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WebMD Health (NASDAQ:WBMD)

Q1 2013 Earnings Call

May 07, 2013 4:45 pm ET

Executives

Risa Fisher

Martin J. Wygod - Chairman, Member of Executive Committee and Member of Strategic Planning Committee

David Schlanger

Anthony Vuolo - Senior Vice President of Strategic Projects

Peter Anevski

Analysts

Alexander Y. Draper - Raymond James & Associates, Inc., Research Division

Jordan Monahan - Morgan Stanley, Research Division

Steve Rubis - Stifel, Nicolaus & Co., Inc., Research Division

Andrew Marok

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Scott H. Kessler - S&P Equity Research

Operator

Good afternoon, and welcome to WebMD Health Corp.'s First Quarter 2013 Conference Call. Today's call is being recorded. I will now turn the call over to Risa Fisher, Vice President of Investor Relations.

Risa Fisher

Good afternoon. This conference call is to discuss WebMD's first quarter results. The earnings release issued today by WebMD is available at www.wbmd.com in the Investor Relations section. The release includes reconciliations between GAAP and non-GAAP financial measures, which will be discussed during this call. The explanatory paragraphs in the release 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 WebMD's future performance. Information concerning the risks and uncertainties can be found in WebMD's SEC filings.

Joining us on today's call are Marty Wygod, Chairman of WebMD; David Schlanger, Interim Chief Executive Officer; Pete Anevski, Chief Financial Officer; and Tony Vuolo, Senior Vice President.

At the conclusion of our prepared remarks, we will open the call and take questions.

Martin J. Wygod

Thanks, Risa. As we announced in our press release, Cavan Redmond is leaving the company. We wish Cavan success in his future endeavors. The board is commencing a search for a new Chief Executive Officer. David Schlanger will serve as interim CEO.

David has been with WebMD and its predecessor companies for 18 years. David's most recent role was leading our Strategic and Corporate Development teams, where he is responsible for providing strategic support throughout our organization, including sales, marketing, client relationship management and product development. David and his team have lead all aspects of the structuring, negotiating and management of key strategic partnerships with some of our larger clients, as well as our media, technology and content partners.

Additionally, David was the lead executive responsible for the strategy, sourcing, negotiation and diligence on the numerous acquisitions that formed the core of WebMD's current business. David has been responsible for international initiatives, including our joint venture with Boots in the U.K., which has become, since its inception, the largest commercial online health destination in the United Kingdom.

The board determined that it is imperative that we accelerate the developments and implementation of strategies to diversify our revenue base and capture the opportunities arising from the rapidly changing health care landscape. As I've said in the past, I expect that acquisitions and strategic venturing, in combination with our existing reach to consumers and physicians and our market-leading capabilities in decision support and wellness management, we'll accelerate our ability to take full advantage of the opportunities ahead.

As you can see, today, we increased our financial guidance for the balance of 2013. We do not believe this management change will adversely affect our recent momentum.

The results that we issued today, along with the improved outlook for the balance of the year, are a result of the collective efforts of our senior leadership team.

Separately, Tony Vuolo will be transitioning the CFO responsibilities to Pete Anevski. Pete was most recently Senior Vice President, Finance and has been with WebMD and its predecessor companies for over 14 years.

I was consulting [ph] with Pete, and believe his in-depth knowledge of all aspects of our business will make him an effective partner to our sales, marketing and operations teams and an invaluable member of the executive team. I expect a seamless transition to his new responsibilities.

Tony will assist David and Pete in the transition to their new responsibility and going forward, will focus on key strategic projects.

Tony and I have worked together for over 25 years in several different public companies. Each of these companies, including WebMD, has benefited tremendously from Tony's financial acumen, business insight and extensive M&A and operational expertise. I look forward to continuing to work closely with Tony in the future.

I remain confident in long-term opportunities available to this company. The management change today will best position us to pursue these opportunities while we conduct the search for a new CEO. We will continue to be engaged in discussions with a variety of potential strategic partners to leverage our assets and further our market leadership.

