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This excerpt taken from the WBMD 10-Q filed May 11, 2009. Costs and
Expenses
Cost of Operations. Cost of operations
increased to $36,565 from $30,927 in the prior year period. As a
percentage of revenue, cost of operations was 40.5% in 2009,
compared to 38.3% in 2008. Included in cost of operations in
2009 was non-cash expense related to stock-based compensation of
$1,623 compared to $1,116 in 2008. The increase in non-cash
expenses during the three month period compared to last year
were primarily related to stock options and restricted stock
awards granted to our employees in December 2008.
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Cost of operations excluding such non-cash expense was $34,942
or 38.7% of revenue, compared to $29,811 or 37.0% of revenue
last year. The increase in absolute dollars, as well as the
increase as a percentage of revenue, was primarily attributable
to $2,800 of higher staffing costs and $1,300 of licensing
expense associated with creating and licensing content for our
sponsorship arrangements and our Web sites. Additionally, the
increase is related to approximately $600 in costs related to
our personalized telephonic coaching services primarily due to
higher staffing levels to support that part of our business.
Sales and Marketing. Sales and marketing
expense increased to $27,561 from $25,149 in the prior year
period. As a percentage of revenue, sales and marketing expense
was 30.5% in 2009, compared to 31.2% in 2008. Included in sales
and marketing expense in 2009 and 2008 was non-cash expense
related to advertising of $1,753 and $1,558, respectively, and
stock-based compensation of $1,550 and $1,126, respectively. The
increase in non-cash stock-based compensation expense was
primarily related to stock options and restricted stock awards
granted to our employees in December 2008. Sales and marketing
expense, excluding such non-cash expenses, was $24,258 or 26.9%
of revenue, compared to $22,465 or 27.9% of revenue last year.
The increase in absolute dollars was primarily attributable to
an increase in compensation related costs due to increased
staffing and sales commissions related to higher revenue.
General and Administrative. General and
administrative expense increased to $14,726, from $13,480 in the
prior year period. As a percentage of revenue, general and
administrative expense was 16.3% in 2009, compared to 16.7% in
2008. Included in general and administrative expense in 2009 and
2008 was non-cash stock-based compensation expense of $2,350 and
$1,438, respectively. The increase in non-cash stock-based
compensation expense was primarily due to stock options and
restricted stock awards granted our employees in December 2008.
General and administrative expense, excluding non-cash expenses,
was $12,376 or 13.7% of revenue, compared to $12,042 or 14.9% of
revenue last year. The decrease as a percentage of revenue was
primarily due to our ability to achieve an increase in revenue
without incurring a proportional increase in general and
administrative expense.
Depreciation and Amortization. Depreciation
and amortization expense increased to $6,937 for the three
months ended March 31, 2009 from $6,672 in the same period
last year. The increase over the prior year period was primarily
due to the $994 increase in depreciation expense relating to
capital expenditures in 2008 and 2009, which was partially
offset by a decrease in amortization expense of $729 resulting
from certain intangible assets becoming fully amortized.
Interest Income. Interest income decreased to
$975 for the three months ended March 31, 2009 from $3,453
in the same period last year. The decrease resulted from a
decrease in the average interest rate of our investments.
Impairment of Auction Rate
Securities. Impairment of auction rate securities
represents a charge of $27,406 related to an other-than
temporary reduction of the fair value of the Company’s
auction rate securities during the quarter ended March 31,
2008. For additional information, see
‘‘— Background Information on Certain Trends
and Developments — Impairment of Auction Rate
Securities; Non-Recourse Credit Facility” above.
Income Tax Provision. The income tax provision
of $2,211 and $3,432 for the three months ended March 31,
2009 and 2008, respectively, represents taxes related to
federal, state and other jurisdictions. The income tax provision
for the three months ended March 31, 2008 excludes a
benefit for the impairment of ARS, as it is currently not
deductible for tax purposes.
Loss from Discontinued Operations, Net of
Tax. Loss from discontinued operations, net of
tax, represents the Little Blue Book print directory business.
For additional information, see “Introduction —
Background Information on Certain Trends and
Developments — Proposed Divestiture of the Little Blue
Book Print Directory Business” above.
Net Income (Loss). Net income was $2,816 for
the three months ended March 31, 2009, compared to a net
loss of $23,335 in the prior year period. Net income (loss) was
significantly lower in the prior year period, due to the
impairment charge of $27,406 related to our ARS.
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These excerpts taken from the WBMD 10-K filed Feb 27, 2009. Costs and
Expenses
Cost of Operations. Cost of operations
increased to $138,363 in 2008 from $117,281 in 2007. As a
percentage of revenue, cost of operations was 36.1% in 2008,
compared to 35.3% in 2007. Included in cost of
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operations was non-cash stock-based compensation expense of
$3,843 in 2008 and $5,063 in 2007. The decrease in non-cash
stock-based compensation expense during 2008, as compared to the
prior year resulted primarily from the graded vesting
methodology used in determining stock-based compensation expense
relating to the stock options and restricted stock awards
granted prior to the adoption of SFAS 123R on
January 1, 2006, which includes the options and restricted
stock granted at the time of the initial public offering. Cost
of operations, excluding non-cash expense, was $134,520 or 35.1%
of revenue in 2008, compared to $112,218 or 33.8% of revenue in
2007. The increase in absolute dollars in 2008 over 2007 was
primarily attributable to an increase of approximately $13,400
in compensation-related costs due to higher staffing levels
relating to our Web site operations and development, as well as
higher staffing levels associated with our personalized
telephonic coaching services. Additionally, the increase is also
related to $6,100 of higher costs associated with creating and
licensing content for our sponsorship arrangements and our Web
sites. The increase as a percentage of revenue was due to the
higher staffing levels, as well as the impact of the lower
publishing and other services revenue, specifically lower
advertising in The Little Blue Book, which did not have a
commensurate reduction in the cost to produce and distribute
this publication.
Sales and Marketing. Sales and marketing
expense increased to $108,316 in 2008 from $93,645 in 2007. As a
percentage of revenue, sales and marketing was 28.3% for 2008,
compared to 28.2% for 2007. Included in sales and marketing
expense in 2008 were non-cash expenses related to advertising of
$5,097, a decrease from $5,264 in 2007. Also included in sales
and marketing expense was non-cash stock-based compensation
expense of $3,631 for 2008, compared to $5,056 for 2007. The
decrease in non-cash stock-based compensation expense for 2008,
as compared to the prior year resulted primarily from the graded
vesting methodology used in determining stock-based compensation
expense relating to the stock options and restricted stock
awards granted prior to the adoption of SFAS 123R on
January 1, 2006, which includes the options and restricted
stock granted at the time of the initial public offering. Sales
and marketing expense, excluding non-cash expenses, was $99,588
or 26.0% of revenue in 2008, compared to $83,325 or 25.1% of
revenue in 2007. The increase in absolute dollars, as well as
the increase as a percentage of revenue, in 2008 over 2007 were
primarily attributable to an increase of approximately $13,100
in compensation and other personnel-related costs (including
sales commissions related to higher revenue) due to increased
staffing and sales commissions related to higher revenue.
General and Administrative. General and
administrative expense decreased to $58,085 in 2008 from $60,986
in 2007. As a percentage of revenue, general and administrative
expenses was 15.2% for 2008, compared to 18.4% for 2007.
