WebMD Announces Second Quarter Financial Results

WebMD Total Revenue Increased 15%; Advertising Revenue Increased 20%

WebMD Adjusted EBITDA Increased 32%

Aug 02, 2011, 16:00 ET from WebMD

NEW YORK, Aug. 2, 2011 /PRNewswire/ -- WebMD Health Corp. (Nasdaq: WBMD), the leading source of health information, today announced financial results for its second quarter ended June 30, 2011.

For the quarter ended June 30, 2011:

  • Revenue increased 15% to $141.4 million, compared to $122.7 million in the prior year period.
  • Earnings before interest, taxes, non-cash and other items ("Adjusted EBITDA") increased 32% to $45.3 million, compared to $34.3 million in the prior year period.
  • Net income was $21.6 million or $0.36 per share compared to $7.7 million or $0.13 per share in the prior year period. Net income would have been $13.2 million or $0.22 per diluted share in the current period as compared to $10.7 million or $0.18 per diluted share in the prior year period, without the effect, in the current period, of an after-tax gain on investments of $1.0 million and after-tax income from discontinued operations of $7.4 million attributable to the resolution of a Department of Justice investigation relating to a business that was divested in 2006 and, in the prior year period, of an after-tax gain on investments of $3.6 million and an after-tax loss on convertible notes of $6.6 million.  

“The opportunities in our market are as strong today as they have ever been,” said Wayne Gattinella, President and CEO, WebMD. “As the changes in the health and wellness markets drive greater demand for more effective communication platforms, WebMD is uniquely positioned to capitalize on those opportunities and to deliver continued growth for the future.”

Revenue Highlights

Public portal advertising and sponsorship revenue increased 20% to $121.1 million, compared to $100.6 million in the prior year period. Traffic to the WebMD Health Network continued to grow, reaching an average of 104.8 million unique users per month and total traffic of 2.17 billion page views during the second quarter, increases of 30% and 24%, respectively, from a year ago. Traffic growth was primarily driven by increased traffic to WebMD owned and operated sites which reached 83 million unique users per month and page views of 2.0 billion, increases of 28% and 24%, respectively, from a year ago.    

Private portal services revenue decreased 8% to $20.3 million, compared to $22.1 million in the prior year period. The base of large employers and health plans using WebMD’s private Health and Benefits portals during the second quarter was 120.

As of June 30, 2011, WebMD had $1.15 billion in cash and cash equivalents and $800 million in aggregate principal amount of convertible notes outstanding.

Financial Guidance  

WebMD reaffirmed today its 2011 financial guidance, which was issued on July 18, 2011, and is attached as a schedule to this press release.

Analyst and Investor Conference Call

As previously announced, WebMD will hold a conference call with investors and analysts to discuss its second 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 100 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.

WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2011

2010

2011

2010

Revenue

$ 141,369

$ 122,707

$ 272,978

$       230,737

Cost of operations

51,152

45,368

99,601

88,362

Sales and marketing

32,270

29,425

64,564

57,832

General and administrative

22,006

20,577

44,827

39,386

Depreciation and amortization

6,724

6,318

13,148

13,333

Interest income

51

420

67

3,829

Interest expense

5,833

3,170

8,974

8,309

Loss on convertible notes

-

11,011

-

14,738

Gain (loss) on investments

1,769

6,002

15,829

(22,846)

Other income (expense), net

-

99

(53)

(199)

Income (loss) from continuing operations before income

tax provision (benefit)

25,204

13,359

57,707

(10,439)

Income tax provision (benefit)

11,003

5,675

23,961

(14,333)

Income from continuing operations

14,201

7,684

33,746

3,894

Income from discontinued operations, net of tax

7,394

-

7,394

-

Net income

$   21,595

$     7,684

$   41,140

$           3,894

Basic income per common share:

Income from continuing operations

$       0.24

$       0.14

$       0.58

$             0.07

Income from discontinued operations

0.13

-

0.12

-

Net income

$       0.37

$       0.14

$       0.70

$             0.07

Diluted income per common share:

Income from continuing operations

$       0.23

$       0.13

$       0.55

$             0.07

Income from discontinued operations

0.13

-

0.13

-

Net income

$       0.36

$       0.13

$       0.68

$             0.07

Weighted-average shares outstanding used in

computing  income per common share:

Basic

58,096

53,521

58,140

52,856

Diluted

60,236

62,504

60,473

57,272

WEBMD HEALTH CORP.

