UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

Amendment No. 1 to

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2006
or
o	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: 0-51547

WEBMD HEALTH CORP.

(Exact name of registrant as specified in its charter)

Delaware	20-2783228
(State of incorporation)	(I.R.S. Employer Identification No.)
111 Eighth Avenue	10011
New York, New York	(Zip code)
(Address of principal executive office)

(212) 624-3700
(Registrant’s telephone number including area code)

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 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 þ  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes o  No þ

As of November 3, 2006, the Registrant had 8,582,722 shares of Class A Common Stock (including unvested shares of restricted Class A Common Stock) and 48,100,000 shares of Class B Common Stock outstanding.

TABLE OF CONTENTS

Explanatory Note
Part I
	Item 1 — Financial Statements
	Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 4 — Controls and Procedures
PART I FINANCIAL INFORMATION
	ITEM 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Risks Related to Our Relationships with Clients
Risks Related to Use of the Internet and to Our Technological Infrastructure
Risks Related to Acquisitions, Financings and Other Significant Transactions
Risks Related to the Legal and Regulatory Environment in Which We Operate
	ITEM 4.Controls and Procedures
SIGNATURES
EX-31.1 SECTION 302, CERTIFICATION OF THE CEO
EX-31.2 SECTION 302, CERTIFICATION OF THE CFO
EX-32.1 SECTION 906, CERTIFICATION OF THE CEO
EX-32.2 SECTION 906, CERTIFICATION OF THE CEO

Explanatory Note

WebMD Health Corp. (the “Company”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, originally filed with the Securities and Exchange Commission on November 13, 2006, to amend and restate its consolidated financial statements for the three and nine month periods ended September 30, 2006 and 2005.

The Company identified an error in its accounting for non-cash income tax expense and related deferred taxes. The error relates to the tax impact of goodwill arising from certain business combinations which is amortized as an expense for tax purposes over 15 years but is not amortized to expense for financial reporting purposes since the adoption of SFAS No. 142 “Goodwill and Other Intangible Assets” as of January 1, 2002. The Company recorded a deferred income tax expense and a deferred tax liability related to the tax-deductible goodwill. However, in preparing the financial statements, the Company incorrectly netted the deferred tax liability resulting from the amortization of tax deductible goodwill against deferred tax assets (primarily relating to the Company’s net operating loss carryforwards) and provided a valuation allowance on the net asset balance. Because the deferred tax liability has an indefinite life, it should not have been netted against deferred tax assets with a definite life when determining the required valuation allowance. As a result, the Company did not record the appropriate valuation allowance and related deferred income tax expense. The deferred tax liability described above will remain on the balance sheet of the Company indefinitely unless there is an impairment of goodwill for financial reporting purposes or the related business entity is disposed of through a sale or otherwise

The error resulted in an overstatement of deferred income tax expense and the related deferred tax liability and an overstatement of net loss in the amount of $911 thousand for the nine months ended September 30, 2006, and an understatement of deferred income tax expense and the related deferred tax liability and an overstatement of net income in the amount of $262 thousand for the nine months ended September 30, 2005 in the Company’s financial statements. The correction had no effect on the Company’s revenue, pre-tax operating results, total assets, cash flow or liquidity for any period.

A summary of the effects of this change on the consolidated balance sheets as of September 30, 2006 and December 31, 2005, and the consolidated statements of operations for the three and nine month periods ended September 30, 2006 and 2005 and cash flows for the nine month periods ended September 30, 2006 and 2005 is included in Note 12, “Restatement of Consolidated Financial Statements” located in the Notes to Consolidated Financial Statements elsewhere in this Quarterly report.

The following information has been updated to give effect to the restatement:

Part I

Item 1 — Financial Statements

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 4 — Controls and Procedures

PART I
FINANCIAL INFORMATION

ITEM 1.   Financial Statements

WEBMD HEALTH CORP.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

	September 30,			December 31,
	2006			2005
	As restated			As restated
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	45,164		$	75,704
Short-term investments		39,922			78,073
Accounts receivable, net of allowance for doubtful accounts of $845 at September 30, 2006 and $859 at December 31, 2005		71,009			57,245
Current portion of prepaid advertising		4,725			7,424
Other current assets		8,578			3,977
Total current assets		169,398			222,423
Property and equipment, net		37,449			21,014
Prepaid advertising		10,350			12,104
Goodwill		174,311			100,669
Intangible assets, net		38,900			20,503
Other assets		257			176
	$	430,665		$	376,889
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued expenses	$	24,912		$	30,400
Deferred revenue		69,380			36,495
Due to Emdeon		11,866			3,672
Total current liabilities		106,158			70,567
Deferred tax liability		2,446			3,357
Other long-term liabilities		7,907			7,010
Commitments and contingencies
Stockholders’ equity:
Preferred stock, 50,000,000 shares authorized; no shares issued and outstanding		—			—
Class A Common Stock, $0.01 par value per share, 500,000,000 shares authorized; 8,083,500 shares issued and outstanding at September 30, 2006 and 7,954,426 shares issued and outstanding at December 31, 2005		81			80
Class B Common Stock, $0.01 par value per share, 150,000,000 shares authorized; 48,100,000 shares issued and outstanding at September 30, 2006 and December 31, 2005		481			481
Deferred stock compensation		—			(5,736	)
Additional paid-in capital		309,623			293,827
Accumulated other comprehensive loss		(24	)		(112	)
Retained earnings		3,993			7,415
Total stockholders’ equity		314,154			295,955
	$	430,665		$	376,889

See accompanying notes.

2

WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006			2005
	As restated		As restated		As restated			As restated
Revenue	$	66,645	$	45,094	$	173,308		$	119,834
Costs and expenses:
Cost of operations		26,945		18,020		77,371			51,531
Sales and marketing		20,472		13,534		52,941			36,663
General and administrative		13,476		6,582		37,931			21,787
Depreciation and amortization		5,085		2,733		12,627			7,985
Interest income		1,221		10		4,137			10
Income (loss) before income tax provision (benefit)		1,888		4,235		(3,425	)		1,878
Income tax provision (benefit)		1,398		703		(3	)		526
Net income (loss)	$	490	$	3,532	$	(3,422	)	$	1,352
Net income (loss) per common share:
Basic and diluted	$	0.01	$	0.07	$	(0.06	)	$	0.03
Weighted-average shares outstanding used in computing net income (loss) per common share:
Basic		56,059		48,273		56,056			48,158
Diluted		58,122		48,302		56,056			48,167

See accompanying notes.

3

WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

	Nine Months Ended
	September 30,
	2006			2005
	As restated			As restated
Cash flows from operating activities:
Net income (loss)	$	(3,422	)	$	1,352
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		12,627			7,985
Non-cash advertising		4,454			5,121
Non-cash stock-based compensation		21,240			981
Deferred income taxes		(911	)		262
Changes in operating assets and liabilities:
Accounts receivable		(8,311	)		(1,490	)
Other assets		(4,461	)		1,185
Accrued expenses and other long-term liabilities		(544	)		2,798
Due to Emdeon		8,213			—
Deferred revenue		14,517			778
Net cash provided by operating activities		43,402			18,972
Cash flows from investing activities:
Proceeds from maturities and sales of available-for-sale securities		261,000			—
Purchases of available-for-sale securities		(222,000	)		—
Purchases of property and equipment		(17,500	)		(15,587	)
Cash paid in business combinations, net of cash acquired		(96,091	)		(30,819	)
Net cash used in investing activities		(74,591	)		(46,406	)
Cash flows from financing activities:
Proceeds from issuance of common stock		649			—
Net cash transfers from Emdeon		—			65,090
Net cash provided by financing activities		649			65,090
Net increase (decrease) in cash and cash equivalents		(30,540	)		37,656
Cash and cash equivalents at beginning of period		75,704			3,456
Cash and cash equivalents at end of period	$	45,164		$	41,112

See accompanying notes.

4

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data, unaudited)

1.  Summary of Significant Accounting Policies

Background and Basis of Presentation

WebMD Health Corp. (the “Company”) is a Delaware corporation that was incorporated on May 3, 2005. The Company completed an initial public offering (“IPO”) of Class A Common Stock on September 28, 2005. The Company’s Class A Common Stock has traded on the Nasdaq National Market under the symbol “WBMD” since September 29, 2005 and now trades on the Nasdaq Global Select Market. Prior to the date of the IPO, the Company was a wholly-owned subsidiary of Emdeon Corporation (“Emdeon”) and its consolidated financial statements had been derived from the consolidated financial statements and accounting records of Emdeon, principally representing the WebMD segment, using the historical results of operations, and historical basis of assets and liabilities of the WebMD related businesses. Since the completion of the IPO, the Company is a majority-owned subsidiary of Emdeon, which currently owns 85.6% of the equity of the Company. The Company’s Class A Common Stock has one vote per share, while the Company’s Class B Common Stock has five votes per share. As a result, the Company’s Class B Common Stock owned by Emdeon represented, as of September 30, 2006, 96.6% of the combined voting power of the Company’s outstanding Common Stock.

Management believes the assumptions underlying the consolidated financial statements are reasonable. However, the consolidated financial statements included herein may not necessarily reflect the Company’s results of operations, financial position and cash flows in the future or what its results of operations, financial position and cash flows would have been had the Company been a stand-alone company during the periods presented.

The Company’s consolidated financial statements have been restated to correct the previously reported income tax provision which is more fully described in Note 12, “Restatement of Consolidated Financial Statements”.

Transactions between the Company and Emdeon have been identified in the consolidated financial statements as transactions with Emdeon (see Note 3).

Interim Financial Statements

The unaudited consolidated financial statements of the Company have been prepared by management and reflect all adjustments (consisting of only normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. The results of operations for the three and nine months ended September 30, 2006 are not necessarily indicative of the operating results to be expected for any subsequent period or for the entire year ending December 31, 2006. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted under the Securities and Exchange Commission’s rules and regulations.

The unaudited consolidated financial statements and notes included herein should be read in conjunction with a) the Company’s audited consolidated financial statements and notes for the year ended December 31, 2005, and b) the Company’s audited consolidated financial statements and notes for the year ended December 31, 2006 as amended to reflect the restatement discussed above, which were included in the Company’s Annual Reports on Form 10-K for each period filed with the Securities and Exchange Commission.

Seasonality

The timing of the Company’s revenue is affected by seasonal factors. Advertising and sponsorship revenue within the Online Services segment are seasonal, primarily as a result of the annual budget approval

5

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

process of the advertising and sponsorship clients of the public portals. This portion of the Company’s revenue is usually the lowest in the first quarter of each calendar year, and increases during each consecutive quarter throughout the year. The Company’s private portal licensing revenue is historically highest in the second half of the year as new customers are typically added during this period in conjunction with their annual open enrollment periods for employee benefits. Finally, the annual distribution cycle within the Publishing and Other Services segment results in a significant portion of the Company’s revenue in this segment being recognized in the second and third quarter of each calendar year.

Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions that the Company believes are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities and disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic and political factors and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect: revenue recognition, the allowance for doubtful accounts, the carrying value of prepaid advertising, the carrying value of long-lived assets (including goodwill and intangible assets), the amortization period of long-lived assets (excluding goodwill), the carrying value, capitalization and amortization of software and Web site development costs, the provision and benefit for income taxes and related deferred tax accounts, certain accrued expenses and contingencies, share-based compensation to employees and transactions with Emdeon.

Net Income (Loss) Per Common Share

Basic and diluted net income (loss) per common share are presented in conformity with SFAS No. 128, “Earnings Per Share.” In accordance with SFAS No. 128, basic income (loss) per common share has been computed using the weighted-average number of shares of common stock outstanding during the periods presented. Diluted income (loss) per share has been computed using the weighted-average number of shares of common stock outstanding during the periods, increased to give effect to potentially dilutive securities.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006			2005
	As restated		As restated		As restated			As restated
Numerator:
Net income (loss)	$	490	$	3,532	$	(3,422	)	$	1,352
Denominator: (shares in thousands)
Weighted-average shares — Basic		56,059		48,273		56,056			48,158
Employee stock options and restricted stock		2,063		29		—			9
Adjusted weighted-average shares after assumed conversions — Diluted		58,122		48,302		56,056			48,167
Net income (loss) per common share:
Basic and diluted	$	0.01	$	0.07	$	(0.06	)	$	0.03

6

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company has excluded certain outstanding stock options from the calculation of diluted income (loss) per common share because such securities were anti-dilutive during the periods presented. The total number of shares excluded from the calculation of diluted income (loss) per share was 760,483 and 5,334,467 for the three and nine months ended September 30, 2006, respectively. There were no shares excluded from the calculation of diluted income (loss) per share for the three and nine months ended September 30, 2005.

Sales, Use and Value Added Tax

The Company excludes sales, use and value added tax from revenue in the consolidated statements of operations.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standard Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, that this new standard will have on the Company’s results of operations, financial position or cash flows.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact, if any, that this new standard will have on the Company’s results of operations, financial position or cash flows.

Reclassifications

Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation.

2.   Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123, “(Revised 2004): Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The Company elected to use the modified prospective transition method and as a result prior period results were not restated. Under the modified prospective transition method, awards that were granted or modified on or after January 1, 2006 are measured and accounted for in accordance with SFAS 123R. Unvested stock options and restricted stock awards that were granted prior to January 1, 2006 will continue to be accounted for in accordance with SFAS 123, using the same grant date fair value and same expense attribution method used under SFAS 123, except that all awards are recognized in the results of operations over the remaining vesting periods. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized for all stock-based compensation beginning January 1,

7

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2006. The impact of the adoption of SFAS 123R on the Company’s results of operations for the three and nine months ended September 30, 2006 was approximately $5,900 and $17,400, respectively.

Prior to January 1, 2006, the Company accounted for stock-based employee compensation using the intrinsic value method under the recognition and measurement principles of APB 25, and related interpretations. In accordance with APB 25, the Company did not recognize stock-based compensation expense with respect to options granted with an exercise price equal to the market value of the underlying common stock on the date of grant. As a result, the recognition of stock-based compensation expense was generally limited to the expense related to restricted stock awards. Additionally, all restricted stock awards and stock options granted prior to January 1, 2006 had graded vesting, and the Company valued these awards and recognized actual and pro-forma expense, with respect to restricted stock awards and stock options, as if each vesting portion of the award was a separate award. This resulted in an accelerated attribution of compensation expense over the vesting period. As permitted under SFAS 123R, the Company began using a straight-line attribution method beginning January 1, 2006, for all options and restricted stock awards granted on or after January 1, 2006, but will continue to apply the accelerated attribution method for the remaining unvested portion of any awards granted prior to January 1, 2006.

The Company has various stock compensation plans under which directors, officers and other eligible employees receive awards of options to purchase the Company’s Class A Common Stock and Emdeon Common Stock and restricted shares of the Company’s Class A Common Stock and Emdeon’s Common Stock. The following sections of this note summarize the activity for each of these plans.

Emdeon Plans

Emdeon had an aggregate of 8,142,996 shares of Emdeon Common Stock available for future grants to all of Emdeon employees under various stock compensation plans (the “Emdeon Plans”) at September 30, 2006.

Stock Options

Generally, options under the Emdeon Plans vest and become exercisable ratably over a three-to five-year period based on their individual grant dates subject to continued employment on the applicable vesting dates. The majority of options granted under the Emdeon Plans expire within ten years from the date of grant. Options are granted at prices not less than the fair market value of Emdeon’s Common Stock on the date of grant. The following table summarizes activity for the Emdeon Plans relating to the Company’s employees for the nine months ended September 30, 2006:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise Price		Contractual Life		Intrinsic
	Shares			Per Share		(In Years)		Value(1)
Outstanding at January 1, 2006		19,628,206		$	11.75
Granted		—			—
Exercised		(1,616,783	)		6.79
Forfeited		(658,275	)		16.91
Net transfers to Emdeon		(290,431	)		8.52
Outstanding at September 30, 2006		17,062,717		$	12.08		5.3	$	30,637
Exercisable at the end of the period		13,521,054		$	13.05		4.7	$	18,827

8

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(1) The aggregate intrinsic value is based on the market price of Emdeon’s Common Stock on September 29, 2006, the last trading day in September, which was $11.71 less the applicable exercise price of the underlying option. This aggregate intrinsic value represents the amount that would have been realized if all the option holders had exercised their options on September 29, 2006.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model and using the assumptions also noted in the following table. Expected volatility is based on implied volatility from traded options of Emdeon’s Common Stock combined with historical volatility of Emdeon’s Common Stock. Prior to January 1, 2006, only historical volatility was considered. The expected term represents the period of time that options are expected to be outstanding following their grant date, and was determined using historical exercise data. The risk-free rate is based on the U.S. Treasury yield curve for periods equal to the expected term of the options on the grant date.

