Q2 2020 Vocera Communications Inc Earnings Call
[music].
Good afternoon, and welcome to the Sarah Communications Conference call. My name is Gabriel and I'll be your coordinator for today.
At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session ask your question. During the session. You want me to press Star one on your telephone. Please be advised the today's conference is being recorded and if you would require any further assistance. Please press star zero.
Now I'd like to turn the presentation over to Justin Spencer Cerus, Chief Financial Officer. Please proceed.
Hello, everyone welcome to both terrorists conference call to discuss our second quarter 2020 earnings.
Joining me on the call today as Brent Lang our CEO.
It really is currently I don't personally so please reach out to me directly with any follow up requests.
Earlier. This afternoon, we distributed a press release detailing our quarterly results.
There were leases posted on our website at investors Dot Vocera Dot Com and is also available from normal news sources.
The conference call is being webcast live on the Investor Relations page of our website a 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. We will make forward looking statements regarding projected operating result in anticipated market opportunities.
Forward looking information and subject to risks and uncertainties described in both parents 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 we will refer to both GAAP and non-GAAP financial measures reconciliation to GAAP to non-GAAP financial measures is provided in our coasted earnings release.
With that let me turn the call over to Brian.
Thanks, Justin Hello, everyone I.
I want to push all your good health and safety as we lived through the global pandemic.
Once again this quarter the main theme for Colby, describing how we're operating and filling in this challenging environment.
Let's start the call by saying that could not be more proud of the job. The fair employees have done to remain focused on the task of him answer deliver outstanding results for customers and or investors.
Q2, with an incredibly challenging quarter for world and for a company.
We fought through rapidly changing market dynamics accelerated our supply chain executed in an unprecedented works in home environment and navigated the economic psychological impact of the global pandemic.
We evolved our marketing messages innovated, our product offerings and adapted our go to market approach for both sales and service to delivery.
To your would make work environment.
You want all our employees were inspired by our mission to improve the lives of patients and caregivers and we raised to the occasion to meet these challenges.
This translated to excellent performance in our business across the board revenues for the quarter were over $47 million, representing solid year over year growth and exceeding expectations.
We also had a great bookings performance driven both by both urgent orders to respond to cobot outbreak.
And large strategically and it's a new marquee customers.
Our professional services team persevered by continuing deployments, both onsite and by a remote me.
Bad shipments remained strong and importantly, our smart badgered building meaningful momentum as customers recognize the value in choosing the right device to the right rule.
Despite the difficult environments and budgetary challenges facing our hospital customers are engaging with them continues.
Our teams took quick action to transition as many meetings as possible to virtual discussions and as a result, our pipeline is strong and engagement with prospects is high.
Our teams have risen to the challenge and her filling in this new norm.
Now, let me go into a little bit more detail on some of the highlights from the quarter.
Our Q2 bookings performance was great.
We won several very large strategic deals and we saw continued strength.
Urgent cobot related orders, that's how quickly to try to prepare for and respond to this crisis.
Our strong bookings performance underscores our relevance and important both today and over the longer term as we streamline clinical workflows and communications drive efficiencies and cost savings and improve patient and care team safety.
Our sales team really delivered this quarter.
In the V. alone, we booked over $6 million in large and strategic new facility where.
We also won an important 2 million dollar expansion at UTI southwest well, they will be using our smart batch.
And we received a fall when expansion order from Kaiser that was equal a magnitude to last quarter's big win.
Interest in our hands free device remains high and Badger orders grew substantially over the last year as customers leveraged our soccer platform. During these challenging times.
In a dynamic supply chain environment, we met the demand for our badges by ramping or assembly capacity in Mexico in Taiwan, and we are proactively building higher inventory to prepare for future demand.
We have positioned our hands free solution has an essential part of clinicians personal protective equipment.
And based on our strong first half performance. It is clear to me that are bad is now view by many of our customers SPP.
One of the highlights of the quarter was growing momentum around the uptake of smart batches as new features like the week word and panic button are driving interest from customers.
For example, Norton large new customer for us in Q4 shifted their plans in Q2 to include smart badges, rather than smartphones for certain goals.
They told US they are now able to include almost 50% more of their care teams in the deployment of our solution because of the cost savings of using the smart edge rather than smartphone.
This means we can have greater impact on patient safety and staff experience across the health system.
Other new smart batch customers include University of Arkansas Medical Center, and South Coast Hill.
We believe the smart badge is elevating its importance in an environment, where customers are picking the right device for the right rule.
The federal market with especially robust floors in Q2, and we were delighted that strong demand from the fed it no longer just a Q3 events.
This quarter's Facebook in included urgent kobin related business, plus some large strategic wins.
The Feds continued rollout of our solution as the defacto standard.
Underscores our future opportunity there.
With roughly half the opportunity remaining to land new facilities and cross sell within existing customers. We expect strong bookings from the federal market in Q3 and beyond.
International was another bright spot from Q2, particularly in the United Kingdom as funds became available from motivated buyers trying to respond to the pin debit.
Our cold bundle starter kit made that moved to a docker solution Eve.
Belfast City Nightingale in Northern Ireland was one coven related deployment.
