Q2 2021 Vocera Communications Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Vocera Communications Conference call.
My name is Emily and I'll be your coordinator for today at this time all participants are in a listen only mode. However, once we reach the Q&A portion at the end of todays conference you'll be able to ask a question by pressing star followed by 1 on your telephone keypad.
Now I would like to turn the presentation over to your host for today's call Sue Dooley of Vocera Investor Relations. Please proceed.
Proceed.
Thanks, Emily Hello, everyone welcome to Vocera of conference call to discuss our second quarter fiscal 2021earnings it's the Sue Dooley and joining me today are Vocera CEO, Brent Lang and the C band higher our CFO.
Earlier today, we distributed a press release.
The filling our announcement the release is posted on our website at investors day Vocera Dot Com and is also available from normal news sources. This conference call is being webcast live on the Investor Relations page of our website, where a replay will be archived.
Before we begin our prepared remarks I'd like to take this opportunity to remind.
The catering the course of this call we will make forward looking statements regarding projected operating results and anticipated market opportunities the.
Forward looking information is subject to the risks and uncertainties described in Vocera as filings with the SEC and actual results or events may differ materially ex.
As required by law we.
Do they take 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.
And with that I'd like to turn the call over to Brent.
Thanks Sue.
Hello, everyone I hope the signs you will we have a lot of good news to cover of this quarter, So I'll jump right into it.
We just completed the strongest second quarter in the company's history building on the great start we achieved in Q1.
Our solution is a rising priority for hospitals and our market leadership.
This is translating into consistent outstanding performance.
The success was broad based across our business.
Stellar execution from our sales team drove tremendous bookings growth in our services organization continues to effectively deploy our solution, leading with our clinical expertise.
In a moment.
I will speak more about the drivers of our performance, but first tier of some highlights from Q2.
Bookings growth was terrific with many large new customer wins and sizable expansions bolstered by our high competitive win rates and reliable customer renewals.
Software bookings set.
Net of new record driven by excellent performance in our engage software and the full functionality of our software platform.
Revenue in Q2 grew 19% compared to last year and grew 19% overall in the first half of the year low.
Q1 software revenue was a bright spot with great execution.
And in large new system deployments by our services group.
At the end of Q2, our combined backlog and deferred revenue was $218 million up 71% compared to this time last year.
This reflects 3 favorable dynamics the strength of our bookings.
<unk> solutions from recent acquisitions.
And the healthy and growing trend towards long term contracts and software maintenance renewals.
In the area of product leadership and innovation Vocera. He's 1 of the Med Tech breakthrough award the real honor among the competitive field of household names with substantial.
Contract the cloud.
This award demonstrates the impactful nature of this patient facing solution.
And finally, we closed the patient safe transaction in May.
We are well underway with the integration and are thrilled with the momentum.
Here are some of the highlights from our sales and services organization.
During the quarter.
Our Q2 bookings performance was simply outstanding.
We added several new hospital names drove expansion among existing customers and continue to build on the healthy trend of sizable multiyear maintenance renewals of meaningful indicator of the value of our customers aligned to our.
Our solution.
These large wins and multiyear renewals enrich our long term visibility, which Steve will discuss more in a moment.
Overall during the quarter, we had 6 wins over $1 million.
The remarkable performance in any quarter and especially for Q2.
These.
<unk> wins included such names as summa health, Tampa General Newark University, and Kaiser Permanente.
And as we previously highlighted during our Q1 call. We won the largest booking in our Companys history with Providence Health care the.
This win provides a shining example of our enterprise selling approach the strength.
The big of our engage software offering as well as the opportunity that exists for growth within our installed base.
I'd like to take a moment to share of the story of our success.
For a decade Providence has been a vocera customer across of disparate group of facilities.
And in various limited departmental deployments.
In the recent quarters, our enterprise sales leaders elevated the discussion to the C suite with the aim of creating a unified and strategic enterprise wide approach to communications.
Our team worked with the clinical leadership to address the systems the severe impressing clinical workflow challenges.
Together, we created a plan to rollout.
Our solution across over 50 hospitals spanning the U S over several quarters.
We will deploy in the acute care environment limited to nursing respiratory in key positions.
And there is plenty of room to broaden our footprint as we demonstrate the achievement of the clinical and workflow benefits.
