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Executives

Risa Fisher - VP of IR

Martin J. Wygod - Acting CEO and Chairman

Mark D. Funston - EVP and CFO

Wayne T. Gattinella - CEO and President of WebMD Health

Analysts

Jennifer Watson - Goldman Sachs

Rob Kelly - Citigroup

Alexander Draper - Raymond James

Anthony Petrone - Maxim Group

John Kelly - Smith Barney

Emdeon Corp. (HLTH-OLD) Q1 FY08 Earnings Call May 6, 2008 4:45 PM ET

Operator

Good afternoon and welcome to Health Corporation's and WebMD Health Corporation's March 2008 Quarterly Conference Call. Today's conference is being recorded. I will now turn the call over to Risa Fisher, Vice President of Investor Relations.

Risa Fisher - Vice President of Investor Relations

Good afternoon. This is a joint conference call to discuss HLTH and WebMD's first quarter financial results. I will read the following statement concerning forward-looking disclosures. All statements made today other than statements of historical facts are forward-looking statements including those regarding our guidance on future financial results and other projections or measures of HLTH's and WebMD's future performance, our expectations concerning the growth of online marketing budgets, other market opportunities and their 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.

The merger transaction between HLTH and WebMD which was announced in February and the benefits expected from that transaction and the potential sales transactions with respect to ViPS and Porex and expectations regarding the market for HLTH and WebMD's investment in auction rate securities which we refer to you as ours. These statements speak only as of today and are based on 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 events or circumstances. The earnings release issued today by HLTH is available at www.hlth.com in the Investor Relations section. The earnings release issued today by WebMD is available at www.wbmd.com in the Investor Relations section. The releases issued today, includes reconciliation's between GAAP and non-GAAP financial measures to be presented in this call. The statements made in this call do not constitute an offer of any securities for sale. In connection with the proposed merger, HLTH and WebMD expect to file with the SEC a proxy statement prospectus as part of a registration statement regarding a proposed transaction.

Investors and security holders are urged to read the proxy statement prospectus because it will contain important information about HLTH and WebMD on the proposed transaction. Investors and security holders may obtain a free copy of the definitive proxy statement, prospectus and other documents when filed by HLTH and WebMD with the SEC at www.sec.gov or www.hlth.com or www.wbmd.com. Investors and security holders are urged to read the proxy statement prospectus and other relevant material when they become available before making any voting or investment decisions with respect to the merger.

I'd now like to turn the call over to Marty Wygod, Chairman and Acting CEO of HLTH Corporation.

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Thank you Risa. Good afternoon and thank you for joining us today. Joining me on the call today are Wayne Gattinella, CEO and President of WebMD; Mark Funston, CFO of HLTH and WebMD, and Tony Vuolo, Chief Operating Officer of WebMD.

WebMD delivered record traffic levels again this quarter, which is a meaningful indicator of the growing strength of our franchise. While we recently reduced our financial outlook for the balance of 2008, I want to emphasize the long-term growth opportunity that we see ahead of us. Even though certain pharmaceutical companies are resetting their own expectations in the current business environment, the size and breadth of the overall market opportunity remains unchanged.

WebMD is uniquely situated to capitalize on the shift to web-based marketing and education, to both consumers as well as physicians, both here in the United States and abroad. Our initial entrance into the international markets has had a strong start. We launched in December 2007 in partnership with MedCenter, a Spanish and Portuguese version of Medscape targeted at physicians in Latin America and Spain.

We already have approximately 50,000 unique verified physician users per month and are actively marketing besides the pharmaceutical companies and other potential sponsors at this time. We are currently in discussions with other potential partners including major media, publishing and health care companies to further expand WebMD's offerings internationally.

We look for partners whose assets include relationships with end-users, physicians and/or consumers, relevant local content and knowledge of local culture and regulations, relationships with key government agencies or other organizations such as medical societies and an established online presence. We are very excited about these opportunities we are currently in negotiations with approximately six important entities in six different countries abroad.

