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WebMD Health (NASDAQ:WBMD)

Q2 2012 Earnings Call

July 31, 2012 04:45 PM ET

Executives

Risa Fisher - VP, IR

Cavan Redmond - CEO

Tony Vuolo - CFO

Marty Wygod - Chairman

Analysts

Andy O'Hara - William Blair

Kevin Kopelman - Cowen & Company

Heath Terry - Goldman Sachs

Ignatius Njoku - Wells Fargo

Gerard Hayman - JPMorgan

Jordan Monahan - Morgan Stanley

Mark May - Barclays

Steve Rubis - Stifel Nicolaus

Michael Bunyaner - TLF Capital

Operator

Good afternoon, and welcome to WebMD Health Corp.'s Second Quarter 2012 Conference Call. Today's call is being recorded.

I will now turn the conference over to Risa Fisher, Vice President of Investor Relations.

Risa Fisher

Good afternoon. This conference call is to discuss WebMD's second quarter results. The earnings release issued today by WebMD is available at wbmd.com in the Investor Relations section. The release includes reconciliations between GAAP and non-GAAP financial measures, which will be discussed during this call.

The explanatory paragraphs in the release concerning forward-looking disclosures and related risks and uncertainties also apply to forward-looking disclosures made during this call, including those regarding our guidance on future financial results and other projections or measures of WebMD's future performance. Information concerning the risks and uncertainties can be found in WebMD's SEC filings.

Joining us on today's call are Marty Wygod, Chairman of WebMD and Cavan Redmond, Chief Executive Officer and Tony Vuolo, Chief Financial Officer. At the conclusion of our prepared remarks, we'll open the call and take questions.

Now, I'd like to turn the call over our CEO, Cavan Redmond.

Cavan Redmond

Thank you Risa and thank you for those of who joined us on the line. We hosted our annual meeting of stockholders last week where I made a brief presentation. I wanted to highlight many of those points here today. I joined WebMD as CO in early June even in the face of declining revenues and significant challenges. I did this because (audio gap) it is the most trusted and creditable brand of health information. Standing at the cross roads of patient, physician and consumer engagement in a healthcare decision-making environment. From a brand point of view, I believe this is a unique position to be in. When I look at many stakeholders in the healthcare industry and a radically changing market environment, I strongly believe there is an additional opportunities that WebMD can capitalize upon in the future.

What I found in my first weeks as a CEO is that the core assets of WebMD brand which drives our user model or even stronger than I expected. The combination of WebMD and Medscape provide the foundation for broad reach, high quality traffic that can be monetized.

WebMD is the go-to brand for millions of consumers and patients for seeking information for a purpose. To gain greater insights into their health to make informed decisions about their lives and those that they care about, not casually browsing the internet but searching with a sense of purpose in order to find actionable health along this information from a credible and trustworthy source.

For example, a mother who will visit WebMD to make health related decisions for herself and then return as a health decision maker for her spouse, her children and often her parents. When she is utilizing our Baby app to organize and personalize the information needed for her child by leaving the pediatricians office and diving deeper into the info on WebMD’s health and baby on her desktop back home. WebMD allows her and millions of consumers to significantly engage in health and wellness information where, how and when they want it.

To every step of healthy living and a longer patient’s journey, WebMD is helping consumers understand symptoms prepare for the doctor’s visit and learn about diagnosis, evaluation of treatment options and living with conditions. Medscape is the go-to brand for physicians and healthcare providers. Medscape demonstrates and Medscape generates substantially more physician engagement than any other health professional site. Doctors are searching for information on our latest treatments, best practices and latest news.

They are checking daily news in their specialty, reading journals, conference coverage and interacting with their peers and key opinion leaders in order to have a conversation about their field of medicine. They are checking dosing interactions and other important information as they are writing prescriptions patient encounters. Whether it's at the point of care in their office for during their daily commute or at home, Medscape is integral to a physician’s daily practice of medicine and their continuing education.

WebMD and Medscape are the go-to brands because we have an outstanding publishing engine and a world class technology organization. WebMD is the industry’s first and only optimized multiscreen experience empowering and enabling healthcare decisions anytime and anywhere.

So why are our revenues declining and what are we going to do about it? This is the key question in the short term in order to build the long term. There are two key factors impacting our revenue trend, first externally, we are operating in a challenging and changing marketplace, second, internally we must look closely at our go-to market strategy and our commercial offerings in our key customer segments and markets.

