Ladies and gentlemen, thank you for standing by and welcome to the Premier Fiscal Year 2020 Second Quarter Results and Conference Call. [Operator Instructions] Please be advised that today’s call maybe recorded. [Operator Instructions] I would now like to hand the call over to Jim Storey. Please go ahead..

Thank you, Michelle and welcome, everyone to Premier’s fiscal 2020 second quarter conference call. Our speakers today are Susan DeVore, Chief Executive Officer; Mike Alkire, President; and Craig McKasson, Chief Administrative and Financial Officer.

Susan, Mike and Craig will review the quarter's results, provide an operations update and discuss ongoing strategy for the year.

Before we get started, I want to remind everyone that copies of 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.

Management's remarks today contains 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 Form 10-Q for the fiscal second quarter, which we expect to file soon. We encourage you to review these detailed Safe Harbor and risk factor disclosures.

Please also note that financial results presented today reflect continuing operations following the completion of our sale and exit of the Specialty Pharmacy business on June 7 2019. Also, where appropriate, we will refer to non-GAAP financial measures 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 release Form 8-K, which we expect to furnish to the SEC soon. Now, let me turn the call over to Susan DeVore..

Thanks, Jim, and welcome everyone to our call. We’ve a lot to share with you this morning, so let's get started. Overall, our fiscal second quarter financial results exceeded management's expectations, driven by the ongoing steady growth of our core supply chain services business.

This solid performance largely offset the continued softness in Performance Services segment revenue, which as we discussed on our last call, was anticipated.

Based on the first half performance and our outlook for the remainder of the fiscal year, including the impact of the acquisitions, we are revising segment revenue guidance to reflect our expectations that increased year-over-year growth in supply chain services, will more than offset ongoing challenges in Performance Services.

As a result, we also are increasing the guidance range for consolidated net revenue, while reaffirming the current guidance ranges for non-GAAP adjusted EBITDA and adjusted fully distributed earnings per share. Before we review our strategic initiatives and our performance in detail, I want to reiterate what I said last quarter, about our business.

Premier delivers a unique integrated total value proposition for each of our members, enabling them to achieve a consistent and compelling total return on their investment. The importance of this cannot be overstated as it helps us both win new business and retain existing members in a highly competitive marketplace.

And it has historically produced consistent steady and profitable growth for Premier. Against this backdrop, I'm very pleased about our comprehensive partnership with CommonSpirit Health, announced just last week.

And our agreement to acquire the Acurity Group purchasing and Nexera Consulting businesses from the Greater New York Hospital Association, which we announced this morning.

These are huge wins that when coupled with the successes we've achieved with other significant health system mergers, including Aurora/Advocate Health and Ballad Health further demonstrate the value and differentiation of our integrated sourcing, technology and services capability.

These wins among others over the past few years validate Premier's ability to drive cost synergies when two large health systems are merging. CommonSpirit was created about a year-ago from the merger of Catholic Health Initiatives and Dignity Health.

It operates a 137 hospitals and more than 700 care sites across 21 states and generated a combined $29 billion in revenues in fiscal 2019. Our new partnership will focus on operational and clinical alignment and improvement opportunities. Mike will provide more perspective on the opportunities we see with CommonSpirit in just a few minutes.

Turning to our agreement to acquire the Acurity and Nexera businesses, I know our future relationship with the Greater New York Hospital Association has been a major question on the minds of our investors. So let me spend a few moments on that.

Acurity operates a large regional GPO business with members comprising more than 300 hospital and 2,700 health-related facilities in the New York Tri-state. Nexera operates a hospital supply chain consulting and co-management business that we believe is highly complementary to our own consulting capabilities.

In acquiring these businesses, Premier will receive 100% of the revenue generated by Nexera and 100% of the growth administrative fees generated by Acurity.

This includes more than 82% of Acurity member growth administrative fees revenue that has already been extended through December 2024, with 5-year contracts containing no early termination provision.

And we believe that we will renew the remaining contracts when the time comes, as most of these long-term Acurity members are very familiar with Premier and have been accessing our GPO contracts through Acurity.

We believe this is a very positive outcome, considering the greater New York is both a large regional aggregator of health systems and our biggest customer.

This acquisition secures the long-term revenue streams from Acurity members and provides us with the opportunity to collaborate more closely with individual members and deliver significant added value through our technology and services.

Further, we believe, this transaction underscores the confidence that the Greater New York Hospital Association and Nexera and Acurity members have in Premier's highly differentiated total value approach, which is driven by our industry-leading GPO, analytics and consulting capabilities.

The financial impact of the acquisitions has been factored into our revised fiscal 2020 guidance. Craig will discuss the acquisition and its financial impact in more detail when he reviews the financials. Turning back to our businesses more broadly.

