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Executives

Risa Fisher - VP of IR

Kevin Cameron - CEO

Marty Wygod - Chairman of HLTH and WebMD

Wayne Gattinella -CEO and President of WebMD

Mark Funston - CFO of HLTH and WebMD

Tony Vuolo - COO of WebMD

Analysts

Heath Terry - Credit Suisse

Jen Watson - Goldman Sachs

Sandy Draper - Raymond James

Rob Kelly - Smith Barney

Jeremy Lopez - William Blair

Mark Mahaney - Citi Investment Research

Brian Pitz - Banc of America

John Kelly - Citigroup

James Kumpel - Friedman, Billings, Ramsey

Anthony Petrone - Maxim Group

Denise Kong - DeepHaven Capital

Neil Doshi - ThinkEquity Partners

Geoff Dancey - Cutler Capital Management

Clark Wong - Needham & Company

Alex Lach - Camden Asset Management

HLTH Corp. (HLTH) Q3 2007 Earnings Call November 7, 2007 4:45 PM ET

Operator

Good afternoon and welcome to the HLTH Corporation and WebMD Health Corp. September 2007 Quarterly Conference Call. Today's conference is being recorded.

And now at this time, I would like to turn the call to Ms. Risa Fisher, Vice President of Investor Relations. Please go ahead.

Risa Fisher

Good afternoon. This is a joint conference to discuss HLTH and WebMD's third quarter financial results. I will read the following statements concerning forward-looking disclosures.

All statements made today, other than statements of historical fact, are forward-looking statements, including those regarding: our guidance on future financial results and other projections or measures of HLTH and WebMD's future performance; our expectations concerning the growth of online marketing budgets; other market opportunities and our ability to capitalize on them; the benefits expected from acquisitions and other transactions, from new products and services and from other potential sources of additional revenue; and the planning for a potential transaction that could allow HLTH Corporation's stockholders to have a more direct investment in WebMD.

These statements speak only as of today and are based on our current plans and expectations, and they involve risks and uncertainties that could cause actual future events or results to be different from those described, including the risks and uncertainties that are described in HLTH and WebMD's SEC filings.

Except as required by law, HLTH and WebMD do not undertake any obligation to update our forward-looking statements to reflect future effects or circumstances. The earnings release issued today by HLTH is available at www.hlth.com in the investor relations section and has also been included in a Form 8-K filed today with the SEC.

The earnings release issued today by WebMD is available at www.wbmd.com in the investor relations section and has also been included in a Form 8-K filed today with the SEC. The respective Form 8-Ks and other SEC filings are also available on HLTH's and WebMD's respective websites and on the SEC's website.

The releases and Form 8-K that were filed today include reconciliation's between GAAP and non-GAAP financial measures to be presented in this call.

I'd now like to turn the call over to Kevin Cameron, CEO of HLTH Corporation.

Kevin Cameron

Thanks, Risa. Good afternoon and thank you for joining us today. Joining me today on the call are Marty Wygod, Chairman of HLTH and WebMD, Wayne Gattinella, CEO and President of WebMD, Mark Funston, CFO of HLTH and WebMD, and Tony Vuolo, COO of WebMD. I'm going to turn the call over to Marty right now to give you an update on some comments that we made at our annual meeting.

Marty Wygod

Thanks, Kevin. At the HLTH's annual meeting of stockholders in September, I indicated that HLTH was working on a plan that would meet the desire expressed by HLTH holders to participate more directly in the ownership of HLTH's 84% owned subsidiary WebMD. Although, HLTH does not have a totally definitive proposal at this time, we want to share with you a brief outline of a possible transaction that HLTH is contemplating.

The potential transaction is expected to involve the following: HLTH would merge into WebMD and WebMD would be the surviving corporation. HLTH shareholders would receive as merger consideration a combination of cash and WebMD shares for their HLTH shares.

This would allow HLTH shareholders to own WebMD shares directly. We would expect that WebMD shares would constitute up to 50% of the merger consideration and their receipt would be tax free to HLTH shareholders.

For a WebMD shareholder, their shares would be unchanged, however the transaction would simplify the WebMD capital structure by eliminating the class B shares currently held by HLTH and HLTH's control of WebMD.

In addition, as a result of the transaction, the WebMD float would be dramatically increased and we expect to reduce the total number of shares outstanding of WebMD common stock in the transaction.

HLTH has received unsolicited preliminary indications of interest from various companies expressing their interest in acquiring our Porex and ViPS subsidiaries, as well as our 48% ownership interest in Emdeon Business Services.

Accordingly, if we proceed, we would expect that the cash portion of the merger consideration would come from a combination of cash on hand at HLTH and/or WebMD and the anticipated proceeds from the potential sale of these assets.

We expect the merger consideration to reflect, among other factors, an evaluation of the realizable values of the assets and liabilities of HLTH other than its ownership of WebMD.

As you would expect, after a transaction such as this, excess corporate overhead would be eliminated so that the amount necessary to operate the ongoing business would be retained.

We have taken preliminary steps to provide the Board of Directors of both WebMD and HLTH the necessary resources to review the proposed restructuring. In that regard, WebMD's Board of Directors has established a special committee of independent directors consisting of Stanley Trotman and Jerry Keller and the special committee has retained independent legal counsel and financial advisors.

As to timing, HLTH has not yet submitted a proposal to the WebMD special committee for its consideration. We expect HLTH to do so immediately. That will begin a process of HLTH negotiating with a special committee regarding transaction terms that the negotiations result that definitive agreement we expect that HLTH and WebMD would hold special meetings of stockholders to seek approval of the transaction.

At this stage, we cannot be sure whether the process will lead to a completed transaction and if it does what the ultimate terms and timing will be.

I would like to turn it over to Mark Funston and then Wayne Gattinella to review the third quarter results and financial guidance for WebMD and HLTH and then we will take questions at the end of the presentations. Mark?

Mark Funston

Thank you, Marty. First: I will address WebMD's financial results. Please note that WebMD's prior period results reflect the impact of the change in the prior year's income tax provision related to the accounting treatment of tax-deductible goodwill amortization, which we discussed on prior conference calls this year.

This change resulted in an increase in non-cash deferred income tax expense in prior periods. WebMD filed amended Forms 10-Q and 10-K on May 10, 2007, which contained those revised prior period results.

WebMD revenues, for the September 2007 quarter, were $87.2 million, compared to $66.6 million last year, an increase of 31%. Revenue growth was 25% over the prior year, when excluding acquisition related revenues of $7.1 million for the September 2007 quarter and $740,000 in September 2006, $400,000 in off-line CME revenue in the September 2006 quarter and the impact of the AOL expiration on April 30, 2007, which contributed $1.4 million in the September 2006 quarter.

