05/07/2019 | Press release | Distributed by Public on 05/07/2019 05:04
CHARLOTTE, N.C.--(BUSINESS WIRE)-- Premier Inc. (NASDAQ: PINC) today reported financial results for the fiscal 2019 third quarter ended March 31, 2019.
The company adopted new revenue recognition standard ASC 606 on July 1, 2018, in conjunction with the beginning of fiscal 2019, using the modified retrospective approach and did not restate prior periods. Therefore, fiscal 2019 results of operations under the new revenue standard ASC 606 are compared with fiscal 2018 results under the previous revenue standard ASC 605 in the body of this press release, and the comparisons are not necessarily meaningful. However, solely for informational purposes, current period results under the previous standard are included in the tables at the back of this press release.
Q3 2019 Highlights:
* Descriptions of non-GAAP financial measures are provided in 'Use and Definition of Non-GAAP Financial Measures,' and reconciliations are provided in the tables at the end of this release.
'Our fiscal third-quarter results reflect the timing-related impact of revenue recognition under the new ASC 606 revenue standard, continuing headwinds in our products business, and, to a lesser extent, incremental investments in future growth opportunities that we believe will enhance our core capabilities across the supply chain, enterprise analytics and performance improvement businesses,' said Susan DeVore, chief executive officer. 'While our results are consistent with our expectation that the second half of our fiscal year would be less profitable than the first half, we remain on track to deliver full fiscal-year 2019 results within our previously disclosed guidance ranges.
'We are actively managing Premier's portfolio, as underscored by our decision to exit the specialty pharmacy business, and focusing on our core capabilities to deliver best-in-class solutions for our member health systems and sustainable, long-term value creation for stockholders,' DeVore continued. 'The company's flexible balance sheet and strong cash flow provide a solid foundation and support our balanced approach to pursuing both organic and external growth opportunities while returning capital to stockholders. The board's decision to authorize a new $300.0 million stock repurchase program underscores its continued confidence in our strategy.'
For the fiscal third-quarter ended March 31, 2019, Premier generated GAAP net revenue of $422.9 million, compared to net revenue of $425.3 million for the same period a year ago.
GAAP net income for the fiscal third quarter was $73.8 million, compared with $76.5 million a year ago. In accordance with GAAP, fiscal 2019 and 2018 third-quarter net income attributable to stockholders included non-cash adjustments of $235.4 million and $(127.0) million, respectively, to reflect the change in the redemption value of limited partners' Class B common unit ownership at the end of each period. These non-cash adjustments result primarily from changes in the number of Class B common units outstanding and the company's stock price between periods and do not reflect results of the company's business operations. After these non-cash adjustments, the company reported net income attributable to stockholders of $265.8 million, compared with a net loss of $103.5 million for the same period a year ago. Third-quarter net income of $0.48 per diluted share compared with a net loss of $1.93 per share for the same period a year ago. See 'Calculation of GAAP Earnings per Share' in the income statement section of this press release.
Fiscal third-quarter non-GAAP adjusted EBITDA of $137.6 million compared to $142.2 million for the same period the prior year.
Non-GAAP adjusted fully distributed net income for the fiscal third quarter of $84.7 million compared to $90.6 million for the same period a year ago. Non-GAAP adjusted fully distributed earnings per share totaled $0.66, compared with $0.67 for the same period a year ago. Adjusted fully distributed earnings per share is a non-GAAP financial measure that represents net income, adjusted for non-recurring and non-cash items, attributable to all stockholders as if all Class B stockholders exchanged their Class B common units and associated Class B common shares for Class A common shares.
Supply Chain Services
For the fiscal third quarter ended March 31, 2019, Supply Chain Services segment net revenue was $330.2 million, compared with $330.7 million a year ago. Net administrative fees revenue of $164.5 million increased 2% from the prior year, primarily driven by further contract penetration of existing members. Net administrative fees in the fiscal 2019 third quarter under the previous revenue recognition standard of $165.4 million similarly increased 2% over a year ago.
