WebMD Health Corp. (Nasdaq: WBMD) today announced financial results for the three months ended June 30, 2006.
"I am very pleased with our results for the second quarter and with the momentum that is building in each of our key business segments," said Wayne Gattinella, President and Chief Executive Officer of WebMD. "We have made demonstrable progress this quarter to solidify our leadership position as the most recognized and trusted brand of health information for consumers, physicians, employers and health plans."
Financial Summary
Revenue for the second quarter was $56.6 million compared to $41.0 million in the prior year period, an increase of 38%. Earnings before interest, taxes, depreciation, amortization, and other non-cash items ("Adjusted EBITDA") for the second quarter increased 190% to $9.6 million or $0.17 per share compared to $3.3 million or $0.07 per share in the prior year period. The net loss of $1.2 million or $0.02 per share for the second quarter includes $5.8 million of stock compensation expense due to the January 1, 2006 adoption of SFAS 123R. Without this, net income would have been $4.6 million or $0.08 per share compared to last year's net loss of $1.6 million or $0.03 per share.
As of June 30, 2006, WebMD had approximately $104 million of cash and investments.
Operating Highlights
Online Services segment revenue was $49.6 million for the second quarter compared to $36.9 million in the prior year period, an increase of 34%. Advertising and sponsorship revenue increased 36% to $36.2 million. Private portal licensing revenue increased 49% to $12.3 million. Online Services segment Adjusted EBITDA increased 127% to $9.0 million compared to $4.0 million in the prior year.
The WebMD Health Network continued to expand with the average number of unique users reaching 30.5 million per month and total traffic of 714 million page views during the second quarter, increases of approximately 24% and 22%, respectively, from a year ago. During the second quarter a record total of 490,000 continuing medical education (CME) programs were completed on the network, an increase of 70% over the prior year period.
Publishing and Other Services segment revenue was $7.0 million for the second quarter compared to $4.1 million in the prior year period, an increase of 72%. Publishing and Other Services segment Adjusted EBITDA was $593,000 compared to a loss of $668,000 in the prior year period.
New Acquisitions Expand Breadth of WebMD Service Offerings
In June, the Company completed the acquisition of Summex Corporation, a leading provider of comprehensive health and wellness programs, including telephonic health coaching. The Summex programs will complement WebMD's online Health and Benefits platform as the Company begins to market these services to both new and existing customers.
In addition, WebMD recently announced a definitive agreement to acquire certain assets of Medsite, the leader in direct-to-physician eDetailing services. The acquisition will enable WebMD to provide an expanded set of online solutions to its biopharma customers that will help to increase the sales efficiencies of their own direct detailing efforts. The acquisition is expected to close during the third quarter.
WebMD Extends its Lead in Private Health Portals Market
WebMD continued to expand its base of private Health and Benefits portals to large employers and health plans. During the quarter, the Company implemented new health platforms for organizations including Verizon, St. Joseph's Hospital Sonoma County and Honda of America. In addition, WebMD is implementing new services for several existing accounts including WellPoint, IBM, CIGNA, Microsoft, Dell, and PepsiCo.
WebMD is rapidly becoming the market leader in providing a fully deployed personal health record (PHR) that integrates a person's health history with their medical, pharmaceutical and laboratory claims history. The PHR is a core component of the WebMD Health and Benefits portal offering. The Centers for Medicare and Medicaid Services (CMS) recently awarded a six-month contract to WebMD and ViPS, a subsidiary of WebMD's parent company, Emdeon Corporation, to conduct a PHR feasibility test with its Medicare beneficiaries.
Financial Guidance
A schedule outlining the Company's updated financial guidance is attached to this press release.
Analyst and Investor Conference Call
As previously announced, WebMD will hold a conference call with investors and analysts to discuss these results at 4:45 pm (eastern) on August 3, 2006. The call can be accessed at http://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 a leading provider of health information services to consumers, physicians, healthcare professionals, employers and health plans through our public and private online portals and health-focused publications. WebMD Health Corp. is a subsidiary of Emdeon Corporation (Nasdaq: HLTH).
All statements contained in this press release, 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; and the amount and timing of the benefits expected from acquisitions, from new products or services and from other potential sources of additional revenue. These statements speak only as of the date of this press release and are based on our current plans and expectations, and they 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; relationships with customers and strategic partners; difficulties in integrating acquired businesses; 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. We expressly disclaim any intent or obligation to update these forward-looking statements.
