Q3 2019 Earnings Call
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Thank you Hello, everyone welcome to Voceras conference call to discuss our third quarter fiscal 2019 earnings joining me today, our Vocera CEO , Brent Lang and Justin Spencer our CFO .
Earlier. This afternoon, we distributed a press release detailing our quarterly result.
Releases posted on our web site at investors that Vocera Dot Com and is also available from normal news sources.
This conference call is being webcast live on the Investor Relations page of our website for replay will be archived.
Before we begin our prepared remarks I'd like to take this opportunity to remind you that during the course of this call will make forward looking statements regarding projected operating results and anticipated market opportunity.
As forward looking information is subject to risks and uncertainties described as a service filings with the FCC and actual results or events may differ materially.
Except as required by law, we undertake no obligation to update or revise these forward looking statements.
On this call will refer to both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release.
With that I'd like to turn the call over to Brent.
Thanks to good afternoon, everyone. Thank you for joining.
The first quarter of 2019 was another solid quarter for one zero with record revenue of $51 million and good profitability.
As we enter Q4, we are funded by our board steel parts, one or sizable market opportunity and are expanding product set which has never been better.
Hi, This is a third quarter showcased our market appeal and highly differentiated offerings.
Our success, winning large deals continue with eight deals over $1 million beautiful, both expansions and new hospital win.
This included foreign works deals in our federal business and we're on pace for another record year in effect.
He brought device shipments were at a record were at record levels and we were encouraged by how the smart badges building momentum.
Our investment in international are driving results with substantial year over year bookings growth, including two international deals over $1 million.
Finally in Q3, our pace of innovation continued including the launch of our next generation smartphone App boost therapy.
Let me tell you a little bit more about some of these exciting deployment developments.
From a bookings perspective, we believe customers across worked harder markets are embracing our unified platform and the power of our clinical integration intelligent workflow engine and best in class voice messaging and alerting solutions.
We achieved our largest ever number of million dollar wins this quarter, demonstrating the value of our technology with both new and existing customers.
In the U.S. commercial health care market highlight was a 2.2 million dollar win at the University of Texas Southwest.
You too southwest bought our full solution and we'll leverage smart badges for communication as well as for repeating nurse call and patient monitoring alerts.
At Fairview Health, we sold a barge 1.1 billion dollar engage cross sell.
Building meaningfully on an existing voice installation.
The completeness of our solution and our compelling vision, we're paramount to both of these wins.
Device shipments reached record levels, and we saw uptake of smart batches in several of our large commercial new hospital system when.
In our federal business in Q3, we continue to achieve strong results.
The highlight of our quarter in effect was more wins in the V.A. each over $1 million.
We also had several smaller strategic deals in the via including some expansions and cross sell when demonstrating the value of our installed base opportunity.
In total we set another record for federal bookings in the quarter and year to date.
Our fed team continues to build momentum by leveraging our strong track record in the BA and our authority to operate and seats on purchasing vehicle with the deal do you.
Moving onto our performance in our international markets I'm pleased to say, we had two large strategic wins.
First we wanted 1.5 million dollar deal at Cleveland Clinic, London.
Opening in 2021 and setting the standard for World Class Private health care, Cleveland Clinic selected our full solution and plans to deploy our software to cross the mixed device environment, showcasing smart badges and the Bina smartphone app.
Second we want to 1.5 million dollar deal at Shake Shack food medical city in the United Arab Emirates.
Similar to Cleveland Clinic, London, SMC purchased our full solution, including smart badges and is anticipated to be a landmark facility setting the standard of care for the rest of the region.
These exciting wins are powerful statements in their respective regions.
International is a large opportunity and a top priority for us and we're pleased to have a growing overseas pipeline.
We had a busy Q3 for customer deployments, but I'd like to take a moment to tell you about a few installations.
Our installation at the University of Virginia is up and running by November They plan to replace 2800 pagers with a mix of devices, including smart packages to connect employees throughout the health system.
Another important deployment was in Milwaukee, where freighter expanded their use of our products by going live with engage across four hospitals.
Demonstrating the benefit Vocera brings to smaller hospitals, we deployed at the 25 bed Samaritan Pacific communities Hospital in Oregon.
Americans, replacing pagers and wireless phones to speed urgent notifications and improved bed turnover.
As our expertise and experience and professional services continues to grow we believe it is becoming meaningful differentiator in helping our customers choose us as their partner.
