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WebMD Health Corp. (NASDAQ:WBMD)

Q2 2008 Earnings Call

August 5, 2008 4:45 pm ET

Executives

Risa Fisher - VP of IR

Marty Wygod - Chairman

Mark Funston - CFO

Wayne Gattinella - President and CEO

Analysts

James Mitchell - Goldman Sachs

David Joseph - Morgan Stanley

Brian Pitz - Banc of America

John Kelly - Smith Barney

Jeremy Lopez - William Blair & Company

Rob Kelly - Citi

Anthony Petrone - Maxim Group

Gerrard Heyman - UBS

William Morrison - ThinkPanmure

Mark Mahoney - Citi

Corey Tobin - William Blair & Company

Operator

Good afternoon and welcome to HLTH Corporation's and WebMD Health Corporation's June 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

Good afternoon. This is a joint conference call to discuss HLTH and WebMD's second quarter financial results. 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 include reconciliations between GAAP and non-GAAP financial measures to be presented in this call.

The explanatory paragraph in those releases 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 HLTH and WebMD's future performance and our expectations regarding ending and future transactions.

Information concerning the risk and uncertainties can be found in HLTH's and WebMD's SEC filings.

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 our 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 and 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 would now like to turn the call over to Marty Wygod, Chairman of WebMD as well as Chairman and Acting CEO of HLTH Corporation.

Martin Wygod

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, COO of WebMD.

I want to start by giving you a brief update on the merger timing. One of the conditions of a merger was the divesture of either ViPS or Porex. That condition was satisfied on July 22, when we completed the sale of ViPS for $225 million in cash bringing the total consolidated cash balance to approximately $1.6 billion today. Currently we are in the process of divesting Porex.

We expect to file a HLTH and WebMD joint preliminary proxy statement relating to the merger shortly after the filing of the second quarter 10-Q next week. Assuming that we receive timely clearance from the SEC, we will be in a position to hold stockholder meetings in October to seek the necessary stockholder approvals. Those meetings would also be the Annual Meetings for HLTH and WebMD.

Turning to WebMD; the growing strength of WebMD was demonstrated again this quarter by WebMD's leadership, strong year-over-year traffic growth, and continued new product innovation.

With its strong set of assets, 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 US and abroad.

The long-term value of the WebMD franchise will continue to increase as we expand our distribution footprint, and deliver the full spectrum of digital solutions that the market is steadily evolving towards.

I would like to turn it over to Mark Funston and then Wayne Gattinella to review the second quarter financial and operating results respectively, and then we will take questions at the end.

Mark Funston

Thank you, Marty. Please note that WebMD and HLTH results represent 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 31, 2007.

HLTH results also present the ViPS and Porex businesses as discontinued operations in the current and prior year period, reflecting the sale of ViPS and the decision to divest the Porex business.

I will now review WebMD's second quarter results. WebMD revenue for the June 2008 quarter was $89.2 million compared to $77.3 million last year, an increase of 15%. Looking further at the revenue increase of 15%, advertising and sponsorship revenue increased 19% to $62.4 million excluding the impact of the expired AOL arrangement, advertising and sponsorship revenue increased 20% compared to last year.

Private portal licensing revenue increased 10% to $21.9 million. Publishing and Other revenue increased 5% to $4.6 million. WebMD's adjusted EBITDA for the June 2008 quarter was $19.8 million compared to $14.9 million last year, an increase of 33%.

Adjusted EBITDA as a percent of revenue improved 300 basis points to 22% from 19% last year. Adjusted EBITDA per diluted share was $0.34 compared to $0.25 last year.

The adjusted EBITDA margin on WebMD's incremental revenue was 41% for the June 2008 quarter, excluding the impact on revenue and adjusted EBITDA of approximately $0.5 million from the expired AOL arrangement, the adjusted EBITDA margin on incremental revenue was approximately 43% for the June 2008 quarter.

Online services segment adjusted EBITDA increased 34% to $18.8 million or 22.2% of segment revenue compared to $14 million or 19.3% of segment revenue last year. Publishing and other services adjusted EBITDA was $1 million compared to $863,000 last year.

Both, income from continuing operations and net income were $6.4 million or $0.11 per share for the second quarter, compared to income from continuing operations of $5.1 million and net income of $5.4 million dollars or $0.09 per share in the prior year period.

