Premier, Inc. (PINC) Earnings Call Transcript

Welcome back to the SVB Leerink Global Healthcare Conference. I'm Stephanie Davis. I cover the digital health sector here at SVB Leerink. It's my absolute pleasure to introduce Premier. We have the very newly minted incoming CEO, Mike Alkire; and we also have the CFO, Craig McKasson, here with us today. And before we get into any sort of deeper discussions and questions, and you can ask any questions below in the question box, Craig, Mike, I know you wanted to kick it off with a short presentation.

Yes. Thank you, Stephanie, and good afternoon, everyone. So thanks for joining us today to learn a little bit more about Premier. Today, I'm going to discuss how our solutions are helping our members and our customers improve health care and reduce the cost of care that they're providing to their patients and how we are continuing to deliver value to all of our stakeholders. So next slide, please. So this, I do need to point out our forward-looking statements, and we can jump into the next slide.

[ Ben's ] favorite slide.

Yes. Exactly. So just for those of you who don't know the Premier story, so we're a health care performance improvement company. We do have a very, very strong mission and a vision. And that's -- our mission is all around helping our health care systems improve the health of their communities. And through the technology enablement and our services and partnerships and collaborations, we're working with our health systems to innovate health care to deliver it in a more high-quality and cost-effective fashion. And there are 5 pillars you see on the right-hand side of this screen that I think truly differentiate the value that we deliver. One is that we've got a comprehensive, innovative solutions that use technology and services and leverage that channel that I -- the channel of our health care systems where they're constantly looking at ways to leverage one another, sharing best practices and those kinds of things. And so we're constantly learning and tapping into that network to help us create better solutions to meet their needs. The second one talks a little bit about that unique member alignment. We are -- we did grow out of this notion of this collaborative, this cooperative, if you will, where they came together to leverage one another's scale to really help them -- all of them drive down the cost of health care. And because of this direct connection with them, we are well positioned to constantly respond to the market trends and their future needs. We have a very, very strong balance sheet with financial flexibility to obviously deploy capital to meet the ongoing strategic needs of the business. And then we believe we're really well positioned to capitalize on our market-leading position to continue to drive growth in our supply chain and enterprise analytics solutions. Next slide, please. So if you look at the business, we basically have 2 segments that we report on. One is the supply chain side of the business. And as part of the supply chain, we have admin fees that are part of the group purchasing organization. So that's one revenue generation vehicle. The other is product-related revenue, which is associated with our direct sourcing program. So we directly source products from manufacturers across the globe. And that was very, very important as our health care systems were struggling with getting the needed PPE and generic drugs as they were dealing with the virus, the COVID pandemic. And so that part of the business, obviously, has seen some pretty substantial growth. And then on the performance services side, we have our technology and analytics capabilities, and I'll get into some of the details in a minute about what kinds of data that we capture. But it's really helping our health care systems improve quality and safety and helping them migrate to new health care delivery models moving away from fee-for-service. We have a consulting wraparound capability that we take all that data and that technology, take those insights and use advisory services capabilities to help our health care systems drive improvements. And then at scale, if we need to bring all of our health care systems together, we create collaboratives. And we do this in very meaningful ways. As you think about new health care delivery models, those health care systems actually want to get together, want to standardize data sets, create measures and then share best practices. And that's -- those are all sort of the underpinnings of what those collaborative offerings are all about. And then we have a very, very large embedded field force that's oftentimes badged in the name of the health care systems that we're supporting from both a supply chain standpoint as well as our performance services. And then everything sort of layers on that technology and e-commerce infrastructure that we've been building out over the years. Next slide, please. So if you think about the data that I was just talking about on the performance services side, this is -- these are the sources of data that we leverage on the far left. So it's purchasing data, the billing data. We -- our billing data, we probably have on about 45% of all U.S. discharges in the health care system. Financial data, clinical data, claims data and then we'll pull in non-Premier data and other public data as well. We've built out a very, very robust data warehousing capability where we integrate all those data sets and then again provide insights on -- our insights on performance improvement to help our health care systems. So insights on how to reduce their supply chain costs, insights on other cost opportunities that include labor and corporate infrastructure cost and those kinds of things, insights on how to help them move towards population health and different new care delivery models like bundled payments and other programs that may be expected from the federal government or from commercial payers. We provide them clinical intelligence and insights on how to standardize care across their delivery network. We provide solutions around pharmacy as well as in consulting. And you can see that for the most part, we've built all these technologies and capabilities out to help our providers, so that's the health systems, the hospitals and the clinicians. We also have capabilities to actually help those integrated delivery networks, so the providers that actually have their health plans as well, and we provide them data and capabilities to support their initiatives. We also have been looking at adjacent markets through our Contigo -- our launch of our Contigo company about 18 months ago. We have capabilities to help our employers work more directly with our