Let’s first look externally at the industry, WebMD’s primary source of revenue has been large biopharmaceutical companies followed by large consumer product companies. So what is happening in their business is affecting ours, our customers are under pressure, under pressure to grow and under pressure for cost containment. Biopharmas growth is largely reliant by new product launches to replace the estimated 72 billion in product sales that will lose exclusivity by 2015. In fact, in 2012, Biopharma will see 31 billion from branded to generics through the patent expiration.

This is unprecedented but clearly known change in the industry and it will continue for several years. The picture is more complicated if you look at the key drivers for branded pharma, With new product launches are the core to the future growth. In just this year alone, already 44% of new product applications in the U.S. have either been delayed or not approved at all.

The combination of generic erosion and new product delays when layered upon the challenges of infrastructure reduction that has been announced in most of the top pharma companies, creates a compelling need for us to improve our business model to meet this change.

Historically, WebMD was focused on building the business case for increasing digital budgets at Biopharma companies, however as previously stated by the company, it historically did not anticipate the unprecedented reduction in overall spending combined with the change in promotional approval environment that increased the time for programs to be approved by clients or the complexity of those approvals.

When looking at WebMD’s next largest customer base, the consumer products companies, I see similar cost and competitive pressures but exhibited in different ways. Unpredictability in their sales projections, cuts and marking spend and their ever-changing needs focus on different brands to drive growth. Further complicating the landscape is a sharp increase in advertising inventory in the CPG space that is available through social media, general portals, ad networks and general search engines.

From my perspective I believe these and similar pressures will persist for increase over the next 12 to 18 months. I believe there will be further cuts in marketing expenditures by some of our key clients. This view point is formed by being in the industry for the last 20 years and seeing the difficulty of changing these large companies. In fact, the rate of recovery will always be lower and slower than you might otherwise expect.

We are keenly aware of this challenges, but good companies with good brands find ways to grow in challenging and changing markets. With the external markets as the backdrop let’s look internally. Immediately I am examining our go to market and commercial offerings in each of our key customer markets and throughout the company, this includes both our public and our private portal business.

What does this mean? It includes a thoroughly view of products, process and structure and people. Let’s look at our current commercial offerings, although we have been successful in winning new business especially in the area of new pharma product launches and while we are engaging in dialogue for additional upcoming launches it is only part of what we need to do to offset the current trends affecting the business.

We must accelerate the rate of innovation and review and improve our product offerings with a heightened focus on the value of our products for both now and where the market is going in order to revitalize the monetization of WebMD as a brand.

I am reevaluating our infrastructure to seek operational improvements and cost efficiencies all the while improving our customer experience and investing in areas where we can expect long term growth.

We need to further capitalize on changes in the healthcare market by not only strengthening the portfolio of our services offered for biopharma and consumer products company but also diversifying our customer base to generate revenues in other parts of healthcare. When you focus for a moment on talent, first we have key talent in a number of areas of the company that are and will be key to our success, however it will take much more bench strength than we currently have at WebMD to capitalize on these changes in the marketplace.

Since the beginning of the year while the CEO selection process was ongoing the company was successful in bringing additional talent, however more needs to be done, we will accelerate innovation and improve performance by attracting new talent and capabilities to supplement the strong change we have within and doing so we will position ourselves well for the transition to more diversified revenue model.

We will align our organization internally to best achieve these goals and do so in real time while meeting our customer needs. And now on to capital, we have a stock buyback program in place and we will continue to look at opportunities to shrink our capitalization. We will also look at the cap allocation that is required in order to have growth in each of the segments we will compete in.

Some will have short term objectives other will have mid-term objectives but the capital allocation process will allow us to fund the greatest opportunities. I have no bias in making these decisions with respect to building internally or looking at acquisitions from the outside. With nearly 1 billion in cash we will leverage our strong balance sheet to maximize organic growth and take advantage of potential external acquisitions.

Make no mistake this will require focus, innovation and additional top talent. It will also take time to set and operationalize the strategy. This will not happen over-night, however I can assure you that I have a real sense of urgency which I will drive through this organization so that we can be successful. I believe opportunities are considerable and look forward to leaving the organization in our effort to realize the opportunities in front of us and capitalize on the full potential of our assets. I look forward to updating you during our next conference call.

I would like to turn it over to Tony at this time.

