Premier(PINC) - 2025 Q4 - Annual Report

Part I Item 1. Business Premier, Inc. is a technology-driven healthcare improvement company operating through Supply Chain and Performance Services, which in fiscal 2025 completed strategic divestitures and authorized a $1.0 billion share repurchase program - Premier is a technology-driven healthcare improvement company that unites providers, suppliers, and payers to improve healthcare quality and costs through integrated data, analytics, and supply chain solutions[24] - The company operates through two business segments: Supply Chain Services (including one of the largest national healthcare GPOs) and Performance Services (a technology and services platform for clinical intelligence, margin improvement, and value-based care)[27][28] - In fiscal year 2025, Premier concluded a strategic review, leading to the divestiture of its direct sourcing subsidiary S2S Global and the sale of certain assets from its Contigo Health subsidiary[29][30][31] - The Board authorized a $1.0 billion share repurchase program in February 2024, under which $800 million in repurchases were completed through August 2025[32] - On June 13, 2025, Premier acquired IllumiCare, Inc. for a preliminary purchase price of $47.5 million, which will be integrated into the Performance Services Segment[35] Our Company and Recent Developments - Premier's business model is a partnership-driven alliance with healthcare providers, creating aligned incentives and facilitating the co-development of innovative solutions[25] - As part of a strategic review, Premier divested its direct sourcing subsidiary, S2S Global, in exchange for a 20% minority interest in Prestige Ameritech, Ltd., increasing its total ownership to approximately 24%. The divestiture resulted in a net impact of a $39.8 million loss[30] - Contigo Health sold its wrap network business assets for $15.0 million, resulting in a gain of $13.9 million. The remaining Contigo businesses are expected to be transitioned or wound down by December 31, 2025[31] Industry Overview - U.S. healthcare expenditures are projected to grow by an average of 5.8% annually from 2024-2033, reaching 20.3% of GDP by 2033[36] - Hospital supply chain expenses represent a significant portion of budgets, creating opportunities for cost savings through improved pricing, resource utilization, and operational efficiency[37] - The healthcare industry is shifting from fee-for-service to alternative payment models (APMs), increasing the need for data analytics and technology solutions to manage costs and quality[39][40] Our Membership Membership and Purchasing Volume Statistics (as of June 30, 2025) | Metric | Value | | :--- | :--- | | Acute Care Healthcare Providers | > 4,250 | | Active Members (Continuum of Care) | ~365,000 | | Total GPO Purchasing Volume (CY 2024) | > $87 billion | | Total GPO Purchasing Volume (CY 2023) | > $84 billion | - No individual member or member system accounted for more than 10% of Premier's net revenue in fiscal years 2025 and 2024[42] Our Business Segments - The Supply Chain Services segment includes one of the largest national healthcare GPO programs, supply chain co-management, resiliency programs, and procure-to-pay functionalities[44] - The Performance Services segment offers a technology and services platform focused on clinical intelligence, margin improvement, and value-based care for providers, payers, and life sciences markets[56] Performance Group Statistics (as of June 30, 2025) | Performance Group | Participants | Annual Spend (CY 2024) | Cumulative Savings Identified | | :--- | :--- | :--- | :--- | | ASCENDrive | ~880 acute care sites, 7,300 continuum of care sites | $17.0 billion | > $1.4 billion since 2009 | | SURPASS | 43 members (620 acute care sites, 9,000 continuum of care sites) | ~$16.0 billion | > $433.9 million | Pricing, Contracts, and Revenue Concentration - In Supply Chain Services, GPO revenue is primarily generated from administrative fees paid by suppliers, with a portion shared back with members. The company is experiencing competitive pressure leading to requests for increased revenue share for members[65][67] - As of June 30, 2025, GPO member agreements representing approximately 20% of gross administrative fees from the 2020 extensions still need to be renewed, with most expected to be addressed in fiscal 2026[67] - In Performance Services, revenue comes from SaaS subscriptions (typically 3-5 year agreements), software licenses, and consulting fees. SaaS revenue is recognized straight-line over the contract period after implementation[71][72][74][75] - The company's top five customers accounted for 12% of consolidated net revenues in fiscal 2025, down from 14% in fiscal 2024. No single customer generated more than 10% of net revenue in either