Premier, Inc. (PINC) Earnings Call Transcript

Hi. Good morning. I'm Steve Halper. I cover healthcare information technology as well as managed care here at Cantor. I would like to welcome everyone to the conference. And with us today, we're very pleased to have Premier Inc. We have Mike Alkire, who is the President and CEO; and Craig McKasson, who is the Chief Financial Officer. We'll do a Q&A session. We think that's really helpful for everybody, and we're going to begin with sort of an overview question.

Mike and Craig, thank you for joining us today at the Cantor Healthcare Conference. The company operates in 2 segments: Supply Chain Services and Performance Services. I guess, Mike, if you could spend a few minutes and provide a brief overview of what Premier does in each of these segments, that would be great.

Sure. Thanks first, Steve. Thank you very much for having us. We appreciate the opportunity always to get our message out to the investor base. So very simply, as you just said, the company operates in 2 distinct segments. We have our Performance Services segment, which is really built upon probably one of the most comprehensive databases and technology platforms in healthcare. We have about 45% of U.S. hospital discharges in that database, nearly 812 million hospital outpatient and clinical encounters and approximately 132 million physician visits. And so, our focus is to take all of that data and to create insights through our clinical decision support capability to help -- and by the way, get those insights driven by machine learning and AI, but to help drive improvements with our healthcare systems by embedding protocols and best practices into the electronic medical record. So that's sort of the genesis for the company really is all about driving performance improvement for the healthcare systems. And then, we've created some adjacencies, and I'll get into it a little bit later, into life sciences and into working with the payer as well as working with the employers. So that's performance services. We also have our Supply Chain segment business, which includes an industry-leading technology-enabled platform, starting with an e-commerce platform, all the way through an e-invoicing and e-payment platform, which is really all about helping our healthcare systems drive down their supply chain expense safely. And then as you know, Steve, we've got 2 other parts of that business. One is an industry-leading group purchasing organization, which is all about leveraging the scale of our health systems to drive down price. And then, we have a direct sourcing business, where if we don't believe we're getting the best pricing in the industry, we will literally go and source those products to ensure that we're getting the best value for our members and also to create resiliency in the supply chain if we think there's not a healthy market where there's more than, say, 2 or 3 suppliers in a given category.

That's really helpful. So let's -- you start off with Performance Services, which is great. So if you can expand on some of the products and applications that are most popular within Performance Services, what those are and what they do and how they differentiate themselves versus some of the other -- your competing products that are out there, that would be really helpful.

Thanks for the question, Steve. So in our Performance Services business, we just launched PINC AI, which is our new brand for the comprehensive technology and consulting services platform. And we just announced that last week. And so, Performance Services is made up of now 3 brands. We have the PINC AI, which is all about clinical decision support, which is helping our healthcare systems, for the most part, drive improvements. PINC AI also is embedded in our offering to life sciences, which is focused on helping life sciences companies with real-world evidence and identifying and activating patients for drug trials. And then we also have our Remitra offering. And our Remitra offering is our e-invoicing and e-payables solution. We think it's very, very unique in that -- it has about 12,000 or so suppliers that are already linked into that network that will be tightly aligned and integrated with our healthcare systems to automate the invoicing and payment process. And we're going to be able to obviously embellish that capability with our contracts and with our other data sets and technologies really to help our health care systems drive down the cost and supply chain. And then the last area is our Contigo Health area. And Contigo Health is really all about building out capabilities that allow our health care systems to work more directly with employers. And so, that could be through creating a high-value network of healthcare providers. It could be through a centers of excellence program. But it's that technology and analytics that really is focused on, again, engaging the healthcare systems more directly with the employers. And then, there's 3 sort of areas that we're focused on as you think about the entire PINC AI platform. One is clinical intelligence solutions; two, margin improvement solutions; and three, value-based care solutions. So that's as it relates to the health care system. We're really trying to help them with clinical intelligence, margin improvement and helping them as they move towards value-based care.

And Mike, just one quick piece of color. I think it's important to underpin is that within the Performance Services segment and the PINC AI platform, it really is a combination of technology, SaaS-based and license-based technology applications, but also importantly, a wraparound service component where we do consultative work, leveraging that technology platform to drive actual improvement in the clinical intelligence, the margin improvement and the value-based categories that Mike talked about. We also do a lot of what we call collaboratives, which think of one-to-many consulting engagements where we will convene a group of health care providers to work on a particular area or initiative, think bundled payment and [ ACOs ] to actually help them collectively, again, leveraging the technology, but drive improvement to rise the tide for all of those providers in the particular focus area.

So what would -- so when you think about PINC AI, which is clearly a very exciting opportunity and a great way to sort of leverage all the historical businesses and footprint that you have, who would you say are your principal competitors for PINC AI?

We think it's pretty unique, and we've been building out pretty cool use cases, right? So we've been building out real-time prior authorization in the payer market, using AI, machine learning, natural language processing. We think it's very unique. I mean we launched that a number of months ago in Hawaii and had phenomenal results in terms of reducing the manual effort to do authorization and prior authorization. So we think it's very, very unique there. Obviously, as you think about identifying patients for trials, the idea that we can get into the unstructured text of the electronic medical record and look at screens and lab values and physician notes to identify various patients for trials at that point of care, we think is incredibly unique. And then finally, if you think about, just as Craig was just saying in Performance Services, which is directly focused on our health care systems, again, the relationships that we have with Epic and Cerner and Athena and the ability to write some of these insights into the electronic medical record is, again, very, very unique, especially based upon the data set and the insights that we've created. So I'll tell you, Steve, right now, we think we've got some pretty unique capabilities that we want to leverage very quickly into the market.