Included in general and administrative expense was non-cash
stock-based compensation expense of $5,998 in 2008 and $9,272 in
2007. The decrease in non-cash stock-based compensation expense
for 2008, as compared to the prior year, resulted primarily from
the graded vesting methodology used in determining stock-based
compensation expense relating to the stock options and
restricted stock awards granted prior to the adoption of
SFAS 123R on January 1, 2006, which includes the
options and restricted stock granted at the time of the initial
public offering. General and administrative expense, excluding
non-cash stock-based compensation expense discussed above, was
$52,087 or 13.6% of revenue in 2008 compared to $51,714 or 15.6%
of revenue in 2007. The decrease as a percentage of revenue in
2008 compared to 2007 were primarily due to our ability to
achieve an increase in 2008 revenue without incurring a
proportional increase in general and administrative expense.
Depreciation and Amortization. Depreciation
and amortization expense increased to $28,291 in 2008 from
$27,233 in 2007. The increase over the prior year was due to an
increase of $4,397 in depreciation expense resulting from
capital expenditures made in 2008 and 2007, which was partially
offset by a decrease in amortization expense of $3,339 resulting
from certain intangible assets becoming fully amortized.
Interest Income. Interest income decreased to
$10,452 in 2008 from $12,378 in 2007. The decrease resulted from
a decrease in the average interest rate of our investments.
Impairment of Auction Rate
Securities. Impairment of auction rate securities
represents a charge of $27,406 related to an
other-than-temporary
impairment in the fair value of our auction rate securities
during the year ended December 31, 2008. For additional
information, see “— Introduction —
Significant Developments — Impairment of Auction Rate
Securities; Non-Recourse Credit Facility” above.
Restructuring. As a result of our completion
of the integration of our previously acquired businesses and
efficiencies that we continue to realize from our infrastructure
investments, we took this opportunity to best
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align the skill sets of our employees with the needs of the
business. We recorded a restructuring charge in 2008 of $2,910
primarily, for the severance expenses related to the reduction
of approximately 5% of the work force. This amount also includes
$450 of costs to consolidate facilities and other exit costs.
Income Tax Provision (Benefit). The income tax
provision (benefit) of $3,021 and ($17,255) for 2008 and 2007,
respectively, includes expense related to federal, state and
other jurisdictions. The income tax provision (benefit) in 2008
and 2007 includes a benefit of $21,506 and $24,669,
respectively, related to the reversal of a portion of the
valuation allowance we maintain on a significant portion of our
deferred income taxes. The income tax provision in 2008 excludes
a benefit for the impairment of ARS, as it is currently not
deductible for tax purposes.
(Loss) income from Discontinued Operations, Net of
Tax. (Loss) income from discontinued operations,
net of tax represents a (loss) gain of ($135) and $3,571, net of
tax during the years ended December 31, 2008 and 2007,
respectively, recognized in connection with the sale of the
ACS/ACP Business, as well as, the ACS/ACP Business net operating
loss of ($129) in 2007.
Costs and
Expenses
Cost of Operations. Cost of operations
increased to $117,281 in 2007 from $101,675 in 2006. As a
percentage of revenue, cost of operations was 35.3% in 2007,
compared to 40.9% in 2006. Included in cost of operations was
non-cash stock-based compensation expense of $5,063 in 2007 and
$8,744 in 2006. The decrease in non-cash stock-based
compensation expense during 2007 as compared to the prior year
resulted primarily from the graded vesting methodology used in
determining stock-based compensation expense relating to the
stock options and restricted stock granted prior to the adoption
of SFAS 123R on January 1, 2006, which includes the
options and restricted stock granted at the time of the initial
public offering. Cost of operations, excluding non-cash expense,
was $112,218 or 33.8% of revenue in 2007, compared to $92,931 or
37.4% of revenue in 2006. The decrease as a percentage of
revenue was primarily due to our ability to achieve the increase
in revenue without incurring a proportional increase in cost of
operations expenses. The increase in absolute dollars was
primarily attributable to increases in compensation-related
costs due to higher staffing levels and outside personnel
expenses of approximately $7,200 relating to our Web site
operations and development. In addition, the inclusion, for all
of 2007, of expenses relating to Summex, Medsite and Subimo,
which were acquired in 2006 contributed approximately $9,700 to
the increase in absolute dollars.
Sales and Marketing. Sales and marketing
expense increased to $93,645 in 2007 from $76,189 in 2006. As a
percentage of revenue, sales and marketing was 28.2% for 2007,
compared to 30.6% for 2006. Included in sales and marketing
expense in 2007 were non-cash expenses related to advertising of
$5,264, a decrease from $7,415 in 2006. The decrease in non-cash
advertising expenses was due to lower utilization of our prepaid
advertising inventory. Also included in sales and marketing
expense was non-cash stock-based compensation expense of $5,056
for 2007, as compared to $5,870 for 2006. The decrease in
non-cash stock-based compensation expense for 2007, as compared
to the prior year, resulted primarily from the graded vesting
methodology used in determining stock-based compensation expense
relating to the stock options and restricted stock granted prior
to the adoption of SFAS 123R on January 1, 2006, which
includes the options and restricted stock granted at the time of
the initial public offering. Sales and marketing expense,
excluding non-cash expenses, was $83,325 or 25.1% of revenue in
2007, compared to $62,904 or 25.3% of revenue in 2006. The
increase in absolute dollars in 2007 compared to 2006 was
primarily attributable to an increase of
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approximately $9,500 in compensation-related costs due to
increased staffing and sales commissions related to higher
revenue. In addition, the inclusion, for all of 2007, of
expenses related to Summex, Medsite and Subimo, which were
acquired during 2006 contributed approximately $8,200 to the
increase in absolute dollars.
General and Administrative. General and
administrative expense increased to $60,986 in 2007 from $52,338
in 2006. As a percentage of revenue, general and administrative
expenses was 18.4% for 2007, compared to 21.0% for 2006.
Included in general and administrative expense was non-cash
stock-based compensation expense of $9,272 in 2007 and $12,083
in 2006. The decrease in non-cash stock-based compensation
expense for 2007, as compared to the prior year, resulted
primarily from the graded vesting methodology used in
determining stock-based compensation expense relating to the
stock options and restricted stock granted prior to the adoption
of SFAS 123R on January 1, 2006, which includes the
options and restricted stock granted at the time of the initial
public offering. General and administrative expense, excluding
non-cash stock-based compensation expense discussed above, was
$51,714 or 15.6% of revenue in 2007, compared to $40,255 or
16.2% of revenue in 2006. The decrease as a percentage of
revenue in 2007, as compared to 2006, was primarily due to our
ability to achieve the increase in revenue without incurring a
proportional increase in general and administrative expense. The
increase in absolute dollars in 2007 compared to 2006 was
primarily attributable to an increase of approximately $3,300 in
compensation-related costs due to increased staffing levels and
outside personnel expenses. In addition, the inclusion, for all
of 2007, of expenses related to Summex, Medsite and Subimo,
which were acquired during 2006 contributed approximately $8,400
to the increase in absolute dollars.
Depreciation and Amortization. Depreciation
and amortization expense increased to $27,233 in 2007 from
$17,639 in 2006. The increase over the prior year was primarily
due to depreciation expense relating to capital expenditures in
2007 and 2006, as well as the full year impact of the
amortization of intangible assets relating to the Subimo,
Medsite, Summex and eMedicine acquisitions.
Interest Income. Interest income of $12,378 in
2007 and $5,099 in 2006 relates to increased levels of cash and
investments available for investment.
Income Tax (Benefit) Provision. The income tax
(benefit) provision of ($17,255) and $3,883 for 2007 and 2006,
respectively, includes expense related to federal, state and
other jurisdictions. Additionally, the income tax benefit in
2007 includes a benefit of $24,669 related to the reversal of a
portion of the valuation allowance we maintain on a significant
portion of our deferred income taxes.
