Premier Inc. Reports Fiscal 2019 First-Quarter Results

Premier Inc. (NASDAQ: PINC) today reported financial results for the fiscal 2019 first quarter ended Sept. 30, 2018.

The company adopted new revenue recognition standard ASC 606 on July 1, 2018 using the modified retrospective approach and did not restate prior periods. Accordingly, the year-over-year comparisons in this press release compare fiscal 2019 first-quarter results under ASC 606 to fiscal 2018 first-quarter results under the previous revenue recognition standard ASC 605. A reconciliation of fiscal 2019 first-quarter results from ASC 606 to ASC 605 is provided in the tables included in this press release.

Q1 2019 Highlights:

  • GAAP net revenue increased to $401.5 million from $390.6 million a year ago; Supply Chain Services segment revenue of $315.8 million increased from $305.8 million and Performance Services segment revenue of $85.7 million increased from $84.8 million.
  • GAAP net income of $82.0 million increased from $60.6 million and diluted loss per share totaled $12.80, compared with net income of $0.30 per diluted share a year ago.
  • Non-GAAP adjusted EBITDA* increased to $138.6 million from $119.2 million a year ago.
  • Non-GAAP adjusted fully distributed net income* increased to $86.9 million, representing $0.65 per diluted share, compared with $61.7 million, or $0.44 per diluted share a year ago.
  • Premier is adjusting its full fiscal-year 2019 financial guidance ranges to reflect the impact of the new revenue recognition standard ASC 606.

* Descriptions of adjusted EBITDA, adjusted fully distributed net income and other non-GAAP financial measures are provided in Use and Definition of Non-GAAP Measures, and reconciliations are provided in the tables at the end of this release.

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Premier delivered a successful fiscal first quarter, exceeding managements revenue and profit growth expectations for our individual segments and for the company as a whole under the new revenue recognition standard, said Susan DeVore, president and chief executive officer. We delivered steady revenue growth in our Supply Chain Services and Performance Services segments, driven by our group purchasing, consulting and technology businesses.

Our financial outlook for the year remains intact, DeVore said. We continue to view fiscal 2019 as a year of steady growth and are adjusting our previously issued guidance solely to reflect the impact of our adoption of the new revenue recognition standard.

We believe Premier remains uniquely well-positioned in this evolving environment as we continue to build and expand our comprehensive total-value proposition aligned with the growing needs of our healthcare providers, DeVore continued. Our strong balance sheet and cash flow allow us to continue to execute our strategies as we strive to deliver lasting value for our stockholders.

Results of Operations for the First Quarter of Fiscal 2019

 

 

Consolidated First-Quarter Financial Highlights                
  Three Months Ended September 30,  
(in thousands, except per share data) 2018 2017
 

New revenue standard

       

Previous revenue standard

 
Net Revenue (a):
Supply Chain Services:
Net administrative fees $ 162,000 $ 150,991
  Other services and support       2,344             2,149    
Services 164,344 153,140
  Products       151,470             152,662    
Total Supply Chain Services (a) 315,814 305,802
  Performance Services (a)       85,732             84,762    
  Total (a)     $ 401,546           $ 390,564    
 
Net income $ 81,973 $ 60,616
Net income (loss) attributable to stockholders $ (681,333 ) $ 336,430
Adjusted net income (loss) (b) $ (681,333 ) $ 42,460
Weighted average shares outstanding:
Basic 53,221 52,909
Diluted 53,221 140,046
Earnings (loss) per share attributable to stockholders:
Basic $ (12.80 ) $ 6.36
  Diluted (b)     $ (12.80 )         $ 0.30    
 

NON-GAAP FINANCIAL MEASURES:

 
Adjusted EBITDA (a) (c):
Supply Chain Services $ 135,403 $ 125,620
  Performance Services       30,575             21,221    
Total segment adjusted EBITDA 165,978 146,841
  Corporate       (27,357 )           (27,670 )  
  Total (a)     $ 138,621           $ 119,171    
  Adjusted fully distributed net income (c)     $ 86,895           $ 61,713    
  Earnings per share on adjusted fully distributed net income – diluted (a) (c)     $ 0.65           $ 0.44    
 
(a) Bolded measures correspond to company guidance.
 

