Executive Summary / Key Takeaways

• Strategic Pivot to Technology-Enabled Growth: Premier, Inc. is strategically transforming into a technology-driven healthcare improvement company, leveraging its PINC AI platform and digital supply chain solutions to drive efficiency and cost savings for providers amidst mounting industry pressures.
• Supply Chain Resilience and Fee Share Stabilization: The Supply Chain Services segment, a core strength, is nearing the completion of GPO contract renewals, with fee share expected to stabilize in the high 60s by FY2027, supported by robust gross administrative fee growth and diversification efforts against tariff impacts.
• Reinvigorated Performance Services with AI: The Performance Services segment is undergoing a significant revitalization, marked by the strategic acquisition of IllumiCare and a partnership with Epic, positioning Premier for double-digit growth in its advisory and clinical decision support businesses by FY2026.
• Strong Capital Allocation and Financial Flexibility: Premier has demonstrated a disciplined approach to capital deployment, including substantial share repurchases and consistent dividends, further bolstered by the elimination of the $100 million annual Tax Receivable Agreement payment headwind from FY2026.
• Outlook for FY2027 Growth Inflection: While FY2026 is projected as a year of stabilization and transition, management anticipates a return to positive growth across all key financial metrics in FY2027, driven by renewed software deals, ramping advisory services, and reduced fee share pressures.

Premier's Strategic Evolution in a Dynamic Healthcare Market

Premier, Inc. (NASDAQ: PINC) stands at a pivotal juncture in the rapidly evolving U.S. healthcare industry, transforming itself into a technology-driven powerhouse focused on improving clinical, financial, and operational outcomes for providers, suppliers, and payers. Founded in 2013, Premier's journey has been marked by a partnership-driven model, leveraging its extensive network of over 4,250 acute care providers and 365,000 continuum of care members to co-develop innovative solutions. This foundational approach, coupled with strategic divestitures and targeted acquisitions, underpins its current strategy to deliver measurable impact at scale.

The healthcare landscape is fraught with challenges, including persistent labor shortages, rising input costs, and significant reimbursement pressures. U.S. healthcare expenditures are projected to grow by an average of 5.8% annually through 2033, reaching 20.3% of GDP, with hospital services alone accounting for an estimated $1.8 trillion in 2025. This environment intensifies the demand for efficiency and value-based care, creating a fertile ground for Premier's integrated platform. The company's strategic responses, including its focus on supply chain resilience, AI-enabled technologies, and advisory services, are directly tailored to address these systemic industry pain points.

Technological Edge: PINC AI and Digital Supply Chain Innovation

Premier's core competitive advantage is deeply rooted in its proprietary technology platforms, particularly the PINC AI platform and its evolving digital supply chain solutions. These technologies are not merely tools; they are integral to Premier's ability to create a differentiated value proposition for its members. The PINC AI platform, for instance, leverages advanced analytics, machine learning, and natural language processing to deliver real-time actionable insights across clinical intelligence, margin improvement, and value-based care.

A recent, significant technological enhancement is the June 2025 acquisition of IllumiCare, Inc. for a preliminary adjusted purchase price of $47.5 million. This strategic move significantly strengthens Premier's clinical decision support (CDS) capabilities, enabling real-time insights at the point of care. IllumiCare's platform is EMR-agnostic and marries clinical and financial data, offering a tangible benefit of approximately $100 in savings per inpatient discharge, translating to an impressive 10:1 return on investment for customers. This quantifiable advantage directly addresses the mounting pressure on providers to improve clinical and financial performance simultaneously. IllumiCare is expected to contribute $8 million to $10 million in revenue in fiscal year 2026 and be breakeven on the bottom line, with expectations for double-digit growth as it integrates with Premier's Stanson Health business.

Premier's digital supply chain strategy is also advancing beyond pilot phases, with a focus on AI-enabling manual back-office processes for providers and suppliers. The Remitra digital invoicing and payables automation business, now integrated into the Supply Chain Services segment, aims to streamline financial processes, reduce errors and fraud, and unlock cost and labor efficiencies. This technology provides a comprehensive view of total non-labor healthcare spend, embedding evidence-based decision-making into workflows to ensure the right product is available at the right time and price. Furthermore, Premier's partnership with Epic for its AI-powered Stanson Health CodingCare application, expected to go live in late 2025, will extend its reach to Epic's vast customer base, further solidifying its technological moat in clinical decision support and revenue cycle management. These technological differentiators are crucial for Premier to maintain its competitive edge, drive higher average selling prices (ASPs) for its solutions, lower operational costs for its members, and ultimately improve its own margins and long-term growth prospects.

