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WebMD Health Corp, (NASDAQ:WBMD)

Q2 2010 Earnings Call

August 3, 2010; 04:45 pm ET

Executives

Marty Wygod - Chairman

Wayne Gattinella - Chief Executive Officer & President

Tony Vuolo - Chief Financial Officer & Chief Operating Officer

Risa Fisher - Vice President of Investor Relations

Analysts

James Kumpel - Madison Williams

Corey Tobin - William Blair & Company, L.L.C.

Steve Rubis - Stifel Nicolaus

Gerard Heymen - JP Morgan

Mark Mahaney - Citigroup

Fred Krom - Goldman Sachs

Wayne Chang - Canaccord Genuity

Robert Coolbrith - ThinkEquity

Presentation

Operator

Good afternoon and welcome to the WebMD Health Corp, June 2010 quarterly conference call. Today’s call is being recorded.

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

Risa Fisher

Good afternoon. This conference call is to discuss WebMD’s second quarter results. The earnings release issued today by WebMD is available at www.wbmd.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 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.

I’d now like to turn the call over to Marty Wygod, Chairman of WebMD.

Marty Wygod

Thank you, Risa. Good afternoon and thank you for joining us today. Joining me on the call today are Wayne Gattinella, CEO and President; and Tony Vuolo, CFO and COO.

I’m pleased with the results announced today. Our public portal business was very strong this past quarter posting 32% advertising revenue growth. WebMD further solidified its position as the leading brand of health information. WebMD continues to be relied on as the most trusted brand in health information for both consumers and healthcare professionals.

We have the largest and highest quality audience of consumers and healthcare professionals and we offer a highly valuable and unique set of services, which allows our advertisers to communicate their products, messages to a targeted audience.

For these reasons WebMD has become an integral part of large biopharma and consumer product companies, digital marketing strategies. The trends in our business are very positive. Much of our growth in recent quarters can be attributed to existing customers increasing their spend across WebMD’s offerings and we expect that to continue.

We see a tremendous opportunity in front of us as we are well positioned to benefit significantly from the spending shift that will take place as biopharma continues to move marketing dollars from traditional offline channels to more effective digital strategies. The size of this market is substantial, but yet it has proven difficult for competitors to make any inroads.

WebMD is a strong market leader. Our balance sheet is strong, we have monetized illiquid assets in investments and the majority of our convertible debentures have been converted to WebMD common stock or repurchased over the past few months. We have over $500 million in cash with approximately $120 million in convertible notes that can be called beginning in September. We have a federal tax net operating loss carry forward of over $600 million.

Our cash flow from operations is significant. There is tremendous leverage in our business model as evidenced by the 59% margin on the incremental revenue we have just reported. We have seen margin expansion while investing in the platforms that fuels sustainable long-term growth. We are well positioned to pursue acquisitions that complement our core offerings as well as continue to buyback of our common stock when appropriate.

I’d like to turn it over to Tony and then to Wayne to review the second quarter financial and operating results respectively and then we’ll take questions at the end.

Tony Vuolo

Thank you, Marty. As a reminder WebMD and its former parent company Health completed their merger on October 23, 2009. The applicable accounting treatments for the merger requires that Health be considered the acquiring entity of the WebMD minority interest and therefore the pre-acquisition consolidated financial statements of Health became the historical financial statements of WebMD beginning with the completion of the merger.

Accordingly, the 2009 results are those of Health after applying the merger exchange ratio for the Health’s historical shares outstanding. WebMD delivered strong financial results for the June, 2010 quarter. WebMD revenue for the June quarter was $122.7 million compared to $98.6 million last year, an increase of 24%.

To breakdown the revenue increase for you, public portal, advertising and sponsorship revenue, which represented 82% of total revenue this quarter, increased 32% to $100.6 million. As anticipated, private portal services revenue which represented 18% of total revenue this quarter decreased $500,000 to $22.1 million.

Adjusted EBITDA was $34.3 million for the quarter, an increase of 71% compared to last year. The adjusted EBITDA margin was 28% for the quarter was approximately 770 basis points higher than last year.

Our ability to efficiently leverage our revenue growth is demonstrated in the second quarter results, as our adjusted EBITDA margin on incremental revenue was 59%. The adjusted EBITDA margin on incremental revenue reflects the impact of the reduction in corporate expenses for the quarter as compared to a year ago when Health maintained larger corporate operations and separate public company expenses.