I would now like to turn the call over to David Schlanger.

David Schlanger

Thanks, Marty. I look forward to working with the entire senior management team to build upon the progress we have achieved this quarter and help guide the future of WebMD.

I agree with Marty that we have a significant opportunity to pursue certain external transactions that leverage our brands and audiences in a way that will both accelerate our entry into new markets and differentiate us from the other players. I intend to work closely with Marty on these activities and with the senior management team to continue to build on the momentum we have created to-date.

I will briefly update you on some of the company's highlights this quarter.

Today, we announced first quarter results, along with improved outlook and financial guidance for the balance of 2013. Our first quarter results and our increased guidance are being driven by improvements in our public portal's advertising business, particularly with our biopharmaceutical advertisers.

As we have discussed on prior calls, we had made many modifications to our products to better meet the needs of our customers. We have made our products and our pricing simpler and modified our sales and product approach to reflect shorter duration client commitments. At the same time, we have worked to improve how we deliver our products and services.

These changes appear to be having a positive impact, as our sales commitments received for the March quarter were higher than we had anticipated. Additionally, we believe digital advertising budgets have improved for at least some of our biopharmaceutical customers.

As a result, we've increased our 2013 revenue guidance to $450 million to $470 million from $430 million to $455 million and our 2013 adjusted EBITDA guidance to $75 million to $88 million from $60 million to $80 million.

During the quarter, the WebMD Health Network reached an average of 132 million monthly unique visitors and delivered 2.78 billion page views, increases of 23% and 10%, respectively, over the prior-year period.

As we've discussed on our call in February, recent changes to Google search algorithms have had an impact on our traffic growth. The algorithm changes have resulted in an increase in traffic to our flagship site, webmd.com, where we have seen a more than offsetting decrease on some of the other consumer sites that we publish. We are making changes to address this, but we anticipate that it may take several months before we see the impact of these changes on our traffic.

Nevertheless, this slowdown in our page view growth is not expected to present a problem from a revenue perspective, as we have traffic to support revenue beyond our current expectations.

With respect to our overall market position, according to recent -- the recent comScore rankings, WebMD is #1 in the health category, #1 in all 25 of the largest conditioned populations online, the #1 mobile health destination and #33 of all sites on the Internet across all categories.

Our investments in mobile are paying dividends, as we have been able to sustain our overall traffic growth in an environment where PC traffic has been declining across the web. Approximately 34% of our page views were delivered on a U.S. mobile device during the quarter.

We will continue to meet the needs of our audience by delivering quality health information to users regardless of their device. As part of that effort, we continue to invest to produce the most trusted and credible health and wellness content available anywhere.

In recognition of these efforts, WebMD recently received the 2 Webby Awards given in the health category, one of which is selected by a 1,000-member professional panel and the second of which is selected by consumers.

In addition, we are developing a new channel on WebMD, the Health Care Reform Center, which will be launched and timed to coincide with the next phase of the Affordable Care Act implementation this fall. We believe that this channel will become a valuable resource for the tens of millions of consumers who will be responsible for choosing a health plan for the first time and will need to understand the impact of the Affordable Care Act to themselves and their families.

WebMD, through Medscape, is also the leading online destination for health care professionals. According to the recently released Manhattan Research Taking the Pulse study, the Medscape Professional Network is the most frequently visited property accessed by physicians for professional purposes.

During the quarter, traffic to Medscape and our Professional Network averaged approximately 3.1 million physician visits per month.

In 2013, we'll be focused on making rapid progress in innovating in a few key areas. First, across our multiscreen platform, we are investing in personalization of the WebMD's experience in order to drive both deeper user engagement and greater user frequency. This effort should help us sustain our traffic growth in the future and create additional revenue opportunities.

Secondly, we intend to broaden our mobile offerings and deploy new mobile sponsorship products for our advertisers.