WebMD's weighted average diluted share count using computing net income and adjusted EBITDA per diluted share for the quarter was 59.1 million shares. Non-cash stock compensation expense was $3.5 million compared to $4.5 million last year. The decrease is a result of using the accelerating 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 second quarter was $5.1 million, which now reflects a normal tax provision based on the statutory rates. As we stated on our last call, in December 2007, as required under SFAS 109, we reduced our valuation allowance against our deferred tax assets, primarily our tax NOL because we have a sufficient earnings history, and will 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.

Operating cash flow from continuing operations was $28.1 million for the June 2008 quarter. As we have stated on prior calls, quarterly operating cash flows can be impacted by the timing of the cutoff of compensation accruals, other expense accruals, the billing and collection of receivables from our customers and reimbursements to HLTH in relation to the quarter's end. Capital expenditures were $4.3 million for the June 2008 quarter, and we had approximately $325 million in cash and investments at June 30, 2008.

Turning now to HLTH's consolidated financial results, as mentioned earlier, HLTH Porex and ViPS businesses are reflected as discontinued operation in the current and prior year periods. The sale of the ViPS business was completed on July 22, 2008.

HLTH consolidated revenue for the June 2008 quarter was $89.1 million compared to $77.2 million in the prior year, an increase of 15%. Adjusted EBITDA was $14.3 million in the June 2008 quarter compared to $8.6 million in the prior year, an increase of 66%.

In addition to the adjusted EBITDA from WebMD's segments, adjusted EBITDA on a consolidated basis also includes HLTH's corporate expense, which for the June 2008 quarter was $5.6 million compared to $6.3 million a year ago, reflecting HLTH's ongoing cost reduction efforts.

Although we have classified our ViPS and Porex segments as discontinued operations, the corporate expense related to servicing these segments remains in continuing operations.

HLTH's consolidated interest income for the quarter was $8.1 million compared with $10.1 million in the second quarter of the prior year, reflecting lower rates compared to last year.

HLTH's consolidated interest expense was $4.6 million in the current and prior year quarters. HLTH's consolidated income tax provision for the second quarter was $1.3 million.

Also included in the P&L during the current quarter was approximately $800,000 of expenses we incurred relating to the WebMD - HLTH merger.

HLTH's consolidated income from continuing operations for the second quarter was $800,000 or $0.00 per share. HLTH consolidated loss from discontinued operations was $3.7 million or $0.02 per share.

Discontinued operations during the quarter included the results of operations of ViPS and Porex as well as a pre-tax charge of $17 million relating to HLTH obligations to advance the legal costs of certain former officers of the Practice Services subsidiary which HLTH sold in 2006.

Accordingly, as of June 30, 2008, the accrual related to this obligation was $58 million. As previously reported, several insurance carriers had issued D&O insurance to HLTH have refused to advance these costs, and HLTH commenced an action against these carriers to enforce its rights.

On July 31, 2008 the Superior Court for the State of Delaware granted HLTH's motion for partial summary judgment to enforce the duty of such carriers to advance and reimburse these costs.

Porex revenue during the quarter was $24.6 million compared to $25 million in the prior year. Adjusted EBITDA margin for Porex was relatively consistent with the prior year. HLTH's consolidated net loss was $2.9 million or $0.02 per share.

HLTH's operating cash flow from continuing operations in the June 2008 quarter was $10.4 million, which primarily reflects the cash flows from WebMD's businesses offset by cash outflows at the corporate level, primarily related to tax, interest and transaction fees.

At June 30, 2008, HTLH had approximately $1.4 billion in cash and investments of which $325 million is attributable to WebMD. These amounts include the fair value of investments in auction rate securities totaling $298 million, of which, $139 million is attributable to WebMD.

During the quarter, approximately $2 million of these securities were redeemed at face value, and the carrying amounts of the others were adjusted downward by approximately $3 million, to reflect adjustments to fair value which were determined to be temporary in nature.

As previously reported, HLTH and WebMD each entered into a line of credit from Citigroup Global Markets with recourse only to its ARS holdings. These lines of credit allow HLTH and WebMD to borrow up to 75% of the face amount of their ARS holdings until May 2009.