Meanwhile, Salford Royal one of the NHS is most innovative hospitals recently showcased our solution to their peers as a crucial element of their aspiration to lead the NHS in applying technology to the hospital experience.
We are optimistic that these successful showcases will help develop the pipeline for future opportunities.
An example of the adaptability of our solution is vital into back and infectious disease Centre in Canada.
This is an existing customer that purchased more badges and licenses to handle the surge of new scientists joining their team.
We have one of the most advanced level three containment facilities in the world to work with Coke 19.
Well working into containment area scientists have to interrupt there were hourly to find a phone and connect with the administration were a health check.
No. They just calling every hour using their patch, which they can also use to seamlessly reach out to colleagues in other regions.
We're proud to be able to support the fight against coated in this way.
Finally, our non healthcare team also executed well in Q2, demonstrating the broad appeal of our solution with several new customers, including some nuclear power facilities and veterinary clinics.
Overall, I'm very happy with performance of our sales organization this quarter and in particular the newer reps.
Ramping well.
We had a large number of reps hit their quarter this quarter as they drove a healthy mix of expansions as well as a sizable number of new facilities.
It's gratifying to see how our investments in sales international and product innovation are paying off for our business and positioned us well for the evolving market environment.
In the month ahead.
We expect hospitals will continue to grapple with what shifting cobot caseload will mean to their operations under economics.
Putting the timing and volume of elective surgeries.
Eventual return to more normal operations.
And the resulting impact on their budgets.
Medical experts are learning about this disease and there's still a lot they don't know.
Having said that I believe one of the most significant learnings from this pandemic has been the importance of preparing and protecting caregivers.
The pandemic has opened dies about the importance of preparedness and safety for frontline workers and we believe this at the beginning of a wave that will sweep across the healthcare industry.
For instance, the Cleveland clinic, just appointed the industry's first caregiver officer to lead care teams safety and resiliency efforts.
We want to do our part to increase awareness around the importance of improving care teams safety and reducing burn out as a result, we are encouraging national and state government leaders to further elevate the idea of using communications technology as a core elements of PD.
The idea that communications technology is an essential part of ERP is one that has high engagement in my conversations with customers and prospects.
Versus another frontline workers simply can't do their job unless we have the ability to communicate with 13.
Being able to do so hands free under PPD is invaluable.
PB shortages the challenge of changing in and out of PD, Many times per day, and the risk associated with pulling a smartphone out of your pocket to make a coal all illustrating how powerful the sears value proposition can be.
We have always focused on investing in technology and delivering solutions that improve the lives of caregivers in the past, we have talked about things like reducing alarm fatigue or cognitive overload and the risks associated with interruptions.
During the cold the crisis, we've made our frontline workers more effective while keeping them say by enabling them to reach help when they need it.
I think many hospital systems are recognizing that if they have been under investing in care team safety and resiliency and as they think about preparedness for the future. We believe they are likely to focus more investment dollars on this important topic.
In addition, as hospital strive to resume elective surgeries and try to recapture lost revenue operational throughput becomes a critical element of restoring financial viability to.
Defining a new normal for hospital operations is a sweet spot of our value proposition as we can address both safety and operational efficiency challenges.
If you go to our website the see great new content highlighting coding specific use cases for our solution and how we're keeping care team safe and improving throughput and cycle times in EDI and the or.
As a company we have continued to advance the ball with a sense of urgency our engineering and product teams continue to innovate and deliver solutions that are grounded in our clinical approach to the market and our deep knowledge of our customers.
Last quarter, we talked about using our smart badge strapped for the bed for patient communications.
That are being used a double capacity.
Expanding this to a whole another level, we are developing a new elecsys skill that will allow patients to use voice command to communicate with their care team on vocera through an Amazon Echo in the room.
In addition to asking for water blankets or bathroom incentive.
Patients will be able to ask questions about their care team or about the hospital such as who is there nurse or what are the visiting hours.
We're hoping to do some pilots of this exciting initiatives later this year.
So fair has been the leader in voice based communication for many years and integrations of this nature showcased the power of our software and our natural extension of our business.
Q2 was an extremely challenging quarter for everyone, but it was also a quarter, where we demonstrated great progress and resiliency as a company.
I'm proud of our results and the positive impact we are having on our customers.
This pandemic has given us the opportunity to illustrate our perseverance and the value that we can deliver to our employees our customers and our investors.
With that I will turn it over to Justin to discuss our Q2 financial in more detail Justin.
Thanks, Brent Hello, everyone. We had another strong quarter, beating both our Q2 revenue and profitability gold.
Total revenue in Q2 was $47.3 million up 6% over last year.
For the first half of 2020, our revenue increased 10%.
Product revenue, which includes both devices and software increased to $24 million.
Device revenue of $17.1 million was robust again this quarter up 18% versus last year and was driven in part by customer demand for batches in response to cobot, where our unique hands free capability is very important in infectious environments.
Our smart guys continued to gain momentum with a record number of units shipped in Q2.
[noise] software revenue in the second quarter was $6.9 million a decrease from last year.
We were pleased to help several of our customers responded the crisis by providing free temporary software licenses. However.