And finally deployments at Nordstrom stores across the country continue and includes a brand New New York Tower, which opened today.
Nordstrom team members were impressed by those their enabled connected fitting room.
Nordstrom guests can use an IPO to connect the team members on their Vocera badge and receive immediate feedback that service is on the way.
It has been a busy year for us in terms of product innovation and advancement.
In Q3, we successfully launched via an exciting new smartphone app with an industry leading patient centered approach.
Present coal secure messages and alerts unified and prioritized embarks and provides an intuitive user experience for clinicians inside and outside the hospital.
Vena is designed to deliver relevant context about clinical events patient status and clinician availability, helping care teams improve safety quality of care and experience for patients and care teams.
Also during Q3, we introduced the next generation of Vocera analytics to our customers.
But their analytics is a core element of our platform.
It is a monitoring and diagnostic tool that provides visibility and insights on all traffic that goes through the vocera platform.
You can help our customers optimize their use of our technology demonstrate ROI and proactively identify and take action fixed infrastructure issues.
Analytics is something that I'm very excited about and we're just getting started in this area.
We also launched a new version of Vocera care experience in Q3. This entirely cloud based SaaS offering includes the next generation of our routing software and our post discharge patient communication platform called Karen form.
Both of these modules are now closely integrated with the rest of our platform.
Late August we published a report about Hackensack Marines use of terror and form to reduce readmit rates amongst stroke patients by 50%.
I'd like to thank our teams for the fast pace of product innovation.
We have extended our leadership in the market has significantly enhanced our customers' ability to improve patient safety.
Also applications like boost their care experience and analytics represents software growth opportunities and provide new avenues to extend our reach into hospitals and health systems.
Moving forward, we are continuing to look for ways to expand our offering across the care continuum by building buying were partnering to enable frictionless patient journey.
No I'd like to talk about the markets and share what we're hearing or conversations with customers.
This month, we convened to important customer facing meetings.
Our large customer advisory board is an annual gathering of almost 50 customer champions.
This direct customer engagement provides us with the opportunity to understand our customers most pressing needs and helps us continue to develop and deliver innovation to improve efficiency lower cost and enhance patient experience and staff resiliency.
We also held dehumanize health from a two day Forum in San Francisco, which was attended by leaders from some of the nations top healthcare systems.
It was powerful to witness these leaders collaborate around the pressing issues they face today.
Patient safety and staff resiliency are paramount in their quest to achieve quality outcome.
Out in the field my sales conversations and interactions with hospital executives continue to underscore that improving margins staff safety and quality of care consistently rise to the top of their priority list.
Those are looking for ways to reduce cost and improve throughput by eliminating friction in bottlenecks and streamlining operations.
From a competitive perspective, I believe our differentiated leadership position continues to grow.
Our high win rate demonstrates that our technology continues to be chosen as the best most complete solution available on the market today.
Before I turn the call over to adjusted to discuss our financials I want to take a moment to provide insight into how we are reviewing our progress so far this year.
While we believe hospital investment priorities remain squarely aligned with the value proposition that we deliver to our customers. We continue to face certain challenges associated with large enterprise selling and are making investments to mitigate these dynamics to the best of our ability.
Based on our Q3 bookings performance, it's clear that some of these initiatives are starting to pay off but overall bookings were not as strong as we would have expected.
For instance, we experienced some softness in smaller department level bookings, we believe budgets are consolidating and some smaller deals are becoming large deals increasing our average deal size, but also lengthening sales cycles and while our international business showed progress.
With a couple of significant wins, we believe we still have work to do to ensure consistent momentum across the geographies.
Finally, we were encouraged by the smart badge wins, we booked this quarter and we believe the devices well priced and position. However, the new device represents more of a paradigm shift for our existing customers than we initially anticipated because of its new enhance software functionality.
As a result, it's taking longer than we expected for existing customers to evaluate for smart badge.
As we enter Q4 and begin to think about 2020, our focus will be on closing wins from our large deal pipeline building international momentum and continuing to execute on the smart pads transition.
As we execute through these market and product transitions, we expect our revenue growth over the next few quarters to be consistent with the last couple of quarters.
However, we remain confident in the business over the longer term bolstered by strategic customer wins.
Successful large scale deployments enthusiasm around our products and high customer loyalty.
With that of context, I'd like to give our CFO Justin the chance to cover the financial details around our Q3 results and then we will discuss our guidance Justin.
