WebMD Announces Fourth Quarter and Year End Financial Results

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NEW YORK, Feb. 20, 2014 /PRNewswire/ -- WebMD Health Corp. (NASDAQ: WBMD), the leading source of health information, today announced fourth quarter and full year financial results for 2013 that are consistent with the preliminary results announced on February 10, 2014.

"WebMD's fourth quarter and full year 2013 results reflected an improved macro environment, our continued progress in becoming a more customer-centric and efficient company, and a strengthening of our core advertising and sponsorship business," said David Schlanger, Chief Executive Officer, WebMD.  "We expect growth to continue in 2014 as we introduce new products and services. Looking ahead, we are investing in longer-term growth opportunities that leverage WebMD's brand, audience, and industry-leading platform, which should enable us to expand into new markets and realize new revenue streams."

Financial Highlights  
For the three months ended December 31, 2013:

Revenue was $146.3 million compared to $132.7 million in the prior year period, an increase of 10%. Public portal advertising and sponsorship revenue was $124.4 million compared to $112.3 million in the prior year period. Private portal services revenue was $21.9 million compared to $20.5 million in the prior year period.

Earnings before interest, taxes, non-cash and other items ("Adjusted EBITDA") was $40.6 million compared to $30.0 million in the prior year period, an increase of 35%.

Net income was $10.8 million or $0.25 per diluted share compared to net loss of $(6.1) million or $(0.12) per diluted share in the prior year period. In the current period, net income would have been $11.8 million, or $0.27 per diluted share, without the effect of an after-tax loss on convertible notes of $1.0 million. In the prior period, net loss would have been net income of $4.1 million or $0.08 per diluted share, without the effect of an after-tax restructuring expense of $5.5 million and non-cash income tax valuation allowance of $4.7 million.

For the twelve months ended December 31, 2013:

Revenue was $515.3 million compared to $469.9 million in the prior year period, an increase of 10%. Public portal advertising and sponsorship revenue was $433.2 million compared to $391.3 million in the prior year period. Private portal services revenue was $82.1 million compared to $78.5 million in the prior year period.

Adjusted EBITDA was $122.9 million compared to $73.1 million in the prior year period, an increase of 68%.

Net income was $15.1 million or $0.31 per diluted share compared to net loss of $(20.3) million or $(0.40) per diluted share in the prior year period. In the current period, net income would have been $18.9 million, or $0.39 per diluted share, without the effect of an after-tax loss on convertible notes of $3.0 million and after-tax severance expenses of $0.8 million. In the prior period, net loss would have been $(10.6) million or $(0.21) per diluted share, without the effect of an after-tax gain on investments of $5.2 million, after-tax restructuring expense of $5.5 million, non-cash income tax valuation allowance of $4.7 million, after-tax stock compensation expense related to the voluntary surrender of options of $5.8 million, after-tax severance expenses of $1.6 million and after-tax income from discontinued operations of $2.7 million.

Traffic Highlights 
Traffic to the WebMD Health Network during the fourth quarter reached a record average of 156 million unique users per month generating 3.17 billion page views for the quarter, increases of 33% and 23%, respectively, from the prior year period.

Balance Sheet Highlights 
During the fourth quarter, WebMD received net proceeds of $291.8 million in cash upon issuance of $300 million aggregate principal amount of 1.50% Convertible Notes due 2020. During the fourth quarter, WebMD utilized: $211.3 million in cash to repurchase approximately 6.5 million shares of its common stock; and $48.6 million in cash to repurchase $47.8 millionprincipal amount of its 2.25% Convertible Notes due 2016.

As of December 31, 2013, WebMD had: approximately $825 million in cash and cash equivalents; $952.2 million in aggregate principal amount of convertible notes outstanding; and approximately 40.3 million shares of its common stock outstanding (including approximately 1.2 million unvested shares of restricted stock).

As of today, WebMD has approximately $70 million currently available for repurchases in its authorized share buyback program.

Financial Guidance  
WebMD's financial guidance provided today is consistent with the preliminary outlook for 2014 provided in our February 10, 2014 press release.

For the first quarter of 2014:

Revenue is expected to be approximately $130 million to $133 million, an increase of approximately 15% to 18% from the prior year period.

Adjusted EBITDA is expected to be approximately $28.5 million to $30.5 million, an increase of approximately 34% to 43% from the prior year period.

Net income as a percentage of revenue is expected to be approximately 3% to 4%.

