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Premier, Inc. - Quarter Report: 2019 December (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________________________________________________
FORM 10-Q
 __________________________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
Commission File Number 001-36092
 __________________________________________________________________________________________
Premier, Inc.
(Exact name of registrant as specified in its charter)
 ___________________________________________________________________________________________
Delaware
 
35-2477140
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
13034 Ballantyne Corporate Place
 
 
Charlotte,
North Carolina
 
28277
(Address of principal executive offices)
 
(Zip Code)
(704357-0022
(Registrant's telephone number, including area code)
 __________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, $0.01 Par Value
PINC
NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒     No   ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒ No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
Smaller reporting company
 
Emerging growth company
 
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No   ☒
As of January 31, 2020, there were 71,066,141 shares of the registrant's Class A common stock, par value $0.01 per share, and 50,715,564 shares of the registrant's Class B common stock, par value $0.000001 per share, outstanding.





TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements made in this Quarterly Report that are not statements of historical or current facts, such as those under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," 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 our actual results, performance or achievements to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in 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 our beliefs and expectations regarding future events and trends affecting our business and are necessarily subject to uncertainties, many of which are outside our control. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:
competition which could limit our ability to maintain or expand market share within our industry;
consolidation in the healthcare industry;
potential delays recognizing or increasing revenue if the sales cycle or implementation period takes longer than expected;
the terminability of member participation in our group purchasing organization ("GPO") programs with limited or no notice, or the failure of a significant number of members to renew their GPO participation agreements on substantially similar terms or at all;
the rate at which the markets for our software as a service ("SaaS") informatics products and services develop;
the dependency of our members on payments from third-party payers;
our reliance on administrative fees that we receive from GPO suppliers;
our ability to maintain third-party provider and strategic alliances or enter into new alliances;
our ability to timely offer new and innovative products and services;
the portion of revenues we receive from our largest members;
risks and expenses related to future acquisition opportunities and integration of acquisitions;
financial and operational risks associated with investments in or loans to businesses that we do not control, particularly early stage companies;
potential litigation;
our reliance on Internet infrastructure, bandwidth providers, data center providers and other third parties and our own systems for providing services to our users;
data loss or corruption due to failures or errors in our systems and service disruptions at our data centers, or breaches or failures of our security measures;
the financial, operational and reputational consequences of cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us or our members or other third parties;
our ability to use, disclose, de-identify or license data and to integrate third-party technologies;
our use of "open source" software;
our dependency on contract manufacturing facilities located in various parts of the world;
our ability to attract, hire, integrate and retain key personnel;
adequate protection of our intellectual property and potential claims against our use of the intellectual property of third parties;
potential sales and use tax liability in certain jurisdictions;
changes in tax laws that materially impact our tax rate, income tax expense, cash flows or tax receivable agreement ("TRA") liabilities;

3



our indebtedness and our ability to obtain additional financing on favorable terms, including our ability to renew or replace our existing long-term credit facility at maturity;
fluctuation of our quarterly cash flows, revenues and results of operations;
changes and uncertainty in the political, economic or regulatory environment affecting healthcare organizations, including with respect to the status of the Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act of 2010, collectively referred to as the "ACA"
our compliance with complex international, federal and state laws governing financial relationships among healthcare providers and the submission of false or fraudulent healthcare claims;
interpretation and enforcement of current or future antitrust laws and regulations;
compliance with complex federal and state privacy, security and breach notification laws;
compliance with current or future laws, rules or regulations adopted by the Food & Drug Administration ("FDA") applicable to our software applications that may be considered medical devices;
our holding company structure and dependence on distributions from Premier Healthcare Alliance, L.P. ("Premier LP");
different interests among our member owners or between us and our member owners;
the ability of our member owners to exercise significant control over us, including through the election of all of our directors;
our ability to comply with the NASDAQ corporate governance guidelines triggered by the loss of our "controlled company" status in a timely manner;
the terms of agreements between us and our member owners;
payments made under the TRAs to Premier LP's limited partners and our ability to realize the expected tax benefits related to the acquisition of Class B common units of Premier LP (the "Class B common units") from Premier LP's limited partners;
changes to Premier LP's allocation methods or examinations or changes in interpretation of applicable tax laws and regulations by various taxing authorities that may increase a tax-exempt limited partner's risk that some allocated income is unrelated business taxable income;
provisions in our certificate of incorporation and bylaws and the Amended and Restated Limited Partnership Agreement of Premier LP (as amended, the "LP Agreement") and provisions of Delaware law that discourage or prevent strategic transactions, including a takeover of us;
failure to maintain an effective system of internal controls over financial reporting or an inability to remediate any weaknesses identified and the related costs of remediation;
the number of shares of Class A common stock that will be eligible for sale or exchange in the near future and the dilutive effect of such issuances;
our lack of current plans to pay cash dividends on our Class A common stock;
the timing and number of shares of Class A common stock re-purchased by the Company pursuant to our current or any future Class A common stock repurchase program;
possible future issuances of common stock, preferred stock, limited partnership units or debt securities and the dilutive effect of such issuances; and
the risk factors discussed under the heading "Risk Factors" under Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (the "2019 Annual Report"), filed with the Securities and Exchange Commission ("SEC").
More information on potential factors that could affect our 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" or similarly captioned sections of this Quarterly Report and our other periodic and current filings made from time to time with the SEC, which are available on our website at http://investors.premierinc.com/. You should not place undue reliance on any of our forward-looking statements which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Furthermore, we cannot guarantee future results, events, levels of activity, performance or achievements.

4



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PREMIER, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
 
December 31, 2019
June 30, 2019
Assets
 
 
Cash and cash equivalents
$
111,570

$
141,055

Accounts receivable (net of $680 and $739 allowance for doubtful accounts, respectively)
166,907

168,115

Contract assets
214,904

205,509

Inventory
52,713

51,032

Prepaid expenses and other current assets
28,718

23,765

Current assets of discontinued operations

24,568

Total current assets
574,812

614,044

Property and equipment (net of $408,995 and $359,235 accumulated depreciation, respectively)
199,970

205,108

Intangible assets (net of $219,921 and $197,858 accumulated amortization, respectively)
249,386

270,722

Goodwill
906,928

880,709

Deferred income tax assets
428,174

422,014

Deferred compensation plan assets
47,588

45,466

Investments in unconsolidated affiliates
116,200

99,636

Operating lease right-of-use asset
58,385


Other assets
34,719

31,868

Total assets
$
2,616,162

$
2,569,567

 
 
 
Liabilities, redeemable limited partners' capital and stockholders' deficit
 
 
Accounts payable
$
53,265

$
54,540

Accrued expenses
82,493

82,476

Revenue share obligations
146,243

137,359

Limited partners' distribution payable
12,689

13,202

Accrued compensation and benefits
39,910

70,799

Deferred revenue
32,539

35,623

Current portion of tax receivable agreements
18,118

17,505

Current portion of long-term debt
50,739

27,608

Other liabilities
13,531

7,113

Current liabilities of discontinued operations
715

11,797

Total current liabilities
450,242

458,022

Long-term debt, less current portion
6,834

6,003

Tax receivable agreements, less current portion
321,507

326,607

Deferred compensation plan obligations
47,588

45,466

Deferred tax liabilities
14,078

4,766

Operating lease liability, less current portion
54,232


Other liabilities
50,194

67,683

Total liabilities
944,675

908,547

 
 
 

5



 
December 31, 2019
June 30, 2019
Redeemable limited partners' capital
2,104,367

2,523,270

Stockholders' deficit:
 
 
Class A common stock, $0.01 par value, 500,000,000 shares authorized; 66,870,026 shares issued and 66,189,222 shares outstanding at December 31, 2019 and 64,357,305 shares issued and 61,938,157 shares outstanding at June 30, 2019
669

644

Class B common stock, $0.000001 par value, 600,000,000 shares authorized; 55,581,646 and 64,548,044 shares issued and outstanding at December 31, 2019 and June 30, 2019, respectively


Treasury stock, at cost; 680,804 and 2,419,148 shares at December 31, 2019 and June 30, 2019, respectively
(23,718
)
(87,220
)
Additional paid-in-capital


Accumulated deficit
(409,831
)
(775,674
)
Total stockholders' deficit
(432,880
)
(862,250
)
Total liabilities, redeemable limited partners' capital and stockholders' deficit
$
2,616,162

$
2,569,567

See accompanying notes to the unaudited condensed consolidated financial statements.

6



PREMIER, INC.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Net revenue:
 
 
 
 
Net administrative fees
$
172,114

$
165,695

$
344,517

$
327,695

Other services and support
89,452

97,680

171,338

184,623

Services
261,566

263,375

515,855

512,318

Products
58,040

44,214

106,161

87,873

Net revenue
319,606

307,589

622,016

600,191

Cost of revenue:
 

 
 
Services
47,422

43,189

94,958

86,561

Products
52,819

44,762

96,294

84,529

Cost of revenue
100,241

87,951

191,252

171,090

Gross profit
219,365

219,638

430,764

429,101

Operating expenses:
 
 
 
 
Selling, general and administrative
86,093

105,345

200,022

206,862

Research and development
801

292

1,180

632

Amortization of purchased intangible assets
11,938

13,238

24,982

26,215

Operating expenses
98,832

118,875

226,184

233,709

Operating income
120,533

100,763

204,580

195,392

Equity in net income of unconsolidated affiliates
2,989

1,444

6,596

4,134

Interest and investment (loss) income, net
(359
)
(859
)
117

(1,547
)
Gain on FFF put and call rights
30,222

10,850

22,383

7,567

Other income (expense)
2,747

(3,651
)
3,009

(2,309
)
Other income, net
35,599

7,784

32,105

7,845

Income before income taxes
156,132

108,547

236,685

203,237

Income tax expense
64,557

2,736

74,171

14,054

Net income from continuing operations
91,575

105,811

162,514

189,183

Income (loss) from discontinued operations, net of tax
614

(1,000
)
1,004

(2,399
)
Net income
92,189

104,811

163,518

186,784

Net income from continuing operations attributable to noncontrolling interest
(55,424
)
(63,150
)
(97,134
)
(119,095
)
Net (income) loss from discontinued operations attributable to noncontrolling interest
(280
)
519

(477
)
1,351

Net income attributable to non-controlling interest in Premier LP
(55,704
)
(62,631
)
(97,611
)
(117,744
)
Adjustment of redeemable limited partners' capital to redemption amount
(480,153
)
651,709

214,156

(56,484
)
Net (loss) income attributable to stockholders
$
(443,668
)
$
693,889

$
280,063

$
12,556

 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
Basic
64,552

59,876

63,668

56,548

Diluted
64,552

133,672

124,831

57,584

 
 
 
 
 
(Loss) earnings per share attributable to stockholders:
 
 
 
 
Basic (loss) earnings per share
 
 
 
 

7



 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Continuing operations
$
(6.88
)
$
11.60

$
4.39

$
0.24

Discontinued operations
0.01

(0.01
)
0.01

(0.02
)
Basic (loss) earnings per share attributable to stockholders
$
(6.87
)
$
11.59

$
4.40

$
0.22

 
 
 
 
 
Diluted (loss) earnings per share
 
 
 
 
Continuing operations
$
(6.88
)
$
0.70

$
1.12

$
0.24

Discontinued operations
0.01

(0.01
)
0.01

(0.02
)
Diluted (loss) earnings per share attributable to stockholders
$
(6.87
)
$
0.69

$
1.13

$
0.22

See accompanying notes to the unaudited condensed consolidated financial statements.

8



PREMIER, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Net income
$
92,189

$
104,811

$
163,518

$
186,784

Less: comprehensive income attributable to non-controlling interest
(55,704
)
(62,631
)
(97,611
)
(117,744
)
Comprehensive income attributable to stockholders
$
36,485

$
42,180

$
65,907

$
69,040

See accompanying notes to the unaudited condensed consolidated financial statements.

9



PREMIER, INC.
Condensed Consolidated Statement of Stockholders' Deficit
Six Months Ended December 31, 2019
(Unaudited)
(In thousands)
 
Class A
Common Stock
Class B
Common Stock
Treasury Stock
Additional Paid-In Capital
Accumulated Deficit
Total Stockholders' Deficit
 
Shares
Amount
Shares
Amount
Shares
Amount
Balance at June 30, 2019
61,938

$
644

64,548

$

2,419

$
(87,220
)
$

$
(775,674
)
$
(862,250
)
Balance at July 1, 2019
61,938

644

64,548


2,419

(87,220
)

(775,674
)
(862,250
)
Impact of change in accounting principle







(899
)
(899
)
Adjusted balance at July 1, 2019
61,938

644

64,548


2,419

(87,220
)

(776,573
)
(863,149
)
Exchange of Class B units for Class A common stock by member owners
1,311


(1,311
)

(1,311
)
47,258

3,534


50,792

Redemption of limited partners


(782
)






Increase in additional paid-in capital related to departures and quarterly exchange by member owners, including associated TRA revaluation






12,272


12,272

Issuance of Class A common stock under equity incentive plan
485

5





1,749


1,754

Treasury stock
(1,055
)



1,055

(35,649
)


(35,649
)
Stock-based compensation expense






3,704


3,704

Repurchase of vested restricted units for employee tax-withholding






(8,311
)

(8,311
)
Net income







71,329

71,329

Net income attributable to non-controlling interest in Premier LP







(41,907
)
(41,907
)
Adjustment of redeemable limited partners' capital to redemption amount






(12,948
)
707,257

694,309

Balance at September 30, 2019
62,679

$
649

62,455

$

2,163

$
(75,611
)
$

$
(39,894
)
$
(114,856
)
Exchange of Class B units for Class A common stock by member owners
6,873

19

(6,873
)

(5,031
)
164,810

59,117


223,946

Increase in additional paid-in capital related to departure and quarterly exchange by member owners, including associated TRA revaluation






1,103


1,103

Issuance of Class A common stock under equity incentive plan
146

1





4,243


4,244

Issuance of Class A common stock under employee stock purchase plan
40






1,540


1,540

Treasury stock
(3,549
)



3,549

(112,917
)


(112,917
)
Stock-based compensation expense






7,775


7,775

Repurchase of vested restricted units for employee tax-withholding






(47
)

(47
)
Net income







92,189

92,189

Net income attributable to non-controlling interest in Premier LP







(55,704
)
(55,704
)
Adjustment of redeemable limited partner's capital to redemption amount






(73,731
)
(406,422
)
(480,153
)
Balance at December 31, 2019
66,189

$
669

55,582

$

681

$
(23,718
)
$

$
(409,831
)
$
(432,880
)
See accompanying notes to the unaudited condensed consolidated financial statements.

10



PREMIER, INC.
Condensed Consolidated Statement of Stockholders' Deficit
Six Months Ended December 31, 2018
(Unaudited)
(In thousands)
 
Class A
Common Stock
Class B
Common Stock
Treasury Stock
Additional Paid-In Capital
Accumulated Deficit
Total Stockholders' Deficit
 
Shares
Amount
Shares
Amount
Shares
Amount
Balance at June 30, 2018
52,761

$
575

80,336

$

4,769

$
(150,058
)
$

$
(1,277,581
)
$
(1,427,064
)
Balance at July 1, 2018
52,761

575

80,336


4,769

(150,058
)

(1,277,581
)
(1,427,064
)
Impact of change in accounting principle







121,945

121,945

Adjusted balance at July 1, 2018
52,761

$
575

80,336

$

4,769

$
(150,058
)
$

$
(1,155,636
)
$
(1,305,119
)
Exchange of Class B units for Class A common stock by member owners
817


(817
)

(817
)
25,974

4,562


30,536

Increase in additional paid-in capital related to quarterly exchange by member owners, including associated TRA revaluation






373


373

Issuance of Class A common stock under equity incentive plan
547

5





7,467


7,472

Treasury stock
(335
)



335

(12,313
)


(12,313
)
Stock-based compensation expense






6,195


6,195

Repurchase of vested restricted units for employee tax-withholding






(6,948
)

(6,948
)
Net income







81,973

81,973

Net income attributable to non-controlling interest in Premier LP







(55,113
)
(55,113
)
Adjustment of redeemable limited partners' capital to redemption amount






(11,649
)
(696,544
)
(708,193
)
Balance at September 30, 2018
53,790

$
580

79,519

$

4,287

$
(136,397
)
$

$
(1,825,320
)
$
(1,961,137
)
Exchange of Class B units for Class A common stock by member owners
9,807

55

(9,807
)

(4,287
)
136,397

304,892


441,344

Redemption of limited partners


(227
)






Increase in additional paid-in capital related to quarterly exchange
by member owners, including associated TRA revaluation






14,379


14,379

Issuance of Class A common stock under equity incentive plan
187

3





4,648


4,651

Issuance of Class A common stock under employee stock purchase plan
38






1,488


1,488

Treasury stock
(2,535
)



2,535

(97,199
)


(97,199
)
Stock-based compensation expense






7,716


7,716

Repurchase of vested restricted units for employee tax-withholding






(1,082
)

(1,082
)
Net income







104,811

104,811

Net income attributable to non-controlling interest in Premier LP







(62,631
)
(62,631
)
Adjustment of redeemable limited partner's capital to redemption amount






(332,041
)
983,750

651,709

Balance at December 31, 2018
61,287

$
638

69,485

$

2,535

$
(97,199
)
$

$
(799,390
)
$
(895,951
)
See accompanying notes to the unaudited condensed consolidated financial statements.

11



PREMIER, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
Six Months Ended December 31,
 
2019
2018
Operating activities
 
 
Net income
$
163,518

$
186,784

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
(Income) loss from discontinued operations, net of tax
(1,004
)
2,399

Depreciation and amortization
74,895

67,947

Equity in net income of unconsolidated affiliates
(6,596
)
(4,134
)
Deferred income taxes
53,368

4,100

Stock-based compensation
11,479

13,687

Remeasurement of tax receivable agreement liabilities
(23,682
)

Gain on FFF put and call rights
(22,383
)
(7,567
)
Changes in operating assets and liabilities:
 
 
Accounts receivable, inventories, prepaid expenses and other assets
(5,752
)
(14,708
)
Contract assets
(9,346
)
(38,570
)
Accounts payable, accrued expenses, deferred revenue, revenue share obligations and other liabilities
(20,447
)
(150
)
Other operating activities
2,971

407

Net cash provided by operating activities from continuing operations
217,021

210,195

Net cash provided by operating activities from discontinued operations
10,028

2,114

Net cash provided by operating activities
227,049

212,309

Investing activities
 
 
Purchases of property and equipment
(44,768
)
(47,109
)
Acquisition of Stanson Health, Inc., net of cash acquired

(50,926
)
Acquisition of Medpricer.com, Inc., net of cash acquired
(34,727
)

Investments in unconsolidated affiliates
(10,165
)

Proceeds from sale of assets
3,632


Other investing activities
251

(8,500
)
Net cash used in investing activities from continuing operations
(85,777
)
(106,535
)
Net cash used in investing activities from discontinued operations

(180
)
Net cash used in investing activities
(85,777
)
(106,715
)
Financing activities
 
 
Payments made on notes payable
(2,045
)

Redemption of limited partner of Premier LP

(256
)
Proceeds from credit facility
125,000


Payments on credit facility
(100,000
)

Proceeds from exercise of stock options under equity incentive plan
5,998

12,123

Proceeds from issuance of Class A common stock under employee stock purchase plan
1,540

1,488

Repurchase of vested restricted units for employee tax-withholding
(8,358
)
(8,030
)
Distributions to limited partners of Premier LP
(26,901
)
(30,458
)
Payments to limited partners of Premier LP related to tax receivable agreements
(17,425
)
(17,975
)
Repurchase of Class A common stock (held as treasury stock)
(148,566
)
(104,288
)
Net cash used in financing activities
(170,757
)
(147,396
)
Net decrease in cash and cash equivalents
(29,485
)
(41,802
)

12



 
Six Months Ended December 31,
 
2019
2018
Cash and cash equivalents at beginning of year
141,055

152,386

Cash and cash equivalents at end of period
$
111,570

$
110,584

 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
(Decrease) increase in redeemable limited partners' capital for adjustment to fair value, with offsetting (increase) decrease in additional paid-in-capital and accumulated deficit
$
(214,156
)
$
56,484

Decrease in redeemable limited partners' capital, with offsetting increase in common stock and additional paid-in capital related to quarterly exchanges by member owners
(274,738
)
(471,880
)
Decrease in redeemable limited partners' capital for limited partners' distribution payable
(26,388
)
(29,281
)
Distributions utilized to reduce subscriptions, notes, interest and accounts receivable from member owners
139

853

Net increase in deferred tax assets related to departures and quarterly exchanges by member owners and other adjustments
49,631

100,749

Net increase in tax receivable agreement liabilities related to departures and quarterly exchanges by member owners and other adjustments
(36,620
)
(85,997
)
Net decrease in notes payable related to departures and quarterly exchanges by member owners and other adjustments
364


Net increase in additional paid-in capital related to departures and quarterly exchanges by member owners and other adjustments
(13,375
)
(14,752
)
Increase in treasury stock related to a payable as a result of applying trade date accounting when recording the repurchase of Class A common stock

(5,224
)
Contingent consideration for acquisition of Medpricer.com, Inc.
3,781


See accompanying notes to the unaudited condensed consolidated financial statements.