Turning to two other updates on our ARS investment and on the merger. We previously disclosed HLTH owns approximately 364 million [ph] face amount of investments in student loan backed auction rate securities of which $169 million are HLTH and WebMD. HLTH and WebMD have entered into this afternoon a line of credit from Citigroup Global Markets with recourse only to their respective ARS holding which will allow HLTH and WebMD to borrow up to 75% of the face amount of their ARS Holdings pledge that is collateral.

HLTH and WebMD can each borrow under a line of credit until May 2009. Any borrowings and outstanding under these facilities after March 2009 become a demand loan subject to 60 days notice with recourse only to the pledge collateral. In addition to its ARS investment, HLTH currently has approximately $1.1 billion in consolidated cash and cash equivalents, no borrowings by HLTH and WebMD have been made under these facilities obviously at this time.

As previously announced, HLTH and WebMD entered into a definitive merger agreement on February 20th, 2008. The agreement provided that HLTH will be merged into WebMD with each outstanding share of HLTH common stock to be converted into 0.1979 shares of WebMD common stock and $6.89 in cash. Subject to certain adjustments under the merger agreement, HLTH was required as a condition to closing the merger to have liquidated its ARS holdings and the merger agreement provided that the aggregate amount of the cash portion of the merger consideration would be reduced by the difference between face amount of the ARS and the amount of proceeds received from their sale. The merger agreement has been modified to reflect the flexibility and additional liquidity afforded by the credit facility that HLTH has entered into as described above.

Under the amended merger agreement, HLTH is not required to sell its ARS holdings as a condition to closing, if it has drawn down the credit facility and an amount equal to 75% of the principal amount of ARS held by HLTH as of the effective time of the merger. One [ph] has not drawn down the credit facility, but has satisfied all of the conditions to permit HLTH to drawn down on the credit facility at the effective time of the merger. In either case, the reduction in the aggregate cash consideration payable in the merger would be fixed at $48.6 million, which is 25% of the face amount of the HLTH ARS holdings were $0.27 per share based on the number of shares of HLTH outstanding currently.

Meaning that the minimum amount that a HLTH holder would receive in the merger is $6.62 per share in cash and 0.1979 shares of WebMD common stock. To the extent that HLTH instead sells some of these ARS holdings for greater than $0.75 of the face amount, the adjustment is done in the aggregate cash portion of the merger consideration with respect to the ARS that are sold would be based on the actual sale price of those holdings. The merger agreement amendment was approved by the Board of Directors of HLTH and WebMD and by a special committee of the Board of Directors of WebMD. If this preceding paragraph is a little bit complicated was because it was written by the legal department, I'd be happy to answer questions on it subsequently.

Completion of the merger is conditioned upon among other things, approval of the stockholders of both HLTH and WebMD. We currently expect a fairly preliminary proxy statement prospectus relating to the merger in a next few weeks and believe that we would likely hold stockholder meetings in September to seek the necessary stockholder approvals. Our ability to schedule these meetings will depend on the timing for closing the sales of the ViPS and Porex businesses, at least one of which must be completed prior to closing the merger as well as the timing for completion of SEC review of the proxy statements. HLTH is currently in the process of selling ViPS and Porex businesses with potential purchases nearing completion of their due diligence investigations.

I now would like to turn it over to Mark Funston and then Wayne Gattinella to review the first quarter financial and operating results respectively. And then we will be happy to take your questions at the end of their presentations.

Mark D. Funston - Executive Vice President and Chief Financial Officer

Thank you Martin. Please note that WebMD and HLTH’s results present WebMD's offline professional medical reference and textbook publication business as discontinued operations in the prior year period reflecting the sale of this business on December 31st, 2007. HLTH’s results also present the ViPS and Porex businesses as discontinuing operations in the current and prior year periods, reflecting the decisions to divest these businesses. I will now review WebMD's first-quarter results.

WebMD's revenue for the March 2008 quarter was $81.7 million compared to $71.7 million last year, an increase of 14%. Revenue growth was 17% when excluding the impact of the AOL agreement, which expired on April 30th, 2007 and contributed 1.9 million in the March 2007 quarter.

