WebMD's (WBMD) CEO David Schlanger on Q2 2014 Results - Earnings Call Transcript

Aug. 5.14 | About: WebMD Health (WBMD)

WebMD Health Corp. (NASDAQ:WBMD)

Q2 2014 Earnings Conference Call

August 5 2014 4:45 PM ET

Executives

Risa Fisher - Vice President, Investor Relations

Marty Wygod - Chairman

David Schlanger - Chief Executive Officer

Pete Anevski - Chief Financial Officer

Analysts

Dave Francis - RBC Capital Market

Kevin Kopelman - Cowen & Co

Steve Rubis - Stifel Nicolaus

Nicholas Jansen - Raymond James & Associates

Steve - Wells Fargo Securities

Adam Klauber - William Blair & Co.

Steven Wardell - Leerink Partners

Operator

Good afternoon. And welcome to the WebMD Health Corp.'s Second Quarter 2014 Conference Call. Today's call is being recorded.

I will now turn the call over to Risa Fisher, Vice President of Investor Relations. Ma'am, 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 includes reconciliations between GAAP and non-GAAP financial measures which will be discussed during this call.

The explanatory paragraph 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.

Further information regarding WebMD, including information concerning risks and uncertainties can be found in WebMD's SEC filings and the information on this conference call is intended to be presented in conjunction with the information contained in such filings.

Joining us with prepared remarks today are Marty Wygod, Chairman of WebMD; David Schlanger, Chief Executive Officer; and Pete Anevski, Chief Financial Officer. We will take questions at the conclusion of our prepared remarks.

I'd now like to turn it over to David Schlanger, CEO of WebMD.

David Schlanger

Thanks, Risa. Good afternoon, everyone. Thank you for joining us today. We are pleased to report strong second quarter results and to be raising our financial guidance for the remainder of 2014. Our result in the second quarter highlights our market leadership and demonstrates the earnings leverage in our model. Total revenue growth of 12% drove a 30% in adjusted EBITDA. Our advertising and sponsorship revenue increased 10% driven in part by the increased adoption of our multi screen offerings. Our private portal services revenue grew 24% primarily as a result of the program we launched with Blue Cross Blue Shield Federal Employee Program in January. WebMD's audience of consumer and healthcare professionals continue to grow strongly during the quarter as well. Traffic to the WebMD Health Network reached an average of 179.4 million unique users per month generating 3.46 billion pages for the quarter, increases of 43% and 31% respectively from the prior year. Since our founding, WebMD has been producing engaging tools and content which empowers consumers to make informed decisions about their health and wellness. As a result, we built the most trusted and recommended more, one more award for excellence in journalism in any other consumer health site and established partnerships with over 50 media government not-for- profit and local organization. These significant accomplishments are testament to our employees' steadfast commitment to delivering the best and most credible content services and support to our users, customers and partners. The trust in our brand has helped us to build and continue to grow largest most highly engaged audiences of consumers and healthcare professionals. WebMD is unique in that virtually all of our traffic is organic. We own and operate all the sites in WebMD Health Network unlike other ad networks and other companies in the health vertical. We do not rely on third party network affiliates for the purchase of traffic generates our audience. Consumers and physicians come to us because they know and trust our brands.

To put the scale of our online audience into perspective, according to the most recent comScore report WebMD Health Network is number 27 of the Top 100 web properties across all categories and verticals. Within the health information category in the second quarter, WebMD continue to lead the category with total U.S. monthly visitors across both mobile and desktop on a de-duplicated basis approximately 63 million which is more than the next few largest health and wellness destination combined. Additionally, the WebMD Health Network is number one in the health information category for U.S. PC reach, number one among U.S. mobile health destination and number one in every one of the 50 largest condition suffering population online. WebMD has continue to provide the most comprehensive disease and condition content while systematically building a robust experience for consumers interested in wellness and lifestyle issues. In any given month, approximately 40% to 50% all consumers coming to WebMD are engaging in our wellness and lifestyle content in areas which including eating well, healthy beauty, pregnancy and parenting. And when our users access WebMD they do it across a range of devices. During the second quarter approximately 29% of our page view traffic was from U.S. PC, 36% was from U.S. smartphone, 8% was from U.S. tablet device and remaining 27% was international.