Adjusted EBITDA for the September 2007 quarter was $24.1 million, compared to $14.6 million last year, an increase of 65%. Adjusted EBITDA as a percent of revenue improved 560 basis points to 27.6% from 22% last year. Adjusted EBITDA per diluted share was $0.40 compared to $0.25 last year. The adjusted EBITDA margin on incremental revenue was 46% for the September 2007 quarter.

Excluding the impact of revenue and adjusted EBITDA from acquisitions, the expired AOL arrangement and the discontinued off-line CME product discussed earlier, the adjusted EBITDA margin on incremental revenue exceeded 50% for the September 2007 quarter.

On-line services segment adjusted EBITDA increased 72% to $21.9 million or 27.6% of segment revenue compared to $12.7 million or 21.6% of segment revenue last year. Publishing and other services adjusted EBITDA was $2.1 million compared to $1.9 million last year.

Net income for the quarter was $11.5 million or $0.19 per share compared to $490,000 or $0.01 per share last year.

Looking further at the revenue increase of 31%, advertising and sponsorship revenue increased 36% to $59.1 million resulting primarily from internal growth. Acquisitions contributed a total of $4.1 million of revenue in the September 2007 quarter at $700,000 in the September 2006 quarter. Excluding these revenues, and the impact of the expired AOL agreement, advertising and sponsorship revenue increased 33% compared to last year.

Private portal licensing revenue increased 37% to $20 million, resulting from internal growth and from our acquisition of Subimo, which contributed $3.1 million during this quarter and no revenue last year. After adjusting for these revenues, licensing revenue increased 16% compared to last year. Publishing and other revenues was $7.6 million, a decline of $79,000 compared to last year.

This decline includes the impact of our previously announced decision to discontinue our off-line CME products. These products contributed $400,000 in revenue last year and no revenue this year.

Looking at certain expenses, depreciation and amortization was $7.1 million compared to $5.1 million last year. This increase was due to a combination of the impact of acquisitions and increased levels of capital expenditures.

Non-cash advertising expense was $169,000 this quarter, compared to $1.7 million last year as the timing of the utilization of our available television advertising is more heavily weighted toward Q4 than in prior years. Non-cash stock compensation was $5.7 million compared to $7.2 million last year.

Interest income totaled $3.5 million for the quarter, an increase of $2.3 million from last year due to increased cash available for investment and higher interest rates. The provision for income taxes was $3.1 million for the quarter compared to $1.4 million last year.

The income tax provisions for the September 2007 quarter includes a non-cash expense of $1.4 million, related to the current period impact of the deferred tax liability for tax deductible goodwill. WebMD's weighted average diluted share count for the quarter was 59.8 million.

Turning to our balance sheet, WebMD's cash and investment balance at September 30, 2007 was $278 million. Operating cash flow was $27.9 million for the September 2007 quarter compared to $15.1 million last year. As we have stated…

Operator

Mr. Cameron, it appears we have lost that one speaker line.

Marty Wygod

I can hear you. This is Mr. Wygod.

Operator

Hi, Mr. Wygod, apparently we lost that one speaker line. Wonder if you could maybe continue the conference until we re-establish that line?

Marty Wygod

That is difficult because all the parties are on that line.

Operator

Well, if we could get everyone to just please standby momentarily while we reconnect that line. We've got that line reconnected.

Risa Fisher

Operator, can you hear us?

Operator

Yes, Ma'am. Please continue.

Risa Fisher

We are not sure where we got disconnected.

Marty Wygod

You got disconnected after you talked about the interest income, $3.5 million for the quarter, et cetera. So just start at the provision for income taxes.

Mark Funston

Got it, okay. The provision for income taxes was $3.1 million for the quarter compared to $1.4 million last year. The income tax provision for the September 2007 quarter includes a non-cash expense of $1.4 million related to the current period impact of the deferred tax liability for tax-deductible goodwill.

WebMD's weighted average diluted share count for the quarter was 59.8 million.

Turning to our balance sheet. WebMD's cash and investments balance at September 30, 2007 was $278 million. Operating cash flow was $27.9 million for the September 2007 quarter compared to $15.1 million last year.

As we have stated on prior calls, quarterly operating cash flows can be impacted by the timing of the cut-off of compensation accruals, other expense accruals, the billing and collection of receivables and reimbursements to HLTH in relation to the quarter's end.

Additionally, during the quarter WebMD received $9.9 million as a capital contribution from HLTH as the final true-up payment for HLTH's utilization of a portion of WebMD's NOL during 2006. Capital expenditures were $3.8 million for the September 2007 quarter.

Turning to the financial guidance for the fourth quarter 2007. WebMD's revenue guidance for the December 2007 quarter is $94 million to $98 million, an increase of 17% to 22% over the prior year.

As we indicated on the October 16th, fourth quarter revenues would be impacted by the timing of the delivery of certain advertising programs being more weighted to 2008 than had been anticipated and the lengthening sales and implementation cycle in the private portal business.

Adjusted EBITDA guidance for the December 2007 quarter is $30 million to $32.5 million, an increase of 34% to 46%, reflecting the lower revenue guidance range offset by the expected higher margin on incremental revenues due to the acceleration of benefits from infrastructure investments and acquisition synergies.

Adjusted EBITDA as a percentage of revenues is expected to be approximately 32% to 33% compared to 28% last year, an increase of 400 to 500 basis points. Our guidance for net income is a range of $15 million to $18 million for the December 2007 quarter compared to $6 million last year, an increase of approximately 150% to 200%.

Turning to WebMD guidance for 2008, our guidance is still preliminary and is subject to further refinement as we conclude our planning process. Our preliminary outlook for 2008 is for revenues of $420 million to $435 million.

Our 2008 revenue guidance assumes the following revenue distribution: Approximately 71% from advertising and sponsorships with organic revenue growth of approximately 35% over 2007; approximately 22% from licensing of our private portal products with organic revenue growth of approximately 20% over 2007; and approximately 7% from publishing and content syndication revenues, an increase of approximately 5% over 2007.

We believe adjusted EBITDA would be $120 million to $130 million, an increase of 47% to 54% compared to 2007. Adjusted EBITDA as a percentage of revenue is expected to be approximately 30% in 2008, an increase of about 500 basis points compared to 2007. Adjusted EBITDA per share is expected to be $1.94 to $2.10 per share for 2008.

The adjusted EBITDA margin on incremental revenues for 2008 is estimated to approach 50% after adjusting for the revenue in earnings of the expired AOL arrangement during 2007. Our expectations for adjusted EBITDA margin on incremental revenues contemplate the impact of lower margins on both our private portal and publishing products.

This is due to the revenue growth from those products coming primarily from coaching and other off-line services. The margin on incremental revenues for advertising and sponsorship products, which comprise about 71% of our revenues, is expected to be about 55%.