Adjusted EBITDA for the March 2008 quarter was 15.8 million compared to 12.6 million last year, an increase of 25%. Adjusted EBITDA as a percent of revenue improved 175 basis points to 19.3% from 17.6% last year. Adjusted EBITDA per diluted share was $0.27 compared to $0.21 last year.

Weighted average diluted share count used in computing adjusted EBITDA per diluted share for the quarter was $59.1 million. Adjusted EBITDA margin on incremental revenue was over 30% for the March 2008 quarter. Excluding the impact on revenue of $1.9 million and an adjusted EBITDA of approximately $1.5 million from the expired AOL agreement, the adjusted EBITDA margin on incremental revenue was approximately 40% for the March 2008 quarter.

Online Services segment, adjusted EBITDA increased 27% to $16.5 million or 21% of segment revenue compared to $13 million or 19% of segment revenue last year. Publishing and other services adjusted EBITDA was a loss of $754,000 compared to a loss of $358,000 last year.

Loss from continuing operations and net loss for the first quarter was $23.3 million or $0.40 per share, which includes the $27.4 million impairment charge related to a reduction in fair value of the company's auction rate securities investments. Excluding the impairment, income from continuing operations and net income was $4.1 million or $0.07 per share for the first quarter compared to $0.7 million or $0.01 per share in the prior year period.

WebMD's weighted average diluted share account for the quarter was 57.6 million. Looking further at the revenue increase up 14%, advertising and sponsorship revenue increased 18% to $56 million, excluding the impact of the expired AOL agreement, advertising and sponsorship revenue increased 23% compared to last year.

Private portal licensing revenue increased 9% to $21.9 million. Publishing and other revenue was $3.3 million, a decrease of approximately $250,000.

Non-cash stock compensation expense was $3.7 million compared to $5.4 million last year. The decreased was a result of using the accelerated vesting method, which results in a greater proportion of the expense being recognized in the first two years following the IPO. The income tax provision for the first quarter was $3.1 million, which now reflects a normal tax rate provision based on the statutory rates. As we stated on our last call, in December 2007, as required under SFAS Number 109 we reduced our valuation allowance against our deferred tax assets, primarily our tax NOLs because we have a sufficient earnings history and would begin recording a non-cash tax provision. The increase in the effective tax rate from 2007 is a result of this non-cash tax expense.

The ARS impairment charge is currently not deductible for tax purposes. Operating cash flow from continuing operations were $34.7 million for the March 2008 quarter compared to $13 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 expenses accruals, the billing and collection of receivables from our customers and reimbursements to HLTH in relation to the quarter end.

Capital expenditures were $2.6 million for the March 2008 quarter. At March 2008, WebMD held auction rate securities having a face amount of $168.4 million the type of ARS investment that WebMD owns are backed by student loans, 97% of which are guaranteed under the Federal Family Education Loan Program. And all had credit ratings of AAA when purchased.

Since February 2008, all auctions involving these securities have failed. The result of the failed auction is that these ARS continue to pay interest in accordance with their terms until the next successful auction. However liquidity will be limited until there is a successful auction or until such time as other markets for these ARS investments develop.

It is uncertain when an auction or other market will develop. WebMD has determined that the fair value of the ARS at March 31st, 2008 was $141 million . Accordingly WebMD has reported an impairment charge of $27.4 million related to these securities in its results for the quarter ending March 31, 2008. In addition to its ARS investment, WebMD had approximately $160 million in cash and cash equivalents at March 31st, 2008.

Turning now to HLTH's consolidated financial results. As I mentioned earlier, HLTH's Porex and ViPS businesses are now reflected as discontinued operations in the current and prior year periods. Consolidated revenue for the March 2008 quarter was $81.7 million compared to $71.9 million in the prior year, an increase of 14%. Adjusted EBITDA was $10.7 million in the March 2008 quarter compared to $5.9 million in the prior year, an increase of 81%. In addition to the adjusted EBITDA for WebMD's segments, adjusted EBITDA on a consolidated basis also includes HLTH’s corporate expense which for the March 2008 quarter was $5.1 million compared to $6.7 million a year ago reflecting HLTH's ongoing cost reduction efforts.

