Second-Quarter Fiscal 2016 Financial Results and Update · BUSINESS GROWTH. Second-quarter free...

February 8, 2016

Second-Quarter Fiscal 2016 Financial Results and Update

2 © 2016 PREMIER, INC.

Forward-looking statements—Certain statements included in this presentation, including, but not limited to, those related to our financial and business outlook, strategy and growth drivers, member retention and renewal rates and revenue visibility, cross and upsell opportunities, acquisition activities and pipeline, revenue available under contract, and 2016 financial guidance and related assumptions, are “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results of Premier to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. Accordingly, readers should not place undue reliance on any forward looking statements. Readers are urged to consider statements in the conditional or future tenses or that include terms such as “believes,” “belief,” “expects,” “estimates,” “intends,” “anticipates” or “plans” to be uncertain and forward-looking. Forward-looking statements may include comments as to Premier’s beliefs and expectations as to future events and trends affecting its business and are necessarily subject to uncertainties, many of which are outside Premier’s control. You should carefully read Premier’s current and future filings with the SEC for more information on potential risks and other factors that could affect Premier’s financial results. Forward-looking statements speak only as of the date they are made. Premier undertakes no obligation to publicly update or revise any forward-looking statements.

Non-GAAP financial measures—This presentation includes certain “non-GAAP financial measures” as defined in Regulation G under the Securities Exchange Act of 1934. Schedules are attached that reconcile the non-GAAP financial measures included in this presentation to the most directly comparable financial measures calculated and presented in accordance with Generally Accepted Accounting Principles in the United States. You should carefully read Premier’s current and future filings with the SEC for further explanation and disclosure regarding our use of non-GAAP financial measures and such filings should be read in conjunction with this presentation.

Forward-looking statements and Non-GAAP financial measures

Susan DeVore, President & CEO

Overview and Business Update


Second-quarter highlights*

Total net revenue up 17% YoY, driven by double-digit growth in both business segments

Adjusted fully distributed earnings per share of $0.42, up 17% YoY

Adjusted EBITDA up 17% YoY

Integration of recent acquisitions on-track and delivering results

Raising full-year fiscal 2016 financial outlook

Strong overall financial performance

*See non-GAAP Adjusted EBITDA, Segment Adjusted EBITDA, and Adjusted Fully Distributed Earnings Per Share reconciliations to GAAP equivalents in Appendix.


Innovating solutions to address industry challenges

PremierSOLUTIONS

Population health

HEALTH SYSTEM Challenges

#1 KLAS-rated population health advisory services

CHALLENGE

Analytics Physician enterprise

optimization

Comprehensive technology solutions

Integrated data platform

Integrated cost and pharmacy solutions

Evolving payment models

Collaboratives, technology & D.C. presence

SOLUTION

CHALLENGE CHALLENGE CHALLENGE CHALLENGE

MACRA

SOLUTION SOLUTION SOLUTION

Cost reduction/ drug pricing

SOLUTION


Healthcare is accelerating towards alternative payment models

CURRENT VBP & regulatory cuts

HACs & readmissions

Shared savings

Bundledpayments

Full risk sharing FUTURE

HHS announces plan to accelerate payment shift

» Shifting fee-for-service, Medicare payments to alternative payment models.

Congress passes Medicare Access & CHIP

Reauthorization Act of 2015 (MACRA)

» Bill permanently reforms the Medicare physician payment system (Sustainable Growth Rate formula).

Medicare payment reform – population health is here to stay

Premier is well positioned to lead health systems through this transformation

CMS announces plan to introduce mandatory

payment model for joint replacements

» Hospitals will be held accountable for the quality and costs of care from time of surgery through 90 days after discharge.


Best in KLAS: Value-based care advisory services

Premier is the only organization to hold the annual title for leading the segment by having the broadest operational and clinical impact on healthcare organizations


Deep, broad and evolving data management capabilities to meet the shared needs of our member channel

ManagePopulations

ImproveQuality and Safety

ReduceCosts

PREMIERCONNECT

SUPPLY CHAIN

B I L L I N GP U R C H A S I N G C L A I M SC L I N I C A LF I N A N C I A L

ANY DATA

Combines People, Process, and Technology


“All-in” partnerships driving significant results

Reduced mortality and re-admissions

Unprecedented “A” grades in national patient safety ratings

Saved more than $250 million in total care costs*

Saved more than $50 million in supply chain costs alone*

* Since May 2013


Positioned to lead the transformation of healthcare delivery

WHY HOW WHATAble and committed to transform healthcare

together with member systems.

