WebMD Health Corp. (NASDAQ:WBMD)
Q2 2009 Earnings Call Transcript
July 30, 2009; 4:45 pm ET
Marty Wygod - Chairman of WebMD, Chairman & Acting Chief Executive Officer of HLTH Corporation
Mark Funston - Chief Financial Officer of HLTH & WebMD
Wayne Gattinella - Chief Executive Officer & President
Tony Vuolo - Chief Operating Officer
Risa Fisher - Vice President of Investor Relations
Mark Mahaney - Citigroup
James Mitchell - Goldman Sachs
Corey Tobin - William Blair & Company
Mark May - Needham
Robert Coolbrith - ThinkEquity
Good afternoon and welcome to HLTH Corporation and WebMD’s Health Corporation June 2009 quarterly conference call. Today’s call is being recorded. I would now like to turn the call over to Risa Fisher, Vice President of Investor Relations. Please go ahead.
Good afternoon. This is a joint conference call to discuss HLTH and WebMD’s second 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 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 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, and Chairman and Acting CEO of HLTH Corp.
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.
Before we discuss the results of WebMD, I’d like to cover the status of the pending merger between HLTH and WebMD. As previously announced, HLTH and WebMD entered into a definitive merger agreement on June 17, 2009. In this transaction, HLTH will merge into WebMD on a tax free post stock transaction.
On July 10, 2009, WebMD filed a Registration Statement with the SEC containing a preliminary joint proxy statement prospective relating to the merger. We have received initial comments from the SEC and believe that we’re on track to seek the required stockholder approvals at the HLTH and WebMD stockholder meetings on September 25, 2009.
Turning to WebMD, I am pleased with WebMD’s results this quarter. At a time when many Internet and media companies are continuing to see declines in advertising revenues, we’re experiencing strong growth. I expect the second half of the year to have continued strong revenue growth with significant margin expansion. Advertiser demand for our high quality and highly engaged audience is increasing.
The complexity and size of the potential contracts in our pipeline of consumer and physician programs continues to increase. The strength of the WebMD brand, the size and quality of our audience, the sophisticated set of services we offer our advertisers and our technology platform and expertise clearly differentiate us from others in the marketplace and provide a solid foundation for growth.
We believe that over the next few years, we’re very well positioned to capture the opportunities that will likely arise as the federal government and the healthcare industry place much greater emphasis on prevention and wellness. With a significant reach in trust that we have with the nation’s physicians and consumers, as well as with our private portal decision support applications and data assets.
We have the information and tools to encourage healthy lifestyle decisions that can reduce the incidents and costs associated with preventable diseases and conditions. Very small reductions in preventable diseases like Type 2 Diabetes or High Blood Pressure take out billions of dollars in healthcare costs.
WebMD can be an integral part of the solution to make savings like this very possible. I’d like first to turn us over to Mark Funston and then Wayne Gattinella to review the second quarter financial and operating results, respectfully and then, we will take questions at the end.
Thank you very much. Mark.
Thank you, Marty. Please note that, as previously announced, the Little Blue Book business is reflected as discontinued operations in WebMD’s and HLTH’s financial statements in the current and prior year periods. WebMD is currently in the process of divesting the Little Blue Book business.
HLTH and WebMD filed form 8-K’s on July 2, which include audited financial statements that reflect the Little Blue Book business as discontinued operations for all periods covered in their most recent form 10-K. HLTH’s results also continue to present the ViPS and Porex businesses as discontinued operations in the current and prior year periods, reflecting the sale of ViPS in July 2008 and the ongoing process to divest Porex.
I will now review WebMD’s second quarter results. WebMD revenue for the June 2009 quarter was $98.6 million compared to $86 million last year, an increase of 15%. To breakdown the 15% revenue increase for you, public portal advertising and sponsorship revenue, which represent 77% of total revenue, increased 18% to $76 million. Private portal services revenue, which represents 23% of total revenue, increased 4% to $22.6 million.
Public portals advertising and sponsorship revenue now includes print, which is predominantly advertising in WebMD, the magazine and content syndication and other revenue as the total of these other revenues are not significant to current or prior year periods.
