WebMD's CEO Discusses Q1 2014 Results - Earnings Call Transcript

| About: WebMD Health (WBMD)
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WebMD Health Corp. (NASDAQ:WBMD) Q1 2014 Results Earnings Conference Call April 30, 2014 4:45 PM ET


Risa Fisher - Vice President, Investor Relations

Marty Wygod - Chairman

David Schlanger - Chief Executive Officer

Pete Anevski - Chief Financial Officer


Dave Francis - RBC Capital

Sandy Draper - SunTrust

Steve Cho - Wells Fargo Securities

Gerard Heymann - J.P. Morgan

Jordan Monahan - Morgan Stanley

Steve Rubis - Stifel

Nicholas Jansen - Raymond James

Chris Leikhim - William Blair


Good afternoon. And welcome to WebMD Health Corp.’s First Quarter 2014 Conference Call. Today’s call is being recorded.

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

Risa Fisher

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

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

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

Joining us on today’s call are Marty Wygod, Chairman of WebMD; David Schlanger, Chief Executive Officer; and Pete Anevski, Chief Financial Officer. At the conclusion of our prepared remarks, we’ll open the call and take questions.

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

David Schlanger

Thanks, Risa. Good afternoon. Thank you for joining us today. WebMD’s first quarter results demonstrates strong growth across our business work. Our advertising and sponsorship business saw a 17% increase in revenue, which was driven by the increased adoption of our multi-screen advertising and sponsorship offerings by biopharma and consumer products companies, as well as growth with newer advertisers from the other sectors of healthcare such as state and federal exchanges, commercial health insurers and hospitals and provider systems.

Revenue from our private portal services grew 27%, primarily as a result of our previously announced contract with the Blue Cross Blue Shield Federal Employee Program, which launched on January 1st of this year.

The trust consumers and professionals have in our brands and the high levels of engagement we are seeing across our multi-screen offerings continue to drive WebMD’s audience growth.

During the first quarter, traffic to the WebMD Health Network reached an average of 174 million unique users per month generating 3.5 billion pages for the quarter, increased to 32% and 26%, respectively, from the prior year.

To put the scale of our audience into perspective, according to the most recent comScore report on the Health Information category, the WebMD Health Network is number one in Health Information category for U.S. PC reach, number one among U.S. Mobile Health Destinations and number one in every one of the 50 largest condition suffering populations online. The WebMD Health Network is ranked number 27 of the top 100 web properties across all categories and verticals.

According to comScore data, WebMD’s total U.S. monthly visitors across both mobile and desktop on a deduplicated basis are approximately 65 million, which is more visitors than the next two largest health and wellness destinations combined.

Advertisers on WebMD, particularly those whose products are aimed at highly targeted audiences, work with WebMD because we provide them the ability to micro-market to specialized audiences with tailored information at each step of the patient journey and that is scale that is not readily available elsewhere.

During the first quarter, approximately 30% of our page view traffic was from the U.S. PC, 34% was from U.S. smartphone, 9% was from U.S. tablet device and 27% was international.

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

First, with respect to page views, combined tablet and PC page view growth was 7% in the first quarter. Tablet page view growth offset a slight 2% decline in U.S. PC page views, because tablets provide a similar user experience to the PC. We are able to monetize tablet traffic in a similar manner. We believe combining tablet and PC pages together is the appropriate method.

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

Unique visitors to our U.S. PC-based offerings have continued to grow. This is evidence that when engaging with health and wellness content and tools on WebMD, users continue to rely on the larger screen size of PC for many of their activities.

Unlike many of our competitors that are forced to spend substantial amounts of money to acquire (indiscernible). We do not rely on third-party network affiliates or the purchase of traffic to generate our audience.

We own and operate all the sites at the WebMD network, because of that, we can be opportunistic as to where we create content to anticipate and be responsive to the future needs of users and advertisers.

During the quarter, WebMD continue to build on its reputation as a trusted source of high-quality news by securing and broadcasting an important and timely interview with President Obama regarding Healthcare Reform.

As a testament to WebMD's leadership and extensively reached U.S. consumers, the White House agreed to interview a WebMD Health Reform expert where the President would address our users’ questions about the Affordable Care Act and Health Insurance.