(Loss) income from Discontinued Operations, Net of
Tax. (Loss) income from discontinued operations,
net of tax represents the ACS/ACP Business net operating (loss)
income of ($129) and $385 in 2007 and 2006, respectively, as
well as a gain of $3,571, net of tax, recognized in 2007 in
connection with the completed sale of the ACS/ACP Business.
Costs and Expenses Cost of Operations. Cost of operations increased to $138,363 in 2008 from $117,281 in 2007. As a percentage of revenue, cost of operations was 36.1% in 2008, compared to 35.3% in 2007. Included in cost of
Table of Contentsoperations was non-cash stock-based compensation expense of $3,843 in 2008 and $5,063 in 2007. The decrease in non-cash stock-based compensation expense during 2008, as compared to the prior year resulted primarily from the graded vesting methodology used in determining stock-based compensation expense relating to the stock options and restricted stock awards granted prior to the adoption of SFAS 123R on January 1, 2006, which includes the options and restricted stock granted at the time of the initial public offering. Cost of operations, excluding non-cash expense, was $134,520 or 35.1% of revenue in 2008, compared to $112,218 or 33.8% of revenue in 2007. The increase in absolute dollars in 2008 over 2007 was primarily attributable to an increase of approximately $13,400 in compensation-related costs due to higher staffing levels relating to our Web site operations and development, as well as higher staffing levels associated with our personalized telephonic coaching services. Additionally, the increase is also related to $6,100 of higher costs associated with creating and licensing content for our sponsorship arrangements and our Web sites. The increase as a percentage of revenue was due to the higher staffing levels, as well as the impact of the lower publishing and other services revenue, specifically lower advertising in The Little Blue Book, which did not have a commensurate reduction in the cost to produce and distribute this publication. Sales and Marketing. Sales and marketing expense increased to $108,316 in 2008 from $93,645 in 2007. As a percentage of revenue, sales and marketing was 28.3% for 2008, compared to 28.2% for 2007. Included in sales and marketing expense in 2008 were non-cash expenses related to advertising of $5,097, a decrease from $5,264 in 2007. Also included in sales and marketing expense was non-cash stock-based compensation expense of $3,631 for 2008, compared to $5,056 for 2007. The decrease in non-cash stock-based compensation expense for 2008, as compared to the prior year resulted primarily from the graded vesting methodology used in determining stock-based compensation expense relating to the stock options and restricted stock awards granted prior to the adoption of SFAS 123R on January 1, 2006, which includes the options and restricted stock granted at the time of the initial public offering. Sales and marketing expense, excluding non-cash expenses, was $99,588 or 26.0% of revenue in 2008, compared to $83,325 or 25.1% of revenue in 2007. The increase in absolute dollars, as well as the increase as a percentage of revenue, in 2008 over 2007 were primarily attributable to an increase of approximately $13,100 in compensation and other personnel-related costs (including sales commissions related to higher revenue) due to increased staffing and sales commissions related to higher revenue. General and Administrative. General and administrative expense decreased to $58,085 in 2008 from $60,986 in 2007. As a percentage of revenue, general and administrative expenses was 15.2% for 2008, compared to 18.4% for 2007. Included in general and administrative expense was non-cash stock-based compensation expense of $5,998 in 2008 and $9,272 in 2007. The decrease in non-cash stock-based compensation expense for 2008, as compared to the prior year, resulted primarily from the graded vesting methodology used in determining stock-based compensation expense relating to the stock options and restricted stock awards granted prior to the adoption of SFAS 123R on January 1, 2006, which includes the options and restricted stock granted at the time of the initial public offering. General and administrative expense, excluding non-cash stock-based compensation expense discussed above, was $52,087 or 13.6% of revenue in 2008 compared to $51,714 or 15.6% of revenue in 2007. The decrease as a percentage of revenue in 2008 compared to 2007 were primarily due to our ability to achieve an increase in 2008 revenue without incurring a proportional increase in general and administrative expense. Depreciation and Amortization. Depreciation and amortization expense increased to $28,291 in 2008 from $27,233 in 2007. The increase over the prior year was due to an increase of $4,397 in depreciation expense resulting from capital expenditures made in 2008 and 2007, which was partially offset by a decrease in amortization expense of $3,339 resulting from certain intangible assets becoming fully amortized. Interest Income. Interest income decreased to $10,452 in 2008 from $12,378 in 2007. The decrease resulted from a decrease in the average interest rate of our investments. Impairment of Auction Rate Securities. Impairment of auction rate securities represents a charge of $27,406 related to an other-than-temporary impairment in the fair value of our auction rate securities during the year ended December 31, 2008. For additional information, see “— Introduction — Significant Developments — Impairment of Auction Rate Securities; Non-Recourse Credit Facility” above. Restructuring. As a result of our completion of the integration of our previously acquired businesses and efficiencies that we continue to realize from our infrastructure investments, we took this opportunity to best
Table of Contentsalign the skill sets of our employees with the needs of the business. We recorded a restructuring charge in 2008 of $2,910 primarily, for the severance expenses related to the reduction of approximately 5% of the work force. This amount also includes $450 of costs to consolidate facilities and other exit costs. Income Tax Provision (Benefit). The income tax provision (benefit) of $3,021 and ($17,255) for 2008 and 2007, respectively, includes expense related to federal, state and other jurisdictions. The income tax provision (benefit) in 2008 and 2007 includes a benefit of $21,506 and $24,669, respectively, related to the reversal of a portion of the valuation allowance we maintain on a significant portion of our deferred income taxes. The income tax provision in 2008 excludes a benefit for the impairment of ARS, as it is currently not deductible for tax purposes. (Loss) income from Discontinued Operations, Net of Tax. (Loss) income from discontinued operations, net of tax represents a (loss) gain of ($135) and $3,571, net of tax during the years ended December 31, 2008 and 2007, respectively, recognized in connection with the sale of the ACS/ACP Business, as well as, the ACS/ACP Business net operating loss of ($129) in 2007. Costs and Expenses Cost of Operations. Cost of operations increased to $117,281 in 2007 from $101,675 in 2006. As a percentage of revenue, cost of operations was 35.3% in 2007, compared to 40.9% in 2006. Included in cost of operations was non-cash stock-based compensation expense of $5,063 in 2007 and $8,744 in 2006. The decrease in non-cash stock-based compensation expense during 2007 as compared to the prior year resulted primarily from the graded vesting methodology used in determining stock-based compensation expense relating to the stock options and restricted stock granted prior to the adoption of SFAS 123R on January 1, 2006, which includes the options and restricted stock granted at the time of the initial public offering. Cost of operations, excluding non-cash expense, was $112,218 or 33.8% of revenue in 2007, compared to $92,931 or 37.4% of revenue in 2006. The decrease as a percentage of revenue was primarily due to our ability to achieve the increase in revenue without incurring a proportional increase in cost of operations expenses. The increase in absolute dollars was primarily attributable to increases in compensation-related costs due to higher staffing levels and outside personnel expenses of approximately $7,200 relating to our Web site operations and development. In addition, the inclusion, for all of 2007, of expenses relating to Summex, Medsite and Subimo, which were acquired in 2006 contributed approximately $9,700 to the increase in absolute dollars. Sales and Marketing. Sales and marketing expense increased to $93,645 in 2007 from $76,189 in 2006. As a percentage of revenue, sales and marketing was 28.2% for 2007, compared to 30.6% for 2006. Included in sales and marketing expense in 2007 were non-cash expenses related to advertising of $5,264, a decrease from $7,415 in 2006. The decrease in non-cash advertising expenses was due to lower utilization of our prepaid advertising inventory. Also included in sales and marketing expense was non-cash stock-based compensation expense of $5,056 for 2007, as compared to $5,870 for 2006. The decrease in non-cash stock-based compensation expense for 2007, as compared to the prior year, resulted primarily from the graded vesting methodology used in determining stock-based compensation expense relating to the stock options and restricted stock granted prior to the adoption of SFAS 123R on January 1, 2006, which includes the options and restricted stock granted at the time of the initial public offering. Sales and marketing expense, excluding non-cash expenses, was $83,325 or 25.1% of revenue in 2007, compared to $62,904 or 25.3% of revenue in 2006. The increase in absolute dollars in 2007 compared to 2006 was primarily attributable to an increase of
