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Confidential
Investment Committee MemorandumOctober 2016
Confidential
This is a preliminary draft for discussion purposes only. By reviewing this document, youacknowledge the notices set out at the end and you agree to the confidentiality and non-circumvention agreement contained on that page. “Blue Wolf” refers to one or moreinvestment vehicles (not yet offered) sponsored by Blue Wolf Capital Partners LLC or itsaffiliates.
1
Confidential
I. Executive Summary
2
Confidential
Blue Wolf is seeking to acquire Great Lakes Caring (“GLC”) and combine it with National Home Health Care (“NHHC”)
Strong Northeast and Midwest presence creates a meaningful player to national payers
Merged company has industry leading team and expert resources
A combined GLC and NHHC entity (“NewCo” and the “Transaction”) would present many synergy opportunities and represent one of the largest pure-play home care providers in the United States. NewCo would be well-positioned for growth in a changing post-acute landscape
GLC’s experience and capabilities in M&A and de novo facilities can be applied to NHHC’s markets
The acquisition would be complementary to the Fund’s existing home health platform, National Home Health Care (“NHHC”), and create a large and geographically broad post-acute care services company with diversified business and payor mixes
3
Confidential
NewCo creates large national platform
Expanded National Footprint
NHHC
Great Lakes
Attractive Combined MultipleProposed Transaction Capitalization
4
Note: Leverage is based on combined EBITDA (incl Galaxie) plus $2.4 million of base synergies ($52.6 million)
Note: NHHC and Great Lakes overlap in Massachusetts
($ in Millions) $ % Leverage
Term Loan 236.8 49.0% 4.5xSecond Lien 0.0 – –
Senior Debt 236.8 49.0% 4.5x
Blue Wolf Fund III 50.7 10.5%Total Co-Invest 189.4 39.2%Management 6.0 1.2%
Total Equity 246.1 51.0%
Total Capitalization 482.8 100.0%Note: NewCo EBITDA includes synergies and Project Galaxie
Great($ in Millions) Lakes NHHC PF "NewCo"
Reference EBITDA $35.0 $15.4 $67.5Multiple 10.0x 6.7x 6.9x
Enterprise Value 350.0 102.8 466.8
Enterprise Value Incl. Expenses 369.5 99.3 482.8
Implied Multiple 10.6x 6.4x 7.1x
Project Galaxie
Confidential
EBITDA Trading Multiples based on LTM 6/30/16
NewCo acquisition multiple below that of peer group trading multiples
5
Public company data per Capital I.Q. as of 10/7/16(1) AMED Revenue and EBITDA based on CY2016 estimate(2) PF financials based on NHHC actuals and BW estimates, including $16M of synergies, at estimated close
(2)
Peer Average
12.4x
NewCo(1)
Company Headquarters:
Downers Grove, IL Baton Rouge, LA Louisville, KY Lafayette, LA NA
LTM Revenue: $363 $1,440 $586 $854 $520
LTM EBITDA: $24 $120 $42 $80 $68
EnterpriseValue:
$335 $1,616 $530 $775 $483
EV / LTM EBITDA 13.8x 13.5x 12.7x 9.6x 7.1x
LTM EBITDA Margin:
6.7% 8.3% 7.1% 9.4% 13.0%
13.8x 13.5x 12.7x
9.6x
7.1x
0.0x
5.0x
10.0x
15.0x
20.0x
Confidential
GLC Transaction requires ~$180 million of new co-investment
The Transaction implies a combined acquisition multiple of 7.1x pro forma EBITDA of $68 million, including $16 million of synergies
The Transaction will be capitalized by $237 million of debt financing and $246 million of equity capital
Our underwriting includes the financial performance of an acquisition under exclusivity (“Project Galaxie”), contributing ~$2.5 million of pro forma EBITDA immediately after close
After giving consideration to the Fund’s portfolio construction and dry powder for the investment’s potential future M&A needs, we are proposing the following equity composition:
6
Equity Ownership Detail($ in Millions)
NHHC GLC CombinedBlue Wolf Capital Fund III $35.7 $15.0 $50.7Co-Invest $10.0 $179.4 $189.4Management $1.0 $5.0 $6.0
Total $46.7 $199.4 $246.1
Confidential
The CEO was seeking a transition and senior management was not commercially focused
Company is managed as separate entities in each of its four states, creating redundancies and a lack of coordination. This dynamic inhibited economies of scale
Systems are paper based and lack automation, generating high administrative costs and poor coordination
No M&A capabilities and no system for entering new markets
NHHC is a well-positioned regional homecare company with scale which we acquired at a discount to its peers due to structural challenges as evidenced by NHHC’s below average EBITDA margin
Deep value investment in NHHC will exploit industry tailwinds
7
Service Areas (by Revenue)
8%
48%
17%
27%
Headquarters:Scarsdale, NY
Confidential
Great Lakes provides a balanced service mix primarily to Medicare eligible individuals