With Providence, we hope to set of standard for other leading hospitals, who look to them as an example of best practices in their approach to clinical communication and collaboration.
We also won $8 million plus booking at the Malcolm Randall VA this quarter the.
<unk> continues to rollout our solution is the the factors.
The standard and this win underscores our continuing opportunity for growth in this market.
With the Q3 selling season in front of us and plenty of opportunity to land new facilities and cross sell with an existing facilities. We expect to continue our strong federal bookings momentum in both the short and longer term.
In the international Canada produce particularly the strong results as the team leveraged the northern supply chain purchasing agreement, we put in place last year intended to speed up the acquisition process by enabling the hospitals to buy from us without having to issue an RFP.
In Australia, and New Zealand, we continue to expand beyond the aged care marker with.
With the great win at the Southern District Health Board, our second acute care facility in New Zealand.
Also our recently signed agreement with wavelength in Australia will add local expertise to our marketing and sales efforts international.
The international is the large opportunity and a top priority for us and we're pleased to have a growing overseas pipeline.
Outside of healthcare, we brought in 2 new 4 seasons hotels, expanding our strong presence within this marquee brands.
On the service side of our business our teams completed of robust schedule of new customer deployments motivated by a desire to replace pagers and wireless phones and improve patient.
<unk> care care team safety as well as throughput and efficiency.
Freighter Hospital, UCLA health and Norton Women's and children's hospital are all rolling out our solution in large scale deployments.
As we've discussed in prior quarters, our professional services team is executing well continuing the level.
Through a combination of on site and remote services and online tools that allow our teams to be efficient and optimize their time with customers.
In other news, we just launched Vocera edge, our cloud based clinical communication and collaboration solution derived from our recent acquisition of patient safe.
<unk> of ex with edge customers can now choose how they want to purchase and deploy our solutions.
Edge is ideal for hospitals and health systems that have invested heavily in their EHR mobile workflow software, our smartphone centric and prefer a cloud based <unk> solution.
This cloud based solution simplifies.
Safe administration and enables bidirectional communication with the EHR.
Hospitals can get more value from the EHR and bring the whole care team together centered around the patient.
2 way communications between edge and the hospital EHR system makes it easier for clinicians to complete documentation and manage patient centric commute.
Integration right from their smartphones.
We expect edge will enable us to extend our market reach broadened physician use cases, and adoption and deepen EHR integrations to support patient centric workflows.
This is a natural extension of our strategic vision and is particularly well suited to match the speed and scale of each.
The system <unk> needs to improve patient care safety and experience.
Now I'd like to describe some of the factors contributing to our healthy market environment, then I'll take a moment to describe our view of the growth drivers that lay the groundwork for our future.
1 major trend supporting our long term.
Each organize is the rising importance of staff safety as a priority in health care the.
The events of the past year and of half of culminated in a new era for safety..1 that we believe is here to stay.
Based on the conversations with hospital Ceos prioritizing, the physical emotional and psychological safety of care.
<unk> is rapidly on the rise in fact, the department of health and human services as earmarking of $103 million from the American rescue plan to reduce burn out and promote mental health among healthcare workforce.
Modernizing communications technology is core to these principles.
We believe.
Our team of <unk> is not only of critical part of PPE, but is also a foundational element of the future of health care and running a hospital.
I believe we have reached an important inflection point in the desire to adopt better standards and implement change to improve safety.
Care team simply can't do their jobs unless they feel secure.
Believe in their roles supported by their organizations and have the ability to communicate with their teams.
At Vocera, we strive to lead our customers through thought leadership to define a new normal for hospital operations and to help of hospitals envision and implement change.
In May we took our thought leadership initiatives.
<unk> to the next level.
We launched the groundbreaking CEO coalition aimed at driving widespread adoption of initiatives focused on safety and health care the <unk>.
Coalition unites our founding group of 10 health system, Ceos, who as leaders in the space authored and published a set of standards.
<unk> safety and health care.
The coalition is kicking off a national plan from meaningful change and has invited other healthcare leaders to join <unk>.
Recently healthcare Finance news mentioned the CEO of coalition in an article as evidence of this rising priority.
Another important trend bolstering our success.
First of all hospitals looking to consolidate the number of vendors that they are working with.
They want to deploy platforms that are secure unified and fully integrated.
This plays right into the heart of our value proposition and our selling approach.