Third, we are investing to further differentiate our advertising and sponsorship products and demonstrate their premium value to advertisers. As part of this effort, we are continuing to develop the capabilities of our new WebMD analytics lab, which will allow us to better target our sponsorship products to the precise audiences our advertisers are seeking, optimize the use of our site inventory and provide our customers innovative forms of measurement.

And lastly, we are investing to build the foundation to connect patients to their physicians and other health care providers. Leveraging our unmatched audiences and brands, we are positioning WebMD and Medscape as the hub of a set of services that will facilitate information exchange and digital communication and transactions throughout the patient-physician care continuum.

As our health care system evolves and as consumers and health care and providers assume more financial risk for the provision of care, these tools will open up additional revenue streams for WebMD. We expect these tools to become essential components in empowering the physician-patient partnership aimed at the efficient delivery of care and improved health care outcomes.

Turning to our Private Portal business. We are excited to announce that WebMD Health Services has recently been awarded a contract to provide wellness services for the Blue Cross and Blue Shield Association Federal Employee Program known as FEP. We were awarded this contract as a result of a rigorous selection process.

The program will support over 5 million FEP members. We are beginning the necessary development and implementation work in order to achieve a January 2014 launch.

This represents our largest single contract in the history of our WebMD Health Services business.

The award of this contract illustrates the progress Mark Emkjer and his team have made in evolving the products and services of our Private Portal offerings and in demonstrating their value in the marketplace.

In summary, we will be focused on furthering WebMD's leadership position in online health information and services and developing through both internal efforts and external transactions, additional products, services and revenue streams. We will do this by fostering an environment of entrepreneurship and innovation throughout our organization.

Our improved outlook for 2013 is the clear result of the focus and dedication our employees demonstrate every day.

At this point, I'd like to turn the call over to Tony.

Anthony Vuolo

Thanks, David. I wanted to briefly add to Marty's introduction of Pete Anevski. Pete and I have worked very closely over the past 14 years. As the senior-most Finance Officer reporting to me, Pete was responsible for all aspects of internal accounting, SEC reporting and compliance, financial planning and merger and acquisition analysis and integration.

Pete played an integral role in our recent restructuring, as well as developing the changes initiated in -- beginning in early 2012 related to our pricing structure and market positioning, both of which are driving our improved financial results. Pete has certainly earned the CFO position.

Over my tenure at WebMD and its predecessor companies, I've had the opportunity to contribute from a number of -- in a number of senior leadership role. I will do whatever I can to assist Pete in his transition, while giving him the room to establish his own priorities. I will continue to work closely with Marty, David and the rest of the team.

Now I'd like to hand it over to Pete Anevski.

Peter Anevski

Thanks so much, Tony. I wanted to thank the Board of Directors, David and the entire leadership team for their confidence and support. I particularly wanted to thank Tony for his advice and mentoring over the years, and I look forward to continuing to work with him. I also look forward to speaking and meeting with you, our shareholders and analysts, in the coming weeks and months.

Turning to a review of our first quarter results. Our first quarter revenue and adjusted EBITDA results were consistent with our guidance and exceeded Street consensus. First quarter revenue was $112.8 million compared to $106.9 million last year.

Public portal advertising sponsorship revenue was $93.4 million compared to $87.8 million in the prior year. Private portal services revenue was $19.3 million compared to $19.2 million in the prior year.

First quarter adjusted EBITDA was $21.3 million or 18.9% of revenue compared to $11.3 million or 10.5% of revenue in the prior-year period. The increased margin is attributable to higher revenues, as well as lower expenses resulting from savings achieved through the company's previously announced December 2012 workforce reduction and reductions in other non-personnel related costs.

First quarter net loss was $1.5 million or $0.03 per diluted share compared to net loss of $7.8 million or $0.14 per diluted share in the prior-year period. Net loss in the prior-year period includes an after-tax gain on investments of $5.2 million and after-tax severance expense of $800,000 and an after-tax stock compensation expense of $5.3 million related to the voluntary surrender of options.