13



PREMIER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Organization
Premier, Inc. ("Premier" or the "Company") is a publicly-held, for-profit Delaware corporation owned by public stockholders and by hospitals, health systems and other healthcare organizations (such owners of Premier are referred to herein as "member owners") located in the United States. The Company is a holding company with no material business operations of its own. The Company's primary asset is its equity interest in its wholly-owned subsidiary Premier Services, LLC, a Delaware limited liability company ("Premier GP"). Premier GP is the sole general partner of Premier Healthcare Alliance, L.P. ("Premier LP"), a California limited partnership. The Company conducts substantially all of its business operations through Premier LP and its other consolidated subsidiaries. The Company, together with its subsidiaries and affiliates, is a leading healthcare performance improvement company that unites hospitals, health systems, physicians and other healthcare providers to improve and innovate in the clinical, financial and operational areas of their businesses to meet the demands of a rapidly evolving healthcare industry.
The Company's business model and solutions are designed to provide its members access to scale efficiencies, spread the cost of their development, provide actionable intelligence derived from anonymized data in the Company's data warehouse, mitigate the risk of innovation and disseminate best practices to help the Company's member organizations succeed in their transformation to higher quality and more cost-effective healthcare.
The Company, together with its subsidiaries and affiliates, delivers its integrated platform of solutions through two business segments: Supply Chain Services and Performance Services. See Note 17 - Segments for further information related to the Company's reportable business segments. The Supply Chain Services segment includes one of the largest healthcare group purchasing organization ("GPO") programs in the United States and direct sourcing activities. The Performance Services segment, through its development, integration and delivery of technology with wrap-around service offerings, includes one of the largest informatics and consulting services businesses in the United States focused on healthcare providers. The Company's software as a service ("SaaS") informatics products utilize the Company's comprehensive data set to provide actionable intelligence to its members, enabling them to benchmark, analyze and identify areas of improvement across the three main categories of cost management, quality and safety, and value-based care. While leveraging these tools, the Company also combines its consulting services and technology-enabled performance improvement collaboratives to provide a more comprehensive and holistic customer value proposition and overall experience. The Performance Services segment also includes the Company's insurance management services.
Acquisitions and Divestitures
Acquisition of Medpricer
On October 28, 2019, the Company, through its consolidated subsidiary, Premier Supply Chain Improvement, Inc. ("PSCI"), acquired all of the outstanding capital stock in Medpricer.com, Inc. ("Medpricer") for an adjusted purchase price of $38.5 million with borrowings under the Company's Credit Facility (as defined in Note 9 - Debt). Medpricer is a SaaS-based provider of technology solutions that enable hospitals and other organizations to analyze, benchmark and source purchased services contracts independent of any existing GPO affiliation. Medpricer is reported as part of the Supply Chain Services segment. See Note 3 - Business Acquisitions for further information.
Acquisition of Stanson
On November 9, 2018, the Company, through its consolidated subsidiary Premier Healthcare Solutions, Inc. ("PHSI"), acquired all of the outstanding capital stock in Stanson Health, Inc. ("Stanson") through a reverse subsidiary merger transaction for an adjusted purchase price of $55.4 million in cash. Stanson is a SaaS-based provider of clinical decision support tools that are integrated directly into the electronic health record workflow to help provide real-time, patient-specific best practices at the point of care. Stanson is reported as part of the Performance Services segment. See Note 3 - Business Acquisitions for further information.
Divestiture of Specialty Pharmacy Business - Discontinued Operations
On June 7, 2019, the Company and its consolidated subsidiaries, NS3 Health, LLC, Commcare Pharmacy - FTL, LLC, and Acro Pharmaceutical Services LLC completed the sale of prescription files and records and certain other assets used in the Company's specialty pharmacy business to ProCare Pharmacy, L.L.C., an affiliate of CVS Health Corporation, for $22.3 million. The Company also received $7.6 million related to the sale of a portion of its pharmaceutical inventory on June 10, 2019, and an additional $3.6 million on July 24, 2019 primarily in connection with the sale of its remaining pharmaceutical inventory. In addition, during the

14



six months ended December 31, 2019, the Company substantially completed the wind down and exit from the specialty pharmacy business. See Note 4 - Discontinued Operations and Exit Activities for further information.
The Company met the criteria for classifying certain assets and liabilities of the specialty pharmacy business as a discontinued operation as of June 30, 2019. Accordingly, unless otherwise indicated, information in the notes to the condensed consolidated financial statements has been retrospectively adjusted to reflect continuing operations for all periods presented.
Company Structure
The Company, through Premier GP, held an approximate 54% and 49% sole general partner interest in Premier LP at December 31, 2019 and June 30, 2019, respectively. In addition to their equity ownership interest in the Company, the member owners held an approximate 46% and 51% limited partner interest in Premier LP at December 31, 2019 and June 30, 2019, respectively. As a result of exchanges under an exchange agreement entered into by the member owners in connection with the completion of the Company's initial public offering on October 1, 2013 (the "Exchange Agreement"), as of July 31, 2019, the Class A common stock and Class B common stock represented approximately 50.2% and 49.8% respectively, of the Company's combined Class A and Class B common stock and accordingly, the Class B common stock held by member owners no longer represented the majority of the Company's outstanding common stock. On July 31, 2019, as a result of the Class B common unit exchange process, the Company no longer qualified for the "controlled company" exemption under NASDAQ rules and must comply with all general NASDAQ rules regarding board and committee composition by July 31, 2020. In anticipation of the change in controlled company status, the Company has been planning for this evolution and expects to comply with all NASDAQ rules in a timely manner, including having a majority of independent directors on the Board of Directors by July 31, 2020.
Basis of Presentation and Consolidation
Basis of Presentation
The member owners' interest in Premier LP is reflected as redeemable limited partners' capital in the Company's accompanying Condensed Consolidated Balance Sheets, and the limited partners' proportionate share of income in Premier LP is reflected within net income attributable to non-controlling interest in Premier LP in the Company's accompanying Condensed Consolidated Statements of Income and within comprehensive income attributable to non-controlling interest in Premier LP in the Company's accompanying Condensed Consolidated Statements of Comprehensive Income.
At December 31, 2019 and June 30, 2019, the member owners owned approximately 46% and 51%, respectively, of the Company's combined Class A and Class B common stock through their ownership of Class B common stock. During the six months ended December 31, 2019, the member owners exchanged approximately 8.2 million Class B common units and associated Class B common shares for an equal number of Class A common shares pursuant to the Exchange Agreement. The Exchange Agreement provides each member owner the cumulative right to exchange up to one-seventh of its initial allocation of Class B common units, as well as any additional Class B common units purchased by such member owner pursuant to certain rights of first refusal, for shares of Class A common stock (on a one-for-one basis subject to customary adjustments for subdivisions or combinations by split, reverse split, distribution, reclassification, recapitalization or otherwise), cash or a combination of both, the form of consideration to be at the discretion of the Company's independent Audit and Compliance Committee of the Board of Directors (the "Audit and Compliance Committee"). During the six months ended December 31, 2019, approximately 8.2 million Class B common units were contributed to Premier LP, converted to Class A common units and remain outstanding. Correspondingly, approximately 8.2 million Class B common shares were retired during the same period. For further information, see Note 12 - Earnings (Loss) Per Share.
At December 31, 2019 and June 30, 2019, the public investors, which may include member owners that have received shares of Class A common stock in connection with previous exchanges of their Class B common units and associated Class B common shares, owned approximately 54% and 49%, respectively, of the Company's outstanding common stock through their ownership of Class A common stock.
Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC and in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Company exercised control and when applicable, entities for which the Company had a controlling financial interest or was the primary beneficiary. All intercompany transactions have been eliminated upon consolidation. Accordingly, certain information and disclosures normally included in annual financial statements have been condensed or omitted. The accompanying condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring adjustments. The Company believes that the

15



disclosures are adequate to make the information presented not misleading and should be read in conjunction with the audited consolidated financial statements and related footnotes contained in the 2019 Annual Report.
Variable Interest Entities
Premier LP is a variable interest entity ("VIE") as the limited partners do not have the ability to exercise a substantive removal right with respect to the general partner. The Company, through Premier GP, has the exclusive power and authority to manage the business and affairs of Premier LP, to make all decisions with respect to driving the economic performance of Premier LP, and has both an obligation to absorb losses and a right to receive benefits. As such, the Company is the primary beneficiary of the VIE and consolidates the operations of Premier LP under the Variable Interest Model.
The assets and liabilities of Premier LP at December 31, 2019 and June 30, 2019, including assets and liabilities of discontinued operations, consisted of the following (in thousands):
 
December 31, 2019
June 30, 2019
Assets
 
 
Current
$
565,111

$
603,390

Noncurrent
1,613,839

1,536,685

Total assets of Premier LP
$
2,178,950

$
2,140,075

 
 
 
Liabilities
 
 
Current
$
515,357

$
517,616

Noncurrent
157,733

118,032

Total liabilities of Premier LP
$
673,090

$
635,648


Net income attributable to Premier LP, including income and expense that has been classified as discontinued operations, during the three and six months ended December 31, 2019 and 2018 was as follows (in thousands):
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Premier LP net income
$
122,105

$
118,783

$
206,245

$
211,045

Premier LP's cash flows, including cash flows attributable to discontinued operations, for the six months ended December 31, 2019 and 2018 consisted of the following (in thousands):
 
Six Months Ended December 31,
 
2019
2018
Net cash provided by (used in):
 
 
Operating activities
$
220,864

$
227,404

Investing activities
(85,777
)
(106,715
)
Financing activities
(160,872
)
(143,017
)
Net decrease in cash and cash equivalents
(25,785
)
(22,328
)
Cash and cash equivalents at beginning of year
131,210

117,741

Cash and cash equivalents at end of period
$
105,425

$
95,413


Use of Estimates in the Preparation of Financial Statements
The preparation of the Company's condensed consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Significant estimates are evaluated on an ongoing basis, including estimates for net administrative fees revenue, other services and support revenue, contract assets, deferred revenue, contract costs, allowances for doubtful accounts, useful lives of property and equipment, stock-based compensation, payables under tax receivable agreements ("TRA"), deferred tax balances including valuation allowances on deferred tax assets, uncertain tax positions, values of investments not publicly traded, projected future cash flows used in the evaluation of asset impairments, values of put and call rights, values of earn-out

16



liabilities and the allocation of purchase prices. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
(2) SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the Company's significant accounting policies as described in the 2019 Annual Report, except as described below.
Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), ("ASU 2016-12"), which increases transparency and comparability by requiring the recognition of lease assets and lease liabilities on the balance sheet, as well as requiring the disclosure of key information about leasing arrangements. The Company adopted ASU No. 2016-02 on July 1, 2019 on a modified retrospective basis under the optional transition method. Therefore, comparative periods are presented in accordance with Accounting Standards Codification ("ASC") Topic 840. Additionally, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to carry forward (1) historical lease classification and assessments for expired and existing leases, and (2) historical accounting for initial direct costs for existing leases. The Company elected not to recognize any operating lease right-of-use assets or operating lease liabilities for any lease whose term is 12 months or less and does not include a purchase option that the Company is reasonably certain to exercise. The Company also elected to account for the non-lease components within its leases as part of the single lease component to which they are related. Refer to "Adoption of ASC Topic 842" for additional information on the impact of the adoption of ASC Topic 842.
Recently Issued Accounting Standards Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, Intangibles- Goodwill and Other- Internal Use Software (Topic 350): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, ("ASU 2018-15"), which requires customers in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal use software guidance in ASC 350-40 to determine which implementation costs to capitalize or expense. ASU 2018-15 will be effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted including adoption in interim periods. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement, ("ASU 2018-13"), which improves the effectiveness of fair value measurement disclosures by eliminating, adding and modifying certain disclosure requirements for fair value measurements as part of its disclosure framework project. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 will be effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments and the timing of when such losses are recorded. ASU 2016-13, will be effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new standard, but does not expect the adoption to have a material impact on its consolidated financial statements and disclosures.
Adoption of ASC Topic 842
As a result of adopting ASC Topic 842, the Company's accounting policies and condensed consolidated financial statements were updated as follows:
The Company enters into lease contracts in which the Company is the lessee, substantially all of which are related to office space leased in various buildings used for general corporate purposes. The terms of these non-cancelable operating leases typically require the Company to pay rent and a share of operating expenses and real estate taxes, generally with an inflation-based rent increase included. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

17



Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term beginning at the commencement date. Operating lease right-of-use assets are adjusted for lease incentives, deferred rent and initial direct costs, if incurred. The Company's leases generally do not include an implicit rate; therefore, the Company determined the present value of future minimum lease payments using an incremental borrowing rate based on information available as of July 1, 2019, the transition date. The related lease expense is recognized on a straight-line basis over the lease term.
The following tables summarize the impacts of adopting ASC Topic 842 on the Condensed Consolidated Balance Sheets (in thousands). See Note 16 - Commitments and Contingencies for further information.
 
June 30, 2019
As presented
Impact of ASC Topic 842
July 1, 2019
Adjusted
Intangible assets, net (a)
$
270,722

$
(8,474
)
$
262,248

Deferred income tax assets
$
422,014

$
302

$
422,316

Operating lease right-of-use assets
$

$
62,642

$
62,642

Total assets
$
2,569,567

$
54,470

$
2,624,037

 
 
 

Other current liabilities
$
7,113

$
7,661

$
14,774

Current liabilities of discontinued operations
$
11,797

$
1,200

$
12,997

Operating lease liabilities
$

$
58,596

$
58,596

Other long-term liabilities
$
67,683

$
(12,088
)
$
55,595

Total liabilities
$
908,547

$
55,369

$
963,916

 
 
 

Accumulated deficit (b)
$
(775,674
)
$
(899
)
$
(776,573
)
Total liabilities and equity
$
2,569,567

$
54,470

$
2,624,037

(a)
The Company reclassified a favorable lease commitment, which was recorded within intangible assets, net in the Consolidated Balance Sheets as of June 30, 2019, to operating lease right-of-use assets as part of the adoption of ASC Topic 842.
(b)
The Company recognized a non-cash impairment charge of $1.2 million ($0.9 million net of deferred tax impact), which was recorded as an adjustment to the opening balance of equity at July 1, 2019. The impairment charge was related to operating lease right-of-use assets of the specialty pharmacy business, which is classified as a discontinued operation.
(3) BUSINESS ACQUISITIONS
Acquisition of Medpricer
On October 28, 2019, the Company, through its consolidated subsidiary PSCI, acquired all of the outstanding capital stock in Medpricer for an adjusted purchase price of $38.5 million. The acquisition was funded with borrowings under the Company's Credit Facility.
The acquisition provides the sellers an earn-out opportunity of up to $5.0 million based on Medpricer's achievement of a revenue target for the calendar year ended December 31, 2020. As of December 31, 2019, the fair value of the earn-out liability was $3.8 million (see Note 6 - Fair Value Measurements).
The Company has accounted for the Medpricer acquisition as a business combination whereby the purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their fair values. Total fair value assigned to intangible assets acquired was $12.1 million, primarily comprised of developed software technology. The initial purchase price allocation for the Company's acquisition of Medpricer is preliminary and subject to changes in fair value of working capital and valuation of the assets acquired and the liabilities assumed.
The Medpricer acquisition resulted in the recognition of $26.2 million of goodwill attributable to the anticipated profitability of Medpricer. The Medpricer acquisition was considered a stock purchase for tax purposes and accordingly, the goodwill is not deductible for tax purposes.
Pro forma results of operations for the acquisition have not been presented because the effects on revenue and net income were not material to the Company's historic consolidated financial statements. The Company reports Medpricer as part of its Supply Chain Services segment.

18



Acquisition of Stanson
On November 9, 2018, the Company, through its consolidated subsidiary PHSI, acquired all of the outstanding capital stock in Stanson through a reverse subsidiary merger transaction for an adjusted purchase price of $55.4 million. The acquisition was funded with cash on hand.
The acquisition provides the sellers and certain employees an earn-out opportunity of up to $15.0 million based on Stanson's successful commercial delivery of a SaaS tool on or prior to March 31, 2020, achievement of certain development milestones on or prior to December 31, 2020 and achievement of a revenue target for the calendar year ended December 31, 2020. As of December 31, 2019, the fair value of the earn-out liability was $9.6 million (see Note 6 - Fair Value Measurements).
The Company has accounted for the Stanson acquisition as a business combination whereby the purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their fair values. Total fair value assigned to the intangible assets acquired was $23.6 million, primarily comprised of developed software technology.
The Stanson acquisition resulted in the recognition of $37.5 million of goodwill (see Note 8 - Goodwill and Intangible Assets) attributable to the anticipated profitability of Stanson. The Stanson acquisition was considered a stock purchase for tax purposes and accordingly, the goodwill is not deductible for tax purposes.
Pro forma results of operations for the acquisition have not been presented because the effects on revenue and net income were not material to the Company's historic consolidated financial statements. The Company reports Stanson as part of its Performance Services segment.
(4) DISCONTINUED OPERATIONS AND EXIT ACTIVITIES
In connection with the sale of certain assets and wind down and exit from the specialty pharmacy business (see Note 1 - Organization and Basis of Presentation), the Company met the criteria for classifying certain assets and liabilities of its specialty pharmacy business as a discontinued operation as of June 30, 2019. Prior to its classification as a discontinued operation, the specialty pharmacy business was included as part of the Supply Chain Services segment.
The Company incurred $0.9 million of severance and retention expenses directly associated with the specialty pharmacy business within discontinued operations during the six months ended December 31, 2019.
The following table summarizes the major classes of assets and liabilities classified as discontinued operations at December 31, 2019 and June 30, 2019 (in thousands):
 
December 31, 2019
June 30, 2019
Assets
 
 
Accounts receivable
$

$
21,183

Inventory

3,385

Assets of discontinued operations
$

$
24,568

 
 
 
Liabilities
 
 
Accounts payable
$
11

$
2,255

Accrued expenses
603

6,630

Accrued compensation and benefits
101

2,373

Other current liabilities

539

Liabilities of discontinued operations
$
715

$
11,797


19



The following table summarizes the major components of net income (loss) from discontinued operations (in thousands):
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Net revenue
$

$
114,268

$

$
223,212

Cost of revenue

110,772


216,626

Gross profit

3,496


6,586

Selling, general and administrative expense
(79
)
4,767

1,857

9,120

Amortization of purchased intangible assets

661


1,322

Operating expenses
(79
)
5,428

1,857

10,442

Operating gain (loss) from discontinued operations
79

(1,932
)
(1,857
)
(3,856
)
Net gain on disposal of assets
822


3,231


Income (loss) from discontinued operations before income taxes
901

(1,932
)
1,374

(3,856
)
Income tax expense (benefit)
287

(932
)
370

(1,457
)
Income (loss) from discontinued operations, net of tax
614

(1,000
)
1,004

(2,399
)
Net (income) loss from discontinued operations attributable to non-controlling interest in Premier LP
(280
)
519

(477
)
1,351

Net income (loss) from discontinued operations attributable to stockholders
$
334

$
(481
)
$
527

$
(1,048
)

(5) INVESTMENTS
Investments in Unconsolidated Affiliates
The Company's investments in unconsolidated affiliates consisted of the following (in thousands):
 
Carrying Value
 
Equity in Net Income
 
 
 
 
Three Months Ended December 31,
Six Months Ended December 31,
 
December 31, 2019

June 30, 2019
 
2019
2018
2019
2018
FFF
$
103,395

$
96,905

 
$
2,885

$
1,366

$
6,490

$
3,987

Other investments
12,805

2,731

 
104

78

106

147

Total investments
$
116,200

$
99,636

 
$
2,989

$
1,444

$
6,596

$
4,134


The Company, through PSCI, held a 49% interest in FFF Enterprises, Inc. ("FFF") through its ownership of stock of FFF at December 31, 2019 and June 30, 2019. The Company records the fair value of the FFF put and call rights in the accompanying Condensed Consolidated Balance Sheets (see Note 6 - Fair Value Measurements for additional information). The Company accounts for its investment in FFF using the equity method of accounting and includes the investment as part of the Supply Chain Services segment.

