PINC - NASDAQ

00:03 Good morning and welcome to Premier's Fiscal twenty twenty two First Quarter Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Angie McCabe, Vice President-Investor Relations. Please go ahead.

00:38 Thank you, and welcome to Premier's fiscal twenty twenty two first quarter call. Our speakers this morning are Mike Alkire, our President and CEO; and Craig McKasson, our Chief Administrative and Financial Officer. 00:51 Before we get started, just a reminder that our earnings release and the supplemental slides accompanying this conference call are available in the Investor Relations section of our website at investors.premierinc.com. 01:05 Our remarks today contain certain forward-looking statements, and actual results could differ materially from those discussed today. These forward-looking statements speak only as of today, and we undertake no obligation to update them. Factors that might affect future results are discussed in our filings with the SEC, including our most recent Form ten K and our Form ten Q for the quarter, which we expect to file soon. We encourage you to review these detailed safe harbor and risk factor disclosures. 01:36 Also, where appropriate, we refer to adjusted or other non-GAAP financial measures such as free cash flow to evaluate our business. Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release in the appendix of the supplemental slides accompanying this presentation and in our earnings Form eight K, which we expect to furnish to the SEC soon. 02:04 I will now turn the call over to Mike Alkire.

02:09 Thanks, Angie. Good morning, everyone, and thank you for joining us today. We are pleased with our first quarter performance. We continue to advance our strategies to help our members and other customers deliver higher quality, more cost effective health care and support them through the COVID-nineteen pandemic. 02:30 We are working every day to advance our technology enabled supply chain capabilities and expansion of our PINC AI Platform to serve our members and adjacent markets and fulfill our mission to improve the health of communities. We are also proud to play a role in our member health systems to care for patients in such a dynamic environment. 02:53 The unique combination of our strategic member relationships vast data and technology platform that yields actionable insights and solutions, and strong culture of highly engaged employees are foundational to our ability to execute our strategies. 03:12 Compared with the first quarter of last year, total net revenue grew five percent with a nine percent increase in supply chain services segment revenue, resulting from strong execution in our GPO and direct sourcing businesses as we continue to help our members manage through the pandemic and a five percent decrease in Performance Services segment revenue due to the timing of revenue related to enterprise analytics license agreements in the quarter. 03:44 Our adjusted EBITDA grew ten percent and our adjusted earnings per share increased twelve percent. Based on our first quarter performance and outlook for the remainder of the year, we believe we remain on track to achieve our fiscal twenty twenty two guidance and deliver long term sustainable growth. Craig will discuss our operational and financial results in more detail. 04:13 We continue to operate in an environment characterized by new and emerging challenges, including rising inflation, increased raw material cost, supply chain disruptions, and labor shortages. Through the combination of our strong member relationships, and technology based solutions, we are able to identify and act on potential market uncertainties and disruptions. 04:41 We believe we are uniquely positioned to help our members and other customers navigate these challenges. More specifically, the global supply chain continues to experience unprecedented disruption, which are affecting multiple industries, including U.S. Healthcare. The market is experiencing an array of bottlenecks that could result in shortages of certain products. 05:09 However, we continue to take a leadership role in helping our members and other customers identify and act on vulnerabilities while preparing for the post pandemic environment. We also continue to work on creating a more resilient healthcare supply chain through a number of investments partnerships and collaborations. 05:31 In September, we announced that we co-invested with eleven of our member health systems and Exela Pharma Sciences to enhance and support U.S. based drug supply and manufacturing. We believe these efforts differentiate Premier in the marketplace and reflect the long term strategic relationships we have with our members. 05:56 The pandemic highlighted and accelerated the need for technology based solutions to promote resiliency and long term sustainability of the U.S. healthcare system. We continue to demonstrate the value of our offering. 06:13 For example, through our artificial intelligence and other technology based capabilities, we can predict potential disruptions and shortages to enable better preparedness. This is just one example of the timely and meaningful solutions we offer through our comprehensive technology and services platform PINC AI. 06:38 Launched in August, the PINC AI brand has been favorably received by providers and adjacent markets, including payers, employers, and life sciences companies. We believe this closed loop platform for continuous healthcare improvement has the ability to help providers stabilize their businesses. 07:02 For example, health systems across the country are facing a labor and staffing crisis. With our technology based solutions, combined with our GPO and supply chain offerings, we are helping them manage through these issues. For instance, PINC AI leverages machine learning to predict and warn if the clinical department is at risk of a near term labor shortage. 07:29 It further supports healthcare providers with benchmarks to identify areas of opportunities where leaders may need to adjust staffing. The consulting arm of PINC AI helps providers manage and implement effective labor management solutions. 07:47 By automating the manual time consuming processes such as prior authorization and invoicing and payables, PINC AI can save providers and other healthcare organizations time and expense. Our GPO also offers national and local contracts to help our members control the costs of full-time and contingent staff. And our supply chain services offers co-management of health systems supply chain operation. 08:21 We are committed to supporting our members and finding innovative ways to solve for these and other related challenges, so they can continue to deliver high quality and cost effective patient care. 08:36 We also continued to advance our environmental, social, and governance or ESG effort. A few weeks ago, we published our first ever sustainability report, highlighting our many practices and initiatives aimed at improving healthcare, building trust, operating responsibly and positively impacting communities. 08:59 Further demonstrating our commitments to sustainability, ESG oversight has been elevated to our Board of Directors with dedicated responsibilities delegated to the Board’s nominating and governance committee. 09:15 Our focus on incorporating appropriate ESG practices into our business remains a priority not only for the long term success of Premier, but for the good of our members, other customers and the communities we serve. 09:31 I would like to take the opportunity to invite you to join our Virtual Investor Day that is scheduled for the morning of November seventeen. During this event, we plan to provide more insight into our strategies to leverage innovative technologies, including AI and machine learning, to drive long term sustainable growth and deliver value to our stakeholders. We are excited about the future and look forward to sharing more details with you in a couple of weeks. 10:01 I will now turn the call over to Craig McKasson for a discussion of our operational and financial performance and some comments on our fiscal twenty twenty two financial guidance.

