HealthStream Inc (HSTM) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the HealthStream First Quarter 2011 earnings conference call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time.

(Operator Instructions.)

I'd now like to turn the conference over to your host, Mr. Robert Frist, CEO. Please go ahead.

Thank you. Good morning, and welcome to our first quarter 2011 earnings conference call. Also in the room with me are Gerry Hayden, Senior Vice President and CFO, and Mollie Condra, Associate Vice President of Communications, Research and Investor Relations. Gerry, would you read the forward-looking statement, please?

Sure, Bobby, and good morning, everyone.

This conference call will contain forward-looking statements regarding future events and the future performance of HealthStream that involve risks 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 in the Company's filings with the SEC, including Forms 10-K and 10-Q.

Thank you, Gerry. We have a lot of exciting announcements to walk through and look forward to getting to your questions and answers after a few minute introduction.

The quarter was very strong on most of all of our operating and financial metrics. So, I thought I'd begin with just reiterating some of the highlights of the financial metrics.

Revenues for the quarter of $18.5 million were up 25% over the first quarter of 2010 while operating income was up 81% over the first quarter of 2010, coming in at $2.6 million. The net income performance for the Company was equally strong. up 89%, net income of $807,000 the first quarter of 2010. We actually did over $1.5 million this year in the quarter.

Our adjusted EBITDA of $3.8 million in the first quarter of 2011 was up 28% from the $3 million of the first quarter of 2010. And signs of our core business being strong and recurring also emerged throughout this quarter in particular. Revenues from our internet based subscription products, which are largely our Learning Center and Authoring Center and Courseware products increased 30% over the prior year same quarter.

So, it's easy to see from the highlights provided in our first quarter earnings release that the financial metrics were strong. But, underlying that were strong operating metrics, as well.

During the quarter, we added 73,000 new subscribers under contract, which is exciting. But, maybe more exciting was our ability to keep up with the strong contracted subscribers we delivered in the fourth quarter of last year and in the first quarter of this year by implementing almost 150,000 subscribers that were activated during the quarter. And of course, revenue recognition begins when we activate those new subscribers. So, we're very excited to be able to onboard the customers early in the year, which will have a follow on impact. And part of the core reason why we were able to raise our guidance is we were able to implement subscribers in a subscription model earlier in the year and keeping up with the pipelines of sales that we achieved during the fourth quarter.

The renewal rates also were strong during the quarter. With our methods of calculation, we had a 100% FTE renewal in the first quarter and 105% of contract value, which shows our ability to hold pricing during the first quarter of the contracts up for renewal and maintain the number of subscribers on a same account basis.

HealthStream Research delivered strong metrics, even across the board, as well, with approximately 45 customers added research services in the first quarter, and 26 renewed their contracts for multiple survey products during the quarter. So, we see some of those customers renewing and adding additional products and/or additional survey products during the quarter.

That performance along, again, with delivering on the sales pipeline of the fourth quarter led to a 22% increase in research revenues over the first quarter of 2010, which was exciting for us. And maybe more importantly, the core recurring revenue patient surveys that are multi year contracts showed a 28% increase over the first quarter of 2010.

And all that isn't done without ongoing investment in the business. So, we're excited that throughout the second and third and fourth quarters of last year, we announced many new relationships and an exciting product introduction roadmap. And we're kind of now entering the exciting phase of those product launches.

In July of 2010, for example, we announced that the American Nurses Association had selected HealthStream to deliver on their e-commerce infrastructure for their membership. That site went live on March 29th. So, the last -- essentially the last day of the quarter, we were able to take the American Nurses Association's site live, powered by HealthStream's commerce infrastructure.

Equally exciting and announced during January of 2011 is the rollout of our SimVentures joint venture with Laerdal Corporation and the SimStore, which is the first of the product sets to be launched. We announced they would launch in April. We're going to be behind by two days on that launch. The store goes live on Monday, May 2nd. And so, we're very excited to see the SimStore go live, again, announced in the IMSH Conference in New Orleans. We rolled out the product roadmap and vision for our SimVentures investments, and the SimStore goes live and begins taking customers on Monday - very exciting for that global launch of SimStore.

Also, in a press release issued in September of last year, we announced the AAP was going to be delivering its NRP exam through HealthStream's learning technologies and platforms. We're very excited to anticipate the launch of that product set on May 9th of this year.

