WebMD Announces Third Quarter Financial Results

NEW YORK, Nov. 1, 2012 /PRNewswire/ -- WebMD Health Corp. (NASDAQ: WBMD), the leading source of health information, today announced financial results for the three months ended September 30, 2012.

For the three months ended September 30, 2012:

  • Revenue was $117.5 million, compared to $135.1 million in the prior year period. Public portal advertising and sponsorship revenue was $97.6 million, compared to $115.0 million in the prior year period. Private portal services revenue was $19.9 million, compared to $20.1 million in the prior year period.
  • Earnings before interest, taxes, non-cash and other items ("Adjusted EBITDA") was $17.6 million, compared to $43.5 million in the prior year period.
  • Net loss was $(0.9) million or $(0.02) per diluted share, compared to net income of $14.2 million or $0.24 per diluted share in the prior year period. Net loss in the current period includes after-tax income from discontinued operations of $2.2 million. Net income in the prior year period includes an after-tax loss on investments of $(0.7) million and after-tax income from discontinued operations of $3.0 million.

Traffic Highlights

Traffic to the WebMD Health Network during the third quarter continued to grow, reaching an average of 107.2 million unique users per month and 2.56 billion page views for the quarter, increases of 22% and 24%, respectively, from the prior year period.  The prior year comparisons exclude traffic from WebMD's former affiliate partner sites, which were phased out at the end of 2011.

Balance Sheet Highlights

As of September 30, 2012, WebMD had $969 million in cash and cash equivalents and $800 million in aggregate principal amount of convertible notes outstanding. During the third quarter, the Company utilized $1.7 million of cash to purchase approximately 117 thousand shares of its common stock under its buyback program.

Financial Guidance 

WebMD's third quarter results were consistent with the financial guidance provided on July 24, 2012. Today, the Company narrowed its range for revenue and earnings for the year ending December 31, 2012. A schedule of financial guidance is attached to this press release.

"While our third quarter results were in line with our financial guidance, we continue to operate in a challenging and changing marketplace and we expect this to continue into 2013," said Cavan M. Redmond, Chief Executive Officer of WebMD.  "We have begun the process of rationalizing our infrastructure to streamline operations and reduce costs while we make the reinvestment and changes necessary to position the Company for long term growth."

Analyst and Investor Conference Call                                  

WebMD will hold a conference call with investors and analysts to discuss its third quarter results at 4:45 p.m. (Eastern) today. The call can be accessed at www.wbmd.com (in the Investor Relations section). A replay of the audio webcast will be available at the same web address.

About WebMD

WebMD Health Corp. (NASDAQ: WBMD) is the leading provider of health information services, serving consumers, physicians, healthcare professionals, employers, and health plans through our public and private online portals, mobile platforms and health-focused publications.

The WebMD Health Network includes WebMD Health, Medscape, MedicineNet, eMedicineHealth, RxList, theheart.org, Medscape Education and other owned WebMD sites.

*****************************

All statements contained in this press release and the related analyst and investor conference call, other than statements of historical fact, are forward-looking statements, including those regarding:   guidance on our future financial results and other projections or measures of our future performance; market opportunities and our ability to capitalize on them; and the benefits expected from new or updated products or services and from other potential sources of additional revenue. These statements speak only as of the date of this press release, are based on our current plans and expectations, and involve risks and uncertainties that could cause actual future events or results to be different than those described in or implied by such forward-looking statements.  These risks and uncertainties include those relating to:  market acceptance of our products and services; our relationships with customers and other factors affecting their use of our products and services, including regulatory matters affecting their products; our ability to successfully conduct our strategic review and to implement resulting changes to, among other things, our product and service offerings, capital allocation plans and cost structure; our ability to attract and retain qualified personnel; and changes in economic, political or regulatory conditions or other trends affecting the healthcare, Internet and information technology industries.  Further information about these matters can be found in our Securities and Exchange Commission filings. Except as required by applicable law or regulation, we do not undertake any obligation to update our forward-looking statements to reflect future events or circumstances.