Net income for 2008 is expected to be $44 million to $53 million, an increase of 34% to 49% over 2007. Our guidance for Q4 2007 and full year 2008 does not include any benefits stemming from the reversal of valuation allowance against our deferred tax assets.

Our expectations for net income for 2008 contemplate that we will begin to record a non-cash federal income tax expense. As required under SFAS 109, we now have a sufficient earnings history to reduce the valuation on that allowance against our deferred tax assets, primarily a tax NOL and to begin recording a non-cash tax provision.

The increase in the effective tax rate to 41% from 20% in 2007 is a result of this non-cash tax expense. Our guidance does not reflect the potential transaction that may occur between WebMD and HLTH as discussed earlier. A schedule summarizing WebMD's updated financial guidance as well as the reconciliation between GAAP and non-GAAP financial measures is attached to the press release WebMD issued today.

I would now like to turn it over to Wayne.

Wayne Gattinella

Hey thanks, Mark. Our third quarter growth was strong as we continue to consolidate our leadership as the most recognized and utilized brand of health information and better position the company for sustainable growth for the future.

Our advertising and sponsorship revenues during the quarter increased 36% over a year ago, as we continue to significantly expand our business with biopharmaceutical and consumer products companies.

Traffic to the WebMD health network averaged 40.8 million unique users per month and page use totaled 863 million pages during the quarter, increases of 26% and 18% respectively from a year ago. As we previously announced, our programming relationship with AOL ended on April 30th. So excluding AOL health traffic from the prior year quarter, WebMD users and page view traffic grew 35% and 23% respectively.

The WebMD network is comprised of the richest and most targeted set of health sites on the internet with 96% of our quarterly page use generated on WebMD owned and operated sites. Last month we announced new search and advertising distribution agreements with Yahoo!, one of the most trafficked Internet destinations worldwide.

As part of our agreement, Yahoo! will power sponsored search across the WebMD network of consumer sites. In addition, the new agreement provides WebMD with exclusive rights to sell Yahoo! network inventory in the health care market by enabling our advertisers to reach WebMD users when they're on Yahoo!

This new relationship will dramatically extend the targeted advertising reach and inventory of WebMD, as well as provide the WebMD user with more timely and relevant marketing messages on Yahoo!

Our on-line reach to physicians continues to expand, as we generated more than one million monthly physician visits to our professional network during the quarter. In the third quarter 730,000 continuing medical education or CME programs were completed on our professional sites, an increase of 50% over last year. Since January, more than 2.1 million CME programs have been completed on our network, already exceeding the total volume for CME programs for the entire 12-month period of 2006.

On-line advertising sales were very strong during the quarter, as we continue to penetrate the biopharmaceutical market with increased levels of sponsored programs aimed at both consumers and physicians.

We are seeing some of our biopharma customers enter the 2008 ad market earlier than in previous years, with up front buying across some of the most valuable areas of our sites. Although the revenue contribution from these sales in the second half of 2007 is lower than we anticipated, we do enter 2008 with a strong backlog of sold advertising and sponsorship programs.

We continue to leverage the portal technology platform that we implemented for our consumer site earlier this year, by launching new services that are designed to enhance the level of user engagements, provides incremental opportunities for monetization and increase the overall level of search engine optimized traffic to our sites.

Our investments are beginning to pay off. We've secured several new sponsorships for our new WebMD health check products, a new online health assessment that helps people measure their health risks across a wide spectrum of issues.

Drug insights our new community product that allows consumers to review and share their personal experiences with individual prescription products, has already captured many thousands of personal reviews in just the initial launch stage.

And overall, our mix of consumer traffic generated by non-paid search engine referrals has continued to steadily rise. In addition, we have several important new consumer products in development for launch in the coming year.

On our physician network, we launched Medscape Alert, a new product that's designed to give biopharma clients a powerful way to quickly reach targeted physicians with breaking clinical news and information on demand. Our first sponsored Medscape Alert was already delivered just at the end the quarter.

In the third quarter we announced our plans to launch Medscape in Latin America, Spain, and Portugal through a new alliance with [MedCenter], the leading provider of online pharmaceutical marketing and continuing medical education in these markets.

We are leveraging MedCenter's established network of physician relationships with prominent medical societies to bring Medscape's timely and relevant clinical information to these valuable new markets. We are also continuing to evaluate alternatives for entering other international markets as well.

Turning to the private portals market, WebMD continues to lead the market in providing co-branded health and benefits portals to large employers and health plans. We've expanded our installed base of companies licensing the WebMD private portal platform to now include GlaxoSmithKline, Blue Cross and Blue Shield of Louisiana, Providence Health Systems. We also implemented our health portal platform combined with WebMD health coaching for Eaton Corporation, Notre Dame University, and Baylor Health Care System.

And in addition, we implemented new health care decision support services this quarter for Wal-Mart and Blue Cross, Idaho.

During the quarter, we implemented our first WebMD health alerts product for IBM employees. Health alerts integrates with the WebMD personal health record to securely message employees on potential gaps in their care.

At the end of the third quarter, the installed base of large companies licensing the WebMD private portals platform totaled 112 organizations compared to 91 a year ago. In addition, we have approximately 150 other customers who purchase our standalone health decision support services.

We continue to experience a longer sales and implementation cycle with the introduction of these new clinical and care management services. These services prompt a more sophisticated and somewhat longer buying decision.

In addition, we are beginning to see some increased competition as our success has attracted the attention of the offline disease management companies and payors in this area. Because the majority of our new implementations tend to occur in the back-half of the year, we don't expect to see significant revenue contribution from new account activity until the latter part of 2008.

Finally, I'm very pleased to announce that on the November, the 1st, William Pence joined WebMD as Executive Vice President and Chief Technology Officer for the company. Bill comes to us from Napster where he served as Chief Technology Officer and Senior Vice President since 2000. He was the Chief Technology Officer for Universal Music Group, which was subsequently acquired by Roxio, Inc. And in 2003, this served as the basis for a re-launch of Napster service.

Previously, Bill spent more than a decade at IBM where he held various technology and management positions, as well as, oversaw the research and commercialization of technology for IBM product divisions. Bill has significant experience in developing innovative products that significantly enhance the user experience, as well as, a strong track record in leading change management initiatives.

At Napster, Bill built a technology organization, platform and services from the ground up and was responsible for the re-architecture of major subsystems to enhance scalability, as well as, led the company's international and mobile rollout. So welcome, Bill.

In summary, I'm very excited about the momentum that we are carrying into 2008. The demand for our services is increasing, particularly in our consumer and professional advertising and sponsorship programs. We're very pleased with the reception to our new advertising products and in their significant potential to accelerate our future growth.