Did have a negative impact on short term software revenues.
While most of the temporary licenses are still active some licenses have been converted to pay licenses. Some licenses have expired, while others have been extended beyond the original exploration as many hospitals continue to how heightened coded patient level.
In several instances these temporary licenses have driven new badger order those customers expanded their communication capability to more users.
As we entered the second half of this year, we have a record software backlog with several large deployments schedule.
Services revenue, which is comprised of software maintenance and professional services was up 8% to $23.4 million.
Software maintenance revenue was up 12% and was driven by ongoing expansions and new deployments of our software as well as a high customer renewal rate on our existing maintenance contracts.
This consistent and recurring revenue stream continues to grow to provide a strong foundation of growth and profitability for our business and reflect in large part the overall health of our installed base.
Our professional services revenue was down slightly compared to last year as we had some customers, particularly new ones.
Push the timing of their deployments so that they could focus their energy on responding to coated.
However, as the quarter progressed to many of these projects resumed order were rescheduled and we now have a relatively full slate of deployment plan for the second half of the year.
While we continue to face some short term headwinds associated with this with scheduling new customer deployments and the associated delivery of software and hardware, we have a very healthy combined level of backlog and deferred revenue.
At the end of Q2, our backlog and deferred revenue was $127.5 million up 10% versus Q2 last year.
Now I'd like to comment briefly briefly on our profitability another bright spot for the quarter.
Our adjusted EBITDA in Q2 was $5.7 million or 12% of revenue.
And was up 46% from last year.
Our GAAP net loss was $3.5 million also better than last year.
Here's some more color on our non-GAAP gross margin that operating expenses.
Non-GAAP gross margin in Q2 was 66% right, where we expected and followed our typical seasonal pattern of sequential improvement for the second quarter.
Our product margin percentage decrease from last year, due mostly to a lower mix of software revenue in the quarter.
Our devices gross margin continues to be very healthy and consistent with historical levels.
Services margin improved year over year due to a higher mix of software maintenance and support revenue and profitability gains we've achieved in professional services as a result of our ability to complete more of that deliver deliverables virtually.
Non-GAAP operating expenses of $26.7 million for modest 4% compared to last year as we focused our hiring on the most critical positions in the near term and proactively managed our expenses.
Most of our workforce continued to work from home following local government guidelines, which resulted in lower travel expenses in the quarter.
To cap off my Q2 commentary our cash balance remained at approximately $234 million.
Our balance sheet continues to provide a strong foundation for our business, especially at a time like this with book ample liquidity to weather near term market uncertainty and capital to fuel our longer term growth.
Now I'd like to take I'd like to make a few comments about the factors in play for the remainder of the year.
We were able to deliver very strong financial results in the first half of the year, despite market headwinds and delays in purchasing and deployments by customers.
As a result at the pandemic and our efforts supercom to promote our solution in this new environment.
We now have an even stronger value proposition as many customers you are solutions as essential to their efforts to provide high quality care.
Our newer products, including our smart badge and vena mobile app are gaining traction.
And we are now benefiting from the investments we've made to enhance our enterprise sales capability, both here in the United States and abroad.
While these are all really positive developments for our business over the longer term the market uncertainty we highlighted on our last call continues and we are maintaining our cautious view in the near term.
There is evidence of some healthcare market improvement.
Including more elective surgeries being scheduled.
Some easing of hospital access restrictions.
And increasing patient volumes.
But it varies widely by geography.
Hospitals are far from normal operating levels, and we see many of them continuing to be cautious the spending and new projects.
Despite this continued uncertainty we are fully engaged to help our customers during this crisis.
Our recurring revenue and loyal customer base, along with a solid sales pipeline and healthy backlog and deferred revenue providing strong foundation for growth.
I'll now turn it back to Brent.
Thanks, Justin.
As we begin the second half of the here there are still pandemic related challenges that none of us can fully predict at this time.
I'm really proud of what we've accomplished so far.
Our business is performing well and our solution is in high demand.
We have a broad set of products that are better suited to today's environment than ever before.
And I'm inspired by the ability and commitment of our team.
I am grateful that we have a resilient business with a strong cash balance and robust demand for our unique solution that has some relevant during this crisis.
Bill Sarah safety is core to our mission.
Our Q2 in first half performance underscore our leadership in this large untapped markets.
While there may be some uncertainty for our business ahead as hospitals grapple with their budgets and the new reality of delivering care. We believe the we are well positioned for success.
Our value proposition will distributed by the ROI of our case studies.
Innovation in our new products.
Expertise of our enhanced sales engine.
And our deep clinical experience will enable us to lead our customers towards improving hospital preparedness efficiency quality of care and safety.
I want to conclude.
Thinking the entire vocera team and by saying we value our relationships with the investment community.
14 here extend our best thoughts best thoughts or you your teams and your families.
With that and 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.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.
Please standby while the compiled acuity roster. Our first question will come from the line of Sean Dodge of RBC capital markets. Please go ahead. Your line is open.
Great. Thanks, good afternoon, and congratulations on great quarter.
Maybe Brian Sondey with your comments around the strong bookings performance and outlook.