The face value of the ARS held by HLTH was $361 million as of June 30, 2008, of which $168 million was attributable to WebMD. To date, no borrowings by HLTH or WebMD have been made under these facilities.

The $1.4 billion in cash and investments balance on June 30 does not include the $225 million in cash that was received on July 22, 2008 for the sale of ViPS.

Turning to financial guidance, today we are re-affirming our financial guidance for WebMD for the balance of this year. The current guidance was provided on May 6, 2008, and a detailed schedule was included in our press release and 8-K filed on that date. As a result of the anticipated changes to the corporate structure due to the pending merger, we are not providing financial guidance for HLTH at this time.

I would now like to turn it over the Wayne to discuss WebMD's operating results in more details.

Wayne Gattinella

Thank you, Mark. Our second quarter result reflects the solid strength of the WebMD franchise and reaffirms the opportunity for our brand of online health and wellness information services in the marketplace.

The quarter was marked by continued growth across each of our major markets in addition to the launch of several important new product initiatives that are designed to support our growth in the periods ahead.

Traffic to the WebMD Health Network during the quarter averaged 48.4 million unique users per month, an increase of 20% versus the same period a year ago. While our page views during the quarter grew 24% to 1.1 billion pages.

If you exclude AOL from the prior year quarter, our unique user and page view traffic grew 22% and 24% respectively. More than 97% of our page views in the second quarter were generated on health sites owned and operated by WebMD, where WebMD is in full control of the programming and pricing of our inventory.

Our reach to physicians also continued to grow 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 1.3 million CME programs, an increase of 74% over the prior year quarter.

As physicians continue to shift from traditional sources of medical information to the internet, Medscape is uniquely position to continue to capture the majority of that online utilization.

Our sponsored advertising and education based programs continued to expand this quarter, from both biopharma as well as the consumer products markets. During the quarter we announced the new multiyear marketing partnership with GNC, the largest specialty retailer of nutritional products.

Together, we are creating an innovative online and in-store consumer program to increase the awareness and understanding of the importance of vitamins and supplements to improve overall health and wellness.

GNC will be featured and targeted areas on WebMD, where consumers go most often for information on personal health, diet and nutrition information. An interactive health assessment is being developed to help consumers easily establish their personal health goals, and identify the nutritional supplements that would be most beneficial.

The partnership also provides for GNC to license WebMD's branded interactive tools and content on gnc.com, as well as in GNC's domestic retail network of 4900 locations. The first phase of this integrated program launched on both WebMD and GNC sites on July 1.

In June, we hosted our 10th annual WebMD Health Forum here in New York City. The health forum provides a powerful opportunity to showcase the latest WebMD products and services at a time when our biopharma clients are building their business plans for the coming year.

We had record attendance at this year's two-day event, both in the number as well as the seniority of the attendees. And while it's still too early to measure the full impact of the event, the tone of the discussions strongly suggest that the industry is looking to more aggressively integrate online strategies into their core marketing mix to both consumer and healthcare professionals in 2009.

At the health forum, we highlighted several new products that leverage the innovation of our proprietary programming and technology platform, together with the strength of the WebMD Health audience.

These newest products include WebMD Health Track that is designed to integrate with our successful online health assessment products, and provide consumers with assessment, tracking and personalized follow-up tools that helps them manage their well being through the entire healthcare continuum.

We presented Physician Connect, our new professional community platform that allows physicians to securely engage with one another in online discussions on clinical and non-clinical topics relevant to the practice of medicine.

Physician Connect also permits sponsors to initiative discussions and polls with the Medscape physician community in order to gain real time insight into physicians' attitudes and perceptions on topics that are most important to the industry.

Since lunching Physician Connect in April, we've already validated and registered over 50,000 doctors into this new community application.

Our new Medscape Speaker Series product delivers a virtual physician seminar incorporating key opinion leader video presentations with live online Q&A and audience polling. And by also incorporating industries sponsored information into the online physician experience, this product has the potential to transform the traditional [dinner-meeting format] for direct-to-physician promotion.

Separately, our WebMD the Magazine continues to expand at a time when most print advertising is in decline. It's distributed bimonthly to 85% of all US doctors' offices. WebMD the Magazine is now the third most highly read health magazine according to the latest MARS National Media and Marketing Study. And our latest May-June issue reached a record number of both editorial and advertising pages. We are now successfully integrating many of our online ad buys with targeted print promotion and extending the consumer brand message all the way into the doctor's office.

