SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2003 |
or
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission file number 0-24975
WEBMD CORPORATION
|
Delaware
|
94-3236644 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
669 River Drive, Center 2
(201) 703-3400
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No o
As of November 10, 2003, there were 306,910,104 shares of the
WEBMD CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||
| Number | ||||||
| Cautionary Statement Regarding Forward-Looking Statements | 3 | |||||
|
Part I
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Financial Information
|
|||||
|
Item 1.
|
Financial Statements:
|
|||||
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Consolidated Balance Sheets as of
September 30, 2003 (unaudited) and December 31,
2002
|
4 | |||||
|
Unaudited Consolidated Statements of Operations
for the three and nine months ended September 30, 2003 and
2002
|
5 | |||||
|
Unaudited Consolidated Statements of Cash Flows
for the nine months ended September 30, 2003 and 2002
|
6 | |||||
|
Notes to Consolidated Financial Statements
|
7 | |||||
|
Item 2.
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
23 | ||||
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Item 3.
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Quantitative and Qualitative Disclosures About
Market Risk
|
53 | ||||
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Item 4.
|
Controls and Procedures
|
53 | ||||
|
Part II
|
Other Information
|
|||||
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Item 1.
|
Legal Proceedings
|
54 | ||||
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Item 2.
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Changes in Securities and Use of Proceeds
|
57 | ||||
|
Item 4.
|
Submission of Matters to a Vote of Security
Holders
|
57 | ||||
|
Item 5.
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Other Information
|
58 | ||||
|
Item 6.
|
Exhibits and Reports on Form 8-K
|
60 | ||||
| Signatures | 61 | |||||
| Exhibit Index | E-1 | |||||
WebMD®, WebMD Health®, The Medical Manager®, ULTIATM, Intergy®, Envoy®, ExpressBill®, Medscape®, Optate®, WellMed® and POREX® are trademarks of WebMD Corporation or its subsidiaries.
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be, forward-looking statements. These forward-looking statements are not based on historical facts, but rather reflect managements current expectations concerning future results and events. These forward-looking statements generally can be identified by use of expressions such as believe, expect, anticipate, intend, plan, foresee, likely, will or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are, or may be, forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. In addition to the risk factors described in Managements Discussion and Analysis of Financial Condition and Results of Operations Factors That May Affect Our Future Financial Condition or Results of Operations beginning on page 35, the following important risks and uncertainties could affect future results, causing these results to differ materially from those expressed in our forward-looking statements:
| | the failure to achieve sufficient levels of customer utilization and market acceptance of new or updated services, | |
| | the inability to successfully deploy new or updated applications, | |
| | difficulties in forming and maintaining mutually beneficial relationships with customers and strategic partners, some of whom are also competitors, | |
| | difficulties in integrating acquired companies, businesses and technologies, | |
| | the inability to attract and retain qualified personnel, and | |
| | general economic, business or regulatory conditions affecting the healthcare, information technology, Internet and plastic industries being less favorable than expected. |
These factors and the risk factors described in Managements Discussion and Analysis of Financial Condition and Results of Operations Factors That May Affect Our Future Financial Condition or Results of Operations beginning on page 35 are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report. We expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.