As we noted in past quarters, we have been providing certain transition services to EBS Master LLC and Sage. These transition services are now substantially complete. The fees we received for these services in the March 2008 quarter were approximately $50,000 compared to $2.5 million a year ago and are included within the corporate segment as an offset to the cost of providing the related services.

On February 8th, 2008, HLTH completed the sale of its 48% minority interest in Emdeon Business Services for $575 million in cash. HLTH recognized a gain of $514 million net of tax on this sale. Interest income for the quarter was $11.9 million compared with $9.7 million in the first quarter of the prior year, reflecting higher cash and investment balances.

Income tax provision for the first quarter was $26 million, approximately $24 million of which related to the gain recognized on the sale of the EBS investment. While the majority of the $538 million gain on the sale was offset by the net operating loss carry forward, certain AMT and other state taxes were not offset, which are reflected in the $26 million tax provision for the quarter. The ARS impairment charge is currently not deductible for tax purposes.

Income from continuing operations for the first quarter was $459.6 million or $2.03 per share, which included a gain of $538 million, approximately $514 million net of tax from the sale of HLTH's 48% minority interest in Emdeon Business Services and a loss of $60.1 million from an after-tax impairment charge related to the company's investments in auction rate securities.

Also included in the P&L during the current quarter was approximately $4.2 million of expenses we incurred related to the WebMD and HLTH merger. These expenses primarily relate to advisory fees.

Income from discontinuing operations was $3.6 million or $0.01 per share. Porex and ViPS revenue during the quarter was $23.8 million and $26 million respectively, compared to $22.7 million and $26.7 million in the prior year.

Adjusted EBITDA margins for these businesses in the current quarter were relatively consistent with the prior year. Net income was $463.2 million or $2.04 per share, which also includes the gain on the sale of EBS and impairment charge on the ARS that I just mentioned.

HLTH's operating cash flow from continuing operations in the March 2008 quarter was $46.1 million, which primarily reflects… HLTH's operating cash flow from continuing operations in the March 2008 quarter was $46.1 million, which primarily reflects the cash flows from WebMD's business along with the $14.6 million received in connection with the settlements with our D&O insurance carriers, which we discussed last quarter.

Cash flows during the March 2008 quarter also included the receipt of approximately $23.3 million from the release of the escrow from the sale of Emdeon Practice Services in September 2006. We have now received the entire balance of the original $35 million escrow.

As I discussed for WebMD, HLTH also owns auction rate securities backed by student loans. HLTH owned securities with a face amount of $363 million including the face amount of $168.4 million attributable to WebMD. HLTH has determined the fair value of the consolidated ARS at March 31st, 2008 was $302.8 million, accordingly HLTH has recorded an impairment charge of $60.1 million related to these securities in the results for the quarter ending March 31st, 2008. This charge includes the impairment charge of $27.4 million, which was attributable to WebMD.

In summary, on March 31st, 2008, in addition to HLTH's $302.8 million in ARS holdings, of which $141 million are attributable to WebMD, HLTH has approximately $1.1 billion in cash and cash equivalents of which $160 million is attributable to WebMD.

Turning to financial guidance. We provided updated financial guidance for WebMD on April 23rd, 2008. Attached to today's press release are additional details including quarterly estimates. As a result of the anticipated changes to the corporate structure due to the pending merger, we are not providing 2008 guidance for HLTH at this time. I'd now like to turn it over to Wayne to discuss WebMD's operating results in more detail.

Wayne T. Gattinella - Chief Executive Officer and President of WebMD Health

Thank you, Mark. Our company reached several important milestones this quarter as WebMD continued to consolidate its position as the leading source of HLTH information for both consumers and healthcare professionals. Traffic to our WebMD, HLTH network during the quarter hit record levels, averaging 51.9 million unique users per month, an increase of 25% or an additional 10 million unique users per month versus the same period a year ago.

Page views during the quarter also reached a record 1.2 billion pages, a growth rate of 24% from a year ago. If you exclude the AOL HLTH traffic from the prior year's quarter, our unique user and page view growth increased 29% and 27% respectively. The investments that we've been making in our expanded portal technology and personalization platforms are clearly paying off. As virtually all of the traffic growth this quarter was achieved organically, that is, without the use of third-party affiliate sites or external traffic acquisition. And since 97% of our page view traffic in the first quarter was generated on health sites that are owned and operated by WebMD. That is where WebMD is in the full control of the programming and editorial content.