Thanks, Brent Hello, everyone.
We had a solid third quarter for both revenue and profitability, reflecting the continued momentum in pattern. We typically see in the second half of the year.
Total revenue in Q3 grew 6% to $50.8 million with balanced growth across both our products and services segments.
Our device revenue at $19 million increased 12% from prior year, a record for both Sarah and was fueled by shipments of both the batch and smart batch.
As expected smart bad shipments increased from last quarter, and we continue to be encouraged by the pipeline for this device.
We anticipate that the smart badge mix will continue to increase over the next several quarters as customers see how this new device demonstrate the full power of our software platform.
Meanwhile, the Vocera badge continues to have strong appeal in the market.
Sales of this device were robust in Q3, driven by our federal business Nordstrom and other key customers.
Software revenue was $9.5 million compared to $10.3 million in the same period last year.
As we look forward over the next few quarters, we believe our software business will return to robust growth.
There is high software content in several of the large deals we booked in Q3 that we expect to shift in the coming months.
And the newer products that Brett mentioned earlier, including the smart badge and our new being on mobile App should drive higher software sales a key driver of our long term operating model.
Our software maintenance and support revenue, which provides a solid economic foundation for our business grew 9% in Q3 compared to the same period last year.
Our revenue pattern for software maintenance and support revenue is predictable because it is recurring and is recognized over an extended period of time.
Also fueling this was our high maintenance renewal rate, which continued to be well in excess of 95%, reflecting the benefits our customers experience from using our products.
Professional services.
Revenue of $4.7 million was up 6% compared to last year.
We had a healthy professional services backlog and continue to innovate in this area.
Both product enhancement and process refinements to achieve the best outcome for our customers in terms of costs.
And experience.
Lastly, our combined backlog and deferred revenue increase to roughly $122 million in Q3.
Up from $117 million in the third quarter last year.
This was also up sequentially from Q2.
And we expect to increase this further in Q4, following our normal pattern of building backlog and deferred revenue in the second half of the year.
On the profitability side, our adjusted EBITDA increased 13% to $9.5 million in Q3.
At 19% of total revenue our Q3 adjusted EBITDA reflects the strong leverage we have in our financial model as we grow.
And we achieved positive GAAP net income in the quarter.
A key milestone in our profitability journey.
Now, let me get into some more detail on our non-GAAP gross margins and operating expenses.
non-GAAP gross margin in Q3 was 66%.
Improving sequentially from the first half.
The decrease in product margin compared to last year, as primarily driven by lower relative software mix in Q3, which can happen from time to time, given our software revenue model.
Our gross margins in both devices and software continued to be healthy, reflecting our differentiation in the market.
non-GAAP services margin was again strong at 56%, primarily reflecting the continued growth of a recurring software maintenance and support revenue.
non-GAAP operating expenses of $24.9 million were flat compared to last year. The investments we've made over the last few years to enhance our scalability have enabled us to keep our operating expense growth in check while continuing to invest meaningfully in the areas that we believe will drive long term growth such as R&D and sales initiatives.
As a result, we continue to believe that there's more opportunity to drive operating leverage as we grow.
To cap off my Q3 commentary, we continue to have a strong balance sheet with roughly $221 million in cash.
And believe we are well positioned to capitalize on new growth opportunities.
Now turning to guidance.
As Brent mentioned, we saw a lot of progress in Q3 in our strategic initiatives. We're encouraged by this and we are confident our market position continues to be strong.
But with one quarter remaining in the year our growth is not where we had hoped it would be.
Reflecting that's our revenue guidance for the fourth quarter is $46 million to $51 million. Our adjusted EBITDA is expected to be between five and $9 million and GAAP GAAP net loss per share between 15 and two cents.
The implied revenue guidance for the full year as 176 to 181.
Point $8 million.
The rest of the guidance detailed along with a full reconciliation of GAAP to non-GAAP guidance can be found in the guidance table of our press release.
Wrapping up despite this near term transition, we remain confident in our growth potential longer term, including the strength of our customer base, our mark to market leadership position and the potential of our new products.
Meanwhile, we are managing our expenses that we can continue to deliver profitability and invest in areas that we expect will fuel our long term growth.
Ill now turn the call back to Brent.
Thanks, Justin.
With Q3 behind US, we're focused on execution and closing out a strong year.
As we think about next year, while our growth may remain moderated in the near term. We are confident we're taking right steps to secure long term growth.