*************************************

This press release, and the accompanying tables, include both financial measures in accordance with accounting principles generally accepted in the United States of America, or GAAP, as well as certain non-GAAP financial measures.  The tables attached to this press release include reconciliations of these non-GAAP financial measures to GAAP financial measures. In addition, an "Explanation of Non-GAAP Financial Measures" is attached to this press release as Annex A. 

*****************************

WebMD®, Medscape®, eMedicine®, MedicineNet®, RxList®, Subimo®, Medsite®, Summex® and Medscape® Mobile are trademarks of WebMD Health Corp. or its subsidiaries.

WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

 (In thousands, except per share data, unaudited)








Three Months Ended


Nine Months Ended


September 30,


September 30,


2012


2011


2012


2011









Revenue

$       117,513


$         135,138


$       337,128


$       408,116

Cost of operations

53,295


49,097


161,009


148,698

Sales and marketing

33,136


29,597


95,061


94,161

General and administrative

23,083


22,787


73,851


67,614

Depreciation and amortization

6,508


6,781


20,151


19,929

Interest income

19


21


64


88

Interest expense

5,832


5,862


17,500


14,836

(Loss) gain on investments

-


(1,150)


8,074


14,679

Other expense

-


-


2,297


53

(Loss) income from continuing operations before income









tax (benefit) provision

(4,322)


19,885


(24,603)


77,592


Income tax (benefit) provision

(1,202)


8,645


(7,604)


32,606

(Loss) income from continuing operations

(3,120)


11,240


(16,999)


44,986


Income from discontinued operations, net of tax

2,235


2,994


2,743


10,388

Net (loss) income

$             (885)


$        14,234


$        (14,256)


$         55,374










Basic (loss) income per common share:









(Loss) income from continuing operations

$            (0.06)


$               0.19


$            (0.33)


$             0.77


Income from discontinued operations

0.04


0.06


0.05


0.18

Net (loss) income

$            (0.02)


$               0.25


$            (0.28)


$             0.95









Diluted (loss) income per common share:









(Loss) income from continuing operations

$            (0.06)


$               0.19


$            (0.33)


$             0.75


Income from discontinued operations

0.04


0.05


0.05


0.17

Net (loss) income

$            (0.02)


$               0.24


$            (0.28)


$             0.92










Weighted-average shares outstanding used in 









computing (loss) income per common share: 








      Basic

49,021


57,461


51,468


57,913

      Diluted 

49,021


58,698


51,468


59,882

 

 

WEBMD HEALTH CORP.

CONSOLIDATED SUPPLEMENTAL FINANCIAL INFORMATION

 (In thousands, unaudited)



















Three Months Ended


Nine Months Ended



September 30,


September 30,



2012


2011


2012


2011

Revenue









Public portal advertising and sponsorship

$        97,562


$      115,033


$      279,082


$      346,504


Private portal services

19,951


20,105


58,046


61,612



$      117,513


$      135,138


$      337,128


$      408,116










Earnings before interest, taxes, non-cash









and other items ("Adjusted EBITDA") (a)

$        17,611


$        43,465


$        43,100


$      126,612










Interest, taxes, non-cash and other items  (b)









Interest income

19


21


64


88


Interest expense

(5,832)


(5,862)


(17,500)


(14,836)


Income tax benefit (provision)

1,202


(8,645)


7,604


(32,606)


Depreciation and amortization 

(6,508)


(6,781)


(20,151)


(19,929)


Non-cash stock-based compensation

(9,612)


(9,808)


(35,893)


(28,969)


(Loss) gain on investments

-


(1,150)


8,074


14,679


Other expense

-


-


(2,297)


(53)

(Loss) income from continuing operations

(3,120)


11,240


(16,999)


44,986


 Income from discontinued operations, net of tax 

2,235


2,994


2,743


10,388

 Net (loss) income 

$           (885)


$        14,234


$      (14,256)


$        55,374










(a)

See Annex A-Explanation of Non-GAAP Financial Measures.

