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

So if you had to lay out your investment thesis for someone who's likely new in the room, what would it be?

Yes. We're a very, very unique player in health care, in that obviously, we're incredibly tight with our health care systems and provide a variety of technology and services to help them drive performance improvement. And that's really a part and parcel of who we are. It's really helping our health care systems reduce the cost of the services that they're providing and prove the quality, the outcomes as well as doing it very safely. And then also building out capabilities to help them as they migrate to new miles of health care. So think about paying for [ performance ] or think about building -- continuing to build out ACOs and taking [ two-sided ] risk and all those kinds of things. So those are the core capabilities of what we've been really focused on over the years. But as part of the supply chain offering, we also have this incredible opportunity to work with our suppliers. And so the other part of where we want to continue to focus is bringing services to those suppliers. So they get the med device and the pharmaceutical companies because we do have such a vast amount of data that we can certainly provide insights that they couldn't get on their own. So I would tell you, it's where we sit in the ecosystem, what our focus is, as well as the data that we actually get access to for providing those services and then we've been talking about the technology that we've been building over the last number of years.

I'd be remiss not to say we're very profitable. We generate a lot of free cash flow, having the ability to actually return capital to shareholders and can look for opportunities to expand our capabilities that to provide more value to customers as well.

It does blow my mind, you guys are profitable, you've dividend, you have buybacks. Why don't you think people appreciate that?

I think that first, Craig and I, it's -- are continually trying to simplify this. So when I took over as the CEO, we had a whole bunch of different point solutions that sort of made up our capabilities.

I have questions that will hit on that partly.

Exactly. And our focus, though, really was how do you simplify this? And we had to simplify it for our customer base, but we took a pretty big focus on simplifying it for the market as well. And then you heard us -- you've been covering us for a while. You heard us begin to talk about enterprise agreements and enterprise licenses, those kinds of things because what we wanted to do was to create a brand of capability, PINC AI, which was really all about health care system performance, so using our data and our technology and our advisory services; really to drive health care system performance. And so we have a whole bunch of technology and a whole bunch of capabilities that go into that, but we wanted to simplify the story. And so that was the reason for the rebranding of the PINC AI. But for the health care system, the health care systems you're buying literally tens of different capabilities and technologies to help them run their health care systems more efficiently. And our focus was to say, no, no, no, what you need is you need all these capabilities. But at the end of the day, what you really need is clinical decision support and then a capability to look at how you're performing as a health care system. Those are the two primary areas that you need your data and technology around. So our focus has really been to actually simplify that message and simplify our data capabilities and technologies to have that clinical decision support capability that all those health care systems are going to need today as well as into the future.

Yes. What I would add to that because I think it's the question people in the room are going to know is we have been facing pricing pressure on our administrative fees in the Supply Chain Services part of our business. We've been transparent on that. We had a different model and value proposition historically than some of the other organizations that we compete with in the marketplace. And so we've been managing through that process. That definitely leaves some question in certain investors' minds of where does that end up and where do we wind up there. While we are not yet in a position to provide forward-looking specific guidance because we

I was going to ask...

Of course, you were. We're working through the process of thinking through our contract renewal strategies. We haven't talked about this, Stephanie, but we do have multi-decade long strategic partnership with the majority of these health systems. So we are embedded in their organizations. We are in their executive team meetings every quarter, talking about strategically where they're going. This is not your typical vendor-customer relationship, but we are facing some headwinds in terms of the profitability. Having said that, still very profitable, still free cash flow generative, still in a position to deploy capital. We have said today, the feature that we provide and for those that are new to the story, a portion of the revenue we receive for suppliers for all of the purchasing of supplies that the health care providers undertake, we give a portion of that back, call it administrative fee share. Today, we are in the mid-50s in terms of that share back. We have said we could see that into the 60s as we go through these contract renewal periods. So I think that's a headwind to some of the investor thesis also, is just seeing when that plays out. But I'll reinforce, once we're beyond that, we are still a very profitable organization with differentiated assets, incredible strategic relationships and the ability to grow from it.

So with that in mind. Right now, it's set up so these renewals go through 2027, correct?

Majority come up in June 30, 2025. Of those members that reorganized in 2020, a portion are in '26 and '27.

Why wouldn't you want to pull all that forward just as a [ start of the year ] and then just clear the air on that one?

Well, we're obviously very focused on creating shareholders [indiscernible]. And to the degree that you pull things forward in those models, you just contractually agree to programs that are in existence. And if they're going to be significantly negative impacting to our profit and EBITDA, it just makes sense to do this rationally over time as opposed to just pull [indiscernible].