Segment Performance and Strategic Direction

Premier operates through two primary segments: Supply Chain Services (SCS) and Performance Services (PS). Each plays a distinct, yet interconnected, role in the company's overall strategy.

Supply Chain Services: Resilience Amidst Renewal

The Supply Chain Services segment, Premier's largest revenue contributor, focuses on managing non-labor expenses through its national GPO programs, supply chain co-management, and digital procure-to-pay solutions. For fiscal year 2025, SCS reported net revenue of $631.0 million, a decrease of 8.5% from $689.4 million in fiscal year 2024. Segment Adjusted EBITDA also saw a decline of 20.2% to $326.9 million in FY2025 from $409.7 million in FY2024. This decline was primarily driven by an increase in the aggregate blended fee share paid to members as a result of GPO contract renewals.

Despite these headwinds, the underlying business demonstrated resilience. Gross administrative fees grew over 3% in FY2025, with broad-based strength across MedSurg, pharmacy, food, and purchase services. This growth is expected to accelerate to around 4% in FY2026. The company has made significant progress in renegotiating GPO member contracts from the August 2020 restructure, with less than 20% of these contracts remaining to be addressed by June 30, 2025. Management anticipates the aggregate blended fee share to stabilize in the high 60s on an annualized basis once all renewals are complete, likely by the end of fiscal year 2026. This stabilization, combined with continued growth in supply chain co-management (17% growth in FY2025) and digital supply chain (15% growth in FY2025), positions SCS for a rebound in profitability post-FY2026.

Performance Services: Reinvigoration and Growth Catalysts

The Performance Services segment delivers technology and services to optimize clinical intelligence, margin improvement, and value-based care. This segment reported net revenue of $381.6 million in fiscal year 2025, a 14.6% decrease from $446.6 million in FY2024. Segment Adjusted EBITDA declined 46.7% to $60.7 million in FY2025 from $113.8 million in FY2024. The revenue decline was attributed to lower consulting demand, an unfavorable product mix in Applied Sciences, and a gradual shift from upfront license agreements to SaaS subscriptions.

To address these short-term headwinds, Premier is actively "reinvigorating" the PS segment. The company has recruited new talent, including David Zito as President of Performance Services, with a focus on enterprise-wide transformation. This has already led to meaningful momentum in the advisory business, with four large deals recently signed and a robust pipeline. Management expects the advisory business to return to double-digit growth in FY2026, potentially exceeding 25%. The IllumiCare acquisition is a key component of this strategy, enhancing clinical decision support and expanding the addressable market. Furthermore, the Applied Sciences business, which leverages Premier's extensive real-world data, is seeing growing interest from life science and med-tech manufacturers, contributing to future growth.

Financial Health and Capital Allocation

Premier's consolidated financial performance in fiscal year 2025 reflects a period of strategic transition. Total net revenue for FY2025 was $1.01 billion, down from $1.14 billion in FY2024. Net income from continuing operations was $72.7 million in FY2025, compared to $104.2 million in FY2024. Adjusted EBITDA for FY2025 was $253.1 million, a decrease from $389.0 million in FY2024. This was impacted by the fee share increases in SCS and the temporary pressures in PS, alongside a $126.8 million goodwill impairment charge related to the Informatics and Technology Services (ITS) reporting unit in Q2 FY2025.

Despite these pressures, Premier maintains a strong liquidity position. Free cash flow (FCF) for FY2025 was $181 million, translating to a conversion rate of 69%. A significant positive for future FCF is the completion of the final payment for the Tax Receivable Agreement (TRA) termination in FY2025. This eliminates an approximate $100 million annual headwind to FCF starting July 1, 2025, providing substantial capacity to support long-term growth plans. The company also anticipates a cash tax rate of less than 5% over the next five years.

Premier has demonstrated a disciplined approach to capital deployment, returning significant value to shareholders. It completed $800 million in common stock repurchases under a $1 billion authorization, which expired on June 30, 2025. Quarterly cash dividends of $0.21 per share were consistently paid throughout FY2025, representing a nearly 4% dividend yield. While borrowings under the $1.0 billion credit facility increased to $280.0 million by June 30, 2025, primarily to fund share repurchases, $90.0 million was repaid in July 2025, indicating active management of its debt.

