HEALTHWAYS: Presentation to Healthways Shareholders THE CASE FOR - PowerPoint PPT Presentation

HEALTHWAYS: Presentation to Healthways Shareholders THE CASE FOR CHANGE April 2014

DISCLAIMER T H I S P R E S E N T A T I O N I S F O R D I S C U S S I O N A N D G E N E R A L I N F O R M A T I O N A L P U R P O S E S O N L Y . I T D O E S N O T H A V E R E G A R D T O T H E S P E C I F I C I N V E S T M E N T O B J E C T I V E , F I N A N C I A L S I T U A T I O N , S U I T A B I L I T Y , O R T H E P A R T I C U L A R N E E D O F A N Y S P E C I F I C P E R S O N W H O M A Y R E C E I V E T H I S P R E S E N T A T I O N , A N D S H O U L D N O T B E T A K E N A S A D V I C E O N T H E M E R I T S O F A N Y I N V E S T M E N T D E C I S I O N . T H E V I E W S E X P R E S S E D H E R E I N R E P R E S E N T T H E O P I N I O N S O F N O R T H T I D E C A P I T A L , L L C ( “ N O R T H T I D E ” ) , A N D A R E B A S E D O N P U B L I C L Y A V A I L A B L E I N F O R M A T I O N W I T H R E S P E C T T O H E A L T H W A Y S , I N C . ( T H E “ I S S U E R ” ) . C E R T A I N F I N A N C I A L I N F O R M A T I O N A N D D A T A U S E D H E R E I N H A V E B E E N D E R I V E D O R O B T A I N E D F R O M P U B L I C F I L I N G S , I N C L U D I N G F I L I N G S M A D E B Y T H E I S S U E R W I T H T H E S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N ( “ S E C ” ) , A N D O T H E R S O U R C E S . N O R T H T I D E H A S N O T S O U G H T O R O B T A I N E D C O N S E N T F R O M A N Y T H I R D P A R T Y T O U S E A N Y S T A T E M E N T S O R I N F O R M A T I O N I N D I C A T E D H E R E I N A S H A V I N G B E E N O B T A I N E D O R D E R I V E D F R O M S T A T E M E N T S M A D E O R P U B L I S H E D B Y T H I R D P A R T I E S . A N Y S U C H S T A T E M E N T S O R I N F O R M A T I O N S H O U L D N O T B E V I E W E D A S I N D I C A T I N G T H E S U P P O R T O F S U C H T H I R D P A R T Y F O R T H E V I E W S E X P R E S S E D H E R E I N . N O W A R R A N T Y I S M A D E T H A T D A T A O R I N F O R M A T I O N , W H E T H E R D E R I V E D O R O B T A I N E D F R O M F I L I N G S M A D E W I T H T H E S E C O R F R O M A N Y T H I R D P A R T Y , A R E A C C U R A T E . E X C E P T F O R T H E H I S T O R I C A L I N F O R M A T I O N C O N T A I N E D H E R E I N , T H E M A T T E R S A D D R E S S E D I N T H I S P R E S E N T A T I O N A R E F O R W A R D - L O O K I N G S T A T E M E N T S T H A T I N V O L V E C E R T A I N R I S K S A N D U N C E R T A I N T I E S . Y O U S H O U L D B E A W A R E T H A T A C T U A L R E S U L T S M A Y D I F F E R M A T E R I A L L Y F R O M T H O S E C O N T A I N E D I N T H E F O R W A R D - L O O K I N G S T A T E M E N T S . N O R T H T I D E S H A L L N O T B E R E S P O N S I B L E O R H A V E A N Y L I A B I L I T Y F O R A N Y M I S I N F O R M A T I O N C O N T A I N E D I N A N Y S E C F I L I N G , A N Y T H I R D P A R T Y R E P O R T O R T H I S P R E S E N T A T I O N . T H E R E I S N O A S S U R A N C E O R G U A R A N T E E W I T H R E S P E C T T O T H E P R I C E S A T W H I C H A N Y S E C U R I T I E S O F T H E I S S U E R W I L L T R A D E , A N D S U C H S E C U R I T I E S M A Y N O T T R A D E A T P R I C E S T H A T M A Y B E I M P L I E D H E R E I N . T H E E S T I M A T E S , P R O J E C T I O N S A N D P R O F O R M A I N F O R M A T I O N S E T F O R T H H E R E I N A R E B A S E D O N A S S U M P T I O N S W H I C H N O R T H T I D E B E L I E V E S T O B E R E A S O N A B L E , B U T T H E R E C A N B E N O A S S U R A N C E O R G U A R A N T E E T H A T A C T U A L R E S U L T S O R P E R F O R M A N C E O F T H E I S S U E R W I L L N O T D I F F E R , A N D S U C H D I F F E R E N C E S M A Y B E M A T E R I A L . T H I S P R E S E N T A T I O N D O E S N O T R E C O M M E N D T H E P U R C H A S E O R S A L E O F A N Y S E C U R I T Y . N O R T H T I D E R E S E R V E S T H E R I G H T T O C H A N G E A N Y O F I T S O P I N I O N S E X P R E S S E D H E R E I N A T A N Y T I M E A S I T D E E M S A P P R O P R I A T E . N O R T H T I D E D I S C L A I M S A N Y O B L I G A T I O N T O U P D A T E T H E I N F O R M A T I O N C O N T A I N E D H E R E I N . U N D E R N O C I R C U M S T A N C E S I S T H I S P R E S E N T A T I O N T O B E U S E D O R C O N S I D E R E D A S A N O F F E R T O S E L L O R A S O L I C I T A T I O N O F A N O F F E R T O B U Y A N Y S E C U R I T Y . 2

