Premier, Inc. (PINC) Earnings Call Transcript & Summary

Nothing. There's not really any trending. We had some of these questions earlier in our one-on-ones. If you have a product base that typically has differentiation, there's as opposed to maybe something that's a commodity and you're pressured from a cost standpoint there's -- and there's a high degree of switching costs from one product to another, obviously, there's going to be a lot more openness on behalf of the health systems to transition from one product, there's going to be less if there's significant difference between the products. If there's -- if it's a commodity, obviously, they're going to be a lot more open to switching from one product to another. And that's where I think there is the opportunity for us to continue to manage those costs. Having said all that, I will tell you that again, we're kind of designed working with our clinical teams and our clinical committees to make sure that to the degree that we can influence those decisions and help those health systems not take those costs. That's what we need to do because at the end of the day, there is no -- to many of our health systems are still underwater from a margin standpoint. They don't have the ability to pick up a lot of these inflationary costs. And so they're doing everything in their power to either move to different contracts or to different products or those kinds of things, so they don't have to take those costs.

Yes. The one thing I would clarify is I don't think, Steve, it is based on a large company or a small company, I think pricing is based on a contracted category and the health and the competitive friction in that category. So market share would dictate where whether there's going to be inflation and that could be a small company that is focused on one product or a large company, but it's not that just because some of the large companies they have more influence to drive price increase because we're actually looking down at the individual contracted category, not their entire universe of products.

Got it. Okay. All right. Great. So maybe we'll shift gears here a little bit now and talk more about your Performance Services segment, which I still think of as kind of the Healthcare Technologies segment just for simplification purposes. But within that, maybe just give us an update on the sales pipeline. So just for backdrop, by the way, we do a lot of quarterly surveys of hospitals and try to assess their health care IT spending. First of all, whether that's increasing or decreasing within their CapEx budgets, but also what categories we're spending on. So I guess I'm curious, just from you guys just an update on the sales pipeline, where you're seeing demand and just general provider appetite for discretionary healthcare IT spend based on what you're seeing right now.

Yes. So Performance Services is primarily made up of, as you said, technology. We do have a Performance Services advisory services group that wraps around that technology to help drive performance improvement opportunities for those health systems. So it's got the technology and it's also got the Advisory Services business. The pipeline itself still seems solid for us. Obviously, our focus is to bring technology into the health care setting that's going to automate a lot of manual procedures and processes and thereby reducing costs. So that's really where our sweet spot is, how are we working with them to drive better levels of performance and improvement and efficiency and those kinds of things. And so the pipeline from that standpoint is going well. The only other thing that where we're seeing a really positive momentum is that there's a lot of point solutions that our health care systems utilize. And one of the things that we are doing is working with our health systems to rationalize what are those technologies that they need to drive more efficiency from a cost standpoint and higher levels of quality and how can we step into the middle of that and provide a more cohesive solution as opposed to all these point solutions.

Yes. The only color I would add is I think the demand we're seeing is for pretty rapid improvement. So it's not projects where they're looking for some long-term change. It's more can we either implement technology or put wraparound services that will deliver a pretty quick ROI in terms of helping with their margin profile given the challenges and the pressure that they're under.

Okay. All right. So within this segment, obviously, there's a bunch of different solutions that we could talk about, but it seems like one of the ones that was more of a topic of discussion on the last quarterly conference call or 2 was around Remitra, and that's the e-invoicing service offering within paying for artificial intelligence. I think you called out some softer-than-anticipated adoption on that last call. Maybe just give us a status update on just operational improvement plans for this part of the business and whether or not the demand dynamics have shifted, which I wouldn't think so. I think this will be good demand for this, but just wanted to get an update on that as well.

Yes. So if I could just at the very highest level. So Remitra is a technology that we use to drive e-invoicing and e-payables for the health care system. We still think 70% to 80% of invoices are still transacted manually and not digitized. We think there's a huge opportunity there to actually bring a lot more value and automation to that whole process and so Remitra is that opportunity for us. What we talked a little bit about, I think sales cycles were a little bit longer than we anticipated and then, of course, some market conditions obviously impacted our CFO offering. So I will tell you some of the things that we've been doing since the earnings call. We had an accelerated solutions design event with a number of suppliers to talk about the value of Remitra and how could they see value fairly quickly by implementing it. We have a very similar event with our health systems here in the next couple of weeks in a very similar sort of nature to ensure that they truly understand how the value of Remitra actually bring down their overall cost on managing invoices and payments.

And I think just to add a little color, Mike referenced what he called the CFO offering. It's an offering called Cash Flow Optimizer, which is really supply chain financing to actually improve the time flow and the working capital benefit for paying suppliers more quickly and to the benefit of health care providers. That's what's actually seen a slower uptake given the increase in cost of capital that we've been experiencing in the marketplace, but still believe longer term, there's a lot of opportunity there. I wouldn't say the demand for that part has increased yet. That's part of what just with interest rates is sort of fintech companies also are seeing a little bit more challenge in that part of the market.

