Greetings, ladies and gentlemen, and welcome to the HealthStream Incorporated Fourth Quarter and Full Year 2007 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. Robert A. Frist, Chief Executive Officer for HealthStream, Incorporated. Thank you, Mr. Frist, you may begin.

Good morning and thank you. Welcome to our fourth quarter and full year 2007 earnings conference call. Also in the room with me are Art Newman, Executive Vice President and CFO and Mollie Condra, Senior Director of Communications Research and Investor Relations. Art would you read the forward-looking statement please.

This conference call will contain forward looking statements regarding future events and the future performance of HealthStream that involve risks and uncertainties that can 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.

Thank you, Art. Good morning to everyone. I've got a lot of news we can cover this morning and of course a very detailed year end earnings release to get ready to answer your questions for. A lot of exciting things have occurred since our last report to you. I'm going to pull out a few of the highlights and then will turn it over to Art for a financial review and little bit of a forward-look. And then we will go to the questions. One of the biggest pieces of the news for us as a company is the completion of the migration of customers on our next-gen learning platform. As of February 11, 2008, all of our hospital customers have been migrated to the next-generation learning platform. It’s an exciting accomplishment, it’s the fifth of five major migration efforts that occurred beginning in January of last year and concluding in February of 11th of this year, 2008. Congratulations to all the teams that made that happen, which is a meaningful part of our entire company and leadership provided by specially the teams of Bob (Neimer) and Tom Dugger and Joe Christopher that had so much to do with the successful migrations. I'm very excited now to have every single one of our hospital customers, over 1,500 of them on the new platform an exciting milestone in our company. We also are already changed transactional levels on that new site exceeds the transactional levels on the prior generation technology. So we are excited to see it performing well and continuing to accelerating its utilization and adoption. The quarter or the fourth quarter particularly was another strong quarter of adding new customers. In the third quarter, we had an impressive 110,000 net new subscribers. And generally, in the past several…

Bobby thanks and good morning. As Bobby indicated we're going to summarize and try different format for this call and see how it goes. So, please give us some feedback. Highlights: Fourth quarter revenues were $12 million almost on the nose, 40% over the fourth quarter of '06. Jackson Organization, which was acquired in March of this past year, contributed about 28% of that growth and the remaining growth came from HealthStream Learning. Net income was $0.13 per diluted share including the income tax benefit of $0.09. On a footnote to the fourth quarter, we had projected guidance that in both cases on both the top line and the net income we achieved based on what we had projected in our prior earnings call. Full year, revenues were $43.9 million, up 38% over the full year of '06. TJO contributed about 30% of that growth, whereas the HealthStream Learning business contributed about 8%. And if you broke that out a little bit more detailed, the learning side of the business and our internet-based subscription products and other growing products contributed about 13%, while our project-based products were down about 5%. So they netted to about an 8% year-over-year increase. Net income for the year was $0.18 per diluted share, which included $0.09 per share benefit from the income tax. We approximated our prior guidance in the third quarter earnings release we were off about 100,000 on top line and hit the net income guidance before the income tax guidance. Full-year adjusted EBITDA was 7.2 million compared to 5.5 in '06. And cash balance and investments was $3.6 million, up over the prior quarter and we have $15 million of line of credit available, which is the entire amount of the line of credit. As we indicated and articulated in the…

Thank you, Art. So, that looked a little bit backwards, little bit forwards. I want to ramp up with a few announcements regarding some new product development. In spite of all the things going on with the migration we were able to develop and are now beginning to launch exciting new products. Art mentioned the HealthStream Competency Center. As of today, we have over $1.85 million in certain contracts for that exciting new product and have begun the official rollout of that product to customers. We look forward to a year of landing new customers for this new and exciting product HealthStream Competency Center. In fact, of our $300,000 in order value in the last nine days of the year came in on that brand new product. We also in February launched our new HCAP's curriculum to set a course where our remediation and development program brings directly to the HCAP's surveying that our hospitals perform. After they gain insights into their challenges through the survey and service we provide. We offer a remediation and development strategy for their employees to try to improve their scores, the HCAP's curriculum we've developed. So, we look forward to seeing the interest in that type of product that directly links our Research and Learning business together. It's the first jointly developed product and we look forward to see its reception throughout the year and reporting our progress along the way. Congratulations to the Baltimore and Franklin offices for the creation of HealthStream Research, the formation and the merger of these two organizations in the HealthStream Research. Eddie Pearson and Tom Hutchison have done a fantastic job leading the team of additional new Vice President's, Allison Bailey and Mike Phillips helping charge and lead the way to existing team of Vice President's that have done a great job, building and integrating. So I want to congratulate that entire team on their progress in last year and looking forward to a very strong 2008 of our research organization. We hope to continue the momentum of adding customer. Although, not sure we can maintain the pace of the last few quarters, may be we can continue to report as I have for three years, 20,000-50,000 net new subscribers per quarter and continue the acceleration of our growth through the launch of new organic products. So we have an exiting 2008 ahead of us. At this time operator, I would like to turn it over for any questions.

