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Executives

Risa Fisher – Vice President of Investor Relations

Martin Wygod – Chairman of the Board

Wayne Gattinella – Chief Executive Officer and President

Tony Vuolo – Chief Financial Officer and Chief Operating Officer

Analysts

Mark Mahaney – Citigroup

Mark May – Needham

Ingrid Chung – Goldman Sachs

Gerard Hayman – JP Morgan

George Askew – Stifel Nicolaus

Jeremy Lopez – William Blair

Anthony Petrone – Maxim Group

Unidentified Analyst

WebMD Health Corporation (WBMD) Q3 2009 Earnings Call November 3, 2009 4:45 PM ET

Operator

Good afternoon and welcome to WebMD HLTH Corp’s September 2009 quarterly conference call. Today’s call is being recorded.

I’d now turn the call over to Risa Fisher, Vice President of Investor Relations.

Risa Fisher

This conference call is to discuss WebMD's third quarter financial results. The earnings release issued today by WebMD is available at www.webmd.com in the Investor Relations section. The release issued today includes 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 WebMD future performance. Information concerning the risks and uncertainties can be found in WebMD's SEC filings.

The tender offer announcement we’re making today is neither an offer to purchase nor a solicitation of an offer to sell any securities. The tender offer for the outstanding shares of WebMD’s common stock described in today’s announcement has not commenced. Any offers to purchase or solicitations of offers to sell would be made only pursuant to a tender offer statement filed with the Securities and Exchange Commission. The tender offer statement and other filed documents will contain important information and should be read carefully before any decision is made with respect to the tender offer. Those materials will be made available to all stockholders at WebMD at no expense to them. In addition, all those materials will be available at no charge on the SEC’s website.

I would now like to turn the call over to Martin Wygod, Chairman of WebMD.

Martin Wygod

Joining me on the call today are Wayne Gattinella, CEO and President; and Tony Vuolo, CFO and Chief Operating Officer. We announced yesterday that Tony would be assuming the role of Chief Financial Officer. Tony was the CFO from the time of WebMD’s IPO until 2007, and he has severed in senior management roles at the company or its predecessors for over 15 years. I’m confident there will be a smooth transition for Tony and for our organization as there is a depth of talent in the finance organization to support him in this new role.

As I said at our annual meeting of stockholders last week, we’re very pleased to have completed the HLTH WebMD merger transaction. We now have the one core business for the strongest growth profile going forward. As Wayne and Tony will discuss in more detail, we delivered a strong third quarter, and we’re expecting a strong fourth quarter as well. At a high level, we have seen an increased movement from offline to online spending by several pharmaceutical and consumer product customers.

Some of our pharma customers are moving more quickly to integrate our online services to enhance the effective of their detailed sales process. The trends are positive. As I have been saying for the last few quarters, we are seeing strong momentum in our business, and we’re optimistic about the opportunities for growth ahead of us. We’re positioned in the marketplace with a unique competitive set of assets.

From a financial perspective, as the result of HLTH having bought back 375 million shares through tenders open market and private purchases, the HLTH shares outstanding were reduced so significantly that the company post-merger ends up with approximately 57 million shares outstanding and enterprise value of approximately $1.5 billion.

As a result of the merger with HLTH, there are approximately an additional 10 million in-the-money stock options that were assumed by WebMD. The company has implemented the ability for option holders to receive a net number of shares equal to the option holder’s profit net of statutory withholding taxes. This allows the company to minimize the diluted impact of stock option exercises. If the approximate 10 million of in-the-money HLTH options carried over from the merger were settled in this manner, the net amount of shares would be a dilution of approximately 2 million.

Importantly please note that of the 10 million in-the-money options, approximately 5 million of these are approaching the end of their 10-year term and will be expiring over the next 6 to 9 months. These represent 637,000 shares on a net settled basis. Of the 5 million expiring options, 2.8 million are held by senior officers of the company including myself. These 2.8 million options represent 330,000 shares on a net settled basis. I expect that a substantial portion of these expiring options will be exercised and sold in the near future.