We have demonstrated our ability to profitably deliver revenue growth, while at the same time continue to make the necessary investments in our technology, in our infrastructure and in our people to drive the success of our enterprise for many years to come.

I'd like to now turn it back to Mark Funston.

Mark Funston

Thanks, Wayne.

Turning now to HLTH financial results: Consolidated revenue for the September 2007 quarter was $133.3 million, compared to $299.7 million a year ago. Adjusted EBITDA was $29.3 million or $0.16 per share in the September 2007 quarter, compared to $59.6 million or $0.20 per share a year ago. And income from continuing operations in the September 2007 quarter was $16.1million or $0.08 per share compared to $22.4 million or $0.07 per share a year ago.

As a reminder, when comparing the results for the quarter ended September 30, 2007, with the prior-year period, please consider that for the September 2007 quarter, our 48% portion of Emdeon Business Services income is reflected in the line item Equity and Earnings of EBS Master LLC, whereas for the prior-year period, the results of Emdeon Business Services were included in our consolidated revenue and earnings.

Because of this required presentation, our reporting regarding EBS as well as our consolidated results will not be comparable to the respective prior-year periods until after we reach the anniversary of the transaction.

Additionally, please note that HLTH's prior-period results reflect the impact of the change in the prior year's income tax provision related to the accounting treatment of tax-deductible goodwill amortization, which I had discussed on prior conference calls this year. This change impacted non-cash deferred income tax expense in prior periods. HLTH filed an amended Form 10-K on May 10, 2007, to revise its prior-period results.

Looking at our segment results specifically, ViPS segment revenue was $24.3 million for the September quarter, down 2% from $24.8 million a year ago, primarily due to a decrease in professional consulting services provided to governmental agencies. ViPS segment adjusted EBITDA was $4.8 million or 19.8% of revenue, down from $5.3 million or 21.3% of revenue a year ago.

As we mentioned during last quarter's conference call, the shortfall in revenue and adjusted EBITDA this quarter was due to the unexpected cancellation of one contract. This cancellation was the result of lack of delivery to CMS by another vendor unrelated to ViPS. This left ViPS with no work to take on under its portion of the contract.

On September 14, 2007, ViPS was selected as an information technology partner by the Centers for Medicare & Medicaid Services, CMS. In its new contracting vehicle named Enterprise Systems Development or ESD, CMS is expected to procure a majority of its information technology development work for the next 10 years under this new contract, and it has set a maximum ceiling of $4 billion on the value of contract to be awarded under this vehicle.

ViPS is one of eight large business awardees. With ESD now being awarded, we believe the pipeline will be strong and there will be significant opportunities for us in 2008 and beyond.

Porex segment revenue was $21.9 million for the September quarter compared to $21.3 million a year ago, an increase of 3%, driven primarily by growth in our surgical products combined with the impact of favorable foreign currency exchange rates. Porex segment adjusted EBITDA was $6.4 million versus $6.1 million in the prior year, an increase of 5%.

Operating margins increased to 29.5% from 28.8% in the year-ago period, primarily due to the higher revenue, as well as, lower direct manufacturing costs relating to the mix of products produced, which can have varying gross margins.

Porex continues to generate consistent results, demonstrating strength this quarter in its surgical products. Porex continues to improve its manufacturing processes in order to generate efficiencies, reduce costs and improve the quality of its products.

Porex has several new patented applications and continues to introduce new products to replace aging applications. With facilities located in the United States, Europe and Asia, Porex is strategically positioned to meet the needs of its customers as they transition their businesses globally.

Porex's future revenue and earnings growth is expected to come from new applications and patented products, which includes its recent partnership agreement with a global leader in the industrial wastewater filtration market.

Corporate expense for the September 2007 quarter was $6.1 million or approximately 4.5% of consolidated revenue compared to $11 million a year ago. As we noted in past quarters, we are providing certain transition services to EBS Master LLC and Sage. The fees we received for these services in the September 2007 quarter were $1 million compared to $0.3 million a year ago and are included within the corporate segment as an offset to the cost of providing the related services.

There were additional scheduled reductions in headcount during the quarter, and we were able to consolidate some space within our New Jersey corporate office, which enabled us to reduce our overhead to better reflect the current ongoing operations.

Briefly touching on our investment in Emdeon Business Services, EBS delivered strong results in the third quarter. While not considered an operating segment any more, we recorded $8 million of equity and earnings of EBS LLC in the September 2007 quarter, reflecting our 48% portion of their income.

Revenue was $203 million, representing another record revenue quarter and continued to be (inaudible) Net interest income for the quarter was $6.3 million compared to $1.9 million in the third quarter of the prior year. Increase in interest income was primarily due to higher cash balances upon the higher interest rates during the current year period.

Finally, while we do not project, or include, expenses related to the DOJ investigation in our guidance, our third quarter results did include $373,000 in expenses HLTH incurred related to this investigation compared with $1 million for the same quarter last year.

These costs are for the legal and related expenses that the company incurred in connection with the investigation. These expenses historically have been, and will continue to be, presented on a separate line called: “legal expense” within continuing operations.

Turning to our balance sheet, as of September 30th, 2007, HLTH had approximately $784 million in cash and short-term investments on a consolidated basis. This amount includes $278 million in cash and short-term investments held by WebMD.

Operating cash flow from continuing operations in the September 2007 quarter was $35.7 million compared to $36.4 million a year ago. These cash flows reflect higher cash flow in the current quarter from our operating segments as well as reduced corporate expenses and higher interest income when compared to the prior-year period, offset by a decrease over the prior-year period in cash flow from EBS due to EBS being treated as an equity investment in the current quarter. While we shared 48% of EBS earnings, we did not receive cash distributions from this investment during the quarter.

Our capital expenditures for the September 2007 quarter were $5.6 million compared to $10.8 million a year ago. Cash flows during the September 2007 quarter include the receipt of approximately $10.8 million from exercising of stock options, of which $8.7 million is related to HLTH stock options. Additionally, we used approximately $4 million to repurchase shares of our common stock during the quarter at an average price of $13.23. So total outstanding share count as of September 30th, 2007, was $180.3 million.

Turning to financial guidance for Q4, HLTH's fourth quarter 2007 guidance is updated as follows: HLTH revenue guidance range is $140.9 million to $145.9 million. HLTH adjusted EBITDA guidance range is $36 million to $39.2 million. And HLTH's guidance range for income from continuing operations is $16.7 million to $20 million.

These changes to our fourth quarter guidance primarily reflect the changes to WebMD's guidance that I discussed earlier. As a result of the possible changes to the corporate structure as described by Marty earlier, we will not be providing 2008 guidance for HLTH at this time. As a reminder, our press release, including comparative financials and a summary of our 2007 guidance, is available on our website.

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

Question-and-Answer Session

Operator

(Operator Instructions)

We will go first to Heath Terry with Credit Suisse.