(b) Earnings per share attributable to stockholders excludes the adjustment of redeemable limited partners capital to redemption amount and the net income attributable to non-controlling interest in Premier LP if Class B common stock is determined to be dilutive. Likewise, earnings per share attributable to stockholders includes the adjustment of redeemable limited partners capital to redemption amount and the net income attributable to non-controlling interest in Premier LP if Class B common stock is determined to be antidilutive. The company has corrected prior period information within the current period financial statements related to a specific component used in calculating the tax effect on Premier Inc. net income for purposes of diluted earnings (loss) per share. Diluted earnings (loss) per share for the first quarter of fiscal 2018 was previously stated at $0.36 per share and has been corrected to $0.30 per share. The company believes the correction is immaterial and the amount had no impact on the companys overall financial condition, results of operations or cash flows.

 
  (c) See attached supplemental financial information for reconciliation of reported GAAP results to Non-GAAP results.  
 

For the fiscal first quarter ended Sept. 30, 2018, Premier generated GAAP net revenue of $401.5 million, an increase of $10.9 million from net revenue of $390.6 million for the same period a year ago.

GAAP net income for the fiscal first quarter was $82.0 million, compared with $60.6 million a year ago. In accordance with GAAP, fiscal 2019 and 2018 first-quarter net income attributable to stockholders included non-cash adjustments of $(708.2) million and $320.4 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 shares outstanding and the companys stock price between periods and do not reflect results of the companys business operations. After these non-cash adjustments, the company reported a net loss attributable to stockholders of $681.3 million, compared with net income of $336.4 million for the same period a year ago. The first-quarter net loss of $12.80 per diluted share compared with net income of $0.30 per diluted 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 first-quarter non-GAAP adjusted EBITDA increased to $138.6 million from $119.2 million for the same period the prior year.

Non-GAAP adjusted fully distributed net income for the fiscal first quarter of $86.9 million increased $25.2 million from $61.7 million for the same period a year ago. Adjusted fully distributed earnings per share totaled $0.65, compared with $0.44 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.

Segment Results

Supply Chain Services For the fiscal first quarter ended Sept. 30, 2018, the Supply Chain Services segment net revenue of $315.8 million increased $10.0 million from $305.8 million a year ago. Net administrative fees revenue of $162.0 million increased by $11.0 million, or 7%, from the prior year primarily driven by further contract penetration of new and existing members. Net administrative fees in the fiscal 2019 first quarter under the previous revenue recognition standard totaled $146.8 million by comparison, reflecting the impact of higher cash collections and revenue recoveries in the fiscal 2018 fourth quarter as a result of an increased focus on specific timing of cash collections under the previous revenue recognition standard.

Product revenue for the fiscal first quarter totaled $151.5 million, compared with $152.7 million a year ago. Growth in oncology and respiratory-related drug revenue, as well as sales growth in the direct sourcing business, was offset by the $12.0 million impact of revenue recognition under the new standard related primarily to the companys 340B federal discount prescription drug program, and to a lesser extent to the direct sourcing business. More specifically, 340B revenue, as well as direct sourcing revenue associated with distributor fees, were historically recognized on a gross basis under the previous revenue recognition standard, but are now recognized on a net basis under the new revenue recognition standard.

Supply Chain Services segment non-GAAP adjusted EBITDA was $135.4 million for the fiscal 2019 first quarter, an increase of $9.8 million from $125.6 million for the same period a year ago. The difference was primarily driven by growth in net administrative fees revenue and lower selling, general and administrative expenses.

Performance Services For the fiscal first quarter ended Sept. 30, 2018, the Performance Services segment net revenue of $85.7 million increased $0.9 million from $84.8 million for the same quarter last year, primarily driven by cost management consulting services and applied sciences, as under the new standard revenue is now recognized proportionally to when services are provided. The growth was partially offset by a decrease in license revenue for the companys safety related technology solutions under the new standard, which shifted recognition of some licensing revenue to a point-in-time versus ratably over-the-subscription-period under the previous revenue standard. This resulted in some licensing revenue attributed to prior periods, which is reflected in accumulated deficit upon adoption of the new standard.