20


(6) FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following table provides a summary of the Company's financial assets and liabilities which are measured at fair value on a recurring basis (in thousands):
 
Fair Value of Financial Assets and Liabilities
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
December 31, 2019
 
 
 
 
Cash equivalents
$
32,877

$
32,877

$

$

Deferred compensation plan assets
50,735

50,735



Total assets
$
83,612

$
83,612

$

$

Earn-out liability
$
13,420

$

$

$
13,420

FFF put right
19,065



19,065

Total liabilities
$
32,485

$

$

$
32,485

 
 
 
 
 
June 30, 2019
 
 
 
 
Cash equivalents
$
57,607

$
57,607

$

$

FFF call right
204



204

Deferred compensation plan assets
50,229

50,229



Total assets
$
108,040

$
107,836

$

$
204

Earn-out liability
$
6,816

$

$

$
6,816

FFF put right
41,652



41,652

Total liabilities
$
48,468

$

$

$
48,468


Deferred compensation plan assets consisted of highly liquid mutual fund investments, which were classified as Level 1. The current portion of deferred compensation plan assets was included in prepaid expenses and other current assets ($3.1 million and $4.8 million at December 31, 2019 and June 30, 2019, respectively) in the accompanying Condensed Consolidated Balance Sheets.
Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
FFF put and call rights
In connection with the Company's equity investment in FFF, the Company entered into a shareholders' agreement on July 26, 2016, which was amended and restated on November 22, 2017. On July 29, 2019, the parties entered into a second amended and restated shareholders' agreement that provides, among other things, that the majority shareholder of FFF holds a put right that requires the Company to purchase the majority shareholder's interest in FFF, on an all or nothing basis, on or after April 15, 2023. Any required purchase by the Company upon exercise of the put right by FFF's majority shareholder must be made at a per share price equal to FFF's earnings before interest, taxes, depreciation and amortization ("EBITDA") over the twelve calendar months prior to the purchase date multiplied by a market adjusted multiple, adjusted for any outstanding debt and cash and cash equivalents ("Equity Value per Share"). In addition, under the second amended and restated shareholders' agreement, the Company has a call right that requires the majority shareholder to sell its remaining interest in FFF to the Company, and is exercisable at any time within the later of 180 calendar days after the date of a Key Man Event (generally defined in the second amended and restated shareholders' agreement as the resignation, termination for cause, death or disability of the majority shareholder) or after January 30, 2021. As of December 31, 2019, the call right had zero value. In the event that either of these rights are exercised, the purchase price for the additional interest in FFF will be at a per share price equal to the Equity Value per Share.
The fair values of the FFF put and call rights were determined based on the Equity Value per Share calculation using unobservable inputs, which included the estimated FFF put and call rights' expiration dates, the forecast of FFF's EBITDA over the option period, forecasted movements in the overall market and the likelihood of a Key Man Event. Significant changes to the Equity Value per Share resulting from changes in the unobservable inputs could have a significant impact on the fair values of the FFF put and call rights.

21


The Company recorded the FFF put and call rights within long-term other liabilities and long-term other assets, respectively, within the accompanying Condensed Consolidated Balance Sheets. Net changes in the fair values of the FFF put and call rights were recorded within other expense in the accompanying Condensed Consolidated Statements of Income.
Earn-out liability
Earn-out liabilities were established in connection with the Medpricer and Stanson acquisitions. The earn-out liabilities were classified as Level 3 of the fair value hierarchy and their values were determined based on estimated future earnings and the probability of achieving them. Changes in the fair values of the earn-out liabilities were recorded within selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Income.
A reconciliation of the Company's FFF put and call rights and earn-out liabilities is as follows (in thousands):
 
Beginning Balance
Purchases (Settlements)
Gain (Loss)
Ending Balance
Three Months Ended December 31, 2019
 
 
 
 
FFF call right
$
52

$

$
(52
)
$

Total Level 3 assets
$
52

$

$
(52
)
$

Earn-out liability
$
9,390

$
3,781

$
(249
)
$
13,420

FFF put right
49,339


30,274

19,065

Total Level 3 liabilities
$
58,729

$
3,781

$
30,025

$
32,485

 
 
 
 
 
Three Months Ended December 31, 2018
 
 
 
 
FFF call right
$
488

$

$
(57
)
$
431

Total Level 3 assets
$
488

$

$
(57
)
$
431

Earn-out liabilities
$

$
4,548

$

$
4,548

FFF put right
$
45,200

$

$
10,905

$
34,295

Total Level 3 liabilities
$
45,200

$
4,548

$
10,905

$
38,843

 
 
 
 
 
Six Months Ended December 31, 2019
 
 
 
 
FFF call right
$
204

$

$
(204
)
$

Total Level 3 assets
$
204

$

$
(204
)
$

Earn-out liabilities
$
6,816

$
3,781

$
(2,823
)
$
13,420

FFF put right
41,652


22,587

19,065

Total Level 3 liabilities
$
48,468

$
3,781

$
19,764

$
32,485

 
 
 
 
 
Six Months Ended December 31, 2018
 
 
 
 
FFF call right
$
610

$

$
(179
)
$
431

Total Level 3 assets
$
610

$

$
(179
)
$
431

Earn-out liabilities
$

$
4,548

$

$
4,548

FFF put right
42,041


7,746

34,295

Total Level 3 liabilities
$
42,041

$
4,548

$
7,746

$
38,843


Non-Recurring Fair Value Measurements
During the six months ended December 31, 2019, no non-recurring fair value measurements were required relating to the measurement of goodwill and intangible assets for impairment. However, purchase price allocations required significant non-recurring Level 3 inputs. The preliminary fair values of the acquired intangible assets resulting from the acquisition of Medpricer were determined using the income approach (see Note 3 - Business Acquisitions).

22


Financial Instruments For Which Fair Value Only is Disclosed
The fair values of non-interest bearing notes payable, classified as Level 2, were less than their carrying value by $0.5 million at both December 31, 2019 and June 30, 2019, based on assumed market interest rates of 3.0% and 3.4%, respectively.
Other Financial Instruments
The fair values of cash, accounts receivable, accounts payable, accrued liabilities, and the Credit Facility (as defined in Note 9 - Debt) approximated carrying value due to the short-term nature of these financial instruments.
(7) CONTRACT BALANCES
Deferred Revenue
Revenue recognized during the six months ended December 31, 2019 that was included in the opening balance of deferred revenue at June 30, 2019 was $15.9 million, which is a result of satisfying performance obligations within the Performance Services segment.
Performance Obligations
A performance obligation is a promise to transfer a distinct good or service to a customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Contracts may have a single performance obligation as the promise to transfer individual goods or services is not separately identifiable from other promises and, therefore, not distinct, while other contracts may have multiple performance obligations, most commonly due to the contract covering multiple phases or deliverable arrangements (licensing fees, implementation fees, maintenance and support fees, professional fees for consulting services), including certain performance guarantees.
Reduction in net revenue recognized during the three and six months ended December 31, 2019 from performance obligations that were satisfied or partially satisfied in prior periods was $1.9 million and $0.7 million, respectively. The reduction was driven by $3.0 million and $4.5 million, respectively, associated with revised forecasts from underlying contracts that include variable consideration components as well as additional fluctuations due to input method contracts which occur in the normal course of business. This was offset by $1.1 million and $3.8 million, respectively, of net administrative fees revenue related to under-forecasted cash receipts received in the current period.
Net revenue recognized during the three and six months ended December 31, 2018 from performance obligations that were satisfied or partially satisfied in prior periods was $6.4 million and $8.9 million, respectively. The net revenue recognized during the three and six months ended December 31, 2018 was driven primarily by $3.3 million and $4.8 million, respectively, of net administrative fees revenue related to under-forecasted cash receipts received in the current period, as well as $3.1 million and $4.1 million, respectively, associated with revised forecasts from underlying contracts that include variable consideration components as well as additional fluctuations due to input method contracts which occur in the normal course of business.
Remaining performance obligations represent the portion of the transaction price that has not yet been satisfied or achieved. As of December 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $491.7 million. The Company expects to recognize approximately 46% of the remaining performance obligations over the next 12 months and an additional 27% over the following 12 months, with the remainder recognized thereafter.
(8) GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill consisted of the following (in thousands):
 
Supply Chain Services
Performance Services
Total
June 30, 2019
$
336,973

$
543,736

$
880,709

Acquisition of Medpricer
26,219


26,219

December 31, 2019
$
363,192

$
543,736

$
906,928



23


The initial purchase price allocation for the Company's acquisition of Medpricer is preliminary and subject to changes in fair value of working capital and valuation of the assets acquired and the liabilities assumed. See Note 3 - Business Acquisitions for more information.
Intangible Assets, Net
Intangible assets, net consisted of the following (in thousands):
 
Weighted Average Useful Life as of December 31, 2019
December 31, 2019
June 30, 2019
Member relationships
14.7 years
$
220,100

$
220,100

Technology
5.6 years
172,217

164,217

Customer relationships
8.7 years
49,930

48,010

Trade names
7.9 years
16,170

16,060

Non-compete agreements
5.4 years
10,630

8,800

Favorable lease commitments
n/a

11,393

Other
6.0 years
260


Total intangible assets
 
469,307

468,580

Accumulated amortization
 
(219,921
)
(197,858
)
Total intangible assets, net
 
$
249,386

$
270,722


Total intangible assets increased due to the October 2019 acquisition of Medpricer (see Note 3 - Business Acquisitions). Intangible asset amortization was $11.9 million and $13.2 million for the three months ended December 31, 2019 and 2018, respectively, and $25.0 million and $26.2 million for the six months ended December 31, 2019 and 2018, respectively.
(9) DEBT
Long-term debt consisted of the following (in thousands):
 
Commitment Amount
Due Date
December 31, 2019
June 30, 2019
Credit Facility
$
1,000,000

November 9, 2023
$
50,000

$
25,000

Notes payable

Various
7,573

8,611

Total debt
 
 
57,573

33,611

Less: current portion
 

(50,739
)
(27,608
)
Total long-term debt
 
 
$
6,834

$
6,003


Credit Facility
Premier LP, along with its consolidated subsidiaries, PSCI and PHSI, as Co-Borrowers, Premier GP and certain domestic subsidiaries of Premier GP, as guarantors, entered into an unsecured Credit Facility, dated as of November 9, 2018 (the "Credit Facility"). The Credit Facility has a maturity date of November 9, 2023, subject to up to two one-year extensions at the request of the Co-Borrowers and approval of a majority of the lenders under the Credit Facility. The Credit Facility provides for borrowings of up to $1.0 billion with (i) a $50.0 million sub-facility for standby letters of credit and (ii) a $100.0 million sub-facility for swingline loans. The Credit Facility also provides that Co-Borrowers may from time to time (i) incur incremental term loans and (ii) request an increase in the revolving commitments under the Credit Facility, together up to an aggregate of $350.0 million, subject to the approval of the lenders providing such term loans or revolving commitment increases. The Credit Facility includes an unconditional and irrevocable guaranty of all obligations under the Credit Facility by Premier GP, certain domestic subsidiaries of Premier GP and future guarantors, if any. Premier, Inc. is not a guarantor under the Credit Facility.
At the Company's option, committed loans may be in the form of Eurodollar rate loans ("Eurodollar Loans") or base rate loans ("Base Rate Loans"). Eurodollar Loans bear interest at the Eurodollar rate (defined as the London Interbank Offered Rate, or LIBOR, plus the Applicable Rate (defined as a margin based on the Consolidated Total Net Leverage Ratio (as defined in the

24



Credit Facility))). Base Rate Loans bear interest at the Base Rate (defined as the highest of the prime rate announced by the administrative agent, the federal funds effective rate plus 0.50%, the one-month LIBOR plus 1.0% and 0.0%) plus the Applicable Rate. The Applicable Rate ranges from 1.000% to 1.500% for Eurodollar Loans and 0.000% to 0.500% for Base Rate Loans. In the event that LIBOR is no longer available, the Credit Facility states that interest will be calculated based upon rates offered to leading banks for comparable loans by leading banks in the London interbank market. At December 31, 2019, the interest rate for one-month Eurodollar Loans was 2.763% and the interest rate for Base Rate Loans was 4.750%. The Co-Borrowers are required to pay a commitment fee ranging from 0.100% to 0.200% per annum on the actual daily unused amount of commitments under the Credit Facility. At December 31, 2019, the commitment fee was 0.100%.
The Credit Facility contains customary representations and warranties as well as customary affirmative and negative covenants, including, among others, limitations on liens, indebtedness, fundamental changes, dispositions, restricted payments and investments. Under the terms of the Credit Facility, Premier GP's consolidated total net leverage ratio (as defined in the Credit Facility) may not exceed 3.75 to 1.00 for four consecutive quarters, provided that, in connection with any acquisition for which the aggregate consideration exceeds $250.0 million, the maximum consolidated total net leverage ratio may increase to 4.25 to 1.00 for the four consecutive fiscal quarters beginning with the quarter in which such acquisition is completed. In addition, Premier GP must maintain a minimum consolidated interest coverage ratio (as defined in the Credit Facility) of 2.50 to 1.00 at the end of every fiscal quarter. Premier GP was in compliance with all such covenants at December 31, 2019.
The Credit Facility also contains customary events of default including, among others, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults of any indebtedness or guarantees in excess of $75.0 million, bankruptcy and other insolvency events, ERISA-related liabilities and judgment defaults in excess of $50.0 million, and the occurrence of a change of control (as defined in the Credit Facility). If any event of default occurs and is continuing, the administrative agent under the Credit Facility may, with the consent, or shall, at the request of a majority of the lenders under the Credit Facility, terminate the commitments and declare all of the amounts owed under the Credit Facility to be immediately due and payable. The Company may prepay amounts outstanding under the Credit Facility without premium or penalty provided that Co-Borrowers compensate the lenders for losses and expenses incurred as a result of the prepayment of any Eurodollar Loan, as defined in the Credit Facility.
Proceeds from borrowings under the Credit Facility may generally be used to finance ongoing working capital requirements, including permitted acquisitions, discretionary cash settlements of Class B unit exchanges under the Exchange Agreement, repurchases of Class A common stock pursuant to stock repurchase programs, and other general corporate activities. During the six months ended December 31, 2019, the Company repaid $100.0 million of borrowings and borrowed an additional $125.0 million under the Credit Facility. The Company had $50.0 million in outstanding borrowings under the Credit Facility at December 31, 2019 with $950.0 million of available borrowing capacity after reductions for outstanding borrowings and outstanding letters of credit. On January 31, 2020, the Company repaid $50.0 million of outstanding borrowings under the Credit Facility.
Notes Payable
At December 31, 2019 and June 30, 2019, the Company had $7.6 million and $8.6 million in notes payable, respectively, consisting primarily of non-interest bearing notes payable outstanding to departed member owners, of which $0.8 million and $2.6 million, respectively, were included in current portion of long-term debt and $6.8 million and $6.0 million, respectively, were included in long-term debt, less current portion, in the accompanying Condensed Consolidated Balance Sheets. Notes payable generally have stated maturities of five years from their date of issuance.
(10) REDEEMABLE LIMITED PARTNERS' CAPITAL
Redeemable limited partners' capital represents the member owners' approximate 46% ownership of Premier LP through their ownership of Class B common units at December 31, 2019. The member owners hold the majority of the votes of the Board of Directors and any redemption or transfer or choice of consideration cannot be assumed to be within the control of the Company. Therefore, redeemable limited partners' capital is recorded at the greater of the book value or redemption amount per the Amended and Restated Limited Partnership Agreement of Premier LP (as amended, the "LP Agreement"), and is calculated as the fair value of all Class B common units as if immediately exchangeable into Class A common shares. For the six months ended December 31, 2019 and 2018, the Company recorded adjustments to the fair value of redeemable limited partners' capital as an adjustment of redeemable limited partners' capital to redemption amount in the accompanying Condensed Consolidated Statements of Income in the amounts of $214.2 million and $(56.5) million, respectively.
Redeemable limited partners' capital is classified as temporary equity in the mezzanine section of the accompanying Condensed Consolidated Balance Sheets as, pursuant to the LP Agreement, withdrawal is at the option of each member owner and the conditions of the repurchase are not solely within the Company's control.