Our traffic growth is being driven primarily by increased utilization of our mobile offerings. However, as we said before, our mobile growth has not been at the expense of our desktop traffic.

With respect to page views, U.S. PC page views were up slightly from the prior year period but when combined with tablet, page view growth was 8% in the second quarter because tablets provide a similar user experience for the PC. We are able to monetize tablet traffic in a similar manner. We believe combining tablet and PC pages together is the appropriate metric.

With respect to our unique users, when compared to many web publishers, WebMD is unique because we have not experienced a migration of our audience away from our PC-based offerings in favor of mobile.

Unique visitors to our U.S. PC-based offerings have continued to grow compared to the prior year period. WebMD's strength extends off-line in the page of the WebMD's magazine which is distributed in waiting rooms of over 75% of doctors' office in the U.S. and has experienced an 18% increase in the readership year-over-year. The print edition of WebMD magazine is read by 10.2 million individuals at the point-of-care and our tablet version has made it easier for people to consume and share our magazine content when they are in the doctor's office.

Turning to our audience of healthcare professionals, Medscape continues to be the leading source of clinical news, health information, point-of-care tools and medical education for healthcare professionals throughout the world. During the quarter, Medscape averaged approximately 6.1 million physician sessions per month, an increase of approximately 11% over the prior year period.

To put Medscape scale into perspective on an annual basis, approximately 625,000 registered U.S. physicians are active on Medscape, a substantial majority of the actively practicing physicians in the U.S. According Manhattan Research, we have more physicians reach than any other site for medical professionals with 80% of surveyed physicians visiting Medscape. Additionally, approximately 1.3 million physicians are active on Medscape from outside the U.S.

Across WebMD and Medscape, we are the digital health partner to the leading health and wellness brands providing advertisers a robust and flexible multi screen product offering which allows them to reach their highly targeted audience on whichever screen the user is engaged.

We continue to bring innovated solutions to our advertisers. In June, we launched our first native program for advertisers looking to reach our consumer audience. We have several more programs scheduled to launch this quarter. Demand for native programs targeting physicians which we launched last year continues to grow. To further enhance our offerings for physicians, in early July we made a small acquisition to enhance our patient simulation capabilities.

Because we own and program all of our site and app, we are unique in our ability to offer advertisers a wider way of innovated digital marking program at a scale that is not readily available elsewhere. In addition, as we've mentioned before we've continue to invest behind a market leading set of targeting segmentation in ROI measurement capability. We work closely with our advertisers to understand and deliver the customized measurement capabilities that they are looking for. We are providing advertisers sophisticated campaign analytics that measure everything ranging from simple brand recognition and recall to downstream behaviors such as changes in prescription activity and household purchasing. Our clients benefit from our ability to use our targeting analytics to integrate sponsored program in areas of our site most likely to generate positive result and our ability to optimize delivery in real time throughout the course of the program.

Because of our scale and the consistent quality of our organic traffic, we are able to measure program result against the same population as was exposed to them which we believe provides customers a greater level of accuracy and reliability. We continue to look for additional ways to expand our brand, leverage our user insight and enhance the value of WebMD and advertising partner industry. As an example, we've recently expanded our product suite to bundle our online solutions with television media. This new product gives advertisers an integrated, omni channel marketing campaign allowing them to make the media buying more targeted, more efficient and more effective.

Given our position at the intersection of the largest, most engaged communities of consumers and healthcare professionals, we are positioning WebMD as a central place where consumers can go to manage all their health information and relationships and share that information with their various health providers in a private and secured manner. In mid June, we introduced a new version of our flagship app for iPhone that features the WebMD Healthy Target health improvement program. WebMD's Healthy Target enables our audience of Type 2 diabetic and other seeking to manage their weight and live a healthier lifestyle to set health and lifestyle goal and to work to achieve those goals by creating and tracking new healthy habits.