health systems. We have offerings to payers. We have offerings, obviously, to farmers -- pharmaceutical companies and medical device organizations in the form of real-world evidence and patient identification as they're thinking about launching new therapies. Next slide, please. So our strategic priorities as we think about growing our business really is how do we continue to grow that group purchasing organization, so that's all through -- a lot through technology enablement. So today, and I have, again, another slide that shows this, but we do a great job in the acute setting. We want to continue to deploy capital to get after the non-acute setting and purchase services. So we think there's a big opportunity to continue to expand our group purchasing, supply chain services in those areas. We are also making investments in the technology underpinnings to help our health care systems with e-invoicing and e-payables. It is a big dissatisfier and a huge opportunity for efficiencies for our health care systems to manage that more effectively. So we're continuing to build out capabilities in e-invoicing and e-payables. We've also stood up an e-commerce platform. And what's very unique about our e-commerce platform is it's -- the way we characterize it is it's reliably sourced. So it's for our health systems and our clinicians that reside in those health systems to buy product that they know that there is a chain of custody that's been followed in terms of the products that they're buying. So that's our e-commerce capability. We could spend more time talking about that in the Q&A. And then there are many of our middle- and smaller-sized systems that are very interested in us and truly co-managing their supply chain and owning that supply chain outcome with them. So that's the third pillar in the supply chain solution area. And then on the performance services side, we're going to continue to integrate all that technology and data that I talked about with our acquisition -- with our most recent acquisitions of technology company that brings machine learning and AI as well as natural language processing. We're now taking a lot of the insights that we get from those disparate data sets that are now integrated, and we can write those directly into the workflow along the lines of clinical decision support. So we think it's a big differentiator for us to be able to take those insights and truly write them into Epic and Cerner and Athena and hardwire some of those improvements into the workflow. We're going to continue to look at adjacent markets. So thinking -- using that same technology, the same data and the same capabilities that we have with that member channel to expand capabilities into prior authorization and authorization working with payers. I talked a little bit about life sciences. We want to work with life sciences and medical devices or we're going to continue to work with life sciences and medical device companies in the form of real-world evidence and helping them identify patients at the point-of-care for, again, real-world evidence trials and those kinds of things. I talked a little bit about our Contigo initiative, which, again, is using that data and technology to help employers really get as much value out of their health care dollar spend as possible, working directly with our health care systems. And then finally, we're going to obviously continue to evolve our technologies to help our health care systems as they migrate to new payment delivery models to include value-based cares, bundles and ACOs. Next slide, please. I spoke a little bit about this earlier. So today, we do about $67 billion of spend. We think through, again, the deployment of some of the technologies that we've acquired that we can get after closer to $120 billion spend, which is the non-acute setting, physician preference areas and those kinds of things. So we're going to continue to evolve that technology to get after that additional really, really sort of tough-to-get-after spend. And then we also think there's about $80 billion of opportunity or spend in the purchase services arena. And we've made some acquisitions in the past to help us really identify where those opportunities are and to build out capabilities to help our health care systems get after that purchase services spend as well. Next slide, please. So as we're sort of winding down the presentation, and I spoke a little bit about this, our Performance Services business, it's really all focused on how to deliver capabilities and wraparound services to help our health care systems drive performance improvement. We want to take some of those same capabilities, the data, the technology and the channel, and begin to evolve and work out capabilities around prior authorization and authorization working with employers. We want to continue to build out our capabilities in the life sciences area and then continue to build out our capabilities in the Contigo Health model. Last slide, please. So from a value standpoint, we believe that we do have incredibly differentiated value based on our technology, again based on our data, based on our member channel that we believe we can continue to have very, very strong growth. We have a very strong free cash flow and a very, very flexible balance sheet. And as I've said throughout the entire presentation, I think we're in a very good spot to -- and well positioned for long-term growth for all of our stakeholders. So with that, Stephanie, I think we'll open it up for questions.

Okay. Thank you. Now let's start on the last slide.

All right.

Because [ this one's ] closest to mine. I love that you highlighted that you have a ton of free cash flow. That's something that's very rare in the health IT space. Historically, there's been some puts and takes in what you've done with the cash. How are you thinking about allocation going forward?

Craig, why don't you hit it at the high level, and then I'll add some color?

Sure. Happy to do so, Mike. So Stephanie, our perspective on capital allocation remains consistent. Our primary focus continues to be looking to deploy capital for long-term strategic growth that will deliver value to customers and shareholder return. So we do have an active M&A pipeline. Mike can provide some color on that basis. And then we will continue to look for opportunities to balance that with shareholder return. We do have the dividend that we established and have put in place at this point in time. And while we don't have a share repurchase authorization in place presently, we will continue to evaluate whether we should do share repurchase in the future depending on the best allocation and perspective on use of capital at that point in time.

