Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________________________________________________
FORM 10-Q
 __________________________________________________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
Commission File Number 001-36092
 __________________________________________________________________________________________
Premier, Inc.
(Exact name of registrant as specified in its charter)
 ___________________________________________________________________________________________
Delaware
 
35-2477140
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
13034 Ballantyne Corporate Place
Charlotte, North Carolina
 
28277
(Address of principal executive offices)
 
(Zip Code)
(704) 357-0022
(Registrant's telephone number, including area code)
 __________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No   o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer
o
 
Non-accelerated filer
o
Smaller reporting company
o
 
Emerging growth company
o
 
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   o No   x
As of February 1, 2019, there were 63,788,479 shares of the registrant's Class A common stock, par value $0.01 per share, and 65,602,193 shares of the registrant's Class B common stock, par value $0.000001 per share, outstanding.





TABLE OF CONTENTS
 
 
Page
Item 1.
 
Condensed Consolidated Balance Sheets as of December 31, 2018 and June 30, 2018 (Unaudited)
 
Condensed Consolidated Statements of Income for the three and six months ended December 31, 2018 and 2017 (Unaudited)
 
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2018 and 2017 (Unaudited)
 
Condensed Consolidated Statement of Stockholders' Deficit for the six months ended December 31, 2018 and 2017 (Unaudited)
 
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2018 and 2017 (Unaudited)
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
 




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements made in this Quarterly Report that are not statements of historical or current facts, such as those under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in conditional or future tenses or that include terms such as "believes," "belief," "expects," "estimates," "intends," "anticipates" or "plans" to be uncertain and forward-looking. Forward-looking statements may include comments as to our beliefs and expectations regarding future events and trends affecting our business and are necessarily subject to uncertainties, many of which are outside our control. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:
competition which could limit our ability to maintain or expand market share within our industry;
consolidation in the healthcare industry;
potential delays recognizing or increasing revenue if the sales cycle or implementation period takes longer than expected;
the terminability of member participation in our group purchasing organization ("GPO") programs with limited or no notice, or the failure of a significant number of members to renew their GPO participation agreements;
the rate at which the markets for our SaaS informatics products and services develop;
the dependency of our members on payments from third-party payers;
our reliance on administrative fees that we receive from GPO suppliers;
our ability to maintain third-party provider and strategic alliances or enter into new alliances;
our ability to timely offer new and innovative products and services;
the portion of revenues we receive from our largest members;
risks and expenses related to future acquisition opportunities and integration of acquisitions;
financial and operational risks associated with investments in or loans to businesses that we do not control, particularly early stage companies;
potential litigation;
our reliance on Internet infrastructure, bandwidth providers, data center providers and other third parties and our own systems for providing services to our users;
data loss or corruption due to failures or errors in our systems and service disruptions at our data centers, or breaches or failures of our security measures;
the financial, operational and reputational consequences of cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us or our members or other third parties;
our ability to use, disclose, de-identify or license data and to integrate third-party technologies;
our use of "open source" software;
changes in pharmaceutical industry pricing benchmarks;
our inability to grow our integrated pharmacy business or maintain current patients due to increases in the safety risk profiles of prescription drugs or the withdrawal of prescription drugs from the market, or our inability to maintain and expand our existing base of drugs in our integrated pharmacy operations;
our dependency on contract manufacturing facilities located in various parts of the world;
our ability to attract, hire, integrate and retain key personnel;

3



adequate protection of our intellectual property and potential claims against our use of the intellectual property of third parties;
potential sales and use tax liability in certain jurisdictions;
changes in tax laws that materially impact our tax rate, income tax expense, cash flows or tax receivable agreement ("TRA") liabilities;
our indebtedness and our ability to obtain additional financing on favorable terms, including our ability to renew or replace our existing long-term credit facility at maturity;
fluctuation of our quarterly cash flows, revenues and results of operations;
changes and uncertainty in the political, economic or regulatory environment affecting healthcare organizations, including with respect to the status of the Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act of 2010, collectively referred to as the "ACA";
our compliance with complex international, federal and state laws governing financial relationships among healthcare providers and the submission of false or fraudulent healthcare claims;
interpretation and enforcement of current or future antitrust laws and regulations;
compliance with complex federal and state privacy, security and breach notification laws;
compliance with current or future laws, rules or regulations adopted by the Food & Drug Administration ("FDA") applicable to our current or acquired software applications that may be considered medical devices;
compliance with, and potential changes to, extensive federal, state and local laws, regulations and procedures governing our integrated pharmacy operations;
risks inherent in the filling, packaging and distribution of pharmaceuticals, including the counseling required to be provided by our pharmacists for dispensing of products;
our holding company structure and dependence on distributions from Premier Healthcare Alliance, L.P. ("Premier LP");
different interests among our member owners or between us and our member owners;
the ability of our member owners to exercise significant control over us, including through the election of all of our directors;
exemption from certain corporate governance requirements due to our status as a "controlled company" within the meaning of the NASDAQ rules;
the terms of agreements between us and our member owners;
payments made under the TRAs to Premier LP's limited partners and our ability to realize the expected tax benefits related to the acquisition of Class B common units from Premier LP's limited partners;
changes to Premier LP's allocation methods or examinations or changes in interpretation of applicable tax laws and regulations by various taxing authorities that may increase a tax-exempt limited partner's risk that some allocated income is unrelated business taxable income;
provisions in our certificate of incorporation and bylaws and the Amended and Restated Limited Partnership Agreement of Premier LP (as amended, the "LP Agreement") and provisions of Delaware law that discourage or prevent strategic transactions, including a takeover of us;
failure to maintain an effective system of internal controls over financial reporting or an inability to remediate any weaknesses identified and the related costs of remediation;
the number of shares of Class A common stock that will be eligible for sale upon exchange of Class B common units of Premier LP in the near future and the dilutive effect of such issuances;
our lack of current plans to pay cash dividends on our Class A common stock;
the timing and number of shares of Class A common stock repurchased by the Company, if any, pursuant to our current or any future Class A common stock repurchase program;

4



possible future issuances of common stock, preferred stock, limited partnership units or debt securities and the dilutive effect of such issuances; and
the risk factors discussed under the heading "Risk Factors" in Item 1A of Part II herein and under Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (the "2018 Annual Report"), filed with the Securities and Exchange Commission ("SEC").
More information on potential factors that could affect our financial results is included from time to time in the "Cautionary Note Regarding Forward-Looking Statements," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" or similarly captioned sections of this Quarterly Report and our other periodic and current filings made from time to time with the SEC, which are available on our website at http://investors.premierinc.com/. You should not place undue reliance on any of our forward-looking statements which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Furthermore, we cannot guarantee future results, events, levels of activity, performance or achievements.

5



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PREMIER, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
 
December 31, 2018
June 30, 2018
Assets
 
 
Cash and cash equivalents
$
110,584

$
152,386

Accounts receivable (net of $3,187 and $1,841 allowance for doubtful accounts, respectively)
197,366

185,874

Contract assets
208,254


Inventory
70,032

66,139

Prepaid expenses and other current assets
27,259

23,325

Due from related parties
720

894

Total current assets
614,215

428,618

Property and equipment (net of $339,781 and $297,591 accumulated depreciation, respectively)
211,859

206,693

Intangible assets (net of $181,171 and $153,635 accumulated amortization, respectively)
318,199

322,115

Goodwill
943,281

906,545

Deferred income tax assets
389,632

305,624

Deferred compensation plan assets
39,752

44,577

Investments in unconsolidated affiliates
98,089

94,053

Other assets
29,824

3,991

Total assets
$
2,644,851

$
2,312,216

 
 
 
Liabilities, redeemable limited partners' capital and stockholders' deficit
 
 
Accounts payable
$
66,855

$
60,130

Accrued expenses
99,480

64,257

Revenue share obligations
130,163

78,999

Limited partners' distribution payable
14,288

15,465

Accrued compensation and benefits
41,071

64,112

Deferred revenue
33,874

39,785

Current portion of tax receivable agreements
18,217

17,925

Current portion of long-term debt
102,302

100,250

Other liabilities
8,438

7,959

Total current liabilities
514,688

448,882

Long-term debt, less current portion
5,107

6,962

Tax receivable agreements, less current portion
304,907

237,176

Deferred compensation plan obligations
39,752

44,577

Deferred tax liabilities
18,850

17,569

Other liabilities
58,296

63,704

Total liabilities
941,600

818,870


6



 
December 31, 2018
June 30, 2018
 




Redeemable limited partners' capital
2,593,882

2,920,410

Stockholders' deficit:
 
 
Class A common stock, $0.01 par value, 500,000,000 shares authorized; 63,822,420 shares issued and 61,286,582 shares outstanding at December 31, 2018 and 57,530,733 shares issued and 52,761,177 shares outstanding at June 30, 2018
638

575

Class B common stock, $0.000001 par value, 600,000,000 shares authorized; 69,484,147 and 80,335,701 shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively


Treasury stock, at cost; 2,535,838 and 4,769,556 shares, respectively
(97,199
)
(150,058
)
Additional paid-in-capital


Accumulated deficit
(794,070
)
(1,277,581
)
Total stockholders' deficit
(890,631
)
(1,427,064
)
Total liabilities, redeemable limited partners' capital and stockholders' deficit
$
2,644,851

$
2,312,216

See accompanying notes to the unaudited condensed consolidated financial statements.