For the full year 2014:

Revenue is expected to be approximately $545 million to $575 million, an increase of approximately 6% to 12% from the prior year. Approximately $450 million to $475 million of revenue is expected to be from public portals advertising and sponsorship and $95 million to $100 million of revenue is expected to be from private portal services.

Adjusted EBITDA is expected to be approximately $140 million to $155 million, an increase of approximately 14% to 26% from the prior year.

Net income is expected to be approximately $27 million to $39 million.

A schedule summarizing the Company's financial guidance is attached to this press release.

Analyst and Investor Conference Call 
WebMD will hold a conference call with investors and analysts at 4:45 p.m.(Eastern) today. The call can be accessed at 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 the leading provider of health information services, serving consumers, physicians, healthcare professionals, employers, and health plans through our public and private online portals, mobile platforms and health-focused publications.

The WebMD Health Network includes WebMD Health, Medscape, MedicineNet, eMedicineHealth, RxList, theheart.org, Medscape Education and other owned WebMD sites.

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All statements contained in this press release and the related analyst and investor conference call, 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; market opportunities and our ability to capitalize on them; and the benefits expected from new or expected contracts with customers, new or updated products or services and from other potential sources of additional revenue. These statements speak only as of the date of this press release, are based on our 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 our products and services; our relationships with customers and other factors affecting their use of our products and services, including regulatory matters affecting their products; our ability to successfully implement changes to, among other things, our product and service offerings, capital allocation plans and cost structure; our ability to attract and retain qualified personnel; 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 and this press release is intended to be read in conjunction with information contained in those filings. Except as required by applicable law or regulation, we do not undertake any obligation to update our forward-looking statements to reflect future events or circumstances.

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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 certain non-GAAP financial measures.  The tables attached to this press release include reconciliations of these 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. 

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WebMD®, Medscape®, CME Circle®, Medpulse®, eMedicine®, MedicineNet®, theheart.org® and RxList® are among the 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

 

Years Ended

   

December 31,

 

December 31,

   

2013

 

2012

 

2013

 

2012

                 

Revenue

 

$       146,277

 

$         132,738

 

$       515,293

 

$       469,866

Cost of operations

 

57,763

 

55,352

 

209,740

 

216,361

Sales and marketing

 

33,081

 

32,598

 

127,997

 

127,659

General and administrative

 

22,715

 

23,767

 

93,220

 

97,618

Depreciation and amortization

 

6,566

 

8,248

 

26,606

 

28,399

Interest income

 

22

 

22

 

76

 

86

Interest expense

 

5,329

 

5,834

 

22,826

 

23,334

Loss on convertible notes

 

1,575

 

-

 

4,871

 

-

Gain on investments

 

-

 

-

 

-

 

8,074

Restructuring

 

-

 

7,579

 

-

 

7,579

Other expense

 

-

 

-

 

1,353

 

2,297

Income (loss) from continuing operations before income

           
 

tax provision (benefit)

 

19,270

 

(618)

 

28,756

 

(25,221)

 

Income tax provision (benefit)

 

8,458

 

5,470

 

13,640

 

(2,134)

Income (loss) from continuing operations

 

10,812

 

(6,088)

 

15,116

 

(23,087)

 

Income from discontinued operations, net of tax

 

-

 

-

 

-

 

2,743

Net income (loss)

 

$         10,812

 

$           (6,088)

 

$         15,116

 

$        (20,344)

                 

Basic income (loss) per common share:

               
 

Income (loss) from continuing operations

 

$             0.27

 

$             (0.12)

 

$             0.32

 

$            (0.45)

 

Income from discontinued operations

 

-

 

-

 

-

 

0.05

Net income (loss)

 

$             0.27

 

$             (0.12)

 

$             0.32

 

$            (0.40)

                 

Diluted income (loss) per common share (a):

               
 

Income (loss) from continuing operations

 

$             0.25

 

$             (0.12)

 

$             0.31

 

$            (0.45)

 

Income from discontinued operations

 

-

 

-

 

-

 

0.05

Net income (loss)

 

$             0.25

 

$             (0.12)

 

$             0.31

 

$            (0.40)

                 

Weighted-average shares outstanding used in 

               
 

computing income (loss) per common share: 

               
 

Basic

 

40,457

 

49,041

 

46,830

 

50,862

 

Diluted

 

44,872

 

49,041

 

48,398

 

50,862

   

(a)

 See schedule of Net Income (Loss) Per Common Share below.