10:12 Thanks, Mike. For the first quarter of twenty twenty two and as compared with the year ago first quarter, total net revenue was three hundred and sixty five point one million, an increase of five percent. Supply chain services segment revenue was two hundred and seventy six point eight million, an increase of nine percent; and Performance Services segment revenue was eighty eight point three million, a decrease of five percent. 10:39 In our Supply Chain Services segment, net administrative fees revenue increased thirteen percent, compared with the first quarter of fiscal twenty twenty one to the current year growth as well as a less significant impact from the COVID-nineteen pandemic compared with the first quarter of last year. 10:58 Certain categories in our GPO portfolio, including our food program grew significantly as demand across the acute and non-acute markets returned to more normalized levels. The addition of new members and further penetration of existing numbers spend in the quarter, also contributed to quarter over quarter growth. 11:20 Products revenue grew three percent from the prior year quarter, the increase was mainly due to higher demand for commodity products, partially offset by lower demand per PPE and other supplies as a result of the current state of the pandemic relative to prior year. 11:38 In our Performance Services segment, revenue declined in the first quarter, primarily due to the timing of revenue associated with enterprise analytics license agreements in the current year, compared to the prior year. This impact was partially offset by our ongoing efforts to expand into adjacent markets, as well as growth in our consulting business. 12:00 As a reminder, and consistent with previous commentary, we may experience periodic variability across quarters in Performance Services as a result of the manner in which revenue is recognized on enterprise analytics license agreements, which typically results in a significant percentage of the total contract value being recognized in the quarter in which the agreement was signed. 12:25 Overall, we believe we remain on track to achieve our initial expectations for Performance Services fiscal twenty twenty two segment net revenue of three ninety five million to four twenty million with low to mid single digit growth in our healthcare provider revenues and approximately twenty five percent year over year growth in our adjacent market. 12:50 With respect to profitability, GAAP net income was one hundred and twenty one point three million dollars for the quarter. Adjusted EBITDA of one hundred and twenty one point seven million in the first quarter, increased ten percent from the same quarter a year ago as a result of the following. 13:09 Supply chain services adjusted EBITDA of one hundred and twenty nine point three million increased quarter over quarter, primarily due to increased net administrative fees revenue, as well as increased revenue and profitability in our direct sourcing products business. 13:26 Performance Services segment adjusted EBITDA of twenty three point seven million decreased from the prior year quarter, due to the decrease in revenue, as well as increased selling, general and administrative expense, primarily related to additional headcount to support growth in Contigo Health. 13:45 Compared with the year ago quarter, adjusted net income increased thirteen percent to seventy nine point one million and adjusted earnings per share increased twelve percent to zero point six four dollars. 13:59 From a liquidity and balance sheet perspective, cash flows from operations for the three months ended September thirty, twenty twenty one was fifty five point two million, compared with thirty point eight million for the prior year. The twenty point four million dollars increase in operating cash flows was mainly due to a fourteen point three million dollars increase in cash received as a result of higher revenue, primarily attributable to net administrative fees in the current period, and a decrease of seventy one million dollars in costs, primarily driven by higher demand of PPE in the prior year period as a result of the COVID-nineteen pandemic. 14:42 These increases in operating cash were partially offset by an increase of forty four point four million in payments of operating expenses and a decrease of fourteen point six million in income tax refunds. 