year[77] Competition - The Supply Chain Services segment competes with large traditional GPOs like HealthTrust and Vizient, provider-owned GPOs, and online retailers[88] - The Performance Services segment competes with a range of companies from smaller niche firms to large entities, including IT providers like Epic Systems and Health Catalyst, and consulting firms like Deloitte and Optum[86] Government Regulation - The company is subject to numerous federal and state laws, including anti-kickback statutes, false claims acts, and privacy laws like HIPAA. It operates its GPO in reliance on safe harbor regulations[93][94][97][98] - The company is considered a "business associate" under HIPAA for many of its members, requiring strict adherence to privacy and security rules for protected health information (PHI)[99] - The group purchasing industry is subject to antitrust scrutiny. In February 2024, the FTC and HHS issued a joint Request for Information (RFI) regarding the impact of GPOs on access to generic pharmaceuticals[106] - Two of the company's products are certified as Health IT Modules under ONC rules, requiring compliance with specific conditions related to interoperability and information blocking to maintain certification[110] Human Capital - As of June 30, 2025, Premier employed approximately 2,700 people, all in the United States. None are covered by a collective bargaining agreement[118] - The company's sales and consulting teams, comprised of over 500 employees, are organized into a commercial account management team, national business development teams, and a consulting team to drive new and existing member sales[119][120][121] Item 1A. Risk Factors The company faces significant risks across business operations, the highly regulated healthcare industry, legal and tax matters, and its capital structure - Business Operations Risks: The company faces intense competition, potential loss of GPO members, and competitive pressure to increase the revenue share paid to members. Consolidation in the healthcare industry could reduce demand for its services. The business is also exposed to risks from cyber-attacks, data breaches, and its growing dependence on AI technologies[128][132][139] - Healthcare & Regulatory Risks: The business must comply with complex federal and state laws, including anti-kickback, false claims, and privacy (HIPAA) regulations. Changes in the political or regulatory environment, such as modifications to the ACA or antitrust enforcement, could adversely affect operations[129][205][208] - Legal and Tax Risks: The company is subject to litigation, intellectual property infringement claims, and potential changes in tax laws that could impact its effective tax rate and profitability[130][232][236] - Capital Structure & Stock Risks: The company faces risks related to its indebtedness, fluctuations in quarterly operating results, and the trading price of its stock. There is no guarantee of future dividend payments or share repurchases at current levels[130][250][256] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[270] Item 1C. Cybersecurity Premier implements a comprehensive cybersecurity risk management strategy based on NIST standards, overseen by the Audit and Compliance Committee, with no material incidents reported - The company's cybersecurity program is integrated into its enterprise risk framework and is based on standards such as NIST[271] - Oversight is provided by the Audit and Compliance Committee of the Board of Directors, which receives regular updates from management's Digital Risk Management (DRM) group[280][282] - The company conducts annual cybersecurity risk assessments, including third-party audits, and has an established Incident Response Policy[275][276] - As of the report date, Premier is not aware of any cybersecurity incidents that have had a material effect on its business, strategy, or financial condition[284] Item 2. Properties Premier entered a new eight-year lease for its Charlotte, North Carolina headquarters in July 2025 and leases eight additional smaller facilities, all deemed adequate - The company transitioned to a new headquarters in Charlotte, North Carolina in July 2025 under a new lease with an initial term of approximately eight years[285] - In addition to its headquarters, the company leases eight smaller facilities in six states[285][286] Item 3. Legal Proceedings Premier is periodically involved in ordinary course litigation, including past antitrust lawsuits that have been successfully resolved, with no guarantee against future actions - The company is subject to litigation from time to time in the ordinary course of business[288] - Premier has been named as a defendant in past class action antitrust lawsuits, which it has successfully resolved, but cannot guarantee