	Nine Months Ended
	September 30,
	2005
Expected dividend yield		0	%
Expected volatility		0.50
Risk free interest rate		3.43	%
Expected term (years)		3.25-5.50
Weighted-average fair value of options granted during the period	$	3.81

Restricted Stock Awards

Emdeon Restricted Stock consists of shares of Emdeon Common Stock which have been awarded to the Company’s employees. The grants are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the employee until they vest. Generally, Emdeon Restricted Stock awards vest ratably over a three to five year period from their individual award dates subject to continued employment on the applicable vesting dates. The following table summarizes the activity of non- vested Emdeon Restricted Stock relating to the Company’s employees during the nine months ended September 30, 2006:

				Weighted-
				Average
				Grant Date
	Shares			Fair Value
Beginning balance at January 1, 2006		423,860		$	8.46
Granted		—			—
Vested		(153,832	)		8.74
Forfeited		—			—
Net transfers to Emdeon		(3,334	)		8.59
Ending balance at September 30, 2006		266,694		$	8.30

Proceeds received by Emdeon from the exercise of options to purchase Emdeon Common Stock were $3,049 and $10,981 during the three and nine months ended September 30, 2006, respectively, and $2,713 and $14,006 during the three and nine months ended September 30, 2005, respectively. The intrinsic value related to the exercise of these stock options as well as the fair value of shares of Emdeon Restricted Stock that vested was $2,219 and $8,553 during the three and nine months ended September 30, 2006, respectively, and $4,434 and $19,006 during the three and nine months ended September 30, 2005, respectively. The intrinsic value of these stock options and shares of Restricted Stock awards is deductible for tax purposes. However, these tax benefits were not realized due to the Company’s net operating loss carryforwards.

9

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

WebMD Plan

During September 2005, the Company adopted the 2005 Long-Term Incentive Plan (the “Company’s Plan”). The maximum number of shares of the Company’s Class A Common Stock that may be subject to options or restricted stock awards under the Company’s Plan is 7,130,574, subject to adjustment in accordance with the terms of the Company’s Plan. The Company had an aggregate of 1,374,722 shares of Class A Common Stock available for grant under the Company’s Plan at September 30, 2006.

Stock Options

Generally, options under the Company’s Plan vest and become exercisable ratably over a four-year period based on their individual grant dates subject to continued employment on the applicable vesting dates. The options granted under the Company’s Plan expire within ten years from the date of grant. Options are granted at prices not less than the fair market value of the Company’s Class A Common Stock on the date of grant. The following table summarizes activity for the Company’s Plan during the nine months ended September 30, 2006:

				Weighted		Average
				Average		Remaining		Aggregate
				Exercise Price		Contractual Life		Intrinsic
	Shares			Per Share		(In Years)		Value(1)
Outstanding at January 1, 2006		4,533,100		$	18.31
Granted		1,105,900			37.58
Exercised		(37,086	)		17.50
Forfeited		(359,625	)		26.02
Outstanding at September 30, 2006		5,242,289		$	21.85		9.1	$	69,088
Exercisable at the end of the period		961,249		$	17.50		9.0	$	16,187

(1) The aggregate intrinsic value is based on the market price of the Company’s Class A Common Stock on September 29, 2006, the last trading day in September, which was $34.34 less the applicable exercise price of the underlying option. This aggregate intrinsic value represents the amount that would have been realized if all the option holders had exercised their options on September 29, 2006.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model and using the assumptions noted in the following table. Expected volatility is based on implied volatility from traded options of stock of comparable companies combined with historical stock price volatility of comparable companies. The expected term represents the period of time that options are expected to be outstanding following their grant date, and was determined using historical exercise data. The risk-free rate is based on the U.S. Treasury yield curve for periods equal to the expected term of the options on the grant date.

	Nine Months Ended September 30,
	2006			2005
Expected dividend yield		0	%		0	%
Expected volatility		0.60			0.60
Risk free interest rate		4.76	%		4.02	%
Expected term (years)		3.25			3.25-5.50
Weighted-average fair value of options granted during the period	$	17.11		$	8.43

10

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Stock Awards

The Company’s Restricted Stock consists of shares of the Company’s Class A Common Stock which have been awarded to employees. The grants are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the employee until they vest. Generally, the Company’s Restricted Stock awards vest ratably over a four year period from their individual award dates subject to continued employment on the applicable vesting dates. The following table summarizes the activity of non-vested Company Restricted Stock during the nine months ended September 30, 2006:

				Weighted-
				Average
				Grant Date
	Shares			Fair Value
Beginning balance at January 1, 2006		376,621		$	17.55
Granted		102,443			38.62
Vested		(93,988	)		17.56
Forfeited		(2,587	)		39.00
Ending balance at September 30, 2006		382,489		$	23.05

Proceeds received from the exercise of options to purchase the Company’s Class A Common Stock were $649 for the three and nine months ended September 30, 2006. The intrinsic value related to the exercise of these stock options, as well as the fair value of shares of the Company’s Restricted Stock that vested was $3,899 for the three and nine months ended September 30, 2006. The intrinsic value of these stock options and shares of Restricted Stock awards are deductible for tax purposes. However, these tax benefits were not realized due to the Company’s net operating loss carryforwards.

Other

In addition, at the time of the IPO and subsequently on the first anniversary, the Company issued shares of its Class A Common Stock to each non-employee director with a value equal to their annual board and committee retainers. The Company recorded $85 and $255 of stock-based compensation expense during the three and nine months ended September 30, 2006 in connection with these issuances.

Employee Stock Purchase Plan

Emdeon’s Employee Stock Purchase Plan (“ESPP”) allows eligible employees of the Company the opportunity to purchase shares of Emdeon Common Stock through payroll deductions, up to 15% of a participant’s annual compensation with a maximum of 5,000 shares available per participant during each purchase period. The purchase price of the stock is 85% of the fair market value on the last day of each purchase period. Emdeon Common Stock was issued to the Company’s employees under Emdeon’s ESPP. During the nine months ended September 30, 2006, 29,953 shares of Emdeon Common Stock were issued to the Company’s employees under Emdeon’s ESPP. During the nine months ended September 30, 2005, 23,036 shares of Emdeon Common Stock were issued to the Company’s employees under Emdeon’s ESPP.

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WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summary of Stock-Based Compensation Expense

The following table summarizes the components and classification of stock-based compensation expense:

	Three Months				Nine Months
	Ended				Ended
	September 30,				September 30,
	2006		2005		2006		2005
Emdeon Plans:
Stock options	$	1,202	$	—	$	4,140	$	—
Restricted stock		181		393		751		962
Company’s Plan:
Stock options		4,724		—		13,218		—
Restricted stock		1,002		19		2,796		19
ESPP		27		—		80		—
Other		85		—		255		—
Total stock-based compensation expense	$	7,221	$	412	$	21,240	$	981
Included in:
Cost of operations	$	2,362	$	66	$	7,111	$	227
Sales and marketing		1,598		70		4,610		252
General and administrative		3,261		276		9,519		502
Total stock-based compensation expense	$	7,221	$	412	$	21,240	$	981

No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for substantially all net deferred tax assets. As of September 30, 2006, approximately 4,061 and 33,946 of unrecognized stock-based compensation expense related to unvested awards (net of estimated forfeitures) is expected to be recognized over a weighted-average period of approximately 1.03 years and 2.02 years, related to the Emdeon Plans, and the Company’s Plan, respectively.

The following table summarizes pro forma net income (loss) and net income (loss) per common share as if the Company had applied the fair value recognition provisions of SFAS 123, to stock-based employee compensation for the three and nine months ended September 30, 2005:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2005			2005
	As restated			As restated
Net income as reported	$	3,532		$	1,352
Add: Stock-based employee compensation expense included in reported net income		412			981
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards		(2,757	)		(8,291	)
Pro forma net income (loss)	$	1,187		$	(5,958	)
Net income (loss) per common share:
Basic and diluted — as reported	$	0.07		$	0.03
Basic and diluted — pro forma	$	0.02		$	(0.12	)

12

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.  Transactions with Emdeon

Agreements with Emdeon

In connection with the IPO in September 2005, the Company entered into a number of agreements with Emdeon governing the future relationship of the companies, including a Services Agreement, a Tax Sharing Agreement and an Indemnity Agreement. These agreements cover a variety of matters, including responsibility for certain liabilities, including tax liabilities, as well as matters related to Emdeon providing the Company with administrative services, such as payroll, accounting, tax, employee benefit plan, employee insurance, intellectual property, legal and information processing services.

On January 31, 2006, the Company entered into additional agreements with Emdeon in which both parties agreed to support each other’s product development and marketing efforts of specific product lines for agreed upon fees as defined in the agreements. The new agreements cover a term of five years.

On February 15, 2006, the Tax Sharing Agreement was amended to provide that Emdeon will compensate the Company for any use of the Company’s net operating losses that may result from certain extraordinary transactions, as defined in the Tax Sharing Agreement, including a sale by Emdeon of its Business Services and Practice Services operating segments.

On September 14, 2006, Emdeon completed the sale of Emdeon Practice Services segment for approximately $565,000 in cash. On September 26, 2006, Emdeon announced the sale of a 52% interest in its Emdeon Business Services segment for approximately $1,200,000 in cash. Emdeon expects to recognize a taxable gain on the sale of its Emdeon Practice Services and Business Services segments and expects to utilize a portion of its federal net operating loss (“NOL”) carryforwards to offset the gain on this transaction. Under the tax sharing agreement between Emdeon and the Company, the Company will be reimbursed for any of its NOL carryforwards utilized by Emdeon in this transaction at the current federal statutory rate of 35%. Emdeon currently estimates that the amount of the Company’s NOL carryforwards utilized in these two transactions will be approximately $370,000 to $410,000 resulting in a cash reimbursement to the Company of $129,000 to $143,000 which will be recorded as a capital contribution. The amount of the utilization of the Company’s NOL carryforwards and related reimbursement is based on various assumptions and will not be finalized until Emdeon completes the calculation of its 2006 federal income taxes.

Charges from the Company to Emdeon:

Revenue:  The Company sells certain of its products and services to Emdeon businesses. These amounts are included in revenue during the three and nine months ended September 30, 2006 and 2005. The Company charges Emdeon rates comparable to those charged to third parties for similar products and services.

Advertising Expense:  In 2005, the Company allocated costs to Emdeon based on its utilization of the Company’s advertising services. The Company no longer allocates any advertising expense to Emdeon, or other businesses of Emdeon, related to any advertising that promotes the WebMD brand. The Company’s portion of the advertising services utilized is included in sales and marketing expense within the accompanying consolidated statements of operations, and is reported net of amounts charged to Emdeon.

Charges from Emdeon to the Company:

Corporate Services:  The Company is charged a services fee (the “Services Fee”) for costs related to corporate services provided by Emdeon. The services that Emdeon provides include certain administrative services, including payroll, accounting, tax planning and compliance, employee benefit plans, legal matters and information processing. In addition, the Company reimburses Emdeon for an allocated portion of certain expenses that Emdeon incurs for outside services and similar items, including insurance fees, outside personnel, facilities costs, professional fees, software maintenance fees and telecommunications costs. Emdeon

13

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

has agreed to make the services available to the Company for up to 5 years following the IPO. These expense allocations were determined on a basis that Emdeon and the Company consider to be a reasonable assessment of the costs of providing these services, exclusive of any profit margin. The basis the Company and Emdeon used to determine these expense allocations required management to make certain judgments and assumptions. These cost allocations are reflected in the table below under the caption “Corporate services — shared services allocation”. Prior to the IPO, the Services Fee also included costs identified for dedicated employees managed centrally by Emdeon for certain of its functions across all of its segments. This portion of the Services Fee charged for dedicated employees included a charge for their salaries, plus an overhead charge for these employees calculated based on a pro rata portion of their salaries to total salaries within the function. The amount reflected in the table below under the caption “Corporate services — specific identification” reflects the costs for these employees through their date of transfer. The Services Fee is reflected in general and administrative expense within the accompanying consolidated statements of operations.

Healthcare Expense:  The Company is charged for its employees’ participation in Emdeon’s healthcare plans. Healthcare expense is charged based on the number of total employees of the Company and reflects Emdeon’s average cost of these benefits per employee. Healthcare expense is reflected in the accompanying consolidated statements of operations in the same expense captions as the related salary costs of those employees.

Stock-Based Compensation Expense:  Stock-based compensation expense is related to stock option issuances and restricted stock awards of Emdeon’s Common Stock that have been granted to certain employees of the Company. Stock-based compensation expenses are allocated on a specific employee identification basis. The expense is reflected in the accompanying consolidated statements of operations in the same expense captions as the related salary costs of those employees. The allocation of stock-based compensation expense related to Emdeon’s Common Stock as a capital contribution recorded as additional paid-in capital.

The following table summarizes the allocations reflected in the Company’s consolidated financial statements:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
Charges from the Company to Emdeon:
Intercompany revenue	$	125	$	215	$	416	$	215
Advertising expense		—		278		—		1,877
Charges from Emdeon to the Company:
Corporate services — specific identification		—		414		—		1,860
Corporate services — shared services allocation		792		829		2,476		2,561
Healthcare expense		1,093		684		2,917		2,118
Stock-based compensation expense		1,410		393		4,971		962

4.  Business Combinations

2006 Acquisitions

On September 11, 2006, the Company acquired the interactive medical education, promotion and physician recruitment businesses of Medsite, Inc. (“Medsite”). Medsite provides e-detailing services for pharmaceutical, medical device and healthcare companies, including program development, targeted recruitment and online distribution and delivery. In addition, Medsite provides educational programs to physicians. The total purchase consideration for Medsite was approximately $31,467, comprised of $30,682 in cash, net of cash acquired, and $785 of estimated acquisition costs. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the

14

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

preliminary allocation of the purchase price and intangible asset valuation, goodwill of $31,758 and intangible assets subject to amortization of $10,000 were recorded. The goodwill and intangible assets recorded will be deductible for tax purposes. The intangible assets are comprised of $5,500 relating to customer relationships with estimated useful lives of three years, $3,500 relating to acquired technology with an estimated useful life of three years and $1,000 relating to a trade name with an estimated useful life of seven years. The results of operations of Medsite have been included in the financial statements of the Company from September 11, 2006, the closing date of the acquisition, and are included in the in the Online Services segment.

On June 13, 2006, the Company acquired Summex Corporation (“Summex”), a provider of health and wellness programs that include online and offline health risk assessments, lifestyle education and personalized telephonic health coaching. The total purchase consideration for Summex was approximately $30,191, comprised of $29,691 in cash, net of the cash acquired, and $500 of estimated acquisition costs. In addition, the Company has agreed to pay up to an additional $10,000 in cash over a two-year period if certain financial milestones are achieved. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the preliminary allocation of the purchase price and intangible asset valuations, goodwill of $21,786 and intangible assets subject to amortization of $8,500 were recorded. The goodwill and intangible assets recorded will not be deductible for tax purposes. The intangible assets are comprised of $4,000 relating to customer relationships with estimated useful lives of three years and $4,500 relating to acquired technology with an estimated useful life of five years. The results of operations of Summex have been included in the financial statements of the Company from June 13, 2006, the closing date of the acquisition, and are included in the Online Services segment.

On January 17, 2006, the Company acquired eMedicine.com, Inc. (“eMedicine”), a privately held online publisher of medical reference information for physicians and other healthcare professionals. The total purchase consideration for eMedicine was approximately $25,382, comprised of $24,682 in cash, net of cash acquired, and $700 of estimated acquisition costs. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the preliminary allocation of the purchase price and intangible asset valuation, goodwill of $18,402 and an intangible asset subject to amortization of $9,000 were recorded. The goodwill and intangible asset recorded will not be deductible for tax purposes. The intangible asset recorded was content with an estimated useful life of three years. The results of operations of eMedicine have been included in the financial statements of the Company from January 17, 2006, the closing date of the acquisition, and are included in the Online Services segment.