So, as you can see, the product roadmap is very robust with several already launched and several just in front of us, next week and in the weeks following. And all of these launches come at an exciting time for the Company in the midst of delivering very strong performance, financial performance during the quarter.

I'll turn it over to Gerry Hayden for a quick look at a little more detail on the financial metrics.

Thanks, Bobby. Once again, good morning, everyone. I'll have a few brief remarks, and then we can have time for questions later on.

First of all, the first quarter continues to reinforce the trends of the last several years, which is the leverage in the operating results. The revenue growth of 25% produced 80% growth in operating income and 20% increase in adjusted EBITDA.

Bobby mentioned 150,000 newly implemented subscribers this quarter. It's a very strong benefit for us. In our recurring revenue base model, this has a compounding effect through the course of the year because these subscribers generating revenue early in the year go through every month while we add new subscribers every quarter after that.

So, this also is ahead of our expectations internally as far as new subscribers. It's one of several reasons why the learning based business grew by 26% in the first quarter.

Also, research revenue growth at 22% means that both business units posted growth rates of plus 20%, and the aggressive research growth rebound that began in 2010 has continued into the first quarter of 2011.

Bobby mentioned that SimStore goes live in a few days. We still had some investments in the first quarter on SimStore with no revenues because it'll appear next week. So, that just reinforces the strength in the operating performance for the first quarter, reinforcing the robust start to the beginning of 2011.

The balance sheet followed the income statement strength. Cash was at $22.7 million at the end of the quarter, which is down slightly from the end of the calendar year 2010. But, please keep in mind that we invested $3.5 million in AVS SimView on March 30th at the end of the quarter. So, we pretty much had the same cash balance even though we invested the $3.5 million. So, the cash flow remains strong.

Guidance - we're excited to increase our guidance based on the first quarter's results, and that's really created a lot of momentum and enthusiasm inside the Company about the rest of 2011.

As you saw in the earnings release, we now expect to see revenue growth between 20% and 23% for the -- 2011 and operating income expansion of between 25 and 28%. So, in summary, we do see -- anticipate delivering [inaudible] performance the rest of 2011.

Thank you, Gerry. I'll wrap up on making some additional announcements related to our customer conference, which is coming up next week. Our Summit will be held here in Nashville May 2nd through the 5th. And we're really excited to be launching these new products in the midst of the Summit.

And we'll be having two primary themes rolled out during the Summit. The first is the launch of our SimVentures product roadmap to HealthStream's customer base. If you recall, in January, we went to IMSH, the International Meeting for Simulation in Healthcare, and announced the product roadmap to the worldwide customer base for simulation there in New Orleans. But, at our user conference with over 670 registered attendants on the way to Nashville next week, we look forward to sharing that roadmap with the acute care market specifically here in the United States.

During my keynote address, we have planned to share the stage with Tor Morten Osmundsen, the CEO of Laerdal Medical, along with several planned product releases and announcements throughout that day. So, we're very excited to be rolling out our SimVentures product set and the roadmap, the demonstration of the store, which will be launching, again, on Monday during the Summit.

The second major theme we'll be sharing with customers at the Summit is HealthStream's unique talent management solution sets. And of course, our version of talent management is centered on our competency center, the software which helps assess employee performance with a competency based review system. And during Summit, we'll be rolling out a series of partnerships and products and tool sets that form a unique view of how to manage talent in healthcare to achieve positive business and clinical outcomes.

So, we're very excited to be sharing with our extensive customer base our unique tool set and partners and roadmap for achieving optimal talent management performance to achieve business and clinical outcomes in the acute care setting next week.

You'll see that we'll be announcing new partnerships. For example, we'll be announcing a new partnership in a product that will be helpful to our customers as they go through the time consuming process of qualifying their workforce. This will be a new product category for HealthStream that'll be used in the prequalification, kind of pre-hiring stage of talent selection in healthcare. So, we're excited, and we'll give you a little hint about what's to come. But, we'll be rolling out our simulation roadmap and our talent management roadmap at Summit next week.

We also have planned for our investors and shareholders an Investors Relation Day during this. So, we'll have about a three or four hour session planned. And many of you, our analysts, will be attending that. So, we look forward to hosting you on May 4th. And many of you have signed up to come to that. We've scheduled some time for you with our customers and with our partners. And also, I believe you'll be joining for the keynote address before you depart Nashville.

