Mike Alkire: Thank you, Leigh.
A.J. Rice: Okay, thanks a lot.
Mike Alkire: Thank you.
Operator: Next question is from Jack Wallace of Guggenheim Securities. Please go ahead.
John Park: Hi, this is John Park on for Jack. I was wondering if you could comment on the competitive dynamics in the GPO market and if it’s changed since last quarter and if there’s any market share shift to call out?
Mike Alkire: Yes. This is Mike. Just in general, I’ll tell you, we’ve had a couple of nice wins over the last couple of quarters. As you know, these are very long-term sort of propositions when you’re recruiting new health systems, I feel really good about the funnel. I was actually in a couple of calls over the last couple of weeks with some new prospects I do think our technology is a very, very significant differentiation along the lines of what Lee and I spoke to in terms of driving more efficiency, getting accurate pricing and those kinds of things. I think it’s just all additive to our ability to continue to drive — to get the most value from for our health systems to get the best value price in the market. And then obviously, I think organizations are very, very intrigued with what we’re doing with our whole vertical integration strategy and looking at ways to create more resilient supply chain, looking at contract manufacturing for products here domestically as well as offshore.
So those messages are being incredibly well received in the market and more to come as this year progresses.
John Park: Got it. And could you give us any update on the Remitra and maybe the relative pace of adoption between health system and suppliers?
Mike Alkire: Yes, I would say that we are back on track in terms of our areas of focus in terms of getting the adoption. We have mentioned this in the past. Many of our largest health systems are actually using the technology for various functions in their whole invoicing process. What we’re attempting to do is to bring all that utilization of that product to a network, trying to uphold all these health systems together at a more broad network from an invoicing standpoint. So that’s still sort of underway. As it relates to the supplier side, again, it is — we’re continuing to work through the whole process of creating additional value for the suppliers to participate in those networks. We’ve had some success with some of the very, very large multinational companies in terms of their interest in participating, but more to come over the course of the next couple of quarters as we continue to build out that offering.
John Park: Great. And lastly, are you seeing any uptake in PPE demand this quarter or related to the uptick in COVID cases?
Craig McKasson: I wouldn’t say we’ve seen a real uptick due to COVID cases per se, but yet — but as I mentioned earlier, we are seeing recovery and ordering patterns come back on PPE broadly, but I haven’t specifically heard it tied to actual COVID cases. Although as an example, I did hear just yesterday that in New York, some of the facilities are mandating masking and summing that again, some of those situations again. So something keep an eye on.
John Park: Great. Thank you, team.
Craig McKasson: Thank you.
Operator: The next question is from Jessica Tassan of Piper Sandler. Please go ahead.
Jessica Tassan: Hi, thank you for taking the questions. So I was wondering within Supply Chain Services. What was the adjusted EBITDA margin profile of the direct sourcing business in FY ’23? And then just would you expect that to kind of remain stable in ’24 or retreat back to low single digit or breakeven in ’24?
Craig McKasson: Yes. So broadly, for our direct sourcing business, again, we’ve typically talked about it being effectively a very low margin business on an adjusted EBITDA basis. So it did retract a little bit from ‘22 when we had elevated purchasing levels due to the pandemic, but did have low-single-digit EBITDA margins in the fourth quarter for that business. I think as we look forward moving forward, we would continue to expect it to be gross margins, not EBITDA but gross margins in the high -single-digit to low-double-digit range and then adjusted EBITDA to continue to be in that low to mid-single-digit range.
Jessica Tassan: Got it. That’s helpful. Can you help us understand what the admin fee share back rate for the non-health care GPO looks like maybe on an absolute basis or even on a relative to the health care GPO.
Craig McKasson: Yes. What I would say broadly not getting into specifics is that clearly, large integrated health systems, acute providers have more leverage and scale, so we typically see higher fee share with acute care health systems than we have broadly in the non-acute market. I think that would extend to the non-health care market where typically, it’s more about price and getting the savings through aggregation as opposed to having the maturity curve and the scale to actually negotiate higher fee shares.
Jessica Tassan: Got it. And then just based on the incremental liability, does that imply that the non-health care GPO did about $65 million of net admin fee revenue in FY ‘23 versus the prior $57 million expectation?
Craig McKasson: We are still — in terms of the true-up, I was talking about this earlier, that we’ll wait to see that non-health care piece in order to actually determine what the true-up payment is. We would expect it to be higher. Yes, I don’t have a specific number to quote though, Jessica, in terms of where it came in.
Jessica Tassan: Got it. And my last question is just is your decision to invest in the Performance Services business, kind of motivated by your strategic conversation? Basically, just interested to know if you’re making these investments because you’re confident there’s a strategic alternative for this business. And then to the extent that you can share, where should those investments show up and what’s the magnitude? Thank you, guys again.
