PREMIER, INC. The following discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report. This discussion is designed to provide the reader with information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our 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 "Item 1A. Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" contained in this Annual Report. Unless otherwise indicated, information in Management's Discussion and Analysis of Financial Condition and Results of Operations has been retrospectively adjusted to reflect continuing operations for all periods presented. See Note 4 - Discontinued Operations and Exit Activities to the audited consolidated financial statements included in this Annual Report for further information. Business Overview Our BusinessPremier, Inc. ("Premier", the "Company", "we", or "our") is a leading healthcare improvement company, uniting an alliance ofU.S. hospitals, health systems and other providers and organizations to transform healthcare. We partner with hospitals, health systems, physicians, employers, product suppliers, service providers, and other healthcare providers and organizations 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 value-based care software-as-a-service ("SaaS") as well as clinical and enterprise analytics licenses, consulting services, performance improvement collaborative programs, third-party administrator services, access to our centers of excellence program and digital invoicing and payment processes for healthcare product suppliers and service providers and continue to expand our capabilities to more fully address and coordinate care improvement and standardization in the employer, payor and life sciences markets. We also provide services to other businesses including food service, schools and universities.
We generated net revenue, net income 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):
Year Ended June 30,
2022 2021
Net revenue $ 1,432,901 $ 1,721,152
Net income 268,318 304,584
Non-GAAP Adjusted EBITDA 498,682 473,230
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 to Non-GAAP Adjusted EBITDA.
Our Business Segments
Our business model and solutions are designed to provide our members and other
customers 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 and other customers succeed in their transformation to
higher quality and more cost-effective healthcare. We deliver our integrated
platform of solutions that address the areas of clinical intelligence, margin
improvement and value-based care through two business segments: Supply Chain
Services and Performance Services.
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--------------------------------------------------------------------------------Segment net revenue was as follows (in thousands):
Year Ended June 30, % of Net Revenue
Net revenue: 2022 2021 Change ($) Change (%) 2022 2021
Supply Chain Services $ 1,031,946 $ 1,343,634 $ (311,688) (23) % 72 % 78 %
Performance Services 400,983 377,518 23,465 6 % 28 % 22 %
Segment net revenue $ 1,432,929 $ 1,721,152 $ (288,223) (17) % 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 and non-healthcare sites and providing supply chain co-management,
purchased services and 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 goods and services purchased by our members
and other customers, service fees from supply chain co-management, subscription
fees from purchased services and through product sales in connection with our
direct sourcing activities.
Our Performance Services segment consists of three sub-brands: PINC AITM, our
technology and services platform with offerings that help optimize performance
in three main areas - clinical intelligence, margin improvement and value-based
care - using advanced analytics to identify improvement opportunities,
consulting services for clinical and operational design, and workflow solutions
to hardwire sustainable change in the provider, life sciences and payor markets;
Contigo Health®, our direct-to-employer business which provides third party
administrator services and management of health benefit programs that allow
employers to contract directly with healthcare providers as well as partners
with healthcare providers to provide employers access to a specialized care
network through Contigo Health's centers of excellence program; and RemitraTM,
our digital invoicing and payables business which provides financial support
services to healthcare product suppliers and service providers. Each sub-brand
serves different markets but are all united in our vision to optimize provider
performance and accelerate industry innovation for better, smarter healthcare.
For additional information, please see "Performance Services" above.
Acquisitions and Divestitures
Acquisition of Invoice Delivery Services, LP Assets
OnMarch 1, 2021 , we acquired, through our indirect, wholly owned subsidiary,Premier IDS, LLC , substantially all the assets and assumed certain liabilities ofInvoice Delivery Services, LP ("IDS") for an adjusted purchase price of$80.7 million , subject to certain adjustments, of which$80.0 million was paid at closing with borrowings under our Credit Facility (as defined in Note 10 - Debt and Notes Payable to the accompanying audited consolidated financial statements). IDS has been integrated withinPremier under the brand name Remitra and is reported as part of the Performance Services segment. See Note 3 - Business Acquisitions to the accompanying audited consolidated financial statements for further information.
Market and Industry Trends and Outlook
We expect that certain trends and economic or industrywide factors will continue to affect our business, both in the short- 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." Trends in theU.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 potential for the Affordable Care Act ("ACA") to be materially altered byCongress , through regulatory action by government agencies, or in the event of a change of party control inCongress . Actions related to the ACA could be disruptive forPremier and our customers, impacting revenue, reporting requirements, payment reforms, 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 value-based care; 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. 56 --------------------------------------------------------------------------------
COVID-19 Pandemic, Variants Thereof, Recurrences or Similar Pandemics
In addition to the trends in theU.S. healthcare market discussed above, we face known and unknown uncertainties arising from the outbreak of the novel coronavirus ("COVID-19") and the resulting global pandemic and financial and operational uncertainty, including its impact on the overall economy, our sales, operations and supply chains, our members and other customers, workforce and suppliers, and countries. As a result of the COVID-19 pandemic, variants thereof, and potential future pandemic outbreaks, we face significant risks including, but not limited to: •Overall economic and capital markets decline. The impact of the COVID-19 pandemic and variants thereof and associated supply chain disruptions could result in a prolonged recession or depression inthe United States or globally that could harm the banking system, limit demand for many products and services and cause other foreseen and unforeseen events and circumstances, all of which could negatively impact us. The continued spread of COVID-19 and variants thereof has led to and could continue to lead to severe disruption and volatility inthe United States and global capital markets, which could increase our cost of capital and adversely affect our ability to access the capital markets in the future. In addition, trading prices on the public stock market, as well as that of our Class A common stock, have been highly volatile as a result of the COVID-19 pandemic. •Changes in the demand for our products and services. We experienced and may continue to experience demand uncertainty from both material increases and decreases in demand and pricing for our products and services as a result of the COVID-19 pandemic. There was a material increase in demand and pricing for personal protective equipment ("PPE"), drugs and other supplies directly related to treating and preventing the spread of COVID-19 and variants thereof during fiscal 2020 and 2021. In the second half of fiscal 2022, demand and pricing for PPE, drugs and other supplies decreased resulting in a decline in revenue relative to the previous two years. Patients, hospitals and other medical facilities continued to defer some elective procedures and routine medical visits due to ongoing and continuing uncertainty from COVID-19 outbreaks or variants or as a result of restrictive government orders or advisories. While demand for many supplies and services not related to COVID-19 may continue to decline into fiscal 2023, rolling shortages of products and drugs needed for routine procedures, such as, contrast media and syringes, could have an impact on demand for hospital services and the financial conditions of providers, particularly those forced to procure such products through resellers. •Increased labor costs. Labor shortages and the resulting increases to the cost of labor are a continued challenge to the health care providers we serve. Limited availability of staff resources and rolling staff shortages may continue to impair the ability of existing staff to manage product and service procurement. While our non-acute and non-healthcare business such as education and hospitality customers, experienced a rebound in fiscal year 2022, the recovery in the business may be hampered by future COVID-19 variants or outbreaks, which are highly uncertain and cannot be accurately predicted. •Limited access to our members' facilities that impacts our ability to fulfill our contractual requirements. While some of our hospital customers have increased access to their facilities for non-patients, including our field teams, consultants and other professionals, there are many that still are not allowing onsite access outside of their staff. Hospital imposed travel restrictions are also impacting some customers' ability to participate in face-to-face events with us, such as committee meetings and conferences, which limits our ability to build on customer relationships. The long-term continuation, or any future recurrence of these circumstances may negatively impact the ability of our employees to effectively deliver existing or sell new products and services to our members and could negatively affect our performance of our existing contracts. •Materials and personnel shortages and disruptions in supply chain, including manufacturing and shipping. The global supply chain has been materially disrupted due to personnel shortages associated with ongoing COVID-19 rates of infection, stay-at-home orders, border closings, rapidly escalating shipping costs, raw material availability and material logistical delays due to port congestion. Borders closings, lock-down orders and other restrictions in response to COVID-19, particularly regardingChina , have impacted and continue to impact our access to products for our members. Staffing or personnel shortages due to shelter-in-place orders and quarantines, or other public health measures, have impacted and, in the future, may impact us and our members, other customers or suppliers. In addition, due to unprecedented demand during the COVID-19 pandemic, there have been widespread shortages in certain product categories. If the supply chain for materials used in the products purchased by our members through our GPO or products contract manufactured through our direct sourcing business continue to be adversely impacted by the COVID-19 pandemic, our supply chain may continue to be disrupted. Failure of our suppliers, contract manufacturers, distributors, contractors and other business partners to meet their obligations to our members, other customers or to us, or material disruptions in their ability to do so due to their own financial or operational difficulties, may adversely impact our operations.