Private portal services revenue was previously referred to as licensing revenue. WebMD’s adjusted EBITDA for the June 2009 quarter was $23.2 million or $0.40 per share compared to $18.4 million or $0.31 per share last year, an increase of 26%.
Adjusted EBITDA margin of 23.5% for the second quarter of 2009 was approximately 200 basis points higher than last year. The adjusted EBITDA margin on incremental revenue was 38% for the June 2009 quarter compared to last year. Our effective tax rate in the June 2009 quarter was approximately 40%.
Non-cash stock compensation expense was $5.8 million compared to $3.5 million last year. The increase reflects a broad based equity grant made by WebMD in the fourth quarter of 2008. Income from continuing operations was $7 million or $0.12 per share for the second quarter compared to $5.7 million or $0.10 per share last year.
The loss from discontinued operations includes a non-cash after-tax charge of $5 million to reflect the impairment and caring value of our Little Blue Book business. Net income was $2.1 million or $0.04 per share for the second quarter compared to $6.4 million or $0.11 per share last year. WebMD’s weighted average diluted share count using computing first share amounts for the June 2009 quarter was 58.6 million shares.
Operating cash flow from continued operations was $46.5 million for the June 2009 quarter. As we have stated on prior calls, quarterly operating cash flows can be impacted by the timing of the cut-off 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 $5.5 million for the June 2009 quarter. WebMD had $373 million in cash and investments at June 30, 2009, including student loan-backed auction rate securities or ARS with a fair value of $126.3 million. These ARS have a face amount of $163.9 million.
Turning now to HLTH’s consolidated financial results. HLTH’s consolidated revenue for the June 2009 quarter was $98.6 million compared to $86 million in the prior year, an increase of 15%. Adjusted EBITDA was $20 million in the June 2009 quarter compared to $12.8 million in the prior year, an increase of 56%.
In addition to the adjusted EBITDA from WebMD, adjusted EBITDA on a consolidated basis also includes HLTH’s corporate expense, which for the June 2009 quarter, was $3.2 million compared to $5.6 million a year ago. HLTH’s consolidated interest income for the quarter was $2 million compared with $8.1 million in the prior year, reflecting lower cash balances invested at lower interest rates.
HLTH’s consolidated interest expense declined to $5.8 million from $6.6 million in the prior year due to the repurchase of notes. Interest expense includes non-cash expense of $2.5 million and $2.7 million in the current and prior year periods, respectively. As discussed last quarter, this non-cash interest expense reflects the required adoption of ATB14-1, which was applicable to our 380% convertible notes.
During the quarter, HLTH purchased $8.9 million face amount of its 1.75% convertible notes and $31.7 million face amount of its 380 convertible notes. The aggregate cash used for these purchases was $37.2 million. We recorded an aggregate gain of $3.5 million related to these purchases during the quarter, which is presented as a separate line item on the P&L.
HLTH’s income from continuing operations for the second quarter was $700,000 or $0.01 per share as compared to loss from continued operations of $1.6 million for a loss of $0.01 per share in the prior year period. HLTH’s loss from discontinued operations was $12.4 million or $0.12 per share as compared to a loss of $3.2 million or $0.02 per share in the prior year period.
HLTH’s net loss was $11.7 million or $0.11 per share as compared to a loss of $4.8 million or $0.03 per share in the prior year period. Loss from discontinued operations and net loss for the June quarter includes an after tax expense of approximately $11 million, reflecting an increase in the estimate of HLTH’s indemnification obligation for the defense cost of the eight former officers and directors of Emdeon practice services.
A former subsidiary of HLTH, which was divested in 2006, partially offset by proceeds from the settlement with one of our insurance carriers related to this matter. Also included in the loss for discontinued operations and net loss are the results of operations of Porex and Little Blue Book and a non-cash after tax charge of $5 million to reflect impairment and carrying values of WebMD’s Little Blue Book business, as previously discussed.
At June 30, 2009, HLTH had approximately $828 million in cash and investments of which $373 million is attributable to WebMD. These amounts include the fair value of investments in ARS, totaling $270.7 million of which $126.3 million is attributable to WebMD. The face amount of these ARS is $353.9 million of which $163.9 million is attributable to WebMD.