Table of Contentsapproximately $9,500 in compensation-related costs due to increased staffing and sales commissions related to higher revenue. In addition, the inclusion, for all of 2007, of expenses related to Summex, Medsite and Subimo, which were acquired during 2006 contributed approximately $8,200 to the increase in absolute dollars. General and Administrative. General and administrative expense increased to $60,986 in 2007 from $52,338 in 2006. As a percentage of revenue, general and administrative expenses was 18.4% for 2007, compared to 21.0% for 2006. Included in general and administrative expense was non-cash stock-based compensation expense of $9,272 in 2007 and $12,083 in 2006. The decrease in non-cash stock-based compensation expense for 2007, as compared to the prior year, resulted primarily from the graded vesting methodology used in determining stock-based compensation expense relating to the stock options and restricted stock granted prior to the adoption of SFAS 123R on January 1, 2006, which includes the options and restricted stock granted at the time of the initial public offering. General and administrative expense, excluding non-cash stock-based compensation expense discussed above, was $51,714 or 15.6% of revenue in 2007, compared to $40,255 or 16.2% of revenue in 2006. The decrease as a percentage of revenue in 2007, as compared to 2006, was primarily due to our ability to achieve the increase in revenue without incurring a proportional increase in general and administrative expense. The increase in absolute dollars in 2007 compared to 2006 was primarily attributable to an increase of approximately $3,300 in compensation-related costs due to increased staffing levels and outside personnel expenses. In addition, the inclusion, for all of 2007, of expenses related to Summex, Medsite and Subimo, which were acquired during 2006 contributed approximately $8,400 to the increase in absolute dollars. Depreciation and Amortization. Depreciation and amortization expense increased to $27,233 in 2007 from $17,639 in 2006. The increase over the prior year was primarily due to depreciation expense relating to capital expenditures in 2007 and 2006, as well as the full year impact of the amortization of intangible assets relating to the Subimo, Medsite, Summex and eMedicine acquisitions. Interest Income. Interest income of $12,378 in 2007 and $5,099 in 2006 relates to increased levels of cash and investments available for investment. Income Tax (Benefit) Provision. The income tax (benefit) provision of ($17,255) and $3,883 for 2007 and 2006, respectively, includes expense related to federal, state and other jurisdictions. Additionally, the income tax benefit in 2007 includes a benefit of $24,669 related to the reversal of a portion of the valuation allowance we maintain on a significant portion of our deferred income taxes. (Loss) income from Discontinued Operations, Net of Tax. (Loss) income from discontinued operations, net of tax represents the ACS/ACP Business net operating (loss) income of ($129) and $385 in 2007 and 2006, respectively, as well as a gain of $3,571, net of tax, recognized in 2007 in connection with the completed sale of the ACS/ACP Business. This excerpt taken from the WBMD 10-Q filed Nov 10, 2008. Costs and
Expenses
Cost of Operations. Cost of operations
increased to $35,322 and $99,655 in the three and nine months
ended September 30, 2008, respectively, from $30,021 and
$87,636 during the same periods last year. As a percentage of
revenue, cost of operations were 35.2% and 36.7% in the three
and nine months ended
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September 30, 2008, respectively, compared to 34.9% and
37.2% in the same periods last year. Included in cost of
operations in 2008 were non-cash expenses related to stock-based
compensation of $1,005 and $2,950 during the three and nine
months ended September 30, 2008, respectively, compared to
$1,597 and $4,159 during the same periods last year. The
decreases in non-cash expenses during the three and nine month
periods compared to the same periods last year were primarily
related to graded vesting methodology used in determining
stock-based compensation expense relating to the Company’s
stock options and restricted stock awards granted at the time of
the initial public offering. Cost of operations excluding
non-cash expense was $34,317 and $96,705 in the three and nine
months ended September 30, 2008, respectively, or 34.2% and
35.7% of revenue, compared to $28,424 and $83,477, or 33.0% and
35.5% of revenue during the same periods last year. The
increases in absolute dollars, as well as the increases as a
percentage of revenue were primarily attributable to increases
in compensation-related costs due to higher staffing levels
relating to our Web site operations and development.
Sales and Marketing. Sales and marketing
expense increased to $26,441 and $77,731 in the three and nine
months ended September 30, 2008, respectively, from $22,459
and $67,258 in the same periods last year. As a percentage of
revenue, sales and marketing expense was 26.3% and 28.7% for the
three and nine months ended September 30, 2008,
respectively, compared to 26.1% and 28.6% during the same
periods last year. Included in sales and marketing expense were
non-cash expenses related to advertising of $178 and $1,736 in
the three and nine months ended September 30, 2008,
compared to $169 and $2,489 in the three and nine months ended
September 30, 2007. Non-cash advertising expense decreased
during the nine months ended September 30, 2008 compared to
2007 due to lower utilization of our prepaid advertising
inventory. Also included in sales and marketing expense were
non-cash expenses related to stock-based compensation of $1,222
and $3,624 in the three and nine months ended September 30,
2008, respectively, compared to $1,252 and $3,889 in the same
periods last year. The decreases in non-cash stock-based
compensation expense were primarily related to graded vesting
methodology used in determining stock-based compensation expense
relating to the Company’s stock options and restricted
stock awards granted at the time of the initial public offering.
Sales and marketing expense, excluding non-cash expenses, was
$25,041 and $72,371 or 24.9% and 26.7% of revenue in the three
and nine months ended September 30, 2008, respectively,
compared to $21,038 and $60,880 or 24.4% and 25.9% of revenue in
the same periods last year. The increases in absolute dollars,
as well as the increases as a percentage of revenue, were
primarily attributable to increases of approximately $2,800 and
$8,200 in the three and nine months ended September 30,
2008, respectively, in compensation-related costs due to
increased staffing and sales commissions related to higher
revenue.
General and Administrative. General and
administrative expense decreased to $15,209 and $43,598 in the
three and nine months ended September 30, 2008,
respectively, from $15,388 and $46,874 in the same periods last
year. As a percentage of revenue, general and administrative
expense was 15.2% and 16.1% for the three and nine months ended
September 30, 2008, respectively, compared to 17.9% and
19.9% during the same periods last year. Included in general and
administrative expense during the three and nine months ended
September 30, 2008 was non-cash stock-based compensation
expense of $1,348 and $4,201, respectively, compared to $2,838
and $7,544 in the same periods last year. The decreases in
non-cash stock-based compensation expense were primarily due to
graded vesting methodology used in determining stock-based
compensation expense relating to the Company’s stock
options and restricted stock awards granted at the time of the
initial public offering. General and administrative expense,
excluding non-cash expenses, was $13,861 and $39,397 or 13.8%
and 14.5% of revenue in the three and nine months ended
September 30, 2008, respectively, compared to $12,550 and
$39,330 or 14.6% and 16.7% of revenue in the same periods last
year. The increase in absolute dollars for the three months
ended September 30, 2008 was primarily attributable to an
increase of $1,000 in compensation-related costs due to
increased staffing.
