Susan DeVore - President and CEO Craig McKasson - CFO Michael Alkire - COO Jim Storey - VP of IR.

Lisa Gill - JPMorgan Robert Willoughby - Bank of America Merrill Lynch Jamie Stockton - Wells Fargo Ryan Daniels - William Blair Donald Hooker - KeyBanc Sean Wieland - Piper Jaffray Sandy Draper - SunTrust Richard Close - Avondale Partners Garen Sarafian - Citi Research Nicholas Jansen - Raymond James Elizabeth Anderson - Evercore ISI Sean Dodge - Jefferies Mohan Naidu - Stephens.

Good afternoon and welcome to Premier Inc.'s fiscal 2015 Second Quarter Conference Call. As a reminder, this conference call is being recorded. The call will be archived and available via webcast on the Company's Web site in the section entitled Investors.

[Operator Instructions] And it is now my pleasure to turn the call over to the Company's Vice President of Investor Relations, Jim Storey..

Thank you, Christina and welcome everyone to Premier Inc.’s Fiscal 2015 Second Quarter Conference Call. Our speakers today are Susan DeVore, President and Chief Executive Officer; Mike Alkire, Chief Operating Officer; and Craig McKasson, Chief Financial Officer.

Susan, Mike and Craig will review the quarter’s performance and discuss the outlook for the remainder of our fiscal year.

Before we get started, I want to remind everyone, that copies of our press release and the supplemental slides accompanying this conference call are available on the Investor Relations section of our Web site at investors.premierinc.com.

Management’s remarks today contain certain forward-looking statements and actual results could differ materially from those discussed today. These forward-looking statements speak 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 10-K and we encourage you to review these detailed Safe Harbor and risk factor disclosures.

Please also note that where appropriate, we will refer to non-GAAP financial measures, such as adjusted EBITDA, segment adjusted EBITDA, and adjusted fully distributed net income and free cash flow to evaluate our business.

During this discussion, we also will be comparing current year-to-date results with last year’s results on a non-GAAP pro forma basis since our company had not completed its reorganization and IPO until after last year’s first quarter.

Comparisons made in accordance with GAAP do not reflect the impact of the reorganization and IPO and therefore management believes they do not provide meaningful year-over-year comparisons.

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 Form 8-K filing with the SEC which we expect to files soon. Now let me turn the call over to Susan DeVore..

Thanks Jim and good afternoon everyone. I would like to spend my time with you today providing a broad overview of our fiscal second quarter performance and our expectations for the remainder of the year.

Mike will then review the progress we're making in our operations and our strategic acquisitions and Craig will review our second quarter financials and our revised outlook in more detail. So let's get started.

I'm very pleased to announce that in our fiscal second quarter we delivered another very strong financial performance, with year-over-year consolidated net revenue increasing by 19%, driven by 19% growth in supply chain services revenue, and a 20% gain in performance services revenue.

Consolidated adjusted EBITDA increased 18% and adjusted fully distributed earnings per share also rose 18%. Let's look more closely at the factors that accelerated our financial growth in the second quarter.

Our supply chain services segment results exceeded our expectations, fueled by a year-over-year 10.3% jump in GPO net administrative fees revenue and a 37% increase in product revenues.

In our GPO business, about half of the net administrative fees increase was tied to continued contract penetration in our existing acute and non-acute members while the remainder of the growth was primarily driven by ongoing contract conversion of newer members including those who have recently joined Premier.

Both of these revenue drivers were additionally lifted by improving patient utilization trends. In fact, we analyzed data on approximately one in three patient discharges across the country, and our most recent discharge statistics reflects the highest quarterly patient discharge total in the past two years.

Looking at our performance services business, the strong 20% revenue growth and 31% EBITDA increase were right in line with our expectation, reflecting ongoing contributions from our SaaS-based subscriptions, advisory services and performance improvement collaborative as well as the impact of our TheraDoc in our Aperek acquisitions.

Our SaaS-based data analytics subscriptions and renewals with historically account for approximately 60% of total segment revenues continue to perform very well. We achieved revenue growth across our PremierConnect offerings including cost, quality, safety, population health, and PremierConnect Enterprise.

And revenue growth in our advisory services and performance improvement collaboratives business, was led by engagements that were tied to the areas of population health, physician preference and cost management.

Based on our fiscal year-to-date performance and our outlook for the remainder of the year, we are increasing our full-year consolidated net revenue estimates and we're also raising the lower ends of our previous guidance ranges for consolidated adjusted EBITDA and fully distributed earnings per share estimates.

The increase in our consolidated net revenue range is driven by the improved outlook for our supply chain services segment, based on a combination of the same factors that drove our second quarter and our first half performance.