WebMD solicited questions from the WebMD community, receiving nearly 5,000 questions from the diverse range of consumers, men and women, young adult to seniors, representing all 50 states.

WebMD's interview with President Obama received wide-spread coverage in print, broadcast and online media, totaling more than 200 original new stories, generating nearly 1 billion media impressions

Turning to our audience of health professionals, web Medscape continues to be the leading source of clinical news, health information, point-of-care tools and medical education for healthcare professionals throughout the world. During the quarter, Medscape averaged approximately 5.8 million physician sessions per month, an increase of approximately 9% over the prior year period.

To put Medscape scale into perspective on an annual basis, approximately 625,000 registered U.S. physicians are active on Medscape, a substantial majority of the actively practicing physicians in the U.S. Additionally, approximately 1.3 million physicians are active on Medscape from outside the U.S.

To build on our global reach, we have recently entered into an exclusive collaboration with DXY, the largest online community for healthcare professionals in China. This collaboration will enable Medscape to distribute localized education resources to physicians and healthcare professionals through the DXY physician portal in this important new market.

In addition, just last week, we launched Medscape MedPulse, an innovative medical new app for iPhone and iPad that enables healthcare professionals to stay up-to-date on the latest medical news and expert perspectives and an easy to navigate free app.

Medscape MedPulse features the biggest medical content for Medscape’s award winning editorial team and includes a first of its kind curetted Twitter feed to help users stay informed on important medical trends being shared in real-time by physicians and other leading medical commentators. Healthcare professionals are faced with a multitude of news aggregators and social media platform and have limited time to find those that are most important to them.

MedPulse filters out the noise and focuses on the most pertinent information healthcare professionals need to know. MedPulse is already one of the highest-ranking new medical apps in the Apple Store and we expect to follow with an Android version.

Across WebMD and Medscape, we offer advertisers a robust and flexible multi-screen product offering, which allows them to reach their highly targeted audience on whatever screen the user is engaged.

We continue to see increasing demand from advertisers for mobile and multi-screen offerings. As a result, for many of Medscape’s programs, we are seeing revenue delivery across screens proportionate to traffic patterns.

Given our position at the intersection of the largest most engaged communities of consumers and healthcare professionals, we are continuing to invest in 2014 to position WebMD as a central place where consumers can go to manage all their health information and relationships, and share that information with their various health providers in a private and secure manner.

During the first quarter, we continue to work towards the launch of a new version of our flagship WebMD mobile app for iPhone that will feature a new health improvement program called Healthy Target.

WebMD’s Healthy Target will enable our audience of type 2 diabetics and others seeking to manage their weight and live a healthier lifestyle to set health and lifestyle goals and work to achieve those goals by creating and tracking new healthy habits.

Those health habits will be reinforced by aggregating multiple sets of biometric device data from devices such as glucometers, wireless and other wearable devices. The app will utilize this data to provide personalized content and tips, and measure progress within a comprehensive health improvement program.

We see an opportunity to make biometric data understandable and actionable for consumers interested in creating and sustaining healthy habits, as they work to lead a healthier lifestyle.

We are on schedule to introduce the app later this quarter. We originally planned to launch and introduce Healthy Target in April, but delayed the launch in order to build an -- build in additional functionality that we believe will create greater utility and engagement.

As we’ve discussed on prior calls, WebMD is building the foundation to connect all audiences of consumers and physicians. We see an opportunity to help consumers store, access and manage their health information in a trusted environment so that it can empower decision-making, be shared with their healthcare providers and ultimately drive action.

We expect to introduce services later this year that will include the ability to manage health information in one place, including medical records, lab results, biometric device data, claims information and other third-party data, and providers across the healthcare industry, including physicians, hospitals, labs and pharmacies, allowing them to communicate and share data in a secure environment and collaborate managing patient care. We look forward to sharing additional details in the months ahead.

As I mentioned earlier, revenue from our top private portal services grew 27% in the first quarter, driven primarily by the launch of our largest customer the Blue Cross Blue Shield Federal Employee Program.