Post-merger, WebMD has a strong balance sheet with nearly $1 billion in cash and investments, $515 million in convertible debt and approximately $650 million in net operating loss carry-forward. We announced today that WebMD intends to commence a tender offer next week to purchase up to 5.7 millions shares of its common stock at a price of $36 per share. The board of directors of WebMD after evaluating expected capital requirements of the WebMD’s operations and other expected cash commitments as well as the possible dilutive impact of WebMD’s outstanding 1.75% convertible notes if converted believe that the purchasing of WebMD’s shares in the tender offer represents a superior alternative to the other available uses of this cash.

WebMD will use a portion of its cash and investments to fund the tender offer. Neither WebMD nor its board of directors will make any recommendations to stockholders as whether to tender or refrain from tendering the shares in the tender offer. The tender offer will be made only pursuant to an offer to purchase and related material which will be distributed to our stockholders and filed with the SEC.

I now would like to turn it over to Tony and then Wayne to review the third quarter financial and operating results respectively, and then we’ll take questions at the end of that period.

Tony Vuolo

The financial results reported today reflect WebMD’s standalone pre-merger financial results as the merger was completed subsequent to the end of the quarter. Although the consolidated financial results for HLTH Corporation for the September quarter are not required to be filed with the SEC on form 10-Q, we are making these financial results available to you in a form 8K that WebMD filed today.

Additionally, results reported today reflect the Little Blue Book business as a discontinued operation in the current and prior year period. The divestiture of Little Blue Book was completed on September 30, 2009. I’ll now review WebMD’s third quarter results.

WebMD revenue for the quarter was $111.6 million, compared to $96.8 million last year, an increase of 15%. To break down of revenue increase for you, our public portal advertising and sponsorship revenue which represents 80% of total revenue increased 20% to $89.4 million. Private portal services revenue which represents 20% of total revenue was flat at $22.2 million. WebMD’s adjusted EBITDA for the quarter was $33.1 million, compared to $25.5 million last year, an increase of 30%. Adjusted EBITDA per diluted share was $0.56 compared to $0.43 last year.

Adjusted EBITDA margin of 29.7% for the quarter was approximately 335 basis points higher than last year. Our ability to efficiently leverage our revenue growth is demonstrated in this quarter’s results as our adjusted EBITDA margin on incremental revenue for this quarter was 52%.

Our effective tax rate for the quarter was approximately 41%. Non-cash stock compensation expense was $5.7 million, compared to $3.5 million last year. The increase reflects a broad-based equity grant made by WedMD in the fourth quarter of 2008.

Net income for the quarter was $12.8 million or $0.21 per share compared to $10.8 million or $0.18 per share last year. WebMD’s weighted average diluted share count used in computing the per share amount for the quarter was 58.8 million.

Operating cash flow from continuing operations was $26.2 million for the quarter. As we’ve stated in the past, quarterly operating cash flows can be impacted by timing of accruals in relation to the quarter then and the billing and collection of receivables from our customers.

Capital expenditures were $3.3 million for the quarter. As previously announced WedMD and HLTH completed their merger on October 23, 2009. The applicable accounting treatment for the merger results in HLTH being treated as the acquiring entity, and as a result, the pre-acquisition consolidated financial savings of HLTH will become the historical financial statements of WebMD beginning with the reporting of the fourth quarter of 2009. Included in the tables accompanying today’s press release is the full year 2009 HLTH merger financial guidance for the company including quarterly earnings per share and share count on both a historical and pro forma basis assuming the merger were consummated as of the beginning of the year.

Turning to our financial guidance for the fourth quarter, we’re reaffirming the company's guidance for 2009 today and narrowing the ranges for both revenue and adjusted EBITDA by raising the low end of the range. The financial guidance being provided today is consistent with both WebMD’s and HLTH Corporation’s previous financial guidance. Adjusted EBITDA and income from continuing the operations reflect the impact of the recently completed merger with HLTH.