Heath Terry - Credit Suisse

Great. Thank you. I was wondering if you could just talk about what kind of changes, what you are seeing as you move up in the rankings on Google and we've certainly noticed that, how immediate is the change that you are seeing in traffic from the search engines, the [natural] search engines?

And do you have the kind of granularity to talk about the differences in traffic that you are seeing in keywords or subject areas where you have high ranking on certain search results versus those where you are still lagging?

Wayne Gattinella

Yes, Heath, this is Wayne. We have seen, since we implemented our new technology platform in the first quarter, a continuing and a steady increase in our search engine optimized traffic as we continue to focus on moving WebMD up in a sort of the free related search results.

One of the impacts is that the “pages per user” you could see it has come down a little bit over the past couple of sequential quarters, because the optimized traffic that you get from search engine referrals typically goes directly to an article on the site rather than the homepage on the site. And the result is you tend to see slightly less page utilization, although over time, we expect that to turn around as we create new WebMD users.

We have focused primarily on the areas where sponsors are most interested in driving their promotion and ad programs. So to your question as to where we've kind of invested most of our initial time and effort, it's been in those key areas in targeted terms that are most relevant towards the biopharma market, so in key condition areas, key lifestyle, health and management areas and sort of the long tail terms that relate to that.

But we’ve been pleased with the progress to date. It's a continuing process. It's not something that is by any stretch sort of a checkbox and complete. It's an area that we will continue to optimize and improve and it over time will become a more significant part of our revenue mix as we focus on it.

Heath Terry - Credit Suisse

And since the partnerships that you sign generally aren't directly tied to page views: how long does it generally take for an increase in revenues or increase in page views, say, you see a 10% increase in total page views across the site to show up in revenue?

Wayne Gattinella

It depends on the areas. I mean there are certainly some areas in the disease conditions that have low incidence and very high value. And then, of course, in the broader lifestyle areas, the demand curve tends to be a little bit broader. So it really depends on the condition area itself. It can be very quick in the most highly targeted areas. And in the other areas, it can take longer to monetize.

Operator

And we'll take our next question from Anthony Noto with Goldman Sachs.

Jen Watson - Goldman Sachs

Hi, this is Jen Watson in for Anthony. Just a question on the ad and promotion segment: if you could discuss the slightly weaker than expected results relative to the original guidance in Q3 and Q4? I know with respect to the private portal business, the sale cycle is lengthening. But, in terms of the ad and promotion business: if you could go into a little more detail there? And, also: if you could provide us with the number of brands that advertised on the WebMD platform this quarter?

Wayne Gattinella

Sure. With respect to the sales activity during the third quarter -- our sales year actually begins in the fourth quarter, October 1 and completes September 30th the following year. So we actually in the third quarter completed the 2007 sales year.

The last quarter Q3 was our strongest sales quarter ever. There was tremendous continued demand in the biopharma marketplace. We saw really for the first time several customers come in and start to enter the 2008 ad market early and start to lock in some particular areas of the site obviously of interest for them next year.

We saw strong interest in several of the new products and services that we launched several months prior, and it was a great way to both sort of end the 2007 year, but also in some respect, begin the 2008-year given that we saw some advanced buying coming to the marketplace.

As we explained, the mix of those quarter three sales is more weighted from a revenue standpoint towards 2008 than we had originally anticipated. Some of that is because of the upfront buying, but other parts of it -- other reasons are that it's taken longer for some of these more highly personalized and sophisticated services to go through the medico-legal review process inside of large pharma.

So we don't really see any impact in terms of the ultimate value of the contracts that we are signing, but, unfortunately, the timing of the implementation of those contracts has bled into 2008 more so than we originally planned. We did see some programs scale back as a result of some FDA actions, particularly in the diabetes areas.

You saw products like Avandia and Actose go through some changes in the market, and therefore their investments changed. EXUBERA was pulled off the market really because of low sales, not necessarily an FDA action. Zelnorm was pulled off the market towards the end of second quarter, which was a big lifestyle product. That had some effects as well, but it really, overall, has not really changed the overall demand that we’re seeing in the market importantly on both the consumer as well as our professional sites.

Jen Watson - Goldman Sachs

Great. And then if you could just provide the number of brands that are advertising?

Wayne Gattinella

Sorry. That number is 500 in the third quarter.

Jen Watson - Goldman Sachs

Great. Thank you.

Wayne Gattinella

You're welcome.

Operator

We will go next to Sandy Draper with Raymond James.

Sandy Draper - Raymond James

Thanks and good afternoon. A couple of quick questions. One: I'd be interested, Wayne, if you could talk a little bit more about the comments about the increased competition from disease management? Is that really around the Subimo area and is their reaction to you guys making waves or is it that they are just coming down into the market on their own?

Wayne Gattinella

It's probably a little bit of both, Sandy. In the private portals market, as you are aware, we've launched several new products in the clinical services area and moreover with health coaching in the care management side. And we are seeing increasing competition from other care management companies, both payors as well as specialized care management companies in that space.

So we are kind of bumping up against some of the services that they had offered in the past. And, at the same time, we are seeing an increased sort of competitive set of initiatives from some of those companies also trying to provide kind of skinny-downed versions of what we provide with our health portal in the same situation.

The net result is that we have seen it slow the decision process down for companies that are already using care management services, as they are looking at sort of the total picture and the potential to buy the complete bundled service, which is what we are selling.

And even, overall, in terms of presenting those total clinical and care management services, the sales are a little more complex. It's a bit more sophisticated. The idea of Clinical Decision Support rules tied to lifestyle coaching has just been a longer sales cycle.

Our response is, is that we plan to offer comparable bundled offerings either through partnering or aligning with other care management providers. But those are relationships that we're in the midst of pursuing right now in order to be more competitive in this now sort of overall comprehensive health management marketplace.

Sandy Draper - Raymond James

Okay. Great. And then maybe a follow-up to the question previous, obviously we have seen some tougher times in big pharma. The results haven't been that stellar, seeing some pullback. But it sounds like you aren't seeing any real slowdown in what they are willing to spend. I just want to make sure I'm hearing that right that you aren't seeing the pharma customer saying, because of our challenges we are pulling back on internet spending.

Wayne Gattinella

We are not seeing that. There were some particular products that had issue in the market that's not necessarily an unusual event. That happens from time to time. But overall, both our sales activity during the quarter being extremely strong and the revenue growth for our biopharma advertising in the third quarter also demonstrating strong growth relative to the natural growth in the market.

I mean: the numbers that I see in terms of internet, the growth of display advertising on internet advertising overall is about an 18% kind of growth rate. If you take out sponsored search and you take out classified advertising, display advertising in 2007 is estimated to be growing at about 18%. So we are clearly growing faster than market.