•Requests for contract modifications, payment deferrals or exercises of force majeure clauses. We have and may continue to receive requests for contract modifications, payment waivers and deferrals, payment reductions or amended
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payment terms from our contract counterparties. We have and may continue to
receive requests to delay service or payment on performance service contracts.
In addition, we have and may continue to receive requests from our suppliers for
increases to their contracted prices, and such requests may be implemented in
the future. Inflation in such contract prices may impact member utilization of
items and services available through our GPO contracts, which could adversely
impact our net administrative fees revenue and direct sourcing revenue. In
addition, several pharmacy suppliers have exercised force majeure clauses
related to failure to supply clauses in their contracts with us because they are
unable to obtain raw materials for manufacturing from India and China . The
standard failure to supply language in our contracts contains financial
penalties to suppliers if they are unable to supply products, which such
suppliers may not be able to pay. In addition, we may not be able to source
products from alternative suppliers on commercially reasonable terms, or at all.
•Managing the evolving regulatory environment. In response to COVID-19 pandemic
and variants thereof, federal, state and local governments are issuing new
rules, regulations, changing reimbursement eligibility rules, orders and
advisories on a regular basis. These government actions can impact us and our
members, customers and suppliers.
The ultimate impact of COVID-19, variants thereof, recurrences, or similar
pandemics on our business, results of operations, financial condition and cash
flows is dependent on future developments, including the duration of any
pandemic and the related length of its impact on the United States and global
economies, which are uncertain and cannot be predicted at this time. The impact
of the COVID-19 pandemic, variants thereof, recurrences, or future similar
pandemics may also exacerbate many of the other risks described in this "Item
1A. Risk Factors" section. Despite our efforts to manage these impacts, their
ultimate impact depends on factors beyond our knowledge or control, including
the duration and severity of any outbreak and actions taken to contain its
spread and mitigate its public health effects. The foregoing and other continued
disruptions in our business as a result of the COVID-19 pandemic, variants
thereof, recurrences or similar pandemics could result in a material adverse
effect on our business, results of operations, financial condition, cash flows,
prospects and the trading prices of our securities in the near-term and through
fiscal 2022 and beyond.
Russia-Ukraine War
In February 2022 , Russia invaded Ukraine . As military activity proceeds and
sanctions, export controls and other measures are imposed against Russia ,
Belarus and specific areas of Ukraine , the war is increasingly affecting the
global economy and financial markets, as well as exacerbating ongoing economic
challenges, including rising inflation and global supply-chain disruption. We
will continue to monitor the impacts of the Russia -Ukraine war on macroeconomic
conditions and continually assess the effect these matters may have on member
demand, our suppliers' ability to deliver products, cybersecurity risks and our
liquidity and access to capital. See "Risk Factors".
Critical Accounting Policies and Estimates
Below is a discussion of our critical accounting policies and estimates. These and other significant accounting policies are set forth under Note 2 - Significant Accounting Policies to the accompanying audited consolidated financial statements for more information.
Business Combinations
We account for acquisitions of a business using the acquisition method. All the assets acquired, liabilities assumed, contractual contingencies and contingent consideration are generally recognized at their fair value on the acquisition date. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related costs are recorded as expenses in the Consolidated Statements of Income and Comprehensive Income. Several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we typically use the income method. This method starts with a forecast of all of the expected future net cash flows for each asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows and the assessment of the asset's life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory or economic barriers to entry. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives.
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. We perform our annual goodwill impairment testing on the first day of the last fiscal quarter of our fiscal year unless impairment indicators are present, which could require an interim impairment test. 58
-------------------------------------------------------------------------------- Under accounting rules, we may elect to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred. This qualitative assessment requires an evaluation of any excess of fair value over the carrying value for a reporting unit and significant judgment regarding potential changes in valuation inputs, including a review of our most recent long-range projections, analysis of operating results versus the prior year, changes in market values, changes in discount rates and changes in terminal growth rate assumptions. If it is determined that an impairment is more likely than not to exist, then we are required to perform a quantitative assessment to determine whether or not goodwill is impaired and to measure the amount of goodwill impairment, if any. A goodwill impairment charge is recognized for the amount by which the reporting unit's carrying amount exceeds its fair value. We determine the fair value of a reporting unit using a discounted cash flow analysis as well as market-based approaches. Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The cash flows employed in the discounted cash flow analyses are based on the most recent budget and long-term forecast. The discount rates used in the discounted cash flow analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. The market comparable approach estimates fair value using market multiples of various financial measures compared to a set of comparable public companies and recent comparable transactions.
Our most recent annual impairment testing as of
Revenue Recognition
We account for a contract with a customer when the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Revenue is recognized when, or as, control of a promised product or service transfers to a customer, in an amount that reflects the consideration to which we expect to be entitled in exchange for transferring those products or services. If the consideration promised in a contract includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely amount method. Our contracts may include terms that could cause variability in the transaction price, including, for example, revenue share, rebates, discounts, and variable fees based on performance. We only include estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates require management to make complex, difficult or subjective judgments, and to make estimates about the effect of matters inherently uncertain. As such, we may not be able to reliably estimate variable fees based on performance in certain long-term arrangements due to uncertainties that are not expected to be resolved for a long period of time or when our experience with similar types of contracts is limited. Estimates of variable consideration and the determination of whether to include estimated amounts of consideration in the transaction price are based on information (historical, current and forecasted) that is reasonably available to us, taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement. Additionally, management performs periodic analyses to verify the accuracy of estimates for variable consideration. Although we believe that our approach in developing estimates and reliance on certain judgments and underlying inputs is reasonable, actual results could differ which may result in exposure of increases or decreases in revenue that could be material.
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 deliverable arrangements (licensing fees, subscription fees, professional fees for consulting services, etc.).
Net Administrative Fees Revenue
Net administrative fees revenue is a single performance obligation earned
through a series of distinct daily services and includes maintaining a network
of members to participate in the group purchasing program and providing
suppliers efficiency in contracting and access to our members. Revenue is
generated through administrative fees received from suppliers and is included in
service revenue in the accompanying Consolidated Statements of Income and
Comprehensive Income.
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Through our GPO programs, we aggregate member purchasing power to negotiate
pricing discounts and improve contract terms with suppliers. Contracted
suppliers pay us administrative fees which generally represent 1% to 3% of the
purchase price of goods and services sold to members under the contracts we have
negotiated. Administrative fees are variable consideration and are recognized as
earned based upon estimated purchases by our members utilizing analytics based
on historical member spend and updates for current trends and expectations.
Administrative fees are estimated due to the difference in timing of when a
member purchases on a supplier contract and when we receive the purchasing
information. Member and supplier contracts substantiate persuasive evidence of
an arrangement. We do not take title to the underlying equipment or products
purchased by members through our GPO supplier contracts. Administrative fee
revenue receivable is included in contract assets in the accompanying
Consolidated Balance Sheets.
Generally, we pay a revenue share to members equal to a percentage of gross
administrative fees, which is estimated according to the members' contractual
agreements with us using a portfolio approach based on historical revenue fee
share percentages and adjusted for current or anticipated trends. Revenue share
is recognized as a reduction to gross administrative fees revenue to arrive at a
net administrative fees revenue, and the corresponding revenue share liability
is included in revenue share obligations in the accompanying Consolidated
Balance Sheets.
Products Revenue
Direct sourcing generates revenue primarily through products sold to our members, other customers or distributors. Revenue is recognized once control of products has been transferred to the customer and is recorded net of discounts and rebates offered to customers. Discounts and rebates are estimated based on contractual terms and historical trends.
Software Licenses, Other Services and Support Revenue
We generate software licenses, other services and support revenue through Performance Services and Supply Chain Services.
Within Performance Services, which provides technology with wrap-around service offerings, revenue is generated through our three sub-brands: PINC AI,Contigo Health and Remitra. The main sources of revenue under PINC AI consists of SaaS-based clinical analytics products subscriptions, enterprise analytics licenses, professional fees for consulting services and other miscellaneous revenue including performance improvement collaboratives, insurance management service fees and commissions from insurance carriers for sponsored insurance programs.Contigo Health's main sources of revenue are third-party administrator fees and fees from the centers of excellence program. Remitra's main source of revenue is fees from healthcare product suppliers and service providers.