Improving quality, reducing costs and paving the way for a population

health world.

Unique depth and breadth of data, technology and

services to provide a holistic and integrated set

of solutions.

Michael Alkire, Chief Operating Officer

Operations Update


What drives success?

Why do they choose to work with Premier?

What problems can we solve?

What do our members need?

The strength of our relationships provide a

roadmap for future success


What differentiates Premier?

Scale and Alignment

Integrated Solutions

Data-driven,technology

enabled


Premier FY’16 acquisitions enhance capabilities across care spectrum

Further extends company reach into the ambulatory market with new capabilities that optimize physician financial and operational performance

Enables Premier to offer a more complete solution that delivers additional value by adding financial management solutions to existing cost and quality applications

Extends seamless performance analytics and improvement platform across the entire ambulatory and acute care spectrum, creating opportunities for growth and expansion


New and expanding opportunities with CECity

Saved more than $0 million in supply chain costs alone

Physician performance management and value-based payment reporting

Channel partnerships with EHR companies

Research opportunities with Big Pharma – Genentech, Merck, Pfizer

Government contracts – Million Hearts® Initiative


HealthPartners and MercyRockfordHealth System become Premier’s newest members for Supply Chain Services and PremierConnecttechnology analytics

17 new PremierConnect Supply Chain (PCSC) members

Integrated pharmacy membership increases to 39 health systems

Other notable FY’16 second-quarter achievements

Craig McKasson, Chief Financial Officer

Financial Review


$69.8 $88.6

2Q'15 2Q'16

FY’16 second-quarter consolidated and segment highlights*

ConsolidatedNet revenue (in millions)

Supply Chain ServicesNet revenue (in millions)

Performance ServicesNet revenue (in millions)

Adjusted EBITDA (in millions) Adjusted EBITDA (in millions) Adjusted EBITDA (in millions)

*See non-GAAP Adjusted EBITDA and non-GAAP Segment Adjusted EBITDA reconciliations to GAAP equivalents in Appendix.

$249.4 $291.7

2Q'15 2Q'16

$179.6 $203.1

2Q'15 2Q'16

$98.8 $116.1

2Q'15 2Q'16

$97.3 $108.0

2Q'15 2Q'16

$23.2 $34.5

2Q'15 2Q'16

17%

17%

13%

11%

27%

49%


FY’16 second-quarter Supply Chain Services revenue

Supply Chain Services revenue increased 13%» GPO net admin fees revenue

increased 7%» Expanding contract penetration in

both acute and alternate site» Continuing impact of the

recruitment and conversion of new members

» Products revenue increased 22%» Ongoing member support for

direct sourcing and specialty pharmacy businesses

Supply Chain ServicesNet revenue (in millions)

$112.7 $120.7

$66.7

$81.3

2Q'15 2Q'16

Net Admin Fees Products Other Services and Support

13%$179.6

$203.1


FY’16 second-quarter Performance Services revenue

Performance Services revenue increased 27% » Continued growth of PremierConnect

SaaS-based subscriptions and renewals, Advisory Services and contributions from recent acquisitions

Performance ServicesNet revenue (in millions)

$69.8

$88.6

2Q'15 2Q'16

27%


FY’16 second-quarter adjusted EBITDA*

Consolidated adjusted EBITDA increased 17%» Supply Chain Services adjusted

EBITDA increased 11%» Strong net admin fee revenue growth

» Performance Services adjusted EBITDA increased 49%

» New PremierConnect SaaS-based subscription sales

» Advisory services growth » Contributions from recent

acquisitions$(21.7) $(26.4)

$97.3 $108.0

$23.2

$34.5

2Q'15 2Q'16

Corporate Supply Chain Services Performance Services

ConsolidatedAdjusted EBITDA* (in millions)

17%$98.8

$116.1

* See non-GAAP Adjusted EBITDA and non-GAAP Segment Adjusted EBITDA reconciliations to GAAP equivalents in Appendix.