In Supply Chain Services, we remain focused on achieving steady growth by continuing to deliver a comprehensive value proposition and compelling return on our members investment in the relationship.

The components of this value proposition continue to include total cost savings, contract pricing, analytics, dedicated resources, distribution, TRA payments and fee share.

Looking at Performance Services, we continue to operate in a challenging market environment, where we believe healthcare provider spent has been restrained by ongoing political and regulatory uncertainty. We think this is likely to continue through at least the Presidential election.

That said and as Mike will discuss shortly, we remain hard at work enhancing the value proposition of our core healthcare provider solutions, through the ongoing evolution and integration of our products, services and capabilities.

At the same time, we are pivoting to new opportunities in adjacent markets where we can leverage our unique combination of deep member relationships, integrated analytics and other wraparound services.

So to sum up, we continue to take a balanced approach by remaining focused on evolving and strengthening the value proposition of our core businesses, while making strategic investments in new areas. As we’ve said since our IPO, we will continue to pursue opportunities to create sustainable, long-term value for all stockholders.

Now let me turn the call over to Mike Alkire our President, who will walk you through some of the initiatives that we're pursuing..

Thank you, Susan, and thanks everyone for joining our call. Today I’m discussing our operational performance. I will review the strategic and operational progress we are making and drill down on some specific ongoing and new initiatives.

However, before we get started, I would like to provide some perspective on recent market developments impacting the global healthcare supply chain for personal protective apparel. As you know, health systems around the world are in the early stages of dealing with the rapidly spreading coronavirus.

While here in the U.S., we're also managing through a large product recall impacting surgical gowns, drapes and other items. Premier is focused on working with our suppliers and members to ensure consistent supply, particularly in times of crisis.

Through both our direct sourcing and supply chain contracting capabilities, we source products from multiple suppliers and manufacturers around the world to build inventory and maintain a consistent supply of high-quality products.

While we can't predict the future, we're doing everything in our power to ensure safe, consistent and continuous flow of products to our nation's healthcare providers. Now let's turn to a review of our operations for the fiscal second quarter.

In the Supply Chain Services segment, we continue to achieve steady growth through ongoing initiatives that include our expanding high compliance purchasing programs, our focus on leveraging new opportunities in the area of purchase services, our continuing expansion of the ProvideGX drug shortage program and our ongoing work to integrate technology capabilities into our supply chain strategies.

Let's drill down for a moment on purchase services.

As part of our longer-term focus, we're building out a technology enabled end-to-end supply chain strategy, a key component of which is our ability to help health systems better manage the challenging area of purchase services, which are those routine clinical and non-clinical services often provided locally or regionally by third parties.

Research shows that on average, purchase services account for up to 30% of a typical U.S hospitals non-labor expense.

To address this opportunity, we are continuing to leverage our recent acquisitions of MedPricer, which provides technology solutions that enable hospitals and other healthcare providers to analyze, benchmark and source purchase services contracts. While still early on, I’m happy to report this business is progressing nicely.

And we look forward to driving even more value for our members and growth for Premier as we continue to harness this critical area of purchase services spend. Looking at Performance Services. We are excited about the ongoing development of our clinical decision support technology, which we acquired with Stanson Health just over a year-ago.

This platform provides the ability to deliver clinical decision support analytics within the electronic health record workflow.

Utilizing machine learning and artificial intelligence, it's proving to be a critical component in a number of our initiatives, including our automated prior authorization solution, as well as our initiative to develop a next generation platform to further help facilitate the delivery of high quality standardized care at a reduced cost.

This platform continues to generate strong member interest and has been one of our fastest growing businesses within Performance Services.

One catalyst for creating a tailwind for a clinical decision support platform is the PAMA regulation, requiring all healthcare providers to consult a CMS approved clinical decision support system by January 1, 2021 for advanced imaging procedures or forfeit Medicare reimbursement.

We are also integrating its capabilities into Contigo Health, our direct to employer high value care network initiative.

In that regard, I am thrilled to announce that Contigo Health has just initiated a pilot program with a major national employer to develop a clinical program designed to improve care for its employees with the focus on advancing maternal health.

As part of this new pilot program, Contigo Health is working with this Fortune 25 company on a series of initiatives to help provide providers eliminate unwarranted variation in maternal care that has proven to lead to higher costs and lower quality outcomes.

In fact, just last month, Premier released the study showing that complications and common chronic condition lengthen mother's hospital stays and increase hospital's childbirth costs by 20% or more.

Contigo Health is also in the planning stages with a second major employer for another pilot program and continues to target signing up a third large employer during this current fiscal year. Turning briefly to our drug shortage initiative.