2005 Acquisitions

On December 2, 2005, the Company acquired the assets of and assumed certain liabilities of Conceptis Technologies, Inc. (“Conceptis”), a privately held Montreal-based provider of online and offline medicaleducation and promotion aimed at physicians and other healthcare professionals. The total purchase consideration for Conceptis was approximately $19,859, comprised of $19,256 in cash and $603 of estimated acquisition costs. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the preliminary allocation of the purchase price and intangible asset valuation, goodwill of $14,717 and intangible assets subject to amortization of $6,140 were recorded. The goodwill and intangible assets recorded will be deductible for tax purposes. The intangible assets recorded were $1,900 relating to content with an estimated useful life of two years, $3,300 relating to acquired technology with an estimated useful life of three years and $940 relating to a trade name with an estimated useful life of ten years. The results of operations of Conceptis have been included in the financial

15

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

statements of the Company from December 2, 2005, the closing date of the acquisition, and are included in the Online Services and the Publishing and Other Services segments.

On March 14, 2005, the Company acquired HealthShare Technology, Inc. (“HealthShare”), a privately held company that provides online tools that compare the cost and quality measures of hospitals for use by consumers, providers and health plans. The total purchase consideration for HealthShare was approximately $29,985, comprised of $29,533 in cash, net of cash acquired, and $452 of acquisition costs. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the allocation of the purchase price, goodwill of $24,611 and intangible assets subject to amortization of $8,500 were recorded. The goodwill and intangible assets recorded will not be deductible for tax purposes. The intangible assets are comprised of $7,500 relating to customer relationships with estimated useful lives of five years and $1,000 relating to acquired technology with an estimated useful life of three years. The results of operations of HealthShare have been included in the financial statements of the Company from March 14, 2005, the closing date of the acquisition, and are included in the Online Services segment.

Condensed Balance Sheet Data

The following table summarizes the tangible and intangible assets acquired, the liabilities assumed and the consideration paid for each acquisition:

	Medsite			Summex			eMedicine			Conceptis			HealthShare
Accounts receivable		2,664			1,064		$	1,717		$	2,893		$	1,925
Deferred revenue		(14,656	)		(1,173	)		(2,612	)		(2,866	)		(4,622	)
Other tangible assets (liabilities), net		1,701			14			(1,125	)		(1,025	)		(429	)
Intangible assets		10,000			8,500			9,000			6,140			8,500
Goodwill		31,758			21,786			18,402			14,717			24,611
Total purchase price	$	31,467		$	30,191		$	25,382		$	19,859		$	29,985

Pro Forma Information

The following unaudited pro forma financial information for the nine months ended September 30, 2006 and 2005 gives effect to the acquisitions of Medsite, Summex, eMedicine, Conceptis and HealthShare, including the amortization of intangible assets, as if they had all occurred on January 1, 2005. The information is provided for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transactions had been consummated at the date indicated, nor is it necessarily indicative of future operating results of the combined companies, and should not be construed as representative of these results for any future period.

	Nine Months Ended
	September 30,
	2006			2005
	As restated			As restated
Revenue	$	187,322		$	148,029
Net loss	$	(11,682	)	$	(9,498	)
Net loss per common share:
Basic and diluted	$	(0.21	)	$	(0.20	)

16

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5.   Significant Transactions

America Online, Inc.

In May 2001, Emdeon entered into an agreement for a strategic alliance with Time Warner, Inc. (“Time Warner”). Under the agreement, the Company is the primary provider of healthcare content, tools and services for use on certain America Online (“AOL”) properties. The Company and AOL share certain revenue from advertising, commerce and programming on the health channels of the AOL properties and on a co-branded service created for AOL by the Company. The original term of the agreement was for three years expiring in May 2004. The Company had the right to extend the original agreement for an additional three-year term under certain circumstances. The Company exercised its right to extend the contract term until May 2007. Under the terms of the extension, the Company is entitled to share in revenue and is guaranteed a minimum of $12,000 during each year of the renewal term for its share of advertising revenue. Included in revenue was $2,423 and $6,112 during the three and nine months ended September 30, 2006 and $1,728 and $5,928 during the three and nine months ended September 30, 2005 related to sales to third parties of advertising and sponsorship on the AOL health channels, primarily sold through the Company’s sales organization. Also included in revenue for the three and nine months ended September 30, 2006 was revenue of $1,147 and $3,960 during the three and nine months ended September 30, 2006 and $1,513 and $4,561 during the three and nine months ended September 30, 2005 related to the guarantee discussed above.

News Corporation

In connection with a strategic relationship with News Corporation that Emdeon entered into in 2000 and amended in 2001, Emdeon received rights to an aggregate of $205,000 in advertising services from News Corporation to be used over ten years expiring in 2010 in exchange for equity securities issued by Emdeon. In September 2005, the rights to these advertising services were contributed to the Company in connection with the IPO. The amount of advertising services received in any contract year is based on the current market rates in effect at the time the advertisement is placed. Additionally, the amount of advertising services that can be used in any contract year is subject to contractual limitations. The advertising services were recorded at fair value determined using a discounted cash flow methodology. The remaining portion of these advertising services is included in prepaid advertising in the accompanying consolidated balance sheets. Also, as part of the same relationship the Company licensed its content to News Corporation for use across News Corporation’s media properties for four years, ending in January 2005, for cash payments totaling $12,000 per contract year.

Fidelity Human Resources Services Company LLC

In 2004, the Company entered into an agreement with Fidelity Human Resources Services Company LLC (“FHRS”) to integrate the Company’s private portals products into the services FHRS provides to its clients. FHRS provides human resources administration and benefits administration services to employers. The Company recorded revenue of $1,864 and $5,257 during the three and nine months ended September 30, 2006 and $608 and $1,705 during the three and nine months ended September 30, 2005, respectively. Included in accounts receivable as of September 30, 2006 was $621 related to the FHRS agreement.

6.  Segment Information

The Company provides health information services to consumers, physicians, healthcare professionals, employers and health plans through the Company’s public and private online portals and health-focused publications. The Company’s two operating segments are:

•  Online Services.  The Company provides both public and private online portals. The Company’s public portals for consumers enable them to obtain detailed information on a particular disease or condition,

17

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

check symptoms, locate physicians, store individual healthcare information, receive periodic e-newsletters on topics of individual interest, enroll in interactive courses and participate in online communities with peers and experts. The Company’s public portals for physicians and healthcare professionals make it easier for them to access clinical reference sources, stay abreast of the latest clinical information, learn about new treatment options, earn continuing medical education (“CME”) credit and communicate with peers. The Company’s private portals enable employers and health plans to provide their employees and plan members with access to personalized health and benefit information and decision-support technology that helps them make more informed benefit, provider and treatment choices. The Company provides related services for use by such employees and members, including lifestyle education and personalized telephonic health coaching as a result of the acquisition of Summex on June 13, 2006.

•  Publishing and Other Services.  The Company publishes medical reference textbooks; The Little Blue Book, a physician directory; and, since 2005, WebMD the Magazine, a consumer magazine distributed to physician office waiting rooms. The Company also conducts in-person medical education as a result of the acquisition of the assets of Conceptis in December 2005.

The performance of the Company’s business is monitored based on earnings (loss) before interest, taxes, depreciation, amortization and other non-cash items. Other non-cash items include non-cash advertising expense and non-cash stock-based compensation expense. Corporate and other overhead functions are allocated to segments on a specifically identifiable basis or other reasonable method of allocation. The Company considers these allocations to be a reasonable reflection of the utilization of costs incurred. The Company does not disaggregate assets for internal management reporting and, therefore, such information is not presented. There are no inter-segment revenue transactions.

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WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summarized financial information for each of the Company’s operating segments and a reconciliation to net income (loss) are presented below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	As restated			As restated			As restated			As restated
Revenue
Online Services:
Advertising and sponsorship	$	43,534		$	28,054		$	112,513		$	77,497
Licensing		14,569			9,053			38,315			23,097
Content syndication and other		843			2,124			2,815			6,697
Total Online Services		58,946			39,231			153,643			107,291
Publishing and Other Services		7,699			5,863			19,665			12,543
	$	66,645		$	45,094		$	173,308		$	119,834
Earnings before interest, taxes, depreciation, amortization and other non-cash items
Online Services:	$	12,727		$	7,795		$	29,594		$	15,588
Publishing and Other Services		1,906			1,282			1,165			367
		14,633			9,077			30,759			15,955
Interest, taxes, depreciation, amortization and other non-cash items
Interest income		1,221			10			4,137			10
Depreciation and amortization		(5,085	)		(2,733	)		(12,627	)		(7,985	)
Non-cash advertising		(1,660	)		(1,707	)		(4,454	)		(5,121	)
Non-cash stock-based compensation		(7,221	)		(412	)		(21,240	)		(981	)
Income tax (provision) benefit		(1,398	)		(703	)		3			(526	)
Net income (loss)	$	490		$	3,532		$	(3,422	)	$	1,352

7.   Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” The estimated fair values have been determined using available market information. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

	September 30, 2006				December 31, 2005
	Cost Basis		Fair Value		Cost Basis		Fair Value
Cash and cash equivalents	$	45,164	$	45,164	$	75,704	$	75,704
Short-term investments		39,947		39,922		78,185		78,073

The gross unrealized losses related to short-term investments are primarily due to a decrease in the fair value of debt securities as a result of an increase in interest rates during the three and nine months ended September 30, 2006. The Company has determined that the gross unrealized losses on its short-term investments at September 30, 2006 are temporary in nature. The Company reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in

19

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, credit quality and the Company’s ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

The amortized cost and estimated fair value by maturity of securities are shown in the following table:

	Cost or
	Amortized
	Cost		Fair Value
Due in one year or less	$	39,947	$	39,922

8.   Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income. Other comprehensive income includes certain changes in equity that are excluded from net income (loss), such as changes in unrealized gains on available-for-sale marketable securities. The Company has foreign assets in foreign locations and recorded $7 of foreign exchange translation adjustment was recorded during the three and nine months ended September 30, 2006. The following table presents the components of comprehensive income (loss):

	Three Months Ended		Nine Months Ended
	September 30, 2006		September 30, 2006
	As restated		As restated
Foreign currency translation gains	$	—	$	7
Unrealized gains on securities		104		81
Other comprehensive income (loss)		104		88
Net income (loss)		490		(3,422	)
Comprehensive income (loss)	$	594	$	(3,334	)

The foreign currency translation gains and unrealized gains (losses) on securities are not currently adjusted for income taxes as a full valuation allowance has been recorded against all net deferred tax assets.

9.   Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the year ended December 31, 2005 and the nine months ended September 30, 2006 are as follows:

			Publishing
	Online		and Other
	Services		Services		Total
Balance as of January 1, 2005	$	41,569	$	11,045	$	52,614
Acquisitions during the period		36,079		—		36,079
Contingent consideration payments for prior period acquisitions(a)		9,637		—		9,637
Purchase price allocations and other adjustments		2,339		—		2,339
Balance as of December 31, 2005		89,624		11,045		100,669
Acquisitions during the period		71,946		—		71,946
Purchase price allocations and other adjustments		1,696		—		1,696
Balance as of September 30, 2006	$	163,266	$	11,045	$	174,311

(a) During the year ended December 31, 2005, the Company accrued for contingent consideration of $7,250 and $2,387 for the MedicineNet, Inc. and RxList, LLC acquisitions, respectively. The RxList payment was made in February 2006 and the MedicineNet payment was made in April 2006.

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WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangible assets subject to amortization consist of the following:

	September 30, 2006									December 31, 2005
								Weighted									Weighted
								Average									Average
	Gross							Remaining		Gross							Remaining
	Carrying		Accumulated					Useful		Carrying		Accumulated					Useful
	Amount		Amortization			Net		Life (a)		Amount		Amortization			Net		Life (a)
Content	$	17,554	$	(6,661	)	$	10,893		2.0	$	13,654	$	(2,361	)	$	11,293		2.7
Customer relationships		20,391		(5,969	)		14,422		3.0		10,891		(4,030	)		6,861		3.9
Technology and patents		15,967		(5,172	)		10,795		3.4		4,667		(3,446	)		1,221		2.1
Trade names		4,527		(1,737	)		2,790		6.5		2,587		(1,459	)		1,128		4.4
Total	$	58,439	$	(19,539	)	$	38,900		3.3	$	31,799	$	(11,296	)	$	20,503		3.2

(a) The calculation of the weighted average remaining useful life is based on the net book value and the remaining amortization period of each respective intangible asset.

Amortization expense was $3,209 and $8,244 during the three and nine months ended September 30, 2006 and $1,590 and $4,925 during the three and nine months ended September 30, 2005. Aggregate amortization expense for intangible assets is estimated to be:

Year ending December 31, 2006
(October 1st to December 31st)	$	3,822
2007		14,970
2008		11,522
2009		5,789
2010		1,537
Thereafter		1,260

10.   Commitments and Contingencies

Ari Weitzner, M.D., P.C. et al. v. National Physicians Datasource LLC

As previously disclosed, on May 24, 2005, a lawsuit was filed by Dr. Ari Weitzner individually, and as a class action, under the Telephone Consumer Protection Act (the “TCPA”), in the U.S. District Court, Eastern District of New York against National Physicians Datasource LLC (“NPD”), which is currently a subsidiary of the Company. The lawsuit claims that faxes allegedly sent by NPD, which publishes The Little Blue Book, were sent in violation of the TCPA. The lawsuit potentially seeks damages in excess of $5,000. The Court had temporarily stayed the lawsuit pending resolution of relevant issues in a related case. On February 21, 2006, the Court lifted the stay. The parties had been conducting discovery until the named plaintiff in this action discontinued this suit on November 8, 2006. However, the Company has been advised that a suit containing the same allegations may be brought by a different named plaintiff represented by the same counsel. The Company expects to oppose certification as a class action when discovery on that matter is completed.

Anthony Vlastaris, et al. v. WebMD Publishing Services

On September 25, 2006, Anthony Vlastaris, Brian Kressin, and Richard Cohen filed a lawsuit individually, and as a class action, under the TCPA, in the Ohio Court of Common Pleas, Cuyahoga County. The lawsuit claims that the defendant sent faxes to the plaintiffs allegedly in violation of the TCPA. The defendant in the suit is named as “WebMD Publishing Services,” an entity that does not exist. Because the suit was served on NPD at its location in Connecticut and because NPD is the publisher of The Little Blue Book, NPD removed the lawsuit to the United States District Court, Northern District Court of Ohio, on October 24, 2006.

21

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NPD removed the case in part because of diversity jurisdiction and in part because the Federal Class Action Fairness Act provides federal jurisdiction over class actions in which the potential damages exceed $5,000. The plaintiffs counsel has sent a letter challenging the removal on the grounds that TPCA cases are not subject to removal. NPD intends to defend the notice of removal. The purported class in the Vlastaris case, involving faxes sent to three area codes in two states, is substantially a subset of the purported nationwide class in the Weitzner case (described above) in New York. The Company expects to oppose class certification in this lawsuit.

Other

In the normal course of business, the Company and its subsidiaries are involved in various other claims and legal proceedings. While the ultimate resolution of these matters, including those discussed in the Company’s 2005 Annual Report on the Form 10-K under the heading “Legal Proceedings” has yet to be determined, the Company does not believe that their outcome will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

11.   Subsequent Event

On November 2, 2006, the Company entered into a definitive agreement to acquire all of the outstanding limited liability company interests of Subimo, LLC (“Subimo”), a privately held provider of healthcare decision support applications to large employers, health plans and financial institutions. The purchase price for Subimo is $60,000, comprised of $34,000 in cash payable on the closing date and $26,000 in Class A Common Stock (“Shares”) and/or cash (the “Subsequent Consideration”), whichever the Company selects at the time the acquisition closes, such Subsequent Consideration to be paid on the second anniversary of the closing except as otherwise described below. The number of Shares, if any, to be included in the Subsequent Consideration shall be determined by dividing the amount of the Subsequent Consideration to be paid in Shares divided by the five-day trailing average price of the Company’s common stock for a period prior to the closing date. The purchase price is subject to adjustment, including adjustment based on amounts of net working capital of Subimo at closing, of indebtedness of Subimo at closing and of certain transaction expenses payable on behalf of the sellers.

If the Subsequent Consideration includes Shares and the value of the Subsequent Consideration is less than $15,600 when the Shares are issued (or, in certain circumstances, when a registration statement becomes effective), then the Company shall be required to pay the amount by which the aggregate value of the Subsequent Consideration is less than $15,600 minus any portion of the Subsequent Consideration for which a right of setoff has been applied by the Company to fulfill indemnification obligations of the sellers. The Company will have the option of paying the amount described in the preceding sentence in the form of cash or additional Shares. Senior management of Subimo will be entering into long-term employment agreements with Subimo effective as of the closing date. The portion of the Subsequent Consideration payable to certain of those members of senior management will be paid on the fourth anniversary of the closing if the person is terminated for cause, under his or her employment agreement, voluntarily terminates employment prior to the payment of the Subsequent Consideration or Subimo’s failure to achieve certain milestones.