Unlike the many point solutions that compete in this fragmented marketplace, we offer a comprehensive and integrated cloud-based population health management solution set for large employers and health plans, which allows their employees and plan members to make more informed health and benefit decisions to be rewarded for positive changes to their health behaviors and to manage health and lifestyle conditions.

As an example, our comprehensive set of physician support and transparency tools help employees and plan participants understand the financial implications of their benefits options and empower them to factor both quality and cost into decisions about care and treatment options.

The strength of our platform lies in our ability to integrate individual user data, plan specific data from clients, WebMD content and decision support technology and personal communication services and an intuitive user experience backed by the trust and credibility of the WebMD brand.

Consistent with our goal of enhancing our users experience across our business, we will continue to make investments in our private portal services to ensure our services remain best-in-class with improvements in both current services, as well as the addition of new services.

Turning quickly to our financial guidance, consistent with the preliminary release we issued two weeks ago, we expect revenue of $560 million to $575 million for 2014, which represents growth of 9% to 12%.

Compared to the guidance that we issued in February, today we are raising the lower end of the revenue range to reflect the improvements in our sales activity compared to what we experienced in the early weeks of the first quarter.

In summary, our first quarter results reflect momentum across our business, driven by increased deduction of our multiscreen offerings. The strength of our brands and products, highly engaged audiences and our ability to demonstrate meaningful ROI to our advertising sponsorship customers enabled WebMD to further fortify our leadership position during the quarter.

In 2014, we expect to continue making progress in our core offerings while investing in the longer-term growth opportunities to leverage our brands, audience, and industry-leading platform.

I’d like to turn the call over to Pete at this time.

Pete Anevski

Thanks, David. The results we announced today which exceeded our guidance are consistent with the preliminary results we announced on April ‘14. First quarter revenue was $133.8 million compared to $112.8 million last year, an increase of 19%.

Public portal advertising and sponsorship revenue was $109.2 million compared to $93.4 million in the prior year. Private portal services revenue was $24.6 million compared to $19.3 million in the prior year.

First quarter adjusted EBITDA increased 56% to $33.3 million or 25% of revenue compared to $21.3 million or 19% of revenue in the prior year period. The increase margin is attributable to higher revenue.

First quarter net income was $6.3 million or $0.15 per diluted share compared to the net loss of $1.5 million or $0.03 per diluted share in the prior year period. Capital expenditures were $5.5 million in the quarter.

Operating cash flow was approximately $7.9 million in the quarter. This amount excludes a cash tax benefit of $4 million related to the use of our tax NOLs, which is included in the financing section of the cash flow statement. This is due to the fact that we are now using tax NOLs related to stock-based compensation which in accordance with GAAP must be reported in the financing section rather than the operating section.

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

Looking at our balance sheet, deferred revenue at March 31st was $99.6 million, an increase of 2% compared to the prior year period. We have been asked many questions in the past about deferred revenue trends, so I want to make a brief comment here.

While for many companies deferred revenue may be a predictor of future revenue trends, it has not been the case for WebMD. In our business, our payment terms are based on many variables for certain products where we have significant upfront costs prior to program launched in revenue recognition. We may require some payment in advance. For products such as media programs, we generally invoice and receive payment after the media runs on our sites.

As a result, the mix of products sold, our experience with customers they are sold to and the timing of invoicing cycles in relation to the end of a specific quarter can have a significant impact on deferred revenue balances and trends. These changing variables are why we advise caution to those who want to look to deferred revenue trends as an indicator of future revenue.

During the quarter, we utilize $65 million in cash to repurchase approximately $1.5 million shares of our common stock. As of March 31st, we had approximately $778 million in cash and cash equivalents, $952 million in aggregate principal amount of convertible notes outstanding and approximately $39.4 million shares of our common stock outstanding, which includes $1.1 million unvested shares restricted stock. Subsequent to quarter's end, we utilized $31.2 million in cash to repurchase approximately 780,000 shares of our common stock.

Today we announced that our Board of Directors has authorized a $30 million increase in our existing stock repurchase program. As of today, the amount available under our stock repurchase program is $44 million. Under the repurchase program, we may repurchase shares from time to time in the open market through block trades or in private transactions, depending on market conditions and other factors.

