WebMD Announces Third Quarter Financial Results

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

For the quarter ended September 30, 2011:

• Revenue was $135.1 million, compared to $135.3 million in the prior year period.

• Earnings before interest, taxes, non-cash and other items ("Adjusted EBITDA") was $43.5 million, compared to $44.6 million in the prior year period, a decrease of 2%.

• Net income was $14.2 million or $0.24 per diluted share compared to $13.6 million or $0.22 per diluted share in the prior year period. Net income would have been $11.9 million or $0.20 per diluted share in the current period as compared to $16.0 million or $0.26 per diluted share in the prior year period, without the effect, in the current period, of an after-tax loss on investments of $(0.7) million and after-tax income from discontinued operations of $3.0 million and, in the prior year period, of an after-tax loss on convertible notes of $(1.4) million and an after-tax loss from discontinued operations of $(1.0) million.  

As indicated in early October, third quarter revenue was at the low end of the financial guidance range provided by WebMD in August and Adjusted EBITDA for the quarter exceeded that prior guidance.

“We are working closely with each of our major customers to put forward a portfolio of digital solutions as they finalize their 2012 marketing budgets,” said Wayne Gattinella, President and CEO, WebMD. “While I am not satisfied with our recent results, I firmly believe that our company has the market leadership and the demonstrated experience to leverage our assets in a large and still underdeveloped marketplace for the long-term.”

Revenue Highlights

Public portal advertising and sponsorship revenue increased 2% to $115.0 million, compared to $113.1 million in the prior year period. Traffic to the WebMD Health Network continued to grow, reaching an average of 107.3 million unique users per month and total traffic of 2.24 billion page views during the third quarter, increases of 29% and 26%, respectively, from a year ago. Traffic growth was primarily driven by increased traffic to WebMD owned and operated sites, which averaged 87.8 million unique users per month, and page views of 2.06 billion, increases of 31% and 27%, respectively, from a year ago.  Beginning January 1, 2012, the WebMD Health Network will not include any non-owned affiliate sites.

Private portal services revenue decreased 10% to $20.1 million, compared to $22.2 million in the prior year period. The base of large employers and health plans using WebMD’s private Health and Benefits portals during the third quarter was 121.

Balance Sheet Highlights

During the quarter, WebMD repurchased approximately 2.05 million shares of its common stock for a total of $67 million.

As of September 30, 2011, WebMD had $1.1 billion in cash and cash equivalents and $800 million in aggregate principal amount of convertible notes outstanding.

After the end of the third quarter, WebMD repurchased approximately 775,000 shares of its common stock for a total of $22.5 million. On October 13, 2011, WebMD increased its authorized buyback program by $75 million. Currently, WebMD has approximately $90 million available under its buyback program.

Financial Guidance  

WebMD updated its financial guidance for the fourth quarter and full year 2011, as follows:

For the fourth quarter of 2011, WebMD expects:

• Revenue to be approximately $147 million to $157 million, compared to $168.5 million in the prior year period. Advertising revenue is expected to represent 86% of revenue and private portal revenue is expected to represent 14% of revenue.
• Adjusted EBITDA to be approximately $53 million to $61 million, compared to $69.1 million in the prior year period.
• Income from continuing operations to be approximately $15 million to $20 million, compared to $33.8 million in the prior year period.  

For the year ended December 31, 2011, WebMD expects:  

• Revenue to be approximately $555 million to $565 million, compared to $534.5 million in the prior year. Advertising revenue is expected to represent 86% of revenue and private portal revenue is expected to represent 14% of revenue.
• Adjusted EBITDA to be approximately $180 million to $187 million, compared to $173.6 million in the prior year.
• Income from continuing operations to be approximately $60 million to $65 million, compared to $52.3 million in the prior year.  

The changes to the Company’s financial guidance for the remainder of 2011 are the result of several factors. Principally:

• The revenue contribution of third quarter sales to fourth quarter revenue is expected to be less than anticipated and significantly less than historical experience. The delivery of the services sold in the third quarter is weighted more toward 2012 than previously anticipated.  

• The revenue contribution of fourth quarter sales to fourth quarter revenue is expected to be less than anticipated and historical experience. WebMD has historically benefited from greater media buying in the fourth quarter when biopharmaceutical and consumer products customers commit unspent promotional dollars as their budget year closes.

The Company believes that the lower than expected fourth quarter revenue resulting from sales activity in both the third and fourth quarters is primarily a result of a more cautious business outlook by many of its large customers for the second half of 2011.

“I see substantial growth opportunities for WebMD,” said Martin J. Wygod, Chairman, WebMD. “With the pharmaceutical industry spend on digital marketing stuck at 5%, we understand our mission and will intensify our effort to roll out new products as well as demonstrate to our customers the unique WebMD capabilities that we believe will provide superior return on their marketing investment. We will take the steps necessary to ensure the Company’s long term growth and to maximize shareholder value.”

WebMD is providing a schedule (attached to this press release) to reflect updated financial guidance.

Analyst and Investor Conference Call

WebMD will hold a conference call with investors and analysts to discuss its third quarter results and revised financial guidance 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, 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

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:

• 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:

• 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