Turning now to the private portals market, at the end of the second quarter, our installed base of large companies licensing the WebMD private portal platform totaled 123 organizations compared to 108 one year ago. We also have proximately 140 additional customers, who purchase our standalone health decision support services.

We have been eliminating some small non-profitable clients who have been licensing a limited set of standalone applications, as we focus now on selling integrated platform and coaching solutions.

The second quarter is typically a light implementation quarter for new private portal launches, and our technology and operations teams are therefore using this time to prepare for several new large clients that we expect to implement and announce in the second half of this year.

During the quarter, we also received certification from the National Committee for Quality Assurance for our health risk appraisals, interactive consumer health tools, wellness and prevention services, and hospital performance and physician directories.

This NCQA certification of WebMD's health information services is important for our health plan clients as these are mandatory services for them to secure their own market certification.

In summary, I am very energized about our momentum as we exit the second quarter. We are pleased with the market response to our newest online products and in their potential to accelerate our future growth.

We firmly believe that the size and breadth of the overall market opportunity remains unchanged. As large biopharma and consumer products companies face diminishing returns on their traditional approaches to product promotion, WebMD is uniquely positioned to capitalize on that shift to online marketing and education.

As we see large payers and employers increasingly moving their health and benefits programs online, WebMD's private portals business will continue to expand. We believe that the long-term value of this franchise will continue to increase as we deliver the full spectrum of digital health information solutions that the marketplace is steadily evolving towards, including international and mobile information services.

We have demonstrated our ability to profitably deliver revenue growth, while at the same time we are continuing to make the necessary investments in our technology, in our infrastructure and in our people to drive the success of the enterprise for the future.

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

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from James Mitchell of Goldman Sachs.

James Mitchell - Goldman Sachs

Great, thank you for taking this question. Can you talk a little about how the partnership with Yahoo is playing out? Have you found opportunities to cross-sell their inventory to your advertisers? Thank you.

Wayne Gattinella

Yes. We initiated a partnership with Yahoo earlier in the year as we are marketing a proprietary behaviorally targeted product that uses WebMD profiles for WebMD visitors when they are on various parts of Yahoo's network. We have had the product in the market for four or five months now. It is doing well. We had expressed earlier that we would probably be putting more detailed information on its progress sometime during the second half, but to-date we are very pleased with the progress we have made and very pleased with our continued working relationship with Yahoo.

James Mitchell - Goldman Sachs

Can Yahoo sell any of inventories on your side?

Wayne Gattinella

No. Right now it is one way. We are selling Yahoo's inventory in the market.

James Mitchell - Goldman Sachs

Okay, great. Thank you.

Operator

Our next question comes from David Joseph of Morgan Stanley.

David Joseph - Morgan Stanley

Hi, thank you. Given that you are maintaining your guidance for 2008, which suggest revenue exited the year at about 18% year-over-year versus 14% of the second quarter, we are wondering if you might give us a better sense of what you have seen in the landscape over the last three or four months that increased your conviction that WebMD can exit the year in an accelerated level of growth. I know you have good commentary out of the Health Forum, which is great, but if you exit that year at 18% and you are getting a good sense about the budgeting process that is just getting started right now, that suggests that maybe we could see accelerated growth in 2009.

Wayne Gattinella

David, what you are sensing is a stronger feeling in the market as clients are both planning for 2009, and as we expect, they start front buying for the following year that we should see in the back half of this year. We saw a promotional spend on the part of big pharma, moderate somewhat as we entered 2008. Certainly we know they were hit with several product issues as the year began. Our sense now is that we are seeing a different outlook from big pharma as they are planning for '09.

Again, I think there was a caution when they entered the year, and they have done a lot to manage their earnings, really in the face of lighter revenue growth than what they had anticipated.

As I sit with customers, what I hear is that, they recognize they will not save their way to success next year and there is a much more deliberate planning process right now in terms of what they are going to do to accomplish that growth. We know there has been tremendous dislocation in sales force, direct-to-physician resources, and as their brand managers are looking how their product promotion and distribution is going to play out in 2009 without those resources.

