HealthStream Inc (HSTM) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to HealthStream, Inc. Third Quarter 2010 Earnings conference call. (Operator Instructions.)

And now, I'll turn the conference over to your host, Robert A. First, Chairman and CEO. Please begin, sir.

: Thank you. Good morning and welcome to our third quarter 2010 earnings conference call. Also in the room with me are Gerry Hayden, Senior Vice President and Chief Financial Officer, and Mollie Condra, Associate Vice President of Communications, Research and Investor Relations.

Gerry, would you read the forward-looking statement, please?

Certainly, Robert. Good morning, everyone. This conference call will contain forward-looking statements regarding future events and the future performance of HealthStream that involve risk and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause results to differ materially from those forward-looking statements are contained n the Company's filings with the SEC, including Forms 10K and 10Q.

Thank you, Gerry. Good morning to all. We're excited to speak to the strong performance of the third quarter 2010, and I think I'll begin by covering a few financial highlights, we'll turn it over to Gerry for a more detailed look at the numbers, and then back to me for some concluding statements straight to your questions.

When I look at the quarter and we think of the highlights for the third quarter, it's very exciting to see performance, on many metrics, are improving. The quarterly revenues were up 18% over the prior year third quarter to $16.6 million, and operating income was up 57% over the third quarter of 2009, delivering about $1.7 million.

EBITDA, a measure of cash flow for us, was $3 million, up from $2.5 million in the prior year quarter, and the balance sheet strengthened as well. We -- the cash position grew $21.4 million, up from $18.8 million in last quarter, so a sequential improvement in cash.

Also, on the balance sheet, we remain with our $15 million untapped line of credit, and so we're carrying no material long-term debt. So, we feel well positioned with capital, now, with cash and access to a line of credit. So, really, at the top line, there are many exciting elements that all show financial progress. And as we look down into the business segments, the Learning segment had some exciting news contained within it as well.

We delivered a 27% increase in the Internet subscription product category, which is a grouping of products that are recurring revenue subscription based, which includes the Learning Center, our core subscription product, and (inaudible) subscriptions. So, to see that go up 27% over the prior year's same quarter is a testament to the strong sales results of our organization in the last several quarters as they've built up their performance.

In fact, their operational execution is strong as well, activating -- or we call it "implementing" 59,000 more live full-time equivalents or subscribers on the platform during the third quarter. And remember that billing begins when we get the implementation. That's after contract signing. Then, we get the implementation. Once implemented, billing begins. And so, we added 59,000 more subscribers to the billable universe of subscribers.

And in fact, the quarter is another exceptional quarter because, as we've communicated in prior times and for five years running now, we've kind of had this target of 20,000 to 50,000 net new subscribers contracted each quarter and, in fact, have delivered in that range fairly consistently for many years.

Well, this quarter, we delivered 99,000 contracted subscribers beyond our normal range, and so, therefore, we're calling it an exceptional quarter for new contracted subscribers. And that's in a sequence of good quarters. Q1 at 63,000, Q2 at 122,000 and Q3 at 99,000 brings the year-to-date total subscribers added at 284,000 new subscribers under contract which, again, exceeds our general internal targets and our historical patterns of growth in the last several years.

So, we're excited now that we're approaching almost 2.4 million subscribers, the actual number being 2.365 million subscribers on the core platform.

Renewal rates continue to perform really, really well, and we've got two measures of renewal rates. One is the number of subscribers up for renewal, how many renewed. There's some offsets there. There's some losses and then some accounts grow. And when you put all that together, it results in 100% of the renewals that were up for renewal effectively renewed, representing the seventh consecutive quarter where we delivered 99% or higher renewal rates as calculated.

Interestingly as well, the contract value of renewals maintained its strength at 106% of contract value, meaning those on the base contract up for renewal we were able to slightly improve pricing during the quarter as well. And these, again, are exceptional numbers of subscription and software services. We would be happy with the 85% range. We think exceptional is above 90. And of course, as we approach 100% renewals, we're ecstatic that we feel we're delivering excellent service to customers.