Our revised outlook for the remainder of fiscal 2015 also reflects more moderate revenue growth expectations for two very specific areas of our advisory services business which fit within our performance services segment.

While Craig will provide more details on this in a few minutes, I want to emphasize that we continue to expect the rest of our performance services business to perform right in line with our original expectations.

Our SaaS-based subscriptions and renewals are strong, TheraDoc and Aperek which we acquired at the end of the first quarter achieved their first full quarter of revenue contribution and they are being integrated into our Premier Connect Safety and Premier Connect Supply chain offerings.

Our Premier Connect Enterprise and population health offerings are generating revenue on or about plan. We had a great bookings quarter and our sales pipeline is full and active. Our revised outlook reflects 11% to 40% full-year revenue growth for supply chain services and 15% to 18% for performance services. In addition, the U.S.

Department of Health and Human Services’ recent announcement to accelerate Medicare reimbursement to alternate payment models is from our perspective the clearest signal to date of the transformative changes that are gaining momentum within our industry.

We expect that this announcement and this decision which was announced just two weeks ago will generate increased future demand among healthcare providers across all of our offerings including cost, quality, safety and population health management. Looking specifically at population health management, Premier is already a recognized leader.

Both our population health management advisory services and TheraDoc are clinical surveillance solution are ranked number one by class.

We are pioneers in the developing and operating performance improvement collaborative with our member health systems focused on alternate payment models and accountable care organizations and we work closely with federal health care programs and government policymakers to build and implement paper performance and alternate payment models.

We believe that our aligned member channel, our integrated solutions and multiple revenue drivers position Premier as the preferred solution for health system seeking to reduce cost to improve outcomes and to harness the many opportunities presented by this rapidly changing landscape evidenced in the HHS announcement.

Our go-to-market strategy which we continually test with our aligned member base, is sound, is focused, and it's focused on providing the needed solutions to successfully transform the delivery of care and position providers to thrive in the healthcare environment of tomorrow.

Acquisitions have played, and will continue to play a major role in the strategy and we are continually evaluating technologies and companies that enhance our strategic ability to serve the needs of our member health systems, while providing a long-term financial growth opportunities for Premier.

We have completed a number of acquisitions in the past 18 months, five since we have been public and three of those in the current fiscal year. Our financial performance and capital structure continue to provide us the resources and the financial flexibility necessary to execute this strategy.

Today, we have access to more than $1.2 billion in cash and debt for acquisitions and growth. Additionally, we have had great success in leveraging our aligned member channels to test the capabilities of prospective acquisitions, and to accelerate the adoption of the solutions we acquire.

And consistent with our long-term growth strategy, we will continue to evaluate larger, transformative acquisitions that would allow us to establish a foothold in areas of the business that closely aligned with the needs of our health systems.

Most of all, our strategy includes a well-defined due-diligence process to help ensure acquisitions perform as expected and provide a measurable return on investment over time.

We have also been able to quickly integrate and grow those businesses that we have acquired as well as to leverage them to drive new business and enhance the suite of solutions in our integrated offerings. So, before I turn this call over to Mike Alkire, let me just put the quarter and fiscal year-to-date in perspective.

I'm very pleased with our financial performance. We drove strong growth across the business. In the short term, while some of our revenue drivers are shifting as the market we reserve continues to grow and evolve, our unique business model and multiple revenue drivers allow us to capitalize on these dynamics.

When I look back on our year-to-date performance and ahead to the remainder of fiscal 2015, we believe our fundamental revenue channels remain strong, active and growing and Premier is very well-positioned to lead the necessary transformation of healthcare delivery in the U.S.

So with that let me turn the call over now to Mike Alkire, our Chief Operating Officer..

Our capital equipment planning, sourcing and analytics business continues to be successfully integrated with our cost management solutions and our GPO membership to support and the two quarters since our acquisition, we have identified approximately 17% in cost savings associated with the capital spent of the 14 members using this analytical solution.

SYMMEDRx continues to expand it role in helping our members address the high cost and difficult to manage physician preference areas which in turn helps reduce supply-chain costs. At the end of our fiscal second quarter SYMMEDRx was working with 84 members and 232 disease states targeting approximately 127 million in cost savings.

The number of engagements have increased fourfold since we acquired SYMMEDRx in July 2013. This solution continues to deliver consistent double-digit cost savings to our member health system and is an important component of our integrated offerings. And finally Aperek, a recent supply chain works well with analytics acquisition.

It is playing a central role in our ongoing evolution of the supply chain management process and are attracting new members to our supply chain services business.

In fact, we're Aperek’s next generation capabilities as one of the main engine to power a robust procure to pay Cloud-based supply chain solution that we plan to formally introduce with our premierConnect supply chain rollout in the very near future.

