Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2015 |
Accounting Policies [Abstract] | |
Background | Background |
|
WebMD Health Corp. (the “Company” or “WebMD”) is a Delaware corporation that was incorporated on May 3, 2005. The Company completed an initial public offering on September 28, 2005. The Company’s Common Stock trades under the symbol “WBMD” on the Nasdaq Global Select Market. The Company generates revenue from the advertising and sponsorship services of The WebMD Health Network and related operations, from the private portal services it markets under the WebMD Health Services brand and from certain information services, each of which is described below and discussed further under “Presentation of Segment Information” in this Note 1. |
|
Advertising and Sponsorship. The WebMD Health Network includes: www.WebMD.com, the Company’s primary public portal for consumers and related mobile-optimized sites and mobile apps; www.Medscape.com, the Company’s primary public portal for physicians and other healthcare professionals and related mobile services; and other sites and apps through which the Company provides branded health and wellness content, tools and services. The Company’s services for consumers enable them to obtain information on health and wellness topics or on a particular disease or condition, to assess their personal health status, to use online trackers, tools and quizzes, to locate physicians, to receive periodic e-mailed newsletters and alerts on topics of individual interest, and to participate in online communities with peers and experts. The Company’s services for physicians and healthcare professionals make it easier for them to access clinical reference sources, stay abreast of the latest clinical information, learn about new treatment options, earn continuing medical education (“CME”) credit and communicate with peers. The Company does not charge any usage, membership or download fees for access to its public portals or mobile platforms. The Company generates revenue from its public portals and mobile platforms primarily through the sale of various types of advertising and sponsorship programs to its clients, which include: pharmaceutical, biotechnology and medical device companies; hospitals, clinics and other healthcare services companies; health insurance providers; consumer products companies whose products or services relate to health, wellness, diet, fitness, lifestyle, safety and illness prevention; and various other businesses, organizations and governmental entities. Advertisers and sponsors use the Company’s services to reach, educate and inform target audiences of consumers, physicians and other healthcare professionals. The Company also generates revenue from advertising sold in WebMD Magazine, a consumer magazine distributed to physician office waiting rooms. |
|
Private Portals Services. The Company’s private portals are a cloud-based population health management platform, hosted by the Company and provided to private and governmental employers and health plans for use by their employees and plan participants. The Company markets these private portals and related services under the WebMD Health Services brand. The WebMD Health Services platform enables employers and health plans to provide their employees and plan participants with access to personalized health and benefit information, including an online personal health record application. The Company’s WebMD Health Services solutions include a comprehensive set of decision support and transparency tools that help their employees and plan participants understand the financial implications of their benefits options and make more informed benefits-related purchase decisions, and also provide access to information and services that can help them factor quality and cost into decisions about care and treatment options. The Company also provides telephonic, online and onsite health coaching and targeted condition management programs for use by its private portals clients’ employees and plan participants to help them make healthier lifestyle choices and achieve their wellness goals. The Company generates revenue from subscriptions to its WebMD Health Services platform by employers and health plans, either directly or through its distributors. WebMD offers its health coaching services and its condition management programs on a per-participant basis. |
|
|
|
Information Services. The Company also generates revenue from the sale of certain information products and services on a standalone basis using de-identified data that it licenses from a small number of third party data sources, of which the principal source is a license retained by HLTH Corporation, the Company’s former parent company, in connection with the sale of its Emdeon Business Services (EBS) business. As the successor to HLTH, the Company received this license which provides the Company the rights to certain de-identified data from the operation of the EBS business through February 2018 for use in the development and commercialization of various information products and services. Customers include data services, informatics and consulting companies. |
Interim Financial Statements | Interim Financial Statements |
The unaudited consolidated financial statements of the Company have been prepared by management and reflect all adjustments (consisting of only normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the operating results to be expected for any subsequent period or for the entire year ending December 31, 2015. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted under the Securities and Exchange Commission’s rules and regulations. |
The unaudited consolidated financial statements and notes included herein should be read in conjunction with the Company’s audited consolidated financial statements and notes for the year ended December 31, 2014, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. |
Seasonality | Seasonality |
The timing of the Company’s revenue is affected by seasonal factors. The Company’s public portal advertising and sponsorship revenue is seasonal, primarily due to the annual spending patterns of the advertising and sponsorship clients of the Company’s public portals. This portion of the Company’s revenue is usually the lowest in the first quarter of each calendar year, and generally increases during each consecutive quarter throughout the year. The timing of revenue in relation to the Company’s expenses, many of which do not vary directly with revenue, has an impact on cost of operations, sales and marketing, and general and administrative expenses as a percentage of revenue in each calendar quarter. |
Accounting Estimates | Accounting Estimates |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions that the Company believes are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic and political factors, and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the Consolidated Financial Statements. Significant estimates and assumptions by management affect the allowance for doubtful accounts, the carrying value of long-lived assets (including goodwill and intangible assets), the amortization period of long-lived assets (excluding goodwill and indefinite-lived intangible assets), the carrying value, capitalization and amortization of software and Website development costs, the carrying value of investments, the provision for income taxes and related deferred tax accounts, certain accrued liabilities, revenue recognition, contingencies, litigation and related legal accruals and the value attributed to employee stock options and other stock-based awards. |
