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WebMD Announces Third Quarter Financial Results

Revenue Increases 31%, Adjusted EBITDA Increases 65%
Net Income Increases To $0.19 Per Share From $0.01 Per Share Last Year
WebMD Names William Pence Chief Technology Officer HLTH Indicates its Intent to Propose Transaction to Modify Its 84% Ownership of WebMD

New York, NY (November 7, 2007) - WebMD Health Corp. (NASDAQ: WBMD) today announced financial results for the three months ended September 30, 2007. Wayne Gattinella, President and Chief Executive Officer of WebMD, said: "Our third quarter growth was strong as we continued to consolidate our leadership as the most recognized and utilized brand of health information and better position the company for sustainable growth in the future."

Financial Summary
Revenue for the third quarter was $87.2 million compared to $66.6 million last year, an increase of 31%. Earnings before interest, taxes, depreciation, amortization, and other non-cash items ("Adjusted EBITDA") for the third quarter increased 65% to $24.1 million or $0.40 per share compared to $14.6 million or $0.25 per share last year. Net income for the third quarter was $11.5 million or $0.19 per share compared to $490,000 or $0.01 per share last year.

As of September 30, 2007, WebMD had approximately $278 million of cash and investments.

Operating Highlights
Online Services segment revenue was $79.6 million for the third quarter compared to $58.9 million last year, an increase of 35%. Advertising and sponsorship revenue increased 36% to $59.1 million. Private portal licensing revenue increased 37% to $20.0 million. Online Services segment Adjusted EBITDA increased 72% to $21.9 million compared to $12.7 million last year.

The WebMD Health Network continued to expand with the average number of unique users reaching 40.8 million per month and total traffic of 863 million page views during the third quarter, increases of 26% and 18%, respectively, from a year ago. Excluding the prior year period's traffic from AOL (which ceased to be part of The WebMD Health Network earlier this year), the average monthly unique users of the WebMD Health Network increased 35% and page view traffic increased 23%. In the third quarter, 730,000 continuing medical education (CME) programs were completed on the WebMD Health Professional Network, an increase of 50% from the prior year period.

WebMD continued to expand its base of large employers and health plans utilizing its private Health and Benefits portals during the third quarter, bringing total platform customers to 112 from 91 a year ago. The installed base of companies licensing the WebMD private portal platform now includes: GlaxoSmithKline, Blue Cross and Blue Shield of Louisiana and Providence Health Systems. WebMD implemented its health portal platform combined with WebMD Health Coaching for Notre Dame University and Baylor Health Care System.

Publishing and Other Services segment revenue was $7.6 million for the third quarter, a decline of $79,000 compared to last year. The decline in publishing and other revenue was due to the Company's previous decision to discontinue its offline CME product which contributed $400,000 in revenue last year. Publishing and Other Services segment Adjusted EBITDA was $2.1 million compared to a $1.9 million in the prior year period.

WebMD Names William Pence as EVP and Chief Technology Officer
William Pence, 45, joined WebMD as EVP and Chief Technology Officer on November 1, 2007. Mr. Pence served as Chief Technology Officer and Senior Vice President at Napster since 2000. Prior to Napster, he spent more than a decade at IBM, where he held various technology management positions, as well as oversaw the research and commercialization of technology for IBM product divisions.

"I am very pleased to welcome Bill to the WebMD team. Bill's expertise in driving corporate strategy, assessing the impact of new technologies, and helping to develop new products and initiatives in dynamic markets will help drive our growth in the future," said Mr. Gattinella.

Financial Guidance
WebMD's revenue guidance for the December 2007 quarter is $94 to $98 million. On October 16, 2007, the Company indicated that fourth quarter revenues would be impacted by the timing of the delivery of certain advertising programs being more weighted to 2008 than had been anticipated and the lengthening sales and implementation cycle in the private portal business.