For the fourth quarter, we expect revenues to be in the range of $130 to $140 million with adjusted EBITDA representing approximately 31-32% of revenue. These amounts represent anticipated growth of approximately 22-34% in public portal advertising sponsorship revenue, which will represent 82-83% of total revenues for the fourth quarter. The anticipated increase in revenues for the fourth quarter reflects both the historical seasonality of our advertising revenues and the difficult environment that existed last year.

Income from continuing operation is estimated to be 6-7% of revenue for the fourth quarter. The difference between adjusted EBITDA guidance affirmed today and the adjusted EBITDA guidance of WebMD issued as a standalone entity relates to the corporate expenses of HLTH. These expenses have steadily declined over the past year and going forward will be reduced significantly now that the sale of Porex and the merger are finally completed.

In the December quarter, we expect to record a gain related to the sale of our Porex business and a charge related to the merger and other actions which will include severance and related expenses. These one-time items are not included in the financial guidance issue today.

As of October 23rd, the merger closing date, WebMD had approximately $1 billion in cash in investments and had approximately $550 million in aggregate principal amount convertible notes outstanding. A schedule summarizing the company’s fourth-quarter financial guidance as well as a reconciliation between GAAP and non-GAAP financial measures is attached to the press release issued today.

I’d now like to turn it over to Wayne to discuss operating results in more detail.

Wayne Gattinella

I'm extremely pleased to again report strong results this quarter particularly in the face of a generally weak media environment. This quarter, WebMD’s advertising revenues grew by 20% fueled by increasing demand from our bio and pharmaceutical customers as well as consumer product companies. In addition to continuing to penetrate the largest Pharma and Biotech companies, our advertising base has continued to expand with the addition of new advertisers such as Wal-Mart, Purina, Lowe’s, and MasterCard.

Our network traffic from both consumers and physicians continues to increase organically. Traffic to the WebMD HLTH network averaged 59.2 million unique users per month, that's an increase of 19% versus the same period a year ago, and page use through our network during the quarter grew by 27% to 1.4 billion pages. Our page use per user is important measure of the high quality of engagement of the typical WebMD customer.

Our professional network, Medscape.com, as our flagship site continues to be the leading source of medical information for physicians. Our online reach exceeded 1.5 million monthly physician visits during the third quarter.

Online medical education on our professional sites reached 1.6 million completed programs during the quarter, a growth rate of 25%, as online medical education continues to replace the traditional sources of medical education. Medscape leads the market in providing continuing medical education to healthcare professionals. With over 60% share of online physician CME and 25% share of all physician-accredited education both online and off-line.

Physician Connect, Medscape’s community application, that enables physicians to securely engage with other healthcare professionals represents the largest online community of physicians today. We're continuing to see increasing engagement in our community activity with recent discussions ranging in everything from health reform to H1N1 flu-related issues.

Community applications are just one of our newest initiatives to drive consumer and physician engagement. Through our proprietary platform technology, we are now delivering a combination of multimedia programming, interactive health assessment tools, and personalized content that further engage our users as well as provide our sponsors with the ability to connect with our users in a unique and very powerful way.

We continue to build on our market position as the most recognized and trusted brand of health information. Just last week, we announced an expansion of our partnership with the Food and Drug Administration to provide increased access to the FDA’s consumer health information on WebMD.com. The second phase of our partnership expands the content and multimedia tools provided by the FDA in five new areas on our site covering allergies and asthma, children's health, diabetes, heart health, and vitamins and supplements, and we continue to invest in new markets that have the opportunity to significantly expand our user base and generate new areas of revenue for the future.

In October, we launched the WebMD Healthy Pets channel on WebMD.com , which provides pet owners with the latest health and wellness information to help maintain the health of their pets. WebMD Healthy Pets provides veterinarian reviewed information on pet guide and nutrition, behavior and training, and preventative care. It’s a fact that more than 75% of WebMD’s users are pet owners, and it’s a fact that nearly $700 million is spent annually here in the US on marketing pet supplies and services.

We’re also investing into markets for the future as we see the market going more mobile and more global. Our WebMD mobile health applications for consumers was launched on the iPhone less than a year ago, and they have already generated over 1 million downloads, consistently ranking at the top of the app store for health applications.

