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Executives

Risa Fisher – VP, IR

Marty Wygod – Acting CEO and Chairman

Mark Funston – EVP and CFO

Wayne Gattinella – CEO and President of WebMD Health

Tony Vuolo – COO, WebMD

Analysts

Brian Pitts – Bank of America Securities

Jennifer Watson – Goldman Sachs

Corey Tobin – William Blair & Co.

Rob Kelly – Citi

Sandy Draper – Raymond James

Mark Mahaney – Citi

Jack Kelly – Smith Barney

Anthony Petrone – Maxim Group

HLTH Corporation (HLTH) Q3 2008 Earnings Call Transcript October 30, 2008 4:45 PM ET

Operator

Good afternoon and welcome to HLTH Corporation’s and WebMD Health Corp’s September 2008 quarterly conference call. Today’s conference is being recorded. I will now turn the call over to Risa Fisher, Vice President of Investor Relations. You may begin.

Risa Fisher

Good afternoon. This is a joint conference call to discuss HLTH and WebMD’s third quarter financial results. The earnings release issued by HLTH is available at www.hlth.com in the Investor Relation's section. The earnings release issued today by WebMD is available at www.wbmd.com also in the investor relations' section.

The releases issued today included reconciliations between GAAP and non-GAAP financial measures to be presented in this call. The explanatory paragraphs in those releases concerning forward-looking disclosures and related risks and uncertainties also apply to forward-looking disclosures made during this call including those regarding our guidance on future financial results and other projections or measures of HLTH's and WebMD's future performance. Information concerning the risks and uncertainties can be found in HLTH and WebMD’s SEC filings.

I’d now like to turn the call over to Marty Wygod, Chairman of WebMD, as well as Chairman and Acting CEO of HLTH Corporation.

Marty Wygod

Thanks, Risa. Good afternoon and thank you for joining us today. Joining me on the call today are Wayne Gattinella; CEO and President of WebMD, Mark Funston, CFO of HLTH and WebMD and Tony Vuolo, COO of WebMD. As previously announced on October 20th, HLTH and WebMD have terminated the merger agreement between them. The termination was by mutual agreement of the companies and unanimously approved by the Board of Directors of both companies and by a special committee of independent directors at WebMD.

At the time HLTH and WebMD entered in to the merger agreements, both Boards and the special committee believed that the transaction was a good one for both HLTH stockholders and WebMD public stockholders. A tremendous amount of work over many months went into preparing for the merger, however, in the days leading up to the termination, the financial markets and economic environment caused the Boards to reach the decision that the transaction would not accomplish the benefits as originally outlined.

The Board concluded that both HLTH as controlling stockholders of WebMD, and the public stockholders of WebMD would benefit more if WebMD continues as a publicly traded subsidiary with a strong balance sheet that currently includes approximately $340 million in cash and investments, and no long-term debt.

The merger would have resulted in WebMD being encumbered by $650 million in long-term debt, which comes due in 2010 and 2012. By terminating the merger, HLTH and WebMD have retained the financial flexibility, and we believe will be in an advantageous position to pursue potential acquisition opportunities expected to be available to companies with significant cash resources in this period of financial market uncertainty.

HLTH will continue in its process to divest Porex. At a very late stage in the process we did have a specific buyer that encountered issues with financing due to the conditions in the credit markets. HLTH is continuing its sales process for Porex with other potential buyers, but can give you no assurance at this time to the exact timing or terms for a transaction.

On Monday, October 27th, HLTH commenced tender to offer to purchase up to 80 million shares of common stock at a price of $8.80 per share. HLTH's outstanding shares would be reduced by 43% upon closing of the tender offered for the full amount. We continue to believe strongly in the opportunities ahead for WebMD. The long-term value of the WebMD franchise will continue to increase as we expand our distribution footprints and deliver the full spectrum of digital solutions that the market is steadily evolving towards. With its strong set of assets, WebMD is uniquely situated to capitalize on market opportunities.