Our app aggregates multiple sets of biometric data from devices such as glucometers, wireless scale and other wearable devices. And then it takes one step further provide consumers with an integrated health improvement program that surround their data with WebMD's rich content, helping users to set and measure their progress against goal, ultimately driving behavior change and improving overall health environment. The app has consistently received five star rating since its June launch and was prominently feature by Apple in the app store as one of the best new apps in the health and fitness category. There is lot of innovation going on across the tech industry which is helping to create an aggregate new data sources. We are currently working with industry leaders including Apple, NTRA, Fitbit, Jawbone and Withings. We expect to integrate Apple Health Kit as another data source will now launches in the coming month.

To further expand and diversify beyond our core advertising and sponsorship review streams, we are investing in 2014 to build the foundation to connect our audiences of consumers and physicians. We see an opportunity to help consumer store, act and manage their health information in a trusted environment so that it can empower decision making to share with our healthcare providers and ultimately drive actions. We expect the first release of these new services to begin in late Q4 or early 2015. That release will focus on patient- to- provider, provider-to-provider, secure communication and other high value administrative function. We look forward to sharing additional details in the months ahead.

Turning to our private portal services. As I mentioned earlier, revenue from our private portal services grew 24% in the second quarter driven primarily by the launch of our largest customer the Blue Cross Blue Shield Federal Employee Program. Our private portal offering include the comprehensive and integrated cloud based population health management solutions set for large employers in health plan which allows their employees and plan members to make more informed health and benefit decision to be rewarded for positive changes to their health behaviors and to manage health and lifestyle condition. This is a very fragmented and competitive market. The strength of our platform lie in our ability to integrate individual user data, plan specific data from client, WebMD content and decision support technology and personal communication services and an intuitive user experience backed by the trust and credibility of WebMD brand. We believe there are opportunities for us to leverage our private portal assets and expertise in population health management as we develop services to connect our audiences.

In summary, our second quarter result reflects strong performance across our business. Our commitment to producing award winning health content tool has enabled us to further strengthening the trust consumers and physicians have on our brands. The scale and quality of highly engaged audiences gives us a strong competitive advantage as we continue to see increasing demand from our advertisers. We continue to expand our offerings, further differentiating ourselves and demonstrating while we are an integral marketing partner to the healthcare industry. We are excited about the longer-term opportunities being created by the changing healthcare system. We believe the strong foundation we have built will enable us to expand into areas and accelerate our growth.

Now I would like to turn the call over to Pete at this time.

Pete Anevski

Thanks, David. Results we announced today are slightly above the high end of range of financial guidance we provided in April. Second quarter revenue was $140.4 million compared to $125.3 million last year, an increase of 12%.

Public portal advertising and sponsorship revenue was $116.2 million compared to $105.8 million in the prior year. Private portal services revenue was $24.2 million compared to $19.5 million in the prior year.

Second quarter adjusted EBITDA increased 30% to $37.9 million or 27% of revenue compared to $29.2 million or 23.3% of revenue in the prior year period. The increase margin is attributable to higher revenue.

Second quarter net income was $9.7 million or $0.23 per diluted share compared to $2.6 million or $0.05 per diluted share in the prior year period. Capital expenditures were $6 million in the quarter.

Operating cash flow was approximately $34.1 million in the second quarter which excludes cash tax benefit of $4.4 million for the second quarter related to the use of our tax NOLs, which is included in the financing section of the cash flow statement rather than in the operating section. This is due to the fact that we are now using tax NOLs related to stock-based compensation which in accordance with GAAP must be reported in the financing section of the cash flow statement.

As we have stated in the past, quarterly operating cash flows can be impacted by the timing of billing and collection of receivables from our customers, compensation accruals, and other accruals in relation to quarters end, as well as the timing of interest payments on our convertible notes.