Products revenue was $162.4 million, compared with $166.2 million a year ago. Growth in oncology-related drug revenue was offset primarily by the impact of gross-to-net revenue recognition changes associated with the adoption of ASC 606, which negatively impacted revenue by $11.2 million, and to a lesser extent by reimbursement compression in the specialty pharmacy business.
Supply Chain Services segment non-GAAP adjusted EBITDA for the fiscal 2019 third quarter was $133.7 million, compared with $135.3 million for the same period a year ago. Growth in net administrative fees revenue was offset by reimbursement compression in the specialty pharmacy business and by increases in certain product-related costs in the direct sourcing business.
For the fiscal third quarter ended March 31, 2019, Performance Services segment net revenue was $92.6 million, compared with $94.6 million for the same quarter last year. Growth in consulting and clinical decision support technology revenue was offset by lower-than-expected performance of the ambulatory regulatory reporting business and softer applied sciences revenue, which is subject to periodic variability based on timing of engagements.
Performance Services segment non-GAAP adjusted EBITDA was $33.2 million for the fiscal 2019 third quarter, compared with $36.7 million for the same quarter last year. The decrease was primarily the result of lower revenue and incremental investments in long-term growth opportunities partially offset by reduced expenses related to decreased headcount compared to the prior year.
Results of Operations for the Nine Months Ended March 31, 2019
For the nine months ended March 31, 2019, GAAP net revenue was $1.25 billion, compared with $1.23 billion for the same period a year ago. GAAP net income totaled $260.6 million, compared with $156.9 million for the same period a year ago. Fiscal 2019 and 2018 nine-month GAAP net income attributable to stockholders required non-cash adjustments of $178.9 million and $511.3 million, respectively, to reflect changes in redemption value of the limited partners Class B common unit ownership at the end of each period. These non-cash adjustments result primarily from changes in the number of Class B common units outstanding and the company's stock price between periods and do not reflect results of the company's business operations. After these non-cash adjustments, the company reported net income attributable to stockholders of $278.4 million, compared with $514.1 million a year ago. On a diluted per-share basis, net income totaled $1.68, compared with $0.79 per share for the same period a year ago. See 'Calculation of GAAP Earnings per Share' in the income statement section of this press release.
For the nine months ended March 31, 2019, non-GAAP adjusted EBITDA was $418.2 million, compared with $395.0 million for the same period last year. Non-GAAP adjusted fully distributed net income was $260.0 million, compared with $222.3 million for the same period a year ago, while non-GAAP adjusted fully distributed earnings per share was $1.97, compared with $1.61.
Supply Chain Services segment net revenue was $973.1 million for the first nine months of fiscal 2019, compared with $961.4 million a year earlier. Supply Chain Services segment adjusted EBITDA was $403.1 million, compared with $392.9 million for the prior year.
Performance Services segment net revenue was $273.2 million for the first nine months of fiscal 2019, compared with $265.9 million a year earlier. Segment adjusted EBITDA was $100.9 million, compared with $85.9 million.
Cash Flows and Liquidity
Net cash provided by operating activities was $368.1 million for the nine-month period ended March 31, 2019, compared with $369.7 million for the same period last year. Increases in net administrative fees were offset by increased product costs and reimbursement compression in the specialty pharmacy business. At March 31, 2019, the company's cash and cash equivalents totaled $137.5 million, compared with $152.4 million at June 30, 2018. At March 31, 2018, the company had an outstanding balance of $150.0 million on its five-year, $1.0 billion revolving credit facility, $50.0 million of which was repaid in April 2019.
Non-GAAP free cash flow for the nine-month period ended March 31, 2019 was $235.3 million, compared with $238.4 million for the same period a year ago and was impacted by the $18.0 million Tax Receivable Agreement (TRA) payment made to member owners, offset by a decrease in distributions to limited partners. Timing of the TRA payment shifted to July in the current year from June in previous years due to a change in the company's federal tax filing deadline. Free cash flow equaled 56% of non-GAAP adjusted EBITDA for the nine-month period and the company expects free cash flow to exceed 55% of non-GAAP adjusted EBITDA for the full fiscal year. The company defines free cash flow as cash provided by operating activities less quarterly tax distributions and annual TRA payments to limited partners and purchases of property and equipment (see free cash flow reconciliation to net cash provided by operating activities in the tables section of this press release).