I would like to turn it over to Mark Funston, our Chief Financial Officer, and then Wayne Gattinella to review the third quarter financials and operating results respectively and then we'll take questions at the end. Thank you.

Mark Funston

Thank you, Marty. Please note that WebMD and HLTH results represent WebMD's offline professional medical reference textbook publication business as discontinued operations in the prior-year period reflecting the sale of this business on December 31st, 2007. HLTH results also presents the ViPS and Porex business as discontinued operations in the current and prior-year periods. Reflecting the sale of ViPS on July 22nd, 2008, and the decision to divest the Porex business.

I will now review WebMD's third quarter results. WebMD revenue for the September 2008 quarter was $100.4 million, compared to $86.1 million last year, an increase of 17%. Looking further at that revenue increase of 17%, advertising and sponsorship revenue increased 22% to $72 million. Private portal licensing revenue increased 11% to $22.1 million; publishing and other revenue decreased 11% to $5.8 million. WebMD the magazine continues to perform well. Revenue from our Little Blue Book publishing business declined by approximately 16%, which was well below our expectations.

WebMD's adjusted EBITDA for the September 2008 quarter was $27.2 million, compared to $24.1 million last year, an increase of 13%. Adjusted EBITDA per diluted share was $0.46 compared to $0.40 last year. Online services segment adjusted EBITDA increased 18% to $26 million or 27.4% of segment revenue, compared to $21.9 million or 27.6% of segment revenue last year. Publishing and other services adjusted EBITDA was $1.2 million, compared to $2.1 million last year. The decline in publishing adjusted EBITDA is primarily related to the previously discussed lower revenue in our Little Blue Book publishing business.

The adjusted EBITDA margin on incremental revenue was 22% for the September 2008 quarter, compared to last year. This margin was impacted by lower margin on private portal licensing revenue due to an increase in the mix of our lower margin coaching products, as well as a decline in revenue in earnings from Little Blue Book our small physician print publication.

However, the margin on incremental revenue for the September 2008 quarter, compared to the June 2008 quarter exceeded 60%. The income tax provision for the third quarter was $8.1 million, which now reflects a more normalized tax provision based on the statutory rates, as we stated on previous calls, as required under SFAS 109, in December 2007 we reduced our valuation allowance against our deferred tax assets primarily our tax NOLs, because we had sufficient earnings history and would begin recording a non-cash federal tax provision in 2008. The increase in the effective tax rate from 2007 is a result of this non-cash tax expense.

Income from continuing operations and net income was $10.8 million or $0.18 per share for the third quarter, compared to income from continuing operations and net income of $11.5 million or $0.19 per share last year. The lower income from continuing operations and net income is the result of the previously discussed higher tax provision. WebMD's weighted average diluted share count using computing net income and adjusted EBITDA per diluted share for the quarter was 59.1 million shares.

Operating cash flow from continues operations was $18 million for the September 2008 quarter, and $81 million year to date. As we have stated on prior calls, quarterly operating cash flows can be impacted by the timing of the cutoff of compensation accruals, other expense accruals, the billing and collection of receivables from our commerce and reimbursement to HLTH in relations to the quarter's end.

Capital expenditures were $8.1 million for the September 2008 quarter. WebMD had approximately $333 million in cash and investments at September 30th, 2008, including ARS with a face amount of $155.5 million and a fair value of 132.8 million.

Now turning to HLTH consolidated financial results. As I mentioned earlier, HLTH Porex and ViPS businesses are reflected as discontinued operations in the current and prior-year periods. HLTH consolidated revenues for the September 2008 quarter was $100.4 million, compared to $86 million in the prior year an increase of 17% adjusted EBITDA was $22.5 million in the September 2008 quarter, compared $18.3 million in the prior year an increase of 23%.