3
PART I
FINANCIAL INFORMATION
| ITEM 1. | Financial Statements |
WEBMD CORPORATION
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
|
ASSETS
|
||||||||||
|
Current assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 83,872 | $ | 175,596 | ||||||
|
Short-term investments
|
211,378 | 10,888 | ||||||||
|
Accounts receivable, net
|
172,988 | 163,244 | ||||||||
|
Inventory
|
11,120 | 9,976 | ||||||||
|
Current portion of prepaid content and
distribution services
|
23,582 | 25,406 | ||||||||
|
Assets of discontinued operations
|
| 94,056 | ||||||||
|
Other current assets
|
23,810 | 25,814 | ||||||||
|
Total current assets
|
526,750 | 504,980 | ||||||||
|
Marketable debt securities
|
678,315 | 449,289 | ||||||||
|
Marketable equity securities
|
5,681 | 7,427 | ||||||||
|
Property and equipment, net
|
80,264 | 70,488 | ||||||||
|
Prepaid content and distribution services
|
32,670 | 48,532 | ||||||||
|
Goodwill
|
667,444 | 586,043 | ||||||||
|
Intangible assets, net
|
91,806 | 73,222 | ||||||||
|
Other assets
|
34,733 | 26,267 | ||||||||
| $ | 2,117,663 | $ | 1,766,248 | |||||||
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
||||||||||
|
Current liabilities:
|
||||||||||
|
Accounts payable
|
$ | 10,389 | $ | 10,063 | ||||||
|
Accrued expenses
|
217,479 | 208,342 | ||||||||
|
Deferred revenue
|
83,959 | 81,179 | ||||||||
|
Liabilities of discontinued operations
|
| 12,365 | ||||||||
|
Total current liabilities
|
311,827 | 311,949 | ||||||||
|
3 1/4% convertible subordinated notes due
2007
|
299,999 | 300,000 | ||||||||
|
1.75% convertible subordinated notes due 2023
|
350,000 | | ||||||||
|
Other long-term liabilities
|
1,338 | 498 | ||||||||
|
Commitments and contingencies
|
||||||||||
|
Stockholders equity:
|
||||||||||
|
Common stock, $0.0001 par value; 900,000,000
shares authorized at September 30, 2003; 600,000,000 shares
authorized at December 31, 2002; 382,291,875 shares issued
at September 30, 2003; 374,661,064 shares issued at
December 31, 2002
|
38 | 37 | ||||||||
|
Additional paid-in-capital
|
11,717,401 | 11,682,443 | ||||||||
|
Deferred stock compensation
|
(6,216 | ) | (17,805 | ) | ||||||
|
Treasury stock, at cost; 76,324,165 shares at
September 30, 2003; 74,254,669 shares at December 31,
2002
|
(345,667 | ) | (327,542 | ) | ||||||
|
Accumulated deficit
|
(10,222,587 | ) | (10,195,048 | ) | ||||||
|
Accumulated other comprehensive income
|
11,530 | 11,716 | ||||||||
|
Total stockholders equity
|
1,154,499 | 1,153,801 | ||||||||
| $ | 2,117,663 | $ | 1,766,248 | |||||||
See accompanying notes.
4
WEBMD CORPORATION
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
|
Revenue
|
$ | 250,635 | $ | 217,004 | $ | 705,584 | $ | 642,220 | |||||||||
|
Costs and expenses:
|
|||||||||||||||||
|
Cost of operations
|
149,270 | 123,360 | 410,556 | 379,101 | |||||||||||||
|
Development and engineering
|
11,334 | 10,869 | 32,654 | 32,640 | |||||||||||||
|
Sales, marketing, general and administrative
|
72,450 | 66,883 | 209,917 | 218,501 | |||||||||||||
|
Depreciation, amortization and other
|
11,097 | 32,073 | 52,961 | 95,575 | |||||||||||||
|
Legal expense
|
493 | | 493 | | |||||||||||||
|
Restructuring and integration benefit
|
| 2,100 | | 5,850 | |||||||||||||
|
Gain on investments
|
3,039 | 681 | 3,222 | 6,547 | |||||||||||||
|
Interest income
|
6,401 | 5,222 | 16,434 | 14,341 | |||||||||||||
|
Interest expense
|
4,703 | 2,819 | 10,444 | 5,677 | |||||||||||||
|
Other income
|
| 2,323 | 1,118 | 2,323 | |||||||||||||
|
Income (loss) from continuing operations
before income tax provision (benefit)
|
10,728 | (8,674 | ) | 9,333 | (60,213 | ) | |||||||||||
|
Income tax provision (benefit)
|
1,273 | (12,103 | ) | 3,261 | (10,700 | ) | |||||||||||
|
Income (loss) from continuing operations
|
9,455 | 3,429 | 6,072 | (49,513 | ) | ||||||||||||
|
Income (loss) from discontinued operations,
net of income taxes
|
(3,366 | ) | 1,109 | (33,611 | ) | 2,240 | |||||||||||
|
Net income (loss)
|
$ | 6,089 | $ | 4,538 | $ | (27,539 | ) | $ | (47,273 | ) | |||||||
|
Basic income (loss) per common share:
|
|||||||||||||||||
|
Income (loss) from continuing operations
|
$ | 0.03 | $ | 0.01 | $ | 0.02 | $ | (0.16 | ) | ||||||||
|
Income (loss) from discontinued operations
|
(0.01 | ) | 0.01 | (0.11 | ) | 0.01 | |||||||||||
|
Net income (loss)
|
$ | 0.02 | $ | 0.02 | $ | (0.09 | ) | $ | (0.15 | ) | |||||||
|
Diluted income (loss) per common share:
|
|||||||||||||||||
|
Income (loss) from continuing operations
|
$ | 0.03 | $ | 0.01 | $ | 0.02 | $ | (0.16 | ) | ||||||||
|
Income (loss) from discontinued operations
|
(0.01 | ) | 0.00 | (0.10 | ) | 0.01 | |||||||||||
|
Net income (loss)
|
$ | 0.02 | $ | 0.01 | $ | (0.08 | ) | $ | (0.15 | ) | |||||||
|
Weighted-average shares outstanding used in
computing income (loss) per common share:
|
|||||||||||||||||
|
Basic
|
305,471 | 297,352 | 304,121 | 306,161 | |||||||||||||
|
Diluted
|
328,463 | 308,537 | 326,396 | 306,161 | |||||||||||||
See accompanying notes.
