HealthStream Inc (HSTM) 2011 Q2 法說會逐字稿

(Audio starts in progress) Officer. Please go ahead.

Thank you. Good morning and welcome to our Second Quarter 2011 Conference Call. Also in the room with me are Gerry Hayden, Vice President and CFO, and Mollie Condra, Associate Vice President Communications, Research and Investor Relations. Gerry, would you read the forward-looking statement please?

Certainly. 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 in the Company's filings with the SEC including Form 10-K and 10-Q.

Thank you Gerry. We have a lot of exciting news to cover. We delivered another strong quarter here in the second quarter. I thought it would be best to begin with reiterating some of the topline financial performance and then moving into some of the business highlights reflected in the last 90 days, or since our last report.

Revenues for the quarter are up 26% over the second quarter 2010, coming in at $21.1 million, which is the first time we've passed through the $20 million mark, and up 26% over the prior year. Operating income was up 32% over the second quarter of 2010, which delivered -- we delivered about $3.1 million of operating income in the second quarter.

And net income, importantly, was up 36% over the prior year same quarter. And we delivered an EPS of $0.08 per share in the second quarter of 2011, which is up 30% from an EPS of $0.06 per share in the second quarter of 2010. Importantly, measures of cash flow and profitability like adjusted EBITDA, we delivered adjusted EBITDA of $4.6 million in the second quarter, up 24% from $3.8 million in the second quarter of 2010.

Revenues from Internet-based subscription products, one of -- an important measure for us, the SaaS-based, Internet-based recurring revenue subscription products which includes our core learning platform and content offerings, increased 29% over the prior-year quarter. So, really good sequential and year over year growth in the subscription-based products for the Company.

The operational metrics that underlie the financial performance were also strong, and some of these get at more leading indicators. For instance, the number of contracted subscribers grew by 63,000 in the quarter, kind of exceeding our target range in the last several years of 20,000 to 50,000 net new subscribers per quarter. We were able to generate 63,000 new contracted subscribers for our learning platform in the quarter.

We also implemented approximately 86,000 during the quarter. And that is a positive operational sign because revenue recognition begins with implementation. We ended the quarter with 2.486 million implemented subscribers to wrap up the second quarter.

The renewal rates remain strong. Essentially we've been able to maintain pricing power and the vast majority of the accounts up for renewal, both renewed and added subscribers which offset any loss in subscribers from lost accounts. So the renewal rates are 102% by number of subscribers in the quarter, meaning that the accounts up for renewal increase our subscriber counts, which more than offset any lost accounts during the period, representing 102%.

And the contract value, which is the base contract, generally these contracts are three-year contracts, reflected 116% of contract value. That is over the base subscription, so if an organization subscribed to one or two products initially three years ago, and when they're up for renewal today they renew at 116% of their price on the base products.

They may also have grown beyond that by adding additional products. So the 116% contract value in the quarter reflects the calculation of the base products value moving up or down. And here you see the pricing powers maintained at 116%. Again, accounts grew greater than that amount by adding additional products not counted in that calculation.

The research and services organization added 44 -- 44 customers added services during the quarter. 23 renewed their contracts for multiple survey products. And revenues grew an impressive 22% for our Research operating group, which is a strong number from us in that the most recurring component of our Research business is patient surveying. And that showed a 25% increase over the prior year.

A brief note about our vigilance in pursuing an M&A pipeline. We continue to remain active. We're seeing increased activity that is relevant to good strategic fit for our organization.

We have hired investment bankers to assist us with the evaluation of these opportunities. And we're looking for companies, products and technologies that enhance the growing ecosystem around our widely adopted platforms. So we're excited to say that we think that environment, after many quarters of looking, is heating up.

And we will be reporting on, as we move forward, on our progress in those areas. But we are actively seeking and reviewing opportunities for acquisitions to strengthen our core business.

Importantly, we were able to revise guidance upward again as a reflection of our strong first-half performance. We've been able to put our growth expectations for revenue into the range of 22% to 24%. That is up slightly from the prior period guidance. This is full-year guidance, I repeat.