In addition to the adjusted EBITDA from WebMD's segments, adjusted EBITDA on a consolidated basis also includes HLTH's corporate expense, which for September 2008 quarter was $4.7 million, compared to $5.8 million a year ago, reflecting HLTH's ongoing cost reduction efforts. HLTH's consolidated interest income for the quarter was $9.4 million, compared $10.9 million in the third quarter of the prior year, reflecting lower rate earned on higher invested balances compared to last year.

HLTH's consolidated interest expense was $4.6 million and $4.7 million in the current and prior-year quarters respectively. HLTH's consolidated income tax provision from continues operations for the third quarter was $7.7 million. Also included in the P&L during the current quarter were approximately $1.1 million of expenses we incurred related to the WebMD HLTH merger. These expenses primarily relate to advisory fees. HLTH's consolidated income from continuing operation for the third quarter was $2.6 million or $0.01 per share.

HLTH's consolidated income from discontinued operations was $93.2 million or $0.50 per share. Discontinued operations during the quarter include the gain on the sale of ViPS of $92 million net of tax, as well as the results of operations of ViPS through its sale on July 22nd, and the results of operations of Porex. Porex revenue during the quarter was $23.1 million, compared to $21.9 million in the prior year. Porex's adjusted EBITDA margin during the quarter was relatively consistent with the prior year.

HLTH's consolidated net income was $95.9 million or $0.51 per share. At September 30th, 2008, HLTH had approximately $1.66 billion in cash and investments of which 332.6 million is attributable to WebMD. This amounts also include the fair value of investments in student loan backed auction rate securities totaling $284.4 million of which $132.8 million is attributable to WebMD.

During the quarter $5.1 million of these security were redeemed at it face value. As previously reported HLTH and WebMD each entered into a line of credit from Citigroup Global Markets with recourse only to their respective ARS Holdings. These lines of credit allow HLTH and WebMD to borrow up to 75% of the face amount of their ARS Holdings until May 2009. The face value of the ARS held by HLTH was $355.8 million as of September 30th, 2008, of which $165.5 million was attributable to WebMD. To date no borrowings by HLTH or WebMD have been made under these facilities.

Turning to financial guidance for the fourth quarter. Our fourth quarter guidance is consistent with our press release of October 10th. We expect WebMD revenue to be in the raining of $104 million to $108 million and adjusted EBITDA to be $30 million to $32 million. WebMD expects net income from continuing operations and net income for the fourth quarter of 2008 to be $9.7 million to $11.5 million or $0.16 to $0.19 per share.

As we stated previously these ranges incorporate think possibility that WebMD revenue could be about 5% below that which was originally forecast. Historically, we have seen incremental media buying towards the end of the year, as clients typically allocate unspent media dollars in the fourth quarter. Due to the current environment and caution we have seen throughout 2008, it is difficult to predict, whether we will see the same levels of incremental buying this quarter than we have seen in the past.

Our guidance for the fourth quarter and for the full year 2009 does not include the pending acquisition of QualityHealth, no does it include any benefits stemming from the reversal of valuation allowance against our deferred tax assets. Our expectations for net income for fourth quarter 2008 and full year 2009 contemplate that we will continue to record a non-cash federal income expense as required under SFAS 109. We have a sufficient earnings history to reduce the valuation announce against our deferred tax asset primarily our tax NOLs, which results in recording a non-cash tax provision.

Turning to WebMD guidance for 2009. Our 2009 guidance is still preliminary and subject to further refinement as we conclude our planning process. This guidance does not include our pending acquisition of MTS. Our preliminary outlook for 2009 is the revenues of $420 million to $450 million, our 2009 revenue guidance assuming the following revenue distribution, approximately 75% from advertising and sponsorship, an increase of approximately 15 to 25% over 2008, approximately 21% from licensing of our private portal products, an increase of approximately 0 to 5% over 2008, and approximately 4% from publishing and content syndication revenues, an increase of approximately 5 to 10% over 2008.

