Q4 2020 Vocera Communications Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Vocera Communications Conference call. My name is Shantou and I'll be your coordinator for today.
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Hello, everyone welcome to those tariff conference call to discuss our fourth quarter fiscal 'twenty and 'twenty earnings joining.
Joining me today are groceries, and CEO, Brent Lang and Justin Spencer our CFO.
Earlier. This afternoon, we distributed a press release detailing our quarterly results and.
The release and posted on our website and investors capital share of Dot Com and is also available from normal news sources.
This conference call is being webcast live on the Investor Relations page of our web site 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. We will make forward looking statements regarding projected operating results and anticipated market opportunities.
This forward looking information is subject to the risks and uncertainties described and flow terrorists filings with the SEC 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 a reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release.
So with that I'd like to turn the call over to Brent.
Thanks Sue.
Hello, everyone I hope all of you are doing well.
I am pleased to report that we had an outstanding Q4 and full year 2020.
And so part of the job that our team is doing by staying focused on serving our customers and supporting each other.
He was an incredible year on many levels, we faced unprecedented challenges around the world and 2020, but rallied as a company to deliver the best results in our history.
So sales two colors and organization have been shining through and our connection to our mission has never been stronger.
On today's call I'll start by summarizing the highlights from the fourth quarter and the full year and all.
I'll provide some details on our bookings and specifics on some key customer wins.
And keep my prepared remarks with commentary on the market environment and our priorities for 2021 before turning the call over to Justin for more details on our financials.
2020 was a year, where strong execution by our enhanced sales organization and the rising priority of our solutions translated into excellent performance and our business across the board.
In Q4 bookings once again surpassed the highest level and the Companys history.
And by outstanding New customer wins.
Large expansions and the continuation of our high competitive win rates.
As a result, I believe we gained market share this year.
For the full year, we drove bookings of $233 million driven by our success with new and existing customers and strong performance with our federal business.
This represents bookings growth of 17% compared to 2019.
Revenues of over $198 million grew by double digits for the full year evidenced that the investments we've made and our sales organization are paying off.
Despite the many distractions and restrictions for hospitals customers prioritize spending on our solution and.
And for the most part deployments continued on schedule.
Another highlight was when the Vocera smart beds made time magazine's list of the 100 best inventions of the year as we helped our customers and prospects gain a whole new understanding of the power of hands free communication.
And this remains a key differentiator for our solution.
Finally, as a result of our acquisition and August ease became and exciting new part of our value proposition and is already adding to shareholder value.
In fact, we won the largest ever booking for this solution in the fourth quarter.
Our Q4 bookings performance was simply outstanding one highlight of the quarter was a multimillion dollar expansion with Brazilian Commonwealth University Health, which is establishing both there as the unified communications platform of choice, replacing and unifying a web of disparate and cumbersome legacy Communications systems.
VCU has launched a series of workplace violence initiatives and they chose our smart badge, but part of this comprehensive approach.
We are proud to be chosen as their partner and addressing workplace violence.
We also had a sizeable engage win at atrium health.
Establishing vocera as their platform for integrations and <unk>.
Broadened our profile from the oar and EDI to the entire enterprise.
Additionally, continuing the momentum from earlier in the year, we added more Kaiser facilities as they continue to deploy their strategy for cohesive communications across the health system.
We also significantly broadened our footprint at Norton health care as more users and use cases surface during previous deployments.
Mclaren Northern Hospital, and Michigan was another sizeable win as we continue expanding across this 14 hospital system.
We also had numerous other expansions at Texas Health resources.
And the University of Virginia introduce of North Carolina, and Ut southwestern and all evidence that our solution continues to prove and high value to our customers.
Our services organization also had a very busy quarter and here are a few of the highlights.
UT southwestern and Dallas went live and we'll leverage our solution for multiple clinical workflows and they.
And they are using a mix of smart badges and traditional vocera badges to replace bulky legacy devices.
Other important go lives include Toronto General the University of Chicago, and more Kaiser facilities.
Despite a challenging COVID-19 environment and full Icu's. Our teams were able to continue both remote and in person customer engagement to deliver on our healthy pipeline of projects as planned.
Our business is becoming to some degree virtualized in fact, well over half of our professional services hours would delivered remotely this year.
We responded to the current environment with new remote services and sales conversations online tools and virtual demos that are becoming effective new normals.
Okay.
Now let me provide some additional market commentary on our results and Q4, we drove a record number of large wins and continued with healthy customer expansion and successful competitive win rates.
Our business is performing well and our solution is in high demand print.
Principally the strength this year was broad based and we believe is the result of our past investments and enterprise sales acumen and product innovation and marketing thought leadership.
The market for our solutions is large and our offering is highly differentiated.
Second we saw Covid related puts and takes throughout the year with urgent COVID-19 orders offsetting some deployment delays in Q2, we successfully moved many deployments to remote service offerings.
And in Q3, and Q4 access to hospitals improved and our deployment teams got back on site, while continuing to leverage remote capabilities.
We completed a full schedule of deployments in Q4 amidst the pandemic surge, reflecting the rising importance with which our customers view our solution.
We are seeing the benefits of our solution and rising to a must have priority level.