We have now partnered with 25 manufacturers and are reliably supplying nearly 150 shortage drugs by the National Drug Code. In 2019 alone, our ProvideGX program added new drugs to our portfolio. We are currently working with a pipeline of 50 additional shortage drugs that are absolutely vital to patient care.

Looking at the future, I want to take a few minutes to further discuss the opportunities we see ahead with Acurity, Nexera and CommonSpirit. We are indeed very excited about our agreement to acquire Acurity's GPO business.

This provides us with the opportunity to continue and expand our long-term relationships with our members acquired through Acurity.

These relationships can now be more tightly integrated with Premier and we look forward to driving incremental value for these healthcare providers and for Premier by delivering our broader suite of technology, analytics and wraparound services directly to these members. Turning to Nexera.

As a standalone business with unique hospital consulting and management capabilities and a loyal customer base, Nexera brings compelling and complementary offerings to Premier's portfolio. We expect next Nexera's hospital supply chain co-management service is to help us accelerate Premier's end-to-end technology enabled supply chain strategy.

We further expect to expand Nexera's business outside of the New York Tri-State area to provide technology enabled value analysis capabilities. Supply chain business intelligence and consolidated and virtual buying functions to a broader array of customers.

Looking at CommonSpirit Health, this new partnership will tap into Premier's comprehensive offerings as Catholic Health Initiative previously used Premier's Performance Improvement Services and Technologies and Dignity Health access Premier's Supply Chain Services.

CommonSpirit, the merged entity, will be fully converting to Premier's Group Purchasing Organization, and we'll leverage Premier's analytics and our focused team of experts to strengthen and accelerate the execution of a clinically integrated supply chain.

In closing, we remain focused on further developing our technology enabled supply chain and enterprise analytics and performance improvement strategies. We believe our continuous focus on enhancing our core capabilities, while developing new ones, positions Premier well now and into the future. Thank you for your time today.

Now let me turn the call over to Craig McKasson, our Chief Administrative and Financial Officer..

we are increasing Supply Chain Services segment revenue to a range of $895 million to $930 million, indicating anticipated year-over-year growth of 5% to 9%. This outlook assumes stronger than previously anticipated growth in net administrative fees and products revenue, which we now project at 2% to 6% and 11% to 15%, respectively.

Revenue is not expected to be materially impacted by the Acurity and Nexera acquisitions. We are decreasing Performance Services segment revenue to a range of $340 million to $354 million, indicating an anticipated year-over-year decline of 2% to 6%.

This is primarily due to slower than planned growth in our technology and consulting businesses and the slower than originally expected ramp up of our Contigo Health initiative.

However, due to the anticipated growth in Supply Chain Services, the guidance range for consolidated revenue is being increased to $1.235 billion to $1.284 billion, indicating year-over-year consolidated net revenue growth of 1% to 5%.

We are reaffirming guidance for non-GAAP adjusted EBITDA at a range of $566 million to $589 million, indicating continued expectations for 1% to 5% year-over-year growth.

This incorporates the expected negative adjusted EBITDA impact of $11 million to $13 million for the fiscal year due to the expenses associated with Acurity and Nexera business acquisitions.

These expenses are primarily related to the non-cash amortization of the one-time rebate payments by Acurity to its members, as I just discussed, and to the overall additional infrastructure costs associated with the acquired businesses.

Similarly, we are reaffirming non-GAAP adjusted fully distributed earnings per share at a range of $2.76 to $2.89, indicating growth of 4% to 9%. This includes the expected negative impact of $0.05 to $0.08 for the fiscal year related to the same acquisition related expenses.

Finally, I'd like to provide a brief update on our ongoing quarterly exchange process. On January 31, approximately 4.9 million class-B units were exchanged on a one-for-one basis for shares of Class A common stock. Our next quarterly exchange occurs on April 30. Thank you for your time. Now let me turn the call back over to Susan..

Thanks, Craig. A few closing thoughts before opening the call to questions. First, Premier outperformed management's expectations in the quarter, led by our group purchasing and direct sourcing businesses. Second, we believe our partnership with CommonSpirit is a momentous business win.

It reinforces our position as the market leader and further validates our comprehensive, integrated approach to delivering compelling value for merging health systems in a consolidating marketplace.

And lastly, our transaction with the Greater New York Hospital Association retains significant existing revenue streams that Acurity's Group purchasing members drive to Premier, secures 5-year contract extensions with no early termination provision, adds Nexera's supply chain management and consulting assets, which we believe will help accelerate our end-to-end enterprise supply chain strategy and reinforces our long-term strategic relationship with Acurity members.