FY’16 second-quarter non-GAAP adjusted fully distributed net income*

$52.1$61.7

2Q'15 2Q'16

(in millions, except per share data)

18%

$0.36 $0.42

Non-GAAP earnings per share on adjusted fully distributed net income – diluted

* See non-GAAP adjusted fully distributed net income and non-GAAP earnings per share on fully distributed net income reconciliations to GAAP equivalents in Appendix

» Calculates income taxes at 40% on pre-tax income, assuming taxable C corporation structure

» Calculates adjusted fully distributed earnings per share, assuming all Class A and B common shares held by public shareholders


Cash flow and capital flexibility at December 31, 2015

CONSIDERABLE CASH AND DEBT CAPACITY AVAILABLE

AMPLE CAPITAL FLEXIBILITY FOR FUTURE ACQUISITIONS AND

BUSINESS GROWTH

Second-quarter free cash flow* of $71.3 million, compared with $67.1 million a year ago.

Cash, cash equivalents & marketable securities of $251.6 million

Current outstanding borrowings of $100 million on $750 million five-year unsecured revolving credit facility

In the first quarter of fiscal 2016, Premier used approximately $315 million in cash and $150 million from its credit facility to fund the acquisitions of Healthcare Insights and CECity, and paid down $50 million of the credit facility balance in the second quarter.

Free cash flow expected to equal 40% to 50% of adjusted EBITDA in fiscal 2016

*Company defines free cash flow as cash provided by operating activities less distributions to limited partners and purchases of property and equipment. See non-GAAP free cash flow reconciliation to GAAP equivalent in Appendix.

Six-month period ended December 31, 2015 cash flow from operations of $138.8 million


Continuing our momentum through fiscal 2016

Target year-over-year double-digit revenue and adjusted EBITDA increases

» Provider-centric model focused on serving our members

» Developing solutions in close collaboration with members

» Positioned to deliver consistent long-term value to stockholders

Provider-centric and co-innovative alignment drives consistent and increasing demand for our solutions


Fiscal 2016 annual guidance (1)

Financial guidance for year ending June 30, 2016:

Supply Chain Services growth driven by: » Mid-single-digit net administrative fee

revenue growth» 16-19% product revenue growth» Continued high GPO retention rates

Guidance Assumptions:Performance Services growth driven by: » Continued demand for integrated offerings of SaaS-based

subscription and licensed products, advisory services and collaboratives.

» Continuation of high SaaS institutional renewal rates» Contribution from Partnership for Patients government contract» $30-35 million revenue and $7-9 million adjusted EBITDA

contributions from CECity and Healthcare Insights acquisitions

Updated Previous(in millions, except per share data) FY 2016 % YoY Increase FY 2016Net Revenue:

Supply Chain Services segment $802 - $823 9% - 12% $792 - $813Performance Services segment $352 - $362 31% - 35% $352 - $362

Total Net Revenue $1,154 - $1,185 15% - 18% $1,144 - $1,175

Non-GAAP adjusted EBITDA $430 - $449 9% - 14% $425 - $444

Non-GAAP adjusted fully distributed EPS $1.57 - $1.65 10% - 15% $1.54 - $1.62

Fiscal 2016 Financial Guidance

Premier, Inc. raises full-year fiscal 2016 financial guidance, as follows:

(1) Updated February 8, 2016. The Company does not reconcile guidance for non-GAAP adjusted EBITDA and non-GAAP adjusted fully distributed earnings per-share to net income (loss) or GAAP earnings per share because the Company does not provide guidance for reconciling items between net income (loss) and non-GAAP adjusted EBITDA and non-GAAP adjusted fully distributed earnings per share. The Company is unable to provide guidance for these reconciling items since certain items that impact net income (loss) are outside of the Company’s control and cannot be reasonably predicted. Accordingly, a reconciliation to net income (loss) or GAAP earnings per share is not available without unreasonable effort.


