WebMD Health Corp. Q3 2008 Earnings Call Transcript

Oct.31.08 | About: WebMD Health (WBMD)

WebMD Health Corp. (NASDAQ:WBMD)

Q3 2008 Earnings Call

October 30, 2008 16:45 pm ET


Risa Fisher - Vice President of Investor Relations.

Marty Wygod - Chairman of WebMD, Chairman, Acting CEO HLTH Corporation

Wayne Gattinella - Chief Executive Officer and President of WebMD

Mark Funston - Chief Financial Officer of HLTH and WebMD

Tony Vuolo - Chief Operating Officer of WebMD


Brian Pitz - Banc of America Securities

Jennifer Watson - Goldman Sachs

Corey Tobin - William Blair

Rob Kelly - Citi

Sandy Draper - Raymond James

Mark Mahaney - Citi

Jack Kelly - Smith Barney

Anthony Petrone - Maxim Group


Good afternoon and welcome to HLTH Corporation's and WebMD Health Corp's September 2008 Quarterly Conference Call. Today's call is being recorded.

I will now turn the call over to Risa Fisher, Vice President of Investor Relations. You may begin.

Risa Fisher - Vice President of Investor Relations

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

The releases issued today include reconciliations between GAAP and non-GAAP financial measures to be presented in this call. The explanatory paragraph 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 and WebMD's future performance.

Information concerning the risk and uncertainties can be found in HLTH's and WebMD's SEC filings.

I would 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 - Chairman of WebMD, Chairman, Acting CEO HLTH Corporation

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 20, HLTH and WebMD have terminated the merger agreement between them. The termination was by mutual agreement of the companies and was unanimously approved by the Board of Directors of both companies and by a special committee of Independent Directors of WebMD.

At the time HLTH and WebMD entered in to the merger agreements, both Boards and the special committee believes that the transaction was 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 stockholder 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 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 27, 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 or 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 revolving 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 - Chief Financial Officer of HLTH and WebMD

Thank you, Marty. Please note that WebMD and HLTH results present 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 31, 2007. HLTH results also presents the ViPS and Porex businesses as discontinued operations in the current and prior-year period reflecting the sale of ViPS July 22, 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 BlueBook 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 BlueBook, 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 continuing 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 customers and reimbursements to HLTH in relation 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 on September 30, 2008 including ARS with a face amount of 165.5 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, and increase of 17%. Adjusted EBITDA was $22.5 million in the September 2008 quarter compared to 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 the 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 with 10.9 million in the third quarter of the prior year, reflecting lower rates 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 continuing operations for the third quarter was 7.7 million.

Also included in the P&L during the current quarter was 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 operations 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 22, 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 30, 2008, HLTH had approximately 1.66 billion in cash and investments of which 332.6 million is attributable to WebMD. These 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 securities were redeemed at face value. As previously reported, HLTH and WebMD each entered into a line of credit from Citigroup Global markets with recourse only to their 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 30, 2008, of which 165.5 million was attributable to WebMD. To date, no borrowing 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 10. 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 income from continuing operations and net income for the fourth quarter 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 that 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 Quality Health, nor 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 tax expense as required under SFAS-109. We have a sufficient earnings history to reduce the valuation allowance against our deferred tax assets, primarily a tax on a loan which results in recording a non-cash tax provision.

Turning to WebMD guidance for 2009. Our 2009 guidance is still preliminary and is 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 for revenues of 420 million to 450 million.

Our 2009 revenue guidance assumes 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 financial 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 is expected to be approximately 25.5% to 27% in 2009. The adjusted EBITDA margin on incremental revenue for 2009 is forecasted to be approximately 30% to 40%. This includes the impact of the anticipated change in revenue mix in 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 divesture process -- divestiture of Porex and the tender offer outstanding, we are not providing guidance for HLTH at this time. We expect that the corporate expenses at HLTH will continue to decrease.

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

Wayne Gattinella - Chief Executive Officer and President of WebMD

Thanks, Mark. Our third quarter results reflect the solid strength of the WebMD franchise and reaffirm the opportunity of our brand of 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 that go to most for health and wellness information, more than four times that of the next closest competing site, 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 a 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 new ad networks who bulk up their traffic metrics by purchasing traffic.

Our reach to physicians 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 securely 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 majority of their online utilization.

Traffic to our Medscape international site 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're 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 their 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 this advertising growth will be far less impacted by the broader economy than in other market sectors.

Our biopharma customers don't have the luxury of delaying their marketing spend because their products have a very limited patent life. The external pressures that pharmaceutical company's face and the 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 our proven track record, again, we believe we are well 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 purchased our stand alone health decisions support services.

People are clearly recognizing that value that personal health information can play in their lives. We have had millions of people engaging with our WebMD personal health record, and now, just in the last 30 days, we experienced a watershed event as one of the largest US employers, Wal-Mart launched WebMD's health management suite of services including our personal health record for both their hourly and salaried employees.

The power employed 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 portals platform for several other new clients including Tyco, Viacom, Presbyterian Health Plan and Golden Living Centers. Additionally, we've launched a WebMD provider selection advisor for the Blue Cross/Blue Shield association that represents over 100 million covered lives.