14:56 Free cash flow for the three months ended September thirty, twenty twenty one was eleven point two million, compared with a negative twenty eight point four million for the same period a year ago. The increase was primarily due to the same factors that affected cash flow from operations, a decrease in purchases of property and equipment and the elimination of tax distributions to limited partners offset by payments to the former limited partners in connection with the termination of the tax receivable agreement as part of the company's August twenty twenty restructure. 15:35 As a reminder, free cash flow is typically lowest in the first quarter, given that our fiscal year ends in June and payment of certain expenses, including annual employee incentive compensation occur in the first quarter. 15:51 Cash and cash equivalents totaled one hundred and eighty four point four million dollars at September thirty, twenty twenty one, compared with one hundred and twenty nine point one million at June thirty, twenty twenty one. Our five year one billion dollar revolving credit facility had an outstanding balance of one hundred and seventy five million as of September thirty and fifty million dollars was subsequently repaid in October. 16:18 We are focused on taking a balanced approach to capital deployment and our priorities remain twofold. First, we expect to continue investing in the future growth of our businesses. This could include a combination of organic reinvestment in our businesses to drive growth, as well as acquisitions and other investments to strengthen, enhance, or complement our existing capabilities and differentiate our offerings in the marketplace, and second, returning capital to our stockholders. 16:52 During the first quarter, we repurchased approximately one point one million shares of our common stock for a total of forty two point six million dollars and paid quarterly dividends to stockholders totaling twenty four point nine million. In addition, our Board of Directors declared a dividend of zero point two zero dollars per share payable on December fifteen, twenty twenty one to stockholders and record as of December first. 17:20 With respect to our fiscal twenty twenty two guidance, based on our first quarter performance and outlook for the remainder of this year, we continue to expect total net revenue to be in the range of one point three two billion to one point four three billion and adjusted EBITDA to be in the range of four eighty three million to five hundred million. 17:43 We are increasing our previous guidance range of two point five zero dollars to two point six zero dollars per adjusted earnings per share to a range of two point five six dollars to two point six six dollars as a result of our expectation that our effective tax rate will be approximately twenty one percent compared to our previous expectation of twenty three percent for the full fiscal year twenty twenty two. 18:13 The decrease in our effective tax rate from our original expectation is due to the additional release of valuation allowance on deferred tax assets associated with current year utilization on historical net operating losses as a result of an anticipated plan to reorganize and simplify our subsidiary reporting structure by the end of the second quarter of fiscal twenty twenty two. 18:40 The effective tax rate could potentially fluctuate in future periods as a result of changes in our projection for ordinary income, as well as any incremental release of valuation allowance on deferred tax assets. And as previously discussed, we do expect our effective tax rate to return to a more normalized twenty seven percent level beyond fiscal twenty twenty two. 19:04 Our adjusted earnings per share guidance includes the effect of one point one million in share repurchases through September thirty, twenty twenty one, but does not include the potential effect of any subsequent share repurchases during the remainder of fiscal twenty twenty two. 19:22 Finally, as we look forward to the remainder of fiscal twenty twenty two and beyond, we remain excited about the path we are on and are focused on executing our strategy to further strengthen, grow and position Premier for sustainable long term success. 19:40 In addition, adjusted for the impact of the COVID-nineteen pandemic, we remain committed to achieving our targeted multi-year compound annual growth rate of mid to high single digits for total net revenue, adjusted EBITDA, and adjusted earnings per share, which we plan to tell you more about during our Investor Day event on November seventeen. Thank you for your time today. We'll now open the call up for questions.