Hospitals look to ensure our frontline caregivers are protected and conducted our solutions have never been more essential.
As a result on a large deal pipeline is growing and deals are progressing well.
While our world continues to face uncertainty around the continuing pandemic, we're doing what we can to deliver a differentiated solution to a large greenfield market.
Further market conditions remain difficult to predict.
But here's how we see hospital spending priorities in the coming months and years.
First I found on limited fundamentally believe the impact of the pandemic crisis on hospitals is elevating the importance of communication and workflow solutions to a strategic level with lasting importance.
Based on my conversations with hospital Ceos for physical and psychological safety of care teams.
Priority that is rapidly on the rise and plays right into our strengths.
Safety has long been a core part of our mission and our sweet spot of our value proposition and fact nurses have told us they feel safer when they're wearing their vocera badge.
Through deep trusted relationships, we are helping our customers defining new normal for hospital operations as we can address both safety and operational efficiency challenges.
As a result on a mission is more relevant today than ever.
The idea of the communications technology is an essential part of PPE is one that continues to resonate and my conversations with customers and prospects.
Nurses and other frontline workers simply cannot do their jobs and lets have the ability to communicate with their teams.
Being able to do so hands free is invaluable and is not just a COVID-19 requirements.
We believe hands free communications, the new normal that's here to stay.
Nurses and other caregivers should not have to risk contamination for communications.
Our technology has been shown to preserve PPE speed share delivery by reducing daunting and golfing and improved caregiver safety by eliminating potential exposure to infection.
In addition, as hospitals and strive to resume elective surgeries and try to recapture lost revenue.
Throughput has become a critical element of restoring hospital financial viability.
Operational efficiency is quarter on value proposition and I believe throughput will be one of the most important themes of 2021 and beyond.
Awareness of the need to modernize clinical workflows and care team communication has never been higher and.
<unk> offers and effective and immediate solution to helping hospitals achieve their throughput goals.
Furthermore, interest and identifying a partner of choice and clinical communications is on the runs hospitals tell us all the time, they're looking to consolidate the number of vendors. They are working with and they want to build platforms that are secure unified and fully integrated.
As an example of us customers and prospects are thrilled that EPS is now part of our syrup, because we are a trusted brand.
These sales cycles are improving because customers know vocera is behind the product.
Estimate to our strong brand value.
And another example, we were honored last month, when linker, the Woods Hospital, and Ontario called our solution.
A future proofing communications system, highlighting the robust flexibility of our platform.
They are installing vocera as their secure communications system and embedding it into their hospital workflows today.
So that when they move into their new fully integrated Smart hospital, they will be ready from day one.
Our clinical sales approach the customer benefits from our innovative solutions combined with added capabilities from M&A and make us the leader and our space and we believe the logical partner of choice.
Customers and prospects appreciate that we can address a variety of hospital workflow challenges with an eye towards enhanced our Hawaii and patient experience.
And we've been investing and our business, while others have been retreating.
Now I'd like to take a moment to highlight a couple of our key priorities for the coming year.
The primary focus for us and 2021 will be to continue to expand our footprint with new customers and drive expansion among our installed base.
We are scaling and enhancing our platform offerings to meet our customers' growing mission critical needs as we further increase our presence across health systems.
We also plan to pursue the tremendous opportunity to cross sell on our newer solutions into our installed base.
In particular engaged software for smart badge, and our ease family communication application represent exciting growth drivers for our business.
In addition, we will continue to focus on our international and non health care businesses as important components of our growth strategy.
Next we will embrace our learnings from 'twenty and 'twenty around Virtualized, our offerings and services sales marketing and product innovation.
We believe the last year is change the way business will be done and the future and we are leaning into this transformative opportunity to improve our effectiveness and efficiency enhancing the value of our services that we deliver to customers.
Finally, we will continue to look for ways to expand our offering across the healthcare continuum by building buying or partnering to enable frictionless patient journeys and improve patient and staff experiences.
We've made a lot of investments to date to drive innovation and we expect to continue to do so in 2021.
Examples include our new Vocera skill for Alexa, new analytics capabilities and enhancements to our products that we identify thanks to our deep customer relationships.
Our strong balance sheet and healthy financial model enable us to invest for growth and further differentiate our solutions.
At the foundation of these priorities is a continued focus on environmental social and governance issues as we build a business that is built to last on many levels.
When looking at our company through and ESG lens, we always start with our mission to transform communications and healthcare.
I'm struck by the progress we've made over the years to ensure that we have the products people and processes in place to drive profitable long term growth and a responsible and sustainable manner.
This approach will remain important and our planning for 2021 and beyond.
And we intend to publish our first ESG report this year.
Now I'd like to turn the call over to Justin for a discussion of our financials Justin.
Thanks, Brent Hello, everyone. We.
We had a very strong fourth quarter across the board capping off an excellent year of financial performance and accelerating our momentum into 2021.
I'll first summarize our Q4 results and then turn to our outlook for 2021.
Total revenue in Q4 was $56 $6 million up 14% from last year.
For the year revenue increased 10% to $198 4 million.
<unk> our expectations.
Importantly, our substantial bookings growth enabled us to meaningfully increase our combined backlog and deferred revenue.
Which puts us and a strong position for 2021.