Exchange update

On February 2, 2016, approximately 1.6 million Class B units were exchanged for Class A common shares on 1-for-1 basis; equal number of Class B common shares retired

Following the company’s initial public offering 12.8 million shares have been cumulatively exchanged out of a potential 32 million shares

Class A common share count has increased 40% since IPO to 45.2 million shares

Questions

Appendix


Fiscal 2016 and fiscal 2015 non-GAAP reconciliations

2015 2014 2016 2015

Net income 60,995$ 65,808$ 113,248$ 130,695$ Interest and investment income, net 937 (122) 696 (313)Income tax expense 12,674 4,270 31,714 10,081Depreciation and amortization 12,199 11,262 24,064 21,570Amortization of purchased intangible assets 9,271 3,141 15,318 4,044

EBITDA 96,076 84,359 185,040 166,077Stock-based compensation 11,554 7,405 25,254 13,844Acquisition related expenses 5,644 2,267 9,116 3,545Strategic and financial restructuring expenses 208 1,183 235 1,279ERP implementation expenses 1,518 — 2,078 —Adjustment to tax receivable agreement liability — — (4,818) (1,073)Acquisition related adjustment - deferred revenue 1,047 3,596 4,139 5,661Other income, net 8 (2) 8 (7)

Adjusted EBITDA 116,055$ 98,808$ 221,052$ 189,326$

Segment Adjusted EBITDA:Supply Chain Services 107,989$ 97,342$ 210,938$ 188,610$ Performance Services 34,462 23,189 59,387 41,551Corporate (26,396) (21,723) (49,273) (40,835)

Adjusted EBITDA 116,055$ 98,808$ 221,052$ 189,326$ Depreciation and amortization (12,199) (11,262) (24,064) (21,570)Amortization of purchased intangible assets (9,271) (3,141) (15,318) (4,044)Stock-based compensation (11,554) (7,405) (25,254) (13,844)Acquisition related expenses (5,644) (2,267) (9,116) (3,545)Strategic and financial restructuring expenses (208) (1,183) (235) (1,279)ERP implementation expenses (1,518) — (2,078) —Adjustment to tax receivable agreement liability — — 4,818 1,073Acquisition related adjustment - deferred revenue (1,047) (3,596) (4,139) (5,661)Equity in net income of unconsolidated affiliates (4,785) (4,749) (9,375) (9,615)Deferred compensation plan expense 264 460 2,073 969

Operating income 70,093$ 65,665$ 138,364$ 131,810$ Equity in net income of unconsolidated affiliates 4,785 4,749 9,375 9,615Interest and investment income, net (937) 122 (696) 313Other expense, net (272) (458) (2,081) (962)

Income before income taxes 73,669$ 70,078$ 144,962$ 140,776$

Net income (loss) attributable to stockholders (54,383)$ (32,979)$ 416,771$ (406,363)$ Adjustment of redeemable partners' capital to redemption amount 65,561 42,250 (401,240) 424,907Income tax expense 12,674 4,270 31,714 10,081Stock-based compensation 11,554 7,405 25,254 13,844Acquisition related expenses 5,644 2,267 9,116 3,545Strategic and financial restructuring expenses 208 1,183 235 1,279ERP implementation expenses 1,518 — 2,078 —Adjustment to tax receivable agreement liability — — (4,818) (1,073)Acquisition related adjustment - deferred revenue 1,047 3,596 4,139 5,661Amortization of purchased intangible assets 9,271 3,141 15,318 4,044Net income attributable to noncontrolling interest in Premier LP 49,817 55,751 97,717 110,567

Non-GAAP fully distributed income before income taxes 102,911 86,884 196,284 166,492Income tax expense on fully distributed income before income taxes 41,164 34,754 78,514 66,597

Non-GAAP Adjusted Fully Distributed Net Income 61,747$ 52,130$ 117,770$ 99,895$

Three Months Ended December 31,

Six Months EndedDecember 31,

Supplemental Financial Information - Reporting of Adjusted EBITDA

(Unaudited)(In thousands)

Reconciliation of Selected Non-GAAP Measures to GAAP Measuresand Non-GAAP Adjusted Fully Distributed Net Income

Reconciliation of Net Income to Adjusted EBITDA and Reconciliation of Segment Adjusted EBITDA to Income Before Income Taxes:

Reconciliation of Net Income (Loss) Attributable to Stockholders to Non-GAAP Adjusted Fully Distributed Net Income:



2015 2014 2015 2014 2015 2014

Reconciliation of Net Cash Provided by Operating Activities to Non-GAAP Free Cash Flow:Net cash provided by operating activities 116,117$ 107,842$ 22,719$ 45,873$ 138,836$ 153,715$