Also, in the quarter, we made progress on our Competency Center. We added seven new contracts during the quarter. Last quarter, we added six, so now, we have a total of 54 contracts for the Competency Center. Again, some of those are with health systems, and so they represent multiple facilities. And some are pilots with large health systems, where we remain cautiously optimistic that those pilots will go well and will add even more subscribers to that new Competency Center platforms. So, we remain optimistic about the Competency Center's progress in the sales category. We continue to deliver new contracts.

HealthStream Research also, after some less-than-ideal growth scenarios in the prior quarters, delivered a 10% growth over the prior year. And importantly, the core of the patient satisfaction grew 11%, which is the recurring revenue component of the research service offerings that we provide.

So, we were really pleased to see the Research growth start to push 10% now over the prior year quarter and see that that growth was driven by the core of that, the most recurring part of that business -- the patient engagement and satisfaction surveys.

We added 49 customers to Research Services during the quarter and had strong renewals. Thirty-two different agreements renewed for multiple survey products. Also, as a side note, over 100 home health organizations we now service with our HH-CAHPS Survey.

So, as we've begun to dip our toe into penetrating additional ancillary markets, we see success with those as well. So, we're excited to see progress on all fronts on Research, which we think -- we're excited that will be a part of our growth in the fourth quarter as well.

I'll turn it over now to Gerry for a more detailed look at the financials. Go ahead, Gerry.

Thank you, Robert, and, once again, good morning and thanks for joining our call. As usual, I'll try to make some highlight remarks and then look for any questions you might have at the end of the call here.

Most of you are familiar with the SimVentures product with Laerdal Medical, which we announced during the second quarter. SimVentures is [not a part] of our original 2010 business plans or financial guidance, so I'll try to give you all some color of our [unintelligible] results with and without SimVentures' activities.

So, here are a couple of observations about the quarter. First is leverage. Robert mentioned the revenue growth rates, 14% year-to-date and 18% or so for the third quarter. Against those revenue increases, we've posted operating income expansion of 41% year-to-date and then [57%] in the third quarter. So, we feel very, very good about the operating performance of the Company.

It's also important to note that our results are covering our investments in both the Competency product and SimVentures with Laerdal. And as you know, there's no revenue for SimVentures in 2010 in our expectations.

The revenue -- Robert touched on that as -- once again touched on that. I think the important thing to highlight about revenue growth is the Research segment. If you look back at this year's second quarter, the growth rate was -- or year-over-year was 3%. That's now grown to 10% here in the third quarter. And so, the year-to-date results go from roughly flat for the first six months to a growth of -- rate of 3.6%. So, that's good to see.

Once again, the patient segment is the key driver of that. That's also the predominant source of recurring revenue, and so we think we have some momentum building in the patient Research segment, which is very encouraging.

SimVentures -- as you know, there's no revenues. We have two investments from capital expenditures and some operating expenses in 2010. Year-to-date, we incurred $270,000 of operating expenses, and it was $90,000 in the third quarter.

So, if you were to do some "what if" and take the same-store basis and exclude the SimVentures results expenses, you'd have a different -- improved same-store type of performance, operating-wise. But, the important thing is it's a very important investment for us, and we're -- it was [where we met] with our current operations.

The balance sheet -- Robert touched on the cash balances. The other thing to look at in the balance sheet, pretty closely, is days outstanding and receivables, and that is at 61 days at the end of this quarter. That's [north of a bip] from 53 days at the end of the second quarter, but it's down from 72 at the end of the first quarter. So, this one we watch very closely and try to maintain a [lateral] band on days outstanding.

Income taxes -- as I think you all know, we released our valuation allowance against our deferred tax assets at the end of 2009, last year's fourth quarter. For that reason, this year's income statements reflect a [bit of a] income taxes as if our GAAP book profitability [requests to] pay taxes. So, therefore, sometimes, the transactions that, in the past, had no impact on our income statement and our balance sheet, now do.

In the third quarter, we trued up our year-to-date effective tax rate and had some reconciling items to recognize. As a result, you see a little bit higher tax rate in the third quarter. As you saw from our guidance, we expect the range for the full year to drop back to the 42% to 44% range for the full year.