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 non-GAAP financial measures. The tables attached to this press release include reconciliations of 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(R), WebMD Health(R), Medscape(R), eMedicine(R) and Summex(R), are trademarks of WebMD Health Corp. or its subsidiaries.
WEBMD HEALTH CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Revenue $56,612 $40,979 $106,663 $74,740
Costs and expenses:
Cost of operations 25,716 18,616 50,426 33,511
Sales and marketing 16,932 12,141 32,469 23,129
General and administrative 12,565 8,665 24,455 15,205
Depreciation and amortization 4,013 3,019 7,542 5,252
Interest income 1,468 - 2,916 -
Loss before income tax provision (1,146) (1,462) (5,313) (2,357)
Income tax provision 12 91 12 152
Net loss $(1,158) $(1,553) $(5,325) $(2,509)
Net loss per common share:
Basic and diluted $(0.02) $(0.03) $(0.09) $(0.05)
Weighted-average shares outstanding
used in computing basic and
diluted net loss per common share: 56,054 48,100 56,054 48,100
WEBMD HEALTH CORP.
CONSOLIDATED SEGMENT INFORMATION
(In thousands, except per share data, unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Revenue
Online Services:
Advertising and sponsorship $36,219 $26,656 $68,979 $49,443
Licensing 12,304 8,239 23,746 14,044
Content syndication and other 1,096 2,010 1,972 4,573
Total Online Services 49,619 36,905 94,697 68,060
Publishing and Other Services 6,993 4,074 11,966 6,680
$56,612 $40,979 $106,663 $74,740
Earnings (loss) before interest,
taxes, depreciation, amortization
and other non-cash items
("Adjusted EBITDA")
Online Services $9,006 $3,974 $16,867 $7,793
Publishing and Other Services 593 (668) (741) (915)
9,599 3,306 16,126 6,878
Adjusted EBITDA per diluted
common share (a) $0.17 $0.07 $0.28 $0.14
Interest, taxes, depreciation,
amortization and other non-cash
items (b)
Interest income 1,468 - 2,916 -
Depreciation and amortization (4,013) (3,019) (7,542) (5,252)
Non-cash advertising (1,189) (1,663) (2,794) (3,414)
Non-cash stock-based compensation (7,011) (86) (14,019) (569)
Income tax provision (12) (91) (12) (152)
Net loss $(1,158) $(1,553) $(5,325) $(2,509)
Net loss per common share:
Basic and diluted $(0.02) $(0.03) $(0.09) $(0.05)
Weighted-average shares outstanding
used in computing basic and diluted
net loss per common share:
Basic and diluted 56,054 48,100 56,054 48,100
(a) Three and six months ended June 30, 2006 Adjusted EBITDA is calculated
based on 58,092 and 57,905 diluted shares, respectively.
(b) Reconciliation of Adjusted EBITDA to net loss
(see Annex A - Explanation of Non-GAAP Financial Measures).