It is clear that, at least to us now, that online is going play a more fundamental part of their go-to-market strategies. I think as you are keenly aware, we have continued to build our capabilities in anticipation of the market opening up, and we feel that we are fully prepared to be able to deliver on those expectations of building this new channel approach or new channel strategies that we see big pharma really looking more towards in the coming quarters.

David Joseph - Morgan Stanley

Great, thank you.

Operator

Our next question comes from Brian Pitz of Banc of America.

Brian Pitz - Banc of America

Thanks. A quick question on patent expirations on prescriptions versus sales force eliminations. How should we think about the impact to your business from these patent expirations that seem to be occurring on almost a monthly basis now, and comparing that with to sales force reductions that are occurring across the pharma sector, where do the two trends really net out in terms of pharma advertising over the next 18 to say 24 months? Thanks.

Wayne Gattinella

I think on the patent expiry side, they are out there, they are in their plans and certainly in our plans if we look to certain products running out in which case the promotional dollars start to diminish. The fact is that, from an online standpoint, these companies are still spending a very small portion of their overall marketing dollars on the web. So while we recognize that they are cutting back, certainly on sales force and in some cases also on the broader direct-to-consumer marketing, we see online as the key channel that they are going to more aggressively turn towards both for effectiveness and efficiencies.

Sitting in a position right now where we are still a very small part of their overall spend, even despite the fact that you could see some overall cut back in marketing dollars. We do not expect that we are going see that impact the online spend in any significant way.

Operator

Our next question comes from John Kelly of Smith Barney.

John Kelly - Smith Barney

Hi. WebMD's growth seems to be much stronger than other internet advertisers. What do you attribute the growth rate to?

Wayne Gattinella

I think what we saw in the second quarter, we certainly would like to be growing at an even faster clip. However, as we look at second quarter, where the ad market has had serious challenges, I think that we see the strength of the WebMD franchise. We are certainly in a vertical that has continued to expand and in some cases, certainly in online versus, say, financial services or durables. However, equally, as companies do get a little more cautious with where they spend not just how much they spend, it tends to favor the leading franchises and as I also believe that is where we are benefiting from.

The quality of our audience has continued to hold up. The reach of our audience has continued to grow. The breadth of our services, as we continue to invest has continued to expand. You just need to be better, if you will, at demonstrating value and return for your clients at a time when they are clearly searching for stronger efficiency. We have been able to deliver that.

We are not an ad network. We know that there is a lot of price competition in the low end of the media market where there is an abundance of inventory that is being marketed with a lot of overlap, and not a clear picture of what the unique value is. We do not play in that space, if you will, and we have again benefited by being able to demonstrate the value of our highly engaged users both on the consumer side as well as on the professional side.

John Kelly - Smith Barney

Thanks.

Operator

Our next question comes from Corey Tobin of William Blair & Company.

Jeremy Lopez - William Blair & Company

Hi, thanks. It's Jeremy for Corey. I'm wondering, to circle back on the new Physician Connect solution, I am wondering how you are monetizing that opportunity. I would assume there is some level of sponsorship there. But beyond that, are you guys offering ability for pharma to poll or to survey the physician community?

Wayne Gattinella

We are. As we needed to get the audience up in the first few months as we are now greater than 50,000 registered docs on that service, we went to market a little over a month ago with a sponsored opportunity, which does give industry the ability to poll, to post live questions to the audience, to actually observe their own responses in the community.

Of course, this is all done with the optimum permission of each of the doctors. So, when they initially register they have the ability to either block or welcome industry posted questions and polls, which are disclosed, so when it happens they clearly know that it is a physician sitting potentially in a company seat asking questions.

For the last month and a half or so, we have offered that product to our clients' and I am not going to give you specific numbers yet, but we have begun to sell our first several customers on this product just in the last 30 days or so. We certainly see more of that happening in the next three months.

Jeremy Lopez - William Blair & Company

Let me concept; I know you probably wouldn't want to get into specifics in terms of how you are pricing, but I would think it would be substantially different from how you would price traditional sponsorship. Is that the right way to think about it?

Marty Wygod

It is different. Because you are really buying a slot and there is a lot of interesting customization that is available. You are selling seats in a way. It is not just the company that is getting access. It is at the brand level and it is a certain number of users who have the ability to use the product for research, polling and alike.

