WebMD Announces Fourth Quarter and Year End Financial Results

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NEW YORK, Feb. 24, 2015 /PRNewswire/ -- WebMD Health Corp. (NASDAQ: WBMD), the leading source of health information, today announced fourth quarter and full year financial results for 2014.

"We are pleased to report financial results for 2014 that are at the high end of our revenue and earnings expectations," said David Schlanger, Chief Executive Officer, WebMD. "We deliver our content and tools on the platforms that our users and advertisers are interested in, and the result has been strong growth in both our mobile traffic and revenue. In 2014, 34% of our advertising revenue was delivered on a mobile device." 

Financial Highlights 
For the three months ended December 31, 2014:

Revenue was $162.7 million, compared to $146.3 million in the prior year period, an increase of 11%. Advertising and sponsorship revenue was $127.0 millioncompared to $120.2 million in the prior year period. Private portal services revenue was $28.6 million compared to $21.9 million in the prior year period. Information services revenue was $7.1 million compared to $4.2 million in the prior year period.

Earnings before interest, taxes, non-cash and other items ("Adjusted EBITDA") was $48.1 million, compared to $40.6 million in the prior year period, an increase of 18%.

Net income was $16.3 million or $0.38 per diluted share, compared to $10.8 million, or $0.25 per diluted share in the prior year period. Net income in the current year period would have been $15.2 million, or $0.36 per diluted share, without the effect of a $1.1 million after tax gain on discontinued operations resulting from the resolution of tax indemnification liabilities related to the 2009 sale of Porex. Net income in the prior year period 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.

For the twelve months ended December 31, 2014:

Revenue was $580.4 million compared to $515.3 million in the prior year period, an increase of 13%. Advertising and sponsorship revenue was $454.0 millioncompared to $417.0 million in the prior year. Private portal services revenue was $103.2 million compared to $82.1 million in the prior year. Information services revenue was $23.3 million compared to $16.2 million in the prior year.

Continued

Adjusted EBITDA was $158.6 million compared to $122.9 million in the prior year, an increase of 29%.

Net income was $42.1 million or $1.00 per diluted share compared to $15.1 million or $0.31 per diluted share in the prior year. In the current year, net income would have been $40.9 million, or $0.97 per diluted share, without the effect of the $1.1 million after tax gain on discontinued operations noted above. In the prior year, 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.

Traffic Highlights 
Traffic to the WebMD Health Network during the fourth quarter reached an average of 190 million unique users per month generating 3.70 billion page views for the quarter, increases of 22% and 17%, respectively, from the prior year period.

Balance Sheet Highlights 
During the quarter, WebMD used: $25.1 million in cash to repurchase 676 thousand shares of its common stock under its stock repurchase program. Under the repurchase program, WebMD may repurchase shares from time to time in the open market, through block trades or in private transactions, depending on market conditions and other factors.

As of December 31, 2014, WebMD had: approximately $707 million in cash and cash equivalents; $952 million in aggregate principal amount of convertible notes outstanding; and approximately 37.2 million shares of its common stock outstanding (including approximately 900 thousand unvested shares of restricted stock).

Subsequent to the end of the fourth quarter, WebMD used $3.2 million in cash to repurchase 84 thousand shares. As of today, approximately $32 million remains available for repurchases under its stock repurchase program.

Financial Guidance  
Today WebMD issued financial guidance for the first quarter and full year 2015.

For the full year ending December 31, 2015, WebMD expects:

Revenue to be approximately $615 million to $635 million, an increase of approximately 6% to 9% from the prior year.

Continued

Approximately $486 million to $502 million of revenue is expected to be from advertising and sponsorship, an increase of 7% to 11% from the prior year. Growth in advertising and sponsorship will be driven by growth in revenue from biopharma customers of approximately 12% to 15% in 2015.

Approximately $105 million to $108 million of revenue is expected to be from private portals services, an increase of 2% to 5% from the prior year.

Approximately $24 million to $25 million of revenue is expected to be from information services, an increase of 3% to 7% from the prior year.

Adjusted EBITDA to be approximately $180 million to $190 million, an increase of approximately 13% to 20% from the prior year.

Net income to be approximately $50.5 million to $59.5 million.

For the first quarter of 2015, WebMD expects:

Revenue to be approximately $141 million to $143 million, an increase of approximately 5% to 7% from the prior year period.

Adjusted EBITDA is expected to be approximately $37 million to $38 million, an increase of approximately 11% to 14% from the prior year period.

Net income to be approximately $8.5 million to $9.5 million.