And our operating income range is now higher and we're expecting a 39% to 42% increase over the prior year for the full-year numbers. Again, so our operating income up 39% to 42% as our revise guidance and revenue is up 22% to 24% over the prior year. Again, those are full-year guidance numbers.

I will turn the call over to Gerry for a detailed look at financials and then bring it back and talk about some exciting product and business developments.

Thank you, Bobby, and once again good morning everyone. I will make a few brief remarks about the financial results and then we will save more time for questions later.

My primary observation, the same I've had the last several quarters, is you see the leverage in the business continuing to be apparent. It's the same pattern we've seen for the previous several years, and of course continues in the first half of 2011. However, I thought it might be appropriate to look at the results in the second quarter in a broader historical context.

For example, Bobby mentioned this is our first quarter with revenues in excess of $20 million. The year to date performance at 20%-plus growth rate is the first time we've seen those kind of growth rates in our core business.

If you go back to 2008 to 2010, for example, we had double-digit core growth rates in the mid-teens. And 2007 it was 38%. But that was influenced by the acquisition of TJO and that brought it down below 20%.

So this year's growth rate is new level of performance thus far, and it's coming from both research and learning. Bobby mentioned the 29% growth rate in our Internet-based attrition products. But also if you look at the Research side, this is their second quarter at 22% growth, therefore year-to-date at 22% growth.

Historically, if you go back and look, 2010 was a growth [at 7%] over 2009. And 2009's growth is only 2.5%. So, once again both Research and Learning continue that kind of magical number 20% seems like for this quarter.

The growth rates are also, as you would expect, having a positive influence on certain parts of our operating structure. For one, I would just try to point out very briefly is the G&A expenses.

And if you noticed, they're running at roughly 13% of revenues for the first six months of 2011. Last year for the -- it was -- the same timeframe it was about 14%. If you go back just two years it was 15%, so a significant leveraging off of that G&A line as, once again, you would expect for a Company our size.

Bobby mentioned the guidance changes. One thing I would just add to that, we still see our capital expenditures at $9.5 million for the year. And also, we remind folks that includes, $3.5 million to acquire our interest in the AVS product as part of SimVentures back in the first quarter.

The cash balance remains strong. It's at $24.5 million. And that is up, a net change of $6.5 million from year-end. However, once again, please keep in mind that of that $6.5 million net change, $3.5 million was invested in AVS. So it's roughly -- kind of in gross numbers a $10 million net cash positive flow.

So, once again, as Bobby mentioned, we feel pretty good about our second-quarter results and year-to-date thus far.

Thank you Gerry. I'll wrap up with a few comments on product development and business progress.

During May of the quarter we hosted our summit, our customer summit, with 750 customers attending various workshop sessions and presentations. Two core partnerships were strengthened during the event. Our partnership with Lippincott Williams and Wilkins, their nursing procedures and skills products, continues to be a bestseller in our content libraries.

We also used that opportunity in those partnerships to frame up and launch our talent management strategies for healthcare, which we are growing a number of partnerships and a unique point of view on what it takes to develop talent in the healthcare market. Along with Laerdal at Summit, we launched our SimCenter -- the product set from our SimVentures collaboration and joint venture with Laerdal. So, two major themes were workforce development, our talent management and simulation adoption in healthcare, were both supported by two strong partners -- Lippincott Williams and Wilkins and Laerdal Corporation.

So, the summit provided a great opportunity to introduce these progressive areas of growth for the Company and announce these relationships with these growing partnerships.

Additional partnerships were announced during the second quarter. TheraSim, a new content partner, delivering simulation content focused on chronic and infectious diseases. You can see here an increased growth in clinical content for us.

Precise, which is covering an important area of comprehensive ITD 10 education programming. So the new coding regulations are on the way and we're getting prepared with relationships like the organization now, our partner Precise.