We will continue to invest in international work to ensure a smooth smart pads transition and continue to enhance our sales process.
In order to harvest or large deal pipeline and bringing in new customer wins and expansions.
It's still early days and the evolution of hospital communications away from pagers loudspeakers and wireless phones.
Our differentiated technology, and our large greenfield opportunity inspire us to pursue the goals we set out to achieve.
Namely to transform healthcare and make a lasting difference for patients and caregivers. This thesis remains unchanged and we remain confident about the future.
With that we're ready to conclude our formal remarks.
Thank you for listening today, operator, we're ready to open the lines for questions. Thank you very much.
At this time I'd like to remind everyone in order to ask a question Press Star then number one on your telephone keypad. We ask that you. Please limit yourself to one question at a time, we'll pause for just a moment compile the kuni roster.
Your first question comes from a line of Ryan Daniels from William Blair.
Yes, thanks for taking the questions guys. Obviously, the key focus will be on Q4 sales in the flat year over year growth versus the.
Expectation for a stronger performance I'm curious if you can go into a bit more detail on the impact of each of the three things you outlined meaning how much of this do you believe is due to an extended sales cycle, how much due to some of the.
International noise and weakness in then how much on existing clients, taking longer to assess and install or purchase the new badge.
If you can break that down it would be helpful.
Sure Ryan Thanks for the question I appreciated.
I think the certainly the most important one is this transition we're seeing in the market between departmental level buying and enterprise level buying.
We're seeing a larger increasing number of bigger deals and fewer and fewer decisions that are being driven at the departmental level.
This is having.
Positive impact in terms of average deal size, but in many cases is adding complexity as these deals need to go through additional approval cycles and building consensus across the organization.
International This I have one that you referenced and I also referenced in my remarks is is more a function of bringing consistency.
We feel like we actually had a really strong Q3, and we're we're looking forward to some of the deals for the remainder of this year and into next year, but as you looked at it on a year to date basis, It's certainly below where we had wanted it to be.
I think in that case, it's more question of US continuing do the work that we've already begun to do more sales enablement more marketing support some leadership changes that we've made internationally to have an opportunity to to get their teams in place.
The pipeline is they are internationally and the.
Our competitive differentiation in our offering seems to be resonating really well.
So it's really more matter of bringing more consistency to that part of the business and in the case with smart badge.
I think this is actually a net net positive for us over the longer term what we've realized is that what we've been off with the introduction of the smart badge was truly an industry changing activity and while there remains a lot of excitement around it we're recognizing that customers are having to rethink their strategy around.
Clinical integration around messaging around their software platform and even the infrastructure around silly things like that or Chargers battery is training some of the infrastructure, so, particularly within the installed base I think that that is a bigger impact. So if I was going to rank order them I, probably would say the transition in the deal sizes.
His overriding the biggest element of it smart that will be second and I think international would be third, but we view all of them as sort of temporary issues that over the longer term, we feel like either the market will self correct or will be able to execute and fix on our own and actually lead towards.
More bullishness in the business on a longer term basis.
Okay that makes sense I'll hop back in the queue. Thanks.
Your next question comes from the line for from Chris.
From Guggenheim Securities.
Hey, Thanks for taking the question I, just want to talk about that longer sales cycle and I want to more detail and as you are seeing these deals transition to larger sizes is it mostly at the administrative process that April process, that's causing them to take longer or is there anything to call out with respect to budget pressure or the competitive landscape that is causing this deals that take longer to close.
Yes. Good question I would characterize it primarily on the administrative side and if I break down the sales process into sort of to have there's a there's a portion on the front end, which is the evaluation of the product getting to what we think of as vendor of choice and the reason that thats extended in this sales processes because.
The number of interested parties and decision makers that want to have a saying that decision increases along when you go to these house wide deal. So each department head the CMO the CMO the CNO. The CIO. All these people want to be involved in that decision, making in evaluation process.
So it's more of countering an administrative issues just to get demos completed for those folks.
We're not seeing any kind of competitive impact on that it's really just a matter of building consensus amongst the organizations.
The second half is sort of post vendor of choice selection to purchase order and that is where we're seeing probably and even longer elongation. As these organizations that have gone through in many cases mergers with other health systems or structural changes within their own internal administrative bodies are trying to navigate what's.
Required in order to get from vendor of choice to purchase order and that can involve.
