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, 20172019
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) (704) 357-0022
(Registrant's telephone number, including area code)
 __________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.01 Par ValuePINCNASDAQ Global Select Market
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.    Yesx  ☒     No   o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yesx   ☒ 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 filerx☒ Accelerated filero☐ Non-accelerated filero☐
Smaller reporting companyo☐ Emerging growth companyo☐ (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 2, 2018,January 31, 2020, there were 54,713,85271,066,141 shares of the registrant's Class A common stock, par value $0.01 per share, and 80,978,26750,715,564 shares of the registrant's Class B common stock, par value $0.000001 per share, outstanding.







TABLE OF CONTENTS
  Page
PART I. FINANCIAL INFORMATION
65
Item 1.
Financial Statements
6Financial Statements
5
 
Condensed Consolidated Balance Sheets as of December 31, 20172019 and June 30, 2017 (Unaudited)2019 (Unaudited)
65
 
Condensed Consolidated Statements of Income for the three and six months ended December 31, 20172019 and 20162018 (Unaudited)
87
 
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 20172019 and 20162018 (Unaudited)
9
 
Condensed Consolidated StatementStatements of Stockholders' Deficit for the six months ended December 31, 20172019 and 2018 (Unaudited)
10
 
Condensed Consolidated Statements of Cash FlowFlows for the six months ended December 31, 20172019 and 20162018 (Unaudited)
1112
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
1314
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
3536
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
56
Item 4.
Controls and Procedures
57
PART II. OTHER INFORMATIONItem 4.
Controls and Procedures
58
Item 1.
Legal ProceedingsPART II. OTHER INFORMATION
5859
Item 1A.
Risk Factors1.
58Legal Proceedings
59
Item 1A.
Risk Factors
59
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
58
Item 6.
Exhibits
59
Item 6.
SignaturesExhibits
60
Signatures
61





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;agreements on substantially similar terms or at all;
the rate at which the markets for our non-GPOsoftware as a service ("SaaS") informatics products and services and products 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 partnerships or joint ventures with, otherloans to businesses particularly those that we do not control;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 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 pharmacies;
our dependency on contract manufacturing facilities located in various parts of the world;
our ability to attract, hire, integrate and retain key personnel;


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;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 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 certainour ability to comply with the NASDAQ corporate governance requirements due toguidelines triggered by the loss of our status as a "controlled company" within the meaning of the NASDAQ rules;status in a timely manner;
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 of Premier LP (the "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;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 or exchange in the near future and the dilutive effect of such issuances;
our intention notlack of current plans to pay cash dividends on our Class A common stock;
whether we complete our recently announced Class A common stock repurchase programthe timing and the number and per share price of shares of Class A common stock ultimately purchased underre-purchased by the Company pursuant to our current or any future Class A common stock repurchase program;
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, 20172019 (the "2017"2019 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.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.




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PREMIER, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
December 31, 2017June 30, 2017December 31, 2019June 30, 2019
Assets  
Cash and cash equivalents$163,014
$156,735
$111,570
$141,055
Accounts receivable (net of $2,384 and $1,812 allowance for doubtful accounts, respectively)171,354
159,745
Accounts receivable (net of $680 and $739 allowance for doubtful accounts, respectively)166,907
168,115
Contract assets214,904
205,509
Inventory62,067
50,426
52,713
51,032
Prepaid expenses and other current assets24,021
35,164
28,718
23,765
Due from related parties381
6,742
Current assets of discontinued operations—
24,568
Total current assets420,837
408,812
574,812
614,044
Property and equipment (net of $264,173 and $236,460 accumulated depreciation, respectively)190,815
187,365
Intangible assets (net of $125,903 and $99,198 accumulated amortization, respectively)349,847
377,962
Property and equipment (net of $408,995 and $359,235 accumulated depreciation, respectively)199,970
205,108
Intangible assets (net of $219,921 and $197,858 accumulated amortization, respectively)249,386
270,722
Goodwill906,545
906,545
906,928
880,709
Deferred income tax assets305,549
482,484
428,174
422,014
Deferred compensation plan assets42,779
41,518
47,588
45,466
Investments in unconsolidated affiliates98,388
92,879
116,200
99,636
Operating lease right-of-use asset58,385
—
Other assets5,403
10,271
34,719
31,868
Total assets$2,320,163
$2,507,836
$2,616,162
$2,569,567
  
Liabilities, redeemable limited partners' capital and stockholders' deficit  
Accounts payable$49,626
$42,815
$53,265
$54,540
Accrued expenses46,090
55,857
82,493
82,476
Revenue share obligations74,651
72,078
146,243
137,359
Limited partners' distribution payable20,396
24,951
12,689
13,202
Accrued compensation and benefits41,725
53,506
39,910
70,799
Deferred revenue45,699
44,443
32,539
35,623
Current portion of tax receivable agreements17,925
17,925
18,118
17,505
Current portion of long-term debt201,139
227,993
50,739
27,608
Other liabilities9,106
32,019
13,531
7,113
Current liabilities of discontinued operations715
11,797
Total current liabilities506,357
571,587
450,242
458,022
Long-term debt, less current portion6,544
6,279
6,834
6,003
Tax receivable agreements, less current portion229,291
321,796
321,507
326,607
Deferred compensation plan obligations42,779
41,518
47,588
45,466
Deferred tax liabilities30,942
48,227
14,078
4,766
Operating lease liability, less current portion54,232
—
Other liabilities55,183
42,099
50,194
67,683
Total liabilities871,096
1,031,506
944,675
908,547




 



December 31, 2017June 30, 2017December 31, 2019June 30, 2019
Redeemable limited partners' capital2,398,640
3,138,583
2,104,367
2,523,270
Stockholders' deficit:  
Class A common stock, $0.01 par value, 500,000,000 shares authorized; 57,263,627 shares issued and 54,685,668 shares outstanding at December 31, 2017 and 51,943,281 shares issued and outstanding at June 30, 2017573
519
Class B common stock, $0.000001 par value, 600,000,000 shares authorized; 82,282,748 and 87,298,888 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively—
—
Treasury stock, at cost; 2,577,959 shares(74,698)—
Class A common stock, $0.01 par value, 500,000,000 shares authorized; 66,870,026 shares issued and 66,189,222 shares outstanding at December 31, 2019 and 64,357,305 shares issued and 61,938,157 shares outstanding at June 30, 2019669
644
Class B common stock, $0.000001 par value, 600,000,000 shares authorized; 55,581,646 and 64,548,044 shares issued and outstanding at December 31, 2019 and June 30, 2019, respectively—
—
Treasury stock, at cost; 680,804 and 2,419,148 shares at December 31, 2019 and June 30, 2019, respectively(23,718)(87,220)
Additional paid-in-capital—
—
—
—
Accumulated deficit(875,448)(1,662,772)(409,831)(775,674)
Accumulated other comprehensive loss—
—
Total stockholders' deficit(949,573)(1,662,253)(432,880)(862,250)
Total liabilities, redeemable limited partners' capital and stockholders' deficit$2,320,163
$2,507,836
$2,616,162
$2,569,567
See accompanying notes to the unaudited condensed consolidated financial statements.




PREMIER, INC.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three Months Ended December 31,Six Months Ended December 31,Three Months Ended December 31,Six Months Ended December 31,
20172016201720162019201820192018
Net revenue:  
Net administrative fees$159,343
$129,071
$310,334
$255,047
$172,114
$165,695
$344,517
$327,695
Other services and support89,953
87,051
176,864
168,218
89,452
97,680
171,338
184,623
Services249,296
216,122
487,198
423,265
261,566
263,375
515,855
512,318
Products162,102
142,378
314,764
248,507
58,040
44,214
106,161
87,873
Net revenue411,398
358,500
801,962
671,772
319,606
307,589
622,016
600,191
Cost of revenue:  
 
Services47,255
44,856
94,191
87,546
47,422
43,189
94,958
86,561
Products153,272
131,158
297,712
226,971
52,819
44,762
96,294
84,529
Cost of revenue200,527
176,014
391,903
314,517
100,241
87,951
191,252
171,090
Gross profit210,871
182,486
410,059
357,255
219,365
219,638
430,764
429,101
Other operating income: 
Remeasurement of tax receivable agreement liabilities177,174
—
177,174
5,722
Other operating income177,174
—
177,174
5,722
Operating expenses:  
Selling, general and administrative108,620
95,927
222,941
193,887
86,093
105,345
200,022
206,862
Research and development324
767
813
1,573
801
292
1,180
632
Amortization of purchased intangible assets13,817
11,151
27,715
20,360
11,938
13,238
24,982
26,215
Operating expenses122,761
107,845
251,469
215,820
98,832
118,875
226,184
233,709
Operating income265,284
74,641
335,764
147,157
120,533
100,763
204,580
195,392
Remeasurement gain attributable to acquisition of Innovatix, LLC—
204,833
—
204,833
Equity in net income of unconsolidated affiliates1,257
5,127
5,509
14,706
2,989
1,444
6,596
4,134
Interest and investment loss, net(1,508)(857)(3,003)(1,009)
Loss on disposal of long-lived assets(400)—
(1,720)(1,518)
Interest and investment (loss) income, net(359)(859)117
(1,547)
Gain on FFF put and call rights30,222
10,850
22,383
7,567
Other income (expense)(13,356)(131)(11,893)875
2,747
(3,651)3,009
(2,309)
Other income (expense), net(14,007)208,972
(11,107)217,887
Other income, net35,599
7,784
32,105
7,845
Income before income taxes251,277
283,613
324,657
365,044
156,132
108,547
236,685
203,237
Income tax expense231,508
37,429
244,272
60,765
64,557
2,736
74,171
14,054
Net income from continuing operations91,575
105,811
162,514
189,183
Income (loss) from discontinued operations, net of tax614
(1,000)1,004
(2,399)
Net income19,769
246,184
80,385
304,279
92,189
104,811
163,518
186,784
Net income from continuing operations attributable to noncontrolling interest(55,424)(63,150)(97,134)(119,095)
Net (income) loss from discontinued operations attributable to noncontrolling interest(280)519
(477)1,351
Net income attributable to non-controlling interest in Premier LP(56,485)(181,173)(101,095)(230,774)(55,704)(62,631)(97,611)(117,744)
Adjustment of redeemable limited partners' capital to redemption amount317,916
335,264
638,340
397,072
(480,153)651,709
214,156
(56,484)
Net income attributable to stockholders$281,200
$400,275
$617,630
$470,577
Net (loss) income attributable to stockholders$(443,668)$693,889
$280,063
$12,556
  
Weighted average shares outstanding:  
Basic55,209
49,445
54,059
48,330
64,552
59,876
63,668
56,548
Diluted139,237
141,308
139,641
142,133
64,552
133,672
124,831
57,584
  
Earnings (loss) per share attributable to stockholders: 
Basic$5.09
$8.10
$11.43
$9.74
Diluted$(1.66)$1.50
$(1.30)$1.75
(Loss) earnings per share attributable to stockholders: 
Basic (loss) earnings per share 


 Three Months Ended December 31,Six Months Ended December 31,
 2019201820192018
Continuing operations$(6.88)$11.60
$4.39
$0.24
Discontinued operations0.01
(0.01)0.01
(0.02)
Basic (loss) earnings per share attributable to stockholders$(6.87)$11.59
$4.40
$0.22
     
Diluted (loss) earnings per share    
Continuing operations$(6.88)$0.70
$1.12
$0.24
Discontinued operations0.01
(0.01)0.01
(0.02)
Diluted (loss) earnings per share attributable to stockholders$(6.87)$0.69
$1.13
$0.22
See accompanying notes to the unaudited condensed consolidated financial statements.




PREMIER, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
Three Months Ended December 31,Six Months Ended December 31,Three Months Ended December 31,Six Months Ended December 31,
20172016201720162019201820192018
Net income$19,769
$246,184
$80,385
$304,279
$92,189
$104,811
$163,518
$186,784
Net unrealized gain on marketable securities—
—
—
128
Total comprehensive income19,769
246,184
80,385
304,407
Less: comprehensive income attributable to non-controlling interest(56,485)(181,173)(101,095)(230,859)(55,704)(62,631)(97,611)(117,744)
Comprehensive income attributable to stockholders$(36,716)$65,011
$(20,710)$73,548
$36,485
$42,180
$65,907
$69,040
See accompanying notes to the unaudited condensed consolidated financial statements.




PREMIER, INC.
Condensed Consolidated Statement of Stockholders' Deficit
Six Months Ended December 31, 20172019
(Unaudited)
(In thousands)
Class A
Common Stock		Class B
Common Stock		Treasury StockAdditional Paid-In CapitalAccumulated DeficitTotal Stockholders' DeficitClass A
Common Stock		Class B
Common Stock		Treasury StockAdditional Paid-In CapitalAccumulated DeficitTotal Stockholders' Deficit
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at June 30, 201751,943
$519
87,299
$—
—
$—
$—
$(1,662,772)$(1,662,253)
Balance at June 30, 201961,938
$644
64,548
$—
2,419
$(87,220)$—
$(775,674)$(862,250)
Balance at July 1, 201961,938
644
64,548
—
2,419
(87,220)—
(775,674)(862,250)
Impact of change in accounting principle—
—
—
—
—
—
—
(899)(899)
Adjusted balance at July 1, 201961,938
644
64,548
—
2,419
(87,220)—
(776,573)(863,149)
Exchange of Class B units for Class A common stock by member owners4,883
50
(4,883)—
—
—
162,215
—
162,265
1,311
—
(1,311)—
(1,311)47,258
3,534
—
50,792
Redemption of limited partners—
—
(133)—
—
—
—
—
—
—
—
(782)—
—
—
—
—
—
Decrease in additional paid-in capital related to quarterly exchange by member owners, including associated TRA revaluation—
—
—
—
—
—
(8,669)—
(8,669)
Increase in additional paid-in capital related to departures and quarterly exchange by member owners, including associated TRA revaluation—
—
—
—
—
—
12,272
—
12,272
Issuance of Class A common stock under equity incentive plan485
5
—
—
—
—
1,749
—
1,754
Treasury stock(1,055)—
—
—
1,055
(35,649)—
—
(35,649)
Stock-based compensation expense—
—
—
—
—
—
3,704
—
3,704
Repurchase of vested restricted units for employee tax-withholding—
—
—
—
—
—
(8,311)—
(8,311)
Net income—
—
—
—
—
—
—
71,329
71,329
Net income attributable to non-controlling interest in Premier LP—
—
—
—
—
—
—
(41,907)(41,907)
Adjustment of redeemable limited partners' capital to redemption amount—
—
—
—
—
—
(12,948)707,257
694,309
Balance at September 30, 201962,679
$649
62,455
$—
2,163
$(75,611)$—
$(39,894)$(114,856)
Exchange of Class B units for Class A common stock by member owners6,873
19
(6,873)—
(5,031)164,810
59,117
—
223,946
Increase in additional paid-in capital related to departure and quarterly exchange by member owners, including associated TRA revaluation—
—
—
—
—
—
1,103
—
1,103
Issuance of Class A common stock under equity incentive plan390
4
—
—
—
—
2,804
—
2,808
146
1
—
—
—
—
4,243
—
4,244
Issuance of Class A common stock under employee stock purchase plan48
—
—
—
—
—
1,388
—
1,388
40
—
—
—
—
—
1,540
—
1,540
Treasury stock(2,578)—
—
—
2,578
(74,698)—
—
(74,698)(3,549)—
—
—
3,549
(112,917)—
—
(112,917)
Stock-based compensation expense—
—
—
—
—
—
17,699
—
17,699
—
—
—
—
—
—
7,775
—
7,775
Repurchase of vested restricted units for employee tax-withholding—
—
—
—
—
—
(5,743)—
(5,743)—
—
—
—
—
—
(47)—
(47)
Net income—
—
—
—
—
—
—
80,385
80,385
—
—
—
—
—
—
—
92,189
92,189
Net income attributable to non-controlling interest in Premier LP—
—
—
—
—
—
—
(101,095)(101,095)—
—
—
—
—
—
—
(55,704)(55,704)
Adjustment of redeemable limited partners' capital to redemption amount—
—
—
—
—
—
(169,694)808,034
638,340
Balance at December 31, 201754,686
$573
82,283
$—
2,578
$(74,698)$—
$(875,448)$(949,573)
Adjustment of redeemable limited partner's capital to redemption amount—
—
—
—
—
—
(73,731)(406,422)(480,153)
Balance at December 31, 201966,189
$669
55,582
$—
681
$(23,718)$—
$(409,831)$(432,880)
See accompanying notes to the unaudited condensed consolidated financial statements.



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 StockAdditional Paid-In CapitalAccumulated DeficitTotal Stockholders' Deficit
 SharesAmountSharesAmountSharesAmount
Balance at June 30, 201852,761
$575
80,336
$—
4,769
$(150,058)$—
$(1,277,581)$(1,427,064)
Balance at July 1, 201852,761
575
80,336
—
4,769
(150,058)—
(1,277,581)(1,427,064)
Impact of change in accounting principle—
—
—
—
—
—
—
121,945
121,945
Adjusted balance at July 1, 201852,761
$575
80,336
$—
4,769
$(150,058)$—
$(1,155,636)$(1,305,119)
Exchange of Class B units for Class A common stock by member owners817
—
(817)—
(817)25,974
4,562
—
30,536
Increase in additional paid-in capital related to quarterly exchange by member owners, including associated TRA revaluation—
—
—
—
—
—
373
—
373
Issuance of Class A common stock under equity incentive plan547
5
—
—
—
—
7,467
—
7,472
Treasury stock(335)—
—
—
335
(12,313)—
—
(12,313)
Stock-based compensation expense—
—
—
—
—
—
6,195
—
6,195
Repurchase of vested restricted units for employee tax-withholding—
—
—
—
—
—
(6,948)—
(6,948)
Net income—
—
—
—
—
—
—
81,973
81,973
Net income attributable to non-controlling interest in Premier LP—
—
—
—
—
—
—
(55,113)(55,113)
Adjustment of redeemable limited partners' capital to redemption amount—
—
—
—
—
—
(11,649)(696,544)(708,193)
Balance at September 30, 201853,790
$580
79,519
$—
4,287
$(136,397)$—
$(1,825,320)$(1,961,137)
Exchange of Class B units for Class A common stock by member owners9,807
55
(9,807)—
(4,287)136,397
304,892
—
441,344
Redemption of limited partners—
—
(227)—
—
—
—
—
—
Increase in additional paid-in capital related to quarterly exchange
by member owners, including associated TRA revaluation		—
—
—
—
—
—
14,379
—
14,379
Issuance of Class A common stock under equity incentive plan187
3
—
—
—
—
4,648
—
4,651
Issuance of Class A common stock under employee stock purchase plan38
—
—
—
—
—
1,488
—
1,488
Treasury stock(2,535)—
—
—
2,535
(97,199)—
—
(97,199)
Stock-based compensation expense—
—
—
—
—
—
7,716
—
7,716
Repurchase of vested restricted units for employee tax-withholding—
—
—
—
—
—
(1,082)—
(1,082)
Net income—
—
—
—
—
—
—
104,811
104,811
Net income attributable to non-controlling interest in Premier LP—
—
—
—
—
—
—
(62,631)(62,631)
Adjustment of redeemable limited partner's capital to redemption amount—
—
—
—
—
—
(332,041)983,750
651,709
Balance at December 31, 201861,287
$638
69,485
$—
2,535
$(97,199)$—
$(799,390)$(895,951)
See accompanying notes to the unaudited condensed consolidated financial statements.


PREMIER, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended December 31,Six Months Ended December 31,
2017201620192018
Operating activities  
Net income$80,385
$304,279
$163,518
$186,784
Adjustments to reconcile net income to net cash provided by operating activities:  
(Income) loss from discontinued operations, net of tax(1,004)2,399
Depreciation and amortization61,532
48,576
74,895
67,947
Equity in net income of unconsolidated affiliates(5,509)(14,706)(6,596)(4,134)
Deferred income taxes235,648
48,705
53,368
4,100
Stock-based compensation17,699
12,066
11,479
13,687
Remeasurement of tax receivable agreement liabilities(177,174)(5,722)(23,682)—
Remeasurement gain attributable to acquisition of Innovatix, LLC—
(204,833)
Loss on disposal of long-lived assets1,720
1,518
Gain on FFF put and call rights(22,383)(7,567)
Changes in operating assets and liabilities:  
Accounts receivable, prepaid expenses and other current assets(467)(11,888)
Other assets1,060
274
Inventories(11,641)(31,832)
Accounts payable, accrued expenses and other current liabilities(20,238)(4,136)
Long-term liabilities1,287
(4,100)
Loss on FFF put and call rights15,607
174
Accounts receivable, inventories, prepaid expenses and other assets(5,752)(14,708)
Contract assets(9,346)(38,570)
Accounts payable, accrued expenses, deferred revenue, revenue share obligations and other liabilities(20,447)(150)
Other operating activities6,606
(11)2,971
407
Net cash provided by operating activities from continuing operations217,021
210,195
Net cash provided by operating activities from discontinued operations10,028
2,114
Net cash provided by operating activities206,515
138,364
227,049
212,309
Investing activities  
Purchases of property and equipment(38,622)(34,325)(44,768)(47,109)
Proceeds from sale of marketable securities—
48,013
Acquisition of Innovatix, LLC and Essensa Ventures, LLC, net of cash acquired—
(222,217)
Acquisition of Acro Pharmaceuticals, net of cash acquired—
(68,745)
Acquisition of Stanson Health, Inc., net of cash acquired—
(50,926)
Acquisition of Medpricer.com, Inc., net of cash acquired(34,727)—
Investments in unconsolidated affiliates—
(65,660)(10,165)—
Distributions received on equity investments in unconsolidated affiliates—
6,550
Proceeds from sale of assets3,632
—
Other investing activities—
26
251
(8,500)
Net cash used in investing activities from continuing operations(85,777)(106,535)
Net cash used in investing activities from discontinued operations—
(180)
Net cash used in investing activities(38,622)(336,358)(85,777)(106,715)
Financing activities  
Payments made on notes payable(6,858)(1,338)(2,045)—
Redemption of limited partner of Premier LP—
(256)
Proceeds from credit facility30,000
327,500
125,000
—
Payments on credit facility(50,000)—
(100,000)—
Proceeds from exercise of stock options under equity incentive plan2,808
2,909
5,998
12,123
Proceeds from issuance of Class A common stock under stock purchase plan1,388
1,256
Proceeds from issuance of Class A common stock under employee stock purchase plan1,540
1,488
Repurchase of vested restricted units for employee tax-withholding(5,743)(17,629)(8,358)(8,030)
Settlement of exchange of Class B units by member owners—
(99,999)
Distributions to limited partners of Premier LP(45,703)(44,630)(26,901)(30,458)
Payments to limited partners of Premier LP related to tax receivable agreements(17,425)(17,975)
Repurchase of Class A common stock (held as treasury stock)(70,844)—
(148,566)(104,288)
Earn-out liability payment to GNYHA Holdings(16,662)—
Net cash provided by (used in) financing activities(161,614)168,069
Net increase (decrease) in cash and cash equivalents6,279
(29,925)
Cash and cash equivalents at beginning of year156,735
248,817
Cash and cash equivalents at end of period$163,014
$218,892
Net cash used in financing activities(170,757)(147,396)
Net decrease in cash and cash equivalents(29,485)(41,802)



 Six Months Ended December 31,
 20172016
   
Supplemental schedule of non-cash investing and financing activities:  
Decrease in redeemable limited partners' capital for adjustment to fair value, with offsetting increases in additional paid-in-capital and accumulated deficit$638,340
$397,072
Reduction in redeemable limited partners' capital, with offsetting increases in common stock and additional paid-in capital related to quarterly exchanges by member owners$162,265
$107,213
Reduction in redeemable limited partners' capital for limited partners' distribution payable$41,148
$44,870
Distributions utilized to reduce subscriptions, notes, interest and accounts receivable from member owners$984
$1,074
Net increase in deferred tax assets related to quarterly exchanges by member owners and other adjustments$75,998
$77,638
Net increase in tax receivable agreement liabilities related to quarterly exchanges by member owners and other adjustments$84,667
$49,352
Net increase (decrease) in additional paid-in capital related to quarterly exchanges by member owners and other adjustments$(8,669)$28,286
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$3,854
$—
 Six Months Ended December 31,
 20192018
Cash and cash equivalents at beginning of year141,055
152,386
Cash and cash equivalents at end of period$111,570
$110,584
   
Supplemental schedule of non-cash investing and financing activities:  
(Decrease) increase in redeemable limited partners' capital for adjustment to fair value, with offsetting (increase) decrease in additional paid-in-capital and accumulated deficit$(214,156)$56,484
Decrease in redeemable limited partners' capital, with offsetting increase in common stock and additional paid-in capital related to quarterly exchanges by member owners(274,738)(471,880)
Decrease in redeemable limited partners' capital for limited partners' distribution payable(26,388)(29,281)
Distributions utilized to reduce subscriptions, notes, interest and accounts receivable from member owners139
853
Net increase in deferred tax assets related to departures and quarterly exchanges by member owners and other adjustments49,631
100,749
Net increase in tax receivable agreement liabilities related to departures and quarterly exchanges by member owners and other adjustments(36,620)(85,997)
Net decrease in notes payable related to departures and quarterly exchanges by member owners and other adjustments364
—
Net increase in additional paid-in capital related to departures and quarterly exchanges by member owners and other adjustments(13,375)(14,752)
Increase in treasury stock related to a payable as a result of applying trade date accounting when recording the repurchase of Class A common stock—
(5,224)
Contingent consideration for acquisition of Medpricer.com, Inc.3,781
—
See accompanying notes to the unaudited condensed consolidated financial statements.