Adjusted EBITDA guidance for the December 2007 quarter is $30.0 to $32.5 million, an increase of 34% to 46% over the prior year, reflecting the lower revenue guidance range offset by the expected higher margin on incremental revenue due to the acceleration of benefits from infrastructure investments and acquisition synergies. Adjusted EBITDA, as a percentage of revenue, is expected to be approximately 32% to 33% compared to 28% in the prior year, an increase of 400 to 500 basis points. Net income guidance for the December 2007 quarter is $15 to $18 million, an increase of approximately 150% to 200% over the prior year.

Financial guidance for 2008 is preliminary and is subject to further refinement as the Company concludes its annual planning process. Preliminary outlook for 2008 is:

Revenue of $420 to $435 million. Revenue guidance assumes the following distribution:

  • Approximately 71% from advertising and sponsorship, with organic revenue growth of approximately 35% over 2007;
  • Approximately 22% from licensing of our private portal products, with organic revenue growth of approximately 20% over 2007; and
  • Approximately 7% from publishing and content syndication revenues, an increase of approximately 5% over 2007.
  • Adjusted EBITDA for 2008 is expected to be $120 to $130 million, an increase of 47% to 54% over anticipated 2007 results. Adjusted EBITDA as a percentage of revenue is expected to be approximately 30% in 2008, an increase of approximately 500 basis points compared to 2007. Adjusted EBITDA is expected to be $1.94 to $2.10 per share for 2008. Net income for 2008 is expected to be $44 million to $53 million, or $0.71 to $0.85 per share, an increase of 34% to 49% over anticipated 2007 results.

    A schedule outlining WebMD's updated financial guidance is attached to this press release.

    HLTH Indicates its Intent to Propose Transaction to Modify Its 84% Ownership of WebMD
    On November 7, 2007, HLTH Corporation, which owns approximately 84% of the outstanding Common Stock of WebMD, provided an update on its preparations for proposing a transaction that would allow HLTH's stockholders to participate more directly in the ownership of WebMD stock. In that regard, the WebMD Board of Directors has formed a special committee, consisting of certain non-management members of WebMD's Board who do not serve on HLTH's Board of Directors, to evaluate and negotiate any potential transaction with HLTH. The Special Committee has retained independent financial advisors and legal counsel. There can be no assurance that any such transaction will be agreed upon or ultimately consummated.

    HLTH indicated that the potential transaction it is planning to propose to the Special Committee would involve the merger of HLTH into WebMD for a combination of cash and WebMD Common Stock. HLTH expects the merger consideration to reflect, among other factors, an evaluation of the realizable values of the assets and liabilities of HLTH, other than its ownership of WebMD. HLTH expects that WebMD shares would constitute up to 50% of the merger consideration and their receipt would be tax free to HLTH shareholders. HLTH expects that the cash necessary to consummate the transaction would come from cash and cash equivalents on hand and from the proceeds of the sales by HLTH of its ViPS and Porex subsidiaries and its 48% interest in EBS Master LLC. HLTH has received unsolicited, preliminary, indications of interest for each of these assets and intends to explore potential sales transactions. However, there can be no assurance that such exploration will result in any definitive agreement or transaction.

    WebMD stockholders, other than HLTH, would continue to own their shares of WebMD Class A Common Stock following the potential transaction, but would no longer be minority stockholders of a controlled company and the shares of WebMD Class B Common Stock currently owned by HLTH would be retired. In addition, as a result of the transaction, the WebMD public float would be dramatically increased. HLTH anticipates that the total number of outstanding shares of WebMD Common Stock would be reduced in the transaction.

    Analyst and Investor Conference Call
    As previously announced, WebMD and its parent company, HLTH Corporation, will hold a conference call with investors and analysts to discuss their respective third quarter results at 4:45 pm (EST) on November 7, 2007. The call can be accessed at www.wbmd.com (in the Investor Relations section). A replay of the audio webcast will be available at the same web address.

    About WebMD
    WebMD Health Corp. (NASDAQ: WBMD) is the leading provider of health information services, serving consumers, physicians, healthcare professionals, employers and health plans through our public and private online portals and health-focused publications. WebMD Health Corp. is a subsidiary of HLTH Corporation (NASDAQ: HLTH).

