Premier(PINC) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements and accompanying notes for the period Condensed Consolidated Balance Sheets (Unaudited) The balance sheets show the company's financial position at December 31, 2022, compared to June 30, 2022 Condensed Consolidated Balance Sheets | Metric | Dec 31, 2022 (in thousands) | Jun 30, 2022 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Total current assets | $673,965 | $645,566 | | Property and equipment (net) | $207,045 | $213,379 | | Intangible assets (net) | $452,845 | $356,572 | | Goodwill | $1,069,300 | $999,913 | | Total assets | $3,539,394 | $3,357,127 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $934,028 | $753,137 | | Total liabilities | $1,233,321 | $1,108,277 | | Total stockholders' equity | $2,306,073 | $2,248,850 | | Total liabilities and stockholders' equity | $3,539,394 | $3,357,127 | Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) These statements detail the company's financial performance for the three and six months ended December 31, 2022 and 2021 Condensed Consolidated Statements of Income and Comprehensive Income | Metric | 3 Months Ended Dec 31, 2022 (in thousands) | 3 Months Ended Dec 31, 2021 (in thousands) | 6 Months Ended Dec 31, 2022 (in thousands) | 6 Months Ended Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $359,626 | $379,215 | $673,499 | $744,362 | | Cost of revenue | $116,885 | $142,715 | $228,773 | $295,886 | | Gross profit | $242,741 | $236,500 | $444,726 | $448,476 | | Operating expenses | $154,575 | $158,536 | $298,052 | $298,233 | | Operating income | $88,166 | $77,964 | $146,674 | $150,243 | | Income before income taxes | $88,139 | $83,599 | $149,867 | $223,938 | | Income tax expense | $23,765 | $6,367 | $42,534 | $25,400 | | Net income | $64,374 | $77,232 | $107,333 | $198,538 | | Net income attributable to stockholders | $64,046 | $75,545 | $106,762 | $197,549 | | Basic EPS | $0.54 | $0.62 | $0.90 | $1.62 | | Diluted EPS | $0.54 | $0.62 | $0.89 | $1.61 | Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This statement details the changes in stockholders' equity for the six months ended December 31, 2022 and 2021 Changes in Stockholders' Equity | Metric (in thousands) | Balance at Jun 30, 2022 | Balance at Dec 31, 2022 | | :--- | :--- | :--- | | Class A Common Stock (Amount) | $1,245 | $1,253 | | Treasury Stock (Amount) | $(250,129) | $(250,129) | | Additional Paid-In Capital | $2,166,047 | $2,166,909 | | Retained Earnings | $331,690 | $388,052 | | Accumulated Other Comprehensive (Loss) Income | $(3) | $(12) | | Total Stockholders' Equity | $2,248,850 | $2,306,073 | - Key changes in stockholders' equity for the six months ended December 31, 2022, include issuance of Class A common stock ($644 thousand), stock-based compensation expense ($7,136 thousand), net income ($42,959 thousand), and dividends paid ($25,097 thousand)[27] Condensed Consolidated Statements of Cash Flows (Unaudited) These statements detail cash flows from operating, investing, and financing activities for the six months ended December 31, 2022 and 2021 Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $196,725 | $197,527 | | Net cash used in investing activities | $(227,466) | $(68,660) | | Net cash provided by (used in) financing activities | $39,230 | $(171,846) | | Net increase (decrease) in cash and cash equivalents | $8,480 | $(42,980) | | Cash and cash equivalents at end of period | $94,623 | $86,161 | Notes to Condensed Consolidated Financial Statements (Unaudited) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements (1) ORGANIZATION Premier, Inc is a healthcare performance improvement company operating through its Supply Chain and Performance Services segments[35] - The company is a publicly held, for-profit Delaware corporation, acting as a holding company with its primary asset being its equity interest in wholly owned subsidiary Premier Healthcare Solutions, Inc (PHSI)[34] - The company operates through two business segments: Supply Chain Services (GPO programs, co-management, direct sourcing) and Performance Services (PINC AI, Contigo Health, Remitra)[35] (2) SIGNIFICANT ACCOUNTING POLICIES The company's significant accounting policies remain consistent with its 2022 Annual Report - There were no material changes to