Competitive Landscape and Positioning

Premier operates in a highly competitive and fragmented market across both its Supply Chain Services and Performance Services segments. Its primary GPO competitors include HealthTrust Purchasing Group, Vizient, Inc., and various provider-owned GPOs. In Performance Services, it faces competition from IT providers like Epic Systems, Health Catalyst (HCAT), and Oracle (ORCL), as well as consulting firms such as Deloitte and Optum.

Premier differentiates itself through the "breadth of its GPO portfolio, the depth of its advisory expertise, and the promise of its technology." While larger competitors like McKesson and Cardinal Health boast extensive distribution networks and significant scale, Premier's strength lies in its specialized, technology-driven approach. For instance, McKesson (MCK)'s TTM gross profit margin is 3%, operating profit margin is 1%, and net profit margin is 0.92%, reflecting its high-volume, lower-margin distribution business. Cardinal Health (CAH) shows similar trends with TTM gross profit margin of 4%, operating profit margin is 1%, and net profit margin is 0.70%. In contrast, Premier's TTM gross profit margin is 72.47%, operating profit margin is 1.04%, and net profit margin is 2.00%, indicating a different business model with higher gross margins from its GPO administrative fees and technology solutions, albeit with higher operating expenses relative to revenue.

Premier's PINC AI platform and digital supply chain tools offer a competitive edge by providing deeper, more actionable insights for clinical and financial optimization, potentially leading to superior efficiency for clients compared to the more generalized offerings of some rivals. Its member-led contracting process and supply chain resiliency programs, including investments in domestic manufacturing (e.g., Prestige Ameritech, Exela), help mitigate risks like tariffs and supply shortages, a critical differentiator in the current environment. While Premier may not match the sheer distribution scale or overall revenue growth rates of some larger competitors, its focus on integrated performance improvement and data-driven solutions allows it to carve out a strong niche and foster deep, sticky relationships with its healthcare provider members.

Outlook and Risks

Premier characterizes fiscal year 2026 as a period of "stabilization and transition" as it finalizes GPO contract renewals. For FY2026, the company provides the following guidance:

• Total net revenue: $940 million to $1 billion.
• Supply Chain Services revenue: $590 million to $620 million.
• Performance Services revenue: $350 million to $380 million.
• Adjusted EBITDA: $230 million to $245 million.
• Adjusted EPS: $1.33 to $1.43.

The first half of FY2026 is expected to see lower revenue and profitability due to the ramp-up of headcount for the advisory business, with margins improving in the latter half as associated revenue is recognized. Management anticipates a return to positive growth for total net revenue, adjusted EBITDA, and adjusted EPS in fiscal year 2027. This rebound is expected to be driven by a pickup in enterprise license and software renewals, continued ramp-up of the advisory business, double-digit growth from clinical decision support and IllumiCare synergies, sustained growth in gross administrative fees, and significantly lower fee share headwinds.

Key risks to this outlook include ongoing macroeconomic pressures on healthcare systems, particularly potential Medicaid expenditure reductions from legislation like the "One Big Beautiful Bill Act" (estimated $1.0 trillion reduction over 10 years starting December 2026). The dynamic nature of tariffs and their potential impact on supplier pricing, despite Premier's "firm for the term" contracts and diversification efforts, remains a concern. Furthermore, the evolving legal and ethical framework surrounding AI technologies could introduce unforeseen challenges or restrict the use of Premier's AI-based products. The company's ability to successfully integrate new acquisitions like IllumiCare and execute its reinvigorated Performance Services strategy will be crucial.

Conclusion

Premier, Inc. is strategically repositioning itself to thrive in a challenging yet opportunity-rich healthcare market. Its core investment thesis hinges on its ability to leverage its technology-driven platform, particularly the PINC AI suite and digital supply chain solutions, to deliver essential performance improvement for healthcare providers. The successful completion of GPO contract renewals, coupled with the elimination of the TRA payment headwind, provides a clearer financial runway.

While fiscal year 2026 is projected as a period of stabilization, the foundational investments in technology, talent, and strategic partnerships, notably the IllumiCare acquisition and Epic collaboration, are expected to catalyze a return to positive growth in fiscal year 2027. Premier's differentiated technology, robust data assets, and member-centric model create a strong competitive moat against both traditional GPO rivals and emerging tech players. Investors should monitor the execution of the Performance Services turnaround, the continued expansion of digital supply chain offerings, and the company's ability to translate its technological leadership into sustained financial growth and enhanced shareholder value.