Operating cash flow was approximately $11 million for the first quarter. As we have stated in the past, quarterly operating cash flows can be impacted by the timing of compensation accruals and other accruals in relation to quarter's end, the timing of interest payments on our convertible notes and the billing and collection of receivables from our customers.

Capital expenditures were $2.9 million in the quarter.

During the first quarter, we used approximately $1.3 million of cash to purchase 85,000 shares of our common stock under our authorized share repurchase program. There is approximately $61 million remaining in our buyback program.

As of March 31, 2013, we had $999.2 million in cash and cash equivalents.

As David mentioned, today, we raised our financial guidance for the balance of 2013. A schedule summarizing this guidance is included in today's press release. The increase in our guidance reflects better-than-expected performance in our public portal advertising business, particularly as it relates to our biopharma advertising clients.

While we are encouraged by recent improvements in our outlook, our visibility into future quarters does remain somewhat limited. In general, our clients are continuing to shift to shorter duration programs.

Additionally, as we've discussed on prior calls, the majority of our current revenue comes from biopharma customers, many of whom have been hit with the effects of patent expirations and the resulting impact of marketing budgets across their product portfolios.

Our revenue is not concentrated on any specific products that will lose patent protection in either 2013 or 2014. In fact, less than 4% of our total revenue for the March quarter related to such products. However, we continue to monitor the broader impact of patent expirations.

For the full year 2013, we expect revenue to be approximately $450 million to $470 million. We expect adjusted EBITDA to be approximately $75 million to $88 million and net loss to be approximately $1.5 million to $13 million or $0.03 to $0.26 per diluted share. Our adjusted EBITDA guidance reflects increasing investment over the balance of 2013 in the areas that David just discussed, as well as startup costs related to the new FEP contract.

We expect the weighted average basic and diluted share count for the year to be approximately $50 million. We expect capital expenditures for the year to be approximately $25 million.

Turning to the second quarter. For the second quarter of 2013, we expect revenue to be in excess of $115 million, adjusted EBITDA to be in excess of 18% of revenue and net loss to be approximately 1% of revenue. Our guidance does not include the impact, if any, of future deployment of capital for items such as share repurchases or acquisitions, gains or losses from discontinued operations, severance charges related to management change announced today or other nonrecurring onetime or unusual items.

Operator, at this time, we'll take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Sandy Draper from Raymond James.

Alexander Y. Draper - Raymond James & Associates, Inc., Research Division

My question is broader in nature. I wanted to get a sense -- as you're looking, it sounds like, and I'm not sure if this is for Marty or more for David, is to broadening your -- the services, maybe, beyond pharma. I mean, are you thinking more around the consumer lifestyle and that's a big opportunity, or is that more around the clinical data side and where once we get the EMRs out there, there's more data and operability, there's going to be a big opportunity to try to tie that -- the data between what patients are getting from devices, what doctors are getting in the EMRs, is it really split or is one of those, that clinical area versus the consumer area, is one of them more attractive to you?

David Schlanger

Thanks, Sandy. This is David. I'll take that question. I think those are all opportunities, but the opportunities are also -- if you look at things like the provider space more broadly, and when I talk about providers, I mean hospitals and their kind of affiliated physician groups. There's a lot happening in the provider space with respect to providers consolidating into large multi-specialty practices, the reimbursement scheme evolving from volume base reimbursement to outcomes and quality base reimbursement, and we really think that there are significant opportunities given our large audiences to work with provider organizations to help them attract new patients and justify some of the provider acquisitions that are being done, but also to help them retain their patients and, as they move to outcomes-based reimbursement, help them actually manage patients' health for all the time the patients are not actually within the providers' facility. So we think there's a lot of opportunities, but what I was referring to before was really some kind of the broader categories like the provider space.

Alexander Y. Draper - Raymond James & Associates, Inc., Research Division

That's helpful. So essentially, one of the things I certainly hear a lot is that doctors and hospitals look to whether it's a capitation ACO model that -- what their worry is, we can only control the patient when they're sitting in the office or in the hospital bed with us. We can't control those other costs, and they're worried about that. So you're looking at the potential for bringing your some services and the audience you have and bringing some new tools to basically help hospitals and doctors deal with patients when they may be outside of the office or outside of the hospital?