"The external environment for biopharma advertisers, our largest customer base, is robust and sales activity with these customers has been strong in recent quarters," said Mr. Schlanger. "As a result, we expect revenue from biopharma to grow 12% to 15% in 2015."

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.comMedscape.comMedicineNet.comeMedicineHealth.comRxList.com, Medscape Education (Medscape.org) and other WebMD owned sites and apps.

Continued

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 services, including regulatory matters affecting their products and services; our ability to deploy new or updated services and to create new or enhanced revenue streams from those services; 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. 

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.

WebMD®, Medscape®, CME Circle®, Medpulse®, eMedicine®, MedicineNet®, theheart.org® and RxList® are among the trademarks of WebMD Health Corp. or its subsidiaries. 

Continued

 

WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

 (In thousands, except per share data, unaudited)

                   
       

Three Months Ended

 

Years Ended

 
       

December 31,

 

December 31,

 
       

2014

 

2013

 

2014

 

2013

 
                       

Revenue

 

$       162,727

 

$       146,277

 

$     580,449

 

$     515,293

 

Cost of operations

 

60,676

 

57,763

 

224,094

 

209,740

 

Sales and marketing

 

36,978

 

33,081

 

136,160

 

127,997

 

General and administrative

 

24,756

 

22,715

 

94,119

 

93,220

 

Depreciation and amortization

 

7,774

 

6,566

 

29,811

 

26,606

 

Interest income

 

18

 

22

 

69

 

76

 

Interest expense

 

6,171

 

5,329

 

24,686

 

22,826

 

Loss on convertible notes

 

-

 

1,575

 

-

 

4,871

 

Other expense

 

-

 

-

 

-

 

1,353

 
                   

Income from continuing operations before income 
    tax provision

 

26,390

 

19,270

 

71,648

 

28,756

 

 

    Income tax provision

 

11,236

 

8,458

 

30,707

 

13,640

 

Income from continuing operations

 

15,154

 

10,812

 

40,941

 

15,116

 

 

    Income from discontinued operations, net of tax

 

1,122

 

-

 

1,122

 

-

 

Net income

 

$         16,276

 

$         10,812

 

$       42,063

 

$       15,116

 
                   
                   

Basic income per common share:

                 

 

    Income from continuing operations

 

$             0.42

 

$             0.27

 

$           1.08

 

$           0.32

 

 

    Income from discontinued operations

 

0.03

 

-

 

0.03

 

-

 

Net income

 

$             0.45

 

$             0.27

 

$           1.11

 

$           0.32

 
                   

Diluted income per common share:

                 

 

    Income from continuing operations

 

$             0.36

 

$             0.25

 

$           0.97

 

$           0.31

 

 

    Income from discontinued operations

 

0.02

 

-

 

0.03

 

-

 

Net income

 

$             0.38

 

$             0.25

 

$           1.00

 

$           0.31

 
                   

 Weighted-average shares outstanding used in
    computing income per common share:

                 

 

    Basic

 

36,427

 

40,457

 

37,869

 

46,830

 

 

    Diluted 

 

53,082

 

44,872

 

45,614

 

48,398

 
                   

 

 

WEBMD HEALTH CORP.

CONSOLIDATED SUPPLEMENTAL FINANCIAL INFORMATION

 (In thousands, unaudited)

                       
                   
       

Three Months Ended

 

Years Ended

 
       

December 31,

 

December 31,

 
       

2014

 

2013

 

2014

 

2013

 

Revenue  (a)

                 

Advertising and sponsorship

                 

 

    Biopharma and medical device

 

$        93,742

 

$        86,544

 

$      329,329

 

$      304,018

 

 

    OTC, CPG and other

 

33,294

 

33,640

 

124,636

 

113,009

 
       

127,036

 

120,184

 

453,965

 

417,027

 

Private portal services

 

28,570

 

21,924

 

103,182

 

82,111

 

Information services

 

7,121

 

4,169

 

23,302

 

16,155

 
       

$      162,727

 

$      146,277

 

$      580,449

 

$      515,293

 
                       
                   

Earnings before interest, taxes, non-cash and other items ("Adjusted EBITDA") (b)

 

$ 48,138

 

$ 40,636

 

$ 158,622

 

$ 122,886

 
                   
                       

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

                 

 

    Interest income

 

18

 

22

 

69

 

76

 

 

    Interest expense

 

(6,171)

 

(5,329)

 

(24,686)

 

(22,826)

 

 

    Income tax provision

 

(11,236)

 

(8,458)

 

(30,707)

 

