Exhibit (c)(5)
Exhibit 3
CONFIDENTIAL & PRELIMINARY
Project Space
Discussion Materials
26 May 2011
Project Space
CONFIDENTIAL & PRELIMINARY
Disclaimer
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© Morgan Stanley and/or certain of its affiliates. All rights reserved.
Project Space
CONFIDENTIAL & PRELIMINARY
Table of Contents
Section 1 Earth Trading Performance
Section 2 Preliminary Valuation Analysis
Section 3 Potential Partners
Appendix A Supplemental Materials
Project Space
CONFIDENTIAL & PRELIMINARY
Section 1
Earth Trading Performance
Project Space
I/B/E/S Consensus NTM EBITDA
LTM; 30-Day Rolling Average
Earth Average Share Price
Prem / (Disc)
Period Avg. Price to Current
| 3 |
|
months $15.60 4.9% |
| 6 |
|
months $14.83 (0.3%) |
9 months $13.93 (6.4%)
12 months $13.57 (8.8%)
52-Week Low $9.95 (33.1%)
52-Week High $16.83 13.1%
CONFIDENTIAL & PRELIMINARY
EARTH TRADING PERFORMANCE
Earth Share Price Performance
Since August 2009 IPO
Share Price Performance $ / share
Note
1. As of May 23, 2011
Project Space
Price Performance (1)
Since IPO 12-Month 6-Month 1-Month
Earth (4.0%) 6.7% 18.6% (5.9%)
HCIT(2) 36.6% 15.3% 19.6% (0.3%)
PBM(3) 47.0% 16.6% 9.2% 7.8%
Payment 51.1% 31.4% 14.6% 2.8%
| (4) |
|
Processors
S&P 500 32.5% 21.1% 11.6% (1.5%)
CONFIDENTIAL & PRELIMINARY
EARTH TRADING PERFORMANCE
Historical Share Price Performance
Since IPO
Indexed Share Price Performance (1)
Since IPO
Notes
1. Market data as of May 23, 2011
2. HCIT index includes Cerner, Allscripts, Quality Systems and MedAssets
3. PBM index includes Express Scripts and Medco
4. Payment processors index includes Visa, Mastercard, ADP and Solera Holdings
Project Space
HCIT Peers Historical Averages
Current 1 Year 2 Years 5 Years
Earth 9.2x 8.5x 9.1x NA
CERN 13.2x 10.7x 10.4x 9.4x
MDRX 10.9x 12.7x 14.4x 15.3x
QSII 16.2x 14.1x 14.2x 13.2x
MDAS 9.2x 9.8x 10.8x 11.1x
PBM Peers Historical Averages
Current 1 Year 2 Years 5 Years
Earth 9.2x 8.5x 9.1x NA
ESRX 10.5x 10.3x 10.3x 11.2x
MHS 8.9x 8.6x 9.1x 9.9x
Payment Processors Hist. Avg.
Current 1 Year 2 Years 5 Years
Earth 9.2x 8.5x 9.1x NA
V 7.7x 8.2x 9.7x 10.7x
MA 8.2x 7.2x 7.4x 10.2x
ADP 11.2x 9.6x 9.3x 9.7x
SLH 13.2x 12.2x 11.3x 11.2x
CONFIDENTIAL & PRELIMINARY
EARTH TRADING PERFORMANCE
Historical Trading Multiples
NTM AV/EBITDA (1) 30-Day Rolling Average: Last Five Years (2)
Earth Hist. Multiple Distribution
HCIT Peers
PBM Peers
Payment Processors Peers
Notes
1. Per FactSet and I/B/E/S Consensus
2. Market data as of May 23, 2011
Project Space
Key
Ticker Company Name
AH Accretive Health
ATHN AthenaHealth
CERN Cerner
CPSI Computer Programs and
Systems
HMSY HMS Holdings
MDAS MedAssets
MDRX Allscripts
QSII Quality Systems
CONFIDENTIAL & PRELIMINARY
EARTH TRADING PERFORMANCE
Valuation Correlation to Growth
Earth vs. Comparables Universe
Aggregate Value / EBITDA’s Correlation with Revenue Growth (1)
AV / 2011E EBITDA x
Aggregate Value / EBITDA’s Correlation with EBITDA Growth (1)
AV / 2011E EBITDA x
Price / Earnings’ Correlation with EPS Growth (1)
P / 2011E EPS
Note
1. Current market data as of May 23, 2011; Regression lines exclude Earth
CONFIDENTIAL & PRELIMINARY
Project Space
Section 2
Preliminary Valuation Analysis
Project Space
2011 Management Public
Guidance
• Revenue
– $1.105—$1.135 Bn
• Adjusted EBITDA – $300—$310MM
• Adjusted EPS
– $1.00—$1.06 per share
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
Summary of Earth Financial Projections
Based on Wall Street Research and Revised Management Case (1)
Revenue (2)
Adjusted EBITDA (2,3)
Adjusted Earnings Per Share (2,4)
Levered Free Cash Flow (2,5)
Street 2010
Notes
1. Street Case based on I/B/E/S consensus and Wall Street Research as of May 23, 2011; Revised Management Case based on Earth management guidance
2. 2009A and 2010A are as reported
3. Adjusted for stock based compensation
4. Adjustments include: non-cash interest expense, transaction related amortization and stock based compensation
5. 2011 FCF excludes cash outflow related to $41MM cash acquisition of EquiClaim
Project Space
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
Review of Mars Proposals
$MM, except per share amounts
Offer Date
Metric 3/22/2011 4/1/2011 5/17/2011
Offer Price $18.50 $19.25 $19.50 $20.00 $22.00 $24.00
% increase from 3/22/2011 4% 5% 8% 19% 30%
Equity Value 2,164 2,256 2,287 2,349 2,594 2,840
Aggregate Value $3,057 $3,149 $3,180 $3,241 $3,487 $3,733
1-Day Premium 19% 19% 31% 34% 48% 61%
30-Day Premium 19% 23% 25% 29% 42% 55%
$ Value Premium $353 $325 $568 $601 $840 $1,079
| (1) |
|
61% 56% 98% 104% 145% 187% |
% of PV of Synergies
| (2) |
|
50% 46% 81% 86% 120% 154% |
% of Capitalized Synergies
2010A EBITDA Multiple $268 11.4x 11.7x 11.9x 12.1x 13.0x 13.9x
2011E EBITDA Multiple (Street) $303 10.1x 10.4x 10.5x 10.7x 11.5x 12.3x
| (3) |
|
$403 7.8x 8.1x 8.1x 8.3x 8.9x 9.5x |
2011E Post-Synergy EBITDA Multiple (Street)
2011E P/E Multiple (Street) $1.03 18.0x 18.7x 19.0x 19.5x 21.4x 23.4x
| (4) |
|
Mars Cash Accretion / Dilution with $100MM Run Rate Synergies
Street Case 2011 7.4% 7.2% 7.1% 7.0% 6.5% 6.0%
Street Case 2012 9.4% 9.3% 9.2% 9.1% 8.7% 8.3%
Revised Management Case 2011 7.5% 7.3% 7.2% 7.1% 6.6% 6.1%
Revised Management Case 2012 9.5% 9.4% 9.3% 9.2% 8.8% 8.4%
| (5) |
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Mars ROIC with $100MM Run Rate Synergies
Street Case 2011 5.3% 5.2% 5.1% 5.0% 4.7% 4.4%
Street Case 2012 6.7% 6.5% 6.4% 6.3% 5.9% 5.5%
Revised Management Case 2011 5.4% 5.2% 5.2% 5.1% 4.7% 4.4%
Revised Management Case 2012 6.7% 6.5% 6.5% 6.4% 5.9% 5.5%
Notes
1. Run rate synergies per management guidance. Synergies discounted at 9% WACC and assumes 50% of run rate synergies in Year 1, 100% of run rate synergies in Year 2 and 0% PGR, and cost to achieve synergies equal to 100% of run rate synergies. Assumes $100MM of run rate synergies (PV of $577MM)
2. Synergies capitalized at 8.0x run rate of $100MM; assumes $100MM cost to achieve
3. Assumes $100MM run-rate synergies in 2011 included in EBITDA and $100MM cost to achieve included in AV
4. Excludes the impact of transaction amortization, stock-based compensation and non-cash interest expense 11
5. ROIC = [(EBITA + Phased in Synergies)*(1 -Tax Rate)] / (Transaction Aggregate Value + Cost to Achieve Synergies)
Project Space
PV of Synergies (10)
$MM, except per share amounts
Total Per Share
$75MM Run Rate $433 $3.74
$100MM Run Rate $577 $4.98
$125MM Run Rate $721 $6.23
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
Preliminary Valuation Summary
As of May 23, 2011
Preliminary Valuation Summary (1,2,3)
Current Stock Price Proposed Offer Price
$ per share $14.88 [$20.00]
Methodology Metric
LTM Trading Range:
10 17
- (High on 04/06/11; Low on 09/09/10)
| (4) |
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| 1 |
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Analyst Price Targets : FV Median: $16 |
Future Value $11—$21 11 21
Present Value $10—$19 10 19
PV Median: $15
(5,6)
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Public Market Trading Multiples : |
2011 AV / EBITDA Trading Multiple (8.5x—11.0x) $303MM 15 21
12 15
2011 Growth Adj. EBITDA Trading Multiple (0.85x—1.00x) $303MM / 8.8%
15 21