it will not be subject to similar actions in the future[289] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[291] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Premier's Class A common stock trades on NASDAQ under 'PINC,' with 82.5 million shares outstanding, paying quarterly dividends of $0.21 per share in fiscal 2025, though its stock has underperformed peer groups - The company's Class A Common Stock is traded on the NASDAQ Global Select Market under the ticker symbol "PINC"[293] - During fiscal year 2025, the Board of Directors declared and paid regular quarterly cash dividends of $0.21 per share[294] - No shares of Common Stock were repurchased during the three months ended June 30, 2025[298] Five-Year Cumulative Total Return Comparison | Company/Index Name | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Premier, Inc. Class A Common Stock | $100.00 | $103.79 | $108.78 | $86.64 | $60.92 | $74.48 | | NASDAQ Composite Index | $100.00 | $145.23 | $111.21 | $140.28 | $181.81 | $210.31 | | Peer Group | $100.00 | $172.63 | $149.47 | $140.55 | $105.81 | $80.78 | Item 6. Reserved This item is reserved - Reserved[307] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Premier's fiscal year 2025 saw an 11% net revenue decrease to $1.01 billion and a decline in net income, driven by reduced revenue in both Supply Chain and Performance Services segments, despite strong liquidity and significant share repurchases Key Financial Results (Year Ended June 30) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net revenue | $1,012,647 | $1,136,009 | | Net income from continuing operations | $72,734 | $104,219 | | Non-GAAP Adjusted EBITDA | $253,120 | $388,985 | Segment Net Revenue (Year Ended June 30, in thousands) | Segment | 2025 | 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Supply Chain Services | $631,039 | $689,368 | $(58,329) | (8)% | | Performance Services | $381,608 | $446,641 | $(65,033) | (15)% | | Total | $1,012,647 | $1,136,009 | $(123,362) | (11)% | - The company highlights market trends including inflation, rising labor costs, and the shift to value-based care as factors affecting its business. It is also monitoring the impact of tariffs on supplier pricing[321][322][323] Critical Accounting Policies and Estimates - Key accounting policies requiring significant management judgment include Business Combinations, Goodwill impairment testing, Revenue Recognition, Software Development Costs, and Income Taxes[328] - For Goodwill, the company performs annual impairment testing or more frequently if indicators are present. An interim test in Q2 FY2025 for the Informatics and Technology Services (ITS) reporting unit resulted in a $126.8 million impairment charge[331][334] - Revenue recognition involves estimating variable consideration, such as GPO administrative fees and performance-based fees, which requires significant judgment and is based on historical and forecasted data[336][337] Results of Operations Consolidated Results of Operations (Year Ended June 30, in thousands) | Line Item | 2025 | 2024 | | :--- | :--- | :--- | | Net revenue | $1,012,647 | $1,136,009 | | Gross profit | $743,359 | $867,124 | | Operating income | $1,116 | $126,646 | | Net income from continuing operations | $72,734 | $104,219 | | Net income attributable to stockholders | $20,269 | $119,544 | - Net revenue decreased by 11% YoY, driven by an 8% decline in Supply Chain Services and a 15% decline in Performance Services[409] - Other income increased by $77.1 million, primarily due to a $57.0 million gain from a shareholder derivative complaint settlement and increased dividend and equity income[412] - Adjusted EBITDA decreased by 35% to $253.1 million, driven by declines in both operating segments[416] Liquidity and Capital Resources - The principal source of cash is from operating activities. As of June 30, 2025, cash and cash equivalents were $83.7 million, down from $125.1 million a year prior[436][437] - The company had $280.0 million in outstanding borrowings under its $1.0 billion credit facility as of June 30, 2025, used primarily to fund stock repurchases[438] Cash Flow Summary (Year Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Operating activities from continuing operations | $417,809 | $278,143 | | Investing activities | $(102,095) | $(68,466) | | Financing activities | $(340,733) | $(192,720) | | Net (decrease) increase in cash | $(41,421) | $35,353 | - Non-GAAP Free Cash Flow decreased by $47.5 million to $180.5 million in fiscal 2025, primarily due to increased cash paid for operating expenses and higher payments to OMNIA related to the sale of future revenues[449] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its variable-rate debt, with a 1% change impacting annual interest expense by $2.8 million, and