Sigma Theta Tau International is an honor society for nursing. So you can see we continue to add prestigious nursing associations in our content distribution network. So I wanted to give you a sampling of the new and strengthening partnerships around our content offerings, which strengthens the overall ecosystem of our platform.

Exciting news as well, during the quarter we added the Russell 2000 Index, which is an exciting milestone for our organization. It is an honor to be selected for inclusion in this Index and we hope that it increases liquidity and trading in our stock for everyone. So we're excited to be included in the Russell 2000 Index for the next, I believe it is a 12-month cycle for that.

We're also named the HCI, the Healthcare Informatics 100 list. We've been on that list for a few years now. We're excited to be renamed to that list, ranking number 66 in the top 100 healthcare informatics companies in the country as ranked by Healthcare Informatics Magazine.

So we're excited to have that honor bestowed onto our Company, reflective of the great work of our organization and the wide adoption of our platforms in acute care and healthcare settings across the country.

I look forward to reporting our progress in the next quarter. We'll continue to execute on our plan and work hard to deliver the new expectations for growth as reflected in our revised upward guidance.

At this time, we'll turn it over to the operator for questions. Thank you.

(Operator Instructions) Matt Hewitt, Craig-Hallum.

Good morning and congratulations on the great quarter, guys.

A few different questions here covering a couple of different topics. First of all, you're seeing robust growth on both segments of your business. Last year was kind of the Learning segment that was really driving the growth, now you are seeing an uptick on the Research as well.

I'm wondering if you could -- is it a combination of taking market share on the research side as well as some new areas, whether it be home health -- and I believe you may have even entered ambulatory surgery market? Or what are the dynamics that are driving the growth on the Research side?

The core dynamic was an increased focus on growing the sales organization about a year ago to give us some strength in selling into the market more broadly. We think there are plenty of opportunities there and we strengthened the sales organization. And now it's -- we are seeing the benefits of that.

We hope to continue doing that throughout the year and into next year as well. So the core attribution of that growth is just an overall stronger sales organization. We're pleased with their performance and the wins they are delivering in the market.

Also, you may recall that a few years ago we began investing in the technologies underlying our research platform. And so we've been able to deliver new analytics toolsets to all of our customers. We call it our Insights Online product set. And it provides new tools and capabilities to our Research customers to analyze and manage and share their data internally, a visual dashboarding system. And so those investments also we think are helping us competitively.

And then finally we think we are very well-positioned in the -- helping organizations not just measure their HCAHPS scores, but be position to improve them with our learning offerings. So we have organized comprehensive product sets that address the HCAHPS survey requirements for hospitals that include learning libraries, intervention and remediation and training content libraries to be sold alongside of our survey research products, kind of creating a more complete product set. Measurement of the survey results and then strategies to improve your scores coming across Learning and Research together. So those are the three primary drivers of growth in the Research organization.

That's great. Follow-up here, SimVentures, 148,000 your first quarter out of the chute, I would say that is pretty strong performance. Are you able to break out maybe what the contribution was from the video versus the applications? Or can you give us a little more color on your thoughts on how SimVentures performed in the quarter?

You must remember we launched it in a staged fashion. The SimStore was launched in a staged fashion to limited customers throughout the quarter. And so we would like to see that go even faster than it is going.

Overall with SimVentures, we have a whole product roadmap. We're only part way into the delivery of that roadmap to our customers, with other product announcements expected later this year and early next year. So overall I am very pleased with the strength of the partnership, the definition of the product roadmap. And it is exciting to see the first quarter of revenues across any of the product lines.

We're not going to break down revenue by product line. We are going to report on the topline progress of the venture. So, again, we're pleased to see some revenues coming from our investments in the past 18 months and we think, like you do, that it is a good start and we would like to see it go faster than it has so far.

So we look forward to new product introductions and continued progress with the AVS product line, and the SimStore, which are now both in the marketplace generating revenues.

Last thing and I will jump back in the queue. You talked about the M&A pipeline heating up. I'm just wondering if you could give us a little bit of color as to maybe size of transactions you're looking at, and whether or not these are simply going to slide into your Learning segment or if you're -- as far as acute care setting or if you are looking maybe at outside of the acute care setting to maybe attack some of the additional markets.