Yes. And as far -- Stephanie, as far as capital allocation, I will tell you there are a few areas that we think in the short term we'd like to figure out ways to deploy capital. One is, I talked a little bit about e-invoicing and e-payables. So it is an area that we'd like to do some inorganic looking at capabilities in the market from an inorganic standpoint. I talked a little bit about some of the clinical decision support capabilities. So we want to continue to add capabilities to what we've already been building out. So I think that there'll be opportunities there to provide some capital investment. And then the other area is Contigo Health. So we've been -- obviously, we made an acquisition called Health Design Plus, which was really a TPA, working with employers and their centers of excellence programs and their interest to build out a high-value network of care. I think that there are some additional areas where we can provide a lot of value if we could deploy capital appropriately to that model that can create differentiated services and capability for Contigo.

I'd love to touch on that next. But following up on the M&A question, I think oftentimes, folks look at your prior M&A and see some of the value-based care plays not working and kind of put them to question. Have there been deals that have done very well that we're just not giving enough attention to because it's part of the larger tank machine?

I'll start, Craig, and please add in. There's -- we've done a number of deals that sort of fly under the radar screen. And one of those deals, we made a nominal investment in this direct sourcing company that today, I don't know, it's hundreds of millions of dollars of revenue. And it's not just important because of its growth profile, but because of how it's created stickiness with our channel. So when COVID happened, we were able to get access to PPE and other products because we had channels that we had already developed as a result of that acquisition. And I think very few people remember how we deployed capital in a very, very small way to build out that capability. So we're looking forward to continue to expand on that. So that's in the direct sourcing side of the business. I will tell you, we don't spend a lot of time talking about our ERP capability for the health systems. And the ERP for the most part is framed towards the middle- and smaller-sized market for the health care systems. But the way we use it is it's an overlay on top of any ERP that we can then standardize data and begin to look at ways to actually help our health care systems drive improvement from a supply chain standpoint. So that's one that sort of flies under the radar. And then finally, we talk a lot about it, but it continues to evolve and blossom is our acquisition of Stanson Health, which...

You know, it's my favorite.

Yes. It really got us really into the machine learning, natural language technology, natural language processing game. And that's beginning to span within the Premier organization itself. So for the most part, it was focused on clinical decision support for a health care system. If you think about things like PAMA, the PAMA guidelines and use of high-cost images. We've transitioned that a little bit over to the payer market and working now with payers that help with prior authorization and those kinds of things. And we're beginning to transition that also then into the Contigo model as we work with employers. But Craig, I'll let you respond as well.

Yes. The only quick thing I would add, Stephanie, is I do think our acquisition of Innovatix and Essensa, which was the non-acute space part of the GPO where we had an ownership interest, but not a full ownership interest. I think our decision to do that, particularly with the migration of procedures out of the inpatient setting into the non-acute setting and ensuring that we're capturing the entire population, has been a very successful one that's delivered strong return. And I'll even say, and you were referencing value-based care ones, the CECity acquisition that we did do on the precipice of Obamacare and a lot of things that were happening, while that may not have played out like our original thesis indicated, we have looked at ways to repurpose those capabilities. And a lot of that is now being earmarked towards our life sciences strategies around registries and establishing real-world evidence and tracking of patients. So it didn't play out like we thought, but we think there are opportunities there. It's just hard for some of them for you to see given the breadth and the size of the GPO, and we just have to keep expanding and diversifying into these other parts of our business.

I hear that. I hear that. The value-based care bets may have been early, but it feels like there's something that's happening right now.

Yes. So Stephanie, with my announcement, I've been out having conversations with the CEOs and CFOs and CMOs of our health systems. And I've probably now had more than 20, maybe 25 or so. And it's really interesting as they're thinking about this value-based care and where they want to take the model, a lot of them are interested in taking risk. And the reason -- not all, but a lot, and the reason that some of them are interested in taking that risk is they think of it as, again, sort of an outsized profit pool that they can get access as they deliver higher-quality, lower-cost care. And so they're coming to us saying, as opposed to all -- us all having to build that infrastructure out, we would love to leverage some of the infrastructure that you've already built to sort of be the backbone to allow us, them, the health systems, to actually take on more risk for various parts of the population that they provide health care to.

I'm shocked that some of the folks that have said they were interested in taking on risk. We have Walmart at a panel earlier this week even saying in their Walmart Health division, they want to go risk on. So it's a much broader trend. Are there any other demand takeaways you would want to call out just given you've been talking to more health system C-suites than I'll ever have the chance to?