Even without the impact of this reduction in corporate expenses, the adjusted EBITDA margin on incremental revenue would have been about 50%. Noncash stock compensation expense was $7 million compared to $9.4 million last year.

During the quarter, we repurchased $32.4 million and had conversions of $232.1 million face amount of the 1.75% convertible notes. There are no longer any 1.75% convertible notes outstanding. We also repurchased $12.9 million and had conversions of $12.7 million face amount of the 3-1/8% convertible notes. The repurchases and conversions of the 3-1/8%% convertible notes and the repurchases of the 1.75% convertible notes resulted in a loss of $11 million compared to a gain related to convertible note repurchases of $3.5 million last year.

Also during the quarter, we recorded a gain of $6 million related to other investments. The company recorded a net income tax benefit of $2 million related to the losses on convertible notes in gain on investments. Excluding the tax impact of these items, the income tax provision would have been $7.6 million or 42% of pre-tax income. Income from continuing operations for the June quarter was $7.7 million compared to $700,000 last year.

Net income was $7.7 million or $0.13 per share compared to a net loss of $11.7 million or $0.25 per share last year. Net income in the current period, including the after tax impact of a gain on investment of $3.6 million and the loss on convertible notes was $6.6 million. Net loss in the prior year included the after tax impact for the gain on convertible notes of $2.2 million, a loss from discontinued operations of $13.3 million and non-controlling minority interest of $400,000.

Net income would have been $10.7 million in the current period as compared to a net loss of $200,000 in the prior year period excluding these items. Operating cash flow from continuing operations for the quarter was $39.2 million. As we have stated in the past, quarterly operating cash flows can be impacted by the timing of compensation and other accruals in relation to quarter’s end, and the billing and collection of receivables from our customers.

Capital expenditures were $6.6 million for the quarter. During the June quarter, we completed a sale of our auction rate securities for $286 million and a sale of Porex senior secured notes for $65.5 million. We uses $242 million in cash to complete the tender offer of $5.2 million of our common shares, additionally we repurchased approximately 186,000 shares of our common stock for approximately $8.4 million under our previously announce buyback program.

As of June 30, 2010, we had approximately $535 million in cash. The principal amount of the 3-1/8%% convertible notes outstanding as of June 30 is $121 million. Our 3-1/8% convertible notes are first callable by us in September 2010. Upon conversion of these notes, the company may elect to deliver in lieu of shares, cash or a combination of cash and shares as provided by the indenture.

As of June 30, there were $58.1 million WebMD shares outstanding. This amount does not include shares issuable on the future exercise of stock option, approximately $1.2 million shares of unvested restricted stock and $3.5 million shares related to the future conversion of the 3-1/8% convertible notes.

Turning to financial guidance, we are increasing our financial guidance for 2010. Our revenue guidance range is now $515 million to $535 million, an increase from the previous range of $510 million to $525 million. Advertising revenue growth is expected to be between 23% and 29% for 2010, while private portal revenue is expected to decline by approximately 5% form 2010.

The adjusted EBITDA guidance range is now $158 million to $168 million, an increase from the previous range of $150 million to $158 million. WebMD has provided a schedule to reflect these increases as well as updates for guidance for noncash and other items primarily to reflect the impact of the sale of investments and convertible note conversions and repurchases completed by WebMD during the second quarter of 2010.

The schedule, which is attached in today’s press release, also provides a reconciliation of GAAP to non-GAAP financial measures. Our guidance for 2010 assumes that the remaining 3-1/8% convertible notes will remain outstanding for the balance of the year and have been excluded from earnings per share and weighted average share count guidance as they are anti-dilutive to 2010 earnings. However, the 3-1/8% convertible notes may be dilutive to earnings per share in December 2010 quarter as they were in the December 2009 quarter.

If these note holders exercise their right to convert or if the company exercises its right to call the notes in September 2010 and our guidance for basic and diluted share account and earnings per share for 2010 would be adjusted accordingly.

Looking specifically at the third quarter of 2010, we expect revenue to be in excess of a $133 million, an increase in excess of 19% from last year. We expect public portal advertising and sponsorship revenue growth rate to be in excess of 24%. We expect the adjusted EBITDA to be in excess of 32% of revenue and we expect net income to be in excess of 9% of revenue.