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 public stockholders and by hospitals, health systems and other healthcare organizations (such owners of Premier are referred to herein as "member owners") located in the United StatesStates. 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 by public stockholders.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 that willto 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 two2 business segments: Supply Chain Services and Performance Services. See Note 1617 - 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 advisoryconsulting services businesses in the United States focused on healthcare providers. 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 three3 main categories of cost management, quality and safety, and population health management.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 technology-enabled performance improvement collaboratives, advisory services, government services and insurance management services.
Acquisitions and Divestitures
Acquisition of Medpricer
On October 28, 2019, the Company, through its consolidated subsidiary, Premier Supply Chain Improvement, Inc. ("PSCI"), acquired all of the outstanding capital stock in Medpricer.com, Inc. ("Medpricer") for an adjusted purchase price of $38.5 million with borrowings under the Company's Credit Facility (as defined in Note 9 - Debt). Medpricer is a SaaS-based provider of technology solutions that enable hospitals and other organizations to analyze, benchmark and source purchased services contracts independent of any existing GPO affiliation. Medpricer is reported as part of the Supply Chain Services segment. See Note 3 - Business Acquisitions for further information.
Acquisition of Stanson
On November 9, 2018, the Company, through its consolidated subsidiary Premier Healthcare Solutions, Inc. ("PHSI"), acquired all of the outstanding capital stock in Stanson Health, Inc. ("Stanson") through a reverse subsidiary merger transaction for an adjusted purchase price of $55.4 million in cash. Stanson is a SaaS-based provider of clinical decision support tools that are integrated directly into the electronic health record workflow to help provide real-time, patient-specific best practices at the point of care. Stanson is reported as part of the Performance Services segment. See Note 3 - Business Acquisitions for further information.
Divestiture of Specialty Pharmacy Business - Discontinued Operations
On June 7, 2019, the Company and its consolidated subsidiaries, NS3 Health, LLC, Commcare Pharmacy - FTL, LLC, and Acro Pharmaceutical Services LLC completed the sale of prescription files and records and certain other assets used in the Company's specialty pharmacy business to ProCare Pharmacy, L.L.C., an affiliate of CVS Health Corporation, for $22.3 million. The Company also received $7.6 million related to the sale of a portion of its pharmaceutical inventory on June 10, 2019, and an additional $3.6 million on July 24, 2019 primarily in connection with the sale of its remaining pharmaceutical inventory. In addition, during the


six months ended December 31, 2019, the Company substantially completed the wind down and exit from the specialty pharmacy business. See Note 4 - Discontinued Operations and Exit Activities for further information.
The Company met the criteria for classifying certain assets and liabilities of the specialty pharmacy business as a discontinued operation as of June 30, 2019. Accordingly, unless otherwise indicated, information in the notes to the condensed consolidated financial statements has been retrospectively adjusted to reflect continuing operations for all periods presented.
Company Structure
The Company, through its wholly-owned subsidiary, Premier Services, LLC ("Premier GP"),GP, held an approximate 40%54% and 37%49% sole general partner interest in our main operating company, Premier Healthcare Alliance, L.P. ("Premier LP"),LP at December 31, 20172019 and June 30, 2017,2019, respectively. In addition to their equity ownership interest in Premier, ourthe Company, the member owners held an approximate 60%46% and 63%51% limited partner interest in Premier LP at December 31, 20172019 and June 30, 2017,2019, respectively. As a result of exchanges under an exchange agreement entered into by the member owners in connection with the completion of the Company's initial public offering on October 1, 2013 (the "Exchange Agreement"), as of July 31, 2019, the Class A common stock and Class B common stock represented approximately 50.2% and 49.8% respectively, of the Company's combined Class A and Class B common stock and accordingly, the Class B common stock held by member owners no longer represented the majority of the Company's outstanding common stock. On July 31, 2019, as a result of the Class B common unit exchange process, the Company no longer qualified for the "controlled company" exemption under NASDAQ rules and must comply with all general NASDAQ rules regarding board and committee composition by July 31, 2020. In anticipation of the change in controlled company status, the Company has been planning for this evolution and expects to comply with all NASDAQ rules in a timely manner, including having a majority of independent directors on the Board of Directors by July 31, 2020.
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, 20172019 and June 30, 2017,2019, the member owners owned approximately 60%46% and 63%51%, 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, 2017,2019, the member owners exchanged 4.9approximately 8.2 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.Exchange Agreement. 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 Directors (the "Audit and Compliance Committee"). In connection with Class B common units exchanged for Class A common shares duringDuring the six months ended December 31, 2017,2019, approximately 4.98.2 million Class B common units were contributed to Premier LP, and converted to Class A common units whichand remain outstanding. Correspondingly, approximately 8.2 million Class B common shares were retired during the same period. For further information, see Note 12 - Earnings (Loss) Per Share.
Refer to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017 (the "2017 Annual Report") filed with the Securities and Exchange Commission ("SEC") on August 23, 2017 for further discussion of the Exchange Agreement. At December 31, 20172019 and June 30, 2017,2019, 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 approximately 40%54% and 37%49%, respectively, of the Company's outstanding common stock through their ownership of Class A common stock.
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 pursuant toinclude the rulesassets, liabilities, revenues and regulationsexpenses of all majority-owned subsidiaries over which the SEC.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 20172019 Annual Report.
We have reclassified $5.7 million from selling, general and administrative expenses to the remeasurement of tax receivable agreement liabilities for the six months ended December 31, 2016 within the Condensed Consolidated Statements of Income in order to conform with the current period presentation.
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, 20172019 and June 30, 20172019, including assets and liabilities of discontinued operations, consisted of the following (in thousands):
 December 31, 2019June 30, 2019
Assets  
Current$565,111
$603,390
Noncurrent1,613,839
1,536,685
Total assets of Premier LP$2,178,950
$2,140,075
   
Liabilities  
Current$515,357
$517,616
Noncurrent157,733
118,032
Total liabilities of Premier LP$673,090
$635,648
 December 31, 2017June 30, 2017
Assets  
Current$378,412
$385,477
Noncurrent1,593,777
1,616,539
Total assets of Premier LP$1,972,189
$2,002,016
   
Liabilities  
Current$493,462
$560,582
Noncurrent131,154
134,635
Total liabilities of Premier LP$624,616
$695,217

Net income attributable to Premier LP, including income and expense that has been classified as discontinued operations, during the three and six months ended December 31, 20172019 and 20162018 was as follows (in thousands):
 Three Months Ended December 31,Six Months Ended December 31,
 2017201620172016
Premier LP net income$94,838
$281,629
$167,129
$355,974


 Three Months Ended December 31,Six Months Ended December 31,
 2019201820192018
Premier LP net income$122,105
$118,783
$206,245
$211,045
Premier LP's cash flows, including cash flows attributable to discontinued operations, for the six months ended December 31, 20172019 and 20162018 consisted of the following (in thousands):
 Six Months Ended December 31,
 20192018
Net cash provided by (used in):  
Operating activities$220,864
$227,404
Investing activities(85,777)(106,715)
Financing activities(160,872)(143,017)
Net decrease in cash and cash equivalents(25,785)(22,328)
Cash and cash equivalents at beginning of year131,210
117,741
Cash and cash equivalents at end of period$105,425
$95,413
 Six Months Ended December 31,
 20172016
Net cash provided by (used in):  
Operating activities$207,514
$121,731
Investing activities(38,622)(336,358)
Financing activities(180,600)159,533
Net decrease in cash and cash equivalents(11,708)(55,094)
Cash and cash equivalents at beginning of year133,451
210,048
Cash and cash equivalents at end of period$121,743
$154,954

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"TRA"), deferred tax balances including valuation allowances on deferred tax assets, uncertain tax positions, values of investments not publicly traded, deferred revenue,projected future cash flows associated withused in the evaluation of asset impairments, 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%. As changes under the TCJA are broad and complex, the Company continues to interpret the breadth of its immediate and long-term impacts. The Company notes that 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 has prescribed such provisional relief via SAB 118 by incorporating various estimates regarding timing and determination of temporary difference recognition when calculating components of its deferred tax balances. While the Company is able to provide reasonable estimates of the impacts related to the TCJA, the final impact may differ from these estimates, due to, among other things, changes in interpretations, assumptions, additional guidance that may be released by the I.R.S. and other actions that we may take that are yet to be determined.
(2) SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the Company's significant accounting policies as described in the 20172019 Annual Report.Report, except as described below.
Recently Adopted Accounting Standards
In July 2015, the FASB issued Accounting Standards Update ("ASU") 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which requires entities to measure most inventory "at the lower of cost and net realizable value," thereby simplifying the guidance under which an entity must measure inventory at the lower of cost or market. This guidance does not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. The Company adopted this standard effective July 1, 2017 using the prospective approach. The implementation of this ASU did not have a material effect on the Company's condensed consolidated financial statements.


In May 2017,February 2016, the FASB issued ASU 2017-09, Compensation-Stock CompensationNo. 2016-02, Leases (Topic 718): Scope842), ("ASU 2016-12"), which increases transparency and comparability by requiring the recognition of Modification Accounting, whichclarifies when changes tolease assets and lease liabilities on the terms or conditionsbalance sheet, as well as requiring the disclosure of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications.key information about leasing arrangements. The Company adopted thisASU No. 2016-02 on July 1, 2019 on a modified retrospective basis under the optional transition method. Therefore, comparative periods are presented in accordance with Accounting Standards Codification ("ASC") Topic 840. Additionally, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, effective October 1, 2017 usingwhich allowed us to carry forward (1) historical lease classification and assessments for expired and existing leases, and (2) historical accounting for initial direct costs for existing leases. The Company elected not to recognize any operating lease right-of-use assets or operating lease liabilities for any lease whose term is 12 months or less and does not include a purchase option that the prospective approach.Company is reasonably certain to exercise. The implementationCompany also elected to account for the non-lease components within its leases as part of this ASU did not have a material effectthe single lease component to which they are related. Refer to "Adoption of ASC Topic 842" for additional information on the Company's condensed consolidated financial statements.impact of the adoption of ASC Topic 842.
Recently Issued Accounting Standards Not Yet Adopted
In January 2017,August 2018, the FASB issued ASU 2017-04, Intangibles -2018-15, Intangibles- Goodwill and OtherOther- Internal Use Software (Topic 350): Simplifying the TestCustomer's Accounting for Goodwill ImpairmentImplementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract,("ASU 2018-15"), which eliminates Step 2 fromrequires customers in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the goodwill impairment test. Theinternal use software guidance requires an entityin ASC 350-40 to perform its annual,determine which implementation costs to capitalize 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 standardexpense. ASU 2018-15 will be effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted forincluding adoption in interim and annual goodwill impairment tests performed after January 1, 2017.periods. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In October 2016,August 2018, the FASB issued ASU 2016-16, Income Taxes2018-13, Fair Value Measurement (Topic 740)820): Intra-Entity Transfers of Assets Other Than InventoryDisclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement, ("ASU 2018-13"), which removesimproves the prohibition in ASC 740 againsteffectiveness of fair value measurement disclosures by eliminating, adding and modifying certain disclosure requirements for fair value measurements as part of its disclosure framework project. Entities will no longer be required to disclose the immediate recognitionamount of and reasons for transfers between Level 1 and Level 2 of the currentfair value hierarchy, but public companies will be required to disclose the range and deferred income tax effects of intra-entity transfers of assets other than inventory. The guidance is intendedweighted average used 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 standard is effectivedevelop significant unobservable inputs for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new standardLevel 3 fair value measurements. ASU 2018-13 will be effective for the Company for the fiscal year beginning July 1, 2018.2020. 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 AugustJune 2016, the FASB issued ASU 2016-15, Statement2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash PaymentsCredit Losses on Financial Instruments, (“ASU 2016-13”), which amendsmodifies the guidance in ASC 230measurement of expected credit losses on certain financial instruments and the classificationtiming of certain cash receipts and payments in the statement of cash flows. The primary purpose of thewhen such losses are recorded. ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The ASU amendments add or clarify guidance on eight cash flow issues. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new standard2016-13, will be effective for the Company for the fiscal year beginning July 1, 2018.2020. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new standard, but does not expect the adoption to have a material impact on its consolidated financial statements and related disclosures.
In February 2016,Adoption of ASC Topic 842
As a result of adopting ASC Topic 842, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparencyCompany's accounting policies 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 twelve 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 itscondensed consolidated financial statements and related disclosures.were updated as follows:
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 standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new standard will be effective for the Company for the fiscal year beginning July 1, 2018. Early adoption is permitted for certain amendments. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede 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 customerenters into lease contracts including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new standard allows for either full retrospective or modified retrospective adoption.


The FASB subsequently issued an amendment in ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, in August 2015 to defer the effective date of the new standard for all entities by one year. The new standard, as amended, will be 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 will be permitted.
The FASB issued another amendment in ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, in March 2016 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 will be 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 will be 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 will be 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 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 will be effective with ASU 2014-09.
The new revenue recognition standards related to Topic 606 discussed above, as amended, will be effective for the Company for the fiscal year beginning July 1, 2018, at which time we plan to adopt the standard using the modified retrospective approach. To-date, the Company has identified the following preliminary impact of adopting the new standards on various revenue streams across its operating segments.
Within the Supply Chain Services segment, the Company is continuing to assess the impact of adopting the new standards on its various revenue streams. Under the new standard, the Company expects to recognize administrative fee revenue upon the occurrence of a sale by suppliers to the Company’s members. This differs from the current treatment in which the Company recognizes revenueis the lessee, substantially all of which are related to office space leased in the period that the respective supplier reports member purchasing data, which is usually a month or a quarter in arrearsvarious buildings used for general corporate purposes. The terms of the actual member purchase activity. This change is expected to result inthese non-cancelable operating leases typically require the Company recognizing revenue sooner in the revenue cycle than under theto pay rent and a share of operating expenses and real estate taxes, generally with an inflation-based rent increase included. The Company's current revenue recognition policylease agreements do not contain any material residual value guarantees or material restrictive covenants.


Operating lease right-of-use assets and the creation of a contract asset associated with this shift in revenue recognition timing. The Company is continuing to assess the impact of these changesoperating lease liabilities are recognized based on the financial statementspresent value of future minimum lease payments over the lease term beginning at the commencement date. Operating lease right-of-use assets are adjusted for lease incentives, deferred rent and disclosures.
Within the Performance Services segment,initial direct costs, if incurred. The Company's leases generally do not include an implicit rate; therefore, the Company determined the present value of future minimum lease payments using an incremental borrowing rate based on information available as of July 1, 2019, the transition date. The related lease expense is continuing to assessrecognized on a straight-line basis over the impactlease term.
The following tables summarize the impacts of adopting the new standards on its various revenue streams. Under the new standard, the Company will be required to capitalize the incremental costs of obtaining a contract, which the Company has preliminarily identified as sales commissions and costs associated with implementing our SaaS informatics tools, and to amortize these costs in a manner that reflects the transfer of services to the customer. These costs are expensed as incurred under the Company's current revenue recognition policy. The Company is continuing to assess the impact of these changesASC Topic 842 on the financial statementsCondensed Consolidated Balance Sheets (in thousands). See Note 16 - Commitments and disclosures.Contingencies for further information.
Additionally, the Company is evaluating the potential impact of adopting the new standards on its business processes, systems and controls necessary to support revenue recognition and disclosure requirements under the new standard.
 
June 30, 2019
As presented
Impact of ASC Topic 842
July 1, 2019
Adjusted
Intangible assets, net (a)
$270,722
$(8,474)$262,248
Deferred income tax assets$422,014
$302
$422,316
Operating lease right-of-use assets$—
$62,642
$62,642
Total assets$2,569,567
$54,470
$2,624,037
   
Other current liabilities$7,113
$7,661
$14,774
Current liabilities of discontinued operations$11,797
$1,200
$12,997
Operating lease liabilities$—
$58,596
$58,596
Other long-term liabilities$67,683
$(12,088)$55,595
Total liabilities$908,547
$55,369
$963,916
   
Accumulated deficit (b)
$(775,674)$(899)$(776,573)
Total liabilities and equity$2,569,567
$54,470
$2,624,037
(a)The Company reclassified a favorable lease commitment, which was recorded within intangible assets, net in the Consolidated Balance Sheets as of June 30, 2019, to operating lease right-of-use assets as part of the adoption of ASC Topic 842.
(b)
The Company recognized a non-cash impairment charge of $1.2 million ($0.9 million net of deferred tax impact), which was recorded as an adjustment to the opening balance of equity at July 1, 2019. The impairment charge was related to operating lease right-of-use assets of the specialty pharmacy business, which is classified as a discontinued operation.
(3) BUSINESS ACQUISITIONS
Acquisition of Innovatix and EssensaMedpricer
Innovatix, LLC ("Innovatix") and Essensa Ventures, LLC ("Essensa") are GPOs focused on serving alternate site healthcare providers and other organizations throughout the United States. Prior to December 2, 2016,On October 28, 2019, the Company, through its consolidated subsidiary Premier Supply Chain Improvement ("PSCI"), held 50%PSCI, acquired all of the membership interestsoutstanding capital stock in Innovatix (see Note 4 - Investments). On December 2, 2016, the Company, through PSCI, acquired from GNYHA Holdings, LLC ("GNYHA Holdings") (see Note 14 - Related Party Transactions) the remaining 50% ownership interest of Innovatix and 100% of the ownership interest in EssensaMedpricer for $325.0 million, of which $227.5 million in cash was paid at closing and $97.5 million in cash was paid on January 10, 2017. As a result of certain purchase price adjustments provided for in the purchase agreement, thean adjusted purchase price was $336.0of $38.5 million.
In connection with the acquisition, the Company utilized its credit facility dated June 24, 2014, as amended on June 4, 2015 (the "Credit Facility") to fund the $325.0 million purchase price (see Note 8 - Debt), the outstanding portion of which is reflected within current portion of long-term debt in the Condensed Consolidated Balance Sheets at December 31, 2017. The Company incurred transaction costs related to this acquisition of $1.6 million and $4.4 million during the three months ended December 31, 2017 and 2016, respectively, and $3.4 million and $4.7 million during the six months ended December 31, 2017 and 2016, respectively. These transaction costs were included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Income.


The Company has accounted for the Innovatix and Essensa acquisition as a business combination whereby the purchase price was allocated to tangible and intangible assets acquired (see Note 6 - Intangible Assets, Net) and liabilities assumed based on their fair values. The acquisition resulted in the recognition of approximately $334.7 million of goodwill (see Note 7 - Goodwill) attributable to the anticipated profitability of Innovatix and Essensa. The acquisition was considered an asset acquisition for tax purposes, and accordingly,funded with borrowings under the Company expects the goodwill to be deductible for tax purposes.
The fair values assigned to the net assets acquired and the liabilities assumed as of the acquisition date were as follows (in thousands):
 Acquisition Date Fair Value
Cash paid at closing$227,500
Cash paid on January 10, 201797,500
Purchase price325,000
Additional cash paid at closing10,984
Adjusted purchase price335,984
Earn-out liability16,662
Receivable from GNYHA Holdings, LLC(3,000)
Total consideration paid349,646
Cash acquired(16,267)
Net consideration333,379
50% ownership interest in Innovatix218,356
Payable to Innovatix and Essensa(5,765)
Enterprise value545,970
  
Accounts receivable21,242
Prepaid expenses and other current assets686
Fixed assets, net3,476
Intangible assets241,494
Total assets acquired266,898
Accrued expenses5,264
Revenue share obligations7,011
Other current liabilities694
Total liabilities assumed12,969
Deferred tax liability42,636
Goodwill$334,677
Company's Credit Facility.
The acquisition provides the sellersellers an earn-out opportunity of up to $43.0$5.0 million based on Innovatix's and Essensa's Adjusted EBITDA (as defined in the purchase agreement)Medpricer's achievement of a revenue target for the fiscalcalendar year ending June 30, 2017, which is still in the process of being finalized. The Company paid the seller $18.5 million of the earn-out opportunity during the current period.ended December 31, 2020. As of December 31, 2017,2019, the fair value of the earn-out liability was $2.6$3.8 million (see Note 56 - Fair Value Measurements).
Certain executive officers of Innovatix and Essensa executed employment agreements that became effective upon the closing of the acquisition. The purchase agreement provides that in the event that Innovatix's and Essensa's Adjusted EBITDA exceeds agreed upon amounts, certain of those executive officers are entitled to receive a retention bonus payment of up to $3.0 million in the aggregate, for which the Company will be reimbursed by GNYHA Holdings, LLC, of which $1.5 million was paid and reimbursed during the current period.
The Company's 50% ownership interest in Innovatix prior to the acquisition was accounted for under the equity method and had a carrying value of $13.3 million (see Note 4 - Investments). In connection with the acquisition, the Company's investment was remeasured under business combination accounting rules to a fair value of $218.4 million, resulting in a one-time gain of $205.1 million which was recorded as other income.


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 Innovatix and Essensa as part of its Supply Chain Services segment.
Acquisition of Acro Pharmaceuticals
Acro Pharmaceutical Services LLC ("Acro") and Community Pharmacy Services, LLC (collectively with Acro, "Acro Pharmaceuticals") are specialty pharmacy businesses that provide customized healthcare management solutions to members. On August 23, 2016, the Company, through its consolidated subsidiary, NS3 Health, LLC, acquired 100% of the membership interests of Acro Pharmaceuticals for $75.0 million in cash. As a result of certain purchase price adjustments provided for in the purchase agreement, the adjusted purchase price was $62.9 million. The acquisition was funded with available cash on hand.
The Company has accounted for the Acro PharmaceuticalsMedpricer 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 intangible assets acquired was $12.1 million, primarily comprised of developed software technology. The Acro Pharmaceuticalsinitial purchase price allocation for the Company's acquisition of Medpricer is preliminary and subject to changes in fair value of working capital and valuation of the assets acquired and the liabilities assumed.
The Medpricer acquisition resulted in the recognition of approximately $33.9$26.2 million of goodwill (see Note 7 - Goodwill) attributable to the anticipated profitability of Acro Pharmaceuticals.Medpricer. The Acro PharmaceuticalsMedpricer acquisition was considered an asset acquisitiona stock purchase for tax purposes and accordingly, the Company expects the goodwill to beis not 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 ourthe Company's historic consolidated financial statements. The Company reports Acro PharmaceuticalsMedpricer as part of its Supply Chain Services segment.


Acquisition of Stanson
On November 9, 2018, the Company, through its consolidated subsidiary PHSI, acquired all of the outstanding capital stock in Stanson through a reverse subsidiary merger transaction for an adjusted purchase price of $55.4 million. The acquisition was funded with 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 March 31, 2020, achievement of certain development milestones on or prior to December 31, 2020 and achievement of a revenue target for the calendar year ended December 31, 2020. As of December 31, 2019, the fair value of the earn-out liability was $9.6 million (see Note 6 - 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 Stanson acquisition resulted in the recognition of $37.5 million of goodwill (see Note 8 - Goodwill and Intangible Assets) attributable to the anticipated profitability of Stanson. The Stanson acquisition was considered a stock purchase for tax purposes and accordingly, the goodwill is not 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 the Company's historic consolidated financial statements. The Company reports Stanson as part of its Performance Services segment.
(4) DISCONTINUED OPERATIONS AND EXIT ACTIVITIES
In connection with the sale of certain assets and wind down and exit from the specialty pharmacy business (see Note 1 - Organization and Basis of Presentation), the Company met the criteria for classifying certain assets and liabilities of its specialty pharmacy business as a discontinued operation as of June 30, 2019. Prior to its classification as a discontinued operation, the specialty pharmacy business was included as part of the Supply Chain Services segment.
The Company incurred $0.9 million of severance and retention expenses directly associated with the specialty pharmacy business within discontinued operations during the six months ended December 31, 2019.
The following table summarizes the major classes of assets and liabilities classified as discontinued operations at December 31, 2019 and June 30, 2019 (in thousands):
 December 31, 2019June 30, 2019
Assets  
Accounts receivable$—
$21,183
Inventory—
3,385
Assets of discontinued operations$—
$24,568
   
Liabilities  
Accounts payable$11
$2,255
Accrued expenses603
6,630
Accrued compensation and benefits101
2,373
Other current liabilities—
539
Liabilities of discontinued operations$715
$11,797


The following table summarizes the major components of net income (loss) from discontinued operations (in thousands):
 Three Months Ended December 31,Six Months Ended December 31,
 2019201820192018
Net revenue$—
$114,268
$—
$223,212
Cost of revenue—
110,772
—
216,626
Gross profit—
3,496
—
6,586
Selling, general and administrative expense(79)4,767
1,857
9,120
Amortization of purchased intangible assets—
661
—
1,322
Operating expenses(79)5,428
1,857
10,442
Operating gain (loss) from discontinued operations79
(1,932)(1,857)(3,856)
Net gain on disposal of assets822
—
3,231
—
Income (loss) from discontinued operations before income taxes901
(1,932)1,374
(3,856)
Income tax expense (benefit)287
(932)370
(1,457)
Income (loss) from discontinued operations, net of tax614
(1,000)1,004
(2,399)
Net (income) loss from discontinued operations attributable to non-controlling interest in Premier LP(280)519
(477)1,351
Net income (loss) from discontinued operations attributable to stockholders$334
$(481)$527
$(1,048)

(5) INVESTMENTS
Investments in Unconsolidated Affiliates
The Company's investments in unconsolidated affiliates consisted of the following (in thousands):
 Carrying Value Equity in Net Income
    Three Months Ended December 31,Six Months Ended December 31,
 December 31, 2019
June 30, 2019 2019201820192018
FFF$103,395
$96,905
 $2,885
$1,366
$6,490
$3,987
Other investments12,805
2,731
 104
78
106
147
Total investments$116,200
$99,636
 $2,989
$1,444
$6,596
$4,134

 Carrying Value Equity in Net Income (Loss)
    Three Months Ended December 31,Six Months Ended December 31,
 December 31, 2017June 30, 2017 2017201620172016
FFF$91,125
$85,520
 $1,268
$1,119
$5,605
$4,177
Bloodbuy2,001
2,066
 (31)(34)(65)(52)
PharmaPoint4,074
4,232
 (107)(85)(158)(162)
Innovatix—
—
 —
4,127
—
10,743
Other investments1,188
1,061
 127
—
127
—
Total investments$98,388
$92,879
 $1,257
$5,127
$5,509
$14,706
On July 26, 2016, theThe Company, through its consolidated subsidiary, PSCI, acquiredheld a 49% of the issued and outstanding stock ofinterest in FFF Enterprises, Inc. ("FFF") for $65.7 million in cash plus consideration in the formthrough its ownership of thestock of FFF putat December 31, 2019 and call rights.June 30, 2019. The Company recordedrecords the initial investment in FFF in the accompanying Condensed Consolidated Balance Sheets at $81.1 million, of which $65.7 million was in cash and $15.4 million was consideration in the form of the initial net fair value of the FFF put and call rights in the accompanying Condensed Consolidated Balance Sheets (see Note 56 - Fair Value Measurements for additional information related to the fair values of the FFF put and call rights)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 5.3 million units of Class B Membership Interests at December 31, 2017 and June 30, 2017. 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 5.0 million units of Class B Membership Interests at December 31, 2017 and June 30, 2017. 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.


The Company, through its consolidated subsidiary, PSCI, held 50% of the membership interests in Innovatix until December 2, 2016, at which time it acquired the remaining 50% membership interests (see Note 3 - Business Acquisitions and Note 14 - Related Party Transactions). Prior to the acquisition, the Company accounted for its investment in Innovatix using the equity method of accounting and included the investment as part of the Supply Chain Services segment.
Marketable Securities
The Company has historically invested its excess cash in commercial paper, U.S. government debt securities, corporate debt securities and other securities with maturities generally ranging from three months to five years from the date of purchase. The Company uses the specific-identification method to determine the cost of securities sold. At December 31, 2017 and June 30, 2017, the Company had no marketable securities other than those included in deferred compensation plan assets (see Note 5 - Fair Value Measurements).
(5)
(6) 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 LiabilitiesQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
December 31, 2019    
Cash equivalents$32,877
$32,877
$—
$—
Deferred compensation plan assets50,735
50,735
—
—
Total assets$83,612
$83,612
$—
$—
Earn-out liability$13,420
$—
$—
$13,420
FFF put right19,065
—
—
19,065
Total liabilities$32,485
$—
$—
$32,485
     
June 30, 2019    
Cash equivalents$57,607
$57,607
$—
$—
FFF call right204
—
—
204
Deferred compensation plan assets50,229
50,229
—
—
Total assets$108,040
$107,836
$—
$204
Earn-out liability$6,816
$—
$—
$6,816
FFF put right41,652
—
—
41,652
Total liabilities$48,468
$—
$—
$48,468
  Quoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
December 31, 2017    
Cash equivalents$28,390
$28,390
$—
$—
FFF call right2,108
—
—
2,108
Deferred compensation plan assets46,670
46,670
—
—
Total assets$77,168
$75,060
$—
$2,108
Earn-out liabilities$2,792
$—
$—
$2,792
FFF put right37,110
—
—
37,110
Total liabilities$39,902
$—
$—
$39,902
     
June 30, 2017    
Cash equivalents$22,218
$22,218
$—
$—
FFF call right4,655
—
—
4,655
Deferred compensation plan assets47,202
47,202
—
—
Total assets$74,075
$69,420
$—
$4,655
Earn-out liabilities$21,310
$—
$—
$21,310
FFF put right24,050
—
—
24,050
Total liabilities$45,360
$—
$—
$45,360
Cash equivalents were included in cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets (see Note 4 - Investments).
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 ($3.93.1 million and $5.7$4.8 million at December 31, 20172019 and June 30, 2017,2019, respectively) in the accompanying Condensed Consolidated Balance Sheets.
Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
Earn-out liabilities
Earn-out liabilities were incurred in connection with acquisitions of Healthcare Insights, LLC (acquired on July 31, 2015), Inflow Health, LLC (acquired on October 1, 2015) and Innovatix and Essensa (acquired on December 2, 2016) (see Note 3 - Business Acquisitions). At December 31, 2017 and June 30, 2017, the earn-out liabilities were classified within Level 3 of the fair value

hierarchy. The fair values of the earn-out liabilities were determined based on estimated future earnings and the probability of achieving them. The current portion of the earn-out liabilities was $2.6 million and $21.1 million at December 31, 2017 and June 30, 2017, respectively, and was included in other liabilities, current in the accompanying Condensed Consolidated Balance Sheets. The decrease in the current portion of the earn-out liabilities is attributable to an $18.5 million earn-out payment to GNYHA Holdings that occurred during the current period. The long-term portion of the earn-out liabilities was $0.2 million at December 31, 2017 and June 30, 2017, and was included in other liabilities, non-current in the accompanying Condensed Consolidated Balance Sheets. 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.
FFF put and call rights
Pursuant to a shareholders' agreement entered into inIn connection with the Company's equity investment in FFF, (see Note 4 - Investments), whichthe Company entered into a shareholders' agreement on July 26, 2016, which was amended and restated on November 22, 2017,2017. On July 29, 2019, the parties entered into a second amended and restated shareholders' agreement that provides, among other things, that the majority shareholder of FFF holds a put right that provides such shareholder (i) the right to require the Company to purchase 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) requires the Company to purchase all or a portion of its remainingthe majority shareholder's interest in FFF, on an all or nothing basis, on or after December 31, 2020.April 15, 2023. Any such required purchases are topurchase by the Company upon exercise of the put right by FFF's majority shareholder must 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 second amended and restated shareholders' agreement, provides the Company withhas a call right requiringthat requires the majority shareholder to sell its remaining interest in FFF to the Company, whichand is exercisable at any time within the later of 180 calendar days after the date of a Key Man Event (generally defined in the second amended and restated shareholders' agreement as the resignation, termination for cause, death or disability of the majority shareholder) or after January 30, calendar days after2021. As of December 31, 2020.2019, the call right had 0 value. In the event that the FFF put or calleither 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 valuevalues 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.