I think previously we have announced there's no change in our strategy. We have announced would like to add products, technologies and companies that fit our vision, which stays true to healthcare so there will be no diversion outside of healthcare.

But we would look at anything from technologies that enhance our ecosystem, so new applications or services from a pure technology standpoint. We would look at companies that might strengthen our product set or give us a marketshare presence in the acute care or secondary markets, as you have mentioned. So we're actively looking in other verticals that are directly -- they stay true to the provider side of the healthcare, meaning institutions that deliver care to patients.

Not moving into the insurance areas or others, but staying focused on healthcare, staying focused on the delivery side of care where you have like long-term care, home health, surgery centers, Behavioral Health. All of those are categories where we see some expansion in use of our platform just organically through our acute-care providers that are now adding services.

So we did announce earlier we would be looking in those areas as well, so you are right to point that out. So it is really just a broad definition of technologies, products and services but staying very focused on the vision of the Company. Staying true to healthcare, improving the delivery of care by training and developing the people that deliver care.

And so we really have a focused plan here. And just in general there seems to be more activity, more things to look at and we have and investment bankers helping us evaluate those opportunities.

Nick Halen, Sidoti & Co.

Good morning guys. Congrats on the quarter.

Thank you.

The first question I had is just about the operating income guidance you guys gave. Just based on what you have done in the first half of the year, it seems that you're expecting a little bit of a drop-off in the back half. And I was wondering if you could give us a little bit of details about why you are expecting that.

Part of the opportunity here is to invest at a faster rate to keep everything growing at the rates we're excited about. So we're seeing we need to add to sales coverage. We need to add to various parts of the organization in technology and development to remain progressive in our development of our platform and technologies.

So part of our expectation is, and we are currently in a hiring mode at the Company, is to add strength in the core areas of the business as quickly as we can operationally. So, part of it is just natural expectations for investing intelligently in growth. And so we are excited to be in that position to be able to make those investments while also delivering this kind of revised upward guidance and expectations for financial performance.

So we think it is a great opportunity to blend investment and growth in the second half of the year, which you can see reflected in our guidance.

Okay. And now I guess just -- in terms of a number, have you guys decided how many people you want to enter the sales force?

No and we don't disclose that anyway. We're just kind of constantly adding in several areas of the Company that strengthen the overall position of the Company from market expertise to technology development to sales and marketing. So, all of the common areas that are growth oriented, are R&D oriented that further our position in the market.

Okay, great. And then lastly, just in terms of subscribers that you guys have been able to add, would you say have you guys been able to take share from existing competitors? Or is it just brand-new business that you guys have been able to gather, or a combination of both? Can you comment on that?

It's a nice combination of both actually.

Our exclusive focus in healthcare puts us in a great position. When competitors have been in accounts and they're up for renewal, and they haven't demonstrated the knowledge of the domain that we have. And so we do have a consistent contribution of growth from our teams that are focused on grabbing market share from existing competitors.

And then certainly there are greenfield opportunities that are strong as well. And we have a whole organization dedicated to developing existing accounts and finding new ones. So, it really is a nice balanced contribution.

And some of that comes from the realization, I believe, of the market, of the domain expertise required to service these verticals. And the unique combinations of content, partnerships and kind of a little ecosystem to service their unique training and human capital development needs. Partnerships with organizations like Laerdal that are not just reseller, but joint venture, R&D development-oriented are beginning to differentiate our platform and services in ways that others to just are not focused on at all.

So I think you're right to point out that it is balanced growth across all three of those categories; what we will call same-store growth or existing customers, brand-new customers that are still using the old methods of training development and assessment; and competitive takeaways in the cycle of renewals that customers are under now.

Great, thanks guys.

Richard Close, Avondale Partners.

Thank you. Congratulations on a great quarter.

