UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________________________________________________
FORM 10-Q
 __________________________________________________________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MarchDecember 31, 2018
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
Commission File Number 001-36092
 __________________________________________________________________________________________
Premier, Inc.
(Exact name of registrant as specified in its charter)
 ___________________________________________________________________________________________
Delaware 35-2477140
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
  
13034 Ballantyne Corporate Place
Charlotte, North Carolina
 28277
(Address of principal executive offices) (Zip Code)
(704) 357-0022
(Registrant's telephone number, including area code)
 __________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  o
Indicate by check mark whether the registrant has submitted electronically 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).  Yes x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated 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 May 4, 2018,February 1, 2019, there were 52,587,64563,788,479 shares of the registrant's Class A common stock, par value $0.01 per share, and 80,335,70165,602,193 shares of the registrant's Class B common stock, par value $0.000001 per share, outstanding.



TABLE OF CONTENTS
  Page
PART I. FINANCIAL INFORMATION
6
Item 1.
Financial Statements
6
 Condensed Consolidated Balance Sheets as of MarchDecember 31, 2018 and June 30, 20172018 (Unaudited)
6
 Condensed Consolidated Statements of Income for the three and ninesix months ended MarchDecember 31, 2018 and 2017 (Unaudited)
8
 Condensed Consolidated Statements of Comprehensive Income for the three and ninesix months ended MarchDecember 31, 2018 and 2017 (Unaudited)
9
 Condensed Consolidated Statement of Stockholders' Deficit for the ninesix months ended MarchDecember 31, 2018 and 2017 (Unaudited)
10
 Condensed Consolidated Statements of Cash FlowFlows for the ninesix months ended MarchDecember 31, 2018 and 2017 (Unaudited)
12
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
14
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
3841
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
6072
Item 4.
Controls and Procedures
6172
PART II. OTHER INFORMATION
6274
Item 1.
Legal Proceedings
6274
Item 1A.
Risk Factors
6274
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
62
Item 5.Other Information
6374
Item 6.
Exhibits
6475
 
Signatures
6576


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements made in this Quarterly Report that are not statements of historical or current facts, such as those under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in conditional or future tenses or that include terms such as "believes," "belief," "expects," "estimates," "intends," "anticipates" or "plans" to be uncertain and forward-looking. Forward-looking statements may include comments as to our beliefs and expectations regarding future events and trends affecting our business and are necessarily subject to uncertainties, many of which are outside our control. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:
competition which could limit our ability to maintain or expand market share within our industry;
consolidation in the healthcare industry;
potential delays recognizing or increasing revenue if the sales cycle or implementation period takes longer than expected;
the terminability of member participation in our group purchasing organization ("GPO") programs with limited or no notice, or the failure of a significant number of members to renew their GPO participation agreements;
the rate at which the markets for our non-GPOSaaS 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 pharmaceutical industry pricing benchmarks;
our inability to grow our integrated pharmacy business or maintain current patients due to increases in the safety risk profiles of prescription drugs or the withdrawal of prescription drugs from the market, or our inability to maintain and expand our existing base of drugs in our integrated pharmacies;pharmacy operations;
our dependency on contract manufacturing facilities located in various parts of the world;
our ability to attract, hire, integrate and retain key personnel;


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 current or acquired software applications that may be considered medical devices;
compliance with, and potential changes to, extensive federal, state and local laws, regulations and procedures governing our integrated pharmacy operations;
risks inherent in the filling, packaging and distribution of pharmaceuticals, including the counseling required to be provided by our pharmacists for dispensing of products;
our holding company structure and dependence on distributions from Premier Healthcare Alliance, L.P. ("Premier LP");
different interests among our member owners or between us and our member owners;
the ability of our member owners to exercise significant control over us, including through the election of all of our directors;
exemption from certain corporate governance requirements due to our status as a "controlled company" within the meaning of the NASDAQ rules;
the terms of agreements between us and our member owners;
payments made under the TRAs to Premier LP's limited partners and our ability to realize the expected tax benefits related to the acquisition of Class B common units from Premier LP's limited partners;
changes to Premier LP's allocation methods or examinations or changes in interpretation of applicable tax laws and regulations by various taxing authorities that may increase a tax-exempt limited partner's risk that some allocated income is unrelated business taxable income;
provisions in our certificate of incorporation and bylaws and the Amended and Restated Limited Partnership Agreement of Premier LP (as amended, the "LP Agreement") and provisions of Delaware law that discourage or prevent strategic transactions, including a takeover of us;
failure to maintain an effective system of internal controls;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 orupon exchange of Class B common units of Premier LP 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;
when or whether we implement our recently announced Class A common stock repurchase programthe timing and the number of shares of Class A common stock repurchased by the Company, if any, purchased under thepursuant 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, 20172018 (the "2017"2018 Annual Report"), filed with the Securities and Exchange Commission ("SEC").
More information on potential factors that could affect our financial results is included from time to time in the "Cautionary Note Regarding Forward-Looking Statements," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" or similarly captioned sections of this Quarterly Report and our other periodic and current filings made from time to time with the SEC, which are available on our website at http://investors.premierinc.com.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)
March 31, 2018June 30, 2017December 31, 2018June 30, 2018
Assets  
Cash and cash equivalents$149,410
$156,735
$110,584
$152,386
Accounts receivable (net of $2,149 and $1,812 allowance for doubtful accounts, respectively)174,092
159,745
Accounts receivable (net of $3,187 and $1,841 allowance for doubtful accounts, respectively)197,366
185,874
Contract assets208,254
—
Inventory57,230
50,426
70,032
66,139
Prepaid expenses and other current assets24,374
35,164
27,259
23,325
Due from related parties491
6,742
720
894
Total current assets405,597
408,812
614,215
428,618
Property and equipment (net of $282,678 and $236,460 accumulated depreciation, respectively)198,853
187,365
Intangible assets (net of $139,802 and $99,198 accumulated amortization, respectively)335,948
377,962
Property and equipment (net of $339,781 and $297,591 accumulated depreciation, respectively)211,859
206,693
Intangible assets (net of $181,171 and $153,635 accumulated amortization, respectively)318,199
322,115
Goodwill906,545
906,545
943,281
906,545
Deferred income tax assets306,738
482,484
389,632
305,624
Deferred compensation plan assets43,267
41,518
39,752
44,577
Investments in unconsolidated affiliates93,448
92,879
98,089
94,053
Other assets4,241
10,271
29,824
3,991
Total assets$2,294,637
$2,507,836
$2,644,851
$2,312,216
  
Liabilities, redeemable limited partners' capital and stockholders' deficit  
Accounts payable$43,708
$42,815
$66,855
$60,130
Accrued expenses69,094
55,857
99,480
64,257
Revenue share obligations75,341
72,078
130,163
78,999
Limited partners' distribution payable13,157
24,951
14,288
15,465
Accrued compensation and benefits52,857
53,506
41,071
64,112
Deferred revenue44,534
44,443
33,874
39,785
Current portion of tax receivable agreements17,925
17,925
18,217
17,925
Current portion of long-term debt200,255
227,993
102,302
100,250
Other liabilities7,044
32,019
8,438
7,959
Total current liabilities523,915
571,587
514,688
448,882
Long-term debt, less current portion6,962
6,279
5,107
6,962
Tax receivable agreements, less current portion232,783
321,796
304,907
237,176
Deferred compensation plan obligations43,267
41,518
39,752
44,577
Deferred tax liabilities33,787
48,227
18,850
17,569
Other liabilities56,456
42,099
58,296
63,704
Total liabilities897,170
1,031,506
941,600
818,870


March 31, 2018June 30, 2017December 31, 2018June 30, 2018








Redeemable limited partners' capital2,532,731
3,138,583
2,593,882
2,920,410
Stockholders' deficit:  
Class A common stock, $0.01 par value, 500,000,000 shares authorized; 57,352,698 shares issued and 51,940,576 shares outstanding at March 31, 2018 and 51,943,281 shares issued and outstanding at June 30, 2017574
519
Class B common stock, $0.000001 par value, 600,000,000 shares authorized; 80,978,267 and 87,298,888 shares issued and outstanding at March 31, 2018 and June 30, 2017, respectively—
—
Treasury stock, at cost; 5,412,122 shares(170,274)—
Class A common stock, $0.01 par value, 500,000,000 shares authorized; 63,822,420 shares issued and 61,286,582 shares outstanding at December 31, 2018 and 57,530,733 shares issued and 52,761,177 shares outstanding at June 30, 2018638
575
Class B common stock, $0.000001 par value, 600,000,000 shares authorized; 69,484,147 and 80,335,701 shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively—
—
Treasury stock, at cost; 2,535,838 and 4,769,556 shares, respectively(97,199)(150,058)
Additional paid-in-capital—
—
—
—
Accumulated deficit(965,564)(1,662,772)(794,070)(1,277,581)
Accumulated other comprehensive income (loss)—
—
Total stockholders' deficit(1,135,264)(1,662,253)(890,631)(1,427,064)
Total liabilities, redeemable limited partners' capital and stockholders' deficit$2,294,637
$2,507,836
$2,644,851
$2,312,216
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 March 31,Nine Months Ended March 31,Three Months Ended December 31,Six Months Ended December 31,
20182017201820172018201720182017
Net revenue:  
Net administrative fees$161,612
$143,915
$471,946
$398,962
$165,695
$159,343
$327,695
$310,334
Other services and support97,492
97,756
274,357
265,974
98,643
89,953
186,719
176,864
Services259,104
241,671
746,303
664,936
264,338
249,296
514,414
487,198
Products166,234
138,132
480,997
386,639
157,519
162,102
308,989
314,764
Net revenue425,338
379,803
1,227,300
1,051,575
421,857
411,398
823,403
801,962
Cost of revenue:  
Services47,037
47,319
141,228
134,865
43,189
47,255
86,561
94,191
Products156,511
129,929
454,222
356,900
155,534
153,272
301,155
297,712
Cost of revenue203,548
177,248
595,450
491,765
198,723
200,527
387,716
391,903
Gross profit221,790
202,555
631,850
559,810
223,134
210,871
435,687
410,059
Other operating income:  
Remeasurement of tax receivable agreement liabilities—
—
177,174
5,722
—
177,174
—
177,174
Other operating income—
—
177,174
5,722
—
177,174
—
177,174
Operating expenses:  
Selling, general and administrative109,007
108,668
331,948
302,555
110,112
108,620
215,982
222,941
Research and development292
755
1,105
2,328
292
324
632
813
Amortization of purchased intangible assets13,881
14,080
41,597
34,440
13,899
13,817
27,537
27,715
Operating expenses123,180
123,503
374,650
339,323
124,303
122,761
244,151
251,469
Operating income98,610
79,052
434,374
226,209
98,831
265,284
191,536
335,764
Remeasurement gain attributable to acquisition of Innovatix, LLC—
—
—
204,833
Equity in net income (loss) of unconsolidated affiliates(4,939)83
570
14,789
Equity in net income of unconsolidated affiliates1,444
1,257
4,134
5,509
Interest and investment loss, net(1,236)(2,017)(4,239)(3,026)(859)(1,508)(1,547)(3,003)
Loss on disposal of long-lived assets(5)(725)(1,725)(2,243)—
(400)—
(1,720)
Other income (expense)(2,593)2,260
(14,486)3,135
7,199
(13,356)5,258
(11,893)
Other income (expense), net(8,773)(399)(19,880)217,488
7,784
(14,007)7,845
(11,107)
Income before income taxes89,837
78,653
414,494
443,697
106,615
251,277
199,381
324,657
Income tax expense13,288
7,315
257,560
68,080
1,804
231,508
12,597
244,272
Net income76,549
71,338
156,934
375,617
104,811
19,769
186,784
80,385
Net income attributable to non-controlling interest in Premier LP(53,047)(51,433)(154,142)(282,207)(62,631)(56,485)(117,744)(101,095)
Adjustment of redeemable limited partners' capital to redemption amount(127,039)(100,506)511,301
296,566
651,709
317,916
(56,484)638,340
Net income (loss) attributable to stockholders$(103,537)$(80,601)$514,093
$389,976
Net income attributable to stockholders$693,889
$281,200
$12,556
$617,630
  
Weighted average shares outstanding:  
Basic53,529
50,525
53,885
49,051
59,876
55,209
56,548
54,059
Diluted53,529
50,525
138,254
141,372
133,672
139,237
57,584
139,641
  
Earnings (loss) per share attributable to stockholders: 
Earnings per share attributable to stockholders: 
Basic$(1.93)$(1.60)$9.54
$7.95
$11.59
$5.09
$0.22
$11.43
Diluted$(1.93)$(1.60)$(0.84)$2.22
$0.69
$0.06
$0.22
$0.36
See accompanying notes to the unaudited condensed consolidated financial statements.


PREMIER, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
 Three Months Ended March 31,Nine Months Ended March 31,
 2018201720182017
Net income$76,549
$71,338
$156,934
$375,617
Net unrealized gain on marketable securities—
—
—
128
Total comprehensive income76,549
71,338
156,934
375,745
Less: comprehensive income attributable to non-controlling interest(53,047)(51,433)(154,142)(282,292)
Comprehensive income attributable to stockholders$23,502
$19,905
$2,792
$93,453
 Three Months Ended December 31,Six Months Ended December 31,
 2018201720182017
Net income$104,811
$19,769
$186,784
$80,385
Less: comprehensive income attributable to non-controlling interest(62,631)(56,485)(117,744)(101,095)
Comprehensive income (loss) attributable to stockholders$42,180
$(36,716)$69,040
$(20,710)
See accompanying notes to the unaudited condensed consolidated financial statements.



PREMIER, INC.
Condensed Consolidated Statement of Stockholders' Deficit
NineSix Months Ended MarchDecember 31, 2018
(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, 201852,761
$575
80,336
$—
4,769
$(150,058)$—
$(1,277,581)$(1,427,064)
Balance at July 1, 2018, as previously reported52,761
575
80,336
—
4,769
(150,058)—
(1,277,581)(1,427,064)
Impact of change in accounting principle—
—
—
—
—
—
—
127,265
127,265
Adjusted balance at July 1, 201852,761
575
80,336
—
4,769
(150,058)—
(1,150,316)(1,299,799)
Exchange of Class B units for Class A common stock by member owners5,889
50
(5,889)—
(1,006)29,855
165,019
—
194,924
10,624
55
(10,624)—
(5,104)162,371
309,454
—
471,880
Redemption of limited partners—
—
(432)—
—
—
—
—
—
—
—
(227)—
—
—
—
—
—
Decrease in additional paid-in capital related to quarterly exchange by member owners, including associated TRA revaluation—
—
—
—
—
—
(5,916)—
(5,916)
Increase in additional paid-in capital related to quarterly exchange by member owners, including associated TRA revaluation—
—
—
—
—
—
14,752
—
14,752
Issuance of Class A common stock under equity incentive plan479
5
—
—
—
—
3,610
—
3,615
734
8
—
—
—
—
12,115
—
12,123
Issuance of Class A common stock under employee stock purchase plan48
—
—
—
—
—
1,388
—
1,388
38
—
—
—
—
—
1,488
—
1,488
Treasury stock(6,418)—
—
—
6,418
(200,129)—
—
(200,129)(2,870)—
—
—
2,870
(109,512)—
—
(109,512)
Stock-based compensation expense—
—
—
—
—
—
24,930
—
24,930
—
—
—
—
—
—
13,911
—
13,911
Repurchase of vested restricted units for employee tax-withholding—
—
—
—
—
—
(5,916)—
(5,916)—
—
—
—
—
—
(8,030)—
(8,030)
Net income—
—
—
—
—
—
—
156,934
156,934
—
—
—
—
—
—
—
186,784
186,784
Net income attributable to non-controlling interest in Premier LP—
—
—
—
—
—
—
(154,142)(154,142)—
—
—
—
—
—
—
(117,744)(117,744)
Adjustment of redeemable limited partners' capital to redemption amount—
—
—
—
—
—
(183,115)694,416
511,301
—
—
—
—
—
—
(343,690)287,206
(56,484)
Balance at March 31, 201851,941
$574
80,978
$—
5,412
$(170,274)$—
$(965,564)$(1,135,264)
Balance at December 31, 201861,287
$638
69,485
$—
2,535
$(97,199)$—
$(794,070)$(890,631)
See accompanying notes to the unaudited condensed consolidated financial statements.



PREMIER, INC.
Condensed Consolidated Statement of Stockholders' Deficit
NineSix Months Ended MarchDecember 31, 2017
(Unaudited)
(In thousands)
Class A
Common Stock		Class B
Common Stock		Additional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' DeficitClass A
Common Stock		Class B
Common Stock		Treasury StockAdditional Paid-In CapitalAccumulated DeficitTotal Stockholders' Deficit
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance at June 30, 201645,996
$460
96,133
$—
$—
$(1,951,878)$(43)$(1,951,461)
Balance at June 30, 201751,943
$519
87,299
$—
—
$—
$—
$(1,662,772)$(1,662,253)
Exchange of Class B units for Class A common stock by member owners3,858
38
(3,858)—
123,743
—
—
123,781
4,883
50
(4,883)—
—
—
162,215
—
162,265
Exchange of Class B units for cash by member owners—
—
(3,810)—
—
—
—
—
Redemption of limited partners—
—
(58)—
—
—
—
—
—
—
(133)—
—
—
—
—
—
Increase in additional paid-in capital related to quarterly exchange by member owners, including associated TRA revaluation—
—
—
—
23,886
—
—
23,886
Decrease in additional paid-in capital related to quarterly exchange by member owners, including associated TRA revaluation—
—
—
—
—
—
(8,669)—
(8,669)
Issuance of Class A common stock under equity incentive plan812
8
—
—
3,314
—
—
3,322
390
4
—
—
—
—
2,804
—
2,808
Issuance of Class A common stock under employee stock purchase plan41
1
—
—
1,255
—
—
1,256
48
—
—
—
—
—
1,388
—
1,388
Treasury stock(2,578)—
—
—
2,578
(74,698)—
—
(74,698)
Stock-based compensation expense—
—
—
—
19,125
—
—
19,125
—
—
—
—
—
—
17,699
—
17,699
Repurchase of vested restricted units for employee tax-withholding—
—
—
—
(17,678)—
—
(17,678)—
—
—
—
—
—
(5,743)—
(5,743)
Net income—
—
—
—
—
375,617
—
375,617
—
—
—
—
—
—
—
80,385
80,385
Net income attributable to non-controlling interest in Premier LP—
—
—
—
—
(282,207)—
(282,207)—
—
—
—
—
—
—
(101,095)(101,095)
Net unrealized loss on marketable securities—
—
—
—
—
—
43
43
Adjustment of redeemable limited partners' capital to redemption amount—
—
—
—
(153,645)450,211
—
296,566
—
—
—
—
—
—
(169,694)808,034
638,340
Balance at March 31, 201750,707
$507
88,407
$—
$—
$(1,408,257)$—
$(1,407,750)
Balance at December 31, 201754,686
$573
82,283
$—
2,578
$(74,698)$—
$(875,448)$(949,573)
See accompanying notes to the unaudited condensed consolidated financial statements.



PREMIER, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended March 31,Six Months Ended December 31,
2018201720182017
Operating activities  
Net income$156,934
$375,617
$186,784
$80,385
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization93,998
77,758
69,727
61,532
Equity in net income of unconsolidated affiliates(570)(14,789)(4,134)(5,509)
Deferred income taxes243,550
45,961
2,643
235,648
Stock-based compensation24,930
19,125
13,911
17,699
Remeasurement of tax receivable agreement liabilities(177,174)(2,954)—
(177,174)
Remeasurement gain attributable to acquisition of Innovatix, LLC—
(204,833)
Loss on disposal of long-lived assets1,725
2,243
—
1,720
(Gain) loss on FFF put and call rights(7,567)15,607
Changes in operating assets and liabilities:  
Accounts receivable, prepaid expenses and other current assets(3,558)7,037
Accounts receivable, contract assets, prepaid expenses and other current assets(56,875)(467)
Other assets378
405
2,882
1,060
Inventories(6,804)(14,693)(3,893)(11,641)
Accounts payable, accrued expenses and other current liabilities9,690
(11,082)
Accounts payable, accrued expenses, deferred revenue and other current liabilities15,366
(20,238)
Long-term liabilities1,336
(1,221)(7,033)1,287
Loss on FFF put and call rights18,674
86
Other operating activities6,625
(4,449)498
6,606
Net cash provided by operating activities369,734
274,211
212,309
206,515
Investing activities  
Purchases of property and equipment(65,260)(51,892)(47,289)(38,622)
Proceeds from sale of marketable securities—
48,013
Acquisition of Innovatix, LLC and Essensa Ventures, LLC, net of cash acquired—
(319,717)
Acquisition of Acro Pharmaceuticals, net of cash acquired—
(64,500)
Investments in unconsolidated affiliates—
(65,660)
Distributions received on equity investments in unconsolidated affiliates—
6,550
Other investing activities—
25
Acquisition of Stanson Health, Inc., net of cash acquired(50,926)—
Investments in convertible notes(8,500)—
Net cash used in investing activities(65,260)(447,181)(106,715)(38,622)
Financing activities  
Payments made on notes payable(7,997)(3,336)—
(6,858)
Redemption of limited partner of Premier LP(256)—
Proceeds from credit facility30,000
425,000
—
30,000
Payments on credit facility(50,000)(57,500)—
(50,000)
Proceeds from exercise of stock options under equity incentive plan3,615
3,322
12,123
2,808
Proceeds from issuance of Class A common stock under stock purchase plan1,388
1,256
1,488
1,388
Repurchase of vested restricted units for employee tax-withholding(5,916)(17,678)(8,030)(5,743)
Settlement of exchange of Class B units by member owners—
(123,330)
Distributions to limited partners of Premier LP(66,098)(67,363)(30,458)(45,703)
Payments to limited partners of Premier LP related to tax receivable agreements(17,975)—
Repurchase of Class A common stock (held as treasury stock)(200,129)—
(104,288)(70,844)
Earn-out liability payment to GNYHA Holdings(16,662)—
—
(16,662)
Net cash provided by (used in) financing activities(311,799)160,371
Net decrease in cash and cash equivalents(7,325)(12,599)
Net cash used in financing activities(147,396)(161,614)
Net increase (decrease) in cash and cash equivalents(41,802)6,279
Cash and cash equivalents at beginning of year156,735
248,817
152,386
156,735
Cash and cash equivalents at end of period$149,410
$236,218
$110,584
$163,014


Nine Months Ended March 31,
20182017Six Months Ended December 31,
 20182017
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$511,301
$296,566
Increase (decrease) in redeemable limited partners' capital for adjustment to fair value, with offsetting decrease (increase) in additional paid-in-capital and accumulated deficit$56,484
$(638,340)
Reduction in redeemable limited partners' capital, with offsetting increases in common stock and additional paid-in capital related to quarterly exchanges by member owners$194,924
$123,781
$471,880
$162,265
Reduction in redeemable limited partners' capital for limited partners' distribution payable$54,305
$67,941
$29,281
$41,148
Distributions utilized to reduce subscriptions, notes, interest and accounts receivable from member owners$1,478
$1,561
$853
$984
Net increase in deferred tax assets related to quarterly exchanges by member owners and other adjustments$82,244
$94,594
$100,749
$75,998
Net increase in tax receivable agreement liabilities related to quarterly exchanges by member owners and other adjustments$88,160
$70,708
$85,997
$84,667
Net increase (decrease) in additional paid-in capital related to quarterly exchanges by member owners and other adjustments$(5,916)$23,886
$14,752
$(8,669)
Net increase in investments in unconsolidated affiliates related to FFF Enterprises, Inc. put and call rights, with offsetting increases in other assets and other liabilities$—
$15,460
Net increase in investments in unconsolidated affiliates related to deferred taxes attributed to the net fair value of FFF Enterprises, Inc. put and call rights, with offsetting increases in deferred tax assets and deferred tax liabilities$—
$5,955
Payable to member owners incurred upon repurchase of ownership interest$942
$132
Increase in treasury stock related to a forward purchase commitment as a result of applying trade date accounting when recording the repurchase of Class A common stock$5,224
$3,854
See accompanying notes to the unaudited condensed consolidated financial statements.