Impairment of Auction Rate
Securities. Impairment of auction rate securities
represents a charge of $27,406 related to an other-than
temporary reduction of the fair value of the Company’s
auction rate securities during the nine months ended
September 30, 2008. For additional information, see
“— Introduction — Other Significant
Developments and Trends — Impairment of Auction Rate
Securities; Non-Recourse Credit Facility” above.
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Depreciation and Amortization. Depreciation
and amortization expense increased to $7,133 and $21,106 in the
three and nine months ended September 30, 2008,
respectively, from $7,085 and $20,017 in the same periods last
year. The increases over the prior year periods were due to
increases of approximately $1,000 and $3,500 during the three
and nine months ended September 30, 2008, respectively, in
depreciation expense resulting from capital expenditures made in
2007 and 2008, which was partially offset by a decrease in
amortization expense of approximately $1,000 and $2,400 during
the three and nine months ended September 30, 2008,
respectively, resulting from certain intangible assets becoming
fully amortized.
Interest Income. Interest income decreased to
$2,616 and $8,419 in the three and nine months ended
September 30, 2008, respectively, from $3,486 and $8,522 in
the same periods last year. The decreases in the three and nine
month periods resulted from a decrease in the average interest
rate of the Company’s investments.
Income Tax Provision. The income tax provision
of $8,132 and $16,385 for the three and nine months ended
September 30, 2008, respectively, and income tax provision
of $3,129 and $4,671 for the three and nine months ended
September 30, 2007, respectively, represent tax expense
related to federal, state and other jurisdictions. As a result
of the reversal of a portion of our valuation allowance during
the three months ended December 31, 2007, the income tax
provision for the nine months ended September 30, 2008
reflects a normal tax rate provision based on the statutory
rates, and accordingly, includes a non-cash provision. The
increase in the effective tax rate from the nine months ended
September 30, 2007 is a result of this non-cash provision.
The income tax provision for the nine months ended
September 30, 2008 excludes a benefit for the impairment of
ARS, as it is currently not deductible for tax purposes.
(Loss) Income from Discontinued Operations, Net of
Tax. (Loss) income from discontinued operations,
net of tax, represents the ACS/ACP Business net operating (loss)
income of ($10) and $210 for the three and nine months ended
September 30, 2007, respectively, in connection with the
completed sale of the ACS/ACP Business.
This excerpt taken from the WBMD DEF 14A filed Nov 5, 2008. Costs and
Expenses
Cost of Operations. Cost of operations
increased to $101,675 in 2006 from $65,676 in 2005. As a
percentage of revenue, cost of operations was 40.9% in 2006,
compared to 40.1% in 2005. Included in cost of operations were
non-cash expenses of $8,744 in 2006 and $730 in 2005. The
increase in non-cash expenses during 2006 compared to 2005 was
primarily related to stock-based compensation expense as a
result of the adoption of SFAS 123R. Cost of operations,
excluding non-cash expense, was $92,931 or 37.4% of revenue in
2006, compared to $64,946 or 39.6% of revenue in 2005. The
decrease as a percentage of revenue was primarily due to our
ability to achieve the increase in revenue without incurring a
proportional increase in cost of operations expenses. The
increase in absolute dollars was primarily attributable to
increases in compensation related costs due to higher staffing
levels and outside personnel expenses relating to our Web site
operations and development. Higher costs associated with
creating and licensing our content, increased production costs
related to the timing of WebMD the Magazine which shipped
larger issues in 2006 compared with 2005 and expenses relating
to our acquisitions also contributed to the increase.
Additionally, the year ended December 31, 2005 included
approximately $700 of severance costs.
Sales and Marketing. Sales and marketing
expense increased to $76,189 in 2006 from $51,756 in 2005. As a
percentage of revenue, sales and marketing was 30.6% for the
year ended December 31, 2006, compared to 31.6% in the same
period in 2005. Included in sales and marketing expense in 2006
were non-cash expenses related to advertising of $7,415, a
decrease from $8,656 in 2005. The decrease in non-cash
advertising expenses was due to lower utilization of our prepaid
advertising inventory. We allocated $1,877 of advertising
expense in 2005 to HLTH related to its utilization of this
asset. As discussed elsewhere in this MD&A document, our
non-cash advertising expense is reflected net of what is charged
to HLTH for its utilization of the prepaid advertising. On
August 5, 2005, HLTH and other businesses of HLTH began to
use “Emdeon” as their primary brand, instead of
“WebMD.” In May 2007, as a result of the EBS Sale,
HLTH began to use “HLTH” as their primary brand,
instead of “Emdeon.” Accordingly, we no longer
allocate any advertising expense to HLTH, or other businesses of
HLTH, related to any advertising that promotes the WebMD brand.
Also included in sales and marketing expense were non-cash
expenses related to stock-based compensation expense of $5,870
for the year ended December 31, 2006 compared to $368 in
the same period in 2005. The increase in non-cash expenses
during 2006 compared to 2005 was primarily related to
stock-based compensation expense as a result of the adoption of
SFAS 123R. Sales and marketing expense, excluding non-cash
expenses, was $62,904 or 25.3% of revenue in 2006, compared to
$42,732 or 26.1% of revenue in 2005. The decrease as a
percentage of revenue in 2006 was primarily due to our ability
to achieve the increase in revenue without incurring a
proportional increase in sales and marketing expense. The
increase in absolute dollars in 2006 compared to 2005 was
primarily attributable to increases in compensation related
costs due to increased staffing and sales commissions related to
higher revenue and to expenses related to our acquisitions.
Additionally, the year ended December 31, 2005 included
approximately $250 of severance costs.
General and Administrative. General and
administrative expense increased to $52,338 in 2006 from $29,550
in 2005. As a percentage of revenue, general and administrative
expenses was 21.0% for the year ended December 31, 2006,
compared to 18.0% in the same period in 2005. Included in
general and administrative expense were non-cash expenses
related to stock-based compensation expense of $12,083 in 2006
and $1,553 in 2005. The increase in stock-based compensation
expense primarily related to the adoption
WebMD 2007 Annual
Report — MD&A Annex
ANNEX B-3 –
PAGE 16
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of SFAS 123R. General and administrative expense, excluding
non-cash stock-based compensation expense discussed above, was
$40,255 or 16.2% of revenue in 2006 compared to $27,997 or 17.1%
of revenue in 2005. The decrease as a percentage of revenue in
2006 compared to 2005 was primarily due to our ability to
achieve the increase in revenue without incurring a proportional
increase in general and administrative expense. The increase in
absolute dollars in 2006 compared to 2005 was primarily
attributable to higher staffing levels and increased expenses
related to our acquisitions and public company related costs.
Additionally, the year ended December 31, 2005 included a
charge of approximately $2,200 related to the resignation of our
former CEO and recruitment of our Executive Vice President of
Product and Programming and Chief Technology Officer.
Depreciation and Amortization. Depreciation
and amortization expense increased to $17,639 in 2006 from
$10,648 in 2005. The increase over the prior year was primarily
due to amortization of intangible assets relating to the Subimo,
Summex, eMedicine, Conceptis and Medsite acquisitions, as well
as the increase in depreciation expense relating to capital
expenditures in 2006 and 2005.
