Good day, ladies and gentlemen. And welcome to the HealthStream Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. And now I'll turn the conference over to Mollie Condra, Associate Vice President, Investor 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 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 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. I'd like to give a quick shot out to our executive team, it's worked hard to lead an excellent work force to this 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 are about to report. Consolidated revenues for the full year were up 24% to $21.9 million in the fourth quarter of 2011. They were 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 million 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 in operating income and 49% in reported net income for the fourth quarter. We finished the year on a strong set of financial performance metrics. In a moment, Gerry Hayden will provide more detailed review of the financial metrics. I wanted to cover some of the things that occurred during the fourth quarter. In November, working with William Blair, Avondale Partners and Craig-Hallum Capital, we successfully completed a follow-on stock offering of approximately 3.6 million shares of our common stock, the net proceeds were just over $55 million. Due to our follow-on stock offering, 43 new share holders invested in HealthStream, and I…

Great. Thank you, Bobby, and good morning, everyone. I'll make some brief remarks on 3 topics and then save time for questions at the end. The topics include fourth quarter and full year results, our business development pipeline and 2012 annual guidance. Although the themes in our financial results remain consistent with the [indiscernible] reporting periods, there are few points we'd like to emphasize. As Bobby mentioned, our growth rates remain healthy for both the fourth quarter and the full year, reinforcing this growth is improving our adjusted EBITDA, which follows a similar pattern as operating income. EBITDA grew by 63% for the fourth quarter and 39% for the full year. Our balance sheet, which is historically been strong is now even stronger with the $55 million proceeds from our successful follow-on offering. Our cash balance at $89.5 million as Bobby mentioned, it's important to note that independently the offering is grown by $10.7 million to December 31, 2010 even after our $10.2 million of capital spending during 2011, so our increase cash position is a function of both strong operating results and the recent offering. As we said in prior calls, we may use portion of funds to acquire investments to do businesses prior to technologies. We have an active M&A program in place for the investment banking support to help in these efforts. Where do we find new opportunities to evaluate while at the same time we approached with new ideas. At this time we have active resultant [ph] on such small deals, that is deals [ph] less than $5 million in revenues. We've made bids on small and mid size opportunities generating less than $15 million in revenues and reserve the option to review opportunities of all sizes that fit our strategy. We'll keep you abreast of…

I'd like to summarize with a few comments and we are gearing up for our annual customer summit, which is scheduled for 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 goods 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 and we are excited about that event, occurring here in Nashville March 6 to 9. I'd like to give you a preview of the few developments the way we were thinking about, the framework of our business. Historically, we presented our business updates to you in 2 sections, learning and research, and this is been how we described our portfolio of products. We continue to grow our business and innovate to meet our needs -- our products portfolio and offerings have grown. A few years ago for example, when we represent -- we referenced our platform, it was safe to assume that we were only talking about our learning platform. So if you think of our metrics of number of subscribers added and renewals that generally on the Learning Center, the HealthStream Learning Center. Well, our platform is now expanded, we 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…

[Operator Instructions] We have a question from Ryan Daniels of William Blair.

Bobby, let me ask a couple of questions about 2 of the things you pointed out as potential larger novel growth opportunities. The first would be the CG caps, 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, is that something you think you will 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?

Well, certainly we're evaluating all of those things, that ability to sell to both owned and non-owned. We've already seen the pipeline in the sales group really began to move in advance into a multimillion dollar sales pipeline rather quickly in the last 100 days. We've even brought in one multi-million dollar contract for CG CAHPS where a large health system purchased the services on behalf of their employed physician and I believe affiliated physician population. So we are very excited as we begin to figure out how to apply resources to this opportunity. We are -- we've launched our capability around this area. Again, it's not mandated yet by CMS but it is required to be part of certain reporting for quality initiatives, the patients at their medical homes and accountable care organizations, there are certain requirements for collection of that data although again it's not CMS. So I see it -- it has begun to move our sales pipeline in a positive direction in the last 90 to 100 days. We have one meaningful system level win where again a large health system bought the services on behalf of their affiliated physicians. And so we hope to see more of that and I hope that gives you a better understanding. We are beginning to figure out how to staff and grow to position for this increased opportunity.