PREMIER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Organization
Premier, Inc. ("Premier" or the "Company") is a publicly-held, for-profit Delaware corporation owned by hospitals, health systems and other healthcare organizations (such owners of Premier are referred to herein as "member owners") located in the United States and by public stockholders. The Company is a holding company with no material business operations of its own. The Company’s primary asset is its equity interest in its wholly-owned subsidiary Premier Services, LLC, a Delaware limited liability company ("Premier GP"). Premier GP is the sole general partner of Premier Healthcare Alliance, L.P. ("Premier LP"), a California limited partnership. The Company conducts substantially all of its business operations through Premier LP and its other consolidated subsidiaries. The Company, together with its subsidiaries and affiliates, is a leading healthcare performance improvement company that unites hospitals, health systems, physicians and other healthcare providers to improve and innovate in the clinical, financial and operational areas of their businesses to meet the demands of a rapidly evolving healthcare industry.
The Company's business model and solutions are designed to provide its members access to scale efficiencies, spread the cost of their development, provide actionable intelligence derived from anonymized data in the Company's data warehouse, mitigate the risk of innovation and disseminate best practices to help the Company's member organizations succeed in their transformation to higher quality and more cost-effective healthcare.
The Company, together with its subsidiaries and affiliates, delivers its integrated platform of solutions through two business segments: Supply Chain Services and Performance Services. See Note 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 consulting services businesses in the United States focused on healthcare providers. TheMore specifically, the Company's software as a service ("SaaS") informatics products utilize the Company's comprehensive data set to provide actionable intelligence to its members, enabling them to benchmark, analyze and identify areas of improvement across the three main categories of cost management, quality and safety, and 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, consulting services, government services and insurance management services.
The Company, through its wholly-owned subsidiary, Premier Services, LLC ("Premier GP"),GP, held an approximate 39%47% and 37%40% sole general partner interest in our main operating company, Premier Healthcare Alliance, L.P. ("Premier LP"),LP at MarchDecember 31, 2018 and June 30, 2017,2018, respectively. In addition to their equity ownership interest in Premier,the Company, our member owners held an approximate 61%aggregate of approximately 53% and 63%60% limited partner interest in Premier LP at MarchDecember 31, 2018 and June 30, 2017,2018, respectively.
Basis of Presentation and Consolidation
Basis of Presentation
The member owners' interest in Premier LP is reflected as redeemable limited partners' capital in the Company's accompanying Condensed Consolidated Balance Sheets, and the limited partners' proportionate share of income in Premier LP is reflected within net income attributable to non-controlling interest in Premier LP in the Company's accompanying Condensed Consolidated Statements of Income and within comprehensive income attributable to non-controlling interest in Premier LP in the Company's accompanying Condensed Consolidated Statements of Comprehensive Income.
At MarchDecember 31, 2018 and June 30, 2017,2018, the member owners owned an aggregate of approximately 61%53% and 63%60%, respectively, of the Company's combined Class A and Class B common stock through their ownership of Class B common stock. During the ninesix months ended MarchDecember 31, 2018, the member owners exchanged 5.910.6 million Class B common units and associated Class B common shares for an equal number of Class A common shares pursuant to an exchange agreement (the "Exchange Agreement") entered into by the member owners in connection with the completion of our initial public offering on October 1, 2013. The Exchange Agreement provides each member owner the cumulative right to exchange up to one-seventh of its initial allocation of Class B common units, as well as any additional Class B common units purchased by such member owner pursuant to certain rights of first refusal, for shares of Class A common stock (on a one-for-one basis subject to customary adjustments for subdivisions or combinations by split, reverse split, distribution, reclassification, recapitalization or otherwise), cash or a combination of both, the form of consideration to be at the discretion of the Company's independent Audit and Compliance Committee of the Board of


Directors (the "Audit and Compliance Committee"). In connection with Class B common units exchanged for Class A common shares during the ninesix months ended MarchDecember 31, 2018, approximately 5.910.6 million Class B common units were contributed to Premier LP, and converted to Class A common units whichand remain outstanding. Correspondingly, approximately 10.6 million Class B common shares were retired during the same period. For further information, see Note 10 - Redeemable Limited Partners' Capital and Note 12 - Earnings (Loss) Per Share.
Refer to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 20172018 (the "2017"2018 Annual Report") filed with the Securities and Exchange Commission ("SEC") on August 23, 20172018 for further discussion of the Exchange Agreement. At Marchboth December 31, 2018 and June 30, 2017,2018, the public investors, which may include member owners that have received shares of Class


A common stock in connection with previous exchanges of their Class B common units and associated Class B common shares for an equal number of Class A common shares, owned an aggregate of approximately 39%47% and 37%40%, respectively, of the Company's outstanding common stock through their ownership of Class A common stock.
The Company has corrected prior period information within the current period financial statements related to a specific component used in calculating the tax effect on Premier, Inc. net income for purposes of diluted earnings (loss) per share. Diluted earnings (loss) per share for the three months ended December 31, 2017 was previously stated at ($1.66) per share and has been corrected to $0.06 per share. Diluted earnings (loss) per share for the six months ended December 31, 2017 was previously stated at ($1.30) per share and has been corrected to $0.36 per share. The Company believes the correction is immaterial and the amount had no impact on the Company’s overall financial condition, results of operations or cash flows.
Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC and in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and 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 20172018 Annual Report.
We have reclassified $5.7 million from selling, general and administrative expenses to the remeasurement of tax receivable agreement liabilities for the nine months ended March 31, 2017 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 MarchDecember 31, 2018 and June 30, 20172018 consisted of the following (in thousands):
December 31, 2018June 30, 2018
March 31, 2018June 30, 2017
New revenue standard (a)
Previous revenue standard
Assets  
Current$367,537
$385,477
$597,351
$393,863
Noncurrent1,582,302
1,616,539
1,641,005
1,577,974
Total assets of Premier LP$1,949,839
$2,002,016
$2,238,356
$1,971,837
  
Liabilities  
Current$521,353
$560,582
$540,470
$457,172
Noncurrent136,235
134,635
117,397
128,793
Total liabilities of Premier LP$657,588
$695,217
$657,867
$585,965
(a)The Company adopted Topic 606 effective July 1, 2018, while comparative results are presented under Topic 605. Refer to Note 2 - Significant Accounting Policies for more information.


Net income attributable to Premier LP during the three and ninesix months ended MarchDecember 31, 2018 and 2017 was as follows (in thousands):
 Three Months Ended March 31,Nine Months Ended March 31,
 2018201720182017
Premier LP net income$87,920
$80,837
$255,050
$436,811
 Three Months Ended December 31,Six Months Ended December 31,
 2018201720182017
 
New revenue standard (a)
Previous revenue standard
New revenue standard (a)
Previous revenue standard
Premier LP net income$118,783
$94,838
$211,045
$167,129



(a)The Company adopted Topic 606 effective July 1, 2018, while comparative results are presented under Topic 605. Refer to Note 2 - Significant Accounting Policies for more information.
Premier LP's cash flows for the ninesix months ended MarchDecember 31, 2018 and 2017 consisted of the following (in thousands):
Nine Months Ended March 31,Six Months Ended December 31,
2018201720182017
Net cash provided by (used in):  
Operating activities$388,340
$320,185
$227,404
$207,514
Investing activities(65,260)(447,181)(106,715)(38,622)
Financing activities(344,463)121,090
(143,017)(180,600)
Net decrease in cash and cash equivalents(21,383)(5,906)(22,328)(11,708)
Cash and cash equivalents at beginning of year133,450
210,048
117,741
133,451
Cash and cash equivalents at end of period$112,067
$204,142
$95,413
$121,743
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company's condensed consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Significant estimates are evaluated on an ongoing basis, including estimates for net administrative fees revenue, other services and support revenue, contract assets, deferred revenue, contract costs, allowances for doubtful accounts, useful lives of property and equipment, stock-based compensation, payables under tax receivable agreements ("TRAs"), deferred tax balances including valuation allowances on deferred tax assets, uncertain tax positions, values of investments not publicly traded, deferred revenue,projected future cash flows associated withused in the evaluation of asset impairments,impairment, values of put and call rights, values of earn-out liabilities and the allocation of purchase prices. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Given the Company's use of estimates referenced above, it is important to highlight that on December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("TCJA"). The TCJA includes significant changes to the U.S. corporate income tax system, specifically reducing the U.S. federal corporate income tax rate from 35% to 21%. 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 concurrentConcurrent 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 viaunder SAB 118 by incorporating various estimates regarding timing and determination of temporary difference recognition when calculatingthrough the one year measurement period to calculate components of its deferred tax balances. WhileDuring the second quarter of fiscal year 2019, the Company is able to provide reasonable estimatescompleted its accounting for all of the impacts related toenactment date income tax effects of 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.TCJA.


(2) SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the Company's significant accounting policies included within the 2018 Annual Report, except as described in the 2017 Annual Report.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,October 2016, the FASB issued ASU 2017-09, 2016-16,Compensation-Stock Compensation Income Taxes (Topic 718)740): ScopeIntra-Entity Transfers of Modification Accounting, Assets Other Than Inventory, whichclarifies when changes removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The guidance is intended to reduce the terms or conditionscomplexity of a share-based payment award must be accounted for as modifications. The new guidance will reduceGAAP and diversity in practice and result in fewer changesrelated to the termstax consequences of an award being accounted for as modifications.certain types of intra-entity asset transfers, particularly those involving intellectual property. The Company adopted this standard effective OctoberJuly 1, 2017 using the prospective approach.2018. The implementation of this ASU did not have a material effect on the Company's condensed consolidated financial statements.
In AugustJanuary 2016, the FASB issued ASU 2016-15,2016-01, StatementFinancial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Cash Flows (Topic 230): Classification of Certain Cash ReceiptsFinancial Assets and Cash PaymentsFinancial Liabilities, which amends the guidance in ASC 230is intended to provide users of financial statements with more useful information on the classificationrecognition, measurement, presentation, and disclosure of certain cash receipts and payments in the statement of cash flows. The primary purpose of the 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.financial instruments. The Company adopted this standard effective JanuaryJuly 1, 2018 using the retrospective approach.2018. The implementation of this ASU did not impact the classification or presentation of cash flows withinhave a material effect on the Company's condensed consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance. The new standard requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new standard allowed for either full retrospective or modified retrospective adoption.
In August 2015, the FASB issued an amendment in ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, to defer the effective date of the new standard for all entities by one year. The new standard, as amended, is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption as of the original effective date for public entities is permitted.
In March 2016, the FASB issued another amendment in ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, related to a third party providing goods or services to a customer. When another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself or to arrange for the good or service to be provided by a third party. If the entity provides the specific good or service itself, the entity acts as a principal. If an entity arranges for the good or service to be provided by a third party, the entity acts as an agent. The standard requires the principal to recognize revenue for the gross amount and the agent to recognize revenue for the amount of any fee or commission for which it expects to be entitled in exchange for arranging for the specified good or service to be provided. The new standard is effective with ASU 2014-09.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which amends specific aspects of ASU 2014-09, including how to identify performance obligations and guidance related to licensing implementation. This amendment provides guidance on determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property or a right to access the entity's intellectual property. The amendment is effective with ASU 2014-09.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies specific aspects of ASU 2014-09, clarifying how to identify performance obligations and guidance related to its promise in granting a license of intellectual property. This new standard provides guidance to allow entities to disregard items that are immaterial in the context of the contract, clarify when a promised good or service is separately identifiable and allow an entity to elect to account for the cost of shipping and handling performed after control of a good has been transferred to the customer as a fulfillment cost. The new standard also clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property to help determine whether it recognizes revenue over time or at a point in time and addresses how entities should consider license renewals and restrictions. The new standard is effective with ASU 2014-09.
In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606: Revenue from Contracts with Customers, which clarifies specific aspects of ASU 2014-09, including allowing entities not to make quantitative disclosures about remaining performance obligations in certain cases and requiring entities that use any of the new or previously existing


optional exemptions to expand their qualitative disclosures. The new standard also makes twelve other technical corrections and modifications to ASU 2014-09. The new standard is effective with ASU 2014-09.
The Company adopted this standard effective July 1, 2018 using the modified retrospective approach. Refer to the "Effects of Topic 606" below for more information related to the impact of this standard on the Company's significant accounting policies and condensed consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, Intangibles- Goodwill and Other- Internal Use Software (Topic 350): Customer Account for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which requires customers in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. More specifically, capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The new standard will be effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted including adoption in any interim periods. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to Disclosure Requirements for Fair Value Measurement, which improves the effectiveness of fair value measurement disclosures by eliminating, adding and modifying certain disclosure requirements for fair value measurements as part of its disclosure framework project. More specifically, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The new standard will be effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. The guidance requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. In addition, the guidance eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The new standard will be effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted for interim and annual goodwill impairment tests performed after January 1, 2017. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The guidance is intended to reduce the complexity of GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property. The 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. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations of accounting for leasing arrangements. This guidance establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Entities will be required to recognize and measure leases as of the earliest period presented using a modified retrospective approach. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The new standard will be effective for the Company for the fiscal year beginning July 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In January 2016,

Effects of Topic 606
As a result of adopting Topic 606, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): RecognitionCompany's accounting policies 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 itscondensed consolidated financial statements and related disclosures.were updated as follows:
Contract Assets
Supply Chain Services contract assets represent estimated customer purchases on supplier contracts for which administrative fees have been earned, but not collected. Performance Services contract assets represent revenue earned for services provided but which the Company is not contractually able to bill as of the end of the respective reporting period.
ContractCosts
In May 2014,Contract costs represent amounts the FASB issued ASU 2014-09, Revenue from ContractsCompany has capitalized and reflect the incremental costs of obtaining and fulfilling a contract, which include sales commissions and costs related to implementing SaaS informatics tools. For commissions on new contracts, these costs are amortized over the life of the expected relationship with Customers (Topic 606),the customer for the respective performance obligation. For renewals, commissions are amortized over the contract life with the customer. Implementation costs are amortized straight-line, once the tool is implemented, over the life of the expected relationship with the customer for the respective performance obligation, which will supersede nearly all existingis consistent with the transfer of services to the customer to which the implementation relates. The Company's contract costs are included in other assets on the Condensed Consolidated Balance Sheets, while the associated amortization related to sales commissions is included in selling, general and administrative expenses and the associated amortization related to implementation costs is included in cost of revenue in the Condensed Consolidated Statements of Income.
Deferred Revenue
Deferred revenue consists of unrecognized revenue related to advanced customer invoicing or member payments received prior to fulfillment of the Company's revenue recognition guidance. The new standard requirescriteria. Substantially all deferred revenue consists of deferred subscription fees and deferred consulting fees. Subscription fees for Company-hosted SaaS applications are deferred until the customer's unique data records have been incorporated into the underlying software database, or until customer site-specific software has been implemented and the customer has access to bethe software. Deferred consulting fees arise upon invoicing to customers prior to services being performed.
Performance Obligations
A performance obligation is a promise to transfer a distinct good or service to a customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, promisedor as, the performance obligation is satisfied. Contracts may have a single performance obligation as the promise to transfer individual goods or services is not separately identifiable from other promises and, therefore, not distinct; while other contracts may have multiple performance obligations, most commonly due to the contract covering multiple deliverable arrangements (licensing fees, implementation fees, subscription fees, professional fees for consulting services, etc.).
Revenue Recognition
The Company accounts for a contract with a customer when the contract is committed, the rights of the parties, including payment terms, are transferredidentified, the contract has commercial substance and consideration is probable of collection.
Revenue is recognized when, or as, control of a promised product or service transfers to customersa customer, in an amount that reflects the consideration to which the entityCompany expects to be entitled in exchange for transferring those goodsproducts or services. The new standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new standard allows for either full retrospective or modified retrospective adoption.


In August 2015, the FASB issued an amendment in ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, to defer the effective date of the new standard for all entities by one year. The new standard, as amended, 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.
In March 2016, the FASB issued another amendment in ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, related to a third party providing goods or services to a customer. When another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself or to arrange for the good or service to be provided by a third party. If the entity providesconsideration promised in a contract includes a variable amount, 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 forCompany estimates the amount of any fee or commission forto which it expects to be entitled using either the expected value or most likely amount method. The Company’s contracts may include terms that could cause variability in exchangethe transaction price, including, for arranging forexample, revenue share, rebates, discounts, and variable fees based on performance.
The Company only includes estimated amounts of consideration in the specified goodtransaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates require management to make complex, difficult or servicesubjective judgments, and to make estimates about the effect of matters inherently uncertain. As such, the Company may not be able to reliably estimate variable fees based on performance in certain long-term arrangements due to uncertainties that are not expected to be provided. The new standard will be effectiveresolved for a long period of time or when the Company’s experience with ASU 2014-09.
In April 2016,similar types of contracts is limited. Estimates of variable consideration and the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which amends specific aspectsdetermination of ASU 2014-09, including howwhether 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 aspectsinclude estimated amounts 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 immaterialconsideration in the context of the contract, clarify when a promised good or servicetransaction price are based on information (historical, current and forecasted) that 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 transferredreasonably available to the Company, taking into consideration the type of customer, as a fulfillment cost. The new standard also clarifies how an entity should evaluate the naturetype of its promise in granting a license of intellectual property to help determine whether it recognizes revenue over time or at a point in timetransaction 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 standard 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 impacts of adopting the new standard 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 standard 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 revenue in the period that the respective supplier reports member purchasing data, which is usually a month or a quarter in arrears of the actual member purchase activity. This change is expected to result in the Company recognizing revenue sooner in the revenue cycle than under the Company's current revenue recognition policy and the creation of a contract asset associated with this shift in revenue recognition timing. With regards to product revenue, the Company does not expect a significant impact on the timing of revenue recognition. The Company is continuing to assess the impact of the new standard on the financial statements and disclosures.
Within the Performance Services segment, the Company is continuing to assess the impact of adopting the new standard on its various revenue streams. Under the new standard, the Company expects to recognize revenue associated with its perpetual and term licenses upon delivery to the customer (point in time) and the associated mandatory post-contract customer support ratably over the period during which the support is provided (over time). The Company expects that this change will result in a shift and acceleration in timing of revenue recognition relative to the existing guidance. Also 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 policy. The Company is continuing to assess the impact of the new standard on the financial statements and disclosures.


the specific facts and circumstances of each arrangement. Additionally, management performs periodic analyses to verify the accuracy of estimates for variable consideration.
Although the Company believes that its approach in developing estimates and reliance on certain judgments and underlying inputs is evaluating the potential impactreasonable, actual results could differ which may result in exposure of adopting the new standard on its business processes, systemsincreases or decreases in revenue that could be material.
Net Administrative Fees Revenue
Net administrative fees revenue is a single performance obligation earned through a series of distinct daily services and controls necessaryincludes maintaining a network of members to support revenue recognition and disclosure requirements under the new standard.
(3) BUSINESS ACQUISITIONS
Acquisition of Innovatix and Essensa
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, the Company, through its consolidated subsidiary, Premier Supply Chain Improvement ("PSCI"), held 50% of the membership interests 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 Essensa 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 forparticipate in the purchase agreement,group purchasing program and providing suppliers efficiency in contracting and access to the adjusted purchase price was $336.0 million.
InCompany's members. Revenue is generated through administrative fees received from suppliers, which are estimated based on the total dollar volume of goods and services purchased by the Company's members in connection with 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 Company also incurred transaction costs related to this acquisition of $0.9 millionGPO programs and $0.4 million during the three months ended March 31, 2018 and 2017, respectively, and $4.2 million and $5.1 million during the nine months ended March 31, 2018 and 2017, respectively. These transaction costs wereis included in selling, general and administrative expensesservice revenue in the accompanying Condensed Consolidated Statements of Income.
The Company, through its GPO programs, aggregates member purchasing power to negotiate pricing discounts and improve contract terms with suppliers. Contracted suppliers pay the Company administrative fees which generally represent 1% to 3% of the gross purchase price of goods and services sold to members under the contracts the Company has accountednegotiated. Administrative fees are variable consideration and are recognized as earned based upon estimated purchases by the Company's members utilizing the Company's GPO supplier contracts. The Company estimates revenue using an estimated value approach using predictive analytics based on historical member spend and updates for current trends and expectations. Member and supplier contracts substantiate persuasive evidence of an arrangement. The Company does not take title to the underlying equipment or products purchased by members through its GPO supplier contracts. Administrative fee revenue receivable is included in contract assets in the accompanying Condensed Consolidated Balance Sheet.
The Company pays revenue share equal to a percentage of gross administrative fees, which is estimated according to the members' contractual agreements with the Company using a portfolio approach based on historical revenue fee share percentages and adjusted for current or anticipated trends. Revenue share is recognized as a reduction to gross administrative fees revenue to arrive at a net administrative fees revenue, and the corresponding revenue share liability is included in revenue share obligations in the accompanying Condensed Consolidated Balance Sheets.
Product Revenue
Specialty pharmacy revenue is generated through a single performance obligation through dispensing prescription medication to customers. Revenue is recognized at a point in time as the prescription medication is dispensed to the customers and is recorded net of the estimated contractual adjustments under agreements with Medicare, Medicaid and other managed care plans. Consideration from specialty pharmacy is variable as payments for the Innovatixproducts provided under such agreements vary from period to period and Essensa acquisitionare based on defined allowable reimbursements rather than on the basis of standard billing rates. The difference between the standard billing rate and allowable reimbursement rate results in contractual adjustments which are recorded as deductions from the transaction price.
Direct sourcing generates revenue through products sold to distributors and to hospitals. Revenue is recognized once control of products has been transferred to members and is recorded net of discounts and rebates offered to customers. Discounts and rebates are estimated based on contractual terms and historical trends.
Other Services and Support Revenue
Within Performance Services, which provides technology with wrap-around service offerings, revenue consists of SaaS informatics products subscriptions, certain perpetual and term licenses, performance improvement collaborative and other service subscriptions, professional fees for consulting services, and insurance services management fees and commissions from group-sponsored insurance programs.
SaaS informatics subscriptions include the right to use the Company's proprietary hosted technology on a SaaS basis, training and member support to deliver improvements in cost management, quality and safety, value-based care and provider analytics. SaaS arrangements create a single performance obligation for each subscription within the contract in which the nature of the obligation is a stand-ready obligation, and each day of service meets the criteria for over time recognition. Pricing varies by application and size of healthcare system. Informatics subscriptions are generally three to five year agreements with automatic renewal clauses and annual price escalators that typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed on a monthly basis and revenue is recognized as a business combination wherebysingle deliverable on a straight-line basis over the purchase price was allocatedremaining contractual period following implementation. Implementation involves the completion of data preparation services that are unique to tangibleeach member's data set and, intangible assets acquired (see Note 6 - Intangible Assets, Net) and liabilities assumed based on their fair values. The acquisition resulted in certain cases, the recognitioninstallation 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, the Company expects the goodwill to be deductible for tax purposes.member site-specific


software, in order to access and transfer member data into the Company's hosted SaaS informatics products. Implementation is generally 60 to 240 days following contract execution before the SaaS informatics products can be fully utilized by the member.
The fair values assigned toCompany sells certain perpetual and term licenses that include professional services and post-contract customer support in the net assets acquiredform of maintenance and support services. The license, professional services and maintenance services each represent a distinct promise and are identified as separate performance obligations. Pricing varies by application and size of healthcare system. Fees under these contracts include the license fees, professional services fees and the liabilities assumed asmaintenance and support services fees. The Company recognizes the license fees upon delivery of the acquisition date werelicenses, the professional services fees over the implementation period, and the maintenance and support services fees straight-line over the remaining contract term following implementation. Generally, implementation is approximately 240 days following contract execution before the products can be fully utilized by the member.
Revenue from performance improvement collaboratives and other service subscriptions that support the Company's offerings in cost management, quality and safety and value-based care is recognized over the service period as follows (in thousands):the services are provided, which is generally one year. Performance improvement collaboratives and other service subscriptions revenue is considered one performance obligation and is generated by providing customers access to online communities whereby data is housed and available for analytics and benchmarking.
 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
The acquisition providedProfessional fees for consulting services are sold under contracts, the seller an earn-out opportunityterms of up to $43.0 millionwhich vary based on Innovatix'sthe nature of the engagement. These services typically include general consulting, report based consulting and Essensa's Adjusted EBITDA (as definedcost savings initiatives. Promised services under such consulting engagements are typically not considered distinct and are regularly combined and accounted for as one performance obligation. Fees are billed as stipulated in the purchase agreement)contract, and revenue is recognized on a proportional performance method as services are performed or when deliverables are provided. In situations where the contracts have significant contract performance guarantees, the performance guarantees are estimated and accounted for as a form of variable consideration when determining the fiscal year ending June 30, 2017. The Company and the seller finalized the amount payable pursuant to the earn-out opportunity and the Company paid the seller $21.1 million during the nine months ended March 31, 2018 (see Note 5 - 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 intransaction price. In the event that Innovatix'sguaranteed savings levels are not achieved, the Company may have to perform additional services at no additional charge in order to achieve the guaranteed savings or pay the difference between the savings that were guaranteed and Essensa's Adjusted EBITDA exceeds agreed uponthe actual achieved savings. Occasionally, our entitlement to consideration is predicated on the occurrence of an event such as the delivery of a report for which client acceptance is required. However, except for event-driven point-in-time transactions, the majority of services provided within this service line are delivered over time due to the continuous benefit provided to our customers.
Consulting arrangements can require significant estimates for the transaction price and estimated number of hours within an engagement. These estimates are based on the expected value which is derived from outcomes from historical contracts that are similar in nature and forecasted amounts certain of those executive officersbased on anticipated savings for the new agreements. The transaction price is generally constrained until the target transaction price becomes more certain.
Insurance services management fees are entitled to receive a retention bonus payment of up to $3.0 millionrecognized in the aggregate,period in which such services are provided. Commissions from group sponsored insurance programs is earned by acting as an intermediary in the placement of effective insurance policies. Under this arrangement, revenue is recognized at a point in time on the effective date of the associated policies when control of the policy transfers to the customer and is constrained for whichestimated early terminations.
Certain administrative and/or patient management integrated pharmacy services are provided in situations where prescriptions are sent back to member health systems for dispensing. Additionally, the Company willderives revenue from pharmaceutical manufacturers for providing patient education and utilization data. Revenue is recognized as these services are provided.
Multiple Deliverable Arrangements
The Company enters into agreements where the individual deliverables discussed above, such as SaaS subscriptions and consulting services, are bundled into a single service arrangement. These agreements are generally provided over a time period ranging from approximately three months to five years after the applicable contract execution date. Revenue, including both fixed and variable consideration, is allocated to the individual performance obligations within the arrangement based on the standalone selling price when it is sold separately in a stand-alone arrangement.
Condensed Consolidated Financial Statements
The Company applied Topic 606 ("New Revenue Standard") using the modified retrospective method, which resulted in recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity at July 1, 2018 for contracts that were not complete at that date. Therefore, the comparative information has not been adjusted and continues to be reimbursed by GNYHA Holdingsreported under Topic 605 ("Previous Revenue Standard"). The following tables summarize the impacts of which $1.5 million was paidadopting Topic 606 on the Company's condensed consolidated financial statements for the three and reimbursed during the ninesix months ended MarchDecember 31, 2018.
The Company's 50% ownership interest in Innovatix prior to the acquisition was accounted2018 (in thousands, except per share data). See Note 6 - Contract Balances and Note 17 - Segments 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.more information.


