Mike Alkire: Yes. So, I think you were asking some of the smaller health systems. It’s interesting, Stephanie. I think what you’re going to see going forward is the smaller health systems are going to need the same levels of technology and efficiencies as the big ones, right, if not more. So, we have been creating and designing technology, enterprise license services to really reduce the number of point solutions that all of these health systems are dealing with and pretty much have one sort of overarching enterprise analytics strategy. So, we believe, obviously, it will create the most amount of value for those health systems regardless if they’re large or small. And then, of course, Stephanie, where I think we have pretty — we believe we have pretty significant differentiation is having that wrap around services capability to really drive performance improvement.
Stephanie Davis: Super helpful. Thanks, guys.
Mike Alkire: Thank you.
Operator: The next question comes from Steven Valiquette with Barclays. Please go ahead.
Mike Alkire: Steven, you might be muted.
Operator: Mr. Valiquette, your line is open. Okay. We’ll move along then to the next questioner. The next questioner is Jessica Tassan with Piper Sandler. Please go ahead.
Jessica Tassan: Hi, good morning. Thanks for taking the question. I was hoping just, when you talk about utilization related pressure on acute care purchasing, can you just help us understand maybe what categories of spend you’re seeing pressure in? Is it mostly manifesting in consumables, or are you seeing capital purchasing delays as well? And then if it is, in fact, capital related, do you just have any visibility into a recovery? Thanks.
Mike Alkire: Yes. So thanks, Jess. Let me take a quick stab at this. So, overall utilization, if — and this is going back to the end of our first quarter, and we have like a 90-day lag on some of this information. But we saw a decrease in the acute spend by about 2.4%, and then we saw an increase in that quarter of 3.1%. So that…
Craig McKasson: Decrease not increase.
Mike Alkire: I’m sorry, acute was decreased 2.4% and then non-acute was increased, or is that — decrease for 3.1 — okay. So, both of those areas highlight the fact that, obviously, that are — the core basic buying of the health systems, so think med surge and those kinds of things are still under a lot of pressure. Where we’re seeing increases, obviously, is the food is coming back a lot quicker than had originally been — the food is coming back a lot quicker. The food is coming back at a better rate post-pandemic.
Craig McKasson: Yes. So the only thing I would add to that, Jessica is I think — and again, I’m going to say what I repeat what I said earlier in terms of it does vary. So you will hear some health care organizations that are seeing strong utilization. It does depend on the markets that they’re in. But broadly overall the entire footprint we’re not seeing overall utilization come back at the levels that we thought. It is in some part elective procedures not being there. Some of this is actually dependent on labor. We continue to hear from our health care providers that they are challenged in terms of getting full staffing back to where they needed it to be to be able to provide everything that they need and want to provide.
And relative to your question on capital, I don’t know that we have a conclusive response sometimes capital because of the timing lag. But broadly I would say that we have seen some pause in capital equipment purchases, but from a GPO standpoint for us that would actually have — if they’re delaying or have already delayed the administrative fees would be in the future because we get paid at the point in time when that capital equipment is put into service in the health care institution.
Jessica Tassan: Yes. That makes sense. And then just my quick thoughts — thank you. I appreciate it. And then my quick follow-up would be can you just remind us what percent of Performance Services revenue or what products we should think about as recurring or reoccurring revenue versus license? Thanks again for the question.
Craig McKasson: Yeah. So across our entire Performance Services segment revenue about 80-plus percent is non-license based type revenue.
Jessica Tassan: Great. Thank you.
Operator: The next question comes from Richard Close with Canaccord Genuity. Please go ahead.
Richard Close: Yeah. Thanks for the questions. Craig, I was wondering if you could just walk us through the depreciation expense and what we should be thinking about that, and what the change was? And then just on the interest expense that you called out in the higher rates. I guess, I’m a little surprised that you were surprised on that from the original guidance. So just walk us through those two points if you could?
Craig McKasson: Yeah. Thank you for the question Richard. So relative to depreciation as I indicated in my comments, we unfortunately had an issue with our forecasting system that was not calculating planned depreciation on future assets at such point in time that they would be placed into service in the system. So as you know we developed — internally developed software. We have a road map of when those will be placed in the — into service. And so as we got into this fiscal year and particularly in the second quarter, we realized depreciation was coming in higher than we had thought and anticipated in our planning model and identified this system issue in our forecast system. And so we’ve rectified that. We now have reconciliation processes and things in place to make sure that does not occur anymore.
But that did result in depreciation in our actuals being higher than we had initially contemplated and believed at the time that we established guidance back in August. That’s really the primary issue associated with depreciation. A minor related element accelerating a little bit of depreciation is we had a couple of smaller assets that we accelerated the useful lives on to given the use of those in the marketplace, which is just giving us more depreciation than we’d originally planned as well. So those two items are really what drove the increase in depreciation expense versus what was contemplated certainly disappointed. We had a system issue didn’t discover it at the time but we have rectified that and put processes in place to make sure that does not occur again in the future.
Relative to the interest expense, as a reminder when we established guidance back in August, we did not have the TRPN acquisition closed. So we didn’t have the level of capital on the credit facility that we do now. At the time of our first quarter call in November, we were still in the process of renewing our credit facility and didn’t want to get premature in terms of updating and understanding where that was ultimately going to come out. And at that time not having identified the depreciation challenge that we’re now facing, the interest expense actually would have kept us within our initially planned guidance range. But the combination of those actually did create the requirement for us to have to adjust guidance. And so that’s the reason for the two line items and the adjustment — to our adjusted earnings per share guidance.
Richard Close: Okay. Thank you.