Performance Services segment non-GAAP adjusted EBITDA totaled $30.6 million for the fiscal 2019 first quarter, a $9.4 million increase from $21.2 million for the same quarter last year. The increase was primarily the result of higher revenue as well as diligent cost management and the continuing realization of expense savings initiatives implemented in the prior year.

Cash Flows and Liquidity

Cash provided by operating activities was $60.3 million for the fiscal first quarter ended Sept. 30, 2018, compared with $75.0 million for the same quarter last year. The decrease in cash flow from operations was primarily driven by the impact of an increase in annual incentive payments on working capital, partially offset by decreased cost of services revenue and selling, general and administrative expenses. At Sept. 30, 2018, the companys cash and cash equivalents totaled $142.4 million, compared with $152.4 million at June 30, 2018. At Sept. 30, 2018, the company had an outstanding balance of $100.0 million on its five-year $750.0 million revolving credit facility.

Non-GAAP free cash flow for the fiscal first quarter ended Sept. 30, 2018 was $1.8 million, compared with $33.4 million for the same period a year ago. The decrease in free cash flow results from the increased working capital needs, as well as growth in our internally developed software initiatives, partially offset by a decrease in distributions to limited partners. Given the companys fiscal year end in June and payment of certain expenses including annual incentives in the fiscal first quarter, free cash flow is generally lower in this period than in subsequent quarters of the fiscal year. Fiscal 2019 first-quarter free cash flow was further impacted by an $18.0 million tax receivable agreement payment to member owners, as timing of the payment shifted to July in the current year from June in previous years due to a change in the companys federal tax filing deadline. 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).

Fiscal 2019 Outlook and Guidance

Premier is adjusting its fiscal-year 2019 financial guidance ranges to reflect the impact of the adoption of the new revenue recognition standard ASC 606. All assumptions are consistent with guidance introduced August 21, 2018 under the previous revenue recognition standard, except where they have been adjusted in accordance with the new revenue recognition standard as set forth below.

Based on the new revenue recognition standard:

  • Management continues to expect low- to mid-single-digit growth in net administrative fees revenue.
  • Products revenue growth is projected at 0% to 4%, due to a $50 million gross-to- net revenue recognition adjustment.
  • Performance Services revenue is impacted by $16.0 million, including approximately $11 million due to the impact of adoption of the new standard on the safety technology business, which resulted in licensing revenue attributed to prior periods reflected in retained earnings upon adoption of the new standard, and approximately $5 million due to the impact on recognition of certain third-party reseller revenue, which was historically recognized on a gross basis and is now recognized on a net basis.
  • Non-GAAP adjusted EBITDA is impacted by $9.0 million, due to the reduction in Performance Services revenue associated with safety technology license offerings, which has a corresponding impact of $0.05 on non-GAAP adjusted fully distributed earnings per share.
  • The companys consolidated non-GAAP adjusted EBITDA margin is now expected to range from 32% to 35%, primarily as a result of the gross-to-net revenue recognition changes.
 
Fiscal 2019 Financial Guidance *
                       
Premier, Inc. adjusts full-year fiscal 2019 financial guidance under ASC 606, as follows:
 
  (in millions, except per share data)     ASC 606     Impact of ASC 606     ASC 605  
Net Revenue:
Supply Chain Services segment $1,305.0 – $1,357.0 ($50.0) $1,355.0 – $1,407.0
Performance Services segment   $350.0 – $364.0     ($16.0)     $366.0 – $380.0  
Total Net Revenue $1,655.0 – $1,721.0 ($66.0) $1,721.0 – $1,787.0
 
Non-GAAP adjusted EBITDA $550.0 – $572.0 ($9.0) $559.0 – $581.0
 
  Non-GAAP adjusted fully distributed EPS         $2.55 – $2.67         ($0.05)         $2.60 – $2.72  