it faces no significant foreign currency risk - The primary market risk is interest rate risk on variable-rate debt. A 1% change in interest rates would affect annual interest expense by $2.8 million based on the $280.0 million outstanding balance as of June 30, 2025[469] - The company does not have significant foreign currency risk as its financial transactions are conducted almost entirely in U.S. dollars[471] Item 8. Financial Statements and Supplementary Data This section presents the consolidated financial statements for fiscal year 2025, along with Ernst & Young LLP's unqualified audit opinion, highlighting goodwill valuation for the ITS reporting unit as a critical audit matter - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of internal control over financial reporting as of June 30, 2025[477][478][490] - The critical audit matter identified in the audit was the valuation of goodwill, specifically for the Informatics and Technology Services (ITS) reporting unit, due to the complex and subjective judgments involved in estimating its fair value[481][483][484] Notes to Consolidated Financial Statements - Business Acquisitions (Note 3): On June 13, 2025, Premier acquired IllumiCare, Inc. for a preliminary purchase price of $47.5 million, resulting in the recognition of $28.9 million in goodwill[580][581] - Discontinued Operations (Note 4): The direct sourcing business (S2S Global) was classified as a discontinued operation. The divestiture on October 1, 2024, resulted in a loss on disposal of $53.0 million[585][513] - Goodwill and Intangible Assets (Note 9): The company recorded a pre-tax goodwill impairment charge of $126.8 million related to its Informatics and Technology Services (ITS) reporting unit during the second quarter of fiscal 2025[623] - Debt and Notes Payable (Note 10): As of June 30, 2025, the company had $280.0 million in outstanding borrowings under its credit facility and had fully paid off the notes payable to former limited partners related to the 2020 Restructuring[632][639] - Liability Related to Sale of Future Revenues (Note 11): As of June 30, 2025, the company had a liability of $640.4 million related to the sale of its non-healthcare GPO member contracts to OMNIA[647] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[714] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2025, with no material changes during the fourth quarter, excluding the recently acquired IllumiCare - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[716] - Management concluded that internal control over financial reporting was effective as of June 30, 2025, based on the COSO framework. This assessment excluded the internal controls of IllumiCare, acquired during the fiscal year[718][719] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal controls[721] Item 9B. Other Information An executive officer, Andrew F. Brailo, adopted a Rule 10b5-1 trading plan on May 9, 2025, to sell up to 12,102 shares, expiring November 10, 2025 Officer 10b5-1 Trading Plan Adoption (Q4 FY2025) | Name and Title | Action | Date | Total Shares to be Sold | Scheduled Expiration Date | | :--- | :--- | :--- | :--- | :--- | | Andrew F. Brailo, Chief Commercial Officer | Adopt | 05/09/2025 | 12,102 | 11/10/2025 | Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[727] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - The company maintains a Corporate Code of Conduct for all employees and officers, and a separate Board Code of Ethics for directors, available on its investor website[732] Item 11. Executive Compensation Information on executive compensation, including the Compensation Discussion and Analysis, is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership by beneficial owners and management is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders, including details on equity compensation plans Equity Compensation Plan Information (as of June 30, 2025) | Plan Category | Securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Securities remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 4,026,180 | $22.66 | 6,504,830 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders Item 14. Principal Accounting Fees and Services Information detailing fees paid to and services provided by the principal independent registered public accounting firm is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report, including consolidated financial statements and an index of all exhibits - This item includes the consolidated financial statements, the financial statement schedule for Valuation and Qualifying Accounts, and a comprehensive index of all exhibits filed with the report[743][744][745] Item 16. Form 10-K Summary The company has elected not to provide a Form 10-K summary - The company has elected not to provide a summary[748]