25



The tables below provide a summary of the changes in the redeemable limited partners' capital from June 30, 2019 to December 31, 2019 and June 30, 2018 to December 31, 2018 (in thousands):
 
Receivables From Limited Partners
Redeemable Limited Partners' Capital
Total Redeemable Limited Partners' Capital
June 30, 2019
$
(1,204
)
$
2,524,474

$
2,523,270

Distributions applied to receivables from limited partners
69


69

Redemption of limited partners

(1,371
)
(1,371
)
Net income attributable to non-controlling interest in Premier LP

41,907

41,907

Distributions to limited partners

(13,699
)
(13,699
)
Exchange of Class B common units for Class A common stock by member owners

(50,792
)
(50,792
)
Adjustment of redeemable limited partners' capital to redemption amount

(694,309
)
(694,309
)
September 30, 2019
$
(1,135
)
$
1,806,210

$
1,805,075

Distributions applied to receivables from limited partners
70


70

Net income attributable to non-controlling interest in Premier LP

55,704

55,704

Distributions to limited partners

(12,689
)
(12,689
)
Exchange of Class B common units for Class A common stock by member owners

(223,946
)
(223,946
)
Adjustment of redeemable limited partners' capital to redemption amount

480,153

480,153

December 31, 2019
$
(1,065
)
$
2,105,432

$
2,104,367


 
Receivables From Limited Partners
Redeemable Limited Partners' Capital
Total Redeemable Limited Partners' Capital
June 30, 2018
$
(2,205
)
$
2,922,615

$
2,920,410

Distributions applied to receivables from limited partners
437


437

Net income attributable to non-controlling interest in Premier LP

55,113

55,113

Distributions to limited partners

(14,993
)
(14,993
)
Exchange of Class B common units for Class A common stock by member owners

(30,536
)
(30,536
)
Adjustment of redeemable limited partners' capital to redemption amount

708,193

708,193

September 30, 2018
$
(1,768
)
$
3,640,392

$
3,638,624

Distributions applied to receivables from limited partners
416


416

Redemption of limited partners

(448
)
(448
)
Net income attributable to non-controlling interest in Premier LP

62,631

62,631

Distributions to limited partners

(14,288
)
(14,288
)
Exchange of Class B common units for Class A common stock by member owners

(441,344
)
(441,344
)
Adjustment of redeemable limited partners' capital to redemption amount

(651,709
)
(651,709
)
December 31, 2018
$
(1,352
)
$
2,595,234

$
2,593,882


Receivables from limited partners represent amounts due from limited partners for their required capital in Premier LP. These receivables are either interest bearing notes that were issued to new limited partners or non-interest bearing loans (contribution loans) provided to existing limited partners. These receivables are reflected as a reduction to redeemable limited partners' capital

26



so that amounts due from limited partners for capital are not reflected as redeemable limited partnership capital until paid. No interest bearing notes receivable were executed by limited partners of Premier LP during the six months ended December 31, 2019.
During the six months ended December 31, 2019, three limited partners withdrew from Premier LP. The limited partnership agreement provides for the redemption of former limited partners' Class B common units that are not eligible for exchange, in the form of a five-year, unsecured, non-interest bearing term promissory note, a cash payment equal to the present value of the redemption amount, or other mutually agreed upon terms. Partnership interest obligations to former limited partners are reflected in notes payable in the accompanying Condensed Consolidated Balance Sheets. Under the Exchange Agreement, Class B common units that are eligible for exchange by withdrawing limited partners must be exchanged in the subsequent quarter's exchange process.
Premier LP's distribution policy requires cash distributions as long as taxable income is generated and cash is available to distribute on a quarterly basis prior to the 60th day after the end of each calendar quarter. The Company makes quarterly distributions to its limited partners in the form of a legal partnership income distribution governed by the terms of the LP Agreement. These partner distributions are based on the limited partner's ownership in Premier LP and relative participation across Premier service offerings. While these distributions are based on relative participation across Premier service offerings, they are not based directly on revenue generated from an individual partner's participation as the distributions are based on the net income or loss of the partnership which encompasses the operating expenses of the partnership as well as participation by non-owner members in Premier's service offerings. To the extent Premier LP incurred a net loss, the limited partners would not receive a quarterly distribution. As provided in the LP Agreement, the amount of actual cash distributed may be reduced by the amount of such distributions used by limited partners to offset contribution loans or other amounts payable to the Company.
Quarterly distributions made to limited partners during the current fiscal year are as follows (in thousands):
Date
Distribution (a)
August 22, 2019
$
13,202

November 27, 2019
$
13,699

(a)
Distributions are equal to Premier LP's total taxable income from the preceding fiscal quarter-to-date period for each respective distribution date multiplied by the Company's standalone effective combined federal, state and local income tax rate for each respective distribution date. Premier LP expects to make a $12.7 million quarterly distribution on or before February 28, 2020. The distribution is reflected in limited partners' distribution payable in the accompanying Condensed Consolidated Balance Sheets at December 31, 2019.
Pursuant to the Exchange Agreement (see Note 1 - Organization and Basis of Presentation for more information), each limited partner has the cumulative right to exchange up to one-seventh of its initial allocation of Class B common units for shares of Class A common stock, cash or a combination of both, the form of consideration to be at the discretion of the Company's independent Audit and Compliance Committee of the Board of Directors. During the six months ended December 31, 2019, the Company recorded total reductions of $274.7 million to redeemable limited partners' capital to reflect the exchange of approximately 8.2 million Class B common units and surrender and retirement of a corresponding number of shares of Class B common stock by member owners for a like number of shares of the Company's Class A common stock (see Note 12 - Earnings (Loss) Per Share for more information). Quarterly exchanges during the current fiscal year were as follows (in thousands, except Class B common units):
Date of Quarterly Exchange
Number of Class B Common Units Exchanged
Reduction in Redeemable Limited Partners' Capital
July 31, 2019
1,310,771

$
50,792

October 31, 2019
6,873,699

223,946

Total
8,184,470

$
274,738


(11) STOCKHOLDERS' DEFICIT
As of December 31, 2019, there were 66,189,222 shares of the Company's Class A common stock, par value $0.01 per share, and 55,581,646 shares of the Company's Class B common stock, par value $0.000001 per share, outstanding.
On May 7, 2019, the Company announced that its Board of Directors authorized the repurchase of up to $300.0 million of the Company's Class A common stock during fiscal year 2020. As of December 31, 2019, the Company had purchased approximately 4.6 million shares of Class A common stock at an average price of $32.25 per share for a total purchase price of $148.6 million.

27



The repurchase authorization may be suspended, delayed, or discontinued at any time at the discretion of the Company's Board of Directors. Repurchases are subject to compliance with applicable federal securities laws and the Company's management may, at its discretion, suspend, delay, or discontinue repurchases at any time, based on market conditions, alternate uses of capital, or other factors.
Holders of Class A common stock are entitled to (i) one vote for each share held of record on all matters submitted to a vote of stockholders, (ii) receive dividends, when and if declared by the Board of Directors out of funds legally available, subject to any statutory or contractual restrictions on the payment of dividends and subject to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock or any class of series of stock having a preference over or the right to participate with the Class A common stock with respect to the payment of dividends or other distributions and (iii) receive pro rata, based on the number of shares of Class A common stock held, the remaining assets available for distribution upon the dissolution or liquidation of Premier, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any.
Holders of Class B common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders, but are not entitled to receive dividends, other than dividends payable in shares of Premier's common stock, or to receive a distribution upon the dissolution or a liquidation of Premier. Pursuant to the terms of a voting trust agreement by and among the Company, Premier LP, the holders of Class B common stock and Wells Fargo Delaware Trust Company, N.A., as the trustee, the trustee will vote all of the Class B common stock as a block in the manner determined by the plurality of the votes received by the trustee from the member owners for the election of directors to serve on the Board of Directors, and by a majority of the votes received by the trustee from the member owners for all other matters. Class B common stock will not be listed on any stock exchange and, except in connection with any permitted sale or transfer of Class B common units, cannot be sold or transferred.
(12) EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing net income attributable to stockholders by the weighted average number of shares of common stock outstanding for the period. Net income attributable to stockholders includes the adjustment recorded in the period to reflect redeemable limited partners' capital at the redemption amount, which is due to the exchange benefit obtained by limited partners through the ownership of Class B common units. Except when the effect would be anti-dilutive, the diluted earnings (loss) per share calculation, which is calculated using the treasury stock method, includes the impact of shares that could be issued under the outstanding stock options, non-vested restricted stock units and awards, shares of non-vested performance share awards and the effect of the assumed redemption of Class B common units through the issuance of Class A common shares.
The following table provides a reconciliation of the numerator and denominator used for basic and diluted (loss) earnings per share (in thousands, except per share amounts):
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Numerator for basic (loss) earnings per share:
 
 
 
 
Net (loss) income from continuing operations attributable to stockholders (a)
$
(444,002
)
$
694,370

$
279,536

$
13,604

Net income (loss) from discontinued operations attributable to stockholders
334

(481
)
527

(1,048
)
Net (loss) income attributable to stockholders
$
(443,668
)
$
693,889

$
280,063

$
12,556

 
 

 

Numerator for diluted (loss) earnings per share:
 

 

Net (loss) income from continuing operations attributable to stockholders (a)
$
(444,002
)
$
694,370

$
279,536

$
13,604

Adjustment of redeemable limited partners' capital to redemption amount

(651,709
)
(214,156
)

Net income from continuing operations attributable to non-controlling interest in Premier LP

63,150

97,134


Net (loss) income from continuing operations
(444,002
)
105,811

162,514

13,604

Tax effect on Premier, Inc. net income (b)

(12,779
)
(22,941
)

Adjusted net (loss) income from continuing operations
$
(444,002
)
$
93,032

$
139,573

$
13,604


28



 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
 
 

 

Net income (loss) from discontinued operations attributable to stockholders
$
334

$
(481
)
$
527

$
(1,048
)
Net income (loss) from discontinued operations attributable to non-controlling interest in Premier LP

(519
)
477


Adjusted net income (loss) from discontinued operations
$
334

$
(1,000
)
$
1,004

$
(1,048
)
 
 

 

Adjusted net (loss) income
$
(443,668
)
$
92,032

$
140,577

$
12,556

 
 

 

Denominator for basic (loss) earnings per share:
 

 

Weighted average shares (c)
64,552

59,876

63,668

56,548

 
 

 

Denominator for diluted (loss) earnings per share:
 



Weighted average shares (c)
64,552

59,876

63,668

56,548

Effect of dilutive securities: (d)
 

 

Stock options

727

420

709

Restricted stock

278

250

327

Class B shares outstanding

72,791

60,493


Weighted average shares and assumed conversions
64,552

133,672

124,831

57,584

 
 
 
 
 
Basic (loss) earnings per share:
 
 
 
 
Basic (loss) earnings per share from continuing operations
$
(6.88
)
$
11.60

4.39

0.24

Basic earnings (loss) per share from discontinued operations
0.01

(0.01
)
0.01

(0.02
)
Basic (loss) earnings per share attributable to stockholders
$
(6.87
)
$
11.59

4.40

0.22

 
 
 
 
 
Diluted (loss) earnings per share:
 
 
 
 
Diluted (loss) earnings per share from continuing operations
$
(6.88
)
$
0.70

1.12

0.24

Diluted earnings (loss) per share from discontinued operations
0.01

(0.01
)
0.01

(0.02
)
Diluted (loss) earnings per share attributable to stockholders
$
(6.87
)
$
0.69

1.13

0.22

(a)
Net (loss) income from continuing operations attributable to stockholders was calculated as follows (in thousands):
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Net income from continuing operations
$
91,575

$
105,811

$
162,514

$
189,183

Net income from continuing operations attributable to non-controlling interest in Premier LP
(55,424
)
(63,150
)
(97,134
)
(119,095
)
Adjustment of redeemable limited partners' capital to redemption amount
(480,153
)
651,709

214,156

(56,484
)
Net (loss) income from continuing operations attributable to stockholders
$
(444,002
)
$
694,370

$
279,536

$
13,604

(b)
Represents income tax expense related to Premier, Inc. retaining the portion of net income from continuing operations attributable to income from non-controlling interest in Premier, LP for the purpose of diluted (loss) earnings per share.
(c)
Weighted average number of common shares used for basic (loss) earnings per share excludes weighted average shares of non-vested stock options, non-vested restricted stock, non-vested performance share awards and Class B shares outstanding for the three and six months ended December 31, 2019 and 2018.
(d)
For the three months ended December 31, 2019, the effect of 57.9 million class B common units exchangeable for Class A common shares and 0.6 million stock options and restricted units was excluded from diluted weighted average shares outstanding due to the net loss from continuing operations attributable to stockholders sustained for the period and as including them would have an anti-dilutive effect for the period.

29



For the three and six months ended December 31, 2019, the effect of 0.5 million performance share awards was excluded from diluted weighted average shares outstanding as the awards had not satisfied the applicable performance criteria at the end of the period.
For the three months ended December 31, 2018, the effect of 0.1 million stock options and restricted stock units was excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect. Additionally, the effect of 0.7 million performance share awards was excluded from diluted weighted average shares outstanding as they had not satisfied the applicable performance criteria at the end of the period.
For the six months ended December 31, 2018, the effect of 0.1 million stock options and restricted stock units was excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect. The effect of 76.3 million Class B common units exchangeable for Class A common shares were excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect. Additionally, the effect of 0.7 million performance share awards was excluded from diluted weighted average shares outstanding as they had not satisfied the applicable performance criteria at the end of the period.
Pursuant to the terms of the Exchange Agreement, on a quarterly basis, the Company has the option, as determined by the independent Audit and Compliance Committee, to settle the exchange of Class B common units of Premier LP by member owners for cash, an equal number of Class A common shares of Premier, Inc. or a combination of cash and shares of Class A common stock. In connection with the exchange of Class B common units by member owners, regardless of the consideration used to settle the exchange, an equal number of shares of Premier's Class B common stock are surrendered by member owners and retired (see Note 10 - Redeemable Limited Partners' Capital). The following table presents certain information regarding the exchange of Class B common units and associated Class B common stock for Premier's Class A common stock and/or cash in connection with the quarterly exchanges pursuant to the terms of the Exchange Agreement, including activity related to the Class A and Class B common units and Class A and Class B common stock through the date of the applicable quarterly exchange:
Quarterly Exchange by Member Owners
Class B Common Shares Retired Upon Exchange (a)
Class B Common Shares Outstanding After Exchange (a)
Class A Common Shares Outstanding After Exchange (b)
Percentage of Combined Voting Power Class B/Class A Common Stock
July 31, 2019
1,310,771

62,767,860

63,274,182

49.8%/50.2%
October 31, 2019
6,873,699

55,581,646

66,522,023

46%/54%
January 31, 2020
4,866,082

50,715,564

71,066,141

42%/58%
(a)
The number of Class B common shares retired or outstanding is equivalent to the number of Class B common units retired upon exchange or outstanding after the exchange, as applicable.
(b)
The number of Class A common shares outstanding after exchange also includes activity related to the Company's share repurchase program (see Note 11 - Stockholders' Deficit) and equity incentive plan (see Note 13 - Stock-Based Compensation).
(c)
As the quarterly exchange occurred on January 31, 2020, the impact of the exchange is not reflected in the condensed consolidated financial statements for the quarter ended December 31, 2019. The Company utilized 0.7 million treasury shares to facilitate a portion of this exchange, and as a result had 0.0 million Class A common shares held in treasury as of January 31, 2020 after the exchange.
(13) STOCK-BASED COMPENSATION
Stock-based compensation expense is recognized over the requisite service period, which generally equals the stated vesting period. The associated deferred tax benefit was calculated at a rate of 25% for the three and six months ended December 31, 2019 and 2018, which represents the expected effective income tax rate at the time of the compensation expense deduction primarily at PHSI, and differs from the Company's current effective income tax rate which includes the impact of partnership income not subject to federal and state income taxes. See Note 14 - Income Taxes for further information.
Stock-based compensation expense and the resulting deferred tax benefits were as follows (in thousands):
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Pre-tax stock-based compensation expense (a)
$
7,775

$
7,595

$
11,479

$
13,687

Deferred tax benefit
1,959

1,876

2,893

3,381

Total stock-based compensation expense, net of tax
$
5,816

$
5,719

$
8,586

$
10,306


(a)
Pre-tax stock based compensation expense attributable to discontinued operations of $0.1 million and $0.2 million, respectively, for the three and six months ended December 31, 2018 is not included in the above table.
Premier 2013 Equity Incentive Plan
The Premier 2013 Equity Incentive Plan, as amended and restated (and including any further amendments thereto, the "2013 Equity Incentive Plan") provides for grants of up to 14.8 million shares of Class A common stock, all of which are eligible to be issued as non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units or

30



performance share awards. As of December 31, 2019, there were 5.9 million shares available for grant under the 2013 Equity Incentive Plan.
The following table includes information related to restricted stock, performance share awards and stock options for the six months ended December 31, 2019:
 
Restricted Stock
 
Performance Share Awards
 
Stock Options

Number of Awards
Weighted Average Fair Value at Grant Date
 
Number of Awards
Weighted Average Fair Value at Grant Date
 
Number of Options
Weighted Average Exercise Price
Outstanding at June 30, 2019
589,550

$
37.06

 
1,439,815

$
36.38

 
2,798,673

$
30.22

Granted
339,599

$
36.93

 
712,224

$
36.25

 

$

Vested/exercised
(166,006
)
$
32.10

 
(493,759
)
$
31.58

 
(210,875
)
$
30.48

Forfeited
(21,426
)
$
38.84

 
(45,387
)
$
39.08

 
(10,939
)
$
32.43

Outstanding at December 31, 2019
741,717

$
38.05

 
1,612,893

$
37.72

 
2,576,859

$
30.19

 
 
 
 
 
 
 
 
 
Stock options outstanding and exercisable at December 31, 2019
 
 
 
 
 
 
2,434,257

$
30.04


Restricted stock units and restricted stock awards issued and outstanding generally vest over a three-year period for employees and a one-year period for directors. Performance share awards issued and outstanding generally vest over a three-year period if performance targets are met. Stock options have a term of ten years from the date of grant. Vested stock options will expire either twelve months after an employee's termination with Premier or immediately upon an employee's termination with Premier, depending on the termination circumstances. Stock options generally vest in equal annual installments over three years.
Unrecognized stock-based compensation expense at December 31, 2019 was as follows (in thousands):
 
Unrecognized Stock-Based Compensation Expense
Weighted Average Amortization Period
Restricted stock
$
17,383

2.0 years
Performance share awards
34,599

2.0 years
Stock options
1,011

0.7 years
Total unrecognized stock-based compensation expense
$
52,993

2.0 years

The aggregate intrinsic value of stock options at December 31, 2019 was as follows (in thousands):
 
Intrinsic Value of Stock Options
Outstanding and exercisable
$
19,079

Expected to vest
734

Total outstanding
$
19,813

 
 
Exercised during the six months ended December 31, 2019
$
1,494


(14) INCOME TAXES
The Company's income tax expense is attributable to the activities of the Company, PHSI, PSCI and Premier Marketplace, LLC ("PMLLC"), all of which are subchapter C corporations and are subject to U.S. federal and state income taxes. In contrast, under the provisions of federal and state statutes, Premier LP is not subject to federal and state income taxes, as the income realized by Premier LP is taxable to its partners.

31



On November 8th, 2019, the State of North Carolina made significant changes to its income tax law, effective for tax years beginning on or after January 1, 2020. As a result, the Company remeasured its deferred tax assets and liabilities as of the enactment date and recorded an income tax expense of $38.6 million as a discrete item in the Company's income tax provision during the six months ended December 31, 2019.
Income tax expense for the three months ended December 31, 2019 and 2018 was $64.6 million and $2.7 million, respectively, which reflects effective tax rates of 41% and 3%, respectively. Income tax expense for the six months ended December 31, 2019 and 2018 was $74.2 million and $14.1 million, respectively, which reflects effective tax rates of 31% and 7%, respectively. The increase in effective tax rates is largely attributable to the aforementioned remeasurement of deferred tax balances related to the change in North Carolina state income tax law. Excluding the deferred tax remeasurement, the effective tax rates are 17% and 15% for the three and six months ended December 31, 2019, respectively.
The Company's effective tax rates differ from income taxes recorded using a statutory rate largely due to Premier LP income, which is not subject to federal, state or local income taxes.
Net deferred tax assets decreased $3.1 million to $414.1 million at December 31, 2019 from $417.2 million at June 30, 2019. The decrease in net deferred tax assets was largely driven by the $38.6 million remeasurement of deferred tax balances related to the change in North Carolina state income tax law and $21.0 million attributable to the deferred tax impact of tax-deductible goodwill and the gain on put and call rights, offset by an increase of $49.6 million in deferred tax assets related to departures and quarterly exchanges by the member owners during the six months ended December 31, 2019.
The Company's TRA liabilities represent a payable to the limited partners for 85% of the tax savings the Company expects to receive, if any, in U.S. federal, foreign, state and local income and franchise tax that may be realized (or deemed to realize, in the case of payments required to be made upon certain occurrences under such TRAs) in connection with the Section 754 election by Premier LP. Tax savings are generated as a result of the increase in tax basis resulting from the initial sale of Class B common units, subsequent exchanges (pursuant to the Exchange Agreement) and payments under the TRA. The election results in adjustments to the tax basis of the assets of Premier LP upon member owner exchanges of Class B common units of Premier LP for Class A common stock of Premier, Inc. or cash. TRA liabilities decreased by $4.5 million from $344.1 million at June 30, 2019 to $339.6 million at December 31, 2019. The change in TRA liabilities was driven by $23.7 million in TRA remeasurements primarily due to the change in North Carolina state income tax law, $17.4 million in TRA payments and $14.3 million attributable to member departures during the six months ended December 31, 2019, partially offset by the $50.9 million increase in TRA liabilities in connection with the quarterly member owner exchanges that occurred during the six months ended December 31, 2019.
(15) RELATED PARTY TRANSACTIONS
FFF
The Company's 49% ownership share of net income of FFF, which was acquired on July 26, 2016, included in equity in net income of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Income was $2.9 million and $1.4 million for the three months ended December 31, 2019 and 2018, respectively, and $6.5 million and $4.0 million for the six months ended December 31, 2019 and 2018, respectively. The Company maintains group purchasing agreements with FFF and receives administrative fees for purchases made by the Company's members pursuant to those agreements. Net administrative fees revenue recorded from purchases under those agreements was $2.4 million and $1.9 million during the three months ended December 31, 2019 and 2018, respectively, and $4.6 million and $4.2 million for the six months ended December 31, 2019 and 2018, respectively.
AEIX
The Company conducts all operational activities for American Excess Insurance Exchange Risk Retention Group ("AEIX"), a reciprocal risk retention group that provides excess and umbrella healthcare professional and general liability insurance to certain hospital and healthcare system members. The Company is reimbursed by AEIX for actual costs, plus an annual incentive management fee not to exceed $0.5 million per calendar year. The Company received cost reimbursement of $1.4 million and $1.3 million during the three months ended December 31, 2019 and 2018, respectively and $2.7 million and $2.6 million for the six months ended December 31, 2019 and 2018, respectively. As of December 31, 2019 and June 30, 2019, $0.6 million and $0.7 million, respectively, in amounts receivable from AEIX are included in accounts receivable, net in the accompanying Condensed Consolidated Balance Sheets.