Interest Income. Interest income of $5,099 in
2006 and $1,790 in 2005 relates to our investment of excess cash
including a portion of the proceeds from our IPO.
Income Tax Provision. The income tax provision
of $3,883 and $1,666 for 2006 and 2005, respectively, includes
expense related to federal, state and other jurisdictions
including a deferred tax expense related to a portion of our
goodwill that is deductible for tax purposes.
Income from Discontinued Operations, Net of
Tax. Income from discontinued operations, net of
tax represents the ACS/ACP Business net operating income of $385
and $161 in 2006 and 2005, respectively.
This excerpt taken from the WBMD 10-Q filed Aug 11, 2008. Costs and
Expenses
Cost of Operations. Cost of operations
increased to $32,763 and $64,333 in the three and six months
ended June 30, 2008, respectively, from $28,997 and $57,615
during the same periods last year. As a percentage of revenue,
cost of operations were 36.7% and 37.7% in the three and six
months ended June 30, 2008, respectively, compared to 37.5%
and 38.6% in the same periods last year. Included in cost of
operations in 2008 were non-cash expenses related to stock-based
compensation of $826 and $1,945 during the three and six months
ended June 30, 2008, respectively, compared to $984 and
$2,562 during the same periods last year. The decreases in
non-cash expenses during the three and six month periods
compared to the same periods last year were primarily related to
graded vesting methodology used in determining stock-based
compensation expense relating to the Company’s stock
options and restricted stock awards granted at the time of the
initial public offering. Cost of operations excluding non-cash
expense was $31,937 and $62,388 in the three and six months
ended June 30, 2008, respectively, or 35.8% and 36.5% of
revenue, compared to $28,013 and $55,053, or 36.3% and 36.9% of
revenue during the same periods last year. The increases in
absolute dollars were primarily attributable to increases in
compensation-related costs due to higher staffing levels
relating to our Web site operations and development. The
decrease as a percentage of revenue was primarily due to our
ability to achieve the increase in revenue without incurring a
proportional increase in cost of operations expense.
Sales and Marketing. Sales and marketing
expense increased to $25,460 and $51,290 in the three and six
months ended June 30, 2008, respectively, from $21,929 and
$44,799 in the same periods last year. As a percentage of
revenue, sales and marketing expense was 28.6% and 30.0% for the
three and six months ended June 30, 2008, respectively,
compared to 28.4% and 30.0% during the same periods last year.
Included in sales and marketing expense were non-cash expenses
related to advertising of $1,558 in the six months ended
June 30, 2008, compared to $2,320 in the six months ended
June 30, 2007. There were no non-cash expenses related to
advertising in the three months ended June 30, 2008 and
2007. Non-cash advertising expense decreased during the six
months ended June 30, 2008 compared to 2007 due to lower
utilization of our prepaid advertising inventory. Also included
in sales and marketing expense were non-cash expenses related to
stock-based compensation of $1,264 and $2,402 in the three and
six months ended June 30, 2008, respectively, compared to
$1,379 and $2,637 in the same periods last year. The decreases
in non-cash stock-based compensation expense were primarily
related to graded vesting methodology used in determining
stock-based compensation expense relating to the Company’s
stock options and restricted stock awards granted at the time of
the initial public offering. Sales and marketing expense,
excluding non-cash expenses, was $24,196 and $47,330 or 27.1%
and 27.7% of revenue in the three and six months ended
June 30, 2008, respectively, compared to $20,550 and
$39,842 or 26.6% and 26.7% of revenue in the same periods last
year. The increases in absolute dollars, as well as the
increases as a percentage of revenue, were primarily
attributable to increases of approximately $2,600 and $5,400 in
the three and six months ended June 30, 2008, respectively,
in compensation-related costs due to increased staffing and
sales commissions related to higher revenue. The increases were
also attributable to approximately $600 and $1,600 of increased
expenses related to marketing and advertising programs in the
three and six months ended June 30, 2008, respectively.
General and Administrative. General and
administrative expense decreased to $14,614 and $28,389 in the
three and six months ended June 30, 2008, respectively,
from $15,981 and $31,486 in the same periods last year. As a
percentage of revenue, general and administrative expense was
16.4% and 16.6% for the three and six months ended June 30,
2008, respectively, compared to 20.7% and 21.1% during the same
periods last year. Included in general and administrative
expense during the three and six months ended June 30, 2008
was non-cash stock-based compensation expense of $1,398 and
$2,853, respectively, compared to $2,179 and $4,706 in the same
periods last year. The decreases in non-cash stock-based
compensation expense were primarily due to graded vesting
methodology used in determining stock-based compensation expense
relating to the Company’s stock options and restricted
stock awards granted at the time of the initial public offering.
General and administrative expense, excluding non-cash expenses,
was $13,216 and $25,536 or 14.8% and 14.9% of revenue in the
three and six months ended June 30, 2008, respectively,
compared to $13,802 and
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$26,780 or 17.9% and 17.9% of revenue in the same periods last
year. The decreases in absolute dollars were primarily
attributable to a decrease in costs related to outside services
and contractors.
Impairment of Auction Rate
Securities. Impairment of auction rate securities
represents a charge of $27,406 related to an other-than
temporary reduction of the fair value of the Company’s
auction rate securities during the six months ended
June 30, 2008. For additional information, see
“— Other Significant Developments and
Trends — Impairment of Auction Rate Securities”
above.
Depreciation and Amortization. Depreciation
and amortization expense increased to $7,188 and $13,973 in the
three and six months ended June 30, 2008, respectively,
from $6,941 and $12,932 in the same periods last year. The
increases over the prior year periods was due to increases of
approximately $1,100 and $2,600, during the three and six months
ended June 30, 2008, respectively, in depreciation expense
resulting from capital expenditures made in 2007 and 2008, which
was partially offset by a decrease in amortization expense of
approximately $900 and $1,500 during the three and six months
ended June 30, 2008, respectively, resulting from certain
intangible assets becoming fully amortized.
Interest Income. Interest income decreased to
$2,350 in the three months ended June 30, 2008 from $3,051
in the same period last year. Interest income increased to
$5,803 in the six months ended June 30, 2008 from $5,036 in
the same period last year. The decrease in the three month
period resulted from a decrease in the average interest rate of
the Company’s investments. The increase in the six month
period resulted from the increased cash available for
investment, partially offset by a decrease in the average
interest rate of the Company’s investments.
Income Tax Provision. The income tax provision
of $5,149 and $8,253 for the three and six months ended
June 30, 2008, respectively, and income tax provision of
$1,332 and $1,542 for the three and six months ended
June 30, 2007, respectively, represent tax expense related
to federal, state and other jurisdictions. As a result of the
reversal of a portion of our valuation allowance during the
three months ended December 31, 2007, the income tax
provision for the six months ended June 30, 2008 reflects a
normal tax rate provision based on the statutory rates, and
accordingly, includes a non-cash provision. The increase in the
effective tax rate from the six months ended June 30, 2007
is a result of this non-cash provision. The income tax provision
for the six months ended June 30, 2008 excludes a benefit
for the impairment of ARS, as it is currently not deductible for
tax purposes.
Income from Discontinued Operations, Net of
Tax. Income from discontinued operations, net of
tax, represents the ACS/ACP Business net operating income of
$249 and $220 for the three and six months ended June 30,
2007, respectively, in connection with the completed sale of the
ACS/ACP Business.