Medscape Mobile which is our first Mobile application for physicians continues to rank at the top of the app store for medical applications with now over 200,000 downloads since launching on the iPhones only this past July. Medscape Mobile provides the most comprehensive drug information, clinical reference tools, medical news, and continuing medical education on a mobile device. It’s the only medical application to deliver specialty specific news and medical education that leverages the assets of Medscape’s award winning editorial content. Further development is already underway to launch new products enhancements on Medscape Mobile including delivering on new platforms such as the Blackberry later this year.

On the global front, we’re really excited with the launch of our first consumer health portal outside of the United States. We partnered with Boots, the leading pharmacy and health and beauty retailer in the UK, to launch a new health portal that’s designed especially for the health and wellness needs of the UK consumer. The site launched just last month to very positive consumer press and user feedback in the UK.

As we look forward to 2010, we’re very excited about the momentum that we see in our advertising business. Our biopharma and consumer packaged goods customers are clearly planning to move more of their spending online, and WebMD is well positioned to capture a greater share of their digital budget.

Turning to the private portals market, the private portal business represented less than 20% of our total revenues during the third quarter, and it continues to be impacted by the macro environment that’s driving many large employers to defer purchase decision in the face of their own business challenges. Both revenues and customer growth in the private portal were flat for the quarter. We’re focused right now on up-selling our newest services such as coaching into our current installed customer base. We’ve strengthened the private portals management team, and we’re improving the efficiency of the underlying operation. For example, during the third quarter, we implemented a new platform that will improve both the capacity and productivity of our coaching services.

We don’t expect that the trend impacting the private portal business will turn around in 2010; however, the short-term situation doesn’t change our long-term view of the opportunity in the employer-payer government market. Organizations clearly recognize the value that personalized information can play in better managing the health and cost of care for their employees and plan members. WebMD’s health benefit services including our personal health record and preventative care services are proven ways to improve health outcomes and make healthcare more affordable.

In summary, our reported results at WebMD mark another strong quarter of operating performance for the company, even as the growth of most other media properties has slowed dramatically. WebMD is the market leader in a very large and still underpenetrated market. Our investments and our technology platform are paying off as evidenced in our expanding margin, and we’re investing in new markets that have the potential to significantly contribute to our core growth over the next several years, and we’re investing in an organization and in the people necessary to support our future growth. I’m very excited about the momentum in our business as we enter the new year.

Operator, at this time, we’d like to open it up for questions please.

Question and Answer Session

Operator

(Operator Instructions). Our first question comes from Mark Mahaney with Citigroup.

Mark Mahaney – Citigroup

On the materiality on both the UK launch and the pets vertical, the pets offering, anyway to help us think about how big that can be, what kind of margin impact that could have, and secondly, and we asked this question last quarter too; there has been lot of regulatory changes or regulatory challenges to some online advertising but really to offline advertising that may have at some point boosted growth on your site. Any update on what you’re seeing there, particularly in terms of ISI requirements?

Wayne Gattinella

On the new market side, the Pets channel that launched last month is currently up on the core site. As I mentioned, it is a new market. It’s already attracting some new advertisers that we haven’t had in the past. I mentioned Purina on the call, and actually if you go onto that channel, you’ll start to see some other advertisers that we haven’t had in the past, so it’s a new area for us, but we are learning that adults who care for their own health also are concerned about the health of their cats and dogs, and we see it as a great extension of the brand both at the consumer level, potentially also at the vet level, so we think that the numbers will be produced in that channel will be baked into the guidance that we’re putting out for 2010.

The launch of the channel in the UK is a little bit more forward. There’s really nothing in our current numbers that reflect anything of significance coming from that portal. Certainly we’ll monitor it closely. We’re right now trying to drive user traffic to the channel, but we really expect that it won’t be till 2011 till we see anything significant coming from that initiative.