Thanks so much for your time today. Operator, please open the line for questions..

[Operator Instructions] Our first question comes from Lisa Gill of J.P. Morgan. Your line is open..

Hi, Lisa..

Good morning. It's Annie on for Lisa..

Hi, Annie..

Hi.

I was hoping maybe you could speak a little bit more to what drove the reduced expectations in the Performance Services segment in the back half? Should we still be thinking about margins in the mid-30s there? And when should we start to think about the timing of Contigo Health benefiting the model?.

Sure. This is Craig. Thanks for the question. First, we are still expecting EBITDA margins to be in the mid 30s as we continue to diligently manage the expenses associated with the reduced expectations on revenue growth.

The lower expectations really are a function, as I discussed, of lower than anticipated technology and primarily consulting related business that we had hoped would manifest in the back half of the year, but it's just not coming along at the pace that we'd expected.

And then we have had a little bit slower ramp up to our Contigo Health Initiative, given the timing and the timeline that it's taking to ramp up some of the large employers here. Although we are extremely excited about the major employer that we have launched the first pilot program with.

And from a standpoint of when we really see that taking off in the future, we currently expect that we will continue to see growth as we move into 2021. But as we've talked about on previous calls, it's more likely into the 2022 timeline when we really start to see that contribute meaningfully..

Great, thanks. And then maybe one more just on utilization. And you’ve spoken recently about improved utilization trends.

How should we be thinking about that going forward and what's baked in your guidance?.

Yes, thanks. This is Craig, again. So from a utilization standpoint, we did talk at the J.P. Morgan Conference a couple of weeks ago about the fact that in our analysis the second quarter indicated a second consistent quarter with some positive utilization trends. We had been experiencing declining or flat inpatient utilization for a number of quarters.

And for the last two quarters, we've actually seen that flip to a slightly positive utilization environment with increases in outpatient and ambulatory utilization as well. We, at this point, still are not at a point that we would call that a sustainable trend, so we are continuing to monitor that.

We are also being mindful of some of the supply related considerations in the marketplace surrounding certain product recalls and the coronavirus implications and what that could potentially have in the future. So continuing to be mindful of what utilization trends might be moving forward..

Great. Thanks very much..

Our next question comes from Ryan Daniels of William Blair. Your line is open..

Yes, good morning. Thanks for taking the questions. A quick one on the M&A transaction. Susan, you said in your prepared comments that you've got 5-year renewals, I think about 85% of the business. Can you go into a little bit more detail? Again, I didn't quite catch what that was..

Yes. So, as you know, Acurity and the Greater New York Hospital businesses cover a large member base. And so what we did was target those largest big members [technical difficulty] and procure the contracts. A lot of other health systems there have been using the Acurity contracts for years and years, that contracts around different waterfalls.

And so, we wanted to get that bolus of 82% lockdown, and then we will just renew or take on the extensions of the other contracts as they come up. But we are acquiring 100% of the revenue and all the business of both the GPO and Consulting business..

Right. Understood. And then the 82%, does that -- 82% of the clients or the revenue that they’ve been generating? You’ve got bigger clients..

It's the revenue..

82% of the revenue, Ryan..

Okay, perfect. Thank you..

And it's more than 82%, to be clear..

Okay. And then a follow-up on the Performance Services. I mean, obviously continues to underperform a little bit and it sounds like you anticipate that continuing profits, if we look at the adjusted EBITDA are off, I think year-to-date, 25%, 26%.

Is there any contemplation of further restructuring or cost-cutting to drive profitability there? Do you think the revenue growth will kick in a little bit more and help with that in the back half of the year, such that that’s not required. Thanks..

Hey, Ryan. This is Mike Alkire. So we've actually been kind of going down that path of doing the restructuring. We’ve been focused on rightsizing parts of the advisory services business that obviously need to be more streamlined and more efficient to drive what we think is the appropriate growth in the market.

We’ve been bringing on additional capabilities from a commercial standpoint, new leadership, different people that can actually help us with driving large-scale clinical transformation deals. So we’ve been pretty much making those transformational changes for the better part of the last two or three months..

Okay. I will hop back in the queue. Thank you..

Our next question comes from Donald Tucker of KeyBanc. Your line is open..

Great. Good morning. So very interested at this CommonSpirit deal. Obviously, the numbers there are really big.

So I was just trying to get a sense as to what sort of incremental and what's not? Is this -- and when I think about their supply chain spend, were you already servicing, I guess, the Dignity part of that? Is the other part completely new? Would that be upside? You commented that it was not material to fiscal '20, but it could be a needle mover in fiscal '21?.