I know Youve retooled your direct salesforce metal that long ago, and as part of it and hired some more experienced individuals to help.
Shortened the productivity ramps, there where do you think that group your quota carrying reps are.
Overall in terms of productivity are they still ramping are they running full speed now or is it.
Tough to tell what the the pandemic right now.
Yes, Sean Good question I think that most of those new hires occurred in Q2 in Q3 of last year.
Some running into Q4, but the bulk of it was sort of in the middle of last year and as a result, they've had a good a period of time to learn the products and ramp up and so I feel like most of them are already full productivity at this point, obviously it varies a little bit from region to region in person to person, but I've been really pleased with.
The level of expertise and capabilities that they brought to the sales organization and the results are sort of speak for themselves. Many of the top performers at the end of the quarter, where some of the newer reps and.
Every quarter I place called out to all accrued achievers, who make quota and I was really struck as I was doing that.
How many of the names were some of the newer names on the lift so I think the strategy of moving towards more of an enterprise oriented salesforce.
Was the right one and it's definitely paying off in the results that were seeing.
I think there's still room for overall productivity as a field organization continues to focus more on these enterprise deals, but I'm really happy with the performance of the newer folks.
Okay and then.
On the gross margins in the services business, Justin you mentioned some of that improvement being driven by lower costs associated with with more remote implementation I guess, how much better are the margins on a virtual implementation and to what extent you think thats sustainable are you.
For you over the medium term or the longer term do you expect that to reprice those professional services to share.
Some of that efficiency gain back with clients.
Okay.
Yes, Sean that the services margin has made up of margin from essentially to revenue streams. The first is the software maintenance and support revenue stream and there it's really a function of leverage so as the revenue that continued decline.
There.
You know, we're able to leverage the fixed cost infrastructure that we have in our primarily our technical support team and they've done a great job.
Just continuing to.
Be as efficient as possible, we have invested over time and that organization, it's largely head count but.
They've also implemented a variety of new tools that have enabled us to grow that revenue without having to add a lot more headcount.
So that's one area of improvement and then with regard to our professional services margin those also improved.
In the quarter and.
On the folks may remember that a few quarters ago, we took some actions to to adjust our cost structure a bit.
In our professional services organization and so that was one clear benefit that we saw this quarter and then the second is the benefit of moving to more of a virtual model, where our professional services people are not needing to travel as much and.
Our really.
Great Shout out to our professional services team because almost overnight they transition a significant portion of their work from on premise to virtual.
And I think that that is something that is going to continue to some degree I think there, yes, even when things get back to normal I think there will be more and more of the work that can be done virtually.
Theres always clear benefits to being on side and and is there a portions of our professional services projects and engagement that we'll continue to be down on site, but.
There are other parts that will likely be able to continue to be down virtually and so from that standpoint, we see those efficiency just continuing as we.
Worked through this coated period, and then into a more normal pattern.
Okay. That's great. Thanks again.
Your next question will come from the line of Ryan Daniels of William Blair. Please go ahead. Your line is open.
Thanks for taking the question guys and congrats on the strong quarter.
The sale books on Im hoping to unbundle down a little bit.
Hoping you can maybe break it down if possible to kind of what was due to expansions from opened 19 in kind of safety related initiatives related to active equipment versus.
Your commentary about the smart batch starting to resonate more as hospitals for cost savings relative to smartphones and then just normal sales activity.
During the quarter or is there kind of way to look at those three buckets, if you will to the upside versus expectations.
So Ryan I'll touch on each of them.
I'd say that the bulk of it was just our core business, we had broad based performance across the board and as you know the bulk of the business every quarter comes from existing customers with supplies maintenance expansions.
And that really drove the bulk of the growth.
The coated related orders, where a relatively small portion of the overall mix and smart ads, while growing and we're happy with the momentum still represents a relatively small percentage of the overall mix as well. So I would say that to strengthen the business was was more broad based and it was kind of in our core core part of our business.
Okay. That's helpful.
As my follow up just on software sales, Justin you discuss a little bit some of the.
Pretty licenses extending some experiments entering into.
Sales were customers, how should we think about the cadence and software sales going forward. Thank you Sir driving.
Sequential or year over year growth in the back half of the year.
Concerning expectations.
Yes, I think our our sense is that the trend line for software is going to improve the degree to that to which that happens I think will be dependent on the timing of the.
The new customer deployments one of the reasons that the software has been down over the last few quarters is that a few of the larger deployments that we had closed in late 2000.
And 19 and early part of 2020 had been on hold the good news is that.
Several of those projects have been rescheduled and so in fact, just this last week we shipped.
A very large software license to customer in the middle East and that was a booking that we had in our backlog for several quarters and and just got rescheduled again so.
I think as we turn here to the second half of the year, we're going to see more and more of those deployments gets scheduled obviously the broader environment is one we're watching very closely and that can change at any time the right now the trend we've been seeing.
More of these projects are getting rescheduled again until we've got a relatively full slate of.
Deployment schedule for the second half a year and for those new deployments, which tend to be more software heavy.
On that software revenue tends to tends to follow with that.