Basically, our new supply chain offering will enable hospital to quickly and economically implement a procure to place solution that reaches all of the individual facilities to ensure data is synchronized, pricing is accurate, savings are realized and efficiency is driven across the entire healthcare system.

You will be hearing more about our premierConnect supply chain in the weeks and months to come. Thank you for your time today. Now let me turn the call over Craig McKasson, our chief financial officer..

For the full year we now expect supply chain services revenue to grow 11% to 14%. We expect net administrative fees revenue growth to moderate somewhat in the second half of the year due in part to stronger performance in the latter half of the prior year.

We’re assuming annualized growth of 20% to 30% in our direct sourcing and specialty pharmacy businesses reflecting a more normalized year-over-year growth in the second half of the fiscal year with stabilized year-over-year comparison. For the full year, we now expect performance services revenue to grow 15% to 18%.

As Susan noted the reduced guidance range is being driven entirely by two areas specific to our advisory services businesses. The other businesses within performance services are expected to perform in line with our previous expectation.

Specifically, the first factor impacting advisory services is directly related to the conclusion of the center for Medicare and Medicaid innovations partnership for patient’s program in December 2014 and the pace at which we expect to replace the revenue previously generated by this program.

While our advisory services and collaborative revenue continue to grow, we believe it will now take time to replace the approximately $7 million revenue deficit created in fiscal 2015 as a result of the conclusion of this program given that we have not yet been able to extend the program on a private basis which was our original plan.

The second factor impacting advisory services is our decision to reposition our research advisory services under new leadership.

Given the strong performance elsewhere in our company as a result of our multiple revenue drivers, we initiated a repositioning of this business in the second quarter to better support prospective research activities moving forward in addition to retrospective outcomes research.

While the decision to undertake this process impacts fiscal 2015 revenue by approximately $6 million, we view that repositioning now as an investment in the future that we believe better positions Premier strategically to deliver improved results in fiscal 2016 and beyond.

While we are reducing our services growth outlook based on these two advisory services adjustments, our revenue guidance for the segment reflects 15% to 18% year-over-year percentage growth. The outlook for our SaaS-based product business remain strong PremierConnect Enterprise is on track and our sales pipeline is full.

We are winning business across our PremierConnect platform and we continue to sign up new members who are seeking the leverage our supply chain and performance services offering. As a reminder, our guidance does not include contributions from any significant future acquisition that may occur during the remainder of fiscal 2015.

Finally, let me provide a quick update on our second quarterly exchange which took place on February 2nd. In this exchange, approximately 400,000 class B shares were initially indicated for exchange and approximately 257,000 shares were ultimately exchanged into class A shares on February 2nd.

The difference is a result of member owner’s ability to retract their initial election to exchange and also following the right of first refusal process in which non-exchanging member owners can purchase shares being offered for exchange. The next quarterly exchange will occur on April 30th. With that, let me turn call back over to Susan..

Thanks Craig. Before we open the call up for questions, I wanted to make just a few final remarks. First, a strong first half results reflect the critical role that we play in our health system.

Our alliance member channel integrated solutions and multiple revenue drivers position Premier as a preferred solution for health system seeking to reduce cost and improve their outcome. Second, while some of our multiple revenue drivers have shifted it can happen with a rapidly evolving market, our channels remain strong, active and growing.

Additionally, our diverse revenue drivers enabled us to capitalize on these dynamics while operating from a solid and growing base of financial strength. Third, we entered the second half of fiscal year well-positioned to lead the necessary transformation of healthcare delivery in the U.S. We serve some 3400 hospitals or about 68% of all U.S.

community hospitals and 110,000 alternate site providers.

Our company is providing solutions from inside our provider system, helping transform healthcare by leveraging our large and aligned member channel the significant data resources flowing through our PremierConnect data analytics and business intelligence platform as well as our advisory services and performance improvement collaborative.

And finally we believe that we have the unique opportunity to innovate and drive change for our industry, continue to deliver strong financial results and create long-term value for our shareholders. We remain quite simply well-positioned to lead in a world of constant and rapid change. So with that Christina, you may now open the call for questions..

Thank you. At this time, we will begin the question and answer session. [Operator Instructions]. Your first question comes from Lisa Gill with JPMorgan.

Thanks very much. Good afternoon every one. Susan, thank you for all the details today.

I really just want the follow up around your comments around fee for value and getting our customers there as we towards 2018, as you think about it and you think about the offering you have today, are there things that you need to bring an addition to really help the hospital to get to that fee for value model? Or do you believe you have all the pieces that you need today to help the hospital as they make that transition?.

