WebMD Reports Disappointing 3rd Quarter

WebMD’s third-quarter results fell short of analyst projections. The site,
which links doctors, patients and insurance companies, reported a net loss
of excluding restructuring charges of $65.8 million, or 27 cents per share.
Analysts had been expecting a loss of 22 cents per share.

The financial letdown is attributed to the integration of four recently
acquired companies, according to Martin J. Wygod, CEO of WebMD. “This
quarter’s results are complicated by the September closing of the WebMD,
Medical Manager, CareInsite and OnHealth merger transactions and do not
demonstrate the impact of the new management’s strategic initiatives to
ensure the company’s leadership role in bringing the benefits of improved
healthcare connectivity to our country,” he said. “These transactions have
been accounted for as purchases and are included in the financial results.”

The Company also recorded a non-cash charge of $39.6 million during the
September quarter primarily relating to various past investments made in
Internet-related businesses. “The non-cash charge reflects the decline in
value of such investments, given both the financial condition of the
individual companies and the current market conditions for such companies,”
Wygod said.

Revenue for the nine months ending September 30, 2000 was $318.2 million
compared to revenue of $68.9 million for the corresponding period of 1999.
Revenue for the September 2000 quarter was $151.2 million compared to
revenue of $101.1 million for the June 2000 quarter, an increase of 50
percent and compared to revenue of $28.7 million reported in the third
quarter of 1999.

According to Wygod, a restructuring plan is in the works. “The company
recorded a restructuring charge during the quarter ended September 30, 2000,
in the amount of $44.9 million related to the first phase of its integration
plan, which substantially eliminates redundancies that were created in the
combination of WebMD with the recently acquired companies,” he said.

“The plan is expected to result in annualized savings of approximately
$260 million from the elimination of 1,100 jobs and the consolidation of
duplicative offices and data centers when completed by the fourth quarter of
2001,” he said.

“We believe that a conservative financial approach coupled with an
aggressive strategy to leverage our core assets — the largest processor of
electronic transactions, a leading provider of physician practice management
solutions, and the most utilized healthcare Internet portal — will yield a
profitable, high growth company that is well positioned to drive down
healthcare costs and improve the quality and efficiency of our healthcare
system,” Wygod added.

The net loss excluding restructuring charges and non-cash charges, for
the nine months ending September 30, 2000, was $194.3 million, or 94 cents
per share compared to $32 million, or 47 cents per share for the comparable
nine month period in 1999. The net loss for the nine months ended September
30, 2000, was $1.737 billion or $8.41 per share compared to $53.2 million
and 79 cents per share for the nine months ended September 30, 1999.

Although analysts were disappointed with the wider-than-expected loss,
they said Wygod, an industry veteran, was a performing well at the helm.

“Wygod is courting payers and focusing more on business-to-business
rather than business-to-consumer,” said Rachel Terrace, an analyst with
Jupiter Research. “And he has the name and clout to make these relationships

As of September 30, 2000, the company had approximately $817,800,000 in
cash and marketable securities.

In related news, the company’s board approved the relocation of the
corporate offices from Atlanta to the New York City area. The company
expects additional restructuring and integration charges related to this
move. Analysts have speculated that WebMD will move to Medical Man

former home of Elmwood Park, N.J.

WebMD will also record an additional nonrecurring charge related to the
resignation of certain executives. The charge will be predominantly noncash
and relates to the treatment of stock options. Jeffrey Arnold resigned his
post as WebMD co-CEO as well as a board seat last month. In addition to
Arnold, company co-founder Jim Clark also resigned from the board last
month. In April, Clark pledged up to $200 million of his own money to
purchase to buy the company’s — which was then called Healtheon/WebMD —

The company named Paul Brooke and Herman Sarkowsky to the board of
directors to fill two vacancies resulting from recent resignations, bringing
the total number of directors to 13.

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