Okay. All right. So now also within the PS segment, I guess, for better or for worse, there can be some lumpiness in the earnings. Sometimes it's a good guy, sometimes it's a bad guy. But just remind us just among all the offerings, which one maybe provides most of that potential volatility around just that lumpiness in the earnings and also how you kind of factor that into the segment revenue guidance and also how you just think about the trajectory of large license agreements that you could be signing.

Yes. So the 2 areas that would have the most opportunity to create lumpiness in our Performance Services kind of cadence quarter-to-quarter is enterprise license agreements or advisory services if we're doing a large performance-based type cost reduction engagement. And so on the enterprise licenses, the nature of those, that's enterprise analytics, where they are buying the whole suite of products with a typically, on average, I would say, 5-year license. And the way the revenue recognition on those licenses works is the majority, about 70% of the revenue is recognized at the point that the license is actually delivered and made available to the customer. So that's what can create when we see those an uptick in revenue in a particular quarter and the nature of the engagement, a lot of profitability at the time that, that occurs. Those are not -- today, that represents about 10% to 15% of our Performance Services revenue. The majority is still our SaaS-based technology that's more stable, but that can create some variability. And then our advisory services business, which is consultative if we're doing a large engagement to take cost out of the system. Sometimes, the revenue and the associated EBITDA are tied to when we're actually delivering the benefit and getting signed off from the number that we've achieved the targeted savings. And so those are the 2 items that can create some of that variability. We factor in based on our pipelines and visibility and the long-term perspective of how those are performing in terms of how we establish the guidance for the segment.

Okay. I think also just on the acquisition front, you guys announced not too long ago, this acquisition of the 100 top hospitals programs. Just curious how that kind of fits into the -- your overall service offerings and the rationale for that deal and also how maybe bolsters some of your brands, maybe in AI, in particular, just curious to hear more about that one as well.

So Steve, as you know, over the years, one of the primary drivers of Premier is to truly differentiate our health systems by having higher quality outcomes and doing it with lower cost. I think the top hospitals program actually provides us analytics and algorithms that will be very beneficial to our health care systems in terms of understanding what high performance looks like. And we want to leverage that as we think about deploying tools and advisory services and building out those plans to help our health systems achieve some of that recognition. So it's sort of that pointing into the spear, but we do it very similarly when we think about our Contigo initiative, which is our offering to employers. We want to help our health systems actually engage more meaningfully with employers, both nationally and in their market. We want to help them participate in centers of excellence programs and those kinds of things to support big employers as they're trying to sort of change the way that health care is provided to their employee population.

Yes. And the only quick pitch color I would add on the top 100 hospitals program is it is objectively determined based on available market data. So any health care hospital, a health care provider can actually achieve that top 100. But what it does is gives us through PINC AI, the ability to actually find the key drivers to actually improve that performance and link it to actually better possibility of being recognized as a top 100 hospitals moving forward.

Yes. Okay. Maybe a final real quick question. I was kind of just thinking to myself, it's been about almost about 10 years or so since you guys came public, I think part of the reason to come public was to just have more access to capital and grow through acquisitions, especially on the health care technology side. So luckily, it's been super quiet and consistent operating environment in the last 10 years. But just given where we are today, obviously, where do things stand currently on your appetite to still focus on strategic M&A? And are you still focused more on the health care IT side of the business for those M&A dollars? And just maybe talk more about kind of what you're targeting for things to still add to the service offering.

Sure. So if I could start. So I've been in my role almost 2 years as the CEO. And I think that over that time frame, Craig and I have taken a very focused effort to really highlight the fast-growing parts of our business. So we talk at length about those adjacent businesses, clinical decision support, Contigo Health, Remitra and Life Sciences. Those are those areas of business that we think are going to -- are growing in excess of 30% to 30% or more. So as you think about where we want to deploy capital in the future, it's in those markets to help support and drive more capabilities within each of those offerings.

Yes. The only 2 quick things I would add is we're going to continue to have a balanced approach to capital deployment, so we will balance it with shareholder return. We do have our dividend in place. We'll continue to look at share repurchase where appropriate, although we don't have an authorization in effect right now. We are being measured in this capital environment in terms of how aggressive we are but do continue to look for areas to target. And the only other thing I would highlight, and I know we're running out of time. But in the supply chain side, we will also look to further improve technology enablement, particularly in the non-acute space back to the earlier commentary about seeing more growth in that part of the supply chain business.

Okay. Great. Yes. With that, I think we're out of time, maybe over a minute or 2, so I think we'll wrap it up there. So I want to thank you guys for your time today and enjoy the rest of the conference.