One last [emphasis] on the income taxes. It's a non-cash item. It does not affect our ability to utilize our either state or federal net operating loss carry-forwards. So, once again, important book accounting, but non-cash.

My last comments on guidance and its expectations. As you've seen, we've updated our guidance for the full year of 2010. We both tighten the bands around revenue and operating income and increase them both from the third -- second quarter's disclosures.

At second quarter, we had 11% to 13% expectations for the full-year revenue growth. That range is now between 12% to 14%. Operating income expectations for the end of the second quarter are between 22% and 30%. Those are now increased between 28% and 32%. So, a little bit of increase on both measures.

It's also important to note that our full year of 2010 guidance anticipates fourth quarter investments that will allow us to keep growing the business. For example, we continue to -- our SimVentures and Competency initiatives and also increase the size of our salesforce. With these events, as we anticipate the full year -- the fourth quarter operating income, we compare with last year's fourth quarter results.

Finally, we expect the effective book income tax rate for 2010 for the full year to raise between 43% and 46%. And once again, that is primarily book accounting and not cash. Our operating loss carry-forwards are roughly $26 million for federal purposes and $21 million for state tax purposes going forward.

Thank you, Gerry. A few other announcements that we're excited about. During the quarter, one of particular note was the signing of the relationship of the American Academy of Pediatrics. They chose HealthStream to offer their examinations exclusively through our platform, and we're very excited about that.

Beginning in 2012, the NRP examination will be available exclusively through HealthStream. And each year, approximately 150,000 examinations are completed in the US and Canada. So, we continue to make developmental progress on that relationship with American Academy of Pediatrics and hope that that's a symbol of more of those types of relationships to come as we continue business development.

Also during the quarter, we added -- or in the last 60 days, we added three research partners to cover analysts on our Company -- Sidoti & Company, on September 2nd, Craig Hallum Capital Group on October 4th, First Analysis Security Corporation on October 14th.

And they're joining long-standing analysts from Noble Financial Group and Avondale Partners, so we're excited to see the expanded universe of coverage and new excitement they're generating about our story and our direction as a Company.

So, at this time, we'd like to turn it over for questions for the investor community.

Thank you. (Operator instructions.) We have a question from Matt Hewitt of Craig Hallum. Please begin.

Congratulations on the excellent quarter, guys. Couple questions. First, given the strength which you saw in the Research segment this quarter, I'm curious -- you mentioned new 100 home health HCAHPS customers, or that's what you're at right now. How many did you add in the quarter? And given that that just went live on the 20th, what are your expectations for growth in that over the next few quarters?

Well, actually, we got that update just a bit ago, and I'm not sure if that's a cumulative of number throughout the year, which I believe it is. It's not all during-the-quarter performance. And so, we'll have to clarify that more in the next earnings call. We -- it's kind of a cumulative progress report for that instrument.

And a lot of those are very small. They're smallish agencies. And so, we've tried to give an update on the momentum in that space, but we didn't really quantify it, so I apologize for not having that in front of me right now. We'll look to do that at a later date.

That's all right. You mentioned 99 new contracted customers on the Learning side. Was there another big win or two? And was that a competitive displacement or -- any color that you could provide on that would be great.

Sure. Well, it was 99,000 subscribers across a multitude of contracts that -- some are very small facilities, with 100 employees, are some are much larger. I would characterize this quarter's 99,000 as slightly better diversified than the 122,000 of last quarter.

For example, last quarter, as you know, we had one big system win of over 40,000 subscribers in one agreement, which was a competitive takeaway. This quarter was much more reflective of the solid performance up and down the chain and many more what I'll call "10 to 15,000" or "strong middle-sized health systems" that added to our platform.

So, I feel it's slightly more diversified, and again, stronger than our historical both goals and performance in prior years at 99,000 subscribers, again, across several contracts.

Well, that's great. And one more and then I'll jump back in the queue. It looks like you added to the employee count in the sales and marketing. Where do you sit now? And what are your goals for hiring in the -- in that area over the next handful of quarters?

Well, we've begun the preliminary kind of ramp that's pre-finishing our planning for next year, [where] we start to add -- things are going well, and people are hitting quotas, so we've begun to add a few salespeople here and there.