Thank you. (Operator Instruction). Our first question is coming from Benjamin Green with Avondale Partners.

Good morning guys. I was hoping you could provide a little more color around revenue growth in 2008, specifically you guided down in the first quarter margins due to higher than anticipated research mix. Are we supposed to infer then with the increase in 2008, as a fiscal year margin that that mix will be down on the year?

Let me see, we had a downed quarter compared to the fourth quarter based on the seasonality of the research business. Principally it's in the physician and employee survey instrument.

Okay.

We see that as I mentioned grow pretty significantly again it has been punched into the center part of the year. So year-over-year growth of the HealthStream Research is up about. 13% or 14%, It's the way it spread it causing some bumps, if you will, or variations of the top line revenue projection. Also I think you had raised the question about the margins, of the four instruments, the employee and the physician have a higher profit margin than do the patient and the community prox. So when they fall, when they are down over previous quarter then you are going to see an impact in the gross profit.

Okay. That's helpful. Thank you.

Sure.

Also contribution on the new products, I know you went into specifically the Competency Center. Can we expect some significant contribution probably in the second half of the year is that you are going to think about it?

Well, so we pretty conservative in the contribution and particularly the HealthStream Competency Center. We have it beginning to generate revenue recognition in the beginning of the third quarter. We do have implementation revenues that we would pick up in the first and second quarter. So we have been conservative in the revenue recognition although licensing fee for that product. But I think the end-year impact is probably under half a million dollar to this point in time. And that just began because of the nature of the subscription products. So if you have started in July, you only get a half year, whatever the fees that you charged to the customer. So as they radically go through the third and fourth quarter, there is minor impact in '08, but there would be much more significant impact in '09.

Okay, thanks. If you could talk real quickly about the Research and Learning cross selling, any progress you are having there be it with actual sales or the development of your internal resource?

I think the exciting part there is the launch of this new curriculum, I think it will take us a quarter or two to spin it up and see the reaction to it. The product is developed and launched as of February, the first jointly developed product. It’s a first product that both sale organizations can feel comfortable generating leads and selling together. And so really it’s probably the first opportunity where person has expertise side of a learning platform can begin to generate leads from research customers and vis versa. So I think it will be an ongoing developmental story throughout '08 and we just plan to see that as of February our first jointly developed and jointly sold product. And we'll see how hopefully that’s a well received product. But right now it's just brand new and shiny and on the shelf, we hope to start to move it up the shelf in the months ahead.

Okay. Typically, are they targeting the same decision maker at a client for the two-thirds?

Similar decision groups, a lot of time the learning functions of a hospital organizations rolls up under the HR functions and may time the HR functions are responsible for employ and community satisfaction surveying. Although the research decision is often spread across different departments, the physicians coming out of the quality department, the employee coming out of HR, the community coming out of marketing, and so they are spread across the departments. There is generally a common touch point in the HR department of about learning and research and so there is good opportunity there to introduce products that are relevant to that audience.

Okay, thanks. And finally, could you comment on the status of your share repurchase and your CFO search?

Sure. The share repurchase, we determined that we will release update to that only in filings and so that will be coming out here in a few days.

Well, it’s at the end of March.

Okay, at the end of March. So each quarterly filing, the Q will be releasing updates to share repurchase program and we will do that of course consistently. So we are going to provide no additional comment on that. We are just going to wait for those filings. On the CFO search, its progressing very well. We have a set of finalist candidates four or five all of which we think are qualified and set our parameters. We are in the decision stage now and the final interview stage. So, we are excited. We believe confidently, the first of this year we'll have a permanent CFO in place. And potentially as early as the beginning of the next quarter. So somewhere in the next one to four months we will this squared away.

Okay. Thanks for taking may questions.

Just for update, it's March 27 on the filing.

Okay, great. Thank you.

Our next question is coming from Harvey Poppel with (Popteck).

Yes, thank you very much. I would like to focus on the earnings per share for 2008, certainly the revenue growth is very impressive, but the numbers that you are guiding to really are relatively flat, with two years ago 2006 as I recall. And when we went into 2007, I remember, you are guiding the fact that 2007 would be a heavy investment year and for investors to be patient on the EPS side expecting a better 2008. You know, the number kind of surprised me as not being higher at this point. I guess, two questions, #1, why is net higher and when will we really start to see the revenue growth reflected in earnings per share growth?