PINC AI
SaaS-based Products Subscriptions. SaaS-based clinical analytics subscriptions
include the right to access our proprietary hosted technology on a SaaS basis,
training and member support to deliver improvements in cost management, margin
improvement, quality and safety, value-based care and provider analytics. SaaS
arrangements create a single performance obligation for each subscription within
the contract in which the nature of the obligation is a stand-ready obligation,
and each day of service meets the criteria for over time recognition. Pricing
varies by application and size of healthcare system. Clinical analytics products
subscriptions are generally three- to five-year agreements with automatic
renewal clauses and annual price escalators that typically do not allow for
early termination. These agreements do not allow for physical possession of the
software. Subscription fees are typically billed on a monthly basis and revenue
is recognized as a single deliverable on a straight-line basis over the
remaining contractual period following implementation. Implementation involves
the completion of data preparation services that are unique to each member's
data set and, in certain cases, the installation of member site-specific
software, in order to access and transfer member data into our hosted SaaS-based
clinical analytics products. Implementation is generally 60 to 240
days following contract execution before the SaaS-based clinical analytics
products can be fully utilized by the member.
Software Licenses. Enterprise analytics licenses include term licenses that
range from three to ten years and offer clinical analytics products,
improvements in cost management, quality and safety, value-based care and
provider analytics. Pricing varies by application and size of healthcare system.
Revenue on licensing is recognized upon delivery of the license, and revenue
from hosting and maintenance is recognized ratably over the life of the
contract.
Consulting Services. Professional fees for consulting services are sold under
contracts, the terms of which vary based on the nature of the engagement. These
services typically include general consulting, report-based consulting and cost
savings initiatives. Promised services under such consulting engagements are
typically not considered distinct and are regularly combined and accounted for
as one performance obligation. Fees are billed as stipulated in the contract,
and revenue is recognized on a proportional performance method as services are
performed or when deliverables are provided. In situations where the contracts
have significant contract performance guarantees, the performance guarantees are
estimated
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-------------------------------------------------------------------------------- and accounted for as a form of variable consideration when determining the transaction price. In the event that guaranteed savings levels are not achieved, we may have to perform additional services at no additional charge in order to achieve the guaranteed savings or pay the difference between the savings that were guaranteed and the actual achieved savings. Occasionally, our entitlement to consideration is predicated on the occurrence of an event such as the delivery of a report for which client acceptance is required. However, except for event-driven point-in-time transactions, the majority of services provided within this service line are delivered over time due to the continuous benefit provided to our customers. Consulting arrangements can require significant estimates for the transaction price and estimated number of hours within an engagement. These estimates are based on the expected value which is derived from outcomes from historical contracts that are similar in nature and forecasted amounts based on anticipated savings for the new agreements. The transaction price is generally constrained until the target transaction price becomes more certain. Other Miscellaneous Revenue. Revenue from performance improvement collaboratives that support our offerings in cost management, quality and safety, and value-based care is recognized over the service period as the services are provided, which is generally one year. Performance improvement collaboratives revenue is considered one performance obligation and is generated by providing customers access to online communities whereby data is housed and available for analytics and benchmarking. Insurance management service fees are recognized in the period in which such services are provided. Commissions from insurance carriers for sponsored insurance programs are earned by acting as an intermediary in the placement of effective insurance policies. Under this arrangement, revenue is recognized at a point in time on the effective date of the associated policies when control of the policy transfers to the customer and is constrained for estimated early terminations.
Contigo Health revenue consists of third party administrator fees and fees from the centers of excellence program. Third party administrator fees consist of integrated fees for the processing of self-insured health care plan claims. Third party administrator fees are invoiced to customers monthly and typically collected in that period. Revenue is recognized in the period in which the services have been provided. Fees from the centers of excellence program consist of administrative fees for access to a specialized care network of proven healthcare providers. Centers of excellence fees are invoiced to customers a month in arrears and typically collected in that period. Revenue is recognized in the period in which the services have been provided.
Remitra
Revenue for Remitra primarily consists of fees from healthcare product suppliers and service providers. Fees for services are invoiced to our customers monthly and typically collected in the following period. For fixed fee contracts, revenue is recognized in the period in which the services have been provided. For variable rate contracts, revenue is recognized as customers are invoiced. Additional revenue consists of fees from check replacement services which consist of monthly rebates from bank partners.
Within Supply Chain Services, revenue is generated through supply chain co-management and SaaS-based purchased services activities.
Supply Chain Co-Management. Supply chain co-management activities generate revenue in the form of a service fee for services performed under the supply chain management contracts. Service fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed.
Purchased Services. Purchased services generate revenue through subscription fees for SaaS-based products. Subscription fees are typically billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation.
Multiple Deliverable Arrangements
We enter into agreements where the individual deliverables discussed above, such
as SaaS subscriptions and consulting services, are bundled into a single service
arrangement. These agreements are generally provided over a time period ranging
from approximately three months to five years after the applicable contract
execution date. Revenue, including both fixed and variable consideration, is
allocated to the individual performance obligations within the arrangement based
on the stand-alone selling price when it is sold separately in a stand-alone
arrangement.
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Software Development Costs
Costs associated with internally developed computer software that are incurred in the preliminary project stage are expensed as incurred. During the development stage and once the project has reached technological feasibility, direct consulting costs and payroll and payroll-related costs for employees that are directly associated with each project are capitalized. Capitalized software costs are included in property and equipment, net in the accompanying Consolidated Balance Sheets. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the related software applications of up to five years and amortization is included in cost of revenue or selling, general and administrative expenses in the accompanying Consolidated Statements of Income and Comprehensive Income, based on the software's end use. Replacements and major improvements are capitalized, while maintenance and repairs are expensed as incurred. Some of the more significant estimates and assumptions inherent in this process involve determining the stages of the software development project, the direct costs to capitalize and the estimated useful life of the capitalized software.
Income Taxes
We account for income taxes under the asset and liability approach. Deferred tax assets or liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates as well as net operating losses and credit carryforwards, which will be in effect when these differences reverse. We provide a valuation allowance against net deferred tax assets when, based upon the available evidence, it is more likely than not that the deferred tax assets will not be realized.
We prepare and file tax returns based on interpretations of tax laws and regulations. Our tax returns are subject to examination by various taxing authorities in the normal course of business. Such examinations may result in future tax, interest and penalty assessments by these taxing authorities.
In determining our tax expense for financial reporting purposes, we establish a reserve when there are transactions, calculations, and tax filing positions for which the tax determination is uncertain, and it is more likely than not that such positions would not be sustained upon examinations. We adjust tax reserve estimates periodically based on the changes in facts and circumstances, such as ongoing examinations by, and settlements with, varying taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated tax expense of any given year includes adjustments to prior year income tax reserve and related estimated interest charges that are considered appropriate. Our policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of income tax expense. 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 audited consolidated financial statements, which is incorporated herein by reference.
Key Components of Our Results of Operations
Net Revenue
Net revenue consists of services and software licenses revenue, which includes net administrative fees revenue and software licenses, other services and support revenue, and products revenue.
Supply Chain Services
Supply Chain Services revenue is comprised of:
•net administrative fees revenue which consists of GPO net administrative fees (gross administrative fees received from suppliers, reduced by the amount of revenue share paid to members);
•software licenses, other services and support revenue which consist of supply chain co-management and purchased services revenue; and
•products revenue which consists of direct sourcing sales.
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, the impact of changes in the defined allowable reimbursement amounts
determined by Medicare, Medicaid and other managed care plans and the number of
members and other customers that purchase products through our direct sourcing
activities and the impact of competitive pricing. Refer to "Impact of Inflation"
within "Liquidity and Capital Resources" section of Item 7 -
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--------------------------------------------------------------------------------Management's Discussion and Analysis of Financial Condition and Results of Operations for discussion of inflation and its impact on our Supply Chain Services' businesses.
Performance Services
Performance Services revenue is comprised of the following software licenses, other services and support revenue:
•health care information technology license and SaaS-based clinical, margin improvement and value-based care products subscriptions, license fees, professional fees for consulting services, performance improvement collaborative and other service subscriptions and insurance services management fees and commissions from endorsed commercial insurance programs under our PINC AI technology and services platform;
•third-party administrator fees and fees from the centers of excellence program
for
•fees from healthcare product suppliers and service providers for Remitra.