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.Sheets. Net changes in the fair valuevalues of the FFF put and call rights were recorded within other incomeexpense in the accompanying Condensed Consolidated Statements of Income.Income.

Earn-out liability
Earn-out liabilities were established in connection with the Medpricer and Stanson acquisitions. 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 earn-out liabilities and FFF put and call rights and earn-out liabilities is as follows (in thousands):
 Beginning BalancePurchases (Settlements)Gain (Loss)Ending Balance
Three Months Ended December 31, 2019    
FFF call right$52
$—
$(52)$—
Total Level 3 assets$52
$—
$(52)$—
Earn-out liability$9,390
$3,781
$(249)$13,420
FFF put right49,339
—
30,274
19,065
Total Level 3 liabilities$58,729
$3,781
$30,025
$32,485
     
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
     
Six Months Ended December 31, 2019    
FFF call right$204
$—
$(204)$—
Total Level 3 assets$204
$—
$(204)$—
Earn-out liabilities$6,816
$3,781
$(2,823)$13,420
FFF put right41,652
—
22,587
19,065
Total Level 3 liabilities$48,468
$3,781
$19,764
$32,485
     
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 right42,041
—
7,746
34,295
Total Level 3 liabilities$42,041
$4,548
$7,746
$38,843
 Beginning BalancePurchases (Settlements)Gain (Loss)Ending Balance
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 right24,008
—
(13,102)37,110
Total Level 3 liabilities$45,683
$(18,500)$(12,719)$39,902
     
Three Months Ended December 31, 2016    
FFF call right$10,316
$—
$434
$10,750
Total Level 3 assets$10,316
$—
$434
$10,750
Earn-out liabilities$2,359
$16,662
$2,308
$16,713
FFF put right25,811
—
(573)26,384
Total Level 3 liabilities$28,170
$16,662
$1,735
$43,097
     
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 right24,050
—
(13,060)37,110
Total Level 3 liabilities$45,360
$(18,500)$(13,042)$39,902
     
Six Months Ended December 31, 2016    
FFF call right$—
$10,361
$389
$10,750
Total Level 3 assets$—
$10,361
$389
$10,750
Earn-out liabilities$4,128
$16,662
$4,077
$16,713
FFF put right—
25,821
(563)26,384
Total Level 3 liabilities$4,128
$42,483
$3,514
$43,097

Non-Recurring Fair Value Measurements
During the six months ended December 31, 2017,2019, no non-recurring fair value measurements were required relatedrelating 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 Medpricer were determined using the income approach (see Note 3 - Business Acquisitions).

Financial Instruments forFor Which Fair Value Only is Disclosed
The fair values of non-interest bearing notes payable, classified as Level 2, were less than their carrying valuesvalue by approximately $0.5 million and $0.6 million at both December 31, 20172019 and June 30, 2017, respectively,2019, based on assumed market interest rates of 2.9%3.0% and 2.6% for December 31, 2017 and June 30, 2017,3.4%, respectively.
Other Financial Instruments
The fair values of cash, accounts receivable, accounts payable, accrued liabilities, and the Company's Credit Facility (as defined in Note 9 - Debt) approximated carrying value due to the short-term nature of these financial instruments.

(7) CONTRACT BALANCES
Deferred Revenue
Revenue recognized during the six months ended December 31, 2019 that was included in the opening balance of deferred revenue at June 30, 2019 was $15.9 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.
Reduction in net revenue recognized during the three and six months ended December 31, 2019 from performance obligations that were satisfied or partially satisfied in prior periods was $1.9 million and $0.7 million, respectively. The reduction was driven by $3.0 million and $4.5 million, respectively, associated with revised forecasts from underlying contracts that include variable consideration components as well as additional fluctuations due to input method contracts which occur in the normal course of business. This was offset by $1.1 million and $3.8 million, respectively, of net administrative fees revenue related to under-forecasted cash receipts received in the current period.
Net revenue recognized during the three and six months ended December 31, 2018 from performance obligations that were satisfied or partially satisfied in prior periods was $6.4 million and $8.9 million, respectively. The net revenue recognized during the three and six months ended December 31, 2018 was driven primarily by $3.3 million and $4.8 million, respectively, of net administrative fees revenue related to under-forecasted cash receipts received in the current period, as well as $3.1 million and $4.1 million, respectively, associated with revised forecasts from underlying contracts that include variable consideration components as well as additional fluctuations due to input method contracts which occur in the normal course of business.
Remaining performance obligations represent the portion of the transaction price that has not yet been satisfied or achieved. As of December 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $491.7 million. The Company expects to recognize approximately 46% of the remaining performance obligations over the next 12 months and an additional 27% over the following 12 months, with the remainder recognized thereafter.
(8) GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill consisted of the following (in thousands):
 Supply Chain ServicesPerformance ServicesTotal
June 30, 2019$336,973
$543,736
$880,709
Acquisition of Medpricer26,219
—
26,219
December 31, 2019$363,192
$543,736
$906,928


(6) INTANGIBLE ASSETS, NETThe initial purchase price allocation for the Company's acquisition of Medpricer 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.
Intangible Assets, Net
Intangible assets, net consisted of the following (in thousands):
 Weighted Average Useful Life as of December 31, 2019December 31, 2019June 30, 2019
Member relationships14.7 years$220,100
$220,100
Technology5.6 years172,217
164,217
Customer relationships8.7 years49,930
48,010
Trade names7.9 years16,170
16,060
Non-compete agreements5.4 years10,630
8,800
Favorable lease commitmentsn/a—
11,393
Other6.0 years260
—
Total intangible assets 469,307
468,580
Accumulated amortization (219,921)(197,858)
Total intangible assets, net $249,386
$270,722

 Useful LifeDecember 31, 2017June 30, 2017
Member relationships14.7 years$220,100
$220,100
Technology5.0 years142,317
143,727
Customer relationships8.3 years48,120
48,120
Trade names8.3 years22,710
22,710
Distribution network10.0 years22,400
22,400
Favorable lease commitments10.1 years11,393
11,393
Non-compete agreements5.9 years8,710
8,710
Total intangible assets 475,750
477,160
Accumulated amortization (125,903)(99,198)
Intangible assets, net $349,847
$377,962
Total intangible assets increased due to the October 2019 acquisition of Medpricer (see Note 3 - Business Acquisitions). Intangible asset amortization totaled $13.8was $11.9 million and $11.2$13.2 million for the three months ended December 31, 20172019 and 2016,2018, respectively, and $27.7$25.0 million and $20.4$26.2 million for the six months ended December 31, 20172019 and 2016,2018, respectively.
(7) GOODWILL
Goodwill consisted of the following (in thousands):
 December 31, 2017
June 30,
2017
Supply Chain Services$400,348
$400,348
Performance Services506,197
506,197
Total goodwill$906,545
$906,545
(8)(9) DEBT
Long-term debt consisted of the following (in thousands):
 Commitment AmountDue DateDecember 31, 2019June 30, 2019
Credit Facility$1,000,000
November 9, 2023$50,000
$25,000
Notes payable—
Various7,573
8,611
Total debt  57,573
33,611
Less: current portion 
(50,739)(27,608)
Total long-term debt  $6,834
$6,003
 Commitment AmountDue DateDecember 31, 2017June 30, 2017
Credit Facility$750,000
June 24, 2019$200,000
$220,000
Notes payable—
Various7,683
14,272
Total debt  207,683
234,272
Less: Current portion  (201,139)(227,993)
Total long-term debt  $6,544
$6,279

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 June 24, 2014 and amended on June 4, 2015.November 9, 2018 (the "Credit Facility"). The Credit Facility has a maturity date of June 24, 2019.November 9, 2023, subject to up to 2 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 $750.0 million$1.0 billion with (i) a $25.0$50.0 million sub-facility for standby letters of credit and (ii) a $75.0$100.0 million sub-facility for swingline loans. The Credit Facility also provides that Co-Borrowers may be increased from time to time at(i) incur incremental term loans and (ii) request an increase in the Company's requestrevolving commitments under the Credit Facility, together up to an aggregate additional amount of $250.0$350.0 million, subject to lender approval.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.


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% or, the one-month LIBOR plus 1.0% and 0.0%) plus the Applicable Rate. The Applicable Rate ranges from 1.125%1.000% to 1.750%1.500% for Eurodollar Loans and 0.125%0.000% to 0.750%0.500% for Base Rate Loans. In the event that LIBOR is no longer available, the Credit Facility states that interest will be calculated based upon rates offered to leading banks for comparable loans by leading banks in the London interbank market. At December 31, 2017,2019, the interest rate for three-monthone-month Eurodollar Loans was 2.815%2.763% and the interest rate for Base Rate Loans was 4.625%4.750%. The Co-Borrowers are required to pay a commitment fee ranging from 0.125%0.100% to 0.250%0.200% per annum on the actual daily unused amount of commitments under the Credit Facility. At December 31, 2017,2019, the commitment fee was 0.125%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, of which certain covenant calculations use EBITDA, a Non-GAAP financial measure.investments. Under the terms of the Credit Facility, Premier GP is not permitted to allow itsGP's consolidated total net leverage ratio (as defined in the Credit Facility) tomay not exceed 3.003.75 to 1.00 for 4 consecutive quarters, provided that, in connection with any period of fouracquisition for which the aggregate consideration exceeds $250.0 million, the maximum consolidated total net leverage ratio may increase to 4.25 to 1.00 for the 4 consecutive quarters.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 3.002.50 to 1.00 at the end of every fiscal quarter. Premier GP was in compliance with all such covenants at December 31, 2017.2019.
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 $30.0$75.0 million, bankruptcy and other insolvency events, ERISA-related liabilities and judgment defaults in excess of $30.0$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 required 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 a stock repurchase program,programs, and other general corporate activities. During the six months ended December 31, 2017,2019, the Company repaid $50.0$100.0 million of borrowings and borrowed an additional $30.0$125.0 million under the Credit Facility. The Company had $50.0 million in outstanding borrowings under the Credit Facility of $200.0 million at December 31, 2017. Borrowings due within one year2019 with $950.0 million of the balance sheet date are classified as current liabilities in the Condensed Consolidated Balance Sheets. They may be renewed or extended at the optionavailable borrowing capacity after reductions for outstanding borrowings and outstanding letters of credit. On January 31, 2020, the Company through the maturity daterepaid $50.0 million of outstanding borrowings under the Credit Facility.
Notes Payable
At December 31, 20172019 and June 30, 2017,2019, the Company had $7.7$7.6 million and $14.3$8.6 million respectively, in notes payable, respectively, consisting primarily of non-interest bearing notes payable outstanding to departed member owners, of which $1.2$0.8 million and $8.0$2.6 million, respectively, were included in current portion of long-term debt and $6.5$6.8 million and $6.3$6.0 million, respectively, were included in long-term debt, less current portion, in the accompanying Condensed Consolidated Balance Sheets.Sheets. Notes payable generally have stated maturities of five years from their date of issuance.
(9)(10) REDEEMABLE LIMITED PARTNERS' CAPITAL
Redeemable limited partners' capital represents the member owners' 60%approximate 46% ownership of Premier LP through their ownership of Class B common units at December 31, 2017.2019. 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, 20172019 and 2016,2018, the Company recorded decreasesadjustments 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 amountamounts of $638.3$214.2 million and $397.1$(56.5) 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 tabletables below providesprovide a summary of the changes in the redeemable limited partners' capital from June 30, 20172019 to December 31, 20172019 and June 30, 2018 to December 31, 2018 (in thousands):
 Receivables From Limited PartnersRedeemable Limited Partners' CapitalTotal Redeemable Limited Partners' Capital
June 30, 2019$(1,204)$2,524,474
$2,523,270
Distributions applied to receivables from limited partners69
—
69
Redemption of limited partners—
(1,371)(1,371)
Net income attributable to non-controlling interest in Premier LP—
41,907
41,907
Distributions to limited partners—
(13,699)(13,699)
Exchange of Class B common units for Class A common stock by member owners—
(50,792)(50,792)
Adjustment of redeemable limited partners' capital to redemption amount—
(694,309)(694,309)
September 30, 2019$(1,135)$1,806,210
$1,805,075
Distributions applied to receivables from limited partners70
—
70
Net income attributable to non-controlling interest in Premier LP—
55,704
55,704
Distributions to limited partners—
(12,689)(12,689)
Exchange of Class B common units for Class A common stock by member owners—
(223,946)(223,946)
Adjustment of redeemable limited partners' capital to redemption amount—
480,153
480,153
December 31, 2019$(1,065)$2,105,432
$2,104,367

Receivables From Limited PartnersRedeemable Limited Partners' CapitalTotal Redeemable Limited Partners' CapitalReceivables From Limited PartnersRedeemable Limited Partners' CapitalTotal Redeemable Limited Partners' Capital
June 30, 2017$(4,177)$3,142,760
$3,138,583
June 30, 2018$(2,205)$2,922,615
$2,920,410
Distributions applied to receivables from limited partners437
—
437
Net income attributable to non-controlling interest in Premier LP—
55,113
55,113
Distributions to limited partners—
(14,993)(14,993)
Exchange of Class B common units for Class A common stock by member owners—
(30,536)(30,536)
Adjustment of redeemable limited partners' capital to redemption amount—
708,193
708,193
September 30, 2018$(1,768)$3,640,392
$3,638,624
Distributions applied to receivables from limited partners984
—
984
416
—
416
Redemption of limited partners—
(269)(269)—
(448)(448)
Net income attributable to non-controlling interest in Premier LP—
101,095
101,095
—
62,631
62,631
Distributions to limited partners—
(41,148)(41,148)—
(14,288)(14,288)
Exchange of Class B common units for Class A common stock by member owners—
(162,265)(162,265)—
(441,344)(441,344)
Adjustment of redeemable limited partners' capital to redemption amount—
(638,340)(638,340)—
(651,709)(651,709)
December 31, 2017$(3,193)$2,401,833
$2,398,640
December 31, 2018$(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, 2017.2019.
During the six months ended December 31, 2017, two2019, 3 limited partners withdrew from Premier LP. The limited partnership agreement provides for the redemption of former limited partners' Class B common units that are not eligible for exchange, 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)or 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.
Quarterly distributions made to limited partners during the current fiscal year are as follows (in thousands):
Date
Distribution (a)
August 24, 2017$24,951
November 22, 2017$20,752
Date
Distribution (a)
August 22, 2019$13,202
November 27, 2019$13,699
(a)Distributions are equal to Premier LP’sLP'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 $20.4$12.7 million quarterly distribution on or before February 22, 2018.28, 2020. The distribution is reflected in limited partners' distribution payable in the accompanying Condensed Consolidated Balance Sheets at December 31, 2017.2019.

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 independent Audit and Compliance Committee.Committee of the Board of Directors. During the six months ended December 31, 2017,2019, the Company recorded total reductions of $162.3$274.7 million to redeemable limited partners' capital to reflect the exchange of approximately 4.98.2 million Class B common units and surrender and retirement of associateda corresponding number of 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 1112 - 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 ExchangeNumber of Class B Common Units ExchangedReduction in Redeemable Limited Partners' Capital
July 31, 20191,310,771
$50,792
October 31, 20196,873,699
223,946
Total8,184,470
$274,738
Date of Quarterly ExchangeNumber of Class B Common Units ExchangedReduction in Redeemable Limited Partners' Capital
July 31, 20171,231,410
$42,976
October 31, 20173,651,294
119,289
Total4,882,704
$162,265

(10)(11) STOCKHOLDERS' DEFICIT
As of December 31, 2017,2019, there were 54,685,66866,189,222 shares of the Company's Class A common stock, par value $0.01 per share, and 82,282,74855,581,646 shares of the Company's Class B common stock, par value $0.000001 per share, outstanding.
On October 31, 2017,May 7, 2019, the Company'sCompany announced that its Board of Directors authorized the repurchase of up to $200$300.0 million of our outstandingthe Company's Class A common stock as part of a balanced capital deployment strategy, such repurchases to be made from time to time in private or open market transactions at the Company's discretion in accordance with applicable federal securities laws.during fiscal year 2020. As of December 31, 2017,2019, the Company had purchased approximately 2.64.6 million shares of Class A common stock at an average price of $28.96$32.25 per share for a total purchase price of approximately $74.7 million, of which $3.9 million relates to a forward purchase commitment included within accounts payable on our Condensed Consolidated Balance Sheets as a result of applying trade date accounting when recording the repurchase of such shares. As of December 31, 2017, the Company had approximately $125.3 million available under its share repurchase authorization, which expires June 30, 2018. Subsequent to December 31, 2017 and as of February 2, 2018, the Company had purchased approximately 1.0 million additional shares of Class A common stock at an average price of $31.67 per share for a total incremental purchase price of approximately $32.9 million, the amounts of which are not reflected in the Company's condensed consolidated financial statements for the quarter ended December 31, 2017. $148.6 million.


The repurchase authorization may be suspended, delayed, or discontinued at any time at the discretion of the Company's Board of Directors. Repurchases are subject to compliance with applicable federal securities laws and the Company's management may, at its discretion, suspend, delay, or discontinue repurchases at any time, based on market conditions, alternate uses of capital, or other factors.
Holders of Class A common stock are entitled to (i) one1 vote for each share held of record on all matters submitted to a vote of stockholders, (ii) receive dividends, when and if declared by the Board of Directors out of funds legally available, subject to any statutory or contractual restrictions on the payment of dividends and subject to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock or any class of series of stock having a preference over or the right to participate with the Class A common stock with respect to the payment of dividends or other distributions and (iii) receive pro rata, based on the number of shares of Class A common stock held, the remaining assets available for distribution upon the dissolution or liquidation of Premier, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any.
Holders of Class B common stock are entitled to one1 vote for each share held of record on all matters submitted to a vote of stockholders, but are not entitled to receive dividends, other than dividends payable in shares of Premier's common stock, or to receive a distribution upon the dissolution or a liquidation of Premier. Pursuant to the Votingterms of a voting trust agreement by and among the Company, Premier LP, the holders of Class B common stock and Wells Fargo Delaware Trust Agreement,Company, N.A., as the trustee, the trustee will vote all of the Class B common stock as a block in the manner determined by the plurality of the votes received by the trustee from the member owners for the election of directors to serve on the Board of Directors, and by a majority of the votes received by the trustee from the member owners for all other matters. Class B common stock will not be listed on any stock exchange and, except in connection with any permitted sale or transfer of Class B common units, cannot be sold or transferred.
(11)(12) EARNINGS (LOSS) PER SHARE
Basic earnings per share of Premier is computed by dividing net income attributable to stockholders by the weighted average number of shares of common stock outstanding for the period. Net income attributable to stockholders includes the adjustment recorded in the period to reflect redeemable limited partners' capital at the redemption amount, as a result ofwhich is due to the exchange benefit obtained by limited partners through the ownership of Class B common units. Except when the effect would be anti-dilutive, the diluted earnings (loss) per share calculation, which is calculated using the treasury stock method, includes the impact of shares that could be issued under the outstanding stock options, non-vested restricted stock units and awards, shares of non-vested performance share awards and the effect of the assumed redemption of Class B common units through the issuance of Class A common shares.


The following table provides a reconciliation of the numerator and denominator used for basic and diluted (loss) earnings per share (in thousands, except per share amounts):
 Three Months Ended December 31,Six Months Ended December 31,
 2017201620172016
Numerator for basic earnings per share:    
Net income attributable to stockholders$281,200
$400,275
$617,630
$470,577
     
Numerator for diluted earnings (loss) per share:    
Net income attributable to stockholders$281,200
$400,275
$617,630
$470,577
Adjustment of redeemable limited partners' capital to redemption amount(317,916)(335,264)(638,340)(397,072)
Net income attributable to non-controlling interest in Premier LP56,485
181,173
101,095
230,774
Net income19,769
246,184
80,385
304,279
Tax effect on Premier, Inc. net income (a)
(251,085)(34,496)(261,636)(55,448)
Adjusted net income (loss)$(231,316)$211,688
$(181,251)$248,831
     
Denominator for basic earnings per share:    
Weighted average shares (b)
55,209
49,445
54,059
48,330
     
Denominator for diluted earnings (loss) per share:    
Weighted average shares (b)
55,209
49,445
54,059
48,330
Effect of dilutive securities: (c)
    
Stock options189
220
270
261
Restricted stock261
181
283
176
Performance share awards—
—
—
—
Class B shares outstanding83,578
91,462
85,029
93,366
Weighted average shares and assumed conversions139,237
141,308
139,641
142,133
     
Basic earnings per share$5.09
$8.10
$11.43
$9.74
Diluted earnings (loss) per share$(1.66)$1.50
$(1.30)$1.75
 Three Months Ended December 31,Six Months Ended December 31,
 2019201820192018
Numerator for basic (loss) earnings per share:    
Net (loss) income from continuing operations attributable to stockholders (a)
$(444,002)$694,370
$279,536
$13,604
Net income (loss) from discontinued operations attributable to stockholders334
(481)527
(1,048)
Net (loss) income attributable to stockholders$(443,668)$693,889
$280,063
$12,556
  
 
Numerator for diluted (loss) earnings per share: 
 
Net (loss) income from continuing operations attributable to stockholders (a)
$(444,002)$694,370
$279,536
$13,604
Adjustment of redeemable limited partners' capital to redemption amount—
(651,709)(214,156)—
Net income from continuing operations attributable to non-controlling interest in Premier LP—
63,150
97,134
—
Net (loss) income from continuing operations(444,002)105,811
162,514
13,604
Tax effect on Premier, Inc. net income (b)
—
(12,779)(22,941)—
Adjusted net (loss) income from continuing operations$(444,002)$93,032
$139,573
$13,604


 Three Months Ended December 31,Six Months Ended December 31,
 2019201820192018
  
 
Net income (loss) from discontinued operations attributable to stockholders$334
$(481)$527
$(1,048)
Net income (loss) from discontinued operations attributable to non-controlling interest in Premier LP—
(519)477
—
Adjusted net income (loss) from discontinued operations$334
$(1,000)$1,004
$(1,048)
  
 
Adjusted net (loss) income$(443,668)$92,032
$140,577
$12,556
  
 
Denominator for basic (loss) earnings per share: 
 
Weighted average shares (c)
64,552
59,876
63,668
56,548
  
 
Denominator for diluted (loss) earnings per share: 


Weighted average shares (c)
64,552
59,876
63,668
56,548
Effect of dilutive securities: (d)
 
 
Stock options—
727
420
709
Restricted stock—
278
250
327
Class B shares outstanding—
72,791
60,493
—
Weighted average shares and assumed conversions64,552
133,672
124,831
57,584
     
Basic (loss) earnings per share:    
Basic (loss) earnings per share from continuing operations$(6.88)$11.60
4.39
0.24
Basic earnings (loss) per share from discontinued operations0.01
(0.01)0.01
(0.02)
Basic (loss) earnings per share attributable to stockholders$(6.87)$11.59
4.40
0.22
     
Diluted (loss) earnings per share:    
Diluted (loss) earnings per share from continuing operations$(6.88)$0.70
1.12
0.24
Diluted earnings (loss) per share from discontinued operations0.01
(0.01)0.01
(0.02)
Diluted (loss) earnings per share attributable to stockholders$(6.87)$0.69
1.13
0.22
(a)Net (loss) income from continuing operations attributable to stockholders was calculated as follows (in thousands):
 Three Months Ended December 31,Six Months Ended December 31,
 2019201820192018
Net income from continuing operations$91,575
$105,811
$162,514
$189,183
Net income from continuing operations attributable to non-controlling interest in Premier LP(55,424)(63,150)(97,134)(119,095)
Adjustment of redeemable limited partners' capital to redemption amount(480,153)651,709
214,156
(56,484)
Net (loss) income from continuing operations attributable to stockholders$(444,002)$694,370
$279,536
$13,604
(b)Represents income tax expense related to Premier, Inc. retaining the portion of net income from continuing operations attributable to income from non-controlling interest in Premier, LP for the purpose of diluted (loss) earnings per share.
(b)(c)Weighted average number of common shares used for basic (loss) earnings per share excludes weighted average shares of non-vested stock options, non-vested restricted stock, non-vested performance share awards and Class B shares outstanding for the three and six months ended December 31, 20172019 and 2016.2018.
(c)(d)For the three and six months ended December 31, 2017,2019, the effect of 2.257.9 million class B common units exchangeable for Class A common shares and 0.6 million stock options and restricted units was excluded from diluted weighted average shares outstanding due to the net loss from continuing operations attributable to stockholders sustained for the period and as they hadincluding them would have an anti-dilutive effect for the period.


For the three and six months ended December 31, 2019, the effect of 0.5 million performance share awards was excluded from diluted weighted average shares outstanding as the awards had not satisfied the applicable performance criteria at the end of the period.
For the three months ended December 31, 2018, the effect of 0.1 million stock options and restricted stock units was excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect. Additionally, the effect of 0.7 million performance share awards was excluded from diluted weighted average shares outstanding as they had not satisfied the applicable performance criteria at the end of the period.
For the six months ended December 31, 2018, the effect of 0.1 million stock options and restricted stock units was excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect. The effect of 76.3 million Class B common units exchangeable for Class A common shares were excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect. Additionally, the effect of 0.7 million performance share awards was excluded from diluted weighted average shares outstanding as they had not satisfied the applicable performance criteria at the end of the period.
For the three and six months ended December 31, 2016, the effect of 1.9 million stock options, restricted stock units and performance share awards were excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect.