32



(16) COMMITMENTS AND CONTINGENCIES
Operating Leases
Operating lease expense for the three and six months ended December 31, 2019 was $2.6 million and $5.5 million, respectively. As of December 31, 2019, the weighted average remaining lease term was 6.2 years and the weighted average discount rate was 3.9%.
Future minimum lease payments under noncancelable operating leases with initial lease terms in excess of one year were as follows (in thousands):
 
December 31, 2019
June 30, 2019 (a)
2020
$
6,019

$
12,130

2021
11,194

11,539

2022
11,125

11,468

2023
11,388

11,533

2024
11,509

11,510

Thereafter
20,501

20,645

Total future minimum lease payments
71,736

78,825

Less: imputed interest
8,267


Total operating lease liabilities (b)
$
63,469

$

(a)
Presented in accordance with ASC Topic 840.
(b)
As of December 31, 2019, $9.3 million of the total operating lease liabilities were included within other liabilities, current in the Condensed Consolidated Balance Sheets.
Other Matters
The Company is not currently involved in any litigation it believes to be material. The Company is periodically involved in litigation, arising in the ordinary course of business or otherwise, which from time to time may include claims relating to commercial, product liability, tort and personal injury, employment, antitrust, intellectual property, or other regulatory matters. If current or future government regulations, specifically, those with respect to antitrust or healthcare laws, are interpreted or enforced in a manner adverse to the Company or its business, the Company may be subject to enforcement actions, penalties and other material limitations which could have a material adverse effect on the Company's business, financial condition and results of operations.
(17) SEGMENTS
The Company delivers its solutions and manages its business through two reportable business segments, the Supply Chain Services segment and the Performance Services segment. The Supply Chain Services segment includes the Company's GPO, and direct sourcing activities. The Performance Services segment includes the Company's informatics, collaborative, consulting services and insurance services businesses.
The following table presents disaggregated revenue by business segment and underlying source (in thousands):
 
Three Months Ended December 31,
Six Months Ended December 31,
Net revenue:
2019
2018
2019
2018
Supply Chain Services
 
 
 
 
Net administrative fees
$
172,114

$
165,695

$
344,517

$
327,695

Other services and support
2,482

2,826

5,043

4,037

Services
174,596

168,521

349,560

331,732

Products
58,040

44,214

106,161

87,873

Total Supply Chain Services
232,636

212,735

455,721

419,605

Performance Services
86,970

94,854

166,295

180,586

Net revenue
$
319,606

$
307,589

$
622,016

$
600,191


33



Additional segment information related to depreciation and amortization expense, capital expenditures and total assets was as follows (in thousands):
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Depreciation and amortization expense (a):
 
 
 
 
Supply Chain Services
$
4,869

$
4,584

$
9,694

$
9,288

Performance Services
30,293

27,319

60,913

53,232

Corporate
2,154

2,814

4,288

5,427

Total depreciation and amortization expense
$
37,316

$
34,717

$
74,895

$
67,947

 
 
 
 
 
Capital expenditures:
 
 
 
 
Supply Chain Services
$
609

$
341

$
2,086

$
836

Performance Services
18,612

19,456

37,116

38,830

Corporate
3,564

2,250

5,566

7,443

Total capital expenditures
$
22,785

$
22,047

$
44,768

$
47,109

Total assets (b):
December 31, 2019
June 30, 2019
Supply Chain Services
$
1,162,767

$
1,111,934

Performance Services
920,753

941,183

Corporate
532,642

516,450

Total assets
$
2,616,162

$
2,569,567


(a)
Includes amortization of purchased intangible assets.
(b)
As of June 30, 2019, Supply Chain Services total assets included $24.6 million in assets of discontinued operations related to the specialty pharmacy business.
The Company uses Segment Adjusted EBITDA (a financial measure not determined in accordance with generally accepted accounting principles ("Non-GAAP")) as its primary measure of profit or loss to assess segment performance and to determine the allocation of resources. The Company also uses Segment Adjusted EBITDA to facilitate the comparison of the segment operating performance on a consistent basis from period to period. The Company defines Segment Adjusted EBITDA as the segment's net revenue and equity in net income of unconsolidated affiliates less 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. 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. Non-recurring items are 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. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of Segment Adjusted EBITDA. Segment Adjusted EBITDA also excludes any income and expense that has been classified as discontinued operations.
For more information on Segment Adjusted EBITDA and the use of Non-GAAP financial measures, see "Our Use of Non-GAAP Financial Measures" within Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.

34



A reconciliation of income before income taxes to Segment Adjusted EBITDA is as follows (in thousands):
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Income before income taxes
$
156,132

$
108,547

$
236,685

$
203,237

Equity in net income of unconsolidated affiliates (a)
(2,989
)
(1,444
)
(6,596
)
(4,134
)
Interest and investment loss (income), net
359

859

(117
)
1,547

Gain on FFF put and call rights (b)
(30,222
)
(10,850
)
(22,383
)
(7,567
)
Other (income) expense
(2,747
)
3,651

(3,009
)
2,309

Operating income
120,533

100,763

204,580

195,392

Depreciation and amortization
25,378

21,479

49,913

41,732

Amortization of purchased intangible assets
11,938

13,238

24,982

26,215

Stock-based compensation (c)
7,838

7,680

11,690

13,913

Acquisition and disposition related expenses
2,835

1,896

8,976

2,933

Remeasurement of tax receivable agreement liabilities (d)
(28,356
)

(23,682
)

Equity in net income of unconsolidated affiliates (a)
2,989

1,444

6,596

4,134

Deferred compensation plan income (expense) (e)
2,751

(4,235
)
2,992

(2,899
)
Other expense, net
2,499

679

2,614

1,050

Non-GAAP Adjusted EBITDA
$
148,405

$
142,944

$
288,661

$
282,470

 
 
 
 
 
Segment Non-GAAP Adjusted EBITDA:
 
 
 
 
Supply Chain Services
$
147,959

$
135,026

$
297,870

$
271,336

Performance Services
29,967

37,100

50,343

67,675

Corporate
(29,521
)
(29,182
)
(59,552
)
(56,541
)
Non-GAAP Adjusted EBITDA
$
148,405

$
142,944

$
288,661

$
282,470

(a)
Refer to Note 5 - Investments for more information.
(b)
Refer to Note 6 - Fair Value Measurements for more information.
(c)
Represents non-cash employee stock-based compensation expense and stock purchase plan expense of $0.1 million during both of the three months ended December 31, 2019 and 2018 and $0.2 million during both of the six months ended December 31, 2019 and 2018.
(d)
The adjustments to TRA liabilities for the three and six months ended December 31, 2019 is primarily attributable to decreases in the Premier, Inc. effective tax rate related to state tax liabilities.
(e)
Represents realized and unrealized gains and losses and dividend income on deferred compensation plan assets.
(18) SUBSEQUENT EVENTS
On February 4, 2020, the Company announced that it entered into an asset purchase agreement (the “Purchase Agreement”) dated as of February 3, 2020 to acquire substantially all of the assets and assume certain liabilities of Acurity, Inc. (“Acurity”) and Nexera, Inc. (“Nexera”). Acurity and Nexera are each indirect wholly-owned subsidiaries of Greater New York Hospital Association, Inc. (“GNYHA”). Acurity is a regional group purchasing organization and has been a customer and strategic partner of the Company for more than 24 years. Nexera is a hospital financial improvement consulting firm which partners with healthcare organizations to improve hospital and health system performance, with a significant focus on supply chain enhancement and transformation.
Pursuant to the terms of the Purchase Agreement, the Company will pay an aggregate amount of $291.5 million. The amount payable at closing is $166.1 million. An additional $120.0 million will be paid in four equal annual installments of $30.0 million on or about June 30, 2021, 2022, 2023 and 2024. An additional $5.4 million is expected to be paid during the Company’s third fiscal quarter of 2021. The Company expects to fund the transaction with borrowings under the Credit Facility. In addition to the aggregate amount of $291.5 million, the Purchase Agreement provides for a graduated contingent payment to GNYHA of up to $30.0 million based upon the Company’s achievement of a range of member renewals on terms to be agreed to by the Company and GNYHA based on prevailing market conditions in December 2023. At the closing of the transaction, GNYHA Purchasing

35



Alliance, LLC will unilaterally terminate its participation in the Tax Receivable Agreement made as of September 25, 2013, as amended to date, by and among Premier and the limited partners of Premier LP, and will cease to be a limited partner of Premier LP on November 2, 2020.
Prior to entering into the Purchase Agreement, Acurity agreed to provide one-time rebates to certain Acurity members based on their pre-closing purchasing volume. The Company has concluded that these one-time rebates, estimated between $92 million to $97 million, will be excluded from the purchase price and capitalized as prepaid contract administrative fee share at closing. The prepaid contract administrative fee share will be treated as a reduction in the determination of net administrative fee revenue over the remaining life of the acquired contracts on the Company’s financial statements.
This transaction is expected to close during the Company’s third fiscal quarter of 2020, subject to customary closing conditions.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report. This discussion is designed to provide the reader with information that will assist in understanding our condensed consolidated financial statements, the changes in certain key items in those financial statements from quarter to quarter, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our condensed consolidated financial statements. In addition, the following discussion includes certain forward-looking statements. For a discussion of important factors, including the continuing development of our business and other factors which could cause actual results to differ materially from the results referred to in the forward-looking statements, see the discussions under "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" herein and in our Form 10-K for the fiscal year ended June 30, 2019 (the "2019 Annual Report"), filed with the Securities and Exchange Commission ("SEC").
Business Overview
Our Business
Premier, Inc. ("Premier", the "Company", "we", or "our") is a leading healthcare improvement company, uniting an alliance of more than 4,000 U.S. hospitals and health systems and approximately 175,000 other providers and organizations to transform healthcare. We partner with hospitals, health systems, physicians and other healthcare providers with the common goal of improving and innovating in the clinical, financial and operational areas of their businesses to meet the demands of a rapidly evolving healthcare industry. We deliver value through a comprehensive technology-enabled platform that offers critical supply chain services, clinical, financial, operational and population health software-as-a-service ("SaaS") informatics products, consulting services and performance improvement collaborative programs.
As of December 31, 2019, we were owned, in part, by 155 U.S. hospitals, health systems and other healthcare organizations, which represented approximately 1,450 owned, leased and managed acute care facilities and other non-acute care organizations, through their ownership of Class B common stock. As of December 31, 2019, the outstanding Class A common stock and Class B common stock represented 54% and 46%, respectively, of our combined outstanding Class A and Class B common stock and accordingly, the Class B common stock held by member owners no longer represents the majority of our outstanding common stock. On July 31, 2019, as a result of the Class B common unit exchange process, we no longer qualified for the "controlled company" exemption under NASDAQ rules, and we must comply with all general NASDAQ rules regarding board and committee composition by July 31, 2020. We expect to comply with all NASDAQ rules in a timely manner, including having a majority of independent directors on the Board of Directors by July 31, 2020.
As of December 31, 2019, all of our Class B common stock was held beneficially by our member owners and all of our Class A common stock was held by public investors, which may include member owners that have received shares of our Class A common stock in connection with quarterly exchanges pursuant to an exchange agreement (the "Exchange Agreement") entered into by the member owners in connection with the completion of our initial public offering on October 1, 2013 (see Note 1 - Organization and Basis of Presentation to the accompanying condensed consolidated financial statements for more information).

36



We generated net revenue, net income from continuing operations and Adjusted EBITDA (a financial measure not determined in accordance with generally accepted accounting principles ("Non-GAAP")) for the periods presented as follows (in thousands):
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
2018
 
2019
2018
Net revenue
$
319,606

$
307,589

 
$
622,016

$
600,191

Net income from continuing operations
$
91,575

$
105,811

 
$
162,514

$
189,183

Non-GAAP Adjusted EBITDA
$
148,405

$
142,944

 
$
288,661

$
282,470

See "Our Use of Non-GAAP Financial Measures" and "Results of Operations" below for a discussion of our use of Non-GAAP Adjusted EBITDA and a reconciliation of net income from continuing operations to Non-GAAP Adjusted EBITDA.
Our Business Segments
Our business model and solutions are designed to provide our members access to scale efficiencies while focusing on optimization of information resources and cost containment, provide actionable intelligence derived from anonymized data in our data warehouse provided by our members, mitigate the risk of innovation and disseminate best practices that will help our member organizations succeed in their transformation to higher quality and more cost-effective healthcare. We deliver our integrated platform of solutions that address the areas of total cost management, quality and safety improvement and population health management through two business segments: Supply Chain Services and Performance Services.
Segment net revenue for the three months ended December 31, 2019 and 2018 was as follows (in thousands):
 
Three Months Ended December 31,
 
Change
 
% of Net Revenue
Net revenue:
2019
2018
 
2019
2018
 
2019
2018
Supply Chain Services
$
232,636

$
212,735

 
$
19,901

9
 %
 
73
%
69
%
Performance Services
86,970

94,854

 
(7,884
)
(8
)%
 
27
%
31
%
Net revenue
$
319,606

$
307,589

 
$
12,017

4
 %
 
100
%
100
%
Segment net revenue for the six months ended December 31, 2019 and 2018 was as follows (in thousands):
 
Six Months Ended December 31,
 
Change
 
% of Net Revenue
Net revenue:
2019
2018
 
2019
2018
 
2019
2018
Supply Chain Services
$
455,721

$
419,605

 
$
36,116

9
 %
 
73
%
70
%
Performance Services
166,295

180,586

 
(14,291
)
(8
)%
 
27
%
30
%
Net revenue
$
622,016

$
600,191

 
$
21,825

4
 %
 
100
%
100
%
Our Supply Chain Services segment includes one of the largest healthcare group purchasing organization programs ("GPO") in the United States, serving acute, non-acute, non-healthcare and alternate sites, and our direct sourcing activities. We generate revenue in our Supply Chain Services segment from administrative fees received from suppliers based on the total dollar volume of supplies purchased by our members and through product sales in connection with our direct sourcing activities.
Our Performance Services segment includes one of the largest informatics and consulting services businesses in the United States focused on healthcare providers. Our software as a service ("SaaS") informatics products utilize our comprehensive data set to provide actionable intelligence to our members, enabling them to benchmark, analyze and identify areas of improvement across three main categories: cost management, quality and safety, and population health management. The Performance Services segment also includes our technology-enabled performance improvement collaboratives, consulting services and insurance management services.
Acquisitions and Divestitures

37



Acquisition of Medpricer
On October 28, 2019, we acquired all of the outstanding capital stock in Medpricer.com, Inc. ("Medpricer") for an adjusted purchase price of $38.5 million with borrowings under the Credit Facility. Medpricer is a SaaS-based provider of technology solutions that enable hospitals and other organizations to analyze, benchmark and source purchased services contracts independent of any existing GPO affiliation. Medpricer is reported as part of the Supply Chain Services segment. See Note 3 - Business Acquisitions to the accompanying condensed consolidated financial statements for further information.
Acquisition of Stanson
On November 9, 2018, we acquired all of the outstanding capital stock in Stanson Health, Inc. ("Stanson") for an adjusted purchase price of $55.4 million. Stanson is a SaaS-based provider of clinical decision support tools that are integrated directly into the electronic health record workflow, to help provide real-time, patient-specific best practices at the point of care. Stanson is reported as part of the Performance Services segment. See Note 3 - Business Acquisitions to the accompanying condensed consolidated financial statements for further information.
Divestiture of Specialty Pharmacy Business - Discontinued Operations
On June 7, 2019, we completed the sale of prescription files and records and certain other assets used in our specialty pharmacy business for $22.3 million. On June 10, 2019, we received $7.6 million for the sale of a portion of our pharmaceutical inventory and on July 24, 2019, an additional $3.6 million primarily in connection with the sale of our remaining pharmaceutical inventory. As of December 31, 2019, we had substantially completed the wind down and exit from the specialty pharmacy business.
We met the criteria for classifying certain assets and liabilities of the specialty pharmacy business as a discontinued operation as of June 30, 2019. Accordingly, unless otherwise indicated, information in this Quarterly Report has been retrospectively adjusted to reflect continuing operations for all periods presented. See Note 4 - Discontinued Operations and Exit Activities to the accompanying condensed consolidated financial statements for further information.
Market and Industry Trends and Outlook
We expect that certain trends and economic or industry-wide factors will continue to affect our business, both in the short-term and long-term. We have based our expectations described below on assumptions made by us and on information currently available to us. To the extent our underlying assumptions about, or interpretation of, available information prove to be incorrect, our actual results may vary materially from our expected results. See "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in the 2019 Annual Report.
Trends in the U.S. healthcare market affect our revenues and costs in the Supply Chain Services and Performance Services segments. The trends we see affecting our current healthcare business include the impact of the implementation of current or future healthcare legislation, particularly the uncertainty regarding the status of the Affordable Care Act, its repeal, replacement, or other modification, the enactment of new regulatory and reporting requirements, expansion and contraction of insurance coverage and associated costs that may impact subscriber elections, intense cost pressure, payment reform, provider consolidation, shift in care to the alternate site market and increased data availability and transparency. To meet the demands of this environment, there will be increased focus on scale and cost containment and healthcare providers will need to measure and report on and bear financial risk for outcomes. Over the long-term, we believe these trends will result in increased demand for our Supply Chain Services and Performance Services solutions in the areas of cost management, quality and safety, and population health management, however, there are uncertainties and risks that may affect the actual impact of these anticipated trends, expected demand for our services or related assumptions on our business. See "Cautionary Note Regarding Forward-Looking Statements" for more information.
Critical Accounting Policies and Estimates
Refer to Note 1 - Organization and Basis of Presentation and Note 2 - Significant Accounting Policies to the accompanying condensed consolidated financial statements for more information related to our use of estimates in the preparation of financial statements as well as information related to material changes in our significant accounting policies that were included in our 2019 Annual Report.
New Accounting Standards
New accounting standards that we have recently adopted as well as those that have been recently issued but not yet adopted by us are included in Note 2 - Significant Accounting Policies to the accompanying condensed consolidated financial statements, which is incorporated herein by reference.