Cumulative Effect - Adoption of New Revenue Standard
 Impact of change in accounting principle
 
June 30, 2018
As presented
Impact of new revenue standard
July 1, 2018
New revenue standard
Assets   
Accounts receivable (net of $1,841 allowance for doubtful accounts)$185,874
$(5,421)$180,453
Contract assets$—
$169,684
$169,684
Total current assets$428,618
$164,263
$592,881
Deferred income tax assets$305,624
$(7,106)$298,518
Other assets$3,991
$15,390
$19,381
Total assets$2,312,216
$172,547
$2,484,763
    
Liabilities, redeemable limited partners' capital and stockholders' deficit   
Revenue share obligations$78,999
$43,880
$122,879
Deferred revenue$39,785
$(2,195)$37,590
Total current liabilities$448,882
$41,685
$490,567
Deferred tax liabilities$17,569
$3,597
$21,166
Total liabilities$818,870
$45,282
$864,152
    
Accumulated deficit$(1,277,581)$127,265
$(1,150,316)
Total stockholders' deficit$(1,427,064)$127,265
$(1,299,799)
Total liabilities, redeemable limited partners' capital and stockholders' deficit$2,312,216
$172,547
$2,484,763



Condensed Consolidated Balance Sheet - Selected Financial Data
 Impact of change in accounting principle
December 31, 2018As presentedImpact of new revenue standardPrevious revenue standard
Assets   
Accounts receivable (net of $3,187 allowance for doubtful accounts)$197,366
$(11,696)$209,062
Contract assets$208,254
$208,254
$—
Prepaid expenses and other current assets$27,259
$(2,362)$29,621
Total current assets$614,215
$194,196
$420,019
Deferred income tax assets$389,632
$(5,425)$395,057
Other assets$29,824
$14,884
$14,940
Total assets$2,644,851
$203,655
$2,441,196
    
Liabilities, redeemable limited partners' capital and stockholders' deficit   
Revenue share obligations$130,163
$49,878
$80,285
Limited partners' distribution payable$14,288
$3,966
$10,322
Deferred revenue$33,874
$(6,534)$40,408
Other liabilities$8,438
$2,556
$5,882
Total current liabilities$514,688
$49,866
$464,822
Deferred tax liabilities$18,850
$4,278
$14,572
Total liabilities$941,600
$54,144
$887,456
    
Accumulated deficit$(794,070)$149,511
$(943,581)
Total stockholders' deficit$(890,631)$149,511
$(1,040,142)
Total liabilities, redeemable limited partners' capital and stockholders' deficit$2,644,851
$203,655
$2,441,196

Condensed Consolidated Statements of Income
 Impact of change in accounting principle
 
Three Months Ended
December 31, 2018
 
Six Months Ended
December 31, 2018
 As presentedImpact of new revenue standardPrevious revenue standard As presentedImpact of new revenue standardPrevious revenue standard
Net revenue:       
Net administrative fees$165,695
$(4,061)$169,756
 $327,695
$11,123
$316,572
Other services and support98,643
8,278
90,365
 186,719
13,657
173,062
Services264,338
4,217
260,121
 514,414
24,780
489,634
Products157,519
(11,914)169,433
 308,989
(23,876)332,865
Net revenue421,857
(7,697)429,554
 823,403
904
822,499


 Impact of change in accounting principle
 
Three Months Ended
December 31, 2018
 
Six Months Ended
December 31, 2018
 As presentedImpact of new revenue standardPrevious revenue standard As presentedImpact of new revenue standardPrevious revenue standard
Cost of revenue:       
Services43,189
(2,613)45,802
 86,561
(4,546)91,107
Products155,534
(10,927)166,461
 301,155
(22,298)323,453
Cost of revenue198,723
(13,540)212,263
 387,716
(26,844)414,560
Gross profit223,134
5,843
217,291
 435,687
27,748
407,939
Operating expenses:       
Selling, general and administrative110,112
(1,270)111,382
 215,982
(2,381)218,363
Research and development292
—
292
 632
—
632
Amortization of purchased intangible assets13,899
—
13,899
 27,537
—
27,537
Operating expenses124,303
(1,270)125,573
 244,151
(2,381)246,532
Operating income98,831
7,113
91,718
 191,536
30,129
161,407
Other income, net7,784
—
7,784
 7,845
—
7,845
Income before income taxes106,615
7,113
99,502
 199,381
30,129
169,252
Income tax expense (benefit)1,804
2,158
(354) 12,597
3,917
8,680
Net income104,811
4,955
99,856
 186,784
26,212
160,572
Net income attributable to non-controlling interest in Premier LP(62,631)(3,213)(59,418) (117,744)(16,586)(101,158)
Adjustment of redeemable limited partners' capital to redemption amount651,709
2,048
649,661
 (56,484)12,620
(69,104)
Net income (loss) attributable to stockholders$693,889
$3,790
$690,099
 $12,556
$22,246
$(9,690)
        
Weighted average shares outstanding:       
Basic59,876
59,876
59,876
 56,548
56,548
56,548
Diluted133,672
133,672
133,672
 57,584
57,584
56,548
        
 Impact of change in accounting principle
 
Three Months Ended
December 31, 2018
 
Six Months Ended
December 31, 2018
 As presentedImpact of new revenue standardPrevious revenue standard As presentedImpact of new revenue standardPrevious revenue standard
Earnings (loss) per share attributable to stockholders:       
Basic$11.59
$0.06
$11.53
 $0.22
$0.39
$(0.17)
Diluted$0.69
$0.03
$0.66
 $0.22
$0.39
$(0.17)



Condensed Consolidated Statement of Comprehensive Income
 Impact of change in accounting principle
 December 31, 2018 December 31, 2018
 As presentedImpact of new revenue standardPrevious revenue standard As presentedImpact of new revenue standardPrevious revenue standard
Net income$104,811
$4,955
$99,856
 $186,784
$26,212
$160,572
Less: Comprehensive income attributable to non-controlling interest(62,631)(3,213)(59,418) (117,744)(16,586)(101,158)
Comprehensive income attributable to Premier, Inc.$42,180
$1,742
$40,438
 $69,040
$9,626
$59,414

Condensed Consolidated Statement of Cash Flows
 Impact of change in accounting principle
Six Months Ended December 31, 2018As presentedImpact of new revenue standardPrevious revenue standard
Operating activities   
Net income$186,784
$26,212
$160,572
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization69,727
—
69,727
Equity in net income of unconsolidated affiliates(4,134)—
(4,134)
Deferred income taxes2,643
(1,001)3,644
Stock-based compensation13,911
—
13,911
Gain on FFF put and call rights(7,567)—
(7,567)
Changes in operating assets and liabilities: 
 
Accounts receivable, contract assets, prepaid expenses and other current assets(56,875)(29,932)(26,943)
Other assets2,882
506
2,376
Inventories(3,893)—
(3,893)
Accounts payable, accrued expenses, deferred revenue and other current liabilities15,366
4,215
11,151
Long-term liabilities(7,033)—
(7,033)
Other operating activities498
—
498
Net cash provided by operating activities212,309
—
212,309
Net cash used in investing activities(106,715)—
(106,715)
Net cash used in financing activities(147,396)—
(147,396)
Net decrease in cash and cash equivalents(41,802)—
(41,802)
Cash and cash equivalents at beginning of year152,386
—
152,386
Cash and cash equivalents at end of period$110,584
$—
$110,584
(3) BUSINESS ACQUISITIONS
Acquisition of Acro PharmaceuticalsStanson
Acro Pharmaceutical Services LLCStanson Health, Inc. ("Acro"Stanson") and Community Pharmacy Services, LLC (collectively with Acro, "Acro Pharmaceuticals")is a SaaS-based provider of clinical decision support tools that are specialty pharmacy businesses that provide customized healthcare management solutions to members.integrated directly into the electronic health record workflow, providing real-time, patient-specific best practices at the point of care. On August 23, 2016,November 9, 2018, the Company, through its consolidated subsidiary NS3 Health, LLC,PHSI, acquired 100% of the membership interests of Acro Pharmaceuticalsoutstanding capital stock in Stanson through a


reverse subsidiary merger transaction for $75.0$51.5 million in cash. As a result of certain purchase price adjustments provided for in the purchase agreement, the adjusted purchase price was $62.9$55.5 million. The acquisition was funded with available cash on hand.
The acquisition provides the sellers and certain employees an earn-out opportunity of up to $15.0 million based on Stanson's successful commercial delivery of a SaaS tool on or prior to December 31, 2019 and achievement of certain revenue milestones for the calendar year ended December 31, 2020. As of December 31, 2018, the fair value of the earn-out liability was $4.5 million (see Note 5 - Fair Value Measurements).
The Company has accounted for the Acro PharmaceuticalsStanson 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 Acro Pharmaceuticalspurchase price allocation for the Stanson acquisition is preliminary and subject to changes in the fair value of working capital and valuation of the assets acquired and the liabilities assumed.
The Stanson acquisition resulted in the recognition of approximately $33.9$36.7 million of goodwill (see Note 78 - Goodwill) attributable to the anticipated profitability of Acro Pharmaceuticals.Stanson. The Acro PharmaceuticalsStanson acquisition was considered an asset acquisitiona stock purchase for tax purposes and accordingly, the Company expects the goodwill to not be deductible for tax purposes.
Pro forma results of operations for the acquisition have not been presented because the effects on revenue and net income were not material to our historic consolidated financial statements. The Company reports Acro PharmaceuticalsStanson as part of its Supply ChainPerformance Services segment.
(4) INVESTMENTS
Investments in Unconsolidated Affiliates
The Company's investments in unconsolidated affiliates consisted of the following (in thousands):
Carrying Value Equity in Net Income (Loss)Carrying Value Equity in Net Income (Loss)
  Three Months Ended March 31,Nine Months Ended March 31,  Three Months Ended December 31,Six Months Ended December 31,
March 31, 2018June 30, 2017 2018201720182017December 31, 2018June 30, 2018 2018201720182017
FFF$91,189
$85,520
 $64
$217
$5,668
$4,394
$95,790
$91,804
 $1,366
$1,268
$3,987
$5,605
Bloodbuy1,963
2,066
 (37)(42)(102)(94)1,853
1,918
 (40)(31)(65)(65)
PharmaPoint—
4,232
 (4,073)(92)(4,232)(254)—
—
 —
(107)—
(158)
Innovatix—
—
 —
—
—
10,743
Other investments296
1,061
 (893)—
(764)—
446
331
 118
127
212
127
Total investments$93,448
$92,879
 $(4,939)$83
$570
$14,789
$98,089
$94,053
 $1,444
$1,257
$4,134
$5,509
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, 2018 and call rights.June 30, 2018. 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 5 - 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 ownership of 5.3 million units of Class B Membership Interests in Bloodbuy at MarchDecember 31, 2018 and June 30, 2017.2018. The Company accounts for its investment in Bloodbuy using the equity method of accounting as the Company has rights to appoint a Board member, and includes the investment as part of the Supply Chain Services segment.
The Company, through its consolidated subsidiary, PSCI, held a 28% ownership interest in PharmaPoint, LLC ("PharmaPoint") through its ownership of 5.0 million units of Class B Membership Interests in PharmaPoint at MarchDecember 31, 2018 and June 30, 2017.2018. During the three monthsyear ended March 31,June 30, 2018, the Company determined that it was unlikely to recover its investment in PharmaPoint, and as a result recognized an other-than-temporary impairment of $4.0 million, which is included in equity in net income (loss) of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Income.million. The Company accounts for its investment in PharmaPoint using the equity method of accounting and includes the investment as part of the Supply Chain Services segment.


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 March 31, 2018 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) 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):
  Quoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs
(Level 3)
March 31, 2018    
Cash equivalents$460
$460
$—
$—
FFF call right752
—
—
752
Deferred compensation plan assets46,773
46,773
—
—
Total assets$47,985
$47,233
$—
$752
Earn-out liabilities$61
$—
$—
$61
FFF put right38,821
—
—
38,821
Total liabilities$38,882
$—
$—
$38,882
     
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).
 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, 2018    
Cash equivalents$2,286
$2,286
$—
$—
FFF call right431
—
—
431
Deferred compensation plan assets43,981
43,981
—
—
Total assets$46,698
$46,267
$—
$431
Earn-out liabilities$4,548
—
—
4,548
FFF put right34,295
—
—
34,295
Total liabilities$38,843
$—
$—
$38,843
     
June 30, 2018    
Cash equivalents$62,684
$62,684
$—
$—
FFF call right610
—
—
610
Deferred compensation plan assets48,215
48,215
—
—
Total assets$111,509
$110,899
$—
$610
FFF put right$42,041
$—
$—
$42,041
Total liabilities$42,041
$—
$—
$42,041
Deferred compensation plan assets consisted of highly liquid mutual fund investments, which were classified as Level 1. The current portion of deferred compensation plan assets was included in prepaid expenses and other current assets ($3.54.2 million and $5.7$3.6 million at MarchDecember 31, 2018 and June 30, 2017,2018, respectively) in the accompanying Condensed Consolidated Balance Sheets.
Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
Earn-out liabilities
Earn-out liabilities were established 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 March 31, 2018 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 $0.0 million and $21.1 million at March 31, 2018 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 the $21.1 million earn-out payment to GNYHA Holdings that occurred during the current year (see Note 3 - Business Acquisitions). The long-term portion of the earn-out liabilities was $0.1 million and $0.2 million at March 31, 2018 and June 30, 2017, respectively, 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 in connection with the Company's equity investment in FFF on July 26, 2016 (see Note 4 - Investments), which shareholders' agreement was amended and restated November 22, 2017, the majority shareholder of FFF holdshas a put right that (i) provides such shareholder the right to requirerequires the Company to purchase (i) up to 50% of its interest in FFF, which is exercisable beginning on the fourth anniversary of the investment closing date, July 26, 2020, and (ii) requires the Company to purchase all or a portion of its remaining interest in FFF on or30 calendar days after December 31, 2020. Any such required purchases are to be made at a per share price equal to FFF's earnings before interest, taxes, depreciation and amortization ("EBITDA") over the twelve calendar months prior to the purchase date multiplied by a market adjusted multiple, adjusted for any outstanding debt and cash and cash equivalents ("Equity Value per Share"). In addition, under the amended and restated shareholders' agreement, 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 amended and restated shareholders' agreement as the resignation, termination for cause, death or disability of the majority shareholder) or after January 30, calendar days after December 31, 2020.2021. 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, inwithin the accompanying Condensed Consolidated Balance 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.

Earn-out liabilities
Earn-out liabilities were established in connection with acquisitions of Healthcare Insights, LLC on July 31, 2015, Inflow Health, LLC on October 1, 2015, Innovatix, LLC and Essensa Ventures, LLC, each on December 2, 2016 and Stanson on November 9, 2018. The earn-out liabilities were classified as Level 3 of the fair value hierarchy and their values were determined based on estimated future earnings and the probability of achieving them. Changes in the fair values of the earn-out liabilities were recorded within selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Income.
A reconciliation of the Company's earn-out liabilities and FFF put and call rights and earn-out liabilities is as follows (in thousands):
Beginning BalancePurchases (Settlements)Gain (Loss)Ending BalanceBeginning BalancePurchases (Settlements)Gain (Loss)Ending Balance
Three Months Ended March 31, 2018 
Three Months Ended December 31, 2018 
FFF call right$2,108
$—
$(1,356)$752
$488
$—
$(57)$431
Total Level 3 assets$2,108
$—
$(1,356)$752
$488
$—
$(57)$431
Earn-out liabilities$2,792
$(2,625)$106
$61
$—
$4,548
$—
$4,548
FFF put right37,110
—
(1,711)38,821
45,200
—
10,905
34,295
Total Level 3 liabilities$39,902
$(2,625)$(1,605)$38,882
$45,200
$4,548
$10,905
$38,843
  
Three Months Ended March 31, 2017 
Three Months Ended December 31, 2017 
FFF call right$10,750
$—
$(814)$9,936
$4,593
$—
$(2,485)$2,108
Total Level 3 assets$10,750
$—
$(814)$9,936
$4,593
$—
$(2,485)$2,108
Earn-out liabilities$16,713
$—
$(2,074)$18,787
$21,675
$(18,500)$383
$2,792
FFF put right26,384
—
902
25,482
24,008
—
(13,102)37,110
Total Level 3 liabilities$43,097
$—
$(1,172)$44,269
$45,683
$(18,500)$(12,719)$39,902
  
Nine Months Ended March 31, 2018 
Six Months Ended December 31, 2018 
FFF call right$4,655
$—
$(3,903)$752
$610
$—
$(179)$431
Total Level 3 assets$4,655
$—
$(3,903)$752
$610
$—
$(179)$431
Earn-out liabilities$21,310
$(21,125)$124
$61
$—
$4,548
$��
$4,548
FFF put right24,050
—
(14,771)38,821
42,041
—
7,746
34,295
Total Level 3 liabilities$45,360
$(21,125)$(14,647)$38,882
$42,041
$4,548
$7,746
$38,843
  
Nine Months Ended March 31, 2017 
Six Months Ended December 31, 2017 
FFF call right$—
$10,361
$(425)$9,936
$4,655
$—
$(2,547)$2,108
Total Level 3 assets$—
$10,361
$(425)$9,936
$4,655
$—
$(2,547)$2,108
Earn-out liabilities$4,128
$16,662
$2,003
$18,787
$21,310
$(18,500)$18
$2,792
FFF put right—
25,821
339
25,482
24,050
—
(13,060)37,110
Total Level 3 liabilities$4,128
$42,483
$2,342
$44,269
$45,360
$(18,500)$(13,042)$39,902
Non-Recurring Fair Value Measurements
During the ninesix months ended MarchDecember 31, 2018, 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 Stanson 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 values by approximately $0.6 million at Marchboth December 31, 2018 and June 30, 2017,2018 based on assumed market interest rates of 3.5%4.0% and 2.6% for March 31, 2018 and June 30, 2017,3.6%, respectively.
Other Financial Instruments
The fair values of cash, accounts receivable, accounts payable, accrued liabilities and the Company's Credit Facility approximated carrying value due to the short-term nature of these financial instruments.

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

The Company had $1.7 million and $3.5 million of related amortization expense for the three and six months ended December 31, 2018.
(6)(7) INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following (in thousands):
Useful LifeMarch 31, 2018June 30, 2017Useful LifeDecember 31, 2018June 30, 2018
Member relationships14.7 years$220,100
$220,100
14.7 years$220,100
$220,100
Technology5.0 years142,317
143,727
5.9 years164,217
142,317
Customer relationships8.3 years48,120
48,120
8.2 years49,320
48,120
Trade names8.3 years22,710
22,710
8.3 years22,910
22,710
Distribution network10.0 years22,400
22,400
10.0 years22,400
22,400
Favorable lease commitments10.1 years11,393
11,393
10.1 years11,393
11,393
Non-compete agreements5.9 years8,710
8,710
5.8 years9,030
8,710
Total intangible assets 475,750
477,160
 499,370
475,750
Accumulated amortization (139,802)(99,198) (181,171)(153,635)
Intangible assets, net $335,948
$377,962
 $318,199
$322,115
The increase in total intangible assets was due to the acquisition of Stanson in November 2018 (see Note 3 - Business Acquisitions). Intangible asset amortization totaled $13.9 million and $14.1$13.8 million for the three months ended MarchDecember 31, 2018 and 2017, respectively, and $41.6$27.5 million and $34.4$27.7 million for the ninesix months ended MarchDecember 31, 2018 and 2017, respectively.
(7)(8) GOODWILL
Goodwill consisted of the following (in thousands):
 March 31, 2018June 30, 2017
Supply Chain Services$400,348
$400,348
Performance Services506,197
506,197
Total goodwill$906,545
$906,545
 Supply Chain ServicesPerformance ServicesTotal
June 30, 2018$400,348
$506,197
$906,545
Stanson—
36,736
36,736
December 31, 2018$400,348
$542,933
$943,281
The initial purchase price allocations for the Company's acquisition of Stanson is preliminary and subject to changes in fair value of working capital and valuation of the assets acquired and the liabilities assumed. See Note 3 - Business Acquisitions for more information.
(8)(9) DEBT
Long-term debt consisted of the following (in thousands):
Commitment AmountDue DateMarch 31, 2018June 30, 2017Commitment AmountDue DateDecember 31, 2018June 30, 2018
Credit Facility$750,000
June 24, 2019$200,000
$220,000
$1,000,000
November 9, 2023$100,000
$100,000
Notes payable—
Various7,217
14,272
—
Various7,409
7,212
Total debt  207,217
234,272
  107,409
107,212
Less: Current portion  (200,255)(227,993)
Less: current portion  (102,302)(100,250)
Total long-term debt  $6,962
$6,279
  $5,107
$6,962


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 increases. The Credit Facility includes an unconditional and irrevocable guaranty of all obligations under the Credit Facility by Premier GP, certain domestic subsidiaries of Premier GP and future guarantors, if any. Premier, Inc. is not a guarantor under the Credit Facility.


The Credit Facility replaced our then existing Credit Facility dated June 24, 2014 and amended as of June 4, 2015 (the "Prior Loan Agreement"). The Prior Loan Agreement included a $750.0 million unsecured revolving credit facility and was scheduled to mature on June 24, 2019. At the time of its termination, outstanding borrowings, accrued interest and fees and expenses under the Prior Loan Agreement totaled approximately $100.7 million, which was repaid with cash on hand and borrowings under the new Credit Facility.
At the Company's option, committed loans may be in the form of Eurodollar rate loans ("Eurodollar Loans") or base rate loans ("Base Rate Loans"). Eurodollar Loans bear interest at the Eurodollar rate (defined as the London Interbank Offered Rate, or LIBOR, plus the Applicable Rate (defined as a margin based on the Consolidated Total Net Leverage Ratio (as defined in the Credit Facility))). Base Rate Loans bear interest at the Base Rate (defined as the highest of the prime rate announced by the administrative agent, the federal funds effective rate plus 0.50% 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. At MarchDecember 31, 2018, the interest rate for three-month Eurodollar Loans was 3.435%, the interest rate for six-month Eurodollar Loans was 3.575%3.808% and the interest rate for Base Rate Loans was 4.875%5.500%. 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 MarchDecember 31, 2018, 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 its consolidated total net leverage ratio (as defined in the Credit Facility) to 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 be increased to 4.25 to 1.00 for the four consecutive fiscal quarters beginning with the quarter in which such acquisition is completed. In addition, Premier GP must maintain a minimum consolidated interest coverage ratio (as defined in the Credit Facility) of 3.002.50 to 1.00 at the end of every fiscal quarter. Premier GP was in compliance with all such covenants at MarchDecember 31, 2018.
The Credit Facility also contains customary events of default including, among others, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults of any indebtedness or guarantees in excess of $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 nine months ended March 31, 2018, the Company repaid $50.0 million of borrowings and borrowed an additional $30.0 million under the Credit Facility. The Company had outstanding borrowings under the Credit Facility of $200.0$100.0 million at MarchDecember 31, 2018. Borrowings due within one year of the balance sheet date are classified as current liabilities in the Condensed Consolidated Balance Sheets. They may be renewed or extended at the option of the Company through the maturity date of the Credit Facility.
Notes Payable
At MarchDecember 31, 2018 and June 30, 2017,2018, the Company had $7.2$7.4 million and $14.3$7.2 million respectively, in notes payable, respectively, consisting primarily of non-interest bearing notes payable outstanding to departed member owners, of which $0.2$2.3 million and $8.0$0.2 million, respectively, were included in current portion of long-term debt and $7.0$5.1 million and $6.3$7.0 million, respectively, were included in long-term debt, less current portion, in the accompanying Condensed Consolidated Balance Sheets. Notes payable generally have stated maturities of five years from their date of issuance.