Turning to our financial guidance, as David mentioned, we have raised the lower end of our revenue and earnings ranges, bringing our guidance for 2014 to revenue of $560 million to $575 million, an increase of approximately 9% to 12% from the prior year period, adjusted EBITDA of $147.5 million to $155 million, an increase of approximately 20% to 26% from the prior year period and net income of $32.5 million to $39 million.

For the second quarter of 2014, we expect revenue to be $137 million to $140 million, an increase of approximately 9% to 12% from the prior year period. Adjusted EBITDA to be $35.5 million to $37.5 million, an increase of approximately 21% to 28% from the prior year period. And net income to be approximately $7.5 million to $8.5 million.

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

For the year 2014, we expect the weighted average diluted share count to range from approximately $47 million to $49 million, which includes 5.7 million shares related to our 1.5% convertible notes. Our guidance does not include the impact, if any of future deployment of capital for items, such as share repurchases or acquisitions, gains or losses from discontinued operations or other non-recurring one-time or unusual items.

Before we open the call up for your questions, I'd like to turn it over to Marty Wygod, Chairman of WebMD.

Marty Wygod

Thanks, Pete. We are pleased to report strong results in the first quarter, which highlight our market leadership and demonstrate the earnings leverage in our business model. We are very encouraged by the ongoing dialogue we are having with our customers about how WebMD can help address their business needs in this dynamic healthcare market.

Our rich engagement with both consumers and healthcare professionals is preeminent and creates a significant advantage as we seek to further penetrate our customers marketing budgets as well as create new revenue streams by capitalizing on the opportunities being created by the changes taking place in the U.S. healthcare system. As David indicated, we are also optimistic about our opportunity to leverage Netscape's global audience to drive additional growth in 2015.

We believe there are tremendous opportunities ahead. Over the last several months, market conditions were such that we're able to repurchase more than 2 million shares of our common stock. Over the last two years, we've successfully reduced the shares outstanding from 57 million to 39 million, while maintaining the financial resources necessary to pursue an active pipeline of strategic acquisition and partnership opportunities.

As a result of our share repurchases, our shareholders are well positioned to benefit from future growth. On behalf of the Board of Directors, I am pleased to welcome Bill Marino as the new Director of WebMD. Bill is a retired Chairman, President and Chief Executive Officer of Horizon Blue Cross Blue Shield of New Jersey, New Jersey's largest health insurer.

Having served at helm of the leading health insurer for more than 17 years, we expect to benefit greatly from Bill's expertise in the health insurance and employee benefits, as well as from his deep understanding of the healthcare landscape. His insights will be invaluable as we leverage our assets to build new revenue streams in the payor and provider communities.

Operator, at this time, we would like to take questions.

Question-and-Answer Session


Thank you. (Operator Instructions) And our first question comes from Dave Francis of RBC Capital. Please go ahead.

Dave Francis - RBC Capital

Hi, thanks. Couple of questions. First, David, you talked about rolling out later this year some more consumer-oriented solutions that talk to connectivity and individual data storage and things of that nature. Can you talk about whether -- are these things that you guys are currently developing in-house? Is it -- does it point to some direction relative to acquisition activity or how would you characterize how those things are going to get worked? Thanks.

David Schlanger

Sure. Thanks David. The features and functions that we are talking about were really based upon the Avado acquisition that we did in the third quarter of last year. And we've been working to integrate those capabilities. And so what you will see is now being done based on all of our internal develop. Now that Avado has been integrated into our organization and those -- that statement regarding what we’re going to launch later this year is not dependent upon any additional external activities.

Dave Francis - RBC Capital

So as you look at the marketplace in terms of a lot of interesting things being developed and financed in and around the areas that you guys touch. Can you talk a little bit about your view as to what is out there and given the amount of cash you have on the balance sheet. How some of that capital might be deployed in an inquisitive or partnership or other kind of manner?

David Schlanger

Sure. I mean Avado is an example that there is interesting development happening out there. It’s a really smart developers that are tackling difficult issues from a technology perspective. And we’re always on, keeping our eyes and ears open for innovative new technologies that can leverage our brands and our audiences.