In terms of the that conversion on the.
The free software licenses, we continue to add to the number of licenses we granted more additional licenses in Q2 to customers who are responding to cover that I think it's still early on that we have many customers whose licenses Warren expire for a few months, we don't know really what the conversion is going to look like what we do now and.
Track this really closely internally is that.
Even if they don't convert the software they are buying more badges. So.
We had several instances in Q2, where.
We provided those free temporary licenses and they bought an accompanying badge with that so at full price. So.
So those are all encouraging signs and there's no doubt in our minds that are are providing the you know the free licenses has has generated a tremendous amount of goodwill with our customers.
Your next question will come from the line of spectrum because of a bulk of Guggenheim Securities. Please go ahead. Your line is open.
Yes. Thank you for taking the question I was just wondering if you can give us some more color on how your bookings all throughout the quarter and in particular it sounds like earlier in the year. There was more of an element of maybe some urgency and reactionary spending just diminished crisis. It sounds like based on your prepared remarks are starting to see some more normalized activity now just if you can walk us through how that purchasing.
Activity and decision, making involved throughout the quarter and what you're seeing so far in threeq that'd be helpful. Thanks.
Yes, hi bid from so as we talked about on the last call we started to see.
Urgent code related orders in late Q1 and that momentum carried into.
The first part first half of Q2, I would say through most of April and even really into May Weve continued to see a pretty big wave of those.
As those started to drop off we started to see more of the larger enterprise deals.
Coming in particularly some of the fed deals and some of the other large deals that I mentioned in my prepared remarks and so.
It was kind of.
First half second half story, two different stories in the quarter.
I would say now as we head into Q3.
With some of the code cases, starting to ramp up again, we are seeing some code related business not as much as what we saw in late March and April but we returned to normal is also starting to free up the conversations for more of our traditional business. So they they tend to kind of counteract each other a little bit.
We were pleased with the fact, we got off to a strong start in Q2, and we're able to recognize.
Higher portion of bookings and revenue in the first month of the quarter than what we would normally see which was a great way to start the quarter and.
Q3 is always very dependent upon our business with the fed, particularly with the BA and.
We're hopeful that we'll we'll have a strong quarter here with the with the VA, we anticipate that that will be a strong quarter for us in the VA, but it's always a little bit.
Backend loaded as we wait for those said orders to come in.
But the the overall awareness of the rule that boosted our can play in these code environments. I definitely think has helped build awareness and excitement around solution and that's translating as they think about sort of longer term preparedness, even in the post kind of environment.
Okay, Great and then maybe just a follow up you talked about the momentum that you're seeing with the smart bad can you just talk about a little more that the level of demand you're seeing for that product relative to the B 3000, and as you think about the pipeline in the RFP that are coming across now just how you're thinking about the adoption of that product going forward that'd be great. Thank you.
Yes, the way, we think about as we now have to products in the marketplace and our intention is that will keep both products in the marketplace and really give customers the opportunity to pick the device that most appropriate for their use case and that could be a smartphone it could be the smart badge or could be the vocera badge.
The unit volumes for the smart that are still lower quite a bit lower than the unit volumes on the traditional vocera badge. Some of that is driven by the fact that during the pandemic people were somewhat reluctant to be evaluating new products. They wanted to stick with what they knew particularly amongst existing customers, but as I mentioned in my prepared remarks.
We are seeing more and more of the new customers shifting their demand over to the smart damage and I think the Norton example, that I gave in the prepared remarks is a good example that where the original order actually came in for more smartphones and traditional vocera badges and they're now moving over towards more smart batches as a.
As a third use case for a large group with our users so.
I think the awareness is building I think would be the product is evolving as we develop new features and functionality for the smart badge, that's getting people's attention and in the covered world, where downs and caps and gloves, our our mandatory the week were functionality in particular, I think is growing awareness and growing in.
So overall value.
Great. Thank you.
Your next question will come from the line as David Larsen Fair to research. Please go ahead. Your line is open.
Hi.
Congrats on a good quarter.
I was just wanted to maybe get a little more detail on the device revenue.
I mean, it looks like it was up 38% year over year in one Q, 18% year over year into Q I mean gross offer device sales in the first half of your is.
I mean tremendous.
We're like year to date, our bookings up year over year Im just trying to get a sense for how much of that was like I think you call it drop ship or book ship.
Versus how much of that like we're speaking from backlog just anymore color there would be very helpful.
Sure Hi, Dave.
Yeah. The device business has been very very strong for us and Theres theres, some covered demand, but as Brent mentioned earlier, the theres really broad based strength, even end device revenue. So we've had shipments to both existing customers as well as some some new customers and that.
Has been a really positive driver for the overall device revenue on the other factor has been the Farfetch. As this marked outages is ramping it's still not yet of the proportion as the original Vocera badge, but it's it's getting a lot attraction.
Theres, a higher price point on that on the smart bad so.
Those are kind of two of the drivers were really happy and pleased with the overall performance of our device business and we see that.
We see growth continuing the device just has really has the has become really an essential part.
Communication solution for many of our customers in this particularly in this environment and so the hands free wearability of both badges.