Statements of work the the other legal aspects limited involve the funding mechanisms. We can even involve just simple operations and day to day activities getting the way of getting.
The final paperwork close when you're talking about over a million dollar size deals that there's just more hands in that and I think probably that's the piece.
We're seeing.
More elongation, where we've been named vendor of choice, but in order to get approvals for a million plus or 2 million plus or or larger deals.
It's often times having to go to several additional committees for final approval up to an including the board level approvals and obviously the board meeting only occur on a sporadic basis and so in some cases, we're we're bound by the calendar I would tell you that we're not seeing any change in terms of competitive.
Front, our win rate remains very very high at the customer level excitement for our solutions remains very very high we're just not losing deals in that context, it's really more of that time from vendor of choice into TPO and then ultimately to deployment, it's taking longer than the smaller deals with them.
Okay, Great and maybe just as a quick follow up as we look add to the fourth quarter and end to 2020 can you just give us some comments on what you're seeing in terms of RFP volume and the pipeline right now relative to what you saw this time last year. Thanks.
I would say both are up substantially.
The the pipeline right now in particular are large deal pipeline is larger than it's ever been before and I think thats what gets us excited about future.
More and more of this business is going to RFP and I think thats a reflection of the fat that this is not a one off initiatives by individual inside of the department that it's more of a strategic evaluation and initiative, that's being managed and funded at the C suite level of the health system and typically in that environment, they're going to go through more of a formal.
RFP process.
Great. Thank you.
Your next question comes from the line and David Windley from Jefferies.
Hi.
Hi, Thanks for taking my question good afternoon.
I'm joined a little late so I apologize if my context on this is a little off but.
In our in our notes at the top of your comments you talk about I think eight deals over a million.
Relative to your want to your answer the last question are those deals where youre, you're describing that you've gotten the vendor of choice not to or where they are actually.
Progressing to bookings.
So those are all formal bookings, we don't typically talk about deals until we received an actual bookings from the customer and Thats a okay very disciplined approach, we take whereas the firm commitment to buy.
In the form of a purchase order and so anything that's in that kind of vendor of choice to booking category is something that still in process and we wouldn't talk about on oncologists. Okay.
So next year I'm clear on terminology so.
I think you also talked about.
In terms of sales force attention in deployment.
Yes.
80% are focused on new deals, 20% focused on up sell in light of.
Turning cycle time.
When it makes sense to.
I have more of your selling efforts focused on kind of existing clients and moving say already friendly clients.
Up up up to the consumption continuum.
Rather than having to break into somebody new where the the cycle time to ultimate revenue is less known.
Yes, Directionally I agree with what you're saying I would correct the notion that that 80% of the Salesforce is focused on on new deals.
I think maybe made we've said that it's a assembly effort or something but in terms of the actual salesforce deployment. The vast majority of them have a mixed bag of both an installed base of customers as well as new customers that they're targeting.
And and in fact, there's chunks of the sales organization that is focused on either maintenance renewals or on our supplies business.
And then there's a number that are focused on those existing customers as well.
One thing I would highlight is to support your point actually is that I believe four of those $8 million deals were in fact expansion deals so you're absolutely right the strategy.
Even with these larger.
Over a million dollars deals is to work with the installed base, either and cross selling engage or expanding into new groups of users of new departments and we've had good success in that environment.
And last question again, sorry, I have few if you discussed this in detail but.
Last quarter and when we were together during the quarter.
You talked in some granular detail about.
Two very large deals that that had pushed out of the quarter for reasons that seemed very achievable.
Eminently achievable during the third quarter.
Did those land in the third quarter or have they still been pushed out further.
Yes, I don't think we want to get into the specifics of individual deals that I would tell you. We're feeling very good about that process. The analogy that I've used before is kind of the plane circling O'hare airport each landing individually.
And.
It's the actual the arrival time, that's somewhat stop in the air on some of them. None of those deals have disappeared I think all of the ones that we were talking about in the Q2 timeframe of now close.
The more relevant point is that we need to have more airplanes in the air and more arrivals at any given point in time and.
None of the ones we were talking about went away I think they've all booked at this point in time.
Your next question comes from the line Matthew Gilmore from Baird. Please go ahead.
Hey, Thanks for the question.
Following up on the elongation of the sales process sounds like that's driven by a combination of both larger deals and then maybe some additional consideration around smart badges and folks trying to understand.
That will best fit within their strategy.