significant accounting policies as described in the 2022 Annual Report[40] - The company adopted ASU 2021-08 (Business Combinations) in Q2 FY2023, with no material impact on its financial statements[41] (3) BUSINESS ACQUISITIONS The company acquired assets of TRPN Direct Pay and Devon Health for $177.5 million to expand its provider network - On October 13, 2022, Contigo Health acquired assets of TRPN Direct Pay, Inc and Devon Health, Inc (TRPN acquisition) for $177.5 million in cash[42][43] - The acquisition included contracts with over 900,000 providers and resulted in $116.6 million in acquired intangible assets and $60.9 million in goodwill[44][45] - TRPN is integrated into the Performance Services Segment, and its pro forma results were not material to the company's historical consolidated financial statements[45][46] (4) INVESTMENTS The company holds equity method investments in unconsolidated affiliates primarily within the Supply Chain Services segment Summary of Investments | Investment (in thousands) | Carrying Value (Dec 31, 2022) | Equity in Net Income (6 Months Ended Dec 31, 2022) | | :--- | :--- | :--- | | FFF | $135,214 | $7,705 | | Exela | $28,503 | $770 | | Qventus | $16,000 | $0 | | Prestige | $16,068 | $471 | | Other investments | $21,325 | $971 | | Total investments | $217,110 | $9,917 | - Investments in FFF, Exela, and Prestige are accounted for using the equity method and are part of the Supply Chain Services segment[48][49][50][51] - The investment in Qventus is accounted for at initial cost less impairments and is part of the Performance Services segment[52] (5) FAIR VALUE MEASUREMENTS The company measures certain financial assets and liabilities at fair value, primarily deferred compensation plan assets and earn-out liabilities Fair Value of Financial Instruments | Financial Instrument (in thousands) | Fair Value (Dec 31, 2022) | Fair Value (Jun 30, 2022) | | :--- | :--- | :--- | | Cash equivalents (Level 1) | $76 | $75 | | Deferred compensation plan assets (Level 1) | $49,475 | $52,718 | | Earn-out liabilities (Level 3) | $24,098 | $22,789 | - The FFF Put Right was terminated in July 2021, and the Call Right had zero value as of December 31, 2022[55][56] - Earn-out liabilities, primarily from the Acurity and Nexera acquisition, are measured using a probability-weighted expected payment model, with a fair value of $22.6 million at December 31, 2022[57][58][59] (6) CONTRACT BALANCES Remaining performance obligations totaled $700.6 million as of December 31, 2022, with a significant portion to be recognized over the next two years - Revenue recognized from the opening deferred revenue balance was $23.3 million for the six months ended December 31, 2022[68] - Net revenue recognized from performance obligations satisfied in prior periods was $2.5 million for the six months ended December 31, 2022[72] - As of December 31, 2022, remaining performance obligations totaled $700.6 million, with approximately 42% expected to be recognized in the next 12 months[74] (7) GOODWILL AND INTANGIBLE ASSETS Goodwill and intangible assets increased significantly due to the TRPN acquisition Goodwill and Intangible Assets | Metric (in thousands) | Dec 31, 2022 | Jun 30, 2022 | | :--- | :--- | :--- | | Goodwill | $1,069,300 | $999,913 | | Total intangible assets, net | $452,845 | $356,572 | - Goodwill increased by $69.4 million, primarily due to the TRPN acquisition, with the full amount allocated to the Performance Services segment[75] - Intangible assets increased by $116.6 million from the TRPN acquisition, mainly comprising a $106.5 million provider network with a 15-year useful life[78] - Estimated amortization expense for intangible assets is $24.4 million for the remainder of fiscal year 2023 and $49.4 million for fiscal year 2024[81] (8) DEBT AND NOTES PAYABLE The company refinanced its Credit Facility in December 2022, increasing its borrowing capacity to $1.0 billion Debt and Notes Payable | Metric (in thousands) | Dec 31, 2022 | Jun 30, 2022 | | :--- | :--- | :--- | | Credit facility | $300,000 | $150,000 | | Notes payable to members, net of discount | $250,324 | $298,994 | | Other notes payable | $2,954 | $5,333 | | Total debt and notes payable | $553,278 | $454,327 | | Less: current portion | $(400,682) | $(250,859) | | Total long-term