I guess, Harvey that the simple answer is we continue to maybe pour additional investment back in the growth, 6 additional sale representatives, to fuel 22 to 24% growth rate, and that’s a simple answer. Maybe if we put our growth rate back to 15, we could accelerate our EPS, but we are investing more in marketing and sales each year, so maybe we were a little early in forecasting the accelerating margins. But we determine to continue to invest in new product launches and development, additional sale organization and marketing. So by choice, we are trying to balance profitability and growth and this is another year for growth for us where we favor growth over a little bit and profitable growth. Although, profitability is going to improve on operational basis and cash flow, we would often focus on the EBIT and EBITDA lines and we are projecting growth in those as well. So I guess it is just always an ever present balance between investment and growth and profitability business.

And investors expect as you look beyond 2008 to start to see the EPS growth accelerate?

I think overall we are looking forward to growth in certain components of our business, which have good contribution margins. For instance, the Competency Center has the potential to add some margins meaningfully, because it is an organically developed product its platform product has a very high both recurring revenues and gross margins. So, to the extend and again as a new product, we are rolling it out, we have got a 1.8 million of order value on it. We have been modest in our revenue recognition forecast to the extent that we can get that product to outperformed that’s the kind of product that can meaningfully add the EPS. And so when you are too far ahead and we think it is a product that everyone of our existing customers will be interested in. But we'll just continue to report our progress quarterly on that. On the other hand, if we see a rapid acceleration of the selling of content. Content has (work) associated with it and so you can see change in our gross margin, even though at a gross level net income, cash flow, and EBITDA should all improve. It really depends on which part of the business accelerates faster on the total net income at the bottom. We are excited about those categories of products, it just depends on which one grows at a fast organic rate. We are projecting organic growth for both. And so each quarter, as we report the growth in products like Competency Center with a 90% gross margins and the growth in content, which can have anywhere from a 50% to 70% gross margins. The relative mix of those will determine a lot of EPS, but both part of category are again expected to grow in aggregate and deliver more cash flow to the overall business.

Okay. Thank you very much.

Okay. Thanks, Harvey.

Our next question is coming from Ryan Winter with KIP.

Hi, thank you. I will ask two questions with the respect of the core LMS business, can you talk about the opportunities and challenges to new customers in a saturation levels? And then my second question is, with respect to competency center. How do you think about the potential cross sell opportunities with your existing base? Any assumptions on what percent of customer do you think you can reach and you know in what sort of time frame?

Sure, the first one is the general learning platform. Clearly, our market share, we are market leader in the learning platform. We had an incredibly strong third and fourth quarter adding a 110,000 subscribers in Q3 and 90,000 subscribers in Q4. Historical phase there was 20,000 to 50,000 net new subscribers a quarter. So clearly, Q3 and Q4 were particularly strong. I would expect us to continue to be able to add between 20,000 and 50,000 net new subscribers a quarter and to the foreseeable quarters of '08. And so, we don’t expect torrid phase of Q3 and Q4, but a steady phase. We are market leader of about 34% market share on the learning platform. We don’t see any reason, we can't keep grow that in the next four quarters at the rate I just mentioned. As far as Competency Center, we are very excited about this product. We think there are both regulatory reasons why that will be of interest to every single one of our existing platform customers. But there are business reasons as well and we think it is a differentiated product. It is soon to be fully integrated as of March with our core learning platforms. So it will be essentially another tab that can be activated in the learning platforms, so that will be easy to activate. Implementation will require little more hand holding and consulting, but the actual activation and linking and relationship between them and learning platform is very high. So, we are very optimistic that every single customer of our learning platform will be interested in the Competency platform. We projected a modest revenue recognition on that platform and so we see that it lives up to our expectations. But we do not see any reason why the vast majority of our existing customer base wouldn’t be at minimally interested and hopefully an adopter of this product over the next several years.

Okay. Thank you. I just have one followup on the first one with respect to the growth. The 20 to 50 that was in the quarter, can you talk abut trends, I guess, in size of the new customer and the influence over the timing and sales process and maybe I guess bigger customers have more obviously, you get more subscribers in a more leveraged fashion and maybe more timely. So I'm just trying to understand the trends in subscribers per customer?