7



PREMIER, INC.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2018
2017
2018
2017
Net revenue:
 
 
 
 
Net administrative fees
$
165,695

$
159,343

$
327,695

$
310,334

Other services and support
98,643

89,953

186,719

176,864

Services
264,338

249,296

514,414

487,198

Products
157,519

162,102

308,989

314,764

Net revenue
421,857

411,398

823,403

801,962

Cost of revenue:
 
 
 
 
Services
43,189

47,255

86,561

94,191

Products
155,534

153,272

301,155

297,712

Cost of revenue
198,723

200,527

387,716

391,903

Gross profit
223,134

210,871

435,687

410,059

Other operating income:
 
 
 
 
Remeasurement of tax receivable agreement liabilities

177,174


177,174

Other operating income

177,174


177,174

Operating expenses:
 
 
 
 
Selling, general and administrative
110,112

108,620

215,982

222,941

Research and development
292

324

632

813

Amortization of purchased intangible assets
13,899

13,817

27,537

27,715

Operating expenses
124,303

122,761

244,151

251,469

Operating income
98,831

265,284

191,536

335,764

Equity in net income of unconsolidated affiliates
1,444

1,257

4,134

5,509

Interest and investment loss, net
(859
)
(1,508
)
(1,547
)
(3,003
)
Loss on disposal of long-lived assets

(400
)

(1,720
)
Other income (expense)
7,199

(13,356
)
5,258

(11,893
)
Other income (expense), net
7,784

(14,007
)
7,845

(11,107
)
Income before income taxes
106,615

251,277

199,381

324,657

Income tax expense
1,804

231,508

12,597

244,272

Net income
104,811

19,769

186,784

80,385

Net income attributable to non-controlling interest in Premier LP
(62,631
)
(56,485
)
(117,744
)
(101,095
)
Adjustment of redeemable limited partners' capital to redemption amount
651,709

317,916

(56,484
)
638,340

Net income attributable to stockholders
$
693,889

$
281,200

$
12,556

$
617,630

 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
Basic
59,876

55,209

56,548

54,059

Diluted
133,672

139,237

57,584

139,641

 
 
 
 
 
Earnings per share attributable to stockholders:
 
 
 
 
Basic
$
11.59

$
5.09

$
0.22

$
11.43

Diluted
$
0.69

$
0.06

$
0.22

$
0.36

See accompanying notes to the unaudited condensed consolidated financial statements.

8



PREMIER, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2018
2017
2018
2017
Net income
$
104,811

$
19,769

$
186,784

$
80,385

Less: comprehensive income attributable to non-controlling interest
(62,631
)
(56,485
)
(117,744
)
(101,095
)
Comprehensive income (loss) attributable to stockholders
$
42,180

$
(36,716
)
$
69,040

$
(20,710
)
See accompanying notes to the unaudited condensed consolidated financial statements.

9



PREMIER, INC.
Condensed Consolidated Statement of Stockholders' Deficit
Six Months Ended December 31, 2018
(Unaudited)
(In thousands)
 
Class A
Common Stock
Class B
Common Stock
Treasury Stock
Additional Paid-In Capital
Accumulated Deficit
Total Stockholders' Deficit
 
Shares
Amount
Shares
Amount
Shares
Amount
Balance at June 30, 2018
52,761

$
575

80,336

$

4,769

$
(150,058
)
$

$
(1,277,581
)
$
(1,427,064
)
Balance at July 1, 2018, as previously reported
52,761

575

80,336


4,769

(150,058
)

(1,277,581
)
(1,427,064
)
Impact of change in accounting principle







127,265

127,265

Adjusted balance at July 1, 2018
52,761

575

80,336


4,769

(150,058
)

(1,150,316
)
(1,299,799
)
Exchange of Class B units for Class A common stock by member owners
10,624

55

(10,624
)

(5,104
)
162,371

309,454


471,880

Redemption of limited partners


(227
)






Increase in additional paid-in capital related to quarterly exchange by member owners, including associated TRA revaluation






14,752


14,752

Issuance of Class A common stock under equity incentive plan
734

8





12,115


12,123

Issuance of Class A common stock under employee stock purchase plan
38






1,488


1,488

Treasury stock
(2,870
)



2,870

(109,512
)


(109,512
)
Stock-based compensation expense






13,911


13,911

Repurchase of vested restricted units for employee tax-withholding






(8,030
)

(8,030
)
Net income







186,784

186,784

Net income attributable to non-controlling interest in Premier LP







(117,744
)
(117,744
)
Adjustment of redeemable limited partners' capital to redemption amount






(343,690
)
287,206

(56,484
)
Balance at December 31, 2018
61,287

$
638

69,485

$

2,535

$
(97,199
)
$

$
(794,070
)
$
(890,631
)
See accompanying notes to the unaudited condensed consolidated financial statements.

10



PREMIER, INC.
Condensed Consolidated Statement of Stockholders' Deficit
Six Months Ended December 31, 2017
(Unaudited)
(In thousands)
 
Class A
Common Stock
Class B
Common Stock
Treasury Stock
Additional Paid-In Capital
Accumulated Deficit
Total Stockholders' Deficit
 
Shares
Amount
Shares
Amount
Shares
Amount
Balance at June 30, 2017
51,943

$
519

87,299

$


$

$

$
(1,662,772
)
$
(1,662,253
)
Exchange of Class B units for Class A common stock by member owners
4,883

50

(4,883
)



162,215


162,265

Redemption of limited partners


(133
)






Decrease in additional paid-in capital related to quarterly exchange by member owners, including associated TRA revaluation






(8,669
)

(8,669
)
Issuance of Class A common stock under equity incentive plan
390

4





2,804


2,808

Issuance of Class A common stock under employee stock purchase plan
48






1,388


1,388

Treasury stock
(2,578
)



2,578

(74,698
)


(74,698
)
Stock-based compensation expense






17,699


17,699

Repurchase of vested restricted units for employee tax-withholding






(5,743
)

(5,743
)
Net income







80,385

80,385

Net income attributable to non-controlling interest in Premier LP







(101,095
)
(101,095
)
Adjustment of redeemable limited partners' capital to redemption amount






(169,694
)
808,034

638,340

Balance at December 31, 2017
54,686

$
573

82,283

$

2,578

$
(74,698
)
$

$
(875,448
)
$
(949,573
)
See accompanying notes to the unaudited condensed consolidated financial statements.

11



PREMIER, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
Six Months Ended December 31,
 
2018
2017
Operating activities
 
 
Net income
$
186,784

$
80,385

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
69,727

61,532

Equity in net income of unconsolidated affiliates
(4,134
)
(5,509
)
Deferred income taxes
2,643

235,648

Stock-based compensation
13,911

17,699

Remeasurement of tax receivable agreement liabilities

(177,174
)
Loss on disposal of long-lived assets

1,720

(Gain) loss on FFF put and call rights
(7,567
)
15,607

Changes in operating assets and liabilities:
 
 
Accounts receivable, contract assets, prepaid expenses and other current assets
(56,875
)
(467
)
Other assets
2,882

1,060

Inventories
(3,893
)
(11,641
)
Accounts payable, accrued expenses, deferred revenue and other current liabilities
15,366

(20,238
)
Long-term liabilities
(7,033
)
1,287

Other operating activities
498

6,606

Net cash provided by operating activities
212,309

206,515

Investing activities
 
 
Purchases of property and equipment
(47,289
)
(38,622
)
Acquisition of Stanson Health, Inc., net of cash acquired
(50,926
)

Investments in convertible notes
(8,500
)

Net cash used in investing activities
(106,715
)
(38,622
)
Financing activities
 
 
Payments made on notes payable

(6,858
)
Redemption of limited partner of Premier LP
(256
)

Proceeds from credit facility

30,000

Payments on credit facility

(50,000
)
Proceeds from exercise of stock options under equity incentive plan
12,123

2,808

Proceeds from issuance of Class A common stock under stock purchase plan
1,488

1,388

Repurchase of vested restricted units for employee tax-withholding
(8,030
)
(5,743
)
Distributions to limited partners of Premier LP
(30,458
)
(45,703
)
Payments to limited partners of Premier LP related to tax receivable agreements
(17,975
)

Repurchase of Class A common stock (held as treasury stock)
(104,288
)
(70,844
)
Earn-out liability payment to GNYHA Holdings

(16,662
)
Net cash used in financing activities
(147,396
)
(161,614
)
Net increase (decrease) in cash and cash equivalents
(41,802
)
6,279

Cash and cash equivalents at beginning of year
152,386

156,735

Cash and cash equivalents at end of period
$
110,584

$
163,014


12



 
Six Months Ended December 31,
 
2018
2017
Supplemental schedule of non-cash investing and financing activities:
 
 
Increase (decrease) in redeemable limited partners' capital for adjustment to fair value, with offsetting decrease (increase) in additional paid-in-capital and accumulated deficit
$
56,484

$
(638,340
)
Reduction in redeemable limited partners' capital, with offsetting increases in common stock and additional paid-in capital related to quarterly exchanges by member owners
$
471,880

$
162,265

Reduction in redeemable limited partners' capital for limited partners' distribution payable
$
29,281

$
41,148

Distributions utilized to reduce subscriptions, notes, interest and accounts receivable from member owners
$
853

$
984

Net increase in deferred tax assets related to quarterly exchanges by member owners and other adjustments
$
100,749

$
75,998

Net increase in tax receivable agreement liabilities related to quarterly exchanges by member owners and other adjustments
$
85,997

$
84,667

Net increase (decrease) in additional paid-in capital related to quarterly exchanges by member owners and other adjustments
$
14,752

$
(8,669
)
Increase in treasury stock related to a forward purchase commitment as a result of applying trade date accounting when recording the repurchase of Class A common stock
$
5,224

$
3,854

See accompanying notes to the unaudited condensed consolidated financial statements.