38



Key Components of Our Results of Operations
Net Revenue
Net revenue consists of service revenue, which includes net administrative fees revenue and other services and support revenue, and product revenue. Net administrative fees revenue consists of GPO net administrative fees in our Supply Chain Services segment. Other services and support revenue consists primarily of fees generated by our Performance Services segment in connection with our SaaS informatics products subscriptions, license fees, consulting services and performance improvement collaborative subscriptions, and, to a lesser extent, service fees from our academic initiative. Product revenue consists of direct sourcing product sales, which are included in the Supply Chain Services segment.
Supply Chain Services
Supply Chain Services revenue consists of GPO net administrative fees (gross administrative fees received from suppliers, reduced by the amount of revenue share paid to members) and direct sourcing revenue.
The success of our Supply Chain Services revenue streams are influenced by our ability to negotiate favorable contracts with suppliers and members, the number of members that utilize our GPO supplier contracts and the volume of their purchases, as well as the impact of changes in the defined allowable reimbursement amounts determined by Medicare, Medicaid and other managed care plans and the number of members that purchase products through our direct sourcing activities and the impact of competitive pricing.
Performance Services
Performance Services revenue consists of SaaS informatics products subscriptions, license fees, performance improvement collaborative and other service subscriptions, professional fees for consulting services, insurance services management fees and commissions from endorsed commercial insurance programs.
Our Performance Services growth will depend upon the expansion of our SaaS informatics products, performance improvement collaboratives and consulting services to new and existing members, renewal of existing subscriptions to our SaaS and licensed informatics products, and our ability to generate additional applied sciences engagements and expand into new markets.
Cost of Revenue
Cost of revenue consists of cost of service revenue and cost of product revenue.
Cost of service revenue includes expenses related to employees (including compensation and benefits) and outside consultants who directly provide services related to revenue-generating activities, including consulting services to members and implementation services related to SaaS informatics along with associated amortization of certain capitalized contract costs. Amortization of contract costs represent amounts that have been capitalized and reflect the incremental costs of obtaining and fulfilling a contract. Amortization of contract costs included within cost of service revenue include costs related to implementing SaaS informatics tools. Cost of service revenue also includes expenses related to hosting services, related data center capacity costs, third-party product license expenses and amortization of the cost of internally-developed software applications.
Cost of product revenue consists of purchase and shipment costs for direct sourced medical products. Our cost of product revenue is influenced by the manufacturing and transportation costs associated with direct sourced medical products.
Operating Expenses
Selling, general and administrative expenses are directly associated with selling and administrative functions and support of revenue-generating activities including expenses to support and maintain our software-related products and services. Selling, general and administrative expenses primarily consist of compensation and benefits related costs, travel-related expenses, business development expenses, including costs for business acquisition opportunities, business disposition related expenses, indirect costs such as insurance, professional fees and other general overhead expenses, and amortization of certain contract costs. Amortization of contract costs represent amounts that have been capitalized and reflect the incremental costs of obtaining and fulfilling a contract. Amortization of contract costs included within selling, general and administrative expenses include sales commissions.
Research and development expenses consist of employee-related compensation and benefit expenses and third-party consulting fees of technology professionals, net of capitalized labor, incurred to develop our software-related products and services.
Amortization of purchased intangible assets includes the amortization of all identified intangible assets.

39



Other Income, Net
Other income, net, includes equity in net income of unconsolidated affiliates that is generated from our equity method investments. Our equity method investments primarily consist of our 49% ownership in FFF Enterprises, Inc. ("FFF"). Other income, net, also includes the change in fair value of our FFF put and call rights (see Note 6 - Fair Value Measurements to the accompanying condensed consolidated financial statements), interest income and expense, realized and unrealized gains or losses on deferred compensation plan assets and gains or losses on the disposal of assets.
Income Tax Expense
Our income tax expense is attributable to the activities of Premier, Inc., Premier Healthcare Solutions, Inc. ("PHSI"),Premier Supply Chain Improvement, Inc. ("PSCI") and Premier Marketplace, LLC ("PMLLC"), all of which are subchapter C corporations and are subject to U.S. federal and state income taxes. In contrast, under the provisions of federal and state laws, Premier LP is not subject to federal and state income taxes as the income realized by Premier LP is taxable to its partners. Our overall effective tax rate differs from the U.S. statutory tax rate primarily due to the aforementioned ownership structure as well as other items noted in Note 14 - Income Taxes to the accompanying condensed consolidated financial statements.
Given our ownership and capital structure, various effective tax rates are calculated for specific tax items. For example, the deferred tax benefit related to stock-based compensation expense (see Note 13 - Stock-Based Compensation to the accompanying condensed consolidated financial statements) is calculated based on the effective tax rate of PHSI, the legal entity where the majority of stock-based compensation expense is recorded. Our effective tax rate, as discussed in Note 14 - Income Taxes to the accompanying condensed consolidated financial statements, represents the effective tax rate computed in accordance with GAAP based on total income tax expense (reflected in income tax expense in the Condensed Consolidated Statements of Income) of Premier, Inc., PHSI and PSCI, divided by consolidated pre-tax income.
Non-GAAP Adjusted Fully Distributed Net Income is calculated net of taxes based on our fully distributed tax rate for federal and state income tax for us as a whole as if we were one taxable entity with all of our subsidiaries' activities included. The rate used to compute Non-GAAP Adjusted Fully Distributed Net Income was 26% for the three and six months ended December 31, 2019 and 2018.
Income (Loss) from Discontinued Operations, Net of Tax
Income (loss) from discontinued operations, net of tax represents the net income or loss associated with the sale of certain assets and wind down and exit of the specialty pharmacy business. See Note 4 - Discontinued Operations and Exit Activities to the accompanying condensed consolidated financial statements for further information.
Net Income Attributable to Non-Controlling Interest
As of December 31, 2019, we owned an approximate 54% controlling general partner interest in Premier LP through our wholly-owned subsidiary, Premier Services, LLC ("Premier GP"). Net income attributable to non-controlling interest represents the portion of net income attributable to the limited partners of Premier LP, which was approximately 46% and 51% as of December 31, 2019 and June 30, 2019, respectively (see Note 10 - Redeemable Limited Partners' Capital to the accompanying condensed consolidated financial statements).
Our Use of Non-GAAP Financial Measures
The other key business metrics we consider are EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Fully Distributed Net Income, Adjusted Fully Distributed Earnings per Share and Free Cash Flow, which are all Non-GAAP financial measures.
We define EBITDA as net income before loss from discontinued operations, net of tax, interest and investment income, net, income tax expense, depreciation and amortization and amortization of purchased intangible assets. We define Adjusted EBITDA as EBITDA before merger and acquisition related expenses and non-recurring, non-cash or non-operating items and including equity in net income 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.
We define Segment Adjusted EBITDA 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

40



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. Segment Adjusted EBITDA also excludes any income and expense that has been classified as discontinued operations.
We define Adjusted Fully Distributed Net Income as net income attributable to Premier (i) excluding loss from discontinued operations, net, (ii) excluding income tax expense, (iii) excluding the impact of adjustment of redeemable limited partners' capital to redemption amount, (iv) excluding the effect of non-recurring and non-cash items, (v) 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 (vi) reflecting an adjustment for income tax expense on Non-GAAP fully distributed net income before income taxes at our 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 (see Note 12 - Earnings (Loss) Per Share).
We define Free Cash Flow as net cash provided by operating activities from continuing operations less distributions and TRA 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.
Adjusted EBITDA and Free Cash Flow are supplemental financial measures used by us and by external users of our financial statements and are considered to be indicators of the operational strength and performance of our business. Adjusted EBITDA and Free Cash Flow measures allow us to assess our performance without regard to financing methods and capital structure and without the impact of other matters that we do not consider indicative of the operating performance of our business. More specifically, Segment Adjusted EBITDA is the primary earnings measure we use to evaluate the performance of our business segments.
We use Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Fully Distributed Net Income and Adjusted Fully Distributed Earnings per Share to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting our business. We believe Adjusted EBITDA and Segment Adjusted EBITDA assist our Board of Directors, management and investors in comparing our operating performance on a consistent basis from period to period because they remove the impact of earnings elements attributable to our asset base (primarily depreciation and amortization), certain items outside the control of our management team, e.g. taxes, other non-cash items (such as impairment of intangible assets, purchase accounting adjustments and stock-based compensation), and non-recurring items (such as strategic and financial restructuring expenses) and income and expense that has been classified as discontinued operations from our operating results. We believe Adjusted Fully Distributed Net Income and Adjusted Fully Distributed Earnings per Share 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 (such as impairment of intangible assets, purchase accounting adjustments and stock-based compensation) and non-recurring items (such as strategic and financial restructuring expenses), and eliminate the variability of non-controlling interest that results from member owner exchanges of Class B common units for shares of Class A common stock. We believe Free Cash Flow is an important measure because it represents the cash that we generate 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. Our Free Cash Flow allows us to enhance stockholder value through acquisitions, partnerships, joint ventures, investments in related businesses and debt reduction.
Despite the importance of these Non-GAAP financial measures in analyzing our business, determining compliance with certain financial covenants in our Credit Facility, measuring and determining incentive compensation and evaluating our operating performance relative to our competitors, EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Fully Distributed Net Income, Adjusted Fully Distributed Earnings per Share and Free Cash Flow are not measurements of financial performance under GAAP, may have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income, net cash provided by operating activities, or any other measure of our performance derived in accordance with GAAP.
Some of the limitations of the EBITDA, Adjusted EBITDA and Segment Adjusted EBITDA measures include that they do not reflect: our capital expenditures or our future requirements for capital expenditures or contractual commitments; changes in, or cash requirements for, our working capital needs; the interest expense or the cash requirements to service interest or principal payments under our Credit Facility; income tax payments we are required to make; and any cash requirements for replacements of assets being depreciated or amortized. In addition, EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA and Free Cash Flow are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flows from operating activities.
Some of the limitations of the Adjusted Fully Distributed Net Income and Adjusted Fully Distributed Earnings per Share measures are that they do not reflect income tax expense or income tax payments we are required to make. In addition, Adjusted Fully Distributed Net Income and Adjusted Fully Distributed Earnings per Share are not measures of profitability under GAAP.

41



We also urge you to review the reconciliation of these Non-GAAP financial measures included elsewhere in this Quarterly Report. To properly and prudently evaluate our business, we encourage you to review the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and to not rely on any single financial measure to evaluate our business. In addition, because the EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Fully Distributed Net Income, Adjusted Fully Distributed Earnings per Share and Free Cash Flow measures are susceptible to varying calculations, such Non-GAAP financial measures may differ from, and may therefore not be comparable to, similarly titled measures used by other companies.
Non-recurring and non-cash items excluded in our calculation of Adjusted EBITDA, Segment Adjusted EBITDA and Adjusted Fully Distributed Net Income consist of stock-based compensation, acquisition and disposition related expenses, remeasurement of TRA liabilities, gain on FFF put and call rights, income and expense that has been classified as discontinued operations and other expense. More information about certain of the more significant items follows below.
Stock-based compensation
In addition to non-cash employee stock-based compensation expense, this item includes non-cash stock purchase plan expense of $0.1 million for both the three months ended December 31, 2019 and 2018 and $0.2 million for both the six months ended December 31, 2019 and 2018 (see Note 13 - Stock-Based Compensation to the accompanying condensed consolidated financial statements).
Acquisition and disposition related expenses
Acquisition related expenses include legal, accounting and other expenses related to acquisition activities and gains and losses on the change in fair value of earn-out liabilities. Disposition related expenses include severance and retention benefits and financial advisor fees and legal fees related to disposition activities.
Remeasurement of TRA liabilities
We record TRA liabilities based on 85% of the estimated amount of tax savings we expect to receive, generally over a 15-year period, which are attributable to the initial purchase of Class B common units from the member owners made concurrently with the IPO and subsequent exchanges by member owners of Class B common units into Class A common stock or cash. Tax payments made under the TRA will be made to the member owners as we realize tax benefits. Determining the estimated amount of tax savings we expect to receive requires judgment as deductibility of goodwill amortization expense is not assured and the estimate of tax savings is dependent upon the actual realization of the tax benefit and the tax rates in effect at that time.
Changes in estimated TRA liabilities that are the result of a change in tax accounting method are recorded as a component of selling, general and administrative expenses in the Condensed Consolidated Statements of Income. Changes in estimated TRA liabilities that are related to new basis changes as a result of the exchange of Class B common units for a like number of shares of Class A common stock or as a result of departed member owners are recorded as an increase to additional paid-in capital in the Condensed Consolidated Statements of Stockholders' Deficit.
The adjustments to TRA liabilities for the three months ended December 31, 2019 and the six months ended December 31, 2019 are primarily attributable to increases in the Premier, Inc. effective tax rate related to state tax liabilities (see Note 14 - Income Taxes to the accompanying condensed consolidated financial statements).
Gain or loss on FFF put and call rights
See Note 6 - Fair Value Measurements to the accompanying condensed consolidated financial statements.
Results of Operations
Results of operations for all periods presented have been retrospectively adjusted to reflect continuing operations unless otherwise indicated.
The following table summarizes our results of operations for the periods presented (in thousands, except per share data):
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
2018
 
2019
2018
 
Amount
% of Net Revenue
Amount
% of Net Revenue
 
Amount
% of Net Revenue
Amount
% of Net Revenue
Net revenue:
 
 
 
 
 
 
 
 
 

42



 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
2018
 
2019
2018
 
Amount
% of Net Revenue
Amount
% of Net Revenue
 
Amount
% of Net Revenue
Amount
% of Net Revenue
Net administrative fees
$
172,114

54%
$
165,695

54%
 
$
344,517

55%
$
327,695

54%
Other services and support
89,452

28%
97,680

32%
 
171,338

28%
184,623

31%
Services
261,566

82%
263,375

86%
 
515,855

83%
512,318

85%
Products
58,040

18%
44,214

14%
 
106,161

17%
87,873

15%
Net revenue
319,606

100%
307,589

100%
 
622,016

100%
600,191

100%
Cost of revenue:
 
 
 

 
 
 
 
 
Services
47,422

15%
43,189

15%
 
94,958

15%
86,561

14%
Products
52,819

16%
44,762

15%
 
96,294

16%
84,529

14%
Cost of revenue
100,241

31%
87,951

30%
 
191,252

31%
171,090

28%
Gross profit
219,365

69%
219,638

70%
 
430,764

69%
429,101

72%
Operating expenses:
 

 

 
 
 
 
 
Selling, general and administrative
86,093

27%
105,345

34.25%
 
200,022

32%
206,862

35%
Research and development
801

—%
292

0.09%
 
1,180

—%
632

—%
Amortization of purchased intangible assets
11,938

4%
13,238

4.30%
 
24,982

4%
26,215

4%
Operating expenses
98,832

31%
118,875

38.00%
 
226,184

36%
233,709

39%
Operating income
120,533

38%
100,763

32.00%
 
204,580

33%
195,392

33%
Other income, net
35,599

11%
7,784

2.53%
 
32,105

5%
7,845

1%
Income before income taxes
156,132

49%
108,547

35%
 
236,685

38%
203,237

34%
Income tax expense
64,557

20%
2,736

1%
 
74,171

12%
14,054

2%
Net income from continuing operations
91,575

29%
105,811

34%
 
162,514

26%
189,183

32%
Income (loss) from discontinued operations, net of tax
614

—%
(1,000
)
—%
 
1,004

—%
(2,399
)
(1)%
Net income
92,189

29%
104,811

34%
 
163,518

26%
186,784

31%
Net income from continuing operations attributable to non-controlling interest in Premier LP
(55,424
)
(17)%
(63,150
)
(21)%
 
(97,134
)
(16)%
(119,095
)
(20)%
Net (income) loss from discontinued operations attributable to non-controlling interest in Premier LP
(280
)
—%
519

—%
 
(477
)
—%
1,351

—%
Net income attributable to non-controlling interest in Premier LP
(55,704
)
(17)%
(62,631
)
(20)%
 
(97,611
)
(16)%
(117,744
)
(20)%
Adjustment of redeemable limited partners' capital to redemption amount
(480,153
)
nm
651,709

nm
 
214,156

nm
(56,484
)
nm
Net (loss) income attributable to stockholders
$
(443,668
)
nm
$
693,889

nm
 
$
280,063

nm
$
12,556

nm
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
64,552

 
59,876

 
 
63,668

 
56,548

 
Diluted
64,552

 
133,672

 
 
124,831

 
57,584

 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to stockholders:
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
 
 
 
 
 
 
 
 
 
Continuing operations
$
(6.88
)
 
$
11.60

 
 
$
4.39

 
$
0.24

 
Discontinued operations
0.01

 
(0.01
)
 
 
0.01

 
(0.02
)
 
Basic earnings (loss) per share attributable to stockholders
$
(6.87
)
 
$
11.59

 
 
$
4.40

 
$
0.22

 
 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
 
 
 
 
 
 
 
 
 

43



 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
2018
 
2019
2018
 
Amount
% of Net Revenue
Amount
% of Net Revenue
 
Amount
% of Net Revenue
Amount
% of Net Revenue
Continuing operations
$
(6.88
)
 
$
0.70

 
 
$
1.12

 
$
0.24

 
Discontinued operations
0.01

 
(0.01
)
 
 
0.01

 
(0.02
)
 
Diluted earnings (loss) per share attributable to stockholders
$
(6.87
)
 
$
0.69

 
 
$
1.13

 
$
0.22

 
nm = Not meaningful
The following table provides certain Non-GAAP financial measures for the periods presented (in thousands, except per share data). Refer to "Our Use of Non-GAAP Financial Measures" for further information regarding items excluded in our calculation of Adjusted EBITDA and Segment Adjusted EBITDA.
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
2018
 
2019
2018
Certain Non-GAAP Financial Data:
Amount
% of Net Revenue
Amount
% of Net Revenue
 
Amount
% of Net Revenue
Amount
% of Net Revenue
Adjusted EBITDA
$
148,405

46%
$
142,944

46%
 
$
288,661

46%
$
282,470

47%
Non-GAAP Adjusted Fully Distributed Net Income
$
90,774

28%
$
89,248

29%
 
$
176,760

28%
$
177,001

29%
Non-GAAP Adjusted Fully Distributed Earnings Per Share
$
0.74

nm
$
0.67

nm
 
$
1.42

nm
$
1.32

nm
The following table provides the reconciliation of net income from continuing operations to Adjusted EBITDA and the reconciliation of income before income taxes to Segment Adjusted EBITDA (in thousands). Refer to "Our Use of Non-GAAP Financial Measures" for further information regarding items excluded in our calculation of Adjusted EBITDA and Segment Adjusted EBITDA.
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Net income from continuing operations
$
91,575

$
105,811

$
162,514

$
189,183

Interest and investment loss (income), net
359

859

(117
)
1,547

Income tax expense
64,557

2,736

74,171

14,054

Depreciation and amortization
25,378

21,479

49,913

41,732

Amortization of purchased intangible assets
11,938

13,238

24,982

26,215

EBITDA
193,807

144,123

311,463

272,731

Stock-based compensation
7,838

7,680

11,690

13,913

Acquisition and disposition related expenses
2,835

1,896

8,976

2,933

Remeasurement of tax receivable agreement liabilities
(28,356
)

(23,682
)

Gain on FFF put and call rights
(30,222
)
(10,850
)
(22,383
)
(7,567
)
Other expense
2,503

95

2,597

460

Adjusted EBITDA
$
148,405

$
142,944

$
288,661

$
282,470

 
 
 
 
 
Income before income taxes
$
156,132

$
108,547

$
236,685

$
203,237

Equity in net income of unconsolidated affiliates
(2,989
)
(1,444
)
(6,596
)
(4,134
)
Interest and investment loss (income), net
359

859

(117
)
1,547

Gain on FFF put and call rights
(30,222
)
(10,850
)
(22,383
)
(7,567
)
Other (income) expense
(2,747
)
3,651

(3,009
)
2,309

Operating income
120,533

100,763

204,580

195,392

Depreciation and amortization
25,378

21,479

49,913

41,732

Amortization of purchased intangible assets
11,938

13,238

24,982

26,215

Stock-based compensation
7,838

7,680

11,690

13,913


44



 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Acquisition and disposition related expenses
2,835

1,896

8,976

2,933

Remeasurement of tax receivable agreement liabilities
(28,356
)

(23,682
)

Equity in net income of unconsolidated affiliates
2,989

1,444

6,596

4,134

Deferred compensation plan income (expense)
2,751

(4,235
)
2,992

(2,899
)
Other expense, net
2,499

679

2,614

1,050

Adjusted EBITDA
$
148,405

$
142,944

$
288,661

$
282,470

 
 
 
 
 
Segment Adjusted EBITDA:
 
 
 
 
Supply Chain Services
$
147,959

$
135,026

$
297,870

$
271,336

Performance Services
29,967

37,100

50,343

67,675

Corporate
(29,521
)
(29,182
)
(59,552
)
(56,541
)
Adjusted EBITDA
$
148,405

$
142,944

$
288,661

$
282,470


45



The following table provides the reconciliation of net (loss) income attributable to stockholders to Non-GAAP Adjusted Fully Distributed Net Income and the reconciliation of the numerator and denominator for (loss) earnings per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per Share for the periods presented (in thousands). Refer to "Our Use of Non-GAAP Financial Measures" for further information regarding items excluded in our calculation of Non-GAAP Adjusted Fully Distributed Net Income and Non-GAAP Adjusted Fully Distributed Earnings per Share.
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
Net (loss) income attributable to stockholders
$
(443,668
)
$
693,889

$
280,063

$
12,556

Adjustment of redeemable limited partners' capital to redemption amount
480,153

(651,709
)
(214,156
)
56,484

Net income attributable to non-controlling interest in Premier LP
55,704

62,631

97,611

117,744

(Income) loss from discontinued operations, net of tax
(614
)
1,000

(1,004
)
2,399

Income tax expense
64,557

2,736

74,171

14,054

Amortization of purchased intangible assets
11,938

13,238

24,982

26,215

Stock-based compensation
7,838

7,680

11,690

13,913

Acquisition and disposition related expenses
2,835

1,896

8,976

2,933

Remeasurement of tax receivable agreement liabilities
(28,356
)

(23,682
)

Gain on FFF put and call rights
(30,222
)
(10,850
)
(22,383
)
(7,567
)
Other expense
2,503

95

2,597

460

Non-GAAP adjusted fully distributed income before income taxes
122,668

120,606

238,865

239,191

Income tax expense on fully distributed income before income taxes (a)
31,894

31,358

62,105

62,190

Non-GAAP Adjusted Fully Distributed Net Income
$
90,774

$
89,248

$
176,760

$
177,001

 
 
 
 
 
Reconciliation of denominator for (loss) earnings per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per Share
 
 
Weighted Average:
 
 
 
 
Common shares used for basic and diluted (loss) earnings per share
64,552

59,876

63,668

56,548

Potentially dilutive shares
579

1,005

670

1,036

Conversion of Class B common units
57,898

72,791

60,493

76,293

Weighted average fully distributed shares outstanding - diluted
123,029

133,672

124,831

133,877

(a)
Reflects income tax expense at an estimated effective income tax rate of 26% of Non-GAAP adjusted fully distributed income before income taxes.