CONSOLIDATED SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands, unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2011

2010

2011

2010

Revenue

Public portal advertising and sponsorship

$ 121,108

$ 100,592

$ 231,471

$ 186,849

Private portal services

20,261

22,115

41,507

43,888

$ 141,369

$ 122,707

$ 272,978

$ 230,737

Earnings before interest, taxes, non-cash

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

$   45,289

$   34,301

$   83,147

$   59,958

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

Interest income

51

420

67

3,829

Interest expense

(5,833)

(3,170)

(8,974)

(8,309)

Income tax (provision) benefit

(11,003)

(5,675)

(23,961)

14,333

Depreciation and amortization

(6,724)

(6,318)

(13,148)

(13,333)

Non-cash stock-based compensation

(9,348)

(6,964)

(19,161)

(14,801)

Loss on convertible notes

-

(11,011)

-

(14,738)

Gain (loss) on investments

1,769

6,002

15,829

(22,846)

Other income (expense), net

-

99

(53)

(199)

Income from continuing operations

14,201

7,684

33,746

3,894

Income from discontinued operations, net of tax

7,394

-

7,394

-

Net income

$   21,595

$     7,684

$   41,140

$     3,894

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

(b)  Reconciliation of Adjusted EBITDA to net income.  

WEBMD HEALTH CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)

June 30, 2011

December 31, 2010

Assets

Cash and cash equivalents

$   1,145,061

$               400,501

Accounts receivable, net

115,214

134,448

Prepaid expenses and other current assets

17,913

12,161

Deferred tax assets

21,527

23,467

       Total current assets

1,299,715

570,577

Property and equipment,  net

58,290

61,516

Goodwill

202,104

202,104

Intangible assets, net

21,313

22,626

Deferred tax assets

63,827

71,125

Other assets

33,420

14,254

Total Assets

$   1,678,669

$               942,202

Liabilities and Stockholders' Equity

Accrued expenses

$        56,701

$                 53,181

Deferred revenue

95,999

97,043

Liabilities of discontinued operations

4,804

17,327

     Total current liabilities

157,504

167,551

2.25% convertible notes due 2016

400,000

-

2.50% convertible notes due 2018

400,000

-

Other long-term liabilities

22,401

21,756

Stockholders' equity

698,764

752,895

Total Liabilities and Stockholders' Equity

$   1,678,669

$               942,202

WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

Six Months Ended

June 30,

2011

2010

Cash flows from operating activities:

Net income

$      41,140

$     3,894

Adjustments to reconcile consolidated net income to net cash provided by

 operating activities:

Income from discontinued operations, net of tax

(7,394)

-

Depreciation and amortization

13,148

13,333

Non-cash interest, net

1,599

3,885

Non-cash stock-based compensation

19,161

14,801

Deferred income taxes

4,423

(27,729)

Loss on convertible notes

-

14,738

(Gain) loss on investments

(15,829)

22,846

Changes in operating assets and liabilities:

Accounts receivable

19,234

13,248

Prepaid expenses and other, net

(2,103)

(2,144)

Accrued expenses and other long-term liabilities

4,765

(4,801)

Deferred revenue

(1,044)

14,596

Net cash provided by continuing operations

77,100

66,667

Net cash used in discontinued operations

(136)

(15,501)

Net cash provided by operating activities

76,964

51,166

Cash flows from investing activities:

Proceeds from sales of available-for-sale securities

-

361,852

Proceeds received from ARS option

16,561

354

Purchases of property and equipment

(9,557)

(9,719)

Finalization of sale price of discontinued operations

-

(1,430)

Net cash provided by investing activities

7,004

351,057

Cash flows from financing activities:

Proceeds from exercise of stock options

25,053

48,114

Cash used for withholding taxes due on stock-based awards

(6,632)

(39,728)

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

774,745

-

Repurchases of 1.75% Notes and 3 1/8% Notes

-

(81,362)

Purchases of treasury stock

(150,417)

(264,527)

Excess tax benefit on stock-based awards

17,843

10,219

Net cash provided by (used in) financing activities

660,592

(327,284)

Net increase in cash and cash equivalents

744,560

74,939

Cash and cash equivalents at beginning of period

400,501

459,766

Cash and cash equivalents at end of period

$ 1,145,061

$ 534,705

WEBMD HEALTH CORP.

NET INCOME PER COMMON SHARE

(In thousands, except per share data, unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2011

2010

2011

2010

Numerator:

Income from continuing operations

$     14,201

$             7,684

$        33,746

$          3,894

Effect of participating non-vested restricted stock

(91)

(88)

(255)

(50)

Income from continuing operations- Basic

14,110

7,596

33,491

3,844

Interest expense on 1.75% Notes, net of tax

-

592

-

-

Income from continuing operations- Diluted

$     14,110

$             8,188

$        33,491

$          3,844

Income from discontinued operations, net of tax

$       7,394

$                  -

$          7,394

$               -

Effect of participating non-vested restricted stock

(47)

-

(56)

-

Income from discontinued operations, net of tax - Basic and Diluted

$       7,347

$                  -

$          7,338

$               -

Denominator:

Weighted-average shares — Basic

58,096

53,521

58,140

52,856

Employee stock options and restricted stock

2,140

3,848

2,333

4,416

1.75% Notes

-

5,135

-

-

Adjusted weighted-average shares after assumed conversions — Diluted

60,236

62,504

60,473

57,272

Basic income per common share:

Income from continuing operations

$         0.24

$               0.14

$            0.58

$            0.07

Income from discontinued operations

0.13

-

0.12

-

Net income

$         0.37

$               0.14

$            0.70

$            0.07

Diluted income per common share:

Income from continuing operations

$         0.23

$               0.13

$            0.55

$            0.07

Income from discontinued operations

0.13

-

0.13

-

Net income

$         0.36

$               0.13

$            0.68

$            0.07

WebMD Health Corp.