To your second question on the regulatory front, the search-related ISI disclosures, I think we’ve seen some benefits from that as the pharma market in particular has shifted some of the search dollars into core either display or sponsored programming. We’re seeing that in our consumer business today, but certainly there is the threat of further regulation or restrictions in terms of what pharma can do even in other offline channel marketing, and we’re seeing increased interest from the pharmaceutical segment in taking what were sort of more traditional or poor broadcast media spend and figuring out how we might be able to do some more integrated kinds of programming using our site either in conjunction with our offline marketing or with a replacement of some of those offline marketing budgets.

Operator

The next question comes from the line of Mark May with Needham.

Mark May – Needham

It looks like the HLTH corporate OpEx was somewhere around $4 million in the third quarter. As we start to put together a new co-model, how should we think about where that $4 million trends, and then second question, your sales and marketing expense has been flat for a while; can you continue to grow your user base and the business in general with that level of sales and marketing spending? Do you have any plans to expand your expenditures in that area?

Tony Vuolo

The corporate expenses for the September quarter were about $2.6 million.

Mark May – Needham

I’m probably not taking out stock-based comp.

Tony Vuolo

Okay, I’m doing it excluding stock-based comp, so if you look it excluding stock-based comp, it is $2.6 million. As I mentioned in my earlier comments, now that the merger is done and we’ve sold Porex, we’re going to move to reduce that number significantly by the end of the year, so as we enter into next year, I don’t think we’re going to see much in terms of a drag from the corporate overhead from HLTH in our numbers going forward. We think can get that down to a level that would be nominal to our performance, and they’re probably costs that we probably would have to add anyway just to support our growth.

Mark May – Needham

Sales and marketing?

Tony Vuolo

On the sale and marketing line, we have been able to gain some leverage there. I think that the leverage there on a percent of revenue basis will continue in the future and still allow us to grow our business. Certainly, we wouldn’t anticipate that that would grow at the same rate that the revenues would grow at. Again, I’m looking at that excluding the non-cash expenses.

Mark May – Needham

Can you give us a ballpark figure for the net one-time charges in Q4?

Tony Vuolo

We’re still trying to work out the final reductions and the costs related to those reductions, and so that’s why we excluded those from our guidance so we’re not in a position to do that at this point in time.

Operator

The next question comes from the line of Ingrid Chung with Goldman Sachs.

Ingrid Chung – Goldman Sachs

Can you talk a little bit about advertising trends entering the fourth quarter in terms of volume and price, and also I just want to check my math, for the private portal business, if the base has large employers similar to the prior year, does that mean it declined a little bit sequentially versus the prior quarter?

Wayne Gattinella

As we’re looking out towards the fourth quarter, we from a seasonality standpoint have consistently seen an uptick in our customer spending in the fourth quarter, at least from a digital standpoint. We expect to see the same this quarter. We have a lot of momentum right now from a selling standpoint. Some of that is already reflected as we look out into the fourth quarter, and obviously as we put our guidance together for next year, we’ll comment on that, but in general, we’re seeing more dollars being shifted from the traditional channel to online from our core biopharma base, and we’re seeing more consumer package companies at least coming to us and our network source for 2010 than we have seen in the past, so we feel that we have a lot of strong momentum to be able to benefit from that shift to online.

From a pricing standpoint, as a premier content provider in the space, we have been able to maintain pricing even through the softer quarters of demand, and we certainly don’t see pricing changing dramatically either way as we look forward right now. Our business is growing based on demand, not price, but yet we’ve seen pricing at least for the very targeted and high-quality engagement of our user base both on the consumer side and the physician side holding.

Tony Vuolo

And on your question in relation to the case of customers using our private portal platform, if you look at the number of customers compared to the last quarter, it’s about the same number. It’s plus or minus 1 or 2 customers.

Operator

The next question comes from the line of Gerard Hayman with JP Morgan.

Gerard Hayman – JP Morgan

Gentlemen, we understand that Everyday Health has lost several of their health, medical, and pharma relationships, which makes up both of their health and pharma inventory. Could you comment on how this might affect WebMD?

Wayne Gattinella

We don’t feel that it’s appropriate for us to comment on any losses that Everyday Health might be experiencing in their network.