13



PREMIER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Organization
Premier, Inc. ("Premier" or the "Company") is a publicly-held, for-profit Delaware corporation owned by hospitals, health systems and other healthcare organizations (such owners of Premier are referred to herein as "member owners") located in the United States and by public stockholders. The Company is a holding company with no material business operations of its own. The Company’s primary asset is its equity interest in its wholly-owned subsidiary Premier Services, LLC, a Delaware limited liability company ("Premier GP"). Premier GP is the sole general partner of Premier Healthcare Alliance, L.P. ("Premier LP"), a California limited partnership. The Company conducts substantially all of its business operations through Premier LP and its other consolidated subsidiaries. The Company, together with its subsidiaries and affiliates, is a leading healthcare performance improvement company that unites hospitals, health systems, physicians and other healthcare providers to improve and innovate in the clinical, financial and operational areas of their businesses to meet the demands of a rapidly evolving healthcare industry.
The Company's business model and solutions are designed to provide its members access to scale efficiencies, spread the cost of their development, provide actionable intelligence derived from anonymized data in the Company's data warehouse, mitigate the risk of innovation and disseminate best practices to help the Company's member organizations succeed in their transformation to higher quality and more cost-effective healthcare.
The Company, together with its subsidiaries and affiliates, delivers its integrated platform of solutions through two business segments: Supply Chain Services and Performance Services. See Note 17 - Segments for further information related to the Company's reportable business segments. The Supply Chain Services segment includes one of the largest healthcare group purchasing organization ("GPO") programs in the United States, and integrated pharmacy and direct sourcing activities. The Performance Services segment, through its development, integration and delivery of technology with wrap-around service offerings, includes one of the largest informatics and consulting businesses in the United States focused on healthcare providers. More specifically, the Company's software as a service ("SaaS") informatics products utilize the Company's comprehensive data set to provide actionable intelligence to its members, enabling them to benchmark, analyze and identify areas of improvement across the three main categories of cost management, quality and safety, and value-based care. While leveraging these tools, the Company also combines its consulting services and technology-enabled performance improvement collaboratives to provide a more comprehensive and holistic customer value proposition and overall experience. The Performance Services segment also includes the Company's government services and insurance management services.
The Company, through Premier GP, held an approximate 47% and 40% sole general partner interest in Premier LP at December 31, 2018 and June 30, 2018, respectively. In addition to their equity ownership interest in the Company, our member owners held an aggregate of approximately 53% and 60% limited partner interest in Premier LP at December 31, 2018 and June 30, 2018, respectively.
Basis of Presentation and Consolidation
Basis of Presentation
The member owners' interest in Premier LP is reflected as redeemable limited partners' capital in the Company's accompanying Condensed Consolidated Balance Sheets, and the limited partners' proportionate share of income in Premier LP is reflected within net income attributable to non-controlling interest in Premier LP in the Company's accompanying Condensed Consolidated Statements of Income and within comprehensive income attributable to non-controlling interest in Premier LP in the Company's accompanying Condensed Consolidated Statements of Comprehensive Income.
At December 31, 2018 and June 30, 2018, the member owners owned an aggregate of approximately 53% and 60%, respectively, of the Company's combined Class A and Class B common stock through their ownership of Class B common stock. During the six months ended December 31, 2018, the member owners exchanged 10.6 million Class B common units and associated Class B common shares for an equal number of Class A common shares pursuant to an exchange agreement (the "Exchange Agreement") entered into by the member owners in connection with the completion of our initial public offering on October 1, 2013. The Exchange Agreement provides each member owner the cumulative right to exchange up to one-seventh of its initial allocation of Class B common units, as well as any additional Class B common units purchased by such member owner pursuant to certain rights of first refusal, for shares of Class A common stock (on a one-for-one basis subject to customary adjustments for subdivisions or combinations by split, reverse split, distribution, reclassification, recapitalization or otherwise), cash or a combination of both, the form of consideration to be at the discretion of the Company's independent Audit and Compliance Committee of the Board of

14



Directors (the "Audit and Compliance Committee"). In connection with Class B common units exchanged for Class A common shares during the six months ended December 31, 2018, approximately 10.6 million Class B common units were contributed to Premier LP, converted to Class A common units and remain outstanding. Correspondingly, approximately 10.6 million Class B common shares were retired during the same period. For further information, see Note 10 - Redeemable Limited Partners' Capital and Note 12 - Earnings (Loss) Per Share.
Refer to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (the "2018 Annual Report") filed with the Securities and Exchange Commission ("SEC") on August 23, 2018 for further discussion of the Exchange Agreement. At both December 31, 2018 and June 30, 2018, the public investors, which may include member owners that have received shares of Class A common stock in connection with previous exchanges of their Class B common units and associated Class B common shares for an equal number of Class A common shares, owned an aggregate of approximately 47% and 40%, respectively, of the Company's outstanding common stock through their ownership of Class A common stock.
The Company has corrected prior period information within the current period financial statements related to a specific component used in calculating the tax effect on Premier, Inc. net income for purposes of diluted earnings (loss) per share. Diluted earnings (loss) per share for the three months ended December 31, 2017 was previously stated at ($1.66) per share and has been corrected to $0.06 per share. Diluted earnings (loss) per share for the six months ended December 31, 2017 was previously stated at ($1.30) per share and has been corrected to $0.36 per share. The Company believes the correction is immaterial and the amount had no impact on the Company’s overall financial condition, results of operations or cash flows.
Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC and in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Company exercised control and when applicable, entities for which the Company had a controlling financial interest or was the primary beneficiary. All intercompany transactions have been eliminated upon consolidation. Accordingly, certain information and disclosures normally included in annual financial statements have been condensed or omitted. The accompanying condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring adjustments. The Company believes that the disclosures are adequate to make the information presented not misleading and should be read in conjunction with the audited consolidated financial statements and related footnotes contained in the 2018 Annual Report.
Variable Interest Entities
Premier LP is a variable interest entity ("VIE") as the limited partners do not have the ability to exercise a substantive removal right with respect to the general partner. The Company does not hold a majority interest but, through Premier GP, has the exclusive power and authority to manage the business and affairs of Premier LP, to make all decisions with respect to driving the economic performance of Premier LP, and has both an obligation to absorb losses and a right to receive benefits. As such, the Company is the primary beneficiary of the VIE and consolidates the operations of Premier LP under the Variable Interest Model.
The assets and liabilities of Premier LP at December 31, 2018 and June 30, 2018 consisted of the following (in thousands):
 
December 31, 2018
June 30, 2018
 
New revenue standard (a)
Previous revenue standard
Assets
 
 
Current
$
597,351

$
393,863

Noncurrent
1,641,005

1,577,974

Total assets of Premier LP
$
2,238,356

$
1,971,837

 
 
 
Liabilities
 
 
Current
$
540,470

$
457,172

Noncurrent
117,397

128,793

Total liabilities of Premier LP
$
657,867

$
585,965

(a)
The Company adopted Topic 606 effective July 1, 2018, while comparative results are presented under Topic 605. Refer to Note 2 - Significant Accounting Policies for more information.

15



Net income attributable to Premier LP during the three and six months ended December 31, 2018 and 2017 was as follows (in thousands):
 
Three Months Ended December 31,
Six Months Ended December 31,
 
2018
2017
2018
2017
 
New revenue standard (a)
Previous revenue standard
New revenue standard (a)
Previous revenue standard
Premier LP net income
$
118,783

$
94,838

$
211,045

$
167,129

(a)
The Company adopted Topic 606 effective July 1, 2018, while comparative results are presented under Topic 605. Refer to Note 2 - Significant Accounting Policies for more information.
Premier LP's cash flows for the six months ended December 31, 2018 and 2017 consisted of the following (in thousands):
 
Six Months Ended December 31,
 
2018
2017
Net cash provided by (used in):
 
 
Operating activities
$
227,404

$
207,514

Investing activities
(106,715
)
(38,622
)
Financing activities
(143,017
)
(180,600
)
Net decrease in cash and cash equivalents
(22,328
)
(11,708
)
Cash and cash equivalents at beginning of year
117,741

133,451

Cash and cash equivalents at end of period
$
95,413

$
121,743

Use of Estimates in the Preparation of Financial Statements
The preparation of the Company's condensed consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Significant estimates are evaluated on an ongoing basis, including estimates for net administrative fees revenue, other services and support revenue, contract assets, deferred revenue, contract costs, allowances for doubtful accounts, useful lives of property and equipment, stock-based compensation, payables under tax receivable agreements ("TRAs"), deferred tax balances including valuation allowances on deferred tax assets, uncertain tax positions, values of investments not publicly traded, projected future cash flows used in the evaluation of asset impairment, values of put and call rights, values of earn-out liabilities and the allocation of purchase prices. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Given the Company's use of estimates referenced above, it is important to highlight that on December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("TCJA"). The TCJA includes significant changes to the U.S. corporate income tax system, specifically reducing the U.S. federal corporate income tax rate from 35% to 21%. Concurrent with the enactment of the TCJA, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the TCJA.
SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting required under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional amount on its financial statements. If a company cannot determine a provisional estimate to be included on its financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately prior to the enactment of the TCJA. With this in mind, the Company prescribed provisional relief under SAB 118 through the one year measurement period to calculate components of its deferred tax balances. During the second quarter of fiscal year 2019, the Company completed its accounting for all of the enactment date income tax effects of the TCJA.