2011 P / E Trading Multiple (15.0x—20.0x) $1.03
| (7) |
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Precedent Transactions : 19 26 |
HCIT $1Bn+ Deals: 10.0x—12.5x NTM EBITDA $316MM
14 24
Processing $1Bn+ Deals: 8.0x—12.0x NTM EBITDA $316MM
19 22
30%—50% Premium to Current Stock Price $14.88
| (8) |
|
| 4 |
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Illustrative LBO Analysis : 13 17 |
- 17.5%—25.0% IRR 15 21
- 6.5x LTM Leverage and Exit at Entry Multiple
| (8) |
|
16 22 |
| 5 |
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Discounted Cash Flow Analysis : |
- 8.0x—10.0x Terminal EBITDA; 8.5%—9.5% WACC 18 24
| (9) |
|
17 23 |
| 6 |
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Discounted Equity Value Analysis : |
18 24
Base Case (15.0x—20.0x NTM Net Income) 18 24
Dividend Recap Case (15.0x—20.0x NTM Net Income) 19 24
0 10 20 30 40
Notes
1. All per share values based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
2. Assumes minority interest accounted for by including Class B shares in basic shares calculation
3. EBITDA = “Adjusted EBITDA” which excludes stock-based compensation; EPS = “Adjusted EPS” which excludes non-cash interest expense, deal related amortization and stock- based compensation
4. Per Factset Analyst Price Targets, Present Value discounted back for an illustrative 12 months assuming 10.1% cost of equity
5. Street case based on median I/B/E/S consensus and Wall Street Research; based on a net debt at 3/31/2011 of $893MM (adjusted for EquiClaim acquisition)
6. Growth Adjusted EBITDA = 2011 EBITDA ($303MM) * 2011-2013 EBITDA CAGR * 100 (8.8x)
7. 3/31/2011 NTM EBITDA calculated as 75% of 2011 and 25% of 2012 EBITDA; estimated net debt as of 3/31/2011 of $893MM (adjusted for EquiClaim acquisition)
8. Valuation as of 6/30/2011; estimated net debt as of 6/30/2011 of $865MM for the Street Case and $863MM for the Revised Management Case
9. Discounted to 6/30/11 assuming a 10.1% cost of equity. Recap case assumes incremental debt to reach 4.5x leverage as of 6/30/2011 ($325MM based on LTM EBITDA of $285MM for the Street Case
and $332MM based on LTM EBITDA of $286MM for the Revised Management Case) 12
10.Run rate synergies per management guidance. Synergies discounted at 9% WACC and assumes 50% of run rate synergies in Year 1, 100% of run rate synergies in Year 2 and 0% PGR,
and cost to achieve synergies equal to 100% of run rate synergies. Per share synergies based on current FDSO
Project Space
“Adjusted EBITDA” Estimates $MM
“Adjusted EPS” Estimates $ / share
Maximum Estimate Median Estimate Minimum Estimate
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
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Equity Research is Neutral to Positive on Earth |
Summary Analyst Ratings Summary Analyst Price Targets
14 Analysts 9 Analysts (Median of $16.00)
Source Factset Source Factset
Summary of Investment Considerations
Positives Concerns
•Competitive advantage from unique •Organic growth remains challenging breadth and depth of network
•Continued low levels of healthcare utilization •Long-standing customer relationships
•Increased competition for potential assets may •Strong free cash flow limit growth opportunities
•Acquisitions represent potential upside •Acquisition integration
Note
1. As of May 23, 2011
Project Space
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
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Comparable Company Analysis |
Comparable Company Trading Analysis (1)
$ MM, except per share figures EBITDA AV / Growth -
Equity Aggregate AV/Revenue Rev. Growth AV/EBITDA Growth Adj. EBITDA Price/EPS EPS P/E/G
Share Price Value Value CY2011E CY2012E ‘11-’13 CY2011E CY2012E ‘11-’13 CY2011E CY2011E CY2012E LTG ‘11
Company as of 5/23/11 (Lcl MM) (Lcl MM) (x) (x) (%) (x) (x) (%) (x) (x) (x) (%) (%)
| (2) |
|
14.88 1,723 2,616 2.3x 2.2x 6.0% 8.6x 7.9x 8.8% 0.99x 14.5x 12.9x 15.5% 0.93x |
Earth
Revenue Cycle
Accretive Health Inc. 23.30 2,442 2,323 2.8x 2.1x 29.3% 27.8x 17.8x 48.5% 0.57x 52.6x 33.3x 30.0% 1.75x
HMS Holdings Corp. 77.47 2,285 2,169 5.8x 4.8x 20.5% 19.9x 16.4x 20.4% 0.97x 44.0x 34.9x 22.7% 1.94x
MedAssets Inc. 14.86 903 1,813 3.1x 2.8x 11.7% 9.4x 8.4x 14.9% 0.63x 15.2x 12.7x 20.0% 0.76x
athenahealth Inc. 45.31 1,644 1,550 5.0x 3.9x 26.7% 25.2x 19.1x 29.9% 0.84x 56.1x 41.4x 34.0% 1.65x
Mean 4.2x 3.4x 22.1% 20.6x 15.4x 28.4% 0.75x 42.0x 30.6x 26.7% 1.53x
Median 4.0x 3.4x 23.6% 22.5x 17.1x 25.2% 0.74x 48.3x 34.1x 26.4% 1.70x
Clincial
Cerner Corp. 121.08 10,927 10,418 5.0x 4.4x 12.9% 15.4x 13.2x 15.4% 1.00x 33.4x 27.9x 20.0% 1.67x
Allscripts Healthcare Solutions Inc. 19.92 3,789 4,092 2.8x 2.6x 10.7% 10.1x 9.4x 16.3% 0.62x 22.1x 18.7x 18.5% 1.20x
Quality Systems Inc. 88.07 2,585 2,467 6.1x 5.1x 15.2% 18.4x 14.6x 22.0% 0.84x 34.0x 27.0x 18.0% 1.89x
Computer Programs & Systems Inc. 61.03 675 649 3.7x 3.3x 9.7% 16.1x 13.8x 14.3% 1.13x 27.6x 23.6x 17.0% 1.62x
Mean 4.4x 3.9x 12.1% 15.0x 12.7x 17.0% 0.90x 29.3x 24.3x 18.4% 1.59x
Median 4.3x 3.9x 11.8% 15.8x 13.5x 15.8% 0.92x 30.5x 25.3x 18.3% 1.65x
PBM
Express Scripts Inc. 59.53 31,850 33,578 0.7x 0.7x 2.9% 11.6x 10.1x 13.2% 0.88x 18.6x 15.1x 18.1% 1.03x
Medco Health Solutions Inc. 63.66 26,080 30,937 0.4x 0.4x 0.6% 9.8x 8.7x 9.2% 1.06x 15.6x 12.8x 17.1% 0.91x
Mean 0.6x 0.6x 1.7% 10.7x 9.4x 11.2% 0.97x 17.1x 14.0x 17.6% 0.97x
Median 0.6x 0.6x 1.7% 10.7x 9.4x 11.2% 0.97x 17.1x 14.0x 17.6% 0.97x
Payment Processors
Visa Inc. 76.92 64,137 60,461 6.4x 5.8x 8.9% 10.1x 9.0x 11.3% 0.90x 15.1x 13.1x 20.0% 0.76x
MasterCard Inc. (Cl A) 271.96 34,767 30,746 4.9x 4.4x 10.7% 8.9x 7.8x 13.5% 0.66x 16.0x 13.6x 20.0% 0.80x
Automatic Data Processing Inc. 53.42 27,102 25,383 2.5x 2.3x 5.9% 11.4x 10.6x 6.8% 1.67x 20.3x 18.6x 11.5% 1.77x
Solera Holdings Inc. 57.50 4,104 4,833 6.8x 6.3x NA 15.6x 14.0x NA NA 22.4x 20.1x 15.0% 1.49x
Mean 5.2x 4.7x 8.5% 11.5x 10.3x 10.5% 1.08x 18.4x 16.4x 16.6% 1.20x
Median 5.6x 5.1x 8.9% 10.8x 9.8x 11.3% 0.90x 18.2x 16.1x 17.5% 1.14x
Mean 4.0x 3.5x 12.7% 15.0x 12.3x 18.1% 0.91x 28.1x 22.3x 20.1% 1.37x
Median 4.3x 3.6x 10.7% 13.5x 11.9x 14.9% 0.88x 22.2x 19.4x 19.3% 1.56x
Notes
1. Market Data as of May 23, 2011
2. Earth financials per street case
Project Space
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
| 3 |
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Select Precedent Strategic Transactions |
Transaction Value > $1.0Bn
Comparable Transactions in Healthcare IT
Aggregate Value Transaction Value /
Date Target / Acquiror ($ MM) LTM Sales LTM EBITDA NTM EBITDA
4-Aug-10 Executive Health Resources / Ingenix (UNH) 1,850 NA NA NA
9-Jun-10 Eclipsys / Allscripts 1,177 2.3x 14.0x 12.1x
21-Sep-09 Perot / Dell 3,703 1.4x 13.6x 12.0x
18-Jun-09 HLTH Corp / WebMD Health Corp 1,334 3.5x 36.8x 12.7x
18-Mar-08 Allscripts / Misys 1,169 2.2x 21.9x 14.1x
5-Nov-06 Per-Se / McKesson 1,649 3.0x 15.5x 10.5x
29-Sep-05 IDX / General Electric 1,269 2.2x 17.4x NA
Average 2.4x 19.9x 12.3x
Median 2.2x 16.4x 12.1x
Comparable Transactions in Processing / Information Services
Aggregate Value Transaction Value /
Date Target / Acquiror ($ MM) LTM Sales LTM EBITDA NTM EBITDA
7-Jun-10 Altegrity / Kroll 1,130 1.7x 8.2x 7.8x
1-Mar-10 Riskmetrics / MSCI 1,659 5.4x 16.8x 13.9x