 

 

WEBMD HEALTH CORP.

CONSOLIDATED SUPPLEMENTAL FINANCIAL INFORMATION

 (In thousands, unaudited)

                   
               
     

Three Months Ended

 

Years Ended

     

December 31,

 

December 31,

     

2013

 

2012

 

2013

 

2012

Revenue

               
 

Public portal advertising and sponsorship

 

$      124,353

 

$      112,257

 

$      433,182

 

$      391,339

 

Private portal services

 

21,924

 

20,481

 

82,111

 

78,527

     

$      146,277

 

$      132,738

 

$      515,293

 

$      469,866

                   

Earnings before interest, taxes, non-cash

               
 

 and other items ("Adjusted EBITDA") (a)

 

$        40,636

 

$        30,049

 

$      122,886

 

$        73,149

                   

Interest, taxes, non-cash and other items  (b)

               
 

Interest income

 

22

 

22

 

76

 

86

 

Interest expense

 

(5,329)

 

(5,834)

 

(22,826)

 

(23,334)

 

Income tax (provision) benefit

 

(8,458)

 

(5,470)

 

(13,640)

 

2,134

 

Depreciation and amortization 

 

(6,566)

 

(8,248)

 

(26,606)

 

(28,399)

 

Non-cash stock-based compensation

 

(7,918)

 

(9,028)

 

(38,550)

 

(44,921)

 

Loss on convertible notes

 

(1,575)

 

-

 

(4,871)

 

-

 

Gain on investments

 

-

 

-

 

-

 

8,074

 

Restructuring

 

-

 

(7,579)

 

-

 

(7,579)

 

Other expense

 

-

 

-

 

(1,353)

 

(2,297)

Income (loss) from continuing operations

 

10,812

 

(6,088)

 

15,116

 

(23,087)

 

 Income from discontinued operations, net of tax 

 

-

 

-

 

-

 

2,743

 Net income (loss) 

 

$        10,812

 

$        (6,088)

 

$        15,116

 

$      (20,344)

                   

(a)

See Annex A-Explanation of Non-GAAP Financial Measures.

(b)

Reconciliation of Adjusted EBITDA to net income (loss).

 

 

WEBMD HEALTH CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (In thousands, unaudited)

     

December 31,

     

2013

 

2012

           

Assets

       

Cash and cash equivalents

 

$                 824,880

 

$                       991,835

Accounts receivable, net

 

124,232

 

106,622

Prepaid expenses and other current assets

 

13,243

 

13,882

Deferred tax assets

 

13,620

 

10,328

        Total current assets

 

975,975

 

1,122,667

           

Property and equipment,  net

 

64,884

 

66,604

Goodwill

 

202,980

 

202,104

Intangible assets, net

 

13,834

 

16,105

Deferred tax assets

 

38,802

 

56,039

Other assets

 

29,153

 

27,106

Total Assets

 

$              1,325,628

 

$                    1,490,625

           

Liabilities and Stockholders' Equity

       

Accrued expenses

 

$                   73,739

 

$                         64,256

Deferred revenue

 

85,148

 

92,176

Liabilities of discontinued operations

 

1,506

 

1,506

      Total current liabilities

 

160,393

 

157,938

           

2.25% convertible notes due 2016

 

252,232

 

400,000

2.50% convertible notes due 2018

 

400,000

 

400,000

1.50% convertible notes due 2020

 

300,000

 

-

Other long-term liabilities

 

22,103

 

22,698

           

Stockholders' equity

 

190,900

 

509,989

           

Total Liabilities and Stockholders' Equity

 

$              1,325,628

 

$                    1,490,625

 

 

WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

                 
             
           

Years Ended

           

December 31,

           

2013

 

2012

Cash flows from operating activities:

       
 

Net income (loss)

 

$           15,116

 

$      (20,344)

 

Adjustments to reconcile net income (loss) to net cash provided by

       
 

  operating activities:

       
   

Income from discontinued operations, net of tax

 

-

 

(2,743)

   

Depreciation and amortization

 

26,606

 

28,399

   

Non-cash interest, net

 

4,192

 

4,326

   

Non-cash stock-based compensation

 

38,550

 

44,921

   

Deferred income taxes

 

13,070

 

(2,337)

   

Loss on convertible notes

 

4,871

 

-

   

Gain on investments

 

-

 

(8,074)

   