So, we welcome everyone to our Investor Relations Day at Summit. And we're very pleased with the outcome of this quarter, which couldn't be done without the hard work of our nearly 400 employees.

And with that, I'd like to turn it over for questions. Thank you.

(Operator Instructions.)

Our first question comes from Andrew Sloane of Avondale Partners. Please go ahead.

Good morning. Congratulations on the quarter. I have a quick question on the learning segment. The custom courseware development has declined for a couple of quarters now. What's your strategy or what has to happen to get that part of the business growing again?

Well, actually, that's a part of the business that is non-recurring and non-subscription based. The subscription based components of that are what we call hospital direct. And occasionally, a device company will hire us to develop courseware for them when they don't have the capacity to do it.

But, the more important component is when they then strike a relationship with us to distribute the content through hospital direct, through our learning platform. And those are subscription based revenues, which are growing and part of the subscription number we gave of 30% growth.

The content development, we -- is not a line of business we strive to grow. It's a service we provide occasionally when needed. So, it fluctuates. It's point in time. It -- one of our business principals is to generate recurring revenues. It's a service we provide to make sure we round out when requested, but not an area we're targeting for growth. In fact, as you can see, our focus is on the subscription revenues.

So, that one will go up and down as we fulfill the occasional demands of our device company customers. But, it's not a core business unit. In fact, we project manage that work and outsource the development of it. So, it's just a services line that goes up and down occasionally and not one we're focused on growing.

Okay. And on the internet subscription product growing 30% is attributed to a higher number of subscribers and more courseware consumption by subscribers. Do you have the average amount of courseware per subscriber?

No, we still have elected to not disclose, for competitive reasons, a lot of the details around the mix. But, we do disclose the aggregate of all the products that are multi year subscription products that are sold through our learning group. So, it includes hospital direct, which I just mentioned, which is paid distribution, courseware subscriptions from our extensive library, Learning Center and Authoring Center and Competency Center would all be included. Those are all subscription based recurring revenue. And we blend those together and do the year-over-year growth rates on them.

Okay. But, if you were to look at it just in terms of the amount of courseware on a per customer or per subscriber, I mean, in terms of color, can you say if that's been growing or--?

--Yes. Obviously, that has been growing. So, each of the components, either by adding subscribers or more consumption per facility and per person, have been growing. So, certainly, those are metrics we track internally. For competitive reasons, we just don't disclose them. But, I can say confidently that revenue per subscriber on content has been growing sequentially for many quarters now.

Okay. And last question is, I know that you don't provide quarterly guidance. However, with the increased end guidance for the year, can you just talk about how you -- how that's going to ramp through the year or if it'll be a one time kind of bump with the SimStore?

Well, Andrew, this is Gerry. It's really hard to quantify that or subscribe it other than we do have plans to invest in certain parts of the business. Bobby mentioned things like talent management, the SimVentures, SimStore starting. So, quarter to quarter, it may be a little bit, want to use the word lumpy or whatever. But, for the full year, we do see the trajectory that we discussed in the guidance holding true.

Okay, great. Thank you. Great quarter.

Thank you.

Thank you.

Our next question comes from Matt Hewitt of Craig Hallum. Please go ahead.

Congratulations on the excellent quarter.

Thank you.

First question - 150,000 implemented in the quarter, and you mentioned this, Bobby, in your prepared remarks. That was well above historical levels and I think even above your internal targets. What enabled you to reach that kind of a level in the quarter? Is that something that's sustainable, so you should see, as long as you continue to add contracted customers, you should see significant implementations, as well?

Well, one of the variables in that was one of the -- part of that was the completion of -- be able to have a very large customer sign last year. And so, when you focus on one of the big systems and put your services teams on it, they just did an excellent job of moving that one through the implementation pipeline. But, instead of lots of small customers, in that case, we had one bigger customer that helped add to that number in addition to the hundreds of implementations that went on that the team just executed on very well.

So, I think the demonstration by the teams were that they were able to keep up with the selling teams. And so, we were impressed by both the sales results in Q3, Q4 of last year and Q1 and the implementation teams. So, it turned out to be fairly scalable to be able to implement those subscribers. And again, it was helped a bit by the fact that there was one larger customer in there that we won last year that completed its go live.

Okay, that's great. Second question - with the rollout of the SimVentures products in January, what has been your initial feedback from potential customers? Are they pretty excited about this? And should we expect that you would see maybe some initial sales as soon as you go live, or is this going to be a pretty slow process?