Broad geographic coverage across the region is adjacent to NHHC’s footprint
Strong and well organized management with a proven track record
Best in class systems for managing and expanding multiple markets both for compliance and commercial growth
Consistent history of growth through both new market openings and M&A execution
Service Areas (by Service)
Headquarters:Jackson, MI
Great Lakes is one of the fastest growing home health and hospice platforms in the US, providing superior quality across 23 locations in Michigan, Indiana, Ohio, Illinois, Massachusetts, New Hampshire and Maine
GLC is a highly complementary asset which would accelerate and increase NHHC’s value creation plan
8
Home Health
Home Health & HospiceHospice
Confidential
NewCo will be well positioned in changing healthcare landscape
Low Cost High Quality Shift Away from FFS Demographics
The consolidation and centralization of back
office services will reduce NewCo’s
operating costs and create valuable synergy
opportunities
GLC’s IT systems can be leveraged across the
entire platform to improve quality of care and outcomes. NewCo’s demonstrable quality will
resonate with payers
GLC has successfully positioned it self to
benefit from the switch to Value Based and
Bundled payments. GLC has performed well in key VBP and Bundled
payment pilots
GLC’s hospice expertise can be expanded
throughout NewCo to create a broad platform of post-acute services
consistent with ongoing demographic needs
Expanded Footprint Increased Scale (Annual Revenue - $s in millions)
9
$130 $149 $189 $223 $253 $284 $316 $351 $390 - - - - - - - 13 13
$15 $15 $15 $15 $15 $15
$223 $255 $271 $282 $310 $341 $373 $393 $409
$354 $405 $459 $520 $579 $641 $704
$771 $827
$0
$230
$460
$690
$920
2013A 2014A 2015A 2016P 2017P 2018P 2019P 2020P 2021P
Great Lakes NHHC Hospice Project Galaxie NHHC
NHHC
GLC
Project Galaxie
Confidential
Base case generates equity returns of 3.0x ROIC
Assuming an exit in 2021 and a 8.5x exit multiple, the investment will generate a 3.0x ROIC and a 24% IRR
10
($ in Millions)Great Lakes / NHHC Combination - Returns to Equity Investors
2021 PF EBITDA $103.4Exit Multiple 8.5x
Total Enterprise Value 878.7Plus: Cash 0.2Less: Debt (82.3)
Total Equity Value 796.6
Total Preferred 361.5Equity Value to all stakeholders 435.1
Management Incentives @ 15.0% 65.3Remaining Equity Value 369.8
Blue Wolf ReturnsBW Equity Value 76.2BW Preferred 74.5
Total Equity at Exit 150.7BW Cash in at Entry 50.7
Return on Invested Capital 3.0xInternal Rate of Return 24.3%
Confidential
Opportunities to outperform base case
11
Accretive M&A through GLC’s existing transaction group
Coordinated platform and strong analytics strengthen national payor relationships
Accelerated industry consolidation can drive organic growth
Potential for multiple expansion as national presence and value-add strategies are developed
Confidential
Primary investment risks are well-mitigated
❶ Risk: Future changes to reimbursement are unknown
– Mitigant: Home-health is a low-cost alternative to facility-based services; NY recently experienced a 100% pass through of wage increases and reimbursement will increase 5%
– Mitigant: Third party outlook of federal Medicare reimbursement is stable to increasing
– Mitigant: Medicaid state budget risk is further mitigated via the increased diversification of the combined company with no state Medicaid program greater than 11% of EBITDA contribution
❷ Risk: Integration execution
– Mitigant: GLC has a strong existing team in place and will be supported by Blue Wolf’s deep industry knowledge and resources
❸ Risk: Exposure to regulatory compliance risk
– Mitigant: Both companies have a strong culture of compliance and no history of material issues
– Mitigant: GLC will be able to extend its systems to reduce NHHC’s risk from highly manual processes
– Mitigant: Blue Wolf engaged third parties to review historical compliance with billing and coding regulations and other key operational procedures and identified no “red flag” findings
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Confidential
Process and next steps
13
Blue Wolf will submit its final bid on October 17th
– The final bid will be accompanied by committed debt and equity financing which will be in place by October 14th
We expect that the Board of Directors at GLC will select a winning bidder and negotiate final documentation by October 21st
Signing will be followed by a marketing period for the debt financing that will last approximately 5 weeks
The Transaction will then close and fund in mid-November
Confidential