Thanks Lisa, that's a great question. I think we have a lot of the things they need today, our quality and clinical analytics, our labor analytics, our infection surveillance capabilities, our population health, our collaborative, all of those things are designed to help them make this transition.

There are things though in our HIT pipeline and our work plan that are very far long, our technologies around being able to measure and predict their performance and value based purchasing, technology than analytics around how they are doing around their CO measurement.

And so we have a variety of other applications and other analytical capabilities as well as consulting services, we have a consulting service around quality and safety improvement as a service and so that gives you just an idea of some additional things so we don't think it all done and we think it will continue to evolve..

And then second, Susan as we think about this changing landscape and how they are going to be paid and then obviously taking on increasing amount of risk, do you think that your business model will change as we shift in that direction where utilize a user analytical tools, do you see where Premier as it imply would take any level of risk from the entities that you are doing business with?.

I think our model Lisa has to be to drive performance improvement from the inside and so we are sort of continuous source of data and improvement opportunities with people and collaboratives wrapped around it and I think that puts us in a trusted position inside with the continuous improvement and so I see more all in engagement, I see more comprehensive engagement and I see more continuous relationship we may have some performance based relationship but we actually have a broader sort of more all-in concept on a continuous basis..

Okay, great.

And then if I can just ask one follow up question, just around the administrative fees either Craig or Susan, as we think about the guidance that you gave and we think about the next couple of quarters, in fact the main driver of – the raising of that revenue expectations since that you are going to continue to see penetration as well as new accounts, how do we think about the raise in the revenue as it pertains to which components on the GPO side?.

The raise on the supply chain side that allowed us to take the entire consolidated revenue range up is really a function of both net administrative fees revenue performance and our products businesses. So we continue to have very strong growth in both the direct sourcing and the specialty pharmacy business.

In addition to what we are seeing from a net administrative fee stand point.

As we talk about, we talk about last year we have a period of transition or timing without following our reorganization where we have the members that elected not to participate with us while we have replaced those with new members we have recruited and we are going to be converting and so early and last fiscal year, you recall we had pretty tepid or flat growth while we were going through that timing consideration.

And that we saw that growth start to manifest itself in the back half of last fiscal year, we have continued to see that those numbers are getting where they need to be and we think as we continue to gain new market share and drive business we can continue to drive the administrative fees revenue business as well..

Okay, great. Very helpful. Thank you..

Thanks, Lisa..

Your next question comes from Robert Willoughby..

Hey Susan or Craig..

Hi Robert..

I guess we can monitor utilization from the outside through a number of metrics and maybe get a sense of how well you're doing in the GPO business, but obviously the performance services is a lot tougher for us when the outside looking and to see, a shortfall or lower expectation coming in.

The metrics you point as to are there any-- can you give us a sense of size by business that you are in that if we could find some metrics that might meaningfully dictate performance on an intra-quarter basis, or is it just too tough a business to get that level of granularity?.

Bob, this is Craig, I will start and then Susan or Mike can add any color, but I think that it is tough on outside of the business to get a very granular metrics.

What we have broadly and generally talked about as you have heard as discussed in the past is that as if we look at our performance services business, about 60% of that is our SaaS-based technology business, very recurring in nature, 40% of that business is our advisory services which is in the nature of consulting and advisory capabilities is going to have a little less certainty around what you might see from a trends preservative and so that's where we feel a little more of the volatility in terms of predictability of revenue on an ongoing basis..

Okay and just another question in general, your specialty pharmacy business has been a source of tremendous growth for you as it has been for others.

Ultimately do you see a shakeout coming in that business where the winning models will be, where the losing models will be, and maybe specifically do you see the PBMs as more of a threat moving into that hospital arena at some point?.

I will start and Mike can add to this.

We have always discussed our strategy in specialty as being a population health strategy and sort of not a directly competitive strategy to existing independent specialty pharmacies but more a branded capability that health systems can extend their reach and drive compliance and we do see the hepatitis-C drug, we see these chronic conditions, and we see a continuing need for the reach to take care of those patients in all of their outlying type of care.

So we view at that strategy and we think the winners long-term will be the folks who end up having a national network connected to providers that can really derive from the inside provider perspective, the compliance with the medication and the improvement in the outcome.

So we are taking a provider centric approach to this and so it is a little different from some of the other folks in that space. I don’t know Mike, if you have anything to add to that..

No, I just think that -- also I think it sends a strong message also to the pharmaceutical companies in terms of our ability to actually drive adherence to therapies and create measurements and quality improvement programs to ensure that these drugs are taken at the right time and at right place and a right setting, and doing it at the most effective cost..

Okay. Thank you..

Thanks Bob..

Our next question comes from Jamie Stockton with Wells Fargo..

