WBMD

WebMD Health Corp (WBMD)

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WebMD Health Corp. (WBMD)

Q2 2011 Earnings Call

August 2, 2011 4:45 pm ET

Executives

Risa Fisher - VP of Investor Relations

Marty Wygod - Chairman

Wayne Gattinella - President and CEO

Tony Vuolo - CFO and COO

Analysts

Mark Mahaney - Citi

Ingrid Chung - Goldman Sachs

Ryan Daniels - William Blair

Gerard Hayman - JPMorgan

Sandy Draper - Raymond James

Scott Kessler - Standard & Poor's Equity

Michael Bunyaner - TLF Capital

Steve Rubis - Stifel Nicolaus

Henri Moudi - Weisel Asset Management

Presentation

Operator

Welcome to the WebMD Health Corp's June 2011 quarterly conference call. I'd now turn the call over to Risa Fisher, Vice President of Investor Relations.

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 includes reconciliations between GAAP and non-GAAP financial measures, which will be discussed during 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.

Joining us on today's call are Marty Wygod, Chairman of WebMD; Wayne Gattinella, CEO and President; and Tony Vuolo, CFO and COO. At the conclusion of our prepared remarks, we will open the call and take questions.

Now I'd now like to turn the call over to WebMD's CFO and COO, Tony Vuolo.

Tony Vuolo

Good afternoon. Thank you for joining us today. WebMD results for the second quarter are in line with our previous financial guidance and with our preliminary earnings release on July 18, 2011.

Revenue for the June 2011 quarter increased 15% to $141.4 million. To break down the revenue increase for you, public portal advertising and sponsorship revenue, which represented 86% of total revenue this quarter, increased 20% to $121.1 million. Private portal services revenue, which represented 14% of total revenue this quarter, decreased 8% to $20.3 million.

Beginning January 1, 2011, we were required to adopt Accounting Standards Update 2009-13, which impacts the timing of revenue recognition for certain of our advertising and sponsorship contracts that were entered into after January 1, 2011.

During the quarter, we recognized approximately $1.9 million in revenue and earnings that would have otherwise been recognized later in 2011 under the previous accounting standard.

Our adjusted EBITDA for the quarter increased 32% to $45.3 million. The adjusted EBITDA margin of 32% for the quarter was approximately 400 basis points higher than our prior-year period. The adjusted EBITDA margin on incremental revenue was 59% for the June quarter.

Income from continuing operations for the second quarter was $14.2 million or $0.23 per diluted share, an increase of 85%. Income from continuing operations includes an after-tax gain on investments of $1 million in the current period and in the prior period an after-tax gain on investments of $3.6 million as an after-tax loss on convertible notes of $6.6 million.

Net income was $21.6 million or $0.36 per diluted share. Net income would have been approximately $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 period without the effect in the current period of the items I just mentioned as well as an after-tax gain 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.

Operating cash flow for the quarter was $51.6 million. In the second quarter, we converted about 114% of our adjusted EBITDA to operating cash flow. This amount excludes a cash tax benefit of $10.5 million on the quarter related to the use of our tax NOLs which is included in the financing section of the cash flow statement rather than in the operating section.

This is due to the fact that we are now utilizing tax NOLs related to stock-based compensation, which must be reported in the financing section of the cash flow statement. Our conversion of adjusted EBITDA to operating cash flow in the second quarter put us in about 137% when including this benefit.

As we've stated in the past, our quarterly operating cash flows can be impacted by the timing of compensation accruals and other accruals in relation to quarter's end, the timing of interest payments on our convertible debt and the billing and collection of our receivables from our customers. Capital expenditures for the quarter were $4.7 million.

Since March 31, 2011, we have purchased approximately 872,000 shares of WebMD common stock at an average price of $34.77 per share for a total of approximately $30 million under our buyback program. As of today, we've used all the funds available under our buyback program. Any future buyback programs or other share repurchases such as tender offers is subject to future Board action. We do not intend to comment on any potential or future share buybacks on our call today. As of June 30, 2011, we have $1.15 billion in cash and cash equivalents.

Turning to our financial guidance for 2011, our guidance for the year is unchanged from that we issued on July 18, and we've included a schedule attached to this press release that incorporates that guidance that was issued on July 18.

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