As previously disclosed, HLTH and WebMD have standby lines of credit with Citigroup. These lines of credit allow HLTH and WebMD to borrow up to 75% of the face amount of their respective ARS holdings until April 2010 with recourse only to the ARS holdings pledged as collateral. To date, no borrowings by HLTH or WebMD have been made under these facilities. HLTH’s weighted average share count used in computing per share amounts for the June 2009 quarter was 105.7 million shares.
Turning to financial guidance, WebMD reaffirmed its financial guidance for 2009 today and narrowed the ranges for its anticipated revenue and adjusted EBITDA by raising the low end of those ranges. For 2009, WebMD expects total revenue to be $420 million to $440 million, an increase of 12% to 18% over 2008.
Adjusted EBITDA to be $120 million, an increase of 17% to 28% over 2008 and income from continuing operations to be approximately $31 million to $41 million or $0.51 to $0.66 per share an increase of 21% to 58%. The annual guidance does not include the impact of a pending merger with HLTH. For the quarter ending September 30, 2009, WebMD expects revenue to be in the range of $109 million to $112 million with adjusted EBITDA representing approximately 28% of revenue.
These amounts represent anticipated growth of approximately 18% to 19% in public portal advertising and sponsorship revenue and 4% in private portal services revenue. Income from continuing operations is estimated to be 10% of revenue for the third quarter of 2009. Schedule summarizing WebMD’s and HLTH’s financial guidance, as well as reconciliations between GAAP and non-GAAP financial measures, are attached to the respective press releases issued earlier today.
I’d now like to turn it over to Wayne to discuss WebMD’s operating results in more detail.
Thanks Mark. We’re all very pleased, once again, to deliver strong results this quarter. As you heard, WebMD’s advertising revenues grew by 18% as we see continuing demand from both our pharmaceutical as well as consumer product companies in the health and wellness markets.
Our network traffic from both consumers and physicians also continue to expand significantly this quarter as traffic to the WebMD Health Network averaged 59.8 million unique users per month, which is an increase of 24% versus the same period a year ago and page views during the quarter grew by 31% to 1.4 billion pages.
Our traffic acquisition costs this quarter were again near zero as our online user base continues to grow organically on sites that are wholly-owned and operated by WebMD, where WebMD is in full control over the quality of the programming and over the pricing of our inventory. We continue to optimize our traffic through new technology and improved site design.
In June, we launched a new consumer home page, as well as an enhanced search results page on WebMD.com aimed at increasing our user engagement and optimizing the commercial yield on our site. Early results are already showing success on both fronts. We also launched two major sponsors for our new WebMD TV products at WebMD.com.
WebMD Healthy Skin TV, sponsored by L’Oreal, incorporates our new digital platform that integrates personalization, video and mobile messaging to create a high impact branded educational program in the area of skin care. WebMD Bipolar TV that’s sponsored by AstraZeneca also provides expert meditation education and community in the area of bipolar disorder.
Our professional network with Medscape.com as the flagship site continues to be the largest website and leading source of medical information for physicians. Our reach exceeded 1.5 million monthly physician visits during the quarter and to further extend our online reach to physicians, we expanded our network advertising partnership with Yahoo this quarter in order to be able to reach Medscape’s physicians across Yahoo’s properties and services.
WebMD will fully represent Yahoo’s inventory to advertisers wanting to reach the highly valuable Medscape physician audience. We will deliver the physician user with more timely and relevant marketing messages, when he or she is on a Yahoo property.
Online medical education on our professional sites reached 1.6 million completed programs during the quarter, which is a growth rate of 25% versus a year ago, as the internet continues to replace the traditional sources of medical education. Recently released industry data from the ACCME organization reaffirms Medscape’s leadership in the market for providing online continuing medical education to healthcare professionals.
According to the ACCME data for the full year 2008, Medscape’s share of all physician accredited education programs, both online and offline, went from 19% of all physicians CME to 26% of all CME between 2007 and 2008, and our Medscape share of online physician accredited education programs reached 62% of all online programs delivered in 2008.