* The company does not meaningfully reconcile guidance for non-GAAP adjusted EBITDA and non-GAAP adjusted fully distributed earnings per share to net income attributable to stockholders or earnings per share attributable to stockholders because the company cannot provide guidance for more significant reconciling items between net income attributable to stockholders and adjusted EBITDA and between earnings per share attributable to stockholders and non-GAAP adjusted fully distributed earnings per share without unreasonable effort. This is due to two primary reasons:

¢ Reasonable guidance cannot be provided for reconciling the adjustment of redeemable limited partners capital to redemption amount “ historically the largest adjustment in the reconciliation from non-GAAP to GAAP amounts “ due to the fact that the increase or decrease in this item is based on the change in the number of shares of Class B stock outstanding and change in stock price between quarters, which the company cannot predict, control or reasonably estimate.

 

¢ Reasonable guidance cannot be provided for earnings per share attributable to stockholders because the ongoing quarterly member-owner exchange of Class B common stock and corresponding Class B units into shares of Class A common stock impacts the number of shares of Class A common stock outstanding each quarter, which the company cannot predict, control or reasonably estimate. Member owners have the right, but not the obligation, to exchange shares on a quarterly basis, and the company has the discretion to settle any exchanged shares for Class A common stock, cash, or a combination thereof, neither of which can be predicted, controlled or reasonably estimated at this time.

 
 

Conference Call

Premier management will host a conference call and live audio webcast on Tuesday, Nov. 6, 2018, at 8:00 a.m. ET, to discuss the companys financial results. The conference call can be accessed through a link provided on the investor relations page on Premiers 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: 4293948. 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 Premiers 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 Premiers news and investor sites on www.premierinc.com; as well as Twitter, Facebook, LinkedIn, YouTube, Instagram and Premiers 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 companys 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 companys 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 companys operating performance on a consistent basis from period to period by removing the impact of the companys 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 stock and corresponding Class B units into shares of Class A common stock and other potentially dilutive equity transactions which are outside of managements 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 companys 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 segments 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 companys financial statements.

Management considers adjusted EBITDA an indicator of the operational strength and performance of the companys 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 companys 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 companys 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 Premiers use of non-GAAP financial measures is available in the Our Use of Non-GAAP Financial Measures section of Premiers Form 10-K for the year ended June 30, 2018.

Forward-Looking Statements

Statements made in this release that are not statements of historical or current facts, such as those related to expected financial performance, the impact of the new revenue recognition standards, growth trends and market uncertainty in our Supply Chain and Performance Services business segments and their respective business units, the impact of regulatory uncertainty and our ability to manage through these issues and the evolving environment, 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 Premiers beliefs and expectations as to future events and trends affecting its business and are necessarily subject to uncertainties, many of which are outside Premiers control. More information on potential factors that could affect Premiers financial results is included from time to time in the Cautionary Note Regarding Forward-Looking Statements, Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations sections of Premiers periodic and current filings with the SEC, including those discussed under the Risk Factors and Cautionary Note Regarding Forward-Looking Statements section of Premiers Form 10-K for the year ended June 30, 2018 as well as the Form 10-Q for the quarter ended September 30, 2018, expected to be filed with the SEC shortly after the date of this release, and also made available on Premiers 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.

(Tables Follow)

 
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
                               
  Three Months Ended September 30,  
2018 2018 2018 2017
 

New revenue standard

       

Impact of new revenue standard

       

Previous revenue standard

       

