WebMD Health Corp (WBMD)

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WebMD Health Corp, (WBMD)

Q2 2010 Earnings Call

August 3, 2010; 04:45 pm ET


Marty Wygod - Chairman

Wayne Gattinella - Chief Executive Officer & President

Tony Vuolo - Chief Financial Officer & Chief Operating Officer

Risa Fisher - Vice President of Investor Relations


James Kumpel - Madison Williams

Corey Tobin - William Blair & Company, L.L.C.

Steve Rubis - Stifel Nicolaus

Gerard Heymen - JP Morgan

Mark Mahaney - Citigroup

Fred Krom - Goldman Sachs

Wayne Chang - Canaccord Genuity

Robert Coolbrith - ThinkEquity



Good afternoon and welcome to the WebMD Health Corp, June 2010 quarterly conference call. Today’s call is being recorded.

I would now turn the call over to Risa Fisher, Vice President of Investor Relations. You may begin.

Risa Fisher

Good afternoon. This conference call is to discuss WebMD’s second quarter results. The earnings release issued today by WebMD is available at www.wbmd.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 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 in 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 COO.

I’m pleased with the results announced today. Our public portal business was very strong this past quarter posting 32% advertising revenue growth. WebMD further solidified its position as the leading brand of health information. WebMD continues to be relied on as the most trusted brand in health information for both consumers and healthcare professionals.

We have the largest and highest quality audience of consumers and healthcare professionals and we offer a highly valuable and unique set of services, which allows our advertisers to communicate their products, messages to a targeted audience.

For these reasons WebMD has become an integral part of large biopharma and consumer product companies, digital marketing strategies. The trends in our business are very positive. Much of our growth in recent quarters can be attributed to existing customers increasing their spend across WebMD’s offerings and we expect that to continue.

We see a tremendous opportunity in front of us as we are well positioned to benefit significantly from the spending shift that will take place as biopharma continues to move marketing dollars from traditional offline channels to more effective digital strategies. The size of this market is substantial, but yet it has proven difficult for competitors to make any inroads.

WebMD is a strong market leader. Our balance sheet is strong, we have monetized illiquid assets in investments and the majority of our convertible debentures have been converted to WebMD common stock or repurchased over the past few months. We have over $500 million in cash with approximately $120 million in convertible notes that can be called beginning in September. We have a federal tax net operating loss carry forward of over $600 million.

Our cash flow from operations is significant. There is tremendous leverage in our business model as evidenced by the 59% margin on the incremental revenue we have just reported. We have seen margin expansion while investing in the platforms that fuels sustainable long-term growth. We are well positioned to pursue acquisitions that complement our core offerings as well as continue to buyback of our common stock when appropriate.

I’d like to turn it over to Tony and then to Wayne to review the second 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 completed their merger on October 23, 2009. The applicable accounting treatments for the merger requires 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 completion of the merger.

Accordingly, the 2009 results are those of Health after applying the merger exchange ratio for the Health’s historical shares outstanding. WebMD delivered strong financial results for the June, 2010 quarter. WebMD revenue for the June quarter was $122.7 million compared to $98.6 million last year, an increase of 24%.

To breakdown the revenue increase for you, public portal, advertising and sponsorship revenue, which represented 82% of total revenue this quarter, increased 32% to $100.6 million. As anticipated, private portal services revenue which represented 18% of total revenue this quarter decreased $500,000 to $22.1 million.

Adjusted EBITDA was $34.3 million for the quarter, an increase of 71% compared to last year. The adjusted EBITDA margin was 28% for the quarter was approximately 770 basis points higher than last year.

Our ability to efficiently leverage our revenue growth is demonstrated in the second quarter results, 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%. Noncash stock compensation expense was $7 million compared to $9.4 million last year.

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