We will give a full update on all those plans in February as it would impact the go-forward guidance. And so, we've just begin the process of evaluating the ways to add to those programs where they're successful. In a few cases, we've begun adding a few incrementals, but we'll give full updates on the salesforce plans in early next year.

All right, thank you.

Thank you. Our next question is from Nikki Haley of Sidoti & Company. Your line is open.

Yes, can you guys just talk a little bit about what the pipeline looks like in terms of acquisitions and what kind of opportunities exist there for you guys?

Sure. We're -- as we've mentioned every quarter now for several, we remain actively looking. Obviously, we haven't been able to execute one. Sales opportunities exist. One deal in the second quarter, though, fell apart on valuation, and so we just -- we have our own models for ROI, and we couldn't get to where we wanted to on that one.

So, we feel there's a pipeline, both small and medium-sized companies. We've articulated that we're looking for companies that, proportional to us, are not the type of mergers of equals but smaller, add a new product line, a new capability that we can push through our sales channel. And obviously, we haven't been able to execute one year-to-date, but we continue to work a strong pipeline of small and medium-size opportunities relative to our size and hope that will be a part of our growth in the following years.

Okay, great. And also, can you talk a little bit about gross margins and your expectations going forward? And it seems that, given your revenue and operating income guidance and things like that, that you're Q4 margins may be a little bit lower than Q4's of 2009. And I was just wondering if that's a fair assessment and basically what you're seeing on your end that's causing that?

Well, we have ongoing investment in SimVentures. The Competency platform is, again, ramping up on the sales front, and we've begun -- added a few incremental sales that'll have a small impact in the fourth quarter.

But, we are not finished with our planning processes for next year. And our typical process now for five years, and the one that we plan to stick to, is as we finish our budget planning and reforecasting throughout the end of this year, we provide a detailed outlook and a revised and updated guidance for the following year on all those topics, including margins in February -- in our February call.

And so, the guidance we provided today is focused on year-end performance and fourth quarter performance, and we look forward to February. I think it's the last week in February. We'll give you a detailed look at the decisions we make between now and year-end about growth.

Great. Thank you.

Thank you. Our next question is from Vincent Colicchio of Noble Financial. Your line is open.

Good morning, guys. Couple questions for you. A course for revenue looks like it -- you had a nice quarter there.

Vince, you still there? Caller, are you still there?

Lost the -- it just dropped [in the middle]. We lost the whole connection, I think.

One moment, sir.

Okay, [Ty] is still there.

Yes.

Hello?

Our next question is from Frank Sparacino of First Analysis. Vincent, please queue up again.

Hi, guys. Can you hear me?

Yes. Go ahead.

Just wanted to look at the outlook for Q4. I guess what's implied by the guidance. And it looks like, from a research standpoint, you're expecting pretty healthy year-over-year growth in that segment. And then, on the Learning side -- so, the first thing, on the Research side, just accommodating your comfort as to where that business today.

And then, on the Learning side, it looks like the guidance implies the Learning revenue to be down from Q3, if I map this correct. So, just wanted to get some color on the Q4 outlook within that segment.

On the Research side, we're very excited that after a couple quarters and -- of less than stellar performance, we saw the 10% growth and the 11% in the core, and we're excited about the 18% growth year-over-year overall.

On the Learning side, we're bringing on these subscribers that have good clip that add to the recurring revenue component and continuing to deliver outperformance on our NOV, our new order value targets, which bodes well for the future.

And so, I -- we have great -- good confidence in the -- obviously, the increased ranges we just gave for the fourth quarter which, effectively, is our final guidance for year-end. And so, obviously, we were able to move the operating income and revenue targets -- percentage ranges up a bit.

And if I could just follow-up on that, Robert and Gerry, is there anything unusual that's happening in Q4 as to why you would see a sequential decline in revenue within the Learning segment?

Yes. Well, [it's like trying a couple things.] We did mention hiring some salespeople, potentially. We have the Competency platform getting ramped up coming out of development into full marketing mode, and we also have SimVentures, which is looking at not having any revenue yet and getting ready to get introduced in 2011.