Changes in operating assets and liabilities:

       
     

Accounts receivable

 

(17,610)

 

14,713

     

Prepaid expenses and other, net

 

266

 

(1,589)

     

Accrued expenses and other long-term liabilities

 

8,061

 

9,429

     

Deferred revenue

 

(7,028)

 

4,121

       

Net cash provided by continuing operations

 

86,094

 

70,822

       

Net cash provided by discontinued operations

 

-

 

4,324

       

Net cash provided by operating activities

 

86,094

 

75,146

                 

Cash flows from investing activities:

       
 

Proceeds received from ARS option

 

-

 

9,269

 

Purchases of property and equipment

 

(22,341)

 

(35,171)

 

Proceeds from sale of property and equipment

 

1,381

 

-

       

Net cash used in investing activities

 

(20,960)

 

(25,902)

                 

Cash flows from financing activities:

       
 

Proceeds from exercise of stock options

 

29,724

 

827

 

Cash used for withholding taxes due on stock-based awards

 

(12,526)

 

(2,740)

 

Net proceeds from issuance of convertible notes

 

291,823

 

-

 

Repurchase of convertible notes

 

(150,354)

 

-

 

Repurchase of shares through tender offers

 

(170,516)

 

(150,759)

 

Purchases of treasury stock 

 

(220,298)

 

(26,331)

 

Excess tax benefit on stock-based awards

 

58

 

377

       

Net cash used in financing activities

 

(232,089)

 

(178,626)

Net decrease in cash and cash equivalents

 

(166,955)

 

(129,382)

Cash and cash equivalents at beginning of period

 

991,835

 

1,121,217

Cash and cash equivalents at end of period

 

$         824,880

 

$      991,835

 

 

WEBMD HEALTH CORP.

NET INCOME (LOSS) PER COMMON SHARE

 (In thousands, except per share data, unaudited)

                       
                       
       

Three Months Ended

 

Years Ended

 
       

December 31,

 

December 31,

 
       

2013

 

2012

 

2013

 

2012

 
                       
 

Numerator:

                 
 

Income (loss) from continuing operations — Basic

 

$     10,812

 

$           (6,088)

 

$        15,116

 

$      (23,087)

 
   

Interest expense on 1.50% convertible notes, net of tax

 

326

 

-

 

-

 

-

 
 

Income (loss) from continuing operations — Diluted

 

$     11,138

 

$           (6,088)

 

$        15,116

 

$      (23,087)

 
                       
 

Income from discontinued operations, net of tax — Basic and Diluted

 

$             -

 

$                  -

 

$               -

 

$          2,743

 
                       
                       
 

Denominator:

                 
 

Weighted-average shares — Basic

 

40,457

 

49,041

 

46,830

 

50,862

 
   

Stock options and restricted stock

 

2,192

 

-

 

1,568

 

-

 
   

1.50% convertible notes

 

2,223

 

-

 

-

 

-

 
 

Adjusted weighted-average shares after assumed conversions — Diluted

 

44,872

 

49,041

 

48,398

 

50,862

 
                       
                       
 

Basic income (loss) per common share:

                 
   

Income (loss) from continuing operations

 

$         0.27

 

$             (0.12)

 

$            0.32

 

$          (0.45)

 
   

Income from discontinued operations

 

-

 

-

 

-

 

0.05

 
 

Net income (loss)

 

$         0.27

 

$             (0.12)

 

$            0.32

 

$          (0.40)

 
                       
 

Diluted income (loss) per common share:

                 
   

Income (loss) from continuing operations

 

$         0.25

 

$             (0.12)

 

$            0.31

 

$          (0.45)

 
   

Income from discontinued operations

 

-

 

-

 

-

 

0.05

 
 

Net income (loss)

 

$         0.25

 

$             (0.12)

 

$            0.31

 

$          (0.40)

 

 

 

WebMD Health Corp.