20:11 [Operator Instructions] Our first question is from Eric Percher of Nephron Research. Please go ahead.

20:32 Thank you. Maybe to start on Performance Services, Craig could you give us a little bit more on what you've called the timing of enterprise analytics? I understand the element of recognition this year, you made a comment about relative to the prior year, so I want to make sure I understand what were some of the headwinds that we saw last quarter for Performance Services versus what you're seeing this quarter and make sure I understand the difference between the two?

21:01 Sure, Eric, thanks for the question. First of all, I clarify not compared to last quarter, but the year ago first quarter. And so, relative to timing, it's simply a function of when do we actually execute these agreements. They are and do tend to be more complex and more all-in in terms of the applications that the healthcare provider is engaging with and we did have a significant enterprise license agreement in the first quarter of the prior year. And the timing of executing it didn't occur as we originally anticipated in the first quarter this year, but still on track from a full year basis.

21:39 Okay. And then as we think about the Performance Services margin cadence, clearly that recognition will flow through, beyond that, are there other elements that you think are important to understand relative to margin over the course of the year?

21:57 Nothing I would call out specifically, Eric. We would still expect adjusted EBITDA margins to be in that mid-thirties range, which is what we've traditionally talked about that segment performing at, obviously due to the revenue shortfall, the margin was lower in Q1, but we would expect that to sort of ramp back up and be relatively consistent across the remaining quarters of fiscal twenty twenty two.

22:20 Thank you.

22:25 The next question is from Jailendra Singh of Credit Suisse. Please go ahead.

22:31 Thank you. Good morning, everyone. First one for Craig. Trying to reconcile fiscal Q1 net admin fees revenue of around one hundred fifty million and the guidance is five hundred seventy million to five ninety million for the whole full year, based on historical trends, fiscal Q1 is generally the seasonally weakest quarter for you guys from net admin fees point of view. So, guidance seems to imply some moderation here, can you help us reconcile that why the guidance is unchanged with that Q1 number?

23:02 Sure. Obviously it’s still early in the year after one quarter. We did have a very strong first quarter, but continue to monitor and watch what's happening from a demand and a utilization standpoint, while for the most part it appears that utilization has returned to pre-pandemic levels. There's obviously a lot of questions out as we head into the fall in certain cases elective procedures being delayed things of that nature. 23:28 So, we do expect a little bit of moderation as we go into the back half of the year. We had talked about the fact that we're through the restructuring and the renewal of the agreements that we've had in place. We did have a couple small number of members that elected not to continue with Premier and we will see that impact in the back half of the fiscal year.

23:52 Can you give us some sense on, just a follow-up there, some sense on the revenue impact of those members who discontinued?

23:59 Yeah, obviously, we don't call out individual contract contributions, what I would tell you is that overall, our GPO performance will be relatively consistent across the quarters, but some slight moderation into the back half of the year as those couple of members ramp down.

24:16 Okay. Then one follow-up for Mike. Thanks for the color around how PINC AI adds value for your provider clients, but you also mentioned that payers, employers, and life companies are leveraging PINC AI platform, can you elaborate more on the value proposition this technology generates for these non-provider partners?

24:36 Yes sure. Thanks for the question. So, just as a quick reminder, our PINC AI platform, really is our focus on our clinical decision support, leveraging our machine learning and AI and natural language processing, with our wrap around advisory services business that really helps our health systems drive higher levels of performance. 24:59 In the adjacent markets to your question, our initial focus really with payers is all around prior authorizations. So, a lot of those used cases were working with our health systems around to help them manage imaging, for example, high cost images more effectively. There is opportunities for us to leverage that same technology and that same capability from a prior authorization standpoint for the payer market, and then for the life sciences market, we've also been able to leverage that technology platform in a couple of different ways. 25:37 One, obviously, to extend our ability to drive real world evidence as it relates to supporting the pharma companies as they're thinking through launching new therapies, but secondarily, it's also to identify patients who would be potentially good for drug trials. So, that's the sort of the novel opportunity there, which is really all about patient identification for life sciences.

26:13 Great. Thanks guys.

26:14 Thank you.

26:18 The next question is from Kevin Caliendo of UBS. Please go ahead.

26:23 Thanks and thanks for taking my call. I have a broad question about sort of the whole supply chain and how things are operating and what impact it has on you and your customers and the manufacturers? If we see all these delays and we read about shipping costs and the like, are you seeing material inflation coming from products OUS or even inside the U.S? And how does that impact you? How does that inflation, are you able to pass it through? Does it impact the hospitals? Does it impact the manufacturers? If we think about the whole supply chain, who's most at risk from this and how acute is it really at the this point?