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

Well, it will definitely a mixture, there is a few ways to view this, I mean, first of all, we've been through this kind of thing at different stages over the last decade, to remember in '03 and '04 there was the HIPPA regulations, it was a very immediate driver and then it kind of had a tail on it and ended up being more of a bullish [ph] to our organization. And so ICD-10 has the potential to be that and I think actually by deferring the deadline it makes them a more steady state in the early adopters that are already moving to get prepared and we will continue to do so, I believe. I think potentially it 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, the 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 bullies [ph] of opportunity that would kind of the infused immediately, we will see a more steady state approach to adopting in the next, well depending while they push it 24 and 36 months. And frankly, I think that's a little healthier model because it is a smoother, steadier ramp.

Okay. Now that makes a lot of sense. And then, 2 more quick ones and I will hop off. Maybe one for Gerry, I know, you guys don't give quarterly guidance but I think your user confidence moving into the first quarter this year and with the combination of that and the full run rate of the higher diluted share counts. Should we be thinking of EPS maybe stepping down a bit from Q4 to Q1 and then rising through the year to kind of get to your annual guidance. Just trying to get a little color to set expectation there?

Yes. I think that might be appropriate to look at it. If you look at the history, to some it does have an impact on the quarters, if you go back and look at prior years, you'll see that being a explicit type of an item in any one quarter, so it does give us a right direction.

Okay. That's helpful. And then last one, just be any commentary on the sales force, I know you talked last quarter about ramping that up a bit in Q4. So I think, you provided some annual updates on those numbers, maybe that will be in the Q and we could certainly wait but any color there will be helpful?

Yes. Interesting. We are looking at that -- some of the -- it looks a little flatter than it is because the way we repositioned some of the different pieces of the organizations around sales. If you look at our current website postings kind of as of today, we have an additional 6 sales positions opened, in addition we filled 3 new positions in the last week and we had 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 is actually been some meaningful movement since in January and February and you can see the open positions reflected on our website today. So you will see some investment in the sales organization occurring really in Q1. We are also investing in other areas Ryan and areas of development physicians again studying our website physicians there. They are not always perfectly current but you can see kind of directional areas of investment where I believe there are about 8 or more development positions for the software building teams. There are about 8 or 10 positions around operations and support and what we called success managers, people that are focused on our customers' achieving successful outcomes with our products. So you'll see a fairly balanced despite reviewing our open positions, model of investing across sales, development and customer service throughout the quarter.

Our next question is from Matt Hewitt of Craig-Hallum.

Again congratulations on the strong finish to FY '11. Couple of questions first of all, the NRP exams were supposed to launch exclusively this -- in January and I was curious what buckets you're going to be accounting for those in and will it be in the learning or the research segment?

Great. Yes. That was exciting actually in November, December and January process of basically every hospital that needs that products in the country realizing they needed to acquire from us. Again these are smaller purchase units $15 tests but the surge in purchasing was exciting and new challenge for processing kind of many, many small orders. But it will be processed through and they are credited towards 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 base revenues I think, it was up $380,000 in Q4 and I'm curious, have been a group or segment that you would seen kind of -- I don't want to call it bleeding but that it was an area that wasn't as big of a focus and had been declining. The big jump is that may be 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, our -- that the nature of those non-recurring revenues changes to a more positive type of those around implementation dollars for meeting the larger health systems that require additional implementation help. As supposed to several years ago when we were in other types of non-recurring businesses thus continue to be worked out of the system like what we're used to call good year, many years ago, live events and things like that. So 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 supposed to other non-recurring product line. 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 -- a specific grade, if not a range and maybe some areas -- whether or not you've seen an uptick and 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 hospital. 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 pulsocemeters or other categories or devices. So we have over 30 customers for that product set, again they work with HealthStream to deliver stimulations, 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 2 points, nearly 6 million people that are implemented in our platform as they outreach to support their products as they operate in hospitals. So it's been -- we see continued interest in that and strong renewals with about 30 customers.