Well, I think we are learning how to incorporate and forecast for the international markets. I would say we're expecting a modest rollout of these products as we kind of rollout the select customer sets and turn -- activate the store for premier customers of Laerdal and HealthStream. So, we've forecasted fairly modest numbers for the SimVentures as a whole, which includes now the acquisition of the AVS product line, which has existing revenues before, as well. But, as a whole, SimVentures, we think we've been fairly modest in our expectations from a financial standpoint, but very excited about its potential across markets.

So, I hope that helps. We've got a lot of exciting product launches. And forecasting them all - some will be, we hope, exceed our expectations, some may be a bit behind. But, on the whole, when we put all the whole picture together, we felt very confident in raising the ranges to the new ranges we provided today.

And I should point out that it's driven largely by core business growth, not SimVentures growth. SimVentures was modest in its contributions for the year. The core business growth, the implementations you pointed out and the new subscribers are the parts that are exceeding expectations early in the year, which has a full year benefit now. So, it's core business growth driving this with the added on modest expectations for SimVentures.

Okay. Last one here, and then I'll jump back in the queue - just looking at your increased guidance that you just mentioned, revenues were up smartly. It looks like you're going to invest -- obviously, I would assume that some of that is in these new products that you're going to be rolling out. But, I'm struggling with keeping the lid or staying within your guidance. Are there any particular areas or some things we should think about -- for example, the conference, maybe what your expectations are to spend on that or other areas that we should factor into our models for the remainder of the year?

Well, I think it is right to point out that the second quarter represents a period of greater increases. We have things like the payroll increases occur during the quarter with our raise review cycles historically. Our conference occurs, which has a net expense to the Company, even though we -- our revenues are going to be at record highs with attendance this year.

So, you're right to point out we do have some expenses that'll come in in the second quarter. We also do plan now to launch some of our shelf plans that were growth plans. We're going to continue to add incrementally in areas of the Company we think will contribute to longer term growth. So, we're excited that the outperformance of Q1 allows us to continue to execute on growth plans.

So, we'll see some additional add into our sales organizations throughout the quarter. And so, you're right to point out, with all these exciting product launches and all that's going on in the Company, we plan to balance that with some offsetting investments to keep the freight train rolling.

Sounds good. I'll jump back in the queue.

Thank you.

Our next question comes from Vincent Colicchio of Noble Financial. Please go ahead.

Good morning, guys. Bobby, you seem to be seeing good growth in courseware revenue, as you commented earlier. I was wondering if you could give some color in terms of areas of strength and comment on pipeline. I know you've been pretty consistent at adding new courseware to the mix.

We have, and the interesting thing is we're beginning to add kind of a new type of courseware, if you will, or new type of assessment product that kind of sits between learning and research [inaudible]. We're up to about 43 partners. We continue to evaluate and add new partners constantly to our content catalog. It's the premier library in healthcare, and we're very excited to be able to offer it.

The growth areas, of course, are the Laerdal American Heart Programs on BLS, ACLS and PALS. Those are core drivers for growth. It's a skills based program and knowledge based program with the American Heart support and Laerdal development. And it's fascinating to watch because we believe that that opportunity is about 10% to 15% penetrated, and it's a fairly exclusive product set that we're offering. And it essentially is a new way of completing the BLS, ACLS and PALS training that goes on in hospitals using these task trainers from Laerdal and online didactic programs offered by this group of three, HealthStream, Laerdal and American Heart.

So, we're seeing very good growth and have added to our sales organization throughout the fourth quarter to focus on continuing to grow that clinical skills program for basic life support, advanced cardiac life support and pediatric advanced life support.

We're also seeing growth in clinical courseware. We have a strong and growing partnership with Lippincott, Williams and Wilkins. And we're seeing great acceptance and uptake, both against their competition and otherwise in the clinical practice series and clinical skills series that we sell into the market that are targeted to the nurse population for clinical outcomes.

You may have noted, late last year, we added Harvard Mentor Manager, Leadership Skills. So, we're rounding out business skills and financial skills, and we're seeing some slight uptick in those areas, as well.

So, it's safe to say that, from our core, the regulatory compliance organization, we've moved into clinical skills development and areas of business and clinical importance to the acute care organizations.

So, you're seeing those growth rates because the library is broader and our selling abilities are stronger.