27:02 Thanks for the question, Kevin. So, let me just frame up your question with a bit more detail, bit more background. So, we're having record congestion at the major U.S. ports as you've suggested. This is being exacerbated by seasonal, sort of consumer goods purchasing that are happening today. Record freight and transportation costs are at all-time highs. Increased pricing and lack of availability of raw materials for manufacturers, including semiconductors and resins are also impacting inflation for a number of products. 27:47 And then we're having these issues associated with labor and the high cost of labor. And so that's sort of a backdrop by which you're asking the question. In terms of our response, we have a number of ways that we're working through how to deal with this. First, we're expanding our partnership with Resilinc, which obviously helps us with creating more efficiency in the supply chain. 28:13 We're expanding our domestic capability for PPE where we don't necessarily have that expense associated with a lot of that congestion and logistics that I just spoke about. And so, obviously, we're expanding with, you know think about Prestige Ameritech and Honeywell and DeRoyal and Exela Pharma pharmaceuticals. 28:36 And then also as you think about where we sort of sit in the supply chain, many of our contracts are actually have price protection and there is obviously resiliency language in those. So, at this point, we've been able to negate a lot of the request to increase pricing at this point. I've on a number of calls with suppliers who have been requesting increases. 29:08 So far, up to this point, a majority of those suppliers along with our members have pushed back and said, we're going to ask you guys to continue to eat those because at the end of the day, it's our healthcare systems that have the lowest margin in this entire channel, right? They're operating at very low single digit margins from a performance standpoint, and they can't absorb these costs. 29:38 So, we're actually pushing back and we're having the expectation that the suppliers are picking up those increases that are occurring.

29:46 Yes. And Mike, this is Craig, the only thing I would add taking it up levels, I think there's some shared accountability and responsibility across the ecosystem. So, as Mike said, we're doing everything we can, but yes, there are some situations where it's warranted and inflation is needing to be passed through, but as Mike said, it can't be all the help systems. So, the manufacturers are also having to lean into this problem and help kind of the industry overall collectively manage through it.

30:17 That's really helpful. And just sort of a follow-up. One of the trends that we're seeing and hearing a lot about is the shortages within the health systems and how it's affecting demand or their ability to meet demand, are you seeing that, have you modeled in anything for a slowdown in procedures due to shortages of employees of [text] [ph] of nursing of whomever that are limiting hospital systems from doing what they might normally be able to do?

30:49 It's a great question. So far we've not modeled any of that in to any of our numbers. Having said that, I was on a call couple of weeks ago with an executive of one of the health systems that is looking to potentially shut ten percent to fifteen percent of their capacity down, because they don't have access to the labor. So, little bit different issue, but similar in terms of them just being able to access the labor to provide the procedures.

31:22 Is that a geographic issue or is it, do you think systemic?

31:26 No, no. So far, it's very, very isolated geographically.

31:31 Okay. Thank you so much.

31:33 Thank you.

31:38 The next question is from Matthew Shea of Piper Sandler. Please go ahead.

31:43 Hey, thanks for the question, guys. You guys have been winning a lot of incremental deals on the GPO side, was just wondering what's been driving that? Is it the supplier contracts you just kind of walked through or is it kind of this add-on technology and performance service capabilities, wondering kind of where that strength is coming from?

32:00 Yes, Thanks for the question. This is Mike. So, I think it's three things. First, I think we're winning because we have a much broader portfolio. And that goes part and parcel with our investments and technology over the past couple of years, because we've made some of the investments and ideas and originally in the Medpricer. We are able to contract for far more than our competitors are able to contract for. So, that's number one, breadth of the portfolio – breadth of the portfolio, that’s number one. 32:31 Number two, I will tell you that our capability around direct sourcing or vertical integration where during the pandemic, we had a number of obviously shortages that were occurring. We were not only able to support our members, but towards the middle and the end of last year, we were able to support some non-members and that led to an opportunity for us to recruit folks from our competitors. That was number two. But that direct sourcing I do think is significantly differentiated. 33:12 I will say, the last one really is focused on our technology enablement and our ability to really identify everything that's coming in to the health system that's non-labor oriented, non-labor cost oriented. And I do think that that's a huge advantage as we're able, if we don't have contracts, we can help them with price benchmarking and those kinds of things. 33:35 And then finally, I said three, but I got to add one more. I do think we're getting a lot of expansion in our committed programs. So, our SURPASS program and our ASCEND program are continuing to grow. And continuing to really play out in terms of having best in market pricing.