I'll discuss this on a greater level of detail a bit later.
Product revenue, which includes both devices and software increased 12% to $33 million and the fourth quarter.
Device revenue was up 21% as the unique benefits of our hands free communication devices continue to drive demand from new and existing customers.
Our smart badge continued to gain traction and the market as our shipments and this device increased significantly in 2020 compared to last year.
We envision having two hands free badges and market for the foreseeable future as they are each designed and price to address the needs of different segments and our target markets.
Software revenue was down slightly compared to Q4 last year, but the underlying drivers are very healthy.
As a reminder, the timing of software revenue is largely determined by the schedule of our customer deployments and the license sizes, which can vary from one quarter to the next.
As our software revenue was largely perpetual and is recognized when we deliver it to our customers.
We expect healthy growth and software revenue and 2021 as we have record software backlog up nearly 50% compared to this time last year.
Equally important we evaluate the health of our software business overall by combining both the software and subscription and support revenue streams, together, which we view holistically as our software related business.
We view it this way because subscriptions and support revenue includes the software maintenance contracts that are tied to the ongoing customer utility of our software as.
As well as our recurring SaaS offerings, such as EPS.
Software and subscriptions and support revenue combined grew 10% and Q4 and represented 55% of our total revenue for all of 2020.
And we expect this mix to increase even more on the future.
Our services revenue in Q4 was $26 $3 million up 16% compared to last year.
Both of our revenue streams and this segment had double digit revenue growth and Q4.
Our recurring subscriptions and support revenue was particularly strong in the fourth quarter up 17% as we continued to achieve high renewal rates for our software maintenance and support contracts and had new revenue from our recently acquired <unk> business.
We are very pleased with the momentum of east thus far as the amount of annual recurring revenue under contract as of the end of 2020 is higher than we planned when we closed the acquisition in Q3.
And before I transition to our profitability I would like to comment on backlog and deferred revenue another highlight for the quarter.
Our backlog and deferred revenue increased 28% to a record $174 million.
Driven by our strong bookings and overall execution.
While some of this increase is attributed to contracts that will convert to revenue over multiple years we.
We achieved a healthy increase in and the portion that we believe will convert and the next 12 months.
This increase provides higher visibility to our 2021 revenue than we've had in recent years.
Regardless of any uncertainties and headwinds that might arise in the near term our higher backlog and deferred revenue provides a solid foundation for future revenue growth.
Now on to profitability another bright spot.
Our adjusted EBITDA in Q4 was $13 $1 million.
89% from last year.
Our adjusted EBITDA margin and the fourth quarter was 23% of revenue exceeding our target annual financial model goal of 20% for the second straight quarter.
Our adjusted EBITDA for all of 2020 was $33 million up substantially versus 2019 and represented sizable progress towards our target model, even after normalizing for the travel expense savings we saw during the year.
Our GAAP earnings were positive in Q4 and improved substantially for the full year.
With that as context, here's some more color on our non-GAAP gross margin and operating expenses in Q4 as well as some perspective on what we expect in these areas and 2021.
Non-GAAP gross margin in Q4 was 70% up over six percentage points versus last year.
Both products and services margins increased from Q4 last year, reflecting the revenue growth and contribution of our higher margin revenue streams.
As a reminder, product margin in Q4 19 was unusually low because of a large customer shipment of third party devices with a lower gross margin profile.
Overall, we have continued to focus on delivering our products and services more efficiently.
Including supply chain efficiencies performing more of our professional services work virtually and a variety of other cost savings initiatives that drive scale and improve our gross margin.
As we now look forward, we expect our non-GAAP gross margin percentage in 2021 to increase slightly from 67% and 2020.
As our high margin business continues to grow and we realize even greater leverage from revenue growth on the fixed cost and our business.
And with our typical pattern of revenue seasonality expected again in 2021, we anticipate our gross margin percentage to be in the mid <unk> and the first half for the year and nearing 70% and the second half.
Non-GAAP operating expenses of $28 $2 million were up 9% compared to last year with a full quarter of EPS and increased investment and our growth initiatives.
From a full year perspective, our non-GAAP operating expenses grew 5% or half the rate of revenue.
Travel expenses were low again in Q4, and we expect this trend to continue at least for the first half of 2021.
Given the opportunity ahead of US we are investing in R&D and sales and services and 2021 to drive long term growth and our business.
We expect our non-GAAP, our non-GAAP operating expenses to be around 55% of our total revenue.
Operating expenses will increase sequentially in Q1 compared to the fourth quarter, and then growth slightly over the following three quarters.
To cap off my queue for commentary our cash balance ended at approximately $230 million up roughly $19 million from the third quarter of 2020.
Driven largely by strong collections.
Excluding the cash used for the East acquisition and Q3, we added nearly $26 million of cash to our balance sheet and 2020.
Our balance sheet continues to provide a strong foundation for our business with both ample liquidity to weather and near term market uncertainty and capital to fuel our longer term growth.
Turning now to guidance, while there is still ongoing uncertainty and our markets as customers continue to navigate the challenges associated with the pandemic. Our overall revenue visibility as we begin this new year has improved as a result of a higher level of backlog and deferred revenue.
Thus, we are now re instituting annual guidance with the goal of providing investors a view of what we expect for our business in 2021.