Okay. A question on the research side - you had a strong quarter. You're -- seems that some of the changes that were made to improve the competitiveness of that business are bearing fruit. I know you've added some people on the sales side. Anything in particular you are planning to do to improve the business unit? In particular, are you continuing to add sales people?

If you think about the roadmap there, Vince, you're right to say that we've been investing for a couple of years now and beginning to see, really in the second quarter and third quarter and first quarter, if you go back three quarters, we're starting to see the benefits of those investments.

So, we began almost two years ago launching a new technology platform for the presentation analysis of the research data that our customers are excited about. And we continue to invest in and add capacity and capability to that system.

Along the way, then about a year ago, we began adding to the sales organization to position us well along with launching our new HCAHPS strategies, which HCAHPS are a very important performance metric for acute care hospitals. And we believe we're very well situated to help hospitals improve their scores on those important government collected, submitted and publicly reported data sets.

So, we think that it's both a positioning in the market, the rising importance of the HCAHPS scores and our positioning around being to help improve those scores, the investments in the sales organization, investments in technology starting to pay dividends.

To keep it going, we need to do all three of the above, continue to refine the strategy, add to the sales organization and invest in the technologies. But, after many years of integration efforts led by Eddie Pearson, the President of HealthStream Research, who's also added on operating responsibility across the organization now, is beginning to see that product line come to fruition in the last three quarters. So, we'll continue adding to what we've been doing.

Thanks for answering my questions.

Thank you.

Our next question comes from Sean McKenna of Blaylock. Please go ahead.

Good morning. I think a lot of my questions have already been answered, but I wanted to get back to if you could talk a little bit more about some of the drivers for momentum in the business. Specifically, are you seeing the demand for modules in certain areas, again, maybe from some of the bigger people that you're signing? Are they falling into certain areas? Say, is it in the area of medication reconciliation or [falls]? I mean, what are the kind of areas that people are concentrating on, especially the business -- pardon me -- the bigger customer?

Right. I think the two -- we've classified our content library systems into four categories, and we have several different selling models, including direct selling through the sales force and what we call market development organization, which uses telephone based demonstrations of content libraries. So, we have -- we're sharpening all the sales organizational approaches, including collaborative purchasing where we allow our customers to organize their demand for certain content libraries and purchase across even customers to get -- organizing their buying power together.

So, we have growing and strong purchasing models and collaboration models. We have a growing and strong sales organization that has many dimensions including, again, field sales, telemarketing, market development, internet based sales through our platform. So, our sales techniques continue to sharpen.

And then, the libraries themselves are both growing in their dimension and scope. So, we classify the library into essentially three or four categories - four, actually. And the interesting thing to see is by their expected revenue per content library. And the A category is the highest category. We're seeing in that category our products like the Laerdal, American Heart, HealthStream, ALS, BLS and PALS programs. I mentioned, those are very clinical in nature and skills oriented. Also in that category would be the Lippincott, Williams and Wilkins libraries, which are the competency based skills programs for nurses.

But then, the strong performance is in that B category, which has lower revenue expectations, but is a broader library. And in there, we're seeing business skills uptake. Of course, our core regulatories are adopted by almost every customer. So, still in the regulatory compliance area, we deliver updates to those libraries.

So, the difference in our model in the last two or three years, if you think back five years ago, the consumption in our network was largely regulatory in nature, and now, it's clearly moving into where the Chief Nursing Officers, the Heads of HR, when they want to develop the workforce, they can turn to our libraries and our partnerships and have the most economic buying experience through our buying programs while also getting the content that they need from the most credentialed healthcare content sources like associations and publishers.

So, I hope that answers it. I mean, it's a broadening and adept and improved selling strategies that are getting us these results.

That's very helpful. And then, just one quick second one if I might - the -- you mentioned that you -- I think you mentioned that you had renewal at 105% of pricing. I was wondering if you could talk a little bit more about that, how you were able to do that.

Sure. It's a reflection of pricing. So, it's -- that number is -- effectively, in retail, you call it a same store sales number. It's effectively looking at a contract that, let's say, had 1,000 subscribers when it was originally contracted a three year deal. And when they renewed, they renewed and they signed up for the learning platform. And then, when they come up for renewal, let's say they've added products along the way, content libraries and other services, those are not in that number. All we do is we take the core subscription that they had again for the learning platform times the number of subscribers. And then, when they renew three years later, we calculate the dollar value of the core products that were in the initial subscription. We don't add in the additional products. It's just the Learning Center and Authoring Center, I believe, are the core products that are the baselines that are subscribed to.