33:55 Mike, not to pile on, but the last one I would quickly add is, I do think that the nature in which our field force builds relationships and the embedded way that we own results with the members and are actually out there, A, reinforces the longstanding member relationships we have, but also think it is a differentiator in terms of recruiting new business vis-à-vis our competitors.

34:21 Got it. Super helpful. Thanks.

34:23 Thank you.

34:26 The next question is from Stephanie Davis of SVB Leerink. Please go ahead.

34:32 Hi guys. Congrats on the quarter and thanks for taking my question. I've got a very broad question, than a relatively specific follow-up on the macro backdrop. First, we've seen some broader positive trends in this Performance Services business, but historically it's been a bit of a grab bag of asset. Now it sounds like from your prepared remarks, you may have spent some time on strategy ahead of the Analyst Day. So, I was hoping you can give us some broad strokes outlined on your top strategic goals for Performance Services going forward?

35:04 Yeah. So just broadly, Performance Services, I think the whole nature of embedding that technology, the machine learning, the AI, the natural language process truly does differentiate our assets. So, in the past, we've always had great data and great integrated clinical datasets with labor, and our clinical capabilities supply, all those kinds of things. We provided great insights in terms of performance improvements, but now we're able to actually take those insights and embed those with the workflow. 35:41 So, I do think that that is a broad chassis that we want to grow from. And then obviously, we have seen continued improvement with our advisory services business. So, that's related to the health systems. And then in the adjacent markets, we're getting very good at these solutions as they, sort of play out with the health systems from an improvement standpoint, taking those and transferring those to the other industries like for payers and that sort of is illustrative to the focus on prior authorization and our focus around high cost images. 36:24 We're doing that work with our health systems and now we're able to take that over to the payers and build out prior authorization models. And that value to those payers is really reducing high labor costs because we're automating that entire function. And then as I spoke a little bit earlier in life sciences, it's also lending itself well, really around patient identification. 36:46 We do think we have a very, very unique offering because at the point of care, we now can, as the physician is sitting down with the patient and they are talking about the progression of the management of the disease, we now have the ability to show at that point of care whether or not a patient, given their lab values or screens or some of the other characteristics of the patients just their wellness, whether or not that they would be good for a drug trial. 37:20 So, we do think that that's another big opportunity and then of course, leveraging all that technology in Contigo Health and that's also showing some really, really nice traction in the industry as we begin to continue to grow that asset that helps our health systems work more closely and effectively with employers.

37:43 Super helpful. And then on the specific macro question side, we've talked a little bit about the puts and takes of the supply chain disruption, but if I could see the headwinds of GPO entrants or GPO in-housing at the health system embed given the amount of supply chain disruption?

38:04 You know, it’s such – it’s a good question. I'll tell you. One of the things I've always challenged our team with Stephanie over the years was if you were the largest IDN in the country, what are the services and capabilities that you would never probably invest in? And hence it's the way that we've continued to diversify our capability, right? That continual investment in the technology, the technology platforms, our investment in IDS, our investment in really automating the point of order, extending pricing to non-acute facilities and those kinds of capabilities, it's our focus on direct sourcing and the partnerships that we're creating for generic drugs and gloves and masks and isolation counts. But it's this focus on doing things at a scale that – in IDN would be – it would be stretch for an IDN to actually accomplish.

39:05 Hospital investments and non-differentiating assets always amazes me. Thank you for the color.

39:11 Thank you.

39:15 The next question is from Eric Coldwell of Baird. Please go ahead.

39:20 Hey. Thanks very much. I was hoping to dig in a little bit on the admin fees. There's been some mention of net share wins on the call, but also in your comments, you suggested that you've also lost a couple of accounts that might be wearing off as the year progresses, I was hoping we could maybe parse out admin fee growth a little bit here, what's, you know, year-over-year easy comps, what's net share win versus loss account penetration if there was any way to break these numbers out a little bit to give it a sense on what's sustainable as we look forward over the next year?