Tony Vuolo

Thanks Cavan. We announced our second quarter results today which are consistent with the preliminary results we issued last week. Our second quarter revenue was 112.7 million compared to 141.4 million last year. Public portal advertising and sponsorship revenue was 93.7 million compared to 121.1 million in the prior year and private portal services revenue was 18.9 million compared to 20.3 million in the prior year. Second quarter adjusted EBITDA was 14.2 million or 12.6% of revenue compared to 45.3 million or 32% revenue on a prior year period. During the second quarter, we recorded a pretax expense of 1.1 million related to the recruitment of the company’s new CEO.

In the prior year period we recorded a gain on investments of 1.8 million, net loss from continuing operations was 6.1 million or $0.12 per diluted share compared to income from continuing operations of 14.2 million or $0.23 per diluted share in the prior year. The recorded income from discontinued operations of 508,000 representing a tax refund related to business accompanied divested in 2006. In the prior year period we recorded 7.4 million in income from discontinued operations from the same divested business.

Net loss was 5.6 million or $0.11 per diluted share, compared to net income of 21.6 million or $0.36 per diluted share in the prior year. Operating cash flow was approximately 10 million for the second quarter, as we had stated in the past, quarterly operating cash flows can be impacted by the timing of compensation and other accruals in relation to quarters end. The timing of interest payments on our convertible debt and the building and collection of receivables from our customers.

Capital expenditures were 13.2 million in the quarter which included the planned end of life replacement of service and (inaudible) for our public portal data centers as well as planned we saw improvements from one of our private portal locations. During the second quarter, we utilized approximately 173 million of cash to purchase 6.8 million shares of our common stock in a tender offer and purchases under our authorized share repurchase program. It's approximately 66 million remaining in our buyback program. As of June 30, 2012, we had 964 million in cash and cash equivalents.

Last week, we also issued updated financial guidance for 2012. The schedule summarizing the same financial guidance is included in today’s press release as well. We anticipate that many of our customers will continue to reevaluate expenditures in various areas including marketing expenditures across their entire product portfolios as they deal with both the ongoing and anticipated impact of patent expirations across their businesses as well as greater than expected delays in new product launches as a result of unanticipated delays in FDA approvals.

We have lowered our expectation to sales commitments and revenues sort of balance at 2012, these factors are having a greater impact than anticipated in our previous financial guidance.

To summarize our current financial guidance for 2012, revenues is expected to be between 455 million and 480 million. Adjusted EBITDA is expected to be approximately 60 million to 75 million. Loss from continuing operations expected to be between 12.4 million and 23.4 million or $0.24 to $0.45 per diluted share. We expect the weighted average basic share and diluted cap for the year to be approximately 52 million.

We also expect capital expenditures to be approximately 30 million, our capital expenditures for the balance of the year includes planned result improvements for second private portal facility. Looking specifically at the third quarter of 2012 revenue is expected to be between 115 and 120 million. Adjusted EBITDA is expected to be approximately 13% to 15% of revenue and loss from continuing operations is expected to be approximately 3% to 5% of revenue.

The expected weighted average basic and diluted share count for the third quarter to be approximately 50 million. Our guidance does not include the impact if any, a future deployment of capital for items such as share repurchases or acquisitions, the current review of business products, processes and operations or resolution of liabilities from discontinued operations such as we saw on the June quarter and other non-recurring one time unusual items. Despite the challenges of our advertising business, traffic to the WebMD help network during the second quarter continued to grow reaching an average of almost 107 million unique visitors per month and 2.5 billion pages for the quarter, increase of 29% and 25% respectively from the prior year period.

These prior year comparisons exclude the traffic from our former affiliate partner sites which were phased out at the end of 2012. Our traffic growth is attributable to increased traffic from our mobile properties as well as search engine optimization.

Traffic to the Medscape are professional network averaged approximately 2.5 million physician visits per month in the second quarter. We have had several questions from analyst regarding the amount of mobile and international traffic to our sites. For the first half of 2012 roughly 25% of our page views represents mobile traffic and 25% of our page views represent international traffic for our domestic sites as well as our non-U.S. sites.

We will continue to invest in platforms that meet the needs of our consumer and professional audiences across the variety of devices that they use in the course of their daily activities. Now I would like to turn it over to Marty Wygod for some closing comments before we open the call up for questions.