(13,640)

 

 

    Depreciation and amortization 

 

(7,774)

 

(6,566)

 

(29,811)

 

(26,606)

 

 

    Non-cash stock-based compensation

 

(7,821)

 

(7,918)

 

(32,546)

 

(38,550)

 

 

    Loss on convertible notes

 

-

 

(1,575)

 

-

 

(4,871)

 

 

    Other expense

 

-

 

-

 

-

 

(1,353)

 

Income from continuing operations

 

15,154

 

10,812

 

40,941

 

15,116

 

 

     Income from discontinued operations, net of tax 

 

1,122

 

-

 

1,122

 

-

 

 Net income 

 

$        16,276

 

$        10,812

 

$        42,063

 

$        15,116

 
                       
                       

(a) Revenue consists of the following four groups:

                 
 

-

Advertising and Sponsorship - Biopharma and Medical Device consists of advertising and sponsorship revenue from pharmaceutical, biotechnology and medical device clients relating to ethical pharmaceutical products or other regulated devices or products or for sponsoring educational programs;

                       
 

-

Advertising and Sponsorship - OTC, CPG and Other consists of advertising and sponsorship revenue relating to non-Rx or over-the-counter medications and other healthcare products, food and beverages, beauty products and other consumer products, as well as revenue from clients such as retailers, pharmacies, hospitals, health insurance companies and government agencies;

                       
 

-

Private Portal Services consists of revenue from employers and health plans for subscriptions to the Company's private portals solution and related services, including health coaching and condition management services; and

                       
 

-

Information Services consists of revenue from the sale of stand-alone information and data products.

                       

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

(c) Reconciliation of Adjusted EBITDA to net income.

                       

Continued

 

 

WEBMD HEALTH CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (In thousands)

           
     

December 31,

     

2014

 

2013

           

Assets

       

Cash and cash equivalents

 

$                 706,776

 

$                       824,880

Accounts receivable, net

 

136,806

 

124,232

Prepaid expenses and other current assets

 

13,877

 

13,243

Deferred tax assets

 

18,147

 

13,620

        Total current assets

 

875,606

 

975,975

           

Property and equipment,  net

 

59,573

 

64,884

Goodwill

 

202,980

 

202,980

Intangible assets, net

 

14,215

 

13,834

Deferred tax assets

 

18,947

 

38,802

Other assets

 

26,236

 

29,153

Total Assets

 

$              1,197,557

 

$                    1,325,628

           

Liabilities and Stockholders' Equity

       

Accrued expenses

 

$                   72,658

 

$                         73,739

Deferred revenue

 

89,785

 

85,148

Liabilities of discontinued operations

 

-

 

1,506

      Total current liabilities

 

162,443

 

160,393

           

2.25% convertible notes due 2016

 

252,232

 

252,232

2.50% convertible notes due 2018

 

400,000

 

400,000

1.50% convertible notes due 2020

 

300,000

 

300,000

Other long-term liabilities

 

21,293

 

22,103

           

Stockholders' equity

 

61,589

 

190,900

           

Total Liabilities and Stockholders' Equity

 

$              1,197,557

 

$                    1,325,628

           

 

 

WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

                 
             
           

Years Ended

           

December 31,

           

2014

 

2013

Cash flows from operating activities:

       
 

Net income

 

$           42,063

 

$        15,116

 

Adjustments to reconcile net income to net cash provided by

       
 

  operating activities:

       
   

Income from discontinued operations, net of tax

 

(1,122)

 

-

   

Depreciation and amortization

 

29,811

 

26,606

   

Non-cash interest, net

 

4,511

 

4,192

   

Non-cash stock-based compensation

 

32,546

 

38,550

   

Deferred income taxes

 

14,717

 

13,070

   

Loss on convertible notes

 

-

 

4,871

   

Changes in operating assets and liabilities:

       
     

Accounts receivable

 

(12,574)

 

(17,610)

     

Prepaid expenses and other, net

 

(673)

 

266

     

Accrued expenses and other long-term liabilities

 

(380)

 

8,061

     

Deferred revenue

 

4,637

 

(7,028)

       

Net cash provided by continuing operations

 

113,536

 

86,094

       

Net cash used in discontinued operations

 

(384)

 

-

       

Net cash provided by operating activities

 

113,152

 

86,094

                 

Cash flows from investing activities:

       
 

Cash paid in business combination

 

(3,182)

 

-

 

Purchases of property and equipment

 

(23,194)

 

(22,341)

 

Proceeds from sale of property and equipment

 

-

 

1,381

       

