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2 DISCLAIMER DISCLAIMER Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not provide investment advice for individuals. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information. The opinions and conclusions contained in this report are those of Hedgeye Risk Management, and are intended solely for the use of Hedgeye Risk Management s clients and subscribers. In reaching these opinions and conclusions, Hedgeye Risk Management and its employees have relied upon research conducted by Hedgeye Risk Management s employees, which is based upon sources considered credible and reliable within the industry. Hedgeye Risk Management is not responsible for the validity or authenticity of the information upon which it has relied. TERMS OF USE This report is intended solely for the use of its recipient. Re-distribution or republication of this report and its contents are prohibited. For more details please refer to the appropriate sections of the Hedgeye Services Agreement and the Terms of Use at HEDGEYE 2

3 HEALTHCARE POSITION MONITOR Sentiment Investment Ideas - Longs Trade Trend Tail Sentiment Investment Ideas - Shorts Trade Trend Tail Score 1 LONG Score 1 SHORT 6 ATHN athenahealth, Inc. 93 ZBH Zimmer Biomet Holdings, Inc AHS AMN Healthcare Services, Inc MD MEDNAX, Inc. 45 HOLX Hologic, Inc. 24 MDRX Allscripts Healthcare Solutions, Inc. --- Sentiment Long Bench Sentiment Short Bench Score 1 LONG Score 1 SHORT 35 CSLT Castlight Health, Inc. Class B n/a CPHD Cepheid EVH Evolent Health Inc Class A VRX Valeant Pharmaceuticals International, Inc CERN Cerner Corporation MDSO Medidata Solutions, Inc ILMN Illumina, Inc WOOF VCA Inc ICLR ICON Plc CYH Community Health Systems, Inc ISRG Intuitive Surgical, Inc Q Quintiles Transnational Holdings, Inc CRL Charles River Laboratories International, Inc DVA DaVita HealthCare Partners Inc LPNT LifePoint Health, Inc QSII Quality Systems, Inc LH Laboratory Corporation of America Holdings HCA HCA Holdings, Inc PRXL PAREXEL International Corporation DGX Quest Diagnostics Incorporated CPSI Computer Programs and Systems, Inc DATA SOURCE: FACTSET HEDGEYE 3

4 RECESSION WATCH CONFIDENCE HEDGEYE 4

5 RECESSION WATCH JOBLESS CLAIMS HEDGEYE 5

6 RECESSION WATCH EARNINGS HEDGEYE 6

7 MD DEAL MULTIPLE ROIC 20% 0% -20% 9.5% 10-year IRR -12.5% 10-year IRR 20% ROIC % (ttm) 19% 18% 17% IRR % -40% 4x EBITDA -60% 6x EBITDA 8x EBITDA -80% 10x EBITDA 12x EBITDA -100% 16% 15% 14% 13% 12% 11% -120% 10% DATA SOURCE: COMPANY FILINGS HEDGEYE 7

8 HOLX TOTAL PENETRATION % DATA SOURCE: HEDGEYE, MQSA, COMPANY FILINGS HEDGEYE 8

9 HOLX NTM EV/EBITDA 15.0x EV/EBITDA NTM Average +1 Std Dev -1 Std Dev NTM EV/EBITDA 14.0x 13.0x 12.0x 11.0x 10.0x 9.0x 8.0x 7.0x 6.0x 5.0x DATA SOURCE: FACTSET HEDGEYE 9

10 HOLX 2016 ESTIMATE REVISIONS Down Unchanged Up Sales Estimates , , , ,750.0 Sales (millions) , , ,600.0 DATA SOURCE: FACTSET HEDGEYE 10

11 HOLX BET AGAINST THE SELL SIDE 20.0% Bearish Bullish Rolling 12-mo Excess Return 14.9% 15.0% 11.7% 10.0% 5.0% 0.0% -5.0% -10.0% -5.3% -7.3% DATA SOURCE: FACTSET HEDGEYE 11

12 HOLX VALUATION SENSITIVITY OLD FORMAT = $800/SQUARE FT 2016 Sales YoY % NEW FORMAT = $1,300 SQ FT NTM EV/Sales 2.5x 3.0x 3.5x 4.0x 4.5x -5.0% $ 11.2 $ 15.8 $ 20.3 $ 24.8 $ % $ 11.8 $ 16.5 $ 21.1 $ 25.8 $ % $ 12.4 $ 17.2 $ 21.9 $ 26.7 $ % $ 13.0 $ 17.9 $ 22.8 $ 27.7 $ % $ 13.6 $ 18.6 $ 23.6 $ 28.6 $ 33.6 Bear Base Bull -65.8% -33.1% 2.5% DATA SOURCE: FACTSET HEDGEYE 12

13 AHS ORGANIC GROWTH MODEL 35.0% 30.0% 25.0% 20.0% Combined Model AHS: Total Organic Growth YoY % Regression Includes HC JOLTS Layoffs and Discharges 35.0% Employment - Health care YoY % AHS: Total Organic Growth YoY % 30.0% 25.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% -5.0% -5.0% -10.0% -10.0% HEDGEYE 13

14 HEALTHCARE JOLTS SLOWING 60.0% 50.0% JOLTS: HC Job Openings Rolling 3-Mo YoY % ROC 12/31/ % 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% -50.0% 12/31/ % 12/31/ % DATA SOURCE: BLS HEDGEYE 14

15 HEALTHCARE EMPLOYMENT PEAK? Rolling 12-mo Healthcare Employment Gains April December Months July October Months April Oct Months 0 DATA SOURCE: BLS HEDGEYE 15

16 HEALTHCARE JOLTS 60.0% 50.0% 40.0% JOLTS: Health Care and Social Assistance - Job Openings y/y growth % 2-Yr Average Rolling 12-mo Average 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% DATA SOURCE: BLS HEDGEYE 16

17 MDRX FIELD NOTES NORTHWELL No plans to move away from Allscripts due to the enormous amount of capital invested in the system and high switching costs; happy with their products. IT Budget $250 million and capped out in terms of growth. Concerned about the future of Allscripts as there is a big slowdown in spending coming. Limited additional cross-sell potential. Already committed to Soarian for Enterprise Rev Cycle and InterSystems for population health; don't see efficiency in remote hosting. Touchworks and Sunrise NOT integrated on the back end, requires the purchase of dbmotion, which is expensive to implement. Added 3 hospitals over last 18 months on Sunrise through acquisitions for an incremental $3-4 mill in maintenance revenue to Allscripts. IT outsourcing agreement for $80 million a year, $10-20 million a year in software related subscription and maintenance revenue. HEDGEYE 17

18 MDRX SOFTWARE DELIVERY 40.0% Software Delivery Bookings YoY % 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% DATA SOURCE: COMPANY FILINGS HEDGEYE 18