WebMD Reports Strong Third Quarter Revenue and Earnings Growth

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NEW YORK, Nov. 1, 2016 /PRNewswire/ -- WebMD Health Corp. (NASDAQ: WBMD), the leading source of health information, today announced financial results for the three months ended September 30, 2016.

"We are pleased to report third quarter results around the high end of our expectations and we remain well positioned to deliver strong fourth quarter and full year performance," said Steve Zatz, Chief Executive Officer, WebMD.  "WebMD continues to demonstrate the value that we bring to our customers across both our professional and consumer platforms."

Financial Highlights 
For the three months ended September 30, 2016:

  • Revenue was $171.4 million, compared to $152.6 million in the prior year period, an increase of 12%. Advertising and sponsorship revenue was $136.1 millioncompared to $118.7 million in the prior year period. Health services revenue, which we previously reported as private portal services revenue, was $28.2 million compared to $27.5 million in the prior year period. Information services revenue was $7.1 million compared to $6.4 million in the prior year period.
  • Net income increased 64% to $21.6 million or $0.47 per diluted share compared to $13.2 million, or $0.32 per diluted share in the prior year period.
  • Earnings before interest, taxes, non-cash and other items ("Adjusted EBITDA") increased 19% to $55.3 million, or 32% of revenue, compared to $46.4 million, or 30% of revenue, in the prior year period.  

Balance Sheet Highlights
As of September 30, 2016, WebMD had: approximately $1.04 billion in investments and cash and cash equivalents; $1.06 billion in aggregate principal amount of convertible notes outstanding; and approximately 38.7 million shares of its common stock outstanding (including approximately 600 thousand unvested shares of restricted stock).

During the third quarter, WebMD used $22.4 million in cash to repurchase approximately 432 thousand shares of its common stock under its stock repurchase program. As of September 30, 2016, approximately $47 millionremained available for repurchases under WebMD's stock repurchase program. Under its stock 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.

Traffic Highlights 
Traffic to the WebMD Health Network during the third quarter of 2016 averaged 184 million unique users per month, generating 3.84 billion page views for the quarter, representing decreases of 11% and 4% in users and page views, respectively, when compared to the prior year period.

"During the third quarter, we achieved 15% advertising revenue growth despite a 4% decline in page views, demonstrating that trends in our aggregate traffic and our advertising revenue are not correlated to one another," said Dr. Zatz. "We are able to achieve these results because the majority of our advertising revenue is related to the highly targeted audiences that are of greatest value to our customers." 

Financial Guidance 
Today, WebMD updated its 2016 financial guidance.

For the full year ending December 31, 2016, WebMD expects:

  • Revenue to be approximately $698 million to $708 million, an increase of 10% to 11% from the prior year.
    • $557 million to $565 million of revenue is expected to be from advertising and sponsorship, an increase of 12% to 13% from the prior year. Growth in advertising and sponsorship revenue is expected to be driven by growth in revenue from biopharma customers of approximately 15% to 16%.
    • $112 million to $113 million of revenue is expected to be from health services revenue, compared to $110.4 million in 2015.
    • $29 million to $30 million of revenue is expected to be from information services, compared to $26.9 million in 2015.
  • Net income to be approximately $86.8 million to $92.3 million, or $1.88 to $1.97per diluted share, compared to $64 million, or $1.48 per diluted share, in 2015.
  • Adjusted EBITDA to be approximately $226 million to $233 million, an increase of 17% to 21% from the prior year. Adjusted EBITDA, as a percentage of revenue, is expected to be approximately 32% to 33%, compared to 30% in the prior year.

For the fourth quarter of 2016, WebMD expects:

  • Revenue to be approximately $200 million to $210 million, an increase of 4% to 10% from the prior year period.
  • Net income to be approximately $32 million to $37 million, an increase of approximately 15% to 35% from the prior year period.
  • Adjusted EBITDA to be approximately $73.5 million to $80.5 million, an increase of approximately 9% to 20% from the prior year period.

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.

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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 or momentum and our ability to capitalize on them; and the benefits expected from new or expected contracts with customers, from 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 and the timing of entry into and implementation of specific contracts with customers, 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.