Yes. So we are really excited first, Don, about CommonSpirit. We think it is indicative of our ability in a consolidating healthcare market to really win the big mergers. We did have the supply chain business on the Dignity side. We had no supply chain business on the CHI side. So we are acquiring the -- we are getting the GPO business on the CHI side.

We also, though, had several technologies embedded at CHI Health Systems and Corporate, and we are adding to that supply chain analytics for the entire system. And so, in addition to that, we have of a big savings target, as you might imagine.

We will have a number of resources on the ground dedicated to making the centralization supply chain in partnership with their leadership, deliver the desired saving. So there are a lot of components of the relationship as there always are. And it will take some time to ramp up the GPO conversion and the install of the new six or seven technologies.

And so, we're very excited about it, but yet it is incremental new business in a couple of different ways..

Okay. Super. I guess you probably won't answer this, but I will take a shot and ask anyhow. But I mean, are the -- when I think about the economics of the GPO you tend to sort of target a 30% share back and I realize that can vary.

But is that kind of how one might think about your relationship with CommonSpirit at the CHI side of the incremental GPO opportunity there?.

Well, we don’t typically disclose individual contract details for any single member. This was a competitive bid process and we went at it the same way we’ve gone at the other big merger deals, which is the total value proposition. I will tell you the largest number on the page was the savings target.

There was a significant level of investment in the resources on the ground. There were significant acquisition on their part of the technology and administrative fee share was the part of the total value proposition.

So we feel like in a competitive bid process, our differentiation came through in all the different levers that we can bring to that total value creation for them..

Okay. Well, congrats on that. And then maybe one last one and I will jump back in queue.

In terms of the GPO compliance, which is obviously an important driver, can you update us on the SURPASS and ASCEND programs in terms of member participation? And maybe just qualify whether -- are those real drivers here, or is it something beyond that?.

I will let -- this is Mike. I will let Craig talk to you about the real drivers for the numbers. But just a quick update on SURPASS, we’ve got 11 core members now, representing about $8.4 billion in annual supply chain spend in SURPASS. And then, in ASCEND we’ve more than a 1,000 hospitals that represent about $21 billion in annual spend.

And just as a quick reminder, we actually didn't open up the core membership opportunity to join SURPASS up until last quarter. So, obviously, we're in discussions with additional members to gauge their interest in joining that high compliant program..

This is Craig. The only color I would add is that, as I indicated in my prepared remarks, the vast majority of our growth in supply chain is coming from penetration across our membership. And that includes kind of continued uptake as we talked about last quarter in the SURPASS and ASCEND high compliance portfolios.

We are seeing good growth and adoption into those programs. And so it's helping drive some of our growth, but we are seeing it even across the balance of the membership and somewhat underpinned by the utilization improvements that I talked about early..

Thank you..

Our next question comes from Steve Valiquette of Barclays. Your line is open..

Hi. This is Jonathan Yong on for Steve. Just in relation to the acquisitions, what was the impetus to acquiring the assets from GMI? And how did this impact the relationship kind of moving forward? Because I see in the press release, says that GNY won't be a limited partner in Premier on November 2, so I just want to get color on that..

Yes. So, as you know, Greater New York is different from our other member owners in that they’re a regional aggregator. Essentially, they’re a GPO. And so we have had two decades of relationships with both the association and their members.

It was clear to both of us that we are both GPOs, and therefore there would be synergies associated with acquiring it and bringing the two together. We also were very interested in the Nexera Consulting capabilities. There are lots of FTEs there with particular expertise in supply chain consulting and supply chain co-management.

And so, pretty early on in the discussions, we thought that combining our capabilities, our people, our technologies, getting some of the synergies out of duplicative areas made bringing those two businesses together as an acquisition, make the most sense.

And so we went through the process, got the fairness opinions and things that we needed to do with our Board and our own committees. And we both just agreed this was the best way to continue the long-standing relationship that we've had with those members..

Okay, great.

And just in relation to the Performance Services, I guess in relation to the slow down, is it still related to political uncertainty on what the future healthcare market will look like? And I guess to some extent why double down with Nexera, essentially with given kind of the uncertainty in the Performance Services side?.

Yes. So this is Mike. So let me take a first pass at this. So, yes, the political uncertainty, just -- it just causes a lot of questions for our healthcare systems in terms of the investments that they are thinking about.

They’re thinking about making in terms of where is the direction that the federal government is moving towards? And what are those capabilities that they need to continue to build out. So that uncertainty sort of plays in their decision-making process. As far as Nexera is concerned, Nexera is primarily focused in the supply chain area.

And so as you're well aware, our performance services for the most part is focused in clinical standardization and driving clinical transformation, whereas Nexera is primarily focused on the supply chain part of the business, which is all about driving standardization of products and the best use of products in those kinds of things.