WEBMD HEALTH CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
June 30, December 31,
2006 2005
ASSETS
Current assets:
Cash and cash equivalents $4,620 $75,704
Short-term investments 99,655 78,073
Accounts receivable, net 55,814 57,245
Current portion of prepaid advertising 5,625 7,424
Other current assets 6,522 3,977
Total current assets 172,236 222,423
Property and equipment, net 32,108 21,014
Prepaid advertising 11,110 12,104
Goodwill 142,427 100,669
Intangible assets, net 32,109 20,503
Other assets 170 176
$390,160 $376,889
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $21,715 $30,400
Deferred revenue 50,191 36,495
Due to Emdeon 3,005 3,672
Total current liabilities 74,911 70,567
Other long-term liabilities 7,460 7,010
Stockholders' equity 307,789 299,312
$390,160 $376,889
WEBMD HEALTH CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Six Months Ended
June 30,
2006 2005
Cash flows from operating activities:
Net loss $(5,325) $(2,509)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 7,542 5,252
Non-cash advertising 2,794 3,414
Non-cash stock-based compensation 14,019 569
Changes in operating assets and liabilities:
Accounts receivable 4,221 1,173
Other assets (2,945) (1,156)
Accrued expenses and other
long-term liabilities (1,364) 2,032
Due to Emdeon (667) -
Deferred revenue 9,984 4,587
Net cash provided by
operating activities 28,259 13,362
Cash flows from investing activities:
Proceeds from maturities and sales
of available-for-sale securities 171,000 -
Purchases of available-for-sale securities (192,000) -
Purchases of property and equipment (12,775) (14,207)
Cash paid in business combinations,
net of cash acquired (65,568) (30,612)
Net cash used in investing
activities (99,343) (44,819)
Cash flows from financing activities:
Net cash transfers from Emdeon - 29,835
Net cash provided by
financing activities - 29,835
Net decrease in cash and cash equivalents (71,084) (1,622)
Cash and cash equivalents
at beginning of period 75,704 3,456
Cash and cash equivalents at end of period $4,620 $1,834
FINANCIAL GUIDANCE SUMMARY
2006 Financial Guidance
(in millions, except per share amounts)
Six Months Ended Year Ended
Six Months December 31, December 31,
Ended 2006 2006
June 30, 2006 Range Range
Revenue $106.7 $137.0 $142.0 $243.7 $248.7
Earnings before interest,
taxes, depreciation,
amortization
and other non-cash
items ("Adjusted
EBITDA") (a) 16.1 32.4 34.5 48.5 50.6
Adjusted EBITDA per
diluted common share $0.28 $0.55 $0.58 $0.83 $0.87
Interest income 2.9 1.7 2.0 4.6 4.9
Depreciation and
amortization 7.5 12.7 12.3 20.2 19.8
Non-cash advertising 2.8 4.8 4.6 7.6 7.4
Non-cash stock-based
compensation 14.0 13.4 13.4 27.4 27.4 (b)
Income tax provision - 2.1 2.1 2.1 2.1
-
Net income (loss) $(5.3) $1.1 $4.1 $(4.2) $(1.2)
Net income (loss) per
common share:
Basic $(0.09) $0.02 $0.07 $(0.08) $(0.02)
Diluted $(0.09) $0.02 $0.07 $(0.08) $(0.02)
Weighted-average shares
outstanding used in
computing net income
(loss) per common share:
Basic 56.1 56.1 56.1 56.1 56.1
Diluted 57.9 59.0 59.0 58.5 58.5
(a) See Annex A - Explanation of Non-GAAP Financial Measures.
(b) Includes approximately $24.0 or $0.41 to $0.43 per share relating to
the adoption of FAS 123R on January 1, 2006.
Supplementary 2006 Quarterly Guidance
(in millions, except percentages and
per share amounts)
Quarter Ended Quarter Ended
September 30, 2006 December 31, 2006
Range Range
Revenue $64.0 $66.0 $73.0 $76.0
Net income (loss) (1.8) (0.4) 2.9 4.5
% of revenue -2.8% -0.6% 4.0% 5.9%
Net income (loss) per common share:
Basic $(0.03) $(0.01) $0.05 $0.08
Diluted $(0.03) $(0.01) $0.05 $0.08
Weighted-average shares
outstanding used in computing
net income (loss) per common share:
Basic 56.1 56.1 56.1 56.1
Diluted 56.1 56.1 59.0 59.0
% of revenue
Earnings before interest, taxes,
depreciation, amortization and
other non-cash items
("Adjusted EBITDA") (a) 20.7% 21.5% 26.2% 26.7%
Stock-based compensation expense -12.3% -12.0% -7.5% -7.2%
Interest, taxes, depreciation,
amortization and
non-cash advertising -11.2% -10.1% -14.7% -13.6%
Net income (loss) -2.8% -0.6% 4.0% 5.9%
(a) See Annex A - Explanation of Non-GAAP Financial Measures.
ANNEX A
Explanation of Non-GAAP Financial Measures
The accompanying press release includes 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, "net income" calculated in accordance with GAAP. The tables attached to the accompanying press release include a reconciliation of historical non-GAAP financial measures to historical GAAP financial measures. The guidance summary being furnished as an exhibit to a Current Report on Form 8-K that WebMD is filing with the SEC today includes a reconciliation of forward-looking non-GAAP information to forward-looking GAAP financial information.