(b)

Reconciliation of Adjusted EBITDA to net (loss) income.











 

 

WEBMD HEALTH CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (In thousands, unaudited)
















September 30, 2012


December 31, 2011

Assets





Cash and cash equivalents


$                 969,396


$                    1,121,217

Accounts receivable, net


95,010


121,335

Prepaid expenses and other current assets


18,521


12,690

Deferred tax assets


21,697


20,482

        Total current assets


1,104,624


1,275,724







Property and equipment,  net


68,921


57,139

Goodwill


202,104


202,104

Intangible assets, net


18,029


19,999

Deferred tax assets


51,365


55,017

Other assets


27,770


31,042

Total Assets


$              1,472,813


$                    1,641,025







Liabilities and Stockholders' Equity





Accrued expenses


$                   54,120


$                         55,238

Deferred revenue


83,538


88,055

Liabilities of discontinued operations


1,506


1,506

      Total current liabilities


139,164


144,799







2.25% convertible notes due 2016


400,000


400,000

2.50% convertible notes due 2018


400,000


400,000

Other long-term liabilities


23,358


21,790







Stockholders' equity


510,291


674,436







Total Liabilities and Stockholders' Equity


$              1,472,813


$                    1,641,025







 

 

WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)























Nine Months Ended







September 30,







2012


2011

Cash flows from operating activities:






Net (loss) income 


$         (14,256)


$        55,374


Adjustments to reconcile net (loss) income to net cash provided by






  operating activities:







Income from discontinued operations, net of tax


(2,743)


(10,388)



Depreciation and amortization


20,151


19,929



Non-cash interest, net


3,244


2,702



Non-cash stock-based compensation


35,893


28,969



Deferred income taxes


(7,702)


5,378



Gain on investments


(8,074)


(14,679)



Changes in operating assets and liabilities:








Accounts receivable


26,325


16,510




Prepaid expenses and other, net


(2,529)


1,238




Accrued expenses and other long-term liabilities


(1,760)


(176)




Deferred revenue


(4,517)


(6,370)





Net cash provided by continuing operations


44,032


98,487





Net cash provided by (used in) discontinued operations


759


(136)





Net cash provided by operating activities


44,791


98,351










Cash flows from investing activities:






Proceeds received from ARS option


9,269


16,561


Purchases of property and equipment


(29,039)


(16,061)





Net cash (used in) provided by investing activities


(19,770)


500










Cash flows from financing activities:






Proceeds from exercise of stock options


827


26,435


Cash used for withholding taxes due on stock-based awards


(2,332)


(6,730)


Net proceeds from issuance of the 2.50% Notes and 2.25% Notes


-


774,745


Purchases of treasury stock 


(175,638)


(217,427)


Excess tax benefit on stock-based awards


301


24,911





Net cash (used in) provided by financing activities


(176,842)


601,934

Net (decrease) increase in cash and cash equivalents


(151,821)


700,785

Cash and cash equivalents at beginning of period


1,121,217


400,501

Cash and cash equivalents at end of period


$         969,396


$   1,101,286



















 

 

WebMD Health Corp.

Financial Guidance Summary for the Year Ending December 31, 2012

(in millions, except per share amounts)













Guidance Range






Revenue


$      455.0


$            470.0






Earnings before interest, taxes, non-cash





  and other items ("Adjusted EBITDA") (a)


$        60.0


$              70.0






Interest, taxes, non-cash and other  items (b)





   Interest expense


(23.2)


(23.2)

   Depreciation and amortization


(27.5)


(26.5)

   Non-cash stock-based compensation


(46.5)


(45.5)

   Gain on investments


8.1


8.1

   Other expense


(2.3)


(2.3)

Pre-tax loss from continuing operations


(31.4)