With respect to the subscribers and contract value growth, pretty solid there. Can you talk a little bit about how you look at your customer base in terms of how penetrated you actually think you are within the existing base?

Yes, we can speak to that. The unique thing about our business model is that it is such a broad portfolio of products that each product has its own addressable market potential within the approximately 4.8 million people that work in acute care hospitals. So each piece of our platform has some opportunity -- a defined opportunity, we work hard to define that -- against the 4.8 million subscribers.

So if you take a piece of content like the Laerdal BLS content, we have estimated that to be essentially a $40 million a year recurring revenue opportunity of which we are sub $10 million currently. So if you think of that product it's probably around 15% to 20% penetrated against its defined market opportunity. In fact, for that product, we estimate that approximately 1 million people per year need that training. And we announced last quarter that we were about 200,000 people using that product for part of their training.

And so, the thing about our portfolio, that is just that one product. That one product is about 18% penetrated. It represents a $40 million a year recurring revenue opportunity.

Then you take a piece of our platform, like our competency product. The last reported number we gave, we had under 50 contracts or right at 50 contracts, compared to our learning platform that has over 2000 contracts. So the greenfield opportunity for our competency platform we believe is wide open.

And we have articulated in the past that the competency platform we believe is a platform doubler, meaning that we sell it for amounts approximately equal to the amount we sell for our learning platform. And so we have what we call platform extensions that have defined market opportunities. Some of them, as you can see, at the 55% penetration levels.

Content opportunities like the BLS one identified with Laerdal, that is less than 20% penetrated. And then on the core learning platform, again, depending on the definition of marketshare, we believe we're around the 42% to 44% penetration on the core learning platform. Again, that being just one module of many in our suite of products.

And so clearly a dominant position in the acute care market for that learning platform, but right behind it we have the offering platform, the competency platform and then a myriad of almost 4000 content products that each have their own defined market opportunity. So I hope that gave you a sense of the way we think about it. Each of our products in our portfolio has a defined opportunity and a market opportunity that we try to reach the maximum potential for.

So, a pretty solid outlook in terms of continued revenue growth going forward here.

We believe so, as reflected in our 22% plus revenue guidance, and it comes from a mix of -- the other thing that we see is a growing opportunity for growth in revenue per subscriber. We know it has been important to add subscribers in the last several years. It is getting equally or more important to grow revenue per subscriber from the mix of products in our portfolio.

As you can see, with almost 2.5 million people implemented, the opportunity to increase the dollar value per person per year is very strong. We have some accounts that are in excess of $80 per person per year across the mix of our products. But you can see that is clearly not the average.

And so a lot of our goals now are shifting from adding subscribers, which has been doing very well, to growing revenue per subscriber across the mix of our portfolio. So, two very exciting ways to grow.

Okay. On the survey growth you guys highlighted that at around 25% year-over-year. Any thoughts on survey growth on a go-forward basis? Should we expect or anticipate similar growth in the back half of this year on that line?

We haven't broken that out. So we have our blended revenue guidance -- I'm sorry for the lack of detail on that, but we have chosen for competitive reasons to do it this way. And the pipelines across all lines of business have remained strong, and I think the last two quarters have demonstrated balanced growth.

And so, typically, I point backwards as to look at trends and then talk about our aggregate guidance forwards. There is no guarantee that it will be exactly that way. But in general, the pipelines remain strong and balanced.

Let me try it another way. So, the 25%, was there anything in that number -- anything that caused that number to -- or caused you to have that 25%? Was there anything out of the ordinary there?

No, there was nothing out of the ordinary. It was just a steady string of wins. As I mentioned, about a year ago we started adding the sales organization. So we have more quota-carrying sales reps and they're delivering more competitive wins a more consistent basis.

So it has really just been a factor of a larger, stronger sales organization that is better positioned competitively. (multiple speakers) So those are the main contributing factors.

I guess a final couple questions here. I thought the ICD 10 commentary and relationship that you recently announced was pretty interesting. It seems like hospitals, or the whole industry is behind on ICD 10 preparation.

