Premier Executives Lower Outlook on Macro Spending Concerns

May 2, 2023
With some clients pushing back or pulling out of contract talks, ‘we think it is prudent to take a more cautious view.’

The leaders of Premier Inc. have lowered their outlook for 2023 for a second time in part because some customers have begun pulling back on spending decisions or are still carrying high inventories of medical supplies.

Shares of the Charlotte-based supply chain and analytics services company (Ticker: PINC) slumped nearly 20 percent May 2 to about $27 on the news. The drop erased nearly $750 million in market value.

“We are seeing to some degree some softening in demand and delayed decision making for some of our more comprehensive enterprise license and consulting services engagements, largely due to the current macro environment,” Chief Administrative and Financial Officer Craig McKasson told analysts after he and President and CEO Mike Alkire reported earnings of $48.7 million for Premier’s third fiscal quarter, an increase from $39.1 million in the same period of last year. “We think it is prudent to take a more cautious view in the nearer term.”

Alkire and McKasson have lowered by $10 million their revenue outlook for Premier’s performance services group, which includes license and consulting deals McKasson said “are taking longer to get through the funnel.” On the supply chain services side, they see revenues being down between $45 million and $55 million, or about 5 percent, from their previous guidance. Those cuts will translate into an expected drop of $20 million in adjusted EBITDA.

On a conference call, Alkire told analysts that the weakness in spending has become spotty both in terms of specific geographies—Texas and Florida providers are generally doing well while their peers in the Upper Midwest aren’t seeing much growth—and in urban centers versus rural markets.

“Executives at some very, very large health systems that span geographies […] are saying, ‘Look across our entire business: We're seeing exactly what you’re seeing. [I]n our higher-growth markets from a population standpoint, we’re seeing the recovery happening and then in those other areas, we’re not.”

The Premier team also lowered its 2023 forecasts three months ago, saying at the time that customers were proving slower than expected in their adoption of Premier’s invoicing and payments systems and because patient utilization was not ticking up as forecast. At the time, Alkire and McKasson said they were rolling out plans to cut costs by about $40 million on an annual basis. This time around, Alkire said Premier is well positioned to weather macro headwinds because of its various initiatives—especially the use of technologies that can help automate processes for providers increasingly running short of talent.

“We want to be the driver behind […] change regardless as whether or not these labor issues get resolved or not,” Alkire said.

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