So a little bit different capability in terms of what Nexera is bringing to the table..

And Nexera, from our perspective, is a very natural wraparound to the GPO with Acurity. So a lot of their relationships today are co-management relationships for the whole supply chain and that was very consistent with our ongoing supply chain enterprise strategy..

Understood. That’s helpful. Thank you..

Our next question comes from Richard Close of Canaccord Genuity. Your line is open..

Great. Thanks for the questions. Just to hit on the Performance Services and the political uncertainty, Mike or Susan maybe gain your perspectives here.

In the conversations you're having with customers, is it something that they’re just waiting to see what the results of the election are? Is it anything to do with maybe the Supreme Court ruling on the ACA? And any thoughts in terms of what these customers need to see out of maybe the election or the ACA ruling that turns them to a position where, okay, they’re ready to go and comfortable to pull the trigger on new agreements with you guys..

Yes. So a couple of things that we see, Richard. One is, they’re maintaining the technologies in information services and the performance services technologies that we have. So we still have high retention rates in the technology.

So we believe that they think eventually the quality, safety, clinical analytics and being paid based on those things in global kinds of models, we think they believe that that’s coming. So those retention rates are high.

We think the population health, the new models and the consulting that goes with that is such that there's just not as much urgency today. And it really will depend on how we get through the election, how fast they start to announce new programs, new bundles, new value-based payment programs. They're talking about Medicaid block grants.

And I think right now, there's a lot of political turmoil it seems continuing in the federal government and fee-for-service world is still sort of 85% of their revenue streams. And so they just don't have the momentum that we think they will have.

Now we believe in a new election whether its Trump or a Democrat, we believe that Trump will have a second term and therefore not be worried about programs that he wants to initiate. And so we think it could get back on track with the Trump administration.

We also think if it were a Democrat, they would want to try to pick back up ACA and drive that forward. So we are being cautious about how fast we think that momentum is going to change. But we do think that the ultimate answer here is going to be payment models tied to quality, safety outcomes and total cost.

Part of our pivot to Contigo Health and part of our pivot to using our Stanson Technology for prior authorization capabilities and part of our pivot to applied sciences is to create additional markets. So we're not as dependent on that momentum in Performance Services that that we’ve had in the past.

But it'll take itself a year or two to work out and we continue to be consistent about that..

Okay.

And my follow-up is, on the applied sciences, Craig maybe can you go over what generated the year-over-year decline there, or what was the specific you cited?.

Yes. What I indicated was really sort of the timing of when contracts hit. So on a year-over-year basis, we saw a slower, a lesser amount of contracts in the current fiscal second quarter than we had a year-ago.

We still are focused on and as Susan indicated, pivoting our business to enhance and have more opportunities in life sciences as we move forward..

Okay. Thank you..

Our next question comes from Kevin Caliendo of UBS. Your line is open..

Great. Thanks for the question. This is Adam Noble in for Kevin.

Just wanted to confirm for both Acurity as well as Nexera, do they have any customers outside of Greater New York Association in your current book of business, or are they completely servicing existing volumes within the -- within your overall customer base?.

Yes, it's primarily within our current customer base..

Got you.

And for Nexera specifically, I mean, could you talk about the product and service overlap between what you already do in Nexera? Are there any additional capabilities that they do, that you think you could expand your broader customer base, or is it more simply FTEs offering some of the same services that you already do, but servicing different clients..

Yes. I think there are two primary areas that they offer at a higher level than what we offer. One is clinical value analysis, so they do a great job of leveraging our data working with their organizations to standardize value analysis across those healthcare systems that they work with. So that’s number one.

And then number two is the co-management of the supply chain. So they built out some very, very strong measures and services to help their healthcare systems from a co-management standpoint in the supply chain area..

And we think actually the New York market is a tougher market than most. And so, the need for cost savings and supply chain management and co-management, it really will supplement our build of that enterprise end-to-end supply chain strategy. So we do view it as complementary to what we have, not duplicative to what we’ve..

Got you. And if I could just sneak in one more question.

On the product revenue growth in the quarter, could you give a little more color into what specific product categories drove the growth in the quarter and how sustainable do you think this level of growth is as we cycle into the back half of the year as well as the 2021?.

Yes. This is Craig. So from a products revenue standpoint, just ongoing continued really strong growth across our core commodity products in our Premier Pro product line, primarily gloves, personal protective attire, candidly, incontinence products, all of those actually showing very strong growth.

We do have a relationship with US Foods, who is a distributor of all of our food products for our healthcare systems, and they actually leverage our direct sourcing capabilities to distribute primarily gloves into their facilities across United States. And so very strong growth there in the quarter.