And again Avado was an example of that. And we're certainly open to and looking for additional opportunities in that space. But we do have a fairly robust roadmap of product functionality that we’re working on and again, you'll see that later this year.

Dave Francis - RBC Capital

One quick follow-up then if I may, switching gears a little bit to your customer marketplace on the pharmaceutical side, there's been a lot of consolidation activity among both large and small pharmaceutical companies in the marketplace and a lot of activity both talked about and proposed here in very recent days that speaks to a bigger question in terms of the market you guys are selling into from an advertising perspective. I wanted to get your perspective on kind of what does the potential for customer concentration, that sort of activity mean for you from both, a dollars available in the marketplace and a pricing perspective as you go out to these pharmaceutical companies?

David Schlanger

Well, I think the reality is that industry consolidation presents both risk but also opportunities for us, depending upon the specific transaction. With respect to our existing customer base, I would tell you that any risks we see or already taken into account with respect to the guidance we've put out for the year. But there are also opportunities we see based on some of the transactions that are being talked about and those opportunities have not actually been included in our guidance. So, I think it depends on the transaction Dave and, obviously, also the number of brands that are out in the market promoting themselves.

Dave Francis - RBC Capital

I will jump back in the queue. Thank you.


Our next question will be from Sandy Draper of SunTrust. Please go ahead.

Sandy Draper - SunTrust

Thanks very much. A couple of questions. One, my assumption is obviously that the new products in the R&D spend is already contemplated in expenses. But I’m just trying to get a sense for, is this really shifting resources around going from one area to another, is there a significant incremental spend? And if so, is that something would show out more in the cost of goods line or sales and marketing, just trying to figure where the actual spend goes? And then sort of tagging onto that, is this something you would expect to be a one-year type of a deal, or do you think because of the opportunities that’s out there you may be increasing R&D investments in some of these technologies over the next two, three, four years?

David Schlanger

We have a dedicated team working on some of the new functionality around connectivity. The spend for that team is taken into account in our financial guidance that we put out, and it's a dedicated team, so it does not involve shifting of resources away from any other initiatives that we're working on. And like many other things we do, Sandy, you never stop your development efforts. There's no real end. It becomes part of your fixed infrastructure around evolving and maintaining these new capabilities. So, I'm not sure if that answers your question. But the spend is already contemplated in our numbers.

Pete Anevski

And as far as the geography, you're correct, it's in cost of operations.

Sandy Draper - SunTrust

Okay. Great. And then maybe the second question. Maybe if you can just flush out a little bit more on the China opportunity, sort of how far -- obviously, something pretty new, just maybe walk through what you're envisioning in terms of contribution, how to monetize it? Do you guys need to start putting feet on the street and bodies there, or through this partnership is it pretty much you're bringing your brand and some of the technology and they have the relationships? Just trying to understand exactly what you guys were doing with the partnership.

David Schlanger

Well, the rest of the world is very important to our primary advertising segment, the pharmaceutical industry. So, those opportunities are particularly important to us and we feel well positioned to take advantage of those, particularly with respect to MedScape's international reach, which is very significant at 1.3 million active physicians outside the U.S. For the last couple years, we've actually had a dedicated sales force that’s been pursuing those activities. That sales force is based in Europe and they are working with the pharmaceutical industry, are ready to monetize our audience outside the U.S.

With respect to China, it's an extremely important market to the industry as you probably know. This gave us an opportunity to work with a very high quality site there that could greatly expand our Chinese-based physician audience and the audience we can target, can also help us with respect to localization of the content for the Chinese audience. So, again, it's an exciting transaction. And to your point about feet on the street, we have feet on the street ex-U.S. and that is an area that we're focused on building.

Sandy Draper - SunTrust

Great. Thanks.

David Schlanger

Not just in Europe, but in Asia, also.

Sandy Draper - SunTrust

Got it. I'll jump back in the queue. Appreciate it.


Thank you. The next questioner is Peter Stabler of Wells Fargo Securities. Please proceed.

Steve Cho - Wells Fargo Securities

Hi, everyone. This is Steve filling in for Peter. I had a quick question on the native advertising efforts that you guys previously discussed last quarter. We're just wondering if that's been rolled out of the consumer side as well as the MedScape side and if you guys could maybe provide some color on monetization and performance metrics, maybe what that [deteriorate] (ph) rate versus standard display ads and what percent of ads you might see that becoming longer-term?