Our advertisers and sponsors value the exceptional quality of our engaged user base and the highly contextual inventory that we deliver. Our reach to physicians is also impressive as we exceeded 1.5 million monthly physician visits to our professional sites during the quarter.

Online continuing medical education completed on our professional sites reached a record 1.1 million completed programs in the quarter, an increase of 64% over the prior year. As physicians are continuing to switch from traditional sources of medical information to the Internet, Medscape is uniquely positioned to capture the majority of their online utilization.

We had launched several new advertising products in the latter part of the quarter that leverage the strength of our highest quality HLTH audience together with our proprietary programming and editorial assets. Our successful interactive health check assessments have been enhanced to integrate online health tracking with personalized follow-up in order to help people better manage their care through the entire health care continuum.

WebMD health check is rapidly becoming a powerful personalization tool that's driving a high level of both user engagement as well as sponsor participation. On the physician side of our business, I'm very excited about our newest product Physician Connect. Physician Connect is a new community area on Medscape that allows physicians to securely engage online with other physicians in discussions on clinical as well as non-clinical topics that are relevant to the practice of medicine.

It also enables our sponsors to directly participate and to gain real-time insights into physician behavior, attitudes and perceptions. Since Physician Connect launched just a few weeks ago, we have already registered over 20,000 physicians into our newest community application, Physician Connect. The strength of the WebMD brand continues to expand, not just online, but offline as well.

It was just 2.5 years ago that we launched the first issue of WebMD the Magazine which is distributed bi-monthly to 85% of all U.S. doctors offices. According to the latest MARS national media and marketing study that was released last month, WebMD the Magazine is now the third, most highly-read health magazine behind only Prevention and Men's Health. We continue to carefully evaluate additional opportunities to leverage the strong public recognition and trust in the WebMD brand in the marketplace ahead.

Turning to our private portals market, the base of large employers and health plans that are licensing WebMD's health and benefits portals platform continue to grow. New customers that were added this quarter include the Walt Disney Company, Herman Miller, Newell Rubbermaid, QualCare and SummaCare. At the end of the first quarter, the installed base of large companies that are licensing the WebMD private portal platform totaled 122 organizations compared to 103 a year ago. We also have approximately 140 additional customers who purchased our stand-alone health decision support services. We have begun to eliminate several small and unprofitable clients who have been licensing a limited set of stand-alone applications in the past from us.

During the quarter, we launched new releases of our WebMD Coverage Advisor and Treatment Advisor products. Each of these products is fully integrated with the WebMD Personal Health Record in order to enable employees and plan members to make optimal plan coverage and treatment decisions.

Before we open it up for Q&A, I just wanted to take a brief moment to also highlight the significant long-term growth opportunities that we see for the future. Growth in the pharmaceutical industry has been recently impacted by product specific issues that have caused several large pharmas to take a more conservative and short-term marketing approach while they address their long-term strategies in the future. We firmly believe that both the size and breadth of the overall markets that we serve and our opportunity remains unchanged.

As large bio pharma and consumer products companies face diminishing returns in their traditional approaches to product marketing, WebMD is uniquely situated to capitalize on the shift to web-based marketing and education to both consumers as well as physicians. As healthcare companies and large payers and employers increasingly move online over the next five years, we expect WebMD to benefit in both our public as well as our private portal businesses. We believe that the long-term value of our franchise will continue to increase as we expand our distribution footprint and begin to deliver the full spectrum of digital health solutions that the marketplace is steadily evolving towards including international and mobile information services.

With an experienced team of over 1,200 employees we are committed to the promise that better information does lead to better health.

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

Question and Answer

Operator

Yes sir. [Operator Instructions] Our first question comes from Jennifer Watson at Goldman Sachs. Your question please.