II. Transaction Rationale
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Confidential
Home health industry will benefit from long-term industry tailwinds
3.1 4.9 9.016.6
25.535.0
44.756.4
82.3
98.2
0.0
20.0
40.0
60.0
80.0
100.0
120.0
1900 1920 1940 1960 1980 2000 2013 2020 2040 2060
(in m
illio
ns)
Number of U.S. Persons 65+, 1900 - 2060
Source: U.S. Census Bureau and Administration on Aging, Kaiser Family Foundation and Medicaid cost reports, National Association for Home Care and Hospice 2013, CMS Med-Pac 2014
13% 30%44% 51%87%
70%
56%49%
1990 2000 2009 2013Home Based Care Institutional Care Spend
22%
78%
Top 10 Providers Others
Home Health Industry Market Share
Highly fragmented market
Favorable Demographics
Shift to Low Cost
Industry Ripe for Consolidation
Medicaid LTSS Expenditures ($ in billions)
15
Confidential
NHHC provides a comprehensive range of services primarily to Medicaid-eligible individuals in the Northeast:
– Personal Care Services (65% of revenue)– Skilled Nursing Services (35% of revenue)
Personal Care Services include non-medical services such as assistance with bathing, grooming, and personal hygiene
Skilled Nursing Services are provided by licensed professionals (LPNs, RNs and therapists) to patients with long-term care, recovery and rehabilitative needs
Broad geographic coverage across the Northeast: – New York (48% of revenue), Connecticut (27%),
Massachusetts (17%) and New Jersey (8%)
Service Areas (by Revenue)
8%
48%
17%
27%
Headquarters:Scarsdale, NY
NHHC is one of the nation’s leading regional home care services companies, providing needed care to over 10,000 patients with long-term healthcare requirements each day
NHHC is a leading regional home care business in the northeast
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Confidential
Great Lakes provides a balanced service mix primarily to Medicare eligible individuals:
– Hospice Services (50% of revenue)– Home Health Services (47% of revenue)– Senior Care Services (3% of revenue)
Hospice Services are provided to patients in the final phase of terminal illness, typically with a life expectancy of six months or less
Home Health Services are provided by licensed professionals (LPNs, RNs and therapists) to individuals in need of assistance
Broad geographic coverage across the region: – Michigan (64% of revenue), Indiana (21%), Ohio
(8%), Illinois (6%), and Mass., New Hampshire and Maine (1%)
Service Areas (by Service)
Headquarters:Jackson, MI
Great Lakes is one of the fastest growing home health and hospice platforms in the US, providing superior quality across 23 locations in Michigan, Indiana, Ohio, Illinois, Massachusetts, New Hampshire and Maine
Potential opportunity to acquire premier home health and hospice business in the Midwest
17
Home Health
Home Health & HospiceHospice
Confidential
$111,623 $130,382
$149,284
$188,866
$222,837
16.8% 14.5%
26.5%
18.0%
2012A 2013A 2014A 2015A 2016P
$12,422
$19,171
$26,888
$31,715 $35,010
11.1% 14.7% 18.0% 16.8% 15.7%
2012A 2013A 2014A 2015A 2016P
8.6%
11.3%
78.9%
1.1%
Revenues by Payor
Private Medicaid Medicare Other
50.0% 47.0%
3.0%
Revenues by Service Offering
Hospice Home Health Senior Care
Over the last four years GLC has grown revenue and EBITDA at CAGR’s of 19% and 30%, respectively
Growing Footprint in the Midwest and Northeast
Broad Geographic Footprint Service and Payor Mix
Revenue & Growth Adjusted EBITDA & Margin
18
Headquarters:Jackson, MI
Home Health
Home Health & HospiceHospice
Note: Relates to period ending 2016P
Confidential
Each business contributes complementary capabilities to combined NewCo platform
Experience with shift to Managed Medicaid
Experience with acquisitions in Certificate of Need regulatory environments
Skilled Nursing and Hospice operating experience
M&A strategy
Vertical integration of business lines
Strong IT platform (development and implementation)
Deep management team
19
Confidential
NewCo will develop analytical capabilities focused on diagnostic outcomes and preventable admissions
The Synergy program presents upside to the Blue Wolf base case as NewCo deploys and technology to generate improved outcomes
Re-Hospitalization Rates: 60 Day “All Cause” Star Rating Scores
20
NewCo’s focus on outcomes will reduce hospital re-admissions and improve the Company’s relationships with payers, acute providers and patients
The Great Lakes Synergy program will complement similar nascent IT programs at NHHCSoutheast Michigan Home Health Quality Care Comparison
15.5%
17.4%
Great Lakes Caring State Average
4.0
3.4
Great Lakes Caring State Average
Confidential