5
WEBMD CORPORATION
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
|
Cash flows from operating
activities:
|
||||||||||||
|
Net loss
|
$ | (27,539 | ) | $ | (47,273 | ) | ||||||
|
Adjustments to reconcile net loss to net cash
provided by operating activities:
|
||||||||||||
|
Loss (income) from discontinued operations
|
33,611 | (2,240 | ) | |||||||||
|
Depreciation, amortization and other
|
52,961 | 95,575 | ||||||||||
|
Amortization of debt issuance costs
|
1,505 | 740 | ||||||||||
|
Non-cash content and distribution services
|
18,224 | 19,558 | ||||||||||
|
Non-cash stock-based compensation
|
10,948 | 21,559 | ||||||||||
|
Gain on investments
|
(3,222 | ) | (6,547 | ) | ||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Accounts receivable
|
3,580 | 5,226 | ||||||||||
|
Inventory
|
(1,144 | ) | 711 | |||||||||
|
Federal income tax receivable
|
| (12,887 | ) | |||||||||
|
Prepaid content and distribution services
|
(537 | ) | (201 | ) | ||||||||
|
Other assets
|
5,685 | (8,001 | ) | |||||||||
|
Accounts payable
|
(775 | ) | (3,220 | ) | ||||||||
|
Accrued expenses
|
(12,174 | ) | (10,216 | ) | ||||||||
|
Deferred revenue
|
(2,228 | ) | 6,822 | |||||||||
|
Net cash provided by continuing operations
|
78,895 | 59,606 | ||||||||||
|
Net cash provided by discontinued operations
|
5,130 | 5,809 | ||||||||||
|
Net cash provided by operating activities
|
84,025 | 65,415 | ||||||||||
|
Cash flows from investing
activities:
|
||||||||||||
|
Proceeds from maturities and sales of
available-for-sale securities
|
11,322 | 106,108 | ||||||||||
|
Proceeds from maturities and redemptions of
held-to-maturity securities
|
157,919 | 59,095 | ||||||||||
|
Purchases of available-for-sale securities
|
(7,754 | ) | (206,983 | ) | ||||||||
|
Purchases of held-to-maturity securities
|
(590,113 | ) | (300,970 | ) | ||||||||
|
Purchases of property and equipment
|
(13,643 | ) | (20,737 | ) | ||||||||
|
Proceeds received from sale of discontinued
operations
|
46,500 | | ||||||||||
|
Cash paid in business combinations, net of cash
acquired
|
(133,471 | ) | (9,929 | ) | ||||||||
|
Other changes in equity of discontinued operations
|
1,754 | 7,511 | ||||||||||
|
Net cash used in continuing operations
|
(527,486 | ) | (365,905 | ) | ||||||||
|
Net cash used in discontinued operations
|
(2,529 | ) | (9,184 | ) | ||||||||
|
Net cash used in investing activities
|
(530,015 | ) | (375,089 | ) | ||||||||
|
Cash flows from financing
activities:
|
||||||||||||
|
Proceeds from issuance of common stock
|
35,367 | 14,313 | ||||||||||
|
Purchases of treasury shares
|
(18,125 | ) | (103,784 | ) | ||||||||
|
Payments of notes payable and other
|
(211 | ) | (2,899 | ) | ||||||||
|
Net proceeds from issuance of convertible debt
|
339,125 | < | ||||||||||