This guidance is based on a consistent framework comprised of the revenue for the year that is currently visible to us through our backlog deferred revenue and supplies business.
The amount of revenue, we expect from new bookings in 2021.
These new bookings are dependent on overall market conditions and our own sales execution.
With the improved visibility enhanced sales efforts and product innovation balanced with somewhat uncertain market dynamics, we are planning for higher growth and 2021 with an expected rent revenue range of $215 million to $225 million.
Given the seasonality of our business and the revenue timing differences that can sometimes cause individual quarters to fluctuate we believe and annual perspective represents the best view for measuring the ongoing performance of our business.
As a result, we will not be providing quarterly guidance.
However, as an aid for how we anticipate the year to unfold, we expect our revenue to follow a similar seasonal pattern to prior years with roughly 45% of our annual revenue and the first half and 55% in the second half.
Additionally, due to typical seasonality and lower bookings and the first part of the year Q1 is historically the lowest of the four of the four quarters for both revenue and earnings and.
And we expect a similar quarterly revenue distribution and 2021.
Even with the investment I mentioned earlier, including higher travel expense and the second half of 2021, we expect our non-GAAP profitability to expand this year compared to 2020 and progress further towards our target model.
<unk> adjusted EBITDA to be between 30 and $35 million in 2021 and expect it will follow the historical pattern and which our adjusted EBITDA is much higher and the second half of the year.
We expect GAAP earnings to decrease in 2021, due mainly to the full year effect of the costs associated with these acquisition.
These costs include amortization of intangibles and the expense associated with the success based earn out.
Additionally, our 2020 GAAP results included a $2 million onetime tax benefit in Q3 that was associated with the acquisition and will not recur in 2021, we.
We also anticipate less interest income on our cash from lower interest rates and the market.
However by Q4, we expect GAAP earnings to once again be above the prior year as our revenue expands.
The momentum of our business is growing and we look forward to 2021 with a lot of optimism and expectations for healthy growth, we have a strong and unique value proposition and our market with a loyal and and expanding customer base. We continue to see a large market opportunity ahead of us and are investing across our business.
To drive long term profitable growth.
Our recurring revenue and loyal customer base, along with a solid sales pipeline and healthy backlog and deferred revenue provide a strong foundation for growth and the future on.
I'll now turn the call back to Brent.
Thank you Justin.
I want to say again, how proud I am of our team's great performance this year.
We had an impressive Q4 with record bookings double digit revenue growth and a significant increase and our backlog capping off a successful and meaningful year for our company.
I want to thank our team who dedicated their talents to developing our solutions extending our market reach and delivering thought leadership and contributing to our unique culture.
At Vocera were driven every day by our mission to improve the lives of caregivers and patients through improved communication.
Our solution is in high demand because it solves important problems for the valuable workers on the front lines.
And we begin the year on strong footing. There is still pandemic related uncertainties ahead, but the opportunity we see before us has never seemed brighter.
Before closing I'd like to personally invite all of you to our virtual investor briefing on March one and.
It should be another great event following the model of our in person events from prior year's field.
Feel free to contact for you to register for if you have any questions.
With that.
And we're ready to conclude our formal remarks.
Thank you for listening today, operator, we are ready to open the line for questions. Thank you very much.
As a reminder to ask a question you will need to press star one on your telephone to withdraw.
Sorry, your question press, the pound for Husky and order.
Thanks for a lot of time for everyone to ask a question. Please limit your.
Sales to one question. Please standby, while we compile the Q&A roster.
Your first question comes from Sean Dodge with RBC capital markets. Your line is open.
Thanks and good.
Afternoon, just and I wanted to start by offering my congratulations.
And we're happy to see after some are very.
Very meaningful change, we'll certainly miss working with you.
Thanks, Sean.
I guess on the guidance I'm curious for the.
The range as you've laid out won't really show the model generating any.
Operating leverage.
Debt to EBITDA line for the year, maybe just walk us through you mentioned ramping R&D investment and I guess, it's 2021 going to be a little bit of a bigger investing year or is this the.
The EPS acquisition or is this something to do with revenue mix.
Hi, Sean Good question so we.
We actually do see overall continue to believe that we have a really strong economic model with a lot of operating leverage keep in mind that 2020, our spending was unusually low in part because of much much lower travel expenses as well as during a good portion of the year we had.
Clamped down on hiring we've started.
Started to open up our hiring a bit more so that we can.
Our hiring and these growth areas that we're investing and on top of that yes. We are investing and these were really really pleased with the progress.
And the momentum that is building with ease and it has surpassed our expectations up to this point and so we are purposefully investing more and that business.
Because we see.
Significant long term potential.
We provided and EBITDA guidance range that correlates to the range on revenue or.
Our goal is always to.
And to hit or even exceed the kind of the top end of our range. So we tried to be conservative with both our revenue and our profitability guidance, but we are definitely investing a bit more.
And we believe it's going to be able to translate for us to longer term revenue growth.
Hey, guys. This is more 2020 was unusually good from the from that.
And expense standpoint, and lifestyle, there was anything kind of notably different about the trajectory going forward.
That's right.
Okay, great. Thank you.
Our next question comes from Scott Shaw and helpful.