46



The following table provides the reconciliation of (loss) earnings per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per Share for the periods presented. Refer to "Our Use of Non-GAAP Financial Measures" for further information regarding items excluded in our calculation of Non-GAAP Adjusted Fully Distributed Earnings per Share.
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2019
2018
2019
2018
(Loss) earnings per share attributable to stockholders
$
(6.87
)
$
11.59

$
4.40

$
0.22

Adjustment of redeemable limited partners' capital to redemption amount
7.44

(10.88
)
(3.36
)
1.00

Net income attributable to non-controlling interest in Premier LP
0.86

1.05

1.53

2.08

(Income) loss from discontinued operations, net of tax
(0.01
)
0.02

(0.02
)
0.04

Income tax expense
1.00

0.05

1.16

0.25

Amortization of purchased intangible assets
0.18

0.22

0.39

0.46

Stock-based compensation
0.12

0.13

0.18

0.25

Acquisition and disposition related expenses
0.04

0.03

0.14

0.05

Remeasurement of tax receivable agreement liabilities
(0.44
)

(0.37
)

Gain on FFF put and call rights
(0.47
)
(0.18
)
(0.35
)
(0.13
)
Other expense
0.04


0.04

0.01

Impact of corporation taxes (a)
(0.49
)
(0.53
)
(0.98
)
(1.10
)
Impact of dilutive shares (b)
(0.66
)
(0.83
)
(1.34
)
(1.81
)
Non-GAAP Adjusted Fully Distributed Earnings Per Share
$
0.74

$
0.67

$
1.42

$
1.32

(a)
Reflects income tax expense at an estimated effective income tax rate of 26% of Non-GAAP adjusted fully distributed income before income taxes.
(b)
Reflects impact of dilutive shares, primarily attributable to the assumed conversion of all Class B common units for Class A common stock.
Consolidated Results - Comparison of the Three Months Ended December 31, 2019 to 2018
Net Revenue
Net revenue increased by $12.0 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to an increase of $13.8 million in product revenue and an increase of $6.4 million in net administrative fees revenue, partially offset by a decrease of $8.2 million in other services and support revenue. The variances in the material factors contributing to the changes in consolidated net revenue are discussed further in "Segment Results" below.
Cost of Revenue
Cost of revenue increased by $12.2 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to an increase of $8.0 million in cost of product revenue and an increase of $4.2 million in cost of services revenue. The variances in the material factors contributing to the changes in consolidated cost of revenue are discussed further in "Segment Results" below.
Operating Expenses
Operating expenses decreased by $20.1 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to a decrease of $19.2 million in selling, general and administrative expenses largely due to a decrease of $28.4 million due to the remeasurement of the TRA liability as a result of the change in North Carolina state income tax law offset by other factors discussed further in "Segment Results". The decrease in operating expenses was also due to a decrease of $1.3 million in amortization of purchased intangible assets partially offset by an increase of $0.5 million in research and development expenses. The variances in the material factors contributing to the changes in consolidated operating expenses are discussed further in "Segment Results" below.

47



Other Income, Net
Other income, net increased by $27.8 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to an increase in the gain on FFF put and call rights in the current period (see Note 6 - Fair Value Measurements to the accompanying condensed consolidated financial statements for further information).
Income Tax Expense
For the three months ended December 31, 2019 and 2018, we recorded tax expense of $64.6 million and $2.7 million, respectively, which equates to effective tax rates of 41% and 3%, effectively. The increase in effective tax rate is primarily attributable to the remeasurement of deferred tax balances related to the change in North Carolina state income tax law. Our effective tax rates differ from income taxes recorded at the statutory income tax rate primarily due to partnership income not subject to federal, state and local income taxes. See Note 14 - Income Taxes to the accompanying condensed consolidated financial statements for more information.
Income (Loss) from Discontinued Operations, Net of Tax
Income (loss) from discontinued operations, net of tax increased by $1.6 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to the substantial completion of the wind down of the specialty pharmacy business.
Net Income Attributable to Non-Controlling Interest
Net income attributable to non-controlling interest decreased by $6.9 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to a decrease in non-controlling ownership percentage in Premier LP to 46% from 53%, respectively.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA increased by $5.5 million during the three months ended December 31, 2019, compared to the three months ended December 31, 2018. The variances in the material factors contributing to the changes in consolidated Non-GAAP Adjusted EBITDA are discussed further in "Segment Results" below.
Consolidated Results - Comparison of the Six Months Ended December 31, 2019 to 2018
Net Revenue
Net revenue increased by $21.8 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to an increase of $18.3 million in product revenue and an increase of $16.8 million in net administrative fees revenue, partially offset by a decrease of $13.3 million in other services and support revenue. The variances in the material factors contributing to the changes in consolidated net revenue are discussed further in "Segment Results" below.
Cost of Revenue
Cost of revenue increased by $20.2 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to increase of $11.8 million in cost of product revenue and an increase of $8.4 million in cost of services revenue. The variances in the material factors contributing to the changes in consolidated cost of revenue are discussed further in "Segment Results" below.
Operating Expenses
Operating expenses decreased by $7.5 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to a decrease of $6.9 million in selling, general and administrative expenses largely due to a decrease of $23.7 million due to the remeasurement of the TRA liability as a result of the change in North Carolina state income tax law offset by other factors discussed further in "Segment Results". The decrease in operating expenses was also due to a decrease of $1.2 million in amortization of purchased intangible assets partially offset by an increase of $0.6 million in research and development expenses. The variances in the material factors contributing to the changes in consolidated operating expenses are discussed further in "Segment Results" below.
Other Income, Net
Other income, net increased by $24.3 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to an increase in the gain on FFF put and call rights in the current period (see Note 6 - Fair

48



Value Measurements to the accompanying condensed consolidated financial statements for further information) and an increase in equity in net income of unconsolidated affiliates primarily due to our investment in FFF (see Note 5 - Investments to the accompanying condensed consolidated financial statements for further information).
Income Tax Expense
For the six months ended December 31, 2019 and 2018, we recorded tax expense of $74.2 million and $14.1 million, respectively, which equates to effective tax rates of 31% and 7%, respectively. The increase in effective tax rate is primarily attributable to the remeasurement of deferred tax balances related to the change in North Carolina state income tax law. Our effective tax rates differ from income taxes recorded at the statutory income tax rate primarily due to partnership income not subject to federal, state, and local income taxes. See Note 14 - Income Taxes to the accompanying condensed consolidated financial statements for more information.
Income (Loss) from Discontinued Operations, Net of Tax
Income (loss) from discontinued operations, net of tax increased by $3.4 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to the substantial completion of the wind down of the specialty pharmacy business.
Net Income Attributable to Non-Controlling Interest
Net income attributable to non-controlling interest decreased by $20.1 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to a decrease in non-controlling ownership percentage in Premier LP to 46% from 53%, respectively, as well as a decrease in income of Premier LP.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA increased by $6.2 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018. The variances in the material factors contributing to the changes in consolidated Non-GAAP Adjusted EBITDA are discussed further in "Segment Results" below.

49



Segment Results
Supply Chain Services
The following table summarizes our results of operations and Non-GAAP Segment Adjusted EBITDA in the Supply Chain Services segment for the periods presented (in thousands):
 
Three Months Ended December 31,
 
 
 
Six Months Ended December 31,
 
 
Supply Chain Services
2019
2018
Change
 
2019
2018
Change
Net revenue:
 
 
 
 
 
 
 
 
 
Net administrative fees
$
172,114

$
165,695

$
6,419

4%
 
$
344,517

$
327,695

$
16,822

5
 %
Other services and support
2,482

2,826

(344
)
(12)%
 
5,043

4,037

1,006

25
 %
Services
174,596

168,521

6,075

4%
 
349,560

331,732

17,828

5
 %
Products
58,040

44,214

13,826

31%
 
106,161

87,873

18,288

21
 %
Net revenue
232,636

212,735

19,901

9%
 
455,721

419,605

36,116

9
 %
Cost of revenue:
 
 



 
 
 
 
 
Services
(252
)
100

(352
)
nm
 
154

123

31

25
 %
Products
52,819

44,762

8,057

18%
 
96,294

84,529

11,765

14
 %
Cost of revenue
52,567

44,862

7,705

17%
 
96,448

84,652

11,796

14
 %
Gross profit
180,069

167,873

12,196

7%
 
359,273

334,953

24,320

7
 %
Operating expenses:
 
 



 
 
 
 
 
Selling, general and administrative
37,599

35,696

1,903

5%
 
73,665

70,246

3,419

5
 %
Research and development
6


6

—%
 
6


6

 %
Amortization of purchased intangible assets
4,096

4,379

(283
)
(6)%
 
8,193

8,758

(565
)
(6
)%
Operating expenses
41,701

40,075

1,626

4%
 
81,864

79,004

2,860

4
 %
Operating income
$
138,368

$
127,798

$
10,570

8%
 
$
277,409

$
255,949

$
21,460

8
 %
Depreciation and amortization
773

205




 
1,501

530

 
 
Amortization of purchased intangible assets
4,096

4,379




 
8,193

8,758

 
 
Acquisition and disposition related expenses
1,859

1,319




 
4,334

2,172

 
 
Equity in net income of unconsolidated affiliates
2,863

1,325




 
6,433

3,921

 
 
Other expense





 

6

 
 
Non-GAAP Segment Adjusted EBITDA
$
147,959

$
135,026

$
12,933

10%
 
$
297,870

$
271,336

$
26,534

10
 %
Comparison of the Three Months Ended December 31, 2019 to 2018
Net Revenue
Supply Chain Services segment net revenue increased by $19.9 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018.
Net administrative fees revenue increased by $6.4 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018. Growth in net administrative fees revenue was primarily due to continuing contract penetration driven largely by the company’s high-compliance portfolio programs and the addition of new contract categories and suppliers. We expect our net administrative fees revenue to continue to grow to the extent our existing members increase the utilization of our contracts and additional members convert to our contract portfolio. Due to competitive market trends, we have experienced, and expect to continue to experience, requests to provide existing and prospective members increases in revenue share on incremental or overall purchasing volume that could, if materially increased, adversely impact our revenues and overall financial performance.
Product revenue increased by $13.8 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to growth in commodity products.

50



Cost of Revenue
Supply Chain Services segment cost of revenue increased by $7.7 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018 primarily due to an increase in cost of product revenue due to the growth in direct sourcing sales revenue partially offset by a reduction in cost of sales as a result of initiatives to reduce costs. We expect our cost of product revenue to increase to the extent we are able to sell additional direct-sourced medical products to new and existing members. Depending on the underlying product sales mix, increases in product revenues could reduce our gross profit as a percentage of our net revenues.
Operating Expenses
Supply Chain Services segment operating expenses increased by $1.6 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018. The increase was primarily due to an increase in selling, general and administrative expenses of $1.9 million largely due to expenses associated with certain strategic initiatives, including our eCommerce platform. The increase was partially offset by a decrease of $0.3 million in amortization of purchased intangible assets.
Segment Adjusted EBITDA
Supply Chain Services Segment Adjusted EBITDA increased by $12.9 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to growth in net administrative fees and product revenues.
Comparison of the Six Months Ended December 31, 2019 to 2018
Net Revenue
Supply Chain Services segment net revenue increased by $36.1 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018.
Net administrative fees revenue increased by $16.8 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018. Growth in net administrative fees revenue was primarily due to continuing contract penetration driven largely by the company’s high-compliance portfolio programs and the addition of new contract categories and suppliers. We expect our net administrative fees revenue to continue to grow to the extent our existing members increase the utilization of our contracts and additional members convert to our contract portfolio. Due to competitive market trends, we have experienced, and expect to continue to experience, requests to provide existing and prospective members an increase in revenue share on incremental or overall purchasing volume that could, if materially increased, adversely impact our revenues and overall financial performance. Product revenue increased by $18.3 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to growth in commodity products and aggregated purchasing of certain products.
Cost of Revenue
Supply Chain Services segment cost of revenue increased by $11.8 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018 primarily due to an increase in cost of product revenue due to growth in direct sourcing sales revenue partially offset by a reduction in cost of sales as a result of initiatives to reduce costs. We expect our cost of product revenue to increase to the extent we are able to sell additional direct-sourced medical products to new and existing members. Depending on the underlying product sales mix, increases in product revenues could reduce our gross profit as a percentage of our net revenues.
Operating Expenses
Supply Chain Services segment operating expenses increased by $2.9 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018. The increase was primarily due to an increase in selling, general and administrative expenses of $3.4 million largely due to increased acquisition and disposition related expenses and expenses associated with certain strategic initiatives, including our eCommerce platform. The increase was partially offset by a decrease of $0.5 million, in amortization of purchased intangible assets.
Segment Adjusted EBITDA
Supply Chain Services Segment Adjusted EBITDA increased by $26.5 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to growth in net administrative fees and product revenues.

51



Performance Services
The following table summarizes our results of operations and Non-GAAP Segment Adjusted EBITDA in the Performance Services segment for the periods presented (in thousands):
 
Three Months Ended December 31,
 
 
 
Six Months Ended December 31,
 
 
Performance Services
2019
2018
Change
 
2019
2018
Change
Net revenue:
 
 
 
 
 
 
 
 
 
Other services and support
$
86,970

$
94,854

$
(7,884
)
(8)%
 
$
166,295

$
180,586

$
(14,291
)
(8)%
Net revenue
86,970

94,854

(7,884
)
(8)%
 
166,295

180,586

(14,291
)
(8)%
Cost of revenue:
 
 



 
 
 
 
 
Services
47,674

43,089

4,585

11%
 
94,804

86,438

8,366

10%
Cost of revenue
47,674

43,089

4,585

11%
 
94,804

86,438

8,366

10%
Gross profit
39,296

51,765

(12,469
)
(24)%
 
71,491

94,148

(22,657
)
(24)%
Operating expenses:
 
 



 
 
 
 
 
Selling, general and administrative
32,092

33,563

(1,471
)
(4)%
 
68,937

62,663

6,274

10%
Research and development
795

292

503

172%
 
1,169

632

537

85%
Amortization of purchased intangible assets
7,842

8,858

(1,016
)
(11)%
 
16,789

17,456

(667
)
(4)%
Operating expenses
40,729

42,713

(1,984
)
(5)%
 
86,895

80,751

6,144

8%
Operating (loss) income
$
(1,433
)
$
9,052

$
(10,485
)
(116)%
 
$
(15,404
)
$
13,397

$
(28,801
)
(215)%
Depreciation and amortization
22,451

18,460




 
44,124

35,774

 
 
Amortization of purchased intangible assets
7,842

8,859




 
16,789

17,456

 
 
Acquisition related expenses
976

577




 
4,642

761

 
 
Equity in net income of unconsolidated affiliates
126

119




 
163

213

 
 
Other expense
5

33




 
29

74

 
 
Non-GAAP Segment Adjusted EBITDA
$
29,967

$
37,100

$
(7,133
)
(19)%
 
$
50,343

$
67,675

$
(17,332
)
(26)%
Comparison of the Three Months Ended December 31, 2019 to 2018
Net Revenue
Other services and support revenue in our Performance Services segment decreased by $7.9 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018. The decrease was primarily due to the timing of certain consulting services and SaaS informatics contracts and lower revenue associated with our Hospital Improvement Innovation Network contract. These decreases were partially offset by growth in cost management technology license contracts and increased revenue incurred in the current year attributable to the acquisition of Stanson which closed in November 2018. We expect our other services and support revenue to grow over the long-term to the extent we are able to expand our sales to existing members and additional members begin to utilize our integrated platform of products and services.
Cost of Revenue
Performance Services segment cost of revenue increased by $4.6 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to increased amortization of internally-developed software applications and higher salaries and benefits expense incurred in the current year attributable to the acquisition of Stanson which closed in November 2018.
Operating Expenses
Performance Services segment operating expenses decreased by $2.0 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018. The decrease was primarily due to a decrease in selling, general and administrative expenses of $1.5 million largely due to lower salaries and benefits expense, partially offset by an increase in expenses incurred in the current year attributable to the acquisition of Stanson which closed in November 2018. In addition, amortization

52



of purchased intangible assets decreased $1.0 million. These decreases were partially offset by an increase of $0.5 million in research and development expense.
Segment Adjusted EBITDA
Performance Services Segment Adjusted EBITDA decreased by $7.1 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018 primarily due to the aforementioned decrease in revenue and increase in expenses incurred in the current year attributable to the acquisition of Stanson which closed in November 2018.
Comparison of the Six Months Ended December 31, 2019 to 2018
Net Revenue
Other services and support revenue in our Performance Services segment decreased by $14.3 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018. The decrease was primarily due to the timing of certain contracts in supply chain and enterprise value and applied sciences and lower revenue associated with our Hospital Improvement Innovation Network contract. These decreases were partially offset by growth in cost management technology license contracts and increased revenue incurred in the current year attributable to the acquisition of Stanson which closed in November 2018. We expect our other services and support revenue to grow over the long-term to the extent we are able to expand our sales to existing members and additional members begin to utilize our integrated platform of products and services.
Cost of Revenue
Performance Services segment cost of revenue increased by $8.4 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to increased amortization of internally-developed software applications and higher salaries and benefits expense incurred in the current year attributable to the acquisition of Stanson which closed in November 2018.
Operating Expenses
Performance Services segment operating expenses increased by $6.1 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018. The increase was primarily due to an increase in selling, general and administrative expenses of $6.3 million largely due to expenses incurred in the current year attributable to the acquisition of Stanson which closed in November 2018 and expenses attributable to ongoing strategic investments, partially offset by decreased bad debt expense due to a hospital bankruptcy in the prior year. In addition, research and development expenses increased by $0.5 million. These increases were partially offset by a decrease of $0.7 million in amortization of purchased intangibles.
Segment Adjusted EBITDA
Performance Services Segment Adjusted EBITDA decreased by $17.3 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to the aforementioned decrease in revenue, an increase in expenses incurred in the current year attributable to the acquisition of Stanson which closed in November 2018, and expenses attributable to ongoing strategic investments partially offset by decreased bad debt expense.

