysia, for example, and isolation gowns to other countries in Southeast Asia and those kinds of things. But it has been a practice of ours for a number of years, certainly, since COVID to create more diversity in that in the production of those products.

Michael Alkire
Michael Alkire
President & CEO at Premier

So we will continue to look at all those kinds of things as that's really important to creating a healthy supply chain.

Bill Sutherland
Director of Research at The Benchmark Company LLC

Right. And so did you even talk as broadly as just Asia Pac, for instance?

Michael Alkire
Michael Alkire
President & CEO at Premier

No, we don't spend a lot of time. First of all, it moves very, very quickly. Somebody comes up with production of a product, and it could be a large percentage of a category. And then that potentially changes in a couple of years because we're able to get a lower priced product somewhere else. So we're very thoughtful around how that movement occurs.

Michael Alkire
Michael Alkire
President & CEO at Premier

I think the most important thing is that we want to make sure we have the capability to truly understand where that production capability is and then helping the suppliers who produce those products through those contract manufacturers, point them in the right direction where they could get high quality products to produce.

Bill Sutherland
Director of Research at The Benchmark Company LLC

Okay. And on the firm for term, just wondering, is this a 1 year contract typically that and are these continually being re contracted?

Michael Alkire
Michael Alkire
President & CEO at Premier

Yes. Typically, our contracts as soon as I say this, it won't be accurate, but typically our contracts are 3 year contracts. But we do have some contracts that are less than that. But for the most part, they're 3 year agreements.

Bill Sutherland
Director of Research at The Benchmark Company LLC

Okay. Thanks, Mike.

Michael Alkire
Michael Alkire
President & CEO at Premier

Thank you.

Operator

This concludes our question and answer session and Premier's fiscal 2025 second quarter conference call.

Executives
    • Benjamin Krasinski
      Benjamin Krasinski
      Director, Investor Relations
    • Michael Alkire
      Michael Alkire
      President & CEO
    • Glenn Coleman
      Glenn Coleman
      CFO & CAO
Analysts
    • Michael Cherny
      Senior Managing Director & Senior Research Analyst at Leerink Partners
    • Eric Percher
      Research Analyst - Pharma Supply Chain and HCIT at Nephron Research LLC
    • Kevin Caliendo
      Managing Director at UBS Group
    • Eric Coldwell
      Senior Research Analyst at Baird
    • Jessica Tassan
      Senior Equity Research Analyst at Piper Sandler Companies
    • Richard Close
      Managing Director at Canaccord Genuity Group
    • Allen Lutz
      Analyst at Bank of America
    • Bill Sutherland
      Director of Research at The Benchmark Company LLC
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