While we have added a number of new customers to our private portal customer base in the third and fourth quarter, we expect to see that growth offset by some attrition in 2009. We have customers who have been severely impacted by the recent economic conditions, including several finances services companies.

We're forecasting adjusted EBITDA to be between $107 million and $122 million, an increase of 13% to 31%, compared to 2008. Adjusted EBITDA as a percentage of revenues was expected to be approximately 25.5% to 27% in 2009. The adjusted EBITDA margin on incremental revenue for 2009 has forecasted to be approximately 30% to 40%; this includes the impact of the anticipated change in revenue mix of our private portal revenues to more coaching which has lower margins, which I mentioned earlier.

Income from continuing operations and net income for 2009 is expected to be 30 million to $43 million. A schedule summarizing WebMD's financial guidance as well as a reconciliation between GAAP and non-GAAP financial measures is attached to the press release WebMD issued today. Due to the ongoing divestiture Porex in the tender offer outstanding we are not providing guidance for HLTH at this time. We expected the corporate expenses at HLTH will continued to decrease.

I would now like to turn it over to Wayne to discuss WebMD's operating results in more detail.

Wayne Gattinella

Thanks, Mark. Our third quarter results reflect the solid strength of the WebMD franchise and reaffirm the opportunity of our branded online health and wellness information services in the marketplace. A new consumer study from the Hartman Group confirms that WebMD is by far the most visited health site with more than half of consumers reporting that WebMD is the source they go to most for health and wellness information more than four times of the next closest competing sites prevention.com.

Traffic to the WebMD Health network during the quarter reached an average 49.9 million unique users per month, an increase of 22% versus the same period at year ago with our page views during the quarter growing 33% to 1.14 billion page views. More than 97% of our page views in the third quarter were generated on health sites that are owned and operated by WebMD, where WebMD is in full control of the programming and pricing of our inventory.

Once again this quarter, our traffic acquisition costs were near zero, as we continue to build our audience organically, unlike many of the ad networks, which bulk up their traffic metrics by purchasing traffic. Our reach to physician continues to grow as we exceeded 1.5 million monthly physician visits to our professional sites during the quarter. Online continuing medical education on our professional sites exceeded 1.3 million completed programs, an increase of 76% over the prior-year quarter.

Our new community platform, Physician Connect, has quickly grown to over 65,000 physicians who can now security engage with one another in online discussions on clinical and non-clinical topics relevant to their practice of medicine. As physicians continue to shift from traditional sources of medical information to the Internet, Medscape is uniquely positioned to capture the major of the online utilization.

Traffic to our Medscape international sites that we launched in Latin America, Spain and Portugal about a year ago, is also growing as we have now registered over 90,000 physicians to date with more than two thirds of them visiting our international sites each month. During the third quarter we experienced a significant increase in sales for online promotion and education programs directed to both consumers and healthcare professionals in both the Biopharma and CPG markets.

We are seeing our largest customers beginning to commit larger dollars for 2009 sponsored programs on both WebMD and Medscape, as we see the industry looking to more aggressively integrate online strategies into the core marketing mix for both consumers and healthcare professionals. Importantly, we see the ability to maintain our pricing in this market as customers are recognizing the unique value of our core advertising services.

We do remain cautiously optimistic that whether the advertising growth will be far less impacted by the broader economy then in other market sectors. Our Biopharma customers don't have the luxury of delaying their markets spend, because their products have a very limited patent life. The external pressures that pharmaceutical companies face and internal challenges in their traditional business models are driving the need to dramatically shift their channel mix. We're seeing our largest Biopharma and CPG customers beginning to transition their DTC television and print budgets to more efficient online strategies.

We're also actively engaged with several large pharmaceutical companies to create new approaches to physician detailing that integrate our online interactions with physicians on Medscape with the detailed sales force efforts of our customers. With the strength of the WebMD brand, the quality of our audience and proven track record again; we believe we are positioned to capitalize on these changes.