Financial Guidance for the Year Ending December 31, 2014

(in millions, except per share amounts)

       
   
   
 

Guidance Range

       
       

Revenue:

     

   Public portal advertising and sponsorship

$     450.0

 

$      475.0

   Private portal services

95.0

 

100.0

 

$     545.0

 

$      575.0

Earnings before interest, taxes, non-cash

     

  and other items ("Adjusted EBITDA") (a)

$     140.0

 

$      155.0

       

Interest, taxes, non-cash and other items (b)

     

   Interest expense, net

(25.0)

 

(25.0)

   Depreciation and amortization

(30.0)

 

(28.0)

   Non-cash stock-based compensation

(35.0)

 

(32.0)

Pre-tax income 

50.0

 

70.0

       

Income tax provision

(23.0)

 

(31.0)

       

Net income

$       27.0

 

$        39.0

       

Income per share:

     

     Basic

$       0.68

 

$        0.95

     Diluted (c) 

$       0.63

 

$        0.84

       

Calculation of income per share:

     
       

Net income (numerator for basic income per share)

$       27.0

 

$        39.0

Add-back of interest expense on 1.50% Notes, net of tax

3.5

 

3.5

   Numerator for diluted income per share

$       30.5

 

$        42.5

       

Weighted average shares outstanding (denominator for basic income per share)

40.0

 

41.0

Stock options and restricted stock

3.0

 

4.0

Weighted average shares issuable upon conversion of 1.50% Notes

5.7

 

5.7

   Denominator for diluted income per share

48.7

 

50.7

       
       
       

(a) See Annex A - Explanation of Non-GAAP Financial Measures.

     
       

(b) Reconciliation of Adjusted EBITDA to net income.

     
       

(c) See Supplemental 2014 Guidance for Income Per Share Calculation below.

 

Additional information regarding forecast for the quarter ending March 31, 2014:

     -     Revenue is forecasted to be between $130 million to $133 million.

     -     Adjusted EBITDA is forecasted to be between $28.5 million to $30.5 million.

     -     Net income as a percentage of revenue is forecasted to be approximately 3% to 4%.

 

The above guidance does not include the impact if any, of future deployment of capital for items such as share repurchases or acquisitions, any future gains or losses from discontinued operations, and other future non-recurring, one-time or unusual items. 

 

 

WebMD Health Corp.

Supplemental 2014 Guidance for Income Per Share Calculation

 
             
                       

Based on the Company's Financial Guidance for the Year Ending December 31, 2014, the 2.50% Notes and 2.25% Notes are not expected to be dilutive to the full year.  However, the 1.50% Notes are expected to be dilutive to the full year.  Additionally, each of the series of Notes may be dilutive in certain quarters, depending on the amount of net income for such quarter.  The following table contains the approximate level of net income for an individual quarter and for the full year 2014 at which each of the series of Notes would become dilutive to income per share.  To the extent this net income is exceeded for any such period, the table also includes the amounts by which the numerator and denominator should each be adjusted for purposes of the diluted income per share calculation.   The amounts below assume a weighted-average diluted share count of 43 million shares (prior to the effect of convertible notes) and the amounts below are subject to change as such weighted-average share count changes.

                       
                       
 

Quarterly Amounts

 

Annual Amounts

All amounts in millions

1.50% Notes

 

2.50% Notes

 

2.25% Notes

 

1.50% Notes

 

2.50% Notes

 

2.25% Notes

                       

Approximate net income at which

convertible notes become dilutive:

$         6.5

 

$       13.3

 

$       14.6

 

$       26.2

 

$       53.1

 

$       58.5

                       

Interest expense, net of tax to add-back to

net income (numerator):

$         0.9

 

$         1.8

 

$         1.1

 

$         3.5

 

$         7.2

 

$         4.4

                       

Additional shares to include in weighted-

average diluted share count (denominator):

5.7

 

6.2

 

3.5

 

5.7

 

6.2

 

3.5

 

 

ANNEX A

 

Explanation of Non-GAAP Financial Measures

 
 

The accompanying WebMD Health Corp. press release and attachments include 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 or loss calculated in accordance with GAAP (referred to below as "net income") or income or loss from continuing operations calculated in accordance with GAAP (referred to below as "income from continuing operations").  The attachments to the press release include reconciliations of non-GAAP financial measures to GAAP financial measures. 

 

Adjusted EBITDA is used by our management as an additional measure of our company's 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 our management identify additional trends in our company's financial results that may not be shown solely by period-to-period comparisons of net income or income from continuing operations.  In addition, we may use Adjusted EBITDA in the incentive compensation programs applicable to some of our employees in order to evaluate our company's performance.  Our 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 or income from continuing operations, 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 or income from continuing operations that accompany our press releases and disclosure documents containing non-GAAP financial measures, including the reconciliations contained in the accompanying press release attachments.