Okay. One more and then maybe I will jump back in the queue. You announced a couple -- I guess your partners or customers have announced a couple of significant opportunities over the past 2 quarters, one with manpower and then more recently with GE Centricity. I'm wondering if you could provide an update on how those are progressing and the ongoing opportunity with those 2 organizations?

Yes. Both of them are interesting and exciting opportunities where they are 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 are providing platform training support and development through HealthStream again to the hospital customers. So that is effectively a customer at Hospital Direct product line that you just bought up. So both of those are implementing well and we are excited about what they represent to our company which is partnerships with industry leaders.

Our next question is from Nick Halen of Sidoti & Company.

So the first question I had is, I apologize, if I missed it but according to your guidance, revenue and operating income seems like it's going to be growing at roughly the same pace. And 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 very 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 -- in this year, we want to continue to increase our investment to study states as I mentioned earlier the 6 new sales position, 8 development positions, 10 in customer support. And so we like to deliver profitable growth to customers maybe with a little less leverage on it potentially in this year because of reinvesting 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. We think it's a very wise investing 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 had on the HCAHPS Monitor. And I guess kind of what your expectations on that are? And also just in terms of how you plan on monetizing that. Will that be like many of the other apps you see where you download free version basically you have to pay for an upgraded version of that, of that app, is that how you guys are working there?

Yes. That's a great question. What I'll 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 will be fairly small because it's fairly targeted to the Senior Executives at 5,000 hospitals. So this isn't a consumer driven app that's going to have millions to download but we think it's a brand building app targeting the Executives of health care systems so they can keep track of their status against their competition. So 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 for 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.

Thank you. Your next question is from Robert (sic) [Richard] Close of Avondale Partners.

Yes. Just little 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 their growth there was below 20%. If I remember right, I guess previously its growth there is always been higher than that?

Well, not always. So we had several very strong quarters, Q2, Q3 were really strong in the growth in the patient. To be clear, we're forecasting that 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 multi-million dollar customer of our research services and they were a customer to all 4 of our research platforms, patient, physician, community and employ. They drew down the amount of researching -- surveying they were doing with us, but at the same time within the same quarter, increased the overall value of their account with us by investing in learning products. So again, I wanted to emphasize that we've had 15% plus growth on the patient insight survey product now for many quarters. As we look forward we except that to continue, we also see new growth from the CG CAHPS survey as well, except that we've had this one customer, again this relatively small business unit draw down the amount of surveying being done by $1 million, which makes that combined growth rate of research be little bit lower.

And then just lastly, kind of like a macro, overall question. When you guys look at growth opportunities, I know you touched on ICD-10 and new CG CAHPS. Do you feel more confident in the business today from a growth perspective as you did a year ago?

Well, I would certainly say so. We are much more excited about the diversity of our platform. As I mentioned at the end of our -- of my section the -- both the excitingness - the deciding [ph] nature and the complexity of having more platforms to offer the customer, more extensions we call them, we've historically reported kind of the single metric around subscribers on the learning center. Meanwhile we've been adding thousands of subscribers to our Connect platforms so people can get to our content libraries, we've added thousands of subscribers to our competency platforms where workforce competencies are assessed. The Sim center is really getting some legs and making good momentum with its new 4 pieces of software, the newly launched Sim View and Sim Manager. And so we see growth more -- first of all, more diverse, but all leveraging core platforms and technologies, so provide the opportunities for leverage and development and deployment of these applications, so we're much more now than a single platform component in learning where we're becoming much broader suite of applications which gives us opportunity for growth and we're excited about that and working on ways to convey that in this upcoming year.