Financial Guidance Summary

For the Year ending December 31, 2011

(in millions, except per share amounts)

Guidance Range

Revenue

$ 580.0

$ 600.0

Earnings before interest, taxes, depreciation, amortization

 and other non-cash items ("Adjusted EBITDA") (a)

$ 200.0

$ 210.0

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

Interest income

0.5

0.5

Interest expense

(20.7)

(20.7)

Depreciation and amortization

(30.0)

(28.0)

Non-cash stock-based compensation

(41.0)

(38.0)

Gain on investments

13.5

13.5

Other expense, net

(0.1)

(0.1)

Pre-tax income from continuing operations

122.2

137.2

Income tax provision

(51.2)

(57.2)

Income from continuing operations

71.0

80.0

Income from discontinued operations, net of tax

7.4

7.4

Net income

$   78.4

$   87.4

Income from continuing operations per share:

  Basic

$   1.19

$   1.35

  Diluted

$   1.16

$   1.29

Net income per share:

  Basic

$   1.32

$   1.47

  Diluted

$   1.26

$   1.39

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

 Basic

59.0

59.0

 Diluted

71.0

71.0

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

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

Additional information regarding forecast for the quarter ending September 30, 2011:

- Revenue is forecasted to be $135 million to $140 million in the quarter ending September 30, 2011

- Adjusted EBITDA as a percentage of revenue is forecasted to be approximately 29% in the quarter ending September 30, 2011

- Income from continuing operations as a percentage of revenue is forecasted to be approximately 6.4% in the quarter ending September 30, 2011

- Basic and diluted share count is forecasted to be approximately 59 million and 61 million, respectively.  The 2.50% and 2.25% Convertible Notes are not expected to be dilutive to income from continuing operations per share during the quarter ending September 30, 2011.

- Basic and diluted income from continuing operations per share is forecasted to be in excess of $0.15 and $0.14, respectively.

Additional information regarding full year forecast:

- Income tax rate for 2011 is forecasted to be approximately 42% of pretax income.  

- The distribution of the annual revenue is expected to be approximately 86% public portals advertising and sponsorship and 14% private portal licensing.  Quarterly revenue distributions may vary from this annual estimate

- 2011 guidance includes actual gains on investments during the six months ended June 30, 2011 and forecasted amortization of the ARS Option for the six months ending December 31, 2011, but excludes any potential gains on investments during the six months ending December 31, 2011

Additional information regarding full year income per share calculations:

- Basic income per share: Reflects a reduction to income of $0.6 million to consider the effect of restricted stock.

- Diluted income per share: Reflects an increase to income of $6.7 million and $5.2 million for the interest expense (net of tax) on the 2.50% and 2.25% Convertible Notes, respectively, offset by a reduction to income of $0.6 million to consider the effect of restricted stock. The diluted share count reflects an additional 6 million and 4 million shares, related to the 2.50% and 2.25% Convertible Notes, respectively.

ANNEX A

Explanation of Non-GAAP Financial Measures

The accompanying WebMD Health Corp. press release and the attached financial information and guidance 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 from continuing operations" or "net income" calculated in accordance with GAAP.  The financial information and guidance accompanying 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 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 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:

Three Months Ended

Six Months Ended

June 30,

June 30,

2011

2010

2011

2010

Non-cash stock-based compensation included in:

Cost of operations

$    1,856

$   1,475

$    3,959

$    3,264

Sales and marketing

$    2,188

$   1,689

$    4,579

$    3,882

General and administrative

$    5,304

$   3,800

$  10,623

$    7,655

  • 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

Six Months Ended

June 30,

June 30,

2011

2010

2011

2010

Non-cash interest expense

1.75% Convertible Notes

$            --

$       580

$            --

$       885

3 1/8% Convertible Notes

$            --

$    1,215

$            --

$    3,287

2.50% Convertible Notes

$        452

$           --

$        849

$           --

2.25% Convertible Notes

$        631

$           --

$        750

$           --

Cash interest expense

1.75% Convertible Notes

$            --

$       406

$            --

$    1,564

3 1/8% Convertible Notes

$            --

$       968

$            --

$    2,572

2.50% Convertible Notes

$     2,500

$           --

$     4,694

$           --

2.25% Convertible Notes

$     2,250

$           --

$     2,675

$           --

  • 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) 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, and (iv) 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



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