Pursuant to the terms of the Exchange Agreement, on a quarterly basis, the Company has the option, as determined by the independent Audit and Compliance Committee, to settle the exchange of Class B common units of Premier LP by member owners for cash, an equal number of Class A common shares of Premier, Inc. or a combination of cash and shares of Class A common stock. In connection with the exchange of Class B common units by member owners, regardless of the consideration used to settle the exchange, an equal number of shares of Premier's Class B common stock are surrendered by member owners and retired (see Note 910 - Redeemable Limited Partners' Capital). The following table presents certain information regarding the exchange of Class B common units and associated Class B common stock for Premier's Class A common stock and/or cash in connection with the quarterly exchanges pursuant to the terms of the Exchange Agreement, including activity related to the Class A and Class B common units and Class A and Class B common stock through the date of the applicable quarterly exchange:
Quarterly Exchange by Member Owners
Class B Common Shares Retired Upon Exchange (a)
Class B Common Shares Outstanding After Exchange (a)
Class A Common Shares Outstanding After Exchange (b)
Percentage of Combined Voting Power Class B/Class A Common Stock
July 31, 20171,231,410
86,067,478
53,212,057
62%/38%
October 31, 20173,651,294
82,416,184
57,215,143
59%/41%
January 31, 2018 (c)
1,006,435
81,169,319
54,829,086
60%/40%
Quarterly Exchange by Member Owners
Class B Common Shares Retired Upon Exchange (a)
Class B Common Shares Outstanding After Exchange (a)
Class A Common Shares Outstanding After Exchange (b)
Percentage of Combined Voting Power Class B/Class A Common Stock
July 31, 20191,310,771
62,767,860
63,274,182
49.8%/50.2%
October 31, 20196,873,699
55,581,646
66,522,023
46%/54%
January 31, 20204,866,082
50,715,564
71,066,141
42%/58%
(a)The number of Class B common shares retired or outstanding is equivalent to the number of Class B common units retired upon exchange or outstanding after the exchange, as applicable.
(b)
The number of Class A common shares outstanding after exchange also includes activity related to the Company's share repurchase program (see Note 1011 - Stockholders' Deficit), and equity incentive plan (see Note 1213 - Stock-Based Compensation) and departed member owners (see Note 9 - Redeemable Limited Partners' Capital).
(c)As the quarterly exchange occurred on January 31, 2018,2020, the impact of the exchange is not reflected in the condensed consolidated financial statements for the quarter ended December 31, 2017.2019. The Company utilized 0.7 million treasury shares to facilitate a portion of this exchange, and as a result had 0.0 million Class A common shares held in treasury as of January 31, 2020 after the exchange.
(12)(13) STOCK-BASED COMPENSATION
Stock-based compensation expense is recognized over the requisite service period, which generally equals the stated vesting period. Pre-tax stock-based compensation expense was $8.9 million and $6.3 million for the three months ended December 31, 2017 and 2016, respectively, with a resulting deferred tax benefit of $2.2 million and $2.4 million, respectively. Pre-tax stock-based compensation expense was $17.7 million and $12.1 million for the six months ended December 31, 2017 and 2016, respectively, with a resulting deferred tax benefit of $4.4 million and $4.6 million, respectively. The associated deferred tax benefit was calculated at a rate of 25% for the three and six months ended December 31, 20172019 and 38% for the three and six months ended December 31, 2016,2018, which represents the expected effective income tax rate at the time of the compensation expense deduction primarily at PHSI, and differs from the Company's current effective income tax rate which includes the impact of partnership income not subject to federal and state income taxes. The decrease inSee Note 14 - Income Taxes for further information.
Stock-based compensation expense and the resulting deferred tax benefit rate is a result of the Tax Cuts and Jobs Act, which was enacted on December 22, 2017 (see Note 13 - Income Taxes).benefits were as follows (in thousands):
 Three Months Ended December 31,Six Months Ended December 31,
 2019201820192018
Pre-tax stock-based compensation expense (a)
$7,775
$7,595
$11,479
$13,687
Deferred tax benefit1,959
1,876
2,893
3,381
Total stock-based compensation expense, net of tax$5,816
$5,719
$8,586
$10,306

(a)Pre-tax stock based compensation expense attributable to discontinued operations of $0.1 million and $0.2 million, respectively, for the three and six months ended December 31, 2018 is not included in the above table.
Premier 2013 Equity Incentive Plan
The Premier 2013 Equity Incentive Plan, as amended and restated (and including any further amendments thereto, the "2013 Equity Incentive Plan") provides for grants of up to 11.314.8 million shares of Class A common stock, all of which are eligible to be issued as non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units or


performance share awards. As of December 31, 2017,2019, there were 3.55.9 million shares available for grant under the 2013 Equity Incentive Plan.


The following table includes information related to restricted stock, performance share awards and stock options for the six months ended December 31, 2017:2019:
 Restricted Stock Performance Share Awards Stock Options

Number of AwardsWeighted Average Fair Value at Grant Date Number of AwardsWeighted Average Fair Value at Grant Date Number of OptionsWeighted Average Exercise Price
Outstanding at June 30, 2019589,550
$37.06
 1,439,815
$36.38
 2,798,673
$30.22
Granted339,599
$36.93
 712,224
$36.25
 —
$—
Vested/exercised(166,006)$32.10
 (493,759)$31.58
 (210,875)$30.48
Forfeited(21,426)$38.84
 (45,387)$39.08
 (10,939)$32.43
Outstanding at December 31, 2019741,717
$38.05
 1,612,893
$37.72
 2,576,859
$30.19
         
Stock options outstanding and exercisable at December 31, 2019      2,434,257
$30.04
 Restricted Stock Performance Share Awards Stock Options

Number of AwardsWeighted Average Fair Value at Grant Date Number of AwardsWeighted Average Fair Value at Grant Date Number of OptionsWeighted Average Exercise Price
Outstanding at June 30, 2017576,988
$32.92
 1,085,872
$32.79
 3,372,499
$30.31
Granted206,929
$32.81
 690,470
$32.62
 550,563
$32.80
Vested/exercised(109,174)$31.67
 (352,867)$31.73
 (103,061)$28.26
Forfeited(20,276)$32.50
 (46,502)$32.43
 (92,179)$34.28
Outstanding at December 31, 2017654,467
$33.11
 1,376,973
$32.99
 3,727,822
$30.64
         
Stock options outstanding and exercisable at December 31, 2017      2,620,480
$29.64

Restricted stock units and restricted stock awards issued and outstanding generally vest over a three-year period for employees and a one-year period for directors. Performance share awards issued and outstanding generally vest over a three-year period if performance targets are met. Stock options have a term of ten years from the date of grant. Vested stock options will expire either after twelve months ofafter an employee's termination with Premier or immediately upon an employee's termination with Premier, depending on the termination circumstances. Stock options generally vest in equal annual installments over three years.
Unrecognized stock-based compensation expense at December 31, 20172019 was as follows (in thousands):
 Unrecognized Stock-Based Compensation ExpenseWeighted Average Amortization Period
Restricted stock$17,383
2.0 years
Performance share awards34,599
2.0 years
Stock options1,011
0.7 years
Total unrecognized stock-based compensation expense$52,993
2.0 years
 Unrecognized Stock-Based Compensation ExpenseWeighted Average Amortization Period
Restricted stock$11,111
2.06 years
Performance share awards27,385
2.00 years
Stock options10,282
2.03 years
Total unrecognized stock-based compensation expense$48,778
2.02 years

The aggregate intrinsic value of stock options at December 31, 20172019 was as follows (in thousands):
 Intrinsic Value of Stock Options
Outstanding and exercisable$19,079
Expected to vest734
Total outstanding$19,813
  
Exercised during the six months ended December 31, 2019$1,494

 Intrinsic Value of Stock Options
Outstanding and exercisable$3,336
Expected to vest8
Total outstanding$3,344
  
Exercised during the six months ended December 31, 2017$588


The Company estimated the fair value of each stock option on the date of grant using a Black-Scholes option-pricing model, applying the following assumptions, and amortized expense over each option's vesting period using the straight-line attribution approach:

Six Months Ended December 31,
 20172016
Expected life (a)
6 years6 years
Expected dividend (b)
——
Expected volatility (c)
29.92% - 32.26%32.0% - 33.0%
Risk-free interest rate (d)
1.89% - 2.14%1.31% - 2.00%
Weighted average option grant date fair value$9.48 - $11.42$10.48 - $10.80
(a)The six-year expected life (estimated period of time outstanding) of stock options granted was estimated using the "Simplified Method" which utilizes the midpoint between the vesting date and the end of the contractual term. This method was utilized for the stock options due to the lack of historical exercise behavior of Premier's employees.
(b)No dividends are expected to be paid over the contractual term of the stock options granted, resulting in the use of a zero expected dividend rate.
(c)The expected volatility rate is based on the observed historical volatilities of comparable companies.
(d)The risk-free interest rate was interpolated from the five-year and seven-year Constant Maturity Treasury rate published by the United States Treasury as of the date of the grant.
(13)(14) INCOME TAXES
The Company's income tax expense is attributable to the activities of the Company, PHSI, PSCI and PSCI,Premier Marketplace, LLC ("PMLLC"), all of which are subchapter C corporations and are subject to U.S. federal and state income taxes. In contrast, under the provisions of federal and state laws,statutes, Premier LP is not subject to federal and state income taxes, as the income realized by Premier LP is taxable to its partners.


On November 8th, 2019, the State of North Carolina made significant changes to its income tax law, effective for tax years beginning on or after January 1, 2020. As a result, of the TCJA that was enacted on December 22, 2017, the U.S. federal corporate income tax rate was reduced from 35% to 21%. In accordance with U.S. GAAP, the impact of changes in tax rates and tax laws is recognized as a component of income tax expense from continuing operations in the period of enactment. For fiscal year-end companies, determination of temporary differences contemplates the use of a combined U.S. federal income tax rate (which blends the income tax rates that were in effect prior to and after enactment) depending on expected timing of recognition for such temporary differences. The Company has remeasured its deferred tax balancesassets and liabilities as of the enactment date accordingly. Givenand recorded an income tax expense of $38.6 million as a discrete item in the nature and relative timing ofCompany's income tax provision during the TCJA enactment, the Company is continuing to interpret the breadth of impact and has ultimately prescribed provisional relief pursuant to SAB 118 to certain components of its deferred tax balances. More specifically, the Company has incorporated various estimates regarding timing and determination of temporary difference recognition when calculating its net deferred tax expense.six months ended December 31, 2019.
Income tax expense for the three months ended December 31, 20172019 and 20162018 was $231.5$64.6 million and $37.4$2.7 million, respectively, which reflects effective tax rates of 92%41% and 13%3%, respectively. Income tax expense for the six months ended December 31, 20172019 and 20162018 was $244.3$74.2 million and $60.8$14.1 million, respectively, which reflects effective tax rates of 75%31% and 17%7%, respectively. The increase in effective tax rates is primarilylargely attributable to the aforementioned remeasurement of deferred tax balances of which $221.2 million related to the aforementioned decreasechange in the U.S. federal corporateNorth Carolina state income tax rate. law. Excluding the deferred tax remeasurement, the effective tax rates are 17% and 15% for the three and six months ended December 31, 2019, respectively.
The Company's effective tax rates differ from income taxes recorded using a combined (or blended)statutory rate largely due to Premier LP income, which is not subject to federal, state or local income taxes as well as valuation allowances associated withtaxes.
Net deferred tax assets at PHSI.
Deferred tax assets decreased $159.7$3.1 million to $274.6$414.1 million at December 31, 20172019 from $434.3$417.2 million at June 30, 2017.2019. The current period balancedecrease in net deferred tax assets was comprisedlargely driven by the $38.6 million remeasurement of $305.5deferred tax balances related to the change in North Carolina state income tax law and $21.0 million attributable to the deferred tax impact of tax-deductible goodwill and the gain on put and call rights, offset by an increase of $49.6 million in deferred tax assets at Premier, Inc. offsetrelated to departures and quarterly exchanges by $30.9 million in deferred tax liabilities at PHSI and PSCI. The decrease in deferred tax assets from the prior period was largely driven by $221.2 million in net reductions to deferred tax assets and liabilities in connection with the underlying revaluation associated with the previously mentioned decrease in the U.S. federal corporate income tax rate. This decrease was partially offset by a $65.3 million increase in deferred tax assets in connection with the quarterly member owner exchanges that occurredowners during the six months ended December 31, 2017.2019.
The Company's tax receivable agreement ("TRA")TRA liabilities represent a payable to the limited partners for 85% of the tax savings the Company expects to receive, if any, in U.S. federal, foreign, state and local income and franchise tax that may be realized (or deemed to realize, in the case of payments required to be made upon certain occurrences under such TRAs), payable to limited partners in connection with the Section 754 election by Premier LP. Tax savings are generated as a result of the increase in tax basis resulting from the initial sale of Class B common units, subsequent exchanges (pursuant to the Exchange Agreement) and payments under the TRA. The election results in adjustments to the tax basis of the assets of Premier LP upon member owner exchanges of Class B common units of


Premier LP for Class A common stock of Premier, Inc. or cash. TRA liabilities decreased $92.5by $4.5 million from $344.1 million at June 30, 2019 to $247.2$339.6 million at December 31, 2017 from $339.7 million at June 30, 2017.2019. The change in TRA liabilities was driven by $23.7 million in TRA remeasurements primarily bydue to the $177.2 million decreasechange in valuation as a result of the TCJA's decrease in the U.S. federal corporateNorth Carolina state income tax rates,law, $17.4 million in TRA payments and $14.3 million attributable to member departures during the six months ended December 31, 2019, partially offset by $62.2the $50.9 million in increasesincrease in TRA liabilities in connection with the quarterly member owner exchanges that occurred during the six months ended December 31, 2017 and $20.9 million associated with the revaluation and remeasurement of the TRA liabilities due to the change in the allocation and realization of future anticipated payments.2019.
(14)(15) RELATED PARTY TRANSACTIONS
GNYHA
GNYHA Purchasing Alliance, LLC and its member organizations ("GNYHA PA") owned approximately 8% of the outstanding partnership interests in Premier LP as of December 31, 2017. Although we no longer consider GNYHA PA a related party under U.S. GAAP, prior period information is included below.
Net administrative fees revenue based on purchases by GNYHA Services, Inc. ("GNYHA") (an affiliate of GNYHA PA) and its member organizations was $17.2 million and $34.9 million for the three and six months ended December 31, 2016, respectively. The Company has a contractual requirement under the GPO participation agreement to pay each member owner revenue share from Premier LP equal to 30% of all gross administrative fees collected by Premier LP based upon purchasing by such member owner's facilities through Premier LP's GPO supplier contracts. As GNYHA also remits to Premier LP all gross administrative fees collected by GNYHA based on purchases by its member organizations through GNYHA's own GPO supplier contracts, it also receives revenue share from Premier LP equal to 30% of such gross administrative fees remitted to the Company. Approximately $7.8 million of revenue share obligations in the accompanying Condensed Consolidated Balance Sheets related to revenue share obligations to GNYHA and its member organizations at June 30, 2017.
In addition, of the $25.0 million limited partners' distribution payable in the accompanying Condensed Consolidated Balance Sheets at June 30, 2017, $2.7 million were payable to GNYHA and its member organizations. Services and support revenue earned from GNYHA and its member organizations was $3.5 million and $7.1 million during the three and six months ended December 31, 2016, respectively. Product revenue earned from, or attributable to services provided to, GNYHA and its member organizations was $4.3 million and $8.0 million during the three and six months ended December 31, 2016, respectively. Receivables from GNYHA and its member organizations, included in due from related parties in the accompanying Condensed Consolidated Balance Sheets, were $5.4 million at June 30, 2017.
Innovatix and Essensa
The Company held 50% of the membership interests in Innovatix until December 2, 2016, at which time it acquired the remaining 50% of the membership interests from GNYHA Holdings (see Note 3 - Business Acquisitions). The Company's share of Innovatix's net income included in equity in net income of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Income prior to the acquisition was $4.1 million and $10.7 million during the three and six months ended December 31, 2016, respectively. The Company maintained a group purchasing agreement with Innovatix under which Innovatix members were permitted to utilize Premier LP's GPO supplier contracts. Gross administrative fees revenue and a corresponding revenue share recorded under the arrangement prior to the acquisition were $8.5 million and $19.9 million for the three and six months ended December 31, 2016, respectively.
The Company historically maintained a group purchasing agreement with Essensa, under which Essensa utilized the Company's GPO supplier contracts. On December 2, 2016, the Company acquired 100% of the membership interests in Essensa from GNYHA Holdings (see Note 3 - Business Acquisitions). Net administrative fees revenue recorded from Essensa prior to the acquisition was $0.5 million and $1.2 million for the three and six months ended December 31, 2016, respectively.
FFF
The Company's 49% ownership share of net income of FFF, which was acquired on July 26, 2016, included in equity in net income of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Income was $1.3$2.9 million and $1.1$1.4 million for the three months ended December 31, 20172019 and 2016,2018, respectively, and $5.6$6.5 million and $4.2$4.0 million for the six months ended December 31, 20172019 and 2016,2018, respectively. The Company maintains group purchasing agreements with FFF and receives administrative fees for purchases made by the Company's members pursuant to those agreements. Net administrative fees revenue recorded from purchases under those agreements was $2.3$2.4 million and $1.6$1.9 million during the three months ended December 31, 20172019 and 2016,2018, respectively, and $4.0$4.6 million and $1.7$4.2 million duringfor the six months ended December 31, 20172019 and 2016,2018, respectively.
AEIX


The Company conducts all operational activities for American Excess Insurance Exchange Risk Retention Group ("AEIX"), a reciprocal risk retention group that provides excess and umbrella healthcare professional and general liability insurance to certain hospital and healthcare system members. The Company is reimbursed by AEIX for actual costs, plus an annual incentive management fee not to exceed $0.5 million per calendar year. The Company received cost reimbursement of $1.4 million and $1.1$1.3 million during the three months ended December 31, 20172019 and 2016,2018, respectively and $2.9$2.7 million and $2.2$2.6 million duringfor the six months ended December 31, 20172019 and 2016,2018, respectively. As of December 31, 20172019 and June 30, 2017,2019, $0.6 million and $0.7 million, respectively, in amounts receivable from AEIX are included in due from related partiesaccounts receivable, net in the accompanying Condensed Consolidated Balance Sheets.
(15)


(16) COMMITMENTS AND CONTINGENCIES
Operating Leases
Operating lease expense for the three and six months ended December 31, 2019 was $2.6 million and $5.5 million, respectively. As of December 31, 2019, the weighted average remaining lease term was 6.2 years and the weighted average discount rate was 3.9%.
Future minimum lease payments under noncancelable operating leases with initial lease terms in excess of one year were as follows (in thousands):
 December 31, 2019
June 30, 2019 (a)
2020$6,019
$12,130
202111,194
11,539
202211,125
11,468
202311,388
11,533
202411,509
11,510
Thereafter20,501
20,645
Total future minimum lease payments71,736
78,825
Less: imputed interest8,267
—
Total operating lease liabilities (b)
$63,469
$—
(a)Presented in accordance with ASC Topic 840.
(b)As of December 31, 2019, $9.3 million of the total operating lease liabilities were included within other liabilities, current in the Condensed Consolidated Balance Sheets.
Other Matters
The Company is not currently involved in any litigation it believes to be significant.material. The Company is periodically involved in litigation, arising in the ordinary course of business or otherwise, which from time to time may include claims relating to commercial, product liability, tort and personal injury, employment, antitrust, intellectual property, or other regulatory matters. If current or future government regulations, specifically, those with respect to antitrust or healthcare laws, are interpreted or enforced in a manner adverse to the Company or its business, the Company may be subject to enforcement actions, penalties and other material limitations which could have a material adverse effect on the Company's business, financial condition and results of operations.
(16)(17) SEGMENTS
The Company delivers its solutions and manages its business through two2 reportable business segments, the Supply Chain Services segment and the Performance Services segment. The Supply Chain Services segment includes the Company's GPO, integrated pharmacy offerings and direct sourcing activities. The Performance Services segment includes the Company's informatics, collaborative, advisory services, governmentconsulting services and insurance services businesses.

The following table presents disaggregated revenue by business segment and underlying source (in thousands):
 Three Months Ended December 31,Six Months Ended December 31,
Net revenue:2019201820192018
Supply Chain Services    
Net administrative fees$172,114
$165,695
$344,517
$327,695
Other services and support2,482
2,826
5,043
4,037
Services174,596
168,521
349,560
331,732
Products58,040
44,214
106,161
87,873
Total Supply Chain Services232,636
212,735
455,721
419,605
Performance Services86,970
94,854
166,295
180,586
Net revenue$319,606
$307,589
$622,016
$600,191

Segment
Additional segment information related to depreciation and amortization expense, capital expenditures and total assets was as follows (in thousands):
Three Months Ended December 31,Six Months Ended December 31,Three Months Ended December 31,Six Months Ended December 31,
2017201620172016
Net revenue: 
Supply Chain Services 
Net administrative fees$159,343
$129,071
$310,334
$255,047
Other services and support3,421
1,201
5,570
2,846
Services162,764
130,272
315,904
257,893
Products162,101
142,378
314,764
248,507
Total Supply Chain Services324,865
272,650
630,668
506,400
Performance Services86,533
85,850
171,294
165,372
Net revenue$411,398
$358,500
$801,962
$671,772
 2019201820192018
Depreciation and amortization expense (a):
  
Supply Chain Services$5,171
$2,453
$10,666
$2,920
$4,869
$4,584
$9,694
$9,288
Performance Services23,634
20,984
46,551
41,859
30,293
27,319
60,913
53,232
Corporate2,322
1,912
4,315
3,797
2,154
2,814
4,288
5,427
Total depreciation and amortization expense$31,127
$25,349
$61,532
$48,576
$37,316
$34,717
$74,895
$67,947
  
Capital expenditures:  
Supply Chain Services$541
$2,149
$848
$2,149
$609
$341
$2,086
$836
Performance Services19,742
13,920
33,291
30,771
18,612
19,456
37,116
38,830
Corporate1,692
1,290
4,483
1,405
3,564
2,250
5,566
7,443
Total capital expenditures$21,975
$17,359
$38,622
$34,325
$22,785
$22,047
$44,768
$47,109
 
Total assets: December 31, 2017June 30, 2017
Supply Chain Services $1,001,803
$1,017,023
Performance Services 874,269
888,862
Corporate 444,091
601,951
Total assets  $2,320,163
$2,507,836
Total assets (b):
December 31, 2019June 30, 2019
Supply Chain Services$1,162,767
$1,111,934
Performance Services920,753
941,183
Corporate532,642
516,450
Total assets$2,616,162
$2,569,567

(a)Includes amortization of purchased intangible assets.
(b)
As of June 30, 2019, Supply Chain Services total assets included $24.6 million in assets of discontinued operations related to the specialty pharmacy business.
The Company uses Segment Adjusted EBITDA (a financial measure not determined in accordance with generally accepted accounting principles ("Non-GAAP")) as its primary measure of profit or loss to assess segment performance and to determine the allocation of resources. The Company also uses Segment Adjusted EBITDA to facilitate the comparison of the segment operating performance on a consistent basis from period to period. The Company defines Segment Adjusted EBITDA as the segment's net revenue and equity in net income of unconsolidated affiliates less operating expenses directly attributable to the segment excluding depreciation and amortization, amortization of purchased intangible assets, merger and acquisition related expenses and non-recurring or non-cash items. Operating expenses directly attributable to the segment include expenses associated with sales and marketing, general and administrative and product development activities specific to the operation of each segment. Non-recurring items are income or expenses and other items that have not been earned or incurred within the prior two years and are not expected to recur within the next two years. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of Segment Adjusted EBITDA. Segment Adjusted EBITDA also excludes any income and expense that has been classified as discontinued operations.
For more information on Segment Adjusted EBITDA and the use of Non-GAAP financial measures, see "Our Use of Non-GAAP Financial Measures" within Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.



A reconciliation of income before income taxes to Segment Adjusted EBITDA is as follows (in thousands):
 Three Months Ended December 31,Six Months Ended December 31,
 2017201620172016
Income before income taxes$251,277
$283,613
$324,657
$365,044
Remeasurement gain attributable to acquisition of Innovatix, LLC—
(204,833)—
(204,833)
Equity in net income of unconsolidated affiliates (a)
(1,257)(5,127)(5,509)(14,706)
Interest and investment loss, net (b)
1,508
857
3,003
1,009
Loss on disposal of long-lived assets400
—
1,720
1,518
Other income13,356
131
11,893
(875)
Operating income265,284
74,641
335,764
147,157
Depreciation and amortization17,310
14,198
33,817
28,216
Amortization of purchased intangible assets13,817
11,151
27,715
20,360
Stock-based compensation (c)
8,951
6,423
17,908
12,319
Acquisition related expenses1,674
4,216
4,773
7,153
Remeasurement of tax receivable agreement liabilities (d)
(177,174)—
(177,174)(5,722)
ERP implementation expenses (e)
156
432
491
1,526
Acquisition related adjustment - revenue (f)
87
5,813
192
5,964
Equity in net income of unconsolidated affiliates (a)
1,257
5,127
5,509
14,706
Deferred compensation plan income (g)
1,577
8
3,116
1,103
Other expense603
—
602
—
Adjusted EBITDA$133,542
$122,009
$252,713
$232,782
     
Segment Adjusted EBITDA:    
Supply Chain Services$132,045
$119,022
$257,665
$236,326
Performance Services27,929
28,603
49,150
50,914
Corporate(26,432)(25,616)(54,102)(54,458)
Adjusted EBITDA$133,542
$122,009
$252,713
$232,782
 Three Months Ended December 31,Six Months Ended December 31,
 2019201820192018
Income before income taxes$156,132
$108,547
$236,685
$203,237
Equity in net income of unconsolidated affiliates (a)
(2,989)(1,444)(6,596)(4,134)
Interest and investment loss (income), net359
859
(117)1,547
Gain on FFF put and call rights (b)
(30,222)(10,850)(22,383)(7,567)
Other (income) expense(2,747)3,651
(3,009)2,309
Operating income120,533
100,763
204,580
195,392
Depreciation and amortization25,378
21,479
49,913
41,732
Amortization of purchased intangible assets11,938
13,238
24,982
26,215
Stock-based compensation (c)
7,838
7,680
11,690
13,913
Acquisition and disposition related expenses2,835
1,896
8,976
2,933
Remeasurement of tax receivable agreement liabilities (d)
(28,356)—
(23,682)—
Equity in net income of unconsolidated affiliates (a)
2,989
1,444
6,596
4,134
Deferred compensation plan income (expense) (e)
2,751
(4,235)2,992
(2,899)
Other expense, net2,499
679
2,614
1,050
Non-GAAP Adjusted EBITDA$148,405
$142,944
$288,661
$282,470
     
Segment Non-GAAP Adjusted EBITDA:    
Supply Chain Services$147,959
$135,026
$297,870
$271,336
Performance Services29,967
37,100
50,343
67,675
Corporate(29,521)(29,182)(59,552)(56,541)
Non-GAAP Adjusted EBITDA$148,405
$142,944
$288,661
$282,470
(a)Refer to Note 45 - Investments for further information regarding equity in net income of unconsolidated affiliates.more information.
(b)Represents interest expense, net and realized gains and losses on our marketable securities.
Refer to Note 6 - Fair Value Measurements for more information.
(c)Represents non-cash employee stock-based compensation expense and stock purchase plan expense of $0.1 million and $0.2 million during both of the three months ended December 31, 20172019 and 2016, respectively,2018 and $0.2 million and $0.3 million during both of the six months ended December 31, 20172019 and 2016, respectively.2018.
(d)RepresentsThe adjustments to TRA liabilities for a 14% decrease in the U.S. federal corporate income tax rate that occurred during thethree and six months ended December 31, 2017, which2019 is a result of the TCJA that was enacted on December 22, 2017, and a 1% decreaseprimarily attributable to decreases in the North Carolina state incomePremier, Inc. effective tax rate that occurred during the six months ended December 31, 2016.related to state tax liabilities.
(e)Represents implementationrealized and other costs associated with the implementation of our enterprise resource planning ("ERP") system.
(f)
Upon acquiring Innovatixunrealized gains and Essensa, we recorded a net $5.6 million purchase accounting adjustment to Adjusted EBITDA during the three months ended December 31, 2016 that reflects the fair value of administrative fees related to member purchases that occurred prior to December 2, 2016, but were reported to us subsequent to that date through December 31, 2016. Under our revenue recognition accounting policy, which is an accordance with GAAP, these administrative fees would be ordinarily recorded as revenue when reported to us; however, the acquisition method of accounting requires us to estimate the amount of purchases prior to the acquisition datelosses and to record the fair value of the administrative fees to be received from those purchases as an account receivable (as opposed to recognizing revenue when these transactions are reported to us) and record any corresponding revenue share obligation as a liability. The purchase accounting adjustment amounted to an estimated $23.3 million of accounts receivable relating to these administrative fees and an estimated $4.1 million for the related revenue share obligation through December 31, 2016.
dividend income on deferred compensation plan assets.
This item also includes non-cash adjustments to deferred revenue of acquired entities of $0.2 million and $0.3 million for the three and six months ended December 31, 2016, respectively. Business combination accounting rules require
(18) SUBSEQUENT EVENTS
On February 4, 2020, the Company announced that it entered into an asset purchase agreement (the “Purchase Agreement”) dated as of February 3, 2020 to recordacquire substantially all of the assets and assume certain liabilities of Acurity, Inc. (“Acurity”) and Nexera, Inc. (“Nexera”). Acurity and Nexera are each indirect wholly-owned subsidiaries of Greater New York Hospital Association, Inc. (“GNYHA”). Acurity is a deferredregional group purchasing organization and has been a customer and strategic partner of the Company for more than 24 years. Nexera is a hospital financial improvement consulting firm which partners with healthcare organizations to improve hospital and health system performance, with a significant focus on supply chain enhancement and transformation.
Pursuant to the terms of the Purchase Agreement, the Company will pay an aggregate amount of $291.5 million. The amount payable at closing is $166.1 million. An additional $120.0 million will be paid in 4 equal annual installments of $30.0 million on or about June 30, 2021, 2022, 2023 and 2024. An additional $5.4 million is expected to be paid during the Company’s third fiscal quarter of 2021. The Company expects to fund the transaction with borrowings under the Credit Facility. In addition to the aggregate amount of $291.5 million, the Purchase Agreement provides for a graduated contingent payment to GNYHA of up to $30.0 million based upon the Company’s achievement of a range of member renewals on terms to be agreed to by the Company and GNYHA based on prevailing market conditions in December 2023. At the closing of the transaction, GNYHA Purchasing


Alliance, LLC will unilaterally terminate its participation in the Tax Receivable Agreement made as of September 25, 2013, as amended to date, by and among Premier and the limited partners of Premier LP, and will cease to be a limited partner of Premier LP on November 2, 2020.
Prior to entering into the Purchase Agreement, Acurity agreed to provide one-time rebates to certain Acurity members based on their pre-closing purchasing volume. The Company has concluded that these one-time rebates, estimated between $92 million to $97 million, will be excluded from the purchase price and capitalized as prepaid contract administrative fee share at closing. The prepaid contract administrative fee share will be treated as a reduction in the determination of net administrative fee revenue liability at its fair value only ifover the remaining life of the acquired deferred revenue represents a legal performance obligation assumed bycontracts on the acquirer. The fair valueCompany’s financial statements.
This transaction is based on direct and indirect incremental costsexpected to close during the Company’s third fiscal quarter of providing the services plus a normal profit margin. Generally, this results in a reduction2020, subject to the purchased deferred revenue balance, which was based on upfront software license update fees and product support contracts assumed in connection with acquisitions. Because these support contracts are typically one year in duration, our GAAP revenues for the one year period subsequent to the acquisition of a business do not reflect the full amount of support revenues on these assumed support contracts that would have otherwise been recorded by the acquired entity. The Non-GAAP adjustment to software license update fees and product support revenues is intended to include, and thus reflect, the full amount of such revenues.customary closing conditions.
(g) Represents realized and unrealized gains and losses and dividend income on deferred compensation plan assets.