(19.4)






Income tax benefit


9.5


4.8






Loss from continuing operations


(21.9)


(14.6)






Income from discontinued operations, net of tax


2.7


2.7






Net loss


$       (19.2)


$            (11.9)






Loss from continuing operations per share:





   Basic and diluted


$       (0.43)


$            (0.29)






Net loss per share:





   Basic and diluted


$       (0.38)


$            (0.23)






Weighted-average shares outstanding used in computing per share amounts:




  Basic and diluted


51.0


51.0











(a) See Annex A - Explanation of Non-GAAP Financial Measures







(b) Reconciliation of Adjusted EBITDA to loss from continuing operations











Additional information regarding forecast for the quarter ending December 31, 2012: 

     -     Revenue is forecasted to be between $118 million to $133 million 

     -     Adjusted EBITDA as a percentage of revenue is forecasted to be approximately 14% to 20%

     -     (Loss) income from continuing operations as a percentage of revenue is forecasted to be approximately (5%) to 2%






Additional information regarding full year forecast: 

     -     The distribution of the annual revenue is expected to be approximately 83% public portals advertising

            and sponsorship and  17% private portal licensing.  Quarterly revenue distributions may vary from this

            annual estimate.

     -     The above guidance does not include the impact if any, of future deployment of capital for items such as

            share repurchases or acquisitions, the current review of business products, processes or operations, any

            future gains or losses from discontinued operations, and other future non-recurring, one-time or unusual items.   

     -     Convertible notes are not expected to be dilutive for the full year or any quarter.



 

 

ANNEX A

Explanation of Non-GAAP Financial Measures

The accompanying WebMD Health Corp. press release and attachments include both financial measures in accordance with U.S. generally accepted accounting principles, or GAAP, as well as non-GAAP financial measures.  The non-GAAP financial measures represent earnings before interest, taxes, non-cash and other items (which we refer to as "Adjusted EBITDA") and related per share amounts.  Adjusted EBITDA should be viewed as supplemental to, and not as an alternative for:  income or loss from continuing operations calculated in accordance with GAAP (referred to below as "income from continuing operations"); or net income or loss calculated in accordance with GAAP (referred to below as "net income").  The attachments to the press release include reconciliations of non-GAAP financial measures to GAAP financial measures. 

Adjusted EBITDA is used by our management as an additional measure of our company's performance for purposes of business decision-making, including developing budgets, managing expenditures, and evaluating potential acquisitions or divestitures.  Period-to-period comparisons of Adjusted EBITDA help our management identify additional trends in our company's financial results that may not be shown solely by period-to-period comparisons of income from continuing operations or net income.  In addition, we may use Adjusted EBITDA in the incentive compensation programs applicable to some of our employees in order to evaluate our company's performance.  Our management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items, particularly those items that are recurring in nature.  In order to compensate for those limitations, management also reviews the specific items that are excluded from Adjusted EBITDA, but included in income from continuing operations or net income, as well as trends in those items.  The amounts of those items are set forth, for the applicable periods, in the reconciliations of Adjusted EBITDA to income from continuing operations or to net income that accompany our press releases and disclosure documents containing non-GAAP financial measures, including the reconciliations contained in the accompanying press release attachments.

We believe that the presentation of Adjusted EBITDA is useful to investors in their analysis of our results for reasons similar to the reasons why our management finds it useful and because it helps facilitate investor understanding of decisions made by management in light of the performance metrics used in making those decisions.  In addition, as more fully described below, we believe that providing Adjusted EBITDA, together with a reconciliation of Adjusted EBITDA to income from continuing operations or to net income, helps investors make comparisons between our company and other companies that may have different capital structures, different effective income tax rates and tax attributes, different capitalized asset values and/or different forms of employee compensation.  However, Adjusted EBITDA is intended to provide a supplemental way of comparing our company with other public companies and is not intended as a substitute for comparisons based on income from continuing operations or net income.  In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance.  Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable SEC rules.