Physician Connect, which is Medscape’s professional community applications, has enabled physicians to securely engage with each other online also continue to grow strongly as we now have over 116,000 physicians participating online.
In June, we hosted our 11 Annual WebMD Health Forum here in New York City, and by all measures, it was our most successful to-date. This invitation only event brings together marketing leaders from the leading biopharma and medical device companies in order to discuss the most significant trends in the marketplace and the new business strategies that are emerging.
It also provides an opportunity for WebMD to showcase the value of our newest services at a time when biopharma customers are building their strategic plans for the coming year. We had record attendance at this year’s events, both in number, as well as seniority of the attendees. I can tell you that the sentiment of the meeting was that the industry is looking to more aggressively integrate online strategies into their core marketing mix as each of them actively seek to build new commercial models for the future.
To give you a quick update on our early initiatives in the international mobile space. First, on the international front through our relationship with Med Center, we now reach over 153,000 physicians in Latin America, Mexico and Spain, and we are just now beginning to monetize net audience for the future.
In March, we announced the long term strategic relationship with Boots UK, the leading pharmacy in healthy and beauty retailer in the United Kingdom, to jointly launch a major new consumer health portal for the UK. This new offering will leverage WebMD’s online consumer health assets and expertise with Boots strong consumer marketing presence in the UK. The development work is going extremely well and we are on track to launch this new consumer health and wellness portal later this year.
On the mobile front, earlier this month, we launched Medscape Mobile. It’s our first mobile application for physicians. Medscape Mobile provides the most comprehensive drug information clinical reference tools, medical news and continuing medical education on a mobile device.
Launched initially for the iPhone and iPod Touch, it’s the only medical application to deliver specialty-specific news and medical education that leverages our assets from Medscape’s award-winning professional editorial team. I’m really pleased to tell you that after just two weeks, Medscape Mobile has already become the number one most downloaded medical application on Apple’s App Store.
New development is underway to launch new product enhancements, as well as additional mobile platforms for Medscape Mobile, including the BlackBerry later this year. Our consumer iPhone app that launched last November is also yielding fast growth with now over 750,000 download. We see the mobile market as an important opportunity for future growth as we leverage the strength of whether these brand across multiple consumer and physician platforms.
Turning now to our private portals market. At the end of the second quarter, our installed base of companies licensing the WebMD private portal platform totaled 137 organizations. That compares to 123 a year ago. We also have approximately 140 additional customers who purchased our standalone health physician support services.
We’ve been successful in up selling many of our newer services, such as coaching, into our installed base, as well as converting customers from a standalone product solution to our fully integrated platform offering, such as we just accomplished with Blue Cross Blue Shield of Florida this quarter.
As we discussed previously, our 2009 guidance reflects the fact that the growth in new customers for our private portal services will probably be offset by the downsizing or in some cases the loss of current employer customers whose businesses themselves have been severely impacted by the economy, notably those in the financial services and automotive industries.
While the economic environment is impacting the growth of our private portals business in the short term, this does not in anyway change our long term view of the opportunity in the employer, payer and government markets. Organizations clearly recognize the value that personalized HLTH information can play in better managing the HLTH and costs of care for their employees and planned members.
WebMD’s Health and benefits platform services, including our personal health record and preventive care services, are proven ways to improve health outcomes and make healthcare more accessible, as well as more affordable. So, in summary, our second quarter results continue to demonstrate the strong momentum in the face of a challenging environment.
We still have a very large and under penetrated opportunity in front of us. We believe we are well positioned to benefit from the changes that are occurring throughout this marketplace. The strength of our brand and the unique high quality of our consumer and professional audience are important differentiators over any other media property.
Demand for our brand to highly engaged users is increasing at the expense of other forms of media. Our investments in our technology platform are clearly paying off because, in addition to the operational efficiencies and cost savings, the speed of innovation that we can deliver is far greater today than anytime in the company’s past.
I’m really enthusiastic about the momentum we see in our business and we will continue to invest in this franchise, in our infrastructure and in our people to further accelerate our success in the quarters ahead.