Jennifer Watson - Goldman Sachs

Great. Thank you. Can you talk a little bit about the trend in advertiser spending that you're seeing. Are existing advertisers continuing to spend more with you and put more brands on your site. I know in the past when you have given a number for the number of brands [inaudible] can give that as well?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Yeah. They have just passed me the number over here. I didn't actually have that number in front of me. Is this this quarter? This past quarter were 628 programs on our site in the first quarter. What we're seeing is that the majority of our customers are doing more business with us than they have in the past. What we have reflected on as we had revisited guidance a few weeks back was that there are some large pharmas that have been taking a more conservative than shorter term approach to their near-term marketing while they do adjust their longer-term strategies. The fact is that the growth in the pharmaceutical industry has impacted… has been impacted by product specific issues in certain companies. The consequence is, we're seeing them making some shorter term ad commitments in the consumer market that they did in the past in order to reduce their DTC exposure and at the same time you might have even read in the last day or two, continuing to reduce sales force. Our view is, it's about time. You know the fact is that pharma has been experiencing diminishing returns in these traditional marketing channels over the past several years, they realized that it is time for a new marketing model. They are making necessary structural changes to their businesses that in the long-term will help WebMD as our business model and importantly as you even see our latest traffic stats continues to attract highly engaged consumers and healthcare professionals to our brand of health information. So we continue to be clearly very excited about the future prospects of our business and at the same time continue to serve many customers who are continuing to grow with this, both in the pharma market as well as in the consumer products market.

Operator

[Operator Instructions]. Our next question comes from Rob Kelly at Citi. Your line is open.

Rob Kelly - Citigroup

Hi. I see considerable publicity from smaller competitors of WebMD highlighting their page views and traffic relative to WebMD. Can you explain the difference in WebMD's product offerings relative to these competitors?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Sure. What we see in the consumer market is a growing group of the ad networks that are sort of battling it out with the search engines on the… really on price, in sort of the cost-per-click or at the low end of the consumer market. There is several new entrants that have come into the health market with a kind of a loose collection of diet, fitness, health upsides, really competing as a vertical ad network. If they are not buying traffic they are combining with other third-party affiliate site that they don't own or operate. I think what's happening is as you are seeing, certainly in the health market, that there is several ad networks that are repackaging in many cases the same inventory. Our clients understand the difference in the quality in the ad network space versus the power of WebMD to really engage our users. That's so important in healthcare. I think, that the long-term growth for healthcare companies is not a direct response model, there is a limited upsize for pharma to drive more click to their own product.com sites and the future is really about integrating consumer and physician behavior in a way that we can inform and appropriately influence, healthcare is provided. We continue to view the… our competition is in reality the traditional channels that healthcare companies have heavily relied on, whether it be drug sales force on the physician side or kind of the mass marketing channels on the consumer side. And again, with our brand and with many of the assets that we've been deploying over the last couple of years, we continue to scale, as well as position ourselves to be far more efficient, as well as effective than any of these sort of alternative channels in the market. Next question.

Operator

Thank you. Our next question comes from Sandy Draper at Raymond James. Your question please.

Alexander Draper - Raymond James

Thanks. Martin, I think, I'm going to take you up on your offer to make sure I understand, in terms of the restructuring. Has the contract been reset where there is definitely a lower amount that HLTH shareholders are going to get or only if the auction rate securities go at all. I just want to make sure what's sort of insight [ph] and where the moving parts are?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Well, it's not been reset Sandy. But basically we have a put at $0.75 from a $1 going forward, as a result of the non-recourse loan that we have. And the standby commitment that we have in place. But, if we do sell the securities for a higher price, prior to the closing of the merger than the… how the shareholders will receive the higher price.

Alexander Draper - Raymond James

Okay. Great. Thanks.

Operator

Thank you. The next question comes from Anthony Petrone of Maxim Group. Your question please.

Anthony Petrone - Maxim Group

Great, thanks. Just a couple of questions on the reclassification or on the write-down on the auction rates. I'm assuming the issue to not classify them as long-term investments was related to the merger agreements. And if you may, how many individual issues are you currently exposed with the remaining auction rate securities?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

We hadn't [ph] given that information out. As I said before, we now have basically a put up $0.75 and a dollar and the ability to monetize and borrow against that $0.75 from the face. But we haven't given out the list of the different series that we own, but it's a large diversified group.