During the quarter, we utilized approximately $37 million in cash to repurchase approximately 900,000 shares of our common stock. As of June 30, we had approximately $781 million in cash and cash equivalents, $952 million in aggregate principal amount of convertible notes outstanding and approximately 39 million shares of our common stock outstanding, which includes 900,000 unvested shares of restricted stock.

As of June 30, the amount available under our stock repurchase program is approximately $37 million. Under the repurchase program we may repurchase shares from time to time in the open market, through block trades or in private transactions, depending on market conditions as well as other factors.

Turning to our financial guidance, as David mentioned, today we are increasing our revenue and earnings guidance for 2014 based on year-to-date actual results and our expectations for continue strength in our business in a third and fourth quarter. For 2014 we expect revenue to be approximately $570 million to $580 million, an increase of approximately 11% to 13% from the prior year period, adjusted EBITDA to be approximately $152.5 million to $157.5 million, an increase of approximately 24% to 28% from the prior year period and net income to be approximately $36.5 million to $40.5 million.

For the third quarter of 2014, we expect revenue to be approximately $140 million to $143 million, an increase of approximately 7% to 9% from the prior year period.

Adjusted EBITDA to be approximately $37.5 million to $39.5 million, an increase of approximately 18% to 25% from the prior year period. And net income to be approximately $8.5 million to $9.5 million.

Please note that there is a schedule summarizing our guidance, included in today's press release. Depending on our quarterly and annual net income, some or all of our outstanding convertible notes may become dilutive. We have attached an updated schedule to the press release, which provides the calculations under which the convertible notes would become dilutive.

Our guidance does not include the impact, if any; a future deployment of capital for items such as share repurchases including with respect to the proposed tender offer announced today, acquisitions, gain or losses from discontinued operations or other non-recurring one time or unusual items.

I'd like to turn over to our Chairman, Marty Wygod at this time.

Marty Wygod

Thanks. As you heard from David and Pete at this point of mid 2014, WebMD management is engaged on various front to continue to grow our business. We are expanding our audiences and engaging our users with trusted and actionable information and tools and delivering innovative programs to advertisers which take advantage of the latest ad technology and our superior analytics. At the same time, we are investing to connect our audiences, physicians at company to take advantage of our changing healthcare landscape. At the board level since our last call, we have added another director to our Board, Dr. Kristiina Vuori. Kristiina brings the board a unique perspective as the future of healthcare given her position as president of Sanford-Burnham. The institute, the leading non profit medical research center employing about 800 scientists performing world class research on topics ranging from cancer to diabetes and obese. Over the last two years through stock repurchases, we've reduced our shares outstanding from 57 million to 39 million so our shareholders will be well positioned for future growth. If you include share buyback made at WebMD's predecessor company, Health, which merged into WebMD on a basis adjusted to reflect the merger extend ratio. We returned $4.5 billion to shareholders repurchasing approximately 172 million shares in the process. Today, we announced that we intend to repurchase 2 million shares of our common stock through a tender offer which represents slightly more than 5% of our currently outstanding share. The Board believes that purchasing our share at this time is a prudent use of funds and our financial, current financial resources will allow us to fund future capital requirement. In addition, you have to provide us the opportunity to return capital to both shareholders who elected this way. Some executive officers and directors have indicating they may participate in the offer, I expect their participation will be limited to a minority portion of their overall holding and for some of them it represents the first sale in more than three year. All details related to the tender offer will be set forth in our offer to purchase filed with the SEC. We expect to commence the offer promptly after the filing of our second quarter Form 10-Q.

Operator, at this time, we will take any questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Our first question comes from Mr. Dave Francis of RBC Capital Market. Sir, your line is open.

Dave Francis - RBC Capital Market

Hi, good afternoon. Couple of questions, David and Peter. First, mobile traffic continues to grow very, very dramatically and I was wondering I guess, a; do you attribute that to the reengineering of the interface or is there something else going on there beyond obviously the general population move towards mobile devices? And also can you talk about kind of how you guys have been able to capture more of the opportunity to monetize that traffic as it comes to you guys? Thanks.