53



Corporate
The following table summarizes corporate expenses and Non-GAAP Adjusted EBITDA for the periods presented (in thousands):
 
Three Months Ended December 31,
 
 
 
Six Months Ended December 31,
 
 
Corporate
2019
2018
Change
 
2019
2018
Change
Operating expenses:
 
 
 
 
 
 
 
 
 
Selling, general and administrative
$
16,402

$
36,089

$
(19,687
)
(55)%
 
$
57,420

$
73,956

$
(16,536
)
(22)%
Research and development



nm
 
5


5

nm
Operating expenses
16,402

36,089

(19,687
)
(55)%
 
57,425

73,956

(16,531
)
(22)%
Operating loss
$
(16,402
)
$
(36,089
)
$
19,687

(55)%
 
$
(57,425
)
$
(73,956
)
$
16,531

(22)%
Depreciation and amortization
2,154

2,814




 
4,288

5,427

 
 
Stock-based compensation
7,838

7,680




 
11,690

13,913

 
 
Remeasurement of tax receivable agreement liabilities
(28,356
)




 
(23,682
)

 
 
Deferred compensation plan income (expense)
2,751

(4,235
)



 
2,992

(2,899
)
 
 
Other income
2,494

648




 
2,585

974

 
 
Non-GAAP Adjusted EBITDA
$
(29,521
)
$
(29,182
)
$
(339
)
1%
 
$
(59,552
)
$
(56,541
)
$
(3,011
)
5%
Comparison of the Three Months Ended December 31, 2019 to 2018
Operating Expenses
Corporate operating expenses decreased by $19.7 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to the remeasurement of the TRA in the current period partially offset by increased deferred compensation plan expense and increased costs associated with technology services software subscriptions.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA decreased by $0.3 million from during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily related to increases in technology services software subscriptions.
Comparison of the Six Months Ended December 31, 2019 to 2018
Operating Expenses
Corporate operating expenses decreased by $16.5 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to the remeasurement of the TRA in the current period and a decrease in stock-based compensation expense due to anticipated achievement of certain performance targets relative to the prior year. These decreases were partially offset by increased deferred compensation plan expense and increased costs associated with technology services software subscriptions.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA decreased by $3.0 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily related to the remeasurement of the TRA and increases in technology services software subscriptions.
Off-Balance Sheet Arrangements
As of December 31, 2019, we did not have any off-balance sheet arrangements.
Liquidity and Capital Resources
Our principal source of cash has historically been cash provided by operating activities. From time to time we have used, and expect to use in the future, borrowings under our Credit Facility as a source of liquidity. Our primary cash requirements involve operating expenses, working capital fluctuations, revenue share obligations, tax payments, capital expenditures, discretionary cash

54



settlement of Class B common unit exchanges under the Exchange Agreement, repurchases of Class A common stock pursuant to stock repurchase programs in place from time to time, acquisitions and related business investments, and other general corporate activities. Our capital expenditures typically consist of internally-developed software costs, software purchases, and computer hardware purchases.
As of December 31, 2019 and June 30, 2019, we had cash and cash equivalents totaling $111.6 million and $141.1 million, respectively. As of December 31, 2019 and June 30, 2019, there were $50.0 million and $25.0 million of outstanding borrowings under the Credit Facility, respectively. During the six months ended December 31, 2019, the Company repaid $100.0 million of borrowings and borrowed an additional $125.0 million under the Credit Facility, which was used to fund the acquisition of Medpricer, share repurchases under our current stock repurchase program, and for other general corporate purposes. On January 31, 2020, the Company repaid $50.0 million of outstanding borrowings under the Credit Facility.
We expect cash generated from operations and borrowings under our Credit Facility to provide us with adequate liquidity to fund our anticipated working capital requirements, revenue share obligations, tax payments, capital expenditures, discretionary cash settlement of Class B common unit exchanges under the Exchange Agreement, and repurchases of Class A common stock pursuant to stock repurchase programs in place from time to time. Our capital requirements depend on numerous factors, including funding requirements for our product and service development and commercialization efforts, our information technology requirements, and the amount of cash generated by our operations. We believe that we have adequate capital resources at our disposal to fund currently anticipated capital expenditures, business growth and expansion, and current and projected debt service requirements. However, strategic growth initiatives will likely require the use of one or a combination of various forms of capital resources including available cash on hand, cash generated from operations, borrowings under our Credit Facility, and other long-term debt and, potentially, proceeds from the issuance of additional equity or debt securities.
Discussion of Cash Flows for the Six Months Ended December 31, 2019 and 2018
A summary of net cash flows follows (in thousands):
 
Six Months Ended December 31,
 
2019
2018
Net cash provided by (used in):
 
 
Operating activities
$
217,021

$
210,195

Investing activities
(85,777
)
(106,535
)
Financing activities
(170,757
)
(147,396
)
Operating activities from discontinued operations
10,028

2,114

Investing activities from discontinued operations

(180
)
Net decrease in cash and cash equivalents
$
(29,485
)
$
(41,802
)
Net cash provided by operating activities increased by $6.8 million for the six months ended December 31, 2019 compared to the six months ended December 31, 2018. The increase was primarily due to higher net administrative fees and product revenues in addition to changes in our working capital primarily driven by increased cash collections on contract assets. These increases were partially offset by increased selling, general and administrative expenses primarily due to increased expenses incurred in the current year attributable to the acquisition of Stanson as well as increased acquisition and disposition related expenses and expenses associated with certain strategic initiatives.
Net cash used in investing activities decreased by $20.9 million for the six months ended December 31, 2019 compared to the six months ended December 31, 2018. The decrease was primarily due to a reduction in cash paid for acquisitions in the current year as well as investments in unconsolidated affiliates in the current year and decreased purchases of property and equipment.
Net cash used in financing activities increased by $23.4 million for the six months ended December 31, 2019 compared to the six months ended December 31, 2018. The increase was primarily due to an increase in repurchases of Class A common stock under our stock repurchase program in the current year and a decrease in proceeds from the exercise of stock options under our equity incentive plan. These increases were partially offset by increased net borrowings under our Credit Facility and decreased distributions to limited partners of Premier LP.
Net cash provided by operating activities attributable to discontinued operations increased by $7.9 million for the six months ended December 31, 2019, compared to the six months ended December 31, 2018 primarily due to cash collected on accounts receivable that were outstanding as of June 30, 2019. The increase was partially offset by payments on liabilities that were outstanding as of June 30, 2019.

55



Discussion of Non-GAAP Free Cash Flow for the Six Months Ended December 31, 2019 and 2018
We define Non-GAAP Free Cash Flow as net cash provided by operating activities from continuing operations less distributions and TRA 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. A summary of Non-GAAP Free Cash Flow and reconciliation to net cash provided by operating activities for the periods presented follows (in thousands):
 
Six Months Ended December 31,
 
2019
2018
Net cash provided by operating activities
$
217,021

$
210,195

Purchases of property and equipment
(44,768
)
(47,109
)
Distributions to limited partners of Premier LP
(26,901
)
(30,458
)
Payments to limited partners of Premier LP related to tax receivable agreements
(17,425
)
(17,975
)
Non-GAAP Free Cash Flow
$
127,927

$
114,653

Non-GAAP Free Cash Flow increased by $13.3 million for the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to the increase in net cash provided by operating activities in addition to decreased purchases of property and equipment and decreased distributions to limited partners of Premier LP in the current period.
See "Our Use of Non-GAAP Financial Measures" above for additional information regarding our use of Non-GAAP Free Cash Flow.
Contractual Obligations
Notes Payable
At December 31, 2019, we had commitments of $7.6 million for obligations under notes payable which represented obligations to departed member owners. Notes payable to departed member owners generally have stated maturities of five years from the date of issuance and are non-interest bearing. See Note 9 - Debt to the accompanying condensed consolidated financial statements for more information.
Credit Facility
Premier LP, along with its consolidated subsidiaries, PSCI and PHSI, as Co-Borrowers, Premier GP and certain domestic subsidiaries of Premier GP, as guarantors, entered into an unsecured Credit Facility, dated as of November 9, 2018. The Credit Facility has a maturity date of November 9, 2023, subject to up to two one-year extensions at the request of the Co-Borrowers and approval of a majority of the lenders under the Credit Facility. The Credit Facility provides for borrowings of up to $1.0 billion with (i) a $50.0 million sub-facility for standby letters of credit and (ii) a $100.0 million sub-facility for swingline loans. The Credit Facility also provides that Co-Borrowers may from time to time (i) incur incremental term loans and (ii) request an increase in the revolving commitments under the Credit Facility, together up to an aggregate of $350.0 million, subject to the approval of the lenders providing such term loans or revolving commitment increase. The Credit Facility includes an unconditional and irrevocable guaranty of all obligations under the Credit Facility by Premier GP, certain domestic subsidiaries of Premier GP and future guarantors, if any. Premier, Inc. is not a guarantor under the Credit Facility.
At our option, committed loans may be in the form of Eurodollar rate loans ("Eurodollar Loans") or base rate loans ("Base Rate Loans"). Eurodollar Loans bear interest at the Eurodollar rate (defined as the London Interbank Offered Rate, or LIBOR, plus the Applicable Rate (defined as a margin based on the Consolidated Total Net Leverage Ratio (as defined in the Credit Facility))). Base Rate Loans bear interest at the Base Rate (defined as the highest of the prime rate announced by the administrative agent, the federal funds effective rate plus 0.50%, the one-month LIBOR plus 1.0% and 0.0%) plus the Applicable Rate. The Applicable Rate ranges from 1.000% to 1.500% for Eurodollar Loans and 0.000% to 0.500% for Base Rate Loans. In the event that LIBOR is no longer available, the Credit Facility states that interest will be calculated based upon rates offered to leading banks for comparable loans by leading banks in the London interbank market. At December 31, 2019, the interest rate for one-month Eurodollar Loans was 2.763% and the interest rate for Base Rate Loans was 4.750%. The Co-Borrowers are required to pay a commitment fee ranging from 0.100% to 0.200% per annum on the actual daily unused amount of commitments under the Credit Facility. At December 31, 2019, the commitment fee was 0.100%.
The Credit Facility contains customary representations and warranties as well as customary affirmative and negative covenants, including, among others, limitations on liens, indebtedness, fundamental changes, dispositions, restricted payments and investments. Under the terms of the Credit Facility, Premier GP's consolidated total net leverage ratio (as defined in the Credit

56



Facility) may not exceed 3.75 to 1.00 for four consecutive quarters, provided that, in connection with any acquisition for which the aggregate consideration exceeds $250.0 million, the maximum consolidated total net leverage ratio may increase to 4.25 to 1.00 for the four consecutive fiscal quarters beginning with the quarter in which such acquisition is completed. In addition, Premier GP must maintain a minimum consolidated interest coverage ratio (as defined in the Credit Facility) of 2.50 to 1.00 at the end of every fiscal quarter. Premier GP was in compliance with all such covenants at December 31, 2019.
The Credit Facility also contains customary events of default including, among others, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults of any indebtedness or guarantees in excess of $75.0 million, bankruptcy and other insolvency events, ERISA-related liabilities and judgment defaults in excess of $50.0 million, and the occurrence of a change of control (as defined in the Credit Facility). If any event of default occurs and is continuing, the administrative agent under the Credit Facility may, with the consent, or shall, at the request of a majority of the lenders under the Credit Facility, terminate the commitments and declare all of the amounts owed under the Credit Facility to be immediately due and payable. The Company may prepay amounts outstanding under the Credit Facility without premium or penalty provided that Co-Borrowers compensate the lenders for losses and expenses incurred as a result of the prepayment of any Eurodollar Loan, as defined in the Credit Facility.
Proceeds from borrowings under the Credit Facility may generally be used to finance ongoing working capital requirements, including permitted acquisitions, discretionary cash settlements of Class B unit exchanges under the Exchange Agreement, repurchases of Class A common stock pursuant to stock repurchase programs, and other general corporate activities. The Company had $50.0 million outstanding borrowings under the Credit Facility at December 31, 2019 with $950.0 million of available borrowing capacity after reductions for outstanding borrowings and outstanding letters of credit.
The above summary does not purport to be complete, and is subject to, and qualified in its entirety by reference to, the complete text of the Credit Facility, which is filed as Exhibit 10.24 to the 2019 Annual Report. See also Note 9 - Debt to the accompanying condensed consolidated financial statements.
Member-Owner TRA
Pursuant to the TRAs entered into with each of our member owners, we will pay member owners 85% of the tax savings, if any, in U.S. federal, foreign, state, and local income and franchise tax that we actually realize (or are deemed to realize, in the case of payments required to be made upon certain occurrences under such TRAs) in connection with the Section 754 election. The election results in adjustments to the tax basis of the assets of Premier LP upon member owner exchanges of Class B common units of Premier LP for Class A common stock of Premier, Inc., cash, or a combination of both. Tax savings are generated as a result of the increases in tax basis resulting from the initial sale of Class B common units, subsequent exchanges (pursuant to the Exchange Agreement), and payments under the TRA.
We had TRA liabilities of $339.6 million and $344.1 million at December 31, 2019 and June 30, 2019, respectively. The decrease was primarily due to $17.4 million in TRA payments and $14.3 million attributable to member departures during the six months ended December 31, 2019, partially offset by $50.9 million increases in connection with the quarterly member owner exchanges that occurred during the six months ended December 31, 2019.
Stock Repurchase Program
On May 7, 2019, we announced that our Board of Directors authorized the repurchase of up to $300.0 million of our outstanding Class A common stock during fiscal year 2020 as a continuation of our balanced capital deployment strategy. As of December 31, 2019, we had purchased approximately 4.6 million shares of Class A common stock at an average price of $32.25 per share for a total purchase price of $148.6 million. The purchase authorization may be suspended, delayed, or discontinued at any time at the discretion of our Board of Directors. Repurchases are subject to compliance with applicable federal securities laws and our management may, at its discretion, suspend, delay, or discontinue repurchases at any time, based on market conditions, alternate uses of capital, or other factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. Our exposure to market risk related primarily to the increase or decrease in the amount of any interest expense we must pay with respect to outstanding debt instruments. At December 31, 2019, we had $50.0 million outstanding borrowings under our Credit Facility. Committed loans may be in the form of Eurodollar Rate Loans or Base Rate Loans (as defined in the Credit Facility) at our option. Eurodollar Loans bear interest at the Eurodollar Rate (defined as the London Interbank Offer Rate, or LIBOR), plus the Applicable Rate (defined as a margin based on the Consolidated Total Net Leverage Ratio (as defined in the Credit Facility)). Base Rate Loans bear interest at the Base Rate (defined as the highest of the prime rate announced by the administrative agent, the federal funds effective rate plus 0.50%, the one-month LIBOR plus 1.0% and 0.0%) plus the Applicable Rate. The Applicable Rate ranges from 1.000% to 1.500% for Eurodollar Loans and 0.000% to 0.500% for Base Rate Loans. In

57



the event that LIBOR is no longer available, the Credit Facility states that interest will be calculated based upon rates offered to leading banks for comparable loans by leading banks in the London interbank market using an alternative interest rate. At December 31, 2019, the interest rate for one-month Eurodollar Rate Loans was 2.763% and the interest rate for Base Rate Loans was 4.750%.
We invest our excess cash in a portfolio of individual cash equivalents. We do not currently hold, and have never held, any derivative financial instruments. We do not expect changes in interest rates to have a material impact on our results of operations or financial position. We plan to ensure the safety and preservation of our invested funds by limiting default, market, and investment risks. We plan to mitigate default risk by investing in low-risk securities.
Foreign Currency Risk. Substantially all of our financial transactions are conducted in U.S. dollars. We do not have significant foreign operations and, accordingly, do not believe we have market risk associated with foreign currencies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As of the end of the period covered by this Quarterly Report, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2019.
Management's quarterly evaluation of disclosure controls and procedures did not include an assessment of and conclusion on the effectiveness of disclosure controls and procedures for Medpricer, which was acquired during the six months ended December 31, 2019 and is included in our condensed consolidated financial statements as of December 31, 2019 and for the period from the acquisition date through December 31, 2019. The aggregate assets of Medpricer were not material to the Condensed Consolidated Balance Sheet as of December 31, 2019. The net revenue generated by Medpricer was not material to the Condensed Consolidated Income Statements for the three and six months ended December 31, 2019.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

58



PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We participate in businesses that are subject to substantial litigation from time to time. We are periodically involved in litigation, arising in the ordinary course of business or otherwise, which from time to time may include claims relating to contractual disputes, product liability, tort or personal injury, employment, antitrust, intellectual property or other commercial or regulatory matters. If current or future government regulations are interpreted or enforced in a manner adverse to us or our business, including without limitation those with respect to antitrust or healthcare laws, we may be subject to enforcement actions, penalties, damages and material limitations on our business.
Furthermore, as a public company, we may become subject to stockholder derivative or other similar litigation.
From time to time we have been named as a defendant in class action or other antitrust lawsuits brought by suppliers or purchasers of medical products. Typically, these lawsuits have alleged the existence of a conspiracy among manufacturers of competing products, distributors and/or operators of GPOs, including us, to deny the plaintiff access to a market for certain products to raise the prices for products and/or limit the plaintiff's choice of products to buy. We believe that we have at all times conducted our business affairs in an ethical and legally compliant manner and have successfully resolved all such actions. No assurance can be given that we will not be subjected to similar actions in the future or that any such existing or future matters will be resolved in a manner satisfactory to us or which will not harm our business, financial condition or results of operations.
Additional information relating to certain legal proceedings in which we are involved is included in Note 16 - Commitments and Contingencies to the accompanying condensed consolidated financial statements, which information is incorporated herein by reference.
Item 1A. Risk Factors
During the quarter ended December 31, 2019, there were no material changes to the risk factors disclosed in "Risk Factors" in the 2019 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities
On May 7, 2019, we announced that our Board of Directors authorized the repurchase of up to $300.0 million of our outstanding Class A common stock during fiscal 2020 as a continuation of our balanced capital deployment strategy. Subject to compliance with applicable federal securities laws, repurchases were authorized to be made from time to time in open market transactions, privately negotiated transactions, or other transactions, including trades under a plan established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. All repurchases of our Class A common stock were recorded as treasury shares. The following table summarizes information relating to repurchases of our Class A common stock for the quarter ended December 31, 2019.
Period
Total Number of Shares Purchased
Average Price Paid per Share ($) (1)
Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (in millions)(2)
October 1 through October 31, 2019
3,037,759

$
31.26

3,037,759

$
169

November 1 through November 30, 2019
454,604

34.95

454,604

154

December 1 through December 31, 2019
56,600

35.52

56,600

152

Total
3,548,963


3,548,963

$
152

(1)
Average price paid per share excludes fees and commissions.
(2)
From the stock repurchase program's inception through December 31, 2019, we purchased approximately 4.6 million shares of Class A common stock at an average price of $32.25 per share for a total of $148.6 million.


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Item 6. Exhibits
Exhibit No.
 
Description
3.2
 
31.1
 
31.2
 
32.1
 
32.2
 
101
 
Sections of the Premier, Inc. Quarterly Report on Form 10-Q for the quarter ended December 31, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language), submitted in the following files:
101.SCH
 
Inline XBRL Taxonomy Extension Schema Document.*
101.CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF
 
Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB
 
Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104
 
The cover page from the Premier, Inc. Quarterly Report on Form 10-Q for the quarter ended December 31, 2019, formatted in Inline XBRL (included in Exhibit 101).*
*    Filed herewith.
‡    Furnished herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
PREMIER, INC.
 
 
 
 
 
Date:
February 4, 2020
 
By:
 
/s/ Craig S. McKasson
 
 
 
Name:
 
Craig S. McKasson
 
 
 
Title:
 
Chief Administrative and Financial Officer and Senior Vice President
 
 
 
 
 
Signing on behalf of the registrant and as principal financial officer and principal accounting officer

61