(9)(10) REDEEMABLE LIMITED PARTNERS' CAPITAL
Redeemable limited partners' capital represents the member owners' 61%53% ownership of Premier LP through their ownership of Class B common units at MarchDecember 31, 2018. The member owners hold the majority of the votes of the Board of Directors and any redemption or transfer or choice of consideration cannot be assumed to be within the control of the Company. Therefore, redeemable limited partners' capital is recorded at the greater of the book value or redemption amount per the Amended and Restated Limited Partnership Agreement of Premier LP (as amended, the "LP Agreement"), and is calculated as the fair value of all Class B common units as if immediately exchangeable into Class A common shares. For the ninesix months ended MarchDecember 31, 2018 and 2017, 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 $511.3$(56.5) million and $296.6$638.3 million, respectively.
Redeemable limited partners' capital is classified as temporary equity in the mezzanine section of the accompanying Condensed Consolidated Balance Sheets as, pursuant to the LP Agreement, withdrawal is at the option of each member owner and the conditions of the repurchase are not solely within the Company's control.


The table below provides a summary of the changes in the redeemable limited partners' capital from June 30, 20172018 to MarchDecember 31, 2018 (in thousands):
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
$2,920,410
Distributions applied to receivables from limited partners1,478
—
1,478
853
—
853
Redemption of limited partners—
(942)(942)—
(448)(448)
Net income attributable to non-controlling interest in Premier LP—
154,142
154,142
—
117,744
117,744
Distributions to limited partners—
(54,305)(54,305)—
(29,281)(29,281)
Exchange of Class B common units for Class A common stock by member owners—
(194,924)(194,924)—
(471,880)(471,880)
Adjustment of redeemable limited partners' capital to redemption amount—
(511,301)(511,301)—
56,484
56,484
March 31, 2018$(2,699)$2,535,430
$2,532,731
December 31, 2018$(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 ninesix months ended MarchDecember 31, 2018.
During the ninesix months ended MarchDecember 31, 2018, fourtwo limited partners withdrew from Premier LP. The limited partnership agreement provides for the redemption ofPremier LP with an option to redeem former limited partners' Class B common units that are not eligible for exchange, upon payment of a specified redemption amount paid in the form of a five-year, unsecured, non-interest bearing term promissory note, a cash payment equal to the present value of the redemption amount, or other mutually agreed upon terms. Partnership interest obligations to former limited partners are reflected in notes payable in the accompanying Condensed Consolidated Balance Sheets. Under the Exchange Agreement, Class B common units that are eligible for exchange by withdrawing limited partners must be exchanged in the subsequent quarter's exchange process.
Premier LP's distribution policy requires cash distributions as long as taxable income is generated and cash is available to distribute on a quarterly basis prior to the 60th day after the end of each calendar quarter. The Company makes quarterly distributions to its limited partners in the form of a legal partnership income distribution governed by the terms of the LP Agreement. These partner distributions are based on the limited partner's ownership in Premier LP and relative participation across Premier service offerings. While these distributions are based on relative participation across Premier service offerings, they are not based directly on revenue generated from an individual partner's participation as the distributions are based on the net income (loss) of the partnership which encompasses the operating expenses of the partnership as well as participation by non-owner members in Premier's service offerings. To the extent Premier LP incurred a net loss, the limited partners would not receive a quarterly distribution. As provided in the LP Agreement, the amount of actual cash distributed may be reduced by the amount of such distributions used by limited partners to offset contribution loans or other amounts payable to the Company.


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
February 22, 2018$20,396
Date
Distribution (a)
August 23, 2018$15,465
November 21, 2018$14,993
(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 $13.2$14.3 million quarterly distribution on or before May 24, 2018.February 28, 2019. The distribution is reflected in limited partners' distribution payable in the accompanying Condensed Consolidated Balance Sheets at MarchDecember 31, 2018.

Pursuant to the Exchange Agreement (see Note 1 - Organization and Basis of Presentation for more information), each limited partner has the cumulative right to exchange up to one-seventh of its initial allocation of Class B common units for shares of Class A common stock, cash or a combination of both, the form of consideration to be at the discretion of the Company's independent Audit and Compliance Committee. During the ninesix months ended MarchDecember 31, 2018, the Company recorded total reductions of


$194.9 $471.9 million to redeemable limited partners' capital to reflect the exchange of approximately 5.910.6 million Class B common units and surrender of associated shares of Class B common stock by member owners for a like number of shares of the Company's Class A common stock (see Note 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, 20171,231,410
$42,976
October 31, 20173,651,294
119,289
January 31, 20181,006,435
32,659
Total5,889,139
$194,924
Date of Quarterly ExchangeNumber of Class B Common Units ExchangedReduction in Redeemable Limited Partners' Capital
July 31, 2018816,468
$30,536
October 31, 20189,807,651
441,344
Total10,624,119
$471,880
(10)(11) STOCKHOLDERS' DEFICIT
As of MarchDecember 31, 2018, there were 51,940,57661,286,582 shares of the Company's Class A common stock, par value $0.01 per share, and 80,978,26769,484,147 shares of the Company's Class B common stock, par value $0.000001 per share, outstanding.
On October 31, 2017,May 7, 2018, the Company's Board of Directors authorizedapproved the repurchase of up to $200.0$250.0 million of our outstanding Class A common stock during fiscal year 2019 as parta continuation of aour balanced capital deployment strategy, suchstrategy. Subject to certain terms and conditions, repurchases tomay be made from time to time in private orthrough open market purchases or privately negotiated transactions at the Company'sour discretion, and in accordance with applicable federal securities laws. As of MarchDecember 31, 2018, the Company completed its stock repurchase program andhad purchased approximately 6.42.9 million shares of Class A common stock at an average price of $31.16$38.13 per share for a total purchase price of $200.0approximately $109.5 million. The repurchase authorization may be expanded, suspended, delayed or discontinued at any time at the discretion of the Company's Board of Directors.
Holders of Class A common stock are entitled to (i) one 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 one 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 terms of a voting trust agreement by and among the Company, Premier LP, the holders of Class B common stock and Wells Fargo Delaware Trust 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 of 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 earnings (loss) per share (in thousands, except per share amounts):
Three Months Ended December 31, Six Months Ended December 31,
Three Months Ended March 31,Nine Months Ended March 31,20182017 20182017
2018201720182017As presented
Previous revenue standard (a)
 As presented
Previous revenue standard (a)
Numerator for basic earnings (loss) per share:    
Net income (loss) attributable to stockholders$(103,537)$(80,601)$514,093
$389,976
$693,889
$690,099
$281,200
 $12,556
$(9,690)$617,630
    
Numerator for diluted earnings (loss) per share:    
Net income (loss) attributable to stockholders$(103,537)$(80,601)$514,093
$389,976
$693,889
$690,099
$281,200
 $12,556
$(9,690)$617,630
Adjustment of redeemable limited partners' capital to redemption amount—
—
(511,301)(296,566)(651,709)(649,661)(317,916) —
—
(638,340)
Net income attributable to non-controlling interest in Premier LP—
—
154,142
282,207
62,631
59,418
56,485
 —
—
101,095
Net income (loss)(103,537)(80,601)156,934
375,617
104,811
99,856
19,769
 12,556
(9,690)80,385
Tax effect on Premier, Inc. net income (a)
—
—
(272,822)(61,303)
Tax effect on Premier, Inc. net income (b)
(12,779)(11,685)(11,322) —
—
(29,478)
Adjusted net income (loss)$(103,537)$(80,601)$(115,888)$314,314
$92,032
$88,171
$8,447
 $12,556
$(9,690)$50,907
    
Denominator for basic earnings (loss) per share:    
Weighted average shares (b)
53,529
50,525
53,885
49,051
Weighted average shares (c)
59,876
59,876
55,209
 56,548
56,548
54,059
    
Denominator for diluted earnings (loss) per share:    
Weighted average shares (b)
53,529
50,525
53,885
49,051
Effect of dilutive securities: (c)
 
Weighted average shares (c)
59,876
59,876
55,209
 56,548
56,548
54,059
Effect of dilutive securities: (d)
   
Stock options—
—
266
256
727
727
189
 709
—
270
Restricted stock—
—
285
190
278
278
261
 327
—
283
Performance share awards—
—
—
—
Class B shares outstanding—
—
83,818
91,875
72,791
72,791
83,578
 —
—
85,029
Weighted average shares and assumed conversions53,529
50,525
138,254
141,372
133,672
133,672
139,237
 57,584
56,548
139,641
    
Basic earnings (loss) per share(e)$(1.93)$(1.60)$9.54
$7.95
$11.59
$11.53
$5.09
 $0.22
$(0.17)$11.43
Diluted earnings (loss) per share(e)$(1.93)$(1.60)$(0.84)$2.22
$0.69
$0.66
$0.06
 $0.22
$(0.17)$0.36
(a)The Company adopted Topic 606 effective July 1, 2018, while comparative results are presented under Topic 605. Refer to Note 2 - Significant Accounting Policies for more information.
(b)Represents income tax expense related to Premier, Inc. retaining the portion of net income attributable to income from non-controlling interest in Premier, LP for the purpose of diluted earnings (loss) per share.


(b)(c)Weighted average number of common shares used for basic earnings (loss) 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 ninesix months ended MarchDecember 31, 2018 and 2017.
(c)(d)For the three months ended MarchDecember 31, 2018, the effect of 2.90.1 million stock options and restricted stock units and performance share awards and 81.4 million Class B common units exchangeable for Class A common shares were excluded from diluted weighted average shares outstanding due to the net loss attributable to stockholders sustained for the quarter and as including them would have been anti-dilutive for the period. For the nine months ended March 31, 2018, the effect of 1.7 million stock options was excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect, and the effect of 0.60.7 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 threesix months ended MarchDecember 31, 2017,2018, the effect of 2.80.1 million stock options and restricted stock units and performance share awards and 88.9was excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect. Under the New Revenue Standard, 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. Under the Previous Revenue Standard, the effect of 76.3 million Class B common units exchangeable for Class A common shares and 1.0 million stock options and restricted stock units was excluded from diluted weighted average shares outstanding due to the net loss attributable to shareholdersstockholders sustained for the quarterperiod and as including them would have beenan anti-dilutive effect for the period. For the nine months ended March 31, 2017,Additionally, the effect of 1.8 million stock options were excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect, and the effect of 0.50.7 million performance shares wereshare 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, 2017, the effect of 2.2 million stock options was excluded from diluted weighted average shares outstanding as they had an anti-dilutive effect, and the effect of 0.5 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.
(e)We have corrected prior period information within the current period financial statements related to a specific component used in calculating the tax effect on Premier, Inc. net income for purposes of diluted earnings per share. Diluted earnings (loss) per share for the three months ended December 31, 2017 was previously stated at ($1.66) per share and has been corrected to $0.06 per share. Diluted earnings (loss) per share for the six months ended December 31, 2017 was previously stated at ($1.30) per share and has been corrected to $0.36 per share. We believe the correction is immaterial and the corrected amount had no impact on our overall financial condition, results of operations or cash flows.
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, 20181,006,435
81,169,319
54,829,086
60%/40%
April 30, 2018 (c)
642,566
80,335,701
52,585,392
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, 2018816,468
79,519,233
53,256,897
60%/40%
October 31, 20189,807,651
69,601,752
63,734,585
53%/47%
January 31, 2019 (c)
3,705,459
65,778,688
63,841,210
51%/49%
(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), equity incentive plan (see Note 1213 - Stock-Based Compensation) and departed member owners (see Note 910 - Redeemable Limited Partners' Capital).
(c)As the quarterly exchange occurred on April 30, 2018,January 31, 2019, the impact of the exchange is not reflected in the condensed consolidated financial statements for the quarter ended MarchDecember 31, 2018. The Company utilized 3,500,000 treasury shares to facilitate a portion of this exchange, and as a result had 322,090 Class A common shares held in treasury as of January 31, 2019, 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 $7.2$7.7 million and $7.1$8.9 million for the three months ended MarchDecember 31, 2018 and 2017, respectively, with a resulting deferred tax benefit of $1.8$1.9 million and $2.7$2.2 million, respectively. Pre-tax stock-based compensation expense was $24.9$13.9 million and $19.1$17.7 million for the ninesix months ended MarchDecember 31, 2018 and 2017, respectively, with a resulting deferred tax benefit of $6.2$3.4 million and $7.3$4.4 million, respectively. The deferred tax benefit was calculated at a rate of 25% for the three and nine months ended March 31, 2018 and 38% for the three and nine months ended March 31, 2017,, 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 in the deferred tax benefit is a result of the Tax Cuts and Jobs Act, which was enacted on December 22, 2017 (see Note 1314 - Income Taxes).


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 MarchDecember 31, 2018, there were 3.56.6 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 ninesix months ended MarchDecember 31, 2018:
Restricted Stock Performance Share Awards Stock OptionsRestricted 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 PriceNumber 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
Outstanding at June 30, 2018605,873
$33.25
 1,318,047
$33.00
 3,499,251
$30.53
Granted258,262
$32.93
 698,881
$32.62
 558,744
$32.79
230,830
$44.13
 589,011
$43.36
 —
$—
Vested/exercised(178,482)$31.79
 (352,867)$31.73
 (128,559)$28.93
(183,325)$35.26
 (359,751)$35.43
 (378,013)$32.27
Forfeited(38,317)$32.59
 (91,185)$32.47
 (126,913)$33.79
(23,497)$34.23
 (57,308)$34.15
 (38,906)$32.56
Outstanding at March 31, 2018618,451
$33.27
 1,340,701
$33.00
 3,675,771
$30.62
Outstanding at December 31, 2018629,881
$36.62
 1,489,999
$36.46
 3,082,332
$30.30
                
Stock options outstanding and exercisable at March 31, 2018      2,642,538
$29.68
Stock options outstanding and exercisable at December 31, 2018      2,604,897
$29.91
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 of 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 MarchDecember 31, 2018 was as follows (in thousands):
Unrecognized Stock-Based Compensation ExpenseWeighted Average Amortization PeriodUnrecognized Stock-Based Compensation ExpenseWeighted Average Amortization Period
Restricted stock$10,315
1.77 years$13,629
2.24 years
Performance share awards22,476
1.83 years32,084
2.07 years
Stock options8,258
1.88 years4,070
1.44 years
Total unrecognized stock-based compensation expense$41,049
1.82 years$49,783
2.06 years
The aggregate intrinsic value of stock options at MarchDecember 31, 2018 was as follows (in thousands):
Intrinsic Value of Stock OptionsIntrinsic Value of Stock Options
Outstanding and exercisable$6,575
$19,400,127
Expected to vest47
2,355,301
Total outstanding$6,622
$21,755,428
  
Exercised during the nine months ended March 31, 2018$650
Exercised during the six months ended December 31, 2018$4,141,405



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:

Nine Months Ended March 31,
 20182017
Expected life (a)
6 years6 years
Expected dividend (b)
——
Expected volatility (c)
29.44% - 32.26%32.01% - 33.00%
Risk-free interest rate (d)
1.89% - 2.75%1.31% - 2.13%
Weighted average option grant date fair value$9.48 - $11.42$10.48 - $11.28

Six Months Ended December 31, 2017
Expected life (a)
6 years
Expected dividend (b)
—
Expected volatility (c)
29.92% - 32.26%
Risk-free interest rate (d)
1.89% - 2.14%
Weighted average option grant date fair value$9.48 - $11.42
(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 and PSCI, 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.
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 blended 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 balances asand recorded net provisional tax expense of $210.4 million in fiscal year 2018. During the enactment date, accordingly. Given the nature and relative timingfirst quarter of the TCJA enactment,fiscal year 2019, the Company is continuing to evaluateevaluated the impact of the TCJA and has prescribed provisional relief pursuantwith respect to SAB 118the amendments to certain componentsSection 162(m) based on the issuance of its deferred tax balances. More specifically,additional guidance by the Internal Revenue Service. The Company has incorporated various estimates regarding timing and determination of temporary difference recognition when calculating its net deferred tax expense. As a result, for the three months ended March 31, 2018, the Company continuedconcluded no adjustment to remeasure its deferred tax balances based on refinementsis required. During the second quarter of fiscal year 2019, the Company further analyzed state tax conformity with respect to the various estimates regardingnet operating losses as amended by the timingTCJA, and determinationas a result, recorded $0.5 million of temporary differences andtax benefit attributable to valuation allowance release. During the second quarter of fiscal year 2019, the Company completed its accounting for the income tax effects of the TCJA. To date, the Company has recorded $3.5$209.9 million ofin income tax expense associated with the remeasurement of deferred tax balances. In addition, the estimates will be subject to further revision based on actual financial results for the fourth quarterenactment of the current fiscal year. The Company expects to finalize the remeasurement of its deferred tax balances in the fourth quarter of the fiscal year ending June 30, 2018.TCJA.
Income tax expense for the three months ended MarchDecember 31, 2018 and 2017 was $13.3$1.8 million and $7.3$231.5 million, respectively, which reflects effective tax rates of 15%2% and 9%92%, respectively. Income tax expense for the ninesix months ended MarchDecember 31, 2018 and 2017 was $257.6$12.6 million and $68.1$244.3 million, respectively, which reflects effective tax rates of 62%6% and 15%75%, respectively. The increasedecrease in effective tax rates is primarily attributable to the remeasurement of deferred tax balances, of which $224.7 millionremeasurement related to the aforementioned decrease in the U.S. federal corporate income tax rate.rate from 35% to 21% during the six months ended December 31, 2017. 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 reductions in valuation allowances associated with deferred tax assets at PHSI.
DeferredThe Company's existing reserve for uncertain income tax positions decreased $12.2 million during the second quarter of fiscal year 2019, primarily due to the closing of certain audits.
Net deferred tax assets decreased $161.3increased $82.7 million to $273.0$370.8 million at MarchDecember 31, 2018 from $434.3$288.1 million at June 30, 2017.2018. The current period balance was comprised of $306.7$389.6 million in deferred tax assets at Premier, Inc., offset by $33.8$18.8 million in deferred tax liabilities at PHSI and PSCI. The decreaseincrease in net deferred tax assets from the prior period was largely driven by $224.7$101.2 million deferred tax assets generated by the member exchanges that occurred during the six months ended December 31, 2018, offset by $10.7 million in net reductions to deferred tax assets and liabilities in connection with the underlying revaluation associated withadoption and transition to the previously mentioned decrease in the U.S. federal corporate income tax rate. This decrease was partially offset by a $71.9 million increase in deferred tax assets in connection with the quarterly member owner exchanges that occurred during the nine months ended March 31, 2018.


New Revenue Standard.
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) 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 $89.0increased $68.0 million to $250.7$323.1 million at MarchDecember 31, 2018 from $339.7$255.1 million at June 30, 2017.2018. The change in TRA liabilities was driven primarily by the $177.2$87.9 million decrease in valuation as a result of the TCJA's decrease in the U.S. federal corporate income tax rates, partially offset by $67.5 million in increasesincrease in TRA liabilities in connection with the quarterly member owner exchanges that occurred during the ninesix months ended MarchDecember 31, 2018, and $20.9partially offset by $18.0 million associated within TRA payments to member owners during the revaluation and remeasurement of the TRA liabilities due to the change in the allocation and realization of future anticipated payments.six months ended December 31, 2018.
(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 March 31, 2018. 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 $16.9 million and $51.8 million for the three and nine months ended March 31, 2017, 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 was payable to GNYHA and its member organizations. Services and support revenue earned from GNYHA and its member organizations was $3.9 million and $11.0 million during the three and nine months ended March 31, 2017, respectively. Product revenue earned from, or attributable to services provided to, GNYHA and its member organizations was $4.3 million and $12.3 million during the three and nine months ended March 31, 2017, 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 (loss) of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Income prior to the acquisition was $10.7 million during the nine months ended March 31, 2017. 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 $19.9 million for the nine months ended March 31, 2017.
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 $1.2 million for the nine months ended March 31, 2017.
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 (loss) of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Income was $0.1$1.4 million and $0.2$1.3 million for the three months ended MarchDecember 31, 2018 and 2017, respectively, and $5.7$4.0 million and $4.4$5.6 million for the ninesix months ended MarchDecember 31, 2018 and 2017, 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 $1.8$1.9 million as presented and $1.4$2.2 million under the Previous Revenue Standard during the three months ended December 31, 2018, and $2.3 million during the three months ended MarchDecember 31, 2017 under the Previous Revenue Standard. Net administrative fees revenue recorded from purchases under those agreements was $4.2 million as presented and $3.8 million under the Previous Revenue Standard during the six months ended December 31, 2018, and 2017, respectively, and $5.8 million and $3.0$4.0 million during the ninesix months ended MarchDecember 31, 2018 and 2017 respectively.


under the Previous Revenue Standard.
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$1.3 million and $1.3$1.4 million during the three months ended MarchDecember 31, 2018 and 2017, respectively, and $4.2$2.6 million and $3.5$2.9 million during the ninesix months ended MarchDecember 31, 2018 and 2017, respectively.2017. As of MarchDecember 31, 2018 and June 30, 2017, $0.52018, $0.7 million and $0.6$0.9 million, respectively, in amounts receivable from AEIX are included in due from related parties in the accompanying Condensed Consolidated Balance Sheets.
(15)(16) COMMITMENTS AND CONTINGENCIES
The Company is not currently involved in any litigation it believes to be significant. 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 two 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 provides technology and data analytics with wrap-around service offerings and includes the Company's informatics, collaborative, consulting services, government services and insurance services businesses.offerings. The Company disaggregates revenue into categories that best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Segment

The following table presents disaggregated revenue by business segment and underlying source (in thousands):
 Three Months Ended December 31, Six Months Ended December 31,
 201820182017 201820182017
 As presented
Previous revenue standard (a)
 As presented
Previous revenue standard (a)
Net revenue:       
Supply Chain Services       
Net administrative fees$165,695
$169,756
$159,343
 $327,695
$316,572
$310,334
Other services and support3,789
4,638
3,421
 6,133
8,262
5,570
Services169,484
174,394
162,764
 333,828
324,834
315,904
Products157,519
169,433
162,101
 308,989
332,865
314,764
Total Supply Chain Services327,003
343,827
324,865
 642,817
657,699
630,668
Performance Services94,854
85,727
86,533
 180,586
164,800
171,294
Net revenue$421,857
$429,554
$411,398
 $823,403
$822,499
$801,962
(a)The Company adopted Topic 606 effective July 1, 2018, while comparative results are presented under Topic 605. Refer to Note 2 - Significant Accounting Policies for more information.
Additional segment information related to depreciation and amortization expense, capital expenditures and total assets was as follows (in thousands):
Three Months Ended March 31,Nine Months Ended March 31,Three Months Ended December 31,Six Months Ended December 31,
2018201720182017
Net revenue: 
Supply Chain Services 
Net administrative fees$161,612
$143,915
$471,946
$398,962
Other services and support2,899
3,116
8,470
5,962
Services164,511
147,031
480,416
404,924
Products166,234
138,132
480,997
386,639
Total Supply Chain Services330,745
285,163
961,413
791,563
Performance Services94,593
94,640
265,887
260,012
Net revenue$425,338
$379,803
$1,227,300
$1,051,575
 2018201720182017
Depreciation and amortization expense (a):
  
Supply Chain Services$5,500
$5,717
$16,166
$8,637
$5,450
$5,171
$11,069
$10,666
Performance Services24,541
21,491
71,093
63,350
27,318
23,634
53,231
46,551
Corporate2,424
1,974
6,739
5,771
2,814
2,322
5,427
4,315
Total depreciation and amortization expense$32,465
$29,182
$93,998
$77,758
$35,582
$31,127
$69,727
$61,532
  
Capital expenditures:  
Supply Chain Services$390
$198
$1,238
$2,347
$521
$541
$1,016
$848
Performance Services24,077
16,308
57,368
47,079
19,457
19,742
38,830
33,291
Corporate2,171
1,061
6,654
2,466
2,250
1,692
7,443
4,483
Total capital expenditures$26,638
$17,567
$65,260
$51,892
$22,228
$21,975
$47,289
$38,622
 
