HealthStream Inc (HSTM) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the HealthStream fourth quarter and full year 2011 earnings conference call. At this time, all participants are in a listen only mode. Later we will conduct a question and answer session with instructions following at that time. (Operator Instructions). I'll turn the conference over to Mollie Condra, Associate VP, Investors Relations and Communications. Please begin.

Thank you, Tyrone. Good morning, and thank you for joining us today to discuss our fourth quarter and full year 2011 results. Also in the room with me are Robert A. Frist Jr., our CEO and Chairman of HealthStream, and Gerry Hayden, our Senior Vice President and CFO.

I would also like to remind you that this conference call may contain forward-looking statements regarding future events ant 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 the 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.

With that, I will now turn the call over to our CEO, Robert Frist.

Thank you, Mollie. Good morning. We're excited to report our fourth quarter and full year results to you. Like do a quick shout out of our executive team that's worked hard to lead an excellent workforce to outstanding results for the full year. Gerry Hayden, our CFO, in the room with us; Eddy Pearson, our COO; Art Newman, our Executive Vice President; Jeff Doster, our Chief Technology Officer; and Michael Sousa, our Senior Vice President of Sales. The team has had an exciting year and enjoyed working with our nearly 500 employees to get the outstanding results that we're about to report.

Consolidated revenues for the full year were up 24% to $21.9 million in the fourth quarter of 2011. Theywere up 25% to $82.1 million for the full year. Operating income was up 85% to $3 million in the fourth quarter of 2011, while it increased to 61% to $11.3 millions for the full year. Net income was up 49% to $1.8 million in the fourth quarter, and up 67% to $6.9 million for the full year.

So obviously, with 24% organic revenue growth in the fourth quarter, 85% improvement to operating income, and 49% in reported net income for the fourth quarter, we finished the year on a strong set of financial performance met metrics. In a moment, Gerry Hayden will provide a more detailed review of the financial metrics. I wanted to cover more things that occurred during the fourth quarter.

In November, working with William Blair, Avondale Partners, and Craig-Hallum Capital, we successfully completed a stock offering of approximately 3.6 million shares of our common stock. The net proceeds were just over $55 million. Through our follow on stock offering, 43 new shareholders invested in HealthStream, and I wanted to welcome them aboard on this, what's been a long and persistent journey of steady operating results and growth. Coupled with our organic growth in cash, we have a cash balance of $89.9 million. This certainlyis a strong balance sheet that sets up well for future growth opportunities.

And since our IPO over ten years ago, we've tried to be good and careful stewards of the capital we've raised, and we don't plan to play it any differently in the newly -- freshly raised capital here in November. In light of the stock offering, we're pleased to see the investors' confidence in our stock remains strong and pleased to report these fourth quarter results to further bolster that confidence.

The capital is going to be important to continue to advance our Company forward, and our Board has continued to support our pursuit of our long-term vision. And so we're outlining a series of business development opportunities for deployment for that capital. Several of those areas for investment like in our Sim ventures in over 18 months, but someyou'll hear about today of our new mobile apps and others under development. We remain committed to a careful practice of evaluating M&A opportunities as well, while continuing to adhere to our longstanding, well-focused business principles.

When we look at the operational performance, I'm equally pleased. If you look at the cumulative performance for the year, we've added over 300,000 new subscribers under contract, and 96,000 of those why newly contracted during the fourth quarter. So really an outstanding set of additions of new subscribers. And we've had a long stated range goal of 20,000 to 50,000 in a quarter as kind of a range that we deemed as acceptable growth, so to see a quarter of 96,000 was truly exceptional, and we're excited about that.

New customers during the fourth quarter came from just lots of base hits, small and medium sized hospitals joining and signing up for our platform and services. They were geographically distributed across the US. And we're also pleased to see a single enterprise-level customer also jump on to our platform under a long-term contract. The total number of contracted subscribers exceeds 2.75 million under contract, and we have a backlog of 177,000 subscribers in the queue for implementation.