The acquisition, which is subject to customary closing conditions, is expected to close before the end of December 2006 and will be included in the Company’s Online Services segment from the date of the closing of the acquisition.

12.   Restatement of Consolidated Financial Statements

The Company identified an error in its accounting for non-cash income tax expense and related deferred taxes. The error relates to the tax impact of goodwill arising from certain business combinations which is amortized as an expense for tax purposes over 15 years but is not amortized to expense for financial reporting

22

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

purposes since the adoption of SFAS No. 142 “Goodwill and Other Intangible Assets” as of January 1, 2002. The Company recorded a deferred income tax expense and a deferred tax liability related to the tax-deductible goodwill. However, in preparing the financial statements, the Company incorrectly netted the deferred tax liability resulting from the amortization of tax deductible goodwill against deferred tax assets (primarily relating to the Company’s net operating loss carryforwards) and provided a valuation allowance on the net asset balance. Because the deferred tax liability has an indefinite life, it should not have been netted against deferred tax assets with a definite life when determining the required valuation allowance. As a result, the Company did not record the appropriate valuation allowance and related deferred income tax expense. The deferred tax liability described above will remain on the balance sheet of the Company indefinitely unless there is an impairment of goodwill for financial reporting purposes or the related business entity is disposed of through a sale or otherwise.

The error resulted in an overstatement of deferred income tax expense and the related deferred tax liability and an overstatement of net loss in the amount of $911 for the nine months ended September 30, 2006, and an understatement of deferred income tax expense and the related deferred tax liability and an overstatement of net income in the amount of $262 for the nine months ended September 30, 2005 in the Company’s financial statements. The correction had no effect on the Company’s revenue, pre-tax operating results, total assets, cash flow or liquidity for any period.

The effects of this change on the consolidated balance sheets as of September 30, 2006 and December 31, 2005, and the consolidated statements of operations for the three and nine month periods ended September 30, 2006 and 2005 and cash flows for the nine month periods ended September 30, 2006 and 2005 are summarized as follows:

	Consolidated Balance Sheets
	As Previously
	Reported		Adjustments			As Restated
As of September 30, 2006
Deferred tax liability	$	—	$	2,446		$	2,446
Additional paid-in capital		312,062		(2,439	)		309,623
Retained earnings		4,000		(7	)		3,993
Total stockholders’ equity		316,600		(2,446	)		314,154
As of December 31, 2005
Deferred tax liability	$	—	$	3,357		$	3,357
Additional paid-in capital		296,266		(2,439	)		293,827
Retained earnings		8,333		(918	)		7,415
Total stockholders’ equity		299,312		(3,357	)		295,955

23

WEBMD HEALTH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Consolidated Statements of Operations
	As Previously
	Reported			Adjustments			As Restated
Three Months Ended September 30, 2006
Income before income tax provision	$	1,888		$	—		$	1,888
Income tax provision		896			502			1,398
Net income		992			(502	)		490
Net income per common share:
Basic	$	0.02		$	(0.01	)	$	0.01
Diluted	$	0.02		$	(0.01	)	$	0.01
Three Months Ended September 30, 2005
Income before income tax provision	$	4,235		$	—		$	4,235
Income tax provision		112			591			703
Net income		4,123			(591	)		3,532
Net income per common share:
Basic	$	0.09		$	(0.02	)	$	0.07
Diluted	$	0.09		$	(0.02	)	$	0.07
Nine Months Ended September 30, 2006
Loss before income tax provision (benefit)	$	(3,425	)	$	—		$	(3,425	)
Income tax provision (benefit)		908			(911	)		(3	)
Net loss		(4,333	)		911			(3,422	)
Net loss per common share:
Basic	$	(0.08	)	$	0.02		$	(0.06	)
Diluted	$	(0.08	)	$	0.02		$	(0.06	)
Nine Months Ended September 30, 2005
Income before income tax provision	$	1,878		$	—		$	1,878
Income tax provision		264			262			526
Net income		1,614			(262	)		1,352
Net income per common share:
Basic	$	0.03		$	(0.00	)	$	0.03
Diluted	$	0.03		$	(0.00	)	$	0.03

	Consolidated Statements of Cash Flows
	As Previously
	Reported			Adjustments			As Restated
Nine Months Ended September 30, 2006
Net loss	$	(4,333	)	$	911		$	(3,422	)
Deferred income taxes		—			(911	)		(911	)
Nine Months Ended September 30, 2005
Net income	$	1,614		$	(262	)	$	1,352
Deferred income taxes		—			262			262

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ITEM 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Item 2 contains forward-looking statements with respect to possible events, outcomes or results that are, and are expected to continue to be, subject to risks, uncertainties and contingencies, including those identified in this Item. See “Forward-Looking Statements”.

The following information has been adjusted to reflect the restatement of our financial statements to correct the previously reported net income tax provision, which is more fully described in the “Explanatory Note” on page 1 and Note 12, “Restatement of Consolidated Financial Statements” located in the Notes to Consolidated Financial Statements elsewhere in this Quarterly report.

Overview

Management’s discussion and analysis of financial condition and results of operations, or MD&A, is provided as a supplement to the consolidated financial statements and notes thereto included elsewhere in this Quarterly Report and is intended to provide an understanding of our results of operations, financial condition and changes in financial condition. Our MD&A is organized as follows:

•  Introduction.  This section provides a general description of our company and operating segments, a description of certain recent developments, background information on certain trends and a discussion of how seasonal factors may impact the timing of our revenue.

•  Critical Accounting Policies and Estimates.  This section discusses those accounting policies that are considered important to the evaluation and reporting of our financial condition and results of operations, and whose application requires us to exercise subjective and often complex judgments in making estimates and assumptions.

•  Transactions with Emdeon.  This section describes the services that we receive from Emdeon and the costs of these services, as well as the fees we charge Emdeon Corporation (“Emdeon”) for our services.

•  Recent Accounting Pronouncements.  This section provides a summary of the most recent authoritative accounting standards and guidance that have either been recently adopted by our company or may be adopted in the future.

•  Results of Operations and Results of Operations by Operating Segment.  These sections provide our analysis and outlook for the significant line items on our statements of operations, as well as other information that we deem meaningful to understand our results of operations on both a consolidated basis and an operating segment basis.

•  Liquidity and Capital Resources.  This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments that existed as of September 30, 2006.

•  Factors That May Affect Our Future Financial Condition or Results of Operations.  This section describes circumstances or events that could have a negative effect on our financial condition or results of operations, or that could change, for the worse, existing trends in some or all of our businesses. The factors discussed in this section are in addition to factors that may be described elsewhere in this Quarterly Report.

In this MD&A, dollar amounts are in thousands, unless otherwise noted.

Introduction

Our Company

We are a leading provider of health information services to consumers, physicians and other healthcare professionals, employers and health plans. We have organized our business into two operating segments as follows:

•  Online Services.  We own and operate both public and private online portals. Our public portals enable consumers to become more informed about healthcare choices and assist them in playing an active role

25

in managing their health. The public portals also enable physicians and other healthcare professionals to improve their clinical knowledge and practice of medicine, as well as their communication with patients. Our public portals generate revenue primarily through the sale of advertising and sponsorship products, including continuing medical education (“CME”) services. Our sponsors and advertisers include pharmaceutical, biotechnology, medical device and consumer products companies. We provide information and services that enable employees and members, respectively, to make more informed benefit, treatment and provider decisions through our private portals for employers and health plans. We generate revenue from our private portals through the licensing of these portals to employers and health plans either directly or through distributors. We also distribute our online content and services to other entities and generate revenue from these arrangements through the sale of advertising and sponsorship products and content syndication fees. We also provide related services for use by such employees and members, including lifestyle education and personalized telephonic health coaching as a result of the acquisition of Summex Corporation (“Summex”) on June 13, 2006. The Company also provides physician recruitment services for use by pharmaceutical, medical device and healthcare companies as a result of the acquisition of Medsite, Inc. (“Medsite”), on September 11, 2006.

•  Publishing and Other Services.  We provide several offline products and services: ACP Medicine and ACS Surgery: Principles of Practice, our medical reference textbooks; The Little Blue Book, a physician directory; and WebMD the Magazine, a consumer-targeted publication launched in early 2005 that we distribute free of charge to physician office waiting rooms. We generate revenue from sales of subscriptions to our medical reference textbooks, sales of The Little Blue Book directories and advertisements in those directories, and sales of advertisements in WebMD the Magazine. We also conduct in-person medical education as a result of the acquisition of the assets of Conceptis Technologies, Inc. (“Conceptis”) in December 2005. Our Publishing and Other Services segment complements our Online Services segment and extends the reach of our brand and our influence among health-involved consumers and clinically-active physicians.

Recent Developments

Pending Acquisition of Subimo, LLC.  On November 2, 2006, we entered into a definitive agreement to acquire all of the outstanding limited liability company interests of Subimo, LLC (“Subimo”), a privately held provider of healthcare decision support applications to large employers, health plans and financial institutions. The purchase price for Subimo is $60,000, comprised of $34,000 in cash payable on the closing date and $26,000 in Class A Common Stock (“shares”) and/or cash (the “Subsequent Consideration”), whichever we select at the time the acquisition closes, such Subsequent Consideration to be paid on the second anniversary of the closing except as otherwise described below. The number of Shares, if any, to be included in the Subsequent Consideration shall be determined by dividing the amount of the Subsequent Consideration to be paid in Shares by the five-day trailing average price of Shares for a period prior to the closing date. The purchase price is subject to adjustments, including an adjustment based on the amounts of net working capital of Subimo at closing, of indebtedness of Subimo at closing and of certain transaction expenses payable on behalf of the sellers.

If the Subsequent Consideration includes Shares and the value of the Subsequent Consideration is less than $15,600 when the Shares are issued (or, in certain circumstances, when a registration statement becomes effective), then we shall be required to pay the amount by which the aggregate value of the Subsequent Consideration is less than $15,600 minus any portion of the Subsequent Consideration for which a right of setoff has been applied by us to fulfill indemnification obligations of the sellers. We will have the option of paying the amount described in the preceding sentence in the form of cash or additional Shares. Senior management of Subimo will be entering into long-term employment agreements with Subimo effective as of the closing date. The portion of the Subsequent Consideration payable to certain of those members of senior management will be paid on the fourth anniversary of the closing if the person is terminated for cause under his or her employment agreement or voluntarily terminates employment prior to the payment of the Subsequent Consideration.

26

The acquisition, which is subject to customary closing conditions, is expected to close before the end of 2006 and will be included in the Company’s Online Services segment from the date of the closing of the acquisition.

Acquisition of eMedicine.com, Inc.  On January 17, 2006, we acquired eMedicine.com, Inc. (“eMedicine”), a privately held online publisher of medical reference information for physicians and other healthcare professionals. The total purchase consideration for eMedicine was approximately $25,382, comprised of $24,682 in cash, net of cash acquired, and $700 of estimated acquisition costs. The results of operations of eMedicine have been included in our financial statements from January 17, 2006, the closing date of the acquisition, and are included in the Online Services segment.

Acquisition of Summex Corporation.  On June 13, 2006, we acquired Summex, a provider of health and wellness programs that include online and offline health risk assessments, lifestyle education and personalized telephonic health coaching. The Summex programs complement the online health and benefits platform that we provide to employers and health plans. Summex’s team of professional health coaches work one-on-one with employees and plan members to modify behaviors that may lead to illness and high medical costs. The total purchase consideration for Summex was approximately $30,191, comprised of $29,691 in cash, net of cash acquired, and $500 of estimated acquisition costs. In addition, the Company has agreed to pay up to an additional $10,000 in cash over a two-year period if certain financial milestones are achieved. The results of operations of Summex have been included in our financial statements from June 13, 2006, the closing date of the acquisition, and are included in the Online Services segment.

Acquisition of Medsite.  On September 11, 2006, we acquired the interactive medical education, promotion and physician recruitment businesses of Medsite. Medsite provides e-detailing services for pharmaceutical, medical device and healthcare companies, including program development, targeted recruitment and online distribution and delivery. In addition, Medsite provides educational programs to physicians. The total purchase consideration for Medsite was approximately $31,467, comprised of $30,682 in cash, net of cash acquired, and $785 of estimated acquisition costs. The results of operations of Mediste have been included in the financial statements of the Company from September 11, 2006, the closing date of the acquisition, and are included in the Online Services segment.

Background Information on Certain Trends and Strategies

Use of the Internet by Consumer and Physicians.  The Internet has emerged as a major communications medium and has already fundamentally changed many sectors of the economy, including the marketing and sales of financial services, travel, and entertainment, among others. The Internet is also changing the healthcare industry and has transformed how consumers and physicians find and utilize healthcare information. As consumers are required to assume greater financial responsibility for rising healthcare costs, the Internet serves as a valuable resource by providing them with immediate access to searchable and dynamic interactive content to check symptoms, assess risks, understand diseases, find providers and evaluate treatment options. The Internet has also become a primary source of information for physicians seeking to improve clinical practice and is growing relative to traditional information sources such as conferences, meetings and offline journals.

Increased Online Marketing and Education Spending for Healthcare Products.  Pharmaceutical, biotechnology and medical device companies spend large amounts each year marketing their products and educating consumers and physicians about them, however, only a small portion of this amount is currently spent on online services. We believe that these companies, which comprise the majority of our advertisers and sponsors, are becoming increasingly aware of the effectiveness of the Internet relative to traditional media in providing health, clinical and product-related information to consumers and physicians, and this increasing awareness will result in increasing demand for our services.

Changes in Health Plan Design; Health Management Initiatives.  While overall healthcare costs have been rising at a rapid annual rate, employers’ costs of providing healthcare benefits to their employees have been increasing at an even faster rate. In response to these increases, employers are seeking to shift a greater portion of healthcare costs onto their employees and to redefine traditional health benefits. Employers and health plans want to motivate their members and employees to evaluate their healthcare decisions more carefully in order to

27

be more cost-effective. As employers continue to implement high deductible and consumer-directed healthcare plans (referred to as CDHPs) and related Health Savings Accounts (referred to as HSAs) to achieve these goals, we believe that we will be able to attract more employers and health plans to use our private online portals. In addition, health plans and employers have begun to recognize that encouraging the good health of their members and employees not only benefits the members and employees but also has financial benefits for the health plans and employers. Accordingly, many employers and health plans have been enhancing health management programs and taking steps to provide healthcare information and education to employees and members, including through online services. We believe that we are well positioned to benefit from these trends because our private portals provide the tools and information employees and plan members need in order to make more informed decisions about healthcare provider, benefit and treatment options.

Traffic to the WebMD Health Network.  During the past several years, an increasing portion of the page view traffic to The WebMD Health Network has come from Web sites that we own. However, a portion of the total page view traffic continues to come from Web sites owned by third parties that carry our content (including the AOL division of Time Warner). During the quarter ended September 30, 2006, third party Web sites accounted for approximately 6% of The WebMD Health Network’s aggregate page views. In the past, an even larger percentage of the total page view traffic had come from third party Web sites. Under an agreement between WebMD and the AOL division of Time Warner (“AOL”), which was entered into in May 2001 and expires on May 1, 2007, WebMD provides healthcare content, tools and services for use on certain AOL properties. WebMD does not expect its existing agreement with AOL to continue following the expiration of that agreement. The monthly unique users and page view traffic from AOL was 6% and 3%, respectively, of the aggregate WebMD Health Network monthly unique users and page view traffic for the quarter ended September 30, 2006. As a result of the expiration of that agreement in May 2007, the monthly unique users and page view traffic from AOL will no longer be part of the WebMD Health Network. Additionally, revenues and earnings of approximately $5 million per year related to certain contractual guarantees will also end with the expiration of that agreement.

Seasonality

The timing of our revenue is affected by seasonal factors. Advertising and sponsorship revenue within our Online Services segment is seasonal, primarily due to the annual budget approval process of the advertising and sponsorship clients of our public portals. This portion of our revenue is usually the lowest in the first quarter of each calendar year, and increases during each consecutive quarter throughout the year. Our private portal licensing revenue is historically higher in the second half of the year as new customers are typically added during this period in conjunction with their annual open enrollment periods for employee benefits. Finally, the annual distribution cycle within our Publishing and Other Services segment results in a significant portion of our revenue in this segment being recognized in the second and third quarter of each calendar year. The timing of revenue in relation to our expenses, much of which do not vary directly with revenue, has an impact on cost of operations, sales and marketing and general and administrative expenses as a percentage of revenue in each calendar quarter.