26-Jun-09 First Advantage / First American 1,132 1.7x 10.0x 6.8x
1-Apr-09 Metavante Technologies / Fidelity National Information Services 4,467 2.6x 9.3x 8.7x
20-Feb-08 ChoicePoint, Inc. / Reed Elsevier Group plc 4,147 4.2x 14.4x 12.8x
2-Aug-07 CheckFree Corporation / Fiserv, Inc. 4,395 4.6x 14.9x 12.4x
26-Jun-07 eFunds Corporation / Fidelity National Information Services, Inc. 1,777 3.2x 13.3x 11.8x
15-May-07 Reuters Group plc / The Thomson Corporation 19,017 4.0x 22.0x 18.7x
14-Feb-07 TALX Corporation / Equifax Inc. 1,400 5.5x 16.1x 12.9x
20-Dec-06 John H. Harland Company / M&F Worldwide Corp. 1,687 1.6x 7.5x 7.5x
15-Sep-05 Certegy / Fidelity National Information Services 2,464 2.3x 10.0x NA
13-Jul-04 National Processing / Bank of America 1,137 2.2x 9.9x NA
18-May-04 Kroll, Inc. / Marsh & McLennan Companies, Inc. 1,715 3.1x 14.7x 11.4x
Average 3.2x 12.9x 11.3x
Median 3.1x 13.3x 11.8x
Project Space
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
(1)(2)
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Premiums Paid for U.S. Public Targets |
Deals of $1Bn or More
All Cash Consideration All Stock Consideration All Deals (3)
21-Year Avg: 38.3% S&P 500 (4) 21-Year Avg: 31.6% S&P 500 (4) 21-Year Avg: 36.1% S&P 500 (4) 21-Year Avg for Strategics Only: 40.4%
Source Thomson Reuters as of 5 April 2011
Notes
1. Includes announced bids for control of U.S. public targets with an aggregate value of $1Bn or more. Excludes terminated transactions, ESOPs, self-tenders, spin-offs, share repurchases, minority interest transactions, exchange offers, recapitalizations and restructurings. Includes transactions announced on or before 31 March 2011
2. Annual amounts based on mean of percentage premiums paid over unaffected stock price which is defined as stock price four weeks prior to the earliest of the deal announcement; announcement of a competing bid; and market rumors
3. Includes all announced bids irrespective of consideration offered (i.e., includes all cash, all stock and hybrid bids). Excludes outliers
4. S&P 500 indexed to closing price on the last trading day of 1990
Project Space
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
| 4 |
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Illustrative Financial Sponsor LBO Analysis |
Based on Street Case
Earth Financials (1)
$MM
2011 2H 2012E 2013E 2014E 2015E
Revenue $564 $1,202 $1,267 $1,335 $1,397
EBITDA 151 329 358 380 398
Net Income $39 $95 $112 $122 $133
D&A ex. Acquisition Amortization 26 55 59 64 67
CapEx (27) (50) (53) (56) (58)
Change in Working Capital (3) (7) (6) (6) (6)
Financing Fee Amortization 4 8 8 8 8
LFCF $39 $102 $121 $133 $145
Cumulative LFCF $39 $141 $262 $395 $539
IRR Sensitivity (2,3,4,5,6)
%
Purchase Price Premium to Current Implied ‘11E PF Leverage
| (7) |
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($ per share) ($14.88 as of 05/23/11) AV/ EBITDA 6.00x 6.25x 6.50x 6.75x 7.00x
$17.00 14% 9.5x 16.7% 17.3% 18.0% 18.8% 19.6%
$19.00 28% 10.3x 14.9% 15.4% 15.9% 16.4% 17.0%
$19.50 31% 10.5x 14.6% 15.0% 15.5% 16.0% 16.5%
$21.00 41% 11.1x 13.6% 14.0% 14.4% 14.8% 15.2%
$23.00 55% 11.9x 12.6% 12.9% 13.2% 13.5% 13.8%
$25.00 68% 12.7x 11.8% 12.0% 12.3% 12.5% 12.8%
Notes
1. Assumes 6.5x leverage and elimination of stock-based compensation
2. Estimated net debt of $865MM as of 6/30/2011
3. After equity provision for 7.5% management promote
4. Assumes 4.0x LTM bank debt (L+350 bps with 1.5% LIBOR floor and 99.5% OID) and 2.0 -3.0x LTM bond debt (8.00%); based on 6/30/2011 LTM EBITDA of $284MM
5. Based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
6. Assumes exit multiple is equal to the entry multiple
7. Assumes net debt of $893MM as of 3/31/11 (adjusted for EquiClaim acquisition)
Project Space
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
| 4 |
|
Illustrative Financial Sponsor LBO Analysis |
Based on Revised Management Case
Earth Financials (1)
$MM
2011 2H 2012E 2013E 2014E 2015E
Revenue $570 $1,206 $1,281 $1,364 $1,456
EBITDA 153 332 359 389 419
Net Income $40 $96 $112 $126 $145
D&A ex. Acquisition Amortization 26 55 59 64 67
CapEx (25) (55) (55) (55) (58)
Change in Working Capital (2) (7) (8) (9) (10)
Financing Fee Amortization 4 8 8 8 8
LFCF $43 $97 $116 $135 $153
Cumulative LFCF $43 $141 $257 $392 $545
IRR Sensitivity (2,3,4,5,6)
%
Purchase Price Premium to Current Implied ‘11E PF Leverage
| (7) |
|
($ per share) ($14.88 as of 05/23/11) AV/ EBITDA 6.00x 6.25x 6.50x 6.75x 7.00x
$17.00 14% 9.4x 19.7% 20.4% 21.3% 22.2% 23.2%
$19.00 28% 10.2x 17.8% 18.3% 18.9% 19.6% 20.3%
$19.50 31% 10.4x 17.4% 17.9% 18.5% 19.1% 19.7%
$21.00 41% 11.0x 16.3% 16.8% 17.2% 17.7% 18.3%
$23.00 55% 11.8x 15.2% 15.6% 15.9% 16.3% 16.8%
$25.00 68% 12.6x 14.3% 14.6% 14.9% 15.2% 15.6%
Notes
1. Assumes 6.5x leverage and elimination of stock-based compensation
2. Estimated net debt of $863MM as of 6/30/2011
3. After equity provision for 7.5% management promote
4. Assumes 4.0x LTM bank debt (L+350 bps with 1.5% LIBOR floor and 99.5% OID) and 2.0 -3.0x LTM bond debt (8.00%); based on 6/30/2011 LTM EBITDA of $286MM
5. Based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
6. Assumes exit multiple is equal to the entry multiple
7. Assumes net debt of $893MM as of 3/31/11 (adjusted for EquiClaim acquisition)
Project Space
• Earth share price is $14.88 as of May 23, 2011
• Includes stock based compensation as a cash expense
Discount Rate Sensitivity Analysis
$ per share
Exit Multiple
WACC 8.0x 9.0x 10.0x
8% $17.81 $20.21 $22.60
9% $16.93 $19.23 $21.53
10% $16.08 $18.29 $20.50
11% $15.28 $17.40 $19.52
12% $14.47 $16.56 $18.59
13% $13.69 $15.75 $17.70
14% $12.96 $14.95 $16.86
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
| 5 |
|
Earth Discounted Cash Flow Analysis |
Street Case (1), 5-Year DCF, Exit Multiple
Discounted Cash Flow Analysis (2)
$MM, unless otherwise noted
Exit Multiple 8.0x 9.0x 10.0x
Discount Rate
8.5% 9.0% 9.5% 8.5% 9.0% 9.5% 8.5% 9.0% 9.5%
Present Value of:
Cash Flows $582 $576 $569 $582 $576 $569 $582 $576 $569
Terminal Value (3) 2,307 2,260 2,214 2,596 2,543 2,491 2,884 2,825 2,768
Aggregate Value 2,889 2,836 2,783 3,178 3,118 3,060 3,466 3,401 3,337
Less: Net Debt (4) 865 865 865 865 865 865 865 865 865
Equity Value 2,024 1,971 1,919 2,313 2,253 2,195 2,601 2,536 2,472
Equity Value / Share (5) $17.36 $16.93 $16.50 $19.71 $19.23 $18.75 $22.06 $21.53 $21.01
Terminal Value Analysis
% Value in Cash Flows 20% 20% 20% 18% 18% 19% 17% 17% 17%
% Value in Terminal Value 80% 80% 80% 82% 82% 81% 83% 83% 83%
Implied Valuation Multiples
AV / 2011E EBITDA 9.5x 9.4x 9.2x 10.5x 10.3x 10.1x 11.5x 11.2x 11.0x
AV / 2012E EBITDA 8.8x 8.6x 8.5x 9.7x 9.5x 9.3x 10.5x 10.3x 10.1x
Implied PGR 2.6% 3.1% 3.6% 3.3% 3.7% 4.2% 3.8% 4.2% 4.7%
Notes
1. Based on Street projections which consist of median I/B/E/S consensus and Wall Street Research
2. Valuation date as of 6/30/2011
3. Based on 2016E EBITDA of $416MM, terminal FCF assumes CapEx = D&A in terminal year
4. Based on estimated net debt of $865MM as of 6/30/2011 and assumes minority interest accounted for by including Class B shares in basic shares calculation
5. All per share values based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