And then as we have talked about, we also do what are called aggregated purchases or bulk buys where we take advantage of, I will say spot opportunities in the market to take title to product that we can then sell it at a substantial discounts to members based on kind of excess demand in the marketplace etcetera.

And so, we’ve strong growth from that in the second quarter as well. So really the business sort of performing very well across all of its capabilities from a top line standpoint..

Got you. Thanks for the questions..

Our next question comes from Jason Plagman of Jefferies. Your line is open..

Good morning. Thanks for the questions.

First one, going back to Performance Services, can you provide any more color on kind of the trajectory that you’re expecting for revenue growth in the second half? Should we expect quarter-over-quarter growth in Q3 and Q4 from the Q2 level, or is it kind of the trajectory we should be thinking about the second half would be helpful..

Yes. I think as you think through the cadence of the year, so we had a lower first quarter, obviously a step up in the second quarter. We did have the benefit and a good strong second quarter given some as I indicated in my comments.

Good sales on the technology side, it's really been the consulting side that didn’t sort of meet our expectations at a broader level.

I think as we look into the back half of the year, we would expect a slight step up in Q3 over where we came in the second quarter, and then I think Q3 and Q4 at this point would kind of be at a consistent run rate basis for the balance of the year. And that will get us into the updated guidance range that we provided..

Okay. That’s helpful. And then , switching gears a little bit.

On Supply Chain segment, as you grow the co-management portion of that business, does that have any positive or negative impact on the margin profile for the Supply Chain segment?.

Well, our view of the co-management business that it is -- that is going to include additional contract penetration of the GPO, potentially additional use of the direct sourcing businesses and consulting payment for consulting services that are people driven.

And so we have a couple of different kinds of margin businesses, all of which we think get better with the co-management arrangement. It's just a mix shift that might occur somewhat, but our anticipation is that, that revenue doesn't replace GPO administrative revenue, it actually enhances it..

Great. Thanks for the question..

Our next question comes from Jailendra Singh of Credit Suisse. Your line is open..

Hi. Thanks a lot. Just wanted to get a little bit more color around Guidance and Supply Chain Services segment. Still a pretty wide range of $35 million with the lower end not reflecting much growth in the second half.

Can you help us understand the puts and takes there? Is all a function of the expectations around utilization trends?.

Sure. This is Craig. So relative to the guidance as I indicated in earlier response, we are still aware of and monitoring the potential impacts of the product recalls that happened in the marketplace around gowns and the implications that could have on utilization around elective procedures etcetera.

And then the potential impact of the coronavirus and while we're optimistic that the market will get their arms around that and prevent that from further expanding, we certainly want to be careful and mindful that those could have implications on our healthcare providers ability to deliver care, which downstream impacts utilization and the use of supplies by us.

So we're just being a little bit careful on that side to make sure that we manage that. Utilization, overall, we're sort of assuming we're on this kind of the long-standing trend we’ve had. The other thing I would say from utilization standpoint that we always and I wouldn’t say we have an update yet to emphatically conclude this.

But as you think about the rise and the increase in high deductible health plans, there does tend to be at times higher utilization in calendar fourth quarter at the end of the calendar year, once people have met their deductibles, those all reset when you move into a new calendar year. And so that can also have an impact on utilization.

So there's a lot of factors that are sort of out there that could impact where the back half of the year from a Supply Chain Services standpoint could come in. And so we’ve purposely left the range where it is to contemplate those potential downside.

On the upside to the extent that we do continue to see positive utilization, those recalls and the coronavirus are managed appropriately, we think that provides the path to actually continue the strong first half that we had and potentially perform in the higher end..

Okay. And then with respect to Contigo Health, our understanding was that the majority of benefit was not going to be until fiscal '21. So just want to better understand the comments around slow ramp up of that business impacting the segment outlook. Is it more investments, or is it really the revenue? There was some expectations on revenue as well..

Yes. It is -- there was an expectation of some additional revenue in fiscal '20 as we were rolling that out. We had anticipated a faster ramp up in calendar 2020, I would say the back half of our fiscal year with these pilot programs.

Those pilot programs have taken a little bit longer to get off the ground than we originally contemplated as we work through the discussions would benefit decision-makers in those large employers that we're working with. And so there is a lower contribution from a revenue perspective than we originally expected in fiscal '20.

To your point, the more significant increases and growth in that business, we do still anticipate to begin in fiscal '21 and then candidly into fiscal 2022. But the guidance was impacted as a result of a slower ramp up in revenues. We are continuing to make investments on a cost side to stand up that.