I now like to turn the call over to Wayne, to discuss the operating results in more detail.

Wayne Gattinella

Thanks Tony. As the results demonstrate WebMD’s core online business continue to gain strong momentum this quarter, as the company further established its leadership position in the digital health information market. Our online advertising revenues representing 82% of our total revenue this quarter increased by 32%, I want to add that compares to a strong quarter a year ago when on our add revenues increased by 18%. In fact over the 24-month period, WebMD add revenues increased by 57%.

Operating margins this quarter continue to expand with adjusted EBITDA margin reaching 28% and the margin on incremental revenue nearing 60%. The shift to pharmaceutical marketing to the web is accelerating, as increased regulatory scrutiny challenges the effectiveness of conventional consumer media and the continued reduction of pharmaceutical sales forces is driving the need for alternative physician channel.

The significant scale and strong engagement of the WebMD consumer and physician audiences are drawing more dollars from traditional marketing channels as the transformation of health and wellness marketing takes hold, both in the biopharma as well as in the consumer products market.

Traffic to our WebMD network of sites continues to grow strongly, as unique visitors this quarter averaged 80.7 million per month, an increase of 35%. Page views during the quarter grew 22% to 1.8 billion pages. Approximately 90% of our page view inventory is delivered on sites that we own and operate with full control of the content and publishing. Our unique users continue to grow faster than overall page views as the optimization of our content in natural search results continues to play an important part of our overall traffic strategy. WebMD sites now rank on the first page of natural search results for over 350 of the top 500 health related search terms.

Our professional network, with Medscape.com as the flagship site continues to draw increasing numbers of physicians who rely on Medscape as their primary source of medical information. Online physician traffic through our professional network during the second quarter reached two million monthly physician visits. Approximately 1.5 million medical education programs were completed on our professional sites during the second quarter, down slightly from the prior year.

We are putting less emphasis on programming unsponsored medical education programs and placing greater emphasis on broader medical news and issues important to the business of medicine.

In July, Medscape received re-accreditation as a medical education provider from the accreditation council for continuing medical education or ACCME, and our re-accreditation now runs through 2016. Medscape now represents 28% of all CME courses completed, both online and offline and 65% of all online CME.

Looking at the growth of WebMD’s mobile initiatives, our penetration into the mobile health information market also continued to expand this quarter. WebMD mobile for the iPhone and iTouch has generated nearly 2 million consumer downloads since launch. In July, we released version 2.0 with an improved user interface and new features that include local health listings and a health condition lookup module.

In May, we launched WebMD mobile on the iPad with very strong early success. The reviews have been enthusiastic and our app has quickly climbed to the top of the App Store in both the healthcare category as well as across all free apps. Today, we have generated over 400,000 downloads penetrating approximately 12% of all iPad owners.

At the beginning of the quarter, we launched Medscape mobile on the Blackberry in addition to the iPhone. Medscape mobile for physicians has attracted approximately 450,000 users and is quickly become the premiered clinical reference tool at the point of care, eclipsing most other handheld medical application in less than a year.

It’s the strong credibility and recognition of the WebMD brand together with our unique reach to a highly engaged consumer and physician audience that continues to attract partnerships with other highly trusted organizations. We recently expanded our programming and distribution relationship with CBS News with WebMD providing branded content for the CBS evening news, their early show, cbsnews.com and CBS Radio.

This partnership gives WebMD brand exposure to hundreds of millions of viewers and listeners annually across CBS’ television, radio and online properties. Recently, the White House invited WebMD to lead the communication of two very important health reform related initiatives. On July 7, WebMD was selected to moderate a live online town hall on healthcare reform with the Department of Health and Human Services Secretary, Kathleen Sebelius and just last week the White House asked us to exclusively distribute on webmd.com President Obama’s video that educates Americans on the White House’s new health reform site.

And last week, WebMD announced a new educational partnership with Sanford Health, the largest not-for-profit world healthcare providers in the United States. This collaboration will build new online destinations to provide parents, children and healthcare professionals with personalized resources and support to help promote and maintain a healthy and fit lifestyle for children.