Marty Wygod - Chairman

We are disappointed with the revenues and earnings outlet for the balance of 2012, but we remain committed to doing all we can to restore the company’s growth. Under Cavan’s strong leadership we are reviewing the company’s business and reevaluating the company’s infrastructure to drive operational improvements and cost efficiencies. We are well positioned to leverage our strong balance sheet, but there is no contending at this time or engage in discussions regarding strategic partnerships, alliances, potential acquisitions that are a number of areas.

The assets at assembled at WebMD cannot be easily replicated and I believe that our long term growth opportunities are significant. I believe strongly that the company that sits at the heart of patient physician and consumer engagement will be best positioned to capitalize on the opportunities created by the changing healthcare landscape.

The Board will work closely with Cavan and the executive management team to create a winning strategy and an operational plan that creates value for shareholders. Operator at this time we will take questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from Ryan Daniels of William Blair. Your question please.

Andy O'Hara - William Blair

It's Andy O'Hara for Ryan this afternoon. Obviously patented explorations are an issue for many of your pharma customers; can you talk a little bit about the growth with clients that don’t have any large explorations coming up?

Tony Vuolo

We have been growing with clients that have new products in the market that aren’t, that don’t have pressures of patent expiration those tend to be the smaller pharmaceutical companies most of the large pharmaceutical companies have product expiring and we have been doing, well in that perspective but it's certainly not enough to offset the impact of the issues the larger pharmaceutical companies have on us.

Andy O'Hara - William Blair

And with the ROI tools that you guys are developing, can you guys share any feedback with us from some of your customers there?

Cavan Redmond

Let me hit ROI, certainly grew up in marketing research originally I at least have a passion for how the numbers flow through measuring programs, let’s say that’s when you look at ROI for any of the programs that companies offer being able to calculate an ROI so it's preferring to the easiest part of it, you actually have a robust set of analytics that allow you to supplement what companies can do internally have to be a core competency as a company competes in this space, so I would see as we move forward really focus on being able to add more analytical tools that are broader than just ROI into our products to allow the customers to have more insights in terms of what our programs can do and the impacts that they are having.

Operator

Our next question is from Kevin Kopelman of Cowen & Company. Your question please.

Kevin Kopelman - Cowen & Company

Just looking at your mobile traffic at 25%, that’s very high; can you talk about how much of your traffic is being driven through apps versus the mobile web, and also any color on the desktop traffic trends?

Cavan Redmond

Sure I didn’t hear the, I heard the question in relation to mobile traffic but the apps versus the mobile web, I am sorry I didn’t hear the apps. In terms of our mobile traffic both we made a large investment on the consumer and professional side both in various apps and in mobile web. On the consumer side of the business for WebMD we have our flagship app, the WebMD mobile app we also recently introduced the Baby app and during the first quarter we fully optimized the mobile website for the smart phone so that investment has led to the amount of traffic that you see coming from mobile given what our investment of last year and similarly the same on the professional side.

Medscape mobile is fully optimized for the mobile web but in addition to that you have the mobile app, which is getting increasing amounts of utilization as doctors incorporate that functionality into whether it be the exam room or whether it be at home, so we have seen growth in both perspectives. As it relates to desktop, the desktop obviously it's flattening out, we saw smaller growth in the desktop it's probably in the single digit area where the bulk of the growth is been coming from the mobile at this point.

Sorry we didn’t hear the last question.

Kevin Kopelman - Cowen & Company

That includes tablet as well, doesn’t it?

Cavan Redmond

Yes when we talk about mobile we include tablet in mobile.

Kevin Kopelman - Cowen & Company

Okay and how should we think about mobile advertising, is that something that’s on the horizon for the near term or is that not a focus right now?

Cavan Redmond

Let me give you our view on mobile, part of the strategy that the companies undertake is to be where people want to be with the devices that they want to be. So the total user experience is extremely important to us because it's a healthcare driven opportunity. What tends to happen is you start with mobile for some of your questions and then as you get deeper you go to the tablet or your desktop so we believe that being able to be ubiquitous across all three is going to give us the strength. So when we take a look at monetization we are looking at the total experience of that users facing and ways in order to be able to enhance that.

Kevin Kopelman - Cowen & Company

Okay and just one other question, looking at the FDA approval delays you see that as more of a temporary issue or is it part of an ongoing just change in way they are doing their evaluations?