Critical Accounting Policies and Estimates

Our MD&A is based upon our unaudited consolidated financial statements and notes to unaudited consolidated financial statements, which were prepared in conformity with U.S. generally accepted accounting principles. The preparation of the unaudited consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. We base our estimates on historical experience, current business factors, and various other assumptions that we believe are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities and disclosure of contingent assets and liabilities. We are subject to uncertainties such as the impact of future events, economic and political factors, and changes in our business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in preparation of our financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Changes in

28

estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to our unaudited consolidated financial statements.

We evaluate our estimates on an ongoing basis, including those related to revenue recognition, the allowance for doubtful accounts, the carrying value of prepaid advertising, the carrying value of long-lived assets (including goodwill and intangible assets), the amortization period of long-lived assets (excluding goodwill), the carrying value, capitalization and amortization of software and Web site development costs, the provision for income taxes and related deferred tax accounts, certain accrued expenses and contingencies, share-based compensation to employees and transactions with Emdeon.

We believe the following reflects our critical accounting policies and our more significant judgments and estimates used in the preparation of our unaudited consolidated financial statements:

•  Revenue Recognition.  Revenue from advertising is recognized as advertisements are delivered or as publications are distributed. Revenue from sponsorship arrangements, content syndication and distribution arrangements, and licenses of healthcare management tools and private portals as well as related health coaching services are recognized ratably over the term of the applicable agreement. Revenue from the sponsorship of CME is recognized over the period we substantially complete our contractual deliverables as determined by the applicable agreements. Subscription revenue is recognized over the subscription period. When contractual arrangements contain multiple elements, revenue is allocated to each element based on its relative fair value determined using prices charged when elements are sold separately. In certain instances where fair value does not exist for all the elements, the amount of revenue allocated to the delivered elements equals the total consideration less the fair value of the undelivered elements.

•  Long-Lived Assets.  Our long-lived assets consist of property and equipment, goodwill and other intangible assets. Goodwill and other intangible assets arise from the acquisitions we have made. The amount assigned to intangible assets is subjective and based on our estimates of the future benefit of the intangible assets using accepted valuation techniques, such as discounted cash flow and replacement cost models. Our long-lived assets, excluding goodwill, are amortized over their estimated useful lives, which we determined based on the consideration of several factors including the period of time the asset is expected to remain in service. We evaluate the carrying value and remaining useful lives of long-lived assets, excluding goodwill, whenever indicators of impairment are present. We evaluate the carrying value of goodwill annually, and whenever indicators of impairment are present. We use a discounted cash flow approach to determine the fair value of goodwill. There was no impairment of goodwill noted as a result of our impairment testing in 2005.

•  Deferred Tax Assets.  Our deferred tax assets are comprised primarily of net operating loss carryforwards. At December 31, 2005, we had net operating loss carryforwards of approximately $642,563. Subject to certain limitations, these loss carryforwards may be used to offset taxable income in future periods, reducing the amount of taxes we might otherwise be required to pay. As of September 30, 2006, a valuation allowance has been provided against all net deferred taxes, except for a deferred tax liability originating from business combinations that resulted in tax deductible goodwill. The valuation allowance was established because of the uncertainty of realization of the deferred tax assets due to a lack of sufficient earnings history. Realization is dependent upon generating sufficient taxable income prior to the expiration of the net operating loss carryforwards in future periods. Although realization is not currently assured, management evaluates the need for a valuation allowance each quarter, and in the future, should management determine that realization of net deferred tax assets is more likely than not, some or all of the valuation allowance will be reversed and the Company’s effective tax rate may be reduced by such reversal.

•  Transactions with Emdeon.  As discussed further below, our expenses reflect a services fee for an allocation of costs for corporate services provided by Emdeon. Our expenses also reflect the allocation of a portion of the cost of Emdeon’s healthcare plans and the allocation of stock-based compensation expense related to restricted stock awards and other stock-based compensation. Our sales and marketing

29

expense reflects an allocation to Emdeon for the utilization by it of advertising services available to us from News Corporation. Additionally, our revenue includes revenue from Emdeon for services we provide.

Transactions with Emdeon

Agreements with Emdeon

In connection with our IPO in September 2005, we entered into a number of agreements with Emdeon governing the future relationship of the companies, including a Services Agreement, a Tax Sharing Agreement and an Indemnity Agreement. These agreements cover a variety of matters, including responsibility for certain liabilities, including tax liabilities, as well as matters related to Emdeon providing us with administrative services, such as payroll, accounting, tax, employee benefit plan, employee insurance, intellectual property, legal and information processing services.

On January 31, 2006, we entered into additional agreements with Emdeon in which both parties agreed to support each other’s product development and marketing efforts of specific product lines for agreed upon fees as defined in the agreements. The new agreements cover a term of five years.

On February 15, 2006, the Tax Sharing Agreement was amended to provide that Emdeon will compensate us for any use of our net operating losses that may result from certain extraordinary transactions, as defined in the Tax Sharing Agreement, including a sale by Emdeon of its Business Services and Practice Services operating segments.

On September 14, 2006, Emdeon completed the sale of Emdeon Practice Services segment for approximately $565,000 in cash. On September 26, 2006, Emdeon announced the sale of a 52% interest in its Emdeon Business Services segment for approximately $1,200,000 in cash. Emdeon expects to recognize a taxable gain on the sale of its Emdeon Practice Services and Business Services segments and expects to utilize a portion of its federal net operating loss (“NOL”) carryforwards to offset the gain on this transaction. Under the tax sharing agreement between Emdeon and the Company, the Company will be reimbursed for any of its NOL carryforwards utilized by Emdeon in this transaction at the current federal statutory rate of 35%. Emdeon currently estimates that the amount of the Company’s NOL carryforwards utilized in these two transactions will be approximately $370,000 to $410,000 resulting in a cash reimbursement to the Company of $129,000 to $143,000 which will be recorded as a capital contribution. The amount of the utilization of the Company’s NOL carryforwards and related reimbursement is based on various assumptions and will not be finalized until Emdeon completes the calculation of its 2006 federal income taxes.

Charges from the Company to Emdeon:

Revenue:  We sell certain of our products and services to Emdeon businesses. These amounts are included in revenue during the three and nine months ended September 30, 2006 and 2005. We charge Emdeon rates comparable to those charged to third parties for similar products and services.

Advertising Expense:  In 2005, we allocated costs to Emdeon based on its utilization of our advertising services. We no longer allocate any advertising expense to Emdeon, or other businesses of Emdeon, related to any advertising that promotes the WebMD brand. Our portion of the advertising services utilized is included in sales and marketing expense within the accompanying consolidated statements of operations, and is reported net of amounts charged to Emdeon.

Charges from Emdeon to the Company:

Corporate Services:  We are charged a services fee (the “Services Fee”) for costs related to corporate services provided to us by Emdeon. The services that Emdeon provides include certain administrative services, including payroll, accounting, tax planning and compliance, employee benefit plans, legal matters and information processing. In addition, we reimburse Emdeon for an allocated portion of certain expenses that Emdeon incurs for outside services and similar items, including insurance fees, outside personnel, facilities costs, professional fees, software maintenance fees and telecommunications costs. Emdeon has agreed to make

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the services available to us for up to 5 years following the IPO. These expense allocations were determined on a basis that we and Emdeon consider to be a reasonable assessment of the cost of providing these services, exclusive of any profit margin. The basis we and Emdeon used to determine these expense allocations required management to make certain judgments and assumptions. These cost allocations are reflected in the table below under the caption “Corporate services — shared services allocation”. Prior to the IPO, the Services Fee also included costs identified for dedicated employees managed centrally by Emdeon for certain of its functions across all of its segments. This portion of the Services Fee charged for dedicated employees included a charge for their salaries, plus an overhead charge for these employees calculated based on a pro rata portion of their salaries to total salaries within the function. The amount reflected in the table below under the caption “Corporate services — specific identification” reflects the costs for these employees through their date of transfer. The Services Fee is reflected in general and administrative expense within our consolidated statements of operations.

Healthcare Expense:  We are charged for our employees’ participation in Emdeon’s healthcare plans. Healthcare expense is charged based on the number of our total employees and reflects Emdeon’s average cost of these benefits per employee. Healthcare expense is reflected in the accompanying consolidated statements of operations in the same expense captions as the related salary costs of those employees.

Stock-Based Compensation Expense:  Stock-based compensation expense is related to stock option issuances and restricted stock awards of Emdeon’s Common Stock that have been granted to certain of our employees. Stock-based compensation expense is allocated on a specific employee identification basis. The expense is reflected in our consolidated statements of operations in the same expense captions as the related salary costs of those employees. The allocation of stock-based compensation expense related to Emdeon’s Common Stock is recorded as additional paid-in capital.

The following table summarizes the allocations reflected in our consolidated financial statements:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
Charges from the Company to Emdeon:
Intercompany revenue	$	125	$	215	$	416	$	215
Advertising expense		—		278		—		1,877
Charges from Emdeon to the Company:
Corporate services — specific identification		—		414		—		1,860
Corporate services — shared services allocation		792		829		2,476		2,561
Healthcare expense		1,093		684		2,917		2,118
Stock-based compensation expense		1,410		393		4,971		962

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standard Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, that this new standard will have on the Company’s results of operations, financial position or cash flows.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS Statement No. 109, “Accounting for Income Taxes.” The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company is

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currently evaluating the impact, if any, that this new standard will have on the Company’s results of operations, financial position or cash flows.

Results of Operations

The following table sets forth our consolidated statements of operations data and expresses that data as a percentage of revenue for the periods presented:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2006				2005				2006						2005
	As restated				As restated				As restated						As restated
	$		%		$		%		$			%			$		%
Revenue		66,645		100.0		45,094		100.0		173,308			100.0			119,834		100.0
Costs and expenses:
Cost of operations		26,945		40.4		18,020		40.0		77,371			44.6			51,531		43.0
Sales and marketing		20,472		30.7		13,534		30.0		52,941			30.5			36,663		30.6
General and administrative		13,476		20.2		6,582		14.6		37,931			21.9			21,787		18.2
Depreciation and amortization		5,085		7.6		2,733		6.0		12,627			7.3			7,985		6.7
Interest income		1,221		1.7		10		—		4,137			2.3			10		—
Income (loss) before income tax provision		1,888		2.8		4,235		9.4		(3,425	)		(2.0	)		1,878		1.5
Income tax provision (benefit)		1,398		2.1		703		1.6		(3	)		—			526		0.4
Net Income (loss)		490		0.7		3,532		7.8		(3,422	)		(2.0	)		1,352		1.1

Revenue is derived from our two business segments: Online Services and Publishing and Other Services. Our Online Services segment derives revenue from advertising, sponsorship (including online CME services), content syndication and distribution, and licenses of private online portals to employers, healthcare payers and others as well as related health coaching services. Our Publishing and Other Services segment derives revenue from sales of, and advertising in, our physician directories, subscriptions to our professional medical reference textbooks, and advertisements in WebMD the Magazine. As a result of the acquisition of the assets of Conceptis, we also generate revenue from in-person medical education programs.

Our customers include pharmaceutical, biotechnology, medical device and consumer products companies, as well as employers and health plans. Our customers also include physicians and other healthcare providers who buy our physician directories and reference textbooks.

Cost of operations consists of costs related to services and products we provide to customers and costs associated with the operation and maintenance of our public and private portals. These costs relate to editorial and production, Web site operations, non-capitalized Web site development costs, and costs related to the production and distribution of our publications. These costs consist of expenses related to salaries and related expenses, non-cash stock-based compensation, creating and licensing content, telecommunications, leased properties, printing and distribution, and non-cash advertising expenses.

Sales and marketing expense consists primarily of advertising, product and brand promotion, salaries and related expenses, and non-cash stock-based compensation. These expenses include items related to salaries and related expenses of account executives, account management and marketing personnel, costs and expenses for marketing programs, and fees for professional marketing and advertising services. Also included in sales and marketing expense are the non-cash advertising expenses discussed below.

General and administrative expense consists primarily of salaries, non-cash stock-based compensation and other salary-related expenses of administrative, finance, legal, information technology, human resources and executive personnel. These expenses include costs of general insurance and costs of accounting and internal control systems to support our operations and a services fee for our portion of certain expenses shared across all segments of Emdeon.

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Our discussions throughout this MD&A reference certain non-cash expenses. The following is a summary of our principal non-cash expenses:

•  Non-cash advertising expense.  Expense related to the use of our prepaid advertising inventory that we received from News Corporation in exchange for equity instruments that Emdeon issued in connection with an agreement it entered into with News Corporation in 1999 and subsequently amended in 2000. This non-cash advertising expense is included in cost of operations when we utilize this advertising inventory in conjunction with offline advertising and sponsorship programs and is included in sales and marketing expense when we use the asset for promotion of our brand. The portion of the non-cash expense that is reflected in sales and marketing expense is reflected net of the expense we charged to Emdeon in connection with its use of this asset during the three and nine months ended September 30, 2005.

•  Non-cash stock-based compensation expense.  Expense related to awards of our restricted Class A Common Stock and awards of restricted Emdeon common stock that have been granted to certain of our employees. Expense also related to shares issued to our non-employee directors. Non-cash stock-based compensation expense is reflected in the same expense captions as the related salary costs of the respective employees.

The following table is a summary of our non-cash expenses included in the respective statements of operations captions.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
Advertising expense:
Cost of operations		—		74		—		291
Sales and marketing		1,660		1,633		4,454		4,830
Total advertising expense		1,660		1,707		4,454		5,121
Stock-based compensation expense:
Cost of operations		2,362		66		7,111		227
Sales and marketing		1,598		70		4,610		252
General and administrative		3,261		276		9,519		502
Total stock-based compensation expense		7,221		412		21,240		981

Three and Nine Months Ended September 30, 2006 and 2005

The following discussion is a comparison of our results of operations on a consolidated basis for the three and nine months ended September 30, 2006 and 2005.

Revenue

Our total revenue increased 47.8% and 44.6% to $66,645 and $173,308 in the three and nine months ended September 30, 2006, respectively, from $45,094 and $119,834 during the same periods last year. The acquisitions completed in 2006 and 2005 contributed $6,238 and $19,081 to the increases in revenue for the three and nine months ended September 30, 2006, respectively. Online Services accounted for $19,715 and $46,352 or 50.3% and 43.2% of the revenue increase for the three and nine months ended September 30, 2006, respectively. Publishing and Other Services accounted for the remaining increase of $1,836 and $7,122 in the three and nine months ended September 30, 2006, respectively.

Costs and Expenses

Cost of Operations.  Cost of operations increased to $26,945 and $77,371 in the three and nine months ended September 30, 2006, respectively, from $18,020 and $51,531 during the same periods last year. As a percentage of revenue, cost of operations were 40.4% and 44.6% in the three and nine months ended September 30, 2006, respectively, compared to 40.0% and 43.0% in the same periods last year. Included in

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cost of operations in 2006 were non-cash expenses of $2,362 and $7,111 during the three and nine months ended September 30, 2006, respectively, compared to $140 and $518 during the same periods last year. The increases in non-cash expenses during the three and nine month periods compared to last year were primarily related to stock-based compensation expense as a result of the adoption of SFAS 123R. Cost of operations excluding non-cash expense was $24,583 and $70,260 in the three and nine months ended September 30, 2006, respectively, or 36.9% and 40.5% of revenue, compared to $17,880 and $51,013 or 39.7% and 42.6% during the same periods last year. 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 increases in absolute dollars for both periods were 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 a greater number of issues in 2006 compared with 2005 and expenses relating to our acquisitions also contributed to the increase. Additionally, the nine months ended September 30, 2005 included approximately $700 of severance costs.

Sales and Marketing.  Sales and marketing expense increased to $20,472 and $52,941 in the three and nine months ended September 30, 2006, respectively, from $13,534 and $36,663 in the same periods last year. As a percentage of revenue, sales and marketing expense was 30.7% and 30.5% for the three and nine months ended September 30, 2006, respectively, compared to 30.0% and 30.6% during the same periods last year. Included in sales and marketing expense were non-cash expenses related to advertising of $1,660 and $4,454 in the three and nine months ended September 30, 2006, respectively, compared to $1,633 and $4,830 in the same periods last year. Non-cash advertising expense decreased during the nine month ended September 30, 2006 compared to 2005 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 expense of $1,598 and $4,610 in the three and nine months ended September 30, 2006, respectively, compared to $70 and $252 in the same periods last year. The increases in non-cash expenses during the three and nine month periods compared to last year were 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 $17,214 and $43,877 or 25.8% and 25.3% of revenue in the three and nine months ended September 30, 2006, respectively, compared to $11,831 and $31,581 or 26.2% and 26.4% of revenue in the same periods last year. 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 sales and marketing expense. The increases in absolute dollars during the three and nine months ended September 30, 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 nine months ended September 30, 2005 included approximately $250 of severance costs.