It's not unlimited, if you will, and then there is some other features that enable the sponsor to be able to get key word search and be alerted when physicians might be talking about a particular topic that are most interested in. So, you create sort of alert capability that keeps them most informed about issues that are important to industry, which is the goal. So, it is different. It is not an advertising model it is more than an access sort of model.

Jeremy Lopez - William Blair & Company

Great and I will jump off with one last one. I 'm wondering if you could give us an update on international and what you are seeing in terms of some of the more emerging opportunities outside of US. Thanks.

Marty Wygod

As you probably know, we launched in Latin America and Spain, Portugal at the end of last year. Those markets are continuing to expand. That is a professional focus service, and we continue to register more docs to the Medscape online services in those countries as well as sell online sponsorship.

We do expect in the next coming quarter to have more in-country announcements that will be made, and I think you have to stay tuned on that. There is not much we can really say about that right at this moment.

Jeremy Lopez - William Blair & Company

Thanks.

Operator

Our next question comes from [Rob Kelly] of Citi.

Rob Kelly- Citi

Someone analysts have suggested that the number of ad campaigns would be down significantly. In light of your 19% advertising and revenue growth, would you care to comment on those presumptions?

Mark Funston

We commented when they were originally put out a month or so ago as we did not believe they were accurate and we will give you the numbers, which is probably the best way to comment. In the quarter, we had approximately 700 promotional programs and educational programs running on the network. If you compare that to the same period a year ago that was roughly about 500 programs. So, clearly we did see significant growth in the number of programs running. Those are indicators, obviously, of the health of our sales and to some extent I think they are precursors to the flow of revenue in the later quarters because those often times are programs that continue to run, and on a rolling basis represent the revenue build that we expect on the year.

Rob Kelly- Citi

Thanks.

Operator

Our next question comes from Anthony Petrone of Maxim Group.

Anthony Petrone - Maxim Group

Thank you. Just a couple of questions on some large pharma and current events. Can you comment any on Bristol-Myers ImClone, have you see any impact from that potential merger and the way of projects? And then to Tsyabri, disclosed two new cases of the brain disorders, I am wondering if there is any potential impact there? The one follow-up would be; heading into the Olympics, as some of your core customers have already earmarked what they planned for TV ads, and do you see any kind of some gain effect from that? I am assuming no since they probably have that budgeted from earlier this year?

Marty Wygod

I do not think there is anything material from any of the events that you have mentioned in our current business outlook. The Olympic dollars had been earmarked for quite sometime. I think you probably have a good understanding as to how that advertising is used and how it benefits a corporate brand. You know, much of the business that we do with companies has less to do with overall corporate branding and much more to do with product specific branding, and that is really, where we are most focused right now.

Operator

Our next question comes from [Gerrard Hayman] of UBS.

Gerrard Heyman - UBS

First of all I want to thank to you gentlemen for a great earnings results, and keep up the good work. Secondly, I just had one question. As of late I have not heard or seen anything from what it was considered one of your competitors, Revolution Health care. I have heard that they were having some issues. I would like to know if you were interested in any of the assets or the business of Revolution Health?

Marty Wygod

Well, let me just say more generally, as we have looked at that company since they launched and other health networks that they have launched in the same period of time. I think that in general, we are not really interested in properties that, if you look more closely, tend to be more roll-up affiliated health properties rather than a core brand.

I think the negatives, if you will, in that the strategy is that they are forced to go into the market to either buy traffic or continue to roll-up more sites in order to substantiate their ongoing traffic growth. Also, many of the high page view sites that those networks operate tend to be very community and social networking types of content.

We also see that they do not really have a strong ability to monetize that traffic in the way that we do. We do not necessarily see many unique content assets. The content is often syndicated and the technology is somewhat limited. So, there is a host of criteria that we look at before we make an acquisition and in general I would say, in the case of these kinds of network roll-up approaches, we do not really find them attractive. We do not think that the assets have long sustainable advantage.

Gerrard Heyman - UBS

Thank you and keep up the good work.

Marty Wygod

Thank you.

Operator

Our next question comes from William Morrison of Think.