Operator, at this time, we’d like to open it up for questions.
Thank you, sir. (Operator Instructions) Our first question comes from Mark Mahaney from Citigroup. Please go ahead.
Mark Mahaney – Citigroup
Great. Thank you. I wanted to ask a question about some of the impact on your business on customer demand from some of the regulatory changes that have impacted pharmaceutical or health-related advertising, particularly the ISI requirements over the last couple of months. Has that had a material impact in terms of pushing people to advertise more with WebMD? Thank you.
Yes, Mark. The requirement that advertiser’s pharmaceutical advertisers include the risks within their search advertising and causing them really to pretty much eliminate branded search promotions. We believe it’s helping our business, if I look at our consumer business overall showing healthy growth, we’re seeing major pharma brands beginning to shift dollars from many other venues both offline and online to our properties. We are beginning to really penetrate some of the larger brands at a level that we haven’t seen before.
We think we have a very strong pipeline in several strategic pharma brands that are building for the future. In terms of the new requirement to provide more information regarding patient safety information, we quickly responded to that need by reengineering all of our display advertising in a way that could support this greater disclosure, both in display ads, as well as even in our sponsored video promotion.
So we think overall we’re benefiting certainly from the speed of change to the new requirements and to the extent that it’s eliminated the availability of other channels. We do believe we’re benefiting from that as well.
Thank you. Our next question comes from James Mitchell from Goldman Sachs. Please go ahead.
James Mitchell - Goldman Sachs
Great, thank you. This is James Mitchell calling on behalf of Jennifer Watson. A couple of questions; one is, could you breakout the contribution to revenue in the quarter from the WebMD Magazine publishing business?
We don’t separately breakout publishing. As I said, it’s a de minimis part of our revenue. So it’s predominantly the advertising from our magazine, and we’ve just consolidated that because it’s so little into the single line item.
Yes, I mean, I would just say that the magazine originally was launched as a branding effort. It’s distributed bimonthly to 85% of the doctor’s offices around the country at no charge and it was really meant to really extend the brand at a very important time when people are waiting to see the doctor, and it is supported by advertising. As Mark said, the overall revenue is relatively insignificant, it is a profitable operation and, again we see it as a strong part of our branding overall.
James Mitchell - Goldman Sachs
Okay and it looks like your HLTH fee growth accelerated a little bit, thus the prior quarter. Did inquiries about swine flu contribute material to that or it’s more normal ongoing business?
This is Tony Vuolo. Certainly, the swine flu did contribute somewhat to traffic, but it certainly wasn’t the largest reason for the increase.
James Mitchell - Goldman Sachs
Our next question comes from Corey Tobin from William Blair & Company. Please go ahead.
Corey Tobin - William Blair & Company
Hi, good afternoon. I want to talk for a couple minutes about the CME business. It’s been a very strong source of growth here for a number of quarters. I’m just curious; can you give us a feeling for how fast the online CME market is growing, not necessarily your business, but the overall market?
Then, in conjunction with that, how much more share do you think you can take? I mean, you’re at 60% or so today. Is there a chance that you see this go to 70%, 80% or do you have a feeling exactly, how much faster you can continue to grow in that space?
Okay. So let’s break it down a little bit. This is the data that’s reported by these ACCME organizations. They’ve report the prior year’s data in June. So the 2008 data is very recent, if you will or just recently came out. Today, we’re at 62% of all online CME and 26% of all CME. The fact is that most of the growth coming out of CME today is coming through the online channels, so though it has been growing overall to some extent from physician users.
Our share of online has remained relatively confident, about 60%, 65% as there are still other venues for physicians to get CME online. There is all of the medical societies, their medical institutions, the AMA, academic institutions. I mean there’s sort of a long tail of places physicians can get CME. We’re clearly the largest single one, but that long tail won’t go away, that will continue. So we’re happy to have the majority of the share in the part of the CME market that is growing the fastest.
I should add that more than half of our CME is actually not commercially sponsored. We see medical education as a very important part of the user experience, what brings physicians to Medscape, what distinguishes Medscape from other sites or sources of information and it becomes a really important driver of continued traffic.