General and Administrative.  General and administrative expense increased to $13,476 and $37,931 in the three and nine months ended September 30, 2006, respectively, from $6,582 and $21,787 in the same periods last year. As a percentage of revenues, general and administrative expense was 20.2% and 21.9% for the three and nine months ended September 30, 2006, respectively, compared to 14.6% and 18.2% during the same periods last year. Included in general and administrative expense during the three and nine months ended September 30, 2006 was non-cash stock-based compensation expense of $3,261 and $9,519 respectively, compared to $276 and $502 in the same periods last year. The increase in non-cash stock-based compensation expense was primarily due to the adoption of SFAS 123R. General and administrative expense, excluding non-cash expenses, was $10,215 and $28,412 or 15.3% and 16.4% of revenue in the three and nine months ended September 30, 2006, respectively, compared to $6,306 and $21,285 or 14.0% and 17.8% of revenue in the same periods last year. The increase for the three months ended September 30, 2006 compared to 2005, as a percentage of revenue, was primarily due to additional expenses from the acquired companies as well as public company expenses which did not exist in the prior year. The decrease as a percentage of revenue for the nine months ended September 30, 2006 compared to 2005 was primarily due to our ability to achieve the increases in revenue without incurring a proportional increase in general and administrative expense. The increases in absolute dollars for both periods were primarily attributable to higher staffing levels and increased expenses related to our acquisitions and public company related costs. Additionally, the nine months ended

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September 30, 2005 included a charge of $2,200 related to the resignation of our former CEO and the recruitment of our Executive Vice President of Product and Programming and Chief Technology Officer.

Depreciation and Amortization.  Depreciation and amortization expense increased to $5,085 and $12,627 in the three and nine months ended September 30, 2006, respectively, from $2,733 and $7,985 in the same periods last year. The increase over the prior year period was primarily due to amortization of intangible assets relating to the Summex, eMedicine, Conceptis and Medsite acquisitions as well as the increase in depreciation expense relating to capital expenditures in 2005 and 2006.

Interest Income.  Interest income of $1,221 and $4,137 for the three and nine months ended September 30, 2006 relates to our investment of excess cash including a portion of the proceeds from our IPO.

Income Tax Provision.  The income tax provision (benefit) of $1,398 and ($3) for the three and nine months ended September 30, 2006 compared to the income tax provision of $703 and $526 for the three and nine months ended September 30, 2005, respectively, includes expense related to federal, state and other jurisdictions including deferred tax expense related to a portion of our goodwill that is deductible for tax purposes.

Results of Operations by Operating Segment

We monitor the performance of our business based on earnings (loss) before interest, taxes, depreciation, amortization and other non-cash items. Other non-cash items include non-cash advertising expense and non-cash stock-based compensation expense. Corporate and other overhead functions are allocated to segments on a specifically identifiable basis or other reasonable method of allocation. We consider these allocations to be a reasonable reflection of the utilization of costs incurred. We do not disaggregate assets for internal management reporting and, therefore, such information is not presented. There are no inter-segment revenue transactions.

The following table presents the results of our operations for each of our operating segments and a reconciliation to net income (loss):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	As restated			As restated			As restated			As restated
Revenue
Online Services:
Advertising and sponsorship	$	43,534		$	28,054		$	112,513		$	77,497
Licensing		14,569			9,053			38,315			23,097
Content syndication and other		843			2,124			2,815			6,697
Total Online Services		58,946			39,231			153,643			107,291
Publishing and Other Services		7,699			5,863			19,665			12,543
	$	66,645		$	45,094		$	173,308		$	119,834
Earnings before interest, taxes, depreciation, amortization and other non-cash items
Online Services:	$	12,727		$	7,795		$	29,594		$	15,588
Publishing and Other Services		1,906			1,282			1,165			367
		14,633			9,077			30,759			15,955
Interest, taxes, depreciation, amortization and other non-cash items
Interest income		1,221			10			4,137			10
Depreciation and amortization		(5,085	)		(2,733	)		(12,627	)		(7,985	)
Non-cash advertising		(1,660	)		(1,707	)		(4,454	)		(5,121	)
Non-cash stock-based compensation		(7,221	)		(412	)		(21,240	)		(981	)
Income tax (provision) benefit		(1,398	)		(703	)		3			(526	)
Net income (loss)	$	490		$	3,532		$	(3,422	)	$	1,352

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The following discussion is a comparison of the results of operations for our two operating segments for the three and nine months ended September 30, 2006 and 2005.

Online Services.  Revenues were $58,946 and $153,643 for the three and nine months ended September 30, 2006, respectively, an increase of $19,715 and $46,352 or 50.3% and 43.2% from the same periods in the prior year. Advertising and sponsorship revenue increased $15,480 or 55.2% and $35,016 or 45.2% for the three and nine months ended September 30, 2006, respectively, compared to the same periods last year. The increase in advertising and sponsorship revenue was primarily attributable to an increase in the number of brands and sponsored programs promoted on our sites as well as the acquisitions of Conceptis in December 2005 , eMedicine in January 2006 and Medsite in September 2006. The acquisitions of Conceptis, eMedicine and Medsite contributed $4,230 and $11,676 of advertising and sponsorship revenue for the three and nine months ended September 30, 2006, respectively. Including the Conceptis and eMedicine acquisitions, the number of such programs grew to approximately 460 compared to approximately 320 last year. Licensing revenue increased $5,516 or 60.9% and $15,218 or 65.9% for the three and nine months ended September 30, 2006, respectively, compared to the same periods last year. This increase was due to an increase in the number of companies using our private portal platform to 91 from 73 last year. Additionally, the acquisition of Summex contributed $1,599 and $1,889 in licensing revenue for the three and nine months ended September 30, 2006. HealthShare revenue was $492 from March 14, 2005 through March 31, 2005. HealthShare pre-acquisition revenue for the period from January 1, 2005 to March 13, 2005 was $1,824. Content syndication and other revenue declined to $843 and $2,815 during the three and nine months ended September 30, 2006, respectively, from $2,124 and $6,697 during the same periods last year.

Our Online Services earnings before interest, taxes, depreciation, amortization and other non-cash items was $12,727 and $29,594 for the three and nine months ended September 30, 2006, respectively or 21.6% and 19.3% of revenue, respectively, compared to $7,795 and $15,588 or 19.9% and 14.5% of revenue in the same periods last year. This increase as a percentage of revenue was primarily due to higher revenue from the increase in number of brands and sponsored programs in our public portals as well as the increase in companies using our private online portal without incurring a proportionate increase in overall expenses, offset by a charge of approximately $3,150 during the nine months ended September 30, 2005 related to the resignation of our former CEO and the recruitment of our Executive Vice President of Product and Programming and Chief Technology Officer.

Publishing and Other Services.  Our Publishing and Other Services revenue was $7,699 and $19,665 during the three and nine months ended September 30, 2006, respectively, compared to $5,863 and $12,543 in the same periods last year. The increase was primarily attributable to timing of WebMD the Magazine which shipped two issues during the three months ended September 30, 2006 compared to one issue in 2005, our acquisition of Conceptis in December 2005, which contributed $410 and $3,558 in offline medical education revenue for the three and nine month ended September 30, 2006, respectively, and higher revenue from The Little Blue Book physician oriented offerings. Our Publishing and Other Services earnings before interest, taxes, depreciation, amortization and other non-cash items was $1,906 and $1,165 during the three and nine months ended September 30, 2006, compared to $1,282 and $367 during the same periods last year. These changes were primarily attributable to a change in mix of revenues to higher margin products compared to the same periods last year.

Liquidity and Capital Resources

As of September 30, 2006, we had $85,086 of cash and cash equivalents and short-term investments. Our working capital as of September 30, 2006 was $63,240. Our working capital is affected by the timing of each period end in relation to items such as payments received from customers and payments made to vendors and our parent company, internal payroll and billing cycles, as well as the seasonality within our business. Accordingly, our working capital, and its impact on cash flow from operations, can fluctuate materially from period to period.

Cash provided by operating activities during the nine months ended September 30, 2006 was $43,402, primarily as a result of our earnings before interest, taxes, depreciation, amortization and other non-cash items

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of $30,759 and sources of cash from changes in working capital of $9,414. Sources of cash from changes in working capital were due to an increase in deferred revenue of $14,517 and liability due to parent of $8,213, partially offset by increases in accounts receivable of $8,311 and other assets of $4,461 and decreases in accrued expenses and other long-term liabilities of $544. Cash provided by operating activities during the nine months ended September 30, 2005 was $18,972 which was primarily due to earnings before interest, taxes, depreciation, amortization and other non-cash items of $15,955 and sources of cash from changes in working capital of $3,271. Sources of cash from changes in working capital were due to increases in deferred revenue of $778 and accrued expenses and other long-term liabilities of $2,798

Cash used in investing activities during the nine months ended September 30, 2006 was $74,591 which primarily related to net purchases of available-for-sale securities of $39,000, the acquisitions of Summex, Medsite, and eMedicine and investments in property and equipment primarily to enhance our technology platform. Cash flow used in investing activities was $46,406 during the nine months ended September 30, 2005, which primarily related to the acquisition of HealthShare and the build-out of our new corporate offices in New York.

Cash provided by financing activities during the nine months ended September 30, 2005 principally related to net cash amounts received from, or transferred to, Emdeon. Emdeon did not transfer cash to us for financing activities during the nine months ended September 30, 2006.

Potential future cash commitments include $34,000 related to the pending acquisition of Subimo in the fourth quarter of 2006, a contingent consideration payment of up to $2,500 for RxList which will be determined based on 2006 measurements, a $10,000 contingent consideration payment for Summex which will be determined based on certain revenue thresholds during future years and our anticipated 2006 capital expenditure requirements for the full year which we currently estimate at approximately $25,000 to $30,000. Our anticipated capital expenditures relate to investments in our websites in order to enable us to service future growth in unique users, page views and private portal customers, to create new sponsorship areas for our customers, as well as the relocation of our private portal business offices to larger facilities in the fourth quarter of 2006.

We believe that our available cash resources, future cash flow from operations and cash reimbursements from Emdeon for their utilization of our tax net operating loss carryforwards will provide sufficient cash resources to meet the commitments described above and to fund our currently anticipated working capital and capital expenditure requirements for up to twenty-four months. Our future liquidity and capital requirements will depend upon numerous factors, including retention of customers at current volume and revenue levels, our existing and new application and service offerings, competing technological and market developments, and potential future acquisitions. In addition, our ability to generate cash flow is subject to numerous factors beyond our control, including general economic, regulatory and other matters affecting us and our customers. We plan to continue to enhance the relevance of our online services to our audience and sponsors and will continue to invest in acquisitions, strategic relationships, facilities and technological infrastructure and product development. We intend to grow each of our existing businesses and enter into complementary ones through both internal investments and acquisitions. We may need to raise additional funds to support expansion, develop new or enhanced applications and services, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated opportunities. If required, we may raise such additional funds through public or private debt or equity financing, strategic relationships or other arrangements. We cannot assure you that such financing will be available on acceptable terms, if at all, or that such financing will not be dilutive to our stockholders. Future indebtedness may impose various restrictions and covenants on us that could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities.

Factors That May Affect Our Future Financial Condition or Results of Operations

This section describes circumstances or events that could have a negative effect on our financial results or operations or that could change, for the worse, existing trends in some or all of our businesses. The occurrence of one or more of the circumstances or events described below could have a material adverse effect on our

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financial condition, results of operations and cash flows or on the trading prices of our Class A Common Stock or securities we may issue in the future. The risks and uncertainties described in this Quarterly Report are not the only ones facing us. Additional risks and uncertainties that are not currently known to us or that we currently believe are immaterial may also adversely affect our business and operations.

Risks Related to Our Operations and Financial Performance

If we are unable to provide content and services that attract and retain users to The WebMD Health Network on a consistent basis, our advertising and sponsorship revenue could be reduced

Users of The WebMD Health Network have numerous other online and offline sources of healthcare information services. Our ability to compete for user traffic on our public portals depends upon our ability to make available a variety of health and medical content, decision-support applications and other services that meet the needs of a variety of types of users, including consumers, physicians and other healthcare professionals, with a variety of reasons for seeking information. Our ability to do so depends, in turn, on:

•  our ability to hire and retain qualified authors, journalists and independent writers;

•  our ability to license quality content from third parties; and

•  our ability to monitor and respond to increases and decreases in user interest in specific topics.

We cannot assure you that we will be able to continue to develop or acquire needed content, applications and tools at a reasonable cost. In addition, since consumer users of our public portals may be attracted to The WebMD Health Network as a result of a specific condition or for a specific purpose, it is difficult for us to predict the rate at which they will return to the public portals. Because we generate revenue by, among other things, selling sponsorships of specific pages, sections or events on The WebMD Health Network, a decline in user traffic levels or a reduction in the number of pages viewed by users could cause our revenue to decrease and could have a material adverse effect on our results of operations.

Developing and implementing new and updated applications, features and services for our public and private portals may take longer and cost more than expected and may not result in sufficient increases in revenue to justify the costs

Attracting and retaining users of our public portals and clients for our private portals requires us to continue to improve the technology underlying those portals and to continue to develop new and updated applications, features and services for those portals. We rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our portals and related applications, features and services. Our development and/or implementation of new technologies, applications, features and services may cost more than expected, may take longer than originally expected, may require more testing than originally anticipated and may require the acquisition of additional personnel and other resources. There can be no assurance that the revenue opportunities from any new or updated technologies, applications, features or services will justify the amounts spent.

We face significant competition for our products and services

The markets in which we operate are intensely competitive, continually evolving and, in some cases, subject to rapid change.

•  Our public portals face competition from numerous other companies, both in attracting users and in generating revenue from advertisers and sponsors. We compete for users with online services and Web sites that provide health-related information, including both commercial sites and not-for-profit sites. We compete for advertisers and sponsors with both health-related Web sites and general purpose consumer online services and portals and other high-traffic Web sites that include both healthcare-related and non-healthcare-related content and services.

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•  Our private portals compete with providers of healthcare decision-support tools and online health management applications; wellness and disease management vendors; and health information services and health management offerings of health plans and their affiliates.

•  Our Publishing and Other Services segment’s products and services compete with numerous other online and offline sources of healthcare information, including traditional medical reference publications, print journals and other specialized publications targeted to physicians, some of which have a more complete range of titles and better access to traditional distribution channels than we have.

Many of our competitors have greater financial, technical, product development, marketing and other resources than we do. These organizations may be better known than we are and have more customers or users than we do. We cannot provide assurance that we will be able to compete successfully against these organizations or any alliances they have formed or may form. Since there are no substantial barriers to entry into the markets in which our public portals participate, we expect that competitors will continue to enter these markets. For more information about the competition we face, see “Business — Competition” in our Annual Report on Form 10-K for the year ended December 31, 2005.

Failure to maintain and enhance the “WebMD” brand could have a material adverse effect on our business

We believe that the “WebMD” brand identity that we have developed has contributed to the success of our business and has helped us achieve recognition as a trusted source of health and wellness information. We also believe that maintaining and enhancing that brand is important to expanding the user base for our public portals, to our relationships with sponsors and advertisers and to our ability to gain additional employer and healthcare payer clients for our private portals. We have expended considerable resources on establishing and enhancing the “WebMD” brand and our other brands, and we have developed policies and procedures designed to preserve and enhance our brands, including editorial procedures designed to provide quality control of the information we publish. We expect to continue to devote resources and efforts to maintain and enhance our brand. However, we may not be able to successfully maintain or enhance awareness of our brands, and events outside of our control may have a negative affect on our brands. If we are unable to maintain or enhance awareness of our brand, and in a cost-effective manner, our business could be materially and adversely affected.

We have incurred and may continue to incur losses

Our operating results have fluctuated significantly in the past from quarter to quarter and may continue to do so in the future. Our net losses from 2001 to 2003 totaled approximately $2.6 billion. Our online businesses participate in relatively new and rapidly evolving markets. Many companies with business plans based on providing healthcare information through the Internet have failed to be profitable and some have filed for bankruptcy and/or ceased operations. Even if demand from users exists, we cannot assure you that our business will be profitable.

In addition, our online businesses have a limited operating history and participate in relatively new and rapidly growing markets. These businesses have undergone significant changes during their short history as a result of changes in the types of services provided, technological changes, changes in market conditions, and changes in ownership and management, and are expected to continue to change for similar reasons.