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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

 

Nine Months Ended

 
       

September 30,

 

September 30,

 
       

2016

 

2015

 

2016

 

2015

 
                       

Revenue

     

$       171,438

 

$       152,607

 

$     497,574

 

$     444,270

 

Cost of operations

     

65,458

 

59,552

 

193,759

 

177,836

 

Sales and marketing

     

35,264

 

32,850

 

104,634

 

97,896

 

General and administrative

     

20,005

 

22,942

 

67,744

 

67,397

 

Depreciation and amortization

     

7,912

 

7,266

 

23,071

 

23,103

 

Interest income

     

1,034

 

10

 

1,607

 

36

 

Interest expense

     

7,065

 

5,681

 

17,430

 

18,024

 

Loss on convertible notes

 

-

 

2,058

 

-

 

2,058

 

Gain on investments

 

-

 

-

 

-

 

139

 

Other expense

 

1,712

 

-

 

1,712

 

4,100

 
                       

Income before income tax provision

 

35,056

 

22,268

 

90,831

 

54,031

 

 

     Income tax provision

 

13,438

 

9,080

 

35,715

 

17,468

 

Net income

 

$         21,618

 

$         13,188

 

$       55,116

 

$       36,563

 
                       
                       

Net income per common share:

                 

 

     Basic

 

$             0.57

 

$             0.36

 

$           1.46

 

$           1.00

 

 

     Diluted

 

$             0.47

 

$             0.32

 

$           1.22

 

$           0.89

 
                       

Weighted-average shares outstanding used in 

               

 

     computing income per common share: 

                 

 

     Basic

 

38,103

 

36,721

 

37,804

 

36,606

 

 

     Diluted 

 

55,845

 

49,958

 

53,836

 

49,912

 

 

 

WEBMD HEALTH CORP.

CONSOLIDATED SUPPLEMENTAL FINANCIAL INFORMATION

 (In thousands, unaudited)

                       
                   
       

Three Months Ended

 

Nine Months Ended

 
       

September 30,

 

September 30,

 
       

2016

 

2015

 

2016

 

2015

 

Revenue

                 

Advertising and sponsorship

                 

 

     Biopharma and medical device

 

$      107,048

 

$        89,870

 

$      296,353

 

$      251,692

 

 

     OTC, CPG and other

 

29,026

 

28,850

 

93,907

 

89,047

 
       

136,074

 

118,720

 

390,260

 

340,739

 

Health services

 

28,247

 

27,460

 

85,134

 

83,223

 

Information services

 

7,117

 

6,427

 

22,180

 

20,308

 
       

$      171,438

 

$      152,607

 

$      497,574

 

$      444,270

 
                       
                       

Net income

 

$        21,618

 

$        13,188

 

$        55,116

 

$        36,563

 
                       

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

                 

 

     Interest income

 

(1,034)

 

(10)

 

(1,607)

 

(36)

 

 

     Interest expense

 

7,065

 

5,681

 

17,430

 

18,024

 

 

     Income tax provision

 

13,438

 

9,080

 

35,715

 

17,468

 

 

     Depreciation and amortization 

 

7,912

 

7,266

 

23,071

 

23,103

 

 

     Non-cash stock-based compensation

 

4,638

 

9,142

 

21,038

 

24,731

 

 

     Loss on convertible notes

 

-

 

2,058

 

-

 

2,058

 

 

     Gain on investments

 

-

 

-

 

-

 

(139)

 

 

     Other expense

 

1,712

 

-

 

1,712

 

4,100

 
                       

Earnings before interest, taxes, non-cash

                 

 

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

 

$        55,349

 

$        46,405

 

$      152,475

 

$      125,872

 
                       

(a) Reconciliation of net income to Adjusted EBITDA.

         

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

         

 

 

WEBMD HEALTH CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (In thousands)

           
     

September 30,

 

December 31,

     

2016

 

2015

     

(unaudited)

   

Assets

       

Cash and cash equivalents

 

$            88,600

 

$        641,165

Accounts receivable, net

 

153,255

 

174,313

Investments

 

949,488

 

-

Prepaid expenses and other current assets

 

17,972

 

18,998

 

Total current assets

 

1,209,315

 

834,476

           

Property and equipment,  net

 

84,929

 

81,027

Goodwill

 

202,980

 

202,980

Intangible assets, net

 

8,554

 

10,894

Deferred tax assets, net

 

8,984

 