We are very excited about getting this first very significant national employer signed up and very close to the second one as Mike indicated. So things are trending in a very positive way. It's just taking a little bit longer to get off the ground than originally expected..

All right. Thanks a lot..

Our next question comes from Michael Polark of Baird. Your line is open..

Hey, good morning. Thanks for taking the questions. Stepping in for Eric Coldwell this morning. Question on Acurity. I understand that had some of their own contracts on a direct basis, not everything flow through the Premier portfolio.

So can you help us understand as part of this transaction on a run rate basis what sort of incremental gross and/or net fee revenue it's going to be generated from the Acurity purchase?.

Sure. This is Craig. So our historical relationship with Greater New York actually did provide that we actually shared fees on all of the contracts, whether they were Premier contracts or part of their regional portfolio. There was some very minor carve-outs in some very specific excluded categories.

But broadly and generally speaking, all of the revenue came in collectively, so there was aligned incentive. So I wouldn't suggest that there's a material change as a result of the acquisition, because we were already getting credit for the vast majority of our share of those regional contract fees in the past..

Okay. Helpful. Similar question on the Nexera piece. It sounds like a consulting business that you can leverage to enable your core supply chain business.

The way it's written about in the press release suggests that Nexera, at least base fee revenue is going to be incorporated into the Supply Chain Reporting segment, is that correct?.

That is correct..

Okay.

And can you frame the magnitude of that business today before any synergies that you aspire to extract?.

I mean we are not specifically disclosing the levels of revenue. But I would tell you that on an annual run rate basis that business was in the $20 million to $25 million range..

Okay. Thank you very much..

Our next question comes from Sean Wieland of Piper Sandler. Your line is open..

Hi. Thanks. So just a follow-up on the -- I'm just confused on the revenue contribution relative to your guidance and acquisitions.

Are you not disclosing that, or is there no revenue impact?.

For fiscal 2020, the revenue impact of the acquisitions, as I indicated, is not material at all because we are picking up revenue from the Nexera component of the acquisition.

But we do have the non-cash amortization of the one-time rebate payment that Acurity is making to its members, that we’ve to take a portion of our consideration and actually allocate that to prepaid contract administrative fee share and then amortize that.

So that amortization, which reduces net revenue is actually offsetting the contributions that we're picking up from the Nexera business..

So maybe putting strategic reasonings aside, why -- from a financial perspective, what's the rationale for doing the acquisition?.

You know our Board unanimously agreed that that securing those revenue streams, removing termination for convenience provisions, locking in that huge customer base, gaining the Nexera capabilities and the synergies associated with consolidating what are GPO, all made sense from a strategic and financial perspective..

Okay. Thanks very much..

Thank you..

Our next question comes from Andrew Cooper of Raymond James. Your line is open..

Hey. Everybody, thanks for the question. A lots being covered, so I will keep it kind of high-level here.

But just as we think about, I think in one of the answers to an earlier question, the comment on Performance Services and going for those larger clinical transformation type deals and I think back to the control tower sort of commentary we've heard before, why is now the right time when we think that there's a little bit of a pause on all this uncertainty to go for these bigger sorts of deals as opposed to potentially being willing to take some smaller deals and go after it kind of piecemeal, at least until strategically there may be more willingness to go after this.

So has any of that started to come to fruition and sort of how do you think about that evolving relative to the uncertainty we've seen?.

Yes. So this is Mike. So I would just say in one word, cost. I think that when we're trying to -- when healthcare systems are trying to drive clinical standardizations, really about getting waste out of the system and reducing overall costs.

So that no matter what happens with the federal government, as healthcare continues to evolve as these large employers are expecting, differentiated value from a healthcare standpoint for their employees, they want it done with a -- in a very, very high quality, but efficient ways.

But I think the simple answer to your question is, we're really focused on leveraging that control tower really just overall cost and reduce variation..

We do have small, medium-sized and large engagements in Performance Services and Consulting. And we, long-term believe that being a point solution,. consultant is not the right long-term answer.

The right long-term answer is to bring all that technology big scale clinical and cost transformation and that will be the differentiation, because we will have embedded technology and resources to drive a sustainable clinical and cost performance.

So, we do both today, but clearly our vision is the differentiation of being able to add our technology to consulting, which most other consulting companies do not have an ability to do. So it's an investment we're making and we're continuing to make that investment and building for the future..

Okay. That’s [technical difficulty] thanks. I will stop there and chat on a follow-up, if anything. Thanks..

Thank you..

At this time, I would like to turn the call back over to Susan DeVore for any closing remarks..

So, thanks everybody for your time and questions today. Our next quarterly update is currently scheduled for May 5. Thanks so much..

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Everyone, have a great day..