So, [although the] (inaudible) of all those factors go into our thinking about the fourth quarter [or] the full year. And the revenue -- the thing about the Learning revenue, too, it -- if you go back -- look historically, like, three, five -- three, four, five years, we have a step up. It's even Q2, Q3 and Q4 stay in, roughly, the same band of revenue. And then, we go into Q1 of the following year pretty flat, and then it jumps up again in Q2.

And the -- so, there's a -- the ramp is very gradual. It's almost imperceptible, at some points in time, but it does in fact, as you see, you increase.

Other things that affect the revenue quarter-to-quarter, at least historically, has been Pro Services Group. Sometimes large projects come in in different quarters. So, we still see -- we're still projecting expansion of a -- subscriber counts that are implemented and, therefore, part of our revenue stream in the fourth quarter.

Great. Thank you, guys. Nice job.

Thank you.

Thank you. Our next question is from Vincent Colicchio of Noble Financial. Your line is open, sir.

Yes, good morning, guys. Robert, it looks like, in recent quarters -- well, this quarter, the average revenue per user on the HLC looked like it improved nicely as it has in the -- this year, each quarter. First question is, can you give a little bit of a drill-down into what's driving that this quarter? And if, perhaps, we can see the improvement on the RPU, if you will, perhaps even accelerate going into next year?

Yes, I would say that's content products. We continue to see growth in some higher-value proposition content products. Specifically, the BLS/ACLS products from Laerdal that have a higher value proposition, a higher price point, and we're doing very well selling that into the marketplace. So, we're excited to see the higher value proposition content get traction in the market.

And I'll also include some clinical libraries from our partners at Lippincott, where we're getting good traction on their libraries and kind of making competitive headway for them and together. So, I would say that there are two or three core content drivers that are in the clinical areas of performance and that are really gaining traction and adding to the -- as we had always hoped, adding to the model's revenue per subscriber.

Also, renewal rates -- you see that the dollar value's a base platform has either been able to hold or slightly improve as people come up for renewal through this quarter. So, I just call it "solid incremental performance" on two or three really important parts of the business, of course for our subscription and the Internet product.

The Competency Center looks like it's picking up as well. Could you help me think about it in terms of revenue potential there, based on the number of clients you have?

Well, no, because it's still -- we're successfully positioning it in the market. We're piloting it at large health systems. We're still -- we have some revenue rec, but we're still kind of pre-revenue as we bring those pilots onboard and get through implementation processes.

So, I think probably the best time to speak to that product line will be in February of next year. We'll give much more clarity and hopefully continue with some new contract signings through year-end and be getting more customers through implementation and towards revenue recognition on that enterprise class upgrade that we just went through on the platform.

So, I'd prefer to defer that 'til February. We'll try to give much more color on it at that time.

Okay. And Gerry, one for you. Do you have cash from operations in the quarter?

I don't. I'll get that back to you, Vince.

Okay. And Robert, just one more last one of you. Any wins in terms of cross-selling between the two businesses?

I would say that they're having a positive impact on each other. And so, yes. Nothing that I'll call out specifically, but I feel our sales teams are well coordinated, and that makes sure that they don't miss opportunities for each other in these accounts. So, I feel like we're getting good traction on that. And maybe, to your point, I'll call out a more specific examples of it next quarter.

Okay. So, you're feeling better about it today than you -- say, a year ago?

Yes, I would say the teams are more coordinated in their marketing approach, their market approach, their messaging. They're better, regionally, aligned so that when someone hears the potential for another product line, they're getting that representative in there to represent that other product. So, I would say we're gaining in efficiency in that -- what I'll call cross-referencing, cross-selling.

Okay. Thanks, guys. Nice quarter.

Thank you --.

-- Thank you, Vince.

Thank you. Our next question is from David Cohen of Midwood Capital. Your line is open.

Was wanting to go back the -- I think it was two callers ago, question about the fourth quarter as sort of the trend in sequential revenue there. And I was actually a little confused by the answer, given that you kind of pointed to a number of things, which would suggest that revenue would more likely to be higher sequentially. And that seems to be the pattern in Learning over time as well.