15,694

Other assets

 

8,497

 

10,852

Total Assets

 

$       1,523,259

 

$     1,155,923

           

Liabilities and Stockholders' Equity

       

Accrued expenses

 

$            65,892

 

$          80,664

Deferred revenue

 

102,251

 

102,715

2.25% convertible notes due 2016, net

 

-

 

102,523

 

Total current liabilities

 

168,143

 

285,902

           

2.50% convertible notes due 2018, net

 

397,620

 

396,281

1.50% convertible notes due 2020, net

 

295,140

 

294,266

2.625% convertible notes due 2023, net

 

350,849

 

-

Other long-term liabilities

 

28,965

 

23,246

           

Stockholders' equity

 

282,542

 

156,228

           

Total Liabilities and Stockholders' Equity

 

$       1,523,259

 

$     1,155,923

 

 

WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

                 
             
           

Nine Months Ended

           

September 30,

           

2016

 

2015

Cash flows from operating activities:

       
 

Net income

 

$           55,116

 

$        36,563

 

Adjustments to reconcile net income to net cash provided by

       
 

  operating activities:

       
   

Depreciation and amortization

 

23,071

 

23,103

   

Non-cash interest, net

 

2,827

 

3,276

   

Non-cash stock-based compensation

 

21,038

 

24,731

   

Deferred income taxes

 

6,632

 

(7,246)

   

Loss on convertible notes

 

-

 

2,058

   

Gain on investments

 

-

 

(139)

   

Changes in operating assets and liabilities:

       
     

Accounts receivable

 

21,058

 

(10,201)

     

Prepaid expenses and other, net

 

2,747

 

(5,692)

     

Accrued expenses and other long-term liabilities

 

(9,748)

 

(4,555)

     

Deferred revenue

 

(464)

 

15,280

       

Net cash provided by operating activities

 

122,277

 

77,178

                 

Cash flows from investing activities:

       
 

Purchases of property and equipment

 

(24,449)

 

(25,638)

 

Purchase of investments

 

(948,078)

 

-

 

Partial redemption of cost-method investment

 

1,193

 

-

 

Proceeds from sale of investments

 

-

 

139

       

Net cash used in investing activities

 

(971,334)

 

(25,499)

                 

Cash flows from financing activities:

       
 

Proceeds from exercise of stock options

 

52,702

 

15,185

 

Cash used for withholding taxes due on stock-based awards

 

(7,705)

 

(3,836)

 

Net proceeds from issuance of convertible notes

 

350,394

 

-

 

Maturity of convertible notes

 

(102,682)

 

(151,038)

 

Purchases of treasury stock 

 

(22,447)

 

(28,406)

 

Excess tax benefit on stock-based awards

 

26,230

 

21,972

       

Net cash provided by (used in) financing activities

 

296,492

 

(146,123)

Net decrease in cash and cash equivalents

 

(552,565)

 

(94,444)

Cash and cash equivalents at beginning of period

 

641,165

 

706,776

Cash and cash equivalents at end of period

 

$           88,600

 

$      612,332

 

 

WEBMD HEALTH CORP.

NET INCOME PER COMMON SHARE

 (In thousands, except per share data, unaudited)

                     
                     
       

Three Months Ended

 

Nine Months Ended

       

September 30,

 

September 30,

       

2016

 

2015

 

2016

 

2015

                     
 

Numerator:

               
 

Net income - Basic

 

$       21,618

 

$       13,188

 

$       55,116

 

$       36,563

   

Interest expense on 1.50% convertible notes, net of tax

 

878

 

864

 

2,635

 

2,592

   

Interest expense on 2.50% convertible notes, net of tax

 

1,827

 

1,797

 

5,480

 

5,392

   

Interest expense on 2.25% convertible notes, net of tax

 

-

 

-

 

457

 

-

   

Interest expense on 2.625% convertible notes, net of tax

 

1,675

 

-

 

2,235

 

-

 

Net income - Diluted

 

$       25,998

 

$       15,849

 

$       65,923

 

$       44,547

                     
                     
 

Denominator:

               
 

Weighted-average shares - Basic

 

38,103

 

36,721

 

37,804

 

36,606

   

Stock options and restricted stock

 

1,709

 

1,338

 

1,824

 

1,407

   

1.50% convertible notes

 

