WebMD Health Corp (WBMD)

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WebMD Health Corp. (WBMD)

Q1 2010 Earnings Call

May 4, 2010 04:45 pm ET


Risa Fisher - VP of IR

Marty Wygod - Chairman

Wayne Gattinella - President and CEO

Tony Vuolo - CFO and COO


Mark Mahaney - Citigroup

Mark May - Needham & Company

Gerard Heymen - JPMorgan

Ingrid Chung - Goldman Sachs

Scott Kessler - Standard and Poor's

James Kumpel - Madison Williams



Good afternoon and welcome to WebMD Health Corps March 2010 Quarterly Conference Call. Today’s call is being recorded. I would now like to turn the call over to Risa Fisher, Vice President of Investor Relations.

Risa Fisher

Good afternoon. This conference call to discuss WebMD’s first quarter results. The earnings release issued today by WebMD is available at www.wbmd.com in the Investor Relations section.

The release issued today include reconciliations between GAAP and non-GAAP financial measures to be presented in this call. The explanatory paragraphs in the release 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’s future performance. Information concerning the risks and uncertainties can be found at WebMD’s SEC filings.

I’d now like to turn the call over to Marty Wygod, Chairman of WebMD.

Marty Wygod

Thank you, Risa. Good afternoon and thank you for joining us today. Joining me on the call today are Wayne Gattinella, CEO and President and Tony Vuolo, CFO and Chief Operating Officer.

I’m very pleased with the results announced today. From the balance sheet perspective, we completed several transactions in the last month which put us in a strong position to both fund our internal initiatives and allow us to pursue external opportunities. We completed a tender offering which reduced our shares outstanding by approximately 10%. We sold our auction rate securities for total consideration of $286 million in our Porex notes for 97% of phase so that our cash balance is now completely liquid. In addition, we have the upside on the auction rate securities over the next two years.

For an ongoing perspective, our advertising and sponsorship business is growing strongly. We continue to stand out as the market leader in a large and under penetrated market. The WebMD brand is the most recognized and trusted icon in health information in the size and quality of our highly engaged consumer and professional audience continues to differentiate us from other media properties.

The momentum we talked about on our last conference call continues to build. We are seeing our biopharma and consumer package goods advertising customers moving more of their spending online and we expect this trend to continue for quite a long period of time. The margin leverage in our business model was again evidence as our earnings growth continues to outpace our top line growth.

With these strong and expanding margins we are able to invest the new technologies and innovative services that we support our continued momentum accelerate our future growth and create value for our shareholders over the long-term.

Basically we feel that we are sitting in the in the catbird seat. I’d like to turn it over to Tony and then to Wayne to review the first quarter financial and operating results respectively and then we’ll take questions at the end.

Tony Vuolo

Thank you, Marty. As a reminder WebMD and its former parent company Health Corporation completed their merger in October 23, 2009. The applicable accounting treatment for the merger require that Health be considered the acquiring entity of the WebMD minority interest and therefore the pre-acquisition consolidated financial statements of Health became the historical financial statements of WebMD beginning with the closing of the merger which occurred during the fourth quarter of 2009.

Accordingly the 2009 results for those at health at the giving effect of the merger exchange ratio on the historical health shares outstanding. WebMD delivered strong financial results for the March 2010 quarter. WebMD revenue for the March quarter was a $108 million compared to $90.3 million last year, an increase of 20%. Adjusted EBITDA was $25.7 million an increase of 68% compared to last year.

Breakdown the revenue increase for you, public portal, advertising and sponsorship revenue which represented 80% of total revenues this quarter increased 28% to $86.3 million. As anticipated, private portal services revenue which represented 20% of total revenue this quarter decreased $1.2 million to $21.8 million. The adjusted EBITDA margin of 23.7% for the quarter was approximately 680 basis points higher than last year. Our ability to efficiently leverage our revenue growth is demonstrated in the first quarter result, as our Adjusted EBITDA margin on incremental revenue was 59%. The Adjusted EBITDA margin on incremental revenue reflects the impact of the reduction in corporate expenses for the quarter as compared to a year ago when health maintained larger corporate operations and separate public company expenses.

Even without the impact of this reduction in corporate expenses, the adjusted EBITDA margin on incremental revenue would have been about 50%. Non-cash stock compensation expense was $7.8 million for the quarter, compared to $9.2 million last year. As we previously disclosed on Form 8-K filed on April 26, we recorded a pre-tax non-cash charge of $28.8 million during the quarter related to the sale of our auction rate security. WebMD sold all 348 million principal amount of its holdings of auction rate securities for 286 million in cash. Under the sale agreement, WebMD has effectively retained a potential upside over the next two years, should the liquidity and value return to the auction rate securities markets.

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