debt and notes payable | $152,596 | $203,468 | - A new $1.0 billion unsecured Credit Facility was entered into on December 12, 2022, maturing December 12, 2027[83][84] - Outstanding borrowings under the Credit Facility were $300.0 million at December 31, 2022, with an available capacity of $699.9 million and a weighted average interest rate of 5.633%[85][88] - Notes payable to former limited partners totaled $250.3 million (net of discount) at December 31, 2022, with $98.7 million due within one year[89] (9) STOCKHOLDERS' EQUITY The company continued its quarterly cash dividend program, paying $0.21 per share in September and December 2022 - As of December 31, 2022, 118,866,586 shares of Class A common stock were outstanding[91] - Cash dividends of $0.21 per share were paid in September and December 2022, and another $0.21 per share dividend was declared for March 2023[92] (10) EARNINGS PER SHARE For the six months ended December 31, 2022, basic EPS was $0.90 and diluted EPS was $0.89 Earnings Per Share Calculation | Metric (in thousands, except per share) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income attributable to stockholders | $64,046 | $75,545 | $106,762 | $197,549 | | Basic weighted average shares outstanding | 118,787 | 121,181 | 118,569 | 122,063 | | Diluted weighted average shares | 119,652 | 122,473 | 119,842 | 123,523 | | Basic EPS | $0.54 | $0.62 | $0.90 | $1.62 | | Diluted EPS | $0.54 | $0.62 | $0.89 | $1.61 | - For the six months ended December 31, 2022, 0.7 million stock options and restricted stock units were excluded from diluted weighted average shares due to their anti-dilutive effect[98] (11) STOCK-BASED COMPENSATION Stock-based compensation expense for the six months ended December 31, 2022, was $9.8 million Stock-Based Compensation Expense | Metric (in thousands) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Pre-tax stock-based compensation expense | $2,679 | $16,234 | $9,815 | $23,788 | | Less: deferred tax benefit | $1,060 | $3,650 | $2,007 | $4,725 | | Total stock-based compensation expense, net of tax | $1,619 | $12,584 | $7,808 | $19,063 | - As of December 31, 2022, 3.9 million shares were available for grant under the 2013 Equity Incentive Plan[102] - Unrecognized stock-based compensation expense totaled $55.5 million at December 31, 2022, with a weighted average amortization period of 2.0 years[105][106] (12) INCOME TAXES The effective tax rate for the six months ended December 31, 2022, was 28%, higher than the prior year's rate of 11% Income Tax Expense and Effective Tax Rate | Metric | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Income tax expense | $23,765 | $6,367 | $42,534 | $25,400 | | Effective tax rate | 27% | 8% | 28% | 11% | - The change in effective tax rate is primarily due to the prior year's valuation allowance release from the Subsidiary Reorganization[108] (13) COMMITMENTS AND CONTINGENCIES The company's total operating lease liabilities were $38.4 million as of December 31, 2022 Operating Lease Information | Metric (in thousands) | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Operating lease expense | $5,000 | $5,100 | | Total operating lease liabilities (Dec 31, 2022) | $38,350 | N/A | | Weighted average remaining lease term (Dec 31, 2022) | 3.3 years | N/A | | Weighted average discount rate (Dec 31, 2022) | 4% | N/A | - The company is involved in litigation, including a shareholder derivative complaint, but does not believe current litigation is material[112][278][279] (14) SEGMENTS Supply Chain Services revenue decreased by 13% for the quarter, while Performance Services revenue increased by 15% - The company's two reportable segments are Supply Chain Services (GPO, co-management, direct sourcing) and Performance Services (PINC AI, Contigo Health, Remitra)[113] Segment Net Revenue (3 Months Ended Dec 31) | Segment Net Revenue (in thousands) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Supply Chain Services | $235,520 | $271,495 | (13)% | | Performance Services | $124,115 | $107,729 | 15% | | Total segment net revenue | $359,635 | $379,224 | (5)% | Segment Adjusted EBITDA | Segment Adjusted EBITDA (in thousands) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Supply Chain Services | $127,991 | $134,280 | $249,188 | $263,549 | | Performance Services | $43,203 | $39,010 | $62,569 | $62,725 | | Corporate | $(30,658) | $(31,274) | $(61,841) | $(62,555) | | Non-GAAP Adjusted EBITDA | $140,536 | $142,016 | $249,916 | $263,719 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides its perspective on the company's financial condition, operational results, and market trends Business Overview Premier is a leading healthcare improvement company delivering solutions through its Supply Chain and Performance Services segments - Premier is a healthcare improvement company that unites U.S. hospitals, health systems, and other providers to transform healthcare[127] - The company offers a comprehensive technology-enabled platform including supply chain services, SaaS software, analytics, consulting, and digital invoicing[128] Key Financial Metrics | Metric (in thousands) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $359,626 | $379,215 | $673,499 | $744,362 | | Net income | $64,374 | $77,232 | $107,333 | $198,538 | | Non-GAAP Adjusted EBITDA | $140,536 | $142,016 | $249,916 | $263,719 | - The business operates through two segments: Supply Chain Services (GPO, co-management, direct sourcing) and Performance Services (PINC AI, Contigo Health, Remitra)[130][131][132] Market and Industry Trends and Outlook The business is influenced by U.S. healthcare market trends, including inflation, rising labor costs, and the ongoing impact of COVID-19 - Key trends affecting the business include inflation, significant increases in healthcare input costs (especially labor), and the impact of healthcare legislation[136] - The COVID-19 pandemic continues to cause demand uncertainty, increased labor costs, and disruptions in global supply chains[137][138][139][140] - The Russia-Ukraine war contributes to global economic instability, rising inflation, energy costs, and supply-chain disruption[142] - High inflation rates are pressuring supplier pricing and company margins, though partially mitigated by contract term price protection[143][144] Key Components of Our Results of Operations This section outlines the key components of Premier's financial results, including revenue, cost of revenue, and operating expenses - Net revenue comprises net administrative fees, software licenses, other services and support, and products revenue[148] - Supply Chain Services revenue is driven by GPO contract negotiations, member utilization, and direct sourcing activities[149] - Performance Services revenue growth depends on expanding the PINC AI platform, renewing subscriptions, and growing Contigo Health and Remitra[150] - Cost of revenue includes employee-related expenses, outside consultants, hosting services, and costs for direct sourced products[152][153] - Operating expenses consist of selling, general and administrative (SG&A), research and development (R&D), and amortization of purchased intangible assets[154] - Other income, net, includes equity in net income of unconsolidated affiliates, interest income/expense, and gains/losses on certain assets[159] - Net income attributable to non-controlling interest reflects non-Premier ownership in consolidated subsidiaries[161][162] Our Use of Non-GAAP Financial Measures Premier uses several Non-GAAP financial measures to provide a clearer understanding of its operational performance - Non-GAAP measures include EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings per Share, and Free Cash Flow[163] - Adjusted EBITDA excludes merger/acquisition expenses, non-recurring/non-cash/non-operating items, and includes equity in net income of unconsolidated affiliates[164] - Adjusted Net Income adjusts for non-controlling interest, non-recurring/non-cash items, and applies an estimated annual effective income tax rate (26% for FY2023)[166][176] - Free Cash Flow is net cash from operating activities less early termination payments and purchases of property and equipment[168] - These Non-GAAP measures are used to assess operational strength and compare performance but are not GAAP measures of liquidity or profitability[169][170][171][172][173] Results of Operations This section presents a consolidated overview of Premier's financial performance for the three and six months ended December 31, 2022 and 2021 Consolidated Financial Performance | Metric (in