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WebMD HLTH Corporation (HLTH)

Q3 2009 Earnings Call

November 3, 2009 4:45 pm ET

Executives

Risa Fisher – Vice President of Investor Relations

Martin Wygod – Chairman of the Board

Wayne Gattinella – Chief Executive Officer and President

Tony Vuolo – Chief Financial Officer and Chief Operating Officer

Analysts

Mark Mahaney – Citigroup

Mark May – Needham

Ingrid Chung – Goldman Sachs

Gerard Hayman – JP Morgan

George Askew – Stifel Nicolaus

Jeremy Lopez – William Blair

Anthony Petrone – Maxim Group

Unidentified Analyst

Presentation

Operator

Good afternoon and welcome to WebMD HLTH Corp’s September 2009 quarterly conference call. Today’s call is being recorded.

I’d now turn the call over to Risa Fisher, Vice President of Investor Relations.

Risa Fisher

This conference call is to discuss WebMD's third quarter financial results. The earnings release issued today by WebMD is available at www.webmd.com in the Investor Relations section. The release issued today includes reconciliations between GAAP and non-GAAP financial measures to be presented in this call.

The explanatory paragraph in those releases concerning forward-looking disclosures and related risks and uncertainties also apply to forward-looking disclosures made during this call including those regarding our guidance on future financial results and other projections or measures of WebMD future performance. Information concerning the risks and uncertainties can be found in WebMD's SEC filings.

The tender offer announcement we’re making today is neither an offer to purchase nor a solicitation of an offer to sell any securities. The tender offer for the outstanding shares of WebMD’s common stock described in today’s announcement has not commenced. Any offers to purchase or solicitations of offers to sell would be made only pursuant to a tender offer statement filed with the Securities and Exchange Commission. The tender offer statement and other filed documents will contain important information and should be read carefully before any decision is made with respect to the tender offer. Those materials will be made available to all stockholders at WebMD at no expense to them. In addition, all those materials will be available at no charge on the SEC’s website.

I would now like to turn the call over to Martin Wygod, Chairman of WebMD.

Martin Wygod

Joining me on the call today are Wayne Gattinella, CEO and President; and Tony Vuolo, CFO and Chief Operating Officer. We announced yesterday that Tony would be assuming the role of Chief Financial Officer. Tony was the CFO from the time of WebMD’s IPO until 2007, and he has severed in senior management roles at the company or its predecessors for over 15 years. I’m confident there will be a smooth transition for Tony and for our organization as there is a depth of talent in the finance organization to support him in this new role.

As I said at our annual meeting of stockholders last week, we’re very pleased to have completed the HLTH WebMD merger transaction. We now have the one core business for the strongest growth profile going forward. As Wayne and Tony will discuss in more detail, we delivered a strong third quarter, and we’re expecting a strong fourth quarter as well. At a high level, we have seen an increased movement from offline to online spending by several pharmaceutical and consumer product customers.

Some of our pharma customers are moving more quickly to integrate our online services to enhance the effective of their detailed sales process. The trends are positive. As I have been saying for the last few quarters, we are seeing strong momentum in our business, and we’re optimistic about the opportunities for growth ahead of us. We’re positioned in the marketplace with a unique competitive set of assets.

From a financial perspective, as the result of HLTH having bought back 375 million shares through tenders open market and private purchases, the HLTH shares outstanding were reduced so significantly that the company post-merger ends up with approximately 57 million shares outstanding and enterprise value of approximately $1.5 billion.

As a result of the merger with HLTH, there are approximately an additional 10 million in-the-money stock options that were assumed by WebMD. The company has implemented the ability for option holders to receive a net number of shares equal to the option holder’s profit net of statutory withholding taxes. This allows the company to minimize the diluted impact of stock option exercises. If the approximate 10 million of in-the-money HLTH options carried over from the merger were settled in this manner, the net amount of shares would be a dilution of approximately 2 million.

Importantly please note that of the 10 million in-the-money options, approximately 5 million of these are approaching the end of their 10-year term and will be expiring over the next 6 to 9 months. These represent 637,000 shares on a net settled basis. Of the 5 million expiring options, 2.8 million are held by senior officers of the company including myself. These 2.8 million options represent 330,000 shares on a net settled basis. I expect that a substantial portion of these expiring options will be exercised and sold in the near future.

Post-merger, WebMD has a strong balance sheet with nearly $1 billion in cash and investments, $515 million in convertible debt and approximately $650 million in net operating loss carry-forward. We announced today that WebMD intends to commence a tender offer next week to purchase up to 5.7 millions shares of its common stock at a price of $36 per share. The board of directors of WebMD after evaluating expected capital requirements of the WebMD’s operations and other expected cash commitments as well as the possible dilutive impact of WebMD’s outstanding 1.75% convertible notes if converted believe that the purchasing of WebMD’s shares in the tender offer represents a superior alternative to the other available uses of this cash.

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