16



(2) SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the Company's significant accounting policies included within the 2018 Annual Report, except as described below.
Recently Adopted Accounting Standards
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The guidance is intended to reduce the complexity of GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property. The Company adopted this standard effective July 1, 2018. The implementation of this ASU did not have a material effect on the Company's condensed consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which is intended to provide users of financial statements with more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted this standard effective July 1, 2018. The implementation of this ASU did not have a material effect on the Company's condensed consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance. The new standard requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new standard allowed for either full retrospective or modified retrospective adoption.
In August 2015, the FASB issued an amendment in ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, to defer the effective date of the new standard for all entities by one year. The new standard, as amended, is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption as of the original effective date for public entities is permitted.
In March 2016, the FASB issued another amendment in ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, related to a third party providing goods or services to a customer. When another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself or to arrange for the good or service to be provided by a third party. If the entity provides the specific good or service itself, the entity acts as a principal. If an entity arranges for the good or service to be provided by a third party, the entity acts as an agent. The standard requires the principal to recognize revenue for the gross amount and the agent to recognize revenue for the amount of any fee or commission for which it expects to be entitled in exchange for arranging for the specified good or service to be provided. The new standard is effective with ASU 2014-09.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which amends specific aspects of ASU 2014-09, including how to identify performance obligations and guidance related to licensing implementation. This amendment provides guidance on determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property or a right to access the entity's intellectual property. The amendment is effective with ASU 2014-09.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies specific aspects of ASU 2014-09, clarifying how to identify performance obligations and guidance related to its promise in granting a license of intellectual property. This new standard provides guidance to allow entities to disregard items that are immaterial in the context of the contract, clarify when a promised good or service is separately identifiable and allow an entity to elect to account for the cost of shipping and handling performed after control of a good has been transferred to the customer as a fulfillment cost. The new standard also clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property to help determine whether it recognizes revenue over time or at a point in time and addresses how entities should consider license renewals and restrictions. The new standard is effective with ASU 2014-09.
In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606: Revenue from Contracts with Customers, which clarifies specific aspects of ASU 2014-09, including allowing entities not to make quantitative disclosures about remaining performance obligations in certain cases and requiring entities that use any of the new or previously existing

17



optional exemptions to expand their qualitative disclosures. The new standard also makes twelve other technical corrections and modifications to ASU 2014-09. The new standard is effective with ASU 2014-09.
The Company adopted this standard effective July 1, 2018 using the modified retrospective approach. Refer to the "Effects of Topic 606" below for more information related to the impact of this standard on the Company's significant accounting policies and condensed consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, Intangibles- Goodwill and Other- Internal Use Software (Topic 350): Customer Account for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which requires customers in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. More specifically, capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The new standard will be effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted including adoption in any interim periods. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to Disclosure Requirements for Fair Value Measurement, which improves the effectiveness of fair value measurement disclosures by eliminating, adding and modifying certain disclosure requirements for fair value measurements as part of its disclosure framework project. More specifically, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The new standard will be effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. The guidance requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. In addition, the guidance eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The new standard will be effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted for interim and annual goodwill impairment tests performed after January 1, 2017. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations of accounting for leasing arrangements. This guidance establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Entities will be required to recognize and measure leases as of the earliest period presented using a modified retrospective approach. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The new standard will be effective for the Company for the fiscal year beginning July 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.

18



Effects of Topic 606
As a result of adopting Topic 606, the Company's accounting policies and condensed consolidated financial statements were updated as follows:
Contract Assets
Supply Chain Services contract assets represent estimated customer purchases on supplier contracts for which administrative fees have been earned, but not collected. Performance Services contract assets represent revenue earned for services provided but which the Company is not contractually able to bill as of the end of the respective reporting period.
Contract Costs
Contract costs represent amounts the Company has capitalized and reflect the incremental costs of obtaining and fulfilling a contract, which include sales commissions and costs related to implementing SaaS informatics tools. For commissions on new contracts, these costs are amortized over the life of the expected relationship with the customer for the respective performance obligation. For renewals, commissions are amortized over the contract life with the customer. Implementation costs are amortized straight-line, once the tool is implemented, over the life of the expected relationship with the customer for the respective performance obligation, which is consistent with the transfer of services to the customer to which the implementation relates. The Company's contract costs are included in other assets on the Condensed Consolidated Balance Sheets, while the associated amortization related to sales commissions is included in selling, general and administrative expenses and the associated amortization related to implementation costs is included in cost of revenue in the Condensed Consolidated Statements of Income.
Deferred Revenue
Deferred revenue consists of unrecognized revenue related to advanced customer invoicing or member payments received prior to fulfillment of the Company's revenue recognition criteria. Substantially all deferred revenue consists of deferred subscription fees and deferred consulting fees. Subscription fees for Company-hosted SaaS applications are deferred until the customer's unique data records have been incorporated into the underlying software database, or until customer site-specific software has been implemented and the customer has access to the software. Deferred consulting fees arise upon invoicing to customers prior to services being performed.
Performance Obligations
A performance obligation is a promise to transfer a distinct good or service to a customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Contracts may have a single performance obligation as the promise to transfer individual goods or services is not separately identifiable from other promises and, therefore, not distinct; while other contracts may have multiple performance obligations, most commonly due to the contract covering multiple deliverable arrangements (licensing fees, implementation fees, subscription fees, professional fees for consulting services, etc.).
Revenue Recognition
The Company accounts for a contract with a customer when the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection.
Revenue is recognized when, or as, control of a promised product or service transfers to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. If the consideration promised in a contract includes a variable amount, the Company estimates the amount to which it expects to be entitled using either the expected value or most likely amount method. The Company’s contracts may include terms that could cause variability in the transaction price, including, for example, revenue share, rebates, discounts, and variable fees based on performance.
The Company only includes estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates require management to make complex, difficult or subjective judgments, and to make estimates about the effect of matters inherently uncertain. As such, the Company may not be able to reliably estimate variable fees based on performance in certain long-term arrangements due to uncertainties that are not expected to be resolved for a long period of time or when the Company’s experience with similar types of contracts is limited. Estimates of variable consideration and the determination of whether to include estimated amounts of consideration in the transaction price are based on information (historical, current and forecasted) that is reasonably available to the Company, taking into consideration the type of customer, the type of transaction and

19



the specific facts and circumstances of each arrangement. Additionally, management performs periodic analyses to verify the accuracy of estimates for variable consideration.
Although the Company believes that its approach in developing estimates and reliance on certain judgments and underlying inputs is reasonable, actual results could differ which may result in exposure of increases or decreases in revenue that could be material.
Net Administrative Fees Revenue
Net administrative fees revenue is a single performance obligation earned through a series of distinct daily services and includes maintaining a network of members to participate in the group purchasing program and providing suppliers efficiency in contracting and access to the Company's members. Revenue is generated through administrative fees received from suppliers, which are estimated based on the total dollar volume of goods and services purchased by the Company's members in connection with its GPO programs and is included in service revenue in the accompanying Condensed Consolidated Statements of Income.
The Company, through its GPO programs, aggregates member purchasing power to negotiate pricing discounts and improve contract terms with suppliers. Contracted suppliers pay the Company administrative fees which generally represent 1% to 3% of the gross purchase price of goods and services sold to members under the contracts the Company has negotiated. Administrative fees are variable consideration and are recognized as earned based upon estimated purchases by the Company's members utilizing the Company's GPO supplier contracts. The Company estimates revenue using an estimated value approach using predictive analytics based on historical member spend and updates for current trends and expectations. Member and supplier contracts substantiate persuasive evidence of an arrangement. The Company does not take title to the underlying equipment or products purchased by members through its GPO supplier contracts. Administrative fee revenue receivable is included in contract assets in the accompanying Condensed Consolidated Balance Sheet.
The Company pays revenue share equal to a percentage of gross administrative fees, which is estimated according to the members' contractual agreements with the Company using a portfolio approach based on historical revenue fee share percentages and adjusted for current or anticipated trends. Revenue share is recognized as a reduction to gross administrative fees revenue to arrive at a net administrative fees revenue, and the corresponding revenue share liability is included in revenue share obligations in the accompanying Condensed Consolidated Balance Sheets.
Product Revenue
Specialty pharmacy revenue is generated through a single performance obligation through dispensing prescription medication to customers. Revenue is recognized at a point in time as the prescription medication is dispensed to the customers and is recorded net of the estimated contractual adjustments under agreements with Medicare, Medicaid and other managed care plans. Consideration from specialty pharmacy is variable as payments for the products provided under such agreements vary from period to period and are based on defined allowable reimbursements rather than on the basis of standard billing rates. The difference between the standard billing rate and allowable reimbursement rate results in contractual adjustments which are recorded as deductions from the transaction price.
Direct sourcing generates revenue through products sold to distributors and to hospitals. Revenue is recognized once control of products has been transferred to members and is recorded net of discounts and rebates offered to customers. Discounts and rebates are estimated based on contractual terms and historical trends.
Other Services and Support Revenue
Within Performance Services, which provides technology with wrap-around service offerings, revenue consists of SaaS informatics products subscriptions, certain perpetual and term licenses, performance improvement collaborative and other service subscriptions, professional fees for consulting services, and insurance services management fees and commissions from group-sponsored insurance programs.
SaaS informatics subscriptions include the right to use the Company's proprietary hosted technology on a SaaS basis, training and member support to deliver improvements in cost management, quality and safety, value-based care and provider analytics. SaaS arrangements create a single performance obligation for each subscription within the contract in which the nature of the obligation is a stand-ready obligation, and each day of service meets the criteria for over time recognition. Pricing varies by application and size of healthcare system. Informatics subscriptions are generally three to five year agreements with automatic renewal clauses and annual price escalators that typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation. Implementation involves the completion of data preparation services that are unique to each member's data set and, in certain cases, the installation of member site-specific