Turning to our private portals market. At the end of the third quarter, our install base of large companies licensing the WebMD private portal platform totaled 129 organizations, compared to 112 a year ago. We also have approximately 140 additional customers who purchase our stand-alone HLTH decision support service. People are clearly recognizing that value that personal health information comply in their live.

We have had millions of people engaging with our WebMD personal health record, and now just the last 30 days we experienced a watershed event as one of the largest US employers Wal-Mart launched WebMD health management suite of services including our personal health record for both their hourly and salaried employees. The power of electronic health services is now going mainstream and we continue to help make healthcare more accessible and affordable for consumers and their families.

During the quarter we also launched our private portal health platform for several other new clients, including Tyco, Viacom, Presbyterian Health Plan, and Golden Living centers. Additionally we launched WebMD provide selection advisor for the Blue Cross Blue Shield Association that represents over 100 million covered life. This new application helps members select hospitals, physicians, and other providers participating in networks to serve their local area based on the location, specialty, hospital affiliations in addition to medical education and erudition.

Our new online provider product also incorporates quality information to support the Blue Cross Blue Shield Associations provide a transparency initiatives, like leapfrog, bridges to excellence, and NCQA. While this use of our new applications is not typical of a core platform sale, I just wanted to highlight it, because it speaks to how the industry is looking to WebMD for continued leadership and innovation.

Our 2009 guidance that Mark took you through for the private portal business reflects our examinations that the macro environment may impact many large employers who's purchase decisions for services such as our private portal applications may be deferred in the face of their own economic challenges.

Nevertheless in summary, I believe that the size and breadth of the overall market opportunity for WebMD remains unchanged. As large Biopharma a consumer private companies face diminishing returns on their traditional approaches to product promotion, WebMD is uniquely positioned to capitalize on the shift to online marketing and education. We believe the strength of our brand and the high quality of our users and inventory will prove to be the strong foundation that's necessary for tinned success in this market. We expect the long-term value of this franchise to continue to increase as we deliver the full spectrum of digital health information solutions that the marketplace is steadily evolving towards, including international and soon to be mobile information services. We will continue to make investments in our technology, in our infrastructure, and our people to drive the success of our enterprise for the future.

At this time, operator, we would like to open it up for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions). Our first question is from Brian Pitts of Bank of America Securities.

Brian Pitts – Bank of America Securities

Great. Thanks. Couple of here. Would you talk more specifically about overall pharma budget in Q4 '09 and I know you gave some good color on the call that do you anticipate that overall budgets will be down, well, online is up? Or do you anticipate the overall budgets were actually remain at least flat in to next year? Thanks.

Wayne Gattinella

I think generally speaking, Brian, we're seeing overall budgets being cut. I mean, you are seeing sales force positions, being cut back as really has been happening since the beginning of this year. I think when you see general DTC advertising metrics for the second half of '08 and going in to '09, I believe you will see that pharma is spending less on TV and print in the second half of this year than they have in several years. I would expect overall you are going to see budgets in the '09 flat to lower than they were in '08, but at the same time, we are seeing of the dollars that are being spent that many of those dollars are being transitioned to online, both on the consumer and on the professional space.

Brian Pitts – Bank of America Securities

And just a quick one on QualityHealth. Can you talk about some of the revenue and cost synergies that you may be able to derive there, particularly given the significant lower will EBITDA margin relative to Web?

Wayne Gattinella

Yeah, we really looked to that acquisition as an opportunity to complete in the – kind of performance-based side of the marketplace. If you want to add anything to that.

Marty Wygod

Given the period between signing and closing, I don't think we're able at this point to comment on your question at this time.

Brian Pitts – Bank of America Securities

Okay. Thanks.

Operator

The next question is from Jennifer Watson from Goldman Sachs. Your question, please?