Net cash used in investing activities

 

(26,376)

 

(20,960)

                 

Cash flows from financing activities:

       
 

Proceeds from exercise of stock options

 

40,602

 

29,724

 

Cash used for withholding taxes due on stock-based awards

 

(33,385)

 

(12,526)

 

Net proceeds from issuance of convertible notes

 

-

 

291,823

 

Repurchase of convertible notes

 

-

 

(150,354)

 

Repurchase of shares through tender offers

 

(97,588)

 

(170,516)

 

Purchases of treasury stock 

 

(128,748)

 

(220,298)

 

Excess tax benefit on stock-based awards

 

14,239

 

58

       

Net cash used in financing activities

 

(204,880)

 

(232,089)

Net decrease in cash and cash equivalents

 

(118,104)

 

(166,955)

Cash and cash equivalents at beginning of period

 

824,880

 

991,835

Cash and cash equivalents at end of period

 

$         706,776

 

$      824,880

                 

Continued

 

 

WEBMD HEALTH CORP.

NET INCOME PER COMMON SHARE

 (In thousands, except per share data, unaudited)

                       
                       
       

Three Months Ended

 

Years Ended

 
       

December 31,

 

December 31,

 
       

2014

 

2013

 

2014

 

2013

 
                       
 

Numerator:

                 
 

Income from continuing operations — Basic

 

$        15,154

 

$           10,812

 

$        40,941

 

$        15,116

 
   

Interest expense on 1.50% convertible notes, net of tax

 

864

 

326

 

3,456

 

-

 
   

Interest expense on 2.50% convertible notes, net of tax

 

1,797

 

-

 

-

 

-

 
   

Interest expense on 2.25% convertible notes, net of tax

 

1,103

 

-

 

-

 

-

 
 

Income from continuing operations — Diluted

 

$        18,918

 

$           11,138

 

$        44,397

 

$        15,116

 
                       
 

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

 

$          1,122

 

$                     -

 

$          1,122

 

$                  -

 
                       
                       
 

Denominator:

                 
 

Weighted-average shares — Basic

 

36,427

 

40,457

 

37,869

 

46,830

 
   

Stock options and restricted stock

 

1,245

 

2,192

 

2,060

 

1,568

 
   

1.50% convertible notes

 

5,694

 

2,223

 

5,685

 

-

 
   

2.50% convertible notes

 

6,205

 

-

 

-

 

-

 
   

2.25% convertible notes

 

3,511

 

-

 

-

 

-

 
 

Adjusted weighted-average shares after assumed conversions — Diluted

 

53,082

 

44,872

 

45,614

 

48,398

 
                       
                       
 

Basic income per common share:

                 
   

Income from continuing operations

 

$            0.42

 

$               0.27

 

$            1.08

 

$            0.32

 
   

Income from discontinued operations

 

0.03

 

-

 

0.03

 

-

 
 

Net income

 

$            0.45

 

$               0.27

 

$            1.11

 

$            0.32

 
                       
 

Diluted income per common share:

                 
   

Income from continuing operations

 

$            0.36

 

$               0.25

 

$            0.97

 

$            0.31

 
   

Income from discontinued operations

 

0.02

 

-

 

0.03

 

-

 
 

Net income

 

$            0.38

 

$               0.25

 

$            1.00

 

$            0.31

 
                       

 

 

WEBMD HEALTH CORP.

2014 REVENUE

(In thousands, unaudited)

                     
                     
   

Three Months Ended

 

Year Ended 
December 31,
2014

   

March 31, 
2014

 

June 30, 
2014

 

September 30, 
2014

 

December 31, 
2014

 

Revenue

                 

Advertising and sponsorship

                 
 

Biopharma and medical device

$         68,488

 

$       81,981

 

$          85,118

 

$            93,742

 

$         329,329

 

OTC, CPG and other

34,469

 

29,503

 

27,370

 

33,294

 

124,636

   

102,957

 

111,484

 

112,488

 

127,036

 

453,965

Private portal services

24,629

 

24,188

 

25,795

 

28,570

 

103,182

Information services

6,246

 

4,728

 

5,207

 

7,121

 

23,302

   

$       133,832

 

$     140,400

 

$        143,490

 

$          162,727

 

$         580,449

                     
                     
                     

-

See Consolidated Supplemental Financial Information for descriptions of the above revenue groups.

Continued

 

 

           

WebMD Health Corp.