Total assets: March 31, 2018June 30, 2017
Supply Chain Services $971,628
$1,017,023
Performance Services 862,704
888,862
Corporate 460,305
601,951
Total assets  $2,294,637
$2,507,836
 December 31, 2018December 31, 2018June 30, 2018
Total assets:As presented
Previous revenue standard (b)
Previous revenue standard
Supply Chain Services$1,179,678
$1,025,300
$991,837
Performance Services974,735
917,986
860,409
Corporate490,438
497,910
459,970
Total assets$2,644,851
$2,441,196
$2,312,216
(a)Includes amortization of purchased intangible assets.
(b)The Company adopted Topic 606 effective July 1, 2018, while comparative results are presented under Topic 605. Refer to Note 2 - Significant Accounting Policies for more information.
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 (loss) 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.
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 March 31,Nine Months Ended March 31,
 2018201720182017
Income before income taxes$89,837
$78,653
$414,494
$443,697
Remeasurement gain attributable to acquisition of Innovatix, LLC—
—
—
(204,833)
Equity in net loss (income) of unconsolidated affiliates (a)
4,939
(83)(570)(14,789)
Interest and investment loss, net (b)
1,236
2,017
4,239
3,026
Loss on disposal of long-lived assets5
725
1,725
2,243
Other expense (income)2,593
(2,260)14,486
(3,135)
Operating income98,610
79,052
434,374
226,209
Depreciation and amortization18,584
15,102
52,401
43,318
Amortization of purchased intangible assets13,881
14,080
41,597
34,440
Stock-based compensation (c)
7,333
7,157
25,241
19,476
Acquisition related expenses1,540
4,330
6,312
11,483
Strategic and financial restructuring expenses (d)
1,648
—
1,652
—
Remeasurement of tax receivable agreement liabilities (e)
—
2,768
(177,174)(2,954)
ERP implementation expenses (f)
40
215
531
1,741
Acquisition related adjustment - revenue (g)
65
11,765
257
17,729
Equity in net income (loss) of unconsolidated affiliates (a)
(4,939)83
570
14,789
Impairment on investments5,002
—
5,002
—
Deferred compensation plan income (expense) (h)
(112)1,675
3,004
2,778
Other income587
497
1,184
497
Adjusted EBITDA$142,239
$136,724
$394,951
$369,506
     
Segment Adjusted EBITDA:    
Supply Chain Services$135,265
$127,898
$392,930
$364,224
Performance Services36,715
36,535
85,865
87,449
Corporate(29,741)(27,709)(83,844)(82,167)
Adjusted EBITDA$142,239
$136,724
$394,951
$369,506
 Three Months Ended December 31, Six Months Ended December 31,
 201820182017 201820182017
 As presented
Previous revenue standard (a)
 As presented
Previous revenue standard (a)
Income before income taxes$106,615
$99,502
$251,277
 $199,381
$169,252
$324,657
Equity in net income of unconsolidated affiliates (b)
(1,444)(1,444)(1,257) (4,134)(4,134)(5,509)
Interest and investment loss, net (c)
859
859
1,508
 1,547
1,547
3,003
Loss on disposal of long-lived assets—
—
400
 —
—
1,720
Other (income) expense(7,199)(7,199)13,356
 (5,258)(5,258)11,893
Operating income98,831
91,718
265,284
 191,536
161,407
335,764
Depreciation and amortization21,683
21,683
17,310
 42,190
42,190
33,817
Amortization of purchased intangible assets13,899
13,899
13,817
 27,537
27,537
27,715
Stock-based compensation (d)
7,800
7,800
8,951
 14,137
14,137
17,908
Acquisition related expenses (e)
1,354
1,354
1,674
 1,763
1,763
4,773
Remeasurement of tax receivable agreement liabilities—
 (177,174) —
 (177,174)
ERP implementation expenses (f)
61
61
156
 387
387
491
Equity in net income of unconsolidated affiliates (b)
1,444
1,444
1,257
 4,134
4,134
5,509
Deferred compensation plan (income) expense (g)
(4,235)(4,235)1,577
 (2,899)(2,899)3,116
Other expense, net1,160
1,160
690
 1,833
1,833
794
Non-GAAP Adjusted EBITDA$141,997
$134,884
$133,542
 $280,618
$250,489
$252,713
        
Segment Non-GAAP Adjusted EBITDA:       
Supply Chain Services$134,079
$137,309
$132,045
 $269,482
$257,113
$257,665
Performance Services37,100
26,757
27,929
 67,675
49,915
49,150
Corporate(29,182)(29,182)(26,432) (56,539)(56,539)(54,102)
Non-GAAP Adjusted EBITDA$141,997
$134,884
$133,542
 $280,618
$250,489
$252,713
(a)The Company adopted Topic 606 effective July 1, 2018, while comparative results are presented under Topic 605. Refer to Note 2 - Significant Accounting Policies for more information.
(b)Refer to Note 4 - Investments for further information regarding equity in net income (loss) of unconsolidated affiliates.information.
(b)(c)Represents interest expense, net and realized gains and losses on our marketable securities.
(c)(d)Represents non-cash employee stock-based compensation expense and stock purchase plan expense of $0.1 million during both of the three months ended MarchDecember 31, 2018 and 2017 and $0.3 million and $0.4$0.2 million during both of the ninesix months ended MarchDecember 31, 2018 and 2017, respectively.
(d)Represents legal, accounting and other expenses directly related to strategic and financial restructuring expenses.2017.
(e)Represents adjustmentsIncludes legal, accounting and other expenses related to TRA liabilities for a 14% decreaseacquisition activities and gains and losses on the change in the U.S. federal corporate income tax rate that occurred during the nine months ended March 31, 2018, which is a resultfair value of the TCJA that was enacted on December 22, 2017, an increase in Premier LP income apportioned to California during the three months ended March 31, 2017 and a 1% decrease in the North Carolina state income tax rate that occurred during the nine months ended March 31, 2017.earn-out liabilities.
(f)Represents implementation and other costs associated with the implementation of our enterprise resource planning ("ERP") system.
(g)
Upon acquiring InnovatixRepresents realized and Essensa, we recorded a net $11.6 millionunrealized gains and $17.2 million purchase accounting adjustment to Adjusted EBITDA during the threelosses and nine months ended March 31, 2017, respectively, 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 March 31, 2017. 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 date 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
dividend income on deferred compensation plan assets.


revenue share obligation as a liability. The purchase accounting adjustment amounted to an estimated $22.1 million of accounts receivable relating to these administrative fees and an estimated $4.0 million for the related revenue share obligation through March 31, 2017.
This item also includes non-cash adjustments to deferred revenue of acquired entities of $0.1 million and $0.5 million for the three and nine months ended March 31, 2017, 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 reduction 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.
(h) 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, 20172018 (the "2017"2018 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 150,000165,000 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 healthvalue-based care software as a service ("SaaS") informatics products, consulting services and performance improvement collaborative programs.
As of MarchDecember 31, 2018, we were controlled by 163160 U.S. hospitals, health systems and other healthcare organizations, which represented approximately 1,4251,400 owned, leased and managed acute care facilities and other non-acute care organizations, through their ownership of Class B common stock. As of MarchDecember 31, 2018, the outstanding Class A common stock and Class B common stock represented approximately 39%47% and 61%53%, respectively, of our combined outstanding Class A and Class B common stock. 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 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 March 31,Nine Months Ended March 31,20182017 20182017
2018201720182017
New Revenue Standard (a)
Previous Revenue Standard 
New Revenue Standard (a)
Previous Revenue Standard
Net revenue$425,338
$379,803
$1,227,300
$1,051,575
$421,857
$429,554
$411,398
 $823,403
$822,499
$801,962
Net income$76,549
$71,338
$156,934
$375,617
$104,811
$99,856
$19,769
 $186,784
$160,572
$80,385
Non-GAAP Adjusted EBITDA$142,239
$136,724
$394,951
$369,506
$141,997
$134,884
$133,542
 $280,618
$250,489
$252,713
(a)We adopted Topic 606 effective July 1, 2018, while comparative results are presented under Topic 605. Refer to Note 2 - Significant Accounting Policies and Critical Accounting Policies and Estimates below for more information.
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 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 managementvalue-based care through two business segments: Supply Chain Services and Performance Services.
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 (or alternate site) providers and other non-healthcare and alternate sites,organizations, and includes integrated pharmacy and direct sourcing activities. Supply Chain Services net revenue grew from $285.2$324.9 million for the three months ended MarchDecember 31, 2017 to $330.7


$327.0 million for the three months ended MarchDecember 31, 2018, representing net revenue growth of 16%, and accounted for 78% of our overall net revenue for the three months ended MarchDecember 31, 2018. Supply Chain Services net revenue grew from $791.6$630.7 million for the ninesix months ended MarchDecember 31, 2017 to $961.4$642.8 million for the ninesix months ended MarchDecember 31, 2018, representing net revenue growth of 21%, and accounted for 78% of our overall net revenue for the ninesix months ended MarchDecember 31, 2018. We2018.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.
OurThe Performance Services segment, through its development, integration and delivery of technology and data analytics with wrap-around service offerings, includes one of the largest informatics and consulting services businesses in the United States focused on healthcare providers. Performance Services net revenue remained flat at $94.6 million for the three months ended March 31, 2018 and 2017, and accounted for 22% ofMore specifically, our overall net revenue for the three months ended March 31, 2018. Performance Services net revenue increased from $260.0 million for the nine months ended March 31, 2017 to $265.9 million for the nine months ended March 31, 2018, representingsoftware as a 2% increase, and accounted for 22% of our overall net revenue for the nine months ended March 31, 2018. 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 the three main categories:categories of cost management, quality and safety, and population health management.value-based care. While leveraging these tools, we also combine our consulting services and performance improvement collaboratives to provide a more comprehensive and holistic customer value proposition and overall experience. The Performance Services segment also includes our technology-enabled performance improvement collaboratives, consulting services, government services and insurance management services.
Acquisitions
Acquisition Performance Services net revenue grew from $86.5 million for the three months ended December 31, 2017 to $94.9 million for the three months ended December 31, 2018, and accounted for 22% of Innovatixour overall net revenue for the three months ended December 31, 2018. Performance Services net revenue grew from $171.3 million for the six months ended December 31, 2017 to $180.6 million for the six months ended December 31, 2018, and Essensa
Prior toaccounted for 22% of our overall net revenue for the six months ended December 2, 2016, the Company, through its consolidated subsidiary, Premier Supply Chain Improvement ("PSCI"), held 50% of the membership interests in Innovatix, LLC ("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") The purchase price, after adjustments pursuant to the purchase agreement, was $336.0 million. The acquisition was funded 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 providers and other non-healthcare organizations throughout the United States. The Company reports Innovatix and Essensa as part of its Supply Chain Services segment. See Note 3 - Business Acquisitions for more information.
Acquisition of Acro Pharmaceuticals
On August 23, 2016, the Company, through its consolidated subsidiary, NS3 Health, LLC, acquired 100% of the membership interests of Acro Pharmaceutical Services LLC ("Acro") and Community Pharmacy Services, LLC (collectively with Acro, "Acro Pharmaceuticals"). The aggregate purchase price, after adjustments pursuant to the purchase agreement, was $62.9 million. The acquisition was funded with available cash on hand. Acro Pharmaceuticals is a specialty pharmacy business that provides customized healthcare management solutions to members. The Company reports Acro Pharmaceuticals as part of its Supply Chain Services segment. See Note 3 - Business Acquisitions for more information.31, 2018.
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.
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,the number of uninsured or level of bad debt for providers, intense cost pressure, payment reform, provider and supplier consolidation, vertical integration between payors, providers, and other organizations, 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 andcontainment. Moreover, healthcare providers will need to measure and report on and bear financial risk for outcomes. We believe these trends will result in increased demand for our comprehensive and integrated Supply Chain Services and Performance Services solutions in the areas of cost management, quality and safety and population health management,value-based care. There are, however, there are uncertainties and risks that may affect the actual impact of these anticipated trends 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 uponNote 2 - Significant Accounting Policies for more information related to our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles ("GAAP"). The preparation of 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 described in the Company's 2017that were included within our 2018 Annual Report.
New Accounting Standards
For the ensuing discussion, it is important to note that we adopted Topic 606 ("New Revenue Standard") effective for the fiscal year beginning July 1, 2018. The prior year information has not been adjusted and continues to be reported under Topic 605 ("Previous Revenue Standard"). However, for informational purposes, we have also included current period results under the Previous Revenue Standard. Refer to Note 2 - Significant Accounting Policies for further information on the impact of the New Revenue Standard on our condensed consolidated financial statements, which is incorporated herein by reference, as well as for


additional information on other new accounting standards that we have recently adopted as well as those that have been recently issued but not yet adopted by the Company are included in Note 2 - Significant Accounting Policies to the accompanying condensed consolidated financial statements, which is incorporated herein by reference.adopted.
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 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, consulting services and performance improvement collaborative subscriptions. 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, 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, 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 consulting 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 consulting services to new and existing members, impact of applied research initiatives, renewal of existing subscriptions to our SaaS and licensed informatics products, along with our ability to generate additional applied sciences engagements and expansionexpand into new markets with potential future acquisitions.markets.
Cost of 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 consulting services to members and implementation services related to SaaS informatics products.along with associated amortization of capitalized contract costs. 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.
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, indirect costs such as insurance, professional fees and other general overhead expenses, and adjustments to TRA liabilities. Amortization of contract costs represent amounts that have been capitalized and reflect the incremental costs of obtaining and fulfilling a contract. Such amounts include sales commissions and costs related to implementing SaaS informatics tools, which are components of selling, general and administrative expenses and cost of revenue, respectively.


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.
Other Income, Net
Other income, net, includes equity in net income (loss) 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 interest income and expense, gains and losses on the FFF put and call rights (see Note 5 - Fair Value Measurements), 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,Premier, Inc., PHSI and PSCI, 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.
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) 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, represents the effective tax rate computed in accordance with 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 Tax Cuts and Jobs Act ("TCJA"), the rate used to compute the Non-GAAP Adjusted Fully Distributed Net Income was 39%. Effective as of January 1, 2018, the Companywe adjusted itsour fully distributed tax rate to 26% to determine itsour Non-GAAP Adjusted Fully Distributed Net Income and will continue to use that rate for the remainder of fiscal year 2018.Income.
Net Income Attributable to Non-Controlling Interest
As of MarchDecember 31, 2018, we owned an approximate 39%47% 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%53% and 60% as of December 31, 2018 and June 30, 2017 to approximately 61% as of March 31, 2018, as a result of completed quarterly exchanges pursuant to the Exchange Agreementrespectively (see Note 910 - Redeemable Limited Partners' Capital).
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 Non-GAAP financial measures.
We define EBITDA as net income before 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 (loss) 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 gains or losses 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 (loss) 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.


We define Adjusted Fully Distributed Net Income as net income attributable to Premier (i) excluding income tax expense, (ii) excluding the impact of adjustment of redeemable limited partners' capital to redemption amount (iii) excluding the effect of non-recurring and non-cash items, (iv) 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) 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 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 (such as impairment of intangible assets, purchase accounting adjustments and stock-based compensation) and non-recurring items (such as strategic and financial restructuring expenses) 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, acquisition related expenses, remeasurement of TRA liabilities, enterprise resource planning ("ERP") implementation expenses, acquisition related adjustment - revenue, remeasurement gain attributable to acquisition of Innovatix, LLC, loss on disposal of long-lived assets, loss (gain) on FFF put and call rights, impairment on investments 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 for both of the three months ended MarchDecember 31, 2018 and 2017 and $0.3 million and $0.4$0.2 million for both of the ninesix months ended MarchDecember 31, 2018 and 2017, respectively (see Note 12 - Stock-Based Compensation).
Remeasurement of TRA liabilities
The Company records TRA liabilities based on 85% of the estimated amount of tax savings the Company expects 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 realizes tax benefits. Determining the estimated amount of tax savings the Company expects 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 income or selling, 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 adjustment to TRA liabilities for the nine months ended March 31, 2018 is 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 the three months ended March 31, 2017 is primarily attributable to the increase in Premier LP income apportioned to California and for the nine months ended March 31, 2017 is primarily attributable to the combination of the increase in Premier LP income apportioned to California and a 1% decrease in the North Carolina state income tax rate (see Note 13 - Income Taxes)Stock-Based Compensation).
Acquisition related adjustment - revenue
Upon acquiring Innovatix and Essensa, we recorded a net $11.6 million and $17.2 million purchase accounting adjustment to Adjusted EBITDA during the three and nine months ended March 31, 2017, respectively, 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 March 31, 2017. 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 date 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 $22.1 million of accounts receivable relating to these administrative fees and an estimated $4.0 million for the related revenue share obligation through March 31, 2017.
This item also includes non-cash adjustments to deferred revenue of acquired entities of $0.1 million and $0.5 million for the three and nine months ended March 31, 2017, 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 reduction 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 (see Note 16 - Segments).
Strategic and financial restructuring expenses
This item representsAcquisition related expenses include legal, accounting and other expenses directly related to strategicacquisition activities and financial restructuring activities.gains and losses on the change in fair value of earn-out liabilities.
Loss (gain)Gain or loss on FFF put and call rights
See Note 5 - Fair Value Measurements.


Impairment on investments
See Note 4 - Investments.


Results of Operations
We adopted the New Revenue Standard effective for the fiscal year beginning July 1, 2018. The prior year information has not been adjusted and continues to be reported under the Previous Revenue Standard. As result, our results of operations under the New Revenue Standard are not indicative of what our results of operations were under the Previous Revenue Standard. However, for informational purposes, we have also included current period results under the Previous Revenue Standard. Refer to Note 2 - Significant Accounting Policies for further information on the impact of the New Revenue Standard on our condensed consolidated financial statements, which is incorporated herein by reference.
Results of Operations for the Three Months Ended December 31, 2018 and 2017
The following table summarizes our results of operations for the periods presentedthree months ended December 31, 2018 and 2017 (in thousands, except per share data):
 Three Months Ended March 31, Nine Months Ended March 31,
 20182017 20182017
 Amount% of Net RevenueAmount% of Net Revenue Amount% of Net RevenueAmount% of Net Revenue
Net revenue:         
Net administrative fees$161,612
38%$143,915
38% $471,946
38%$398,962
38%
Other services and support97,492
23%97,756
26% 274,357
22%265,974
25%
Services259,104
61%241,671
64% 746,303
60%664,936
63%
Products166,234
39%138,132
36% 480,997
39%386,639
37%
Net revenue425,338
100%379,803
100% 1,227,300
100%1,051,575
100%
Cost of revenue:         
Services47,037
12%47,319
12% 141,228
13%134,865
13%
Products156,511
37%129,929
34% 454,222
37%356,900
34%
Cost of revenue203,548
49%177,248
46% 595,450
50%491,765
47%
Gross profit221,790
51%202,555
54% 631,850
50%559,810
53%
Other operating income:         
Remeasurement of tax receivable agreement liabilities—
—%—
—% 177,174
14%5,722
1%
Other operating income—
—%—
—% 177,174
14%5,722
1%
Operating expenses:         
Selling, general and administrative109,007
26%108,668
29% 331,948
27%302,555
29%
Research and development292
—%755
—% 1,105
—%2,328
—%
Amortization of purchased intangible assets13,881
3%14,080
4% 41,597
3%34,440
3%
Operating expenses123,180
29%123,503
33% 374,650
30%339,323
32%
Operating income98,610
23%79,052
22% 434,374
35%226,209
23%
Other income (expense), net(8,773)(2)%(399)—% (19,880)(2)%217,488
21%
Income before income taxes89,837
21%78,653
22% 414,494
33%443,697
44%
Income tax expense13,288
3%7,315
2% 257,560
21%68,080
6%
Net income76,549
18%71,338
20% 156,934
12%375,617
38%
Net income attributable to non-controlling interest in Premier LP(53,047)(12)%(51,433)(14)% (154,142)(13)%(282,207)(27)%
Adjustment of redeemable limited partners' capital to redemption amount(127,039)nm(100,506)nm 511,301
nm296,566
nm
Net income (loss) attributable to stockholders$(103,537)nm$(80,601)nm $514,093
nm$389,976
nm
          
Weighted average shares outstanding:         
Basic53,529
 50,525
  53,885
 49,051
 
Diluted53,529
 50,525
  138,254
 141,372
 
          
Earnings (loss) per share attributable to stockholders:        
Basic$(1.93) $(1.60)  $9.54
 $7.95
 
Diluted$(1.93) $(1.60)  $(0.84) $2.22
 
 Three Months Ended December 31,
 2018 2018 2017
 As presented Previous revenue standard Previous revenue standard
 Amount% of Net Revenue Amount% of Net Revenue Amount% of Net Revenue
Net revenue:        
Net administrative fees$165,695
40% $169,756
40% $159,343
39%
Other services and support98,643
23% 90,365
21% 89,953
22%
Services264,338
63% 260,121
61% 249,296
61%
Products157,519
37% 169,433
39% 162,102
39%
Net revenue421,857
100% 429,554
100% 411,398
100%
Cost of revenue:        
Services43,189
11% 45,802
10% 47,255
12%
Products155,534
37% 166,461
39% 153,272
37%
Cost of revenue198,723
48% 212,263
49% 200,527
49%
Gross profit223,134
52% 217,291
51% 210,871
51%


 Three Months Ended December 31,
 2018 2018 2017
 As presented Previous revenue standard Previous revenue standard
 Amount% of Net Revenue Amount% of Net Revenue Amount% of Net Revenue
Other operating income:        
Remeasurement of tax receivable agreement liabilities—
—% —
—% 177,174
43%
Other operating income—
—% —
—% 177,174
43%
Operating expenses:        
Selling, general and administrative110,112
26% 111,382
26% 108,620
26%
Research and development292
—% 292
—% 324
—%
Amortization of purchased intangible assets13,899
3% 13,899
3% 13,817
3%
Operating expenses124,303
29% 125,573
29% 122,761
30%
Operating income98,831
23% 91,718
22% 265,284
64%
Other income (expense), net7,784
2% 7,784
2% (14,007)(3)%
Income before income taxes106,615
25% 99,502
23% 251,277
61%
Income tax expense (benefit)1,804
—% (354)—% 231,508
56%
Net income104,811
25% 99,856
23% 19,769
5%
Net income attributable to non-controlling interest in Premier LP(62,631)(15)% (59,418)(14)% (56,485)(14)%
Adjustment of redeemable limited partners' capital to redemption amount651,709
nm 649,661
nm 317,916
nm
Net income attributable to stockholders$693,889
nm $690,099
nm $281,200
nm
         
Weighted average shares outstanding:        
Basic59,876
  59,876
  55,209
 
Diluted133,672
  133,672
  139,237
 
         
Earnings per share attributable to stockholders:        
Basic$11.59
  $11.53
  $5.09
 
Diluted (a)
$0.69
  $0.66
  $0.06
 
nm = Not meaningful





(a)We have corrected prior period information within the current period financial statements related to a specific component used in calculating the tax effect on Premier, Inc. net income for purposes of diluted earnings per share. Diluted earnings (loss) per share for the three months ended December 31, 2017 was previously stated at ($1.66) per share and has been corrected to $0.06 per share. We believe the correction is immaterial and the corrected amount had no impact on our overall financial condition, results of operations or cash flows.