Right, well the average US hospital has about 950 employees. So if we add an average US hospital will have approximately 1000 subscribers. The next is we may start to lean towards more in the middle market. We've also added a smaller market team, our express platform team. We added several sales personnel through the smaller hospital market. We're always going after the larger health systems and that creates some of the, I call it the lumpiness, in the adding of subscribers when we win a big health system or two in a quarter. And so we never really forecast that we're going to win one of those per quarter or one per year even. But when we get them, like in Q3 and Q4, it really does boost the FT count. So, I would say we've a very even sampling across small, medium, and large hospitals. In the '08, we expect to see more basics of the 1000-type person hospitals. And we are accelerating our efforts into the smaller market as well. So we would like to see our brand be present there in fact. Meaningful part of our future growth should be tied to delivering more content down the existing channel and so every hospital we add adds more potential content subscribers and that's the way we view it. The platform is the entry strategy that can sell more content.

Great, thank you. That’s helpful.

Okay.

Your next question is coming from Steven Hart with Howard Capital.

Hi guys.

Hello Steven.

Good morning Steve.

Good morning. Bob it is a follow up for one of the previous questions regarding EPS growth. Am I right to say that some of the lack of growth of that is somewhat due to the acquisition and the non-cash depreciation, amortization from the acquisition as well as the next-gen platform and if that's true, can you talk about an operating cash flow or EBITDA growth for '08 versus '07?

Steven, this is Art. Good question, yes I think your first comment was accurate that the non-cash expenses are growing because of the beginning of the amortization of the next-gen as well as our Competency product which we've invested heavily on in the last, well HLC over the last two years and HCC Competency Center over the last year. So those numbers are going up, and as well as the amortization of the TJO acquisition. So, yes those expenses will be going up and obviously having an impact on the net income line. We haven't given guidance on the EPS in the past we will consider that as EBITDA in the past. And we will consider that going forward. It is a valid comment and one that we'll consider and followup with you on.

Okay. And I guess that might clear up the situational that people could understand the healthy growth of the operating business versus just looking at an EPS number. So, I would strongly suggest that.

Steven, it is a good observation; in fact if you just look at year-over-year 5.5 million of EBITDA to 7.5 million from '06 to '07. So the core operating as measured by cash flows or EBITDA is a good measure. We do report it in our full year reporting there. But we don't guide on it. So, we will take it on your advice for next quarter.

Okay super. Thanks a lot.

Thank you.

(Operator Instructions). Our next question is coming from Vincent Colicchio with Noble Financial.

Bob, this question is for you. I don't think you have mentioned the BLS product. Can you give us some color on that?

Sure. We are very excited about the BLS product. We have added some additional expertise and selling power to that with the company that has some of the technology behind it, (layered all) is growing and strengthening. So we're expecting it to be one of our A category content products for the year, which is an exciting, one of our top category products. So we expect to continue to see production on that product. I don't think we reported for Q4 on it. But I would say that product continues to grow in acceptance and sell through. So it's an exciting product for us for'08.

I would like to just add to that that most of the sales we've had thus far have been on the BLS product. (Inaudible) plans to launch the web based version of the ACLS product mid-year. And we may have commented on this in the past calls, but going back and adding that as add on sales to the customers who bought BLS is pretty easy to do. You're not reselling the customer you're just calling off and saying it's now available. They all have the need for the product. It doesn’t have the same penetration in the hospital just because fewer people in the hospital have to be certified on ACLS. But it should be very efficient up selling of that product once it's launched later this year.

And Bobby, a question on the research side, have you completed the integration with TJO, my understanding was that you were going thorough some standardization of surveys for example?

There's a lot of work to be done there. A lot of great accomplishments have been made as well. So we have begun to shift work from our out sourced vendors that provide survey work for us to our in-house survey center. So we see some leverage coming there already. We've made all the shifts in branding. So we see we've made a great presence now for HealthStream research one of the leading research firms now in the country in healthcare. So we feel that many great steps have been made there are many more to come. We've began to organize and add to the sales organization of HealthStream research as opposed to the separate organizations which were the two acquisitions, adding a new Vice President of Sales of our HealthStream recently. So again many many touch points indicate that, that process is well underway. And we'll begin to get leverage and continue to see growth out of these platforms.

Also Vince I think we may have commented in the past. But the Baltimore facility has its own call center. And so we're starting the Franklin group or DMR group uses out service call centers resources. We're moving some of those resources into Baltimore and getting efficiencies because we can do an average survey much cheaper in Baltimore than we would by paying a third party vendor. So Eddie is driving that integration as well.

Okay. Thanks guys.

Thanks Vince.

We have no further questions at this time. I'd like to turn the floor back over to management for any closing comments.

Thank you. We look forward to reporting our next quarter and updating our guidance here in the next conference call. Thank you for your attendance this morning. And thank you to all of our employees, moving the company ahead in '07 and '08.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you again for joining us and have a wonderful day.