WebMD Announces Fourth Quarter Financial Results

NEW YORK, Feb. 23, 2011 /PRNewswire/ -- WebMD Health Corp. (Nasdaq: WBMD), the leading source of health information, today announced financial results for its fourth quarter ended December 31, 2010.

“WebMD finished 2010 with another quarter of strong financial and operating performance,” said Wayne Gattinella, President and CEO, WebMD. “We solidified our position as the most recognized and trusted brand of health and wellness information as more than 86 million visitors are engaging with our content each month on both our desktop and mobile platforms."

For the fourth quarter ended December 31, 2010:

• Revenue increased 22% to $168.5 million for the fourth quarter, compared to $138.1 million in the prior year period.
• Earnings before interest, taxes, non-cash and other items ("Adjusted EBITDA") increased 49% to $69.1 million, compared to $46.4 million in the prior year period.
• Income from continuing operations was $33.8 million compared to $63.6 million in the prior year period. Income from continuing operations would have increased 140%, or $17.1 million, to $29.3 million for the current period, compared to $12.2 million a year ago, without the effect of the following non-operating items (expressed on an after-tax basis): a gain on investments of $8.3 million and a loss on the redemption of the Company’s 3 1/8% convertible notes of $(3.8) million, both in the current period; and, in the prior year period, a net gain of $58.6 million primarily from reversal of valuation allowances related to tax NOLs, a loss of $(6.6) million for merger-related expenses and $(0.5) million attributable to non-controlling interest.
• Net income was $36.6 million or $0.59 per share, compared to $98.3 million or $1.39 per share in the prior year period. Net income would have increased 140%, or $17.1 million, to $29.3 million for the current period, compared to $12.2 million a year ago, without the effect of the following non-operating items (expressed on an after-tax basis): a gain on investments of $8.3 million, a loss on the redemption of the 3 1/8% Notes of $(3.8) million, and a gain from discontinued operations of $2.8 million, all in the current year period; and, in the prior year period, a net gain of $58.6 million primarily from reversal of valuation allowances related to tax NOLs, a loss of $(6.6) million for merger-related expenses, a gain from discontinued operations of $34.7 million and $(0.5) million attributable to non-controlling interest.

Revenue Highlights

Revenue increased 22% to $168.5 million for the fourth quarter, compared to $138.1 million in the prior year period.

Public portal advertising and sponsorship revenue increased 28% to $147.0 million, compared to $114.9 million in the prior year period. Traffic to the WebMD Health Network continued to grow, reaching a record average of 86.4 million unique users per month and total traffic of 1.8 billion page views during the fourth quarter, increases of 38% and 22%, respectively, from a year ago.

Private portal services revenue decreased 8% to $21.4 million, compared to $23.2 million in the prior year period. The base of large employers and health plans using WebMD’s private Health and Benefits portals during the fourth quarter was 124.

Balance Sheet Highlights

During the fourth quarter, WebMD completed the optional redemption of all of its outstanding 3 1/8% Convertible Notes. Substantially all of these notes converted into approximately 2.4 million shares of WebMD common stock and the remaining notes were redeemed.  WebMD recorded a non-cash pre-tax charge of approximately $6.4 million during the quarter ended December 31, 2010 related to the conversions and redemptions of these Notes.

As of December 31, 2010, WebMD had $401 million in cash and cash equivalents.

On January 11, 2011, WebMD completed the private placement of $400 million aggregate principal amount of 2.5% Convertible Notes due 2018. In connection with the private placement, WebMD repurchased 1.9 million shares of its common stock for $100 million. WebMD had $688 million in cash and cash equivalents after completing this transaction.

Financial Guidance  

The Company issued financial guidance for 2011 today.

“We enter 2011 strongly positioned to benefit as biopharma and consumer products companies continue to shift their marketing spend to online channels,” said Gattinella.

For 2011, WebMD expects:

• Revenue to be approximately $610 million to $640 million, an increase of 14% to 20% over 2010. These amounts represent expected growth of approximately 16% to 23% in public portal advertising and sponsorship revenue over 2010 while private portal services revenue is expected to be essentially flat compared to 2010.
• Adjusted EBITDA to be approximately $215 million to $230 million, an increase of 24% to 32% over 2010.
• Income from continuing operations to be approximately $77 million to $89 million, or $1.22 to $1.40 per diluted share, an increase of 47% to 70% over 2010.  

For the first quarter of 2011, WebMD expects:

• Revenue to be in excess of $125 million, an increase of at least 16% over the prior year period. Advertising revenue is expected to increase at least 20% while private portal revenue is expected to be consistent with the prior year period.
• Adjusted EBITDA to be approximately 27% of revenue.
• Income from continuing operations to be approximately 7% of revenue.

WebMD is providing a schedule (attached to this press release) with additional detail.

Analyst and Investor Conference Call  

As previously announced, WebMD will hold a conference call with investors and analysts to discuss its fourth 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. More than 80 million unique visitors access the WebMD Health Network each month.

The WebMD Health Network includes WebMD Health, Medscape, MedicineNet, emedicineHealth, RxList, theheart.org, drugs.com and Medscape Education.

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 strategic partners; 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.

ANNEX A

Explanation of Non-GAAP Financial Measures

(All dollar amounts in thousands)

The accompanying WebMD Health Corp. press release and financial tables 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, "consolidated income (loss) from continuing operations" or "net income (loss) attributable to Company stockholders" calculated in accordance with GAAP.  The accompanying financial tables 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 consolidated income (loss) from continuing operations or net income (loss) attributable to Company stockholders.  In addition, we use Adjusted EBITDA in the incentive compensation programs applicable to many 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 consolidated income (loss) from continuing operations or net income (loss) attributable to Company stockholders, 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 consolidated income (loss) from continuing operations or to net income (loss) attributable to Company stockholders that accompany our press releases and disclosure documents containing non-GAAP financial measures, including the reconciliations contained in the accompanying financial tables.

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 consolidated income (loss) from continuing operations or to net income (loss) attributable to Company stockholders, 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 "consolidated income (loss) from continuing operations" or "net income (loss) attributable to Company stockholders" calculated in accordance with GAAP.  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 consolidated income (loss) from continuing operations:

• 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 its 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 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:

• Non-Cash Advertising Expense.  This expense relates to the usage of non-cash advertising obtained from News Corporation ("Newscorp") in exchange for equity securities issued in 2000.  The advertising was available only on various Newscorp properties, primarily its television network and cable channels, without any cash cost to us and expired in 2009.  We exclude this expense from Adjusted EBITDA (i) because it is a non-cash expense, (ii) because it is incremental to other non-television cash advertising expense that we may otherwise incur and (iii) to assist management and investors in comparing its operating results over multiple periods.  Investors should note that it is likely that we derived some benefit from such advertising. Non-cash advertising expenses included in the Consolidated Statement of Operations in Sales and Marketing expense were $1,753 for the year ended December 31, 2009.  

• 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 of the components of interest expense of our convertible notes:

• 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 overall consolidated income (loss) from continuing operations.  In recent periods, these other items have included, but were not limited to, (i) legal expenses relating to the ongoing Department of Justice investigation, (ii) gain or loss on repurchases and conversions of our convertible notes, (iii) a reduction of certain sales and use tax contingencies resulting from the expiration of certain applicable statutes of limitations, (iv) advisory expenses relating to the merger of HLTH Corporation into our company in 2009, and  (v) gain or loss on investments.  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