Good evening. Thanks for taking my questions.

I guess, maybe real quick, on the repositioning of the research business, would you say that – that was a lower margin business and that was what drove the decisions to reposition it?.

Not really, Jamie, thank you for the question. We haven't talked about that piece of our business very much because historically it's a small portion of our -- almost $1 billion of revenue. But we do think that with what's happening in healthcare that there is a real opportunity for us.

And historically, we have conducted a retrospective outcomes research and we think there is a real opportunity for bigger, scalable, sustainable sort of retrospective and prospective research, and so we decided in the second quarter, we hired a new leader a few months ago and decided in the second quarter that we wanted to really build prospective clinical trial site network across the country that would really leverage our alliance and then we would be able to do very significant research projects around comparative effectiveness, and the overall impact on total cost of care across all sites of care, we could do national quality initiatives with deep retrospective and prospective clinical data.

And so for us it really wasn't about the margins. It was strategic investment that we want to make to go after a bigger capability in research..

Okay that's great. Off note, Susan if you want to take this or, Mike does, but it sounds like you guys expect a pretty healthy clip of PremierConnect Enterprise contracts to continue to be signed, maybe a big one relatively soon.

Is the competitive landscape for that platform changing at all? We obviously see just tremendous amount of venture capital funding flowing into the Healthcare and IT space, a lot of companies trying to get data oriented businesses off the ground.

Are you seeing any incremental traction for some of those small players or I guess conversely, are you seeing -- maybe some of the more traditional EMR vendors that are trying to stand up there on top health businesses, become any more successful in the marketplace?.

We have been out at for a long time when we rebuild our platform and then built its capability on top of it. We do have Keith Figlioli on the line, and so Keith maybe you can take a shot at answering that question.

Yes, I would say, it's pretty consistent sort of playground right now in the competitive space there. To your point, we do see obviously some of the bigger game wars in this space and we do see a couple of other well-funded upstarts set up from a little bit of the last couple of years.

But the landscape even with the amount of funding that's going on over the last couple of years hasn't really changed dramatically, I would say, over the last twelve months.

And see, I think the players are actually starting to stabilize a bit in the marketplace, including ourselves in that, and so we see sort of the same cast and characters in each one of the deal cycles that make sense..

Keith, would you say that, the focus that you guys have put on enterprise data warehouses is a material differentiator?.

Yes, I think it's, and Mike talked about this a little bit in his comments. I think it's also the people as much as it is about the technology it's also about the hard-to-find expertise around enterprise data management.

So now that all these systems have been wired with their IT transactional systems, if you will, not only into their HR, but their ERP systems and other systems, you know getting people to actually understand and actually do something with that data is a really hard-to-find skill set.

We've got a number members that are out trying to find those type of folks and if we can supply that, it is a pretty big differentiator for us; because we are really not in the business of just dropping off technology and running away..

Okay. That's great. Thank you..

Thanks Jamie..

Next question comes from Ryan Daniels with William Blair..

Thanks for taking my questions. I want to stick with Jamie's questions on the PCE offering.

Again, it sounds like pretty important for your long-term outlook and I think if we look at providers and their increasing propensity to bear risk, obviously it is important but there is also applications for risk adjustments, there's a cost reduction side to that, and I'm sure that even your solution has all the requisite applications if you will do help in all of those areas or if there's specific partnerships or internal R&D you are looking to build out going forward?.

Well we have R&D and we have partnerships and we have capabilities that we continue to build.

So Keith, why don't you give him some more specifics on that?.

Yes, I would say from the organic standpoint, we have and we will continue to spend a lot of time and effort on the development front in this area. And we have got rapid acceleration of a number of assets that are on top of that platform and be will continue to do that.

Having said that we need to accelerate in certain areas, we haven’t been shy with partnering in certain area, so giving example that name of the firm. But we partner with somebody who has been really strong in building predicted algorithms. And so we have embedded some of those capabilities into the platform in terms of what we're trying to do.

But at the core of everything what we're going to do is going to be organic. And then obviously on the inquisitive front, if there is something that we can pull in that augments and then it speeds up certain areas that we think are advantageous giving what the market is telling, we are going to do that as well..

Okay, that's very helpful color, and then just on the partnership for the patients, I realize that that's a fairly de minimis revenue stream overall, but you had mentioned that you hope to extend that on a private basis.

So I'm curious if there is still opportunity to go back to your partners there and get them to continue with the collaborator so that could come back as a revenue stream or is that effectively kind of winding down and you just refocuses assets on other areas?.

Thanks for the question, Ryan. We participated in that program on your just three years and it was a small piece of our revenue.