David Schlanger

I'm not sure I heard all of your questions. But I will tell you that we just recently launched the sales force, a native product on the consumer side of our business, which is similar to what we actually show people on the MedScape side of our business. So, that is out in the marketplace. With respect to mobile in general, we're really satisfied with the progress we're making on our multiscreen approach to monetizing mobile. We fully mobile optimize all of our sites, so all of our sites present on a mobile platform, on a smartphone, the best experience that an advertiser user would be looking for.

I would say that -- as I said in our prepared remarks, we're continuing to see increased demand from advertisers for our mobile offerings. And as I said in the prepared remarks, as a result, for some of the new Medscape programs that we’ve launched that are multi-screen, we’re seeing revenue delivery that’s actually kind of proportionate to traffic patterns.

I would think mobile is really going to be a steady build over the next several quarters and years as opposed to a dramatic inflection point. But again, based on how we’ve mobile optimized all of our capabilities both from a user and advertiser experience, I feel that we’re really well positioned to meet advertisers’ needs, particularly when their overall marketing spend catches up to where the audience is.

Steve Cho - Wells Fargo Securities

Great. Thanks for the comments.


And the next question is from Gerard Heymann of J.P. Morgan. Please go ahead.

Gerard Heymann - J.P. Morgan

Yes. David, there seems to be a bit of confusion on the part of analysts in regard to the traffic trends on WebMD’s network implying that WebMD is losing business. Could you care to give some color or comment on this?

David Schlanger

Sure. I think some of the negative commentary may have been misplaced because that negative -- that commentary was really based upon an analysis of just one of our sites, WebMD.com. And as we’ve said many times and as probably all of you know, we have a network of sites across all platforms, mobile, desktop, tablet.

And when you look at all -- when you look at the traffic trends for our entire network, as I said in the prepared remarks, we see very positive traffic trends. The issue with looking at one particular site in our network is that, based on both internal and external factors, traffic moves across those sites in any given period of time.

And we’re very comfortable with that because, from our perspective, the traffic is of equivalent value and utility, regardless of which site it’s on. And as a result, as what I said before, the most important metric to us is what is our total network traffic, not what’s the traffic on one particular site. So, again, I think that report that was out there really wasn’t looking at the right traffic metric, which is, again -- and the right traffic metric is our total network traffic.

Gerard Heymann - J.P. Morgan

Thank you for clearing that up. One other item. Your guidance for the second half of 2014 seems to be a bit conservative. What are the factors that could drive operations to slow?

David Schlanger

Well, first, I would say that we’re really encouraged by the dialogue we’re having with our customers and how our customers view us and the opportunities on WebMD. At this point in the year, it’s too early to gauge the exact timing of certain incremental business we expect to bring on and whether that business is really going to impact the second half of 2000 -- or 2014 or early 2015.

Gerard Heymann - J.P. Morgan

Well, thank you very much.


The next questioner is Jordan Monahan with Morgan Stanley. Please go ahead.

Jordan Monahan - Morgan Stanley

Hi. This is Erhan Soyer-Osman in for Jordan. I have a quick question regarding pharmaceutical ad spend. We know that pharmaceutical ad spend right now is a small percentage of online advertising. And when you compare it to other verticals like automotive or retail, it can be over 30% of total ad budgets, which are online. So I’m wondering if you could maybe shed some light on what you think it will take for budgets to get there and if in terms of a timeline and then maybe discuss some of the barriers that pharmaceutical advertisers have with the shift from offline to online? Thanks.

David Schlanger

So, I think one of the things we've done, which is certainly helping us continue to penetrate more pharmaceutical brands and with our existing customers have larger programs with them, is that we've invested in our ability, our market science and analytics capabilities, so that we can measure a broader spectrum of our programs and really demonstrate ROI because pharmaceutical marketers, like all other marketers, really now are demanding to know that their programs are effected and create real ROI. So that certainly has been an important capability that we've developed.