If you could talk a little bit more about that relationship -- and maybe what has been the initial response so far from your customer base?

Well, it's been very good. I think -- I agree with your assessment. There are several macro trends that in general the industry finds itself trying to catch up to, and we try to be a provider to help them catch up.

And this is definitely one of them. The ICD 10 is going to incur massive change in the industry. Change to us means more training and picking the right partners for that.

Historically we have had a few view partners in the coding areas. This new relationship with Precise strengthens that. They're a good organization with strong consulting background and content offerings in this area, so a solid reputation.

We already have our first sales on the library. So I'm excited to report I think the reception since our summit launch just in May has been strong. And we look forward to a relationship with Precise, the organization, our partner, to deliver good sales results both for them and to the market.

So I think you're right to identify the trend there. There are those trends like HCAHPS we've been talking about. [Cannibal] care organizations. There are several macro trends that require value-based purchasing, are our all-important trends that we're working hard to capitalize on to make sure we can help our customers be ready for them.

So when I think about ICD 10 and our discussions with people in the industry, it seems like a very large percentage of the costs associated with ICD 10 from the provider side is on the training of not only the coders, but the physicians themselves with the new changes to ICD 10. Are you working -- do you offer anything educational with respect to the physicians themselves on this?

Not sure I follow that. No, not to the actual hiring physicians. We offer the coding educational programs.

We have several partners, HCPro and Precise being two that offer robust and growing libraries of content to address all areas of readiness. We are not yet into the selection process for finding the employees with those credentials but -- if that's what you meant. But we are -- (multiple speakers)

No, I meant like the -- that hospitals are -- they have to train their staff what the new code sets are. And so, is your focus solely on the coders at the hospitals or does it expand into other employees of the hospitals, like possibly the physicians and such?

Oh, yes. Right now it is focused on the coders in these libraries. But I will have to get more information about these growing libraries. Both organizations that are our partners are growing their libraries, and that currently focused on the coders themselves.

Okay. Thank you. And then a final question, Gerry, would be on the -- you pointed out the leverage opportunities on G&A expenses. Is there any long-term target you have for that number, maybe over the next five years or so?

We've chosen not to give guidance that far out. Any change in the leverage is assumed in the overall guidance that we talked about on the phone call today.

Okay. Thank you. Congratulations again.

Vincent Colicchio, Noble Financial Group.

Bobby, nice quarter; just a couple questions from me. Did you in fact add any nonhospital type facilities in the quarter on the HLC side? And what does the pipeline look like on that side of the business?

That is a good question. I don't have it right in front of me. But we almost always had some that are in the secondary verticals.

We've been kind of growing a small footprint in each of those areas, so I would say this point we do have customers in each of the areas I mentioned -- which would be surgery centers, ambulatory care, long-term care, home health and behavioral health. We have some customers in all of those areas. Pretty much each quarter some small subset is coming from those verticals.

They are kind of secondary to our focus currently. We don't have dedicated sales organizations yet for those verticals. So they come when our hospital customers acquire, say, a home health agency or partner with one and want to extend the learning service to them.

So we have assembled some content partnerships to meet those needs, the growing healthcare enterprise needs of our core acute care hospitals. So we haven't reported that mix, but there is some more of that occurring and we're excited about it because we're looking to formalize our plans in those market segments and then kind of more efficiently add those segments over time to our definition of our market opportunity, which today is largely defined by the 4.8 million subscribers in the acute care space.

But I think as we have mentioned before, approximately another 5 million people work in those -- I will call them secondary markets, or tangential or related markets that you brought up.

So you are right to point out each quarter we have added some in those markets. It is small as a percentage. And there is a limited focus on it operationally, but an increasing view that it has an opportunity.

In the Research business you have had a very nice improvement on the growth profile. I realize there is seasonality in the second half. I'm just curious; has there been any type of -- any push outs from clients for the second half? Or are we sort of beyond seeing a lot of that like we have seen in the past?