When we provided our full-year outlook we knew the program is going to be attending and we had a plan to bridge that revenue gap by continuing to operate the program and having it funded by the participating hospitals instead of the government. That was our plan.

But as government contracts can go, as the program neared its conclusion, hospitals were hesitant to sign out because there was a talk at that time of the program being extended. And so that rumor and discussion has been going on now for a number of months and some state hospital associations are involved in that discussion.

So we found ourselves sitting with that revenue gap with an uncertain environment about where it's going to go and with any government contracts, we can't tell you whether we think there is really going to be ultimately an extension or not.

We were pretty clear that even if there was it wouldn't happen before the end of this fiscal year to generate revenue to close that gap. So we felt like we needed to make that adjustment..

Okay, perfect. Thanks for the color..

Thank you..

Your next question comes from Donald Hooker with KeyBanc..

Good evening.

I just wanted to, in the beginning of your prepared remarks, you were breaking down the GPO revenue upside, you mentioned compliance new members and utilization; what was that percentage breakdown there? It's kind of like, I was just doing the math there, in terms of compliance new member growth and utilization?.

Don, this is Craig. What I talked about is that our half the growth was from contract penetration within our existing membership base and about half of the growth was a result of the conversion of all the new members that have come on.

Utilization affected both of those kind of across the board, So it's really half existing base growth, half new member ramp up that finally occurred..

So are you willing to share the utilization and contribution across those two areas?.

We don't really have it measured to broken out broken out specifically of what utilization drove specifically here..

We have seen in the last three to six months, as I indicated, what change we been saying on all of our prior quarterly calls that we were seeing sort of 1% to 2% decline in inpatient and a couple of percentage point increase in outpatient. For the last three months and six months sort of rolling.

It's more like a 1% to 2% inpatient volume increase and more than that in outpatient. So we have seen a shift, but we don't have a direct algorithm that connects that volume shift to admin fees because it depends on which supplies and what kinds of procedure and what's moving. .

And then maybe in terms of the EBITDA guidance, can you elaborate a little bit on the different in the margin that means it seems the specialty pharmacy business and the contract manufacturing business are both growing, are they -- is the contract manufacturing business not profitable? Or how does those margin look like versus the GPO, because it's obviously very different?.

Yes, I think Don, as you know we're thinking to entitle the product in both of those businesses, so the margins are very different and what we have talked about in the past is kind of single-digit type margins in the product side of our business as we continue to scale those up we think there will be more opportunity, but as that growth comes from those product businesses it's not delivering the EBITDA leverage that you get out of the GPO side..

Okay, but there each margins, and each one of those areas are increasing, right?.

That's correct..

Okay, I guess I will end it there. Thanks..

Thank you..

Your next question comes from Sean Wieland with Piper..

Hi. Sean..

Thank you very much.

Hello, how are you Susan?.

Great..

Do you have any updated thoughts on bundled payments and specifically you have the bundled payment collaborative is doing?.

So our bundled payment collaborative is growing and continuing to add members and we actually have a lot of members who are now joining the bundled payment collaborative not only because they potentially want to participate in the innovation center project, but because they also want it for their own purposes with commercial payers in their market.

So we continue to see growth and add new numbers and we continue to drill very deeply into all the performance improvement opportunities to drive higher profit margins in their own health systems and also to enable them to get into the risk-sharing or shared savings kind of game with CMS..

So is there an opportunity there in bundled payments relative to your comments on the retrospective and prospective research to do that kind of analysis to aid in bundled payments, or am I thinking about that wrong?.

No, you are thinking about it exactly right. So if we get a collaboration of multiple health systems and we have lots of data and we put the rigor of science behind it, then we have a very unique offering for our health system. So that’s part of our overall strategy..

Your next question comes from Sandy Draper with SunTrust..

Thanks very much, that my questions have been asked, maybe just two quick things.

Criag, on maintenance; could you give an organic growth number for Performance Services as well as can you talk on the whole business for the quarter?.

Didn't break out a separate organic number, if you call them, established guidance at the beginning of the year we incorporated the TheraDoc and Aperek acquisitions into the guidance range that we articulated.

We stated we would get about $20 million of revenue in our full-year revenue and what I would say that they are performing according to the expectations that we established..

Okay, great, and then the second question is, I think also if you Craig, when you look at the business you expected to get on the advisory side, you don't mind if the margin profile have got in SaaS and other businesses versus advisory -- what I am trying to think about here is, in a couple of quarters, especially if there's a lag in advisory and on the other pieces of performance doing better, while making that pressure on the top line, do you see a little bit offset were actually your EBITDA margin percentage is actually a little bit higher, because you got a better mix or did not meaningful enough.

Thanks..