Childhood obesity and inactivity are increasingly prevalent health risks for children in the US. This joint initiative between WebMD and Sanford Health will help address this issue with new online resources to support families and healthcare providers in promoting healthy nutrition and exercise behaviors to children.

The educational resources for this program are planned to launch some time in 2011. Finally, just in June we hosted the 12, Annual WebMD Health forum bringing together hundreds of senior marketing executives from all of the leading biopharma companies and their agencies to discuss the most significant trends in the marketplace and the new business strategies that are emerging.

With record attendance again this year, our program featured recognized experts and industry leaders on several key themes that included how to leverage the integration of video and personalization to engage the online user and new commercial models for direct to physician marketing that are working as well as how mobile it needs to be an integral part of every marketer’s strategy.

Turning to our private portal business, the private portal business represented 18% of our revenues for the second quarter with revenue decreasing by approximately $500,000 from the prior year. The downsizing of many of our existing corporate clients has impacted this business and we continue to focus on up selling additional services such as coaching into our installed customer base.

Our long-term view of the opportunity in the employer, payer and government markets remains positive. Organizations clearly recognize the value that personalized health information plays in better managing the health and costs of care for their employees and plan members. WebMD’s health and benefits services including our personal health record and preventative care services are proven ways to improve health outcomes and make healthcare more affordable.

In summary, I’m extremely pleased with the results that we have announced today. The growth of our core online business has continued to outpace the growth of the online advertising markets overall. WebMD is rapidly establishing itself as an essential marketing channel for the nation’s largest biopharma and consumer products company.

Our advanced technology platforms deliver a combination of interactive content, multimedia programming and personalized health applications that engage our users and importantly allow our sponsors to connect with them in a very unique and powerful way. We believe our market is large and largely under penetrated.

I’m confident in our ability to deliver a strong 2010 while at the same time making the investments in new areas of growth including social, mobile and global, each of which has the opportunity to attract more consumers and healthcare professionals, generate new sources of revenue and further solidify our sustainable long-term growth.

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

Question-and-Answer Session

Operator

(Operator Instructions) First question comes from James Kumpel. Your line is open.

James Kumpel - Madison Williams

Can you actually just give us sort of a sense of what types of products are driving the most incremental demand on the online advertising in public portal space, because it’s in such outsized growth above and beyond the benchmarks, I want to kind of identify and hold in on what’s really driving the incremental demand.

Wayne Gattinella

Sure, James. Just simplistically it’s our continued ability to demonstrate highly targeted engagement with the kind of customers that our clients are trying to reach, whether on the consumer side or on the physician side.

Our strategy as a high quality publisher continues to be more than just putting banners on our web pages, but rather monetizing sponsored assets in a way that provides the large corporate client with significant branding, with significant engagement, again with the users who they are connecting with and the demonstration that the educational information of their products possess are being affectively communicated in a way that clearly has benefits to the overall brand.

And again we are doing that in a way that measurably demonstrates the value for which they are paying for that sponsored promotion.

James Kumpel - Madison Williams

But very specifically, if you can say, there is some therapeutic classes that are particularly above expectations for your internal targets or there are particular product types that you brought forth that are meeting maybe greater demand than you’ve been expecting.

Wayne Gattinella

It’s really, Jim, right across the line, I think it’s the results of our customers starting to fully appreciate the kind of ROI they are getting on the investment they are making with us, and the type of integrated partnering programs we are doing with them. With this you’re seeing this incremental growth primarily coming from our existing customer base as we perform from them.

James Kumpel - Madison Williams

So essentially narrowing down from lots of difference scatter short, online options to basically the most effective focused on.

Wayne Gattinella

Well, it is quite a few that are focused as well as the new applications, we intend to role out in the early part of next year. We have such a small percentage of their marketing and advertising dollars. We’re just a major beneficiary from the shift that’s taking place at this time.

James Kumpel - Madison Williams

Okay, great. Thank you.

Operator

(Operators Instructions) Our next question comes from Corey Tobin. Your line is open.

Corey Tobin - William Blair & Company, L.L.C.

Hi, good afternoon and congrats on a very nice quarter. Couple of quick questions if I could, last quarter you had a relatively, I guess large deflection if you will from a competitor’s site over to your site and then affiliate fashion, I believe. I’m just curious has there been any other sites that you’ve been able to pickup from the last quarter here of a similar nature.