This is Gerry. A couple things; one is that there is seasonality, as you mentioned, in the point in time categories -- the employee, physician, and community. And that does have some impact on the overall growth rates.

The second thing to keep in mind, if you go back and look, I mentioned that I think the growth rate last year in [restructure is what, 7%]. That all took place in the second half of the year. So we have the comparisons for the growth rates for the second two quarters of 2011 against the two stronger quarters of 2010.

I think the math is [moderating] some of those growth rates, but we don't see anything negative or precarious about the second half of the year. Primarily the patient category we think will do well into the next two quarters.

And, Bobby, last question; you had mentioned the Research side, how you have done a good job cross-selling help to your clients on the HCAHPS side. Just curious, because I've always seen cross-selling as a very substantial opportunity for you guys, are you doing in effect more cross-selling today in this quarter than you have, say, in the year-ago period?

(multiple speakers) I don't have the exact numbers in front of me, but it is -- I would say the collaboration among our sales channels is greatly improving. So, when opportunities develop in one area or a follow-up opportunity, we're getting much better at sharing.

We use now centralized account and client management systems. We use a sales force. And sharing and collaboration is much higher. So -- and the way the product sets are defined is improving.

So, now, when we go to market on HCAHPS, the product set and the description and marketing materials describe the full complement of learning and research products related to HCAHPS improvement, not just measurement. And so I would say in all areas we are improving the collaboration, which is improving the visibility. So we're seeing more uptake, for instance, of our HCAHPS learning libraries that -- and we know, we can already tell that the 25% growth in the patient satisfaction business is growing as well.

So they are kind of pulling each other along and we're doing a better job coordinating the sales efforts.

Thanks guys.

(Operator Instructions) Frank Sparacino, First Analysis.

Hi, guys. Maybe first on the learning side, in terms of absolute dollars -- of course where numbers this quarter were very strong; I think the strongest I've seen in some time. Is there anything you would call out, Bobby or Gerry, just in terms of the strength this quarter?

Not in any particular quarter. I would say throughout if I reflect back a few years ago in a strategic retreat board meeting, we declared that content selling would be our hedgehog.

And so we created an operational focus almost 3 years ago expecting to school up the number of partners and the content availability. We began doing things like hiring the [medical] librarian to classify and categorize our content into useful catalogs that make them easier to find and buy if you're a customer.

And so, it is really the culmination of several years of work. It is not any one thing in the quarter.

A few core products are getting increased traction in the last several quarters. The Lippincott library and the Laerdal product sets is in particular are performing well. And so we're seeing strength across the board and it is due to, I think, a focus that started probably 30 months ago.

Good, thank you. And just lastly, Bobby, I would be curious if you have any comments as it relates to just the overall hospital operating budget environment. It looks like, from a financial standpoint, things remain I guess stable at best.

But obviously the [talk of reform] and some of the debt discussions going on, hospitals may come under further pressure. But I'd just be curious of conversations you're having with the outlook there.

Sure. I think it's right to point out the industry is a bit stressed. We have tried very carefully to, where possible, align with requirements and helping organizations fulfill the requirements at a lower cost.

So if you look at the BLS products and ACLS and (inaudible) products with Laerdal and American Heart, they [targeted a biannual] requirement for 1 million people. That requirement has existed for a long time. It is not going to go away regardless of environment, macro environment. And we believe the solution -- American Heart, Laerdal and HealthStream offering is more efficient than the current methodologies of classroom training.

So we've done our best from regulatory training to skill development to also align our products with requirements, even the survey products. The core product is -- HCAHPS, or a government-required survey. So where possible we tried to align and then be more efficient in helping organizations fulfill various requirements.

The elective components of education may come under more stress. But again, the need to invest in finding future leaders and developing them, the talent management challenges are greater. So I just think that even though it's a tough environment, they're going to have to invest in their workforce selection, development and assessment increasingly.

Okay, thank you guys. Nice job.

Thank you.

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

Thank you for listening in to this quarter. We look forward to reporting our progress and look forward to visiting with you on the next conference call. Thank you.

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