Project Galaxie aligns well with NewCo and expands the Company’s geographic presence
21
Target Overview Strategic Rationale
Geographic Expansion
• Founded in 1996 - two hospice locations serving 22 counties
• Diversified referral source base with no single source accounting for more than 10% of referrals
• Low average length of stays and significant room under the hospice cap
• Census of 283 and payor mix 98% Medicare• Acquisition is currently under exclusivity and expected
to close in Q4• Purchase price is $14 million
• Strong cultural fit with GLC• Establishes presence in two new states in the Midwest
with provider numbers in both Kansas and Missouri• Access to St. Louis, MO
• Positively complemented by the Unnecessary Hospital Readmission Program
• Excellent referral relationships that can be leveraged for deeper penetration in the state
• Accretive to earnings with the opportunity to streamline operations
New States
GLC States
New locations
Confidential
NewCo will be led by the existing managers at GLC
GLC CEO, William Deary, will remain as CEO of the combined Company. We expect he will co-invest in the Transaction
GLC President, Adam Nielsen, will remain as President of the combined Company and be responsible for much of the Company’s day to day operations and the integration of NHHC and GLC
– We expect that Mr. Nielsen will ultimately succeed Mr. Deary as the Company’s CEO
GLC CFO, Lakshu Sundaram, will remain as CFO of the combined Company
NHHC CEO, Stan Dennis, will become a board member of the combined Company and advise on value-based and payor initiatives
NHHC Board Member, Tina Blasi, will remain on the board of the Combined Company
22
Confidential
A seasoned team of home health operators
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Name Title Experience Background
William Deary
Chief Executive Officer 22 Years
Co‐founded Great Lakes Caring with his wife in 1994 Previously held positions at a Fortune 500 company Member of Partnership for Quality Home Health Executive
Board Axial Growth 100 Award winner in 2016 Over 22 years of experience in healthcare
Adam Nielsen
President 16 Years
Joined in 2009 to manage the acquisition and business development processes
Prior to joining, worked in healthcare M&A advisory at Deloitte and Deutsche Bank
Over 16 years of experience in healthcare and M&A
Lakshu Sundaram
Chief Financial Officer 20 Years
Joined in 2008 as CFO Prior to joining, worked at Arcadia Healthcare Over 20 years of experience in healthcare
Confidential
III. SUMMARY DILIGENCE FINDINGS
24
Confidential
BW and its vendors explored key aspects of GLC and NewCo
25
Report 3rd Party Advisor Key Areas of Focus Summary Findings
GLC Quality of Earnings KPMGFinancial due diligence and tax structuring diligence over the past two fiscal years and most recently available year-to-date financial information
Pro forma adjusted EBITDA increased ~$6mm from FY14 to LTM July 2016Driven by organic and inorganic top-line growth of ~$61mmOffset by increasing direct labor costs and operating costs of ~$55mmAcquired 7 facilities and opened 7 de novos in both the hospice and home health segments
Rate Reimbursement Analysis Marwood Regulatory & reimbursement review, Medicare benchmarking
analysis
Medicare reimbursement for HO providers will improve over the next few yearsMedicare reimbursement for HH providers will be flat to slightly positive over the next few yearsMedicaid environment in CT, MA and NY is likely stable
I/T OptimityDiligence on enterprise IT systems and operating model to assess the feasibility, timing, and cost required to combine GLC and NHHC
Combining NHHC and GLC will accelerate the path to achieving earnings improvement opportunitiesCore savings opportunity at NHHC remains intact through combined companyGLC operating model and key IT platforms can support the existing NHHC businessCombination will avoid $1.5mm in one-time project costs
Clinical KPMG Clinical compliance and claims review
Conducted interviews with management and obtained a sample of 100 charts to perform chart reviews (25 charts each from MI, IL, IN and OH)No "red flag" findings and favorable impression of GLC clinical compliance practices
Insurance CRS Identify insurance / risk management issues that could impact GLC and seek opportunities for risk and expense reductions
GLC is adequately protected with sufficient limits and reasonably broad coverage purchasedOutside workers' compensation for Michigan (self-insured retention of $400K), all lines of coverage are written on a Guaranteed Cost basis.$200K annual savings opportunity by combining GLC insurance program with existing NHHC program