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report. This discussion is designed to provide the reader with information that will assist in understanding our condensed consolidated financial statements, the changes in certain key items in those financial statements from quarter to quarter, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our condensed consolidated financial statements. In addition, the following discussion includes certain forward-looking statements. For a discussion of important factors, including the continuing development of our business and other factors which could cause actual results to differ materially from the results referred to in the forward-looking statements, see the discussions under "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" herein and in the Company'sour Form 10-K for the fiscal year ended June 30, 20172019 (the "2017"2019 Annual Report"), filed with the Securities and Exchange Commission ("SEC").
Business Overview
Our Business
Premier, Inc. ("Premier", the "Company", "we", or "our") is a leading healthcare performance improvement company, uniting an alliance of approximately 3,900more than 4,000 U.S. hospitals and health systems and approximately 150,000175,000 other providers and organizations to transform healthcare. We partner with hospitals, health systems, physicians and other healthcare providers with the common goal of improving and innovating in the clinical, financial and operational areas of their businesses to meet the demands of a rapidly evolving healthcare industry. We deliver value through a comprehensive technology-enabled platform that offers critical supply chain services, clinical, financial, operational and population health software-as-a-service ("SaaS") informatics products, advisoryconsulting services and performance improvement collaborative programs.
As of December 31, 2017,2019, we were controlledowned, in part, by 165155 U.S. hospitals, health systems and other healthcare organizations, which represented 1,425approximately 1,450 owned, leased and managed acute care facilities and other non-acute care organizations, through their ownership of Class B common stock. As of December 31, 2017,2019, the outstanding Class A common stock and Class B common stock represented approximately 40%54% and 60%46%, respectively, of our combined outstanding Class A and Class B common stock and accordingly, the Class B common stock held by member owners no longer represents the majority of our outstanding common stock. AllOn July 31, 2019, as a result of the Class B common unit exchange process, we no longer qualified for the "controlled company" exemption under NASDAQ rules, and we must comply with all general NASDAQ rules regarding board and committee composition by July 31, 2020. We expect to comply with all NASDAQ rules in a timely manner, including having a majority of independent directors on the Board of Directors by July 31, 2020.
As of December 31, 2019, all of our Class B common stock was held beneficially by our member owners and all of our Class A common stock was held by public investors, which may include member owners that have received shares of our Class A common stock in connection with previous quarterly exchanges 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 (see Note 1 - Organization and Basis of Presentation to the accompanying condensed consolidated financial statements for more information).


We generated net revenue, net income from continuing operations and Adjusted EBITDA (a financial measure not determined in accordance with generally accepted accounting principles ("Non-GAAP")) for the periods presented as follows (in thousands):
Three Months Ended December 31,Six Months Ended December 31,Three Months Ended December 31, Six Months Ended December 31,
201720162017201620192018 20192018
Net revenue$411,398
$358,500
$801,962
$671,772
$319,606
$307,589
 $622,016
$600,191
Net income$19,769
$246,184
$80,385
$304,279
Net income from continuing operations$91,575
$105,811
 $162,514
$189,183
Non-GAAP Adjusted EBITDA$133,542
$122,009
$252,713
$232,782
$148,405
$142,944
 $288,661
$282,470
See “Our"Our Use of Non-GAAP Financial Measures”Measures" and “Results"Results of Operations”Operations" below for a discussion of our use of Non-GAAP Adjusted EBITDA and a reconciliation of net income from continuing operations to Non-GAAP Adjusted EBITDA.
Our Business Segments
Our business model and solutions are designed to provide our members access to scale efficiencies spread thewhile focusing on optimization of information resources and cost of their development,containment, provide actionable intelligence derived from anonymized data in our data warehouse provided by our members, mitigate the risk of innovation and disseminate best practices that will help our member organizations succeed in their transformation to higher quality and more cost-effective healthcare. We deliver our integrated platform of solutions that address the areas of total cost management, quality and safety improvement and population health management through two business segments: Supply Chain Services and Performance Services.
Segment net revenue for the three months ended December 31, 2019 and 2018 was as follows (in thousands):
 Three Months Ended December 31, Change % of Net Revenue
Net revenue:20192018 20192018 20192018
Supply Chain Services$232,636
$212,735
 $19,901
9 % 73%69%
Performance Services86,970
94,854
 (7,884)(8)% 27%31%
Net revenue$319,606
$307,589
 $12,017
4 % 100%100%
Segment net revenue for the six months ended December 31, 2019 and 2018 was as follows (in thousands):
 Six Months Ended December 31, Change % of Net Revenue
Net revenue:20192018 20192018 20192018
Supply Chain Services$455,721
$419,605
 $36,116
9 % 73%70%
Performance Services166,295
180,586
 (14,291)(8)% 27%30%
Net revenue$622,016
$600,191
 $21,825
4 % 100%100%
Our Supply Chain Services segment includes one of the largest healthcare group purchasing organization programs ("GPO") programs in the United States, serving acute, non-acute, non-healthcare and alternate sites, and includes integrated pharmacy andour direct sourcing activities. Supply Chain Services net revenue grew from $272.7 million for the three months ended December 31, 2016 to $324.9


million for the three months ended December 31, 2017, representing net revenue growth of 19%, and accounted for 79% of our overall net revenue for the three months ended December 31, 2017. Supply Chain Services net revenue grew from $506.4 million for the six months ended December 31, 2016 to $630.7 million for the six months ended December 31, 2017, representing net revenue growth of 25%, and accounted for 79% of our overall net revenue for the six months ended December 31, 2017. We generate revenue in our Supply Chain Services segment from administrative fees received from suppliers based on the total dollar volume of supplies purchased by our members and through product sales in connection with our integrated pharmacy and direct sourcing activities.
Our Performance Services segment includes one of the largest informatics and advisoryconsulting services businesses in the United States focused on healthcare providers. Performance Services net revenue increased from $85.9 million for the three months ended December 31, 2016 to $86.5 million for the three months ended December 31, 2017, representingOur software as a 1% increase, and accounted for 21% of our overall net revenue for the three months ended December 31, 2017. Performance Services net revenue increased from $165.4 million for the six months ended December 31, 2016 to $171.3 million for the six months ended December 31, 2017, representing a 4% increase, and accounted for 21% of our overall net revenue for the six months ended December 31, 2017. Our SaaSservice ("SaaS") informatics products utilize our comprehensive data set to provide actionable intelligence to our members, enabling them to benchmark, analyze and identify areas of improvement across three main categories: cost management, quality and safety, and population health management. The Performance Services segment also includes our technology-enabled performance improvement collaboratives, advisory services, governmentconsulting services and insurance management services.
Acquisitions and Divestitures


Acquisition of Innovatix and EssensaMedpricer
Prior to December 2, 2016, the Company, through its consolidated subsidiary, Premier Supply Chain Improvement ("PSCI"), held 50%On October 28, 2019, we acquired all of the membership interestsoutstanding capital stock in Innovatix, LLCMedpricer.com, Inc. ("Innovatix"). On December 2, 2016, the Company, through PSCI, acquired the remaining 50% ownership interests of Innovatix and 100% of the ownership interest in Essensa Ventures, LLC ("Essensa"Medpricer") Thefor an adjusted purchase price after adjustments pursuant to the purchase agreement, was $336.0 million. The acquisition was fundedof $38.5 million with borrowings under the Company's credit facility dated June 24, 2014, as amended on June 4, 2015 (the "Credit Facility"). Innovatix and Essensa are GPOs focused on serving alternate site healthcare providersCredit Facility. Medpricer is a SaaS-based provider of technology solutions that enable hospitals and other non-healthcare organizations throughout the United States. The Company reports Innovatixto analyze, benchmark and Essensasource purchased services contracts independent of any existing GPO affiliation. Medpricer is reported as part of itsthe Supply Chain Services segment. See Note 3 - Business Acquisitions to the accompanying condensed consolidated financial statements for morefurther information.
Acquisition of Acro PharmaceuticalsStanson
On August 23, 2016, the Company, through its consolidated subsidiary, NS3 Health, LLC,November 9, 2018, we acquired 100%all of the membership interests of Acro Pharmaceutical Services LLCoutstanding capital stock in Stanson Health, Inc. ("Acro"Stanson") and Community Pharmacy Services, LLC (collectively with Acro, "Acro Pharmaceuticals"). The aggregatefor an adjusted purchase price after adjustments pursuant to the purchase agreement, was $62.9of $55.4 million. The acquisition was funded with available cash on hand. Acro PharmaceuticalsStanson is a specialty pharmacy businessSaaS-based provider of clinical decision support tools that provides customized healthcare management solutionsare integrated directly into the electronic health record workflow, to members. The Company reports Acro Pharmaceuticalshelp provide real-time, patient-specific best practices at the point of care. Stanson is reported as part of its Supply Chainthe Performance Services segment. See Note 3 - Business Acquisitions to the accompanying condensed consolidated financial statements for morefurther information.
Divestiture of Specialty Pharmacy Business - Discontinued Operations
On June 7, 2019, we completed the sale of prescription files and records and certain other assets used in our specialty pharmacy business for $22.3 million. On June 10, 2019, we received $7.6 million for the sale of a portion of our pharmaceutical inventory and on July 24, 2019, an additional $3.6 million primarily in connection with the sale of our remaining pharmaceutical inventory. As of December 31, 2019, we had substantially completed the wind down and exit from the specialty pharmacy business.
We met the criteria for classifying certain assets and liabilities of the specialty pharmacy business as a discontinued operation as of June 30, 2019. Accordingly, unless otherwise indicated, information in this Quarterly Report has been retrospectively adjusted to reflect continuing operations for all periods presented. See Note 4 - Discontinued Operations and Exit Activities to the accompanying condensed consolidated financial statements for further information.
Market and Industry Trends and Outlook
We expect that certain trends and economic or industry-wide factors will continue to affect our business, both in the short-term and long-term. We have based our expectations described below on assumptions made by us and on information currently available to us. To the extent our underlying assumptions about, or interpretation of, available information prove to be incorrect, our actual results may vary materially from our expected results. See "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in the 2019 Annual Report.
Trends in the U.S. healthcare market affect our revenues and costs in the Supply Chain Services and Performance Services segments. The trends we see affecting our current healthcare business include the impact of the implementation of current or future healthcare legislation, particularly the uncertainty regarding the status of the ACA,Affordable Care Act, its repeal, replacement, or other modification, the enactment of new regulatory and reporting requirements, expansion and contraction of insurance coverage and associated costs that may impact subscriber elections, intense cost pressure, payment reform, provider consolidation, shift in care to the alternate site market and increased data availability and transparency. To meet the demands of this environment, there will be increased focus on scale and cost containment and healthcare providers will need to measure and report on and bear financial risk for outcomes. WeOver the long-term, we believe these trends will result in increased demand for our Supply Chain Services and Performance Services solutions in the areas of cost management, quality and safety, and population health management, however, there are uncertainties and risks that may affect the actual impact of these anticipated trends, expected demand for our services or related assumptions on our business. See "Cautionary Note Regarding Forward-Looking Statements" for more information.


Critical Accounting Policies and Estimates
Management's DiscussionRefer to Note 1 - Organization and AnalysisBasis of Financial ConditionPresentation and Results of Operations is primarily based upon ourNote 2 - Significant Accounting Policies to the accompanying condensed consolidated financial statements which have been prepared in accordance with GAAP. The preparation offor more information related to our condensed consolidated financial statements requires us 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, including estimates for allowances for doubtful accounts, useful lives of property and equipment, stock-based compensation, payables under tax receivable agreements ("TRA"), deferred tax balances including valuation allowances on deferred tax assets, uncertain tax positions, values of investments not publicly traded, deferred revenue, future cash flows associated with asset impairments, values of put and call rights and the allocation of purchase prices are evaluated on an ongoing basis. 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,in 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%. As changes under the TCJA are broad and complex, the Company continues to interpret the breadthpreparation of its immediate and long-term impacts. The Company notes that 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 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 has prescribed such provisional relief via SAB 118 by incorporating various estimates regarding timing and determination of temporary difference recognition when calculating components of its deferred tax balances. While the Company is able to provide reasonable estimates of the impactsas well as information related to the TCJA, the final impact may differ from these estimates, due to, among other things,material changes in interpretations, assumptions, additional guidance that may be released by the I.R.S. and other actions that we may take that are yet to be determined.
There have been no material changes to the Company'sour significant accounting policies as describedthat were included in the Company's 2017our 2019 Annual Report.
New Accounting Standards
New accounting standards that we have recently adopted as well as those that have been recently issued but not yet adopted by the Companyus are included in Note 2 - Significant Accounting Policies to the accompanying condensed consolidated financial statements, which is incorporated herein by reference.


Key Components of Our Results of Operations
Net Revenue
Net revenue consists of service revenue, which includes net administrative fees revenue and other services and support revenue, and product revenue. Net administrative fees revenue consists of GPO net administrative fees in our Supply Chain Services segment. Other services and support revenue consists primarily of fees generated by our Performance Services segment in connection with our SaaS informatics products subscriptions, license fees, advisoryconsulting services and performance improvement collaborative subscriptions.subscriptions, and, to a lesser extent, service fees from our academic initiative. Product revenue consists of integrated pharmacy and direct sourcing product sales, which are included in the Supply Chain Services segment.
Supply Chain Services
Supply Chain Services revenue consists of GPO net administrative fees (gross administrative fees received from suppliers, reduced by the amount of any revenue share paid to members), specialty pharmacy revenue, and direct sourcing revenue and managed service revenue.


The success of our Supply Chain Services revenue streams are influenced by our ability to negotiate favorable contracts with suppliers and members, the number of members that utilize our GPO supplier contracts and the volume of their purchases, the number of members that utilize our integrated pharmacy, as well as the impact of changes in the defined allowable reimbursement amounts determined by Medicare, Medicaid and other managed care plans and the number of members that purchase products through our direct sourcing activities and the impact of competitive pricing. Our managed services line of business is a fee for service model created to perform supply chain related services for members, including pharmacy benefit management ("PBM") services in partnership with a national PBM company.
Performance Services
Performance Services revenue consists of SaaS informatics products subscriptions, license fees, performance improvement collaborative and other service subscriptions, professional fees for advisoryconsulting services, insurance services management fees and commissions from endorsed commercial insurance programs.
Our Performance Services growth will depend upon the expansion of our SaaS informatics products, performance improvement collaboratives and advisoryconsulting services to new and existing members, impact of applied research initiatives, renewal of existing subscriptions to our SaaS and licensed informatics products, and expansionour ability to generate additional applied sciences engagements and expand into new markets with potential future acquisitions.markets.
Cost of Revenue
Cost of revenue consists of cost of service revenue and cost of product revenue.
Cost of service revenue includes expenses related to employees (including compensation and benefits) and outside consultants who directly provide services related to revenue-generating activities, including advisoryconsulting services to members and implementation services related to SaaS informatics products.along with associated amortization of certain capitalized contract costs. Amortization of contract costs represent amounts that have been capitalized and reflect the incremental costs of obtaining and fulfilling a contract. Amortization of contract costs included within cost of service revenue include costs related to implementing SaaS informatics tools. Cost of service revenue also includes expenses related to hosting services, related data center capacity costs, third-party product license expenses and amortization of the cost of internal use software.internally-developed software applications.
Cost of product revenue consists of purchase and shipment costs for specialty pharmaceuticals and direct sourced medical products. Our cost of product revenue is influenced by the cost and availability of specialty pharmaceuticals and the manufacturing and transportation costs associated with direct sourced medical products.
Other Operating Income
Other operating income includes the adjustment to TRA liabilities. Changes in estimated TRA liabilities that are the result of a change in tax accounting method, including the impacts of the TCJA, are recorded as a component of other operating income in the Condensed Consolidated Statements of Income. Changes in estimated TRA liabilities that are related to new basis changes as a result of the exchange of Class B common units for a like number of shares of Class A common stock or as a result of departed member owners are recorded as an increase to additional paid-in capital in the Condensed Consolidated Statements of Stockholders' Deficit. See "Income Tax Expense" below for additional information.
Operating Expenses
Selling, general and administrative expenses are directly associated with selling and administrative functions and support of revenue-generating activities including expenses to support and maintain our software-related products and services. Selling, general and administrative expenses primarily consist of compensation and benefits related costs, travel-related expenses, business development expenses, including costs for business acquisition opportunities, business disposition related expenses, indirect costs such as insurance, professional fees and other general overhead expenses, and adjustments to TRA liabilities.amortization of certain contract costs. Amortization of contract costs represent amounts that have been capitalized and reflect the incremental costs of obtaining and fulfilling a contract. Amortization of contract costs included within selling, general and administrative expenses include sales commissions.
Research and development expenses consist of employee-related compensation and benefit expenses and third-party consulting fees of technology professionals, net of capitalized labor, incurred to develop our software-related products and services.
Amortization of purchased intangible assets includes the amortization of all identified intangible assets resulting from acquisitions.assets.


Other Income, Net
Other income, net, includes equity in net income of unconsolidated affiliates that is generated from our equity method investments. Our equity method investments primarily consist of our 49% ownership in FFF Enterprises, Inc. ("FFF"), and prior to the acquisition of Innovatix and Essensa on December 2, 2016, included our 50% ownership interest in Innovatix. In connection with the acquisition of Innovatix and Essensa, the Company recorded a one-time gain of $205.1 million related to the remeasurement of our historical 50% equity method investment in Innovatix to fair value.. Other income, net, also includes the change in fair value of our FFF put and call rights (see Note 6 - Fair Value Measurements to the accompanying condensed consolidated financial statements), interest income and expense, realized and unrealized gains or losses on deferred compensation plan assets and gains or losses on the disposal of assets.


Income Tax Expense
The Company'sOur income tax expense is attributable to the activities of the Company, PHSIPremier, Inc., Premier Healthcare Solutions, Inc. ("PHSI"),Premier Supply Chain Improvement, Inc. ("PSCI") and PSCI,Premier Marketplace, LLC ("PMLLC"), all of which are subchapter C corporations and are subject to U.S. federal and state income taxes. In contrast, under the provisions of federal and state laws, Premier LP is not subject to federal and state income taxes as the income realized by Premier LP is taxable to its partners. The Company’sOur overall effective tax rate differs from the U.S. statutory tax rate primarily due to the aforementioned ownership structure as well as other items noted in Note 1314 - Income Taxes.Taxes to the accompanying condensed consolidated financial statements.
Given the Company’sour ownership and capital structure, various effective tax rates are calculated for specific tax items. For example, the deferred tax benefit related to stock-based compensation expense (see Note 1213 - Stock-Based Compensation)Compensation to the accompanying condensed consolidated financial statements) is calculated based on the effective tax rate of PHSI, the legal entity where the majority of stock-based compensation expense is recorded. The Company’sOur effective tax rate, as discussed in Note 1314 - Income Taxes to the accompanying condensed consolidated financial statements, represents the effective tax rate computed in accordance with generally accepted accounting principles ("GAAP")GAAP based on total income tax expense (reflected in income tax expense in the Condensed Consolidated Statements of Income) of the Company,Premier, Inc., PHSI and PSCI, divided by consolidated pre-tax income.
Non-GAAP Adjusted Fully Distributed Net Income is calculated net of taxes based on the Company’sour fully distributed tax rate for federal and state income tax for the Companyus as a whole as if itwe were one taxable entity with all of itsour subsidiaries' activities included. Prior to the enactment of the Act, theThe rate used to compute the Non-GAAP Adjusted Fully Distributed Net Income was 39%. As a result26% for the three and six months ended December 31, 2019 and 2018.
Income (Loss) from Discontinued Operations, Net of Tax
Income (loss) from discontinued operations, net of tax represents the net income or loss associated with the sale of certain assets and wind down and exit of the TCJA, the rate will be reduced for the fiscal year. However, for the purpose of computing Non-GAAP Adjusted Fully Distributed Net Income for the current quarter, the Company continues to use the 39% rate duespecialty pharmacy business. See Note 4 - Discontinued Operations and Exit Activities to the rate change becoming effective as of January 1, 2018. Going forward, the Company will adjust its fully distributed tax rate to 25% to determine its Non-GAAP Adjusted Fully Distributed Net Incomeaccompanying condensed consolidated financial statements for the remainder of fiscal year 2018.further information.
Net Income Attributable to Non-Controlling Interest
As of December 31, 2017,2019, we owned an approximate 40%54% controlling general partner interest in Premier LP through our wholly-owned subsidiary, Premier Services, LLC ("Premier GP"). Net income attributable to non-controlling interest represents the portion of net income attributable to the limited partners of Premier LP, which was reduced from approximately 63% as of June 30, 2017 to approximately 60%46% and 51% as of December 31, 2017, as a result of completed quarterly exchanges pursuant to the Exchange Agreement2019 and June 30, 2019, respectively (see Note 910 - Redeemable Limited Partners' Capital)Capital to the accompanying condensed consolidated financial statements).
Our Use of Non-GAAP Financial Measures
The other key business metrics we consider are EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Fully Distributed Net Income, Adjusted Fully Distributed Earnings per Share and Free Cash Flow, which are all Non-GAAP financial measures.
We define EBITDA as net income before loss from discontinued operations, net of tax, interest and investment income, net, income tax expense, depreciation and amortization and amortization of purchased intangible assets. We define Adjusted EBITDA as EBITDA before merger and acquisition related expenses and non-recurring, non-cash or non-operating items and including equity in net income of unconsolidated affiliates. For all Non-GAAP financial measures, we consider non-recurring items to be income or expenses and other items that have not been earned or incurred within the prior two years and are not expected to recur within the next two years. Such items include certain strategic and financial restructuring expenses. Non-operating items include gaingains or losslosses on the disposal of assets and interest and investment income or expense.
We define Segment Adjusted EBITDA as the segment's net revenue less cost of revenue and operating expenses directly attributable to the segment excluding depreciation and amortization, amortization of purchased intangible assets, merger and acquisition related expenses and non-recurring or non-cash items and including equity in net income of unconsolidated affiliates. Operating expenses


directly attributable to the segment include expenses associated with sales and marketing, general and administrative, and product development activities specific to the operation of each segment. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of Segment Adjusted EBITDA. Segment Adjusted EBITDA also excludes any income and expense that has been classified as discontinued operations.
We define Adjusted Fully Distributed Net Income as net income attributable to Premier (i) excluding loss from discontinued operations, net, (ii) excluding income tax expense, (ii)(iii) excluding the impact of adjustment of redeemable limited partners' capital to redemption amount, (iii)(iv) excluding the effect of non-recurring and non-cash items, (iv)(v) assuming the exchange of all the Class B common units for shares of Class A common stock, which results in the elimination of non-controlling interest in Premier LP and (v)(vi) reflecting an adjustment for income tax expense on Non-GAAP fully distributed net income before income taxes at our estimated effective income tax rate. We define Adjusted Fully Distributed Earnings per Share as Adjusted Fully Distributed Net Income divided by diluted weighted average shares (see Note 1112 - Earnings (Loss) Per Share).


We define Free Cash Flow as net cash provided by operating activities from continuing operations less distributions and TRA payments to limited partners and purchases of property and equipment. Free Cash Flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayments.
Adjusted EBITDA and Free Cash Flow are supplemental financial measures used by us and by external users of our financial statements and are considered to be indicators of the operational strength and performance of our business. Adjusted EBITDA and Free Cash Flow measures allow us to assess our performance without regard to financing methods and capital structure and without the impact of other matters that we do not consider indicative of the operating performance of our business. More specifically, Segment Adjusted EBITDA is the primary earnings measure we use to evaluate the performance of our business segments.
We use Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Fully Distributed Net Income and Adjusted Fully Distributed Earnings per Share to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting our business. We believe Adjusted EBITDA and Segment Adjusted EBITDA assist our Board of Directors, management and investors in comparing our operating performance on a consistent basis from period to period because they remove the impact of earnings elements attributable to our asset base (primarily depreciation and amortization) and, certain items outside the control of our management team, e.g. taxes, as well as other non-cash items (such as impairment of intangible assets, purchase accounting adjustments and stock-based compensation), and non-recurring items (such as strategic and financial restructuring expenses) and income and expense that has been classified as discontinued operations from our operating results. We believe Adjusted Fully Distributed Net Income and Adjusted Fully Distributed Earnings per Share assist our Board of Directors, management and investors in comparing our net income and earnings per share on a consistent basis from period to period because these measures remove non-cash (such as impairment of intangible assets, purchase accounting adjustments and stock-based compensation) and non-recurring items (such as strategic and financial restructuring expenses), and eliminate the variability of non-controlling interest that results from member owner exchanges of Class B common units for shares of Class A common stock. We believe Free Cash Flow is an important measure because it represents the cash that we generate after payment of tax distributions to limited partners and capital investment to maintain existing products and services and ongoing business operations, as well as development of new and upgraded products and services to support future growth. Our Free Cash Flow allows us to enhance stockholder value through acquisitions, partnerships, joint ventures, investments in related businesses and debt reduction.
Despite the importance of these Non-GAAP financial measures in analyzing our business, determining compliance with certain financial covenants in our Credit Facility, measuring and determining incentive compensation and evaluating our operating performance relative to our competitors, EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Fully Distributed Net Income, Adjusted Fully Distributed Earnings per Share and Free Cash Flow are not measurements of financial performance under GAAP, may have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income, net cash provided by operating activities, or any other measure of our performance derived in accordance with GAAP.
Some of the limitations of the EBITDA, Adjusted EBITDA and Segment Adjusted EBITDA measures include that they do not reflect: our capital expenditures or our future requirements for capital expenditures or contractual commitments; changes in, or cash requirements for, our working capital needs; the interest expense or the cash requirements to service interest or principal payments under our Credit Facility; income tax payments we are required to make; and any cash requirements for replacements of assets being depreciated or amortized. In addition, EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA and Free Cash Flow are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flows from operating activities.
Some of the limitations of the Adjusted Fully Distributed Net Income and Adjusted Fully Distributed Earnings per Share measures are that they do not reflect income tax expense or income tax payments we are required to make. In addition, Adjusted Fully Distributed Net Income and Adjusted Fully Distributed Earnings per Share are not measures of profitability under GAAP.


We also urge you to review the reconciliation of these Non-GAAP financial measures included elsewhere in this Quarterly Report. To properly and prudently evaluate our business, we encourage you to review the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report and to not rely on any single financial measure to evaluate our business. In addition, because the EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA, Adjusted Fully Distributed Net Income, Adjusted Fully Distributed Earnings per Share and Free Cash Flow measures are susceptible to varying calculations, such Non-GAAP financial measures may differ from, and may therefore not be comparable to, similarly titled measures used by other companies.