The following is an explanation of the items excluded by us from Adjusted EBITDA but included in income from continuing operations and net income:

  • Depreciation and Amortization.  Depreciation and amortization expense is a non-cash expense relating to capital expenditures and intangible assets arising from acquisitions that are expensed on a straight-line basis over the estimated useful life of the related assets.  We exclude depreciation and amortization expense from Adjusted EBITDA because we believe that (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets.  Accordingly, we believe that this exclusion assists management and investors in making period-to-period comparisons of operating performance.  Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods.

 

  • Stock-Based Compensation Expense.  Stock-based compensation expense is a non-cash expense arising from the grant of stock-based awards to employees.  We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our company's operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions.  Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our company's operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation.  Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods.  Investors should also note that such expenses will recur in the future.  Stock-based compensation expenses included in the Consolidated Statement of Operations are summarized as follows:





Three Months Ended


Nine Months Ended






September 30,


September 30,






2012

2011


2012

2011








Non-cash stock-based compensation included in:







Cost of operations


$    2,046

$   1,718


$    6,676

$    5,677


Sales and marketing


$    1,932

$   2,286


$    6,397

$    6,865


General and administrative


$    5,634

$   5,804


$  22,820

$  16,427












  • Interest Income and Expense.  Interest income is associated with the level of marketable debt securities and other interest bearing accounts in which we invest, as well as with interest expense arising from our company's capital structure (including non-cash interest expense relating to our convertible notes).  Interest income and expense varies over time due to a variety of financing transactions and due to acquisitions and divestitures that we have entered into or may enter into in the future.  We have, in the past, issued convertible debentures, repurchased shares in cash tender offers and repurchased shares and convertible debentures through other repurchase transactions, and completed the divestiture of certain businesses.  We exclude interest income and interest expense from Adjusted EBITDA (i) because these items are not directly attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different capital structures.  Investors should note that interest income and expense will recur in future periods.  The following provides detail regarding the components of interest expense of our convertible notes:





Three Months Ended


Nine Months Ended






September 30,


September 30,






2012

2011


2012

2011








Non-cash interest expense







2.50% Convertible Notes


$         451

$       456


$    1,355

$    1,305


2.25% Convertible Notes


$         630

$       647


$    1,889

$    1,397

 

Cash interest expense








2.50% Convertible Notes


$     2,500

$   2,500


$    7,500

$    7,194


2.25% Convertible Notes


$     2,250

$   2,250


$    6,750

$    4,925












  • Income Tax Provision (Benefit).  We maintain a valuation allowance on a portion of our net deferred tax assets (including our net operating loss carryforwards), the amount of which may change from quarter to quarter based on factors that are not directly related to our results for the quarter.  The valuation allowance is either reversed through the statement of operations or additional paid-in capital.  The timing of such reversals has not been consistent and as a result, our income tax expense can fluctuate significantly from period to period in a manner not directly related to our operating performance.  We exclude the income tax provision (benefit) from Adjusted EBITDA (i) because we believe that the income tax provision (benefit) is not directly attributable to the underlying performance of our business operations and, accordingly, its exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different tax attributes.  Investors should note that income tax provision (benefit) will recur in future periods.

 

  • Other Items.  We engage in other activities and transactions that can impact our income from continuing operations and net income.  In recent periods, these other items have included, but were not limited to, (i) legal expenses relating to the Department of Justice investigation, (ii) a reduction of certain sales and use tax contingencies resulting from the expiration of certain applicable statutes of limitations, (iii) gain or loss on investments, and (iv) legal fees and other expenses incurred in connection with the process conducted by our Board of Directors to explore strategic alternatives for our company.  We exclude these other items from Adjusted EBITDA because we believe these activities or transactions are not directly attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance.  Investors should note that some of these other items may recur in future periods.

 

SOURCE WebMD Health Corp.



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