Yes. I think -- quickly, from a competitor standpoint, we've said this for really quite a period of time. We have competitors for aspects of what we're doing with the PINC AI platform. And so, specific use case focus areas. So in clinical intelligence, clearly, there are others out there. The EHRs do some things in that spot. There are other point solution providers that do things in that spot. Margin improvements or other consultancies that do work in that spot, although we think we're very differentiated because we have access to all of this data, where they're typically having to use public data or use data from that specific provider but not be able to leverage it more broadly. There's clearly a lot of value-based care type of point solution providers. So, we don't think there really is a provider that's doing a holistic platform in the manner that we are continuing to work on developing and build-out.

So as you consider the sort of sales and marketing of this, I don't want to call it new, but evolving strategy, how do you go to market? Is -- the fact that you have some of the largest hospitals across the country as customers in supply chain, how do you leverage that relationship and to drive Performance Services?

That's a great question. So a couple of things. First of all, as you think about our go-to-market strategy, each of those businesses actually has their own field and sort of business development capability. So I want to pull that out first. So Contigo has its go-to-market strategy, has business development capability. Life sciences group, they have obviously very specialized people that go in and sell and manage large-scale accounts and then the same with the payers. We have folks that are very, very well versed on, focused on prior authorization as it relates to the payers. But you hit the nail ahead. What truly differentiates all of that is that we can bring along all these health care systems. So if you have a group that's out selling to life sciences and they want to do a project with a pharmaceutical company on cognitive impairment, you have that whole network to come back to that. We've had long-standing relationships with, we know inside and out that we can tease the data out and say, look, we think that these guys have a fairly decent-sized population of folks that have cognitive pyramid issues. And then the same thing, as you think about Contigo Health. If the goal of that is really to build out that high value network, what better place to start than our health care systems that we know so intimately and that we work with day-to-day to drive high levels of quality improvement. So I think that it's a very nice symbiotic relationship in terms of leveraging that -- those relationships that are part of the supply chain.

Yes. And Mike, I think a little bit of color from a sort of specific standpoint. Steve, we touch 4,400 hospitals in some form of fashion across our footprint today across both segments. And the way to think about that is we have about almost 2,800, 2,900 that are using us in supply chain for aspects of our supply chain business. We've got about 2,800 that are using us for our performance services capabilities and about 1,300, or 30% of that is using us across both. So what's important is we have large customers that are only using us for performance services and only for supply chain. I will highlight that from our perspective and as we look at the analytics of performance, the most successful ones are the ones that are integrated and using us across both capabilities because we do believe that supply chain is a clinical process and leveraging that clinical data out of performance services to help drive supply chain improvement and to improve outcomes from a clinical standpoint is the best place to be. But there is independence in the businesses and then a strong overlap in terms of a subset of the membership that's using us across both segments.

And when you think about your structure, understanding that a lot of the businesses have their own business development function, are there obvious incentives to drive additional overlap between, if you want to call it, salespeople or relationship people, I don't know exactly how -- what you call those folks?

Absolutely. So it's really interesting. We believe that there's a lot of intelligence on the clinical side of performance services that informs and makes the supply chain business more effective. And so, we want to have those intersecting capabilities. And then on the performance services side, our goal is to do exactly what Craig says as you go in and you have your quarterly business reviews and maybe you're meeting with a member that just as supply chain, we're always out there from a field standpoint in supply chain, articulating ways that we can show -- create much more value if, in fact, we have integrated data from the clinical parts of the business to help them drive higher quality, reduce cost or help them moving to more value-based kinds of arrangements.

So as a management team -- so -- yes, I think investors broadly view supply chain as sort of a before COVID, sort of slow growth, more mature, taking the free cash flow that business generates to build out performance services. But as a management team, when you think about those businesses that you described within performance services, what are those key metrics that you look at, right, in terms of evaluating the performance? And how does that sort of manifest itself into what investors should be looking at other than just, hopefully, we'll see higher revenue growth in the future?

Sure. I'm happy to take the lead on this, and Mike can add any color. But obviously, financial performance is important, and that's one of the things the management team looks at. But I think one of the things you've seen, Mike and I begin to put more of a focus on is shining a light within performance services on some of the higher growth aspects. And so, when we did our last earnings call, we did call out the performance of some of those higher earlier-stage businesses and the growth expectations that we have for them. In terms of the things that we're looking at from -- as a management team to manage performance, we're obviously looking at leading indicators as well. So if you think about sales and bookings, we're managing that by service line. I can tell you the executive team meets every Friday morning to talk about sort of where we are in the quarter and on the year in terms of our bookings performance by each area of the PINC AI platform, the Contigo platform and the Remitra platform. And so, it's about -- for the mature products like that and our provider footprint, it's really about sales and bookings as being something that we're looking at. If you think about something like our Contigo Health platform, which is our direct employer provider network, we're looking at the lives that are under management and how are we expanding and growing the lives with employers that are participating with us as we continue to scale that moving forward. And then if you think about our Remitra program, which is the electronic invoicing and payment program, we're tracking sort of -- and it's very early stage. We just acquired this a few months ago to begin further building out the capability, but we're looking at supplier adoption, provider adoption in terms of getting the network more broadly built out as we continue to build that. So there's a number of things that kind of on a routine basis. We're tracking to make sure that the ultimate financial performance, revenue and EBITDA, is going to come based on sort of leading indicators to get us there.

Craig, and I know that -- Craig, I know that you would also say EPS, but can you also just highlight a little bit about our focus on return on invested capital?

Yes, that would be extremely helpful. And I think that over time, there's been a growing appreciation among investors in terms of how your companies allocate capital and evaluate performance-based on those returns?