Adjusted EBITDA is used by WebMD's management as an additional measure of WebMD's overall performance and its reporting segments' 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 WebMD's management identify additional trends in WebMD's and its reporting segments' financial results that may not be shown solely by period-to-period comparisons of net income. In addition, WebMD uses Adjusted EBITDA in the incentive compensation programs applicable to many of its employees in order to evaluate WebMD's performance. WebMD 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 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 net income that WebMD provides when it presents Adjusted EBITDA.
WebMD believes that the presentation of Adjusted EBITDA is useful to investors in their analysis of WebMD's results for reasons similar to the reasons why WebMD's management finds it useful and because it helps facilitate investor understanding of decisions made by WebMD's management in light of the performance metrics used in making those decisions. In addition, as more fully described below, WebMD believes that providing Adjusted EBITDA, together with a reconciliation of Adjusted EBITDA to net income, helps investors make comparisons between WebMD 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 WebMD with other public companies and is not intended as a substitute for comparisons based on "net income" calculated in accordance with GAAP. 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 measure and net income provided by each company under applicable SEC rules.
The following is an explanation of the items excluded by WebMD from Adjusted EBITDA but included in net income/(loss):
Depreciation and Amortization: Depreciation and amortization expense is a non-cash expense relating to capital expenditures and intangible assets arising from acquisitions each of which are expensed on a straight-line basis over the estimated useful life of the related assets. WebMD excludes depreciation and amortization expense from Adjusted EBITDA because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of WebMD's 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, WebMD believes this exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that 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 expenses will recur in future periods.
Stock-Based Compensation expense: Prior to January 1, 2006, WebMD accounted for stock-based compensation based upon Accounting Principles Board Opinion No.25 "Accounting for Stock Issued to Employees" ("APB 25"). In accordance with APB 25, stock-based compensation was determined using the intrinsic value method. As of January 1, 2006, WebMD adopted Statement of Financial Accounting Standards No.123R, "Share-Based Payment" ("SFAS 123R") and accounts for stock-based compensation under the fair value method. WebMD utilized the modified prospective transition method under SFAS 123R and, accordingly, prior period results have not been restated. WebMD believes 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 that are not impacted by the adoption of SFAS 123R. Additionally, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use when adopting SFAS 123R, WebMD believes that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between WebMD's operating performance and the operating performance of other companies. 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.
Non-Cash Advertising Expense. This expense relates to the usage of non- cash advertising obtained from News Corporation ("Newscorp") in exchange for equity securities issued by our parent, Emdeon Corporation in 2000. The advertising is available only on various Newscorp properties, primarily its television network and cable channels without any cash cost to WebMD. The amount of advertising that can be used in any year is subject to annual contractual limitation and expires in 2010. WebMD does not incur any other cash expenses related to airing of television advertising. WebMD excludes this expense from Adjusted EBITDA because (i) it is a non-cash expense, (ii) it is incremental to other non-television cash advertising expense that WebMD otherwise incurs, (iii) WebMD has not and believes it will not incur cash expenses relating to television advertising in the future and (iv) it assists management and investors in comparing its operating results over multiple periods. Investors should note that it is likely that WebMD derives some benefit from such advertising and that such expenses will recur in the future.
Interest Income. Interest income is associated with the level of marketable debt securities and other interest bearing accounts in which WebMD invests. Interest income varies over time due to varying levels of securities available for investment. Transactions that WebMD has entered into in recent periods that have impacted securities available for investment include the initial public offering of equity in WebMD and three acquisitions for varying amounts of cash since our initial public offering. Additional financing transactions as well as potential acquisitions that WebMD may enter into in the future could impact the levels and timing of securities available for investment. WebMD excludes interest income from Adjusted EBITDA (i) because these items are not directly attributable to the performance of WebMD's 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 will recur in future periods.
Income Tax Provision. WebMD has net operating loss (NOL) carryforwards of approximately $643 million. Due to a limited history of generating taxable income, WebMD maintains a full valuation allowance on these NOL carryforwards. As WebMD uses these NOL carryforwards, the related valuation allowances are reversed through the income statement. The timing of such reversals is not consistent and as a result, WebMD's income tax expense can fluctuate significantly from period to period in a manner not directly related to WebMD's operating performance. WebMD excludes the income tax provision from Adjusted EBITDA (i) because it believes that the income tax provision is not directly attributable to the underlying performance of WebMD's 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 the income tax provision will recur in future periods.