Non-recurring and non-cash items excluded in our calculation of Adjusted EBITDA, Segment Adjusted EBITDA and Adjusted Fully Distributed Net Income consist of stock-based compensation, strategicacquisition and financial restructuringdisposition related expenses, adjustments toremeasurement of TRA liabilities, enterprise resource planning ("ERP") implementation expensesgain on FFF put and acquisition related adjustment - revenue.call rights, income and expense that has been classified as discontinued operations and other expense. More information about certain of the more significant items follows below.
Stock-based compensation
In addition to non-cash employee stock-based compensation expense, this item includes non-cash stock purchase plan expense of $0.1 million and $0.2 million for both the three months ended December 31, 20172019 and 2016, respectively,2018 and $0.2 million and $0.3 million for both the six months ended December 31, 20172019 and 2016.2018 (see Note 13 - Stock-Based Compensation to the accompanying condensed consolidated financial statements).
Acquisition and disposition related expenses
Acquisition related expenses include legal, accounting and other expenses related to acquisition activities and gains and losses on the change in fair value of earn-out liabilities. Disposition related expenses include severance and retention benefits and financial advisor fees and legal fees related to disposition activities.
Remeasurement of TRA liabilities
The Company recordsWe record TRA liabilities based on 85% of the estimated amount of tax savings the Company expectswe expect to receive, generally over a 15-year period, which are attributable to the initial purchase of Class B common units from the member owners made concurrently with the IPO and subsequent exchanges by member owners of Class B common units into Class A common stock or cash. Tax payments made under the TRA will be made to the member owners as the Company realizeswe realize tax benefits. Determining the estimated amount of tax savings the Company expectswe expect to receive requires judgment as deductibility of goodwill amortization expense is not assured and the estimate of tax savings is dependent upon the actual realization of the tax benefit and the tax rates in effect at that time.
Changes in estimated TRA liabilities that are the result of a change in tax accounting method including the impacts of the TCJA, are recorded as a component of other operating incomeselling, general and administrative expenses in the Condensed Consolidated Statements of Income. Changes in estimated TRA liabilities that are related to new basis changes as a result of the exchange of Class B common units for a like number of shares of Class A common stock or as a result of departed member owners are recorded as an increase to additional paid-in capital in the Condensed Consolidated Statements of Stockholders' Deficit.
The adjustments to TRA liabilities for the three and six months ended December 31, 2017 are primarily attributable to the 14% decrease in the U.S. federal corporate income tax rate, which occurred as a result of the TCJA that was enacted on December 22, 2017 (see Note 13 - Income Taxes). The adjustment to TRA liabilities for six months ended December 31, 2016 is primarily attributable to the 1% decrease in the North Carolina state income tax rate that occurred during2019 and the six months ended December 31, 2016.
ERP implementation expenses
This item includes costs2019 are primarily attributable to increases in the Premier, Inc. effective tax rate related to the implementation of a new ERP system.
Acquisition related adjustmentstate tax liabilities (see Note 14 - revenue
During the three months ended December 31, 2016, we recorded a net $5.6 million purchase accounting adjustment to Adjusted EBITDA related to our acquisition of Innovatix and Essensa on December 2, 2016. These adjustments reflect the fair value of administrative fees related to member purchases that occurred prior to December 2, 2016, but were reported to us subsequent to that date through December 31, 2016. Under our revenue recognition accounting policy, which is an accordance with GAAP, these administrative fees would be ordinarily recorded as revenue when reported to us; however, the acquisition method of accounting requires us to estimate the amount of purchases priorIncome Taxes to the acquisition dateaccompanying condensed consolidated financial statements).
Gain or loss on FFF put and to record the fair value of the administrative fees to be received from those purchases as an account receivable (as opposed to recognizing revenue when these transactions are reported to us) and record any corresponding revenue share obligation as a liability. The purchase accounting adjustment amounted to an estimated $23.3 million of accounts receivable relating to these administrative fees and an estimated $4.1 million for the related revenue share obligation through December 31, 2016.call rights
This item also includes non-cash adjustments to deferred revenue of acquired entities of $0.2 million and $0.3 million for the three and six months ended December 31, 2016, respectively. Business combination accounting rules require the Company to record a deferred revenue liability at its fair value only if the acquired deferred revenue represents a legal performance obligation assumed by the acquirer. The fair value is based on direct and indirect incremental costs of providing the services plus a normal profit margin. Generally, this results in a reductionSee Note 6 - Fair Value Measurements to the purchased deferred revenue balance, which is based on upfront software license update fees and product support contracts assumed in connection with acquisitions. Because these support contracts are typically one year in duration, our GAAP revenues for the one year period subsequent to the acquisition of a business do not reflect the full amount of support revenues on these assumed support contracts that would have otherwise been recorded by the acquired entity. The Non-GAAP adjustment to software license update fees and product support revenues is intended to include, and thus reflect, the full amount of such revenues.accompanying condensed consolidated financial statements.


Results of Operations
Results of operations for all periods presented have been retrospectively adjusted to reflect continuing operations unless otherwise indicated.
The following table summarizes our results of operations for the periods presented (in thousands, except per share data):
 Three Months Ended December 31, Six Months Ended December 31,
 20172016 20172016
 Amount% of Net RevenueAmount% of Net Revenue Amount% of Net RevenueAmount% of Net Revenue
Net revenue:         
Net administrative fees$159,343
39%$129,071
36% $310,334
39%$255,047
38%
Other services and support89,953
22%87,051
24% 176,864
22%168,218
25%
Services249,296
61%216,122
60% 487,198
61%423,265
63%
Products162,102
39%142,378
40% 314,764
39%248,507
37%
Net revenue411,398
100%358,500
100% 801,962
100%671,772
100%
Cost of revenue:         
Services47,255
12%44,856
13% 94,191
13%87,546
13%
Products153,272
37%131,158
37% 297,712
37%226,971
34%
Cost of revenue200,527
49%176,014
49% 391,903
49%314,517
47%
Gross profit210,871
51%182,486
51% 410,059
51%357,255
53%
Other operating income:         
Remeasurement of tax receivable agreement liabilities177,174
43%—
—% 177,174
22%5,722
1%
Other operating income177,174
43%—
—% 177,174
22%5,722
1%
Operating expenses:         
Selling, general and administrative108,620
26%95,927
27% 222,941
28%193,887
29%
Research and development324
—%767
—% 813
—%1,573
—%
Amortization of purchased intangible assets13,817
3%11,151
3% 27,715
3%20,360
3%
Operating expenses122,761
30%107,845
30% 251,469
31%215,820
32%
Operating income265,284
64%74,641
22% 335,764
42%147,157
23%
Other income, net(14,007)(3)%208,972
58% (11,107)(1)%217,887
32%
Income before income taxes251,277
61%283,613
80% 324,657
40%365,044
55%
Income tax expense231,508
56%37,429
10% 244,272
30%60,765
9%
Net income19,769
5%246,184
69% 80,385
10%304,279
46%
Net income attributable to non-controlling interest in Premier LP(56,485)(14)%(181,173)(51)% (101,095)(13)%(230,774)(34)%
Adjustment of redeemable limited partners' capital to redemption amount317,916
nm335,264
nm 638,340
nm397,072
nm
Net income attributable to stockholders$281,200
nm$400,275
nm $617,630
nm$470,577
nm
          
Weighted average shares outstanding:         
Basic55,209
 49,445
  54,059
 48,330
 
Diluted139,237
 141,308
  139,641
 142,133
 
          
Earnings per share attributable to stockholders:        
Basic$5.09
 $8.10
  $11.43
 $9.74
 
Diluted$(1.66) $1.50
  $(1.30) $1.75
 
 Three Months Ended December 31, Six Months Ended December 31,
 20192018 20192018
 Amount% of Net RevenueAmount% of Net Revenue Amount% of Net RevenueAmount% of Net Revenue
Net revenue:         


 Three Months Ended December 31, Six Months Ended December 31,
 20192018 20192018
 Amount% of Net RevenueAmount% of Net Revenue Amount% of Net RevenueAmount% of Net Revenue
Net administrative fees$172,114
54%$165,695
54% $344,517
55%$327,695
54%
Other services and support89,452
28%97,680
32% 171,338
28%184,623
31%
Services261,566
82%263,375
86% 515,855
83%512,318
85%
Products58,040
18%44,214
14% 106,161
17%87,873
15%
Net revenue319,606
100%307,589
100% 622,016
100%600,191
100%
Cost of revenue:   
     
Services47,422
15%43,189
15% 94,958
15%86,561
14%
Products52,819
16%44,762
15% 96,294
16%84,529
14%
Cost of revenue100,241
31%87,951
30% 191,252
31%171,090
28%
Gross profit219,365
69%219,638
70% 430,764
69%429,101
72%
Operating expenses: 
 
     
Selling, general and administrative86,093
27%105,345
34.25% 200,022
32%206,862
35%
Research and development801
—%292
0.09% 1,180
—%632
—%
Amortization of purchased intangible assets11,938
4%13,238
4.30% 24,982
4%26,215
4%
Operating expenses98,832
31%118,875
38.00% 226,184
36%233,709
39%
Operating income120,533
38%100,763
32.00% 204,580
33%195,392
33%
Other income, net35,599
11%7,784
2.53% 32,105
5%7,845
1%
Income before income taxes156,132
49%108,547
35% 236,685
38%203,237
34%
Income tax expense64,557
20%2,736
1% 74,171
12%14,054
2%
Net income from continuing operations91,575
29%105,811
34% 162,514
26%189,183
32%
Income (loss) from discontinued operations, net of tax614
—%(1,000)—% 1,004
—%(2,399)(1)%
Net income92,189
29%104,811
34% 163,518
26%186,784
31%
Net income from continuing operations attributable to non-controlling interest in Premier LP(55,424)(17)%(63,150)(21)% (97,134)(16)%(119,095)(20)%
Net (income) loss from discontinued operations attributable to non-controlling interest in Premier LP(280)—%519
—% (477)—%1,351
—%
Net income attributable to non-controlling interest in Premier LP(55,704)(17)%(62,631)(20)% (97,611)(16)%(117,744)(20)%
Adjustment of redeemable limited partners' capital to redemption amount(480,153)nm651,709
nm 214,156
nm(56,484)nm
Net (loss) income attributable to stockholders$(443,668)nm$693,889
nm $280,063
nm$12,556
nm
          
Weighted average shares outstanding:         
Basic64,552
 59,876
  63,668
 56,548
 
Diluted64,552
 133,672
  124,831
 57,584
 
          
Earnings (loss) per share attributable to stockholders:        
Basic earnings (loss) per share         
Continuing operations$(6.88) $11.60
  $4.39
 $0.24
 
Discontinued operations0.01
 (0.01)  0.01
 (0.02) 
Basic earnings (loss) per share attributable to stockholders$(6.87) $11.59
  $4.40
 $0.22
 
          
Diluted earnings (loss) per share         


 Three Months Ended December 31, Six Months Ended December 31,
 20192018 20192018
 Amount% of Net RevenueAmount% of Net Revenue Amount% of Net RevenueAmount% of Net Revenue
Continuing operations$(6.88) $0.70
  $1.12
 $0.24
 
Discontinued operations0.01
 (0.01)  0.01
 (0.02) 
Diluted earnings (loss) per share attributable to stockholders$(6.87) $0.69
  $1.13
 $0.22
 
nm = Not meaningful







The following table provides certain Non-GAAP financial measures for the periods presented (in thousands, except per share data). Refer to "Our Use of Non-GAAP Financial Measures" for further information regarding items excluded in our calculation of Adjusted EBITDA and Segment Adjusted EBITDA.
 Three Months Ended December 31, Six Months Ended December 31,
 20172016 20172016
 Amount% of Net RevenueAmount% of Net Revenue Amount% of Net RevenueAmount% of Net Revenue
Certain Non-GAAP Financial Data:         
Adjusted EBITDA$133,542
32%$122,009
34% $252,713
32%$232,782
35%
Non-GAAP Adjusted Fully Distributed Net Income$69,982
17%$65,242
18% $131,695
16%$124,170
18%
Non-GAAP Adjusted Fully Distributed Earnings Per Share$0.50
 $0.46
  $0.94
 $0.87
 


























 Three Months Ended December 31, Six Months Ended December 31,
 20192018 20192018
Certain Non-GAAP Financial Data:Amount% of Net RevenueAmount% of Net Revenue Amount% of Net RevenueAmount% of Net Revenue
Adjusted EBITDA$148,405
46%$142,944
46% $288,661
46%$282,470
47%
Non-GAAP Adjusted Fully Distributed Net Income$90,774
28%$89,248
29% $176,760
28%$177,001
29%
Non-GAAP Adjusted Fully Distributed Earnings Per Share$0.74
nm$0.67
nm $1.42
nm$1.32
nm
The following table provides the reconciliation of net income from continuing operations to Adjusted EBITDA and the reconciliation of income before income taxes to Segment Adjusted EBITDA (in thousands). Refer to "Our Use of Non-GAAP Financial Measures" for further information regarding items excluded in our calculation of Adjusted EBITDA and Segment Adjusted EBITDA.
 Three Months Ended December 31,Six Months Ended December 31,
 2017201620172016
Net income$19,769
$246,184
$80,385
$304,279
Interest and investment loss, net1,508
857
3,003
1,009
Income tax expense231,508
37,429
244,272
60,765
Depreciation and amortization17,310
14,198
33,817
28,216
Amortization of purchased intangible assets13,817
11,151
27,715
20,360
EBITDA283,912
309,819
389,192
414,629
Stock-based compensation8,951
6,423
17,908
12,319
Acquisition related expenses1,674
4,216
4,773
7,153
Remeasurement of tax receivable agreement liabilities(177,174)—
(177,174)(5,722)
ERP implementation expenses156
432
491
1,526
Acquisition related adjustment - revenue87
5,813
192
5,964
Remeasurement gain attributable to acquisition of Innovatix, LLC—
(204,833)—
(204,833)
Loss on disposal of long-lived assets400
—
1,720
1,518
Loss on FFF put and call rights15,587
—
15,607
—
Other expense(51)139
4
228
Adjusted EBITDA$133,542
$122,009
$252,713
$232,782
     
Income before income taxes$251,277
$283,613
$324,657
$365,044
Remeasurement gain attributable to acquisition of Innovatix, LLC—
(204,833)—
(204,833)
Equity in net income of unconsolidated affiliates(1,257)(5,127)(5,509)(14,706)
Interest and investment loss, net1,508
857
3,003
1,009
Loss on disposal of long-lived assets400
—
1,720
1,518
Other income13,356
131
11,893
(875)
Operating income265,284
74,641
335,764
147,157
Depreciation and amortization17,310
14,198
33,817
28,216
Amortization of purchased intangible assets13,817
11,151
27,715
20,360
Stock-based compensation8,951
6,423
17,908
12,319
Acquisition related expenses1,674
4,216
4,773
7,153
Remeasurement of tax receivable agreement liabilities(177,174)—
(177,174)(5,722)
ERP implementation expenses156
432
491
1,526
Acquisition related adjustment - revenue87
5,813
192
5,964
Equity in net income of unconsolidated affiliates1,257
5,127
5,509
14,706
Deferred compensation plan income1,577
8
3,116
1,103
Other expense603
—
602
—
Adjusted EBITDA$133,542
$122,009
$252,713
$232,782
     
Segment Adjusted EBITDA:    
Supply Chain Services$132,045
$119,022
$257,665
$236,326
Performance Services27,929
28,603
49,150
50,914
Corporate(26,432)(25,616)(54,102)(54,458)
Adjusted EBITDA$133,542
$122,009
$252,713
$232,782
 Three Months Ended December 31,Six Months Ended December 31,
 2019201820192018
Net income from continuing operations$91,575
$105,811
$162,514
$189,183
Interest and investment loss (income), net359
859
(117)1,547
Income tax expense64,557
2,736
74,171
14,054
Depreciation and amortization25,378
21,479
49,913
41,732
Amortization of purchased intangible assets11,938
13,238
24,982
26,215
EBITDA193,807
144,123
311,463
272,731
Stock-based compensation7,838
7,680
11,690
13,913
Acquisition and disposition related expenses2,835
1,896
8,976
2,933
Remeasurement of tax receivable agreement liabilities(28,356)—
(23,682)—
Gain on FFF put and call rights(30,222)(10,850)(22,383)(7,567)
Other expense2,503
95
2,597
460
Adjusted EBITDA$148,405
$142,944
$288,661
$282,470
     
Income before income taxes$156,132
$108,547
$236,685
$203,237
Equity in net income of unconsolidated affiliates(2,989)(1,444)(6,596)(4,134)
Interest and investment loss (income), net359
859
(117)1,547
Gain on FFF put and call rights(30,222)(10,850)(22,383)(7,567)
Other (income) expense(2,747)3,651
(3,009)2,309
Operating income120,533
100,763
204,580
195,392
Depreciation and amortization25,378
21,479
49,913
41,732
Amortization of purchased intangible assets11,938
13,238
24,982
26,215
Stock-based compensation7,838
7,680
11,690
13,913


 Three Months Ended December 31,Six Months Ended December 31,
 2019201820192018
Acquisition and disposition related expenses2,835
1,896
8,976
2,933
Remeasurement of tax receivable agreement liabilities(28,356)—
(23,682)—
Equity in net income of unconsolidated affiliates2,989
1,444
6,596
4,134
Deferred compensation plan income (expense)2,751
(4,235)2,992
(2,899)
Other expense, net2,499
679
2,614
1,050
Adjusted EBITDA$148,405
$142,944
$288,661
$282,470
     
Segment Adjusted EBITDA:    
Supply Chain Services$147,959
$135,026
$297,870
$271,336
Performance Services29,967
37,100
50,343
67,675
Corporate(29,521)(29,182)(59,552)(56,541)
Adjusted EBITDA$148,405
$142,944
$288,661
$282,470


The following table provides the reconciliation of net (loss) income attributable to stockholders to Non-GAAP Adjusted Fully Distributed Net Income and the reconciliation of the numerator and denominator for (loss) earnings per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per Share for the periods presented (in thousands). Refer to "Our Use of Non-GAAP Financial Measures" for further information regarding items excluded in our calculation of Non-GAAP Adjusted Fully Distributed Net Income and Non-GAAP Adjusted Fully Distributed Earnings per Share.
Three Months Ended December 31,Six Months Ended December 31,Three Months Ended December 31,Six Months Ended December 31,
20172016201720162019201820192018
Net income attributable to stockholders$281,200
$400,275
$617,630
$470,577
Net (loss) income attributable to stockholders$(443,668)$693,889
$280,063
$12,556
Adjustment of redeemable limited partners' capital to redemption amount(317,916)(335,264)(638,340)(397,072)480,153
(651,709)(214,156)56,484
Net income attributable to non-controlling interest in Premier LP56,485
181,173
101,095
230,774
55,704
62,631
97,611
117,744
(Income) loss from discontinued operations, net of tax(614)1,000
(1,004)2,399
Income tax expense231,508
37,429
244,272
60,765
64,557
2,736
74,171
14,054
Amortization of purchased intangible assets13,817
11,151
27,715
20,360
11,938
13,238
24,982
26,215
Stock-based compensation8,951
6,423
17,908
12,319
7,838
7,680
11,690
13,913
Acquisition related expenses1,674
4,216
4,773
7,153
Acquisition and disposition related expenses2,835
1,896
8,976
2,933
Remeasurement of tax receivable agreement liabilities

(177,174)—
(177,174)(5,722)(28,356)—
(23,682)—
ERP implementation expenses156
432
491
1,526
Acquisition related adjustment - revenue87
5,813
192
5,964
Remeasurement gain attributable to acquisition of Innovatix, LLC—
(204,833)—
(204,833)
Loss on disposal of long-lived assets400
—
1,720
1,518
Loss on FFF put and call rights15,587
—
15,607
—
Gain on FFF put and call rights(30,222)(10,850)(22,383)(7,567)
Other expense(51)139
4
228
2,503
95
2,597
460
Non-GAAP adjusted fully distributed income before income taxes114,724
106,954
215,893
203,557
122,668
120,606
238,865
239,191
Income tax expense on fully distributed income before income taxes(a)
44,742
41,712
84,198
79,387
31,894
31,358
62,105
62,190
Non-GAAP Adjusted Fully Distributed Net Income$69,982
$65,242
$131,695
$124,170
$90,774
$89,248
$176,760
$177,001
  
Reconciliation of denominator for earnings per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per Share
Reconciliation of denominator for (loss) earnings per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per ShareReconciliation of denominator for (loss) earnings per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per Share 
Weighted Average:  
Common shares used for basic and diluted earnings (loss) per share55,209
49,445
54,059
48,330
Common shares used for basic and diluted (loss) earnings per share64,552
59,876
63,668
56,548
Potentially dilutive shares450
401
553
437
579
1,005
670
1,036
Conversion of Class B common units83,578
91,462
85,029
93,366
57,898
72,791
60,493
76,293
Weighted average fully distributed shares outstanding - diluted139,237
141,308
139,641
142,133
123,029
133,672
124,831
133,877
(a)Reflects income tax expense at an estimated effective income tax rate of 39%26% of Non-GAAP adjusted fully distributed income before income taxes for the three and six months ended December 31, 2017 and 2016.taxes.



The following table provides the reconciliation of (loss) earnings per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per Share for the periods presented. Refer to "Our Use of Non-GAAP Financial Measures" for further information regarding items excluded in our calculation of Non-GAAP Adjusted Fully Distributed Earnings per Share.
Three Months Ended December 31,Six Months Ended December 31,Three Months Ended December 31,Six Months Ended December 31,
20172016201720162019201820192018
Earnings per share attributable to stockholders$5.09
$8.10
$11.43
$9.74
(Loss) earnings per share attributable to stockholders$(6.87)$11.59
$4.40
$0.22
Adjustment of redeemable limited partners' capital to redemption amount(5.76)(6.79)(11.81)(8.22)7.44
(10.88)(3.36)1.00
Net income attributable to non-controlling interest in Premier LP1.02
3.66
1.87
4.77
0.86
1.05
1.53
2.08
(Income) loss from discontinued operations, net of tax(0.01)0.02
(0.02)0.04
Income tax expense4.19
0.76
4.52
1.26
1.00
0.05
1.16
0.25
Amortization of purchased intangible assets0.25
0.23
0.51
0.42
0.18
0.22
0.39
0.46
Stock-based compensation0.16
0.13
0.33
0.25
0.12
0.13
0.18
0.25
Acquisition related expenses0.03
0.09
0.09
0.15
Acquisition and disposition related expenses0.04
0.03
0.14
0.05
Remeasurement of tax receivable agreement liabilities(3.21)—
(3.28)(0.12)(0.44)—
(0.37)—
ERP implementation expenses—
0.01
0.01
0.03
Acquisition related adjustment - revenue—
0.12
—
0.12
Remeasurement gain attributable to acquisition of Innovatix, LLC—
(4.14)—
(4.24)
Loss on disposal of long-lived assets0.01
—
0.03
0.03
Loss on FFF put and call rights0.28
—
0.29
—
Gain on FFF put and call rights(0.47)(0.18)(0.35)(0.13)
Other expense0.04
—
0.04
0.01
Impact of corporation taxes (a)
(0.80)(0.84)(1.56)(1.63)(0.49)(0.53)(0.98)(1.10)
Impact of dilutive shares (b)
(0.76)(0.87)(1.49)(1.69)(0.66)(0.83)(1.34)(1.81)
Non-GAAP Adjusted Fully Distributed Earnings Per Share$0.50
$0.46
$0.94
$0.87
$0.74
$0.67
$1.42
$1.32
(a)Reflects income tax expense at an estimated effective income tax rate of 39%26% of Non-GAAP adjusted fully distributed income before income taxes for the three and six months ended December 31, 2017 and 2016.taxes.
(b)Reflects impact of dilutive shares, primarily attributable to the assumed conversion of all Class B common units for Class A common stock.
Consolidated Results - Comparison of the Three and Six Months endedEnded December 31, 20172019 to 20162018
Net Revenue
Net revenue increased $52.9by $12.0 million or 15%, to $411.4 million forduring the three months ended December 31, 2017 from $358.5 million for2019 compared to the three months ended December 31, 2016. 2018, primarily due to an increase of $13.8 million in product revenue and an increase of $6.4 million in net administrative fees revenue, partially offset by a decrease of $8.2 million in other services and support revenue. The variances in the material factors contributing to the changes in consolidated net revenue are discussed further in "Segment Results" below.
Cost of Revenue
Cost of revenue increased by $12.2 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to an increase of $8.0 million in cost of product revenue and an increase of $4.2 million in cost of services revenue. The variances in the material factors contributing to the changes in consolidated cost of revenue are discussed further in "Segment Results" below.
Operating Expenses
Operating expenses decreased by $20.1 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to a decrease of $19.2 million in selling, general and administrative expenses largely due to a decrease of $28.4 million due to the remeasurement of the TRA liability as a result of the change in North Carolina state income tax law offset by other factors discussed further in "Segment Results". The decrease in operating expenses was also due to a decrease of $1.3 million in amortization of purchased intangible assets partially offset by an increase of $0.5 million in research and development expenses. The variances in the material factors contributing to the changes in consolidated operating expenses are discussed further in "Segment Results" below.


Other Income, Net
Other income, net increased by $27.8 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to an increase in the gain on FFF put and call rights in the current period (see Note 6 - Fair Value Measurements to the accompanying condensed consolidated financial statements for further information).
Income Tax Expense
For the three months ended December 31, 2019 and 2018, we recorded tax expense of $64.6 million and $2.7 million, respectively, which equates to effective tax rates of 41% and 3%, effectively. The increase in effective tax rate is primarily attributable to the remeasurement of deferred tax balances related to the change in North Carolina state income tax law. Our effective tax rates differ from income taxes recorded at the statutory income tax rate primarily due to partnership income not subject to federal, state and local income taxes. See Note 14 - Income Taxes to the accompanying condensed consolidated financial statements for more information.
Income (Loss) from Discontinued Operations, Net of Tax
Income (loss) from discontinued operations, net of tax increased by $1.6 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to the substantial completion of the wind down of the specialty pharmacy business.
Net Income Attributable to Non-Controlling Interest
Net income attributable to non-controlling interest decreased by $6.9 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to a decrease in non-controlling ownership percentage in Premier LP to 46% from 53%, respectively.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA increased by $5.5 million during the three months ended December 31, 2019, compared to the three months ended December 31, 2018. The variances in the material factors contributing to the changes in consolidated Non-GAAP Adjusted EBITDA are discussed further in "Segment Results" below.
Consolidated Results - Comparison of the Six Months Ended December 31, 2019 to 2018
Net Revenue
Net revenue increased $130.2by $21.8 million or 19%, to $802.0 million forduring the six months ended December 31, 2017 from $671.8 million for2019 compared to the six months ended December 31, 2016.2018, primarily due to an increase of $18.3 million in product revenue and an increase of $16.8 million in net administrative fees revenue, partially offset by a decrease of $13.3 million in other services and support revenue. The variances in the material factors contributing to the changes in consolidated net revenue are discussed further in "Segment Results" below.
Cost of Revenue
Cost of revenue increased by $20.2 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to increase of $11.8 million in cost of product revenue and an increase of $8.4 million in cost of services revenue. The variances in the material factors contributing to the changes in consolidated cost of revenue are discussed further in "Segment Results" below.
Operating Expenses
Operating expenses decreased by $7.5 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to a decrease of $6.9 million in selling, general and administrative expenses largely due to a decrease of $23.7 million due to the remeasurement of the TRA liability as a result of the change in North Carolina state income tax law offset by other factors discussed further in "Segment Results". The decrease in operating expenses was also due to a decrease of $1.2 million in amortization of purchased intangible assets partially offset by an increase of $0.6 million in research and development expenses. The variances in the material factors contributing to the changes in consolidated operating expenses are discussed further in "Segment Results" below.
Other Income, Net
Other income, net increased by $24.3 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to an increase in the gain on FFF put and call rights in the current period (see Note 6 - Fair


Value Measurements to the accompanying condensed consolidated financial statements for further information) and an increase in equity in net income of unconsolidated affiliates primarily due to our investment in FFF (see Note 5 - Investments to the accompanying condensed consolidated financial statements for further information).
Income Tax Expense
For the six months ended December 31, 2019 and 2018, we recorded tax expense of $74.2 million and $14.1 million, respectively, which equates to effective tax rates of 31% and 7%, respectively. The increase in effective tax rate is primarily attributable to the remeasurement of deferred tax balances related to the change in North Carolina state income tax law. Our effective tax rates differ from income taxes recorded at the statutory income tax rate primarily due to partnership income not subject to federal, state, and local income taxes. See Note 14 - Income Taxes to the accompanying condensed consolidated financial statements for more information.
Income (Loss) from Discontinued Operations, Net of Tax
Income (loss) from discontinued operations, net of tax increased by $3.4 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to the substantial completion of the wind down of the specialty pharmacy business.
Net Income Attributable to Non-Controlling Interest
Net income attributable to non-controlling interest decreased by $20.1 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to a decrease in non-controlling ownership percentage in Premier LP to 46% from 53%, respectively, as well as a decrease in income of Premier LP.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA increased by $6.2 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018. The variances in the material factors contributing to the changes in consolidated Non-GAAP Adjusted EBITDA are discussed further in "Segment Results" below.