Our Performance Services growth will depend upon the expansion of our PINC AI technology and services platform to new and existing members and other customers, expansion of ourContigo Health and Remitra businesses to new and existing members, renewal of existing subscriptions to our SaaS and licensed software products, our ability to sell enterprise analytics licenses to new and existing customers at rates sufficient to offset the loss of recurring SaaS-based revenue due to the conversion to an enterprise analytics license and expansion into new markets.
Cost of Revenue
Cost of revenue consists of cost of services and software licenses revenue and cost of products revenue.
Cost of services and software licenses revenue includes expenses related to employees, consisting of compensation and benefits, and outside consultants who directly provide services related to revenue-generating activities, including consulting services to members and other customers, third-party administrator services and implementation services related to our SaaS and licensed software products 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 including costs related to implementing SaaS informatics tools. Cost of services and software licenses 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 products revenue consists of purchase and shipment costs for direct sourced medical and commodity products and is influenced by the manufacturing and transportation costs associated with direct sourced medical and commodity products. Refer to "Impact of Inflation" within "Liquidity and Capital Resources" section of Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for discussion of inflation and its impact on our Supply Chain Services' businesses.
Operating Expenses
Operating expenses includes selling, general and administrative expenses, research and development expenses and amortization of purchased intangible assets.
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, non-recurring strategic initiative and financial restructuring-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, including sales commissions, that have been capitalized and reflect the incremental costs of obtaining and fulfilling a contract. 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 prior to reaching technological feasibility.
Amortization of purchased intangible assets includes the amortization of all identified intangible assets.
Other Income (Expense), Net Other income (expense), 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 interests inFFF Enterprises, Inc. ("FFF"),Exela Holdings, Inc. ("Exela"), andPrestige Ameritech Ltd. ("Prestige") (see Note 5 - Investments). Other income (expense), net, also includes 63 -------------------------------------------------------------------------------- the fiscal 2021 change in fair value of our FFF Put and Call Rights and the fiscal year 2022 gain recognized due to the termination of the FFF Put Right and derecognition of the associated liability (see Note 6 - Fair Value Measurements), interest income and expense, realized and unrealized gains or losses on deferred compensation plan assets, gains or losses on the disposal of assets, and any impairment on our assets or held-to-maturity investments.
Income Tax Expense (Benefit)
See Note 16 - Income Taxes for discussion of income tax expense.
Net Income Attributable to Non-Controlling Interest
We recognize net income attributable to non-controlling interest for non-Premier ownership in our consolidated subsidiaries which hold interest in our equity method investments. AtJune 30, 2022 , we recognized net income attributable to non-controlling interest for the 74%, 79% and 85% interest held inPRAM Holdings, LLC ("PRAM"),DePre Holdings, LLC ("DePre") andExPre Holdings, LLC ("ExPre"), respectively, by member health systems or their affiliates. PRAM, DePre and ExPre are investments we made as part of our long-term supply chain resiliency program to promote domestic and geographically diverse manufacturing and to help ensure a robust and resilient supply chain for essential medical products. As ofJune 30, 2022 , we owned 93% of the equity interest inContigo Health and recognized net income attributable to non-controlling interest for the 7% of equity held by certain customers ofContigo Health .
In addition to our non-controlling interest for non-
Our Use of Non-GAAP Financial Measures
The other key business metrics we consider are EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings per Share and Free Cash Flow, which are all Non-GAAP financial measures. We define EBITDA as net income before income or loss from discontinued operations, net of tax, interest and investment income or expense, 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 initiative and financial restructuring-related 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 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 Net Income as net income attributable toPremier (i) excluding income or 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 or non-cash items, including certain strategic initiative and financial restructuring-related expenses, (v) assuming, for periods prior to ourAugust 2020 Restructuring, the exchange of all the Class B common units for shares of Class A common stock, which resulted in the elimination of non-controlling interest inPremier LP and (vi) reflecting an adjustment for income tax expense on Non-GAAP net income before income taxes at our estimated annual effective income tax rate, adjusted for unusual or infrequent items. We define Adjusted Earnings per Share as Adjusted Net Income divided by diluted weighted average shares (see Note 13 - Earnings 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 for periods prior to ourAugust 2020 Restructuring, early termination payments to certain former limited partners that elected to execute a Unit Exchange and Tax Receivable Acceleration Agreement ("Unit Exchange Agreement") in connection with ourAugust 2020 Restructuring 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 64
-------------------------------------------------------------------------------- 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 Net Income and Adjusted 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), non-recurring items (such as strategic initiative and financial restructuring-related expenses) and income and expense that has been classified as discontinued operations from our operating results. We believe Adjusted Net Income and Adjusted 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 initiative and financial restructuring-related expenses), and eliminate the variability of non-controlling interest that primarily resulted 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 prior to ourAugust 2020 Restructuring, payments to certain former limited partners that elected to execute a Unit Exchange Agreement in connection with ourAugust 2020 Restructuring 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 Net Income, Adjusted 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 Net Income and Adjusted 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 Net Income and Adjusted Earnings per Share are not measures of profitability under GAAP. We also urge you to review the reconciliation of these Non-GAAP financial measures included elsewhere in this Annual Report. To properly and prudently evaluate our business, we encourage you to review the consolidated financial statements and related notes included elsewhere in this Annual 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 Net Income, Adjusted 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 Net Income consist of stock-based compensation, acquisition- and disposition-related expenses, strategic initiative and financial restructuring-related expenses, gain or loss on FFF Put and Call Rights, income and expense that has been classified as discontinued operations and other reconciling items. More information about certain of the more significant items follows below.
Income tax expense on adjusted income
Adjusted Net Income, a Non-GAAP financial measure as defined below in "Our Use
of Non-GAAP Financial Measures", is calculated net of taxes based on our
estimated annual effective tax rate for federal and state income tax, adjusted
for unusual or
65
-------------------------------------------------------------------------------- infrequent items, as we are a consolidated group for tax purposes with all of our subsidiaries' activities included. Prior to theAugust 2020 Restructuring, Adjusted Net Income was calculated as if we were one consolidated group for tax purposes. The tax rate used to compute the Adjusted Net Income was 26% and 22% for the years endedJune 30, 2022 and 2021, respectively. The 22% tax rate in fiscal year 2021 was primarily due to the benefit from the valuation allowance release as a result of theAugust 2020 Restructuring. In fiscal year 2022, the tax rate increased to 26% as a result of an increase in non-GAAP adjusted income before income taxes and a lesser benefit from the valuation allowance release as a result of the Subsidiary Reorganization as compared to fiscal 2021. As a result of the Subsidiary Reorganization, one of our consolidated subsidiaries is expected to have sufficient income to utilize its net operating loss and research and development credit carryforwards. During the first quarter of fiscal 2022, we assessed the future realization of our deferred tax assets as a result of our plan to complete the Subsidiary Reorganization by the end of the second quarter of fiscal year 2022. OnDecember 1, 2021 , we completed the Subsidiary Reorganization. We reassessed the valuation allowance release as ofJune 30, 2022 . In fiscal year 2022, we released$32.3 million of deferred tax valuation allowance primarily related to finite-lived net operating losses and research and development credit carryforwards. As a result of the Subsidiary Reorganization, we have offset ordinary income of$3.1 million during fiscal year 2022. The remaining$29.2 million of valuation allowance related to finite-lived net operating losses and research and development credit carryforwards is expected to be released and utilized in future periods.
Stock-based compensation
In addition to non-cash employee stock-based compensation expense, this item includes non-cash stock purchase plan expense of$0.6 million and$0.5 million for the years endedJune 30, 2022 and 2021, respectively (see Note 14 - Stock-Based Compensation to the accompanying 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.
Strategic initiative and financial restructuring-related expenses
Strategic initiative and financial restructuring-related expenses include legal, accounting and other expenses related to strategic initiative and financial restructuring-related activities.
Gain or loss on FFF Put and Call Rights
See Note 6 - Fair Value Measurements to the accompanying consolidated financial statements.
Impairment of assets
Impairment of assets relates to impairment of long-lived assets.
Other reconciling items
Other reconciling items includes, but is not limited to, gains and losses on
disposals of long-lived assets and imputed interest on notes payable to former
limited partners.