    The WebMD Health Network includes WebMD Health, Medscape, MedicineNet, eMedicine, eMedicine Health, RxList and theHeart.org.

    All statements contained in this press release, other than statements of historical fact, are forward-looking statements, including those regarding: guidance on our future financial results and other projections or measures of our future performance; our expectations concerning market opportunities and our ability to capitalize on them; the benefits expected from acquisitions, from new products or services and from other potential sources of additional revenue; and planning for a potential transaction (the "Potential Transaction") that could allow HLTH Corporation's stockholders to have a more direct investment in WebMD Health Corp. These statements speak only as of the date of this Current Report and are based on our current plans and expectations, and they involve risks and uncertainties that could cause actual future events or results to be different than those described in or implied by such forward-looking statements. These risks and uncertainties include those relating to: market acceptance of our products and services; length of sales and implementation cycles for our products and services; our relationships with customers and strategic partners; difficulties in integrating acquired businesses; changes in economic, political or regulatory conditions or other trends affecting the healthcare, Internet and information technology industries; and our ability to attract and retain qualified personnel. Further information about these matters can be found in our Securities and Exchange Commission filings. In addition, there can be no assurances regarding whether HLTH and WebMD will proceed with the Potential Transaction or any other transaction relating to HLTH's ownership interest in WebMD or as to the timing or terms of any such transaction. Except as required by applicable law or regulation, we do not undertake any obligation to update our forward-looking statements to reflect future events or circumstances.

    This press release, and the accompanying tables, include both financial measures in accordance with accounting principles generally accepted in the United States of America, or GAAP, as well as certain non-GAAP financial measures. The tables attached to this press release include reconciliations of these non-GAAP financial measures to GAAP financial measures. In addition, an "Explanation of Non-GAAP Financial Measures" is attached to this press release as Annex A.

    WebMD®, WebMD Health®, Medscape®, eMedicine®, MedicineNet®, RxList®, Subimo®, Medsite®, The Little Blue Book® and Summex®, are trademarks of WebMD Health Corp. or its subsidiaries.

    ANNEX A

    Explanation of Non-GAAP Financial Measures
    (All dollar amounts in thousands)

    The accompanying WebMD Health Corp. press release includes both financial measures in accordance with U.S. generally accepted accounting principles, or GAAP, as well as non-GAAP financial measures. The non-GAAP financial measures represent earnings before interest, taxes, depreciation, amortization and other non-cash items (which we refer to as "Adjusted EBITDA"). Adjusted EBITDA should be viewed as supplemental to, and not as an alternative for, "net income" calculated in accordance with GAAP. The tables and the financial guidance summary attached to the accompanying press release include reconciliations of non-GAAP financial measures to GAAP financial measures.

    Adjusted EBITDA is used by WebMD's management as an additional measure of WebMD's overall performance and its reporting segments' performance for purposes of business decision-making, including developing budgets, managing expenditures, and evaluating potential acquisitions or divestitures. Period-to-period comparisons of Adjusted EBITDA help WebMD's management identify additional trends in WebMD's and its reporting segments' financial results that may not be shown solely by period-to-period comparisons of net income. In addition, WebMD uses Adjusted EBITDA in the incentive compensation programs applicable to many of its employees in order to evaluate WebMD's performance. WebMD management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items, particularly those items that are recurring in nature. In order to compensate for those limitations, management also reviews the specific items that are excluded from Adjusted EBITDA, but included in net income, as well as trends in those items. The amounts of those items are set forth, for the applicable periods, in the reconciliations of Adjusted EBITDA to net income that accompany our press releases containing non-GAAP financial measures, including the reconciliations contained in the tables and the financial guidance summary attached to the accompanying press release.