We have earned a powerful seat at the table to discuss clinical workflow goals, thanks to our broad customer.
Involve experience and customer clinical expertise.
Hospitals require a partner who can deliver results now and prepare them for this new era of safety and.
The <unk>, we've become the ideal partner because we have the most complete solution in the market bolstered by our proven ability to support our customers with the mix of internal.
Elements and careful M&A.
With these market factors of context, I'd like to describe the growth drivers as we enter the second half of 2021 and begin to think about next year.
First with momentum at our side, we continue to work to drive large new customer wins and expand within existing customers.
Customers, who are looking to broaden their use of our solution and extend its benefits to new users.
Second we will strive to continue our strong software growth through new customer wins with engage ease and now the <unk> edge.
Third our international teams will seek to build on their momentum and broaden our market penetration.
And attrition across the regions.
Fourth our non healthcare team will seek to reach into new markets like the school safety, while extending our strong brand name in areas such as hospitality.
And finally, we plan to continue to innovate and enhance our product offering our market leading position and our addressable market.
<unk>, we believe our focus on these priorities is driving success and is laying the groundwork for the quarters ahead.
Before turning the call over to Steve I would like to summarize my commentary about our results the environments and the drivers of our business.
Simply put Q2 completes a tremendous first half of 2000.
'twenty 1.
We achieved our strategic priorities, including further penetrating the market with key wins at leading health systems <unk>.
Expanding within our existing customer base enriching our software mix growing our.
National presence and leading with new product innovation.
As we enter the second half of the year.
We are of great position to continue delivering on these priorities.
Our large backlog and deferred revenue provide revenue visibility and help create a solid foundation for our future.
Our mission is more relevant than ever and we have a remarkable momentum in the business.
Now Steve will cover the financial details.
Our Q2 results and our guidance for the rest of the year Steve.
Steve.
Thanks, Brian and Hello, everyone. We had a very strong second quarter highlighted by bookings revenue and profitability growth all of which were ahead of our expectations for both the quarter and the first half of the year.
With revenue we delivered.
<unk> $56.2 million or 19% year over year growth in Q2, completing an outstanding first half of the year, which also grew 19%.
Q2 product revenue, which includes both devices and software increased to $28.3 million or.
Our 18% year over year growth.
All of our rights revenue of $16.3 million was slightly down from the prior year, but we continue to see good levels of bookings and shipment for our devices.
As a reminder, last year's Q2 device revenue was extremely strong in part driven by Covid related demand.
From a first half of the year perspective.
Our device revenue increased and we continue to have healthy levels of hardware related backlog, demonstrating the compelling value of hands free communication.
Smart beds continues to gain momentum with solid bookings growth in both Q2 and for the first half of the year.
Software revenue in the second quarter was the real highlight.
The and grew 76% over the prior year.
At $12.1 million.
Software continues to be our fastest growing revenue segment is being led by our engage product line.
Engage strength highlights the growing value customers place on our clinical integration and adventure of them workflows and.
An example of this.
Is the Q2 Providence booking that Brent highlighted we're engaged with the single largest component of the deal.
For the first half of the year software revenue was up 80% fueled by strong bookings and backlog conversion.
Our strong bookings performance, our software backlog continues to grow and as of.
<unk> 30 is at an all time high the.
The growth in software backlog positions us well for continued software momentum and is a key driver as we progress towards our long term operating model.
1 final comment on our software business.
As previously discussed we evaluate the health of our software.
June business by combining software with the subscription and support revenue streams, which we view holistically as our software related business, we like the SKU because subscription as in part includes the software maintenance contracts as well as our reoccurring SaaS offerings, such as <unk> and now edge software plus.
Software and support revenue combined grew 34% in Q2 and represented 62% of our total revenue up from 55% in the prior year.
We expect this mix to continue to increase over the long run.
By the demand for our core voice and messaging solution engage.
And the new subscription based software offerings of EES and edge.
Our service business continues to add strong growth rate service revenue increased 19% year over year to $27.8 million with growth in both of our subscription and support revenue as previously mentioned and our professor.
Professional services revenue tied to healthy new customer deployment activity.
Now turning to our combined backlog and deferred revenue balance.
Due to the strong bookings in the first half of the year and the contributions of our 2 most recent acquisitions ease and patient safety, we have significantly grown our backlog.