Benefits Chernoff Diamond
Identify risks, if any, associated with the health & welfare and retirement plans at GLC, analyze the benefits and costs associated with the plans and recommend benefit enhancements or additional programs
GLC has ~1,500 employees eligible for health & welfare benefitsAfter employee contributions, the expected net cost for the current benefit program is $9.9mmPotential for $1.3 - $1.5 million of annual savings through application of GLC benefit levels to NHHC plan
Confidential
Diligence validates up to $16M of realizable synergies
26
Synergies will be partially realized at close
Base case assumes $25M of integration costs over two years
Potential Synergies from Transaction
$15.4
$62.3
$2.1
$5.2
$32.2
$5.1 $2.2
$0.0
$18.0
$36.0
$54.0
$72.0
NHHC Enterprise Initiatives IT Great Lakes CT / MA Corporate PF NewCo
1 2 3 4
Confidential
$2.1M of realizable synergies through efficient management of benefits, insurance and indirect spend
Outsourced procurement to provide 10-15% savings on indirect spend
– Approximately $7 million of spend will yield ~$1 million of savings
– Currently working with Value Based Solutions to achieve
Shifting NHHC benefit plan to GLC benefit plan will result in $1-$1.5 million in savings based on Chernoff Diamond assessment
Combining NHHC and GLC insurance policies is expected to generate $200k annually in savings based on CRS assessment
27
1
Confidential
IT initiatives and process improvements will improve profitability at NHHC
28
Based on the diligence performed by Optimity, $5.2 million of annual savings are expected to be phased in starting 2016 and fully realized by 2018
2
Confidential
NHHC staffing mix optimization and hospice expansion enabled by GLC
GLC hospice experience and infrastructure allow for CT / MA to introduce hospice business line and leverage existing census to create value
29
Hospice Expansion SynergiesConnecticut Skilled Census 550Massachusetts Skilled Census 250Total Medicare Census 800
Hospice Conversion Rate ¹ 28.6%Run-Rate ADC 229
Daily Rate ($) $153.0Days Per Year 365
Annual Revenue ($'000) $12,765Hospice Contribution Margin 25%Annual EBITDA ($'000) $3,191
¹ One Hospice Daily Census per 3.5 Skilled Medicare Census
Pro Forma Nurse Staffing Savings in Conneticut CT Skilled Revenue 73,383 Wage Expense 37,889 Wage as % of Revenue 51.6%
GLC Wage Expense (% Revenue) 47.3%
Pro Forma Wage Expense (% Revenue) 49.0%Implied Cost Savings 1,932
Increased use of lower cost LPNs and other medical providers vs. higher cost RNs will drive improvement in NHHC skilled margins
Improvements to Connecticut and Massachusetts Skilled business and expansion of hospice are expected to generate ~$5 million in synergies
3
Confidential
NHHC corporate function is highly duplicative with existing GLC infrastructure
30
Savings of $2.2 million are expected through rationalizing NHHC corporate headcount and reducing professional services fees through the GLC combination
4
Corporate Expense 2017 Budget SynergiesAdministrative Wages 3,610,291 1,565,759 Fica Expense 147,051 67,259 Futa Expense 588 269 Suta Expense 7,490 3,426 Workers Comp Expense 3,580 1,637 Health Insurance-Admin 182,357 83,408 Dental Insurance 3,874 1,772 Life Insurance Expense 11,647 5,327 Disability Expense 8,547 3,909 401K Expense 45,659 20,884 Legal Fees 169,000 84,500Consulting 408,234 204,117Accounting Fees 399,500 199,750Other 3,996,003 0Total Corporate Expense 8,993,821 2,242,017
Confidential
Home Health Medicare reimbursement is stable
31
Reimbursement environment for home health providers expected to improve slightly over the next few years
– The final ACA-mandated home health rebasing ends in 2017
– No regulatory case-mix cuts scheduled after CY 2018
Addition of STAR rating system to Home Health Compare expected to have positive impact on referrals to agencies with high ratings
Pre-claim review program is likely to have a noticeable negative impact on total claims paid in demo states (Florida, Massachusetts, Michigan, and Texas)
Home Health Forecasted Reimbursement Changes
Confidential
Hospice reimbursement is likely to increase in the near-term
32
Hospice will likely receive increase ranging from 1.0% to 2.5% from 2017 to 2020
Hospice payment reform implemented in FY 2016 rule will reduce reimbursement for hospices with a high percentage of very long-stay (180+ day) patients
Hospice aggregate payment cap methodology is generally stable
– GLC ALOS is well below levels at which the hospice cap would affect the Company
Hospice Forecasted Reimbursement Changes
Confidential
Home health reimbursement in NHHC’s states is forecasted to be stable over the next several years