Wayne Gattinella

At the moment, our network of sites from the second quarter mirrors that of the first quarter. Clearly, we are in discussions with lots of potential partners, particularly as they are necessarily satisfied with current relationships, but at this point in the second quarter again, it’s the same list of sites that we both own as well as any affiliates that we are currently partnered with.

Corey Tobin - William Blair & Company, L.L.C.

Second question, just following up on James’. If you look across your top 10 customers, how many of those would you say have you seen a significant increase in the year-over-year spend with you?

Anthony Vuolo

Most, all of them. I think as Marty indicated, we are elephant hunters, so at a client level the client list hasn’t changed markedly over the last several years, certainly in the biopharma side we continue to attract new consumer products companies that over the years maybe did represent as much of our core base, but our growth is coming from penetrating those large companies more deeply, which means getting more revenue from products that they manufacture that perhaps we didn’t have in the past or more importantly starting to take more of their overall promotion and educational dollars away from the conventional channels that they had been spending on most heavily.

So, again when we talk about the shift of spend from offline to online, it’s a real dynamic that we today are experiencing which is what the revenue demonstrates and clearly are focused on continuing to expand it as the means of driving incremental revenues.

Corey Tobin - William Blair & Company, L.L.C.

Okay, great. Last one if I could on the guidance, as you have talked about before it’s typical that you see sort of a second half surge as the pharmaceutical companies or your clients force out some of their budgets in the second half of the calendar year. Any reason to believe that that’s changing this year? And if not the guidance sort of employs a bit of a slow down in the second half of the year versus the first half, could you reconcile that versus the comments that were made regarding the health market improving.

Marty Wygod

Sure, it’s Marty here. Right now, we have a substantial number of large accounts in the pipeline, these are much more complicated integrated accounts that are totally integrated in with the marketing programs of these companies and it’s hard to know the exact dates these programs will start and that’s really the reason why we see the broader range and perhaps the conservative nature of our guidance.

It’s still hard to figure out at this moment when some of these contracts are going to begin and as we get more clarity as we move through the quarter, we probably will get a better feel of that and we reflect that at the next quarterly call.

Corey Tobin - William Blair & Company, L.L.C.

That’s very helpful. I just want to follow up to that, can you give us a sense of confidence with respect to the lower end of the range, I guess what I am asking is do a lot of those newer programs need to come through in order to hit the lower end of the range as it is currently projected?

Marty Wygod

No.

Corey Tobin - William Blair & Company, L.L.C.

Great, thank you.

Operator

Our next question comes from George Askew from Stifel Nicolaus. Your line is open.

Steve Rubis - Stifel Nicolaus

Good evening, this is Steve Rubis on the line for George Askew. We have two quick questions. Clearly your online advertising growth was impressive in the quarter. Will you give us a sense of the growth rate of the WebMD.com site compare to Medscape, and then secondly in the prepared remarks you commented that existing advertises are spending more. Can you give us a sense of the growth in the number of advertisers on your website?

Marty Wygod

Sure Steve, I think what you are asking first was what the mix of revenue looks like between the consumer side of WebMD and the professional side of Medscape. Its really pretty balanced, the business on both ends is growing nicely, on the consumer side we attract both the DTC dollars at pharmaceutical companies budget but also direct to consumer, consumer products companies budget as well.

So, we are pulling from both ends of consumer marketing, and then of course the professional side pulls mainly from biopharma budgets that are typically were spend almost exclusively on sales force.

Both sides of the equation have tremendous marketing opportunity for us and clearly we focused on maintaining our leadership of both our consumer sites and professional sites in ordered to better penetrate both ends of that equation. So, we expect the growth rates on both sides will continue.

In terms of the existing base of our customers, I think what we are trying to say now rather than counting the number of products, I mean its an interesting matter, but the really question is how much you penetrating against the core products.

Again in the biopharma market which is really represents fewer companies who spend a significant amount of dollars our gold to continue to demonstrate penetration over time and on the consumer product side you tend to see products that were potentially in the past, we didn’t necessarily represent. I think similarly it’s a large company opportunity where the biggest companies have the most brands and the goals to penetrate those companies and brands more deeply for the future.