5,694

 

5,694

 

5,694

 

5,694

   

2.50% convertible notes

 

6,205

 

6,205

 

6,205

 

6,205

   

2.25% convertible notes

 

-

 

-

 

471

 

-

   

2.625% convertible notes

 

4,134

 

-

 

1,838

 

-

 

Adjusted weighted-average shares after assumed conversions - Diluted

 

55,845

 

49,958

 

53,836

 

49,912

                     
                     
 

Net income per common share:

               
   

Basic

 

$           0.57

 

$            0.36

 

$           1.46

 

$           1.00

   

Diluted

 

$           0.47

 

$            0.32

 

$           1.22

 

$           0.89

 

 

                       

WEBMD HEALTH CORP.

FINANCIAL GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2016

(In millions, except per share amounts)

                       
     

Nine Months Ended

 

Three Months Ending

 

Year Ending

     

September 30, 2016

 

December 31, 2016

 

December 31, 2016

     

Actuals

 

Guidance Range

 

Guidance Range

Revenue

                   
 

Advertising and sponsorship

                   
 

Biopharma and medical device

 

$                    296.4

 

$   129.6

 

$   134.6

 

$   426.0

 

$     431.0

 

OTC, CPG and other

 

93.9

 

37.1

 

40.1

 

131.0

 

134.0

     

390.3

 

166.7

 

174.7

 

557.0

 

565.0

 

Health services

 

85.1

 

26.9

 

27.9

 

112.0

 

113.0

 

Information services

 

22.2

 

6.8

 

7.8

 

29.0

 

30.0

     

$                    497.6

 

$   200.4

 

$   210.4

 

$   698.0

 

$     708.0

                       

Net income

 

$                      55.1

 

$     31.7

 

$     37.2

 

$     86.8

 

$       92.3

                       

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

                   

     Interest expense, net

 

15.8

 

6.2

 

6.2

 

22.0

 

22.0

     Income tax provision

 

35.7

 

18.8

 

22.8

 

54.5

 

58.5

     Depreciation and amortization

 

23.1

 

8.4

 

7.4

 

31.5

 

30.5

     Non-cash stock-based compensation

 

21.1

 

8.4

 

6.9

 

29.5

 

28.0

     Other expense

 

1.7

 

-

 

-

 

1.7

 

1.7

                       

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

$                    152.5

 

$     73.5

 

$     80.5

 

$   226.0

 

$     233.0

                       

Income per share:

                   

     Basic

 

$                      1.46

 

$     0.83

 

$     0.97

 

$     2.29

 

$       2.43

     Diluted (c)

 

$                      1.22

 

$     0.65

 

$     0.74

 

$     1.88

 

$       1.97

                       

Calculation of income per share:

                   
 

Net income (numerator for basic income per share)

 

$                      55.1

 

$     31.7

 

$     37.2

 

$     86.8

 

$       92.3

 

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

                   
 

   1.50% convertible notes

 

2.6

 

0.9

 

0.9

 

3.5

 

3.5

 

   2.50% convertible notes

 

5.5

 

1.8

 

1.8

 

7.3

 

7.3

 

   2.25% convertible notes

 

0.5

 

-

 

-

 

0.5

 

0.5

 

   2.625% convertible notes

 

2.2

 

1.7

 

1.7

 

3.9

 

3.9

 

Numerator for diluted income per share

 

$                      65.9

 

$     36.1

 

$     41.6

 

$   102.0

 

$     107.5

                       
 

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

37.8

 

38.2

 

38.4

 

37.9

 

38.0

 

Stock options and restricted stock

 

1.8

 

1.2

 

1.5

 

1.6

 

1.8

 

Weighted average shares issuable upon conversion of:

                   
 

   1.50% convertible notes

 

5.7

 

5.7

 

5.7

 

5.7

 

5.7

 

   2.50% convertible notes

 

6.2

 

6.2

 

6.2

 

6.2

 

6.2

 

   2.25% convertible notes

 

0.5

 

-

 

-

 

0.4

 

0.4

 

   2.625% convertible notes

 

1.8

 

4.1

 

4.1

 

2.4

 

2.4

 

Denominator for diluted income per share

 

53.8

 

55.4

 

55.9

 

54.2

 

54.5

                       
                       
                       

(a) Reconciliation of net income to Adjusted EBITDA

           

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

           

(c) See Supplemental 2016 Guidance for Income Per Share Calculation below

 
                       

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

 

 

WEBMD HEALTH CORP.