Project Space
• Earth share price is $14.88 as of May 23, 2011
• Includes stock based compensation as a cash expense
Discount Rate Sensitivity Analysis
$ per share
Exit Multiple
WACC 8.0x 9.0x 10.0x
8% $19.51 $22.11 $24.72
9% $18.56 $21.06 $23.55
10% $17.65 $20.05 $22.45
11% $16.79 $19.09 $21.39
12% $15.96 $18.18 $20.39
13% $15.17 $17.30 $19.43
14% $14.37 $16.47 $18.52
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
| 5 |
|
Earth Discounted Cash Flow Analysis |
Revised Management Case (1), 5-Year DCF, Exit Multiple
Discounted Cash Flow Analysis (2)
$MM, unless otherwise noted
Exit Multiple 8.0x 9.0x 10.0x
Discount Rate
8.5% 9.0% 9.5% 8.5% 9.0% 9.5% 8.5% 9.0% 9.5%
Present Value of:
Cash Flows $585 $578 $572 $585 $578 $572 $585 $578 $572
Terminal Value (3) 2,507 2,456 2,406 2,821 2,763 2,707 3,134 3,070 3,007
Aggregate Value 3,092 3,034 2,978 3,405 3,341 3,278 3,719 3,648 3,579
Less: Net Debt (4) 863 863 863 863 863 863 863 863 863
Equity Value 2,229 2,171 2,115 2,542 2,478 2,416 2,856 2,785 2,716
Equity Value / Share (5) $19.03 $18.56 $18.10 $21.58 $21.06 $20.55 $24.13 $23.55 $22.99
Terminal Value Analysis
% Value in Cash Flows 19% 19% 19% 17% 17% 17% 16% 16% 16%
% Value in Terminal Value 81% 81% 81% 83% 83% 83% 84% 84% 84%
Implied Valuation Multiples
AV / 2011E EBITDA 10.1x 9.9x 9.8x 11.2x 11.0x 10.7x 12.2x 12.0x 11.7x
AV / 2012E EBITDA 9.3x 9.2x 9.0x 10.3x 10.1x 9.9x 11.2x 11.0x 10.8x
Implied PGR 2.9% 3.3% 3.8% 3.5% 3.9% 4.4% 3.9% 4.4% 4.9%
Notes
1. Per management guidance
2. Valuation date as of 6/30/2011
3. Based on 2016E EBITDA of $452MM, terminal FCF assumes CapEx = D&A in terminal year
4. Based on estimated net debt of $863MM as of 6/30/2011 and assumes minority interest accounted for by including Class B shares in basic shares calculation
5. All per share values based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
Project Space
Illustrative Calculation (7)
Street Case Based on 15.0x P/E
Current 6/30/2012
NTM Net Income ($MM) $133 $152 P / E Multiple 13.9x 15.0x Future Equity Value ($MM) $1,845 $2,277
Future Share Price $19.42
PV Future Share Price $14.88 $17.64
Dividend Recap
Incremental A/T Interest ($14) ($14)
Value Impact ($199) ($214)
Cash Dividend $320 $352
Total Value $121 $138
Future Equity Value ($MM) $1,966 $2,415 Future Share Price $20.69 Change Per Share $0.98 $1.16 PV Future Share Price $15.86 $18.79
Street Case Low / High
Street Case + Dividend Recap Low / High
Revised Management Case Low / High
Revised Mgmt Case
+ Dividend Recap Low / High
CONFIDENTIAL & PRELIMINARY
PRELIMINARY VALUATION ANALYSIS
| 6 |
|
Summary of Hypothetical Future Value Analysis |
As of May 23, 2011
PV of Future Implied Value to Shareholders—Based on 9.0x—11.0x NTM EBITDA Multiple (1,2,3,4,5,6)
PV of Future Implied Value to Shareholders—Based on 15.0x—20.0x NTM Net Income Multiple (1,2,3,4,5,6)
Notes
1. Excludes ITR-related gross payments of $142MM for existing tax attributes as of 12/31/2010 and any future tax attributes
2. Discounted to 6/30/2011 assuming a cost of equity of 10.1%
3. Based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
4. 6/30/2012 NTM EBITDA calculated as 50% of 2012E EBITDA and 50% of 2013E EBITDA; same methodology applied to calculate 6/30/2013 and 6/30/2014 NTM EBITDA; similar methodology applied to calculated NTM Net Income
5. Assumes debt of $959MM and cash of $94MM as of 6/30/2011, $100MM annual debt paydown and cash grown at levered FCF assuming 1% pre-tax interest income
6. Recap case assumes incremental debt at 7.25% to reach 4.5x leverage as of 6/30/2011 ($325MM based on LTM EBITDA of $285MM for the Street Case and $332MM based on LTM EBITDA of $286MM for the Revised Management Case). Assumes proceeds post 1.5% fees ($320MM for the Street Case and $327MM for the Revised Management Case) are distributed as a cash dividend to all shareholders and grown at a cost of equity of 10.1%
7. Current share price based on management guidance of FDSO of 124MM; 6/30/2012 per share amounts based on dilution of options and warrants under the treasury stock method assuming 115.82MM basic Class A and and Class B shares
Project Space
CONFIDENTIAL & PRELIMINARY
Section 3
Potential Partners
Project Space
• Several potential alternate partners would have good strategic fit with Earth
– Threshold question is around likelihood / ability to move quickly
CONFIDENTIAL & PRELIMINARY
POTENTIAL PARTNERS
Alternate Strategic Partners
Alternate Strategic Partners Key Rationale Likelihood of Estimated Near-Term As sessment
Engaging Quickly Pre-Tax Synergies (1)
• Scale Ingenix + Optum
(Diversification)
• Data and payments focus
• Refocusing on data and
analytics
• Diversification
• Strengthen HIE / clinical
decision support
• Leverage technology in
provider RCM bus iness
• Get proprietary data and
deepen vertic al expertise
• Scale healthc are BPO
• Scale payer data and
analytics
• Expand payer data and
analytics
• Scale payer business
intelligence and BPO
Note
1. Relative to Mars which would get a full circle
Project Space
Mars Summary Statistics (7,9)
$MM
Market Cap. $21,221
Cash $3,612
Debt $4,019
Aggregate Value $21,628
Standalone Leverage 1.3x
AV / EBITDA
2011 7.2x
2012 6.6x
P / E
2011 14.7x
2012 13.0x
CONFIDENTIAL & PRELIMINARY
POTENTIAL PARTNERS
Pro Forma Impact to Mars
Assumes 1/1/2011 Transaction Date
“[A] debt-financed acquisition . . . that increased debt leverage to a level beyond 2x for an extended period of time could prompt a ratings downgrade. “
EPS Accretion / Dilution (1,2,3,4)
$MM, except per share values
Street Case Revised Management Case (5) (6) (7) (5) (6) Premium to Agg. Cash Acc. / (Dil.) ROIC PF Debt / Moody’s -Adj. Debt / Cash Acc. / (Dil.) ROIC
| (3) |
|
Price ($) Current ($14.88) Value CY2011E CY2012E CY2011E CY2012E ‘11E EBITDA ‘11E EBITDAR CY2011E CY2012E CY2011E CY2012E No Synergies $19.50 31% $3,180 4.7% 5.0% 4.3% 4.7% 2.2x 2.4x 4.8% 5.1% 4.4% 4.8% $20.00 34% $3,241 4.6% 4.9% 4.2% 4.6% 2.2x 2.4x 4.7% 5.0% 4.3% 4.7% $21.00 41% $3,364 4.4% 4.7% 4.1% 4.5% 2.2x 2.5x 4.5% 4.8% 4.1% 4.5% $22.00 48% $3,487 4.1% 4.5% 3.9% 4.3% 2.3x 2.5x 4.2% 4.6% 4.0% 4.4% $23.00 55% $3,610 3.9% 4.3% 3.8% 4.2% 2.3x 2.5x 4.0% 4.3% 3.8% 4.2%
| (8) |
|
$75MM in Run Rate Synergies |
$19.50 31% $3,180 6.5% 8.2% 4.9% 6.0% 2.2x 2.4x 6.6% 8.3% 5.0% 6.1% $20.00 34% $3,241 6.4% 8.1% 4.8% 5.9% 2.2x 2.4x 6.5% 8.2% 4.9% 5.9% $21.00 41% $3,364 6.2% 7.9% 4.7% 5.7% 2.2x 2.5x 6.3% 7.9% 4.7% 5.7% $22.00 48% $3,487 5.9% 7.6% 4.5% 5.5% 2.3x 2.5x 6.0% 7.7% 4.5% 5.5% $23.00 55% $3,610 5.7% 7.4% 4.3% 5.3% 2.3x 2.5x 5.8% 7.5% 4.4% 5.4%
| (8) |
|
$125MM in Run Rate Synergies $19.50 31% $3,180 7.7% 10.3% 5.3% 6.8% 2.2x 2.4x 7.8% 10.4% 5.3% 6.9% $20.00 34% $3,241 7.6% 10.2% 5.2% 6.7% 2.2x 2.4x 7.7% 10.3% 5.2% 6.8% $21.00 41% $3,364 7.3% 10.0% 5.0% 6.5% 2.2x 2.5x 7.4% 10.1% 5.1% 6.5% $22.00 48% $3,487 7.1% 9.8% 4.9% 6.3% 2.3x 2.5x 7.2% 9.8% 4.9% 6.3% $23.00 55% $3,610 6.9% 9.5% 4.7% 6.1% 2.3x 2.5x 7.0% 9.6% 4.7% 6.1%
Notes
1. As of May 23, 2011
2. PF analysis assumes all existing Earth debt is retired and new debt is raised at 4.125% to fund the entire cost of the acquisition
3. Earth equity value based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