 

We believe that the presentation of Adjusted EBITDA is useful to investors in their analysis of our results for reasons similar to the reasons why our management finds it useful and because it helps facilitate investor understanding of decisions made by management in light of the performance metrics used in making those decisions.  In addition, as more fully described below, we believe that providing Adjusted EBITDA, together with a reconciliation of Adjusted EBITDA to net income or income from continuing operations, helps investors make comparisons between our company 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 our company with other public companies and is not intended as a substitute for comparisons based on net income or income from continuing operations.  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 measures and the corresponding GAAP measures provided by each company under applicable SEC rules.

 

The following is an explanation of the items excluded by us from Adjusted EBITDA but included in net income and income from continuing operations:

 

Depreciation and Amortization .  Depreciation and amortization expense is a non-cash expense relating to capital expenditures and intangible assets arising from acquisitions that are expensed on a straight-line basis over the estimated useful life of the related assets.  We exclude depreciation and amortization expense from Adjusted EBITDA because we believe that (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our 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, we believe that this exclusion assists management and investors in making period-to-period comparisons of operating performance.  Investors should note that the 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 expense will recur in future periods.
 

Stock-Based Compensation Expense .  Stock-based compensation expense is a non-cash expense arising from the grant of stock-based awards to employees.  We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our company's operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions.  Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our company's operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation.  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.  Stock-based compensation expenses included in the Consolidated Statement of Operations are summarized as follows:

 

               

Three Months Ended

 

Year Ended

               

December 31,

 

December 31,

               

2013

2012

 

2013

2012

                   
     

Non-cash stock-based compensation included in:

         
       

Cost of operations

 

$    1,728

$    1,484

 

$    6,762

$    8,160

       

Sales and marketing

 

$    1,809

$    1,804

 

$    8,395

$    8,201

       

General and administrative

 

$    4,381

$    5,740

 

$  23,393

$  28,560

 

Interest Income and Expense.   Interest income is associated with the level of marketable debt securities and other interest bearing accounts in which we invest, and interest expense is related to our company's capital structure (including non-cash interest expense relating to our convertible notes).  Interest income and expense varies over time due to a variety of financing transactions and due to acquisitions and divestitures that we have entered into or may enter into in the future.  We have, in the past, issued convertible debentures, repurchased shares in cash tender offers and repurchased shares and convertible debentures through other repurchase transactions, and completed the divestiture of certain businesses.  We exclude interest income and interest expense from Adjusted EBITDA (i) because these items are not directly attributable to the performance of our 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 and expense will recur in future periods.  The following provides detail regarding the components of interest expense of our convertible notes:

 

               

Three Months Ended

 

Year Ended

               

December 31,

 

December 31,

               

2013

2012

 

2013

2012

                   
     

Non-cash interest expense

         
       

2.50% Convertible Notes

 

$         446

$       452

 

$    1,802

$    1,807

       

2.25% Convertible Notes

 

$         390

$       630

 

$    2,279

$    2,519

       

1.50% Convertible Notes

 

$         111

$    —

 

$       111

$    —

     

 

Cash interest expense

           
       

2.50% Convertible Notes

 

$     2,500

$   2,500

 

$  10,000

$  10,000

       

2.25% Convertible Notes

 

$     1,457

$   2,250

 

$    8,207

$    9,000

       

1.50% Convertible Notes

 

$        425

$    —

 

$       425

$    —

 

Income Tax Provision (Benefit).   We maintain a valuation allowance on a portion of our net deferred tax assets (including our net operating loss carryforwards), the amount of which may change from quarter to quarter based on factors that are not directly related to our results for the quarter.  The valuation allowance is either adjusted through the statement of operations or additional paid-in capital.  The timing of such adjustments has not been consistent and as a result, our income tax expense can fluctuate significantly from period to period in a manner not directly related to our operating performance.  We exclude the income tax provision (benefit) from Adjusted EBITDA (i) because we believe that the income tax provision (benefit) is not directly attributable to the underlying performance of our 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 income tax provision (benefit) will recur in future periods.
 

Other Items.   We engage in other activities and transactions that can impact our net income or income from continuing operations.  In recent periods, these other items included, but were not limited to:  (i) gain or loss on investments; (ii) a restructuring charge; (iii) severance expense; and (iv) loss on repurchases of our convertible notes.  We exclude these other items from Adjusted EBITDA because we believe these activities or transactions are not directly attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance.  Investors should note that some of these other items may recur in future periods.

 

SOURCE WebMD Health Corp.

 

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