So, as we look at that market overall, we continue to look at CME as an important user experience and then obviously, it’s also a revenue generator to the extent that we also provide commercially supported CME as well. We try to maintain a balance that maintains the integrity of the site and ensures that clinical information that is needed by doctors, whether it’s being sponsored or not, is delivered.
Corey Tobin - William Blair & Company
I think you just answered my next question, which was the percentage of the CME that is revenue generated, did you say it’s over 50%?
No, commercially supported CME is less than half of our overall CME programs.
Our next question comes from Mark May from Needham. Please go ahead.
Mark May – Needham
Okay. Couple questions here any thoughts on calendar 2010? Do you think you can grow the ad business in strong double-digits given the pipeline of campaign activity that you’re seeing? I’m sure it’s a little early on, but just get your sense of what you think ad growth can be over the next 12 months.
In terms of margins, I think you’re exiting this year the second half at very high 20%, even approaching 30%, EBITDA margin. Do you think that you guys can do 30% or more EBITDA margins in 2010 and I had one follow up please.
I’ll start, Mark. Marty, if you want to add some color, please. Certainly, we have not put guidance out yet for 2010, so it’s premature for us to put hard numbers out there other than to say that we see continuing momentum in the business that we have.
We feel that our pipeline today is as strong if not stronger than it’s ever been. We see the commitments that many of the large brands are making for the balance of this year and planning for 2010 to be at levels that we haven’t seen before.
As I commented in our annual client HLTH forum, sort of the tenor of that meeting and the intensity of the discussions as people are planning for 2010 having done this now for nine years myself, was stronger than I’ve seen in any prior year.
So, I can only tell you that we feel good about all of the signs that we see, but at this point, I think it would just be premature to try to forecast or project those numbers yet.
Mark May – Needham
What about on the margin front? Anything that’s unusual in the second half of this year, suggest that we shouldn’t think of that as a base level going into 2010?
Well, there is seasonality in our revenues with our third and fourth quarters are always our highest revenue growth quarters and therefore, also, our highest margin quarters and so, you really can’t look at just an exit rate from our highest margin quarter and extrapolate that into next year. If you look at our history, you’ll see seasonality in that, but you’ll definitely see growth next year on that same kind of time line.
Yes, just follow up on that, having said that. If you look at the full year 2009 guidance compared to 2008, I think you’ll see strong margin expansion overall for the year and we’ve certainly contemplated that that will continue into next year.
Mark May – Needham
Then my follow up had to do with the merger. How does the merger change the WebMD business and/or the financial profile of the company? Are there any costs that can be removed? Does it enable you to do anything that you can’t effectively do today?
I think it brings in some capabilities in relation to some of the people that would be being combined with WebMD that gives us the traditional strength of management to grow the companies to the next level. I think that obviously it’s going to bring additional capital to the equation and we are reducing the expenditures at both so that it’s going to bring on a very minimum amount of additional overhead into the combined WebMD Health and getting back to your prior question, every indication.
As we said earlier in the presentation, in relation to the size of the contracts with each of our manufacturers and the how we’ve come ingrained in their strategy going forward for the next two years, and the new products that Wayne is introducing, which all have the same or higher margins attached to them, give us every indication that this growth is going to continue and the margins are going to probably increase somewhat.
We just happen to be in the perfect position at this time with what’s happening with healthcare. We have all of the right assets. We’re moving very aggressively. There are really no viable competitors on the horizon. As healthcare becomes totally mainstream here and whole area as we’ve said of prevention finally coming into the mainstream, we’re in the perfect position to capitalize off of this in the next two years.
Thank you. Our next question comes from Robert Coolbrith from ThinkEquity. Please go ahead.
Robert Coolbrith - ThinkEquity
Good afternoon. This is actually Rob on the call for Bill. Quick question relating to, what might happen beyond the two year timeframe. Beginning to get some hints that there are waves of patent expirations approaching in 2011.
How are you beginning to think about it? How that could impact the business in the out years and just a matter of getting share in the intervening period of budgets and that offsetting of potential impact from some of the high profile patent expirations? Thank you.