New York
• Most Medicaid beneficiaries receive Personal Care services through Managed Long Term Care in New York
• Rebalancing efforts are driving growth
• New York’s Medicaid budget is stable, despite budgetary gaps
• The state will increase rates for personal care services to plans because of the new minimum wage law that goes into effect in January 2017
• There are no discussions in CT to implement managed care and personal care reimbursement is stable
• CT personal care rates are thought to be protected from Medicaid budget pressure
• Further change to medication administration is not expected, following the July 2016 reimbursement change
• MA is considering passive enrollment to increase participation in managed care for seniors
• MA rebalancing initiatives have shifted Long-Term Services & Supports spending towards home and community based services
• Personal care reimbursement in MA will increase given minimum wage increases
33
Connecticut Massachusetts
Confidential
IV. INDUSTRY HIGHLIGHTS
34
Confidential
Blue Wolf has targeted home care as an attractive investment opportunity
Within healthcare services Blue Wolf is focused on several key trends and healthcare subsectors that we believe will be most impacted by these trends
Payers will continue to drive the delivery of care to lower cost providersLow Cost
Reimbursement programs will favor providers with better quality outcomes
High Quality
Ongoing transition to managed care organizations will benefit providers of scale
Shift to Managed
Care
Aging U.S. population will require significant post-acute services going forward
Demographic Trends
These criteria led us to the home health industry
Blue Wolf invests in complex situations
– ½ of Blue Wolf’s investments have been in healthy companies
– ½ of Blue Wolf’s investments have been in financially challenged companies
Partner with strong managers to build and transform businesses
Blue Wolf has particular expertise helping companies navigate complex regulatory environments
Blue Wolf Healthcare CriteriaBlue Wolf Investment Focus
35
Confidential
Home health is a key segment within the care continuum
Home Care/Skilled
Nursing
Home Health
HealthcareContinuum
Hospice
36
Confidential
Home health industry largely composed of three business lines
Personal Care Services Skilled Nursing
Services
Assists patients with non-medical, daily service needs, such as personal hygiene, light housekeeping, shopping for groceries, preparing meals, and providing companionship
Aids patients with long-term care, recovery, and rehabilitative needs resulting from disability, chronic disease, or surgery
Payer
Employees
Medicaid Medicare; Medicaid for select conditions
Semi-skilled labor / Home health aides
Registered Nurses, Physical Therapist, Licensed nurse practitioner, and physical therapist assistants
ReimbursementReimbursement for each hour of billable service provided by the aide at approximately $20
Medicare Reimbursement on 60 day episodic basis at approximately ~$2,600 per episode; Medicaid on per visits basis
TypicalCustomer
May include patients who suffer from multiple co-morbidities such as obesity and diabetes. Patient can receive service for multiple years
Usually over 65 with a post acute condition or pre-acute long term disability. Medicare patients average 2 episodes a year
Hospice
Provides comfort and support to patients dealing with a terminal illness generally with a life expectancy of six months or less
Medicare
Nurses, home health aids, social workers, bereavement counselors
Reimbursement based on daily rates for each day of service; rates set based on specific levels of care
Usually over 65 with a terminal illness such as heart or pulmonary disease, Alzheimer’s or cancer
NHHC Business Lines
GLC Business Lines
37
Confidential
Fragmented home health market will continue to consolidate
38
Regional players that don’t benefit from economies of scale will experience margin pressure and increasingly become targets for acquisition
Consolidation
Confidential
Home health will be an important component of value-based care
39
ACOs are increasingly engaging home health providers to expand accountability throughout the continuum of care
166145
52 58
103
181163
22
0
50
100
150
200
Implemented In the process Has plans to implement in the future No current plans to implementNum
ber o
f ACO
s
ACO Post-Acute Care StrategiesCommercial ACO PAC Strategy Medicare ACO PAC Strategy
Confidential
VI. FINANCIALS
40
Confidential
NewCo financial summary
41
GLC / NHHC Consolidated Income Statement($ in thousands)
FY Ended December 31 CAGR