66
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Results of Operations for the Years Ended
The following table presents our results of operations for the fiscal years presented (in thousands, except per share data):
Year Ended June 30,
2022 2021
Amount % of Net Revenue Amount % of Net Revenue
Net revenue:
Net administrative fees $ 601,128 42 % $ 572,700 34 %
Software licenses, other services and support 438,267 31 % 404,330 23 %
Services and software licenses 1,039,395 73 % 977,030 57 %
Products 393,506 27 % 744,122 43 %
Net revenue 1,432,901 100 % 1,721,152 100 %
Cost of revenue:
Services and software licenses 183,984 13 % 170,773 10 %
Products 363,878 25 % 713,045 41 %
Cost of revenue 547,862 38 % 883,818 51 %
Gross profit 885,039 62 % 837,334 49 %
Operating expenses 624,966 44 % 580,417 34 %
Operating income 260,073 18 % 256,917 15 %
Other income (expense), net 66,827 5 % (6,276) - %
Income before income taxes 326,900 23 % 250,641 15 %
Income tax expense (benefit) 58,582 4 % (53,943) (3) %
Net income 268,318 19 % 304,584 18 %
Net income attributable to non-controlling
interest (2,451) - % (17,062) (1) %
Adjustment of redeemable limited partners'
capital to redemption amount - nm (26,685) (2) %
Net income attributable to stockholders $ 265,867 19 % $ 260,837 15 %
Earnings per share attributable to
stockholders:
Basic $ 2.21 $ 2.24
Diluted $ 2.19 $ 2.22
For the following Non-GAAP financial measures and reconciliations of our
performance derived in accordance with GAAP to the Non-GAAP financial measures,
refer to "Our Use of Non-GAAP Financial Measures" for further information
regarding items excluded in our calculation of Adjusted EBITDA, Segment Adjusted
EBITDA, Non-GAAP Adjusted Net Income and Non-GAAP Adjusted Earnings Per Share.
The following table provides certain Non-GAAP financial measures for the fiscal years presented (in thousands, except per share data).
Year Ended
2022 2021
Certain Non-GAAP Financial Data: Amount % of Net Revenue Amount % of Net Revenue
Adjusted EBITDA $ 498,682 35% $ 473,230 27%
Non-GAAP Adjusted Net Income 302,738 21% 305,974 18%
Non-GAAP Adjusted Earnings Per Share 2.49 nm 2.48 nm
67
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The following table provides the reconciliation of net income to Adjusted EBITDA
and the reconciliation of income before income taxes to Segment Adjusted EBITDA
(in thousands).
Year Ended June 30,
2022 2021
Net income $ 268,318 $ 304,584
Interest expense, net 11,142 11,964
Income tax expense (benefit) 58,582 (53,943)
Depreciation and amortization 85,171 76,309
Amortization of purchased intangible assets 43,936 44,753
EBITDA 467,149 383,667
Stock-based compensation 46,809 35,915
Acquisition- and disposition-related expenses 11,453 18,095
Strategic initiative and financial restructuring-related expenses 18,005
6,990
(Gain) loss on FFF Put and Call Rights (64,110) 27,352
Impairment of assets 18,829 -
Other reconciling items, net (a) 547 1,211
Adjusted EBITDA $ 498,682 $ 473,230
Income before income taxes $ 326,900 $ 250,641
Equity in net income of unconsolidated affiliates (23,505) (21,073)
Interest expense, net 11,142 11,964
(Gain) loss on FFF Put and Call Rights (64,110) 27,352
Other expense (income), net 9,646 (11,967)
Operating income 260,073 256,917
Depreciation and amortization 85,171 76,309
Amortization of purchased intangible assets 43,936 44,753
Stock-based compensation 46,809 35,915
Acquisition- and disposition-related expenses 11,453 18,095
Strategic initiative and financial restructuring-related expenses 18,005
6,990
Equity in net income of unconsolidated affiliates 23,505 21,073
Deferred compensation plan (expense) income (9,401) 12,745
Impairment of assets 18,829 -
Other reconciling items, net 302 433
Adjusted EBITDA $ 498,682 $ 473,230
Segment Adjusted EBITDA:
Supply Chain Services $ 500,854 $ 467,868
Performance Services 126,938 132,225
Corporate (129,110) (126,863)
Adjusted EBITDA $ 498,682 $ 473,230 _________________________________
(a)Other reconciling items, net is primarily attributable to loss on disposal of long-lived assets.
68
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The following table provides the reconciliation of net income attributable to
stockholders to Non-GAAP Adjusted Net Income and the reconciliation of the
numerator and denominator for earnings per share attributable to stockholders to
Non-GAAP Adjusted Earnings per Share for the years presented (in thousands).
Year Ended June 30,
2022 2021
Net income attributable to stockholders $
265,867
- 26,685
Net income attributable to non-controlling interest 2,451 17,062
Income tax expense (benefit) 58,582 (53,943)
Amortization of purchased intangible assets 43,936 44,753
Stock-based compensation 46,809 35,915
Acquisition- and disposition-related expenses 11,453 18,095
Strategic initiative and financial restructuring-related expenses
18,005 6,990
(Gain) loss on FFF Put and Call Rights (64,110) 27,352
Impairment of assets 18,829 -
Other reconciling items, net (a) 7,284 8,529
Non-GAAP adjusted income before income taxes 409,106 392,275
Income tax expense on adjusted income before income taxes (b) 106,368 86,301
Non-GAAP Adjusted Net Income $
302,738
Reconciliation of denominator for earnings per share attributable to stockholders to Non-GAAP Adjusted Earnings per Share Weighted average: Basic weighted average shares outstanding 120,220 116,527 Dilutive securities 1,448 1,005 Weighted average shares outstanding - diluted 121,668 117,532 Class B shares outstanding (c) - 5,638 Non-GAAP weighted average shares outstanding - diluted 121,668 123,170
_________________________________
(a)Other reconciling items, net is primarily attributable to loss on disposal of long-lived assets and imputed interest on notes payable to former limited partners.
(b)Reflects income tax expense at an estimated effective income tax rate of 26% and 22% of non-GAAP adjusted net income before income taxes for the years endedJune 30, 2022 and 2021, respectively. (c)For the year endedJune 30, 2021 , the effect of 5.6 million Class B common shares were excluded from the GAAP diluted weighted average shares outstanding as they had an anti-dilutive effect. On a non-GAAP basis, the effect of 5.6 million Class B common shares were included in the non-GAAP diluted weighted average shares outstanding for the year endedJune 30, 2021 . 69 -------------------------------------------------------------------------------- The following table provides the reconciliation of basic earnings per share attributable to stockholders to Non-GAAP Adjusted Earnings per Share for the periods presented. Year EndedJune 30, 2022 2021 Basic earnings per share attributable to stockholders $
2.21
- 0.23
Net income attributable to non-controlling interest 0.02 0.15
Income tax expense (benefit) 0.49 (0.46)
Amortization of purchased intangible assets 0.37 0.38
Stock-based compensation 0.39 0.31
Acquisition- and disposition-related expenses 0.10 0.16
Strategic initiative and financial restructuring-related expenses
0.15 0.06 (Gain) loss on FFF Put and Call Rights (0.53) 0.23 Impairment of assets 0.16 - Other reconciling items, net (a) 0.06 0.07 Impact of corporation taxes (b) (0.88) (0.74) Impact of dilutive shares (c) (0.05) (0.15) Non-GAAP Adjusted Earnings Per Share $
2.49
_________________________________
(a)Other reconciling items, net is primarily attributable to loss on disposal of long-lived assets and imputed interest on notes payable to former limited partners.
(b)Reflects income tax expense at an estimated effective income tax rate of 26% and 22% of non-GAAP adjusted net income before income taxes for the years endedJune 30, 2022 and 2021, respectively. The change in the estimated effective income tax is as a result of the Subsidiary Reorganization.
(c)Reflects impact of dilutive shares on a non-GAAP basis, primarily
attributable to the assumed conversion of all Class B common units for the year
ended
Consolidated Results - Comparison of the Years Ended
The variances in the material factors contributing to the changes in the consolidated results are discussed further in "Segment Results" below.
Net Revenue
Net revenue decreased by$288.3 million , or 17%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 primarily due to a decrease of$350.6 million in products revenue. This decrease was partially offset by increases of$34.0 million in software licenses, other services and support revenue and$28.4 million in net administrative fees revenue.