EXECUTIVE SUMMARY INTRODUCTION  Healthways shareholders have suffered substantial value destruction over the past decade and yet the Board has done nothing to acknowledge and address the need for change, or hold management accountable for its terrible financial performance and abysmal shareholder returns  North Tide Capital is seeking to replace the 4 current Class II directors of Healthways to restore accountability and credibility at the Company, bring a much needed level of healthcare operating experience, and initiate a long overdue strategic and financial review to maximize shareholder value  One of our nominees, Mac Crawford, has an incredible record of shareholder value creation in similar turnaround situations in the healthcare industry and is available to serve as Executive Chairman with substantial involvement in day to day operations if elected by shareholders and the Board  Our slate, through North Tide Capital’s 11% ownership in Healthways, , would also bring substantial shareholder representation to the Board, which currently owns less than 2% of the Company 3

EXECUTIVE SUMMARY THE CASE FOR CHANGE: ABYSMAL PERFORMANCE HWAY’s performance record has been abysmal on almost any metric over the past decade, and yet the Board has done nothing to acknowledge or correct the situation  HWAY shares have dramatically underperformed over the past 1 year, 3 years, 5 years, and 10 years  Over the past 5 years, EBITDA has declined 64%, EPS has declined precipitously, and the Company is dangerously close to violating recently modified debt covenants  Management and the Board have been terrible stewards of capital: EBITDA was lower in 2013 than it was ten years ago despite roughly $600MM spent on acquisitions, $400MM in capital expenditures, and a 411% increase in debt  Senior management has missed its internal financial targets in 6 out of the past 10 years, including 4 of the last 6 years, and in each of the last 3 years  Management turnover below the CEO has been constant, with 4 COOs in 10 years, and a revolving door among the named executives in the Company’s annual reports The Company’s dismal financial performance and terrible track record over almost any measuring period is without repudiation 4

EXECUTIVE SUMMARY THE BOARD’S ACTIONS AND STATEMENTS SUPPORTING THE “STATUS QUO” MAKE NO SENSE Healthways ’ Board has inexplicably maintained its support for the strategy and management team currently in place despite the terrible track record, repeated shortfalls, and a “call to action” from the Company’s Founder (who resigned over the inaction) as well as its second largest shareholder “We remain confident that this Board has developed the best strategy to move the Company forward and continue to build a leadership position within our field. The execution of this well- defined strategy led by our CEO and the current management team is the best path for creating long-term value for our stockholders. This team has successfully transformed Healthways from a disease management company to a highly regarded leader in population health management services, while navigating the economic downturn and significant shifts within the healthcare industry generally and in our sector specifically. We just reported one of the most successful years of business development in the Company’s history , and we are confident that Healthways is on track to grow in all of its current customer markets in 2014.” - February 28, 2014 in response to our notice to nominate directors We struggle to understand where the Board finds confidence in either its strategy or the ability of this management to execute against such strategy, we question how the Board can use the term “successfully transformed” given the 64% decline in EBITDA over the last 5 years, and we believe describing 2013 as “one of the most successful years of business development in the Company’s history” is frankly misleading given the actual results 5 Source: Schedule 14A filed with SEC on 2/28/2014.

EXECUTIVE SUMMARY A CHANCE TO SET A NEW COURSE If elected, the North Tide slate would immediately seek to initiate a strategic and financial review of the Company focused on:  The Silver Sneakers business, which contrary to management commentary, remains a highly separate and distinct business and greatly underappreciated asset in terms of its potential value to shareholders  The core domestic Population Health business, which has been decimated over the last seven years by poor management, but which represents a significant secular growth opportunity  The International business, which has yet to contribute to earnings and likely represents an unnecessary distraction for an already challenged organization We will rely on our expertise and experience as operators and investors in the healthcare industry to conduct a thorough evaluation of Healthways ’ businesses and take the necessary steps toward maximizing shareholder value 6