Can you give us any sense for where you think you are in this process.
It seems like the elongation of.
Got it longer and longer and longer are you seeing any evidence that were at an idea right out of trough I should say and then.
Yeah. How are you kind of factoring this end to end the guidance can you just give us any sense along those lines.
Yes, so Matt Thanks for the question I framed where to characterize it is it's not that the large deal sales cycle itself is getting that much longer but more that more of the deals are in that large deal cell cycle. So as we move.
If you moved it doesn't deals from.
Department level deal to these enterprise deals.
And each of those transitions represented a change from.
Nine months sales cycle to an 18 month sales cycle, then you're going to have this natural valley during that transition during the time and and I think what's happening to our business is that more and more of it is moving into that category of the larger enterprise deals. Yes. There are some factors that even on the enterprise deals because of the dynamics in the market.
Our being elongated by I think the bigger dynamic for US is just the number of deals that are falling into that and larger deal category. I think we're getting closer to the point of reaching steady state. Although the the challenges just understanding that specific timeframe.
Associated with those and I think part of the reason why were being more conservative with guidance and I'll, let just and speak to this as well is that we just are recognizing that there's a natural lumpiness in the business.
As we as we navigate these larger transactions.
Yes, we yes, we look forward from here over the next few quarters I think on this is clearly a dynamic that we've tried to factor into our overall.
But were what we're seeing is we see a robust pipeline of large deals.
We're definitely seeing a clear shift.
Purchasing from a departmental level.
To these larger deals and so in terms of our expectations over the next few quarters, while we while we work through this weve moderated our our growth assumptions, but in a long term. We think this is a real net positive because the larger deals have inherently larger deal sizes and there's a much larger annuity stream that comes.
Comes with.
Which we think we'll add even more stability to our business model over the long run.
And then maybe one follow up can you.
Sure, where you can just quantify sort of how large some of these very large deals are.
Just to give us some sense for how the opportunity that's ahead.
Yeah, we have a fairly.
Kind of simplistic artificial cut off of anything over a million dollars is what we call a large deal and and as Brent mentioned earlier, they can fit either with as as an existing customer who is expanding to.
New hospital or even within within a hospital across multiple products for or a brand new customer who is purchasing the solution on an enterprise level across the entire health system. We appealed in our pipeline that are in that large sale category that range from $8 million and up.
Several million dollars.
And when you get into that larger health systems.
There are the opportunities are in the multi million dollar levels.
Okay. Thank you.
Next question comes from the line, Sean Mylan from Piper Jaffray.
Hi, Thanks, So given all this have you updated how you're calculating your guidance your color cord quarter guidance are predicting that deal closure cycles in any way can you share that with us.
Yes, Hi, Sean we.
We look for the current quarter for the current quarter, we've applied to vary.
Consistent framework for how we calculate our guidance and.
Our.
Our.
Guidance relative to our results have been.
Quite.
Quite strong in terms of forecasting revenue in the current quarter.
And so we we start with our our backlog in our deferred revenue.
And the visibility that we expect from that in our supplies in the remainder of the amount of ship.
When we're estimating that the amount of books shift that we expect to close in the quarter.
We look at the size of our pipeline relative to our bookings targets in calibrate from there.
Well, we are seeing the reason we've chosen to provide a little bit.
Longer term view here or I should say view of moderated growth over the next few quarters is.
To just make sure that expectations are are.
We are in line with this transition that we're going through as we transition our bookings pattern from more departmental purchasing to larger larger deal sizes and will.
February will come out with formal 2020 guidance at that point.
So you've used the word moderate a few times in describing your outlook.
Which I'm not quite sure what that means and.
It is moderate going to be above zero.
And can you can you comment on 2020 will we should be expected 2020 to be a flat year or what is what does moderate need in your view.
So the language that I tried to highlight in my portion of the script was that we expect growth to be similar to what we've seen in the last couple of quarters.
As we look into the next couple of quarters. So it's clearly not zero its not down but it's also not in the mid teens range that we've talked about historically.
All right and then when one last quick one.
How did that how did the fed business do relative to your expectations in the corner.
I was right on right on track I think we're really pleased obviously Q3 is always a big quarter for the fed and they delivered as as expected. So we were really happy with how that played out.
Okay. Thank you very much.
Yes.
And your next question comes from the line of Gene Mannheimer from Dougherty <unk> company.
Okay.
Thanks, Good afternoon.