Steve Rubis - Stifel Nicolaus

And one last follow-up question if I may, as you talk about the private portal business, we realize that segment has been flat over time. As the economy turns, what areas is WebMD targeting or what industries will provide the growth in that business going forward?

Wayne Gattinella

That business is heavily driven by active employees, so irrespective of what vertical the company may be operating and it’s a question of when the employment rates in this company start to turn around and companies starts to rehire.

The business suffered as some companies went completely Chapter 11, especially in the financial services market, but also many of our active clients themselves cut back on the number of employees, which impacts the pricing even in long-term contracts because they are typically based on the number of active people who have access to the application in that given month or quarter.

So, it’s not necessarily tied to any one industry per se, it’s really going to be driven by the health of corporate America in general, again as companies begin to staff up once again.

Tony Vuolo

I think you’ll start to see a meaningful pickup in sales in the private portal in 2011, which will reflect the first meaningful increase in revenue and earnings in 2012.

Steve Rubis - Stifel Nicolaus

Thank you.

Operator

Our next question comes from Gerard Heymen from JP Morgan. Your line is open.

Gerard Heymen – JP Morgan

Great earnings gentlemen. I see that Epocrates is a company, which is primarily focused on mobile physician markets, has just filed to have an IPO offering. Are you seeing an increase in competition in this part of your business?

Wayne Gattinella

Well, the mobile offering that we have built for physicians, it’s far more powerful than a standalone mobile application. What I mean is that we built a mobile platform that’s really an extension of our large Medscape physician portal.

It allows doctors to access the clinical data, prescribing data, medical news, education, both on their desktop at Medscape or on the new Medscape mobile device and that makes it easier for the physician to find the medical information they are looking for regardless of their location and it makes it better for the advertiser who can affectively reach that physician wherever they are.

And because we’re now offering all of our Medscape mobile services to the physician at no cost, it makes it very difficult for other companies, especially those with subscription models to compete. I would just add we’re now preparing to implement our first set of sponsor services that will enable large biopharma companies to connect with doctor’s right at the point of care.

So, I think we’re in a very strong position to continue to grow the basic users of Medscape Mobile and start to develop a meaningful revenue strategy for that as well.

Gerard Heymen – JP Morgan

Thank you. I have a follow-up question as well. Can you give a little color on your overseas expansion; how that’s going, any new countries that may be you’re looking into?

Wayne Gattinella

Tony, you want to comment?

Tony Vuolo

Sure, this is Tony. Currently as you probably know we have two international activities going on right now. We have a joint venture with Boots in the UK. We are still in the traffic-building mode. They had the site launched in late; the end of 2009 and we’ve already said that we really don’t expect significant contributions there until 2011.

The other activity that we have is in South America and Spanish speaking countries with a company called Medcenter and again we’re building the audience there and we’re now in the process of starting to try to monetize the audience that we built. We have several other things that we’re looking at, but nothing that we’re ready to comment at this time.

Gerard Heymen – JP Morgan

Thank you very much and keep up the good work.

Tony Vuolo

Thank you.

Operator

And our next question comes from Mark Mahaney from Citi. Your line is open.

Mark Mahaney - Citigroup

Great, thanks. Just one question. Marty, I think you mentioned buildup of cash and the ability to use some of that cash for acquisitions. My recall is that WebMD has been relatively silent over the last two years in terms of acquisitions, just to help us think about what you could do in the future.

The silence is that because you just haven’t found good assets or you haven’t found good assets at the right prices. Are there particular new areas just broad vertical areas that might interest you in the M&A front? Thank you.

Marty Wygod

I just think there is a shortage of assets that work with us strategically in our space. There is the possibility that there may be one or two small-to-medium size potential opportunities over the next six months, but it’s too early to tell and we could know previous to our future growth that we anticipate from acquisitions. We are very confident that we can create every application that we are going to need over the next 24 months, but I just feel that for the first time there may be an opportunity or two.

Mark Mahaney – Citigroup

Thank you, Marty.

Operator

Your next question comes from Ingrid Chung from Goldman Sachs. Your line is open.

Fred Krom - Goldman Sachs

Hey, thanks. It’s actually Fred Krom for Ingrid. On the private portal side, your revenue per account actually increased at the fastest sequential rate in two and a half years, I was wondering if you guys could touch on that, and I think one of you mentioned on the call that your ability to up sell premium services such as coaching the existing clients would benefit you guys going forward. Can you just talk about your penetration?