So, as we talked about our segment of our businesses, generally around 60% SaaS, 40% advisory services, we tend to operate it that a blended EBITDA margin in the low to mid thirties. I think to the extent that we do see opportunities for SaaS to grow at a faster pace, there is an opportunity to get a little bit of higher leverage there, so yes..

Your next question comes from Richard Close with Avondale Partners..

Just on the administration fees, again the one half increase from further penetration and the one half from contract conversion; can you talk a little bit to us about how long of a runway you have on the admin fees growth opportunity?.

Well, I think as we talked about in the past, when we look at our administrate fees business, obviously, we ramped up a lot in acute care members but we continue to add and grow new members. So we feel good about the opportunity there and the penetration as we expand our portfolio.

And there is traditionally or historically we haven't had as much penetration and then we continue to see a lot of growth opportunities as we move forward is in the not acute or the alternate side space where traditionally there hasn't been as high as penetration levels in that part of the business, and then opportunity to recruit new alternate-types in a population health environment..

We do think that we have converted a lot as Craig said earlier, a lot of the large numbers that were coming on, a year ago. And so we now have a bigger base. So it is a bigger base that we're growing from now..

Okay so we are essentially left some of those customers that were added a year or so ago and it will slow the ramp originally?.

Right..

And just in Performance Services, just wanted to make sure I understand the provider of choice, the 15 projects, you said identifying 248 million in savings.

How exactly do you guys get paid on that, if you can just help us out on that what that revenue model is on the provider of choice area?.

It can be a combination because that's typically an advisory service engagement, but often times it's leveraging our technology capabilities.

So they will have a SaaS subscription for example to our quality, PremierConnect quality or PremierConnect operations applications, which are feeding the information to enable our advisory services team to actually identify where the improvement seem to come from in order to get cost out to be able to operate that Medicare type of reimbursement rates.

So it's really a combination of people, service and SaaS subscriptions..

Your next question comes from Garen Sarafian with Citi Research..

First question going back to M&A. M&A has always been a part of Premier, but I feel like M&A has achieved a bit more emphasis this quarter.

So is this, and you might have answered this in a prior question, but is this year because of HHS has shift away from few of your service more rapidly? Or is this just some of that's being communicated by owner members?.

We have had an active pipeline and full-time focus on both top end capabilities and technologies as well as larger transformative and we just want to continue to reiterate that it is very much a part of our strategic DNA.

And we have the same needs Garen that we have referred to you before in supply chain analytics and in alternate site and then in ambulatory data and in population health and also in shared services; things that nationally healthcare systems all need that our infrastructure like capabilities that could be more efficiently delivered to them in an aggregated way.

So we have the same focus and it's not really driven. I guess it's enhanced by our view that HHS is going to continue to push down this path of cost, quality outcomes in population health even faster than we've been planning for so far. But it's the same acquisition strategy that we have had..

Got it, and you've also mentioned larger acquisitions.

Could you share insight in that up maybe, is it 100 million, is it 50 million, more?.

I would say that, we have done in the five, we've done has been in the range of 1 million to 140 million and so we sort of view all of those as tuck in acquisition, so I think when we say larger transformative we're thinking larger..

100s of millions that are [indiscernible]. .

Okay, second question, broad level, given that you guys speak to so many senior hospital officials and sort of calendar on which is also a fiscal year end for some of the clients; what are you seeing in terms of IT spend relative to last year? That it be overall budget growth or more share shift, just any differences versus last year would be appreciated?.

You know Garen, I think you have participated in our economic outlook, when we survey and we get the results, I mean so we are in the process of doing that right now.

Our sense is that they are continuing to invest in EMR, they are continuing to invest in data warehousing and integrated data sort of capability and were continuing to see people who are looking for specific analytic capabilities in population health, in safety, in quality.

So I think that will probably be borne out by our economic outlook, but we won't have it specifically for a couple of months..

Your next question comes from Nicholas Jansen with Raymond James..

Just following on one of the prior questions, just trying to just the sense of your appetite for leverage. Would you be willing to go up to nearly 500 million of cash or 750 million on debt revolver over almost $400 million of EBITDA currently with no debt to leverage.

I'm just trying to get a sense of where you can push this to, because certainly there is a lot of capacity here that I don't think that's necessary fully appreciated, thanks..

Sure. So what we talked about it historically and obviously we put the credit line and put it in place, if fully utilized that would get us to around the range of two times EBITDA leverage.

We are obviously very comfortable at that alternate investment grade level of leverage, we would be very comfortable with the free cash flow that we generate going higher than that, could easily be a three-time and obviously we have the financial wherewithal to go above that.

But we prefer to be in kind of that three times range given the amount of capital that we get is to deploy..