We are not seeing a slowdown with respect to what we provide in the biopharma market. And if anything, the value of our programming, both on the consumer and professional side is far stronger than the traditional marketing methods that pharmaceutical companies have used in the past. So we see this as an opportunity.

Sandy Draper - Raymond James

Okay. Great. And one final question, and I'll jump back in the queue. And I think this one is for Marty. Marty, when you look at the proposed transaction, obviously as you said, you are setting up two separate groups to basically do independent evaluations.

But, I'm just curious in terms of thinking: when you are buying out, or potentially buying out HLTH, part of it obviously an implied asset value for WebMD is, do you guys have a view where you think -- is it just basically market value WebMD trades or are you going to have your own assessment of where you think WebMD what it's worth and what you are willing to pay for that? Thanks.

Marty Wygod

That's a fairly complicated question. And the committee, the independent committee of WebMD may look at it differently than we look at it. And this is going to be a series of negotiations that will take place in the immediate future. And as soon as we reach a conclusion, and really is acceptable terms to both sides, we will be able to disclose that with all the details to the public.

Sandy Draper - Raymond James

Okay. That's a fair answer. Thanks, Marty.

Operator

We'll go next to [Rob Kelly] with Smith Barney.

Rob Kelly - Smith Barney

What is the degree of confidence in the guidance you have given us?

Wayne Gattinella

We feel very strong about the guidance that we are providing for 2008. We are entering the year with a very strong backlog in our advertising marketplace. We, as I mentioned, finished a strong period in the third quarter from a sales standpoint. We are seeing the size of the deals that we are closing in the market continuing to increase. And we believe that we have the potential for strong upside. We announced the Yahoo! agreement only a week or two ago, that not only gives us better financials for sponsored search on WebMD, but gives us a larger network to be able to provide to our clients and expands the level of sponsored promotion in the market overall.

We are continuing to see a shift in spend on the behalf of biopharma, which benefits WebMD. We only see that getting stronger both on the consumer and professional side. All of the core assumptions behind our business strategies are stronger today than they have been any time before.

So we feel very good about our 2008 direction.

Rob Kelly - Smith Barney

Can give us more color and detail on the contracts that are coming into next year such as the size of the contracts, length and who they are with?

Wayne Gattinella

Well, let me answer that in a way that I can, without disclosing the confidential information within the contract. Again, as we have closed out our sales period for September, we have seen a much stronger commitment to WebMD online spending with virtually all of our major pharma accounts than any period prior. The number of products that we are working with [inside] of our customers, the depth of information and programs that we are working with our customers, the level of spend of course that is related to those relationships is stronger than it's been.

We have a much larger sales force entering 2008 than any time before. We have continued to grow that organization, both from an experience standpoint and just coverage standpoint. And again, we view the core dynamics in 2008 as, a very strong place to be able to spring board our strategy for the future.

Rob Kelly - Smith Barney

Thanks. One last one, Wayne is, besides the products you mentioned that were pulled, were there any contracts of size or substance that were canceled in 2007?

Wayne Gattinella

No. At the very beginning of this year there were some. There was a couple of product situations at Amgen, that they were having in their core business that created a little bit of a pullback. But since -- now we’re going back almost a year ago, talking about December and January. But since that period we haven't really seen anything of significance.

Rob Kelly - Smith Barney

Thanks very much.

Wayne Gattinella

You're welcome.

Operator

Our next question comes from Corey Tobin with William Blair.

Jeremy Lopez - William Blair

Thanks. It's Jeremy in for Corey. Wayne, you have talked in the past about the trend towards having discussions with your customers at a higher, whether it be the C-level or just below that level. I was wondering if that's a trend, it sounds like it is, but is that a trend you had continue to see?

Wayne Gattinella

Yeah. It is a trend. We I mean from a personal standpoint, I spend as much time as I possibly can or as much time as people will give me telling our story at the highest levels of biopharma, because our feeling has been that, while at the product management level, what we do is pretty well understood and valued, as you go higher up into the organization it's potentially less so.

I was invited to speak at Business Council several weeks ago, which is a CEO only organization and tell the WebMD story. As this year's event they chose healthcare as the significant topic of discussion. I have personally spent, on a one-on-one basis, time with virtually every major pharma CEO over the last six to eight months period. And most importantly, that engagement has been about their business, the transformation that they see as needed in both the direct-to-physician marketing side as well as, to some extent, direct-to-consumer and we are seeing the impact of that. That is the interest and value that the most senior management in these organizations place in this so-called new channel marketing approach.

It gives us great air cover to go in and play a much more strategic role in these companies and that's really the core of our business plan. Not to be a pure, kind of pure playing media channel, but to be able to use the engagements that we have with those physicians and consumers at a much higher level and it's working.

Jeremy Lopez - William Blair

Do you anticipate or have you seen the average deal size that you are doing as a result of that increase recently? Or any trend you have noticed along that line?

Wayne Gattinella

Our deal size is increasing. Our overall spend by account is increasing. The adoption of our new services is faster than I have seen any time before in terms of the time cycle between new product introduction and purchase. And as I mentioned and I think it's an indicator, I don't want to make too big of a deal of it, but for the first time in the third quarter, we saw several pharmas come into the market and start to contract for 2008 programs.

Jeremy Lopez - William Blair

Right. And it sounds a kind of follow up, finally, on a question that was asked earlier, but would you say it feels like you are going to leave, exit 2007 with greater backlog coverage or greater visibility, based on other metrics you guys look at? Then relative to the guidance, the preliminary guidance you have given, relative to what you guys guided to last year and the visibility you had on that?

Wayne Gattinella

Our backlog -- advertising backlog going into 2008 is greater than what we saw the same period a year ago. There's no doubt.

Jeremy Lopez - William Blair

But, in terms of coverage, though, do you feel like the coverage will be greater?

Wayne Gattinella

I'm sorry, “coverage” meaning?

Jeremy Lopez - William Blair

Meaning: that the visibility you have relative to the guidance? Thank you.

Wayne Gattinella

Yeah, I would say, yes.

Jeremy Lopez - William Blair

Thanks. Okay.

Operator

We will go next to Mark Mahaney with Citi Investment Research.

Mark Mahaney - Citi Investment Research

Thank you. I wanted to ask two questions. The first has to do with the Yahoo! relationship. Is there anyway to gauge the materiality or the time to ramp up of that relationship? And secondly, just a question, and maybe you covered it, relating to the balance sheet and the deferred revenue. It sounds clearly like the advertising backlog is building up. And yet the deferred revenue was down sequentially for the first time in eight quarters or something like that. Is there any particular, could you just square those two? Thank you very much.