David Schlanger

That's exactly right.

Operator

Our next question comes from Jordan Monahan from Morgan Stanley.

Jordan Monahan - Morgan Stanley, Research Division

Actually 2 quick questions, if I can. The first one is that there are a number of startups that have identified fairly large opportunities to either disrupt or modernize the health care and medical space, whether it's information or communications. And I'm just wondering what areas do you see that are right for innovation, and is there anything that you can do to address those? And then the second question is just around consumer pricing. And I'm wondering if you're able to offer a little bit more color in terms of what you're seeing there.

David Schlanger

You want to take the pricing question, Pete?

Peter Anevski

This is Pete. I'll take the pricing question. As we talked about on our last call, we did a bunch of things to pricing. We not only adjusted our pricing structure in our rate core, we also did look at certain areas and addressed pricing. Right now, we feel we're in a great position competitively. That's what we're hearing back from our sales force. And so I think we're in a good position in the marketplace relative to where we're at.

David Schlanger

I can take the first part of the question. There's a lot of innovation, obviously, going on in the health space, and a lot of it's -- some of it's through startups, some of it's through more substantial companies. We're in discussions with a lot of these companies and talking to them about potential partnerships or more substantial relationships so that we can actually tap into some of the innovation that's going on out in the marketplace and not be completely reliant upon our own internal efforts.

Operator

Our next question comes from Steve Rubis from Stifel.

Steve Rubis - Stifel, Nicolaus & Co., Inc., Research Division

Your structural changes to pricing have obviously had a positive impact. I have a couple of questions. First, I'd like to start with the elephant in the room, and could you provide us some more details on why Cavan has left? You've spent some time trying to help us feel more comfortable that the vision that he laid out is kind of intact, and so we're just kind of -- I think investors are puzzled as to why his departure is now? So any details you can provide would be great, and I have a couple of follow-ups.

Martin J. Wygod

Hi, this is Marty. I assume I'm the elephant in the room. Anyway, I can't give you much more color on that other than tell you that the momentum will continue here. Most of the changes that were put in place in the first quarter of last year are primarily responsible for the momentum we're seeing, as well as clients that we lost a year ago that has come back and decided that they weren't getting what they thought they were getting by buying, let's say, cheaper inventory out there in the marketplace. So I think a combination of those things are currently taking place. I'm sorry, I can't give you any additional color in relation to Cavan's leaving. And as I said before, we wish him the best of luck.

Steve Rubis - Stifel, Nicolaus & Co., Inc., Research Division

Okay. A couple of follow-ups. You've talked about kind of this innovation partnerships. You announced the Qualcomm Life venture earlier this quarter. Can we assume that you're going to be going in that same direction? And can you give us a sense -- we've seen some articles and interviews that have suggested that you're going to focus more on therapeutic areas versus lifestyle areas, is that correct or has that changed? And then lastly, should we be viewing your dialogue as the company is up for sale? Anything you can give us would be great.

Martin J. Wygod

Sure. We'll be focusing on therapeutic, as well as lifestyle changes. We're in discussions; a number of companies have approached us. We've met with quite a few of them. They all want to tie into the reach we have on the patients side and the loyalty we have, as well as the unique position we have in the professional space. So we'll be making decisions probably over the next 60 days, 90 days in relation to which of these we will be partnering with and exactly what form those partnerships will take. And we'll ignore your last question.

Steve Rubis - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then, finally. The numbers are very strong. You're -- again, like I said earlier, you're seeing the impact of the changes you've made. Can you give us anything to point to, anything to give us a sense that the second half is going to be strong? I know you have limited visibility, but are there any indications that -- therapeutic indications you're looking at in terms of, say, new drug launches or areas that you're looking that you think will provide you guys catalysts to continue the strength into the back half of the year?