Cavan Redmond

I think it's a continual change for a pharmaceutical, if you look at it historically regulatory times or medical lead review times have always been a long lead item, they are more difficult that they may have been historically but part of our job is to be able to understand that process and find ways that our products can move through that in a quicker manner and those are some of the efforts that we have underway now.

Operator

Our next question is from Heath Terry of Goldman Sachs. Your question please.

Heath Terry - Goldman Sachs

I was wondering if you could give us a sense of exactly what drugs you are expecting approvals for before the end of the year, if not the names may be just the number of drugs you are expecting to see approvals for when you think about the guidance that you are giving and then in the area of investment whether you can give us a sense of what kind of investment are you going to need to make on the advertising technology side or on the content side to start to see revenue growth similar to the traffic growth that you are already seeing.

Tony Vuolo

Let me hit on the investment, first part of your question, on the investment it's so early days for me so I expect that as we are going forward we are going to look at the totality of the products that we have and how we are going to monetize going forward in each of the market segments and the link that you may which is important to us is we have a very strong network of users both on the healthcare professional sides consumer side and the patient side and the ability to find ways to monetize that new tools or new techniques is going to be a big focus on reviewing what our go to market strategy is going to be.

Cavan Redmond

And on the number of new drugs coming to market in the back half of the year, anything new coming to market in the back half of the year really isn’t going to contribute a significant revenue to the company in 2012, those are really 2013 opportunities. Generally when drugs are approved you know there might be some opportunity on the professional side, there is usually a period of time before drug companies will start to market on the consumer side so we are monitoring and the discussions with a lot of companies who have drugs in the pipeline with the FDA but those are primarily 2013 opportunities.

Operator

Our next question is from Peter Stabler of Wells Fargo. Your question please.

Ignatius Njoku - Wells Fargo

Hi this is Ignatius Njoku for Peter, can you please provide us an update on private portal business, what type of pipeline are you seeing? Are you seeing any strength? Also can you talk about any specific vertical that you are seeing strengths? Thank you.

Tony Vuolo

On the private portal side of the business we have added some new business which will -- we wanted the revenue impact until the fourth quarter when those programs probably implement, we are scheduling (ph) that.

So there will probably be some amount of revenue pickup compared to what the current revenue levels are toward the end of the year.

In terms of verticals or customer segments I think we are seeing strength, right now given what we are seeing in the pharmaceutical side of the business we are both on the consumer side and professional side we are seeing a reduction in the amount of opportunity for us to be able to compete for and that’s reflected in our updated guidance and as we Cavan alluded to on past calls the CPG market has also gotten much more competitive for different reasons.

So, in terms of the three segments that we currently compete from an advertising perspective that’s the outlook that we see right now.

Operator

Our next question is from Gerard Hayman of JPMorgan. Your question please.

Gerard Hayman – JPMorgan

I have a two part question; I recently read a brokerage report from an analyst who is following WebMD subscribed sometime. I found this report to be curious to say the lease, what motive could be there to question the contribution Martin J. Wygod, Chairman of the Board of WebMD to building this company to the position of leading healthcare information service company. Marty maybe you can summarize for this analyst the last six years. My second part of the question is this analyst characterization of Cavan Redmond as the CEO, as a new sheriff and Marin J. Wygod as the old mayor role players appear to be ungracious. Has anyone who has experienced such a management change would vouch for this is hard work getting acclimated to each other requiring long hours of discussion, sensitivity, diplomacy, questioning and answering questions. Any comments as to what you have been doing for the last 60 days, Marty, Cavan that will be nice to know.

Cavan Redmond

Let me answer that since (inaudible), Marty and I worked extensively since I joined WebMD and we have a very strong relationship, in fact during the interview process and our discussions we hit it off quite well and that has continued. We spend a lot of time talking about both the strategic and how to operationalize it for the company and I view them as a very strong strategic thinker and we have been very close on working through a number of both the opportunities and things that we need to address. So I don’t think it's a fair characterization what you referred to because I think that we are working well as a team together, as I am working with the Board also.

Tony Vuolo

Yes and before Marty responses, this is Tony I would like to just jump in here for a second. Marty’s value to WebMD in the past has been substantial and we expect it to continue in the future. Under Marty’s direction the WebMD brand, it's really been built to what it is today in terms of the trust and credibility that it has both of consumers and healthcare professionals and Marty has also been responsible for number of the larger contracts that we have entered in the past and has been also responsible for many of the commitments that we have for some of the upcoming drug launches and it is expertise in terms of corporate finance transactions is one of the reasons why we have a strong balance sheet today and I can go on but I wanted to interject from that perspective.