David Schlanger

Hi, David. This is David. We were constantly obviously working on our user interface to make sure that they remain fresh and engaging to our audiences across all of our offerings. But I think with respect to mobile traffic what you are seeing is growth it is driven by kind of consumer habit about how they access information and we all know that -- many of us carry a high end smartphone devices and it's a very convenient way to get information. So I don't think we are kind of unique in that sense. What is unique at WebMD is that we've maintained a very robust PC audience. So the mobile growth has been incremental. With respect to capture net opportunity, it's an evolution, there is not a specific inflection point where it happened and we are very pleased with how that's going. So more and more of our program configurations are including mobile elements, more and more of our advertisers are interested in multi screen offerings where as long as they are reaching their targeted audience be it a healthcare professional or a consumer, it can be on either device. And we are designing many more of our sponsorship programs to work across those devices. So a good example that would be native advertising program where it can be truly multi screen and depending upon whichever device that an individual maybe using that program will be presented to them equally across those devices. So again--

Dave Francis - RBC Capital Market

Can you give us David any metrics? You've given us some rough metrics in the past relative to the number of pharmaceutical advertisers that have been coming to you for some of these multi screen campaigns. Can you give use any sense to how that's grown here over the last couple of quarters?

David Schlanger

Well, so we are further ahead on the Medscape side of the business because we had -- we had some products in market earlier. So again that continues to grow and we continue to increase the number of products we offer to them. So a new mobile detailing program would be a good example. On the consumer side, again we talked about how some of the CPG brands were ahead in their own mobile strategic that continues to be the case. So we are seeing the consumer form a brand more and more of them have mobile websites and are able now to purchase mobile program along with the PC based program. So we don't breakout kind of revenues by device or provide that level of guidance but it's early but growing, that's what I would tell you.

Dave Francis - RBC Capital Market

And a quick follow up if I may. As we get closer to the back end of the year and the next open enrollment period for health insurance purchasing, can you talk to us about any continued conversations that you had with insurance carrier or others in that market place in terms of they are potentially coming back to WebMD to follow on some of the work they did started to do on a trial basis with you in the last open enrollment period. Thanks.

David Schlanger

A number of those discussions are underway right now as you can imagine the time we given there, open enrollment starts in late fall and goes through the first quarter of next year. So and it's not limited to just insurers, it is also the exchanges and various government agencies both state and federal that have an interest in driving people to the appropriate place to purchase health insurance. So we are kind of in that selling season right now.

Operator

Thank you. And our next question comes from Kevin Kopelman of Cowen & Co. Your line is open.

Kevin Kopelman - Cowen & Co

Hi, thanks a lot. Could you just give us an update on how you see the overall pharma ad environment versus in Q2 and also in Q3 to date? Thanks.

David Schlanger

Yes, I mean the environment is positive. As we've talked about before in another calls, we are very unique and that we have not just a largest overall audience but very strong condition audiences. And the products that are in market now and that are coming to market again as we talked about before are targeted to this niche audiences in many important categories whether it be diabetes or now Hepatitis C, you are seeing competition amongst brands in those categories which is a good opportunity for us. And we have the scale to work with multiple brands within these therapeutic categories. So we are seeing a strong advertising environment across the pharmaceutical industry.

Kevin Kopelman - Cowen & Co

Okay, thanks and then just on the private portal. Can you help us think about how that looks in the back half? It looks like it was down a little bit Q-over-Q, is that just seasonality or is there anything in particular there?

David Schlanger

Pete, you want to take that question with respect to--

Pete Anevski

Yes. As it relates to timing of some of the quarterly revenue for the private portal. Some of is transaction based, so there are sometimes fluctuations. We do expect the back half of the year to be higher than the front half of the year relative to private portal.

Operator

Thank you. And our next question comes from Steve Rubis with Stifel.com. Your line is open.