Jennifer Watson – Goldman Sachs

Great. With respect to QualityHealth, can you give us any insight as to why the deal has not yet closed if there has been any issue? I think it was supposed to close about two weeks ago and then also can you explain your confident in the '09 commitments given the need to reduce guidance in the second half of '08?

Tony Vuolo

Yeah, Jen, in this is Tony Vuolo, I guess I will take first question on QualityHealth, again, since we're in that period between signing and closing we're really not in a position to comment any further. I think Wayne will take the second question.

Wayne Gattinella

Repeat the second one, again, Jen.

Jennifer Watson – Goldman Sachs

What gives you a significant confident in the '09 commitments that you are getting from pharma companies right now given the recent need to reduce guidance in the second half of 2008?

Wayne Gattinella

What we have seen in the third quarter sales period that ended September 30, is that significant amount of newly committed ad agreements with Biopharma and CPG, the bulk of which are, if you will, front buying for 2009.

I think what we saw in 2008 is that Biopharma, really approached this year relatively conservatively? We know that there were, kind of dislocations of several major products when the year began with respect to FDA actions, and their own growth – I believe their own growth rates ended up being somewhat below what their expectations were, and so just overall budgeting and spending was I would say general conservative, and not terribly imaginative.

As they are looking towards '09, I still think that overall, their macro budgets are going to be as I mentioned somewhat flat potentially, even down, but there's clearly a much stronger urgency to move the channel and marketing mix to more efficient and effective channels which obviously favors us in the online space for consumer and for professional. But to answer your question directly we look towards the last quarter of this year 2008.

We have typically at the end of the year, seen leftover budget dollars being sort of flushed typically in the form of just pure online display media. I don't know that we're not going to see that in the next 60 to 75 days, but we’ve been a little more conservative ourselves in terms of how we're going to forecast that, and the fourth quarter reflects that.

Jennifer Watson – Goldman Sachs

Great. Thank you.

Operator

Our next question is from Corey Tobin from William Blair. Your question, please?

Corey Tobin – William Blair & Co.

Hi, thanks for taking my question. Good afternoon. This is Jimmie for Corey. Wayne, I'm wondering to hit on the guidance question again, as you enter 2009, I'm wondering if you would say you have more confidence or more visibility in to the guidance you gave out relative to when you guys gave '08 guidance last year?

Wayne Gattinella

I think right now it's still pretty early to claim that we have got tremendous visible any to 2009. I’d tell you we'll being a little more caution about 2009 projections. We actually believe that the dislocation that's happening in the marketplace will ultimately be help for towards us, because it's creating urgency to change in the way we have thoughtful in the past, and we actually think we're beginning to see a pickup in terms of that commitment to start to transform channel mix. But needless to say all of us are in a macro environment that creates lots of challenges for our customers, and while we just completed a very strong sales quarter, we've also been careful to indicate that, we don't know for sure that that's going to be indicative of, quarter-to-quarter trend and so the current guidance that we issued today for 2009 reflects that.

Corey Tobin – William Blair & Co.

Okay. If I could shift gears a little bit, wondering what the merger transaction, sort of, you guys, are no longer going with that, you obviously have a very healthy balance sheet, and I would see that, downturns or slowdowns in the economy, at the stronger, I'm wondering if you have any thoughts from a M&A perspective, do you anticipate properties coming available at more attractive prices and what your strategy might be and what areas you might be interested in looking further in to? Thanks.

Wayne Gattinella

Sure. Specifically on that we would be primarily looking another potential transactions that would be perhaps synergistic or would advantage the WebMD operation. But we have nothing specific in mind at this time, may be opportunities in the first half of next year.

Corey Tobin – William Blair & Co.

Okay. Thank you.

Operator

Our next question is from Rob Kelly from Citi. Your question, please?

Rob Kelly – Citi

We hear about so many entrants coming into Internet healthcare markets, such as Google, Microsoft, and Johnson & Johnson. Can you define for us the size of the Internet healthcare market as you see it?