Yes. I think the color I would add to that is we have been focused since we took the company public in 2013 where we historically didn't have contracts. And then we had to get all these members onto a contract and they were all renewing on a waterfall basis. We are also trying to get to a more rational contract waterfall over time by spreading when contracts come up for renewal versus having a couple of hundred large [ system ] contract renewals all hitting it.

We've got 5 minutes left. I feel like, we talk a lot about data, we talk a lot about AI. Sometimes, it is that we talk about it so much that it becomes almost meaningless.

Exactly.

Let me explain like I am 5. As you've got -- you've got Remitra, you have got Contigo, you got adjacent markets that [ are like ] -- what is it?

Okay. So it's really interesting, in that you first when you started going down talking about AI, machine learning, natural language processing, those have been the buzzwords of the day and everybody has sort of woven those into their top track.

As we have at all these meetings.

So we started down this path a number of years back. And first of all, I think everybody understands that. We're AI to be effective, the algorithms have to have a lot of data to ensure the accuracy of what they're actually producing is viable, the results that it will produce. So you need a lot of data. Premier has probably the largest data set of clinical safety in such supply data sets in the country. So very large data sets that inform these algorithms. For us as a 5-year-old, you have this thing called an electronic medical record that track everything that happens to you as you go through your [ carriage. ] There are three major EMR, electronic medical records [indiscernible]. And what we can do is when a doctor is sitting with a patient, there's unstructured text that they're writing that's happening in a procedure. And what we do is we bring context with that unstructured text. And then we're able to bring meaning that to say, all right, here's the way that we want to make sure that we can build algorithms, leveraging the information within that to do a few things. And now I'm going to answer your question very specifically. We can identify patients for trials. So we can -- looking at lab values, looking at patient status that is written within the text, the different things that are happening to that patient, we determine whether or not the patient would need somebody who would be qualified for a trial that just was launched or is in the process of being launched. Why is that so important? Well, it brings a great degree of heterogeneity -- geographic heterogeneity to trials, and that's what life sciences is all about. So that's one area of our focus, which is on life science, we're doing things around identifying patients for trial. The second is as health care [ performers ], they get reimbursed for that service from CMS usually, unless there is a technology glitch or some sort of cyber event that prevents that from happening. But sometimes a health care -- or a physician or a clinician open a document appropriately what's actually happening with that patient, and that's really important to understand because depending on the severity of the disease or depending on the comorbidities, the other issues that, that patient is facing, it could be reimbursed at different levels. And so what we can do is using more machine learning and perpetual engine, we can bring out everything that should have been coded for to ensure that these organizations are getting reimbursed appropriately. So those are two clinical areas that we're very focused on. On the supply chain side, what you talked about Remitra, it's pretty simple, actually. What we do is, if you buy something, a supplier invoices you for what you buy, what Remitra does, it -- we can make all those invoices in and understand what's happening in the health care system [indiscernible], what they are paying for the product, are they utilizing products that they thought they were using, meaning are they stocking out and people auto [indiscernible] [ private ] and you have to remember, some of these are incredibly large organizations that will figure it out the things that [ are on auto substitute ] and it will figure out a month later, 6 weeks later, and those kinds of things. What we were you able to do with Remitra is pretty much real-time to understand what the things are being invoiced and shouldn't be invoiced for. So by having all of that data [indiscernible] like price [ part ] and all those kinds of things, I know you're looking at the price, but the net of all of it is, we do think it's going to be incredibly [indiscernible] in that we pay when you [indiscernible] fees, we'd get the [indiscernible] player report, or it actually says, "This is how much we sold. This is how much administrative fees we open in that account. " What we can do, once we have all the invoice data, is flip that switch and say, "No, no, we're going to bill them because we have all the information, all the intelligence. This is what the invoice looks like, this is what the rebate looks like." So it is a total disruption of the way that the process is actually being done today.

We're over time. We have 30 seconds to tell one big takeaway that you hope they get out of the session would be?

So first...

You only have 30 seconds, you got.

No. No. So I think at the end of the day, I'll echo with Craig. We [ sit ] in an incredibly vital part of health care, health care growing type business [indiscernible] economy. We've got incredible capabilities, very unique data assets, have great services, great partnerships with our health care systems. And you've got a great business model that [indiscernible], a very high-margin business, and we're very excited about the future of the business.

All right. Well, thank you guys so much for joining. Appreciate it.