Steve Rubis - Stifel Nicolaus

Hi, thanks for taking my questions. A couple multiparters here for you guys. In the press release and your prepared remarks, you talked incorporating and targeting analytics offerings in your advertising campaign. How long might it takes for these new offerings to drive accelerate revenue growth? How do these new improved offerings help drive mid-campaign optimization for advertisers and help you provide clients with better analytical insights. And then lastly, how doe this reconcile with the declining advertising growth rate that seems to be implied by your guidance?

David Schlanger

Well, first thing I would say is that our capabilities we've had in market for quite some time now and those capabilities have been helping us drive our positive momentum on our advertising business. So we expect that to continue and we are always looking to refine our offerings but our ability to target more effectively to optimize programs into measure program performance across a broader ray of our offerings has been in place now for several quarters. And I am not sure what you are seeing when you said declining advertising -- as far as the implied growth rate in the quarterly revenue I think what you are referring to sequentially, and you compare year-over-year, there is timing through an advertising campaign which does impact Q3, Q4, it was below high end, doesn't show decline and so they simply just timing in some other quarters.

Steve Rubis - Stifel Nicolaus

I guess I am just confused here because I thought it does I mean you said you are calling for 7% to 9% revenue growth, and the last quarter you did roughly 10%, 3% to 12% on the top line, okay, I'll talk to you after the call. My next question in terms of WebMD Health Services, the private portals business, can you talk about your predictive analytics and epidemiologic logic, analytics capabilities, and can you talk about whether do you think this business can evolve away from simple health and wellness towards a more benefit design type of offerings? and this maybe what you refer to when you talked about population health. Any color would be great.

David Schlanger

Yes, I have to remember all the various parts of your question. But I would say in the private portal, we've invested over the last several years to expand our product suite to be beyond just a health and wellness platform but also to include condition management capabilities both on and offline. So that we really do feel that we now have a robust suite of decision support tools and population health management tools that kind of cover -- it will cover the spectrum of what an employer or health client would be looking for in those areas. We certainly also work hard to understand the impact of our programs when they are deployed and provide our clients insight into that data so they can understand how programs are performing. I am not sure what else you have asked Steve.

Steve Rubis - Stifel Nicolaus

Yes, that was it. I was really ultimately asking about analytics and how you've evolved that offering over time. And so my last question and I'll turn it over everybody else on the call. Can you help me understand the strategy behind the MedPulse app? I mean does this kind of represent a pathway of you expanding your advertising opportunity in the social media especially when you think about how the recent FDA social media guidance has come out? And it seems like what may happen is that the publishers like yourself, Everyday Health and Healthline, may end up being kind of middleman who help the biopharma advertisers navigate, participate in social networks rather going direct to that network.

David Schlanger

Well, so the first thing is into across our business note, doctors would prescribe the Medscape but we want to make it easy for our users to find the information that's important to them. One of the most important reasons that physicians come to Medscape is because they want to keep up-to-date with news that's relevant to them and their specialty. And even just across medicine. The MedPulse app was designed to make it easier for our docs to get the news that's most important to them. And it's consistent with the trend across the digital world where apps are becoming much more single purpose to make it easier for people have that sole purpose in mind to do what they want to do as opposed to an app which becomes a mirror of a bigger website. So again the MedPulse app was designed to do that. I am not sure what the social media you are referring to. One of the things we do on the MedPulse app is we curate the Twitter sphere so that we make it easier for our physicians to find what's being discussed on Twitter that maybe relevant to them. So that's in there, there is a social element in Medscape and you have to fill me in on what was the rest of your question was.

Steve Rubis - Stifel Nicolaus

No. I'll talk to you after the call about it. But I was just trying to see if MedPulse was more of an advertising opportunity, it sounds like it is more of just a data aggregation.

David Schlanger

Certainly everything we do to MedPulse app is certainly designed with the ability to incorporate sponsorships within it. So it was a very important user tool and but it's also an important tool for our sponsors and consistent with other I think we've showed you to Steve, other Medscape capabilities for instance our native mobile capabilities are built into the MedPulse app.