This new application helps members select hospitals, physicians and other providers participating in networks that serve their local area based on the location, specialty, hospital affiliation, in addition to medical education and accreditation.

Our new online provider product also incorporates quality information to support the Blue Cross/Blue Shield association's provider transparency initiatives like Leapfrog, Bridges to Excellence, and NCQA. While this use of our new application 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 expectations that the macro environment may impact many large employers whose purchase decisions for services such as our private portal application 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 and consumer product companies face diminishing returns on their traditional approaches to product promotions, WebMD is uniquely positioned to capitalize on the shift to online marketing and education.

We believe that 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 continued 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 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


Thank you sir. (Operator Instruction) Our first question is from Brian Pitz of Banc of America Securities. Your question, please.

Brian Pitz

Great, thanks. A couple here. Would you talk more specifically about overall pharma ad budgets in Q4 of '09? I know you gave some good color on the call, but do you anticipate that overall budgets will be down while online is up, or do you anticipate that overall budgets will actually remain at least flat into next year? Thanks.

Mark Funston

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

Brian Pitz

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

Mark Funston

Yeah. Well, we really looked to that acquisition as an opportunity to complete in the kind of performance-based side of the marketplace. I don't know if you want to add anything to that –

Wayne Gattinella

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

Brian Pitz

Okay. Thanks.


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

Jennifer Watson

Great. With respect to Quality Health, can you give us any insight as to why the deal has not yet closed, if there's been any issues. 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 recent need to reduce guidance in the second half of '08?

Anthony Vuolo

Yes, Jen, in this is Tony Vuolo, I guess I'll take the first question on Quality Health. Again, since we're in that period between signing and closing, we're really not in a position to comment any further at this time. I think Wayne will take the second question.

Wayne Gattinella

Repeat the second one, again, Jen.

Jennifer Watson

Yes, I was just saying, what gives you significant confidence in the '09 commitments that you're 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 a significant amount of newly committed ad agreements with bio pharma and CPG, the bulk of which are, if you will, front buying for 2009. I think what we saw in 2008 is that bio pharma, really approached this year relatively conservatively. We know that there were dislocations of several major products when the year began with respect to FDA actions and even 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 generally 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 both on consumer and professional. But to answer your question directly, as we look towards the last quarter of this year, of 2008, we have typically at the end of the year seen left-over 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

Great. Thank you.


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

Corey Tobin

Hi, thanks for taking my question, good afternoon. This is Jeremy 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 into the guidance you put 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 visibility into 2009. I will tell you that 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 helpful towards us because it's creating urgency to change in the way we hoped for 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

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 it would seem that downturns or slowdowns in the economy tend to get stronger, I'm wondering if you have any thoughts from an M&A perspective, do you anticipate properties becoming available at more attractive prices and what your strategy might be and what areas you might be interested in looking further in to. Thanks.

Tony Vuolo

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

Corey Tobin

Hey thank you.


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

Rob Kelly

We hear about so many entrants coming in to 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 Gattinella

Sure. On the consumer side, in the bio pharma market the DTC spend levels have been approximately $5 billion a year over the last several years. That mentioned that total amount may come down 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 and $15 million 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 pharma to shift some of that traditional marketing mix to favor online, and of course as that occurs, 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



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

Sandy Draper

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 out there, with the $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 Gattinella

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, with 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 bio pharma 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 look that revenue ratably over the contract period. 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 is -- 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 that we offer could be considered discretionary or certainly deferrable if our sales rates decline. So we're just being cautious there. It's a little bit of not really having good visibility into 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

Great. Thanks, that's very helpful.


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

Mark Mahaney

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 see like that and any thoughts? And if that were to come through, what impact that could have on online advertising? Thank you.

Wayne Gattinella

Sure. I'm not aware of anything specifically that's sort of being teed up from a regulatory standpoint, but we 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 voluntary guidelines earlier this year, that included a 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 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 treatment guidelines the product has, but also all of its potential side effects and contraindication 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 educate is a far more effective, and really recognized approach to marketing their products.

Mark Mahaney

Thank you, Wayne.


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

Jack Kelly

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?

Martin Wygod

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 substantial 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 float of 8.5 million shares.

Jack Kelly



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

Anthony Petrone

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

Wayne Gattinella

Any of the attrition that we are either aware of or potentially anticipate, particularly in the financial services side, 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 by definition, that's reflected in the revenue?

Anthony Petrone

I guess on the upside then, with Wal-Mart there, how scalable is that contract, and what do you believe the potential is for increasing the --

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 into the services.

Anthony Petrone

And two quick follow-ups, just one on 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 undergoing through the implementation process. And what in terms of pipeline conversion is considered for '09?

Tony Vuolo

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 important on the future sales.

Anthony Petrone

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 think if there's any update there.

Martin Wygod

Yes, several of the auction-rate securities, we have been notified of certain tenders of them, I think at 0.93 or $0.94 on the dollar, which is substantially above where we are carrying them at. And they are fairly complicated tender with -- where you need a very high percentage of success rate of the tender in order for the tender to be accepted, so it's a little bit premature. But there's definitely strong movement going on to be purchasing back these different auction rates at between 90 and 100 cents on the dollars.

Anthony Petrone

Great. Thanks. I'll hop back in.


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