Looking at our execution, the implementation teams and the support teams activated about 322,000 new implemented subscribers, so bringing our total of implemented subscribers to 2.57 million healthcare professionals that are now implemented on our training platform. So an impressive set of execution metrics, adding 322,000 new implemented, and that means activated. And I think that's important because revenue recognition begins for us once a customer is implemented -- or a subscriber is implemented.

Renewal rates in the fourth quarter, very pleased to report those. Based on our steady state calculations we've used now for several years, they calculate to 101% based on number of subscribers and 110% based on contract value. That's for the fourth quarter. So our renewal rates reflect the addition of subscribers compared to previously contracted amounts for account renewals combined with any price adjustments that may occur at renewal. And as you may have noticed in our earnings release, which is a very detailed mutli-page release, we've added a new renewal metric we think will add more color and dimension to your understanding of our renewal patterns.

This metric is a trailing four-quarter type of metric, and in addition to the existing current quarter description, adds a new view into the renewing subscribers and contract value. When you look at our results for the trailing four-quarter ending December 31, 2011, customers representing 99% of subscribers that were up for renewal did in fact renew, while renewal rate based on contract value was 106%. So, again, we hope that this new trailing four-quarter running metric also provides additional color into our renewal patterns. We plan to report now both forms, the end quarter metric and the trailing four-quarter.

With regards to HealthStream Research, we had a record number of patient surveys completed in the full year. Approximately 1.2 million patient surveys completed, which is more than a 15% increase over our 2010 numbers at about 1 million. The HCAHPS scores continue to be an important set of scores for healthcare providers directly tied to CMS's value-based purchasing program. Approximately 30% for their Medicare reimbursement rates are based on their HCAHPS scores. So the Patient Insights product line we think helps them meet those needs, and we were pleased to see the growth in the utilization of that product for the full year.

An area for new drivers for growth -- we're always looking for new drivers for growth, and across the Company there are a couple of trends we think support, in addition to longstanding trends like regulatory drivers, like OSHA, HIPPA privacy rules, the HCAHPS surveying that we mentioned earlier, the joint commission, accreditation process for hospitals. All those are underlying drivers for our education training and research products in hospitals. There are two new ones, though, that are emerging. One is the most recent set of drivers around CMS's decision to require transition to the ICD-10 coding. And although it now appears that the implementation date of that migration has moved outward, we believe it will continue to be a steady driver for our training solutions for the new coding system.

It's just a massive migration that our healthcare system will undertake sometime in the next 36 months, I believe. Again, while the data has been delayed, it's still -- everyone needs to get ready, so in effect we believe it just gives our customers longer time to get prepared and our sales team more time to sell our partner solutions for this ICD coding migration that will occur. We've partnered with outstanding content providers to offer hospital customers an effective means of training their respective workforces, so just in general this -- the ICD-10 migration is an underlying driver for future growth.

Another driver is the extension of the CMSHCAHPS program. It is being extended beyond hospitals to include physician and clinical group offices. In the fourth quarter of 2011, we launched the Clinicians and Groups Consumer Assessment of Health Providers survey. It's called CG-CAHPS. With the newly -- with the increasing number of newly formed patients entering medical homes and accountable care organizations, the need for measuring patience experience of care received in physician and clinical groups' offices is growing.

And so the CG-CAHPS, while it's not yet directly mandated CSM, we're beginning to see an uptake in hospital systems purchasing physician satisfaction services for their acquired owned physician clinics. Again, this is the patient of physician clinics being surveyed, not just the direct inpatient admits of hospitals being surveyed. And so we see CG-CAHPS as another -- an additional for growth in our research business, while ICD-10 is an additional driver for growth in our learning business.

An exciting period of product launches for HealthStream this year, especially towards the end of the year and into early January. First our first mobile app, the HCAHPS Monitor, which is a free mobile app -- I welcome you to download it now -- that allows hospital executives monitor their HCAHPS scores and, importantly, quickly and easily compare those scores to all of their regional or local competitors or any hospital they so choose in the app itself. The HCAHPS Monitor is -- HealthStream's HCAHPS Monitor -- available in the Apple apps store, so I welcome you to take a look at that free app. It gives hospital executives and consumers a look into the patient satisfaction data for their local or competitive hospitals.