Wayne Gattinella

Mark, I will comment on the Yahoo! relationship. I will have Mark Funston comment on the deferred revenue. Two parts to the new relationship, one is sponsored search. That is actually up live on the site today. So if you go onto WebMD and into our search area and search on the health terms, you will see that the sponsored results are provided by Yahoo! That went up November 1st.

It's a multi-year relationship and suffice it to say the financials are better for us than the prior relationship we had. But importantly, the second part of that relationship gives us exclusive rights to sell Yahoo!'s network inventory in the healthcare market to a behavioral targeted kind of product where we are able to target WebMD users on Yahoo!. And that's not a small point, because for every visit we get on WebMD each month, that same visitor is on Yahoo! at least ten more times in non-health areas.

And so, to be able to profile and target that user with relevant marketing and advertising messages gives us much stronger reach than we have on WebMD alone. It provides a much more relevant marketing message for the consumer and certainly for the advertiser gives us much greater scale than on WebMD alone. And so we see it as the combination of two great brands with a very strong health involved user on WebMD with high quality, very strong usage on Yahoo!.

In terms of the ramp up, we are right in the midst of some of the operational mechanics of the relationship. We are in market having discussions with customers about the new products and programs and we do expect to start to see the impact of the new network relationship early in 2008. You want to answer that Mark.

Mark Funston

Sure. As far as the fluctuation in the deferred revenues, that's really more a function of the timing of billings. We will see deferred revenues fluctuate really just based on the timing in the quarter of billings and collections.

Mark Mahaney - Citi Investment Research

Thank you, Mark. Thank you, Wayne.

Operator

We'll go next to Brian Pitz with Banc of America.

Brian Pitz - Banc of America

Thanks. Just any comments on potential upside from an ad budget fuss in Q4 this year? I know, you had one last year, which was pretty helpful to Q4. And can you comment as to whether or not this is in your guidance? And then the second, which is more of a follow-up to the previous question that was asked, can you comment on the CPM differentials between advertising on WebMD, in pages as well as advertising on Yahoo! to any extent? Thanks.

Wayne Gattinella

In terms of Q4, Brian what we have in our guidance is what we expect, if you will, based upon the current pipeline of activities that obviously we expect to close and add to the existing backlog. It's hard to predict whether what we saw a year ago, which was a sort of media spike, and some of the budgets were flushed out. In December it's going to occur again, but again it's not necessarily something we were planning on. So it's just not something that you necessarily would bank on. In terms of CPMs, I assume you want -- your question was WebMD -- CPMs as compared to WebMD behavioral targeted CPMs with Yahoo!?

Brian Pitz - Banc of America

Yes.

Wayne Gattinella

What we expected is that we will retain premium pricing on WebMD because of the value of the contextual experience when the user is on WebMD engaged in the topic area and promotional programming is introduced in concert with the topic that that user is most looking for at that point in time. As that same qualified user bleeds over to Yahoo! it's not that their interests have changed. But certainly they might be in a different content area as the customized WebMD promotional ad is appearing. So, clearly the pricing for a behavioral targeted ad is going to be less than WebMD's premium pricing.

But we see that as a benefit because it gives us the ability to create a sort of a blended [rate] in the market in a way that doesn't denigrate our own pricing but provides the advertiser with a more efficient way of reaching a health involved consumer at a, sort of a lower effective CPM overall.

Brian Pitz - Banc of America

Great. Thanks.

Operator

We will go next to [John Kelly] in Citigroup.

John Kelly - Citigroup

Hi Wayne. From what you told us, the private portal in the publishing business, it seems the rate of revenue growth and profit margin you projected for 2008 is going to be substantially lower than the projections for the consumer and physician portals than the --my question is: why is that and the reasons and are you doing anything about it?

Wayne Gattinella

Yeah. In the private portal business, we were seeing the cycle time from sale to ultimately implementation continuing to lengthen. There is still demand in the marketplace, the idea of consumerism, which is the whole basis for selling our health and benefits portal has not changed. I think there has been somewhat of a slower ramp for health savings accounts than the market originally expected, but nevertheless it's a trend that will continue. So the core dynamics in the market are as strong as we have seen in the past.

But with our push into new services that are more behavioral based like health coaching, the deeper sophistication started to slow the sales cycle earlier this year. It's creating a more competitive sell because we are entering sort of a marketplace that, in some cases, was already represented by competitors and, in other cases we are seeing competitors enter that market as well.

So we were not expecting that our sales activity will markedly be slow. We are however seeing the revenue slowdown because the most significant seasonality for new implementations is in the third and fourth quarter. So even the sales activity that does take place as we enter 2008. For the most part, isn't going to have much revenue impact until the latter part of the year and you see that. You'll see that in the numbers that the revenue pickup really in that segment, it really doesn't come until the back half of 2008.

John Kelly - Citigroup

Thanks, Wayne.

Operator

We will go next to James Kumpel with Friedman, Billings, Ramsey.

James Kumpel - Friedman, Billings, Ramsey

Hi, good evening. This is for Marty. Marty, can you talk a little bit about how you'd handle -- at least under your conceptual plan, how you'd handle the convertible notes that HLTH has now and how the NOLs would be affected?

Marty Wygod

Sure. On the convertibles, they're whenever the final terms are negotiated between the special committee at WebMD and HLTH, would be basically the same terms that would be received by the convertible holders. These are all covered in the indenture currently.

So you just read the indenture and you can see exactly what would take place. This was all contemplated. And what was your other question? I'm sorry.

James Kumpel - Friedman, Billings, Ramsey

On the NOLs and then the operating loss carry forward?

Marty Wygod

Whatever the NOLs are that are left over, which will be substantial, after the divestiture of the three assets at HLTH (Technical Difficulty).

Operator

We will go to our next question with Anthony Petrone at Maxim Group.

Anthony Petrone - Maxim Group

Good morning guys.

Marty Wygod

(inaudible).

Anthony Petrone - Maxim Group

Everything clear I don't know I we are…

Marty Wygod

Okay. Let me try and get back to that. The NOLs will be inherited by WebMD on the merger, whatever the NOLs are that are left over at HLTH after the sale of the assets which should be fairly [considerable] (Technical Difficulty).

Anthony Petrone - Maxim Group

Great. Just a couple questions for Mark in terms of G&A leverage. It seems that that ticked down substantially sequentially, on an absolute basis it was flat, but how much more leverage is left there going forward? And it seems that that has substantially increased since the infrastructure upgrades and flagship portal have been completed?

Mark Funston

As we said, we continue to see strong leverage and we continue to expand our -- the incremental margins on our incremental revenues and we think we can continue to do that.

Anthony Petrone - Maxim Group

In terms the Yahoo!, agreement, just in terms of cannibalization, do you see any risk? How is the sales force going to approach this, in terms of initial sale of Yahoo! inventory? Is there is a risk that some customers may initially opt Yahoo! inventory or shortly into the agreement, instead of coming back for additional WebMD inventory, will they opt the Yahoo! inventory and how do you think that will play out?