And the application of the badge and.
Delivering bit better patient care and also staff staff safety, our are really important drivers for us from a market standpoint.
And did you could see from the continued high backlog and deferred revenue number that this was not just pull into backlog. This this is from orders that came in this year.
Okay, Great and then any color around bookings today I'm, assuming bookings are up year to date.
On a year over year basis.
Yes, we had a great quarter.
Okay. Thank you.
Your next question will come from the line of Sean Reilly, 5%. Sir. Please go ahead your line.
So you mentioned a large number of reps hit their quota this quarter I presume you mean, if thats the annual quota that they hit for the year, so meaning that they're ahead of plan.
I wish no no no it's not Oh.
Good clarification stay where they were hitting their annual quoted in the middle of Q2, then we set the quota to low [laughter].
No. This is.
We annualize their number.
But then obviously is broken down quarter by quarter and there is a target for each rep for each quarter based on the seasonality that we set up for the business and so they have a quarter quarter for Q1, they have quarter for Q2 of them quarter for Q3.
Lastly, there overall compensation plan has accelerators and at that are tied towards their annual performance, but what we track their quarter achievements on a quarter by quarter basis, and so my comment was related to.
The number that made their Q2 quarter.
You had me all excited.
Yes.
Well I guess my my that's where I wanted to go with this is in that the conventional wisdom of I want to get a better understanding that that new business pipeline and the development of the new business pipeline in this cobot world like the conventional wisdom is it's a lot of face time in pressing the flash and building relationships in person.
And without an ability to do that because of limited face time opportunities how is that the enterprise type lender, the new that new logo pipeline developing.
Yes, it's a good question, Sean So I would say at the highest level, our our tier one our enterprise pipeline is at a record level, we're really happy with the number of deals that we've got that are being worked there I think some of that is reflective of the market transition thats been happening and some of that is reflection of the great job the reps are doing.
Building a pipeline you're absolutely right. It's it's harder to do it when you can't get on site.
I have that face to face conversations and I would tell you that.
The deals that we've been successful closing through the first half of year were generally ones, where there had been some of that leg work done prior to the endemic coming in so they have done some of that face to face were.
Prior to us going into kind of the shutdown mode here.
But I would also say that the reps has been really successful in continuing to move ball forward through virtual meeting virtual demos as I mentioned in my prepared remarks, we've we've made investments in virtual marketing capabilities to allow us to conduct a virtual demos online some of our reps have comments is that they actually fine.
Sometimes easier to get the decision makers onto onto a conference call to resume call that it is to try to get 10 or 12 people into a conference room in a hospital when everything is going on and so.
There have been some benefits.
People working from home and being more accessible.
So I would say, we're happy with the growing nature of our our new customer pipeline, particularly the large deals customer pipeline and the reps are are being effective I think they're bringing.
Some of their enterprise selling capability, the newer ones to the table and they're learning about the product specific elements from more of the tenured reps, but I'm happy with programs, they're making.
Do you think the evolution of that new business with the enterprise pipeline.
That that you'll be able to maintain current sales cycle times or are you concerned about a little elongation of the sale cycle.
I think we might see some elongated and yeah I mean for two reasons one to one you mentioned just in terms of pace time, but the second one is just simply related to budget uncertainty I think a lot of hospitals are asking when sales tough questions about what their economic situation is going to be in six months time.
And there are being cautious in spending same way frankly, we're being cautious with spending we're trying to focus our spending on the most strategic elements not knowing.
What coated may bring over the next six months or the next year or.
Whatever length of time it into being so.
In some cases were seeing large enterprise orders being broken up into more bite size pieces and rather than doing everything all at once there may be going to do a hospital at a time as opposed to the entire health system in other cases.
The remaining focused on the transaction, but they are postponing the actual purchase order for some period of time as they see what their overall financial situation going because I think it's just been talked about the outlook moving forward. The point of just raising that element of uncertainty was just to make sure people were aware of the fact that we're not through the worst.
Yes, and Theres still lot of unknown factors that we're planning for as we move forward.
Just to add Sean that the.
It's not uniform either across the country in other words certain a lot of variability by geography, depending on where.
There are kind of in hot spots for example, so that's another thing that.
We have to kind of factor into our.
Thinking as we as we kind of project out the remainder of the year.
All right and you you threw out the Oh.
When it Kaiser.
Was that an expansion at the existing footprint that we heard about that last quarter was that a new region within Kaiser and can you give us any more details on it.
Yes. It was it was mainly an expansion it was primarily in southern California, where we already have a strong presence and it was part of their more code preparedness activities in the first half the order came in.
In Q1 in the second half came in early Q2.
Got it thank you very much.
Your next question will come from the line of Matt Hewitt with Craig Hallum Capital. Please go ahead. Your line is open.
Good afternoon, thanks for taking the questions I guess, maybe a little bit a follow up on the hospital budgets and the selling environment.
As you look out maybe over the next couple of quarters and given some of the uncertainty how critical is it in your opinion that youre included and that the conversation about PPS versus just being another.
Solution or another tool to treat patients on normal basis.
So our assumption is with our planning moving forward as there were just another tool.