Operator

The next question comes from the line of George Askew with Stifel Nicolaus.

George Askew – Stifel Nicolaus

Of the total cash equivalents of $1 billion post-merger, what’s the value of the auction rate securities portfolio and what is your strategy to manage this portfolio or liquidate it?

Tony Vuolo

In terms of the value of the portfolio, on a consolidated basis, the auction rate securities are being carried on our balance sheet as $272 million, and the face value of those securities is $353 million. From a liquidation perspective, I’d just like to remind you that we do have line of credit facility with Citibank in place that provides us liquidity should we need it at 75% of the face value of the auction rate. At this point and I’m just coming back up to speed in this myself coming back into the position as a CFO, but my understanding is that at this point there still hasn’t been an active market that’s developed for these securities, but should the company needs liquidity, we have the ability to get that liquidity through our line of credit arrangement with Citibank.

Martin Wygod

That’s correct Tony. The only additional thing on that is that that’s a non-recourse line against the auction rate, so it’s not a line that’s backed by the company.

George Askew – Stifel Nicolaus

Isn’t there any expiration to that line?

Martin Wygod

Yes but it goes out quite a period of time.

George Askew – Stifel Nicolaus

Now that you’re a clean one company structure, how do you look at acquisitions going forward?

Martin Wygod

Obviously, we would prefer to use cash on our acquisitions rather than stock, and if any appropriate acquisitions are available, we would not have the restriction or the challenge of trying to retain over 80% of the outstanding in order to be able to consolidate for tax purposes. Now we have the entire NOL inside of WebMD so we don’t have that restriction anymore, so we can issue shares if we deemed it appropriate.

Operator

The next question comes from the line of Jeremy Lopez with William Blair.

Jeremy Lopez – William Blair

Wayne, I’m wondering if you can talk about the non-pharma advertisers. You announced a couple of blue chips this afternoon that you won, and anything you can share with respect to qualitatively how the business mix has shifted over the last couple of years towards the mainline guys?

Wayne Gattinella

As you probably know, we really have been investing from a sales standpoint against that segment for the last five years or so as many package goods companies have introduced health-related products or positioned their existing beverage and snack foods in some form of a health-related manner, so as they started to come to us, we focused more on it, and the consequences, if you look on the site today, you’ll see in addition to the core biopharma promotion, a significant amount of consumer products promotion whether it be L’Oreal on the cosmetics side or Kellogg’s on the cereals, Proctor and Gamble with their product, who are targeting their products in to our core base and who we now are providing a much deeper engagement as we have in the past with pharma. Definitely you’ll see that it’s much more than simply running banner ads across our site and in fact now looks much more like the kinds of sponsored content and advertorial approach that’s helped us grow in the pharma segment. That’s really what’s helping to both increase the revenue stream in that segment as we’re doing more premium-type online marketing with those companies but it’s also increasing the number of customers who are seeing the impact of those kinds of programs.

Jeremy Lopez – William Blair

I guess if you had to may be say it was a 9-inning ballgame with respect to penetrating the broader mainstream advertising market opportunity, where would you be? Are you still in the third inning or are you beyond that in terms of penetration?

Wayne Gattinella

You’ve got to be careful because I was born in Philadelphia. Honestly we’re in the early innings across all of our business. Whether it be in pharma or CPG, this is very early stage in general because, number one, still the majority of their spend is in offline, and secondly even a more editorial approach to programming and marketing is still fairly new for them as well.

Jeremy Lopez – William Blair

Tony, I guess you guys are guiding to 61 million share count for Q4 on a pro forma basis. I’m wondering if that’s characteristic of what you believe the share count will be in 2010 exclusive obviously of the tender which you can’t predict.

Tony Vuolo

The share count for the fourth quarter, if you look at the guidance ranges that we have out there, the diluted share count is going to be more than the range of 59 million. The pro forma number assuming the merger happens in this case at the beginning of the quarter would be 61 million, and in terms of just assessing the impact of the merger on the WebMD share count since the converts are not diluted, they are not included in that 61 million number, so as we exit the year from a weighted average perspective at the current stock price, that’s a reasonable number to work from.