Steve Rubis - Stifel Nicolaus

Okay, interesting. I have never seen them but thanks.

David Schlanger

Again, you wouldn't because you are not a physician that would be targeted by those programs.

Operator

Thank you. And our next question comes from Nicholas Jansen of Raymond James & Associates. Your line is open.

Nicholas Jansen - Raymond James & Associates

Yes, thanks, guys. In the private portal business, I am trying to get a sense of if you excluded the FEP contract when -- what's the underlying growth in that segment as we think about that anniversary next year so you kind of make sure our models are appropriately aligned from a growth perspective within that segment. Thanks.

David Schlanger

Yes, we haven't actually provide the specific contribution of the FEP contract. I can just read it what we said the majority of growth that's been driven by that and we are in the middle of the selling season for 2015 so it's really too early right now at this point in time to give any sense of what 2015 is going to look like premature.

Nicholas Jansen - Raymond James & Associates

That's helpful color. And speaking internationally, I think last quarter you announced partnership with an online physician community in China. I just want to get any more updates on the international front from a growth perspective. Thanks.

David Schlanger

Sure. International on the Medscape side of our business continues to be an important opportunity. One that we are investing in both from building the infrastructure around our sales force and our sales capability overseas. But also with respect to building our audience of international physicians. With respect to the DXY partnership in China, that's recently launched. We've done a few editorial collaborations, there are few sold programs, they are in the queue that are about to be launched. And we are continuing to aggressively pursue opportunities to sell more programs in Asia.

Nicholas Jansen - Raymond James & Associates

Okay. And then lastly maybe a bigger picture question. Obviously, you are talking to a bunch of new advertisers within the health plan, the exchanges, and the government agency community within the portal business. I am trying to get a sense of what do you think that addressable market is? I know it's a bigger question but just trying to get sense of how big this opportunity could be not this year, not next year but longer term as we think about the health plan actively engaging the consumers within the exchange population. Thanks.

David Schlanger

I mean I would love to give you numbers. These markets are still kind of developing; we are entering just a second year of open enrollment. So the size of the budget that help plans in various state agencies and government agencies are going to devote to those still being determined. We do know that there -- that they are substantial and certainly opportunities that we are going after. But I couldn't give you number with any sense of accuracy curve.

Operator

Thank you. And our next question comes from Peter Stabler of Wells Fargo Securities. Your line is open.

Steve - Wells Fargo Securities

Good afternoon, guys, this is Steve filling in for Peter. I had a couple of quick questions. I know you previously commented that virtually all advertising sold directly and you guys don't really make any inventory available on exchanges. Wanted just if you had an update on that view given the growing popularity of private premium programmatic market places. And kind of on the mobile side, mobile traffic continues to grow nicely, any plans to make a mobile inventory available on some of these mobile programmatic exchanges. Thanks guys.

David Schlanger

Yes, we don't and have no current plans to make our advertising inventory available in a programmatic real time bidding fashion. As we've said earlier we are considering certain options with respect to allowing some of our client to use their technologies to buy in more automated fashion but that shouldn't be confused with what people kind of call programmatic real time bidding which we don't intend to do. We've had and are having very good success in selling our very unique inventory and audiences directly.

Operator

Thank you. And our next question comes from Adam Klauber of William Blair. Your line is open.

Adam Klauber - William Blair & Co.

Thanks, good afternoon. A couple of questions. In the private portal, you mentioned it's still middle of the selling season so you clearly don't know how it's going to end up. But could you comment? Has it been a more active selling season than the last couple of years, number one? Number two, are you seeing more opportunities and in particular are you seeing more opportunities for some of your new capabilities that condition management particularly?

David Schlanger

Yes, I think it's still early for me to provide some color on how the selling season is going to end up with respect to the private portal. We are seeing good activity with important and large organization and again we will see how that plays out over the next several months.

Adam Klauber - William Blair & Co.

