HEALTHCARE IT INDUSTRY UPDATE │ Q3 2016 www.harriswilliams.com Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is authorised and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business. 0 HEALTHCARE IT INDUSTRY UPDATE | Q3 2016 HEALTHCARE IT PRACTICE OVERVIEW CONTENTS INTRODUCTION . WHAT WE’RE READING Harris Williams & Co. is pleased to present our review of Q3 Healthcare IT . KEY HEALTHCARE MACRO activity. This report provides commentary and analysis on current capital market INDICATORS trends and merger and acquisition dynamics within the Healthcare IT industry. PUBLIC MARKETS . PUBLIC COMPARABLES We hope you find this edition helpful and encourage you to contact us directly if . M&A ACTIVITY you would like to discuss our perspective on current industry trends and M&A . PRIVATE PLACEMENT ACTIVITY opportunities or our relevant industry experience. IPO ACTIVITY OUR PRACTICE CONTACTS Sam Hendler Harris Williams & Co. is a leading advisor to the Healthcare IT industry. Our global Managing Director practice includes professionals across the firm from Harris Williams & Co.’s [email protected] Technology, Media & Telecom Group and Healthcare & Life Sciences Group. +1 (617) 654-2117 Jeff Bistrong HW&Co. Healthcare IT Taxonomy Managing Director [email protected] +1 (617) 654-2102 . Patient-Facing Solutions Mike Wilkins . Care Delivery: Managing Director Operational Efficiency [email protected] +1 (415) 271-3411 . Care Delivery: Clinical / Acute Thierry Monjauze Managing Director . Care Delivery: [email protected] Clinical / Non-Acute +44 20 7518 8901 CARE DELIVERY EMPLOYERS ORGANIZATIONS PATIENTS . Care Delivery: Turner Bedrup Clinical / Post-Acute Managing Director INSURERS CLINICIANS [email protected] . Pharma & Devices +1 (804) 915-0110 . Revenue Cycle Cheairs Porter Management Managing Director [email protected] . Population Health & Risk +1 (804) 915-0130 Management James Clark Managing Director [email protected] HW&CO. Healthcare IT Market Map +1 (804) 915-0119 Please contact HW&Co. for proprietary detailed HCIT market map Geoffrey Smith Managing Director [email protected] +1 (804) 915-0195 Dan Linsalata Vice President [email protected] +1 (617) 654-2122 www.harriswilliams.com www.harriswilliams.com PAGE | 1 HEALTHCARE IT INDUSTRY UPDATE | Q3 2016 WHAT WE’RE READING UBER, CIRCULATION COLLABORATE ON HOSPITAL PILOT PROGRAM FOR PATIENT TRANSPORTATION Healthcare Informatics 9/28/2016 Boston-based startup Circulation, as Uber’s preferred healthcare platform partner, is launching a digital healthcare transportation platform as a pilot program at several East Coast acute care and children’s hospitals. The pilot program is designed to reduce the number of missed doctor’s appointments by providing on-demand transportation options to get patients, especially disabled, elderly or low-income patients, to and from medical appointments. Read the full article here. CLINICAL HEALTH APPS OUTPACING FITNESS TRACKERS AMONG INVESTORS AND INNOVATORS Healthcare IT News 9/27/2016 New research determined that health apps and devices with a clinical focus are more likely to grow in popularity this year than consumer-focused products. “Investment trends in digital health are shifting from consumer wellness applications to clinically driven solutions that drive better health outcomes at lower costs,” the report said. “This next wave focuses on encouraging consumers and patients to change health-related behaviors...” Read the full article here. WASHINGTON DEBRIEF: HOUSE COMMITTEE LEADERS PLEDGE HEIGHTENED ATTENTION TO HEALTH IT IN 2017 Healthcare Informatics 9/19/2016 A key House Committee held a hearing [in September] to explore how healthcare technology can create efficiencies in care delivery, improve outcomes and reduce cost. Read the full article here. HHS GIVES $87 MILLION TO BOOST HEALTH CENTER IT Healthcare IT News 9/15/2016 More than 1,300 health centers across the U.S. and its territories will be given $87 million for information technology enhancements. The money is meant to to support health IT enhancements aimed at speeding these providers' shift toward value-based care, through better data exchange, clinical decision support, patient engagement and more, according to HHS. Read the full article here. CMS: PROVIDERS CHOOSE PACE FOR QUALITY PAYMENT PROGRAM IN 2017 EHRIntelligence 9/9/2016 In advance of the final rule for the Quality Payment Program — comprising both the Merit-based Incentive Payment System (MIPS) and Alternative Payment