In late January of 2012, HealthStream, through our partnership with Laerdal Medical, a world lead provider of medical simulation training products, launched two additional products into its suite of products we call SimCenter. We announced the launch of SimManager, which is software-as-a-server based application for managing simulation based training, which is essentially a new and emerging form of train in hospitals. And we launched SimView, which is a powerful new debriefing system for simulation based training. This application is used by instructors to debrief students that are participate in simulation. So the launch of SimManager and SimView helped to rounded out the offerings of our Sim ventures efforts we call SimCenter. So we were excited in January to launch those new products.

I think I'll take now a moment and to turn it over to Gerry for a more complete look of our financials. We'll do a quick wrap up, then move into Q&A. Gerry?

Thank you, Bobby, and good morning, everyone. I'll make some brief remarks on three topics, and then save time for questions at the end. The topics include fourth quarter and year end results, our business pipeline, and 2012 annual guidance.

Although the themes in our financial results remain consistent with early reporting periods, there's a few points we would like to emphasis. As Bobby mentioned, our growth rates remain healthy for both the fourth quarter and full year. Reinforcing this growth is the improvement in our adjusted EBITDA, which follows the same -- a similar pattern as operating income. EBITDA grew by 63% for the fourth quarter and 39% for the full year.

Our balance sheet, which has historically been strong, is now even stronger with the $55 million proceeds from our successful follow-on operating. Our cash balance of $89.5 million -- is $89.5 million, as Bobby mentioned, but it's important to note that independent of the offering, it's grown by $10.7 million since December 31, 2010, even after our $10.2 million of capital spending during 2011. So our increased cash position is a function of both strong operating results and the recent offering.

As we said in prior calls, we may use a portion of the funds to acquire or invest in strategic businesses, products or technologies. We have an active M&A program in place with investment banking support to help in these efforts. We're [hoping] to find new opportunities to evaluate, while at the same time we are approached with new ideals. At this time, we have active letters of intent on [spec] small deals, that is deals less than $5 million in revenues. We've made bids on small [to medium] sized opportunities, generating less than $15 million-dollars in revenues, and reserve the option to review opportunities of all sizes that fit our strategy. We'll keep you abreast of any developments in our investment efforts, even when we close transactions.

Through our program a short while ago, we were [finalists] for a medium sized property of less than $15 million in revenue. The bidding got to a point where the valuation would not offer competitive returns and accordingly, opted not to further pursue that opportunity. In sum, we're active in development areas, both organic and inorganic, but also disciplined in our approach to both. And once again, we look forward to reporting our progress as we launch new organic initiatives or new products and/or complete any transactions from our business development pipeline.

We're excited to give our 2011 guidance. Consolidated revenues we expect to grow between 21% to 25% over 2011. If you look at the breakdown in the two different areas, we expect Learning to grow 28% to 32% and Research to grow between 6% and 9% over the prior year. The growth in Learning business of 28% to 32%, we expect that to be driven increasing the number of new subscribers, sales of platform extensions, and continued consumption of content by our customers.

In the Research area, we expect our growth to include 15% growth in our patient surveys, which is a reoccurring revenue product. This increase is partially offset by [physical event] where one of our larger customers chose to decrease [the livid] portion of their patient survey services received from HealthStream by approximately $1 million. They remain a multimillion dollar customer of our research products and did extend their contract for research by one year. In addition, they chose to also become a multimillion dollar customer of our Learning services, growing the overall value of the account.

Finally, our 2012 earnings per share calculations will be influenced by the great number of shares outstanding following the fourth quarter's offering. The offering does not impact our basic income statement results, but we do expect that our diluted share count will be between 27.4 million and 27.6 million shares outstanding during 2012.

Thank you for your time and attention.

I would like to summarize with a few comments. We're gearing up for our annual customer summit, which is scheduled March 6 through 9 in Nashville, Tennessee. We're already expecting and have reservations by over 500 of our customers to be in attendance here in Nashville. There will be over 20 exhibition booths from our partners, and over 60 educational sessions that have been carefully vetted to meet the needs of our customers. These sessions will be in the areas of leadership, strategy, quality, education and human resources, and so we have a more expansive set of tracks for our customers to participate in. We're excited about that event occurring here in Nashville, March 6 to 9.