Presentation of Segment Information | Presentation of Segment Information |
|
The Company generates revenue in four groups, as set forth in the table below. The first group is “Advertising and Sponsorship — Biopharma and Medical Device” and consists of advertising and sponsorship revenue from pharmaceutical, biotechnology and medical device clients relating to ethical pharmaceutical products or other regulated devices or products or for sponsoring educational programs. The second category is “Advertising and Sponsorship — OTC, CPG and Other” and consists of advertising and sponsorship revenue relating to non-Rx or over-the-counter medications and other healthcare products, food and beverages, beauty products and other consumer products, as well as revenue from clients such as retailers, pharmacies, hospitals, health insurance companies and government agencies. The combined revenue of the first two groups is sometimes referred to as “Advertising and Sponsorship” revenue. The third group is “Private Portal Services” and consists of revenue from employers and health plans for subscriptions to the Company’s private portals solution and related services, including health coaching and condition management services. The fourth group is “Information Services” and consists of revenue from the sale of stand-alone information and data products. Discrete financial information related to a measure of profit or loss for these four revenue groups is not available as they leverage many common expenses, and the Company does not separately allocate these common expenses in assessing the performance of its business. Accordingly, the Company views its business as one reportable operating segment. |
|
The following table presents the revenues recognized from the four revenue groups described above during the three months ended March 31, 2015 and 2014: |
|
|
| | | | | | | | |
| | Three Months Ended | |
March 31, |
| | 2015 | | | 2014 | |
Advertising and sponsorship | | | | | | | | |
Biopharma and medical device | | $ | 75,845 | | | $ | 68,488 | |
OTC, CPG and other | | | 29,948 | | | | 34,469 | |
| | | | | | | | |
| | | 105,793 | | | | 102,957 | |
Private portal services | | | 29,322 | | | | 24,629 | |
Information services | | | 8,228 | | | | 6,246 | |
| | | | | | | | |
| | $ | 143,343 | | | $ | 133,832 | |
| | | | | | | | |
Loss Contingencies | Loss Contingencies |
The Company accounts for loss contingencies in accordance with Financial Accounting Standards Board (“FASB”) ASC No. 450, “Contingencies.” Under ASC No. 450, accruals for loss contingencies are recorded when both (i) the information available indicates that it is probable that a liability has been incurred and (ii) the amount of the loss can be reasonably estimated. The Company records adjustments to these accruals to reflect the status of negotiations, settlements, advice of counsel and other information and events related to an individual matter. |
Net Income Per Common Share | Net Income Per Common Share |
|
Basic income per common share has been computed using the weighted-average number of shares of Common Stock outstanding during the periods presented. Diluted income per common share has been computed using the weighted-average number of shares of Common Stock outstanding during the periods, increased to give effect to potentially dilutive securities and assumes that any dilutive convertible notes were converted, only in the periods in which such effect is dilutive (shares in thousands): |
|
|
| | | | | | | | |
| | Three Months Ended | |
March 31, |
| | 2015 | | | 2014 | |
Numerator: | | | | | | | | |
Net income — Basic | | $ | 10,004 | | | $ | 6,266 | |
Interest expense on 1.50% Notes, net of tax | | | 864 | | | | — | |
| | | | | | | | |
Net income — Diluted | | $ | 10,868 | | | $ | 6,266 | |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted-average shares — Basic | | | 36,393 | | | | 39,268 | |
Stock options and restricted stock | | | 1,378 | | | | 2,584 | |
1.50% Notes | | | 5,694 | | | | — | |
| | | | | | | | |
Adjusted weighted-average shares after assumed conversions — Diluted | | | 43,465 | | | | 41,852 | |
| | | | | | | | |
Net income per common share: | | | | | | | | |
Basic | | $ | 0.27 | | | $ | 0.16 | |
| | | | | | | | |
Diluted | | $ | 0.25 | | | $ | 0.15 | |
| | | | | | | | |
|
The Company has excluded certain of its convertible notes, as well as certain outstanding stock options and restricted stock, from the calculation of diluted income per common share during the periods in which such securities were anti-dilutive. The following table presents the total weighted-average number of potentially dilutive common shares that were excluded from the computation of diluted income per common share during the periods presented (shares in thousands): |
|
|
| | | | | | | | |
| | Three Months Ended | |
March 31, |
| | 2015 | | | 2014 | |
Options and restricted stock | | | 3,168 | | | | 2,646 | |
1.50% Notes | | | — | | | | 5,681 | |
2.50% Notes | | | 6,205 | | | | 6,191 | |
2.25% Notes | | | 3,511 | | | | 3,503 | |
| | | | | | | | |
| | | 12,884 | | | | 18,021 | |
| | | | | | | | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements |
|
In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements. Under the revised guidance, a discontinued operation is defined as a disposal of a component or group of components that represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The revised guidance is effective for the Company beginning in the quarter ended March 31, 2015. The adoption of the revised guidance did not have an impact on the Company’s consolidated financial statements. |
|
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the revised guidance requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2017; early adoption is prohibited. The revised guidance is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company has not yet determined the impact the revised guidance will have on its consolidated financial statements. |
|
In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2016; early adoption is permitted. The Company has not yet determined the impact the revised guidance will have on its consolidated financial statements. |
|
In April 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2016 and is required to be applied retrospectively. Early adoption is permitted. The Company has not yet determined the impact the revised guidance will have on its consolidated financial statements. |
|
In April 2015, the FASB issued ASU No. 2015-05, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance in determining whether a cloud computing arrangement includes a software license. If it is determined that a cloud computing arrangement does include a software license, the software element should be accounted for consistent with the acquisition of other software licenses. If the arrangement does not include a software license, it should be accounted for as a service contract. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2016 and can be applied prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. Early adoption is permitted. The Company has not yet determined the impact the revised guidance will have on its consolidated financial statements. |