Marty Wygod

That’s nice of you guys to say those things. As I said in our annual meeting last week Cavan is an innovative and an operator. He is the right person to lead this company going forward and I intend to provide him whatever support and assistance he needs. But I think this is a subject we can pass on; I think we can all understand there is agenda behind these statements. Why don’t we go on to the next question?

Operator

Our next question is from Jordan Monahan of Morgan Stanley. Your question please.

Jordan Monahan - Morgan Stanley

Actually just a couple of questions, the first is just following up on couple of the previous questions around FDA approvals, I am wondering if you can actually help us separate out, I think Cavan earlier on in your prepared remarks you referenced promotional approval environment and I am wondering if you can help us separate the difference between delays in FDA approval for new products versus some conservatism on the part of pharma internally and with respect to new campaigns and then secondly, I am just wondering how much visibility do you think you have in the 2013 and if very little could you maybe help us figure out how we can gain some confidence in those numbers and then also on the private portal this is a business that’s been declining from our revenue perspective for a few years, I think in peak in 2009. Does it make sense to keep the private portal business as part of your consolidate business or is there any sort of rationale for separating that business?

Marty Wygod

Both questions, Tony do you want to start off with the wanted relations with the…

Tony Vuolo

I am sorry Marty; I didn’t hear what you said.

Marty Wygod

If you want to start off with the challenges and I was trying to put out a projection on 2013.

Risa Fisher

Marty we are having trouble hearing you, can you say that again?

Marty Wygod

Can you hear me better now?

Risa Fisher

Yes that’s better.

Marty Wygod

It's easy Tony, why don’t you start off with addressing the 2013 projection and the challenges to that.

Tony Vuolo

Sure, I think it's a little early to comment on 2013 yet. We are just entering the second half of the year and from a sales perspective, many of the sales occur would benefit 2013, so I think it's pre-mature and you can even tell from our 2012 guidance given the size of the range, what we are struggling with in terms of the visibility that we have given what we sit right now and the feedback that we are getting from our customers but they are still uncertain about their budget. So the back half of the year let alone 2013 so it's hard for us right to have a view into 2013.

Cavan Redmond

Let me make a comment on that but tie up your other two questions on the private portal but also on the review process within companies. Obviously we are not in a position right now to comment on 13 given your review that we said we are going to undertake and of course until we get more insight into our key clients budgets and how they will lay out for 2013 but I can ensure that we are taking a lot of attention to both our current product and the review of the go-to market and our structure that I spoke about earlier will take into account a number of the points that you raised, one is taking a look at everything from a private to the public portal and looking where those opportunities are and where we can get growth, the second thing taking a look at how our products match into a more conservative pharmaceutical environment and be able to leverage ourselves in that environment and areas that we can look for growth.

And then when we take a look at the next period of time looking from each of our products and each of the markets that we will go into or that we are in will allow be to be able to understand better where we compete, what the opportunities for growth going to be and then be able to essentially allocate the capital that’s required to compete into those different environments.

Jordan Monahan - Morgan Stanley

Just one more if you don’t mind just a clarification on your prepared remarks about adding talent, does that suggest you are looking to increase in the total in terms of talent and head count, are you looking to potentially reshuffle and keep your total head counts similar to where it is now?

Tony Vuolo

We haven’t made a decision on head count, count and head count I have used slightly different, on the head count side because we are going to be looking structure and our cost that will be obviously included in process in terms of talent, bringing in key talent in order to be able to work with the teams that we have via the key priority.

Operator

Our next question is from Mark May of Barclays. Your question please.

Mark May – Barclays

I guess based on that previous callers prepared statement, unfortunate that I don’t read analyst reports except for my own. Anyways, question is on revenues your revenues this quarter and based on your guidance for Q3 you are starting to stabilize, you are actually improve them sequentially and I guess you are guiding for sequential growth and then Q3 which I assume you have decent visibility into, but you are certainly very cautious about talking about the revenue outlook going forward. I think it's primarily around what you see from the patent issue.

So maybe you can help frame for us a little bit about what is the head wind that the company has going forward from a patent perspective, what portion of your current revenues today, do you have to kind of replace that could be helpful because at least what I am seeing in the immediate term seems like revenues are starting to stabilize.