SUPPLEMENTAL 2016 GUIDANCE FOR INCOME PER SHARE CALCULATION

                           

Based on the Company's Financial Guidance for the Quarter and Year Ending December 31, 2016, the 1.50% convertible notes, the 2.50% convertible notes, the 2.25% convertible notes and the 2.625% convertible notes are expected to be dilutive to net income on both the low end and high end of the guidance ranges.  The following table contains the approximate level of net income for the fourth quarter and for the full year 2016 at which each of the series of convertible 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 eachbe adjusted for purposes of the diluted income per share calculation.

   
   

Quarterly Amounts

 

Annual Amounts

All amounts in millions

1.50% 
Convertible
Notes

 

2.50% 
Convertible
Notes

 

2.625% 
Convertible
Notes

 

1.50% 
Convertible
Notes

 

2.50% 
Convertible
Notes

 

2.25% 
Convertible
Notes  (a)

 

2.625% 
Convertible
Notes  (b)

                             

Approximate net income at which
   convertible notes become dilutive (c)

$         6.1

 

$        12.4

 

$        18.1

 

$        24.4

 

$        49.7

 

$        55.6

 

$        72.6

                             

Interest expense, net of tax to add-
   back to net income (numerator)

$         0.9

 

$          1.8

 

$          1.7

 

$          3.5

 

$          7.3

 

$          0.5

 

$          3.9

                             

Additional shares to include in
   weighted-average diluted share 
   count (denominator)

5.7

 

6.2

 

4.1

 

5.7

 

6.2

 

0.4

 

2.4

 

(a)

Since the 2.25% convertible notes matured on March 31, 2016, amounts for the 2.25% convertible notes are only shown in the Annual Amounts column and reflect the impact of the 2.25% convertible notes, weighted for the period that they were outstanding during the year ending December 31, 2016.

 

(b)

Since the 2.625% convertible notes were issued on June 1, 2016, the amounts shown in the Annual Amounts column reflect the impact of the 2.625% convertible notes, weighted for the period that they will be outstanding during the year ending December 31, 2016.

   

(c)

These net income amounts assume a weighted-average diluted share count of  39.5 million shares attributable to common shares, stock options and restricted stock (prior to the effect of convertible notes) and are subject to change as such weighted-average share count changes.

 

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").  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").  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.  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, 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 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, 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.  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:

  • 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

 

Nine Months Ended

                 

September 30,

 

September 30,

                 

2016

2015

 

2016

2015

                     
       

Non-cash stock-based compensation included in:

         
         

Cost of operations

 

$    1,277

$    1,370

 

$    3,707

$    3,791

         

Sales and marketing

 

$    1,351

$    1,968

 

$    4,295

$    5,099

         

General and administrative

 

$    2,010

$    5,804

 

$  13,036

$  15,841

                             

 

  • 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

 

Nine Months Ended

                 

September 30,

 

September 30,

                 

2016

2015

 

2016

2015

                     
       

Non-cash interest expense

         
         

2.25% Convertible Notes

 

$           —

$       282

 

$         159

$    1,062

         

2.50% Convertible Notes

 

$         446

$       447

 

$      1,339

$    1,339

         

1.50% Convertible Notes

 

$         292

$       291

 

$         875

$       875

         

2.625% Convertible Notes

 

$         339

$         —

 

$         454

$         —

       

 

Cash interest expense

           
         

2.25% Convertible Notes

 

$           —

$    1,036

 

$         577

$    3,873

         

2.50% Convertible Notes

 

$      2,500

$    2,500

 

$      7,500

$    7,500

         

1.50% Convertible Notes

 

$      1,125

$    1,125

 

$      3,375

$    3,375

         

2.625% Convertible Notes

 

$      2,363

$         —

 

$      3,151

$         —

                             

 

  • 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.  In recent periods, these other items included, but were not limited to:  (i) gain on investments; (ii) settlements of litigation or claims; (iii) loss on repurchases of our convertible notes; and (iv) severance expense.  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-reports-strong-third-quarter-revenue-and-earnings-growth-300355301.html

SOURCE WebMD Health Corp.

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