I don't want to be that a dead horse here, but I want to do just kind of go back to the increasing complexity of the sales as a as they get larger.
Do you feel you have the REIT structure and alignment in place too.
To meet the complexity of these longer sales cycles and decision processes. For example didn't do you need a more consultative pushed you need more product and domain expertise to need to a more of a hunter farmer model I'm, just trying to get to handle on on if you're thinking about those things.
Thanks Gene, yes, spending a lot of time thinking about those things and generally feel like we're in a work in progress on that clearly there has been a transition in our sales organization as we've had to migrate from the more department oriented deals with larger deals.
And.
Thats been in the form of the tools and sales enablement aspects is come in the form of who were marketing to and how we're marketing on those.
But it's also come in the context of the skill set and capabilities and structure of the Salesforce itself.
I would characterize 2019 as a year, where we've been more aggressive in changing the makeup and structure of the sales team.
Where we found.
Certain individuals who were just not able to make the transition to the more enterprise level selling.
They may have been very successful when it was more of a departmental or more of a device sale and so we've been very proactive in making those transitions that we've got a number of new folks who come in that we believe town more of that enterprise selling capability.
And then the enabling tools that we give them whether that's the account planning whether that's the ROI sales tools, whether that's the clinical executive team the nurses that support those clinical workflows or the technical expertise to be able to support the questions around scalability around security. Moreover, the enterprise.
As class questions. It becomes much more of a team based selling and so.
While I think we've made tremendous progress on that I don't think we're done I think there's more work to be done there and we continue to evolve as we move forward on that some of this is learning on our part and some of its actually also learning on the part of our customers, where they're making decisions that they may not have been exposed to before and they are having to navigate.
The organizational structure of their their own organizations and so.
I think we're taking a very seriously.
And I would say, we're on the right path, but we're not done.
Well.
Well thought out thanks for that Brent and then my other question would be I guess about longer term growth you've discussed that that in the near term.
Growth this kind of revenue gross going to be more muted, but when you talk about long term resumption of growth how long term is that and would be well we'd be looking at a double digit type trajectory past next year.
So I remain really excited about the long term growth prospects of this business I think as I said in my prepared remarks, I think our product solution set right now is better than it's ever been.
We remain really excited about the greenfield opportunity in this business, we still think we're on the early innings here and.
So I don't see any reason why we couldn't get backup to that kind of growth level in the future.
We see these these product and market transitions as temporary and my expectation is that at some point the future. We can get back to the higher growth rates that we've experienced in the past.
As you know both Justin I tried to be is absolutely transparent as possible about the business and we'd like to call like we see it and we felt like we wanted to be.
Transparent at this point, but also want to make it absolutely clear that we remain very bullish on them. The long term prospects and see a market that we're reminded every day is still made up of hospitals that have got a bunch of pagers.
And in building wireless phones and overhead loudspeakers.
That are just not getting the job done and the number of hospitals that continue to come to us.
And just tell us what an incredible difference our products are making in their environment as they navigate away from these legacy solutions, particularly in times of stress or or particular difficult times during nursing strikes or other challenging environments.
The value that our product suite can can bring into the environment. Both in terms of patient safety as well as in terms of staff resiliency and quality outcomes.
Continues to make it a very very powerful and compelling solution. So.
I think our long term prospects remain very positive.
Okay, great. Thank you.
Your next question comes from line of Matt Hewitt from Greg.
Yeah. This is Lucas spare and now ski on for Matt Hewitt here at Craig Hallum.
Just a couple of questions here, you've talked in the past about the potential for the smart badge to drive a higher attach rates for engage in some other software offerings now that some of those larger smart badge wins have started to come in or has that been the trend that you are.
We're seeing.
Yes, absolutely and Thats.
Several of the deals that I talked about on the call, which were newer customer deployments. They were buying smart badges and they were also buying voice messaging and engage clinical integration. So.
The mix of devices across smart badges and smartphones and then the full suite of software is becoming the norm in most of our new customer wins.
I would say, where it's taking longer in what I was trying to allude to in the in the call was that.
It's really the existing customers that are that are taking more time to do the evaluation because they have a lot of inertia tied to a historic way of doing things with our our previous versions badge, but in particularly for the new customer wins, we're seeing the smart badge be a real driver of selling the full stack of our soft.
We're in including engage in messaging.