And so, we -- we're able to then see if we got a slight price increase or decrease during that window. And as you can see from the metric, on that comparable basis, we were able to get essentially a 5% increase during the quarter.

Okay, very helpful. Thank you.

Our next question comes from Frank Sparacino of First Analysis. Please go ahead.

Hi, guys. Gerry, maybe for you, it looks like in Q1, from an expense standpoint, at least relative to our estimate, that expenses came in a little below expectations. Was there anything in Q1 where perhaps you thought you would be spending or maybe a little bit behind in the hiring or any area of investment that you would highlight?

Nothing out of the ordinary. The hiring patterns tend to be when we find the best person, the best candidate, we'll move at that time. There was no -- there's nothing explicit or directed to say manage the expenses [inaudible] run rate we had coming out of the fourth quarter. So, yes, I'd say there's nothing of an unusual nature that drove that.

Okay, good. Thank you.

Yes.

Our next question comes from Nick Halen of Sidoti. Please go ahead.

Good morning, guys. Can you just talk a little bit about what caused the gross margin contraction in the quarter and basically what your assumptions are going forward?

Yes. Well, the gross margin, as you know, Nick, there's two things that drive that. On the learning side, a big part of the variable expenses are the royalties we pay to partners for the courseware. On the research side, the Energy Center, which is the outbound phone calls to patients for patient surveys, is the most significant variable cost in the cost of revenues that makes up the gross margin.

A couple of things that can influence both those - on the learning side, the royalties, the mixture of the revenue sales and the NOV, New Order Value, will dictate some part of that royalty expense, and therefore, that part of the gross margin for learning. On the research side, we've had a lot of expansion in the Interview Center over the last year, year and a half, really, as the patient category has grown dramatically, as you've seen. And so, there's a little bit of increase there on a per call basis.

But, there's nothing we see out of the ordinary with those patterns. And the cost of revenue is part of the overall guidance that we give as part of operating income as part of the calculation, obviously. So, you can infer from that what you see fit, but there's nothing unusual we see about the behavior in those -- that line item.

Okay. Great. Thanks, guys.

Our next question comes from Walter Ramsey of Walrus Partners. Please go ahead.

Thank you. Congratulations, great quarter. Got a couple of questions - the amortization of the acquired intangibles of the Company that was acquired a few years ago, can you give us that for the quarter?

That'll be in the 10-Q, Walter. That'll be out shortly.

Okay. So, was it going down or is it the same as it has been?

He doesn't have that.

Yes, you'll have that when we file the 10-Q.

Okay. The video system that the Company bought, the 50%, anyway, are you going to amortize that or just leave it as it is on the balance sheet?

No, that's an amortizable, intangible asset. So, that will be part of the amortization going forward.

So, how fast are you going to write that off?

Our usual policy is between roughly about three to four years for acquired -- well, for all developed and acquired intangible software we just developed. So, it would be the same -- consistent -- I guess consistent accounting methodology for that.

Okay. I got on a little late. Did you guys say what the startup costs were for the SimVentures in the quarter?

We did not disclose that in the press release.

Okay. Are you ever -- are you going to, or is that just kind of built in there now?

It's just kind -- it's just been built in.

Okay.

It's been part of the operating expense run rate since second half of last year. There was some expense in the Q3 of 2010 and Q4, and then, of course, some in Q1.

Yes. Okay. The -- longer term, the SimVentures operation, do you view that as being an additive product line, or is that going to kind of take over some of the existing business as it incorporates into the overall business? I mean, how do you view that?

Sure. Well, we believe that is a very additive product line. It's got four core software components, three of which are revenue generating. They're used for different purposes than our traditional and current software offerings. The types of content that are sold through the SimStore are different. They're the types of assets that run on the Laerdal simulators that are positioned as the market leader throughout the globe. And so, it's a new type of content. It's a content download that then runs the simulation on these high fidelity mannequins. So, it represents a new category of content and a new distribution channel, meaning the locations throughout the world where these Laerdal mannequins exist become essentially new market opportunity for HealthStream.

Yes.

And so, unlike the Laerdal -- these are incremental to things like the BLS programs that we've been selling into the US here. These are programs that run on their simulators worldwide and bring both new audience and new potential to our business.

Okay. And just in the United States now, the company, you were up, I forget, 22% in research and 27% with the learning. Do you have an estimate of what the industry growth rates were?