Financial Guidance for the Year Ending December 31, 2015

(in millions, except per share amounts)

           
           
     

Guidance Range

Revenue:

       
 

Advertising and sponsorship

       
 

Biopharma and medical device

 

$       369.0

 

$      380.0

 

OTC, CPG and other

 

117.0

 

122.0

     

486.0

 

502.0

 

Private portal services

 

105.0

 

108.0

 

Information services

 

24.0

 

25.0

     

$       615.0

 

$      635.0

Earnings before interest, taxes, non-cash

       

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

 

$       180.0

 

$      190.0

           

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

       

Interest expense, net

 

(25.0)

 

(25.0)

Depreciation and amortization

 

(33.0)

 

(31.0)

Non-cash stock-based compensation

 

(37.0)

 

(34.0)

Pre-tax income 

 

85.0

 

100.0

           

Income tax provision

 

(34.5)

 

(40.5)

           

Net income

 

$         50.5

 

$        59.5

           

Income per share:

       

     Basic

 

$         1.38

 

$        1.59

     Diluted (c)

 

$         1.23

 

$        1.35

           

Calculation of income per share:

       
 

Net income (numerator for basic income per share)

 

$         50.5

 

$        59.5

 

Add-back of interest expense, net of tax, related to:

       
 

   1.50% Notes

 

3.5

 

3.5

 

   2.50% Notes

 

7.2

 

7.2

 

   2.25% Notes

 

-

 

4.4

 

Numerator for diluted income per share

 

$         61.2

 

$        74.6

           
 

Weighted average shares outstanding (denominator for basic

       
 

     income per share)

 

36.5

 

37.5

 

Stock options and restricted stock

 

1.5

 

2.5

 

Weighted average shares issuable upon conversion of:

       
 

   1.50% Notes

 

5.7

 

5.7

 

   2.50% Notes

 

6.2

 

6.2

 

   2.25% Notes

 

-

 

3.5

 

Denominator for diluted income per share

 

49.9

 

55.4

           
           
           

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

       
           

(b) Reconciliation of Adjusted EBITDA to net income

       
           

(c) See Supplemental 2015 Guidance for Income Per Share Calculation below

   
           

Additional information regarding forecast for the quarter ending March 31, 2015:

   

     -      Revenue is forecasted to be between $141 million to $143 million

   

     -      Revenue distribution is forecasted to be approximately 53% to 54% to Biopharma andmedical device; 20% to 21% to OTC, CPG and other; 20% to private portal services
             and 5.5% to information services

     -      Adjusted EBITDA is forecasted to be between $37 million to $38 million

   

     -      Net income is forecasted to be between $8.5 million to $9.5 million

   
           

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

Continued

 

 

WebMD Health Corp.

Supplemental 2015 Guidance for Income Per Share Calculation

                         

Based on the Company's Financial Guidance for the Year Ending December 31, 2015, the 1.50% Notes and 2.50% Notes are expected to be dilutive to net income on both the low end and high end of the full year guidance range. The 2.25% Notes are expected to be dilutive to net income on the high end of the full year guidance range. 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 2015 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 38.0 million shares (prior to the effect of convertible notes) and the amounts 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:

$        5.8

 

$      11.8

 

$      13.0

 

$      23.1

 

$      47.2

 

$      52.1

 
                         

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. 

Continued

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.

Continued

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:

Continued

 

         

Three Months Ended

 

Year Ended

         

December 31,

 

December 31,

         

2014

2013

 

2014

2013

             

Non-cash stock-based compensation included in:

         
 

Cost of operations

 

$    1,384

$    1,728

 

$    5,940

$    6,762

 

Sales and marketing

 

$    1,559

$    1,809

 

$    7,221

$    8,395

 

General and administrative

 

$    4,878

$    4,381

 

$  19,385

$  23,393

                     

 

  • 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,

         

2014

2013

 

2014

2013

             

Non-cash interest expense

         
 

2.25% Convertible Notes

 

$         390

$       390

 

$    1,560

$    2,279

 

2.50% Convertible Notes

 

$         446

$       446

 

$    1,785

$    1,802

 

1.50% Convertible Notes

 

$         291

$       111

 

$    1,166

$       111

 

Cash interest expense

           
 

2.25% Convertible Notes

 

$     1,419

$   1,457

 

$    5,675

$    8,207

 

2.50% Convertible Notes

 

$     2,500

$   2,500

 

$  10,000

$  10,000

 

1.50% Convertible Notes

 

$     1,125

$      425

 

$    4,500

$       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.

Continued

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.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/webmd-announces-fourth-quarter-and-year-end-financial-results-300040633.html

SOURCE WebMD Health Corp.

 

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