Operator

Thank you. Our next question comes from John Kelly at Smith Barney. Your question please.

John Kelly - Smith Barney

It's been answered, thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from John Orco [ph] at Bear Stearns. Your question please.

Unidentified Analyst

Hi. A question surrounding the merger agreement. You've indicated the shareholders including us over the past few months and weeks that you would… that you are extremely confident of the value of the auction rate securities you hold were closer to par than even $0.90 on the dollar. Now you've marked them down. What's been the change in your thinking in the last 30 days that have… whereby you've now decided to mark those down something I guess close to 17%. And why haven't you made any progress yet in liquidating these securities in the marketplace. Are you hoping that this market will begin to free up and trade again or give us if you would, your thoughts on your behavior around your holdings on these securities?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

I think you have us confused with someone else, we have never indicated that we felt that they were close to par.

Unidentified Analyst

Yeah. We spoke directly with the executives of your firm on a number of occasions where you told us?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Who did you speak to at our company?

Unidentified Analyst

So either you don't know what you are doing… well I guess you all know what you are doing since you bought them in the first place, you didn't read the prospectuses on these, but to misrepresent that you would not be writing them down and you felt that you will be able to secure par value for these was clearly erroneous and misleading to shareholders. Now you've written them down by 17% and you have gotten a put option on these through your credit facility. So when do you expect to liquidate these securities?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

We've never indicated that we thought that they were close to par. Can you hear me clearly? Can you hear me?

Unidentified Analyst

Have you fired the people at your organization that were responsible for investing in these securities?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Are you able to hear me?

Unidentified Analyst

I can hear you loud and clear. Can you hear me?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Yeah.

Unidentified Analyst

Who bought these securities at your firm and are they still employed? Maybe we should start at the beginning.

Martin J. Wygod - Acting Chief Executive Officer and Chairman

I don't think it is really relevant to this call, but just get back to what you said earlier, we've never indicated, we thought they were close to par in the first place.

Unidentified Analyst

Have you received any bids for these securities?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

That is none of your business, we've not disclosed that at this time. We're not going to give out what bids we have received or haven't interested.

Unidentified Analyst

Okay.

Martin J. Wygod - Acting Chief Executive Officer and Chairman

We'll try to get over the -- in the future of the highest price as possible. So we have it into position now that we can borrow against it advantageously at non-recourse except against these securities we have and we hope to get as higher price in the future as possible. Yes we do. We have limited our downside, but we have never put out information stating what we thought we would get and we are not in the market now attempting to sell the securities.

Unidentified Analyst

Okay.

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Operator, could we have the next question please?

Operator

Yes sir, we can. Our next question comes from Mark Mahaney at Citi. Your question please.

Unidentified Analyst

Hi guys. It's Neil Doshi [ph] on behalf of Mark. Couple of questions. One, I just wanted to know, in your comments earlier, you talked about potentially entering into six other countries and partnering with six other entities. Could you give us a little more detail in terms of what type of entities you might be looking to partner with? Are they more in the media side. And then what… where are the countries that you might be looking into to expanding into? And then I have a follow-up question after that. Thanks.

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Sure. Just give me a second on that, I'll give it you. The countries we are currently in preliminary discussions are that we are focusing on are England, Germany, Russia, certain major Asian markets and India. The companies we are considering as I said before are major media publishing and healthcare companies that bring with them assets that will help accelerate our success in these key overseas markets. We're looking for companies that have relationships with the end uses or relevant local content, and knowledge of local culture and regs, relationships with key government agencies and established online presence in that respective country. And we are in active discussions at this time in our first expansion to this area is looking very successful. Does that answer your question?

Unidentified Analyst

Yes. Another set, sales and marketing and G&A as a percent of revenue seem to have jumped quite a bit over the last quarter. Just wanted to know if you can add a little color there?

