Premier’s Outlook for the Future

Credit Suisse held a post quarterly conference with Premier Inc. management to review FY3Q20 results, resumption of elective surgeries, expectations for Performance Services, the Health Design Plus acquisition, and expectations for FY4Q20.

Premier FY4Q20 outlook contemplates only partial resumption of elective surgeries by the end of June. Based on Premier’s survey of their hospital clients, most hospitals expect to have elective surgeries return to a normalized level by the end of June with 75% resumption in May and 90-95%  in June.

Premier’s management is wondering if chronic conditions may have worsened while patients have been waiting for surgeries and as a result, maybe their condition after the delay may have become more severe. There could also be some delays related to unemployment and perhaps to to the stimulus packages and Medicaid. However in the short term, health systems are putting everything in place to try to meet the pent-up demand and this will likely play out gradually over time.

As for Premier’s Performance Services expectations in FY4Q20, the company’s FY20 revenue outlook suggests that the company’s Performance Services business revenue declined from $96 million in FY3Q to $78 million in FY4Q. Management was questioned as to why a significant portion of the Performance Services business since it’s a SaaS based business with recurring revenue, declined?

Management responded by reporting that while a significant portion of the business is cloud-based SaaS, the decline is driven by the decline in the segment’s Enterprise license agreements that are not SaaS based. However, the segment margins are expected to be in the low to mid 30% range for both FY 4Q20 and full year for FY20, which implies that the majority of sequential margin pressures reflected in FY4Q20 outlook is driven by the company’s Supply Chain Services Segment.

Questions were asked concerning the strategic rationale behind Premier’s acquisition of Health Design Plus (HDP) a third party administrator and care management company. The company specializes in the development and administration of innovative health benefits solutions for employer clients and health system partners.

The HDP deal for approximately $25 million, included a 3% equity stake in the combined Contigo- Health-HDP company. Management presented their rationale, by highlighting a three-tiered focus such as working with Contigo, infusing Premier’s collaboratives, and the opportunity to sell more of the company’s enterprise analytics capabilities.

The question was asked if there is any overlap between Contigo’s Customers and HDPs employer clients. As for Contigo, the focus will be on HDP’s clients first? Management explained that there is overlap in the client base but HDP plans to extend some of the services to some of the employers that Premier’s healthcare systems are already working with.

Another question asked for an update on the business integration with the GNYHA’s GPO (Acurity and consulting Nexera) businesses that were acquired earlier this year? The company responded by reporting that management has worked with GNYHA, Acurity and Nexera to meet the needs of the New York hospitals. Premier was helpful during the crisis and is talking with them about working across multiple states.

As for Premier’s FY 21 outlook, management plans to issue their FY21 guidance along with their FY4Q20 earnings in Mid-August. Depending on the state of the medical & economic recovery in Mid-August, the company must make a decision on whether to consider establishing annual guidance, potentially issue quarterly guidance on a short term basis, or just withhold the guidance altogether.

For more information and to provide feedback, email Jailendra Singh at or call 212-325-8121.

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