Martin J. Wygod

We're already starting to see some important contracts for -- that will start in early 2014 which we have not seen before. Every indication currently is that we will continue this existing trends and we should have a firm second half of the year.

Operator

Our next question comes from Kevin Kopelman from Cowen & Company.

Andrew Marok

This is Andrew Marok on for Kevin. I just had a couple of questions regarding your traffic metrics. I'm just wondering if you could quantify how much that the Google algorithm change had affected your page view growth in the quarter. And then I have a follow-up after that.

Peter Anevski

It's difficult to completely tease that out, but as one indicator, if you look at Q4, our Q4 growth was 20% in overall traffic; Q1 was 10% in terms of page views. And so that's one way to look at potentially the impact of the Google algorithm.

Andrew Marok

Okay. And then on the mobile traffic. So 34% of page views are coming from a U.S. mobile device. Do you have any sort of breakout smartphone versus tablet, mobile web versus mobile app?

Peter Anevski

Yes, so the breakout I'll give you is -- because we look at the tablet versus the smartphone separately because of the form factor. The tablet is 20% of that volume of the total mobile volume.

Operator

And our next question comes from Heath Terry from Goldman Sachs.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Could you give us a sense of what desktop page view growth has looked like relative to mobile? If there's a significant enough difference before or after the Google change, that would certainly be a distinction that we'd appreciate. And then as you look at monetizing mobile, clearly we've seen and you're certainly aware that the lack of any real pharma advertising within your mobile devices. What's the roadmap look like either from a regulatory or advertiser adoption standpoint for beginning to monetize that inventory?

Peter Anevski

This is Pete. I'll take the traffic question first. Relative to desktop -- U.S. desktop traffic, right now, the U.S. desktop traffic is down 19% in the first quarter. That's offset by the tablet growth that we're seeing, again. In terms of monetization, and David will expand on it. We are monetizing tablet much more than the smartphone, and so we do look at that separately.

Anthony Vuolo

I just want to add one thing for the traffic thing. Although certainly, the impact of the Google algorithm changes impacted our page view growth, when you start to look at U.S. desktop across the web, you're seeing a migration from desktop to mobile. That's not unique to us. You go back and look at comScore year-over-year, you're starting to see U.S. desktop page views actually decline year-over-year across the web and as mobile increases.

David Schlanger

So just briefly with respect to monetization. So we've been very successful in launching new mobile audiences, new mobile offerings and building our audiences. We're now aggressively promoting to advertisers multiscreen solutions to get them to commit to advertising programs across all of our device offerings and to encourage them to actually include mobile as one of their marketing tactics. At the same time, we're going to continue to deploy new mobile offerings that we can -- that we believe can also attract new large audiences. And some of the new mobile offerings we're considering also are going to open up monetization opportunities beyond just the standard mobile display advertising. And you are correct with respect to some regulatory issues with pharma on mobile devices, but there are significant CPG opportunities. And again with respect to tablet traffic, which is not insignificant and is our fastest-growing segment of mobile traffic, we are successfully monetizing that across our advertiser base.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Okay. And just to give a sense where you are limited to CPG advertising within mobile from a regulatory standpoint, what's the typical ratio or typical delta between a CPG ad and pharma for you?

Peter Anevski

We don't break that out.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

I mean, even just roughly?

Anthony Vuolo

It's more a factor of the audience profile you're trying to reach. We charge CPG clients the same as we charge pharma clients when they're trying to reach the same level of targeted audience. That's -- for most CPG products, the audience criteria tends to be broader and therefore, the pricing can be less. But that's dependent on the audience profile, not a price performer versus CPG.

Operator

Our next question comes from Scott Kessler from S&P.

Scott H. Kessler - S&P Equity Research

First, David, I wondering if you could expound a bit on your comments related to external transactions that leverage your brands and audiences in a way that will accelerate your entry to new markets and differentiate you from other players. It sounds like -- there was also some discussion not only on this call, but prior calls related to M&A, and I'm trying to connect the dots here, but you guys really haven't been particularly active in terms of transactions on the M&A front over the last, I don't know, 2 to 3 years. So I'm wondering if you can maybe talk a little bit more following onto what you had said earlier. And I have a follow-up.