The following table provides certain Non-GAAP financial measures for the periods presentedthree months ended December 31, 2018 and 2017 (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 March 31, Nine Months Ended March 31,
 20182017 20182017
 Amount% of Net RevenueAmount% of Net Revenue Amount% of Net RevenueAmount% of Net Revenue
Certain Non-GAAP Financial Data:         
Adjusted EBITDA$142,239
33%$136,724
36% $394,951
32%$369,506
35%
Non-GAAP Adjusted Fully Distributed Net Income$90,590
21%$72,959
19% $222,284
18%$197,129
19%
Non-GAAP Adjusted Fully Distributed Earnings Per Share$0.67
 $0.52
  $1.61
 $1.39
 

























 Three Months Ended December 31,
 2018 2018 2017
 As presented Previous revenue standard Previous revenue standard
 Amount% of Net Revenue Amount% of Net Revenue Amount% of Net Revenue
Certain Non-GAAP Financial Data:        
Adjusted EBITDA$141,997
34% $134,884
31% $133,542
32%
Non-GAAP Adjusted Fully Distributed Net Income$88,397
21% $83,133
19% $69,982
17%
Non-GAAP Adjusted Fully Distributed Earnings Per Share$0.66
  $0.62
  $0.50
 
The following table provides the reconciliation of net income 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,
Three Months Ended March 31,Nine Months Ended March 31,20182017
2018201720182017As presentedPrevious revenue standard
Net income$76,549
$71,338
$156,934
$375,617
$104,811
$99,856
$19,769
Interest and investment loss, net1,236
2,017
4,239
3,026
859
859
1,508
Income tax expense13,288
7,315
257,560
68,080
Income tax expense (benefit)1,804
(354)231,508
Depreciation and amortization18,584
15,102
52,401
43,318
21,683
21,683
17,310
Amortization of purchased intangible assets13,881
14,080
41,597
34,440
13,899
13,899
13,817
EBITDA123,538
109,852
512,731
524,481
143,056
135,943
283,912
Stock-based compensation7,333
7,157
25,241
19,476
7,800
7,800
8,951
Acquisition related expenses1,540
4,330
6,312
11,483
1,354
1,354
1,674
Strategic and financial restructuring expenses1,648
—
1,652
—
Remeasurement of tax receivable agreement liabilities—
2,768
(177,174)(2,954)—
—
(177,174)
ERP implementation expenses40
215
531
1,741
61
61
156
Acquisition related adjustment - revenue65
11,765
257
17,729
Remeasurement gain attributable to acquisition of Innovatix, LLC—
—
—
(204,833)
Loss on disposal of long-lived assets5
725
1,725
2,243
—
—
400
Loss (gain) on FFF put and call rights3,067
(88)18,674
86
Impairment on investments5,002
—
5,002
—
(Gain) loss on FFF put and call rights(10,850)(10,850)15,587
Other expense1
—
—
54
576
576
36
Adjusted EBITDA$142,239
$136,724
$394,951
$369,506
$141,997
$134,884
$133,542
  
Income before income taxes$89,837
$78,653
$414,494
$443,697
$106,615
$99,502
$251,277
Remeasurement gain attributable to acquisition of Innovatix, LLC—
—
—
(204,833)
Equity in net loss (income) of unconsolidated affiliates4,939
(83)(570)(14,789)
Equity in net income of unconsolidated affiliates(1,444)(1,444)(1,257)
Interest and investment loss, net1,236
2,017
4,239
3,026
859
859
1,508
Loss on disposal of long-lived assets5
725
1,725
2,243
—
—
400
Other expense (income)2,593
(2,260)14,486
(3,135)
Other (income) expense(7,199)(7,199)13,356
Operating income98,610
79,052
434,374
226,209
98,831
91,718
265,284
Depreciation and amortization18,584
15,102
52,401
43,318
21,683
21,683
17,310
Amortization of purchased intangible assets13,881
14,080
41,597
34,440
13,899
13,899
13,817
Stock-based compensation7,333
7,157
25,241
19,476
7,800
7,800
8,951
Acquisition related expenses1,540
4,330
6,312
11,483
1,354
1,354
1,674
Strategic and financial restructuring expenses1,648
—
1,652
—
Remeasurement of tax receivable agreement liabilities—
2,768
(177,174)(2,954)
ERP implementation expenses40
215
531
1,741
Acquisition related adjustment - revenue65
11,765
257
17,729
Equity in net income (loss) of unconsolidated affiliates(4,939)83
570
14,789
Impairment on investments5,002
—
5,002
—
Deferred compensation plan income (expense)(112)1,675
3,004
2,778
Other income587
497
1,184
497
Adjusted EBITDA$142,239
$136,724
$394,951
$369,506
 
Segment Adjusted EBITDA: 
Supply Chain Services$135,265
$127,898
$392,930
$364,224
Performance Services36,715
36,535
85,865
87,449
Corporate(29,741)(27,709)(83,844)(82,167)
Adjusted EBITDA$142,239
$136,724
$394,951
$369,506


 Three Months Ended December 31,
 201820182017
 As presentedPrevious revenue standardPrevious revenue standard
Remeasurement of tax receivable agreement liabilities—
—
(177,174)
ERP implementation expenses61
61
156
Equity in net income of unconsolidated affiliates1,444
1,444
1,257
Deferred compensation plan (income) expense(4,235)(4,235)1,577
Other expense, net1,160
1,160
690
Adjusted EBITDA$141,997
$134,884
$133,542
    
Segment Adjusted EBITDA:   
Supply Chain Services$134,079
$137,309
$132,045
Performance Services37,100
26,757
27,929
Corporate(29,182)(29,182)(26,432)
Adjusted EBITDA$141,997
$134,884
$133,542


The following table provides the reconciliation of net income (loss) attributable to stockholders to Non-GAAP Adjusted Fully Distributed Net Income and the reconciliation of the numerator and denominator for earnings (loss) 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 March 31,Nine Months Ended March 31,Three Months Ended December 31,
201820172018201720182017
Net income (loss) attributable to stockholders$(103,537)$(80,601)$514,093
$389,976
As presentedPrevious revenue standard
Net income attributable to stockholders$693,889
$690,099
$281,200
Adjustment of redeemable limited partners' capital to redemption amount127,039
100,506
(511,301)(296,566)(651,709)(649,661)(317,916)
Net income attributable to non-controlling interest in Premier LP53,047
51,433
154,142
282,207
62,631
59,418
56,485
Income tax expense13,288
7,315
257,560
68,080
Income tax expense (benefit)1,804
(354)231,508
Amortization of purchased intangible assets13,881
14,080
41,597
34,440
13,899
13,899
13,817
Stock-based compensation7,333
7,157
25,241
19,476
7,800
7,800
8,951
Acquisition related expenses1,540
4,330
6,312
11,483
1,354
1,354
1,674
Strategic and financial restructuring expenses1,648
—
1,652
—
Remeasurement of tax receivable agreement liabilities

—
2,768
(177,174)(2,954)—
—
(177,174)
ERP implementation expenses40
215
531
1,741
61
61
156
Acquisition related adjustment - revenue65
11,765
257
17,729
Remeasurement gain attributable to acquisition of Innovatix, LLC—
—
—
(204,833)
Loss on disposal of long-lived assets5
725
1,725
2,243
—
—
400
Loss (gain) on FFF put and call rights3,067
(88)18,674
86
Impairment on investments5,002
—
5,002
—
(Gain) loss on FFF put and call rights(10,850)(10,850)15,587
Other expense1
—
—
54
576
576
36
Non-GAAP adjusted fully distributed income before income taxes122,419
119,605
338,311
323,162
119,455
112,342
114,724
Income tax expense on fully distributed income before income taxes(a)
31,829
46,646
116,027
126,033
31,058
29,209
44,742
Non-GAAP Adjusted Fully Distributed Net Income$90,590
$72,959
$222,284
$197,129
$88,397
$83,133
$69,982
  
Reconciliation of denominator for earnings (loss) per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per Share
Reconciliation of denominator for earnings per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per ShareReconciliation of denominator for 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 share53,529
50,525
53,885
49,051
Common shares used for basic and diluted earnings per share59,876
59,876
55,209
Potentially dilutive shares547
465
551
446
1,005
1,005
450
Conversion of Class B common units81,394
88,892
83,818
91,875
72,791
72,791
83,578
Weighted average fully distributed shares outstanding - diluted135,470
139,882
138,254
141,372
133,672
133,672
139,237
(a)Reflects income tax expense at an estimated effective income tax rate of 26% and 34%39% of Non-GAAP adjusted fully distributed income before income taxes for the three and nine months ended MarchDecember 31, 2018 respectively, and 39% for the three and nine months ended March 31, 2017.2017, respectively.


The following table provides the reconciliation of earnings (loss) 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 March 31,Nine Months Ended March 31,Three Months Ended December 31,
201820172018201720182017
Earnings (loss) per share attributable to stockholders$(1.93)$(1.60)$9.54
$7.95
As presentedPrevious revenue standard
Earnings per share attributable to stockholders$11.59
$11.53
$5.09
Adjustment of redeemable limited partners' capital to redemption amount2.37
2.00
(9.49)(6.05)(10.88)(10.85)(5.76)
Net income attributable to non-controlling interest in Premier LP0.99
1.02
2.86
5.75
1.05
0.99
1.02
Income tax expense0.25
0.14
4.78
1.39
Income tax expense (benefit)0.03
(0.01)4.19
Amortization of purchased intangible assets0.26
0.28
0.77
0.70
0.23
0.23
0.25
Stock-based compensation0.14
0.14
0.47
0.40
0.13
0.13
0.16
Acquisition related expenses0.03
0.09
0.12
0.23
0.02
0.02
0.03
Strategic and financial restructuring expenses0.03
—
0.03
—
Remeasurement of tax receivable agreement liabilities—
0.05
(3.29)(0.06)—
—
(3.21)
ERP implementation expenses—
—
0.01
0.04
Acquisition related adjustment - revenue—
0.23
—
0.36
Remeasurement gain attributable to acquisition of Innovatix, LLC—
—
—
(4.18)
Loss on disposal of long-lived assets—
0.01
0.03
0.05
—
—
0.01
Loss (gain) on FFF put and call rights0.06
—
0.35
—
Impairment on investments0.09
—
0.09
—
(Gain) loss on FFF put and call rights(0.18)(0.18)0.28
Other expense0.01
0.01
—
Impact of corporation taxes (a)
(0.60)(0.92)(2.14)(2.57)(0.52)(0.49)(0.80)
Impact of dilutive shares (b)
(1.02)(0.92)(2.52)(2.62)(0.82)(0.76)(0.76)
Non-GAAP Adjusted Fully Distributed Earnings Per Share$0.67
$0.52
$1.61
$1.39
$0.66
$0.62
$0.50
(a)Reflects income tax expense at an estimated effective income tax rate of 26% and 34%39% of Non-GAAP adjusted fully distributed income before income taxes for the three and nine months ended MarchDecember 31, 2018 respectively, and 39% for the three and nine months ended March 31, 2017.2017, respectively.
(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 Nine Months ended MarchEnded December 31, 2018 to 2017
Net Revenue
Net revenue increased $45.5$10.5 million or 12%, to $425.3$421.9 million for the three months ended MarchDecember 31, 2018 from $379.8$411.4 million for the three months ended March 31, 2017. Net revenue increased $175.7 million, or 17%, to $1,227.3 million for the nine months ended March 31, 2018 from $1,051.6 million for the nine months ended MarchDecember 31, 2017.
Net administrative fees revenue increased $17.7$6.4 million, or 12%4%, fromto $165.7 million for the three months ended MarchDecember 31, 2017 to 2018 and $72.9from $159.3 million or 18%, fromfor the ninethree months ended MarchDecember 31, 2017 to2017. Net administrative fees recognized in the three months ended December 31, 2018 under the Previous Revenue Standard totaled $169.8 million. Growth in net administrative fees revenue was primarily driven by aggregate contributions from Innovatix and Essensa, which were acquired in full on December 2, 2016, and further contract penetration of existing members and, to a lesser degree, the impact of conversion of new members to our portfolio. We expect our net administrative fees revenue to grow to the extent our existing members.members increase the utilization of our contracts, additional members convert to our contract portfolio and we increase the number of contracts included in our overall portfolio.
Other services and support revenue decreased $0.3increased $8.6 million, fromor 10%, to $98.6 million for the three months ended MarchDecember 31, 2017 to 2018 remaining relatively flat. Other services and support revenue increased $8.4from $90.0 million or 3% fromfor the ninethree months ended MarchDecember 31, 2017 to 2018,2017. This revenue growth was primarily due todriven by growth in qualitycustomer engagements in applied sciences and analytics services. In addition, cost management consulting services relatedrevenue increased as revenue is now recognized proportionally to performance-based engagements. We also experienced increases in SaaS informatics products subscriptions, applied sciencewhen services and government services related revenue, offset by a decrease in ambulatory reporting revenue. We expect to experience quarterly variability within other services and support revenue due toare provided under the timing ofNew Revenue Standard whereas revenue recognition fromwas deferred in certain consulting services and performance-based engagements in which our revenue is based on a percentage of identified member savings and recognition occurs upon approval and documentation ofcircumstances until certain performance conditions were met under the savings.Previous Revenue Standard. 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.
Product revenue increased $28.1decreased $4.6 million, or 20%3%, fromto $157.5 million for the three months ended MarchDecember 31, 2017 to 2018 and $94.4from $162.1 million or 24%, fromfor the ninethree months ended MarchDecember 31, 20172017. Growth in oncology and respiratory-related drug revenue was primarily offset by the $11.9 million impact of revenue recognition under the New Revenue Standard related to 2018, primarily driven by an increaseour 340B federal discount prescription drug program and to a lesser extent to the direct sourcing business, as well as reimbursement compression in integratedour specialty pharmacy revenues mostly attributable to contributions from expansion and growth in therapy offerings largelybusiness. 340B revenue, as well as distributor fees associated with increased contributions fromdirect sourcing revenue, were historically


Acro Pharmaceuticals, as well as an increase in sales of certain limited distribution drugs dispensed to treat Idiopathic Pulmonary Fibrosis, Oncology and Multiple Sclerosis, partially offset byrecognized on a slight decrease ingross basis under the sales of HIV pharmaceuticals. We also experienced increased sales of direct sourcing products.Previous Revenue Standard but are now recognized on a net basis under the New Revenue Standard. 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 $26.3decreased $1.8 million, or 15%1%, to $203.5$198.7 million for the three months ended MarchDecember 31, 2018 from $177.2$200.5 million for the three months ended March 31, 2017. Cost of revenue increased $103.7 million, or 21%, to $595.5 million for the nine months ended March 31, 2018 from $491.8 million for the nine months ended MarchDecember 31, 2017.
Cost of services revenue decreased $0.3$4.1 million, or 1%9%, from the three months ended March 31, 2017 to 2018, remaining relatively flat. Cost of services revenue increased $6.3 million, or 5% from the nine months ended MarchDecember 31, 2017 to 2018, primarily driven by higherthe impact of the New Revenue Standard on the recognition of certain consulting costs which were historically recognized on a gross basis under the Previous Revenue Standard, but are now recognized on a net basis under the New Revenue Standard. In addition, salaries and benefits expenses resulting from increased staffingdecreased due to support growth and performance-based engagements as well as increased depreciation expense as a result of increased capitalization of internally developed software,lower headcount. These decreases were offset by a decrease in consulting costs.increased amortization of internally-developed software applications. We expect cost of service revenue to increase to the extent we expand our performance improvement collaboratives and consulting services to members, continue to develop new and existing internally-developed software applications and expand into new product offerings.
Cost of product revenue increased $26.6$2.2 million, or 20%1%, from the three months ended March 31, 2017 to 2018 and $97.3 million, or 27% from the nine months ended MarchDecember 31, 2017 to 2018, primarily driven by higher product coststhe growth in revenues associated with theour integrated pharmacy business operations of Acro Pharmaceuticals and due to higher costs driven by growth in direct sourcing sales andsales. This increase was partially offset by the impact of increases in raw materials pricing.the New Revenue Standard on our 340B federal discount prescription drug program. 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 tocould reduce our gross profit as a percentage of our net revenues.revenues depending on the underlying product sales mix.
Other Operating Income
Other operating income increased $171.5decreased $177.2 million from the ninethree months ended MarchDecember 31, 2017 to 2018 as a result of the remeasurement of TRA liabilities in the prior year, 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 $0.3increased $1.5 million to $123.2$124.3 million for the three months ended MarchDecember 31, 2018 from $123.5$122.8 million for the three months ended March 31, 2017, remaining relatively flat. Operating expenses increased $35.4 million, or 10%, to $374.7 million for the nine months ended March 31, 2018 from $339.3 million for the nine months ended MarchDecember 31, 2017.
Selling, General and Administrative
Selling, general and administrative expenses increased $0.3$1.5 million from the three months ended MarchDecember 31, 2017 to 2018, remaining relatively flat,2018. Expenses increased due to information technology purchases, increased amortization of internally-developed software, and $29.3 million, or 10%, from the nine months ended March 31, 2017 to 2018, primarily driven by an increase in salaries and benefits expenses resulting from increased staffing mostly associated with acquisitions and to support growth in our Supply Chain Services segment, an increase in depreciation expense resulting from increased capitalization, an increase in stock-based compensation expense largely driven by an increase in equity award grants in addition to anticipated achievement of certain performance targets, along with an increase in severance expense related to the workforce reduction executed in the current period. These results were partiallyStanson acquisition, offset by a decreasereduction in costs associated with the acquisitions of Innovatix and Acro Pharmaceuticals.deferred compensation plan expense.
Research and Development
Research and development expenses decreased by $0.5 millionremained flat from the three months ended March 31, 2017 to 2018 and $1.2 million from the nine months ended MarchDecember 31, 2017 to 2018. 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 decreased $0.2remained flat, increasing $0.1 million or 1%, from the three months ended MarchDecember 31, 2017 to 2018, remaining relatively flat. Amortization of purchased intangible assets increased $7.2 million, or 21%, from the nine months ended March 31, 2017 to 2018, primarily as a result of additional amortization of purchased intangible assets related to our acquisitions.2018. 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 $8.4increased $21.8 million to $(8.8)$7.8 million for the three months ended MarchDecember 31, 2018 from $(0.4)$(14.0) million for the three months ended MarchDecember 31, 2017, primarily driven by the impairment ofgain on the Company's investment in PharmaPoint, LLC ("PharmaPoint") along with the loss on FFF put and call rights in the current period compared to a loss in the prior period (see Note 4 - Investments and Note 5 - Fair Value Measurements). Other income (expense), net decreased $237.4 million to $(19.9) million for the nine months ended March 31, 2018 from $217.5 million for the nine months ended March 31, 2017, primarily due to the one-time $205.1 million gain recognized from the remeasurement of the 50% equity method investment in Innovatix to fair value upon acquisition of Innovatix on December 2, 2016 (see Note 3 - Business Acquisitions) along withpartially offset by a reduction in equity in net income (loss) 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 rightsdeferred compensation plan assets in the current period and partially offset by a moderate increase in equity in netcompared to income of FFF, which experienced improved performance in the nine months ended March 31, 2018.prior period.


Income Tax Expense
For the three months ended MarchDecember 31, 2018 and 2017, the Companywe recorded tax expense of $13.3$1.8 million and $7.3$231.5 million, respectively, which equates to effective tax rates of 15%2% and 9%, respectively. For the nine months ended March 31, 2018 and 2017, the Company recorded tax expense of $257.6 million and $68.1 million, respectively, which equates to effective tax rates of 62% and 15%92%, respectively. The increasedecrease in effective tax ratesrate is primarily attributable to the remeasurement of deferred tax balances related to the decrease in the U.S. federal corporate income tax rate from 35% to 21%, pursuant to the TCJA enacted on December 22, 2017. The Company'sOur 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 reductions in valuation allowances against deferred tax assets at PHSI. See Note 1314 - Income Taxes for more information.
Net Income Attributable to Non-Controlling Interest
Net income attributable to non-controlling interest increased $1.6decreased $6.1 million, or 3%11%, to $53.0$62.6 million for the three months ended MarchDecember 31, 2018 from $51.4$56.5 million for the three months ended MarchDecember 31, 2017, primarily attributable to an increase in income of Premier LP offset by a decrease in non-controlling ownership percentage in Premier LP to 61%53% from 64%60%, respectively. Net income attributable to non-controlling interest decreased $128.1 million, or 45%, to $154.1 million for the nine months ended March 31, 2018 from $282.2 million for the nine months ended March 31, 2017, primarily attributable to a decrease in income of Premier LP as well as a decrease in non-controlling ownership percentage in Premier LP to 61% from 64%, respectively.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA increased $5.5$8.5 million, or 4%6%, to $142.2$142.0 million for the three months ended MarchDecember 31, 2018 from $136.7$133.5 million for the three months ended MarchDecember 31, 2017 primarily as a result of growth in net administrative fees revenue including contributions related to Innovatix and Essensa, 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 along with an increase in severance expense related to the workforce reduction executed in the current period. Additionally, Adjusted EBITDA for the prior period included an $11.6 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 $25.5 million, or 7%, to $395.0 million for the nine months ended March 31, 2018 from $369.5 million for the nine months ended March 31, 2017, primarily as a result of growth in net administrative fees revenue including contributions related to Innovatix and Essensa, net of a $10.7 million reduction in equity in net income (loss) 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 byand growth in quality and cost management consulting services related to performance based engagements, and an increase in SaaS informatics products subscriptions, applied sciences and government services relatednet administrative fees revenue. These increases were partially offset by increased service and product costs and selling, general and administrative expenses resulting from higher salaries and benefits expenses as a resultdecreases in cost of acquisitions and to support growth along withservices revenue, reimbursement compression in specialty pharmacy, an increase in product related costs in direct sourcing, and increases in expenses related to the Stanson acquisition and information technology purchases.


severance expense related to the workforce reduction executed in the current period. Additionally, Adjusted EBITDA for the prior period included a $17.2 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 Nine Months ended MarchEnded December 31, 2018 to 2017
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,
Three Months Ended March 31,Nine Months Ended March 31,20182017
Supply Chain Services2018201720182017As presentedPrevious revenue standard
Net revenue:  
Net administrative fees$161,612
$143,915
$471,946
$398,962
$165,695
$169,756
$159,343
Other services and support2,899
3,116
8,470
5,962
3,789
4,638
3,421
Services164,511
147,031
480,416
404,924
169,484
174,394
162,764
Products166,234
138,132
480,997
386,639
157,519
169,433
162,101
Net revenue330,745
285,163
961,413
791,563
327,003
343,827
324,865
Cost of revenue:  
Services1,437
1,486
3,524
3,967
100
1,823
1,023
Products156,511
129,929
454,222
356,900
155,534
166,461
153,272
Cost of revenue157,948
131,415
457,746
360,867
155,634
168,284
154,295
Gross profit172,797
153,748
503,667
430,696
171,369
175,543
170,570
Operating expenses:  
Selling, general and administrative40,185
41,984
124,305
112,530
40,343
41,287
42,185
Amortization of purchased intangible assets5,040
5,083
15,057
7,450
5,041
5,041
4,976
Operating expenses45,225
47,067
139,362
119,980
45,384
46,328
47,161
Operating income$127,572
$106,681
$364,305
$310,716
$125,985
$129,215
$123,409
Depreciation and amortization460
633
1,109
1,186
410
410
195
Amortization of purchased intangible assets5,040
5,083
15,057
7,450
5,041
5,041
4,976
Acquisition related expenses1,652
3,887
6,522
12,937
777
777
2,320
Acquisition related adjustment - revenue—
11,617
—
17,249
Equity in net income (loss) of unconsolidated affiliates(4,047)83
1,334
14,789
Impairment on investments4,002
—
4,002
—
Other income (expense)586
(86)601
(103)
Equity in net income of unconsolidated affiliates1,325
1,325
1,130
Other expense541
541
15
Non-GAAP Segment Adjusted EBITDA$135,265
$127,898
$392,930
$364,224
$134,079
$137,309
$132,045
Net Revenue
Supply Chain Services segment net revenue increased $45.5$2.1 million or 16%, to $330.7$327.0 million for the three months ended MarchDecember 31, 2018 from $285.2$324.9 million for the three months ended March 31, 2017. Supply Chain Services segment net revenue increased $169.8 million, or 21%, to $961.4 million for the nine months ended March 31, 2018 from $791.6 million for the nine months ended MarchDecember 31, 2017.
Net administrative fees revenue increased $17.7$6.4 million, or 12%4%, fromto $165.7 million for the three months ended MarchDecember 31, 2017 to 2018 and $72.9from $159.3 million or 18%, fromfor the ninethree months ended MarchDecember 31, 2017 to2017. Net administrative fees recognized in the three months ended December 31, 2018 under the Previous Revenue Standard totaled $169.8 million. Growth in net administrative fees revenue was primarily driven by aggregate contributions from Innovatix and Essensa, which were acquired in full on December 2, 2016, and further contract penetration of existing members and, to a lesser degree, the impact of conversion of new members to our portfolio. We expect our net administrative fees revenue to grow to the extent our existing members.members increase the utilization of our contracts, additional members convert to our contract portfolio and we increase the number of contracts included in our overall portfolio.
Product revenue increased $28.1decreased $4.6 million, or 20%3%, fromto $157.5 million for the three months ended MarchDecember 31, 2017 to 2018 and $94.4from $162.1 million or 24%, fromfor the ninethree months ended MarchDecember 31, 20172017. Growth in oncology and respiratory-related drug revenue was primarily offset by the $11.9 million impact of revenue recognition under the New Revenue Standard related to 2018, primarily driven by an increase in integrated pharmacy revenues mostly attributableour 340B federal discount prescription drug program and to contributions from expansion and growth in therapy offerings largely associated with increased contributions from Acro Pharmaceuticals,a lesser extent to the direct sourcing business, as well as an increasereimbursement compression in sales of certain limited distribution drugs dispensed to treat Idiopathic Pulmonary Fibrosis, Oncology and Multiple Sclerosis, partially offset by a slight decrease in the sales of HIV pharmaceuticals. We also


experienced increased sales ofour specialty pharmacy business. 340B revenue, as well as distributor fees associated with direct sourcing products.revenue, were historically recognized on a gross basis under the Previous Revenue Standard but are now recognized on a net basis under the New Revenue Standard. 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 as additional members begin to utilize our programs.
Cost of Revenue
Supply Chain Services segment cost of revenue increased $26.5$1.3 million or 20%, to $157.9$155.6 million for the three months ended MarchDecember 31, 2018 from $131.4$154.3 million for the three months ended March 31, 2017. Supply Chain Services segment cost of revenue increased $96.9 million, or 27%, to $457.7 million for the nine months ended March 31, 2018 from $360.9 million for the nine months ended MarchDecember 31, 2017.
Cost of product revenue increased $26.6$2.2 million, or 20%1%, from the three months ended MarchDecember 31, 2017 to 2018 and $97.3 million, or 27%, from the nine months ended March 31, 2017 to 2018, primarily driven by higher product costs2018. Growth in revenues associated with theour integrated pharmacy business operations of Acro Pharmaceuticals and due to higher costs driven by growth in direct sourcing sales andresulted in increased cost of product revenue, partially offset by the impact of increases in raw materials pricing.the New Revenue Standard on our 340B federal discount prescription drug program. 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 could reduce our gross profit as a percentage of our net revenues depending on the underlying product sales mix.
Operating Expenses
Supply Chain Services segment operating expenses decreased $1.8 million, or 4%, to $45.2$45.4 million for the three months ended MarchDecember 31, 2018 from $47.1$47.2 million for the three months ended March 31, 2017. Supply Chain Services segment operating expenses increased $19.4 million, or 16%, to $139.4 million for the nine months ended March 31, 2018 from $120.0 million for the nine months ended MarchDecember 31, 2017.
Selling, general and administrative expenses decreased $1.8$1.9 million, or 4%5%, from the three months ended MarchDecember 31, 2017 to 2018 primarily driven by a decreasethe impact of costs incurred in coststhe prior year associated with the acquisitionsacquisition of Innovatix, and Essensa. Selling,LLC, along with decreased general and administrativeoverhead expenses increased $11.8 million, or 10%, fromin the nine months ended March 31, 2017 to 2018, 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, partially offset by a decrease in costs associated with the acquisitions of Innovatix and Essensa.current year.
Amortization of purchased intangible assets remained flat at $5.0 million for both the three months ended MarchDecember 31, 2017 and 2018 and increased $7.6 million from the nine months ended March 31, 2017 to 2018, primarily as a result of additional amortization of purchased intangible assets related to our acquisitions.2017.
Segment Adjusted EBITDA
Segment Adjusted EBITDA increased $7.4$2.1 million or 6%, to $135.3$134.1 million for the three months ended MarchDecember 31, 2018 from $127.9$132.0 million for the three months ended MarchDecember 31, 2017. This increase was primarily a result of growthGrowth in net administrative fees revenue including contributions related to Innovatix and Essensa, along with an increase in product revenue. These increases were partially offset by increased product costs anddecreased 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 an $11.6 million non-cash adjustment for cash collections not recognized as revenue on a GAAP basis due to a purchase accounting adjustment.
Segment Adjusted EBITDA increased $28.7 million, or 8%, to $392.9 million for the nine months ended March 31, 2018 from $364.2 million for the nine months ended March 31, 2017. This increase was primarily a result of growth in net administrative fees revenue including contributions related to Innovatix and Essensa, net of the reduction in equity in net income (loss) 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 $17.2 million non-cash adjustment for cash collections not recognized as revenue on a GAAP basis due to a purchase accounting adjustment.reimbursement compression in specialty pharmacy.