thousands) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $359,626 | $379,215 | $673,499 | $744,362 | | Gross profit | $242,741 | $236,500 | $444,726 | $448,476 | | Operating income | $88,166 | $77,964 | $146,674 | $150,243 | | Net income attributable to stockholders | $64,046 | $75,545 | $106,762 | $197,549 | | Adjusted EBITDA | $140,536 | $142,016 | $249,916 | $263,719 | | Non-GAAP Adjusted Net Income | $85,650 | $90,011 | $148,162 | $165,145 | | Non-GAAP Adjusted Earnings Per Share | $0.72 | $0.73 | $1.24 | $1.34 | Consolidated Results - Comparison of the Three Months Ended December 31, 2022 to 2021 Consolidated net revenue decreased by $19.6 million, driven by a decline in products revenue - Net revenue decreased by $19.6 million (5.2% YoY) to $359.6 million, driven by a $44.8 million decrease in products revenue[198] - Cost of revenue decreased by $25.8 million (18.1% YoY) to $116.9 million, mainly due to a $35.3 million decrease in cost of products revenue[199] - Operating expenses decreased by $3.9 million (2.5% YoY) to $154.6 million, primarily from a $6.3 million decrease in SG&A expenses[200] - Adjusted EBITDA decreased by $1.5 million (1.1% YoY) to $140.5 million[204] Consolidated Results - Comparison of the Six Months Ended December 31, 2022 to 2021 Consolidated net revenue decreased by $70.9 million, primarily due to a significant decline in products revenue - Net revenue decreased by $70.9 million (9.5% YoY) to $673.5 million, driven by a $104.3 million decrease in products revenue[206] - Cost of revenue decreased by $67.1 million (22.7% YoY) to $228.8 million, primarily due to an $86.8 million decrease in cost of products revenue[207] - Other income, net, decreased by $70.5 million, primarily due to a $64.1 million gain on the FFF Put Right in the prior year that did not recur[209] - Adjusted EBITDA decreased by $13.8 million (5.2% YoY) to $249.9 million, mainly due to a decrease in Supply Chain Services[212] Segment Results This section details the financial performance of Premier's two segments: Supply Chain Services and Performance Services Supply Chain Services The segment's net revenue and Adjusted EBITDA decreased, driven by a significant decline in products revenue Supply Chain Services Performance (3 Months Ended Dec 31) | Metric (in thousands) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Net revenue | $235,520 | $271,495 | (13)% | | Net administrative fees | $154,423 | $150,403 | 3% | | Products revenue | $66,993 | $111,766 | (40)% | | Software licenses, other services and support | $14,104 | $9,326 | 51% | | Segment Adjusted EBITDA | $127,991 | $134,280 | (5)% | Comparison of the Three Months Ended December 31, 2022 to 2021 - Net revenue decreased by $36.0 million (13%), driven by a $44.8 million (40%) decrease in products revenue due to lower demand[215][217] - Net administrative fees increased by $4.0 million (3%) due to increased utilization of contracts by existing members[216] - Software licenses, other services and support revenue increased by $4.8 million (51%) due to higher co-management fees[218] - Segment Adjusted EBITDA decreased by $6.3 million (5%), primarily due to lower equity earnings and the decrease in products revenue[221] Comparison of the Six Months Ended December 31, 2022 to 2021 - Net revenue decreased by $93.1 million (17%), driven by a $104.3 million (45%) decrease in products revenue[222][224] - Net administrative fees increased by $4.6 million (2%) due to increased utilization of contracts by existing members[223] - Software licenses, other services and support revenue increased by $6.7 million (37%) due to higher co-management fees[224] - Segment Adjusted EBITDA decreased by $14.4 million (5%), primarily due to the decrease in products revenue and lower equity earnings[227] Performance Services The segment's net revenue grew, driven by increases in software licenses, other revenue, and consulting services Performance Services Performance (3 Months Ended Dec 31) | Metric (in thousands) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Net revenue | $124,115 | $107,729 | 15% | | SaaS-based products subscriptions | $49,664 | $48,317 | 3% | | Consulting services | $18,514 | $15,105 | 23% | | Software licenses | $30,804 | $23,464 | 31% | | Other revenue | $25,133 | $20,843 | 21% | | Segment Adjusted EBITDA | $43,203 | $39,010 | 11% | Comparison of the Three Months Ended December 31, 2022 to 2021 - Net revenue increased by $16.4 million (15%), driven by growth in software licenses ($7.3 million), other revenue ($4.3 million), and consulting services ($3.4 million)[229] - Cost of revenue increased by $8.4 million (20%) due to higher consulting services expenses and increased personnel costs[230] - Operating expenses increased by $5.0 million (11%), including a $2.4 million increase in amortization from the TRPN acquisition[231] - Segment Adjusted EBITDA increased by $4.2 million (11%) due to revenue growth, partially offset by higher costs[232] Comparison of the Six Months Ended December 31, 2022 to 2021 - Net revenue increased by $22.2 million (11%), driven by growth in other revenue ($9.1 million), consulting services ($5.8 million), and software licenses ($4.9 million)[233] - Cost of revenue increased by $16.7 million (20%) due to higher consulting services expenses and increased personnel costs[234] - Operating expenses increased by $8.0 million (9%), including a $2.0 million increase in amortization from the TRPN acquisition[235] - Segment Adjusted EBITDA was flat for the six months ended December 31, 2022, compared to the prior year[236] Corporate Corporate operating expenses decreased primarily due to lower stock-based compensation expense Corporate Expenses | Metric (in thousands) | 3 Months Ended Dec 31, 2022 | 3 Months Ended Dec 31, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Operating expenses | $45,719 | $55,933 | (18)% | | Adjusted EBITDA | $(30,658) | $(31,274) | 2% | | | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | Change (%) | | Operating expenses | $85,625 | $96,902 | (12)% | | Adjusted EBITDA | $(61,841) | $(62,555) | 1% | Comparison of the Three Months Ended December 31, 2022 to 2021 - Operating expenses decreased by $10.2 million (18%) due to lower stock-based compensation expense, offset by increased professional fees[239] - Corporate Adjusted EBITDA was flat compared to the prior year[240] Comparison of the Six Months Ended December 31, 2022 to 2021 - Operating expenses decreased by $11.3 million (12%) due to lower stock-based compensation and deferred compensation plan expenses[241] - Corporate Adjusted EBITDA was flat compared to the prior year[242] Off-Balance Sheet Arrangements As of December 31, 2022, Premier, Inc did not have any off-balance sheet arrangements - As of December 31, 2022, the company had no off-balance sheet arrangements[243] Liquidity and Capital Resources The company expects to have adequate liquidity from operations and its Credit Facility to fund its capital requirements - Principal cash sources are operating activities and Credit Facility borrowings, while primary cash requirements include operating expenses, capital expenditures, and dividends[244] Key Liquidity Metrics | Metric (in thousands) | Dec 31, 2022 | Jun 30, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $94,623 | $86,143 | | Outstanding borrowings under Credit Facility | $300,000 | $150,000 | - The company expects cash from operations and Credit Facility borrowings to provide adequate liquidity for anticipated working capital, capital expenditures, dividends, and acquisitions[247] Discussion of Cash Flows for the Six Months Ended December 31, 2022 and 2021 Net cash from operations remained flat, while cash used in investing increased significantly due to the TRPN acquisition Summary of Cash Flows | Cash Flow Activity (in thousands) | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $196,725 | $197,527 | | Net cash used in investing activities | $(227,466) | $(68,660) | | Net cash provided by (used in) financing activities | $39,230 | $(171,846) | | Net increase (decrease) in cash and cash equivalents | $8,480 | $(42,980) | - Net cash used in investing activities increased by $158.8 million, primarily due to the TRPN acquisition[249] - Net cash provided by financing activities changed by $211.1 million, driven by the prior year's $173.9 million outflow for stock repurchases and a $100.0 million increase in net borrowings[250] Discussion of Non-GAAP Free Cash Flow for the Six Months Ended December 31, 2022 and 2021 Non-GAAP Free Cash Flow increased by $2.5 million to $109.6 million, primarily due to lower capital expenditures