You know that the same value proposition that we've been promoting in the past is.
Core to moving forward I think this opportunity to elevate ourselves to being an essential part of PD really represents upside to the business.
And whether that ends up becoming in the form of new guidelines that are.
Stabling out at the state or local level or even the federal level or whether it's just growing awareness of the impact the technology can have on protecting frontline caregivers. Those are those are tailwinds for the business, but the core of the business is still around driving set staff safety and operational efficiency and patient satisfaction in the same.
Elements of our mission that have been driving the business for the last couple of years, but I think to the extent that people start thinking more holistically around what is pp really represent and thinking about it beyond just.
Masks and downs in globe and the World the technology can play in driving better frontline safety and better efficiency.
That could be a wave that can drive higher levels of growth in the business over the longer term because remember we're serving a market. That's it's still very underpenetrated generally using very legacy technologies that really are not suited towards this kind of environment and completely on appropriate for.
For a cooler TV kind of conversation.
Got it Alright, and then maybe a second question your inventories have stepped up the last couple of quarters.
So we to parse out how much of that is related to what you're seeing with your bookings and the opportunities in the pipeline versus just being prepared for the potential for supply chain disruptions and where do you kind of see that leveling out inside here in the third quarter or how should we thinking about that thank you.
Yes, I'd say there is probably split split between the two one being that historically over the last couple of quarters, where inventories probably lower than we were comfortable with and so we've been working hard here, particularly over the last quarter to build up our inventory to a level, where we have some flexibility to really.
Next and meet customer Dan demand.
And so thats one piece and then the second piece is just.
Also just building for for future demand, we have a seasonal revenue profile. Our goal again is to see seasonally higher revenue in the second half in the first half and so were preparing our inventory to be able to support.
Strong federal quarter that we have stuck in Q3.
Some larger.
Deployments in shipments from our existing backlog and then building momentum into Q4.
Understood. Thank you.
Your next question will come from the line of Stephanie Davis of SVB.
Hedge your line is open.
Hi, guys, congrats and accordingly.
Thank you might be a total coincidence I think every time you guys moved to departmental sale you somehow tend to keep my numbers.
So thinking about that going forward for your strategy.
When do you plan on pivoting back to the enterprise wide sales solution for San Dimas, Let me think of keep more bomb like on a blended model.
Okay.
So I don't think we pivoted to a department level sales model in Q2.
Many of the deals that we won were.
Across entire hospitals or health systems.
When I was answering sean's question earlier about the quarters being broken up it was ordered as it would might be for a multi hospital system being broken up into an individual hospital, but we're still seeing a strong transition towards enterprise sales and enterprise deals.
And I don't think we'll see that returning back to department level sales. The budgets have moved to the enterprise and I think thats that's here to stay.
And I think that the focus of the sales organization is really selling into the C suite level and building those relationships.
As customers think about their long term communication strategy.
Okay understood. So the talk you guys had last quarter about looking at that Mark departmental sales.
Didn't play out.
I don't remember that.
Aspect of it I think that.
Some of the cobot specific orders, if that's what you're referring to some of those were obviously targeted to the I see you and some of the.
Areas that were in isolation.
But in many cases they were converting.
Parts of the hospital from traditional med surge floors into life, you or isolation environment and so those are often times existing customers who were doing expansions.
In order to prepare for co bid related surge in patients.
I don't I guess I don't think of them as departmental sales in the sense that historically, when we talked about departmental sales. It was for new customers, where we were making an initial.
Entry into a customer at the department level.
The Department sales do we talked about on the Q1 call. We're typically expansions where people were buying.
Sarah solutions to be able to prepare for the Coca Church.
Okay understood and then one last question you guys mentioned your your non healthcare that means earlier mark.
Are you seeing new use cases for certain venues like schools in the context and a pandemic.
Well I would say, it's too early to know.
Markets that we have talked about as being growth drivers for non healthcare moving for education retail and hospitality are as you know all essentially shut down right now so theres very little activity going on in those markets. There is still trying to figure out how they're going to open tools and that kind of thing.
The strength that we saw in non healthcare during the quarter was in some of the other verticals like.
New cooler.
And veterinary clinics, but.
But I do think Theres, an interesting opportunity in education as we come back to.
New normal there assuming that students to return to the classroom.
The importance of staff safety is going to be critical and I do think that that could play for us over the longer term, but.
Based on the Q2 resulted Wasnt education related it was it with new color and veterinary.
Okay I understood. Thank you guys.
Your next question will come from line of Matthew Gilmore Baird. Please go ahead. Your line is open.
Hi, Thanks for the question I guess I wanted to ask about sort of deployment schedules in your interactions with.
Hospitals, I think last quarter, there was a lot of uncertainty about when you'd have access to facility. So you could deliver solutions and of course recognize revenue you have any sort of additional updated observations about.
Hospitals, allowing you to get back on the campus and does that give you more confidence but Doug.
The deployments are scheduling now will will actually come through and the third quarter on the fourth quarter.
Hi, Matt, Yes at the beginning of the quarter.
There were fairly fairly large number of projects that were on hold in part because.
Either resource availability or.