4. Earth net debt assumes minority interest accounted for by including Class B shares in basic shares calculation
5. Cash EPS excludes transaction amortization, stock-based compensation, and non-cash interest expense
6. ROIC = [(EBITA + Phased in Synergies)*(1 -Tax Rate)] / (Transaction Aggregate Value + Cost to Achieve Synergies)
7. Mars cash and debt figures exclude impact of System C Healthcare acquisition
8. Per management guidance. Assumes 50% run rate in 2011 and 100% run rate in 2012
9. Multiples based on median I/B/E/S consensus
Project Space
CONFIDENTIAL & PRELIMINARY
POTENTIAL PARTNERS
Mars Acquisitions
Acquisitions >$100MM Since January 2005
Selected Targets
Company Date Deal Size AV/LTM Revenue AV/LTM EBITDA Announced Synergies
Mar-03-2011 $140MM 1.9x 15.7x NA
Nov-01-2010 $2,160MM 0.6x ~9x $67-89MM
Apr-08-2008 $190MM 0.3x ~17x NA
Oct-04-2007 $575MM 0.2x NA NA
Nov-05-2006 $1,649MM 3.0x 15.5x $50-75MM
Jul-08-2005 $489MM 0.15x 15.8x $10MM
Project Space
Ursa Summary Statistics (7,8)
$MM
Market Cap. $53,262
Cash $9,790
Debt $12,050
Aggregate Value $55,522
AV / EBITDA
2011 6.5x
2012 6.2x
P / E
2011 11.8x
2012 11.0x
CONFIDENTIAL & PRELIMINARY
POTENTIAL PARTNERS
Pro Forma Impact to Ursa
Assumes 1/1/2011 Transaction Date
EPS Accretion / Dilution (1,2,3,4)
$MM, except per share values
Street Case Revised Management Case
Premium to Agg. Cash Acc. / (Dil.) (5) ROIC (6) PF Debt / Cash Acc. / (Dil.) (5) ROIC (6)
| (3) |
|
Price ($) Current ($14.88) Value CY2011E CY2012E CY2011E CY2012E ‘11E EBITDA CY2011E CY2012E CY2011E CY2012E
No Synergies
$19.50 31% $3,180 1.7% 1.8% 4.3% 4.7% 1.7x 1.7% 1.9% 4.4% 4.8%
$20.00 34% $3,241 1.6% 1.8% 4.2% 4.6% 1.7x 1.7% 1.8% 4.3% 4.7%
$21.00 41% $3,364 1.6% 1.7% 4.1% 4.5% 1.7x 1.6% 1.8% 4.1% 4.5%
$22.00 48% $3,487 1.5% 1.7% 3.9% 4.3% 1.7x 1.5% 1.7% 4.0% 4.4%
$23.00 55% $3,610 1.4% 1.6% 3.8% 4.2% 1.8x 1.5% 1.6% 3.8% 4.2%
| (7) |
|
$75MM in Run Rate Synergies
$19.50 31% $3,180 2.2% 2.8% 4.9% 6.0% 1.7x 2.2% 2.9% 5.0% 6.1%
$20.00 34% $3,241 2.2% 2.8% 4.8% 5.9% 1.7x 2.2% 2.8% 4.9% 5.9%
$21.00 41% $3,364 2.1% 2.7% 4.7% 5.7% 1.7x 2.1% 2.8% 4.7% 5.7%
$22.00 48% $3,487 2.0% 2.7% 4.5% 5.5% 1.7x 2.1% 2.7% 4.5% 5.5%
$23.00 55% $3,610 2.0% 2.6% 4.3% 5.3% 1.8x 2.0% 2.6% 4.4% 5.4%
| (7) |
|
$125MM in Run Rate Synergies
$19.50 31% $3,180 2.6% 3.5% 5.3% 6.8% 1.7x 2.6% 3.5% 5.3% 6.9%
$20.00 34% $3,241 2.5% 3.5% 5.2% 6.7% 1.7x 2.6% 3.5% 5.2% 6.8%
$21.00 41% $3,364 2.5% 3.4% 5.0% 6.5% 1.7x 2.5% 3.4% 5.1% 6.5%
$22.00 48% $3,487 2.4% 3.3% 4.9% 6.3% 1.7x 2.4% 3.4% 4.9% 6.3%
$23.00 55% $3,610 2.3% 3.3% 4.7% 6.1% 1.8x 2.4% 3.3% 4.7% 6.1%
Notes
1. As of May 23, 2011
2. PF analysis assumes all existing Earth debt is retired and new debt is raised at 4.125% to fund the entire cost of the acquisition
3. Earth equity value based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
4. Earth net debt assumes minority interest accounted for by including Class B shares in basic shares calculation
5. Cash EPS excludes transaction amortization, stock-based compensation, and non-cash interest expense
6. ROIC = [(EBITA + Phased in Synergies)*(1 -Tax Rate)] / (Transaction Aggregate Value + Cost to Achieve Synergies)
7. Per management guidance. Assumes 50% run rate in 2011 and 100% run rate in 2012
8. Multiples based on median I/B/E/S consensus
Project Space
• There are a number of financial sponsors that would be interested in potentially purchasing Earth
• However, size of the equity investment would limit the number of firms able to participate on standalone basis
– Club deal possibility could open the door for additional bidders
• A significant number of large private equity funds would take a look at the business given its size and financial profile
CONFIDENTIAL & PRELIMINARY
POTENTIAL PARTNERS
Possible Financial Buyers
Fund
Size
Name ($Bn) Select Investments
• Marken
15.4 Trizetto
•
• Accellent
11.5 • HCA
• Quintiles
• Warner Chilcott
• Amadeus IT Holdings
• Medica France
8.0 • Multiplan
• Centro Medico Teknon*
• General Healthcare Group*
Blacksto • TeamHealth
ne 21.7 • Southern Cross Healthcare
• Vanguard Health Systems
Carlyle • Carfx
13.7 • InteliStaf*
• Skila
• MultiPlan*
• Accellent
• Capsugel
17.6 • First Data
• Jazz Pharma
• MedCath
• HCA
Fund
Size
Name ($Bn) Select Investments
• Decision Resources
12.1 • ikaSystems
• VRAD
KKR 9.3 • MultiPlan
• inVentiv Health
10.1 Warner Chilcott
•
• Avaya
18.8 IMS Health
•
• Bausch & Lomb
15.0 • Eclipsys Corporation*
• InterMune
• Metavante
Note
| * |
|
Indicates prior investment |
Project Space
CONFIDENTIAL & PRELIMINARY
Appendix A
Supplemental Materials
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Valuation Matrix
Street Case
Earth Valuation Matrix (1)
Premium Aggregate Value / EBITDA Price / EPS
Share Price 1-Day 30-Day (2) (3) CY ‘11E CY ‘12E CY ‘11E CY ‘12E
Equity Value Aggregate Value
($) (%) (%) ($MM) ($MM) ($MM) ($MM) ($) ($)
Statistic $14.88 $15.47 $303 $329 $1.03 $1.15
$14.88 0% (4%) 1,723 2,616 8.6x 7.9x 14.5x 12.9x
$15.00 1% (3%) 1,737 2,630 8.7x 8.0x 14.6x 13.0x
$16.00 8% 3% 1,857 2,750 9.1x 8.4x 15.6x 13.9x
$17.00 14% 10% 1,980 2,873 9.5x 8.7x 16.6x 14.7x
$18.00 21% 16% 2,103 2,996 9.9x 9.1x 17.5x 15.6x
$19.00 28% 23% 2,226 3,118 10.3x 9.5x 18.5x 16.5x
$20.00 34% 29% 2,349 3,241 10.7x 9.8x 19.5x 17.3x
$21.00 41% 36% 2,471 3,364 11.1x 10.2x 20.5x 18.2x
$22.00 48% 42% 2,594 3,487 11.5x 10.6x 21.4x 19.1x
$23.00 55% 49% 2,717 3,610 11.9x 11.0x 22.4x 19.9x
$24.00 61% 55% 2,840 3,733 12.3x 11.3x 23.4x 20.8x
$25.00 68% 62% 2,963 3,855 12.7x 11.7x 24.3x 21.7x
$19.50 31% 26% 2,287 3,180 10.5x 9.7x 19.0x 16.9x
Notes
1. Based on median I/B/E/S consensus as of May 23, 2011
2. Based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
3. Based on net debt of $893MM (adjusted for EquiClaim acquisition); assumes minority interest accounted for by including Class B shares in basic shares calculation
Project Space
HCIT Peers Historical Averages
Current 1 Year 2 Years 5 Years
Earth 16.9x 15.5x 16.3x NA
CERN 23.7x 19.5x 19.0x 17.1x
MDRX 17.7x 20.1x 22.6x 24.3x
QSII 24.9x 21.6x 21.9x 20.4x
MDAS 14.2x 15.2x 16.6x 17.0x
PBM Peers Historical Averages
Current 1 Year 2 Years 5 Years
Earth 16.9x 15.5x 16.3x NA
ESRX 16.5x 16.2x 16.2x 17.9x
MHS 14.4x 14.1x 14.9x 16.4x
Payment Processors Hist. Avg.
Current 1 Year 2 Years 5 Years
Earth 16.9x 15.5x 16.3x NA
V 12.1x 12.8x 15.3x 16.8x
MA 12.4x 11.2x 11.6x 15.8x
ADP 18.4x 15.8x 14.8x 15.2x
SLH 18.5x 17.4x 16.3x 17.1x
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Historical Trading Multiples
Unlevered NTM AV / Earnings (1) 30-Day Rolling Average: Last Five Years (2)
HCIT Peers
PBM Peers
Payment Processors Peers
Notes
1. Defined as Aggregate Value / NTM EBIAAT; EBIAAT defined as earnings before interest and amortization and after tax
2. Market data as of May 23, 2011
Project Space
HCIT Peers Historical Averages
Current 1 Year 2 Years 5 Years
Earth 14.4x 13.3x 14.8x NA
CERN 30.5x 26.2x 26.3x 24.7x
MDRX 21.6x 22.3x 24.6x 24.3x
QSII 31.3x 27.0x 27.1x 25.0x
MDAS 15.0x 18.7x 21.3x 22.8x
PBM Peers Historical Averages
Current 1 Year 2 Years 5 Years
Earth 14.4x 13.3x 14.8x NA
ESRX 16.7x 16.8x 17.4x 18.8x
MHS 13.8x 14.4x 16.0x 17.8x
Payment Processors Hist. Avg.