Okay, Great and then turning to the Nordstrom rollout I believe a large portion of that occurred during the quarter. How much of that is last to occur in Q4.
So weve shipped all at the end delivered all of the product badges and and the software. The professional services work is ongoing where we're through a meaningful number of stores, but there are few that remain which will completed being created by the end of the year, that's gone really well and as Bret mentioned earlier.
We.
New Nordstrom store in New York, just opened today and this.
Currently showing the demonstration of our technology in the stores, we're really encouraged by by how that deployment is gone.
Okay. Thank you very much that's all I had.
And your next question question comes from the line of Mike.
Oppenheimer.
Good afternoon, and thanks for taking my question with a few weeks of for Q underway here curious, how you're seeing hospital spending environment in general as we head into 2020 and are you seeing any political headwinds at all.
No I don't think we've seen any changes at all I think we're feeling good about about Q4, and so far the the issues of staff resiliency and patient safety and quality of care seem to be immune from the.
The DC belt.
That's great to hear and congrats on the $2 million plus international deals I realise one was in the UK, but Brexit issues there seem to be heating up more recently curious if that has led to any impact on your business.
I think it's too early to know, but with something we're certainly watching another nice thing about the Cleveland Clinic, London deal is that at the private hospital. So it's not subjected to the same sort of funding mechanisms that the NHS deals would be.
And.
I think in the short term, we probably would prioritize opportunities with the private hospitals in the UK.
Over some of the the NHS opportunities but.
The team in the UK is actually building good momentum.
Some of you May remember, we moved one of our star employees over to the UK to manage that organization and he's done a really nice job of building momentum both within the installed base as well as building pipeline.
And.
Im not going to be over there next month meeting with customers need with the team and and also meeting with some investors and.
Looking forward to getting on the ground and seeing the dynamic there, but the beautiful thing about the Cleveland clinic in London is it's going to provided.
Tremendous lighthouse account for us.
Because other thought leaders in the country will clearly be looking to Cleveland clinic as they think about their own communication needs and we think it will become a great showcase account for us as we grow that region.
Great. Thanks very much.
Ranking and last question for the evening guys from the line Stephanie demand from Citi.
Thank you guys given the elongation of new client sales how much some idea of glass.
Across all opportunities.
After that is there anything you can do that cover shopping the salesforce I could accelerate.
Kind of offset the selling cosmetic channel.
Yes, great Great thought Stephanie in fact, we see a tremendous opportunity remaining for cross sell into our installed base.
The number of our legacy voice customers, who are not using engage is still very very high and that can be not just a small cross sell but in many cases can be a very large dollar amount in those cross sells and some of the other legacy middleware players in the space are our faltering right now and so we.
He is an opportunity.
To go back in and cross sell our solution into into the installed base. There Theres also an opportunity to cross sell messaging and obviously as we.
Continued to rollout smart badge, we see that as an upgrade opportunity as well so.
Clearly the Salesforce is balancing between new customer opportunities and installed base, but.
We see the installed base opportunity is a great growth driver as well.
What do you have seen any pushback on the kind of across older allegation. There what causes that just given we haven't seen nebraska adoption that kind of seem like a given.
Is that they already have competitors solution or they're just they're not ready for adoption.
So the biggest issue that they already have our solution.
And I'd say that somewhat ironically, but if you go to a customer that is invested millions of dollars into.
The B 3000, and or be 3000 form factor or even the B 2000 form factor that poor factor was largely compatible with each other it had the same battery to use the same charger could use the same accessories. The functionality in the user interface of the device was the same so it didnt require any additional training.
And with some of our larger installed based customers, who we rely on for large badge refreshes on a fairly regular basis, they're looking at it and they are saying.
There's a lot of inertia associated with the prior form factor for them to make the move to smart badge. It requires them to think about everything from batteries and Chargers to training and rollout, but more significantly it hasn't been thinking about the change in their workflow because they have primarily been using.
Pure voice workflows for for most of their use of Pacira with the smart Badgley now can start thinking about in engage in some of these other pieces and well that's a great opportunity. It's it's a more complex decision than simply saying I'm going to swap out.
500 be 3000, then badges for 500 smart badges because of some of those other infrastructure elements that I mentioned.
Hi, I understood. Thank you you take us.
Thanks, Stephanie.
Okay, well. Thank you very much for your time today, we look forward to speaking with all of you in the future and have a good evening all the best.
This concludes today's conference call. Thank you for your participation you may now disconnect.