Cost of Revenue
Cost of revenue decreased by$335.9 million , or 38%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 primarily due to a decrease of$349.1 million in cost of products revenue partially offset by an increase of$13.2 million in cost of services and software licenses revenue.
Operating Expenses
Operating expenses increased by
Other Income (Expense), Net
Other income (expense), net increased by$73.1 million during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 , primarily due to the current year gain on the FFF Put Right as a result of the termination and corresponding derecognition of the FFF Put Right liability onJuly 29, 2021 compared to the loss on the FFF put and call rights in the prior period (see Note 6 - Fair Value Measurements to the accompanying consolidated financial statements for further information). The increase was partially offset by a deferred compensation plan expense. 70 --------------------------------------------------------------------------------
Income Tax Expense (Benefit)
We recorded an income tax expense of$58.6 million for the year endedJune 30, 2022 compared to an income tax benefit of$53.9 million for the year endedJune 30, 2021 . The income tax expense and benefit resulted in effective tax rates of 18% and (22)% for the years endedJune 30, 2022 and 2021, respectively. The change in the effective tax rate is primarily attributable to the prior year's one-time deferred tax benefit associated with the remeasurement of the deferred tax asset and valuation allowance release as a result of theAugust 2020 Restructuring (see Note 16 - Income Taxes to the accompanying consolidated financial statements for further information).
Net Income Attributable to Non-Controlling Interest
Net income attributable to non-controlling interest decreased by$14.6 million during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 , primarily due to theAugust 2020 Restructuring, whereby net income attributable to non-controlling interest inPremier LP was not recorded afterAugust 11, 2020 .
Adjusted EBITDA
Adjusted EBITDA, a Non-GAAP financial measure as defined in "Our Use of Non-GAAP Financial Measures", increased by$25.5 million , or 5%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 driven by an increase of$33.0 million in Supply Chain Services partially offset by decreases of$5.3 million and$2.2 million in Performance Services and Corporate Adjusted EBITDA, respectively. 71
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Segment Results
Supply Chain Services
The following table presents our results of operations and Adjusted EBITDA, a
Non-GAAP financial measure, in the Supply Chain Services segment for the fiscal
years presented (in thousands):
Year Ended June 30,
2022 2021 Change
Net revenue:
Net administrative fees $ 601,128 $ 572,700 $ 28,428 5 %
Software licenses, other services and support 37,312 26,812 10,500 39 %
Services and software licenses 638,440 599,512 38,928 6 %
Products 393,506 744,122 (350,616) (47) %
Net revenue 1,031,946 1,343,634 (311,688) (23) %
Cost of revenue:
Services and software licenses 14,869 4,238 10,631 251 %
Products 363,878 713,045 (349,167) (49) %
Cost of revenue 378,747 717,283 (338,536) (47) %
Gross profit 653,199 626,351 26,848 4 %
Operating expenses:
Selling, general and administrative 212,436 195,094 17,342 9 %
Research and development 397 164 233 142 %
Amortization of intangibles 32,428 32,342 86 - %
Operating expenses 245,261 227,600 17,661 8 %
Operating income 407,938 398,751 9,187 2 %
Depreciation and amortization 22,996 4,731
Amortization of purchased intangible assets 32,428 32,342
Acquisition- and disposition-related expenses 1,915
10,938
Equity in net income of unconsolidated affiliates 22,869
20,854
Impairment of assets 12,695
-
Other reconciling items, net 13
252
Segment Adjusted EBITDA$ 500,854 $ 467,868 $ 32,986 7 % Net Revenue Supply Chain Services segment revenue decreased by$311.7 million , or 23%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 driven by a decrease of$350.6 million in products revenue, which was partially offset by increases of$28.4 million and$10.5 million in net administrative fees and software licenses, other services and support revenue, respectively.
Net Administrative Fees Revenue
Net administrative fees revenue increased$28.4 million , or 5%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 , driven by an increase in the demand for supplies and services, increased utilization of our contracts by our existing members, the addition of new categories and suppliers and the addition of new members to our contract portfolio. These increases in net administrative fees revenue were partially offset by an increase in revenue share paid to members and the departure of members from our contract portfolio.
Products Revenue
Products revenue decreased by$350.6 million , or 47%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 . The decrease was primarily driven by lower demand for and pricing of PPE and other high demand supplies as a result of the state of the COVID-19 pandemic, which was partially offset by growth in commodity products under our 72 --------------------------------------------------------------------------------
PREMIERPRO® brand. As the COVID-19 pandemic continues to subside and become more manageable, we expect further stabilization of the market for some of these products and, accordingly, a decrease in period-over-period products revenue.
Software Licenses, Other Services and Support Revenue
Software licenses, other services and support revenue increased by$10.5 million , or 39%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 , primarily due to an increase in supply chain co-management fees and SaaS-based purchased services revenue.
Cost of Revenue
Supply Chain Services segment cost of revenue decreased by$338.5 million , or 47%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 , primarily attributable to the decrease in products revenue of$349.2 million due to the prior year increase in demand as well as fluctuations in product costs partially offset by escalating transportation costs due to continued global supply chain issues. In addition, cost of services and software licenses revenue increased by$10.6 million primarily due to an increase in depreciation and amortization expense as well as the aforementioned increase in software licenses, other services and support revenue. As the COVID-19 pandemic continues to subside and become more manageable, we expect further stabilization of the market for some of these products and, accordingly, a decrease in period-over-period cost of products revenue.
Operating Expenses
Operating expenses increased by$17.7 million , or 8%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 . The increase was primarily due to an increase in selling, general and administrative expenses of$17.3 million driven by increases in depreciation and amortization expenses and personnel costs as well as the impairment of property and equipment (see Note 8 - Supplemental Balance Sheet Information) partially offset by a decrease in acquisition- and disposition-related expenses.
Segment Adjusted EBITDA
Segment Adjusted EBITDA in the Supply Chain Services segment increased by$33.0 million , or 7%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 , primarily due to the aforementioned increase in net administrative fees revenue and favorable product mix in our direct sourcing business. 73
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Performance Services
The following table presents our results of operations and Adjusted EBITDA in
the Performance Services segment for the fiscal years presented (in thousands):
Year Ended June 30,
2022 2021 Change
Net revenue:
Software licenses, other services and support
SaaS-based products subscriptions $ 193,586 $ 198,512 $ (4,926) (2) %
Consulting services 64,087 58,851 5,236 9 %
Software licenses 65,621 56,157 9,464 17 %
Other 77,689 63,998 13,691 21 %
Net revenue 400,983 377,518 23,465 6 %
Cost of revenue:
Services and software licenses 169,116 166,535 2,581 2 %
Cost of revenue 169,116 166,535 2,581 2 %
Gross profit 231,867 210,983 20,884 10 %
Operating expenses:
Selling, general and administrative 170,677 146,005 24,672 17 %
Research and development 3,754 3,174 580 18 %
Amortization of intangibles 11,508 12,411 (903) (7) %
Operating expenses 185,939 161,590 24,349 15 %
Operating income 45,928 49,393 (3,465) (7)%
Depreciation and amortization 53,166 62,980
Amortization of purchased intangible assets 11,508 12,411
Acquisition- and disposition-related expenses 9,538
7,157
Equity in net income of unconsolidated affiliates 636
219
Impairment of assets 6,134
-
Other reconciling items, net 28
65
Segment Adjusted EBITDA$ 126,938 $ 132,225 $ (5,287) (4) % Net Revenue Net revenue in our Performance Services segment increased by$23.5 million , or 6%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 . The increase was primarily driven by growth of$9.5 million and$5.2 million in software licenses and consulting services revenue, respectively, under our PINC AI platform as well as growth of$13.7 million in other net revenue which includes the growth inContigo Health and incremental revenue and growth from our Remitra business. These increases in net revenue were partially offset by a decrease in SaaS-based products subscriptions revenue due to the conversion of SaaS-based products to licensed-based products.
Cost of Revenue
Cost of services and software licenses revenue in our Performance Services segment increased by$2.6 million , or 2%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 , primarily due to an increase in personnel costs related to growth in ourContigo Health business and incremental expenses associated with our Remitra business.