Current 1 Year 2 Years 5 Years
Earth 14.4x 13.3x 14.8x NA
V 14.6x 15.5x 18.4x 20.7x
MA 15.4x 14.4x 15.7x 20.2x
ADP 20.1x 17.7x 17.1x 17.7x
SLH 20.8x 19.0x 17.3x 18.0x
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Historical Trading Multiples
NTM P/E(1) Rolling 30-Day Rolling Average: Last Five Years (2)
HCIT Peers
PBM Peers
Payment Processors Peers
Notes
1. Per FactSet and I/B/E/S Consensus
2. Market data as of May 23, 2011
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Select Precedent Sponsor Transactions
Transaction Value > $1.0Bn
Comparable Sponsor Transactions in Healthcare IT
Equity Value Aggregate Value Transaction Value /
Date Target / Acquiror ($ MM) ($ MM) LTM Sales LTM EBITDA
6-May-10 Inventiv / TH Lee 916 1,156 1.1x 8.5x
5-Nov-09 IMS Health / TPG 4,255 5,298 2.4x 10.8x
11-Apr-08 Trizetto / Apax 1,231 1,148 1.4x 14.2x
26-Sep-06 Emdeon (52% stake) / General Atlantic—2,308 3.3x 13.7x
Average 2.1x 11.8x
Median 1.9x 12.3x
Comparable Sponsor Transactions in Processing / Information Services
Aggregate Value Transaction Value /
Date Target / Acquiror ($ MM) LTM Sales LTM EBITDA
6-Aug-10 RBS Worldpay / Bain & Advent 3,040 3.3x 8.4x
4-May-10 IDC / Silver Lake & Warburg Pincus 3,043 4.0x 11.3x
30-Mar-09 Fifth Third Bank Processing Solution (51% Stake) / Advent International 2,350 3.3x 8.2x
30-May-07 Ceridian / Thomas H. Lee Partners & Fidelity National Financial 5,016 3.2x 14.3x
17-Apr-07 Catalina Marketing Corporation / Hellman & Freidman 1,673 3.6x 10.9x
2-Apr-07 First Data Corporation / KKR 27,703 3.8x 15.1x
16-Oct-06 Open Solutions / Carlyle & Providence Equity 1,343 3.0x 10.2x
8-Mar-06 VNU / Consortium 10,651 2.4x 13.4x
28-Mar-05 SunGard / Consortium 10,844 3.0x 10.4x
Average 3.3x 11.4x
Median 3.3x 10.9x
Project Space
• Assumes 100% of premium to current price is included in the amount of synergies paid away
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Synergy Sharing Analysis
Synergy Sharing Analysis
$MM, except per share amounts
| (1) |
|
Current Purchase Price Per Share
Price Per Earth Share $14.88 $19.50 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00
% Premium to:
Current 0% 31% 34% 41% 48% 55% 61% 68%
30-Day Average ($15.47) (4%) 26% 29% 36% 42% 49% 55% 62%
60-Day Average ($15.60) (5%) 25% 28% 35% 41% 47% 54% 60%
52-Week High ($16.83) (12%) 16% 19% 25% 31% 37% 43% 49%
Premium Paid to Current
Premium Paid ($ / share) $0.00 $4.62 $5.12 $6.12 $7.12 $8.12 $9.12 $10.12
| (2) |
|
$0 $542 $601 $720 $840 $959 $1,079 $1,199 |
Total Premium Paid ($MM)
| (3) |
|
% of Present Value of Synergies Assuming :
$75MM Run Rate 0% 125% 139% 166% 194% 222% 249% 277%
$100MM Run Rate 0% 94% 104% 125% 145% 166% 187% 208%
$125MM Run Rate 0% 75% 83% 100% 116% 133% 150% 166%
| (4) |
|
% of Capitalized Synergies Assuming :
$75MM Run Rate 0% 103% 115% 137% 160% 183% 206% 228%
$100MM Run Rate 0% 77% 86% 103% 120% 137% 154% 171%
$125MM Run Rate 0% 62% 69% 82% 96% 110% 123% 137%
Notes
1. As of May 23, 2011
2. Based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
3. Run rate synergies per management guidance. Synergies discounted at 9% WACC and assumes 50% of run rate synergies in Year 1, 100% of run rate synergies in Year 2 and thereafter, and cost to achieve synergies equal to 100% of run rate synergies
4. Synergies capitalized at 8.0x run rate; assumes cost to achieve synergies equal to 100% of run rate synergies
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Hypothetical Future Value Analysis
Street Case
Future Implied Stock Price—Based on NTM EBITDA Multiple
As of 5/23/2011
Present Value of Future Stock Price (1,2,3)
As of 5/23/2011
6/30/2012E 6/30/2013E 6/30/2014E
| (4) |
|
344 369 389 |
NTM EBITDA ($MM)
% Growth 9% 7% 5%
FV of Hypothetical Stock Price and Implied P/E Multiple
Implied Implied Implied
NTM P/E P/E P/E
Multiple Multiple Multiple Multiple
Fwd AV / EBITDA Multiple—2 Yr Avg. 9.0x $20.09 18.4x $23.23 19.0x $26.12 19.4x
Fwd AV / EBITDA Multiple—1.0x Higher 10.0x $22.88 21.0x $26.23 21.4x $29.29 21.7x
Fwd AV / EBITDA Multiple—2.0x Higher 11.0x $25.68 23.6x $29.24 23.9x $32.46 24.1x
PV of Hypothetical Future Stock Price and Implied P/E Multiple (5)
Fwd AV / EBITDA Multiple—2 Yr Avg. 9.0x $18.25 18.4x $19.16 19.0x $19.57 19.4x
Fwd AV / EBITDA Multiple—1.0x Higher 10.0x $20.79 21.0x $21.64 21.4x $21.95 21.7x
Fwd AV / EBITDA Multiple—2.0x Higher 11.0x $23.33 23.6x $24.12 23.9x $24.32 24.1x
Future Implied Stock Price—Based on NTM P/E Multiple
As of 5/23/2011
Present Value of Future Stock Price (1,2,3)
As of 5/23/2011
6/30/2012E 6/30/2013E 6/30/2014E
| (4) |
|
152 167 178 |
NTM Net Income ($MM)
% Growth 12% 10% 7%
FV of Hypothetical Stock Price and Implied AV/EBITDA Multiple
Implied Implied Implied
NTM AV/EBITDA AV/EBITDA AV/EBITDA
Multiple Multiple Multiple Multiple
Fwd P / E Multiple—2 Yr Avg. 15.0x $19.42 8.8x $21.30 8.4x $22.66 7.9x
Fwd P / E Multiple—2.5x Higher 17.5x $22.51 9.9x $24.70 9.5x $26.29 9.1x
Fwd P / E Multiple—5.0x Higher 20.0x $25.60 11.0x $28.11 10.6x $29.92 10.2x
PV of Hypothetical Future Stock Price and Implied AV/EBITDA Multiple (5)
Fwd P / E Multiple—2 Yr Avg. 15.0x $17.64 8.8x $17.57 8.4x $16.98 7.9x
Fwd P / E Multiple—2.5x Higher 17.5x $20.44 9.9x $20.38 9.5x $19.70 9.1x
Fwd P / E Multiple—5.0x Higher 20.0x $23.25 11.0x $23.19 10.6x $22.42 10.2x
Notes
1. Excludes ITR-related gross payments of $142MM for existing tax attributes as of 12/31/2010 and any future tax attributes
2. Discounted to 6/30/2011 assuming a cost of equity of 10.1%
3. Based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
4. 6/30/2012 NTM EBITDA calculated as 50% of 2012E EBITDA and 50% of 2013E EBITDA; same methodology applied to calculate 6/30/2013 and 6/30/2014 NTM EBITDA; similar
methodology applied to calculated NTM Net Income
5. Assumes debt of $959MM and cash of $94MM as of 6/30/2011, $100MM annual debt paydown and cash grown at levered FCF assuming 1% pre-tax interest income
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Hypothetical Future Value Analysis
Revised Management Case
Future Implied Stock Price—Based on NTM EBITDA Multiple
As of 5/23/2011
Present Value of Future Stock Price (1,2,3)
As of 5/23/2011
6/30/2012E 6/30/2013E 6/30/2014E
| (4) |
|
345 374 404 |
NTM EBITDA ($MM)
% Growth 8% 8% 8%
FV of Hypothetical Stock Price and Implied P/E Multiple
Implied Implied Implied
NTM P/E P/E P/E
Multiple Multiple Multiple Multiple
Fwd AV / EBITDA Multiple—2 Yr Avg. 9.0x $20.23 18.4x $23.56 19.1x $27.21 19.9x
Fwd AV / EBITDA Multiple—1.0x Higher 10.0x $23.04 20.9x $26.60 21.6x $30.50 22.3x
Fwd AV / EBITDA Multiple—2.0x Higher 11.0x $25.85 23.5x $29.64 24.1x $33.79 24.7x
PV of Hypothetical Future Stock Price and Implied P/E Multiple (5)
Fwd AV / EBITDA Multiple—2 Yr Avg. 9.0x $18.38 18.4x $19.44 19.1x $20.39 19.9x
Fwd AV / EBITDA Multiple—1.0x Higher 10.0x $20.93 20.9x $21.95 21.6x $22.85 22.3x
Fwd AV / EBITDA Multiple—2.0x Higher 11.0x $23.48 23.5x $24.46 24.1x $25.32 24.7x
Future Implied Stock Price—Based on NTM P/E Multiple
As of 5/23/2011