Lack of opportunity to go go on site.
As I mentioned, a little bit in our prepared remarks, our professional services team worked really really hard and did a great job of transitioning many of the deliverables to a virtual.
Format, Theres still a few things that need to be down on site, but there were other things that could be.
Transition so that was a really positive benefit for us so as the quarter progressed, we were able to do more and more professional services work.
And that enable in several instances.
Customers to feel comfortable kind of rescheduling their their deployments as they saw more and more of the deliverables being able to be done virtually.
Having said that also though we did see a little bit at using in the physical restrictions to some hospitals, if not all and in fact, it really varies widely by by geography, the access that we have.
So thats something that we continue to monitor and stay close to.
But the good news is there are no theres theres less if you will as the overall kind of project scope that now needs to be done on site compared to a quarter or two ago and that enables us to do to be able to recognize revenue a little bit more quickly than we would otherwise.
To do.
Got it and then just.
Just to maybe one more for you just on the on the guidance front. When do you think you'll be in a position that haven't visibility that to provide an external guidance are there certain things you're you're looking for.
Just any any commentary would be helpful.
Yes, I think thats something that we'll revisit aquino in the future as the broader market conditions improve I think.
That's probably the biggest variable is kind of the uncertainty that still continues in a broader market.
And so you know likely not for the remainder of this year, but something that we'll look at as we turn into 2021 based on the market conditions.
Got it thank you.
Your next question will come from the line of Dave Windley of Jefferies. Please go ahead. Your line is open.
Hi, good afternoon, thanks for taking my questions.
Wanted to follow up on on the VA, Brent you talked about.
On the V.A. not being just a three to event and I wondered if that was simply because you got a nice large order into Q or were they in fact more explicit about future plans and then kind of segue from there.
You sound very confident about a activity that that you'll get this three Q.
Is again that part of maybe of a deeper level of visibility that you have into the V.A. activity.
Yes. Thanks. They appreciate the question. So the some of the Q2 activity I think represented a sense of urgency on the part of the V.A. to try to prepare for some of the coated related surgeon patients that they are saying I'm sure you read that the VA has had some of the most hard hit environments.
As it relates to cause of patients and.
They are because we are a pre approved solution for them and they've got a lot of familiar with us.
When funding became available for them. Some of it was covered related funding they were able to turn around very quickly and move forward the path.
And that accelerated the timeframe or some of those orders that might have otherwise been you know over the next year or more.
As it relates specifically to Q3, we do have a good pipeline of deals that were working that are targeted to close in this Q3 within the VA.
And so we have a good degree of confidence associated with that.
It's always a little bit of a black box, because we don't really no 100% for sure, but those orders going to come through until we actually receive them.
And often times the the fed we'll wait until very late in the quarter to deliver those orders just based on the way their procurement organizations work and so we're cautiously optimistic that.
If things go according to plan it will be a strong quarter with within the fed, but we can't really count on those for sure until we see the purchase orders.
Understood and then maybe a follow up to a it's a mass question on on guidance, if I step back and not specific to numbers in guidance, but what I.
What I hear about what I hear you, saying about hospitals opening up and getting more professional services people in to do work.
And the trends there and a strong pipeline.
I guess I want to interpret in broad strokes that you're feeling better that that's the environment is more conducive than maybe it was three months ago, but also hear some cautiousness in your voice about.
About budgets and things like that at your customers too. So I guess I wanted to kind of get a net net am I reading you right that you do feel better about the environment than kind of the throws of the of the crisis three months ago.
Dave that's exactly how how to read our commentary I think we definitely seen some improvement as the quarter progressed.
We're hopeful that that continues there are pockets where.
Things are more normal than other areas.
But we still remain cautious as we all know that knows.
The pandemic is pretty volatile right now so sure.
Now, we see signs that are really encouraging but.
We're not out of the wood. So we're just continuing to remain cautious in the trending got it that's very helpful. I appreciate that thank you.
As a reminder, if you want to ask a question press Star one on your telephone your next question.
Gene Mannheimer of Colliers Securities. Please go ahead your line is open.
Thank you good afternoon, and congrats on a good quarter.
My question really.
Sort of an extension of the.
Non guidance, if you will I mean.
In the absence of guidance is it still fair to say that there that the revenue is going to follow.
Seasonal patterns of being better in the back half than in the front half orders covidien kind of throw things off here. Thank you.
No. Our goal is our goal is to see that seasonal pattern play out again to the degree to which that happens I think remains to be seen but we've got a really solid level of backlog and deferred revenue that provides a reasonable level of visibility Brent touched on the strength that we anticipated in fed. So there are some really.
Strong kind of proof points that suggests that our revenue will will be seasonally up as it as it typically always has been.
So we're really execute focused on really executing on the sales front and then.
Getting as many of the deployment schedule the here in the second half.
So that our customers can and got up and up and running until Sarah.
Okay makes good sense. Thank you.
There are no further questions at this time I'll turn the call back over is it pretty presenters.
Okay. Thank you everyone. Appreciate taking the time to deal with US today, and we look forward to the follow on conversations have a great. If you.
This concludes today's conference call you may now disconnect.
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