I would like to give you a preview of a few developments of the way we're thinking about the framework of our business. Historically, we've presented our business updates to you in two sections, Learning and Research. And this has been how we've described our portfolio products. We continue to grow our business and innovate to meet our needs. Our product portfolio and offerings have grown. A few years ago, for example, when we represent -- we referenced our platform, it was safe to assume we were only talking about our learning platform so if you think of our metrics of number of subscribers, added and renewals, it was generally on the Learning Center -- the HealthStream Learning Center.

Well, our platform has now expanded -- wewe think of it much more broadly than Learning Center -- to include a suite of products used by hospitals to develop and assess their workforce. So our platform today includes the Learning Center, the Competency Center, the Authoring Center, the SimCenter, the Improvement Center, HealthStream Connect, and an entire ecosystem of content solutions. So the historical metrics of number of subscribers on the Learning Center are still critical, but we're working on new metrics that may be reflective more of the uptakes of the components of our platform and the general velocity and growth of those individual pieces that work together as a collective whole for our customers.

So as we look forward into this more expansive portfolio of product sets, some might refer to them as a more expansive portfolio of talent management products or education training and assessment tool sets. We're working on language and metrics that may help better understand the penetration and adoption of these various products, so we don't just report the single metric on the number of subscribers on the HLC. We're beginning to see continued uptake in our SimCenter, our HealthStream Connect and HealthStream Competency Center products, and we're looking for strong ways to report on that progress as well, because they are clearly drivers of our growth.

So look forward to increased reporting and metrics, beginning in the next quarter, to help you better understand the adoption and cross-selling and uptake. We're working on those frameworks diligently to come up with some new reporting ideas for you to continue to better understand our business and financial progress.

We're excited to conclude the full year and this quarter with these outstanding results. I'll now turn to over to our audience for questions. Thank you.

Thank you. (Operator Instructions). We have a question from Ryan Daniels of William Blair. Your line's open.

Good morning, guys. Thanks for taking my question, and congrats on the strong end to the year. Bobby, let me ask a couple of questions about two of the things you pointed out as potential larger novel growth opportunities. The first would be the CG-CAHPS? Can you talk a little bit more about how quickly you think momentum will grow in that business? And then a derivative question there, given that you typically work directly with health systems, isthat something that you think you'll be selling only to the owned physician practices of those systems, or would you branch out and go to the non-owned operators as well in the group practice market?

Certainly we're evaluating all of those things, the ability to sell to owned and non-owned. We've already seen the pipeline in the sales group really begin to move and advance into a multimillion dollar sales pipeline rather quickly in the last 100 days. We've even brought in one multimillion dollar contract for CG-CAHPS where a large health system purchased the services on behalf of their employee physician and I believe affiliated physician population.

So we're very excited as we begin to figure out how to apply resources to this opportunity. We are -- we've launched our capable around this area. Again, it's not mandated yet by CMS, but required to be part of certain reporting for quality initiatives. The patient [center] medical homes and accountable care organizations, there's certain requirements for the collection of that data, although again, it's not CMS.

So I see it -- it's begun to move our sales pipeline in a positive directions in the last 90 to 120 days. We have had one meaningful system-level win where, again, a large health system bought the services on behalf of their affiliated physicians, and so wehope to see more of that. I hope that gives you a better understanding. We're beginning to figure out how to staff and grow the position for this increased opportunity.

That's great, that's very helpful color. The second thing would be ICD-10. I know you talked about that and but also referenced the delay. We don't know how far out that's going to be pushed. But canyou talk a little bit about what that's done to your pipeline? Has that caused a bit of a hiccup at all, or are your clients moving forward with that training knowing it's inevitable on the horizon?