William Morrison - ThinkPanmure

Hi. Thanks for taking my question. I wanted to follow up on Dave's question earlier. I felt like you answered the part about 2009, but I am curious if you could talk about the back half of this year, and the implied relatively significant acceleration. Could you talk about your confidence in the acceleration and where it's coming from? Maybe, if you could give us some color on the quarter on a month-by-month basis and how the quarter progressed.

Wayne Gattinella

I would say that, as we look towards the back half, we feel pretty encouraged by what we are looking at right now. We think, again, the big pharma market really started very cautiously to begin the year. Also, there were product dislocations that I do not think they were expecting, we were not expecting and certainly it hurt our original outlook when that happened.

However, we have continued to remain highly engaged with every one of those customers. We stay very close with our teams in terms of their current economics, their current market situation, their current resource allocation, and of course, their own revenue models and plans. I think what you are seeing is, in some cases, is some of those same companies and brands, as they have had to reconfigure their own marketing strategies and their own marketing plans, we can benefit from that because we are a part of those new plans.

Certainly, that is how we look towards '09 more closely. As we see '09 transforming in terms of its market approach. There is a far greater urgency on the part of pharma to change the way that they have traditionally marketed. It is not just a good idea, it is a really important opportunity for them to either make it work or not, and the internet certainly needs to be an important part of that strategy. This is where a brand like WebMD is going to benefit.

I do not want to leave out the consumer products segment either. We have continued to build relationships with the largest of those companies who now increasingly have health related products in the marketplace whether they are nutritional, food, beverage, or household products. As the reach of our network has continued to expand, we are able to really deliver a strong demographic but also with the breadth that is important.

You can be really targeted, but if you are not big enough, you are not going to be important enough to the brand. I think what we are also demonstrating now is that we can be big enough and important enough to national consumer products brands at the same time. We certainly look towards the second half mix with consumer products companies playing a larger part of our growth than in the past.

William Morrison - ThinkPanmure

Great, one quick follow-up to the point about promotional campaigns which was a great number in the quarter. Of course, the flip side of that, it seems is that their revenue per campaign if you were just to take your advertising revenue divided by the number of campaigns was down. I am curious, is that a strategic shift that you have taken to possibly lower price a little bit to drive overall volume on this side? Or is that the wrong way to look at it?

Wayne Gattinella

It is hard to look at it that way because so many of the programs are rolling in-and-out and there is no doubt that in the first half of this year, several companies turned to a pure media approach or a greater media approach and we want to participate in that. However, in a similar way, many of our largest revenue programs and our growth programs are fully sponsored kinds of products support programs.

So, we tend not to look at the average by just dividing the two big numbers because we know that our pricing has continued to hold up. We know that the size of our larger campaigns has continued to grow. It may be that we do, in fact, have a higher mix of small media programs as they come in the door, but it is not to imply that there has been any deterioration or slowing of our larger strategic deal.

So I just think, and I know that you do not have enough visibility do all that analysis. However, I can tell you dividing programs by total dollars does not conclude the quality of the programs that are continuing to be sold in the market.

William Morrison - ThinkPanmure

Wayne, do you see any trend in April, May, and June at all, during the quarter which I think was the first part of the question?

Wayne Gattinella

It is hard to take any two months period or three months period and really point to that as a hard trend. You have all seen it in this market. It is hard to pinpoint any one thing in a 30 or 60 day period. However, I will say that in general, if I look at the second quarter, certainly versus the prior quarter and the quarter before that, there is definitely a stronger appetite on the part of our client community. They are larger customers who we focus a lot on to start opening the purse strings a little more and investing in programs as they are looking towards '09.

The reality is, as everyone of those people are starting to look at their 2009 revenue goals and saying, holy cow, how am I going get there and certainly it requires more aggressive marketing. Absolutely, we are seeing a different mood and flavor in the marketplace. However, I do not want to conclude anything too strongly yet.

William Morrison - ThinkPanmure

Thanks a lot.

Operator

Our next question comes from Mark Mahaney of Citi.