Yes. I mean, based on our experience over the last seven or eight years with large products that do go off patent, what we have seen is that the remaining branded products in the same class tend to step up and start filling the gap that potentially the leader used to fill. So, you see by definition the number two brand of product become the number one brand and their patent life oftentimes continues for several more years or more and I would expect that to continue.
I mean, starting with the fact that we’re still a very, very small piece of the overall pharma spend, even as those products potentially go away. Some get replaced, some may not. There’s still an enormous amount of spend in the market of $18 billion to $20 billion a year just in the U.S. alone that even the elimination of some of the blockbuster products that maybe on the docket over the next 12, 24, or even 36 month periods should not be of an consequence, if you will to us.
Those blockbuster products are not that meaningful to our revenues at this point.
Robert Coolbrith - ThinkEquity
Okay. Thank you very much.
Thank you. We do have a follow-up question from Corey Tobin. Please go ahead.
Corey Tobin - William Blair & Co.
One quick one, if I could on reform. Based on what you’ve heard so far regarding the proposed healthcare reform agendas that are out there. Can you just give us a quick snapshot of what you see is the biggest opportunity that could be created for the company and then also at the same time the biggest risks that might emerge? Thanks.
The opportunities, I think fall into two significant areas. One is in the area of health information technology. The other is in the area of education around health and wellness. The technology funding that’s being put into the market that will accelerate the adoption of the electronic medical reports at the physician’s point of care, will absolutely make our personal health record more valuable, because today as much as it does for the user on their own machine.
It still is not electronically connected to the provider network at large because there’s no single highway to be able to do that. So as over the next couple of years, adoption of a common standard and just adoption of the electronic medical record overall accelerates. We see that as giving us newfound services and capabilities that will make our products much more valuable.
In the area of education, health and wellness, which is the next I think, large area that the President’s going to be focused on, as he smartly identified prevention as probably the most opportunistic way to reduce long term healthcare cost. That plays right in our suite spot. We are the recognized brand. We’re the brand that even the FDA recently partnered with recognizing that more people come to WebMD looking for FDA warning information than go to fda.gov.
Together with our experience in health and wellness programs and alike, our reach, our brand, etc., raising the awareness, the educational standards and, potentially, the government sponsored and supported programs. We intend to be a major part of those efforts. At this point, we don’t based on our business model, we don’t really see downsides in the discussions currently taking place.
Our models not really predicated on any sort of major payer supported activity that may, in fact, be changing by design. It may actually introduce new kinds of customers that today don’t exist for us, as things like health exchanges and the like pop up in the market, but it’s still too premature to really try to define that yet.
Corey Tobin - William Blair & Co.
Nothing with respect to any changes in the healthcare system that might affect some of your customers that might pose a risk to you?
Unless you believe that they’re going to go away completely, I guess you could that scenario, but I don’t personally believe that’s the scenario you’re going to see. So, to the extent that we support health plan carriers as part of our private portal customer base, they maybe competing differently or they may have to compete with a different set of services, but they’re still going to be competing as far as I can see.
Corey Tobin - William Blair & Co.
Sounds good, thank you.
Thank you. (Operator Instructions) One moment for questions, we do have a question from [Inaudible]. Please go ahead.
The pro forma or the combined NOL that you’ll have and do you expect to be able to fully utilize it or will some of it get sort of wiped out in the merger or will some of it expire too soon to be able to capitalize on it?
No, we think the growth in our EBITDA is going to be more than enough to totally capitalize on it. I think the entire amount of the combined federal NOL that we have will be utilized perhaps to a less degree on some state levels, but that’s one of the advantages of the transaction is total utilization of the NOL.
I didn’t catch the number, I apologize.
I don’t think I threw it out there. Mark, what is the total number of the combined NOL?
Approximately $800 million.
Great. Thank you.
Thank you. (Operator Instructions) It appears to be no further questions. As a reminder, if necessary there is a replay available for 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 1379043. There is also the webcast replay available on HLTH Corporation and WebMD’s website as well. Thank you for joining us today. Attendees, you may now all disconnect.
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