39:59 Thanks for the question, Eric. Obviously, with the impact of the pandemic, it's hard to do, kind of perfect year over year comps, but a large part of our growth is due to the recovery from where we were a year ago in the pandemic with our existing book of business. As a reminder, and we've talked about this over the past few quarters, we went through the large restructuring last August, where we renegotiated the agreements with ninety plus percent of our health systems and put those in place for the next five, six, seven years. 40:29 There were a small subset that did not agree to that restructuring at the time, some of which have subsequently renewed, but their revised terms went into effect after the end of the first quarter. So that's going to affect growth moving forward, compared to last year when they were under the old historical agreements. 40:48 Transparent, we've said this, we had a couple through that evaluation due to M and A, due to relationship changes decided to depart and go to a competitor. We're pleased with ninety plus percent success on that large restructuring, but we did not have one hundred percent. 41:04 So those will ramp down over the next quarter or so and be gone in the back half of the year. And then we have had the wins we've talked about recently of UnityPoint, ChristianaCare, and continue to have a pipeline and think you'll hear about other new wins in the near future. What that means in terms of the full year performance, as I mentioned earlier is relatively stable performance quarter to quarter throughout the full year with a little bit of a small amount of moderation as described by our overall guidance range relative to our first quarter performance, but it's hard for me to say it was x million was this, y million was this z million was this.

41:43 I will tell you. I think the area that we have, obviously, Eric a lot of confidence is expanding our contracts into our healthcare systems. As we acquired IDS or when we acquired IDS, we have now the ability to look at all the different products that are being invoiced for a healthcare system. And that provides us just a bevy of information for us to go back and figure out which of those things that are being invoiced should be at a national contract level, at regional contract level, or local contract level. So, we do think that that technology is going to continue to provide a bit of a tailwind for us to go after that non-contracted spend Eric.

42:28 No, that's great. Thank you for that. And then another question on the call was about the supply chain challenges and you mentioned many times being successful and actually asking the manufacturer, the supplier to step up and eat some of the costs that they're hoping to pass through. You also said sometimes deflation does pass through. And I don't think we got a final tally on that one, which is what happens to your model in the case when, yeah, the supplier has a reasonable argument that they need to pass through expense and you agree to that? Is your customer, the one who gets hurt on that and you're getting higher admin fees because the product price is higher? Are you sharing in the pain, how does the, what's the economic model when that happens?

43:16 Yes, appreciate the question, Eric. So, it does depend on which part of our business. So, clearly in our GPO, which the majority of our contracts have fixed pricing, the inflation is not pass through. In some cases, there are accommodations made. I do want to highlight those accommodations are actually made in consultation with the members. So, there's actually a committee of our supply chain executives that evaluate those requests from suppliers and make that determination if they're going to agree to allow the inflation to come through. 43:47 And then in that case in the area of the GPO, yes, the price to the member goes up, and we would have incremental admin fees because it is a percentage of the purchase price. So, inflation could help us, but our entire reason for being is not to have that happen and to take costs down for our healthcare providers. So, we are very strategic and thoughtful about where we allow that to occur. And I want to reiterate it is in consultation and determination with the members themselves that those decisions are made. 44:17 Relative to direct sourcing, if we have rock cost increases or things of that nature, then that business needs to make a decision just like any other manufacturer of whether it can pass through that in terms of pricing or needs to have margin compression and we make that strategic decision. 44:34 So, in some cases, we have had price increases on products through our direct sourcing business; in some cases, we have decided to hold pricing firm not increase it for the member and have had to absorb the margin within the business itself.

44:49 That's a very helpful answer. And I guess I'm probably pushing the limits here, but could you give us a net answer, overall given some are eaten, some are passed through in both segments, is it overall winding up to be about net neutral to the company or slightly positive, slightly negative?

45:10 Yes, I would say it's generally, Mike may have some color here, but relatively net neutral. I will tell you that in the GPO, we hold firm as much as possible and do not routinely allow every suggested price increase to come through. As Mike mentioned earlier, these healthcare providers are operating at very low margins. They don't have a lot of room to absorb it. 45:10 In direct sourcing, we continue to be thoughtful in managing. I would say that it's had relatively a net impact in terms of slight price increases in some places, but doing our best to help the healthcare providers get what they need at the lowest possible cost to continue to serve patients.

45:50 Okay. Thanks, Craig. And last one for me. I think I heard you say that you expect a tax rate of twenty seven percent after fiscal twenty twenty two?

46:02 Yes, we expect a more normalized rate based on current tax law in the twenty seven percent range beginning next year. That's consistent with what we articulated when we established guidance at the beginning of the year as well.

46:14 Okay, good. Thank you very much.

46:20 The next question is from Richard Close of Canaccord Genuity. Please go ahead.