Non-GAAP Free Cash Flow Reconciliation | Metric (in thousands) | 6 Months Ended Dec 31, 2022 | 6 Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $196,725 | $197,527 | | Purchases of property and equipment | $(38,416) | $(42,660) | | Early termination payments to former limited partners | $(48,670) | $(47,741) | | Non-GAAP Free Cash Flow | $109,639 | $107,126 | - Non-GAAP Free Cash Flow increased by $2.5 million, primarily due to a $4.2 million decrease in purchases of property and equipment[252] Contractual Obligations The company has remaining obligations for notes payable to former limited partners and borrowings under its Credit Facility - At December 31, 2022, $256.7 million remained to be paid on non-interest bearing notes payable to former limited partners, due in 10 equal quarterly installments[254] - Other non-interest bearing notes payable totaled $3.0 million with maturities of three to five years[255] - Outstanding borrowings under the Credit Facility were $300.0 million at December 31, 2022, bearing variable interest (5.633% weighted average rate)[256][257][258] Cash Dividends Premier paid quarterly cash dividends of $0.21 per share and declared another dividend payable in March 2023 - Quarterly cash dividends of $0.21 per share were paid in September and December 2022[261] - A $0.21 per share dividend was declared on January 26, 2023, payable March 15, 2023[261] - Future dividend declarations are at the discretion of the Board of Directors[262] Fiscal 2023 Developments The company continues to monitor the ongoing impacts of the COVID-19 pandemic, the Russia-Ukraine war, and high inflation rates - The COVID-19 pandemic and its variants continue to create challenges, with uncertain future impacts on the business[263] - The Russia-Ukraine war continues to affect the global economy, exacerbating inflation, energy costs, and supply-chain disruption[264] - High inflation rates, rising labor costs, and increasing interest rates continue to pressure supplier pricing and company margins[265][266][267] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate fluctuations on its variable-rate debt - The primary market risk is interest rate risk on variable-rate debt; a 1% change in the interest rate on $300.0 million of borrowings would change annual interest expense by $3.0 million[268] - The company invests excess cash in low-risk securities to mitigate investment risks[269] - The company does not have significant foreign operations and therefore does not believe it has material foreign currency risk[270] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022 - Disclosure controls and procedures were effective as of December 31, 2022, based on evaluation by management, including the CEO and CFO[271][272] - The evaluation excluded certain assets of the TRPN acquisition, which represented 5.1% of total assets and 0.4% of net revenues[273] - There were no material changes to internal control over financial reporting during the quarter ended December 31, 2022[274] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, including a shareholder derivative complaint regarding early termination payments - The company is subject to litigation in the ordinary course of business, including contractual, product liability, and employment matters[276] - A shareholder derivative complaint was filed in March 2022, alleging breach of fiduciary duties related to the Tax Receivable Agreement (TRA), with alleged damages of approximately $225.0 million[278] - Premier and the individual defendants deny the allegations and intend to vigorously defend the litigation[279] Item 1A. Risk Factors There were no material changes to the risk factors disclosed in the 2022 Annual Report - There were no material changes to the risk factors disclosed in Item 1A of the 2022 Annual Report during the quarter ended December 31, 2022[281] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report, including the Amended and Restated Credit Agreement and Sarbanes-Oxley certifications - Exhibit 10.1 is the Amended and Restated Credit Agreement, dated December 12, 2022[282] - The report includes Certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[282] - The report includes sections formatted in iXBRL (Inline eXtensible Business Reporting Language) as Exhibit 101[282]