It will be a mixture. There's a few ways to view this. First of all, we've been through this kind of thing at different stages over the last decade. Remember in 2003 and 2004 there was the HIPPA regulations. It was an immediate driver, then kind of had a tail on it and ended up being more of a bolus to our organization. And so ICD-10 has the potential to be that, and I think actually by deferring the deadline, it makes it a more steady state. The early adopters that are moving to get prepared will continue to do so I believe.

I think potentially it just gives us more time, and it will be a more stable and smooth impact over the next 36 months. We'll have more selling time, customers have more preparatory time. I'm fairly confident that the ultimate deadline won't go away, so it will be a nice driver. I think maybe instead of a huge bolus of opportunity that would kind of be infused immediately, we'll see a more steady state approach to adopting in the next -- well, depending on where they push it, 24 to 36 months. Frankly, I think that's a little healthier model, because it's a smoother, steadier ramp.

Okay, that makes a lot of sense. Two more quick ones and I'll hope off. Maybe one for Gerry. I know you guys don't give quarterly guidance, but I think your user conference is moving into the first quarter, and with the combination of that and the full run rate of the higher diluted share count, shouldwe thinking of EPS maybe stepping down a bit from Q4 to Q1 and then rising through the year to get to your annual guidance? I'm just trying to get color to set expectations there.

Yes, I think that might be a appropriate way to look at it. If you look at the history, the summit does have an impact on the quarters. You look back over prior years, you see that as being an explicit type of item in any one quarter. So [that's] probably the right direction.

Okay, that's helpful. And then the last one would just be, any commentary on the sales force? I know you talked last quarter about ramping that up in Q4, soI think you provided annual updates in those numbers. Maybe that will be in the Q, and we can certainly wait, but anycolor there would be helpful.

It's interesting, we were looking at that. Some of the -- it looks a little flatter than it is because of the way we've repositioned some of the different pieces of the organization around sales. If you look at our current website postings kind of as of today, we have an additional six sales positions open. In addition, we filled three new positions in the last week, and we some managerial positions added at the end of the year. So, while in the year-end filings it will probably look relatively steady state, there's been some meaningful movement since January and February, and you can see the open positions reflected on our website today. So you'll see in investment in the sales organization occurring really in Q1.

We also have investing in other areas, Ryan, in areas of development positions. Again, studying our website positions, they're not always perfectly current, but you can see kind of directionally areas of investment. We're -- I believe there are eight or more development positions for the software building teams. There are about eight or ten positions around operations and support and what we call success managers, people that are focused on our customers achieving successful outcomes with our products. So you'll see a fairly balanced -- just by reviewing our open positions -- model of investing across sales, development, and customer service throughout the quarter.

Okay, thanks a lot for the color, and congrats again, guys.

Thank you.

Thank you. My next question is from Matt Hewitt from Craig-Hallum. Your line is open.

Thank you, and congratulations on the strong finish to FY 2011. Couple of questions. First of all, the NRP exams were supposed to launch exclusively this -- in January, andI was curious what buckets you were going to be accounting for those in. Will it be in the Learning or Research segment?

That was exciting actually, theNovember, December, January process of basically every hospital that needs that product in the country realizing they needed to acquire from us. Again, these are smaller purchase units, a $15 test, but the surge in purchasing was exciting, and new challenge for processing, many, many small orders for us. But it will be processed through and accredited toward, as most of our content sales are, to the Learning business unit.

All right, fair enough. Thank you. Also, there was a fairly big step up in the project-based revenues. I think it was up $380,000 in Q4. I'm curious, that had been a group or a segment that you had seen kind of -- I don't want to call it bleeding -- but that was an area that wasn't as big of a focus and had been declining. The big jump, is that maybe reflective of hitting the bottom in Q3, or is that area going to continue to be lumpy?

I think lumpy is probably a fair way to think of it right now. The nature of those non-recurring revenues changes to a more positive type of those around implementation dollars for the medium and larger health systems that require additional implementation help, as opposed to several years ago when we were in other types of non-recurring businesses, those continue to be worked out of the system like what we used to call good years -- many years ago live events and things like that. It continues to be lumpy because it's around the implementation cycles of our larger customers, but the nature of the revenue is more directly tied to sales of our existing SaaS products as opposed to non-recurring product lines. So that's probably a good way to characterize those revenue streams.

