Health Grades Inc. (HGRD)

Q2 2010 Earnings Call

July 28, 2010 04:15 pm ET

Executives

Kerry Hicks - Chairman and CEO

Allen Dodge - CFO

Analysts

Jack Spears - Gar Wood

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Health Grades Incorporated second quarter 2010 earnings conference call. My name is Alicia and I will be your coordinator for today. At this time, all participants are on a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) I will now like to turn the call over to Mr. Allen Dodge, Chief Financial Officer. Please proceed.

Allen Dodge

Good afternoon. Thank you for participating in today’s call with us. Before we begin prepared remarks, I would like to remind you that this conference will include forward-looking comments. All statements, other than statements of historical fact may constitute forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from our expectations are disclosed in the risk factors contained in our fillings with the Securities and Exchange Commission, which are available at www.fcc.gov. All forward-looking statements are qualified in their entirety by these factors.

Furthermore, this conference call contains time sensitive information that is accurate only as of the date of the live broadcast July 28, 2010. This call is being recorded on behalf of Health Grades and is copyrighted material. It cannot be recorded, or rebroadcast without the company’s permission. Your participation in this call and to our (inaudible).

On today’s call Health Grades Chairman and CEO, Kerry Hicks will provide a company update and discuss business highlights. I will review the financial results. Following our prepared remarks we’ll open the call for questions.

With that said, I’d like to turn the call over to Kerry Hicks. Kerry.

Kerry Hicks

Thank you, Allen. I’d also like to extend my welcome to everyone on the call today. I’m pleased to have the opportunity to discuss the solid quarter for Health Grades. Allen will be providing additional detail on the second quarter results. While our call today will focus on second quarter results, I also want to acknowledge the additional release from this morning announcing that Health Grades has agreed to be acquired by an affiliate of Vestar Capital Partners.

The purchase price is $8.20 per share, which represents a premium of 32% over our 30 day average closing stock price in premium of 29% over the closing price of our common stock on July 27, 2010 the last trading day prior to today’s announcement. We expect to file certain documents with the SEC within the next couple of weeks, which will provide additional detail with respect to this transaction. Questions surrounding that transaction we’ll differ to the filing of the documents with the SEC.

With that I would like to turn to our second quarter results. I would like to begin by highlighting some key metrics for the second quarter. Allen and I will give more color on each of these points during our prepared remarks.

Our top line revenue growth was 25% over the second quarter of 2009. We achieved a 22% operating margin for the quarter with 34% operating income growth over the second quarter of 2009. We added 77% retention rate with respect to our professional services contract with the first or second year anniversary date for the first six months ended June 30, 2010.

The unique visitors to our web properties increased 50 million to 54.1 million for the second quarter, which represents 38% growth over the second quarter of 2009. For the first six months of the year we made significant progress against several of our key initiatives. The two initiatives upon which I would like to focus on our developing and optimizing the advertising and sponsorship revenue model, and the continued evolution of our provider, professional services sales and delivery model from being product focused to market focused. We continued to build out our advertising and sponsorship model with 50% revenue growth in this business in the second quarter of 2010 over the same period of 2009; we are pleased with the results.

We are continuing our evolution of providing more information free to consumers on our website properties. Specifically our focus is on increasing free or organic traffic and improving our revenue mix, for both Health Grades and the WrongDiagnosis web properties. As I mentioned earlier the unique visitors to our web properties increased 50 million or 38% in the second quarter compared to the same period of 2009.

As many of you know, we are committed to grow our traffic not by paying for key words on Google and other search engines, but rather through organic search. Today approximately 98% of our web traffic from our combined properties comes through organic search. That means we do not pay a fee for this traffic intrinsic value of the user who comes to us through organic search, his factor sounds more valuable than a user that is generated through paid search. We think this is a significant key differentiator for Health Grades against many other competitors, and others looking to build an online presence in Healthcare.

As far as our efforts continue to differentiate our technology assets, I’m pleased to announce our acquisition of HealthWorldWeb. Allen will provide financial details of this acquisition, but this internet based social decision platform related to the Medical and Healthcare industry we believe provides us with a number of unique opportunities. More specifically, the platform includes community tools, content syndication, semantic search and a proprietary recommendations engine. The engine applies pager profiles to make relevant recommendation using proprietary artificial intelligence. The recommendation engine can be turned by the user and also to establish authority of Health Grades recommendation based on six data points. In addition, applications and tools help patients apply collective knowledge to help make better, more informed decisions about physicians and potentially treatments, recovery et cetra. We are excited about the opportunities this asset provides us.

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