    WebMD believes that the presentation of Adjusted EBITDA is useful to investors in their analysis of WebMD's results for reasons similar to the reasons why WebMD's management finds it useful and because it helps facilitate investor understanding of decisions made by WebMD's management in light of the performance metrics used in making those decisions. In addition, as more fully described below, WebMD believes that providing Adjusted EBITDA, together with a reconciliation of Adjusted EBITDA to net income, helps investors make comparisons between WebMD and other companies that may have different capital structures, different effective income tax rates and tax attributes, different capitalized asset values and/or different forms of employee compensation. However, Adjusted EBITDA is intended to provide a supplemental way of comparing WebMD with other public companies and is not intended as a substitute for comparisons based on "net income" calculated in accordance with GAAP. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and net income provided by each company under applicable SEC rules.

    The following is an explanation of the items excluded by WebMD from Adjusted EBITDA but included in net income:

  • Depreciation and Amortization. Depreciation and amortization expense is a non-cash expense relating to capital expenditures and intangible assets arising from acquisitions that are expensed on a straight-line basis over the estimated useful life of the related assets. WebMD excludes depreciation and amortization expense from Adjusted EBITDA because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of WebMD's business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Accordingly, WebMD believes this exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expenses will recur in future periods.
  • Stock-Based Compensation Expense. Stock-based compensation expense is a non-cash expense arising from the grant of stock-based awards to employees. WebMD believes that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in its operating performance because it believes (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of WebMD's business operations and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, WebMD believes that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between WebMD's operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future. Stock-based compensation expenses included in the Statement of Operations are summarized as follows:
  • Non-Cash Advertising Expense. This expense relates to the usage of non-cash advertising obtained from News Corporation ("Newscorp") in exchange for equity securities issued by our parent, HLTH Corporation in 2000. The advertising is available only on various Newscorp properties, primarily its television network and cable channels without any cash cost to WebMD. The amount of advertising that can be used in any year is subject to annual contractual limitation and expires in 2010. WebMD does not incur any other cash expenses related to airing of television advertising. WebMD excludes this expense from Adjusted EBITDA (i) because it is a non-cash expense, (ii) because it is incremental to other non-television cash advertising expense that WebMD otherwise incurs, (iii) because WebMD has not and believes it will not incur cash expenses relating to television advertising in the future and (iv) to assist management and investors in comparing its operating results over multiple periods. Investors should note that it is likely that WebMD derives some benefit from such advertising and that such expenses will recur in the future. Non-cash advertising expenses included in the Consolidated Statement of Operations in Sales and Marketing expense were $169 and $1,660 for the three months ended September 30, 2007 and 2006, respectively, and $2,489 and $4,454 for the nine months ended September 30, 2007 and 2006, respectively.
  • Interest Income. Interest income is associated with the level of marketable debt securities and other interest bearing accounts in which WebMD invests. Interest income varies over time due to varying levels of securities available for investment. Transactions that WebMD has entered into in recent periods that have impacted securities available for investment include the initial public offering of equity in WebMD and acquisitions of other companies for varying amounts of cash since our initial public offering. Additional financing transactions as well as potential acquisitions that WebMD may enter into in the future could impact the levels and timing of securities available for investment. WebMD excludes interest income from Adjusted EBITDA (i) because it is not directly attributable to the performance of WebMD's business operations and, accordingly, its exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different capital structures. Investors should note that interest income will recur in future periods.
  • Income Tax Provision. WebMD had a net operating loss (NOL) carryforward of approximately $240,000 as of the year ended December 31, 2006. Due to a limited history of generating taxable income, WebMD has maintained a full valuation allowance on these NOL carryforwards. As WebMD has used these NOL carryforwards, the related valuation allowances have been reversed through the income statement. The timing of such reversals has not been consistent and as a result, WebMD's income tax expense can fluctuate significantly from period to period in a manner not directly related to WebMD's operating performance. WebMD excludes the income tax provision from Adjusted EBITDA (i) because it believes that the income tax provision is not directly attributable to the underlying performance of WebMD's business operations and, accordingly, its exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different tax attributes. Investors should note that income tax provision will recur in future periods.


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