Operator

The next question comes from the line of Anthony Petrone with Maxim Group.

Anthony Petrone – Maxim Group

Can you share a little bit on the UK Boost collaboration? How that’s structured in terms of revenue share and if at all, and if there is anything in the fourth quarter topline guidance from that collaboration?

Wayne Gattinella

The structure is very simple. It’s 50:50. We share expense; we share revenue. It’s really a marketing partnership. The benefit to them is we have all the expertise. We’ve built the content. We’re serving and hosting all of the applications. They help really culturalize it, make it UK oriented, but we did that listing. The benefit to us is that they do all the marketing. We have little to no marketing expense. As someone described the number stores they have in the UK, their density per capita is equal to the number of McDonalds in the US on a per capita basis, so they have very strong presence, and they are doing all the in-country marketing if you will, and then again, we’ll share in the revenue streams. The revenue forecast from that business is virtually nothing at the moment. We’re trying to grow the user base. We actually expect that that will be the number consumer health portal in the UK very shortly, but we don’t really anticipate anything significant from a revenue standpoint until probably 2011.

Anthony Petrone – Maxim Group

One followup just in terms of pre-buying of inventory into 2010, if you look at that year over year, how deep into 2010 is inventory already purchased?

Wayne Gattinella

As we typically see, our customers start entering the market at least a quarter early, although we feel like we have a lot of momentum right now moving into 2010. We saw a fairly significant amount of upfront in the third quarter from a selling standpoint and so not to suggest that it’s over and that there is not going to be a significant amount of selling in the fourth quarter or even as we enter the year, but we feel pretty good about the initial commitments that we have already secured and the momentum that we have right now entering the year.

Operator

The next question comes from the line of [unidentified analyst].

Unidentified Analyst

I was wondering if you could talk a bit about why you decided to tender for shares rather than look at buying back the converts directly, and just uses of cash going forward and on the share buyback on the converts? Are there any restrictions around the merger that would relate to the amount that you could buy?

Martin Wygod

Basically if you look backward over the last four months, you’d see that we had bought in a lot of converts at pretty substantial discounts to par. The converts are trading at par or above par at this point. It’s too hard to buy them, and we’re going to be putting out material Monday or Tuesday of next week, so you’ll have all the details that you need in relation to the tender, and we just felt that this was the best way to reduce the capitalization by an additional 10%.

Unidentified Analyst

Uses of cash going forward, what are the priorities in your mind?

Martin Wygod

Any potential investments can be perhaps buyback programs in the future possibly or acquisitions. We have a very strong positive growing cash flow with the $650 million NOL that we have, so we’re in extremely good shape right now and as Wayne did indicate earlier we are seeing the necessary increased momentum from the sales point of view building for next year.

Operator

(Operator Instructions). The next is a followup question from the line of Jeremy Lopez – William Blair.

Jeremy Lopez – William Blair

I’m wondering if you anticipate you might provide guidance for 2010 before your Q4 conference call?

Wayne Gattinella

Yes. I think that when we release Q4 earnings, we’ll be in a position to provide some guidance at that point in time.

Jeremy Lopez – William Blair

I was wondering if it might come before, like if there is any anticipation, you might announce that before your Q4 earnings.

Wayne Gattinella

It’s possible. It’s too hard to say at this time. The complicity and the size of the new contracts we’re working on and the timing of the revenue that’s going to be coming in as a result of that is a little bit challenging at this point because with the increased size comes the increased complicity, but as soon as we’re able to get a much better feel, we’ll bring the street up to speed, and if we can do it before the release of our fourth quarter numbers, we will.

Operator

It looks like that is our final question in the queue at this time. As a reminder, if necessary there is a replay available of this call which can be accessed toll free at 888-266-2081 or if you’re calling from outside the US at 703-925-2533. The pass code is 1404560. There is also a webcast replay available on www.wbmd.com. Thank you for joining us today.

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Source: WebMD Health Corporation Q3 2009 Earnings Call Transcript
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