Your line is open.
Hi, Brent and Justin Sue and team congrats on the nice quarter and a record backlog.
Thank you.
I wanted to touch upon your two most recent software acquisitions engage and he's I know you have made and we're making good progress on the cross selling opportunities on the engage side.
Or sorry on the on the engage side, but now that you've done.
<unk> and acquired easing August could you talk about.
And the cross selling and Youre seeing there.
And the opportunities ahead.
Yeah, It's a great question and a key growth driver for the business I think what we've demonstrated is that when we bring these software products into our organization and our sales.
Infrastructure, we're really able to accelerate the selling efforts and.
And it takes time these are slow long decision, making processes, but on the engage side, we're really seeing an acceleration there and some of this is both new business as well as competitive displacement for the integration slash middleware market is a little frothy right now where some of the older legacy solutions are being phased out and so there is a <unk>.
Great opportunity for us to capture some of those competitive displacements there and.
And as a result, we are seeing the percentage of our customer base, that's using engage continuing to grow up.
And continuing to increase and then on new deals. It's included on almost every single new deal.
And is much smaller business.
Early stages.
We most of the customers that they had at the time of the acquisition. We're not currently serve customers. So they represented.
A nice chunk of new new customers for us so the opportunity to cross sell that into our installed base is.
He is really exciting and we are offering incentives to our sales organization to encourage them to make introductions.
And if that product into their installed base with our existing customer relationships, we think it's a natural fit.
Doesn't overlap with our existing product offering at all and and is very consistent with our mission. So we're we're hopeful that we can drive really nice cross sell and opportunities there, but it's very early days at this point.
Thanks for that color Brent and.
And then as a follow up maybe can you give us a sense. If you can or maybe just some parameters on how much software's and your backlog or baked into your revenue guidance for 2021, I know just and you mentioned in your prepared remarks that software and subscription and support revenues will be growing year over year and 2021.
But I just wanted to make sure you also meant that as a percentage of total revenues you expect those buckets to grow as well.
Yes, it was.
Both the percent and in absolute dollars for software as a much higher portion of our overall backlog than it has been over the last few years and that's driven by a lot of the cross selling efforts that Brent touched on earlier.
As I mentioned in my prepared remarks, our software backlog alone is up nearly 50% year over year. That's the highest increase that we've had that I can remember.
So we feel like we've got we're in a really solid position and the software.
It's perpetual it is depend.
Dependent on the timing of the customer implementations and many other customers that we now have and our backlog are of a much larger size and so the timing can fluctuate, but if we look at the our expectations for software over a longer term horizon. In this case over 2021, we expect.
Really healthy growth in that category.
And forward.
Great. Thanks, guys I'll hop back in queue.
Your next question comes from.
Thank you for book with Guggenheim Securities. Your line is open.
Yes. Thank you for taking the question I wanted to start on the guidance for 2021, you referenced you ended this year with backlog up 28% year over year and the revenue guidance for this year I think implies about 11% growth at the midpoint could you just help us reconcile those numbers and a little more detail and and maybe some of the underlying assumptions there around revenue conversion or anything else that might be relevant.
Any color would be helpful. Thanks.
Sure Hi, Vic.
As we sit down and think about our guidance.
We have thought about a variety of factors starting with the external market.
And that we're competing in and the dynamics around hospital spending overall, we believe that the market environment is improving although there is still a lot of uncertainty and it's a very fluid and dynamic marketplace, but what we're seeing is that our our value proposition is really really resonating and the market and that gives.
Us.
More confidence as we as we go forward. That's also in balance with some of the internal metrics, particularly you mentioned, one which is our backlog and a couple of things I'll mentioned around our backlog and deferred revenue.
The combined balance is at about $174 million, which is a record thats up 28%. There is a growing portion that is multiyear.
And the reason for that is we're having more success with these larger customers who are key.
Committing to a much larger and multiyear contracts with us and that provides that's a real benefit for us over over a longer period of time on.
Having said that if you just kind of set that aside the multiyear.
Backlog aside we still have a very healthy amount of backlog and deferred revenue that we expect to convert over the next 12 months. So one of the reasons why the 28% growth and backlog and deferred revenue is not necessarily converting too.
On that level of revenue growth is just because of the multiyear dynamic and are in our backlog and deferred revenue.
We've also got it will all start to see our subscription businesses start to take hold he's being a key one there over time and <unk> and many of those contracts are between two and three years now having said all that we.
We clearly don't try to aim at the midpoint of the range. So as we think about our guidance or our growth aspirations were clearly trying to shoot for for the upper and if not hopefully higher than that and we tried to be really conservative with our guidance. So we're thinking of a growth rate that is a bit higher.
And then the midpoint just from an internal execution standpoint, and hopefully we expect to be able to do that here as the quarters unfold and that would put us on a really good position.
Okay, Great. That's very helpful. Thank you and maybe just one follow up question I think in your prepared remarks, you said that you think you've been gaining market share in this environment can you just talk about where your win rates are today relative to historical levels and maybe on a related note how much of your recent bookings have been coming from existing customers versus new customers relative to what you.
Typically see any color there would be great. Thank you.