Okay. That's helpful. On utilizing cash, I saw the tender that's more shares bought back is always positive. Can you talk about the potential not specific deals but are you seeing a decent amount of deal flow? Are there interesting properties or is it just nothing is going is on your radar right now?

David Schlanger

We are seeing a fair amount deal flow, we will tell you that we've recently passed on a few deals that we were in a process with and doing due diligence on and we passed for variety of reasons. I would also tell that we are analyzing certain other opportunities now and in certain -- and in a few instances an exclusive dealing period on a few other opportunities also. So we are seeing deal flow, there is nothing that we passed on that we regret passing on.

Operator

Thank you. Our next question comes from Steven Wardell with Leerink Partners. Your line is open.

Steven Wardell - Leerink Partners

Hi, it's Steve Wardell with a question for David. I have a question about the pharma ad market. Historically, brand managers have been holding back on their online spending because of concern about FDA regulation and the gray areas around regulation. What's the current state of your dialogue with them about this? And are they becoming more comfortable with online vending and are you developing offerings that are able to address the regulatory concerns? And did the recent FDA guidance on social networking affect this at all?

David Schlanger

Well, so I just probably could spend a minute clarifying what's going on. The FDA guidance on pharma with respect to advertising on social media doesn't apply to WebMD because under the FDA guidance we are not social media platform. We actually provide safe place for pharma advertisers and I think our business in the size of our advertising business demonstrate that we gotten several years ago we got passed any discomfort or that pharma may have had about using platforms like WebMD and Medscape for their advertising and sponsorship program. The recent FDA guidance on social media is such that we don't expect to see a flood of pharma advertising go to social media because there is still certain issues that pharma has to deal with respect to adjacency, fair balance when it comes to -- sometime limited screen size like with Twitter post but again it has not really impacted what we do at WebMD Medscape.

Operator

(Operator Instructions)

Our next call comes from Mr. Rubis with Stifel.com. Your line is open.

Steve Rubis - Stifel Nicolaus

Yes, thanks. Given there was an international question earlier in the call, I'm wondering if the -- and I think this is what happened, that Walgreens may have purchased Boots UK. I'm wondering if that does anything to your agreement there or your Boots partnership

David Schlanger

Well, the second stage of Walgreens deal is not actually close as far as I know. But no, it doesn't impact-- we've a great relationship with Boots. So that shouldn't impact at all.

Steve Rubis - Stifel Nicolaus

And then can you talk about the decision process behind doing the tender offer versus just open market purchases?

David Schlanger

It's -- open market purchases are much more difficult because of various volume limitation. So the tender offer provides an opportunity to buy more significant amount of shares at one point of time.

Steve Rubis - Stifel Nicolaus

Okay. And then the last one, kind of following up on the open enrollment angle here, it seems like healthcare.gov was the largest at least display advertiser according to comScore data in the first quarter. And I know that Aetna, Humana, WellPoint, CIGNA were advertisers. Can you talk about if you think or should we think that the opportunity is larger than just those four large carriers? I know obviously the state exchanges were advertisers as well. And then can you talk about if you are doing anything with say Enroll America, or how your platform is really helping healthcare.gov gain members?

David Schlanger

Yes. For the first thing I would do as I would caution you about using some of those third party tools which help you figure out here the biggest advertisers are on our site because we try to use them also Steven, they often are not very accurate with respect to the scope of any advertiser on our site. So now as you correctly point out all of those organizations were advertisers. I think they are reflective of the fact that they all view WebMD as an important platform to help both establish them, their brand as consumer brands but also to drive people to the exchanges, I mean drive people to them to sign up for insurance. And we expect to continue to be able to play a role in that as you there are open enrollment period on an annual basis.

Operator

No further questions. As a reminder, if necessary there is a replay available of this call which can be accessed toll free at 885-859-2056 or if you are calling from outside the U.S. at 404-537-3406. The pass code is 723-554-56. There is also a webcast replay available on www.wbmd.com. Thank you for joining us today.

David Schlanger

Thanks, operator.

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