All right. Hospital Direct. Given that you've got critical mass within the acute care world, I would imagine that product would be ripe as far as attracting more and more customers to that Hospital Direct product. Could you give us an update on maybe how many customers you currently have -- specific grade if not a range -- and maybe some areas or whether or not you've seen an uptick in interest in that product?

Sure. Hospital Direct allows pharmaceutical, medical device and other service providers to hospitals to deliver training and educational services through our network to the end users in the hospitals. So we have over 30 partners for Hospital Direct. These are industry partners like Baxter that deliver product training and support through HealthStream to their end users in hospitals for, say, infusion pumps or pulse oximeters or other categories of devices.

So we have over 30 customers for that product set. Again, they work with HealthStream to deliver simulations, product support, and training materials through our network to the end users in hospitals. And we have seen a steady adoption of that product and strong renewals from those customers, so they seem to be satisfied with the reach that they get to these nearly 2.6 million people implementing in our platform as they outreach to support their products as operate in hospitals. So it's been -- wesee continued interest in it and strong renewals with about 30 customer.

Great. One more maybe, then I'll jump back into the queue. You announced a -- or I guess your partners or customers have announced a couple of significant opportunities over the past two quarters, one with Manpower, then more recently with GE Centricity. I was wondering if you can provide an update on how those are progressing and the ongoing opportunity with those two organizations?

Both of them are interesting and exciting opportunities where they're adopting or using parts of our platform and technology to extend their reach into the hospital market. So the GE Centricity is exciting, because they're providing platform training support and development through HealthStream, again, to the hospital customer, so that is effectively a customer of the Hospital Direct line that you just brought up. So both of those are implementing well, and we're excited about what they represent to our Company, which are partnerships with industry leaders.

Great, thank you.

Thank you. Our next connection is from Nick Halen of Sidoti & Company. You're line is open.

Good morning, guys.

Good morning, Nick.

The first question I have -- and I apologies if I missed it, but accordingto our guidance, revenue and operating income seems like it's going to be growing at roughly the same pace. I was just kind of wondering what's preventing operating income from exceeding the top line growth like we've seen in the past?

We are -- we work carefully each year to balance our rate of investment to ensure long-term growth and product development with current support of customers, and we like to come up with -- this year we want to continue to increase our investment in steady states, as Imentioned earlier. The six new sales positions, eight new development, ten in customer support. So we like to deliver profitable growth to customers, maybe with a little less leverage on it potentially in this year because of reinvestment, but it's strong and we hope intelligent investing for growth. And so you're right to observe that and smart to plan for it, and we think it's wise invest in our organic growth opportunities.

Okay. And then just one more. I know it's early on, but do you have any stats in terms of how many downloads you've had of the HCAHPS Monitor? And I guess kind of what your expectations on that are? And also just in terms ofhow do you plan on monetizing that? Will that be like many of the other apps that you see, where you download a free version, basically you have to pay for an upgraded version of that app. Is that how you guys are working that?

Yes, that's a great question. What I would say is that app is essentially a brand-building marketing app at this time. It is free in the iTunes store, and I haven't gotten a recent report on its downloads. It'll be fairly small, because it's targeted at the senior executives at 5,000 hospitals. So this isn't a consumer driven app that's going to have millions of downloads, but wethink it's a brand-building app targeting the executives of healthcare systems so they can keep track of their status against their competition.

That particular app is the first of many that we're working on. Some are revenue generating and tied to our core platforms, and others are marketing and branding to create awareness and utilization of the data in our networks. And so this one, our first one, is a free app. We don't have many expectations -- or any expectations of revenue from that particular app. But as you watch this year unfold, you'll see other apps launched that are more tied to the core platform.

Okay, great, thanks.

Thank you. Our next question is from [Robert Koze] of Avondale Partners. Your line is open.

This is [Kyle] for Richard. Can you hear me?

Hi, Kyle, sure.

Just real quick -- a couple of my questions have already been touched on, but I was wondering if you could briefly touch on patient surveys and why the growth there was below 20%? If I remember right, I guess previously it's -- growth there has always been higher than that?