This excerpt taken from the WBMD 10-Q filed May 12, 2008. Costs and
Expenses
Cost of Operations. Cost of operations
increased to $31,570 from $28,618 last year. As a percentage of
revenue, cost of operations was 38.6% in 2008, compared to 39.8%
in 2007. Included in cost of operations in 2008 was non-cash
expense related to stock-based compensation of $1,119 compared
to $1,578 in 2007. The decrease in non-cash expenses during the
three month period compared to last year were primarily related
to graded vesting methodology used in determining stock-based
compensation expense relating to the Company’s stock
options and restricted stock awards granted at the time of the
initial public offering. Cost of operations
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excluding non-cash expense was $30,451 or 37.3% of revenue,
compared to $27,040 or 37.6% of revenue last year. The increase
in absolute dollars was primarily attributable to increases in
compensation related costs due to higher staffing levels
relating to our Web site operations and development. The
decrease as a percentage of revenue was primarily due to our
ability to achieve the increase in revenue without incurring a
proportional increase in cost of operations expense.
Sales and Marketing. Sales and marketing
expense increased to $25,830 from $22,870 last year. As a
percentage of revenue, sales and marketing expense was 31.6% in
2008, compared to 31.8% in 2007. Included in sales and marketing
expense in 2008 and 2007 was non-cash expense related to
advertising of $1,558 and $2.320, respectively, and stock-based
compensation of $1,138 and $1,258, respectively. Non-cash
advertising expense decreased during the three month period
ended March 31, 2008 compared to 2007 due to lower
utilization of our prepaid advertising inventory. The decrease
in non-cash stock-based compensation expense was primarily
related to graded vesting methodology used in determining
stock-based compensation expense relating to the Company’s
stock options and restricted stock awards granted at the time of
the initial public offering. Sales and marketing expense,
excluding non-cash expenses, was $23,134 or 28.3% of revenue,
compared to $19,292 or 26.8% of revenue last year. The increase
in absolute dollars, as well the increase as a percentage of
revenue, was primarily attributable to a $2,362 increase in
compensation related costs due to increased staffing and to
$1,043 increased expenses related to marketing and advertising
programs due to higher program volume of approximately
600 programs compared to 500 programs last year.
General and Administrative. General and
administrative expense decreased to $13,775, from $15,505 last
year. As a percentage of revenue, general and administrative
expense was 16.9% in 2008, compared to 21.6% in 2007. Included
in general and administrative expense in 2008 and 2007 was
non-cash stock-based compensation expense of $1,455 and $2,527,
respectively. The decrease in non-cash stock-based compensation
expense was primarily due to graded vesting methodology used in
determining stock-based compensation expense relating to the
Company’s stock options and restricted stock awards granted
at the time of the initial public offering. General and
administrative expense, excluding non-cash expenses, was $12,320
or 15.1% of revenue, compared to $12,978 or 18.0% of revenue
last year. The decrease in absolute dollars was primarily
attributable to a decrease in costs related to outside services
and contractors.
Impairment of Auction Rate
Securities. Impairment of auction rate securities
represents a charge of $27,406 related to an other-than
temporary reduction of the fair value of the Company’s
auction rate securities during the quarter ended March 31,
2008. For additional information, see “— Other
Significant Developments and Trends — Impairment of
Auction Rate Securities” above.
Depreciation and Amortization. Depreciation
and amortization expense increased to $6,785 for the three
months ended March 31, 2008 from $5,991 in the same period
last year. The increase over the prior year period was primarily
due to the $1,460 increase in depreciation expense relating to
capital expenditures in 2007 and 2008, partially offset by a
decrease in amortization expense of $666 related to certain
intangible assets becoming fully amortized.
Interest Income. Interest income increased to
$3,453 for the three months ended March 31, 2008 from
$1,985 in the same period last year. The increase over the prior
year period primarily relates to the increased cash available
for investment.
Income Tax Provision. The income tax provision
of $3,104 and $210 for the three months ended March 31,
2008 and 2007, respectively, represents tax expense related to
federal, state and other jurisdictions. As a result of the
reversal of a portion of our valuation allowance during the
three months ended December 31, 2007, the income tax
provision for the three months ended March 31, 2008
reflects a normal tax rate provision based on the statutory
rates, and accordingly, includes a non-cash provision. The
increase in the effective tax rate from the three months ended
March 31, 2007 is a result of this non-cash provision. The
income tax provision for the three months ended March 31,
2008 excludes a benefit for the impairment of ARS, as it is
currently not deductible for tax purposes.
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Loss from Discontinued Operations, Net of
Tax. Loss from discontinued operations, net of
tax, represents the ACS/ACP Business net operating loss of $29
in 2007 in connection with the completed sale of the ACS/ACP
Business.
These excerpts taken from the WBMD 10-K filed Feb 29, 2008. Costs and
Expenses
Cost of Operations. Cost of operations
increased to $101,675 in 2006 from $65,676 in 2005. As a
percentage of revenue, cost of operations was 40.9% in 2006,
compared to 40.1% in 2005. Included in cost of operations were
non-cash expenses of $8,744 in 2006 and $730 in 2005. The
increase in non-cash expenses during 2006 compared to 2005 was
primarily related to stock-based compensation expense as a
result of the adoption of SFAS 123R. Cost of operations,
excluding non-cash expense, was $92,931 or 37.4% of revenue in
2006, compared to $64,946 or 39.6% of revenue in 2005. The
decrease as a percentage of revenue was primarily due to our
ability to achieve the increase in revenue without incurring a
proportional increase in cost of operations expenses. The
increase in absolute dollars was primarily attributable to
increases in compensation related costs due to higher staffing
levels and outside personnel expenses relating to our Web site
operations and development. Higher costs associated with
creating and licensing our content, increased production costs
related to the timing of WebMD the Magazine which shipped
larger issues in 2006 compared with 2005 and expenses relating
to our acquisitions also contributed to the increase.
Additionally, the year ended December 31, 2005 included
approximately $700 of severance costs.
Sales and Marketing. Sales and marketing
expense increased to $76,189 in 2006 from $51,756 in 2005. As a
percentage of revenue, sales and marketing was 30.6% for the
year ended December 31, 2006, compared to 31.6% in the same
period in 2005. Included in sales and marketing expense in 2006
were non-cash expenses related to advertising of $7,415, a
decrease from $8,656 in 2005. The decrease in non-cash
advertising expenses was due to lower utilization of our prepaid
advertising inventory. We allocated $1,877 of advertising
expense in 2005 to HLTH related to its utilization of this
asset. As discussed elsewhere in this MD&A document, our
non-cash advertising expense is reflected net of what is charged
to HLTH for its
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utilization of the prepaid advertising. On August 5, 2005,
HLTH and other businesses of HLTH began to use
“Emdeon” as their primary brand, instead of
“WebMD.” In May 2007, as a result of the EBS Sale,
HLTH began to use “HLTH” as their primary brand,
instead of “Emdeon.” Accordingly, we no longer
allocate any advertising expense to HLTH, or other businesses of
HLTH, related to any advertising that promotes the WebMD brand.
Also included in sales and marketing expense were non-cash
expenses related to stock-based compensation expense of $5,870
for the year ended December 31, 2006 compared to $368 in
the same period in 2005. The increase in non-cash expenses
during 2006 compared to 2005 was primarily related to
stock-based compensation expense as a result of the adoption of
SFAS 123R. Sales and marketing expense, excluding non-cash
expenses, was $62,904 or 25.3% of revenue in 2006, compared to
$42,732 or 26.1% of revenue in 2005. The decrease as a
percentage of revenue in 2006 was primarily due to our ability
to achieve the increase in revenue without incurring a
proportional increase in sales and marketing expense. The
increase in absolute dollars in 2006 compared to 2005 was
primarily attributable to increases in compensation related
costs due to increased staffing and sales commissions related to
higher revenue and to expenses related to our acquisitions.