Wayne Gattinella

We see this as only upside to our business. There is -- the cannibalization is somewhat of a non-issue because the context of our WebMD inventory is people who are deep into particular topic areas, whether they be, disease and condition areas, or lifestyle areas, and the value of being able to deliver sponsored content and information in that context is very strong and that's the value we deliver in the market. What this gives us, is the ability to also compete against the lower priced ad networks with a much higher quality product because the profile of the user that is being sponsored is a WebMD user. So the quality is unmatched and the network that that user is being secured on is the Yahoo! Network, which is also unmatched. Because, in the ad network, [what the] issue is you don't really know, when someone says: it's a health user, where did that part of that information actually came from? Meaning: how accurate is it? And what was the quality of the site it came from?

And you don't necessarily even know the site that it's been delivered on. In this case, both the quality of the user as well as the quality of network is known and we see it as only incremental.

Anthony Petrone - Maxim Group

That's great. And just in terms of 2008 guidance, I know it's early on in this agreement, but: how much do you currently have in the way of forecasting for the Yahoo! distribution agreements?

Wayne Gattinella

We were very conservative in terms of our expectations in our '08 guidance,

Anthony Petrone - Maxim Group

All right. Great. And just finally on the large client contracts, you mentioned earlier some preliminary purchases before the end of the cycle here. How much flexibility does some of your larger clients, what [former] clients have in their budgeting process? When you saw these initial purchases, where they not really an entire contract being purchased or an entire block of inventory. Was it just kind of an initial process and can they back away say midpoint during the year from what they've initially proposed?

Mark Funston

I'm not sure, if I get your question, but: if you're asking how sound are the contracts? They are very solid. And we have a very low cancellation rate.

Anthony Petrone - Maxim Group

All right. Great. Thank you.

Operator

We'll go next to [Denise Kong] at DeepHaven Capital.

Denise Kong - DeepHaven Capital

Hi. Actually I have a question again regarding the existing convertible notes and if the transaction between HLTH and WebMD do complete as it is described, I believe that the obligor would be the surviving corporation, the WebMD.

Marty Wygod

That is correct.

Denise Kong - DeepHaven Capital

If you could, without going into the details of the terms, can you walk me through, of the sources and uses of cash that would be used by WebMD in order to merge HLTH into the company?

Marty Wygod

We'll be able to do that [this year] after we reach a definitive agreement with the WebMD [special committees].

Denise Kong - DeepHaven Capital

Okay. That's all I have. Thank you.

Operator

Our next question comes from Neil Doshi with ThinkEquity Partners.

Neil Doshi - ThinkEquity Partners

Thanks, guys. My all questions have been answered. Thank you.

Operator

We'll move on next to Geoff Dancey with Cutler Capital Management.

Geoff Dancey - Cutler Capital Management

Hi, my questions have been answered as well. Thanks.

Operator

(Operator Instructions). We'll take our next question from [Clark Wong] with Needham & Company.

Clark Wong - Needham & Company

Hi guys. You guys guided to about 20% organic revenue growth for the private portal business and I was just looking at what you guys talked about, I think it was 16% this quarter in organic growth and 20% last quarter -- 27% last quarter. It looks like kind of a decelerating trend. What's going to drive the re-acceleration to 20%?

Wayne Gattinella

Really, it's all based upon implementation of new business, which I know sounds obvious. But for us, as we just announced several new accounts that were initially installed, because we spread the value of the contract over its life, which is typically a four year period, the impact of a new program that gets implemented in October/November is fairly negligible for the fiscal year.

So, taking the new business that's installing this quarter, first quarter and most importantly, the pipeline of business that we expect to install this time next year is what's going to get that business back on a growth track. And for us it's really, the focus right now is on sales cycles, being able to get new contracts in the market in a timely enough period that the revenue impact of that business has meaning in the current fiscal year.

Again, as we've said, we see that by the second half of 2008, we expect to see the growth curve of the business reflect itself on the revenue line, but it's going to still take another couple of quarters of strong sales activity to be able to do that.

Clark Wong - Needham & Company

So, does that mean you guys are kind of projecting in shortening sales cycles as compared to what you're seeing right now?

Wayne Gattinella

No, not necessarily. We're simply seeing the sales activity that's currently underway to catch up from a revenue standpoint this time next year.

Clark Wong - Needham & Company

Okay.

Wayne Gattinella

We're not predicting the sales cycles are going to shorten right now.

Clark Wong - Needham & Company

Okay. And on the content syndication and publishing side, the business has kind of been declining the past couple quarters and it looks like you guys are projecting for some stabilization. Is there something going on there, perhaps can you just give us a little more color?

Wayne Gattinella

Honestly, I think you're just seeing most of the legacy business just sort of flush itself out. What's remaining is some of the medical reference products and also WebMD, the magazine, which is an advertiser supported product. Does have some growth, it's not -- it was really a branding mechanism. It was never meant to be a high growth product, but it is growing in the market. It is profitable. And that's, over time, that's most of what's left as you look towards the future.

Clark Wong - Needham & Company

Thank you.

Operator

We'll go next to Alex Lach with Camden Asset Management.

Alex Lach - Camden Asset Management

Hi. Just a follow-up on the convertible question. Am I correct that the proposed structure goes through that the [three and one-eighth] convertibles will be convertible into stock of the company and the one and three quarters will be convertible into the combination of stock and cash?

Marty Wygod

No, I don't believe so. But I think we'll reserve all comments on that until we announce to the Street the definitive terms that we have come to with WebMD. And each indenture speaks for themselves.

Alex Lach - Camden Asset Management

Thank you.

Operator

And our last question today is a follow-up from Corey Tobin at William Blair.

Jeremy Lopez - William Blair

One quick follow-up on, do you have any commentary, can you provide any commentary on what form of tax election you anticipate HLTH Corporation would take if it is indeed purchased by WebMD?

Marty Wygod

Not at this time.

Operator

And there are no further questions. I'd like to turn the call back to our speakers for any additional or closing comments.

Wayne Gattinella

I would like to thank you all for coming and I believe this call is available online as well as through a 800 number that is also posted on our site as well.

Marty Wygod

We'll be back to the Street as fast as we can and as soon as we reach conclusion with these special committees, to clarify any of the ambiguity that exists at this point.

Operator

And as a reminder, if necessary, there is a replay available of this call, which can be accessed toll-free by dialing 888-203-1112 or if you are calling from outside the US 719-457-0820. The passcode is 4633902. There is also the webcast replay available on HLTH Corporation's and WebMD's website as well. Again, that does conclude today's conference call. Thanks for joining us.

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