And I guess second question, last question more on cost, you know we have gone from low 30% EBITDA margins to now in the low double digits, it's been obviously with the revenue decline, the profitability business has come down a lot but again like revenues sort of been stabilizing in the low double digits. What should investors expect during this transition period in terms of the profit margins of the business understanding that they are going to be under pressure but should we anticipate that margins might continue to decline before they rise again?

Cavan Redmond

Since they are sort of a combination questions there let me start with sort of an overarching statement then ask Tony to give more specifics, from a third and fourth quarter standpoint when we take a look at going forward the best information we have in taking a look at where we think the pharma companies and the consumer companies are going. We do see a slowdown in the rest of this year in terms of their spend and of course that relates, or that transfers for us to sales and then throughout the year into revenues, so we are anticipating that continued slowdown from our major customers.

The other thing that I think is important is, it's not just which products are coming off patent and going generics, let’s take a look at the branded business which of course is a significant part of our business and we are one of the few companies enable to do it at scale. That branded business across our major clients is under pressure because as delays for launches occur, whereas products that we are planning to go generic and again those launches either get late or impacted, it puts a lot of cost pressure on them and an overall reduction of their marketing spend has an impact on us.

So, that’s what we are looking out for the remainder of this year and Tony can give you some more insight into I think so what our numbers are.

Tony Vuolo

Mark I mean your observations on the guidance are correct in terms if you translated it into quarterly guidance there, as I would characterize it as a modest sequential increase but recall that historically we have seen lot more significant increase in the third and fourth quarter of the year as companies particularly in the fourth quarter as companies would deploy uncommitted budgets and I think we are in a different environment today as we have said before and that’s reflected in the guidance that we published last week.

Mark May - Barclays

Okay I am just trying to understand we just came off of hitting a wall last year where revenues were down significant double digits both year-over-year and sequentially and now it seems like that we are in a period at least for Q2 in guidance for Q3 and Q4, at least we are in a more stable revenue environment. When you look forward into beyond Q3 and Q4 is there any reason to believe that at least the worst is behind us or are there issues like patent and other things where there could be more head winds or at least the worse is behind us, I am trying to get….

Tony Vuolo

Okay let me address the patent issue it's important thing, I apologize I didn’t address that the first time around. Our issue has really been more around the environment that the patent expirations create in terms of what happened for the balance of the promotional spending in the product portfolio that pharma has away from the product that’s going off pattern, while we have some promotion with products that is still we have to expire from a patent perspective, it's not significant compared to the total. Our issues has really been understanding how the pharmaceutical industry is dealing with and continues to deal with the impact of those expiring products on their own infrastructure and the resulting promotional spending will cost the balance of the portfolio and that’s why it's really hard to get a handle as we sit here right now on what 2013 looks like.

Cavan Redmond

I would probably add two key things, one is we are going to undertake a review of our go-to market strategy and really until we go through that I can’t answer what their teens going to look like but the one thing that I do think is that we are going to see similar pressures either persist or increase in terms of the budget cuts that we are seeing from our major clients over the next 12 to 18 months.

Mark May - Barclays

Got it and if from an investment standpoint and this kind of gets to the margin question is the idea is to kind of address those cuts from a cost perspective or to invest in a business so that you come out of this period stronger, which we expect in terms of this transition period profitability for the company.

Cavan Redmond

So areas where we can address cost we will absolutely address them, that will be a focus but when I look at WebMD as a brand and to many of our users that’s exactly what it is, brands going through times of transition and revitalization which requires you to invest in areas where you believe you can grow, so we will also redeploy capital in areas where we believe that we have the ability to win and we can craft products that give us long term growth.

So we will be doing a combination of both based on what we think this strategy is going to take us and what is going to take operational assets (ph).

Operator

Your next question is from Steve Rubis of Stifel Nicolaus. Your question please.

Steve Rubis - Stifel Nicolaus

The first question I had is in today’s press release you referenced 29% unique user growth and 25% page view growth in the second quarter. Can you help us reconcile the stimulus strong user engagement metrics and the 22% decline in public portal revenue in the quarter and did you sell out of your admin or inventory in the second quarter and did you have to just pricing anyway to themselves.