Operating Expenses
Performance Services segment operating expenses increased by$24.3 million , or 15%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 . The increase was primarily due to an increase in selling, general and administrative expenses of$24.7 million driven by increases in personnel costs and professional fees associated with a decrease in capitalized labor costs and intangible asset impairment (see Note 9 -Goodwill and Intangible Assets) as well as increase in acquisition- and disposition-related expenses. These increases were partially offset by a decrease in depreciation and amortization expense. 74
--------------------------------------------------------------------------------
Segment Adjusted EBITDA
Segment Adjusted EBITDA in the Performance Services segment decreased by$5.3 million , or 4%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 , primarily due to the aforementioned increases in cost of revenue and operating expenses partially offset by the aforementioned increase in net revenue. Corporate
The following table summarizes corporate expenses and Adjusted EBITDA for the fiscal years presented (in thousands):
Year Ended June 30,
2022 2021 Change
Operating expenses:
Selling, general and administrative $ 193,794 $ 191,227 $ 2,567 1 %
Operating expenses 193,794 191,227 2,567 1 %
Operating loss (193,794) (191,227) (2,567) 1 %
Depreciation and amortization 9,009 8,598
Stock-based compensation 46,809
35,915
Strategic initiative and financial restructuring-related expenses 18,005
6,990
Deferred compensation plan (expense) income (9,401)
12,745
Other reconciling items, net 262 116 Adjusted EBITDA$ (129,110) $ (126,863) $ (2,247) 2 %
Operating Expenses
Corporate operating expenses increased by$2.6 million , or 1%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 primarily due to increases in stock-based compensation expense as a result of higher achievement of performance share awards, professional fees related to strategic initiative and financial restructuring-related activities and employee-related expenses, including employee travel and meeting expenses as travel and meeting limitations due to the COVID-19 pandemic began to subside. These increases were partially offset by deferred compensation plan expense in the current year compared to deferred compensation income in the prior year due to market changes.
Adjusted EBITDA
Adjusted EBITDA decreased by$2.2 million , or 2%, during the year endedJune 30, 2022 compared to the year endedJune 30, 2021 primarily due to an increase in employee-related expenses, including employee travel and meeting expenses. 75 --------------------------------------------------------------------------------
Results of Operations for the Years Ended
A discussion of changes in our results of operations from fiscal year 2020 to fiscal year 2021 has been omitted from this Annual Report but may be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Form 10-K for the fiscal year endedJune 30, 2021 , filed with theSEC onAugust 17, 2021 , which is available free of charge on the SECs website at www.sec.gov and our website at http://investors.premierinc.com.
Off-Balance Sheet Arrangements
As of
Liquidity and Capital Resources
Our principal source of cash has been primarily 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 defined in Note 10 - Debt and Notes Payable to the accompanying consolidated financial statements for more information) as a source of liquidity. Our primary cash requirements include operating expenses, working capital fluctuations, revenue share obligations, tax payments, capital expenditures, dividend payments on our Class A common stock, if and when declared, repurchases of Class A common stock pursuant to stock repurchase programs in place from time to time, acquisitions and related business investments, and general corporate activities. Our capital expenditures typically consist of internally developed software costs, software purchases and computer hardware purchases. As ofJune 30, 2022 and 2021, we had cash and cash equivalents of$86.1 million and$129.1 million , respectively. As ofJune 30, 2022 and 2021, there was$150.0 million and$75.0 million , respectively, of outstanding borrowings under our Credit Facility. During the year endedJune 30, 2022 , we borrowed$325.0 million and repaid$250.0 million of borrowings under the Credit Facility, which were used to partially fund the$250.0 million share repurchase program and other general corporate purposes. 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, dividend payments on our Class A common stock, if and when declared, 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. OnAugust 4, 2022 , our Board of Directors declared a cash dividend of$0.21 per share, payable onSeptember 15, 2022 to stockholders of record onSeptember 1, 2022 .
Discussion of Cash Flows for the Years Ended
A summary of net cash flows follows (in thousands):
Year Ended
2022 2021
Net cash provided by (used in): Operating activities$ 444,234 $ 407,402 Investing activities (139,440) (174,568) Financing activities (347,789) (202,997) Effect of exchange rate changes on cash flows (3)
-
Net (decrease) increase in cash and cash equivalents
Net cash provided by operating activities increased by$36.8 million for the year endedJune 30, 2022 compared to the year endedJune 30, 2021 . The increase in cash provided by operating activities was primarily due to the net increase in cash from our direct sourcing business of$132.3 million driven by a higher cash inflows from the collection of accounts receivable and reduction in inventory purchases from fiscal year 2021. The increase in cash was partially offset by an increase of$75.8 million in payments of operating expenses and$20.0 million in miscellaneous payments including taxes and interest. 76 -------------------------------------------------------------------------------- Net cash used in investing activities decreased by$35.1 million for the year endedJune 30, 2022 compared to the year endedJune 30, 2021 . The decrease in cash used in investing activities was primarily due to higher cash outlay in the prior year for the fiscal 2021 acquisition of IDS compared to cash paid in the current year for investments in Exela andQventus, Inc. The decrease was partially offset by a net increase in purchases of property and equipment and other investing activities. Net cash used in financing activities increased by$144.8 million for the year endedJune 30, 2022 compared to the year endedJune 30, 2021 . The increase in net cash used in financing activities was primarily driven by$250.0 million for repurchases of Class A common stock under the fiscal 2022 stock repurchase program and an increase of$48.5 million in payments made on notes payable driven by an increase in early termination payments to certain former limited partners that elected to execute a Unit Exchange Agreement in connection with theAugust 2020 Restructuring as quarterly payments commenced during the quarter endedMarch 31, 2021 . The increase in net cash used in financing activities was partially offset by an increase of$75.0 million in net proceeds under our Credit Facility, an increase of$28.4 million in proceeds from the issuance of Class A common stock in connection with the exercise of outstanding stock options, a reduction of$34.2 million in distributions to limited partners ofPremier LP and payments to limited partners ofPremier LP related to tax receivable agreements as both distributions and payments were eliminated in connection with theAugust 2020 Restructuring and an increase of$19.2 million in other financing activities. The increase in other financing activities is primarily driven by proceeds from member health systems that acquired membership interests in ExPre.
Discussion of Non-GAAP Free Cash Flow for the Years Ended
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 for periods prior to ourAugust 2020 Restructuring, early termination payments to certain former limited partners that elected to execute a Unit Exchange Agreement in connection with ourAugust 2020 Restructuring and purchases of property and equipment. Non-GAAP Free Cash Flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayments under our Credit Facility. A summary of Non-GAAP Free Cash Flow and reconciliation to net cash provided by operating activities for the periods presented follows (in thousands):
Year Ended
2022 2021
Net cash provided by operating activities $ 444,234 $ 407,402
Purchases of property and equipment (87,440) (88,876)
Early termination payments to certain former limited partners that elected to execute a Unit Exchange Agreement (a)
(95,948) (44,024)
Distributions to limited partners of Premier LP - (9,949)
Payments to limited partners of Premier LP related to tax
receivable agreements - (24,218)
Non-GAAP Free Cash Flow $ 260,846 $ 240,335 _________________________________
(a) Early termination payments to certain former limited partners that elected to execute a Unit Exchange Agreement in connection with ourAugust 2020 Restructuring are presented in our Consolidated Statements of Cash Flows under "Payments made on notes payable". During the year endedJune 30, 2022 , we paid$102.7 million to members including imputed interest of$6.7 million which is included in net cash provided by operating activities. During the year endedJune 30, 2021 , we paid$51.3 million to members including imputed interest of$7.3 million which is included in net cash provided by operating activities. See Note 10 - Debt and Notes Payable to the accompanying audited consolidated financial statements for further information. Non-GAAP Free Cash Flow increased by$20.5 million for the year endedJune 30, 2022 compared to the year endedJune 30, 2021 . The increase in Non-GAAP Free Cash Flow was driven by the aforementioned increase of$36.8 million in net cash provided by operating activities and no distributions to limited partners ofPremier LP or payments to limited partners ofPremier LP related to tax receivable agreements during the year endedJune 30, 2022 as both were eliminated in connection with theAugust 2020 Restructuring. These increases in Non-GAAP Free Cash Flow were partially offset by an increase of$51.9 million in early termination payments to certain former limited partners in connection with theAugust 2020 Restructuring.
See "Our Use of Non-GAAP Financial Measures" above for additional information regarding our use of Non-GAAP Free Cash Flow.