The other thing is we don't really look at -- we certainly look at it, but the overall industry spend online is not necessarily indicative of what particular brands are doing. As we've said many times, one of the real unique capabilities of WebMD is that we can target niche audiences and provide brand marketers to reach those niche audiences at a scale that's not available elsewhere, and pharmaceutical pipelines -- new products that are coming in 2014 and 2015, as well as new products that have really been approved in the last 18 months are products that are targeted to meet these niche condition audiences and we feel we have a particular strength there.

And in those types of products, online is certainly more represented than in large lifestyle brands that still tend to rely on offline media like television. So one of the things that we believe is going to help the overall trend is just the nature of the pharmaceutical pipelines that new products that are coming to market over the next two years.

Jordan Monahan - Morgan Stanley

And just as a quick follow-up, is there any difference that you see between pharmaceutical advertiser demand when they are looking at desktop versus mobile in terms of real estate or any other concerns that they have in terms of the form factor itself?

David Schlanger

Well I think to answer your question, I think first you have to -- we have to look at the two parts of our public portals business. On the professional side, pharmaceutical -- the pharmaceutical brands are more advanced in their ability to utilize the mobile platform and reach healthcare professionals. And as I said in the prepared remarks, we are seeing much more significant demand against those brands to leverage our mobile platforms for their programs, whether it's a native advertising program that's displayed multi-screen or any detail that's displayed multi-screen.

On the consumer side, one of the barriers in all the brands are in different stages with respect to this, is that they need to both have a mobile optimized site to drive consumers to after they have an advertiser sponsorship program with us. And they need to have an internal process where mobile creative units can be reviewed by their in-house regulatory folks.

And again, the various brands in various pharmaceutical companies are in different stages with respect to where they are with respect to having kind of re-tool those internal processes. But we do know because we look at the number of brands that have mobile optimize websites, that the pharmaceutical industry in those brands are making progress and more and more brands are having mobile optimize websites.

So in our mind, it's just a matter of time and as I said before, there's not going to be a point in time if they all get there. It's a slow build -- it's a steady build.

Jordan Monahan - Morgan Stanley

Great. Thanks for taking the questions.


The next questioner is Steve Rubis of Stifel. Please go ahead.

Steve Rubis - Stifel

Hi guys. Thanks for taking my question. First I would like to say thank you for any Vietnam vets who maybe listening today since today marks the 39th anniversary of the end of the Vietnam War. Can you help me understand how your conservative guidance really reconciles with the momentum that you are seeing in the business? I understand that commitments may be shorter duration but I would have to think that you've given the strength of the market in terms of advertising. You would have a better sense of how strong the rest of the year could be?

Pete Anevski

Steve, I will say that our guidance which we said in the past is that, it's based upon the visibility we have at the time we issued guidance. And based on the visibility we have today, we issued the guidance that’s incorporated in the release we put out today. At the same time, we are encouraged by the dialogue we’re having, and as I said, just a couple of minutes ago, right now we are early in the year to understand whether some of the additional business we expect to bring on is going to impact the second half of this year or early 2015.

Steve Rubis - Stifel

Okay. Just a follow-up if may, does an opportunity exist for you guys to enter kind of the defined contribution exchange base or health insurance exchange base in general. And is it fair to believe that such technology could provide synergies between the public and private portals business' and then how do you view exchanges as possible channel partners for your health services offerings?

David Schlanger

In general, the Affordable Care Act and the creation of these exchanges and turning health plans into consumer marketers has been a positive for us in that we are doing business with several plans and helping them establish the presence with consumers. The exchange is in -- whether it’s a state exchange or the federal government exchange, are interested in creating awareness around those exchanges and driving people to the exchanges that created an additional opportunity for us.

And I think you correctly point out that the Affordable Care Act legislation certainly incentive plans, exchanged eligible plans to offer wellness and population health management programs. And that creates an additional opportunity for the private portal to work with those plans to incorporate their capabilities within what's offered via the exchanges. So we do see this is an opportunity and we are pursuing those opportunities.

Steve Rubis - Stifel

Okay. And then my last question is given the announcement that you added Mr. Marino to the Board of Directors and given its background. What kind of opportunity exist to work with some of the digital healthcare companies in the BCBS Ventures Partners portfolio. Few are Bloom Health, Change Healthcare, Phreesia. I have to believe you brought him on to kind of make inroads with partnerships or something. Is that fair to say?