46:26 Yeah. Thanks for the question. Craig, you mentioned some restructuring in terms of the subsidiaries, and do you expect any charges in the upcoming quarter associated with that, just for clarity?

46:42 Wouldn't expect charges, Richard. It's really just subsequent to the August twenty twenty restructuring we did at the business. We've continued to look at the legal structure of the business and looked at opportunities to simplify that. And so, it's really just doing some regular subsidiary cleanup at this point. It's not that there's something that there's going to be some sort of structuring charge related to.

47:08 Okay. Thanks. And then on the GPO clients, you obviously decided to leave – was there a common theme there essentially or any additional details?

47:23 Yeah. The common theme I would tell you was for the most part change in management. So, if typically, we've been working with somebody for a longer period of time. We've been demonstrating value. We've been embedded in there, sort of their culture of how they do business. They’re sitting on our committees. They're participating in our strategies as Craig said. They actually make the decisions on, who we contract with? 47:54 Whether we have price increases, all those kinds of things? But if they're committed and they're involved in the business, then I will tell you they are lock stock with Premier. If management's changed, leadership changed, and they're not at that level of involvement then I would say those are the folks that have always been at risk.

48:15 Yeah. And Richard, the only color I would add to that and I think you might expect this, given that we were successful in renewing the vast majority of members longer term, our competition was incredibly aggressive in the very small subset that didn't get done. And in some cases, we weren't willing to enter into what would have been required to retain the business because it didn't make sound business.

48:39 Okay, that's fair. Thanks. And then I guess my final question, Craig, you had laid out the long term mid to high single digit growth, can you just remind us like how you're thinking about the growth rates in the different segments or the different components?

48:58 Sure. So, I think we'll get into more color on this at our Investor Day in a couple of weeks, but at a high level, what I would tell you is on the supply chain side of our business two major business lines, our GPO and our direct sourcing business. We would expect GPO to continue to be more of a low to mid single digit growth business longer term as it has been historically. 49:21 The way we anticipate obtaining that growth continues to be through expanding the available spend under contract through penetration into new and expanding areas like purchase services, capital and construction, other things – other markets, things in that nature. 49:36 In the direct sourcing business, we would expect it to be high single to low double digit growth longer term as we continue to identify further penetration opportunities and selectively look for expansion into new product categories. The combination of those two is what gets us to the mid to high single digit top line growth in supply chain. 49:56 In the Performance Services business, we expect mid to high single digit growth that as we've talked about will be a combination of likely low to mid single digit growth in the, kind of core historical provider footprint and then the emerging growth that we continue to see the approximately twenty five percent growth that we guided to for this year in those adjacent markets. 50:19 So, as we ramp up the life sciences, the clinical decision support, the Contigo Health direct provider to employer network, and Remitra, our electronic invoicing and payment processing capabilities, those higher growth rates combined with the more mature growth rate in the healthcare provider footprint will give us the mid to high single digit top line growth in performance services.

50:49 Great. Thank you.

50:54 The next question is from Michael Cherny of Bank of America. Please go ahead.

51:00 Hi. This is [indiscernible] in for Mike. I know it's pretty early, but I was wondering if you had any thoughts around the flu season here, what you're hearing from customers and sort of how it would compare to twenty nineteen?

51:12 Yes. It is – hey, [Alan] [ph] this is Mike. It is early. We're not hearing much factors that relates to the flu season as of yet.

51:21 I think there's speculation of will it be an aggressive flu season because a lot of people didn't get sick last year and immunity may be down etcetera, but it's early to tell. I think generally, also it's important to note that relative to our business, flu hasn't traditional even in bad flu years on margin, it may create sicker patients that create some issues, but broadly flu patients aren't typically the high supply intensive cases. So, it doesn't tend to materially affect our business one way or the other.

51:57 Sure. That makes sense. And then, going back to the outlook for elected procedures. Mike, I think you mentioned that there were some isolated capacity constraints, but I guess kind of comparing where you are today versus ninety days ago, does it seem like the outlook in the entire United States is better for elective procedures than it was ninety days ago?

52:16 It is absolutely. So, I would tell you the outlook is much more favorable than it was ninety days ago. I will always say it is as, the delimiter that we're working through right now is labor, but just from a supply standpoint, from an availability standpoint of fewer people are in the health system with COVID, obviously, those elective procedures are picking back up to pre-Covid levels.

52:47 Got it. Thank you.

52:48 Thank you.