Yes, so in terms of competitive win rates I would say Q4 was actually maybe even a little bit higher than we've seen historically, but it's remained at very very high levels. We obviously don't have perfect visibility because we don't necessarily see every deal out there, but other deals that we can track and that we have and visibility into it remains it remains really really high.
And as it relates to new versus existing we really saw strength in both pieces of our business.
Some of the large deals that I talked about on the prepared remarks, even some of these multimillion dollar deals were in fact expansions and it's an interesting dynamic where a customer may start with a fairly small deployment.
And then once they get comfortable with the product they come back with a house wide deployment and so there's some big dollars associated with those existing customer expansions, but we are also.
Seeing lots of new customer wins and impact on Q4, I mentioned, we had the largest number of <unk>.
Enterprise wins.
<unk>.
One area in particular that I wanted to highlight that I think we are definitely gaining share on as is in the engaged space with our clinical integration software and middleware and.
And that's been a great success story for us not only going back and be installed base, but also helping us to win new customer wins as more and more people think about it as a kind of combined unified platform and thats, bringing voice and messaging and clinical alerts and alarms all together into a unified platform that they then want to rollout across their health system.
Great. Thank you.
Your next question comes from Ryan Daniels with William Blair. Your line is open.
Yes, thanks for taking the question on the color so far.
I wanted to go back to one of the earlier comments about what youre seeing and the selling environment and I think you mentioned throughput as kind of being a key and I can see that being beneficial for organizations as it can help with their profitability patient satisfaction, and probably provider satisfaction and less burnout. So if that's kind of a key thing resonating and the market can you just.
Two.
What you're doing to capitalize on that through case studies.
Et cetera, and also what you think you can do and the future with the device or your broader platform integration to further enhance throughput to allow that to continue to drive strong sales. Thanks.
Yes, Thanks, Brian Youre, absolutely right. We believe that 2021 is going to be characterized by a really strong focus around hospital economics. Many hospitals are are suffering as a result of the pandemic and theyre looking for how they can control costs and they're also faced with a fairly large backlog both of electric.
Surgeries that have been delayed and other.
Health care and in general Thats been delayed and so we expect there to be a bit of a push into hospitals.
As patients start to come back and higher numbers and hospitals are really eager to start generating net revenue again, and so they're going to be in this kind of constrained environment, where many of them are suffering.
Suffering from nursing shortages, and maybe a bed constrained and so the opportunity to sort of.
Better utilization of the assets that they have and place was going to be a key theme and the operational efficiency.
The growth here was able to bring to the table, it's literally shaving minutes off of hundreds of different procedures and processes, where we just make everything a little bit more streamlined and seamless and frictionless.
And getting the right information for the right person at the right time allows clinicians to triage their time, where effectively improved length of stay improve.
Auction times, all that kind of stuff and so to your point, we've put a lot of energy and to trying to document those various case studies into some some success stories, we've actually built and economic value calculator that helps our sales reps go into a hospital and applying some of the metrics that we've seen at previous customers.
Into prospect environments and demonstrate the dollar savings.
We can generate if they were to implement our solution and as it relates to sort of how the product might evolve one of the areas and I'm really excited about as we move forward is and the area of analytics.
We capture a tremendous amount of data about the workflows and communications and alerts and alarms that occur within our hospital base. So we've got this real treasure trove of data and.
And one of the investment areas for 2021 that we're focusing on is on a utilizing that data to turn it into real insights that we can deliver to our customers to help them optimize workflows and potentially.
Take even more inefficiency out of the out of the system to drive greater throughput and essentially effectively increase their capacity.
Great that's super helpful and Justin just wanted to wish you all the best and I know, you'll probably be on the next call or two but on a pleasure working with you and we wish you much success.
Yes.
Thanks, Brian.
Your next question comes from Sean Weiland and Jeff.
Your line is open.
Hi, Thanks for taking my question is Jack on for Shaun.
Congrats on the cortex.
Thanks, Dave.
Hi, thank.
Thank you first question just.
On Ian and engaged could you just give us a little detail on how those are deployed and build on it.
Thank you mentioned that eases and subscription is that true of engage as well on.
And just interested to know it.
Our sales and deployment can be 100% for chipotle within your existing installed base.
Yes, so there and a little bit differently. So engage is more like our traditional software business. So the typical engage licenses are sold on a perpetual basis and then there is an annual recurring maintenance stream associated with it the pricing.
Is dictated by the number of different integrations and then the number of beds for the size of the deployment.
We are experimenting with more of a subscription type of pricing there, but the bulk of the business historically with engage has been on a perpetual plus maintenance basis.
And is on the other hand is a pure.
Fast deployment.
Cloud based and it's sold on a.
Subscription basis based on the size of the hospital and the number of departments that it's rolling out into so.
And in some cases, they might roll it out only and the operating room environment and more and more cases that we're seeing.
It's being rolled on into the med surge environments as well and so it scales up and down depending on where it's being used and the size of the facility.
Both in both cases, though we've really evolved our ability to do more of the deployment remotely.
We still like to get on site to help with training and.
And making sure that the customers are comfortable using the solutions, but in the Covid environment, we've been able to pivot and do the vast majority of those deployments.
Totally and even the software deployments that are done on site with engage oftentimes we can do a lot of the work remotely. So we've got quite a bit of flexibility there.