Not always. So we've had several very strong quarters. Q2, Q3 where really strong in the growth in patient. To be clear, we're forecasting that line continues to grow at approximately 15%. The blended growth rate for Research is going to be lower this year, and we forecast currently 6% to 9% based on the situation we described earlier, where a large multimillion dollar customer of our Research services, and they're a customer of all four of our platforms; patient, physician, community and employee.

They drew down the amount of researching surveying they were doing with us, but at the same time -- or within the same quarter increased the overall value of their account with us by invest inning Learning products. So again I wanted to emphasize that we've had 15% plus growth on the Patient Insight product now for many quarters. As we look forward we expect that to continue. We also see new growth from the CG-CAHPS survey as well, except that we've had this one customer -- again, it's a relatively small business unit -- draw down the amount of surveying they've done by $1 million, which makes the combined growth rate of Research be a little lower.

Thanks, that's very helpful. Then lastly, kind of like a macro overall question. When you guys look at growth opportunities, I know you touched on ICD-10 and the new CG-CAHPS. Do you feel more confident in the business today from a growth prospective as you did a year ago?

I would certainly say so. We're much more excited about the diversity of our platform. As I mentioned at the end of my section, both the exciting nature and the complexity of having more platforms to offer the customers -- more extensions we call them, we've historically reported kind of this single metric around subscribers on the Learning Center. Meanwhile, we've been adding thousands of subscribers to our Connect platform so people can get to our content libraries. We've added thousands of subscribers to our Competency platform where workforce competencies are assessed. The SimCenter is getting some legs and making good momentum with four new pieces of software, the newly launched SimView and SimManager.

And so we see growth more -- first of all, more diverse, but all leveraging core platforms and technology, so provides that opportunity for leverage and development and deployment of these applications. So we're much more now than a single platform component in Learning. We're becoming a much broader suite of applications, which gives us more opportunity for growth, and we're excited about that and working on ways to convey that in the upcoming year.

Great, thanks. And then lastly, can -- and I know you all ready touched on guidance, but can you give me a quick idea of what levers are there to go from low end of guidance to high end, and how conservative you guys are with guidance?

Well, first, we never intend to be conservative or aggressive in guidance. We intend to give us best thinking as reflected in processes that emerge from a thorough budget process and a planning process. The variables, though, as I mentioned, now we have four or five new components to growth, and not all of them are easily predictable. They're all -- somenew on the adoption curve. They're innovative, and we don't know the adoption rates. And so the ranges in the earlier year are usually a little broader to reflect the kind of portfolio uncertainties, the mixture of new products. And generally as we move through the year we get more visibility as to which pieces were growing as we had hoped, which pieces are growing faster than we hoped, and which pieces are not meeting expectations. And so we try to narrow and improve guidance as we go through the year.

But as we begin this year, our guidance ranges are a little broader, but you look back to our prior three years, we generally give these three and four point spreads on revenue, and a little broader spreads on operating income to reflect what I'll call that portfolio opportunity in trying understand the relative growth rates of new products. And again, we don't mean to be conservative or aggressive, so we don't mean to characterize it. We mean it to be that's our best, most informed view of where we're going to land the full year, but explained through the views of a portfolio with many new moving parts.

Great, thanks a lot. That's very helpful. And congratulation on a strong year-end.

Thank you very much.

Thank you. The next question is from Frank Sparacino of First Analysis. Your line is open.

Hi, guys. First, maybe just on the guidance. I assume the guidance reflects organic growth for 2012. Does it include any acquisitions, Gerry, that touched on earlier in the call?

No, Frank, it's all organic growth assumptions in the guidance.

Okay. And then as it relates to the revenue per subscriber, based on my estimate calculation, it looks like the growth has been much stronger there than it was historically, and just wondering if there's any specific initiatives or anything you would point to from a content consumption standpoint?