Cavan Redmond

Let me talk about the user experience with our portals both Medscape and of course WebMD for consumers and for patient, we continue to see very strong engagement in both of those portals and we continue to see essentially as a go-to brand. So from a user standpoint the brand itself is extremely strong and continues to hold up in the go-to place and that has to be separated from the monetization of our assets and what opportunities that we have and since we have a significant reliance on the pharmaceutical industry in terms of our opportunities, we have seen the changes there and as I discussed in the prepared remarks that does have a pretty significant impact on our revenues and revenue projects. So I think that when I look at it as a brand, as such I am brand guy I see the strength of the brand WebMD and the strength of the brand for Medscape. What we have to do is take a look at how we are going to monetize those brands in order to be able to have success on both the commercial side and of course the user experience side to build on that.

Steve Rubis - Stifel Nicolaus

Recently there have been some recent acquisitions in digital healthcare space. Have you guys been actively looking to acquire any companies to offset weakness or lack of capabilities in this area and can you discuss what areas of weakness you might look to address provide an acquisition whether you have appetite for enabling forward.

Cavan Redmond

I am here since June, I am not going to speak to what the company looked at in the past and we are extremely focused on the future, so let me tell you what we are looking for in the future. In the future we will go through what our go-to market strategy is, what our products are and we look at areas where we can either build internally so organic because of our strength and our position in the marketplace or we will look for opportunities where we can leverage our balance sheet and make acquisitions that will fit our strategy and allow us to operationalize.

It's too early for me to speculate on what those areas would be or what types of companies those would be because we are just in that process right now since I am brand new.

Steve Rubis - Stifel Nicolaus

Okay we will look forward to an update, at the annual stockholders meeting and this is my final question. You identified the weakness in the consumer products in its category, can you remind us how long do you expect to see weakness in that category and then I knew it is the early stages but can you give any color in very advance of how to regain share from social media and other digital channels in the consumer product category.

Cavan Redmond

Let me get where I think CPG companies in general are going so it's meant as a general statement across the Board. Their business is obviously impacted by the economy and the challenge that the face in driving growth for their brands and that has reflected of course in our business and I believe we will still see a lot of head wind over the next 12 to 13 months in the CPG space that will require us to navigate through that to continue to be successful in that area.

Operator

(Operator Instructions). Our next question is from Michael Bunyaner of TLF Capital. Your question please.

Michael Bunyaner - TLF Capital

If I can just take you back to the question of cost because three years ago in 2010 when the company was generating $534 million in revenues, you were incurring an SG&A of about a 120 million and sales and marketing of 120 million and G&A of about 85. I believe this year with the estimates for $455 million to $480 million in revenues, we will have sales and marketing of a 120 million and G&A of about 115 million. I recognize there are some transition cost but is there anything that you can share with us today Tony that could help us understand how you think about the breakeven of the company and what is that you are prepared to do to take us through to the other side so to speak in terms of the costs and the margins.

Tony Vuolo

First of all, I know you followed the company for a while so you understand the margin profile of the company and so as the revenues were increasing we had very high incremental margins but the inverse is true, the revenues declined fair amount of those revenues fall to the bottom-line. So, we have for the first part of this year we have chosen to continue to invest in the business making the improvements many of which we have discussed at the shareholders meeting until we have more visibility into the back half of the year. Our current visibility into the back half of the year is reflected in our updated guidance we see even a weaker environment that we anticipated earlier in the year and as Cavan said we are now going through the process of looking at the products, review the infrastructure and then we will take the appropriate actions.

Michael Bunyaner - TLF Capital

Okay and one another question, in terms of the analytics, is there anything you can share with us or at least how are you thinking about the timeframe in terms of what you would consider to be acceptable in terms of new products being introduced with the capabilities of analytics that you are describing.

Cavan Redmond

So the way I think about it is, there is a series of products that Tony mentioned at the shareholders meetings that are rolling out little as we speak. Those are the beginning of combining different product offerings with some new analytics so obviously too early to tell in terms of results on those as we’ll see them roll out throughout this year but I think it will be an ongoing process to continually update our quantitative capabilities and roll them into our products.

Operator

Ladies and gentlemen this concludes our question and answer session for today. As a reminder if necessary there is a replay available of this call, which can be accessed toll free at 855-859-2056 or if you are calling from outside the U.S. at 404-537-3406. The pass code is 10911297. There is also a webcast replay available on www.wbmd.com. Thank you for joining us today. You may now disconnect.

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