Thank you that's helpful and.
And then just a follow up whats the role on a potential opportunity for the combination of these two products and kind of a hospital to home environment or on maybe.
And on hospitals efforts can you convert value arent cash.
At the product.
And.
Value based care for it for specific episodes.
You are talking about with agent with engage and he specifically exact.
Exactly.
Yes, so we see that as a real trend, it's definitely accelerating and.
Part of why we were excited about these application and the first place was because of the connection with the patient and a patient family member and we see that as an opportunity to really grow and expand in the area of patient engagement not only while they're in the hospital, but free arrival and post discharge, we think that opening up that communications channel.
With the patient and the patient's family member actually generates a huge value proposition and for us.
Similarly, with engage as you go outside the hospital into skilled nursing and long term care and eventually into the home.
On the idea of remote monitoring and then leveraging engage as a way of pulling.
Information about the patient and using that and and routing that to be appropriate caregivers is a very important value proposition as we move more and more towards <unk>.
<unk> being delivered outside the hospital environment.
Great. Thanks, so much.
Your next question comes from Benjamin Toms from Jefferies. Your line is open.
Hi, there good afternoon, and congrats on a great year and Justin Let me just echo everyone else's, Congratulations and wish you the best on your future endeavors.
Brian and I. Thank you.
You've kind of touched on this on the last couple of responses, but.
More broadly like how do you view the white space for this industry and not so much in terms of client, but in terms of solution. The legacy business has always been more provider to provider.
But we're seeing maybe a bit more of a shift to provider to patients.
More video instead of audio.
Can you just kind of help frame that and the context of how youre allocating R&D dollars and and also just longer term.
Yeah.
And the framework that we're using is tied to this idea of the real time health system, which is.
And Gartner terminology and the way I sort of Simplistically think about the real time health system is if you do sort of chart out a patient's journey through the health system from the time that they are admitted.
Given labs, they're evaluated they may have procedures eventually they get discharged they go into a long term care or skilled nursing facility. Eventually they are being treated at home all of those various stages of a patient's journey represent potentially a source of the delay of friction or frustration and our vision is really around using technology.
And the flow of information and connectivity between people.
And to really streamline and remove as much of the friction and that patient journey as possible and obviously, we started primarily in the hospital and started primarily at the bed side, but as we see our solutions involving both our existing solutions as well as things, we're building and the future and and potentially looking at additions for the company, we're really sort of looking at that full care continuum and what.
And we can do to try to create a seamless of a patient journey across the care continuum as possible I think there is tremendous opportunity here and.
Health systems to become more and more integrated theyre starting to look at the cost and the value that they're creating not just within the hospital, but across the whole care continuum and so we want to we want to match that in terms of how do we think about our own solutions and offerings into the marketplace.
Got it got it that's great.
And I guess, one follow up unrelated question.
What are you seeing in terms of sales cycle kind.
Kind of post holidays and in terms of how the first quarter's unwound as we've seen COVID-19 cases kind of spike up early and the year and then and then start to taper off any major callouts there.
Yes, I think it's way too early to know I mean, the year typically starts off pretty quiet.
Any way and every year, but I don't think we've seen any changes at all really.
Okay, great. Thank you.
Again, if you would like to ask a question press star one on your telephone and order to allow time for everyone to ask a question today. Please limit yourself to one question. Our next question comes from Matt Hewitt with Craig Hallum. Your line is open.
Good afternoon, and thanks for taking the questions first one regarding the $174 million and backlog and deferred I'm curious do you have a breakdown on how much of that is expected to be deployed this year versus over the next two to three.
Yes, Matt, it's roughly 70% of that on.
And is expected and that's fairly consistent with previous previous years.
Okay, Great and then just one follow up if I might regarding EPS.
I think on Q3, you talked about adding to the sales team there.
How is that how has that progressed, how many where you're able to add and the Q4 and maybe just start this year and how you know is there and attach rate or some type of a metric that you could provide.
Two I guess further provide evidence on on how well.
Net product or that software has been working for you so far thanks.
Yes, Matt I would just characterize it as being really early stage.
We definitely added a few salespeople, but it was off of a very small base and.
On the revenue base is also a very very small. So this is a solution, which we're really excited about but think of it more of a startup within the company as opposed to representing a large number of salespeople or large amount of revenue today.
Got it thank you.
Your next question comes from David Larsen with <unk>.
Your line is open.
Hey, Justin Congratulations again on all.
The success that you've brought to vocera over the years.
And congrats on a good quarter Brent can you, maybe just talk a little bit about the use case for COVID-19.
And with hospital volumes under a little bit of pressure.
And in 2020 and into 2021.
Just sort of think that maybe the buying decisions with slow, but that's obviously not the case buying decisions have actually increased and accelerated.
And for Vocera can you, maybe just talk a little bit about the use cases is are these bad as part of the PPE purchases.
Let me start share would be very helpful. Thank you.
Yeah, Thanks, Dave Youre.
Youre absolutely right I think it's part of the workflow.
And that Theyre recognizing hands free is just really really critical so in many cases. These clinicians are now wearing gowns and gloves and masks and in order to communicate they're faced with the choice of either having to leave the patient's room.