Additionally, the year ended December 31, 2005 included
approximately $250 of severance costs.
General and Administrative. General and
administrative expense increased to $52,338 in 2006 from $29,550
in 2005. As a percentage of revenue, general and administrative
expenses was 21.0% for the year ended December 31, 2006,
compared to 18.0% in the same period in 2005. Included in
general and administrative expense were non-cash expenses
related to stock-based compensation expense of $12,083 in 2006
and $1,553 in 2005. The increase in stock-based compensation
expense primarily related to the adoption of SFAS 123R.
General and administrative expense, excluding non-cash
stock-based compensation expense discussed above, was $40,255 or
16.2% of revenue in 2006 compared to $27,997 or 17.1% of revenue
in 2005. The decrease as a percentage of revenue in 2006
compared to 2005 was primarily due to our ability to achieve the
increase in revenue without incurring a proportional increase in
general and administrative expense. The increase in absolute
dollars in 2006 compared to 2005 was primarily attributable to
higher staffing levels and increased expenses related to our
acquisitions and public company related costs. Additionally, the
year ended December 31, 2005 included a charge of
approximately $2,200 related to the resignation of our former
CEO and recruitment of our Executive Vice President of Product
and Programming and Chief Technology Officer.
Depreciation and Amortization. Depreciation
and amortization expense increased to $17,639 in 2006 from
$10,648 in 2005. The increase over the prior year was primarily
due to amortization of intangible assets relating to the Subimo,
Summex, eMedicine, Conceptis and Medsite acquisitions, as well
as the increase in depreciation expense relating to capital
expenditures in 2006 and 2005.
Interest Income. Interest income of $5,099 in
2006 and $1,790 in 2005 relates to our investment of excess cash
including a portion of the proceeds from our IPO.
Income Tax Provision. The income tax provision
of $3,883 and $1,666 for 2006 and 2005, respectively, includes
expense related to federal, state and other jurisdictions
including a deferred tax expense related to a portion of our
goodwill that is deductible for tax purposes.
Income from Discontinued Operations, Net of
Tax. Income from discontinued operations, net of
tax represents the ACS/ACP Business net operating income of $385
and $161 in 2006 and 2005, respectively.
Costs and Expenses Cost of Operations. Cost of operations increased to $101,675 in 2006 from $65,676 in 2005. As a percentage of revenue, cost of operations was 40.9% in 2006, compared to 40.1% in 2005. Included in cost of operations were non-cash expenses of $8,744 in 2006 and $730 in 2005. The increase in non-cash expenses during 2006 compared to 2005 was primarily related to stock-based compensation expense as a result of the adoption of SFAS 123R. Cost of operations, excluding non-cash expense, was $92,931 or 37.4% of revenue in 2006, compared to $64,946 or 39.6% of revenue in 2005. The decrease as a percentage of revenue was primarily due to our ability to achieve the increase in revenue without incurring a proportional increase in cost of operations expenses. The increase in absolute dollars was primarily attributable to increases in compensation related costs due to higher staffing levels and outside personnel expenses relating to our Web site operations and development. Higher costs associated with creating and licensing our content, increased production costs related to the timing of WebMD the Magazine which shipped larger issues in 2006 compared with 2005 and expenses relating to our acquisitions also contributed to the increase. Additionally, the year ended December 31, 2005 included approximately $700 of severance costs. Sales and Marketing. Sales and marketing expense increased to $76,189 in 2006 from $51,756 in 2005. As a percentage of revenue, sales and marketing was 30.6% for the year ended December 31, 2006, compared to 31.6% in the same period in 2005. Included in sales and marketing expense in 2006 were non-cash expenses related to advertising of $7,415, a decrease from $8,656 in 2005. The decrease in non-cash advertising expenses was due to lower utilization of our prepaid advertising inventory. We allocated $1,877 of advertising expense in 2005 to HLTH related to its utilization of this asset. As discussed elsewhere in this MD&A document, our non-cash advertising expense is reflected net of what is charged to HLTH for its
Table of Contentsutilization of the prepaid advertising. On August 5, 2005, HLTH and other businesses of HLTH began to use “Emdeon” as their primary brand, instead of “WebMD.” In May 2007, as a result of the EBS Sale, HLTH began to use “HLTH” as their primary brand, instead of “Emdeon.” Accordingly, we no longer allocate any advertising expense to HLTH, or other businesses of HLTH, related to any advertising that promotes the WebMD brand. Also included in sales and marketing expense were non-cash expenses related to stock-based compensation expense of $5,870 for the year ended December 31, 2006 compared to $368 in the same period in 2005. The increase in non-cash expenses during 2006 compared to 2005 was primarily related to stock-based compensation expense as a result of the adoption of SFAS 123R. Sales and marketing expense, excluding non-cash expenses, was $62,904 or 25.3% of revenue in 2006, compared to $42,732 or 26.1% of revenue in 2005. The decrease as a percentage of revenue in 2006 was primarily due to our ability to achieve the increase in revenue without incurring a proportional increase in sales and marketing expense. The increase in absolute dollars in 2006 compared to 2005 was primarily attributable to increases in compensation related costs due to increased staffing and sales commissions related to higher revenue and to expenses related to our acquisitions. Additionally, the year ended December 31, 2005 included approximately $250 of severance costs. General and Administrative. General and administrative expense increased to $52,338 in 2006 from $29,550 in 2005. As a percentage of revenue, general and administrative expenses was 21.0% for the year ended December 31, 2006, compared to 18.0% in the same period in 2005. Included in general and administrative expense were non-cash expenses related to stock-based compensation expense of $12,083 in 2006 and $1,553 in 2005. The increase in stock-based compensation expense primarily related to the adoption of SFAS 123R. General and administrative expense, excluding non-cash stock-based compensation expense discussed above, was $40,255 or 16.2% of revenue in 2006 compared to $27,997 or 17.1% of revenue in 2005. The decrease as a percentage of revenue in 2006 compared to 2005 was primarily due to our ability to achieve the increase in revenue without incurring a proportional increase in general and administrative expense. The increase in absolute dollars in 2006 compared to 2005 was primarily attributable to higher staffing levels and increased expenses related to our acquisitions and public company related costs. Additionally, the year ended December 31, 2005 included a charge of approximately $2,200 related to the resignation of our former CEO and recruitment of our Executive Vice President of Product and Programming and Chief Technology Officer. Depreciation and Amortization. Depreciation and amortization expense increased to $17,639 in 2006 from $10,648 in 2005. The increase over the prior year was primarily due to amortization of intangible assets relating to the Subimo, Summex, eMedicine, Conceptis and Medsite acquisitions, as well as the increase in depreciation expense relating to capital expenditures in 2006 and 2005. Interest Income. Interest income of $5,099 in 2006 and $1,790 in 2005 relates to our investment of excess cash including a portion of the proceeds from our IPO. Income Tax Provision. The income tax provision of $3,883 and $1,666 for 2006 and 2005, respectively, includes expense related to federal, state and other jurisdictions including a deferred tax expense related to a portion of our goodwill that is deductible for tax purposes. Income from Discontinued Operations, Net of Tax. Income from discontinued operations, net of tax represents the ACS/ACP Business net operating income of $385 and $161 in 2006 and 2005, respectively. | EXCERPTS ON THIS PAGE:
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