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

Well, first we never intend to be conservative or aggressive in guidance, we intend to give our best thinking as reflected in our process fees that emerge from very thorough budget process and a planning process. The variables though as I mentioned now, we have 4 or 5 new components to growth and not all of them are easily predictable. They're all some new on the adoption curve, they're innovative and we don't know the adoption rates and so the ranges early in the year are usually a little broader to reflect that kind of portfolio uncertainties, the mixture of new products. And generally as we move through the year, we get a little more visibility into which pieces were growing as we had hoped, which pieces are growing faster than we hoped and which pieces are not leading expectations and so we try to narrow and improve our guidance as we go through the year, but as we begin this year our guidance ranges is a little broader, but if you look back to our prior 3 years, it generally give the 3 and 4 points spreads on revenue and a little broader spreads on operating income to reflect what I'll call that, portfolio opportunity and trying to understand the relative growth rates of new products. So 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 explain through the views of a portfolio with many new moving parts.

Your next question is from Frank Sparacino of First Analysis.

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

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

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

I will touch on that we certainly have some strong partnerships and products with 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 we believe is both more effective clinically and saves time and money for hospitals. So we've reported recently that that product is over $9 million a year in recurring revenues and we're seeing continued uptake in the CPR product series which called BLS, ACLS and PALS product sets, which are essentially a new model for training CPR to the healthcare professionals and hospitals. And it meets a bi-annual requirement. So we estimate the annual demand for those products is approximately $1.3 million to $1.5 million and that we're at about 200,000 people adopting that form of training currently. So plenty of run room in that product where we partner with American Heart Association and Laerdal Corporation for a new model for training CPR in hospitals.

Great. And then just lastly, Bob, when you talk about the drive down on the research side. Can you tell me, I mean is that a function of sort of budget issues or what was the driving factor for that clients in reducing those services?

Well, first, in cap serving there is a minimum data set required and then many people sample beyond the minimums and so a bit of that was pulling back to minimums. But also you see elective forms of patients surveying for example, hospital =can elect to survey their ED patients and/or other non-admitted patients that are not required under CAHPS. They want to use the same surveys. And so, in some cases you will see them move in and out of offering those additional surveys through other department like ED, emergency department that are never admitted to the hospital. They are not -- they're more elective in collecting these forms. 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 is beyond the minimum sampling and they can pull that down for budgetary reasons or there is sampling of non-required audiences like ED admits, that don't get admitted to hospital. And so for budget reasons or other business reasons they can choose how they collect or change the use of that elective form of surveying.

[Operator Instructions] The next question is from Walter Ramsley of Walrus Partners.

I got a couple of questions for Gerry, the amortization of acquired intangibles. Can you give us the numbers for the quarter and the year?

That will be in the 10-K we're filing in the next week. We don't break that out in press release. I don't have that in front of me.

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

Pretty much.

Okay. And you mentioned, there was acquisition that you're pursuing but didn't complete. Where there any non-occurring costs connected to that?

Well the expenses, first of all, a quick background, we're required to expense any due diligence efforts, be it legal, financial, special operational, consulting and those have been in our numbers all along. So there is 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 a kind of ongoing process?

Yes. We've been active in M&A for quite a while, haven't been in...

Yes. Okay.

Yes. It was close by, yes. It has been a regular expense.

Okay. And as far as the tax rate is concerned, it looks the NOLs are going to finally expire this year. Once they are gone, what do you see the tax rate being going forward? I mean 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 -- the ongoing tax rate might look like?

Well, I think if you look at the attributes in the -- the footnotes that -- we don't have any very 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% or 35% Federal rate with the add-on of approximately 4% to 6% for the effective state rate. So we're getting that 39% to 40% range.

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

Well, we certainly look at those as it become available, any changes in Washington too, but we've seen [ph] it, we're looking 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, very stable pricing -- the expansion and the revenues that are probably driven by unit sales as opposed to price change and that the price -- the same for the foreseeable future.

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

Thank you. We look forward to reporting next quarter as it allows us. Thank you very much. Good day.

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