20



software, in order to access and transfer member data into the Company's hosted SaaS informatics products. Implementation is generally 60 to 240 days following contract execution before the SaaS informatics products can be fully utilized by the member.
The Company sells certain perpetual and term licenses that include professional services and post-contract customer support in the form of maintenance and support services. The license, professional services and maintenance services each represent a distinct promise and are identified as separate performance obligations. Pricing varies by application and size of healthcare system. Fees under these contracts include the license fees, professional services fees and the maintenance and support services fees. The Company recognizes the license fees upon delivery of the licenses, the professional services fees over the implementation period, and the maintenance and support services fees straight-line over the remaining contract term following implementation. Generally, implementation is approximately 240 days following contract execution before the products can be fully utilized by the member.
Revenue from performance improvement collaboratives and other service subscriptions that support the Company's offerings in cost management, quality and safety and value-based care is recognized over the service period as the services are provided, which is generally one year. Performance improvement collaboratives and other service subscriptions revenue is considered one performance obligation and is generated by providing customers access to online communities whereby data is housed and available for analytics and benchmarking.
Professional fees for consulting services are sold under contracts, the terms of which vary based on the nature of the engagement. These services typically include general consulting, report based consulting and cost savings initiatives. Promised services under such consulting engagements are typically not considered distinct and are regularly combined and accounted for as one performance obligation. Fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed or when deliverables are provided. In situations where the contracts have significant contract performance guarantees, the performance guarantees are estimated and accounted for as a form of variable consideration when determining the transaction price. In the event that guaranteed savings levels are not achieved, the Company may have to perform additional services at no additional charge in order to achieve the guaranteed savings or pay the difference between the savings that were guaranteed and the actual achieved savings. Occasionally, our entitlement to consideration is predicated on the occurrence of an event such as the delivery of a report for which client acceptance is required. However, except for event-driven point-in-time transactions, the majority of services provided within this service line are delivered over time due to the continuous benefit provided to our customers.
Consulting arrangements can require significant estimates for the transaction price and estimated number of hours within an engagement. These estimates are based on the expected value which is derived from outcomes from historical contracts that are similar in nature and forecasted amounts based on anticipated savings for the new agreements. The transaction price is generally constrained until the target transaction price becomes more certain.
Insurance services management fees are recognized in the period in which such services are provided. Commissions from group sponsored insurance programs is earned by acting as an intermediary in the placement of effective insurance policies. Under this arrangement, revenue is recognized at a point in time on the effective date of the associated policies when control of the policy transfers to the customer and is constrained for estimated early terminations.
Certain administrative and/or patient management integrated pharmacy services are provided in situations where prescriptions are sent back to member health systems for dispensing. Additionally, the Company derives revenue from pharmaceutical manufacturers for providing patient education and utilization data. Revenue is recognized as these services are provided.
Multiple Deliverable Arrangements
The Company enters into agreements where the individual deliverables discussed above, such as SaaS subscriptions and consulting services, are bundled into a single service arrangement. These agreements are generally provided over a time period ranging from approximately three months to five years after the applicable contract execution date. Revenue, including both fixed and variable consideration, is allocated to the individual performance obligations within the arrangement based on the standalone selling price when it is sold separately in a stand-alone arrangement.
Condensed Consolidated Financial Statements
The Company applied Topic 606 ("New Revenue Standard") using the modified retrospective method, which resulted in recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity at July 1, 2018 for contracts that were not complete at that date. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605 ("Previous Revenue Standard"). The following tables summarize the impacts of adopting Topic 606 on the Company's condensed consolidated financial statements for the three and six months ended December 31, 2018 (in thousands, except per share data). See Note 6 - Contract Balances and Note 17 - Segments for more information.

21



Cumulative Effect - Adoption of New Revenue Standard
 
Impact of change in accounting principle
 
June 30, 2018
As presented
Impact of new revenue standard
July 1, 2018
New revenue standard
Assets
 
 
 
Accounts receivable (net of $1,841 allowance for doubtful accounts)
$
185,874

$
(5,421
)
$
180,453

Contract assets
$

$
169,684

$
169,684

Total current assets
$
428,618

$
164,263

$
592,881

Deferred income tax assets
$
305,624

$
(7,106
)
$
298,518

Other assets
$
3,991

$
15,390

$
19,381

Total assets
$
2,312,216

$
172,547

$
2,484,763

 
 
 
 
Liabilities, redeemable limited partners' capital and stockholders' deficit
 
 
 
Revenue share obligations
$
78,999

$
43,880

$
122,879

Deferred revenue
$
39,785

$
(2,195
)
$
37,590

Total current liabilities
$
448,882

$
41,685

$
490,567

Deferred tax liabilities
$
17,569

$
3,597

$
21,166

Total liabilities
$
818,870

$
45,282

$
864,152

 
 
 
 
Accumulated deficit
$
(1,277,581
)
$
127,265

$
(1,150,316
)
Total stockholders' deficit
$
(1,427,064
)
$
127,265

$
(1,299,799
)
Total liabilities, redeemable limited partners' capital and stockholders' deficit
$
2,312,216

$
172,547

$
2,484,763


22




Condensed Consolidated Balance Sheet - Selected Financial Data
 
Impact of change in accounting principle
December 31, 2018
As presented
Impact of new revenue standard
Previous revenue standard
Assets
 
 
 
Accounts receivable (net of $3,187 allowance for doubtful accounts)
$
197,366

$
(11,696
)
$
209,062

Contract assets
$
208,254

$
208,254

$

Prepaid expenses and other current assets
$
27,259

$
(2,362
)
$
29,621

Total current assets
$
614,215

$
194,196

$
420,019

Deferred income tax assets
$
389,632

$
(5,425
)
$
395,057

Other assets
$
29,824

$
14,884

$
14,940

Total assets
$
2,644,851

$
203,655

$
2,441,196

 
 
 
 
Liabilities, redeemable limited partners' capital and stockholders' deficit
 
 
 
Revenue share obligations
$
130,163

$
49,878

$
80,285

Limited partners' distribution payable
$
14,288

$
3,966

$
10,322

Deferred revenue
$
33,874

$
(6,534
)
$
40,408

Other liabilities
$
8,438

$
2,556

$
5,882

Total current liabilities
$
514,688

$
49,866

$
464,822

Deferred tax liabilities
$
18,850

$
4,278

$
14,572

Total liabilities
$
941,600

$
54,144

$
887,456

 
 
 
 
Accumulated deficit
$
(794,070
)
$
149,511

$
(943,581
)
Total stockholders' deficit
$
(890,631
)
$
149,511

$
(1,040,142
)
Total liabilities, redeemable limited partners' capital and stockholders' deficit
$
2,644,851

$
203,655

$
2,441,196


Condensed Consolidated Statements of Income
 
Impact of change in accounting principle
 
Three Months Ended
December 31, 2018
 
Six Months Ended
December 31, 2018
 
As presented
Impact of new revenue standard
Previous revenue standard
 
As presented
Impact of new revenue standard
Previous revenue standard
Net revenue:
 
 
 
 
 
 
 
Net administrative fees
$
165,695

$
(4,061
)
$
169,756

 
$
327,695

$
11,123

$
316,572

Other services and support
98,643

8,278

90,365

 
186,719

13,657

173,062

Services
264,338

4,217

260,121

 
514,414

24,780

489,634

Products
157,519

(11,914
)
169,433

 
308,989

(23,876
)
332,865

Net revenue
421,857

(7,697
)
429,554

 
823,403

904

822,499


23



 
Impact of change in accounting principle
 
Three Months Ended
December 31, 2018
 
Six Months Ended
December 31, 2018
 
As presented
Impact of new revenue standard
Previous revenue standard
 
As presented
Impact of new revenue standard
Previous revenue standard
Cost of revenue:
 
 
 
 
 
 
 
Services
43,189

(2,613
)
45,802

 
86,561

(4,546
)
91,107

Products
155,534

(10,927
)
166,461

 
301,155

(22,298
)
323,453

Cost of revenue
198,723

(13,540
)
212,263

 
387,716

(26,844
)
414,560

Gross profit
223,134

5,843

217,291

 
435,687

27,748

407,939

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
110,112

(1,270
)
111,382

 
215,982

(2,381
)
218,363

Research and development
292


292

 
632


632

Amortization of purchased intangible assets
13,899


13,899

 
27,537


27,537

Operating expenses
124,303

(1,270
)
125,573

 
244,151

(2,381
)
246,532

Operating income
98,831

7,113

91,718

 
191,536

30,129

161,407

Other income, net
7,784


7,784

 
7,845


7,845

Income before income taxes
106,615

7,113

99,502

 
199,381

30,129

169,252

Income tax expense (benefit)
1,804

2,158

(354
)
 
12,597

3,917

8,680

Net income
104,811

4,955

99,856

 
186,784

26,212

160,572

Net income attributable to non-controlling interest in Premier LP
(62,631
)
(3,213
)
(59,418
)
 
(117,744
)
(16,586
)
(101,158
)
Adjustment of redeemable limited partners' capital to redemption amount
651,709

2,048

649,661

 
(56,484
)
12,620

(69,104
)
Net income (loss) attributable to stockholders
$
693,889

$
3,790

$
690,099

 
$
12,556

$
22,246

$
(9,690
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
59,876

59,876

59,876

 
56,548

56,548

56,548

Diluted
133,672

133,672

133,672

 
57,584

57,584

56,548

 
 
 
 
 
 
 
 
 
Impact of change in accounting principle
 
Three Months Ended
December 31, 2018
 
Six Months Ended
December 31, 2018
 
As presented
Impact of new revenue standard
Previous revenue standard
 
As presented
Impact of new revenue standard
Previous revenue standard
Earnings (loss) per share attributable to stockholders:
 
 
 
 
 
 
 