Previous revenue standard

 
Net revenue:
Net administrative fees $ 162,000 $ 15,184 $ 146,816 $ 150,991
  Other services and support           88,076             5,379             82,697             86,911    
Services 250,076 20,563 229,513 237,902
  Products           151,470             (11,962 )           163,432             152,662    
Net revenue 401,546 8,601 392,945 390,564
Cost of revenue:
Services 43,372 (1,933 ) 45,305 46,936
  Products           145,621             (11,371 )           156,992             144,440    
  Cost of revenue           188,993             (13,304 )           202,297             191,376    
Gross profit 212,553 21,905 190,648 199,188
Operating expenses:
Selling, general and administrative 105,870 (1,111 ) 106,981 114,321
Research and development 340 340 489
  Amortization of purchased intangible assets           13,638                         13,638             13,898    
  Operating expenses           119,848             (1,111 )           120,959             128,708    
  Operating income           92,705             23,016             69,689             70,480    
Equity in net income (loss) of unconsolidated affiliates 2,690 2,690 4,252
Interest and investment loss, net (688 ) (688 ) (1,495 )
Loss on disposal of long-lived assets (1,320 )
  Other income (expense)           (1,941 )                       (1,941 )           1,463    
  Other income (expense), net           61                         61             2,900    
Income before income taxes 92,766 23,016 69,750 73,380
  Income tax expense           10,793             1,759             9,034             12,764    
Net income 81,973 21,257 60,716 60,616
Net income attributable to non-controlling interest in Premier LP (55,113 ) (13,373 ) (41,740 ) (44,610 )
 

Adjustment of redeemable limited partners capital to redemption amount

          (708,193 )           10,572             (718,765 )           320,424    
Net income (loss) attributable to stockholders $ (681,333 ) $ 18,456 $ (699,789 ) $ 336,430
 
Calculation of GAAP Earnings (Loss) per Share
 
Numerator for basic earnings (loss) per share:
  Net income (loss) attributable to stockholders         $ (681,333 )         $ 18,456           $ (699,789 )         $ 336,430    
 
Numerator for diluted earnings (loss) per share:
Net income (loss) attributable to stockholders $ (681,333 ) $ 18,456 $ (699,789 ) $ 336,430

Adjustment of redeemable limited partners capital to redemption amount

(320,424 )
  Net income attributable to non-controlling interest in Premier LP                                               44,610    
Net income (loss) (681,333 ) 18,456 (699,789 ) 60,616
  Tax effect on Premier, Inc. net income                                               (18,156 )  
  Adjusted net income (loss)         $ (681,333 )         $ 18,456           $ (699,789 )         $ 42,460    
 
Denominator for basic earnings (loss) per share:
  Weighted average shares           53,221                         53,221             52,909    
 
Denominator for diluted earnings (loss) per share:
Weighted average shares 53,221 53,221 52,909
Effect of dilutive stock based awards 655
  Class B shares outstanding                                               86,482    
  Weighted average shares and assumed conversions           53,221                         53,221             140,046    
 
Basic earnings (loss) per share $ (12.80 ) $ 0.35 $ (13.15 ) $ 6.36
Diluted earnings (loss) per share (1) $ (12.80 ) $ 0.35 $ (13.15 ) $ 0.30
 

(1) The company has corrected prior period information within the current period financial statements related to a specific component used in calculating the tax effect on Premier Inc. net income for purposes of diluted earnings (loss) per share. Diluted earnings (loss) per share for the first quarter of fiscal 2018 was previously stated at $0.36 per share and has been corrected to $0.30 per share. The company believes the correction is immaterial and the amount had no impact on the companys overall financial condition, results of operations or cash flows.

 
 
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
                               
September 30, 2018 September 30, 2018 September 30, 2018 June 30, 2018
 

New revenue standard

       

Impact of new revenue standard

       

Previous revenue standard

       

Previous revenue standard

 
Assets
Cash and cash equivalents $ 142,422 $ $ 142,422 $ 152,386
Accounts receivable (net of $4,867 and $1,841 allowance for doubtful accounts, respectively) 182,254 (8,381 ) 190,635 185,874
Contract assets 202,961 202,961
Inventory 68,236 68,236 66,139
Prepaid expenses and other current assets 29,675 (813 ) 30,488 23,325
  Due from related parties           654                         654             894    
Total current assets 626,202 193,767 432,435 428,618
Property and equipment (net of $318,098 and $297,591 accumulated depreciation, respectively) 211,248 211,248 206,693
Intangible assets (net of $167,273 and $153,635 accumulated amortization, respectively) 308,477 308,477 322,115
Goodwill 906,545 906,545 906,545
Deferred income tax assets 301,267 (6,177 ) 307,444 305,624
Deferred compensation plan assets 43,343 43,343 44,577
Investments in unconsolidated affiliates 96,743 96,743 94,053
  Other assets           22,727             15,248             7,479             3,991    
  Total assets         $ 2,516,552           $ 202,838           $ 2,313,714           $ 2,312,216    
 