Segment Results
Supply Chain Services
The following table summarizes our results of operations and Non-GAAP Segment Adjusted EBITDA in the Supply Chain Services segment for the periods presented (in thousands):
 Three Months Ended December 31,   Six Months Ended December 31,  
Supply Chain Services20192018Change 20192018Change
Net revenue:         
Net administrative fees$172,114
$165,695
$6,419
4% $344,517
$327,695
$16,822
5 %
Other services and support2,482
2,826
(344)(12)% 5,043
4,037
1,006
25 %
Services174,596
168,521
6,075
4% 349,560
331,732
17,828
5 %
Products58,040
44,214
13,826
31% 106,161
87,873
18,288
21 %
Net revenue232,636
212,735
19,901
9% 455,721
419,605
36,116
9 %
Cost of revenue:  


     
Services(252)100
(352)nm 154
123
31
25 %
Products52,819
44,762
8,057
18% 96,294
84,529
11,765
14 %
Cost of revenue52,567
44,862
7,705
17% 96,448
84,652
11,796
14 %
Gross profit180,069
167,873
12,196
7% 359,273
334,953
24,320
7 %
Operating expenses:  


     
Selling, general and administrative37,599
35,696
1,903
5% 73,665
70,246
3,419
5 %
Research and development6
—
6
—% 6
—
6
— %
Amortization of purchased intangible assets4,096
4,379
(283)(6)% 8,193
8,758
(565)(6)%
Operating expenses41,701
40,075
1,626
4% 81,864
79,004
2,860
4 %
Operating income$138,368
$127,798
$10,570
8% $277,409
$255,949
$21,460
8 %
Depreciation and amortization773
205



 1,501
530
  
Amortization of purchased intangible assets4,096
4,379



 8,193
8,758
  
Acquisition and disposition related expenses1,859
1,319



 4,334
2,172
  
Equity in net income of unconsolidated affiliates2,863
1,325



 6,433
3,921
  
Other expense—
—



 —
6
  
Non-GAAP Segment Adjusted EBITDA$147,959
$135,026
$12,933
10% $297,870
$271,336
$26,534
10 %
Comparison of the Three Months Ended December 31, 2019 to 2018
Net Revenue
Supply Chain Services segment net revenue increased by $19.9 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018.
Net administrative fees revenue increased $30.2by $6.4 million or 23%, fromduring the three months ended December 31, 20162019 compared to 2017 and $55.3 million, or 22%, from the sixthree months ended December 31, 2016 to 2017, primarily driven by aggregate contributions from Innovatix and Essensa, which were acquired in full on December 2, 2016. To a lesser extent, net administrative fees growth also benefited from a supplier revenue recovery settlement and contract penetration of existing members.2018. Growth in net administrative fees revenue was primarily due to continuing contract penetration driven largely by the company’s high-compliance portfolio programs and the addition of new contract categories and suppliers. We expect our net administrative fees revenue to continue to grow to the extent our existing members increase the utilization of our contracts and additional members convert to our contract portfolio. Due to competitive market trends, we have experienced, and expect to continue to experience, requests to provide existing and prospective members increases in revenue share on incremental or overall purchasing volume that could, if materially increased, adversely impact our revenues and overall financial performance.
Product revenue increased by $13.8 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to growth in commodity products.


Cost of Revenue
Supply Chain Services segment cost of revenue increased by $7.7 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018 primarily due to an increase in cost of product revenue due to the growth in direct sourcing sales revenue partially impactedoffset by soft patienta reduction in cost of sales as a result of initiatives to reduce costs. We expect our cost of product revenue to increase to the extent we are able to sell additional direct-sourced medical products to new and existing members. Depending on the underlying product sales mix, increases in product revenues could reduce our gross profit as a percentage of our net revenues.
Operating Expenses
Supply Chain Services segment operating expenses increased by $1.6 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018. The increase was primarily due to an increase in selling, general and administrative expenses of $1.9 million largely due to expenses associated with certain strategic initiatives, including our eCommerce platform. The increase was partially offset by a decrease of $0.3 million in amortization of purchased intangible assets.
Segment Adjusted EBITDA
Supply Chain Services Segment Adjusted EBITDA increased by $12.9 million during the three months ended December 31, 2019 compared to the three months ended December 31, 2018, primarily due to growth in net administrative fees and product revenues.
Comparison of the Six Months Ended December 31, 2019 to 2018
Net Revenue
Supply Chain Services segment net revenue increased by $36.1 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018.
Net administrative fees revenue increased by $16.8 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018. Growth in net administrative fees revenue was primarily due to continuing contract penetration driven largely by the company’s high-compliance portfolio programs and the addition of new contract categories and suppliers. We expect our net administrative fees revenue to continue to grow to the extent our existing members increase the utilization of our contracts and additional members convert to our contract portfolio. Due to competitive market trends, we have experienced, and timingexpect to continue to experience, requests to provide existing and prospective members an increase in revenue share on incremental or overall purchasing volume that could, if materially increased, adversely impact our revenues and overall financial performance. Product revenue increased by $18.3 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to growth in commodity products and aggregated purchasing of cash receipts.certain products.
Cost of Revenue
Supply Chain Services segment cost of revenue increased by $11.8 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018 primarily due to an increase in cost of product revenue due to growth in direct sourcing sales revenue partially offset by a reduction in cost of sales as a result of initiatives to reduce costs. We expect our cost of product revenue to increase to the extent we are able to sell additional direct-sourced medical products to new and existing members. Depending on the underlying product sales mix, increases in product revenues could reduce our gross profit as a percentage of our net revenues.
Operating Expenses
Supply Chain Services segment operating expenses increased by $2.9 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018. The increase was primarily due to an increase in selling, general and administrative expenses of $3.4 million largely due to increased acquisition and disposition related expenses and expenses associated with certain strategic initiatives, including our eCommerce platform. The increase was partially offset by a decrease of $0.5 million, in amortization of purchased intangible assets.
Segment Adjusted EBITDA
Supply Chain Services Segment Adjusted EBITDA increased by $26.5 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily due to growth in net administrative fees and product revenues.


Performance Services
The following table summarizes our results of operations and Non-GAAP Segment Adjusted EBITDA in the Performance Services segment for the periods presented (in thousands):
 Three Months Ended December 31,   Six Months Ended December 31,  
Performance Services20192018Change 20192018Change
Net revenue:         
Other services and support$86,970
$94,854
$(7,884)(8)% $166,295
$180,586
$(14,291)(8)%
Net revenue86,970
94,854
(7,884)(8)% 166,295
180,586
(14,291)(8)%
Cost of revenue:  


     
Services47,674
43,089
4,585
11% 94,804
86,438
8,366
10%
Cost of revenue47,674
43,089
4,585
11% 94,804
86,438
8,366
10%
Gross profit39,296
51,765
(12,469)(24)% 71,491
94,148
(22,657)(24)%
Operating expenses:  


     
Selling, general and administrative32,092
33,563
(1,471)(4)% 68,937
62,663
6,274
10%
Research and development795
292
503
172% 1,169
632
537
85%
Amortization of purchased intangible assets7,842
8,858
(1,016)(11)% 16,789
17,456
(667)(4)%
Operating expenses40,729
42,713
(1,984)(5)% 86,895
80,751
6,144
8%
Operating (loss) income$(1,433)$9,052
$(10,485)(116)% $(15,404)$13,397
$(28,801)(215)%
Depreciation and amortization22,451
18,460



 44,124
35,774
  
Amortization of purchased intangible assets7,842
8,859



 16,789
17,456
  
Acquisition related expenses976
577



 4,642
761
  
Equity in net income of unconsolidated affiliates126
119



 163
213
  
Other expense5
33



 29
74
  
Non-GAAP Segment Adjusted EBITDA$29,967
$37,100
$(7,133)(19)% $50,343
$67,675
$(17,332)(26)%
Comparison of the Three Months Ended December 31, 2019 to 2018
Net Revenue
Other services and support revenue increased $2.9in our Performance Services segment decreased by $7.9 million or 3%, fromduring the three months ended December 31, 20162019 compared to 2017 primarily due to increases in SaaS informatics products subscriptions and ambulatory quality solutions services. Other services and support revenue increased $8.7 million, or 5% from the sixthree months ended December 31, 2016 to 2017,2018. The decrease was primarily due to growth in cost management advisory services related to performance-based engagements. We also experienced increases in SaaS informatics products subscriptions, applied science services and government services related revenue. We expect to experience quarterly variability within other services and support revenue due to the timing of revenue recognition from certain advisoryconsulting services and performance-based engagementsSaaS informatics contracts and lower revenue associated with our Hospital Improvement Innovation Network contract. These decreases were partially offset by growth in cost management technology license contracts and increased revenue incurred in the current year attributable to the acquisition of Stanson which our revenue is based on a percentage of identified member savings and recognition occurs upon approval and documentation of the savings.closed in November 2018. We expect our other services and support revenue to grow over the long-term to the extent we are able to expand our sales to existing members and additional members begin to utilize our integrated platform of products and services.
ProductCost of Revenue
Performance Services segment cost of revenue increased $19.7by $4.6 million or 14%, fromduring the three months ended December 31, 20162019 compared to 2017 and $66.3 million, or 27%, from the six months ended December 31, 2016 to 2017, primarily driven by an increase in integrated pharmacy revenues driven by contributions from expansion and growth in therapy offerings largely associated with the Company's acquisition of Acro


Pharmaceuticals, which occurred on August 23, 2016, as well as an increase in sales of certain limited distribution drugs dispensed to treat Idiopathic Pulmonary Fibrosis, Multiple Sclerosis and Oncology, partially offset by a slight decrease in the sales of Hepatitis-C pharmaceuticals. We also experienced increased sales of direct sourcing products. We expect our integrated pharmacy and direct sourcing product revenues to continue to grow to the extent we are able to increase our product offerings, expand our product sales to existing members and additional members begin to utilize our programs.
Cost of Revenue
Cost of revenue increased $24.5 million, or 14%, to $200.5 million for the three months ended December 31, 2017 from $176.02018, primarily due to increased amortization of internally-developed software applications and higher salaries and benefits expense incurred in the current year attributable to the acquisition of Stanson which closed in November 2018.
Operating Expenses
Performance Services segment operating expenses decreased by $2.0 million forduring the three months ended December 31, 2016. Cost of revenue increased $77.4 million, or 25%,2019 compared to $391.9 million for the six months ended December 31, 2017 from $314.5 million for the six months ended December 31, 2016.
Cost of services revenue increased $2.4 million, or 5%, from the three months ended December 31, 20162018. The decrease was primarily due to 2017a decrease in selling, general and $6.7administrative expenses of $1.5 million or 8% from the six months ended December 31, 2016largely due to 2017, primarily drivenlower salaries and benefits expense, partially offset by an increase in salaries and benefits expense resulting from increased staffing to support growth along with higher consulting costs for certain performance-based engagements. We expect cost of service revenue to increaseexpenses incurred in the current year attributable to the extent we expand our performance improvement collaborativesacquisition of Stanson which closed in November 2018. In addition, amortization


of purchased intangible assets decreased $1.0 million. These decreases were partially offset by an increase of $0.5 million in research and advisory services to members, continue to develop new and existing internally-developed software applications and expand into new product offerings.development expense.
Cost of product revenue increased $22.1Segment Adjusted EBITDA
Performance Services Segment Adjusted EBITDA decreased by $7.1 million or 17%, fromduring the three months ended December 31, 20162019 compared to 2017 and $70.7 million, or 31% from the six months ended December 31, 2016 to 2017, primarily driven by higher product costs associated with the business operations of Acro Pharmaceuticals and due to higher costs driven by growth in direct sourcing sales and the impact of increases in raw materials pricing. We expect our cost of product revenue to increase to the extent we are able to sell additional integrated pharmacy and direct-sourced medical products to new and existing members and enroll additional members into our integrated pharmacy program. The increased cost of product revenues is expected to reduce our gross profit as a percentage of our net revenues.
Other Operating Income
Other operating income increased $177.2 million from the three months ended December 31, 2016 to 2017 and $171.5 million from the six months ended December 31, 2016 to 2017 as a result of the remeasurement of TRA liabilities, which was primarily attributable to the 14% decrease in the U.S. federal corporate income tax rate associated with the TCJA.
Operating Expenses
Operating expenses decreased $15.0 million, or 14%, to $122.8 million for the three months ended December 31, 2017 from $107.8 million for the three months ended December 31, 2016. Operating expenses decreased $35.7 million, or 17%, to $251.5 million for the six months ended December 31, 2017 from $215.8 million for the six months ended December 31, 2016.
Selling, General and Administrative
Selling, general and administrative expenses increased $12.7 million, or 13%, from the three months ended December 31, 2016 to 2017 and $29.0 million, or 15%, from the six months ended December 31, 2016 to 2017, primarily driven by an increase in salaries and benefits expenses resulting from increased staffing mostly associated with acquisitions and to support growth, along with an increase in stock-based compensation expense largely driven by growth in overall equity award grant size year over year in addition to anticipated achievement of certain performance targets.
Research and Development
Research and development expenses decreased by $0.5 million from the three months ended December 31, 2016 to 2017 and increased by $0.8 million from the six months ended December 31, 2016 to 2017. Research and development expenses consist of employee-related compensation and benefit expenses and third-party consulting fees for technology professionals, net of capitalized labor, incurred to develop our software-related products and services. We experience fluctuations in our research and development expenditures across reportable periods due to the timing of our software development lifecycles, new product features and functionality, new technologies and upgrades to our service offerings.
Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets increased $2.6 million, or 23%, from the three months ended December 31, 2016 to 2017 and $7.3 million, or 36%, from the six months ended December 31, 2016 to 2017, primarily as a result of additional amortization of purchased intangible assets related to our acquisitions. As we execute on our growth strategy and further deploy capital, we expect further increases in amortization of intangible assets in connection with future potential acquisitions.


Other Income (Expense), Net
Other income (expense), net decreased $223.0 million, or 107%, to $(14.0) million for the three months ended December 31, 2017 from $209.0 million for the three months ended December 31, 2016 and decreased $229.0 million, or 105%, to $(11.1) million for the six months ended December 31, 2017 from $217.9 million for the six months ended December 31, 2016,2018 primarily due to the one-time $205.1 million gain recognized from the remeasurement of the 50% equity method investmentaforementioned decrease in Innovatix to fair value upon acquisition of Innovatix on December 2, 2016 (see Note 3 - Business Acquisitions) along with a reductionrevenue and increase in equity in net income of unconsolidated affiliates. As a result of acquiring the remaining 50% of Innovatix, we no longer account for our ownership using the equity method. Other income (expense), net was also impacted by the loss on FFF put and call rightsexpenses incurred in the current period and partially offset by a moderate increase in equity in net income of FFF, which experienced improved performance in the six months ended December 31, 2017.
Income Tax Expense
For the three months ended December 31, 2017 and 2016, the Company recorded tax expense of $231.5 million and $37.4 million, respectively, which equates to effective tax rates of 92% and 13%, respectively. For the six months ended December 31, 2017 and 2016, the Company recorded tax expense of $244.3 million and $60.8 million, respectively, which equates to effective tax rates of 75% and 17%, respectively. The increase in effective tax rates is primarilyyear attributable to the remeasurementacquisition of deferred tax balances related to the decreaseStanson which closed in the U.S. federal corporate income tax rate from 35% to 21%, pursuant to the TCJA enacted on December 22, 2017. The Company's effective tax rate differs from income taxes recorded at the combined (or blended) statutory income tax rate primarily due to partnership income not subject to federal, state and local income taxes and valuation allowances against deferred tax assets at PHSI. See Note 13 - Income Taxes for more information.November 2018.
Net Income Attributable to Non-Controlling Interest
Net income attributable to non-controlling interest decreased $124.7 million, or 69%, to $56.5 million for the three months ended December 31, 2017 from $181.2 million for the three months ended December 31, 2016, primarily attributable to a decrease in non-controlling ownership percentage in Premier LP to 60% from 64%, respectively. Net income attributable to non-controlling interest decreased $129.7 million, or 56%, to $101.1 million for the six months ended December 31, 2017 from $230.8 million for the six months ended December 31, 2016, primarily attributable to a decrease in non-controlling ownership percentage in Premier LP to 60% from 64%, respectively.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA increased $11.5 million, or 9%, to $133.5 million for the three months ended December 31, 2017 from $122.0 million for the three months ended December 31, 2016, primarily as a result of growth in net administrative fees revenue including contributions related to the Innovatix and Essensa acquisition, net of a $4.1 million reduction in equity in net income of unconsolidated affiliates due to acquiring the remaining 50% of Innovatix as it was historically accounted for as an unconsolidated affiliate through the date of acquisition, along with an increase in product revenue. These results were partially offset by increased product costs and selling, general and administrative expenses resulting from higher salaries and benefits expenses as a result of acquisitions and to support growth. Additionally, Segment Adjusted EBITDA for the prior period included a $5.6 million non-cash adjustment for cash collections not recognized as revenue on a GAAP basis due to a purchase accounting adjustment.
Non-GAAP Adjusted EBITDA increased $19.9 million, or 9%, to $252.7 million for the six months ended December 31, 2017 from $232.8 million for the six months ended December 31, 2016, primarily as a result of growth in net administrative fees revenue including contributions related to the Innovatix and Essensa acquisition, net of a $10.7 million reduction in equity in net income of unconsolidated affiliates due to acquiring the remaining 50% of Innovatix as it was historically accounted for as an unconsolidated affiliate through the date of acquisition, along with an increase in product revenue and, to a lesser extent, an increase in other services and support revenue driven by growth in cost management advisory services related to performance-based engagements, and an increase in SaaS informatics products subscriptions, applied science services and government services related revenue. These increases were partially offset by increased product costs and selling, general and administrative expenses resulting from higher salaries and benefits expenses as a result of acquisitions and to support growth. Additionally, Segment Adjusted EBITDA for the prior period included a $5.6 million non-cash adjustment for cash collections not recognized as revenue on a GAAP basis due to a purchase accounting adjustment.


Supply Chain Services - Comparison of the Three and Six Months endedEnded December 31, 20172019 to 2016
The following table summarizes our results of operations and Non-GAAP Adjusted EBITDA in the Supply Chain Services segment for the periods presented (in thousands):
 Three Months Ended December 31,Six Months Ended December 31,
Supply Chain Services2017201620172016
Net revenue:    
Net administrative fees$159,343
$129,071
$310,334
$255,047
Other services and support3,421
1,201
5,570
2,846
Services162,764
130,272
315,904
257,893
Products162,101
142,378
314,764
248,507
Net revenue324,865
272,650
630,668
506,400
Cost of revenue:    
Services1,023
1,276
2,086
2,482
Products153,272
131,154
297,712
226,968
Cost of revenue154,295
132,430
299,798
229,450
Gross profit170,570
140,220
330,870
276,950
Operating expenses:    
Selling, general and administrative42,185
38,044
84,120
70,547
Amortization of purchased intangible assets4,976
2,154
10,017
2,366
Operating expenses47,161
40,198
94,137
72,913
Operating income$123,409
$100,022
$236,733
$204,037
Depreciation and amortization195
299
649
533
Amortization of purchased intangible assets4,976
2,154
10,017
2,366
Acquisition related expenses2,320
5,788
4,870
9,052
Acquisition related adjustment - revenue—
5,632
—
5,632
Equity in net income of unconsolidated affiliates1,130
5,127
5,381
14,706
Other income15
—
15
—
Non-GAAP Segment Adjusted EBITDA$132,045
$119,022
$257,665
$236,326
Net Revenue
Supply Chain Services segment net revenue increased $52.2 million, or 19%, to $324.9 million for the three months ended December 31, 2017 from $272.7 million for the three months ended December 31, 2016. Supply Chain Services segment net revenue increased $124.3 million, or 25%, to $630.7 million for the six months ended December 31, 2017 from $506.4 million for the six months ended December 31, 2016.
Net administrative fees revenue increased $30.2 million, or 23%, from the three months ended December 31, 2016 to 2017 and $55.3 million, or 22%, from the six months ended December 31, 2016 to 2017, primarily driven by aggregate contributions from Innovatix and Essensa, which were acquired on December 2, 2016. To a lesser extent, net administrative fees were also favorably impacted by a supplier revenue recovery settlement and contract penetration of existing members. Growth in net administrative fees revenue was partially impacted by soft patient utilization trends and timing of cash receipts.
Product revenue increased $19.7 million, or 14%, from the three months ended December 31, 2016 to 2017 and $66.3 million, or 27%, from the six months ended December 31, 2016 to 2017, primarily driven by an increase in integrated pharmacy revenues mostly attributable to contributions from expansion and growth in therapy offerings largely associated with the Company's acquisition of Acro Pharmaceuticals, which occurred on August 23, 2016, as well as an increase in sales of certain limited distribution drugs dispensed to treat Idiopathic Pulmonary Fibrosis, Multiple Sclerosis and Oncology, partially offset by a slight decrease in the sales of Hepatitis-C pharmaceuticals. We also experienced increased sales of direct sourcing products. We expect our integrated pharmacy and direct sourcing product revenues to continue to grow to the extent we are able to increase our product offerings, expand our product sales to existing members and additional members begin to utilize our programs.


Cost of Revenue
Supply Chain Services segment cost of revenue increased $21.9 million, or 17%, to $154.3 million for the three months ended December 31, 2017 from $132.4 million for the three months ended December 31, 2016. Supply Chain Services segment cost of revenue increased $70.3 million, or 31%, to $299.8 million for the six months ended December 31, 2017 from $229.5 million for the six months ended December 31, 2016.
Cost of product revenue increased $22.1 million, or 17%, from the three months ended December 31, 2016 to 2017 and $70.7 million, or 31%, from the six months ended December 31, 2016 to 2017, primarily driven by higher product costs associated with the business operations of Acro Pharmaceuticals and due to growth in direct sourcing sales and the impact of increases in raw materials pricing.
Operating Expenses
Supply Chain Services segment operating expenses increased $7.0 million, or 17%, to $47.2 million for the three months ended December 31, 2017 from $40.2 million for the three months ended December 31, 2016. Supply Chain Services segment operating expenses increased $21.2 million, or 29%, to $94.1 million for the six months ended December 31, 2017 from $72.9 million for the six months ended December 31, 2016.
Selling, general and administrative expenses increased $4.1 million, or 11%, from the three months ended December 31, 2016 to 2017 and $13.6 million, or 19%, from the six months ended December 31, 2016 to 2017, due to higher salaries and benefits expense primarily associated with the acquisitions of Innovatix and Essensa and to a lesser extent, the acquisition of Acro Pharmaceuticals.
Amortization of purchased intangible assets increased $2.8 million from the three months ended December 31, 2016 to 2017 and $7.7 million from the six months ended December 31, 2016 to 2017, primarily as a result of additional amortization of purchased intangible assets related to our acquisitions.
Segment Adjusted EBITDA
Segment Adjusted EBITDA increased $13.0 million, or 11%, to $132.0 million for the three months ended December 31, 2017 from $119.0 million for the three months ended December 31, 2016. Segment Adjusted EBITDA increased $21.3 million, or 9%, to $257.7 million for the six months ended December 31, 2017 from $236.3 million for the six months ended December 31, 2016. This increase was primarily a result of growth in net administrative fees revenue including contributions related to the Innovatix and Essensa acquisition, net of the reduction in equity in net income of unconsolidated affiliates due to acquiring the remaining 50% of Innovatix as it was historically accounted for as an unconsolidated affiliate through the date of acquisition, along with an increase in product revenue. These increases were partially offset by increased product costs and selling, general and administrative expenses resulting from higher salaries and benefit expenses as a result of acquisitions and to support growth. Additionally, Segment Adjusted EBITDA for the prior period included a $5.6 million non-cash adjustment for cash collections not recognized as revenue on a GAAP basis due to a purchase accounting adjustment.


Performance Services - Comparison of the Three and Six Months ended December 31, 2017 to 2016
The following table summarizes our results of operations and Non-GAAP Adjusted EBITDA in the Performance Services segment for the periods presented (in thousands):
 Three Months Ended December 31,Six Months Ended December 31,
Performance Services2017201620172016
Net revenue:    
Other services and support$86,533
$85,850
$171,294
$165,372
Net revenue86,533
85,850
171,294
165,372
Cost of revenue:    
Services46,233
43,607
92,105
85,046
Cost of revenue46,233
43,607
92,105
85,046
Gross profit40,300
42,243
79,189
80,326
Operating expenses:    
Selling, general and administrative26,397
23,664
58,308
50,572
Research and development335
573
807
1,159
Amortization of purchased intangible assets8,841
8,996
17,699
17,993
Operating expenses35,573
33,233
76,814
69,724
Operating income$4,727
$9,010
$2,375
$10,602
Depreciation and amortization14,793
11,990
28,853
23,866
Amortization of purchased intangible assets8,841
8,996
17,699
17,993
Acquisition related expenses(646)(1,573)(97)(1,879)
Acquisition related adjustment - revenue87
180
193
332
Equity in net income of unconsolidated affiliates127
—
127
—
Non-GAAP Segment Adjusted EBITDA$27,929
$28,603
$49,150
$50,914
2018
Net Revenue
Other services and support revenue increased $0.7in our Performance Services segment decreased by $14.3 million or 1%, to $86.5 million for the three months ended December 31, 2017 from $85.9 million for the three months ended December 31, 2016 primarily due to increases in SaaS informatics products subscriptions and ambulatory quality solutions services. Other services and support revenue increased $5.9 million, or 4%, to $171.3 million forduring the six months ended December 31, 2017 from $165.4 million for2019 compared to the six months ended December 31, 20162018. The decrease was primarily due to growth in cost management advisory services related to performance-based engagements. We also experienced increases in SaaS informatics products subscriptions, applied science services and government services related revenue.
We expect to experience quarterly variability in revenue generated from our Performance Services segment due to the timing of certain contracts in supply chain and enterprise value and applied sciences and lower revenue recognition from certain advisory servicesassociated with our Hospital Improvement Innovation Network contract. These decreases were partially offset by growth in cost management technology license contracts and performance-based engagementsincreased revenue incurred in the current year attributable to the acquisition of Stanson which our revenue is based on a percentage of identified member savings and recognition occurs upon approval and documentation of the savings.closed in November 2018. We expect our Performance Servicesother services and support revenue to grow over the long-term to the extent we are able to expand our sales to existing members and additional members begin to utilize our integrated platform of products and services.
Cost of Revenue
CostPerformance Services segment cost of revenue increased $2.6by $8.4 million or 6%, to $46.2 million for the three months ended December 31, 2017 from $43.6 million for the three months ended December 31, 2016. Cost of revenue increased $7.1 million, or 8%, to $92.1 million forduring the six months ended December 31, 2017 from $85.0 million for2019 compared to the six months ended December 31, 2016. This increase is2018, primarily driven bydue to increased amortization of internally-developed software applications and higher salaries and benefits expenses resulting from increased staffingexpense incurred in the current year attributable to support growth and performance-based engagements.the acquisition of Stanson which closed in November 2018.
Operating Expenses
OperatingPerformance Services segment operating expenses increased $2.3by $6.1 million or 7%, to $35.6 million for the three months ended December 31, 2017 from $33.2 million for the three months ended December 31, 2016. Operating expenses increased $7.1 million, or 10%, to $76.8 million forduring the six months ended December 31, 2017 from $69.7 million for2019 compared to the six months ended December 31, 2016.