And then in terms of the sourcing business, you did make a small acceleration in your investment there, just wanted kind of your sense of in the gain there? How many of your customers could ultimately utilize the service from you and how do we think about the priming of this investment relative to your expectations for growth in the future?.

This is Mike Alkire. So we are about 60% penetrated today with our S2S products. For the most part, on our keep side, we see the large expansion opportunity to take those same products and move those into the non-acute space.

So that's going to be a big focus of ours, to take those products and reposition them into the ambulatory settings and we think we are going to see sustainable growth in that part of the market as well..

Your next question comes from Michael Cherny with Evercore ISI..

This is Elizabeth Anderson in for Michael.

I was wondering whether when you stated that you are expecting about one PCE client per quarter, whether that's something that you should have as heating factor to make sure these contracts roll out smoothly? Or whether you're seeing that was more market-driven?.

So save on average one to two per quarter, which has been our experience. Obviously these are bigger, broader, deeper kinds of engagement. So there is a period of time associated with them, and I think it's both a market dynamic and an implementation making sure we deliver the good, very well as we roll those out..

Yes, that makes a lot of sense.

And also when it comes -- if you could talk about a little bit more about acute tools that you use to drive better compliance on your GPO side?.

One of the reasons we acquired Aperek was for us to have a better preview into your healthcare systems, purchasing and we were launching new capabilities to really understand and identify their contract uptake is occurring and where there opportunities to drive more uptake. So Aperek today for the most part, focuses on the acute setting.

We're looking forward to extending that into the nonacute side to drive enhance penetration as well..

This is Craig, and only thing I would add, beyond technology, what we always talk about is our embedded field force and the people that live in our institutions and they are out there every day trying to make sure they are identifying opportunities to take hostile through conversion opportunities to our contract portfolio. .

We do monitor the portfolio compliance by category sometimes to get that for an overall metric we actually don't manage the business that way.

We actually manage it by portfolio and look to increase, and part of the increases that we saw in administrative fee revenue this quarter, we think are directly related to some of our efforts at a category level of driving penetration..

Our next question comes from Sean Dodge with Jefferies..

Taking that earlier questions on guidance, just further, would you tell on the increase in your targets of supply chain sort of is coming from a stronger GPO and the incremental margin dollars often GPO revenue being quite high, I'm surprised there wasn't more moment in your EBITDA target especially when like active performance services revenue came from advisory services, which is relatively lower margin.

Am I thinking about that correctly? And if though what is the reason for disconnect?.

Well, as I talked about earlier, a lot of the growth that drove the increase in the supply chain services in the overall revenue rate with our product revenue businesses as well, which do not have the level of margin that the GPO does, so that's the balance within the range that we were very comfortable raising the bottom end.

But at this point we are not in the place that we took the top end of the range of today..

On an EBITDA perspective we continue to make investments in this repositioning of the research capability with people and the advisory services capabilities given the HHS announcement. So we are making investments for the long term on both sides of the business. .

Understood, and okay and then you recently made some changes the way your salesforce organized, shifting that to a model where you're signing what sounds like are more enterprise-wide agreement? Has this required any changes be made to pricing as a result? Is it differently, or are you bundling more services in a way that's not allowing you to charge as much in aggregate if you were selling on an Ala-carte basis?.

Actually we have been talking about, we've been selling all in now for many months and talking about the all-in engagements every time and the sales force and a field force combined with the technology, we actually think it gives us flexibility to time, more of our pricing to the outcomes that we're signing up for with our member.

So if you're signing up for a larger cost reduction opportunity as well as quality improvement and improvement you have a way of delivering an ROI with more flexibility and an all-in relationship. So I don't think -- I think we price it to be able to deliver all the services at the margins we want to deliver them at..

Your final question comes from the line of Mohan Naidu with Stephens..

Thanks for squeezing me in here. This is maybe one quick question around utilization.

Are you seeing more growth coming from non-acute care side than acute care side as utilization increasing; and are the purchasing one significantly different from acute care and nonacute care?.

We've already said that nonacute care volumes are growing at historically twice the rate of acute care. I think what's affected us a little bit this quarter as what Craig said which is we had ramp-up of a very significant amount of new acute care members and we're comparing it to a quarter last year when they weren’t ramped up yet.

So that's affecting the percentage this year, but I would say generally nonacute care of the nonacute care space is growing faster than the acute care..

Thank you and this does conclude our question-and-answer session.

I would now like to turn the conference back over to Susan DeVore for closing remarks; Susan?.

Thank you all for joining our call today and for your great questions. Our next conference call scheduled for early May and we look forward to meeting and speaking with many of you in the interim. Thank you so much, have a nice night..

And thank you once again. This concludes today's conference. You may now disconnect..