Models (APMs) — the CMS has relaxed demands on eligible providers in 2017. "In recognition of the wide diversity of physician practices, we intend for the Quality Payment Program to allow physicians to pick their pace of participation for the first performance period that begins January 1, 2017." Read the full article here. INSURANCE STARTUP OSCAR QUITS TWO MARKETS, RETHINKS OBAMACARE PLANS Bloomberg 8/23/2016 Health insurance startup Oscar Insurance will reevaluate its approach to Obamacare after suffering significant losses under the U.S. program and will pull out of two markets next year. “The individual market isn’t working as intended and there are weaknesses in the way it’s been set up,” CEO Mario Schlosser said in an interview. “We want to focus on the markets we understand well, we want to focus on the markets where we have our own model in place. Read the full article here. PAGE | 2 HEALTHCARE IT INDUSTRY UPDATE | Q3 2016 KEY HEALTHCARE MACRO INDICATORS U.S. HEALTHCARE SPENDING U.S. AGING POPULATION ($ in trillions) (percent age 65 and older) $6.0 National Health Expenditures 20.0% HC Expediture as % of GDP 20.0% 20.2% $5.0 19.3% 19.0% $4.0 16.1% $3.0 18.0% $2.0 13.0% 17.0% 12.6% 12.4% $1.0 - 16.0% '08 '10 '12 '14 '16P '18P '20P '22P '24P 1990 2000 2010 2020P 2030P 2040P 2050P HIGH-DEDUCTIBLE HEALTH PLAN ENROLLMENT PRIMARY CARE SUPPLY (enrolled lives in millions) (number of physicians in thousands) Total Physicians (in 000s) % Independent 19.7 821 17.4 794 723 15.5 683 13.5 11.4 10.0 57% 8.0 49% 6.1 4.5 37% 3.2 33% '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '00 '05 '13 '16E U.S. EMR ADOPTION - HOSPITAL U.S. EMR ADOPTION - AMBULATORY (percent adoption by EMRAM stage) (percent adoption by EMRAM stage) Stage 0 Stage 1 Stage 2 Stage 3 Stage 0 Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7 Stage 4 Stage 5 Stage 6 Stage 7 '07 '08 '09 '10 '11 '12 '13 '14 '15 '12 '13* '14 '15 *represents Q1 2014 data (2013 year-end data unavailable) PAGE | 3 HEALTHCARE IT INDUSTRY UPDATE | Q3 2016 PUBLIC MARKETS MEDIAN REVENUE GROWTH (2012 – 2015) MEDIAN REVENUE GROWTH (2015 – 2016E) Clinical / Administrative 14.0% Clinical / Administrative 13.6% Payer-Focused 6.7% Payer-Focused 6.4% Pharma 17.6% Pharma 4.1% Consumer Healthcare 31.3% Consumer Healthcare 27.1% Euro HCIT 10.4% Euro HCIT 4.4% MEDIAN EBITDA MARGIN (2016E) MEDIAN EBITDA GROWTH (2015 – 2016E) Clinical / Administrative 23.5% Clinical / Administrative 14.0% Payer-Focused 30.8% Payer-Focused 15.3% Pharma 24.8% Pharma 18.9% Consumer Healthcare 36.4% Consumer Healthcare 12.6% Euro HCIT 25.3% Euro HCIT 9.3% MEDIAN CAPEX / REVENUE (2016E) MEDIAN TEV / 2016E EBITDA Clinical / Administrative 5.0% Clinical / Administrative 12.7x Payer-Focused 2.9% Payer-Focused 15.0x Pharma 3.3% Pharma 21.0x Consumer Healthcare 4.7% Consumer Healthcare 14.1x Euro HCIT 3.7% Euro HCIT 12.1x HISTORICAL STOCK PERFORMANCE (SEPTEMBER 30, 2011 – SEPTEMBER 30, 2016) 500 450 400 350 300 250 200 150 100 50 0 Clinical & Administrative Payer-Focused Pharma Consumer Healthcare Euro HCIT S&P 500 PAGE | 4 HEALTHCARE IT INDUSTRY UPDATE | Q3 2016 PUBLIC COMPARABLES VALUATION AND OPERATING METRICS As of September 30, 2016 ($ in Millions, except per share amounts) Stock Performance Current % of LTM TEV / EBITDA Mkt Cap TEV Price LTM High Revenue % Growth EBITDA Margin LTM 2016 Clinical / Administrative EMR Cerner Corporation $20,762 $20,717 $61.48 90.0% $4,657 19.8% $1,434 30.8% 14.4x 12.7x athenahealth, Inc. 4,814 4,975 122.37 71.8% 1,012 21.2% 139 13.7% 35.8x 21.1x Allscripts Healthcare Solutions, Inc. 2,429 3,914 13.02 82.5% 1,432 4.3% 219 15.3% 17.9x 13.5x Quality Systems, Inc. 695 752 11.30 64.6% 493 (0.4%) 76 15.4% 9.9x 8.8x Computer Programs and Systems, Inc. 350 501 25.86 43.7% 227 17.6% 36 15.9% 13.9x 8.8x Median $2,429 $3,914 71.8% $1,012 17.6% $139 15.4% 14.4x 12.7x RCM / Performance Nuance Communications, Inc. $3,946 $5,792 $14.11 64.7% $1,947 0.2% $394 20.2% 14.7x 8.3x Premier Inc. 1,494 4,384 31.52 83.9% 1,163 6.6% 354 30.5% 12.4x 9.4x Advisory Board Company 1,728 2,279 42.92 78.3% 803 4.5% 222 27.6% 10.3x 11.8x Evolent Health Inc 1,014 1,110 22.71 84.6% 192 98.6% (46) NM NM NM Median $1,611 $3,331 81.1% $983 5.5% $288 27.6% 12.4x 9.4x Other Administrative Omnicell, Inc. $1,363 $1,547 $37.68 93.0% $599 23.7% $76 12.6% 20.5x 14.2x HealthStream, Inc. 837 698 26.37 93.6% 219 4.6% 31 14.1% 22.6x 20.1x Vocera Communications, Inc. 455 337 16.84 98.7% 113 8.3% (11) NM NM NM Tabula Rasa Healthcare, Inc.