Performance Services - Comparison of the Three and Nine Months ended MarchEnded December 31, 2018 to 2017
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,
Three Months Ended March 31,Nine Months Ended March 31,20182017
Performance Services2018201720182017As presentedPrevious revenue standard
Net revenue:  
Other services and support$94,593
$94,640
$265,887
$260,012
$94,854
$85,727
$86,533
Net revenue94,593
94,640
265,887
260,012
94,854
85,727
86,533
Cost of revenue:  
Services45,600
45,833
137,705
130,898
43,089
43,979
46,233
Cost of revenue45,600
45,833
137,705
130,898
43,089
43,979
46,233
Gross profit48,993
48,807
128,182
129,114
51,765
41,748
40,300
Operating expenses:  
Selling, general and administrative27,746
24,811
86,054
75,383
33,563
33,889
26,397
Research and development292
547
1,099
1,706
292
292
335
Amortization of purchased intangible assets8,841
8,996
26,540
26,989
8,858
8,858
8,841
Operating expenses36,879
34,354
113,693
104,078
42,713
43,039
35,573
Operating income$12,114
$14,453
$14,489
$25,036
Operating income (loss)$9,052
$(1,291)$4,727
Depreciation and amortization15,701
12,494
44,553
36,360
18,459
18,459
14,793
Amortization of purchased intangible assets8,841
8,996
26,540
26,989
8,858
8,858
8,841
Acquisition related expenses(112)443
(209)(1,454)577
577
(646)
Acquisition related adjustment - revenue64
148
257
480
Equity in net income (loss) of unconsolidated affiliates(892)—
(765)—
Impairment on investments1,000
—
1,000
—
Other income (expense)(1)1
—
38
Equity in net income of unconsolidated affiliates119
119
127
Other expense35
35
87
Non-GAAP Segment Adjusted EBITDA$36,715
$36,535
$85,865
$87,449
$37,100
$26,757
$27,929
Net Revenue
Other services and support revenue remained flat at $94.6increased $8.4 million, or 10%, to $94.9 million for the three months ended MarchDecember 31, 2017 and 2018. Other services and support revenue increased $5.9 million, or 2%, to $265.92018 from $86.5 million for the ninethree months ended MarchDecember 31, 2018 from $260.0 million for the nine months ended March 31, 20172017. This increase was primarily due to growth in quality anddriven by increased cost management consulting services relatedrevenue as revenue is now recognized proportionally to performance-based engagements. We also experienced increases in SaaS informatics products subscriptions, applied sciencewhen services and government services related revenue, offset by a decrease in ambulatory reporting revenue.
We expect to experience quarterly variability in revenue generated from our Performance Services segment due toare provided under the timing ofNew Revenue Standard whereas revenue recognition fromwas deferred in certain consulting services and performance-basedcircumstances until certain performance conditions were met under the Previous Revenue Standard . In addition, revenue growth was driven by growth in customer engagements in which our revenue is based on a percentage of identified member savingsapplied sciences and recognition occurs upon approval and documentation of the savings.analytics services. 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 decreased $0.2$3.1 million, or 1%7%, to $45.6$43.1 million for the three months ended MarchDecember 31, 2018 from $45.8$46.2 million for the three months ended March 31, 2017, remaining relatively flat. Cost of revenue increased $6.8 million, or 5%, to $137.7 million for the nine months ended March 31, 2018 from $130.9 million for the nine months ended MarchDecember 31, 2017 primarily driven by highera decrease in salaries and benefits expenses resulting from increased staffingdue to support growth and performance-based engagements as well as increased depreciation expense aslower headcount. In addition, cost of revenue decreased due to the impact of the New Revenue Standard on the recognition of certain consulting costs which were historically recognized on a result of increased capitalization of internally developed software,gross basis under the Previous Revenue Standard but are now recognized on a net basis under the New Revenue Standard. These decreases were offset by a decrease inincreased amortization of internally-developed software applications. We expect cost of service revenue to increase to the extent we expand our performance improvement collaboratives and consulting costs.


services to members, continue to develop new and existing internally-developed software applications and expand into new product offerings.
Operating Expenses
OperatingPerformance Services segment operating expenses increased $2.5$7.1 million, or 7%20%, to $36.9$42.7 million for the three months ended MarchDecember 31, 2018 from $34.4$35.6 million for the three months ended MarchDecember 31, 2017. Operating expenses increased $9.6 million, or 9%, to $113.7 million for the nine months ended March 31, 2018 from $104.1 million for the nine months ended March 31, 2017.


Selling, general and administrative expenses increased $2.9$7.2 million, or 12%27%, from the three months ended MarchDecember 31, 2017 to 2018, and $10.7 million, or 14%, from the nine months ended March 31, 2017 to 2018, primarily driven by depreciation expense resulting from increased capitalizationincreases in salaries and benefits, amortization of internally developedinternally-developed software, as well as an increase in severance expense related toand expenses associated with the workforce reduction executed in the current period.Stanson acquisition.
Amortization of purchased intangible assets decreased $0.2 million, or 2%,remained flat from the three months ended MarchDecember 31, 2017 to 2018 and $0.4 million, or 2%, from the nine months ended March 31, 2017 to 2018, remaining relatively flat.2018.
Segment Adjusted EBITDA
Segment Adjusted EBITDA increased $0.2$9.2 million to $36.7$37.1 million for the three months ended MarchDecember 31, 2018 from $36.5$27.9 million for the three months ended March 31, 2017, remaining relatively flat. Segment Adjusted EBITDA decreased $1.6 million, or 2%, to $85.9 million for the nine months ended March 31, 2018 from $87.4 million for the nine months ended MarchDecember 31, 2017. This decreaseincrease is primarily a result of an increaseincreased other services and support revenue offset by increases in severance expense related to the workforce reduction executed in the current periodselling, general and was also impacted on a comparable basis due to higher revenue recognition from performance-based engagements in the prior year. Additionally, the Company made investments in staff and infrastructure to support growth involving primarily larger and more complex engagements that include significant performance-based consulting services initiatives, which also resulted in increased salaries and benefitsadministrative expenses.
Corporate - Comparison of the Three and Nine Months ended MarchEnded December 31, 2018 to 2017
The following table summarizes corporate expenses and Non-GAAP Adjusted EBITDA for the periods presented (in thousands):
Three Months Ended March 31,Nine Months Ended March 31,Three Months Ended December 31,
Corporate201820172018201720182017
Other operating income:  
Remeasurement of tax receivable agreement liabilities$—
$—
$177,174
$5,722
$—
$177,174
Other operating income—
—
177,174
5,722
—
177,174
Operating expenses:  
Selling, general and administrative41,075
41,874
121,588
114,643
$36,206
$40,038
Research and development—
208
6
622
—
(10)
Operating expenses$41,075
$42,082
$121,594
$115,265
36,206
40,028
Operating income (loss)$(41,075)$(42,082)$55,580
$(109,543)
Operating (loss) income$(36,206)$137,146
Depreciation and amortization2,424
1,974
6,739
5,772
2,814
2,323
Stock-based compensation7,333
7,157
25,241
19,476
7,800
8,951
Strategic and financial restructuring expenses1,648
—
1,652
—
Remeasurement of tax receivable agreement liabilities—
2,768
(177,174)(2,954)—
(177,174)
ERP implementation expenses40
215
531
1,741
61
156
Deferred compensation plan income (expense)(112)1,675
3,004
2,778
Deferred compensation plan (income) expense(4,235)1,577
Other income1
584
583
563
584
589
Non-GAAP Adjusted EBITDA$(29,741)$(27,709)$(83,844)$(82,167)$(29,182)$(26,432)
Other Operating Income
Other operating income increased $171.5decreased $177.2 million from the ninethree months ended MarchDecember 31, 2017 to 2018 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
OperatingCorporate operating expenses decreased $1.0$3.8 million, or 2%9%, to $41.1$36.2 million for the three months ended MarchDecember 31, 2018 from $42.1$40.0 million for the three months ended March 31, 2017, remaining relatively flat. Operating expenses increased $6.3 million, or 5%, to $121.6 million for the nine months ended March 31, 2018 from $115.3 million for the nine months ended MarchDecember 31, 2017.
Selling, general and administrative expenses decreased $0.8$3.8 million, or 2%9%, from the three months ended March 31, 2017 to 2018, remaining relatively flat, and increased $6.9 million, or 6%, from the nine months ended MarchDecember 31, 2017 to 2018 primarily driven by an increasedue to a reduction in deferred compensation plan expense and a decrease in stock-based compensation expense largely associated with anticipated achievement of certain performance targets.targets, partially offset by increased information technology purchases.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA decreased by $2.0$2.8 million, or 7%11%, from the three months ended MarchDecember 31, 2017 to 2018 primarily due to increased information technology purchases.


Results of Operations for the Six Months Ended December 31, 2018 and decreased $1.72017
The following table summarizes our results of operations for the six months ended December 31, 2018 and 2017 (in thousands, except per share data):
 Six Months Ended December 31,
 2018 2018 2017
 As presented Previous revenue standard Previous revenue standard
 Amount% of Net Revenue Amount% of Net Revenue Amount% of Net Revenue
Net revenue:        
Net administrative fees$327,695
40% $316,572
38% $310,334
39%
Other services and support186,719
22% 173,062
21% 176,864
22%
Services514,414
62% 489,634
60% 487,198
61%
Products308,989
38% 332,865
40% 314,764
39%
Net revenue823,403
100% 822,499
100% 801,962
100%
Cost of revenue: 
  
  
Services86,561
11% 91,107
11% 94,191
12%
Products301,155
37% 323,453
39% 297,712
37%
Cost of revenue387,716
47% 414,560
50% 391,903
49%
Gross profit435,687
53% 407,939
50% 410,059
51%
Other operating income: 
  
  
Remeasurement of tax receivable agreement liabilities—
—% —
—% 177,174
22%
Other operating income—
—% —
—% 177,174
22%
Operating expenses: 
  
  
Selling, general and administrative215,982
26% 218,363
27% 222,941
28%
Research and development632
—% 632
—% 813
—%
Amortization of purchased intangible assets27,537
3% 27,537
3% 27,715
3%
Operating expenses244,151
30% 246,532
30% 251,469
31%
Operating income191,536
23% 161,407
20% 335,764
42%
Other income (expense), net7,845
1% 7,845
1% (11,107)(1)%
Income before income taxes199,381
24% 169,252
21% 324,657
40%
Income tax expense12,597
2% 8,680
1% 244,272
30%
Net income186,784
23% 160,572
20% 80,385
10%
Net income attributable to non-controlling interest in Premier LP(117,744)(14)% (101,158)(12)% (101,095)(13)%
Adjustment of redeemable limited partners' capital to redemption amount(56,484)nm (69,104)nm 638,340
nm
Net income (loss) attributable to stockholders$12,556
nm $(9,690)nm $617,630
nm
         
Weighted average shares outstanding:        
Basic56,548
  56,548
  54,059
 
Diluted57,584
  56,548
  139,641
 
         
Earnings (loss) per share attributable to stockholders:       
Basic$0.22
  $(0.17)  $11.43
 
Diluted (a)
$0.22
  $(0.17)  $0.36
 
nm = Not meaningful


(a)We have corrected prior period information within the current period financial statements related to a specific component used in calculating the tax effect on Premier, Inc. net income for purposes of diluted earnings per share. Diluted earnings (loss) per share for the six months ended December 31, 2017 was previously stated at ($1.30) per share and has been corrected to $0.36 per share. We believe the correction is immaterial and the corrected amount had no impact on our overall financial condition, results of operations or cash flows.
The following table provides certain Non-GAAP financial measures for the six months ended December 31, 2018 and 2017 (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.
 Six Months Ended December 31,
 2018 2018 2017
 As presented Previous revenue standard Previous revenue standard
 Amount% of Net Revenue Amount% of Net Revenue Amount% of Net Revenue
Certain Non-GAAP Financial Data:        
Adjusted EBITDA$280,618
34% $250,489
30% $252,713
32%
Non-GAAP Adjusted Fully Distributed Net Income$175,292
21% $152,996
19% $131,695
16%
Non-GAAP Adjusted Fully Distributed Earnings Per Share$1.31
  $1.14
  $0.94
 
The following table provides the reconciliation of net income 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.
 Six Months Ended December 31,
 201820182017
 As presentedPrevious revenue standardPrevious revenue standard
Net income$186,784
$160,572
$80,385
Interest and investment loss, net1,547
1,547
3,003
Income tax expense12,597
8,680
244,272
Depreciation and amortization42,190
42,190
33,817
Amortization of purchased intangible assets27,537
27,537
27,715
EBITDA270,655
240,526
389,192
Stock-based compensation14,137
14,137
17,908
Acquisition related expenses1,764
1,764
4,773
Remeasurement of tax receivable agreement liabilities—
—
(177,174)
ERP implementation expenses387
387
491
Loss on disposal of long-lived assets—
—
1,720
(Gain) loss on FFF put and call rights(7,567)(7,567)15,607
Other expense1,242
1,242
196
Adjusted EBITDA$280,618
$250,489
$252,713
    
Income before income taxes$199,381
$169,252
$324,657
Equity in net income of unconsolidated affiliates(4,134)(4,134)(5,509)
Interest and investment loss, net1,547
1,547
3,003
Loss on disposal of long-lived assets—
—
1,720
Other (income) expense(5,258)(5,258)11,893
Operating income191,536
161,407
335,764
Depreciation and amortization42,190
42,190
33,817


 Six Months Ended December 31,
 201820182017
 As presentedPrevious revenue standardPrevious revenue standard
Amortization of purchased intangible assets27,537
27,537
27,715
Stock-based compensation14,137
14,137
17,908
Acquisition related expenses1,763
1,763
4,773
Remeasurement of tax receivable agreement liabilities—
—
(177,174)
ERP implementation expenses387
387
491
Equity in net income of unconsolidated affiliates4,134
4,134
5,509
Deferred compensation plan (income) expense(2,899)(2,899)3,116
Other expense, net1,833
1,833
794
Adjusted EBITDA$280,618
$250,489
$252,713
    
Segment Adjusted EBITDA:   
Supply Chain Services$269,482
$257,113
$257,665
Performance Services67,675
49,915
49,150
Corporate(56,539)(56,539)(54,102)
Adjusted EBITDA$280,618
$250,489
$252,713


The following table provides the reconciliation of net income (loss) attributable to stockholders to Non-GAAP Adjusted Fully Distributed Net Income and the reconciliation of the numerator and denominator for earnings (loss) per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per Share for the six months ended December 31, 2018 and 2017 (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.
 Six Months Ended December 31,
 201820182017
 As presentedPrevious revenue standardPrevious revenue standard
Net income (loss) attributable to stockholders$12,556
$(9,690)$617,630
Adjustment of redeemable limited partners' capital to redemption amount56,484
69,104
(638,340)
Net income attributable to non-controlling interest in Premier LP117,744
101,158
101,095
Income tax expense12,597
8,680
244,272
Amortization of purchased intangible assets27,537
27,537
27,715
Stock-based compensation14,137
14,137
17,908
Acquisition related expenses1,764
1,764
4,773
Remeasurement of tax receivable agreement liabilities—
—
(177,174)
ERP implementation expenses387
387
491
Loss on disposal of long-lived assets—
—
1,720
(Gain) loss on FFF put and call rights(7,567)(7,567)15,607
Other expense1,242
1,242
196
Non-GAAP adjusted fully distributed income before income taxes236,881
206,752
215,893
Income tax expense on fully distributed income before income taxes (a)
61,589
53,756
84,198
Non-GAAP Adjusted Fully Distributed Net Income$175,292
$152,996
$131,695
    
Reconciliation of denominator for earnings (loss) 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 share56,548
56,548
54,059
Potentially dilutive shares1,036
1,036
553
Conversion of Class B common units76,293
76,293
85,029
Weighted average fully distributed shares outstanding - diluted133,877
133,877
139,641
(a)Reflects income tax expense at an estimated effective income tax rate of 26% and 39% of Non-GAAP adjusted fully distributed income before income taxes for the three months ended December 31, 2018 and 2017, respectively.


The following table provides the reconciliation of earnings (loss) per share attributable to stockholders to Non-GAAP Adjusted Fully Distributed Earnings per Share for the six months ended December 31, 2018 and 2017. 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.
 Six Months Ended December 31,
 201820182017
 As presentedPrevious revenue standardPrevious revenue standard
Earnings (loss) per share attributable to stockholders$0.22
$(0.17)$11.43
Adjustment of redeemable limited partners' capital to redemption amount1.00
1.22
(11.81)
Net income attributable to non-controlling interest in Premier LP2.08
1.79
1.87
Income tax expense0.22
0.15
4.52
Amortization of purchased intangible assets0.49
0.49
0.51
Stock-based compensation0.25
0.25
0.33
Acquisition related expenses0.03
0.03
0.09
Remeasurement of tax receivable agreement liabilities—
—
(3.28)
ERP implementation expenses0.01
0.01
0.01
Loss on disposal of long-lived assets—
—
0.03
(Gain) loss on FFF put and call rights(0.13)(0.13)0.29
Other expense0.02
0.02
—
Impact of corporation taxes (a)
(1.09)(0.95)(1.56)
Impact of dilutive shares (b)
(1.79)(1.57)(1.49)
Non-GAAP Adjusted Fully Distributed Earnings Per Share$1.31
$1.14
$0.94
(a)Reflects income tax expense at an estimated effective income tax rate of 26% and 39% of Non-GAAP adjusted fully distributed income before income taxes for the three months ended December 31, 2018 and 2017, respectively.
(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 Six Months Ended December 31, 2018 to 2017
Net Revenue
Net revenue increased $21.4 million to $823.4 million for the six months ended December 31, 2018 from $802.0 million for the six months ended December 31, 2017.
Net administrative fees revenue increased $17.4 million, or 6%, to $327.7 million for the six months ended December 31, 2018 from $310.3 million for the six months ended December 31, 2017 primarily due to the impact of revenue recognition under the New Revenue Standard. Net administrative fees recognized in the six months ended December 31, 2018 under the Previous Revenue Standard increased $6.3 million, or 2%, to $316.6 million. The increase was primarily driven by further contract penetration of existing members and, to a lesser degree, the impact of conversion of new members to our portfolio, partially offset by higher recoveries in the prior year. We expect our net administrative fees revenue to grow to the extent our existing members increase the utilization of our contracts, additional members convert to our contract portfolio and we increase the number of contracts included in our overall portfolio.
Other services and support revenue increased $9.8 million, or 6%, to $186.7 million for the six months ended December 31, 2018 from $176.9 million for the six months ended December 31, 2017. This revenue growth was primarily driven by applied sciences and cost management consulting services, as revenue is now recognized proportionally to when services are provided under the New Revenue Standard whereas revenue recognition was deferred in certain circumstances until certain performance conditions were met under the Previous Revenue Standard. 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.
Product revenue decreased $5.8 million, or 2%, to $309.0 million for the six months ended December 31, 2018 from $314.8 million for the six months ended December 31, 2017. Growth in oncology and respiratory-related drug revenue was primarily offset by


the $23.9 million impact of revenue recognition under the New Revenue Standard related to our 340B federal discount prescription drug program and to a lesser extent to the direct sourcing business, as well as reimbursement compression in our specialty pharmacy business. 340B revenue, as well as distributor fees associated with direct sourcing revenue, were historically recognized on a gross basis under the Previous Revenue Standard but are now recognized on a net basis under the New Revenue Standard. 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 decreased $4.2 million, or 1% to $387.7 million for the six months ended December 31, 2018 from $391.9 million for the six months ended December 31, 2017.
Cost of services revenue decreased $7.6 million, or 8%, from the ninesix months ended MarchDecember 31, 2017 to 2018, primarily driven by a decrease in salaries and benefits due to headcount reductions and the impact of the New Revenue Standard on the recognition of certain consulting expenses which were historically recognized on a gross basis under the Previous Revenue Standard, but are not recognized on a net basis under the New Revenue Standard. These decreases were partially offset by increased amortization of internally-developed software applications. We expect cost of service revenue to increase to the extent we expand our performance improvement collaboratives and consulting services to members, continue to develop new and existing internally-developed software applications and expand into new product offerings.
Cost of product revenue increased $3.5 million, or 1%, from the six months ended December 31, 2017 to 2018, primarily driven by the growth in revenues associated with our integrated pharmacy business and direct sourcing sales. This increase was partially offset by the impact of the New Revenue Standard on our 340B federal discount prescription drug program. 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 could reduce our gross profit as a percentage of our net revenues depending on the underlying product sales mix.
Other Operating Income
Other operating income decreased $177.2 million from the six months ended December 31, 2017 to 2018 as a result of the remeasurement of TRA liabilities in the prior year, 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 $7.3 million to $244.2 million for the six months ended December 31, 2018 from $251.5 million for the six months ended December 31, 2017.
Selling, General and Administrative
Selling, general and administrative expenses decreased $6.9 million from the six months ended December 31, 2017 to 2018 primarily due to a reduction in deferred compensation plan expense and the impact of the New Revenue Standard on distributor fees associated with direct sourcing revenue. These decreases were partially offset by increased amortization of internally-developed software applications, higher bad debt expense in the current year, expenses related to the Stanson acquisition and increased information technology purchases.
Research and Development
Research and development expenses decreased $0.2 million from the six months ended December 31, 2017 to 2018. 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 remained flat, decreasing $0.2 million from the six months ended December 31, 2017 to 2018. 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 $18.9 million to $7.8 million for the six months ended December 31, 2018 from $(11.1) million for the six months ended December 31, 2017, primarily driven by the gain on the FFF put and call rights in the current period compared to a loss in the prior period (see Note 5 - Fair Value Measurements), partially offset by a loss on deferred compensation plan assets in the current period compared to income in the prior period.
Income Tax Expense
For the six months ended December 31, 2018 and 2017, we recorded tax expense of $12.6 million and $244.3 million, respectively, which equates to effective tax rates of 6% and 75%, respectively. The decrease in effective tax rate is primarily attributable to the remeasurement of deferred tax balances related to the decrease in the U.S. federal corporate income tax rate from 35% to 21%, pursuant to the TCJA enacted on December 22, 2017. Our effective tax rate differs from income taxes recorded at the statutory income tax rate primarily due to partnership income not subject to federal, state and local income taxes and reductions in valuation allowances against deferred tax assets at PHSI. See Note 14 - Income Taxes for more information.
Net Income Attributable to Non-Controlling Interest
Net income attributable to non-controlling interest increased $16.6 million, or 16.4%, to $117.7 million for the six months ended December 31, 2018 from $101.1 million for the six months ended December 31, 2017, primarily attributable to an increase in professionalincome of Premier LP offset by a decrease in non-controlling ownership percentage in Premier LP to 53% from 60%, respectively.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA increased $27.9 million, or 11%, to $280.6 million for the six months ended December 31, 2018 from $252.7 million for the six months ended December 31, 2017, primarily as a result of increased other services and support revenue, growth in net administrative fees revenue and decreases in cost of services revenue. These increases were partially offset by reimbursement compression in specialty pharmacy and an increase in product related costs in direct sourcing.