No, no, we don't have that at hand. So, we do industry descriptions in our filings like the 10-K. And so, that's generally where we cover that kind of information.

Yes, right. So, in general, you think you're increasing your market share or just keeping up with the overall trend?

Oh, I think if you look at say the core platforms, the patient research business, and the -- which are very defined -- and the Learning Center business, which again are kind of the two core platforms of the Company today, we believe that both of them are both keeping up and gaining market share. So, it's a very defined number of users for the Learning Center as a target, and we continue to gain share against that defined opportunity.

Okay. And then, just one last thing - obviously, most of the business is to the hospital area, but the Company has been putting its toe in the water to try to expand into some of these other ancillary areas. Can you give us an update on how that's coming?

I would say we're still evaluative. As I think I've mentioned before, our sales teams still opportunistically sell into markets like long term care and surgery centers. We haven't declared it a separate sales organization or a fresh vertical yet. And so, we opportunistically sell into those different verticals like home health surgery centers, long term care, behavioral health. And we have some partnerships of content that -- particularly in home health and behavioral health that allows us to be occasionally opportunistic there with our sales organization.

What we haven't done is declare one a vertical, which would be meaning to add all the tool sets you need to really focus on that additional vertical. And we -- those are the kind of things we'll evaluate throughout the year where you'd add some product management and a marketing budget and a dedicated sales component to your team.

So, I would say we have a small toehold in many of those verticals, and we're continuously evaluating which one might be the most attractive to dedicate resources to. And I think our outperformance during the first quarter, and to get to some of the questions about continuous investing, give us the opportunity to look more firmly at those kinds of opportunities.

Yes, all right. Anyway, it sounds great. Appreciate everything. Thanks a lot.

(Operator Instructions.)

We do have a follow up from Matt Hewitt of Craig Hallum. Please go ahead.

Thanks for taking the follow up. Just, real quickly, you announced that you increased your credit line recently. You obviously got a nice cash bounce. I was just wondering if you could talk about maybe the M&A pipeline, and not necessarily giving us specifics - I understand you can't do that - but maybe talk about the opportunity sets you're seeing there, whether it's increasing, what the valuations look like, anything along those lines.

Well, I think I would say several things. I would say that it's active. So, we do have an executive team focused on evaluating opportunities. I think we've demonstrated that we've been careful in our execution, having only done one in the last several years. So, the AVS SimView that we announced a little bit back was exciting for us. It was -- you can see how core it was to our SimVentures and it fit from a roadmap standpoint. It was an existing product line with existing revenue streams, and we have a vision for how to enhance it and offer it more broadly.

So, I think both adding products and capabilities and investing in partnerships is something that's very active, and we hope to continue to evaluate those opportunities and make some of them happen over the course of the next year.

So, all I can really say now, because as you said, we can't be specific about opportunities, are that as opposed to say two years ago, the last several quarters, we've been saying that we're active, we're evaluating opportunities.

All right. And then, just one last follow up - number of sales people. I know that you've been adding over the last year, two years. What are you up to now as far as a headcount, and maybe what are your plans over the remainder of 2011?

That will be in our K, which we update. And so, we'll wait for that. That's something that--.

--Yes. Hold on a second, Matt. This is Gerry. Give me one second.

Sure.

Okay. Matt, it's -- as of the 31st of December, in the learning segment, we had 54 employees, 45 which carry quotas. In the research sales area, we had 25 employees, which 15 carry sales quotas. And then, comparison numbers, just to give you a point of context, at 2009 year-end, the learning side had 49 employees of which 40 carried quotas, and then the research side, which is sales and consultants area, 22 employees of which 12 carried quotas. So, the -- so, that gives you two points in time in the growth of the sales force each of the last two year-ends.

And did you add in the first quarter to either of those categories or both?

We don't comment on that, but we will say that's an area of increased investment over time. But, as you can see, we -- it's about eight additional quota carrying throughout the year, but the timing of those we don't announce until our filings.

Okay. All right, thank you very much, and congratulations again on another good quarter.

Thank you.

I'm showing no further questions at this time and would like to turn the call back over to Management for any closing remarks.

Thank you for attending the call. We look forward to those of you scheduled to come to our Summit, and we express sincere appreciation to the hardworking employees that help us deliver such a strong quarter. Thank you. We look forward to reporting our next earnings release.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.