Wayne T. Gattinella - Chief Executive Officer and President of WebMD Health

Sure. One second please. There is only the a sequential capital drop in our revenue from Q4 to Q1, which is going to drive the sales and marketing cost as a percentage of revenue to be higher in the first quarter and then as our revenues grow throughout the quarter, the balance of the year, you will see that start to level out.

Unidentified Analyst

Thank you.

Operator

Our next question comes from Gerard Heyman [ph] at UBS. Your line is open.

Unidentified Analyst

Gentleman, very good earnings and I just wanted to bring in something recently. There has been or actually, currently there has been a lot of discussion about Yahoo! in the media and we have a contract that is about to begin. Actually, two parts, the first part would be, can you elaborate a little bit about the beginning date and what you see with all the other news going on. And secondly, I've noticed that there is a lot of activity in Yahoo! overseas, especially in Asia and India, do you think that will effect our business with Yahoo! going forward? Thank you.

Wayne T. Gattinella - Chief Executive Officer and President of WebMD Health

Our relationship with Yahoo! currently is U.S. only and that includes both the search relationship that we have with them and then also the more recent co-marketing relationship where we are marketing Yahoo! inventory to behaviorally targeted WebMD users. So as we certainly contemplate that relationship or experience it right now, it's a really a… it is a domestic-only relationship.

Operator

Thank you. Our next question comes from Bob… Bob Hudson [ph] at BlackRock. Your question please.

Unidentified Analyst

Thanks a lot. Marty, in your press release you talk about the ViPS and Porex sales, the due diligence process. Can you tell us where that stands right now? Do you know having a estimate of when you may see completion date on either of those two and have… is this due diligence prior to an offer being made or kind of subsequent to some terms it's being out there.

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Some of these have put in office already and some of them that were a little bit late to the table have not put in their office as of yet. And some are in the later stage of due diligence and some are in the earlier stage of due diligence. Some of them have already negotiated, added a lot of the key points with us and some of them are at the very beginning. So, I would have to say we're probably somewhere around three, four weeks away from reaching conclusion on executed contracts, if we get there. And then on some of these, we would have Hart-Scott-Rodino approval that we have to have and if it's a foreign buyer, there are some foreign regulations and even possible, shareholder approvals that we would have to go through, you mean all the shareholder approvals are fairly mechanical.

Unidentified Analyst

Great. Is it safe to say there, there are more than one potential bidder on both properties?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

Yes.

Unidentified Analyst

Great. Obviously, they are aware of the other potential buyers, so maybe we get some bidding process going?

Martin J. Wygod - Acting Chief Executive Officer and Chairman

I have no idea. We do have the bidding process going. But I think we will get fair reasonable prices for our assets [inaudible].

Unidentified Analyst

Okay. Great. Thanks Martin.

Operator

Thank you. Our next question comes from Anthony Petrone at Maxim Group. Your question please.

Anthony Petrone - Maxim Group

Great. Just a follow-up here, you mentioned a couple of quarters ago that there was couple of large contracts with some potential clients that were stuck in expended legal reviews. What is it… can you just give us an update on the status of those contracts?

Wayne T. Gattinella - Chief Executive Officer and President of WebMD Health

We did talk about, I think it was at the end of the third quarter, particular product contracts that were delayed in pharma regulatory review. Several of those have since been implemented, some as recently in this quarter. As we talked about before, lot of that was their relationship to a new product offering, it was our health check and assessment tools that as we subsequently experienced after the product was introduced had a longer review process, just because it was a little bit more of a complex offering. And again, as we now look at that, the product have been very successful, many of those sponsored offerings are either live or about to go live. And as we look forward in terms of our financial planning, we've of course taken into consideration for that particular product a different kind of cycle time in terms of sale to ultimate implementation.

Anthony Petrone - Maxim Group

Thank you, Wayne.

Operator

This does conclude the Q&A portion of our call. As a reminder if necessary there is a replay available of this call which can be accessed toll free at 888-266-2081 or if you are calling from outside the US at 703-925-7533 the pass code is 122-7180. There is also the webcast replay available on HLTH Corporation’s and WebMD’s websites as well. Thank you for joining us today.

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Source: HLTH Corp. Q1 2008 Earnings Call Transcript
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