Our failure to attract and retain qualified executives and employees may have a material adverse effect on our business

Our business depends largely on the skills, experience and performance of key members of our management team. We also depend, in part, on our ability to attract and retain qualified writers and editors, software developers and other technical personnel and sales and marketing personnel. Competition for qualified personnel in the healthcare information services and Internet industries is intense. We cannot assure you that we will be able to hire or retain a sufficient number of qualified personnel to meet our requirements, or that we will be able to do so at salary and benefit costs that are acceptable to us. Failure to do so may have an adverse effect on our business.

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If we are unable to provide healthcare content for our offline publications that attracts and retains users, our revenue will be reduced

Interest in our publications for physicians, such as The Little Blue Book and ACP Medicine and ACS Surgery: Principles and Practice, is based upon our ability to make available up-to-date health content that meets the needs of our physician users. Although we have been able to continue to update and maintain the physician practice information that we publish in The Little Blue Book, if we are unable to continue to do so for any reason, the value of The Little Blue Book would diminish and interest in this publication and advertising in this publication would be adversely affected.

Similarly, our ability to maintain or increase the subscriptions to ACP Medicine and ACS Surgery is based upon our ability to make available up-to-date content which depends on our ability to retain qualified physician authors and writers in the disciplines covered by these publications. We cannot assure you that we will be able to retain qualified physician editors or authors to provide and review needed content at a reasonable cost. If we are unable to provide content that attracts and retains subscribers, subscriptions to these products will be reduced. In addition, the American College of Physicians permits WebMD to use the ACP name in the title of ACP Medicine and the American College of Surgeons permits WebMD to use the name ACS in the title of ACS Surgery: Principles and Practice. If we lose the right to use the ACP or ACS name in our publications, subscribers may find the publication less attractive and cease to subscribe to these publications.

WebMD the Magazine was launched in April 2005 and, as a result, has a very short operating history. We cannot assure you that WebMD the Magazine will be able to attract and retain advertisers to make this publication successful in the long term.

The timing of our advertising and sponsorship revenue may vary significantly from quarter to quarter

Our advertising and sponsorship revenue, which accounted for approximately 73% of our total Online Services segment revenue for the three months ended June 30, 2006, may vary significantly from quarter to quarter due to a number of factors, not all of which are in our control, and any of which may be difficult to forecast accurately. The majority of our advertising and sponsorship contracts are for terms of approximately four to 12 months. We have relatively few longer term advertising and sponsorship contracts. We cannot assure you that our current customers for these services will continue to use our services beyond the terms of their existing contracts or that they will enter into any additional contracts.

In addition, the time between the date of initial contact with a potential advertiser or sponsor regarding a specific program and the execution of a contract with the advertiser or sponsor for that program may be lengthy, especially for larger contracts, and may be subject to delays over which we have little or no control, including as a result of budgetary constraints of the advertiser or sponsor or their need for internal approvals. Other factors that could affect the timing of our revenue from advertisers and sponsors include:

•  the timing of FDA approval for new products or for new approved uses for existing products;

•  seasonal factors relating to the prevalence of specific health conditions and other seasonal factors that may affect the timing of promotional campaigns for specific products; and

•  the scheduling of conferences for physicians and other healthcare professionals.

Lengthy sales and implementation cycles for our private online portals make it difficult to forecast our revenues from these applications and, as a result, may have an adverse impact on our business

The period from our initial contact with a potential client for a private online portal and the first purchase of our solution by the client is difficult to predict. In the past, this period has generally ranged from six to 12 months, but in some cases has been longer. These sales may be subject to delays due to a client’s internal procedures for approving large expenditures and other factors beyond our control. The time it takes to implement a private online portal is also difficult to predict and has lasted as long as six months from contract execution to the commencement of live operation. Implementation may be subject to delays based on the

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availability of the internal resources of the client that are needed and other factors outside of our control. As a result, we have limited ability to forecast the timing of revenue from new clients. This, in turn, makes it more difficult to predict our financial performance from quarter to quarter.

During the sales cycle and the implementation period, we may expend substantial time, effort and money preparing contract proposals, negotiating contracts and implementing the private online portal without receiving any related revenue. In addition, many of the expenses related to providing private online portals are relatively fixed in the short term, including personnel costs and technology and infrastructure costs. Even if our revenue is lower than expected, we may not be able to reduce our short-term spending in response. Any shortfall in revenue would have a direct impact on our results of operations.

We continue to be dependent on Emdeon to provide us with services required by us for the operation of our business

Many administrative services required by us for the operation of our business continue to be provided to us by Emdeon under a Services Agreement. Under the Services Agreement, Emdeon provides us with administrative services, including services relating to payroll, accounting, tax planning and compliance, employee benefit plans, legal matters and information processing. As a result, we are dependent on our relationship with Emdeon for these important services. We reimburse Emdeon under agreed upon formulas that allocate to us a portion of Emdeon’s aggregate costs related to those services. The Services Agreement is for a term of up to five years, however, we have the option to terminate these services, in whole or in part, at any time we choose to do so, generally by providing, with respect to specified services or groups of services, 60 days’ notice and, in some cases, paying a termination fee of not more than $30,000 to cover the costs of Emdeon relating to the termination.

The costs we are charged under the Services Agreement are not necessarily indicative of the costs that we would incur if we had to provide the services on our own or contract for them with third parties on a stand-alone basis. With respect to most of the services provided under the Services Agreement, we believe that it is likely that it would cost us more to provide them or contract for them on our own because we benefit from Emdeon’s economies of scale as a larger corporation.

We will be required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results from such evaluation or from the evaluation that will be conducted by our auditors could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on Form 10-K for the fiscal year ending December 31, 2006, we will be required to include a report by our management on our internal control over financial reporting. Such report will contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Such report must also contain a statement that our auditors have issued an attestation report on management’s assessment of such internal controls.

We are currently in the process of preparing to comply with Section 404. We have some experience with documenting, testing and evaluating internal control over financial reporting because our business is a segment of Emdeon, which has already been required to evaluate its internal control over financial reporting under Section 404. However, we have not been through this process for WebMD itself and, because WebMD is a smaller company, certain of the materiality thresholds applicable in WebMD’s internal control over financial reporting will be lower than those applicable to Emdeon. In addition, we have implemented financial reporting processes that are separate from those of Emdeon, using different financial reporting software than Emdeon uses. We will need to document, test and evaluate our internal control over financial reporting in connection with such implementation.

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If our management identifies one or more material weaknesses in our internal control over financial reporting as of December 31, 2006, we will be unable to assert such internal control is effective in our initial management report on such internal control. If we are unable to make that assertion (or if our auditors are unable to attest that our management’s report is fairly stated or they are unable to express an opinion on the effectiveness of our internal controls), investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

The concentrated ownership of our common stock by Emdeon and certain corporate governance arrangements prevent our other stockholders from influencing significant corporate decisions

We have two classes of common stock:

•  Class A Common Stock, which entitles the holder to one vote per share on all matters submitted to our stockholders; and

•  Class B Common Stock, which entitles the holder to five votes per share on all matters submitted to our stockholders.

Emdeon owns 100% of our Class B Common Stock, which represents 85.6% of our outstanding common stock. These Class B shares collectively represent 96.6% of the combined voting power of our outstanding common stock. Given its ownership interest, Emdeon is able to control the outcome of all matters submitted to our shareholders for approval, including the election of directors. This in turn may have an adverse affect on the market price of our Class A Common Stock.

We are included in Emdeon’s consolidated tax return and, as a result, both we and Emdeon may use each other’s net operating loss carryforwards

Due to provisions of the U.S. Internal Revenue Code and applicable Treasury regulations relating to the manner and order in which net operating loss carryforwards are utilized when filing consolidated tax returns, a portion of our net operating loss carryforwards may be required to be utilized by Emdeon before Emdeon would be permitted to utilize its own net operating loss carryforwards. Correspondingly, in some situations, such as where Emdeon’s net operating loss carryforwards were generated first, we may be required to utilize a portion of Emdeon’s net operating loss carryforwards before we would have to utilize our own net operating loss carryforwards. Under our tax sharing agreement with Emdeon, neither we nor Emdeon is obligated to reimburse the other for the tax savings attributable to the utilization of the other party’s net operating loss carryforwards, except that Emdeon has agreed to compensate us for any use of our net operating losses that may result from certain extraordinary transactions, including a sale of its Business Services or Practice Services operating segments. Accordingly, although we may obtain a benefit if we are required to utilize Emdeon’s net operating loss carryforwards, we may suffer a detriment to the extent that Emdeon is required to utilize our net operating loss carryforwards. The amount of each of our and Emdeon’s net operating loss carryforwards that ultimately could be utilized by the other party will depend on the timing and amount of taxable income earned by us and Emdeon in the future, which we are unable to predict. Correspondingly, we are not able to predict whether we or Emdeon will be able to utilize our respective net operating loss carryforwards before they expire or whether there will be a net benefit to Emdeon or to us.

Risks Related to Our Relationships with Clients

Developments in the healthcare industry could adversely affect our business

Most of our revenue is derived from the healthcare industry and could be affected by changes affecting healthcare spending. General reductions in expenditures by healthcare industry participants could result from, among other things:

•  government regulation or private initiatives that affect the manner in which healthcare providers interact with patients, payers or other healthcare industry participants, including changes in pricing or means of delivery of healthcare products and services;

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•  consolidation of healthcare industry participants;

•  reductions in governmental funding for healthcare; and

•  adverse changes in business or economic conditions affecting healthcare payers or providers, pharmaceutical, biotechnology or medical device companies or other healthcare industry participants.

We are particularly dependent on pharmaceutical, biotechnology and medical device companies for our advertising and sponsorship revenue. Our business will be adversely impacted if business or economic conditions result in the reduction of purchases by our customers if they decide not to renew their commitments or decide to renew their commitments at lower levels. Even if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced spending in some or all of the specific segments of that market we serve or are planning to serve. For example, use of our products and services could be affected by:

•  changes in the design of health insurance plans;

•  a decrease in the number of new drugs or medical devices coming to market; and

•  decreases in marketing expenditures by pharmaceutical companies or consumer product companies, including as a result of governmental regulation or private initiatives that discourage or prohibit advertising or sponsorship activities by pharmaceutical or medical device companies.

In addition, our customers’ expectations regarding pending or potential industry developments may also affect their budgeting processes and spending plans with respect to products and services of the types we provide.

The healthcare industry has changed significantly in recent years and we expect that significant changes will continue to occur. However, the timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the markets for our products and services will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets.

The WebMD Health Network includes Web sites that we supply content to, but do not own, and the termination of our relationship with the owners of these Web sites may negatively affect our results of operations

Although a substantial majority of the page view traffic to The WebMD Health Network is from Web sites that we own, some are from Web sites owned by third parties that carry our content (including the AOL division of Time Warner) and, as a result, The WebMD Health Network’s traffic may vary based on the amount of traffic to Web sites of these third parties and other factors outside our control. During the quarter ended September 30, 2006, third party Web sites accounted for approximately 6% of The WebMD Health Network’s aggregate page views.

WebMD does not expect its existing agreement with AOL to continue following the expiration of that agreement in May 2007. The monthly unique users and page view traffic from AOL was less than 6% and 3%, respectively of The WebMD Health Network’s monthly unique users and page view traffic for the quarter ended September 30, 2006. As a result of the expiration, the page view traffic from AOL will no longer be part of The WebMD Health Network. Additionally, revenues and earnings of approximately $5 million per year related to certain contractual guarantees will also end with the expiration of that agreement.

In the event that any of our other relationships with third party Web sites are terminated, The WebMD Health Network’s user page view traffic may be negatively affected, which may negatively affect our results of operations.

We may be unsuccessful in our efforts to increase advertising and sponsorship revenue from consumer   products companies

Most of our advertising and sponsorship revenue has, in the past, come from pharmaceutical, biotechnology and medical device companies. During the past year, we have been focusing on increasing sponsorship revenue from consumer products companies that are interested in communicating health-related or safety-

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related information about their products to our audience. However, while a number of consumer products companies have indicated an intent to increase the portion of their promotional spending used on the Internet, we cannot assure you that these advertisers and sponsors will find our consumer Web site to be as effective as other Web sites or traditional media for promoting their products and services. If we encounter difficulties in competing with the other alternatives available to consumer products companies, this portion of our business may develop more slowly than we expect or may fail to develop.

We could be subject to breach of warranty or other claims by clients of our online portals if the software and systems we use to provide them contain errors or experience failures

Errors in the software and systems we use could cause serious problems for clients of our online portals. We may fail to meet contractual performance standards or fail to meet expectations that our clients have for them. Clients of our online portals may seek compensation from us or may seek to terminate their agreements with us, withhold payments due to us, seek refunds from us of part or all of the fees charged under those agreements or initiate litigation or other dispute resolution procedures. In addition, we could face breach of warranty or other claims by clients or additional development costs. Our software and systems are inherently complex and, despite testing and quality control, we cannot be certain that they are error free.

We attempt to limit, by contract, our liability to our clients for damages arising from our negligence, errors or mistakes. However, contractual limitations on liability may not be enforceable in certain circumstances or may otherwise not provide sufficient protection to us from liability for damages. We maintain liability insurance coverage, including coverage for errors and omissions. However, it is possible that claims could exceed the amount of our applicable insurance coverage, if any, or that this coverage may not continue to be available on acceptable terms or in sufficient amounts. Even if these claims do not result in liability to us, investigating and defending against them could be expensive and time consuming and could divert management’s attention away from our operations. In addition, negative publicity caused by these events may delay or hinder market acceptance of our services, including unrelated services.

Risks Related to Use of the Internet and to Our Technological Infrastructure

Our Internet-based services are dependent on the development and maintenance of the Internet infrastructure

Our ability to deliver our Internet-based services is dependent on the development and maintenance of the infrastructure of the Internet by third parties. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as timely development of complementary products such as high-speed modems, for providing reliable Internet access and services. The Internet has experienced, and is likely to continue to experience, significant growth in the number of users and the amount of traffic. If the Internet continues to experience increased usage, the Internet infrastructure may be unable to support the demands placed on it. In addition, the reliability and performance of the Internet may be harmed by increased usage or by denial-of-service attacks.

The Internet has experienced a variety of outages and other delays as a result of damages to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as the availability of the Internet to us for delivery of our Internet-based services. In addition, our customers who utilize our Web-based services depend on Internet service providers, online service providers and other Web site operators for access to our Web sites. All of these providers have experienced significant outages in the past and could experience outages, delays and other difficulties in the future due to system failures unrelated to our systems. Any significant interruptions in our services or increases in response time could result in a loss of potential or existing users of and advertisers and sponsors on our Web sites and, if sustained or repeated, could reduce the attractiveness of our services.

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We rely on bandwidth providers, data center providers, other third parties and our own systems for key aspects of the process of providing products and services to our users, and any failure or interruption in the services provided by these third parties or our own systems could harm our business

Our online services are designed to operate 24 hours a day, seven days a week, without interruption. However, we have experienced and expect that we will experience interruptions and delays in services and availability from time to time. We rely on internal systems as well as third party vendors, including data center providers and bandwidth providers, to provide our online services. We do not maintain redundant systems or facilities for some of these services. In the event of a catastrophic event at one of our data centers, we may experience an extended period of system unavailability, which could negatively impact our relationship with users and adversely affect our brand and our business. To operate without interruption, both we and our service providers must guard against:

•  damage from fire, power loss and other natural disasters;

•  communications failures;

•  software and hardware errors, failures and crashes;

•  security breaches, computer viruses and similar disruptive problems; and

•  other potential interruptions.

Any disruption in the network access or co-location services provided by these third party providers or any failure of or by these third party providers or our own systems to handle current or higher volume of use could significantly harm our business. We exercise little control over these third party vendors, which increases our vulnerability to problems with services they provide.

Any errors, failures, interruptions or delays experienced in connection with these third party technologies and information services or our own systems could negatively impact our relationships with users and adversely affect our brand and our business and could expose us to liabilities to third parties. Although we maintain insurance for our business, the coverage under our policies may not be adequate to compensate us for all losses that may occur. In addition, we cannot provide assurance that we will continue to be able to obtain adequate insurance coverage at an acceptable cost.

Implementation of additions to or changes in hardware and software platforms used to deliver our online services may result in performance problems and may not provide the additional functionality that was expected

From time to time, we implement additions to or changes in the hardware and software platforms we use for providing our online services. During and after the implementation of additions or changes, a platform may not perform as expected, which could result in interruptions in operations, an increase in response time or an inability to track performance metrics. In addition, in connection with integrating acquired businesses, we may move their operations to our hardware and software platforms or make other changes, any of which could result in interruptions in those operations. Any significant interruption in our ability to operate any of our online services could have an adverse effect on our relationships with users and clients and, as a result, on our financial results.