Basic
$
11.59

$
0.06

$
11.53

 
$
0.22

$
0.39

$
(0.17
)
Diluted
$
0.69

$
0.03

$
0.66

 
$
0.22

$
0.39

$
(0.17
)


24



Condensed Consolidated Statement of Comprehensive Income
 
Impact of change in accounting principle
 
December 31, 2018
 
December 31, 2018
 
As presented
Impact of new revenue standard
Previous revenue standard
 
As presented
Impact of new revenue standard
Previous revenue standard
Net income
$
104,811

$
4,955

$
99,856

 
$
186,784

$
26,212

$
160,572

Less: Comprehensive income attributable to non-controlling interest
(62,631
)
(3,213
)
(59,418
)
 
(117,744
)
(16,586
)
(101,158
)
Comprehensive income attributable to Premier, Inc.
$
42,180

$
1,742

$
40,438

 
$
69,040

$
9,626

$
59,414


Condensed Consolidated Statement of Cash Flows
 
Impact of change in accounting principle
Six Months Ended December 31, 2018
As presented
Impact of new revenue standard
Previous revenue standard
Operating activities
 
 
 
Net income
$
186,784

$
26,212

$
160,572

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
69,727


69,727

Equity in net income of unconsolidated affiliates
(4,134
)

(4,134
)
Deferred income taxes
2,643

(1,001
)
3,644

Stock-based compensation
13,911


13,911

Gain on FFF put and call rights
(7,567
)

(7,567
)
Changes in operating assets and liabilities:
 

 
Accounts receivable, contract assets, prepaid expenses and other current assets
(56,875
)
(29,932
)
(26,943
)
Other assets
2,882

506

2,376

Inventories
(3,893
)

(3,893
)
Accounts payable, accrued expenses, deferred revenue and other current liabilities
15,366

4,215

11,151

Long-term liabilities
(7,033
)

(7,033
)
Other operating activities
498


498

Net cash provided by operating activities
212,309


212,309

Net cash used in investing activities
(106,715
)

(106,715
)
Net cash used in financing activities
(147,396
)

(147,396
)
Net decrease in cash and cash equivalents
(41,802
)

(41,802
)
Cash and cash equivalents at beginning of year
152,386


152,386

Cash and cash equivalents at end of period
$
110,584

$

$
110,584

(3) BUSINESS ACQUISITIONS
Acquisition of Stanson
Stanson Health, Inc. ("Stanson") is a SaaS-based provider of clinical decision support tools that are integrated directly into the electronic health record workflow, providing real-time, patient-specific best practices at the point of care. On November 9, 2018, the Company, through its consolidated subsidiary PHSI, acquired 100% of the outstanding capital stock in Stanson through a

25



reverse subsidiary merger transaction for $51.5 million in cash. As a result of certain purchase price adjustments provided for in the purchase agreement, the adjusted purchase price was $55.5 million. The acquisition was funded with available cash on hand.
The acquisition provides the sellers and certain employees an earn-out opportunity of up to $15.0 million based on Stanson's successful commercial delivery of a SaaS tool on or prior to December 31, 2019 and achievement of certain revenue milestones for the calendar year ended December 31, 2020. As of December 31, 2018, the fair value of the earn-out liability was $4.5 million (see Note 5 - Fair Value Measurements).
The Company has accounted for the Stanson acquisition as a business combination whereby the purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their fair values. Total fair value assigned to the intangible assets acquired was $23.6 million, primarily comprised of developed software technology. The purchase price allocation for the Stanson acquisition is preliminary and subject to changes in the fair value of working capital and valuation of the assets acquired and the liabilities assumed.
The Stanson acquisition resulted in the recognition of $36.7 million of goodwill (see Note 8 - Goodwill) attributable to the anticipated profitability of Stanson. The Stanson acquisition was considered a stock purchase for tax purposes and accordingly, the Company expects the goodwill to not be deductible for tax purposes.
Pro forma results of operations for the acquisition have not been presented because the effects on revenue and net income were not material to our historic consolidated financial statements. The Company reports Stanson as part of its Performance Services segment.
(4) INVESTMENTS
Investments in Unconsolidated Affiliates
The Company's investments in unconsolidated affiliates consisted of the following (in thousands):
 
Carrying Value
 
Equity in Net Income (Loss)
 
 
 
 
Three Months Ended December 31,
Six Months Ended December 31,
 
December 31, 2018
June 30, 2018
 
2018
2017
2018
2017
FFF
$
95,790

$
91,804

 
$
1,366

$
1,268

$
3,987

$
5,605

Bloodbuy
1,853

1,918

 
(40
)
(31
)
(65
)
(65
)
PharmaPoint


 

(107
)

(158
)
Other investments
446

331

 
118

127

212

127

Total investments
$
98,089

$
94,053

 
$
1,444

$
1,257

$
4,134

$
5,509

The Company, through its consolidated subsidiary, PSCI, held a 49% interest in FFF Enterprises, Inc. ("FFF") through its ownership of stock of FFF at December 31, 2018 and June 30, 2018. The Company records the fair value of the FFF put and call rights in the accompanying Condensed Consolidated Balance Sheets (see Note 5 - Fair Value Measurements for additional information). The Company accounts for its investment in FFF using the equity method of accounting and includes the investment as part of the Supply Chain Services segment.
The Company, through its consolidated subsidiary, PSCI, held a 15% ownership interest in BloodSolutions, LLC ("Bloodbuy") through its ownership of Class B Membership Interests in Bloodbuy at December 31, 2018 and June 30, 2018. The Company accounts for its investment in Bloodbuy using the equity method of accounting as the Company has rights to appoint a Board member, and includes the investment as part of the Supply Chain Services segment.
The Company, through its consolidated subsidiary, PSCI, held a 28% ownership interest in PharmaPoint, LLC ("PharmaPoint") through its ownership of Class B Membership Interests in PharmaPoint at December 31, 2018 and June 30, 2018. During the year ended June 30, 2018, the Company determined that it was unlikely to recover its investment in PharmaPoint, and as a result recognized an other-than-temporary impairment of $4.0 million. The Company accounts for its investment in PharmaPoint using the equity method of accounting and includes the investment as part of the Supply Chain Services segment.

26


(5) FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following table provides a summary of the Company's financial assets and liabilities which are measured at fair value on a recurring basis (in thousands):
 
Fair Value of Financial Assets and Liabilities
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
December 31, 2018
 
 
 
 
Cash equivalents
$
2,286

$
2,286

$

$

FFF call right
431



431

Deferred compensation plan assets
43,981

43,981



Total assets
$
46,698

$
46,267

$

$
431

Earn-out liabilities
$
4,548



4,548

FFF put right
34,295



34,295

Total liabilities
$
38,843

$

$

$
38,843

 
 
 
 
 
June 30, 2018
 
 
 
 
Cash equivalents
$
62,684

$
62,684

$

$

FFF call right
610



610

Deferred compensation plan assets
48,215

48,215



Total assets
$
111,509

$
110,899

$

$
610

FFF put right
$
42,041

$

$

$
42,041

Total liabilities
$
42,041

$

$

$
42,041

Deferred compensation plan assets consisted of highly liquid mutual fund investments, which were classified as Level 1. The current portion of deferred compensation plan assets was included in prepaid expenses and other current assets ($4.2 million and $3.6 million at December 31, 2018 and June 30, 2018, respectively) in the accompanying Condensed Consolidated Balance Sheets.
Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
FFF put and call rights
Pursuant to a shareholders' agreement entered into in connection with the Company's equity investment in FFF on July 26, 2016 (see Note 4 - Investments), which shareholders' agreement was amended and restated November 22, 2017, the majority shareholder of FFF has a put right that requires the Company to purchase (i) up to 50% of its interest in FFF, which is exercisable beginning on the fourth anniversary of the investment closing date, July 26, 2020, and (ii) all or a portion of its remaining interest in FFF 30 calendar days after December 31, 2020. Any such required purchases are to be made at a per share price equal to FFF's earnings before interest, taxes, depreciation and amortization ("EBITDA") over the twelve calendar months prior to the purchase date multiplied by a market adjusted multiple, adjusted for any outstanding debt and cash and cash equivalents ("Equity Value per Share"). In addition, under the amended and restated shareholders' agreement, the Company has a call right that requires the majority shareholder to sell its remaining interest in FFF to the Company, and is exercisable at any time within the later of 180 calendar days after the date of a Key Man Event (generally defined in the amended and restated shareholders' agreement as the resignation, termination for cause, death or disability of the majority shareholder) or after January 30, 2021. In the event that either of these rights are exercised, the purchase price for the additional interest in FFF will be at a per share price equal to the Equity Value per Share.
The fair values of the FFF put and call rights were determined based on the Equity Value per Share calculation using unobservable inputs, which included the estimated FFF put and call rights' expiration dates, the forecast of FFF's EBITDA over the option period, forecasted movements in the overall market and the likelihood of a Key Man Event. Significant changes to the Equity Value per Share resulting from changes in the unobservable inputs could have a significant impact on the fair values of the FFF put and call rights.

