Premier's supply chain revenue surge boosts Q3 profits

Premier reported higher profits in its third-quarter earnings, driven by rising supply chain revenue from its group purchasing business, including its recent Innovatix and Essensa acquisitions.

The Charlotte, N.C.-based group purchasing organization and performance improvement company reported adjusted fully distributed income of $73 million during the fiscal third quarter ended March 31, an increase of 14% from the same period last year. Net revenue increased 27% to $379.8 million.

Premier's adjusted income factors in ongoing exchanges of GPO member-owners' Class B stock into Class A stock following the company's 2013 initial public offering. The adjusted figure reflects a more accurate financial picture of Premier's operating performance, a company spokesman said, because it reports the financials as if all members exchanged their stock and the company was fully public. Using generally accepted accounting principles, Premier's third-quarter profit increased 1% to $72.1 million.

Supply chain revenue reached $285.2 million, an increase of 34% from $212.4 million last year, largely due to a 10% increase in administrative fees from Premier's GPO members. Premier acquired two GPOs serving non-acute providers and owned by the Greater New York Hospital Association in November, Innovatix and Essensa, and received an additional $11.6 million cash contribution from the organizations' administrative fees. The cash contribution wasn't counted as revenue due to accounting adjustments related to the purchase, similar to the fiscal 2017 second quarter, the company said.

Supply chain product revenue was up to $138.1 million, an increase of 73% from a year ago, in large part due to the acquisition of Acro Pharmaceutical Services. The company said the revenue was lower than expected, primarily due to the underperformance of Acro's former parent prior to the acquisition and distribution issues.

Its supply chain product segment also took a hit following declining revenue in hepatitis C treatments, which has been an industrywide trend.

"Growth in our supply chain services segment was driven largely by our group purchasing business, which included contributions from our recent Innovatix and Essensa acquisitions," Premier President and CEO Susan DeVore said in a statement. "The double-digit performance services segment results were in line with management expectations of increased growth in the second half of the fiscal year."

The company's performance services segment saw a 10% boost in revenue to $94.6 million, primarily due to its growing advisory services and information and technology services segments, Premier said.

Premier narrowed its supply chain services and consolidated revenue guidance range by about 4% due to reduced revenue contributions from the company's integrated pharmacy business. The company expects total revenue of $1.43 billion to $1.47 billion for fiscal 2017, a 23% to 37% increase from the year before, and adjusted fully distributed earnings per share of $1.89 to $1.94, a 17% to 20% increase.

"While we experienced some revenue headwinds in our lower-margin integrated pharmacy business within supply chain services, they had very minimal impact on the quarter's profitability or on the profitability guidance for the remainder of the fiscal year," DeVore said.

During a conference call following the earnings, DeVore discussed emerging trends amid the ever-changing healthcare landscape. Despite the uncertainty surrounding healthcare policy, Premier is well-equipped to adapt, she said. The company's population health management collaborative saw 10% membership growth in the third quarter, while its Medicare shared-savings collaborative participants doubled to 41 accountable care organizations, DeVore said.

Premier is integrating its systemwide supply chain and analytics with the aim of reducing costs and improving outcomes, Premier COO Michael Alkire said on the call.

"Premier's clinical data integration and research capabilities are continuing to attract engagements with the pharmaceutical industry," he said.