We rely on a combination of purchasing, licensing, internal development, and acquisitions to develop our hardware and software platforms. Our implementation of additions to or changes in these platforms may cost more than originally expected, may take longer than originally expected, and may require more testing than originally anticipated. In addition, we cannot provide assurance that additions to or changes in these platforms will provide the additional functionality and other benefits that were originally expected.

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If the systems we use to provide online portals experience security breaches or are otherwise perceived to be insecure, our business could suffer

We retain and transmit confidential information, including personal health records, in the processing centers and other facilities we use to provide online services. It is critical that these facilities and infrastructure remain secure and be perceived by the marketplace as secure. A security breach could damage our reputation or result in liability. We may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by breaches. Despite the implementation of security measures, this infrastructure or other systems that we interface with, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks or other attacks by third parties or similar disruptive problems. Any compromise of our security, whether as a result of our own systems or the systems that they interface with, could reduce demand for our services, and could subject us to legal claims from our clients and users, including for breach of contract or breach of warranty.

Risks Related to Acquisitions, Financings and Other Significant Transactions

Acquisitions, business combinations and other transactions may be difficult to complete and, if completed, may have negative consequences for our business and our securityholders

WebMD has been built, in part, through a series of acquisitions. We intend to continue to seek to acquire or to engage in business combinations with companies engaged in complementary businesses. In addition, we may enter into joint ventures, strategic alliances or similar arrangements with third parties. These transactions may result in changes in the nature and scope of our operations and changes in our financial condition. Our success in completing these types of transactions will depend on, among other things, our ability to locate suitable candidates and negotiate mutually acceptable terms with them, and to obtain adequate financing. Significant competition for these opportunities exists, which may increase the cost of and decrease the opportunities for these types of transactions. Financing for these transactions may come from several sources, including:

•  cash and cash equivalents on hand and marketable securities;

•  proceeds from the incurrence of indebtedness; and

•  proceeds from the issuance of additional Class A Common Stock, of preferred stock, of convertible debt or of other securities.

The issuance of additional equity or debt securities could:

•  cause substantial dilution of the percentage ownership of our stockholders at the time of the issuance;

•  cause substantial dilution of our earnings per share;

•  subject us to the risks associated with increased leverage, including a reduction in our ability to obtain financing or an increase in the cost of any financing we obtain;

•  subject us to restrictive covenants that could limit our flexibility in conducting future business activities; and

•  adversely affect the prevailing market price for our outstanding securities.

We do not intend to seek securityholder approval for any such acquisition or security issuance unless required by applicable law, regulation or the terms of then existing securities.

Our business will suffer if we fail to successfully integrate acquired businesses and technologies or to assess the risks in particular transactions

We have in the past acquired, and may in the future acquire, businesses, technologies, services, product lines and other assets. The successful integration of the acquired businesses and assets into our operations, on a cost-effective basis, can be critical to our future performance. The amount and timing of the expected

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benefits of any acquisition, including potential synergies between our company and the acquired business, are subject to significant risks and uncertainties. These risks and uncertainties include, but are not limited to, those relating to:

•  our ability to maintain relationships with the customers of the acquired business;

•  our ability to retain or replace key personnel;

•  potential conflicts in sponsor or advertising relationships;

•  our ability to coordinate organizations that are geographically diverse and may have different business cultures; and

•  compliance with regulatory requirements.

We cannot guarantee that any acquired businesses will be successfully integrated with our operations in a timely or cost-effective manner, or at all. Failure to successfully integrate acquired businesses or to achieve anticipated operating synergies, revenue enhancements or cost savings could have a material adverse effect on our business, financial condition and results of operations.

Although our management attempts to evaluate the risks inherent in each transaction and to value acquisition candidates appropriately, we cannot assure you that we will properly ascertain all such risks or that acquired businesses and assets will perform as we expect or enhance the value of our company as a whole. In addition, acquired companies or businesses may have larger than expected liabilities that are not covered by the indemnification, if any, that we are able to obtain from the sellers.

We may not be able to raise additional funds when needed for our business or to exploit opportunities

We may need to raise additional funds to support expansion, develop new or enhanced applications and services, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated opportunities. If required, we may raise such additional funds through public or private debt or equity financing, strategic relationships or other arrangements. There can be no assurance that such financing will be available on acceptable terms, if at all, or that such financing will not be dilutive to our stockholders.

Risks Related to the Legal and Regulatory Environment in Which We Operate

Government regulation of healthcare creates risks and challenges with respect to our compliance efforts and our business strategies

The healthcare industry is highly regulated and is subject to changing political, legislative, regulatory and other influences. Existing and new laws and regulations affecting the healthcare industry could create unexpected liabilities for us, cause us to incur additional costs and could restrict our operations. Many healthcare laws are complex and their application to specific products and services may not be clear. In particular, many existing healthcare laws and regulations, when enacted, did not anticipate the healthcare information services that we provide. However, these laws and regulations may nonetheless be applied to our products and services. Our failure to accurately anticipate the application of these laws and regulations, or other failure to comply, could create liability for us, result in adverse publicity and negatively affect our businesses. Some of the risks we face from healthcare regulation are as follows:

•  Regulation of Drug and Medical Device Advertising and Promotion.  The WebMD Health Network provides services involving advertising and promotion of prescription and over-the-counter drugs and medical devices. If the FDA or the FTC finds that any information on our Web sites violates FDA or FTC regulations, they may take regulatory or judicial action against us and/or the advertiser or sponsor of that information. State attorneys general may also take similar action based on their state’s consumer protection statutes. Any increase in regulation of drug or medical device advertising and promotion could make it more difficult for us to contract for sponsorships and advertising. Physician groups and others have criticized the FDA’s current policies, and have called for restrictions on advertising of

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prescription drugs to consumers and increased FDA enforcement. We cannot predict what actions the FDA or industry participants may take in response to these criticisms. It is also possible that new laws would be enacted that impose restrictions on such advertising. Our advertising and sponsorship revenue could be materially reduced by additional restrictions on the advertising of prescription drugs and medical devices to consumers, whether imposed by law or regulation or by policies adopted by industry members.

•  Anti-kickback Laws.  There are federal and state laws that govern patient referrals, physician financial relationships and inducements to healthcare providers and patients. The federal healthcare programs anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving anything of value, directly or indirectly, for the referral of patients covered by Medicare, Medicaid and other federal healthcare programs or the leasing, purchasing, ordering or arranging for or recommending the lease, purchase or order of any item, good, facility or service covered by these programs. Many states also have similar anti-kickback laws that are not necessarily limited to items or services for which payment is made by a federal healthcare program. These laws are applicable to manufacturers and distributors and, therefore, may restrict how we and some of our customers market products to healthcare providers. Any determination by a state or federal regulatory agency that any of our practices violate any of these laws could subject us to civil or criminal penalties and require us to change or terminate some portions of our business and could have an adverse effect on our business. Even an unsuccessful challenge by regulatory authorities of our practices could result in adverse publicity and be costly for us to respond to.

•  Medical Professional Regulation.  The practice of most healthcare professions requires licensing under applicable state law. In addition, the laws in some states prohibit business entities from practicing medicine. If a state determines that some portion of our business violates these laws, it may seek to have us discontinue those portions or subject us to penalties or licensure requirements. Any determination that we are a healthcare provider and have acted improperly as a healthcare provider may result in liability to us.

For more information regarding the risks that healthcare regulation creates for our businesses, see “Business — Government Regulation” in our Annual Report on Form 10-K for the year ended December 31, 2005.

Government regulation of the Internet could adversely affect our business

The Internet and its associated technologies are subject to government regulation. Our failure, or the failure of our business partners or third party providers, to accurately anticipate the application of laws and regulations affecting our products and services and the manner in which we deliver them, or any other failure to comply with such laws and regulations, could create liability for us, result in adverse publicity and negatively affect our business. In addition, new laws and regulations, or new interpretations of existing laws and regulations, may be adopted with respect to the Internet or other online services covering user privacy, patient confidentiality, consumer protection and other issues, including pricing, content, copyrights and patents, distribution and characteristics and quality of products and services. We cannot predict whether these laws or regulations will change or how such changes will affect our business. For more information regarding government regulation of the Internet to which we are or may be subject, see “Business — Government Regulation” in our Annual Report on Form 10-K for the year ended December 31, 2005.

We face potential liability related to the privacy and security of personal information we collect from consumer and healthcare professionals through our Web sites

Internet user privacy has become a major issue both in the United States and abroad. We have privacy policies posted on our Web sites that we believe comply with applicable laws requiring notice to users about our information collection, use and disclosure practices. However, whether and how existing privacy and consumer protection laws in various jurisdictions apply to the Internet is still uncertain and may take years to resolve. Any legislation or regulation in the area of privacy of personal information could affect the way we

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operate our Web sites and could harm our business. Further, we cannot assure you that the privacy policies and other statements on our Web sites or our practices will be found sufficient to protect us from liability or adverse publicity in this area.

Failure to maintain our CME accreditation could adversely affect our ability to provide online CME offerings

Our CME activities are planned and implemented in accordance with the Essential Areas and Policies of the Accreditation Council for Continuing Medical Education, or ACCME, which oversees providers of CME credit, and other applicable accreditation standards. In September 2004, ACCME revised its standards for commercial support of CME. The revised standards are intended to ensure, among other things, that CME activities of ACCME-accredited providers are independent of providers of healthcare goods and services that fund the development of CME. ACCME required accredited providers to implement these standards by May 2005. Implementation has required additional disclosures to CME participants about those in a position to influence content and other adjustments to the management and operations of our CME programs. We believe we have modified our procedures as appropriate to meet the revised standards. However, we cannot be certain whether these adjustments will ensure that we meet these standards or predict whether ACCME may impose additional requirements.

In the event that ACCME concludes that we have not met its revised standards relating to CME, we would not be permitted to offer accredited ACCME activities to physicians and other healthcare professionals, and we may be required, instead, to use third parties to accredit such CME-related services on Medscape from WebMD. In addition, any failure to maintain our status as an accredited ACCME provider as a result of a failure to comply with existing or new ACCME standards could discourage potential sponsors from engaging in CME or education related activities with us, which could have a material adverse effect on our business.

Government regulation and industry initiatives could adversely affect the volume of sponsored online CME programs implemented through our Web sites or require changes to how we offer CME

CME activities may be subject to government regulation by the FDA, the OIG, or HHS, the federal agency responsible for interpreting certain federal laws relating to healthcare, and by state regulatory agencies. During the past several years, educational programs, including CME, directed toward physicians have been subject to increased scrutiny to ensure that sponsors do not influence or control the content of the program. In response to governmental and industry initiatives, pharmaceutical companies and medical device companies have been developing and implementing internal controls and procedures that promote adherence to applicable regulations and requirements. In implementing these controls and procedures, different clients may interpret the regulations and requirements differently and may implement procedures or requirements that vary from client to client. These controls and procedures:

•  may discourage pharmaceutical companies from engaging in educational activities;

•  may slow their internal approval for such programs;

•  may reduce the volume of sponsored educational programs implemented through our Web sites to levels that are lower than in the past; and

•  may require us to make changes to how we offer or provide educational programs, including CME.

In addition, future changes to existing regulations or to the internal compliance programs of clients or potential clients, may further discourage or prohibit clients or potential clients from engaging in educational activities with us, or may require us to make further changes in the way we offer or provide educational programs.

We may not be successful in protecting our intellectual property and proprietary rights

Our intellectual property is important to our businesses. We rely on a combination of trade secret, patent and other intellectual property laws and confidentiality procedures and non-disclosure contractual provisions to

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protect our intellectual property. We believe that our non-patented proprietary technologies and business processes are protected under trade secret, contractual and other intellectual property rights. However, those rights do not afford the statutory exclusivity provided by patented processes. In addition, the steps that we take to protect our intellectual property, proprietary information and trade secrets may prove to be inadequate and, whether or not adequate, may be expensive.

We cannot assure you that we will be able to detect potential or actual misappropriation or infringement of our intellectual property, proprietary information or trade secrets. Even if we detect misappropriation or infringement by a third party, we cannot assure you that we will be able to enforce our rights at a reasonable cost, or at all. In addition, our rights to intellectual property, proprietary information and trade secrets may not prevent independent third party development and commercialization of competing products or services.

Third parties may claim that we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from providing certain services, which may harm our business

We could be subject to claims that we are misappropriating or infringing intellectual property or other proprietary rights of others. These claims, even if not meritorious, could be expensive to defend and divert management’s attention from our operations. If we become liable to third parties for infringing these rights, we could be required to pay a substantial damage award and to develop non-infringing technology, obtain a license or cease selling the products or services that use or contain the infringing intellectual property. We may be unable to develop non-infringing products or services or obtain a license on commercially reasonable terms, or at all. We may also be required to indemnify our customers if they become subject to third party claims relating to intellectual property that we license or otherwise provide to them, which could be costly.

Third parties may challenge the enforceability of our online agreements

The law governing the validity and enforceability of online agreements and other electronic transactions is evolving. We could be subject to claims by third parties that the online terms and conditions for use of our Web sites, including disclaimers or limitations of liability, are unenforceable. A finding by a court that these terms and conditions or other online agreements are invalid could harm our business.

We may be subject to claims brought against us as a result of content we provide

Consumers access health-related information through our online services, including information regarding particular medical conditions and possible adverse reactions or side effects from medications. If our content, or content we obtain from third parties, contains inaccuracies, it is possible that consumers, employees, health plan members or others may sue us for various causes of action. Although our Web sites contain terms and conditions, including disclaimers of liability, that are intended to reduce or eliminate our liability, the law governing the validity and enforceability of online agreements and other electronic transactions is evolving. We could be subject to claims by third parties that our online agreements with consumers and physicians that provide the terms and conditions for use of our public or private portals are unenforceable. A finding by a court that these agreements are invalid and that we are subject to liability could harm our business and require costly changes to our business.

We have editorial procedures in place to provide quality control of the information that we publish or provide. However, we cannot assure you that our editorial and other quality control procedures will be sufficient to ensure that there are no errors or omissions in particular content. Even if potential claims do not result in liability to us, investigating and defending against these claims could be expensive and time consuming and could divert management’s attention away from our operations. In addition, our business is based on establishing the reputation of our portals as trustworthy and dependable sources of healthcare information. Allegations of impropriety or inaccuracy, even if unfounded, could therefore harm our reputation and business.

ITEM 4.  Controls and Procedures

In connection with the restatement of our financial results, which is more fully described in the Explanatory Note on page 1 to this amended Form 10-Q and in Note 12 to our financial statements, under the direction of our Chief Executive Officer and Chief Financial Officer, we reevaluated our disclosure controls and procedures.

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We identified a material weakness in our internal control over financial reporting with respect to accounting for income taxes relating to the treatment of tax deductible goodwill in the determination of the deferred tax asset valuation allowance. Solely as a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of September 30, 2006.

As of May 4, 2007 we implemented new procedures, including improved documentation and analysis regarding the reversal pattern of temporary differences between financial and tax reporting. We believe these new procedures enable us to comply with the requirements related to the accounting for deferred tax asset valuation allowances. In so doing, management has remediated the related internal control weakness. In connection with this amended Form 10-Q, under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated our disclosure controls and procedures as currently in effect as of the date of this amendment, including the remedial actions discussed above, and we have concluded that, as of such date, our disclosure controls and procedures are effective.

In connection with the evaluation required by Exchange Act Rule 13a-15(d), WebMD management, including the Chief Executive Officer and Chief Financial Officer, concluded that, except for the continuing conversion by WebMD to a new enterprise resource planning system (including new accounting software), no changes in WebMD’s internal control over financial reporting, as defined in Exchange Act Rule 13(a)-15(f), occurred during the third quarter of 2006 that have materially affected, or are reasonably likely to materially affect, WebMD’s internal control over financial reporting. During the third quarter of 2006, WebMD continued the implementation of a new third party enterprise resource planning system which it began to implement earlier in 2006. As a result, certain business processes and accounting procedures of WebMD have changed. These changes were made in accordance with WebMD’s plan to implement separate systems from those of Emdeon and not in response to any identified deficiency or weakness in WebMD’s internal control over financial reporting.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WebMD Health Corp.

By:  /s/  Anthony Vuolo

Anthony Vuolo

Executive Vice President and
Chief Financial Officer

Date: May 10, 2007

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