27


The Company recorded the FFF put and call rights within long-term other liabilities and long-term other assets, respectively, within the accompanying Condensed Consolidated Balance Sheets. Net changes in the fair values of the FFF put and call rights were recorded within other expense in the accompanying Condensed Consolidated Statements of Income.
Earn-out liabilities
Earn-out liabilities were established in connection with acquisitions of Healthcare Insights, LLC on July 31, 2015, Inflow Health, LLC on October 1, 2015, Innovatix, LLC and Essensa Ventures, LLC, each on December 2, 2016 and Stanson on November 9, 2018. The earn-out liabilities were classified as Level 3 of the fair value hierarchy and their values were determined based on estimated future earnings and the probability of achieving them. Changes in the fair values of the earn-out liabilities were recorded within selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Income.
A reconciliation of the Company's FFF put and call rights and earn-out liabilities is as follows (in thousands):
 
Beginning Balance
Purchases (Settlements)
Gain (Loss)
Ending Balance
Three Months Ended December 31, 2018
 
 
 
 
FFF call right
$
488

$

$
(57
)
$
431

Total Level 3 assets
$
488

$

$
(57
)
$
431

Earn-out liabilities
$

$
4,548

$

$
4,548

FFF put right
45,200


10,905

34,295

Total Level 3 liabilities
$
45,200

$
4,548

$
10,905

$
38,843

 
 
 
 
 
Three Months Ended December 31, 2017
 
 
 
 
FFF call right
$
4,593

$

$
(2,485
)
$
2,108

Total Level 3 assets
$
4,593

$

$
(2,485
)
$
2,108

Earn-out liabilities
$
21,675

$
(18,500
)
$
383

$
2,792

FFF put right
24,008


(13,102
)
37,110

Total Level 3 liabilities
$
45,683

$
(18,500
)
$
(12,719
)
$
39,902

 
 
 
 
 
Six Months Ended December 31, 2018
 
 
 
 
FFF call right
$
610

$

$
(179
)
$
431

Total Level 3 assets
$
610

$

$
(179
)
$
431

Earn-out liabilities
$

$
4,548

$

$
4,548

FFF put right
42,041


7,746

34,295

Total Level 3 liabilities
$
42,041

$
4,548

$
7,746

$
38,843

 
 
 
 
 
Six Months Ended December 31, 2017
 
 
 
 
FFF call right
$
4,655

$

$
(2,547
)
$
2,108

Total Level 3 assets
$
4,655

$

$
(2,547
)
$
2,108

Earn-out liabilities
$
21,310

$
(18,500
)
$
18

$
2,792

FFF put right
24,050


(13,060
)
37,110

Total Level 3 liabilities
$
45,360

$
(18,500
)
$
(13,042
)
$
39,902

Non-Recurring Fair Value Measurements
During the six months ended December 31, 2018, no non-recurring fair value measurements were required relating to the measurement of goodwill and intangible assets for impairment. However, purchase price allocations required significant non-recurring Level 3 inputs. The preliminary fair values of the acquired intangible assets resulting from the acquisition of Stanson were determined using the income approach (see Note 3 - Business Acquisitions).

28


Financial Instruments For Which Fair Value Only is Disclosed
The fair values of non-interest bearing notes payable, classified as Level 2, were less than their carrying values by approximately $0.6 million at both December 31, 2018 and June 30, 2018 based on assumed market interest rates of 4.0% and 3.6%, respectively.
Other Financial Instruments
The fair values of cash, accounts receivable, accounts payable, accrued liabilities and the Company's Credit Facility approximated carrying value due to the short-term nature of these financial instruments.
(6) CONTRACT BALANCES
Contract Assets, Deferred Revenue and Revenue Share Obligations
The timing of revenue recognition, billings and cash collections results in accounts receivables, contract assets (unbilled receivables) and deferred revenue on the Condensed Consolidated Balance Sheets. The $208.3 million increase in contract assets from June 30, 2018 to December 31, 2018 was largely attributable to the establishment of $169.7 million in contract assets upon adoption of the New Revenue Standard of which $141.5 million was for Supply Chain Services and $28.2 million was for Performance Services. Subsequent to adoption of the New Revenue Standard, Supply Chain Services contract assets increased an additional $23.4 million, which represents changes in the Company's estimated revenue for which cash has not yet been collected associated with net administrative fees for the current period. Performance Services contract assets increased $15.2 million primarily due to the acceleration of revenue recognition from licensing and certain consulting services contracts which represents performance obligations that have been satisfied prior to customer invoicing. Performance Services contract assets also increased due to the timing of payments related to certain cost management consulting services and performance-based engagements where revenue is recognized as work is performed.
The $51.2 million increase in revenue share obligation from June 30, 2018 to December 31, 2018 is largely a function of the aforementioned increases in contract assets and the underlying revenue share arrangements associated with the Company's GPO participation agreements.
Revenue recognized during the six months ended December 31, 2018 that was included in the opening balance of deferred revenue at June 30, 2018 was approximately $22.0 million, which is a result of satisfying performance obligations within the Performance Services segment.
Performance Obligations
A performance obligation is a promise to transfer a distinct good or service to a customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Contracts may have a single performance obligation as the promise to transfer individual goods or services is not separately identifiable from other promises and, therefore, not distinct; while other contracts may have multiple performance obligations, most commonly due to the contract covering multiple phases or deliverable arrangements (licensing fees, implementation fees, maintenance and support fees, professional fees for consulting services), including certain performance guarantees.
Net revenue recognized during the three months ended December 31, 2018 from performance obligations that were satisfied or partially satisfied on or before September 30, 2018 was $6.4 million. This was driven primarily by $3.1 million associated with revised forecasts underlying contracts that include variable consideration components and $3.3 million of net administrative fees revenue related to under-forecasted cash receipts received in the current period. Net revenue recognized during the six months ended December 31, 2018 from performance obligations that were satisfied or partially satisfied on or before June 30, 2018 was $8.9 million. This was driven primarily by $4.1 million associated with revised forecasts underlying contracts that include variable consideration components and $4.8 million of net administrative fees revenue related to under-forecasted cash receipts received in the current period.
Remaining performance obligations represent the portion of the transaction price that has not yet been satisfied or achieved. As of December 31, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $475.8 million. The Company expects to recognize approximately 50% of the remaining performance obligations over the next 12 months and an additional 25% over the following 12 months, with the remainder recognized thereafter.
Contract Costs
The Company is required to capitalize the incremental costs of obtaining and fulfilling a contract, which include sales commissions and costs associated with implementing SaaS informatics tools. At December 31, 2018, the Company had $14.9 million in capitalized contract costs, including $9.1 million related to implementation costs and $5.8 million related to sales commissions.

29


The Company had $1.7 million and $3.5 million of related amortization expense for the three and six months ended December 31, 2018.
(7) INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following (in thousands):
 
Useful Life
December 31, 2018
June 30, 2018
Member relationships
14.7 years
$
220,100

$
220,100

Technology
5.9 years
164,217

142,317

Customer relationships
8.2 years
49,320

48,120

Trade names
8.3 years
22,910

22,710

Distribution network
10.0 years
22,400

22,400

Favorable lease commitments
10.1 years
11,393

11,393

Non-compete agreements
5.8 years
9,030

8,710

Total intangible assets
 
499,370

475,750

Accumulated amortization
 
(181,171
)
(153,635
)
Intangible assets, net
 
$
318,199

$
322,115

The increase in total intangible assets was due to the acquisition of Stanson in November 2018 (see Note 3 - Business Acquisitions). Intangible asset amortization totaled $13.9 million and $13.8 million for the three months ended December 31, 2018 and 2017, respectively, and $27.5 million and $27.7 million for the six months ended December 31, 2018 and 2017, respectively.
(8) GOODWILL
Goodwill consisted of the following (in thousands):
 
Supply Chain Services
Performance Services
Total
June 30, 2018
$
400,348

$
506,197

$
906,545

Stanson

36,736

36,736

December 31, 2018
$
400,348

$
542,933

$
943,281

The initial purchase price allocations for the Company's acquisition of Stanson is preliminary and subject to changes in fair value of working capital and valuation of the assets acquired and the liabilities assumed. See Note 3 - Business Acquisitions for more information.
(9) DEBT
Long-term debt consisted of the following (in thousands):
 
Commitment Amount
Due Date
December 31, 2018
June 30, 2018
Credit Facility
$
1,000,000