Present Value of Future Stock Price (1,2,3)
As of 5/23/2011
6/30/2012E 6/30/2013E 6/30/2014E (4) 153 170 187 NTM Net Income ($MM)
% Growth 12% 11% 10%
FV of Hypothetical Stock Price and Implied AV/EBITDA Multiple
Implied Implied Implied NTM AV/EBITDA AV/EBITDA AV/EBITDA
Multiple Multiple Multiple Multiple Fwd P / E Multiple—2 Yr Avg. 15.0x $19.53 8.8x $21.63 8.4x $23.76 8.0x Fwd P / E Multiple—2.5x Higher 17.5x $22.64 9.9x $25.09 9.5x $27.57 9.1x
Fwd P / E Multiple—5.0x Higher 20.0x $25.75 11.0x $28.55 10.6x $31.39 10.3x PV of Hypothetical Future Stock Price and Implied AV/EBITDA Multiple (5) Fwd P / E Multiple—2 Yr Avg. 15.0x $17.74 8.8x $17.85 8.4x $17.81 8.0x
Fwd P / E Multiple—2.5x Higher 17.5x $20.57 9.9x $20.70 9.5x $20.66 9.1x
Fwd P / E Multiple—5.0x Higher 20.0x $23.39 11.0x $23.56 10.6x $23.52 10.3x
Notes
1. Excludes ITR-related gross payments of $142MM for existing tax attributes as of 12/31/2010 and any future tax attributes
2. Discounted to 6/30/2011 assuming a cost of equity of 10.1%
3. Based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
4. 6/30/2012 NTM EBITDA calculated as 50% of 2012E EBITDA and 50% of 2013E EBITDA; same methodology applied to calculate 6/30/2013 and 6/30/2014 NTM EBITDA; similar methodology applied to calculated NTM Net Income
5. Assumes debt of $959MM and cash of $94MM as of 6/30/2011, $100MM annual debt paydown and cash grown at levered FCF assuming 1% pre-tax interest income
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Hypothetical Future Value Analysis
Street Case Assuming Dividend Recap
Present Value of Future Value to Shareholders (1,2,3,6)
As of 5/23/2011
6/30/2012E 6/30/2013E 6/30/2014E (4) 344 369 389 NTM EBITDA ($MM)
% Growth 9% 7% 5%
FV of Hypothetical Stock Price + Cash Dividend
Implied Implied Implied NTM P/E P/E P/E
Multiple Multiple Multiple Multiple Fwd AV / EBITDA Multiple—2 Yr Avg. 9.0x $20.35 21.0x $23.65 21.5x $26.74 21.8x Fwd AV / EBITDA Multiple—1.0x Higher 10.0x $23.12 23.9x $26.64 24.2x $29.89 24.4x
Fwd AV / EBITDA Multiple—2.0x Higher 11.0x $25.90 26.7x $29.63 25.7x $33.05 26.9x PV of Hypothetical Future Stock Price + Cash Dividend (5) Fwd AV / EBITDA Multiple—2 Yr Avg. 9.0x $18.48 21.0x $19.51 21.5x $20.04 21.8x
Fwd AV / EBITDA Multiple—1.0x Higher 10.0x $21.00 23.9x $21.98 24.2x $22.40 24.4x
Fwd AV / EBITDA Multiple—2.0x Higher 11.0x $23.53 26.7x $24.44 25.7x $24.76 26.9x
Present Value of Future Value to Shareholders (1,2,3,6)
As of 5/23/2011
6/30/2012E 6/30/2013E 6/30/2014E (4) 138 153 164 NTM Net Income ($MM)
% Growth 14% 11% 7%
FV of Hypothetical Stock Price + Cash Dividend
Implied Implied Implied NTM AV/EBITDA AV/EBITDA AV/EBITDA
Multiple Multiple Multiple Multiple Fwd P / E Multiple—2 Yr Avg. 15.0x $20.69 7.0x $22.85 7.3x $24.52 7.4x Fwd P / E Multiple—2.5x Higher 17.5x $23.47 8.0x $25.94 8.3x $27.84 8.5x
Fwd P / E Multiple—5.0x Higher 20.0x $26.25 9.0x $29.03 9.3x $31.16 9.5x PV of Hypothetical Future Stock Price + Cash Dividend (5) Fwd P / E Multiple—2 Yr Avg. 15.0x $18.79 7.0x $18.85 7.3x $18.38 7.4x
Fwd P / E Multiple—2.5x Higher 17.5x $21.32 8.0x $21.40 8.3x $20.86 8.5x
Fwd P / E Multiple—5.0x Higher 20.0x $23.84 9.0x $23.95 9.3x $23.35 9.5x
Notes
1. Excludes ITR-related gross payments of $142MM for existing tax attributes as of 12/31/2010 and any future tax attributes
2. Discounted to 6/30/2011 assuming a cost of equity of 10.1%
3. Based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
4. 6/30/2012 NTM EBITDA calculated as 50% of 2012E EBITDA and 50% of 2013E EBITDA; same methodology applied to calculate 6/30/2013 and 6/30/2014 NTM EBITDA; similar methodology applied to calculated NTM Net Income
5. Assumes debt of $959MM and cash of $94MM as of 6/30/2011, $100MM annual debt paydown and cash grown at levered FCF assuming 1% pre-tax interest income
6. Recap case assumes incremental debt at 7.25% to reach 4.5x leverage as of 6/30/2011 ($325MM based on LTM EBITDA of $285MM) . Assumes proceeds post 1.5% fees ($320MM) are distributed as a cash dividend to all shareholders and grown at a cost of equity of 10.1%
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Hypothetical Future Value Analysis
Revised Management Case Assuming Dividend Recap
Future Implied Value to Shareholders—Based on NTM EBITDA Multiple
As of 5/23/2011
Future Implied Value to Shareholders—Based on NTM P/E Multiple
As of 5/23/2011
Present Value of Future Value to Shareholders (1,2,3,6)
As of 5/23/2011
6/30/2012E 6/30/2013E 6/30/2014E
| (4) |
|
345 374 404 |
NTM EBITDA ($MM)
% Growth 8% 8% 8%
FV of Hypothetical Stock Price + Cash Dividend
Implied Implied Implied
NTM P/E P/E P/E
Multiple Multiple Multiple Multiple
Fwd AV / EBITDA Multiple—2 Yr Avg. 9.0x $20.50 21.0x $23.99 21.7x $27.83 22.3x
Fwd AV / EBITDA Multiple—1.0x Higher 10.0x $23.28 23.8x $27.01 24.4x $31.11 25.0x
Fwd AV / EBITDA Multiple—2.0x Higher 11.0x $26.08 26.7x $30.04 26.0x $34.38 27.6x
PV of Hypothetical Future Stock Price + Cash Dividend (5)
Fwd AV / EBITDA Multiple—2 Yr Avg. 9.0x $18.62 21.0x $19.79 21.7x $20.86 22.3x
Fwd AV / EBITDA Multiple—1.0x Higher 10.0x $21.15 23.8x $22.29 24.4x $23.31 25.0x
Fwd AV / EBITDA Multiple—2.0x Higher 11.0x $23.69 26.7x $24.78 26.0x $25.77 27.6x
Present Value of Future Value to Shareholders (1,2,3,6)
As of 5/23/2011
6/30/2012E 6/30/2013E 6/30/2014E
| (4) |
|
138 155 173 |
NTM Net Income ($MM)
% Growth 13% 12% 11%
FV of Hypothetical Stock Price + Cash Dividend
Implied Implied Implied
NTM AV/EBITDA AV/EBITDA AV/EBITDA
Multiple Multiple Multiple Multiple
Fwd P / E Multiple—2 Yr Avg. 15.0x $20.83 7.0x $23.22 7.3x $25.66 7.5x
Fwd P / E Multiple—2.5x Higher 17.5x $23.62 8.0x $26.35 8.3x $29.15 8.6x
Fwd P / E Multiple—5.0x Higher 20.0x $26.42 9.1x $29.50 9.4x $32.64 9.6x
PV of Hypothetical Future Stock Price + Cash Dividend (5)
Fwd P / E Multiple—2 Yr Avg. 15.0x $18.92 7.0x $19.15 7.3x $19.23 7.5x
Fwd P / E Multiple—2.5x Higher 17.5x $21.46 8.0x $21.74 8.3x $21.84 8.6x
Fwd P / E Multiple—5.0x Higher 20.0x $24.00 9.1x $24.34 9.4x $24.46 9.6x
Notes
1. Excludes ITR-related gross payments of $142MM for existing tax attributes as of 12/31/2010 and any future tax attributes
2. Discounted to 6/30/2011 assuming a cost of equity of 10.1%
3. Based on dilution of options and warrants under the treasury stock method at each price assuming 115.82MM of basic Class A and Class B shares
4. 6/30/2012 NTM EBITDA calculated as 50% of 2012E EBITDA and 50% of 2013E EBITDA; same methodology applied to calculate 6/30/2013 and 6/30/2014 NTM EBITDA; similar methodology applied to calculated NTM Net Income
5. Assumes debt of $959MM and cash of $94MM as of 6/30/2011, $100MM annual debt paydown and cash grown at levered FCF assuming 1% pre-tax interest income 37
6. Recap case assumes incremental debt at 7.25% to reach 4.5x leverage as of 6/30/2011 ($332MM based on LTM EBITDA of $286MM) . Assumes proceeds post 1.5% fees ($327MM) are distributed as a cash dividend to all shareholders and grown at a cost of equity of 10.1%
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Earth Summary Financials (1)