Tony Vuolo

Sure, I think in terms of the average revenue per client, what you are seeing is the effectiveness of the up selling. So, again as we’ve lost some clients along the way, we have been able to make up much of that revenue loss by adding services into the existing base. You are seeing [Inaudible] your customers roughly the same revenue and then that is greater revenue per customer. There is still more upside in that regard.

So, we both have existing services that we have being up-selling and we also have a pipeline of several new products that we are introducing into 2011 that are designed to create more value for the client, for the employee and ultimately towards our revenue growth.

Fred Krom - Goldman Sachs

Great, thank you.

Operator

Your next comes from Wayne Chang from Canaccord Genuity. Your line is open.

Wayne Chang - Canaccord Genuity

Hi guys, its Wayne on behalf of Jeff Rath. Just a quick question, as you continue to buildup sort of your own note and network traffic, so we expect the 90% mix to shift below that going forward and how do we begin to about what the impact is going to be overall for the CPM rates. Can you comment a little bit about that?

Wayne Gattinella

Okay. Well in terms of the mix of traffic, again I think we will opportunistically look at affiliate relationships if there is something of quality that’s out there, we are clearly not trying to create that network scenario where we just have lots of desperate sites to sort of mask either lack of traffic growth or just to post big score numbers, but if there are highly quality sites that will represent some partnering opportunity, we are certainly going to look at that.

The CPM levels that, or slight differently the pricing that we have been able to maintain in the market has been really a factor of the quality and engagement of our users, again both from the consumer side and professional side. We don’t see the changing our revenue, it is really a reflection of the increased volume that we have been able to generate at pricing that has remained really quite stable even through the last year or two to sort of depressed media pricing.

So, again from an overall CPM standpoint at least on the inventory that we monetize, we continue to see ourselves as a high quality, high impact on somewhat premium sites that’s able to demonstrate to our clients the value that they are really paying for right now.

Wayne Chang - Canaccord Genuity

Great, thanks.

Operator

Your next question comes from Aaron Kessler from ThinkEquity. Your line is open.

Robert Coolbrith - ThinkEquity

Good afternoon. It is actually [Robert Coolbrith] on the call for Aaron. Couple of quick questions; first if you can give an update on CPG advertisers. I know in the past you had given a little color there, maybe as percentage versus biopharma advertisers, and then also with respect to your international efforts.

Are there any other potential partners in Europe? I know its with the DTEC advertising banner, you are probably more in a partnership mode potentially with other pharmacies and things like that. So, are there any other potential partnerships in the pipeline for kind of now here? Thank you very much.

Wayne Gattinella

On the CTG side, we are doing business with more customers today than anytime before. We continue to work with the large packaged goods manufacturers, food, beverage, breakfast cereals, snack foods, companies that have lines of products that have some form of health positioning for the health conscious consumer, and those companies are turning to WebMD more to anchor their blending with.

Again its typically those products have a lot to talk about, but we’ve also increased our CTG business with several of the large big box retailers with major skin and beauty manufactures and even most of the large either pet food or dog and cat product manufactures as we launched a very successful channel on WebMD last year for healthy pets.

So, we have really expanded the roster of the consumer companies with key focus obviously on the biggest of them, but again being able to demonstrate to even companies that are not so healthcare related that the quality of our audience can create a very strong value preposition and brand engagement for their campaign.

On the international side, I think Tony commented that we are looking at other countries. You are right to say that in Europe, the DTC pharma opportunity is somewhat limited from a regulatory standpoint, but there is significant opportunity to reach out to physicians in those countries, and then as you looked towards other parts of the world, particularly in Asia, it’s sort of freer opportunity from a direct-to-consumer standpoint and as you mentioned certainly partnering is our strategy and we continue to speak to partners in other countries as well.

Robert Coolbrith - ThinkEquity

Thank you.

Operator

(Operator Instructions) I’m showing no further questions.

Wayne Gattinella

Thank you very much.

Operator

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 are calling from outside the U.S. at 703-925-2533, the pass code is 1469717. There is also a webcast replay available on www.wbmd.com. Thank you for joining us today.

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Source: WebMD Health Corp, Q2 2010 Earnings Call Transcript
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