Selling,2018. The increase was primarily due to an increase in selling, general and administrative expenses of $6.3 million largely due to expenses incurred in the current year attributable to the acquisition of Stanson which closed in November 2018 and expenses attributable to ongoing strategic investments, partially offset by decreased bad debt expense due to a hospital bankruptcy in the prior year. In addition, research and development expenses increased $2.7by $0.5 million. These increases were partially offset by a decrease of $0.7 million or 12%, from the three months ended December 31, 2016 to 2017 and $7.7in amortization of purchased intangibles.
Segment Adjusted EBITDA
Performance Services Segment Adjusted EBITDA decreased by $17.3 million or 15%, fromduring the six months ended December 31, 20162019 compared to 2017, primarily driven by depreciation expense resulting from increased capitalization of labor in prior periods.
Amortization of purchased intangible assets decreased $0.2 million, or 2%, from the three months ended December 31, 2016 to 2017 and $0.3 million, or 2%, from the six months ended December 31, 20162018, primarily due to 2017, remaining relatively flat.
Segment Adjusted EBITDA
Whilethe aforementioned decrease in revenue, increased, Segment Adjusted EBITDA decreased $0.7 million, or 2%, to $27.9 million for the three months ended December 31, 2017 from $28.6 million for the three months ended December 31, 2016. Segment Adjusted EBITDA decreased $1.8 million, or 3%, to $49.15 million for the six months ended December 31, 2017 from $50.9 million for the six months ended December 31, 2016. This decrease is primarily a result of an increase in cost of sales related to an increase in staffing and costs to support growth and performance-based engagements, and was impacted on a comparable basis due to higher revenue recognition from performance-based engagementsexpenses incurred in the prior year. Specifically,current year attributable to the Company madeacquisition of Stanson which closed in November 2018, and expenses attributable to ongoing strategic investments in staff and infrastructure to support growth involving primarily larger and more complex engagements that include significant performance-based advisory services initiatives.partially offset by decreased bad debt expense.


Corporate - Comparison of the Three and Six Months ended December 31, 2017 to 2016
The following table summarizes corporate expenses and Non-GAAP Adjusted EBITDA for the periods presented (in thousands):
Three Months Ended December 31,Six Months Ended December 31,Three Months Ended December 31,  Six Months Ended December 31,  
Corporate201720162017201620192018Change 20192018Change
Other operating income: 
Remeasurement of tax receivable agreement liabilities$177,174
$—
$177,174
$5,722
Other operating income177,174
—
177,174
5,722
Operating expenses:     
Selling, general and administrative40,038
34,197
80,513
72,790
$16,402
$36,089
$(19,687)(55)% $57,420
$73,956
$(16,536)(22)%
Research and development(10)194
6
414
—
—
—
nm 5
—
5
nm
Operating expenses$40,028
$34,391
$80,519
$73,204
16,402
36,089
(19,687)(55)% 57,425
73,956
(16,531)(22)%
Operating income (loss)$137,146
$(34,391)$96,655
$(67,482)
Operating loss$(16,402)$(36,089)$19,687
(55)% $(57,425)$(73,956)$16,531
(22)%
Depreciation and amortization2,323
1,912
4,315
3,797
2,154
2,814



 4,288
5,427
  
Stock-based compensation8,951
6,423
17,908
12,319
7,838
7,680



 11,690
13,913
  
Strategic and financial restructuring expenses3
—
3
—
Adjustment to tax receivable agreement liabilities(177,174)—
(177,174)(5,722)
ERP implementation expenses156
433
491
1,526
Deferred compensation plan income1,577
7
3,115
1,104
Remeasurement of tax receivable agreement liabilities(28,356)—



 (23,682)—
  
Deferred compensation plan income (expense)2,751
(4,235)


 2,992
(2,899)  
Other income586
��
585
—
2,494
648



 2,585
974
  
Non-GAAP Corporate Adjusted EBITDA$(26,432)$(25,616)$(54,102)$(54,458)
Non-GAAP Adjusted EBITDA$(29,521)$(29,182)$(339)1% $(59,552)$(56,541)$(3,011)5%
Other Comparison of the Three Months Ended December 31, 2019 to 2018
Operating IncomeExpenses
OtherCorporate operating income increased $177.2expenses decreased by $19.7 million fromduring the three months ended December 31, 20162019 compared to 2017 and $171.5 million from the six months ended December 31, 2016 to 2017 as a result of the remeasurement of TRA liabilities, which was primarily attributable to the 14% decrease in the U.S. federal corporate income tax rate associated with the TCJA. See "Member-Owner TRA" below for additional information related to the Company's TRA liabilities.
Operating Expenses
Operating expenses increased $5.6 million, or 16%, to $40.0 million for the three months ended December 31, 2017 from $34.4 million for2018, primarily due to the three months ended December 31, 2016. Operating expensesremeasurement of the TRA in the current period partially offset by increased $7.3 million, or 10%, to $80.5 million for the six months ended December 31, 2017 from $73.2 million for the six months ended December 31, 2016.


Selling, generaldeferred compensation plan expense and administrative expenses increased $5.8 million, or 17%, from the three months ended December 31, 2016 to 2017 and $7.7 million, or 11%, from the six months ended December 31, 2016 to 2017, primarily driven by an increase in stock-based compensation expense largelycosts associated with anticipated achievement of certain performance targets, along with increased salaries and benefits expenses due to increased staffing to support continued growth and the acquisitions of Innovatix and Essensa and to a lesser extent Acro Pharmaceuticals.technology services software subscriptions.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA decreased by $0.8$0.3 million or 3%, from during the three months ended December 31, 20162019 compared to 2017, driventhe three months ended December 31, 2018, primarily related to increases in technology services software subscriptions.
Comparison of the Six Months Ended December 31, 2019 to 2018
Operating Expenses
Corporate operating expenses decreased by an increase in professional services costs associated with a certain isolated strategic consulting engagement and increased $0.4$16.5 million or 1%, fromduring the six months ended December 31, 20162019 compared to 2017, driventhe six months ended December 31, 2018, primarily bydue to the remeasurement of the TRA in the current period and a decrease in audit related fees and severance expenses,stock-based compensation expense due to anticipated achievement of certain performance targets relative to the prior year. These decreases were partially offset by the previously mentioned increase in professional servicesincreased deferred compensation plan expense and increased costs associated with a certain isolated strategic consulting engagement.technology services software subscriptions.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA decreased by $3.0 million during the six months ended December 31, 2019 compared to the six months ended December 31, 2018, primarily related to the remeasurement of the TRA and increases in technology services software subscriptions.
Off-Balance Sheet Arrangements
As of December 31, 2017,2019, we did not have any off-balance sheet arrangements.
Liquidity and Capital Resources
Our principal source of cash has historically been cash provided by operating activities. From time to time we have used, and expect to use in the future, borrowings under our Credit Facility as a source of liquidity. Our primary cash requirements involve operating expenses, working capital fluctuations, revenue share obligations, tax payments, capital expenditures, discretionary cash


settlement of Class B common unit exchanges under the Exchange Agreement, repurchases of Class A common stock repurchases under our current sharepursuant to stock repurchase program,programs in place from time to time, acquisitions and related business investments, and other general corporate activities. Our capital expenditures typically consist of internally-developed software costs, software purchases, and computer hardware purchases.
As of December 31, 20172019 and June 30, 2017,2019, we had cash and cash equivalents totaling $163.0$111.6 million and $156.7$141.1 million, respectively,respectively. As of December 31, 2019 and June 30, 2019, there were $200.0$50.0 million and $220.0$25.0 million respectively, inof outstanding borrowings under the Credit Facility.Facility, respectively. During the six months ended December 31, 20172019, the Company repaid $50.0$100.0 million of borrowings and borrowed an additional $30.0$125.0 million under the Credit Facility, which was used to fund the acquisition of Medpricer, share repurchases under our current stock repurchase program, and for other general corporate purposes. On January 31, 2020, the Company repaid $50.0 million of outstanding borrowings under the Credit Facility.
We expect cash generated from operations and borrowings under our Credit Facility to provide us with adequate liquidity to fund our anticipated working capital requirements, revenue share obligations, tax payments, capital expenditures, discretionary cash settlement of Class B common unit exchanges under the Exchange Agreement, and repurchases of Class A common stock pursuant to our stock repurchase program, and growth for the foreseeable future.programs in place from time to time. Our capital requirements depend on numerous factors, including funding requirements for our product and service development and commercialization efforts, our information technology requirements, and the amount of cash generated by our operations. We currently believe that we have adequate capital resources at our disposal to fund currently anticipated capital expenditures, business growth and expansion, and current and projected debt service requirements. However, strategic growth initiatives will likely require the use of one or a combination of various forms of capital resources including available cash on hand, cash generated from operations, borrowings under our Credit Facility, and other long-term debt and, potentially, proceeds from the issuance of additional equity or debt securities.


Discussion of Cash Flows for theSix Months endedEnded December 31, 20172019 and 20162018
A summary of net cash flows follows (in thousands):
Six Months Ended December 31,Six Months Ended December 31,
2017201620192018
Net cash provided by (used in):  
Operating activities$206,515
$138,364
$217,021
$210,195
Investing activities(38,622)(336,358)(85,777)(106,535)
Financing activities(161,614)168,069
(170,757)(147,396)
Net increase (decrease) in cash and cash equivalents$6,279
$(29,925)
Operating activities from discontinued operations10,028
2,114
Investing activities from discontinued operations—
(180)
Net decrease in cash and cash equivalents$(29,485)$(41,802)
Net cash provided by operating activities increased $68.2by $6.8 million fromfor the six months ended December 31, 20162019 compared to 2017the six months ended December 31, 2018. The increase was primarily due to higher net administrative fees and product revenues in addition to changes in our working capital primarily driven by an increase in net administrative fees as well as decreased outflows related to working capital needs,increased cash collections on contract assets. These increases were partially offset by increased selling, general and administrative expenses primarily due to increased expenses incurred in the current period.year attributable to the acquisition of Stanson as well as increased acquisition and disposition related expenses and expenses associated with certain strategic initiatives.
Net cash used in investing activities decreased $297.7 million from the six months ended December 31, 2016 to 2017 driven by our $222.2 million acquisition of Innovatix and Essensa, our $68.8 million acquisition of Acro Pharmaceuticals and our $65.7 million investment in FFF during the prior period, partially offset by $48.0 million in proceeds from the sale of marketable securities during the prior period.
Net cash provided by financing activities was $168.1$20.9 million for the six months ended December 31, 2016 while net2019 compared to the six months ended December 31, 2018. The decrease was primarily due to a reduction in cash paid for acquisitions in the current year as well as investments in unconsolidated affiliates in the current year and decreased purchases of property and equipment.
Net cash used in financing activities was $161.6increased by $23.4 million for the six months ended December 31, 2017.2019 compared to the six months ended December 31, 2018. The changeincrease was primarily due to an increase in cash flows provided by and used in financing activities was largely driven by $327.5 millionrepurchases of borrowings under the Credit Facility in the prior period, partially offset by $20.0 million in net repayments under the Credit Facility during the current period, and to a lesser extent, the $100.0 million settlement of exchange of Class B units by member owners in the prior period and the $70.8 million used to repurchase Class A common stock under our sharestock repurchase program in the current period.year and a decrease in proceeds from the exercise of stock options under our equity incentive plan. These increases were partially offset by increased net borrowings under our Credit Facility and decreased distributions to limited partners of Premier LP.
Net cash provided by operating activities attributable to discontinued operations increased by $7.9 million for the six months ended December 31, 2019, compared to the six months ended December 31, 2018 primarily due to cash collected on accounts receivable that were outstanding as of June 30, 2019. The increase was partially offset by payments on liabilities that were outstanding as of June 30, 2019.


Discussion of Non-GAAP Free Cash Flow for theSix Months endedEnded December 31, 20172019 and 20162018
We define Non-GAAP Free Cash Flow as net cash provided by operating activities from continuing operations less distributions and TRA payments to limited partners and purchases of property and equipment. Free cash flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayments. A summary of Non-GAAP Free Cash Flow and reconciliation to net cash provided by operating activities for the periods presented follows (in thousands):
Six Months Ended December 31,Six Months Ended December 31,
2017201620192018
Net cash provided by operating activities$206,515
$138,364
$217,021
$210,195
Purchases of property and equipment(38,622)(34,325)(44,768)(47,109)
Distributions to limited partners of Premier LP(45,703)(44,630)(26,901)(30,458)
Payments to limited partners of Premier LP related to tax receivable agreements(17,425)(17,975)
Non-GAAP Free Cash Flow$122,190
$59,409
$127,927
$114,653
Non-GAAP Free Cash Flow increased $62.8by $13.3 million fromfor the six months ended December 31, 20162019 compared to 2017the six months ended December 31, 2018, primarily driven by andue to the increase in net administrative fees as well ascash provided by operating activities in addition to decreased working capital needs, partially offset by increased selling, generalpurchases of property and administrative expensesequipment and decreased distributions to limited partners of Premier LP in the current period.
See “Our"Our Use of Non-GAAP Financial Measures”Measures" above for additional information regarding our use of Non-GAAP Free Cash Flow.
The Company anticipates that its Non-GAAP Free Cash Flow will benefit as a result of the decrease in the U.S. federal corporate income tax rate associated with the TCJA as distributions to limited partners of Premier LP and payments to limited partners of Premier LP related to tax receivable agreements are expected to decrease in future periods as a result of the decreased federal corporate income tax rate.


Contractual Obligations
Notes Payable
At December 31, 2017,2019, we had commitments of $7.7$7.6 million for obligations under notes payable which represented obligations to departed member owners. Notes payable to departed member owners generally have stated maturities of five years from the date of issuance and are non-interest bearing. See Note 89 - Debt into the accompanying condensed consolidated financial statements for more information.
2014 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 June 24, 2014 and amended on June 4, 2015.November 9, 2018. The Credit Facility has a maturity date of June 24, 2019.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 $750.0 million$1.0 billion with (i) a $25.0$50.0 million sub-facility for standby letters of credit and (ii) a $75.0$100.0 million sub-facility for swingline loans. The Credit Facility also provides that Co-Borrowers may be increased from time to time at(i) incur incremental term loans and (ii) request an increase in the Company's requestrevolving commitments under the Credit Facility, together up to an aggregate additional amount of $250.0$350.0 million, subject to lender approval.the approval of the lenders providing such term loans or revolving commitment increase. 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.
At the Company'sour 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% or, the one-month LIBOR plus 1.0% and 0.0%) plus the Applicable Rate. The Applicable Rate ranges from 1.125%1.000% to 1.750%1.500% for Eurodollar Loans and 0.125%0.000% to 0.750%0.500% for Base Rate Loans. In the event that LIBOR is no longer available, the Credit Facility states that interest will be calculated based upon rates offered to leading banks for comparable loans by leading banks in the London interbank market. At December 31, 2017,2019, the interest rate for three-monthone-month Eurodollar Loans was 2.815%2.763% and the interest rate for the Base Rate Loans was 4.625%4.750%. The Co-Borrowers are required to pay a commitment fee ranging from 0.125%0.100% to 0.250%0.200% per annum on the actual daily unused amount of commitments under the Credit Facility. At December 31, 2017,2019, the commitment fee was 0.125%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, of which certain covenant calculations use EBITDA, a Non-GAAP financial measure.investments. Under the terms of the Credit Facility, Premier GP is not permitted to allow itsGP's consolidated total net leverage ratio (as defined in the Credit


Facility) tomay not exceed 3.003.75 to 1.00 for any period of four consecutive quarters.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 increase 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 3.002.50 to 1.00 at the end of every fiscal quarter. Premier GP was in compliance with all such covenants at December 31, 2017.2019.
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 $30.0$75.0 million, bankruptcy and other insolvency events, ERISA-related liabilities and judgment defaults in excess of $30.0$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 required 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 shares of our Class A common stock pursuant to our stock repurchase program,programs, and other general corporate activities. During the six months ended December 31, 2017, the Company repaid $50.0 million of borrowings and borrowed an additional $30.0 million under the Credit Facility. Borrowings due within one year of the balance sheet date are classified as current liabilities in the Condensed Consolidated Balance Sheets. The Company had $50.0 million outstanding borrowings under the Credit Facility of $200.0 million at December 31, 2017. They may be renewed or extended at the option2019 with $950.0 million of the Company through the maturity dateavailable borrowing capacity after reductions for outstanding borrowings and outstanding letters of the Credit Facility. credit.
The above summary does not purport to be complete, and is subject to, and qualified in its entirety by reference to, the complete text of the Credit Facility, as amended, which is filed as an exhibitExhibit 10.24 to the 20172019 Annual Report. See also Note 89 - Debt in ourto the accompanying condensed consolidated financial statements in Part I of this Quarterly Report.


statements.
Member-Owner TRA
The CompanyPursuant to the TRAs entered into TRAs with each of our member owners. Pursuant to the TRAs,owners, we will pay member owners 85% of the tax savings, if any, in U.S. federal, foreign, state, and local income and franchise tax that we actually realize (or are deemed to realize, in the case of payments required to be made upon certain occurrences under such TRAs) in connection with the Section 754 election. The election results in adjustments to the tax basis of the assets of Premier LP upon member owner exchanges of Class B common units of Premier LP for Class A common stock of Premier, Inc., cash, or cash.a combination of both. Tax savings are generated as a result of the increases in tax basis resulting from the initial sale of Class B common units, subsequent exchanges (pursuant to the Exchange Agreement), and payments under the TRA.
The CompanyWe had TRA liabilities of $247.2$339.6 million and $339.7$344.1 million at December 31, 20172019 and June 30, 2017,2019, respectively. The $92.5 million decrease was primarily due to $17.4 million in TRA payments and $14.3 million attributable to member departures during the $177.2 million revaluation and remeasurement of TRA liabilities associated with the decrease in the U.S. federal corporate income tax rate as a result of the TCJA,six months ended December 31, 2019, partially offset by $62.2$50.9 million in increases in TRA liabilities in connection with the quarterly member owner exchanges that occurred during the period and $20.9 million associated with the revaluation and remeasurement of TRA liabilities due to a change in the allocation and realization of future anticipated payments.six months ended December 31, 2019.
Stock Repurchase PlanProgram
On October 31, 2017,May 7, 2019, we announced that our Board of Directors authorized the repurchase of up to $200$300.0 million of our outstanding Class A common stock during fiscal year 2020 as parta continuation of aour balanced capital deployment strategy, such repurchases to be made from time to time in private or open market transactions at the Company's discretion, in accordance with applicable federal securities laws.strategy. As of December 31, 2017,2019, we had purchased approximately 2.64.6 million shares of Class A common stock at an average price of $28.96$32.25 per share for a total purchase price of approximately $74.7 million, of which $3.9 million relates to a forward$148.6 million. The purchase commitment included within accounts payable on our Condensed Consolidated Balance Sheets as a result of applying trade date accounting when recording the repurchase of such shares. As of December 31, 2017, we had approximately $125.3 million available under our share repurchase authorization, which expires June 30, 2018. Subsequent to December 31, 2017 and as of February 2, 2018, we had purchased approximately 1.0 million additional shares of Class A common stock at an average price of $31.67 per share for a total incremental purchase price of approximately $32.9 million, the amounts of which are not reflected in our condensed consolidated financial statements for the quarter ended December 31, 2017. The repurchase authorization may be suspended, delayed, or discontinued at any time at the discretion of our Board of Directors.
Costs Associated Repurchases are subject to compliance with Exitapplicable federal securities laws and our management may, at its discretion, suspend, delay, or Disposal Activities
As partdiscontinue repurchases at any time, based on market conditions, alternate uses of our ongoing integration synergies and efforts to realign resources for future growth areas, we are implementing certain personnel adjustments, including a workforce reduction. On February 5, 2018, we communicated to our employees that these personnel adjustments impact approximately 75 positions (approximately 65 of which are related to the workforce reduction),capital, or approximately 3% of total employees. We finalized and committed to this course of action on February 2, 2018. The workforce reduction is expected to result in pre-tax cash restructuring charges, primarily relating to severance and transition assistance, of approximately $5.2 million. Charges related to the workforce reduction, which is expected to be substantially completed in February 2018, will be expensed in the third quarter ending March 31, 2018. The majority of employees impacted by these personnel adjustments are from our Performance Services segment.other factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. Our exposure to market risk related primarily to the increase or decrease in the amount of any interest expense we must pay with respect to outstanding debt instruments. At December 31, 2017,2019, we had $200.0$50.0 million in outstanding borrowings under theour Credit Facility. Committed loans may be in the form of Eurodollar Rate Loans or Base Rate Loans (as defined in the Credit Facility) at our option. Eurodollar Rate Loans bear interest at the Eurodollar Rate (defined as the London Interbank Offer 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% or, the one-month LIBOR plus 1.0% and 0.0%) plus the Applicable Rate. The Applicable Rate ranges from 1.125%1.000% to 1.750%1.500% for Eurodollar Rate Loans and 0.125%0.000% to 0.750%0.500% for Base Rate Loans. In


the event that LIBOR is no longer available, the Credit Facility states that interest will be calculated based upon rates offered to leading banks for comparable loans by leading banks in the London interbank market using an alternative interest rate. At December 31, 2017,2019, the interest rate for three-monthone-month Eurodollar Rate Loans was 2.815%2.763% and the interest rate for Base Rate Loans was 4.625%4.750%.
We invest our excess cash in a portfolio of individual cash equivalents. We do not currently hold, and we have never held, any derivative financial instruments. We do not expect changes in interest rates to have a material impact on our financial condition or results of operations.operations or financial position. We plan to ensure the safety and preservation of our invested funds by limiting default, market, and investment risks. We plan to mitigate default risk by investing in low-risk securities.
Foreign Currency Risk. Substantially all of our financial transactions are conducted in U.S. dollars. We do not have significant foreign operations and, accordingly, do not believe we have only minimal market risk associated with foreign currencies.


Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As of the end of the period covered by this Quarterly Report, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon our evaluation, our chief executive officer and chief financial officer have concluded that due solely to the identification of a material weakness in our internal control over financial reporting as described in Part II, Item 9A of our 2017 Form 10-K that has not yet been fully remediated, our disclosure controls and procedures were not effective as of December 31, 2017.2019.
Management's quarterly evaluation of disclosure controls and procedures did not include an assessment of and conclusion on the effectiveness of disclosure controls and procedures for Medpricer, which was acquired during the six months ended December 31, 2019 and is included in our condensed consolidated financial statements as of December 31, 2019 and for the period from the acquisition date through December 31, 2019. The aggregate assets of Medpricer were not material to the Condensed Consolidated Balance Sheet as of December 31, 2019. The net revenue generated by Medpricer was not material to the Condensed Consolidated Income Statements for the three and six months ended December 31, 2019.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 20172019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than as described below under “Remediation Plan”.reporting.
Remediation Plan
As disclosed in Part II, Item 9A of our 2017 Form 10-K, we identified a material weakness in our internal control over financial reporting related to the income tax accounting for complex, non-routine or infrequent transactions. Since that time, we have begun implementing a remediation plan to address this material weakness. The remediation plan consists of augmenting the Company’s accounting resources, training, and implementing a more formal review and documentation process around the income tax accounting for complex, non-routine or infrequent transactions that may arise from time to time. Management believes that this remediation plan will strengthen our overall internal control over financial reporting and specifically with respect to complex, non-routine or infrequent transactions. Management is continuing to assess the sufficiency and expected effectiveness of our remediation efforts, and we may take additional measures or modify our internal control over financial reporting for these types of transactions.

This material weakness will not be considered fully remediated until newly implemented remediation controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect these remedial actions to be effectively implemented during fiscal year 2018 in order to successfully remediate this material weakness by June 30, 2018. If these remedial measures are insufficient or not implemented effectively, or additional deficiencies arise, material misstatements may occur in the future. Among other things, any unremediated or additional material weaknesses could have the effects described in our 2017 Form 10-K, specifically under “Item 1A. Risk Factors - If we fail to maintain an effective system of integrated internal controls, we may not be able to report our financial results accurately, or we may determine that our prior financial statements are not reliable, which could have a material adverse effect on our business, financial condition and results of operations.”




PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We participate in businesses that are subject to substantial litigation. We are,litigation from time to time,time. We are periodically involved in litigation, arising in the ordinary course of business or otherwise, which from time to time may include claims relating to commercial,contractual disputes, product liability, tort andor personal injury, employment, antitrust, intellectual property regulatory, or other commercial or regulatory matters. If current or future government regulations specifically those with respect to antitrust or healthcare laws, are interpreted or enforced in a manner adverse to us or our business, including without limitation those with respect to antitrust or healthcare laws, we may be subject to enforcement actions, penalties, damages and other material limitations on our business.
In the past,Furthermore, as a public company, we may become subject to stockholder derivative or other similar litigation.
From time to time we have been named as a defendant in severalclass action or other antitrust lawsuits brought by suppliers or purchasers of medical products. Typically, these lawsuits have alleged the existence of a conspiracy among manufacturers of competing products, anddistributors and/or operators of GPOs, including us, to deny the plaintiff access to a market for its products.certain products to raise the prices for products and/or limit the plaintiff's choice of products to buy. We believe that we have at all times conducted our business affairs in an ethical and legally compliant manner and have successfully resolved all such actions. We mayNo assurance can be given that we will not be subjected to similar actions in the future and no assurance can be givenor that any such existing or future matters will be resolved in a manner satisfactory to us or which will not harm our business, financial condition or results of operations.
Additional information relating to certain legal proceedings in which we are involved is included in Note 1516 - Commitments and Contingencies to the accompanying condensed consolidated financial statements, which information is incorporated herein by reference.
Item 1A. Risk Factors
During the quarter ended December 31, 2017,2019, there were no material changes to the risk factors disclosed in "Risk Factors" in the 20172019 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities
On October 31, 2017,May 7, 2019, we announced that our boardBoard of directorsDirectors authorized the repurchase of up to $200$300.0 million of our outstanding Class A common stock prior to June 30, 2018,during fiscal 2020 as parta continuation of aour balanced capital deployment strategy. Subject to compliance with applicable federal securities laws, repurchases arewere authorized to be made from time to time in open market transactions, privately negotiated transactions, or other transactions, including trades under a plan established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. All repurchases of our Class A common stock have beenwere recorded as treasury shares. The following table summarizes information relating to repurchases made of our Class A common stock duringfor the quarter ended December 31, 2017.2019.
PeriodTotal Number of Shares Purchased
Average Price Paid per Share ($) (1)
Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (in millions)(2)
Total Number of Shares Purchased
Average Price Paid per Share ($) (1)
Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (in millions)(2)
November 9 through November 30, 20171,201,100
$28.51
1,201,100
$166
December 1 through December 31, 20171,376,859
29.35
1,376,859
125
October 1 through October 31, 20193,037,759
$31.26
3,037,759
$169
November 1 through November 30, 2019454,604
34.95
454,604
154
December 1 through December 31, 201956,600
35.52
56,600
152
Total2,577,959
$28.96
2,577,959
$125
3,548,963

3,548,963
$152
(1)Average price paid per share excludes fees and commissions.
(2)From the stock repurchase program's inception through December 31, 2019, we purchased approximately 4.6 million shares of Class A common stock at an average price of $32.25 per share for a total of $148.6 million.

(1) Average price paid per share excludes fees and commissions.
(2) As of December 31, 2017, we had purchased 2.6 million shares of Class A common stock at an average price of $28.96 per share for a total of $74.7 million since the program's inception.




Item 6. Exhibits
Exhibit No. Description
10.13.2 
Second Amendment to Amended and Restated Limited Partnership AgreementBylaws of Premier, Healthcare Alliance, L.P.Inc., datedeffective as of November 6, 2017October 24, 2019 (Incorporated by reference to Exhibit 10.13.2 to our Quarterly Report on Form 10-Q filed November 7, 2017).
10.2
Transition Agreement and Release, dated October 9, 2017, by and between Durral R. Gilbert and Premier Healthcare Solutions, Inc. (Incorporated by reference to Exhibit 10.1 to ourthe Current Report on Form 8-K of Premier, Inc., filed on October 10, 2017).25, 2019 - Commission File No. 001-36092)
31.1 
Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2 
Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1 
Certification required by 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.‡
32.2 
Certification required by 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.‡
101 Sections of the Premier, Inc. Quarterly Report on Form 10-Q for the quarter ended December 31, 2017,2019, formatted in XBRL (eXtensibleiXBRL (Inline eXtensible Business Reporting Language), submitted in the following files:
101.INSXBRL Instance Document.*
101.SCH Inline XBRL Taxonomy Extension Schema Document.*
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104The cover page from the Premier, Inc. Quarterly Report on Form 10-Q for the quarter ended December 31, 2019, formatted in Inline XBRL (included in Exhibit 101).*
*    Filed herewith.
‡    Furnished herewith.




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.
     PREMIER, INC.
     
Date:February 5, 20184, 2020 By: /s/ Craig S. McKasson
   Name: Craig S. McKasson
   Title: Chief Administrative and Financial Officer and Senior Vice President
     Signing on behalf of the registrant and as principal financial officer and principal accounting officer


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