I'll touch on that. We certainly have some strong partnerships and products with our Lippincott products. The nursing curriculum series is doing very well. The number one selling product in our library is essentially a new form of doing CPR training in hospitals that we believe is both more effective clinically and saves time and money for hospitals. So we reported recently that product is over $9 million a year in reoccurring revenues, and we're seeing continued uptick in the CPR product series. It's called the BLS, ACLS and PALS product set, which is a new model for training CPR to the healthcare professionals in hospitals.

And it meets a bi-annual requirements, so we estimate the annual demand for those products is approximately 1.3 million to 1.5 million, and that we're about 200,000 people adopting that platform -- that form of training currently. So plenty of run room in that product where we've partnered with American Heart Association and Laerdal Corporation for a new model for straining CPR in hospitals.

Great. Lastly, Bobby, when you talk about the draw down on the Research side, can you tell me -- is that a function of budget issues, or what was the driving factor for that client in reducing those services?

Well, first, in HCAHPS serving there's a minimum data set required, and then many people sample beyond the minimums, and so a bit of that was pulling back the minimums. But also you see elective forms of patient surveying. For example, hospitals can elect to survey their ED patients and -- or other non-admitted patients that are not required under HCAHPS, but the want to use the same surveys. And so in some cases you'll see them move in and out of offering those additional surveys through other departments like ED -- emergency department -- that are never admitted to the hospital, so they're not -- they're more elective in collecting -- sometimes they want to collect the same form of data on ED patients, and they may draw down or not do as many of those or eliminate those if they want to collect data in a different way.

So hopefully that helps you understand. There's a beyond a minimum sampling, and they can pull that down for budgetary reasons. Or there's sampling of non-required audiences like ED admits that don't get admitted to the hospitals, and so for budget reasons or other business reasons they can choose to -- how they collect or change the use of elective form of surveying.

Okay, great. Thank you, guysNice job.

Thank you.

(Operator Instructions). Our next question is from Walter Ramsley of Walrus Partners. You're line is open.

Thanks. Good morning, Bobby and Gerry. Congratulations, another great quarter. Got a couple of questions for Gerry. The amortization of acquired intangibles, can you give us the numbers for the quarter and the year?

They'll be in the 10-K we're filing next week. We don't break that out in the press release, soI don't have that in front of me.

Okay. So pretty much the way it's been running though?

Pretty much.

Okay. And you mentioned there was an acquisition that you were pursuing but didn't complete?Were there any non-recurring costs connected to that?

Well, the expenses -- first of all, for quick background, wewere required to expense any due diligence efforts, be it legal, financial, special [operations or] consulting, and those have been in our numbers all along, so there's nothing unusual about the level of expenses or the nature of the expenses. And they've all been expensed as incurred.

Okay. So they didn't increase just for the one quarter? I mean, it's just kind of an ongoing process?

Yes, we'vebeen active in M&A for quite a while. It hasn't been a very (inaudible -- multiple speakers), but yes,it's been there all --yes, it's been a regular expense.

Okay. As far as the tax rate is concerned, it lookslike the NOLs are going to finally expire this year. Once they're gone, what do you see the tax rate being going forward? Obviously, you haven't been killing yourself to come up with deductions with the NOLs, but after that you'll probably try a little harder. What do you think the ongoing tax rate might look like?

I think if you look at attributes in the footnotes, we don't have any really unusual tax issues or tax items. I think you'll find in the general range, which is assuming there's no change in Washington, but 34% to 35% federal rate with the add-on of approximately 4% to 6% for the effective state rate, so getting that 39% to 40% range.

So there's no other like R&D credits or anything like that, that you can pull it down with?

We'll certainly look at those as they become available. Of course it will depend if there are any changes in Washington, too. But we certainly would look at any possible ways to effectively manage our tax expense and tax rates.

Okay. And then just one last thing. Are there any price increases on tap?

I'd say it's been a very stable pricing. The expansion in the revenues have primarily driven by unit sales as opposed to price change, and that's probably the same for the foreseeable future.

Okay. Well, congratulations again. Thanks a lot.

Thanks, Walter.

Thank you. There are no further questions at this time. I would like to turn the call over to management for any closing remarks.

Thank you. We look forward to reporting the next quarter as it elapses. Thank you very much. Have a good day.

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