2013A 2014A 2015A 2016P 2017P 2018P 2019P 2020P 2021P '13 - '16 '16 - '21GLC $130,382 $149,284 $188,866 $222,837 $253,065 $284,320 $315,905 $350,707 $389,937 19.6% 11.8%Project Galaxie - - - 15,069 15,069 15,069 15,069 15,069 15,069 N/A 0.0%NHHC 223,318 255,328 270,556 282,497 310,430 $341,239 $372,830 $392,876 $409,404 8.2% 7.7%NHHC Hospice - - - - - - - $12,765 $12,765
Total Revenue $353,700 $404,612 $459,422 $520,403 $578,564 $640,628 $703,805 $771,416 $827,174 13.7% 9.7%
GLC $76,001 $83,528 $104,430 $124,625 $144,164 $164,066 $184,036 $206,183 $230,886 17.9% 13.1%Project Galaxie - - - 10,247 10,247 10,247 10,247 10,247 10,247 N/A 0.0%NHHC 159,761 188,501 197,788 212,082 233,793 261,998 291,336 309,441 324,263 9.9% 8.9%
Direct Expenses $235,763 $272,029 $302,219 $346,954 $388,204 $436,310 $485,619 $525,871 $565,396 13.7% 10.3%
GLC $20,561 $23,581 $33,645 $39,087 $43,377 $46,952 $49,837 $55,198 $60,145 23.9% 9.0%Project Galaxie - - - 4,031 4,031 4,031 4,031 4,031 4,031 N/A 0.0%NHHC 45,646 47,766 50,025 55,470 57,227 $58,372 $59,539 $60,730 $61,945 6.7% 2.2%
Operating Expense $66,207 $71,348 $83,670 $98,587 $104,635 $109,355 $113,408 $119,960 $126,121 14.2% 5.0%
GLC $16,102 $37,357 $23,622 $26,866 $26,085 $28,091 $29,569 $31,123 $31,626 18.6% 3.3%NHHC 5,276 5,712 5,616 29,241 5,974 5,984 5,994 6,004 6,014 77.0% (27.1%)
Corporate $21,378 $43,069 $29,237 $56,108 $32,060 $34,076 $35,563 $37,127 $37,640 37.9% (7.7%)
GLC KPMG Adj. $755 $22,071 $4,545 $2,751 - - - - - Project Galaxie - - - 1,696 1,696 1,696 1,696 1,696 1,696 NHHC QofE Adj. (402) 1,771 (453) 27,422 1,765 1,765 1,765 1,765 1,765 NHHC Enterprise Initiatives - - - 999 2,398 2,398 2,398 2,398 2,398
Adjustments $353 $23,842 $4,092 $32,868 $5,859 $5,859 $5,859 $5,859 $5,859
GLC $18,473 $26,888 $31,715 $35,010 $39,439 $45,212 $52,463 $58,203 $67,280 23.8% 14.0%NHHC 12,233 15,120 16,674 14,125 17,597 19,047 20,123 20,863 21,344 4.9% 5.2%Synergies - - - 2,447 3,442 7,142 7,142 12,265 12,265 N/A N/AProject Galaxie - - - 2,487 2,487 2,487 2,487 2,487 2,487 N/A N/A
PF Adjusted EBITDA $30,705 $42,009 $48,389 $54,069 $62,965 $73,888 $82,215 $93,817 $103,376 20.8% 13.8%
GLC 14.2% 18.0% 16.8% 15.7% 15.6% 15.9% 16.6% 16.6% 17.3%NHHC 5.5% 5.9% 6.2% 5.0% 5.7% 5.6% 5.4% 5.3% 5.2%
EBITDA Margin 8.7% 10.4% 10.5% 10.4% 10.9% 11.5% 11.7% 12.2% 12.5%
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NewCo – balance sheet and free cash flow
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Pro Forma Balance Sheet & Credit Statistics($ in thousands)
FY Ended December 31
2016P 2017P 2018P 2019P 2020P 2021P
Current Assets $88,791 $98,694 $109,261 $120,018 $131,529 $141,023Other Assets $475,977 $486,377 $491,782 $487,051 $484,356 $481,524
Total Assets $564,768 $585,071 $601,043 $607,068 $615,885 $622,547
Current Liabilities $70,407 $75,272 $80,945 $86,760 $91,506 $96,167Revolver - - - - - - Term Loan 236,755 229,812 209,760 173,885 132,682 82,295 Second Lien - - - - - - Other Liabilities 57,599 57,599 57,599 57,599 57,599 57,599
Total Liabilities $364,761 $362,683 $348,304 $318,243 $281,787 $236,062Equity $200,007 $222,388 $252,740 $288,825 $334,098 $386,485
Total Liabilities & Equity $564,768 $585,071 $601,043 $607,068 $615,885 $622,547
Adj. EBITDA Before Synergies $49,135 $57,036 $64,258 $72,586 $79,065 $88,624Plus: Synergies 2,447 3,442 7,142 7,142 12,265 12,265 Plus: Project Galaxie Synergies 2,487 2,487 2,487 2,487 2,487 2,487
Adjusted EBITDA $54,069 $62,965 $73,888 $82,215 $93,817 $103,376Less: Cash Interest (13,635) (12,838) (11,230) (9,014) (6,381) Less: Cash Taxes (14,921) (20,234) (24,057) (30,182) (34,925) Less: Capital Expenditures1 (18,671) (14,049) (4,291) (4,834) (5,031) Less: BWCP Management Fee (1,500) (1,500) (1,500) (1,500) (1,500) Change in NWC (5,038) (4,894) (4,942) (6,765) (4,832)
Free Cash Flow $9,200 $20,372 $36,195 $41,523 $50,707
Cash $0 $0 $0 $0 $0 $0Senior Debt 236,755 229,812 209,760 173,885 132,682 82,295 Total Debt 236,755 229,812 209,760 173,885 132,682 82,295 Net Debt 236,754 229,812 209,759 173,884 132,682 82,295
Senior Leverage 4.4x 3.6x 2.8x 2.1x 1.4x 0.8xTotal Leverage 4.4x 3.6x 2.8x 2.1x 1.4x 0.8xInterest Coverage 1.8x 2.6x 4.0x 5.2x 7.2x
Note: Assumes transaction closes December 31, 20161 Includes incremental IT spend, de novo spend, M&A spend and capital expenditures
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Notices