Supply Chain Services - Comparison of the Six Months Ended December 31, 2018 to 2017
The following table summarizes our results of operations and Non-GAAP Segment Adjusted EBITDA in the Supply Chain Services segment for the six months ended December 31, 2018 and 2017 (in thousands):
 Six Months Ended December 31, 2018
 201820182017
Supply Chain ServicesAs presentedPrevious revenue standardPrevious revenue standard
Net revenue:   
Net administrative fees$327,695
$316,572
$310,334
Other services and support6,133
8,262
5,570
Services333,828
324,834
315,904
Products308,989
332,865
314,764
Net revenue642,817
657,699
630,668
Cost of revenue:   
Services123
3,164
2,086
Products301,155
323,453
297,712
Cost of revenue301,278
326,617
299,798
Gross profit341,539
331,082
330,870
Operating expenses:   
Selling, general and administrative79,141
81,053
84,120
Amortization of purchased intangible assets10,081
10,081
10,017
Operating expenses89,222
91,134
94,137
Operating income$252,317
$239,948
$236,733
Depreciation and amortization988
988
649
Amortization of purchased intangible assets10,081
10,081
10,017
Acquisition related expenses1,003
1,003
4,870
Equity in net income of unconsolidated affiliates3,921
3,921
5,381
Other expense1,172
1,172
15
Non-GAAP Segment Adjusted EBITDA$269,482
$257,113
$257,665
Net Revenue
Supply Chain Services segment net revenue increased $12.1 million to $642.8 million for the six months ended December 31, 2018 from $630.7 million for the six months ended December 31, 2017.
Net administrative fees revenue increased $17.4 million, from the six months ended December 31, 2017 to 2018 primarily due to the impact of revenue recognition under the New Revenue Standard. Net administrative fees recognized in the six months ended December 31, 2018 under the Previous Revenue Standard increased $6.3 million, or 2%, to $316.6 million. The increase was primarily driven by further contract penetration of existing members and, to a lesser degree, the impact of conversion of new members to our portfolio, partially offset by higher recoveries in the prior year. We expect our net administrative fees revenue to grow to the extent our existing members increase the utilization of our contracts, additional members convert to our contract portfolio and we increase the number of contracts included in our overall portfolio.
Product revenue for the six months ended December 31, 2018 totaled $309.0 million, compared with $314.8 million for the six months ended December 31, 2017. Growth in oncology and respiratory-related drug revenue was primarily offset by the $23.9 million impact of revenue recognition under the New Revenue Standard related to our 340B federal discount prescription drug program and to a lesser extent to the direct sourcing business, as well as reimbursement compression in our specialty pharmacy business. 340B revenue, as well as distributor fees associated with direct sourcing revenue, were historically recognized on a gross basis under the Previous Revenue Standard but are now recognized on a net basis under the New Revenue Standard. 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 $1.5 million, to $301.3 million for the six months ended December 31, 2018 from $299.8 million for the six months ended December 31, 2017.
Cost of product revenue increased $3.5 million, or 1%, from the six months ended December 31, 2017 to 2018, primarily driven by the growth in revenues associated with our integrated pharmacy business and direct sourcing sales. This increase was partially offset by the impact of the New Revenue Standard on our 340B federal discount prescription drug program. 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 could reduce our gross profit as a percentage of our net revenues depending on the underlying product sales mix.
Operating Expenses
Supply Chain Services segment operating expenses decreased $4.9 million, or 5%, to $89.2 million for the six months ended December 31, 2018 from $94.1 million for the six months ended December 31, 2017.
Selling, general and administrative expenses decreased $5.0 million, or 6%, from the six months ended December 31, 2017 to 2018 primarily driven by the impact of the New Revenue Standard on distributor fees associated with direct sourcing revenue along with decreased general overhead expenses in the current year.
Amortization of purchased intangible assets remained flat, increasing $0.1 million from the six months ended December 31, 2017 to 2018.
Segment Adjusted EBITDA
Segment Adjusted EBITDA increased $11.8 million, or 5%, to $269.5 million for the six months ended December 31, 2018 from $257.7 million for the six months ended December 31, 2017. This increase was primarily a result of growth in net administrative fees revenue partially offset by a decrease in equity in net income of unconsolidated affiliates, an increase in reimbursement compression, and increased product costs.


Performance Services - Comparison of the Six Months Ended December 31, 2018 to 2017
The following table summarizes our results of operations and Non-GAAP Segment Adjusted EBITDA in the Performance Services segment for the six months ended December 31, 2018 and 2017 (in thousands):
 Six Months Ended December 31,
 201820182017
Performance ServicesAs presentedPrevious revenue standardPrevious revenue standard
Net revenue:   
Other services and support180,586
164,800
171,294
Net revenue180,586
164,800
171,294
Cost of revenue:   
Services86,438
87,943
92,105
Cost of revenue86,438
87,943
92,105
Gross profit94,148
76,857
79,189
Operating expenses:   
Selling, general and administrative62,668
63,137
58,308
Research and development628
628
807
Amortization of purchased intangible assets17,456
17,456
17,699
Operating expenses80,752
81,221
76,814
Operating income (loss)$13,396
$(4,364)$2,375
Depreciation and amortization35,775
35,775
28,853
Amortization of purchased intangible assets17,456
17,456
17,699
Acquisition related expenses761
761
(97)
Equity in net income of unconsolidated affiliates213
213
127
Other expense74
74
193
Non-GAAP Segment Adjusted EBITDA$67,675
$49,915
$49,150
Net Revenue
Other services and support revenue increased $9.3 million, or 5%, to $180.6 million for the six months ended December 31, 2018 from $171.3 million for the six months ended December 31, 2017. Revenue growth was primarily driven by applied sciences and cost management consulting services, as revenue is now recognized proportionally to when services are provided under the New Revenue Standard whereas revenue recognition was deferred in certain strategiccircumstances until certain performance conditions were met under the Previous Revenue Standard. 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.
Cost of Revenue
Performance Services segment cost of revenue decreased $5.7 million, or 6%, to $86.4 million for the six months ended December 31, 2018 from $92.1 million for the six months ended December 31, 2017, primarily driven by a decrease in salaries and benefits due to headcount reductions and the impact of the New Revenue Standard on the recognition of certain consulting engagement.expenses which were historically recognized on a gross basis under the Previous Revenue Standard, but are not recognized on a net basis under the New Revenue Standard. These decreases were partially offset by increased amortization of internally-developed software applications. We expect cost of service revenue to increase to the extent we expand our performance improvement collaboratives and consulting services to members, continue to develop new and existing internally-developed software applications and expand into new product offerings.
Operating Expenses
Performance Services segment operating expenses increased $4.0 million, or 5%, to $80.8 million for the six months ended December 31, 2018 from $76.8 million for the six months ended December 31, 2017.


Selling, general and administrative expenses increased $4.4 million, or 8%, from the six months ended December 31, 2017 to 2018 primarily driven by increased amortization of internally-developed software applications and higher bad debt expense in the current year.
Amortization of purchased intangible assets decreased $0.2 million, or 1%, from the six months ended December 31, 2017 to 2018.
Segment Adjusted EBITDA
Segment Adjusted EBITDA increased $18.5 million to $67.7 million for the six months ended December 31, 2018 from $49.2 million for the six months ended December 31, 2017. This increase is primarily a result of increased other services and support revenue and decreased cost of services revenue.
Corporate - Comparison of the Six Months Ended December 31, 2018 to 2017
The following table summarizes corporate expenses and Non-GAAP Adjusted EBITDA for the six months ended December 31, 2018 and 2017 (in thousands):
 Six Months Ended December 31,
Corporate20182017
Other operating income:  
Remeasurement of tax receivable agreement liabilities$—
$177,174
Other operating income—
177,174
Operating expenses:  
Selling, general and administrative74,173
80,513
Research and development4
6
Operating expenses74,177
80,519
Operating (loss) income$(74,177)$96,655
Depreciation and amortization5,427
4,315
Stock-based compensation14,137
17,908
Remeasurement of tax receivable agreement liabilities—
(177,174)
ERP implementation expenses387
491
Deferred compensation plan (income) expense(2,899)3,115
Other income586
588
Non-GAAP Adjusted EBITDA$(56,539)$(54,102)
Operating Expenses
Corporate operating expenses decreased $6.3 million, or 8%, to $74.2 million for the six months ended December 31, 2018 from $80.5 million for the six months ended December 31, 2017.
Selling, general and administrative expenses decreased $6.3 million, or 8%, from the six months ended December 31, 2017 to 2018, primarily driven by a decrease in stock-based compensation expense associated with anticipated achievement of certain performance targets, partially offset by increased information technology purchases.
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted EBITDA decreased $2.4 million, or 4%, from the six months ended December 31, 2017 to 2018 primarily due to increased information technology purchases.


Off-Balance Sheet Arrangements
As of MarchDecember 31, 2018, 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, capital expenditures, discretionary cash settlement of Class B common unit exchanges under the Exchange Agreement, repurchases of Class A common stock pursuant to a 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 MarchDecember 31, 2018 and June 30, 2017,2018, we had cash and cash equivalents totaling $149.4$110.6 million and $156.7$152.4 million, respectively, and there were $200.0$100.0 million and $220.0 million, respectively, in outstanding borrowings under the Credit Facility. During the nine months ended March 31, 2018 the Company repaid $50.0 million of borrowings and borrowed an additional $30.0 million 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, repurchases of Class A common stock pursuant to a stock repurchase programprograms in place from time to time, and growth for the foreseeable future. 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 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 the NineSix Months ended MarchEnded December 31, 2018 and 2017
A summary of net cash flows follows (in thousands):
Nine Months Ended March 31,Six Months Ended December 31,
2018201720182017
Net cash provided by (used in):  
Operating activities$369,734
$274,211
$212,309
$206,515
Investing activities(65,260)(447,181)(106,715)(38,622)
Financing activities(311,799)160,371
(147,396)(161,614)
Net decrease in cash and cash equivalents$(7,325)$(12,599)
Net (decrease) increase in cash and cash equivalents$(41,802)$6,279
Net cash provided by operating activities increased $95.5$5.8 million from the ninesix months ended MarchDecember 31, 2017 to 2018 primarily driven by an increase inincreased net administrative fees as well asand other services and support revenue and decreased working capital needs,cost of services revenue and selling, general and administrative expenses in the current period, partially offset by increased selling, generalworking capital needs and administrative expensesreduced product revenue.
Net cash used in investing activities increased $68.1 million from the six months ended December 31, 2017 to 2018 driven by the Stanson acquisition in November 2018 and growth in our internally developed software initiatives in the current period.
Net cash used in investingfinancing activities decreased $381.9$14.2 million from the ninesix months ended MarchDecember 31, 2017 to 2018 driven by our $319.7 million acquisition of Innovatix and Essensa, our $64.5 million acquisition of Acro Pharmaceuticals and our $65.7 million investment in FFF during2018. During the prior period, partially offset by $48.0 million in proceeds from the sale of marketable securities during the prior period and a $13.4 million increase in capitalization of internally developed software in the current period.
Net cash provided by financing activities was $160.4 million for the ninesix months ended MarchDecember 31, 2017 while net2018, cash used in financing activities was $311.8outflows included $104.3 million for the nine months ended March 31, 2018. The change in cash flows provided by and used in financing activities was largely driven by $367.5 millionrepurchases of net borrowings under the Credit Facility in the prior period, partially offset by the $100.0 million settlement of exchange of Class B common units by member owners in the prior period and the $200.1 million used to repurchase Class A common stock under our stock repurchase program, in$30.5 million distributions to limited partners of Premier LP, and an $18.0 million TRA payment. During the current period.six months ended December 31, 2017, cash outflows included $70.8 million repurchases of Class A common stock under our stock repurchase program, $45.7 million distributions to limited partners of Premier LP, $20.0 million payments, net of proceeds, under the Credit Facility, and a $16.7 million earn-out liability payment.


Discussion of Non-GAAP Free Cash Flow for the NineSix Months ended MarchEnded December 31, 2018 and 2017
We define Non-GAAP Free Cash Flow as net cash provided by operating activities 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):
Nine Months Ended March 31,Six Months Ended December 31,
2018201720182017
Net cash provided by operating activities$369,734
$274,211
$212,309
$206,515
Purchases of property and equipment(65,260)(51,892)(47,289)(38,622)
Distributions to limited partners of Premier LP(66,098)(67,363)(30,458)(45,703)
Payments to limited partners of Premier, LP related to tax receivable agreements (a)
(17,975)—
Non-GAAP Free Cash Flow$238,376
$154,956
$116,587
$122,190
(a)The timing of tax receivable agreement ("TRA") payments shifted to July from June due to the change in our federal tax filing deadline, which was extended one month to April from March. As a result, we did not make a TRA payment in fiscal 2018.
For the six months ended December 31, 2017 to 2018, Non-GAAP Free Cash Flow increased $83.4decreased $5.6 million from the nine months ended March 31, 2017 to 2018 primarily driven by an increasethe $18.0 million TRA payment made to member owners during the current period and growth in net administrative fees as well as decreased working capital needs,our internally developed software initiatives, partially offset by a $15.2 million decrease in distributions to limited partners of Premier LP, primarily due to tax reform, and $5.8 million increased selling, general and administrative expenses and increased capitalization of internally developed software in the current period.cash provided by operating activities. 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 MarchDecember 31, 2018, we had commitments of $7.2$7.4 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 in 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.
The Credit Facility replaced our then existing Credit Facility dated June 24, 2014 and amended as of June 4, 2015 (the "Prior Loan Agreement"). The Prior Loan Agreement included a $750.0 million unsecured revolving credit facility and was scheduled to mature on June 24, 2019. At the time of its termination, outstanding borrowings, accrued interest and fees and expenses under the Prior Loan Agreement totaled approximately $100.7 million, which was repaid with cash on hand and borrowings under the new Credit Facility.
At the Company's option, committed loans may be in the form of Eurodollar rate loans ("Eurodollar Loans") or base rate loans ("Base Rate Loans"). Eurodollar Loans bear interest at the Eurodollar rate (defined as the London Interbank Offered Rate, or LIBOR, plus the Applicable Rate (defined as a margin based on the Consolidated Total Net Leverage Ratio (as defined in the Credit Facility))). Base Rate Loans bear interest at the Base Rate (defined as the highest of the prime rate announced by the administrative agent, the federal funds effective rate plus 0.50% 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. At MarchDecember 31, 2018, the interest rate for three-month Eurodollar Loans was 3.435%, the interest rate for six-month Eurodollar Loans was 3.575%3.808% and the interest rate for Base Rate Loans was 4.875%


5.500%. 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 MarchDecember 31, 2018, 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 its consolidated total net leverage ratio (as defined in the Credit Facility) to 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 be increased to 4.25 to 1.00 for the four consecutive fiscal quarters beginning with the quarter in which such acquisition is completed. In addition, Premier GP must maintain a minimum consolidated interest coverage ratio (as defined in the Credit Facility) of 3.002.50 to 1.00 at the end of every fiscal quarter. Premier GP was in compliance with all such covenants at MarchDecember 31, 2018.
The Credit Facility also contains customary events of default including, among others, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults of any indebtedness or guarantees in excess of $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 programprograms, and other general corporate activities. During the nine months ended March 31, 2018, the Company repaid $50.0 million of borrowings and borrowed an additional $30.0 million under the Credit Facility. The Company had outstanding borrowings under the Credit Facility of $200.0$100.0 million at MarchDecember 31, 2018. Borrowings due within one year of the balance sheet date are classified as current liabilities in the Condensed Consolidated Balance Sheets. They may be renewed or extended at the option of the Company through the maturity date of the Credit Facility.
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 exhibit to the 20172018 Annual Report. See also Note 89 - Debt in our accompanying condensed consolidated financial statements in Part I of this Quarterly Report.
Member-Owner TRA
The CompanyWe entered into TRAs with each of our member owners. Pursuant to the TRAs, 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 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 $250.7$323.1 million and $339.7$255.1 million at MarchDecember 31, 2018 and June 30, 2017,2018, respectively. The $89.0$68.0 million decreaseincrease was primarily attributable to 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, partially offset by $67.5$87.9 million in increases in TRA liabilities in connection with the quarterly member owner exchanges that occurred during the period and $20.9six months ended December 31, 2018 partially offset by $18.0 million associated within TRA payments to member owners during 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, 2018.
Stock Repurchase Program
On October 31, 2017, we announced thatMay 7, 2018, our Board of Directors authorizedapproved the repurchase of up to $200.0$250.0 million of our outstanding Class A common stock during fiscal 2019 as parta continuation of aour balanced capital deployment strategy, suchstrategy. Subject to certain terms and conditions, repurchases tomay be made from time to time in private orthrough open market purchases or privately negotiated transactions at the Company'sour discretion, and in accordance with applicable federal securities laws. As of MarchDecember 31, 2018, the Company completed its stock repurchase program andwe had purchased approximately 6.42.9 million shares of Class A common stock at an average price of $31.16$38.13 per share for a total purchase price of $200.0approximately $109.5 million.
Costs Associated with Exit The repurchase authorization may be expanded, suspended, delayed or Disposal Activities
As partdiscontinued at any time at the discretion of our ongoing integration synergies and efforts to realign resources for future growth areas, we have implemented certain personnel adjustments, including a workforce reduction. More specifically, we finalized and committed to this courseBoard of action on February 2, 2018, and on February 5, 2018 we communicated to our employees that these personnel adjustments impacted approximately 75 positions (approximately 65 of which were related to the workforce reduction), or approximately 3% of total employees. The workforce reduction resulted in pre-tax cash restructuring charges, primarily relating to severance and transition assistance, of approximately $5.1 million in the third quarter ending March 31, 2018. The majority of employees impacted by these personnel adjustments were from our Performance Services segment.Directors.


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 MarchDecember 31, 2018, we had $200.0$100.0 million in outstanding borrowings under the 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 Raterate (defined as the London Interbank OfferOffered Rate, or LIBOR)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. At MarchDecember 31, 2018, the interest rate for three-month Eurodollar Rate Loans was 3.435%, the interest rate for six-month Eurodollar Loans was 3.575%3.808% and the interest rate for Base Rate Loans was 4.875%5.500%.
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. 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, 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 MarchDecember 31, 2018.
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 Stanson, which was acquired during the six months ended December 31, 2018 and is included in our condensed consolidated financial statements as of December 31, 2018 and for the period from the acquisition date through December 31, 2018. The aggregate assets of Stanson were not material to the Condensed Consolidated Balance Sheet as of December 31, 2018. The net revenue generated by Stanson was not material to the Condensed Consolidated Income Statements for the three and six months ended December 31, 2018.
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 MarchDecember 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than as described below under “"Remediation PlanNew Revenue Standard”".
Remediation PlanNew Revenue Standard
In connection with the adoption of the New Revenue Standard, we have completed the implementation of certain new accounting, data and information related systems in both our Supply Chain Services segment and Performance Services segment. As disclosed in Part II, Item 9A of our 2017 Form 10-K,a result, we identified a material weakness inhave updated the processes that constitute our internal control over financial reporting, as necessary, to accommodate related changes to our accounting procedures and business processes. We will continue to evaluate the income tax accounting for complex, non-routine or infrequent transactions. Since that time, we have been implementing a remediation plan to address this material weakness. The remediation plan consistsimplementation of augmenting the Company’s accounting resources, training,these additional systems 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 overrelated financial reporting and specifically with respect to complex, non-routine or infrequent transactions. Management is continuing to assesscomponents.
Although the sufficiency and expected effectiveness of our remediation efforts, and we may take additional measures or modifyprocesses that constitute our internal control over financial reporting forhave been materially affected by the implementation of these typesnew systems, effectiveness testing is ongoing and future changes will require additional testing. We do


not believe that the implementation of transactions.
This material weaknessthese systems has had or 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,internal control over financial condition and results of operations.”

reporting.


PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We participate in businesses that are subject to substantial litigation. We are, from time to time, involved in litigation, arising in the ordinary course of business or otherwise, which may include claims relating to commercial, product liability, tort and personal injury, employment, antitrust, intellectual property, regulatory, or other 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, we may be subject to enforcement actions, penalties and other material limitations on our business.
In the past, we have been named as a defendant in several lawsuits brought by suppliers of medical products. Typically, these lawsuits have alleged the existence of a conspiracy among manufacturers of competing products and operators of GPOs, including us, to deny the plaintiff access to a market for its products. 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 may be subjected to similar actions in the future, and no assurance can be given that such 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 MarchDecember 31, 2018, there were no material changes to the risk factors disclosed in "Risk Factors" in the 20172018 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities
On October 31, 2017,May 7, 2018, we announced that our boardBoard of directorsDirectors authorized the repurchase of up to $200.0$250.0 million of our outstanding Class A common stock prior to June 30, 2018,during fiscal 2019 as part of a balanced capital deployment strategy. Subject to compliance with applicable federal securities laws, repurchases were authorized to be made from time to time in open market transactions, privately negotiated transactions, or other transactions, including trades under a plan established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. All repurchases of our Class A common stock were recorded as treasury shares. The following table summarizes information relating to repurchases made of our Class A common stock throughfor the quarter ended MarchDecember 31, 2018.
PeriodTotal Number of Shares Purchased
Average Price Paid per Share ($) (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)
January 1 through January 31, 2018923,949
31.56
923,949
96
February 1 through February 28, 20181,634,520
32.27
1,634,520
43
March 1 through
March 31, 2018
1,282,129
33.88
1,282,129
—
Total3,840,598
$32.64
3,840,598
$—
PeriodTotal Number of Shares Purchased
Average Price Paid per Share ($) (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)
October 1 through October 31, 2018—
$—
—
$238
November 1 through November 30, 2018955,383
$39.31
955,383
$200
December 1 through December 31, 20181,580,455
$37.71
1,580,455
$141
Total2,535,838
$38.31
2,535,838
$141
(1) Average price paid per share excludes fees and commissions.
(2) From the stock repurchase program's inception through March 31, 2018, we purchased 6.4 million shares of Class A common stock at an average price of $31.16 per share for a total of $200.0 million since the program's inception.
(1)Average price paid per share excludes fees and commissions.
(2)From the stock repurchase program's inception through December 31, 2018, we purchased approximately 2.9 million shares of Class A common stock at an average price of $38.13 per share for a total of $109.5 million.


Item 5. Other Information
Stock Repurchase Program Authorization
On May 7, 2018, the Company announced that its Board of Directors has approved the repurchase of up to $250 million of the Company's Class A common stock during fiscal 2019 through open market purchases or privately negotiated transactions. In order to initiate the repurchase program, the Company expects to execute the necessary agreements and documentation with one or more financial institutions during the next open trading window under the Company’s insider trading policy, scheduled to occur shortly after the May 7, 2018 fiscal 2018 third quarter earnings call. There can be no assurance, however, as to when or whether the repurchase program will be ultimately initiated or regarding number of shares of Class A common stock, if any, purchased under the program. The Company will provide additional details regarding the repurchase program, if adopted and initiated, in future filings with the SEC. See "Cautionary Note Regarding Forward-Looking Statements."



Item 6. Exhibits
Exhibit No. Description
10.1
Credit Agreement, dated as of November 9, 2018, by and among Premier Healthcare Alliance, L.P., Premier Supply Chain Improvement, Inc. and Premier Healthcare Solutions, Inc., as Co-Borrowers, Premier Services, LLC and certain domestic subsidiaries of Premier Services, LLC, as Guarantors, Wells Fargo Bank, National Association, as Administrative Agent, Swing Line Lender and an L/C Issuer, other lenders from time to time party thereto, and Wells Fargo Securities, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Joint Lead Arrangers and Joint Book Managers. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on November 13, 2018)
10.2
Amended and Restated Premier, Inc. 2013 Equity Incentive Plan, effective December 7, 2018. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 7, 2018)
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 March 31,September 30, 2018, formatted in XBRL (eXtensible Business Reporting Language), submitted in the following files:
101.INS XBRL Instance Document.*
101.SCH XBRL Taxonomy Extension Schema Document.*
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.*
*    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:May 7, 2018February 5, 2019 By: /s/ Craig S. McKasson
   Name: Craig S. McKasson
   Title: Chief Financial Officer and Senior Vice President
     Signing on behalf of the registrant and as principal financial officer and principal accounting officer

6576