So, I mean, just taking the midpoint for full-year guidance and then, therefore, backing into Q4, Q4 looks like -- something like 11.2 of revenue versus an 11.5 you just did. So, just trying to understand if that is just basically being very conservative on your annual guidance and therefore a number that looks low falling out? Or is there actually something that occurred in Q3 that won't occur in Q4?

What I would say is that the core subscription products grow fairly sequentially. And in fact, you can see from the subscribers that they do in their renewal rates. So, that, you can model very well.

The project revenue, which we have at the bottom of the section of revenue discussion in the earnings release, tends to kind of go up and down in any given quarter. And so, sometimes it's slightly stronger and sometimes not. It is a smaller component of revenue, but there, we see less larger pro services implementations or fees.

And so, you see at the bottom of the second paragraph in financial guidance that we talk about consulting services decreased 132,000 from prior year quarter during the third quarter, and so, generally, when we don't see linear increases, meaning extrapolations from new subscribers, it's because there's some kind of swing in the project-based revenues.

And so, in fact, in the third quarter, you see some of that. Now, that was offset, this time, by the strong subscribers added and the "beyond expectations" in subscriptions, which -- we'll continue to fight to make that happen. But -- so, that's why you see a little bit of that tension in the revenue number for the Research segment. I mean, the Learning segment.

Okay. And then, another question is, with respect to additional selling and marketing investments, what is, I guess -- not necessarily giving me a dollar figure, but what additional investments are you likely to make this year? And what are your thoughts, preliminarily, on next year in that category?

Well, I would say we're in the process of deciding that. We -- this is a budget planning time of year. And what we generally do -- in the middle of the year, if we feel we're achieving our quotas and attaining them, we start to begin to evaluate how to feather in new hires in those areas. And so, historically, we began feathering in a few hires here and there.

But, what we haven't finished is that year-end process that, let's say, we've committed to a new budget and trajectory and horizons. So, we're in the process of finalizing all that, which we do by year-end, and then, in February, we come out and lay out the decisions which, again, have not yet been made.

The indication I can give now is that we're optimistic that we have been able to increase some hiring in those areas incrementally in small increments, and -- but, we're not done with the evaluation of how to carry that forward in the next year.

Okay. Great. Thanks, guys.

Thank you. Our next question is from Walter Ramsey of Walrus Partners. Your line is open.

Thank you. Congratulations on another strong quarter. Got a couple of questions. The predicted tax rate of 44% to 47% -- I mean, that seems kind of high. Can you explain why it's as high as it is?

Yes, there are a couple things. Some part of it's permanent differences, and they go back to the acquisition structure for TJO back in 2007. The intangibles -- the intangible assets that we had to book for GAAP accounting -- that amortization is not deductible for tax purposes. That's part of it.

Another part [of it is how] stock options and the exercise gets treated between book and tax. So, there are a number of variables like that that do cause the difference. As a Company grows, they may get smaller percentage-wise, but as of today, those are the main things you see that drive the higher tax rate that you might expect. And so, once again, they're non-cash but they do affect that provision for [income taxes] for books. But, those are the primary drivers of it.

The third quarter, like any other estimate or accrual, we had to -- we had some -- we filed the tax returns on September 15th, on extension as usual, and out of that filing process, we came back and took a look at the estimates for the 2009 year-to-date and realized we had to do some catch-up on the book side or the -- of the income tax provisions. And that's why you have the jump in the third quarter but reverting back down in the fourth quarter.

Okay. So, if you added back the amortization and the 123 stock option expense, what would the tax rate be then? Like, 38 or something?

No. It'd be more like -- about 40ish. You have 34 for federal and you have five or six for state, depending which states we're in. Then--.

-- Okay --.

-- The other miscellaneous differences. [Medium] taxes, for example. That would get you more in that 41ish, 42ish range.

Okay. And just one other thing. The product development costs are, like, $1.75 million in the latest quarter. I guess that's about 11%. How much of that is going to the SimVentures? And what else are you working on?