Liabilities, redeemable limited partners capital and stockholders deficit

Accounts payable $ 53,452 $ $ 53,452 $ 60,130
Accrued expenses 87,366 87,366 64,257
Revenue share obligations 119,578 50,448 69,130 78,999

Limited partners distribution payable

14,993 2,801 12,192 15,465
Accrued compensation and benefits 33,146 33,146 64,112
Deferred revenue 34,259 (1,604 ) 35,863 39,785
Current portion of tax receivable agreements 18,217 18,217 17,925
Current portion of long-term debt 101,771 101,771 100,250
  Other liabilities           7,050             1,233             5,817             7,959    
Total current liabilities 469,832 52,878 416,954 448,882
Long-term debt, less current portion 5,447 5,447 6,962
Tax receivable agreements, less current portion 225,090 225,090 237,176
Deferred compensation plan obligations 43,343 43,343 44,577
Deferred tax liabilities 21,950 4,240 17,710 17,569
  Other liabilities           68,083                         68,083             63,704    
  Total liabilities           833,745             57,118             776,627             818,870    
 

Redeemable limited partners capital

3,638,624 3,638,624 2,920,410

Stockholders deficit:

Class A common stock, $0.01 par value, 500,000,000 shares authorized; 58,077,840 shares issued and 53,790,369 shares outstanding at September 30, 2018 and 57,530,733 shares issued and 52,761,177 shares outstanding at June 30, 2018 580 580 575
Class B common stock, $0.000001 par value, 600,000,000 shares authorized; 79,519,233 and 80,335,701 shares issued and outstanding at September 30, 2018 and June 30, 2018, respectively
Treasury stock, at cost; 4,287,471 and 4,769,556 shares, respectively (136,397 ) (136,397 ) (150,058 )
Additional paid-in-capital
  Accumulated deficit           (1,820,000 )           145,720             (1,965,720 )           (1,277,581 )  
 

Total stockholders deficit

          (1,955,817 )           145,720             (2,101,537 )           (1,427,064 )  
 

Total liabilities, redeemable limited partners capital and stockholders deficit

        $ 2,516,552           $ 202,838           $ 2,313,714           $ 2,312,216    
 
 
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
                               
  Three Months Ended September 30,  
2018 2018 2018 2017
 

New revenue standard

       

Impact of new revenue standard

       

Previous revenue standard

       

Previous revenue standard

 
Operating activities
Net income $ 81,973 $ 21,257 $ 60,716 $ 60,616
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 34,145 34,145 30,405
Equity in net income of unconsolidated affiliates (2,690 ) (2,690 ) (4,252 )
Deferred income taxes 4,588 (290 ) 4,878 8,298
Stock-based compensation 6,195 6,195 8,815
Loss on disposal of long-lived assets 1,320
Changes in operating assets and liabilities:
Accounts receivable, contract assets, prepaid expenses and other current assets (41,427 ) (29,503 ) (11,924 ) (8,748 )
Other assets (2,235 ) 144 (2,379 ) 1,379
Inventories (2,097 ) (2,097 ) (7,178 )
Accounts payable, accrued expenses, deferred revenue and other current liabilities (21,776 ) 8,392 (30,168 ) (21,933 )
Long-term liabilities (14 ) (14 ) (111 )
Loss on FFF put and call rights 3,283 3,283 20
  Other operating activities           382                         382             6,402    
  Net cash provided by operating activities           60,327                         60,327             75,033    
Investing activities
  Purchases of property and equipment           (25,062 )                       (25,062 )           (16,646 )  
  Net cash used in investing activities           (25,062 )                       (25,062 )           (16,646 )  
Financing activities
Payments made on notes payable (4,974 )
Payments on credit facility (50,000 )
Proceeds from exercise of stock options under equity incentive plan 7,472 7,472 2,652
Repurchase of vested restricted units for employee tax-withholding (6,948 ) (6,948 ) (5,729 )
Distributions to limited partners of Premier LP (15,465 ) (15,465 ) (24,951 )
Payments to limited partners of Premier LP related to tax receivable agreements (17,975 ) (17,975 )
  Repurchase of Class A common stock (held as treasury stock)           (12,313 )                       (12,313 )              
  Net cash used in financing activities           (45,229 )                       (45,229 )           (83,002 )  
Net decrease in cash and cash equivalents (9,964 )