Marty Wygod

We brought on because he brings a real depth of knowledge of the health plan and health benefits space. And we feel will be a great asset for us and helping us understand that space more deeply. He has been in this sector for a long time and certainly has very good relationships also.

Steve Rubis - Stifel

Okay, thank you very much.


The next questioner is Nicholas Jansen with Raymond James. Please go ahead.

Nicholas Jansen - Raymond James

Yes, just two quick ones. In terms of what you won thus far in the first quarter with your FEP implementation. I'm just trying to get a sense of how that's progress relative to internal plans. What you have learned as you kind of think about maybe driving more business to the private portal over time? Thanks.

David Schlanger

The FEP implementation launch went off on January 1 of this year and it's been a very positive experience. The client feedback has been terrific. So the program is proceeding along well according to plan. And we certainly believe that that relationship can certainly help us with our understanding of additional government opportunities and can serve as a great reference account as we go out to pursue those opportunities.

Nicholas Jansen - Raymond James

Great. And in terms of the M&A pipeline, I’m just trying to get a sense of how much dilution you are willing to stomach for some of the small technology acquisitions as we think about our margin expansion over the next two to three years? Thanks.

David Schlanger

And we've said this on several occasions. There's not really a particular formula with respect to the types of acquisitions that we would be -- that we would be looking to pursue. It's really very much on opportunistic basis. But the common theme will always be looking to acquire something that when you add on kind of our existing resources, whether it's our brands or audiences, or content, will certainly accelerate our entry into some of the markets that we think are going to be growth areas for us going forward.

So again, it's always an individual analysis of what it’s going to take to make that acquisition successful. So I couldn't give you a number of how much dilution might make sense or what expense would make sense.

Pete Anevski

We don't intend to structure transactions such a way. So it could be materially dilutive going forward or interfere with our future growth rate.

Nicholas Jansen - Raymond James

Great, guys. Nice quarter. Thanks.


The next questioner is Chris Leikhim of William Blair. Please go ahead.

Chris Leikhim - William Blair

Hi. Thanks. Just a couple of quick ones. Joining back to the point that was raised earlier about healthcare insurers and private exchanges. Is there any way to quantify any bump in advertising revenue you guys might have gotten from increased demand during open enrollment period over the last two quarters? And if there was, is that expected to revert as open enrollment periods fades away?

David Schlanger

We actually don't break out the sales and revenues generated by in particular advertising segment. You should understand that the open enrollment period around the Affordable Care Act is kind of September to March period. This was the first year of that open enrollment period. But as it has been reported publicly, open enrollment around the Affordable Care Act was successful.

Many health insurers had a very successful experience with the exchanges and starting next September, which is right around the corner. There will be another open enrollment period where health insurers have to again market themselves to consumers and drive customer direct business. So we expect this to be an ongoing opportunity for us.

Chris Leikhim - William Blair

Okay. Great. That’s really helpful. And then I just wanted to dig into the analytics initiatives just a little bit further. As you guys think about the opportunity when you are discussing with potential advertising clients, are there any specific metrics that you guys follow in terms of the success of the analytics initiatives? Say the expanding reach of the platform trying to get additional dollars, better revenue per ad or any sort of metrics that you guys are following to sort of gauge the success of those initiatives?

David Schlanger

Ultimately, the analytic capability was really an important way to support our sales efforts. So the most important metric with respect to whether we think our analytics investments have been successful is, is it driving advertising and sponsorship revenue and you can see that we've reported strong advertising sponsorship revenue because it is very key for our marketers, particularly as I talked before about these -- the marketers looking to reach niche audiences.

It's very important that we have the capability to segment and profile our audience so that we can target the specific audience our advertisers are looking for. But also again advertisers in today's world are demanding that the impact to their programs be measured. So again it's important that we do that in a way that they can really understand the ROI and the particular impact of their programs on off-line behavior. And we do have that capability. So again the most important metric is, it’s driving us our revenues.

Chris Leikhim - William Blair

Okay. That’s really helpful. Thank you.


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