WebMD Reports Third Quarter Results

ELMWOOD PARK, N.J., Nov. 4 /PRNewswire-FirstCall/ -- WebMD Corporation today announced financial results for the three months ended September 30, 2004.

Key Financial Highlights

Revenue for the third quarter was $299.6 million compared to $250.6 million a year ago, an increase of 19.5%. Income before restructuring, taxes, non-cash and other items for the third quarter was $38.0 million or $0.11 per share compared to $28.7 million or $0.09 per share a year ago. Income from continuing operations for the third quarter was $8.2 million or $0.02 per share compared to income from continuing operations of $9.5 million or $0.03 per share a year ago.

As of September 30, 2004, WebMD had approximately $650 million in cash, short-term investments and long-term marketable debt securities.

"Our third quarter results were consistent with our expectations," said Kevin Cameron, Chief Executive Officer of WebMD Corporation. "We made progress against our strategic and operational objectives, which contributed in part to improved results for the quarter. We will continue to focus on accelerating payer and provider adoption of enhanced products and services that take advantage of the technologies available today."

Segment Operating Results

WebMD Business Services revenue was $174.6 million for the third quarter compared to $132.0 million in the prior year, an increase of 32.3%. The $42.7 million increase in WebMD Business Services revenues includes $29.7 million of revenues from customers acquired in recent acquisitions. Income before taxes, non-cash and other items was $31.8 million compared to $21.8 million in the prior year. Operating margins increased as a result of higher operating margins of recent acquisitions.

WebMD Practice Services revenue was $76.9 million for the third quarter compared to $75.5 million in the prior year. Income before taxes, non-cash and other items was $5.9 million compared to $3.7 million in the prior year. These results primarily reflect the increased margin associated with increased revenue and operating efficiencies.

WebMD Health revenue was $37.0 million for the third quarter compared to $31.2 million in the prior year, a gain of 18.8%, primarily driven by continued growth in online promotion, education from our public portal, and benefits and health management solutions from our private portals. Income before taxes, non-cash and other items was $10.0 million compared to $8.7 million in the prior year.

Porex revenue was $19.4 million for the third quarter compared to $19.1 million in the prior year, an increase of 1.5%. Income before taxes, non-cash and other items was $5.8 million compared to $5.7 million in the prior year.

Financial Guidance

WebMD provided guidance for the remainder of 2004 in a Form 8-K furnished to the Securities and Exchange Commission today. This guidance includes revenues for the fourth quarter of $305 to $310 million; income before taxes, non-cash and other items of $0.13 per share and net income of $0.06 per share.

At WebMD Business Services, the Company expects growth from its new suite of value added services; however, it also expects that revenue from traditional EDI services may decline. If this decline does occur, it may not be offset until the latter half of 2005, due to the implementation cycles associated with many of its new products. WebMD intends to provide full financial guidance for 2005 in January.

Company Intends to Pursue IPO of WebMD Health Business

Based on the recommendations of the Company's outside advisers, WebMD has decided to take the steps necessary to sell approximately 10% of the equity of WebMD Health in an initial public offering. The Company expects to file a registration statement for the WebMD Health IPO in early 2005, after the release of its year-end financial statements, subject to the Board's evaluation of market conditions at that time.

Analyst and Investor Conference Call

WebMD will hold a conference call with investors and analysts to discuss these results at 4:45 pm (eastern) on November 4, 2004. The call can be accessed at http://www.webmd.com/ (in the About WebMD section). A replay of the audio webcast will be available at the same web address.

ABOUT WEBMD

WebMD Corporation provides services that help physicians, consumers, providers and health plans navigate the complexity of the healthcare system. Our products and services streamline administrative and clinical processes, promote efficiency and reduce costs by facilitating information exchange, communication and electronic transactions between healthcare participants.

WebMD Health is a leading provider of online information, educational services and communities for physicians and consumers. WebMD Practice Services is a leading provider of physician practice management software and related services. WebMD Business Services is a leader in payer and healthcare provider transaction processing and reimbursement cycle management services.

Porex is a developer, manufacturer and distributor of proprietary porous plastic products and components used in healthcare, industrial and consumer applications. Porex customers include both end-users of its finished products as well as manufacturers that include Porex components in their products.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of WebMD Health securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

All statements contained in this press release, other than statements of historical fact, are forward-looking statements, including those regarding: our guidance on future financial results and other projections or measures of future performance of WebMD; the planned IPO of WebMD Health equity; the amount and timing of the benefits expected from strategic initiatives and acquisitions or from deployment of new or updated technologies, products, services or applications; the prospects for new applications of porous plastics and other porous media; and other potential sources of additional revenue. These statements are based on WebMD's current plans and expectations and 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 WebMD's products and services; operational difficulties relating to combining acquired companies and businesses; WebMD's ability to form and maintain mutually beneficial relationships with customers and strategic partners; changes in economic, political or regulatory conditions or other trends affecting the healthcare, Internet, information technology and plastics industries, including matters relating to the manner and timing of implementation of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the healthcare industry's responses; and the ability of WebMD to attract and retain qualified personnel. Further information about these matters can be found in WebMD's Securities and Exchange Commission filings. WebMD expressly disclaims any intent or obligation to update these forward- looking statements.