Mark Mahaney - Citi

Great, thank you. Wayne, I just want to ask you a broad question about pharma advertising demand for, in order to get in front of consumers and/or to get in front of physicians. Is there anyway you could bifurcate that demand, the migration of that demand offline to online over the last three to six months? Have you seen that really accelerate more on the physician side versus on the consumer side? Or are you going to make the point that really it's a broad buy that they are trying to get in front of both and really at the same level of intensity? Thank you

Wayne Gattinella

I think you answered it for me, Mark. I am not sure I could point to one versus the other. In the first half again, I sort of implied that the consumer spend turned a little heavier towards media buys because they were easier to do and we commented in the past that the larger accounts were making shorter duration commitments in the first half. They were looking at their budget for the year in quarterly chunks not yet knowing where their businesses were going to be.

The consequence is, as opposed to sponsoring a longer-term program, which is what we typically do, many of them turned to shorter-term media buys. You are starting to see that change back now. I can see a growing eagerness or comfort with looking at longer-term strategies again rather than that behavior.

On the professional side, those kinds of programs almost by definition are longer-term buys. You tend to do less pure media on the professional sides and more broader, longer lasting promotions. So, I did not really see that behavior change much. However, again, looking forward with the direct to physician driven strategy really in major reengineering right now, we are pretty excited and ambitious from a product standpoint to be able to play a much greater role in that side of their marketing equation, which to-date has pretty much been dominated by just field force dollars and to some extent, public event dollars.

I do not know if any of you saw the guidelines, the voluntary guidelines that were put out by the Pharmaceutical Industry Association several weeks ago, only a few weeks ago. The whole industry adopted a set of guidelines a few weeks back that is very strong on not allowing gifts or any kinds of items being given to doctors on a go forward-basis that do not support treatment education.

So, for example, specifically, pens, mugs, prescription pads, a lot of the giveaways that were part of direct-to-physician promotion effectively will no longer be the case I think, with a January 1st effective date. So, it is those kinds of things that we get pretty encouraged by because, again, as the marketing approaches, the doctors moves away from those traditional forums, the best place to turn and the most effective place to turn is going to be online.

Mark Mahaney - Citi

Thank you, Wayne.

Operator

Our next question comes from Anthony Petrone of Maxim group.

Anthony Petrone - Maxim group

Thanks. Just a quick follow-up housekeeping questions. How much non-cash advertising does the company have left? Just to follow-up on the forum, if you go back to notes last year, it seems that the pipeline actually increased after the forum last year. I am just wondering if the company experienced the same effect or a similar effect this year. Thank you.

Mark Funston

We will have enough non-cash ad inventory to continue through mid year next year. So, at that point that will pretty much run down. I am sorry. I missed the second part of your question about the forum?

Anthony Petrone - Maxim Group

It seemed you had an effect last year, I believe, where the pipeline increased and you saw an effect increase there and I believe certain projects already begun at the forum and that helped the outlook into the second half of the year. I am just wondering if you can see any additional projects that were new and directly from the forum.

Mark Funston

We have, but I hesitate to make some predictions just coming out of that meeting alone. I can tell you that we had more than a 50% increase in attendance this year in an off year on the part of our clients and at a much higher level. The reason is that, there was a much stronger interest from even players and people inside those companies that we have not seen in the past.

So, our litmus test here or our indicator is less about what we actually sold and more with respect to the temperature in the room. There is just a lot going on right now as these companies are looking towards their 2009 business plans. It is clear that they are looking outside of their traditional box for how they are going to do that. So, we will continue to monitor and obviously, we will make available that information as it comes out. However, I am not going give you a hard prediction from it.

Anthony Petrone - Maxim Group

Sure. Thanks, it is helpful.

Operator

(Operator Instructions) Our next question comes from Corey Tobin of William Blair & Company.

Corey Tobin - William Blair & Company

Just a quick follow up. I am wondering if you care to give us an update on the sale of Porex, where's that at? Are there multiple bidders involved in the process and what do you expect in terms of timing. Thanks.

Marty Wygod

It is an active process. There are quite a number of bidders in the process, and we think it will sort itself out over the next 60 days or so.

Corey Tobin - William Blair & Company

Thank you.

Operator

As a reminder, if necessary, there is a replay available of this call which can be accessed toll free at 888-266-2081 or if you are calling from outside the US at 703-925-2533. The pass code is 1262626. There is also the webcast replay available an HLTH corporation's and WebMD's websites as well. Thank you for joining us today.

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Source: WebMD Health Corp. Q2 2008 Earnings Call Transcript
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