<unk> for revenue.
At the end of Q2, our combined backlog and deferred revenue was $218 million up $91 million or 71% versus last year. The <unk>.
Acquisitions accounted for $34 million of the increase and excluding this our backlog and deferred revenue balance still.
Log into an impressive 45% year over year.
Now turning to something we highlighted last quarter, we have a higher proportion of multi year subscription and support contract and a growing number of larger multi facility deployment of span more than 1 year, our EES and edge solutions.
<unk> description in nature and the majority of those contracts are multiyear agreements and will convert to revenue beyond 2021.
We do all of this as positive for our business as our backlog and deferred revenue growth not only provides visibility into 2021, but also to 2022.
I.
I think briefly go into more detail of non-GAAP gross margins and operating expenses.
Non-GAAP gross margins in Q2 were 69%, representing a 300 basis point improvement from loss share our product gross margins increased more than 800 basis points from last year, primarily due to the increase of high margin.
<unk> software revenue in the quarter.
Our device and services gross margin continues to be very healthy and consistent with historical levels.
Non-GAAP operating expenses increased to $31.2 million.
Mostly due to expenses related to recent acquisitions and our investments for growth.
I would like to.
Now I would like to comment briefly on our profitability. Our adjusted EBITDA in Q2 was $8.6 million and was up 49% from last year.
As a percentage of revenue adjusted EBITDA was 15% in the second quarter, which increased from 12% in the prior year.
The growth in our software business along with our continued focus on driving operating leverage has resulted in expanded profitability, which highlights our strong business model.
Our GAAP net loss for the quarter was $2.3 million.
Also better than last year.
Transitioning now to the balance sheet.
We ended the quarter with approximately $292 million in cash and short term investments.
Roughly $58 million from this time last year the year over year growth in cash can be attributed to our most recent strengthening of our capital structure and cash generated from operations, partially offset by.
By our 2 recent strategic acquisitions now.
Now, let me turn to guidance.
On the strength of a great first half of the year in both bookings and revenue. We are on track to deliver strong revenue growth for the full year, our substantial backlog and deferred revenue provides short term revenue visibility.
Along with enhanced line of sight to 2022.
As previously discussed the long term revenue visibility comes from large enterprise bookings that deploy over multiple years and also our growing subscription and support business.
As a result.
And for the second quarter in a row.
We are increasing our annual revenue guidance and doing so we have applied our usual historical backlog conversion and visible revenue rollout methodology, and we are raising both the top and bottom of the guidance range by $3 million.
The new revenue guidance range is now 221 to 200.
<unk> $1 million.
Turning to our guidance for profitability. We are also raising the top and bottom of our adjusted EBITDA guidance range by $3 million. We now expect adjusted EBITDA in 2021 to be in the range of 29, 9% to $34 million, reflecting the.
The impact of the greater topline revenue expectations and the software rich backlog mix the.
The rest of our GAAP and non-GAAP guidance can be found in our press release.
In closing we are extremely pleased with the overall business momentum and financial results in the second quarter capping off an outstanding first half of the year.
The 39, leading to our new guidance range.
Our solutions are rising in priority and our recent acquisitions are adding to our strong product portfolio and enriching our software offerings. Thank you for your time and now I'll turn the call back to Brian. Thanks.
Thanks, Steve.
Before opening up the call for questions I wanted.
To conclude by thanking the entire Vocera team, which continues to execute well as we navigate the stage of the pandemic kind of remote working environment.
Our mission has never been more relevant than it is now and I'm very proud of how our people have risen to the challenge of this difficult time.
Our business is performing.
Well and the results. We delivered are evidence that our solution is valuable and in high demand.
Our teams executed well in Q2, winning impressive bookings accelerating our revenue growth and making important strategic moves with the creation of the CEO of coalition and the introduction of Vocera edge.
In selling our solution, we are leading with software and the results show the power of our platform.
We have a large market opportunity of highly differentiated solution and a finely tuned selling engine generating robust demand for our unique solution.
With that we're ready to conclude our formal remarks.
<unk>. Thank you for listening today, operator, we are ready to open the line for questions. Thank you very much.
Thank you very much.
Ladies and gentlemen, if you would like to ask a question you may do so now by pressing star followed by 1 on your telephone keypad. If you change your mind. Please press star followed by <unk>.