Summary P&L; Street Case
Summary P&L
MM, except per share amounts
Based on I/B/E/S Consensus Projected
2011E 2012E 2013E 2014E 2015E
Revenue $1,129 $1,202 $1,267 $1,335 $1,397
Revenue Growth 13% 6% 5% 5% 5%
Adj. EBITDA $303 $329 $358 $380 $398
Adj. EBITDA Growth 13% 9% 9% 6% 5%
Adj. EBITDA Margin 27% 27% 28% 28% 28%
| (2) |
|
128 150 173 190 202 |
EBIT
| (3) |
|
(51) (47) (42) (35) (28) |
Less Net Interest Expense
| (4) |
|
24 25 27 28 29 |
Plus Stock-Based Compensation
| (4) |
|
11 10 9 6 0 |
Plus Non-Cash Interest Expense
| (5) |
|
99 99 99 99 99 |
Plus Non-Cash Acquisition Amortization
Adj. EBT $210 $236 $265 $287 $302
Less Taxes (83) (93) (105) (114) (119)
Normalized Tax Rate 39.5% 39.5% 39.5% 39.5% 39.5%
Adj. Net Income $127 $143 $161 $174 $183
Net Income Growth 14% 12% 12% 8% 5%
| (6) |
|
124.0 124.0 124.0 124.0 124.0 |
Non-GAAP FDSO
Adj. EPS $1.03 $1.15 $1.30 $1.40 $1.47
EPS Growth 12% 12% 12% 8% 5%
Notes
1. 2011E – 2013E based on I/B/E/S median consensus (2013E based on growth rates) and 2014E – 2015E based on Wall Street research
2. EBITDA less D&A and SBC
3. Assumes $949MM of financial debt (excludes data sublicense obligation of $40.3MM) and $99MM of cash as of 12/31/10, 7.5% total GAAP interest expense rate, $100MM annual debt
paydown ($50MM paydown in 2011) and cash grown at levered FCF assuming 1% pre-tax interest income
4. Based on Wall Street research (SBC ~2% of Revenue)
5. Per management guidance
6. Per management guidance in FY2010 and Q1 2011 press releases; includes options on a gross basis
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Earth Summary Financials (cont’d) (1)
Cash Flow Statement and Balance Sheet Items; Street Case
Cash Flow Statement
$MM
Based on I/B/E/S Consensus Projected
2011E 2012E 2013E 2014E 2015E
Adj. Net Income $127 $143 $161 $174 $183
| (2) |
|
52 55 59 64 67 |
D&A ex. Acquisition Amortization
| (2) |
|
(54) (50) (53) (56) (58) |
CapEx
Acquisition (41) 0 0 0 0
| (2) |
|
(6) (7) (6) (6) (6) |
Change in Working Capital
| (3) |
|
(8) (8) (8) (8) (8) |
Data Sublicense
LFCF $70 $134 $154 $169 $179
Cumulative LFCF $70 $204 $358 $526 $706
Balance Sheet Items
$MM
Based on I/B/E/S Consensus Projected
2011E 2012E 2013E 2014E 2015E
| (4) |
|
$899 $799 $699 $599 $499 |
Total Financial Debt
| (5) |
|
($52) ($49) ($44) ($37) ($32) |
Total Interest Expense
Beginning Cash $99 $120 $154 $207 $276
| (6) |
|
20 34 54 69 79 |
Change in Cash
Ending Cash $120 $154 $207 $276 $355
| (6) |
|
1 1 2 2 3 |
Interest Income
Net Interest Expense ($51) ($47) ($42) ($35) ($28)
Notes
1. 2011E – 2013E based on I/B/E/S median consensus and 2014E – 2015E based on Wall Street research
2. Based on Wall Street research (Total D&A including $99MM of transaction amortization ~13% of Revenue, Capex ~4% of Revenue, Change in working capital ~9% of incremental Revenue) 3. $7.5MM annually per H&F guidance
4. Assumes $50MM paydown in 2011 and $100MM annual debt paydown thereafter (excludes data sublicense obligation of $40.3MM)
5. Assumes 7.5% total GAAP interest expense rate
6. Assumes 1% pre-tax interest income
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Earth Summary Financials (1)
Summary P&L; Revised Management Case
Summary P&L
MM, except per share amounts
Management Forecast Projected
2011E 2012E 2013E 2014E 2015E
Revenue $1,140 $1,206 $1,281 $1,364 $1,456
Revenue Growth 14% 6% 6% 6% 7%
Adj. EBITDA $305 $332 $359 $389 $419
Adj. EBITDA Growth 14% 9% 8% 8% 8%
Adj. EBITDA Margin 27% 28% 28% 29% 29%
| (2) |
|
130 152 174 197 222 |
EBIT
| (3) |
|
(51) (47) (42) (35) (28) |
Less Net Interest Expense
| (4) |
|
24 25 27 29 31 |
Plus Stock-Based Compensation
| (4) |
|
11 10 9 6 0 |
Plus Non-Cash Interest Expense
| (5) |
|
99 99 99 99 99 |
Plus Non-Cash Acquisition Amortization
Adj. EBT $213 $239 $266 $296 $324
Less Taxes (84) (94) (105) (117) (128)
Normalized Tax Rate 39.5% 39.5% 39.5% 39.5% 39.5%
Adj. Net Income $129 $145 $161 $179 $196
Net Income Growth 15% 12% 11% 11% 9%
| (6) |
|
124.0 124.0 124.0 124.0 124.0 |
Non-GAAP FDSO
Adj. EPS $1.04 $1.17 $1.30 $1.44 $1.58
EPS Growth 13% 12% 11% 11% 9%
Notes
1. Per management guidance
2. EBITDA less D&A and SBC
3. Assumes $949MM of financial debt (excludes data sublicense obligation of $40.3MM) and $99MM of cash as of 12/31/10, 7.5% total GAAP interest expense rate, $100MM annual debt paydown ($50MM paydown in 2011) and cash grown at levered FCF assuming 1% pre-tax interest income
4. Based on Wall Street research (SBC ~2% of Revenue)
5. Per management guidance
6. Per management guidance in FY2010 and Q1 2011 press releases; includes options on a gross basis
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Earth Summary Financials (cont’d) (1)
Cash Flow Statement and Balance Sheet Items; Revised Management Case
Cash Flow Statement
$MM
Management Forecast Projected
2011E 2012E 2013E 2014E 2015E
Adj. Net Income $129 $145 $161 $179 $196
| (2) |
|
52 55 59 64 67 |
D&A ex. Acquisition Amortization
| (2) |
|
(50) (55) (55) (55) (58) |
CapEx
Acquisition (41) 0 0 0 0
| (2) |
|
(4) (7) (8) (9) (10) |
Change in Working Capital
| (3) |
|
(8) (8) (8) (8) (8) |
Data Sublicense
LFCF $78 $130 $150 $172 $188
Cumulative LFCF $78 $208 $358 $530 $718
Balance Sheet Items
$MM
Management Forecast Projected
2011E 2012E 2013E 2014E 2015E
| (4) |
|
$899 $799 $699 $599 $499 |
Total Financial Debt
| (5) |
|
($52) ($49) ($44) ($37) ($32) |
Total Interest Expense
Beginning Cash $99 $127 $158 $207 $279
| (6) |
|
28 30 50 72 88 |
Change in Cash
Ending Cash $127 $158 $207 $279 $367
| (6) |
|
1 1 2 2 3 |
Interest Income
Net Interest Expense ($51) ($47) ($42) ($35) ($28)
Notes
1. Per management guidance
2. Based on Wall Street research (Total D&A including $99MM of transaction amortization ~13% of Revenue, Capex ~4% of Revenue, Change in working capital based on projected Accounts Receivables balance) 3. $7.5MM annually per H&F guidance
4. Assumes $50MM paydown in 2011 and $100MM annual debt paydown thereafter (excludes data sublicense obligation of $40.3MM)
5. Assumes 7.5% total GAAP interest expense rate
6. Assumes 1% pre-tax interest income
Project Space
CONFIDENTIAL & PRELIMINARY
SUPPLEMENTAL MATERIALS
Weighted Average Cost of Capital Calculations
Earth WACC—10 Yr Avg 10 Year US Treasury
$MM, except per share amounts
Share Price $14.88
FDSO (MM) 115.8
Market Value of Equity $1,723
| (1) |
|
$987 |
Total Debt
Total Capital $2,710
Equity / Capital 63.6%
Debt / Capital 36.4%
Cost of Debt:
| (2) |
|
4.8% |
Cost of Debt
| (3) |
|
39.5% |
Tax Rate
After-tax Cost of Debt 2.90%
Cost of Equity:
Risk Free Rate, 10 Year Average 4.1%
Barra Predicted Beta 1.20
Market Risk Premium 4.0%—6.0%
| (4) |
|
8.9%—11.3% |
Cost of Equity:
WACC 6.7%—8.2%
Risk Free Rate
U.S. Treasury Overview
10-Yr
Current (5/23/11) 3.2%
MSER Proj. Yr. End 4.0%
10-Year Average 4.1%
Notes
1. Includes unamortized OID
2. Weighted average cost of debt based on current bank debt and interest rates
3. Assumed per management guidance
4. Based on Capital Asset Pricing Model