November 9, 2023
$
100,000

$
100,000

Notes payable

Various
7,409

7,212

Total debt
 
 
107,409

107,212

Less: current portion
 
 
(102,302
)
(100,250
)
Total long-term debt
 
 
$
5,107

$
6,962


30



Credit Facility
Premier LP, along with its consolidated subsidiaries, PSCI and PHSI, as Co-Borrowers, Premier GP and certain domestic subsidiaries of Premier GP, as guarantors, entered into an unsecured Credit Facility, dated as of November 9, 2018. The Credit Facility has a maturity date of November 9, 2023, subject to up to two one-year extensions at the request of the Co-Borrowers and approval of a majority of the lenders under the Credit Facility. The Credit Facility provides for borrowings of up to $1.0 billion with (i) a $50.0 million sub-facility for standby letters of credit and (ii) a $100.0 million sub-facility for swingline loans. The Credit Facility also provides that Co-Borrowers may from time to time (i) incur incremental term loans and (ii) request an increase in the revolving commitments under the Credit Facility, together up to an aggregate of $350.0 million, subject to the approval of the lenders providing such term loans or revolving commitment increases. The Credit Facility includes an unconditional and irrevocable guaranty of all obligations under the Credit Facility by Premier GP, certain domestic subsidiaries of Premier GP and future guarantors, if any. Premier, Inc. is not a guarantor under the Credit Facility.
The Credit Facility replaced our then existing Credit Facility dated June 24, 2014 and amended as of June 4, 2015 (the "Prior Loan Agreement"). The Prior Loan Agreement included a $750.0 million unsecured revolving credit facility and was scheduled to mature on June 24, 2019. At the time of its termination, outstanding borrowings, accrued interest and fees and expenses under the Prior Loan Agreement totaled approximately $100.7 million, which was repaid with cash on hand and borrowings under the new Credit Facility.
At the Company's option, committed loans may be in the form of Eurodollar rate loans ("Eurodollar Loans") or base rate loans ("Base Rate Loans"). Eurodollar Loans bear interest at the Eurodollar rate (defined as the London Interbank Offered Rate, or LIBOR, plus the Applicable Rate (defined as a margin based on the Consolidated Total Net Leverage Ratio (as defined in the Credit Facility))). Base Rate Loans bear interest at the Base Rate (defined as the highest of the prime rate announced by the administrative agent, the federal funds effective rate plus 0.50%, the one-month LIBOR plus 1.0% and 0.0%) plus the Applicable Rate. The Applicable Rate ranges from 1.000% to 1.500% for Eurodollar Loans and 0.000% to 0.500% for Base Rate Loans. At December 31, 2018, the interest rate for three-month Eurodollar Loans was 3.808% and the interest rate for Base Rate Loans was 5.500%. The Co-Borrowers are required to pay a commitment fee ranging from 0.100% to 0.200% per annum on the actual daily unused amount of commitments under the Credit Facility. At December 31, 2018, the commitment fee was 0.100%.
The Credit Facility contains customary representations and warranties as well as customary affirmative and negative covenants, including, among others, limitations on liens, indebtedness, fundamental changes, dispositions, restricted payments and investments. Under the terms of the Credit Facility, Premier GP is not permitted to allow its consolidated total net leverage ratio (as defined in the Credit Facility) to exceed 3.75 to 1.00 for any period of four consecutive quarters, provided that, in connection with any acquisition for which the aggregate consideration exceeds $250.0 million, the maximum consolidated total net leverage ratio may be increased to 4.25 to 1.00 for the four consecutive fiscal quarters beginning with the quarter in which such acquisition is completed. In addition, Premier GP must maintain a minimum consolidated interest coverage ratio (as defined in the Credit Facility) of 2.50 to 1.00 at the end of every fiscal quarter. Premier GP was in compliance with all such covenants at December 31, 2018.
The Credit Facility also contains customary events of default including, among others, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults of any indebtedness or guarantees in excess of $75.0 million, bankruptcy and other insolvency events, ERISA-related liabilities and judgment defaults in excess of $50.0 million, and the occurrence of a change of control (as defined in the Credit Facility). If any event of default occurs and is continuing, the administrative agent under the Credit Facility may, with the consent, or shall, at the request of a majority of the lenders under the Credit Facility, terminate the commitments and declare all of the amounts owed under the Credit Facility to be immediately due and payable. The Company may prepay amounts outstanding under the Credit Facility without premium or penalty provided that Co-Borrowers compensate the lenders for losses and expenses incurred as a result of the prepayment of any Eurodollar Loan, as defined in the Credit Facility.
Proceeds from borrowings under the Credit Facility may generally be used to finance ongoing working capital requirements, including permitted acquisitions, discretionary cash settlements of Class B unit exchanges under the Exchange Agreement, repurchases of Class A common stock pursuant to stock repurchase programs, and other general corporate activities. The Company had outstanding borrowings under the Credit Facility of $100.0 million at December 31, 2018.
Notes Payable
At December 31, 2018 and June 30, 2018, the Company had $7.4 million and $7.2 million in notes payable, respectively, consisting primarily of non-interest bearing notes payable outstanding to departed member owners, of which $2.3 million and $0.2 million, respectively, were included in current portion of long-term debt and $5.1 million and $7.0 million, respectively, were included in long-term debt, less current portion, in the accompanying Condensed Consolidated Balance Sheets. Notes payable generally have stated maturities of five years from their date of issuance.

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(10) REDEEMABLE LIMITED PARTNERS' CAPITAL
Redeemable limited partners' capital represents the member owners' 53% ownership of Premier LP through their ownership of Class B common units at December 31, 2018. The member owners hold the majority of the votes of the Board of Directors and any redemption or transfer or choice of consideration cannot be assumed to be within the control of the Company. Therefore, redeemable limited partners' capital is recorded at the greater of the book value or redemption amount per the Amended and Restated Limited Partnership Agreement of Premier LP (as amended, the "LP Agreement"), and is calculated as the fair value of all Class B common units as if immediately exchangeable into Class A common shares. For the six months ended December 31, 2018 and 2017, the Company recorded adjustments to the fair value of redeemable limited partners' capital as an adjustment of redeemable limited partners' capital to redemption amount in the accompanying Condensed Consolidated Statements of Income in the amounts of $(56.5) million and $638.3 million, respectively.
Redeemable limited partners' capital is classified as temporary equity in the mezzanine section of the accompanying Condensed Consolidated Balance Sheets as, pursuant to the LP Agreement, withdrawal is at the option of each member owner and the conditions of the repurchase are not solely within the Company's control.
The table below provides a summary of the changes in the redeemable limited partners' capital from June 30, 2018 to December 31, 2018 (in thousands):
 
Receivables From Limited Partners
Redeemable Limited Partners' Capital
Total Redeemable Limited Partners' Capital
June 30, 2018
$
(2,205
)
$
2,922,615

$
2,920,410

Distributions applied to receivables from limited partners
853


853

Redemption of limited partners

(448
)
(448
)
Net income attributable to non-controlling interest in Premier LP

117,744

117,744

Distributions to limited partners

(29,281
)
(29,281
)
Exchange of Class B common units for Class A common stock by member owners

(471,880
)
(471,880
)
Adjustment of redeemable limited partners' capital to redemption amount

56,484

56,484

December 31, 2018
$
(1,352
)
$
2,595,234

$
2,593,882

Receivables from limited partners represent amounts due from limited partners for their required capital in Premier LP. These receivables are either interest bearing notes that were issued to new limited partners or non-interest bearing loans (contribution loans) provided to existing limited partners. These receivables are reflected as a reduction to redeemable limited partners' capital so that amounts due from limited partners for capital are not reflected as redeemable limited partnership capital until paid. No interest bearing notes receivable were executed by limited partners of Premier LP during the six months ended December 31, 2018.
During the six months ended December 31, 2018, two limited partners withdrew from Premier LP. The limited partnership agreement provides Premier LP with an option to redeem former limited partners' Class B common units that are not eligible for exchange, upon payment of a specified redemption amount paid in the form of a five-year, unsecured, non-interest bearing term promissory note, a cash payment equal to the present value of the redemption amount, or other mutually agreed upon terms. Partnership interest obligations to former limited partners are reflected in notes payable in the accompanying Condensed Consolidated Balance Sheets. Under the Exchange Agreement, Class B common units that are eligible for exchange by withdrawing limited partners must be exchanged in the subsequent quarter's exchange process.
Premier LP's distribution policy requires cash distributions as long as taxable income is generated and cash is available to distribute on a quarterly basis prior to the 60th day after the end of each calendar quarter. The Company makes quarterly distributions to its limited partners in the form of a legal partnership income distribution governed by the terms of the LP Agreement. These partner distributions are based on the limited partner's ownership in Premier LP and relative participation across Premier service offerings. While these distributions are based on relative participation across Premier service offerings, they are not based directly on revenue generated from an individual partner's participation as the distributions are based on the net income (loss) of the partnership which encompasses the operating expenses of the partnership as well as participation by non-owner members in Premier's service offerings. To the extent Premier LP incurred a net loss, the limited partners would not receive a quarterly distribution. As provided in the LP Agreement, the amount of actual cash distributed may be reduced by the amount of such distributions used by limited partners to offset contribution loans or other amounts payable to the Company.

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Quarterly distributions made to limited partners during the current fiscal year are as follows (in thousands):
Date
Distribution (a)
August 23, 2018
$
15,465

November 21, 2018
$
14,993

(a)
Distributions are equal to Premier LP's total taxable income from the preceding fiscal quarter-to-date period for each respective distribution date multiplied by the Company's standalone effective combined federal, state and local income tax rate for each respective distribution date. Premier LP expects to make a $14.3 million quarterly distribution on or before February 28, 2019. The distribution is reflected in limited partners' distribution payable in the accompanying Condensed Consolidated Balance Sheets at December 31, 2018.

Pursuant to the Exchange Agreement (see Note 1 - Organization and Basis of Presentation for more information), each limited partner has the cumulative right to exchange up to one-seventh of its initial allocation of Class B common units for shares of Class A common stock, cash or a combination of both, the form of consideration to be at the discretion of the Company's Audit and Compliance Committee. During the six months ended December 31, 2018, the Company recorded total reductions of $471.9 million to redeemable limited partners' capital to reflect the exchange of approximately 10.6 million Class B common units and surrender of associated shares of Class B common stock by member owners for a like number of shares of the Company's Class A common stock (see Note 12 - Earnings (Loss) Per Share for more information). Quarterly exchanges during the current fiscal year were as follows (in thousands, except Class B common units).
Date of Quarterly Exchange
Number of Class B Common Units Exchanged
Reduction in Redeemable Limited Partners' Capital
July 31, 2018
816,468

$
30,536

October 31, 2018
9,807,651

441,344

Total
10,624,119

$
471,880

(11) STOCKHOLDERS' DEFICIT
As of December 31, 2018, there were 61,286,582 shares of the Company's Class A common stock, par value $0.01 per share, and 69,484,147 shares of the Company's Class B common stock, par value $0.000001 per share, outstanding.
On May 7, 2018, the Company's Board of Directors approved the repurchase of up to $250.0 million of our Class A common stock during fiscal year 2019 as a continuation of our balanced capital deployment strategy. Subject to certain terms and conditions, repurchases may be made from time to time through open market purchases or privately negotiated transactions at our discretion, and in accordance with applicable federal securities laws. As of December 31, 2018, the Company had purchased approximately 2.9 million shares of Class A common stock at an average price of $38.13 per share for a total purchase price of approximately $109.5 mil