The company completed its previously announced $250.0 million Class A stock repurchase program in March 2019. Under the program, the company repurchased approximately 6.7 million shares of Class A common stock, which had the impact of adding approximately $0.03 to diluted per-share results for the nine-month period ending March 31, 2019. On April 26, 2019, Premier's board of directors authorized an additional $300.0 million for potential future repurchases of Class A common stock. Premier expects to execute the necessary agreements and documentation related to the repurchase program during the next open trading window under the company's insider trading policy, scheduled to begin May 9th. There can be no assurance when or whether the repurchase program will be initiated or regarding the number of shares of Class A common stock that will be purchased under the program.
Fiscal 2019 Outlook and Guidance
Based on results for the nine months ended March 31, 2019, management's current expectations for the remainder of the fiscal year, and the realization of previously disclosed underlying assumptions, the company expects full-year financial results within the previously disclosed guidance ranges. Specifically, Supply Chain Services segment revenue is expected to be near the midpoint of the range, Performance Services segment revenue is expected near the higher end of the range, non-GAAP adjusted EBITDA is expected near the lower end of the range, and non-GAAP adjusted fully distributed earnings per share is expected near the midpoint.
Premier management will host a conference call and live audio webcast on Tuesday, May 7, 2019, at 8:00 a.m. ET, to discuss the company's financial results. The conference call can be accessed through a link provided on the investor relations page on Premier's website at investors.premierinc.com. Those wanting to participate by phone may do so by dialing 844.296.7719 and providing the operator with conference ID number: 1907218. International callers should dial 574.990.1041 and provide the same passcode. The company encourages callers to dial in at least five minutes before the start of the call to register. The archived webcast will be accessible on Premier's investor relations page.
About Premier Inc.
Premier Inc. (NASDAQ: PINC) is a leading healthcare improvement company, uniting an alliance of more than 4,000 U.S. hospitals and health systems and approximately 165,000 other providers and organizations to transform healthcare. With integrated data and analytics, collaboratives, supply chain solutions, and consulting and other services, Premier enables better care and outcomes at a lower cost. Premier plays a critical role in the rapidly evolving healthcare industry, collaborating with members to co-develop long-term innovations that reinvent and improve the way care is delivered to patients nationwide. Headquartered in Charlotte, N.C., Premier is passionate about transforming American healthcare. Please visit Premier's news and investor sites on www.premierinc.com; as well as Twitter, Facebook, LinkedIn, YouTube, Instagram and Premier's blog for more information about the company.
Use and Definition of Non-GAAP Measures
Premier uses EBITDA, adjusted EBITDA, segment adjusted EBITDA, adjusted fully distributed net income, adjusted fully distributed earnings per share, and free cash flow to facilitate a comparison of the company's operating performance on a consistent basis from period to period and to provide measures that, when viewed in combination with its results prepared in accordance with GAAP, allow for a more complete understanding of factors and trends affecting the company's business than GAAP measures alone. The company believes adjusted EBITDA and segment adjusted EBITDA assist its board of directors, management and investors in comparing the company's operating performance on a consistent basis from period to period by removing the impact of the company's asset base (primarily depreciation and amortization) and items outside the control of management (taxes), as well as other non-cash (impairment of intangible assets and purchase accounting adjustments) and non-recurring items, from operating results.