Well, [variety.] Yes -- well, $270,000, year-to-date, is the SimVentures. And most of that is product development. Not all of it. Most of it is product development. There's $90,000 of SimVentures expenses in the third quarter. And once again, a vast chunk of that did go to product development.

But, the product development is an ongoing -- it's maintenance of our platform, it's maintenance of certain parts of the Research operations. There's development going on, some research on -- not -- research on how to do new products going on there as well, so there's a number of functions and activities that flow through product development, all of which support a variety -- a wide variety of products and services.

Okay. And, I guess, one more thing. The acquisitions -- I -- was the difficulty in completing one of those the price of the deals or the technology and trying to get it to work with your platform?

Well, we try to be selective on technologies to make sure it has a roadmap if it were a technology target. And so, we try to filter for that in advance. So, I would say that the one we worked on that did go away was on valuation.

And so, I think we have a good history of working to make intelligent decisions about ROI on these things. And when they exceed our tolerance thresholds, we move away. So, in that specific case, during the second quarter, we moved away from one on the valuation basis.

Okay. And -- well, congratulations. Thanks for taking the call.

Thank you.

Thank you. Our next question is from Cris Blackman of Empirical Capital. Your line is open.

Congratulations, Robert. Would you -- I know your Improvement Center is a SaaS offering, the one that you came out with in November of last year. Would you comment on how much of your revenue is being derived from SaaS model as opposed to software being hosted on your customers' computers?

Well, yes, overall, for the Company, I can't think of any that's based on hosted. The new products, which include -- of course the core's Learning Center is a SaaS model. The Competency Center, in the enterprise-class version of that, is a SaaS model. We have no installed customers for any of those products.

Our Authoring Center, which is an add-on product, is also a SaaS model. It has a small, installed component to it, but the core revenue, the account that people host with us, is a SaaS model. Improvement Center is also a SaaS model, software as a service.

The business intelligence tools for research are delivered via the Web in a SaaS model, so we really don't have any meaningful or even measurable revenues from installed products. That was a legacy from maybe 10 years ago that we've moved way beyond, and all of our software products that are in the development pipeline that we contemplate, including the new SimVentures products, are also built on a SaaS model.

And what kind of leverage does that provide for you as go forward and you grow your business, Robert? I mean, can you quantify that at all?

Well, we quantify that on an annual basis when we give updates to our plans, and I think you see a little of the leverage, this year, we've been able to achieve in software subscriptions and content subscriptions. So, we'll be updating our thoughts on next year in February.

Okay. Thank you very much.

Thank you. (Operator instructions.) Our next question is from Andrew Sloane of Avondale Partners. Your line is open.

Thanks for taking my question. Good quarter. I just have a -- if you could -- I was wondering if you could provide some color in the business-to-business-to-consumer sales strategy that you mentioned on the last quarterly call in terms of the pipeline. And I think, specifically, with the American Academy of Pediatrics, you mentioned that it was an exclusive online testing provider going forward in 2012. Do you have more deals like that or --?

-- Yes --.

[-- Is that a type of strategy]?

It's interesting, Andrew. It's a revitalization of a strategy from a decade ago for us, which was to have a distribution channel through partner portals. And we have two deals that are primarily reflective of that model. You mentioned one. The other is the American Nurses Association. And we announced that, I believe, in the --.

-- Second --.

-- Second quarter. Thank you.

And in both cases, they use our technology to -- as a backbone to deliver service straight to their constituents. In the case of the AAP exam, we're also going to deliver that through our platform into our network, and so we get kind of double leverage on it.

So, we haven't put a lot of forecasts on this, but we -- our main focus is getting the ANA functional and getting the AAP functional with their services. And we feel we're making great progress on that.

So, speaking to it as a opportunity, we're excited about it. Quantifying it will be something that we could look forward to in February as well, because it's new. We're focused on these two deals. They're important deals to us. We want to see them functional, and I hope to have good progress reports on them in February.

Okay. Thank you.

Thank you. (Operator instructions.) One moment. I'm showing no further questions or comments at this time. I would like to turn the conference over to Mr. Frist for any closing remarks.

Thank you for your participation in this call. We look forward to updating you on our plans in February.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.