This discussion is limited to summarizing the investment case that we are developing. No part of this discussion is intended to represent investment advice to you, and we do notconsider you to be our client or that we owe any fiduciary duty to you. A purpose of presenting this discussion to you is that we expect that our clients can benefit from theparticipation of appropriate parties in the arrangements being discussed, and to provide you with information about our general process. Your interests may conflict with those ofour clients. You are responsible for consulting your own financial, legal and tax advisors, including as to regulations applicable to potential activities discussed (such as lending).This is intended only for sophisticated U.S. persons that have experience in participating in the kinds of arrangements discussed. This discussion is a preliminary draft, and thereis no assurance that our client or other parties will participate in the arrangements being discussed or that all of the financing alternatives will be used.
The information in this document is intended as a preliminary introduction to help determine whether additional discussions will be of interest to you. This document and thediscussion to which it relates do not represent an offer to sell, or the solicitation of an offer to buy, any securities. Such an offer or solicitation, if any, will be made to eligiblepersons through a formal disclosure document from the issuer of such securities or formal negotiations of appropriate contractual arrangements such as a subscriptionagreement, purchase and sale agreement, or loan agreement. In considering any future offer of securities or other participation in an arrangement involving the Company, youshould not rely on the information in this document, which will be superseded in its entirety by such disclosure document or the documents provided during such negotiations.Such securities are not registered under any securities laws. This document reflects only our current preliminary views, and we do not undertake to update or correct any of theinformation presented. This does not represent a comprehensive discussion of the financial and other attributes of the Company, the roles of different potential parties to thearrangements being discussed, risk factors, or other information important to an investment decision. The source of the financial and other information about the Company isprimarily data produced by the Company or derived from public information, and we have not independently investigated its accuracy.
References to opportunities and to future or anticipated effects, including any base case or upside case, are our estimates and are provided for illustrative purposes only to helpunderstand our general process and current plans. Please contact us if you have any questions about data, assumptions and other bases for such estimates. No assurance canbe provided that such results will be attained, or that any particular opportunity will be successfully implemented. The arrangements discussed will be subject to various generaland specific risks and tax consequences that you should consider.
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Forward-looking statements: Certain of the matters discussed in this document, including, without limitation, future revenues, earnings, opportunities, strategies, prospects,consequences and all other statements that are not purely historical constitute “forward-looking statements.” Such forward-looking statements are subject to risks anduncertainties, which could cause actual results to differ materially from those anticipated. Such statements are based on beliefs, assumptions, data and other informationcurrently available to us. When we use them, the words “anticipate,” “intend,” “estimate,” “believe,” “expect,” “plan,” “could,” “may,” “will,” “potential,” “project,” variations ofsuch words, and similar expressions are intended to identify forward-looking statements. Factors that may cause actual results to differ materially from those discussed include,without limitation, changes to the proposed structure of the arrangements and transactions, market events, regulatory changes, and other factors.
Confidentiality and non-circumvention agreement: By accepting this document, the recipient agrees to keep this information confidential except as to its advisors or as requiredby law, and agrees not to engage in any discussions with the Company or other parties for the purpose of entering into transactions with the Company except in cooperation withus or after period of two years. This agreement limits in no way any other confidentiality or similar obligations you have agreed with us.
You are invited to contact us with any questions, including as to assumptions we have made in preparing financial or other information.