(9,964 ) (24,615 )
  Cash and cash equivalents at beginning of year           152,386            

            152,386             156,735    
  Cash and cash equivalents at end of period         $ 142,422           $

          $ 142,422           $ 132,120    
 
                 
Supplemental Financial Information
Reconciliation of Net Cash Provided by Operating Activities to Non-GAAP Free Cash Flow
(Unaudited)
(In thousands)
 
 

Three Months Ended September 30,

 
  2018         2017  
 
Net cash provided by operating activities $ 60,327 $ 75,033
Purchases of property and equipment (25,062 ) (16,646 )
Distributions to limited partners of Premier LP (15,465 ) (24,951 )
  Payments to limited partners under tax receivable agreements *           (17,975 )              
  Non-GAAP Free Cash Flow         $ 1,825           $ 33,436    
 

* The timing of the annual tax receivable agreement payments has shifted to July from June due to the change in the companys federal tax filing deadline. As a result, Premier did not make a tax receivable agreement payment in fiscal 2018, but made the payment in July and will make future annual payments in July.

 
 
Supplemental Financial Information
Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Operating Income to Segment Adjusted EBITDA
Reconciliation of Net Income Attributable to Stockholders to Non-GAAP Adjusted Fully Distributed Net Income
(Unaudited)
(In thousands)
                               
Three Months Ended September 30,
2018 2018 2018 2017

New revenue standard

Impact of new revenue standard

Previous revenue standard

Previous revenue standard

 
Net income $ 81,973 $ 21,257 $ 60,716 $ 60,616
Interest and investment loss, net 688 688 1,495
Income tax expense 10,793 1,759 9,034 12,764
Depreciation and amortization 20,507 20,507 16,507
Amortization of purchased intangible assets 13,638 13,638 13,898
EBITDA 127,599 23,016 104,583 105,280
Stock-based compensation 6,337 6,337 8,957
Acquisition related expenses 409 409 3,099
ERP implementation expenses 326 326 335
Loss on disposal of long-lived assets 1,320
Loss on FFF put and call rights 3,283 3,283 20
Other expense 667 667 160
Adjusted EBITDA $ 138,621 $ 23,016 $ 115,605 $ 119,171
 
Income before income taxes $ 92,766 $ 23,016 $ 69,750 $ 73,380
Equity in net loss (income) of unconsolidated affiliates (2,690 ) (2,690 ) (4,252 )
Interest and investment loss, net 688 688 1,495
Loss on disposal of long-lived assets 1,320
Other expense (income) 1,941 1,941 (1,463 )
Operating income 92,705 23,016 69,689 70,480
Depreciation and amortization 20,507 20,507 16,507
Amortization of purchased intangible assets 13,638 13,638 13,898
Stock-based compensation 6,337 6,337 8,957
Acquisition related expenses 409 409 3,099
ERP implementation expenses 326 326 335
Equity in net income (loss) of unconsolidated affiliates 2,690 2,690 4,252
Deferred compensation plan income 1,336 1,336 1,539
Other expense 673 673 104
Adjusted EBITDA $ 138,621 $ 23,016 $ 115,605 $ 119,171
 
Segment Adjusted EBITDA:
Supply Chain Services $ 135,403 $ 15,599 $ 119,804 $ 125,620
Performance Services 30,575 7,417 23,158 21,221
Corporate (27,357 ) (27,357 ) (27,670 )
Adjusted EBITDA $ 138,621 $ 23,016 $ 115,605 $ 119,171
 