Purchases of property and equipment (21,741) (18,051)$ (17,141) (14,360) (38,882) (32,411)Distributions to limited partners (23,029) (22,691)$ (22,432) (22,408) (45,461) (45,099)

Non-GAAP Free Cash Flow 71,347$ 67,100$ (16,854)$ 9,105$ 54,493$ 76,205$

Supplemental Financial Information - Reporting of Non-GAAP Free Cash FlowReconciliation of Selected Non-GAAP Measures to GAAP Measures

(Unaudited)(In thousands)

Six Months EndedDecember 31,

Three Months EndedSeptember 30,

Three Months Ended December 31,



2015 2014 2015 2014

Reconciliation of numerator for GAAP EPS to Non-GAAP EPS on Adjusted Fully Distributed Net IncomeNet income (loss) attributable to stockholders (54,383)$ (32,979)$ 416,771$ (406,363)$ Adjustment of redeemable limited partners' capital to redemption amount 65,561 42,250 (401,240) 424,907Income tax expense 12,674 4,270 31,714 10,081Stock-based compensation 11,554 7,405 25,254 13,844Acquisition related expenses 5,644 2,267 9,116 3,545Strategic and financial restructuring expenses 208 1,183 235 1,279ERP implementation expenses 1,518 — 2,078 —Adjustment to tax receivable agreement liability — — (4,818) (1,073)Acquisition related adjustment - deferred revenue 1,047 3,596 4,139 5,661Amortization of purchased intangible assets 9,271 3,141 15,318 4,044Net income attributable to noncontrolling interest in Premier LP 49,817 55,751 97,717 110,567

Non-GAAP fully distributed income before income taxes 102,911 86,884 196,284 166,492Income tax expense on fully distributed income before income taxes 41,164 34,754 78,514 66,597

Non-GAAP adjusted fully distributed net income 61,747$ 52,130$ 117,770$ 99,895$

Reconciliation of denominator for GAAP EPS to Non-GAAP Adjusted Fully Distributed Net IncomeWeighted Average:

Common shares used for basic and diluted earnings (loss) per share 41,575 35,589 39,655 33,965 Potentially dilutive shares 2,341 948 2,129 785 Conversion of Class B common units 102,178 108,674 104,143 110,396

Weighted average fully distributed shares outstanding - diluted 146,094 145,211 145,927 145,146

Reconciliation of GAAP EPS to Non-GAAP Adjusted Fully Distributed EPSGAAP earnings (loss) per share $ (1.31) $ (0.93) $ 10.51 $ (11.96)Impact of adjustment of redeemable limited partners' capital to redemption amount $ 1.58 $ 1.19 $ (10.12) $ 12.51 Impact of additions:

Income tax expense $ 0.30 $ 0.12 $ 0.80 $ 0.30 Stock-based compensation $ 0.28 $ 0.21 $ 0.64 $ 0.41 Acquisition related expenses $ 0.14 $ 0.06 $ 0.23 $ 0.10 Strategic and financial restructuring expenses $ (0.00) $ 0.03 $ 0.01 $ 0.04 ERP implementation expenses $ 0.04 $ - $ 0.05 $ - Adjustment to tax receivable agreement liability $ - $ - $ (0.12) $ (0.03)Acquisition related adjustment - deferred revenue $ 0.02 $ 0.10 $ 0.10 $ 0.17 Amortization of purchased intangible assets $ 0.22 $ 0.09 $ 0.39 $ 0.12 Net income attributable to noncontrolling interest in Premier LP $ 1.20 $ 1.57 $ 2.46 $ 3.25

Impact of corporation taxes $ (0.99) $ (0.98) $ (1.98) $ (1.96)Impact of increased share count $ (1.06) $ (1.10) $ (2.16) $ (2.26)Non-GAAP earnings per share on adjusted fully distributed net income - diluted $ 0.42 $ 0.36 $ 0.81 $ 0.69

Three Months Ended September 30,

Six Months Ended December 31,

Supplemental Financial Information - Reporting of Net Income and Earnings Per Share

(Unaudited)(In thousands, except per share data)

Reconciliation of Selected Non-GAAP Measures to GAAP Measures

Second-Quarter Fiscal 2016 Financial Results and Update · BUSINESS GROWTH. Second-quarter free...

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