Martin J. Wygod

I think we've given all the color we can right now, other than to tell you we are in active discussions from a partnering and acquisition perspective at this point.

Scott H. Kessler - S&P Equity Research

Okay. So the comments were related to partnerships, as well as M&A, is that reasonable to assume?

Martin J. Wygod

That's correct. Some would be partnerships and some would be M&A.

Scott H. Kessler - S&P Equity Research

Okay, fair enough. My second question is on the private portal front, which, I guess, we haven't really discussed so much on this call, notwithstanding the news about the Federal Blue Cross and Blue Shield contract that you disclosed. You mentioned, I think, 5 million members and a January launch, correct me if I'm wrong. And I'm wondering maybe if you could provide a little bit more detail on the nature of that contract and how it relates to your broader base of users, for example, what kind of percentage is that going to be of your total members covered, what's the term of the contract going to be, and how does that compare with other contracts you have that are similar?

Martin J. Wygod

We don't have any contracts similar to this. This is substantially larger than anything we've received in the past. We'll be spending a substantial amount of money in the balance of the year in preparing for that, as well as other contracts that may be beginning January 1, 2014. What was the other part of your question?

Scott H. Kessler - S&P Equity Research

The number of members. I'm just talking about...

Martin J. Wygod

It's net-net 5 million initially covering a number of different services. We'll put out a detailed release tomorrow morning on the FEP contract to the degree that we're allowed to with the confidentiality we have with the Blue Cross Association.

Operator

Our next question comes from Sandy Draper from Raymond James.

Alexander Y. Draper - Raymond James & Associates, Inc., Research Division

A question on the financials. I'm trying to understand where you are in terms of the cost savings. If I recall correctly, you talked about in the -- by late fourth quarter, early fourth quarter you would have 75% of the cost savings. So I'm trying to think about, with the expenses we saw now in the first quarter, one, you've got maybe some more cuts that you can make, but then it sounds like you're also investing some more money. I'm just trying to understand where we are in that, and if there are any changes to either getting more or less, or if you're going to reinvest faster. The same thoughts on the expense side will be really helpful.

Peter Anevski

This is Pete. You're correct. When we talked about the restructuring, we talked about annualized savings of roughly $45 million. If you look at simply expenses in Q4 versus expenses in Q1 and annualize that differential, it's roughly that amount. Our guidance for the year contemplates -- when we put that number out, obviously our guidance was different. We've raised guidance, so there's additional costs regarding delivering that additional revenue, plus we have the FEP contract, plus we have other business, as Marty referenced before, that we're anticipating. So overall, our guidance contemplates all of that, including the additional investments that David had mentioned for the balance of the year.

Operator

[Operator Instructions] Our next question comes from Steve Rubis from Stifel.

Steve Rubis - Stifel, Nicolaus & Co., Inc., Research Division

I guess, my question is, what has changed in terms of your outlook that all of a sudden is making you interested in partnering or even acquiring things? We've seen some interesting technologies and interesting companies be gobbled up, that are pretty small but it would have been easy tuck-ins for you guys given the amount of cash you have in your balance sheet. So any color you could give would be great.

Martin J. Wygod

There's not that much color really to that, other than the fact, we see the timing being appropriate now. We have the right dialogue with a number of different companies, and we see the ability to execute on this. And the combination of the skill sets they have and the reach we have on the professional and consumer side will now be combined entities for the joint partnership to really leapfrog, we believe, the rest of the industry here on the new services and direction that's being taken on the provider side and on the payer side.

Operator

And I'm showing no further questions at this time. As a reminder, if necessary, there's a replay available of this call, which can be accessed toll-free at (855) 859-2056, or if you're calling from outside the U.S. at (404) 537-3406. The passcode is 42174737. There's also a webcast replay available on www.wbmd.com. Thank you for joining us today.

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