This press release includes 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 non-GAAP financial measures include: WebMD's income before restructuring, taxes, non-cash and other items; income before taxes, non-cash and other items; and related per share amounts. WebMD believes that those non-GAAP measures, and changes in those measures, are meaningful indicators of WebMD's performance and provide additional information that WebMD management finds useful in evaluating such performance and in planning for future periods. Accordingly, WebMD believes that such additional information may be useful to investors. The non-GAAP financial measures should be viewed as supplemental to, and not as an alternative for, the GAAP financial measures. The tables attached to this press release contain historical GAAP financial measures and a reconciliation between historical GAAP and non-GAAP financial measures. WebMD is filing a Current Report on Form 8-K today containing this press release. Exhibit 99.3 to that Current Report includes a reconciliation of certain forward-looking non-GAAP information to GAAP financial information.

WebMD CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data, unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 Revenue $299,615 $250,635 $852,710 $705,584 Costs and expenses: Cost of operations 168,571 149,270 495,174 410,556 Development and engineering 14,392 11,334 38,479 32,654 Sales, marketing, general and administrative 84,762 72,450 245,054 209,917 Depreciation, amortization and other 15,189 11,097 40,922 52,961 Legal expense 2,325 493 6,577 493 Restructuring and integration charge 4,535 - 4,535 - Interest income 4,512 6,401 14,506 16,434 Interest expense 4,843 4,703 14,429 10,444 Other income, net 94 3,039 578 4,340 Income from continuing operations before income tax provision 9,604 10,728 22,624 9,333 Income tax provision 1,435 1,273 2,979 3,261 Income from continuing operations 8,169 9,455 19,645 6,072 Loss from discontinued operations, net of income taxes - 3,366 - 33,611 Net income (loss) $8,169 $6,089 $19,645 $(27,539) Basic income (loss) per common share: Income from continuing operations $0.03 $0.03 $0.06 $0.02 Loss from discontinued operations - (0.01) - (0.11) Net income (loss) $0.03 $0.02 $0.06 $(0.09) Diluted income (loss) per common share: Income from continuing operations $0.02 $0.03 $0.06 $0.02 Loss from discontinued operations - (0.01) - (0.10) Net income (loss) $0.02 $0.02 $0.06 $(0.08) Weighted-average shares outstanding used in computing income (loss) per common share: Basic 312,366 305,471 311,379 304,121 Diluted 333,978 328,463 333,048 326,396 WebMD CORPORATION CONSOLIDATED SEGMENT INFORMATION (In thousands, except per share data, unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 Revenues Transaction services $174,643 $131,977 $504,459 $365,491 Physician services 76,924 75,487 219,703 224,295 Portal services 37,017 31,164 95,178 79,882 Plastic technologies 19,385 19,093 58,543 55,015 Inter-segment eliminations (8,354) (7,086) (25,173) (19,099) $299,615 $250,635 $852,710 $705,584 Income (loss) before restructuring, taxes, non-cash and other items Transaction services $31,750 $21,767 $90,514 $68,160 Physician services 5,856 3,686 8,978 16,342 Portal services 10,040 8,712 22,208 18,922 Plastic technologies 5,823 5,690 17,140 15,857 Corporate (15,170) (12,809) (42,703) (37,652) Interest income 4,512 6,401 14,506 16,434 Interest expense (4,843) (4,703) (14,429) (10,444) $37,968 $28,744 $96,214 $87,619 Basic income per common share before restructuring, taxes, non-cash and other items (a) $0.12 $0.09 $0.31 $0.29 Diluted income per common share before restructuring, taxes, non-cash and other items (a) $0.11 $0.09 $0.29 $0.27 Restructuring, taxes, non-cash and other items (b) Depreciation, amortization and other $(15,189) $(11,097) $(40,922) $(52,961) Amortization of prepaid content and services (included in cost of operations) (104) (1,105) (705) (1,932) Amortization of prepaid content and services (included in sales, marketing, general and administrative) (3,505) (4,970) (14,188) (16,292) Non-cash stock compensation (included in sales, marketing, general and administrative) (2,800) (3,390) (7,241) (10,948) Legal expense (2,325) (493) (6,577) (493) Restructuring and integration charge (4,535) - (4,535) - Income tax provision (1,435) (1,273) (2,979) (3,261) Other income, net 94 3,039 578 4,340 Income from continuing operations 8,169 9,455 19,645 6,072 Loss from discontinued operations, net of income taxes - (3,366) - (33,611) Net income (loss) $8,169 $6,089 $19,645 $(27,539) Basic income (loss) per common share: Income from continuing operations $0.03 $0.03 $0.06 $0.02 Loss from discontinued operations - (0.01) - (0.11) Net income (loss) $0.03 $0.02 $0.06 $(0.09) Diluted income (loss) per common share: Income from continuing operations $0.02 $0.03 $0.06 $0.02 Loss from discontinued operations - (0.01) - (0.10) Net income (loss) $0.02 $0.02 $0.06 $(0.08) Weighted-average shares outstanding used in computing income (loss) per common share: Basic 312,366 305,471 311,379 304,121 Diluted 333,978 328,463 333,048 326,396 (a) Basic and diluted income per common share before restructuring, taxes, non-cash and other items is based on the weighted-average shares outstanding used in computing basic and diluted income (loss) per common share. (b) Reconciliation of income before restructuring, taxes, non-cash and other items to income from continuing operations. WebMD CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) September 30, December 31, 2004 2003 (Unaudited) (Audited) Assets Cash and cash equivalents $108,204 $63,298 Short-term investments 25,784 207,383 Accounts receivable, net 203,288 181,173 Inventory 12,579 12,158 Current portion of prepaid content and distribution services 16,221 18,116 Other current assets 24,978 25,973 Total current assets 391,054 508,101 Marketable debt securities 515,096 451,290 Marketable equity securities 3,373 4,744 Property and equipment, net 83,071 77,278 Prepaid content and distribution services 19,020 31,992 Goodwill 959,799 844,448 Intangible assets, net 270,426 184,130 Other assets 35,800 33,323 $2,277,639 $2,135,306 Liabilities and Stockholders' Equity Accounts payable $10,777 $10,390 Accrued expenses 207,271 208,430 Deferred revenue 104,794 86,708 Total current liabilities 322,842 305,528 Convertible subordinated notes 649,999 649,999 Other long-term liabilities 974 1,182 Convertible redeemable exchangeable preferred stock 98,240 - Stockholders' equity 1,205,584 1,178,597 $2,277,639 $2,135,306 WebMD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, unaudited) Nine Months Ended September 30, 2004 2003 Cash flows from operating activities: Net income (loss) $19,645 $(27,539) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss from discontinued operations - 33,611 Depreciation, amortization and other 40,922 52,961 Amortization of debt issuance costs 2,255 1,505 Non-cash content and distribution services 14,893 18,224 Non-cash stock-based compensation 7,241 10,948 Gain on investments (457) (3,222) Gain on sale of property and equipment (121) - Changes in operating assets and liabilities: Accounts receivable (8,001) 3,580 Inventory (417) (1,144) Prepaid content and distribution services (26) (537) Accounts payable (874) (775) Accrued expenses (8,189) (12,174) Deferred revenue 9,284 (2,228) Other, net 3,045 5,685 Net cash provided by continuing operations 79,200 78,895 Net cash provided by discontinued operations - 5,130 Net cash provided by operating activities 79,200 84,025 Cash flows from investing activities: Proceeds from maturities and sales of available-for-sale securities 384,238 11,322 Proceeds from maturities and redemptions of held-to-maturity securities - 157,919 Purchases of available-for-sale securities (274,600) (7,754) Purchases of held-to-maturity securities - (590,113) Purchases of property and equipment (24,889) (13,643) Proceeds received from sale of property and equipment 417 - Proceeds received from sale of discontinued operations - 46,500 Cash paid in business combinations, net of cash acquired (225,375) (133,471) Other changes in equity of discontinued operations - 1,754 Net cash used in continuing operations (140,209) (527,486) Net cash used in discontinued operations - (2,529) Net cash used in investing activities (140,209) (530,015) Cash flows from financing activities: Proceeds from issuance of common stock 30,528 35,367 Net proceeds from issuance of preferred stock 98,115 - Payments of notes payable and other (433) (211) Purchases of treasury shares (22,267) (18,125) Net proceeds from issuance of convertible debt - 339,125 Net cash provided by continuing operations 105,943 356,156 Net cash used in discontinued operations - (6,546) Net cash provided by financing activities 105,943 349,610 Effect of exchange rates on cash (28) 711 Net increase (decrease) in cash and cash equivalents 44,906 (95,669) Changes in cash attributable to discontinued operations - 3,945 Cash and cash equivalents at beginning of period 63,298 175,596 Cash and cash equivalents at end of period $108,204 $83,872

WebMD Corporation

CONTACT: Investors - Risa Fisher, +1-212-414-2002, rfisher@webmd.net, orMedia - Jennifer Meyer, +1-212-624-3912, jmeyer@webmd.net, both of WebMDCorporation

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