In addition, adjusted fully distributed net income and adjusted fully distributed earnings per share eliminate the variability of non-controlling interest as a result of member owner exchanges of Class B common units and corresponding Class B common stock into shares of Class A common stock and other potentially dilutive equity transactions which are outside of management's control. Adjusted fully distributed net income is defined as net income attributable to Premier (i) excluding income tax expense, (ii) excluding the impact of adjustment of redeemable limited partners' capital to redemption amount, (iii) excluding the effect of non-recurring and non-cash items, (iv) assuming the exchange of all the Class B common units for shares of Class A common stock, which results in the elimination of non-controlling interest in Premier LP, and (v) reflecting an adjustment for income tax expense on non-GAAP fully distributed net income before income taxes at the company's estimated effective income tax rate. We define adjusted fully distributed earnings per share as adjusted fully distributed net income divided by diluted weighted average shares. These measures 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 and non-recurring items, and eliminate the variability of non-controlling interest that results from member owner exchanges of Class B common units into shares of Class A common stock.
EBITDA is defined as net income before interest and investment income, net, income tax expense, depreciation and amortization and amortization of purchased intangible assets. Adjusted EBITDA is defined as EBITDA before merger and acquisition related expenses and non-recurring, non-cash or non-operating items, and including equity in net income (or loss) 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 and financial restructuring expenses. Non-operating items include gains or losses on the disposal of assets and interest and investment income or expense.
Segment adjusted EBITDA is defined 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. Adjusted EBITDA is a supplemental financial measure used by the company and by external users of the company's financial statements.
Management considers adjusted EBITDA an indicator of the operational strength and performance of the company's business. Adjusted EBITDA allows management to assess performance without regard to financing methods and capital structure and without the impact of other matters that management does not consider indicative of the operating performance of the business. Segment adjusted EBITDA is the primary earnings measure used by management to evaluate the performance of the company's business segments.
Free cash flow is defined as net cash provided by operating activities less distributions and tax receivable agreement payments to limited partners 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. Management believes free cash flow is an important measure because it represents the cash that the company generates after payment of tax distributions to limited partners and capital investment to maintain existing products and services and ongoing business operations, as well as development of new and upgraded products and services to support future growth. Free cash flow is important because it allows the company to enhance stockholder value through acquisitions, partnerships, joint ventures, investments in related or complimentary businesses and/or debt reduction.
To properly and prudently evaluate our business, readers are urged to review the reconciliation of these non-GAAP financial measures, as well as the other financial tables, included at the end of this release. Readers should not rely on any single financial measure to evaluate the company's business. In addition, the non-GAAP financial measures used in this release are susceptible to varying calculations and may differ from, and may therefore not be comparable to, similarly titled measures used by other companies.
Further information on Premier's use of non-GAAP financial measures is available in the 'Our Use of Non-GAAP Financial Measures' section of Premier's Form 10-K for the year ended June 30, 2018.
Statements made in this release that are not statements of historical or current facts, such as those related to the current market environment, expected financial performance, non-GAAP free cash flow generation, the impact of the new revenue recognition standards, share repurchases, if any, under our current and future stock repurchase program, the success of our incremental investments in growth opportunities, the financial and strategic impact of our decision to exit the specialty pharmacy business and the statements related to fiscal 2019 outlook and guidance and the assumptions underlying such guidance, are 'forward-looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Premier to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. Accordingly, readers should not place undue reliance on any forward looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in the conditional or future tenses or that include terms such as 'believes,' 'belief,' 'expects,' 'estimates,' 'intends,' 'anticipates' or 'plans' to be uncertain and forward-looking. Forward-looking statements may include comments as to Premier's beliefs and expectations as to future events and trends affecting its business and are necessarily subject to uncertainties, many of which are outside Premier's control. More information on potential factors that could affect Premier's financial results is included from time to time in the 'Cautionary Note Regarding Forward-Looking Statements,' 'Risk Factors' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations' sections of Premier's periodic and current filings with the SEC, including those discussed under the 'Risk Factors' and 'Cautionary Note Regarding Forward-Looking Statements' section of Premier's Form 10-K for the year ended June 30, 2018 as well as the Form 10-Q for the quarter ended March 31, 2019, expected to be filed with the SEC shortly after the date of this release, and also made available on Premier's website at investors.premierinc.com. Forward-looking statements speak only as of the date they are made, and Premier undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events that occur after that date, or otherwise.
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Vice President, Investor Relations
Vice President, Public Relations
Source: Premier Inc.