Wayne Gattinalle

Sure on the consumer side in the Biopharma that DTC spend levels have been approximately $5 billion a year over the last several years as I mentioned that total amount may comedown somewhat, but we believe the online mix will increase. Online has typically been less than 5% of that DTC spend. For every dollar that pharma spends on direct to consumer marketing, they typically spent around $3 on direct to physician marketing. So you could approximate somewhere between maybe $13 billion and $15 billion a year in US direct to physician marketing.

Again, a very small portion of that, probably 1% to 2% is spent online, and as pharma companies have been significantly cutting back on direct sales force and at the same time as physicians themselves are turning more to the Internet when they are seeking medical information, there's a not only a realization, but now as we're seeing it, more significant initiatives being launched inside of form ma to shift some of that traditional marketing mix to favor online, and of course as that occurred, WebMD will benefit as the leading consumer brand of health information and Medscape has a very unique and strong position in the online physician health information space and should be able to benefit in even a stronger way.

Rob Kelly – Citi

Thanks.

Operator

Our next question is from Sandy Draper from Raymond James. Your question, please?

Sandy Draper – Raymond James

Thanks, very much. Wayne, maybe a different way to look at the '09 guidance, I appreciate the commentary about the more conservative approach. With the ranges throughout, with the range just out there, with $30 million swing, maybe just sort of highlight the two or three key differential points that would make things go to the high end of low end of that guidance, that would be helpful in understanding? Thanks.

Wayne Gattinalle

Sure. On the advertising side it's somewhat of the basics. It's really a question of scale and timing. Again, as we’ve indicated, we had a strong sales quarter ending September 30. Those programs are scheduled throughout the 2009 sales period. Clearly, as we get deeper in to the 2009 selling period, a lot of those programs from a sales cycle and delivery standpoint would be pushed more towards the latter part of the year, so what will drive those numbers beyond what our current expectations are, would be continued early commitments on the part of Biopharma in a way that not only secures the sale but does it with timing that would allow us to execute and deliver on those programs earlier in the year, as you know, because we booked our revenue ratably over the contract period.

And still the bulk of our programs are not banners and buttons and display media, but rather longer commitments towards sponsored contents, on our sites. The private portal's business as you see we've pretty conservatively pushed those growth numbers down to on the low end literally no growth to a high of 5%, and that's under the anticipation that certainly in the employer market, which is a big piece of that business, you have got where we're servicing all sectors if you will. You have got lots of companies under stress right now, and arguably the services we offer could be considered discretionary or certainly deferrable if our sales rates decline.

So we're just being caution there. It's a little bit of not really having good visibility in to what that macro environment might look like six months from now from a selling period. But, again, as you might guess our focus is on the healthier industries and the healthier companies who do have both the motivation and the budget to be able to support our services, and we're still going all speed ahead with all of our private portal services in the market both on the employer side and the payer's side.

Sandy Draper – Raymond James

Great. Thanks, that's very helpful.

Operator

Our next question is from Mark Mahaney from Citi. Your question, please?

Mark Mahaney – Citi

Great. Thank you. Wayne at the DTC conference yesterday in New Jersey there was some discussion about whether we could see material new regulation related to DTC advertising, both offline and online. Do you have any thoughts on whether there is something new? Whether there's material new risk that would come, at least to offline advertising, some sort of clamping down on that for one to three years, anything you like that and any thoughts? And if that were to come through, what impact that could have on online advertising? Thank you.

Wayne Gattinalle

Sure. I'm not aware of anything, specifically that's sort of being teed up from a regulatory standpoint, but which know there has been lots of discussions both in Washington and within industry with respect to the broad media approach to marketing of regulated pharmaceutical product. We also know that pharmaceutical companies under their association pharma, adopted a set of volunteer guidelines earlier this year, that included hiatus of any DTC advertising associated with the new product launch for 12 months from launch date, and that was with the sort of the objective of providing enough time for the doctors themselves to become comfortable and knowledgeable about the new product before those companies started promoting it heavily to consumers and create, sort of a pull impact for demand.