Potentially take off their PPE and then access their phone and then on a re sterilize and and re put on their PPE and then go back and sort of and other patient or if they are using the answer capability of vocera. They can basically continue doing their clinical work without having to go through that whole process and so.
And that's actually I think really raise the level of awareness of the importance of hands free and.
It's been a core part of their purchase process on their evaluation of how do they.
As I said prevent contamination, but also allow for communication and I think.
And the idea that Vocera is part of the PPE. In fact, we started using this terminology PPE T, which is personal protective equipment and technology, because if you look at it more holistically, it's not just about putting plastic around caregivers body, it's about giving them the tools to be able to do their job and I think that's been and important.
Recognition by the caregivers and I would just highlight that we don't think this is a temporary thing we think that.
The use of PPE and hospitals is likely to continue for the foreseeable future and now that people will recognize more of the importance of hands free we expect that to continue to be a driving force for our business and the future. There have been some very specific use cases that are tied to COVID-19, where for example, they are putting on.
Both their batch with.
With the patients at the bed rail or for some some other specific use cases, but in general it just be the same workflows that they've been doing but recognition of hands free and then as it relates to ease specifically.
He was originally designed for the operating room when a family had a child for example, and the operating room to allow that family to get updates while they were on the operating room, but in a COVID-19 environment, where family members are not even generally allowed and the hospital.
Let alone and the operating theatre and the ability to communicate with their family members about the status of their patients.
Maybe if patients just been incubated or maybe they've just.
<unk> been taken off innovation that any of these transitions and care that are so valuable to the family members of the patient can very easily be updated and the beauty of these solution is and it does it in a way and thats not.
Intrusive to the workflow of the clinician so it doesn't get in the way of the nurse and being able to do their job and I think that's so critical about it is the sort of seamless nature of it.
As it relates to engage the idea of more remote monitoring and keeping track of vital signs and other information about the patient and then knowing what to do with that information and routing it to the appropriate care provider.
Proposition continues to be really strong both from a patient safety and from an efficiency standpoint, So I think pretty much across the board, we're seeing that the evolution of the way care is being delivered as being beneficial for our value proposition.
Our next question comes from Stephanie Davis.
<unk> Leerink your line is open.
Hi, This is joy Zhang on for Stephanie Davis, Congrats on the quarter.
Thank you Julian ex Joy.
Just wanted to circle back to the software Chelsea on a question again now that you mention he's still on the early and things and engage its growing nicely can you just provide more granularity on what cross sell assumptions are baked on engineered FY 'twenty on guidance.
Well, it's just inherent in our business model is is the.
And the opportunity to sell additional products into our base and fact.
It does.
Vast majority of our bookings and a year joy come from come from our existing customers. So on.
And every year, we make incrementally more progress and cross selling solutions, whether it's adding bested messaging to a voice customers engage and now and now he's.
This is just an ongoing part so theres nothing outsized or unusual about our assumptions, but we do expect to make.
<unk> continued progress and cross selling to our base and as the base increases.
And that provides and expanded opportunity for us to be able to cross sell these solutions and we're always looking to.
To either invest in.
And new products organically or inorganically to be able to identify additional solutions that we can leverage through our sales force and through the the base that we've got.
Our final question comes from the line.
And hammer color your Securities Your line is open.
Thanks, Good afternoon.
Fantastic quarter and <unk>.
And congrats on on your promotion.
Hey, I wanted to.
Just ask this question.
If for revenues coming out of your backlog. This year why wouldn't you have better than 70% visibility into your guidance since since I would think debt less book ship.
And as implied in your outlook any any clarification would be great. There.
Sure. So our visibility is gene is a little bit higher.
Compared to prior years and so that's a good thing and as we think about.
Our guidance, we're trying to be conservative just acknowledging that it's still.
Fairly kind of turbulent and dynamic market out there, but for sure the backlog that we have allows us to have.
Have a higher level of visibility going into the year than we've had over the last several years. So that's a really positive thing.
And there is a higher proportion of our backlog that is multiyear and that will not likely convert in 2021.
But having said that there is it also a very healthy amount of backlog that supports our visibility and our revenue for for the year. So when we kind of sit down and do all of that calculus, we have more backlog, we have higher visibility and therefore, we feel even better about the guidance range that we're putting out there trying to be conservative but.
And also hopefully being.
And being in a position to to have some upside to our business here over the as the year progresses.
Yep.
Makes sense.
Thanks for that Justin so the $174 million and backlog and deferred revenue on.
Are you able to disclose how much of that is he's contributed I assume it's relatively small but any color there would be would be helpful.
Yes. It is.
It is quite small right now, but it's building, but it's I wouldn't say that.
It's just it's quite small right now, but we're we're really pleased with the <unk>.
The bookings that we saw and the building base of annual recurring revenue that's under contract now and so as the year progresses within one to two years it'll start to represent a larger portion of the overall balance.
Sure Okay.
Thanks, a lot appreciate it.
There are no further questions at this time I will turn the call back over to Brian for closing remarks.
Thank you and thank you for everyone for participating in today's calls and we look forward to chatting with you and the future.
This concludes today's conference call you may now disconnect.
And the economy.
And.
And the kind of thing.
And then.
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