77
--------------------------------------------------------------------------------Contractual Obligations
The following table presents our contractual obligations as ofJune 30, 2022 (in thousands): Payments Due by Period Less Than 1 Greater Than 5 Contractual Obligations Total Year 1-3 Years 3-5 Years Years Notes payable to former limited partners (a)$ 308,055 $ 102,685 $ 205,370 $ - $ - Other notes payable (b) 5,333 3,053 2,280 - - Operating lease obligations (c) 47,027 12,131 24,568 10,328 - Deferred consideration (d) 60,000 30,000 30,000 - - Total contractual obligations$ 420,415 $ 147,869 $ 262,218 $ 10,328 $ -
_________________________________
(a)Notes payable to former limited partners represent the amount of the expected payment to be made to each former limited partner pursuant to the early termination provisions of the TRA (each such amount an "Early Termination Payment"). See Note 10 - Debt and Notes Payable to the accompanying consolidated financial statements for more information. (b)Other notes payable are non-interest bearing and generally have stated maturities of three to five years from the date of issuance. See Note 10 - Debt and Notes Payable to the accompanying consolidated financial statements for more information. (c)Future contractual obligations for leases represent future minimum payments under noncancelable operating leases primarily for office space. See Note 18 - Commitments and Contingencies to the accompanying consolidated financial statements for more information.
(d)Deferred consideration to be paid pursuant to the purchase agreement for the
acquisition of substantially all of the assets and certain liabilities of
Credit Facility
Outstanding borrowings under the Credit Facility (as defined in Note 10 - Debt
and Notes Payable to the accompanying consolidated financial statements for more
information) bear interest on a variable rate structure with borrowings bearing
interest at either the London Interbank Offered Rate ("LIBOR") plus an
applicable margin ranging from 1.000% to 1.500% or the prime lending rate plus
an applicable margin ranging from 0.000% to 0.500%. We pay a commitment fee
ranging from 0.100% to 0.200% for unused capacity under the Credit Facility. At
June 30, 2022 , the interest rate on outstanding borrowings under the Credit
Facility was 2.178% and the commitment fee was 0.100%.
The Credit Facility contains customary representations and warranties as well as
customary affirmative and negative covenants. We were in compliance with all
such covenants at June 30, 2022 . The Credit Facility also contains customary
events of default, including a cross-default of any indebtedness or guarantees
in excess of $75.0 million . 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.
Proceeds from borrowings under the Credit Facility may generally be used to
finance ongoing working capital requirements, including permitted acquisitions,
repurchases of Class A common stock pursuant to stock repurchase programs, in
place from time to time, dividend payments, if and when declared, and other
general corporate activities. At June 30, 2022 , we had outstanding borrowings
of $150.0 million under the Credit Facility with $849.9 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, as amended, which is filed as Exhibit 10.1 in our quarterly report for
the period ended December 31, 2021 . See also Note 10 - Debt and Notes Payable to
the accompanying condensed consolidated financial statements.
Cash Dividends
In each ofSeptember 15, 2021 ,December 15, 2021 ,March 15, 2022 andJune 15, 2022 , we paid a cash dividend of$0.20 per share on outstanding shares of Class A common stock. OnAugust 4, 2022 , our Board of Directors declared a cash dividend of$0.21 per share, payable onSeptember 15, 2022 to stockholders of record onSeptember 1, 2022 . We currently expect quarterly dividends to continue to be paid on or aboutDecember 15 ,March 15 ,June 15 andSeptember 15 , respectively. However, the actual declaration of any future cash dividends, and the setting of record and payment dates as well as the per share amounts, will be at the discretion of our Board of Directors each quarter after consideration of various factors, including our results of operations, financial condition and capital requirements, earnings, general business conditions, restrictions imposed by our current credit facility and any future financing arrangements, legal restrictions on the payment of dividends and other factors our Board of Directors deems relevant. 78 --------------------------------------------------------------------------------
Stock Repurchase Program
OnAugust 5, 2021 , our Board of Directors authorized the repurchase of up to$250.0 million of our outstanding Class A common stock during fiscal year 2022 through open market purchases or privately negotiated transactions. AtJune 30, 2022 , we had completed our stock purchase program and purchased approximately 6.4 million shares of Class A common stock at an average price of$38.88 per share for a total purchase price of$250.0 million .
Fiscal 2022 Developments
In fiscal year 2022, theU.S. and global economies experienced unprecedented challenges resulting from the ongoing consequences of the COVID-19 pandemic, including supply chain bottlenecks and escalating inflation. These challenges were exacerbated by theRussia -Ukraine war which has led to further supply chain disruptions and rising energy costs and led to further inflationary impacts. These challenges have impacted our business as discussed below.
COVID-19 Pandemic, Variants Thereof, Recurrences or Similar Pandemics
The COVID-19 global pandemic and its variants continue to create challenges throughoutthe United States and the rest of the world. The full extent to which the COVID-19 pandemic may impact our business, operating results, financial condition and liquidity in the future will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and variants thereof, the continued actions to contain it or treat its impact, including the success of COVID-19 vaccination programs, or recurrences of COVID-19, variants thereof or similar pandemics. As discussed in detail under "Item 1A. Risk Factors", as a result of the COVID-19 pandemic and potential future pandemic outbreaks, we face material risks including but not limited to the following: •The impact of the COVID-19 pandemic and any variants thereof and associated supply chain disruptions and inflation could result in a prolonged recession or depression inthe United States or globally that could harm the banking system, limit or delay demand for many products and services and cause other foreseen and unforeseen events and circumstances, all of which could negatively impact us. •We experienced and may continue to experience demand uncertainty from both material increases and decreases in demand and pricing for personal protective equipment ("PPE"), drugs and other supplies directly related to treating and preventing the spread of COVID-19 and any variants thereof as well as a decline in demand and pricing for many supplies and services not related to COVID-19. •Labor shortages and the resulting increases to cost of labor are a continued challenge to the healthcare providers we serve and could negatively affect our business. •While some of our hospital customers have increased access to their facilities for non-patients, including our field teams, consultants and other professionals, there are many that are still not allowing onsite access outside of their staff. Hospital imposed travel restrictions are also impacting some customers' ability to participate in face-to-face events with us, such as committee meetings and conferences.
•The global supply chain has been materially disrupted due to personnel shortages associated with ongoing COVID-19 rates of infection, stay-at-home orders, border closings, rapidly escalating shipping costs, raw material availability and material logistical delays due to port congestion.
•We have and may continue to receive requests for contract modifications, payment waivers and deferrals, payment reductions or amended payment terms from our contract counterparties. Inflation in such contract prices may impact member utilization of items and services available through our GPO contracts, with uncertain impact on our net administrative fees revenue and direct sourcing revenue. In addition, several pharmacy suppliers have exercised force majeure clauses related to failure to supply clauses in their contracts with us.
•In response to COVID-19 and variants thereof, federal, state and local governments are issuing new rules, regulations, changing reimbursement eligibility rules, orders and advisories on a regular basis. These government actions can impact us, our members, other customers and suppliers.
Russia-Ukraine War
InFebruary 2022 ,Russia invadedUkraine . As military activity continues and sanctions, export controls and other measures are imposed againstRussia ,Belarus and specific areas ofUkraine , the war is increasingly affecting the global economy and financial markets, as well as exacerbating ongoing economic challenges, including issues such as rising inflation and energy costs and global supply-chain disruption. We continue to monitor the impacts of theRussia -Ukraine war on macroeconomic conditions and prepare for any implications that the war may have on member demand, our suppliers' ability to deliver products, cybersecurity risks and our liquidity and access to capital. See "Risk Factors - Risks Related to Our Business Operations". 79 --------------------------------------------------------------------------------
Impact of Inflation
TheU.S. economy is experiencing the highest rates of inflation since the 1980s. Historically, we have not experienced significant inflation risk in our business arising from fluctuations in market prices across our diverse product portfolio. However, our ability to raise our selling prices depends on market conditions and there may be periods during which we are unable to fully recover increases in our costs. In fiscal year 2022, our GPO business was largely unaffected by pricing inflation as we used our members' aggregated purchasing power to negotiate firm prices in many of our contracts. In our Direct Sourcing business, we were able to partially offset increases in cost through temporary adjustments to selling prices and through various cost reduction initiatives while ensuring our products remain competitively priced. See "Risk Factors - Risks Related to Our Business Operations".
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