So, you know, our belief has always been, and we have said that all of the information that should be communicated in conjunction with the pharmaceutical product, both all of the good advantages and the treatment guidelines the product has, but also all of its potential side effects and contraindications cannot be effectively communicated in a 30-second TV ad, and we strongly believe that the online channel with its ability to fully inform and educated a far more effective, and really recognized approach to marketing their products.

Mark Mahaney – Citi

Thank you, Wayne.

Operator

Our next question is from Jack Kelly from Smith Barney. Your question, please?

Jack Kelly – Smith Barney

Yes, why did the stock go from 15 to 27 in the last week or week and a half? And are there any corporate activities, which might attribute to that movement?

Wayne Gattinella

We don't usually comment to the market movement in the security, but one thing that is somewhat obvious is that the short position in WebMD, which is a fairly substance, probably has quite a bit to do with the fluctuation up to the $27 range. I believe the last stated short position was 3,600,000 shares of a public flow to 8.5 million shares.

Jack Kelly – Smith Barney

Thanks.

Operator

(Operator instructions). Our next question is from Anthony Petrone from Maxim Group. Your question?

Anthony Petrone – Maxim Group

Great. First on the private portal side, can you give us extend of the attrition there. You have already experienced and that you included in the guidance, and then I guess a follow-up would be how many remaining financial clients do you believe are at risk or do you have on the radar screen for attrition?

Wayne Gattinella

Any of the attrition that we are aware of or potentially anticipate particularly in the financial services side have is reflected in our guidance right now. Some of that attrition has to do with reduction in employee force, not necessarily the loss of an account, given that that's such a sensitive component of our pricing, so as you may have some companies in those industries that have just gone through some form of a significant cutback, then that's reflected in the revenue.

Anthony Petrone – Maxim Group

I guess on the upside down, its Wal-Mart there how is it scaleable, is that contract – what do you belief the potential is for I guess increasing the employer base on that?

Wayne Gattinella

There definitely is room to go. We actually launched our first initiative with Wal-Mart a year ago. Much smaller than the new set of services that we have blended with them just about a month ago, but even with that said, there's still a lot of upside in terms of adding new services on, and potentially more people in to the services.

Anthony Petrone – Maxim Group

Two quick follow-ups, just one in the guidance for 2009, if you take a look there what percentage of the guidance would you say is kind of locked in with backlog or you believe has the potential to come through from contracts under going through the implementation process, and what in terms of pipeline conversion is considered for '09?

Wayne Gattinella

I don't think I can give you a percentage, but as we have said in the past, we have a lot of visibility, three to six months out, that's the nature of our contracts are tend to be between 3 and 12 months, and as we get further out, it’s more depended on the future sales.

Anthony Petrone – Maxim Group

And then finally on the auction rate position, is there any update there have auctions begun yet? I believe they have not. But I don't know, if there's any update there?

Wayne Gattinella

Yeah but several of the auction rate securities, we have been notified of certain tenders' of them. I think at 93 or $0.94 on the dollar, which is substantially above where we are carrying the math and they are fairly complicated tenders with – where you need a very high percentage of success rate of the tender in order to the tender to be accepted, so it's a little bit premature, but there's definitely strong movement going on to be a purchasing back these different auction rates at between 90 and 100 cents on the dollars.

Anthony Petrone – Maxim Group

Great. Thanks. I'll hop back in.

Operator

This concludes our Q&A session for today's conference. I would like to remind all participants at this time that there is a replay available of this call, which can be accessed toll free at 888-266-2081, or if you are calling from outside the US, at 703-925-2533. The pass code is 1291486. There is also a webcast replay available on HLTH Corporation and WebMD's websites as well. Thank you for joining us today. You may now disconnect. Good day.

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Source: HLTH Corporation Q3 2008 Earnings Call Transcript
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