 
Net income (loss) attributable to stockholders $ (681,333 ) $ 18,456 $ (699,789 ) $ 336,430

Adjustment of redeemable limited partners capital to redemption amount

708,193 (10,572 ) 718,765 (320,424 )
Net income attributable to non-controlling interest in Premier LP 55,113 13,373 41,740 44,610
Income tax expense 10,793 1,759 9,034 12,764
Amortization of purchased intangible assets 13,638 13,638 13,898
Stock-based compensation 6,337 6,337 8,957
Acquisition related expenses 409 409 3,099
ERP implementation expenses 326 326 335
Loss on disposal of long-lived assets 1,320
Loss on FFF put and call rights 3,283 3,283 20
Other expense 667 667 160
Non-GAAP adjusted fully distributed income before income taxes 117,426 23,016 94,410 101,169
Income tax expense on fully distributed income before income taxes 30,531 5,984 24,547 39,456
Non-GAAP Adjusted Fully Distributed Net Income $ 86,895 $ 17,032 $ 69,863 $ 61,713
 
                                 
Reconciliation of GAAP EPS to Non-GAAP EPS on Adjusted Fully Distributed Net Income
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended September 30,
2018 2018 2018 2017

New revenue standard

Impact of new revenue standard

Previous revenue standard

Previous revenue standard

 
Net income (loss) attributable to stockholders $ (681,333 ) $ 18,456 $ (699,789 ) $ 336,430

Adjustment of redeemable limited partners capital to redemption amount

708,193 (10,572 ) 718,765 (320,424 )
Net income attributable to non-controlling interest in Premier LP 55,113 13,373 41,740 44,610
Income tax expense 10,793 1,759 9,034 12,764
Amortization of purchased intangible assets 13,638 13,638 13,898
Stock-based compensation 6,337 6,337 8,957
Acquisition related expenses 409 409 3,099
ERP implementation expenses 326 326 335
Loss on disposal of long-lived assets 1,320
Loss on FFF put and call rights 3,283 3,283 20
Other expense 667 667 160
Non-GAAP adjusted fully distributed income before income taxes 117,426 23,016 94,410 101,169
Income tax expense on fully distributed income before income taxes 30,531 5,984 24,547 39,456
Non-GAAP Adjusted Fully Distributed Net Income $ 86,895 $ 17,032 $ 69,863 $ 61,713
 
Weighted Average:
Common shares used for basic and diluted earnings (loss) per share 53,221 53,221 52,909
Potentially dilutive shares 1,067 1,067 655
Conversion of Class B common units 79,794 79,794 86,482
Weighted average fully distributed shares outstanding – diluted 134,082 134,082 140,046
 
GAAP earnings (loss) per share $ (12.80 ) $ 0.35 $ (13.15 ) $ 6.36

Adjustment of redeemable limited partners capital to redemption amount

13.31 (0.20 ) 13.51 (6.05 )
Net income attributable to non-controlling interest in Premier LP 1.04 0.26 0.78 0.84
Income tax expense 0.20 0.03 0.17 0.24
Amortization of purchased intangible assets 0.26 0.26 0.26
Stock-based compensation 0.12 0.12 0.17
Acquisition related expenses 0.01 0.01 0.06
ERP implementation expenses 0.01 0.01 0.01
Loss on disposal of long-lived assets 0.02
Loss on FFF put and call rights 0.06 0.06
Other expense 0.01 0.01
Impact of corporation taxes (0.57 ) (0.11 ) (0.46 ) (0.74 )
Impact of dilutive shares (1.00 ) (0.20 ) (0.80 ) (0.73 )
Non-GAAP EPS on Adjusted Fully Distributed Net Income $ 0.65 $ 0.13 $ 0.52 $ 0.44
 

Premier Inc.
Investor Relations contact:
Jim Storey,
704-816-5958
Vice President, Investor Relations
[email protected]
or
Media
contact:
Amanda Forster, 202-897-8004
Vice President, Public
Relations
[email protected]

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