Ask the.
And limit your questions to 1 per person. So I should give everyone. In the question to ask when preparing to ask a question. Please ensure that your microphone is unmatched it likely.
Our first question today comes from Sean Dodge from RBC capital markets Sean.
<unk> is now open.
Great. Thanks.
And congratulations on another.
Great quarter.
Brian you touched on it a bit but if we take all of your in Steves comments around the healthy market demand. The recent large deal you did.
With deployment that will stretch into.
Yes.
Your line 2022 to the 45% growth in backlog of deferred revenue when you exclude the acquisition.
Help us translate that a little bit more precisely in the the visibility you have now on growth into next year. It certainly feels like you're sitting in a much better position now at this point of view than you have historically.
I guess, how do you how do you feel about visibility on sustaining.
Gaining mid teens or better growth into next year.
Yes, Sean I'll start and Steve can chime in here as well, but.
I think we feel like where we sit right now of mid year. This year. The we've got better visibility into future years than we've had in the past and I think thats representative of the changing nature.
<unk> of our business.
The increase in subscription and <unk>.
Maintenance revenue as well as the increase in the large deals that get deployed over an extended period of time, both of those provide visibility into into the future.
For the rest of this year, we are using very similar methodologies for determining our guidance.
But I would say that sitting here mid year, we're feeling really good about next year.
Yes, and I'll just add to that the key drivers as you mentioned are very healthy the the bookings the backlog the deferred revenue, which puts us in a great position for 2021 and as Brent mentioned the use of very historical conversion rate when thinking.
Our 2021 guidance, which now of the top end of 16%, which we obviously aim to be at or B.
As far as 2022 as Brent mentioned, we do have increased visibility at this time this year versus prior years I would say Q3 and Q4 will also be very important as we head in to 2022.
3 we will provide the appropriate guidance at the time, but absolutely. The these large enterprise bookings that are having multiple multiple quarters to deploy our multiyear of maintenance and subscription has given us enhanced visibility into 2022.
Okay, great. Thank you again.
Our next question comes from Scott Shanghai from Stephens Scott Please.
Please go ahead.
Hi.
Hey, Brent Steve and Sue can you hear me okay.
Yes, Ken please call Scott.
Hi.
I think you mentioned in your prepared comments that you're seeing.
You saw you saw revenue you saw strength in your.
Software revenue due to the new systems deployment in the quarter can you just talk about which software platforms drove this growth and was the growth mostly from new customers or with the cross selling and up selling to current.
Customers.
Yes, Scott so in terms of the product mix most of the software growth was driven by our our core communication collaboration platform both of the voice and messaging piece as well as the engage piece, we had a particularly strong.
A strong quarter with engage that's continuing to accelerate.
The important part of our business I think I mentioned last quarter that we're seeing more deals that are actually being led by engage where the strategic driver behind the deal is as the engage portion with clinical workflow and then the communication piece is coming along with that so engage played a really important role at this.
The stage.
Edge and he's our relatively small pieces didn't play a huge role in the quarter, but it was more of our core communications piece.
And then the second part of your question.
I'm forgetting what was the security question the yield of a deal size, yes. So the.
It was a mix actually we had.
As in a really strong new customer deployments, but we also had some great expansion, it's a little counterintuitive.
Counterintuitive, but even as the bookings.
Vince technically is an expansion because they are an existing customer and so it's a little bit hard to differentiate between the 2 in terms of what technical of all in 1 bucket versus another but we are continuing to see.
We have really good strength, both with expansion of amongst existing customers as well as new customer wins, we added a very large number of new hospitals.
With new bookings this quarter and obviously on the revenue side. The service team was doing deployments with both new and existing so it's across the board.
Great.
Rick Congrats on the.
Fantastic quarter guys.
Thanks, Yes, thanks Scott.
Our next question comes from Ryan Daniels from William Blair Bryan Your line is open.
Yes. Thank you for taking the question and I'll add my congratulations.
Great Thanks as well.
Rob maybe 1 for you it seems like in your prepared comments you were highlighting renewals a lot more I'm talking about long term renewals of the clients I know you've always had a very high renewal rate in the mid 90% range or so so is there anything unique that got you to specifically call that out meaning in terms of the renewals.
On the court rulings or just ease of which they're becoming an accomplished.
Yeah, Hey, Ryan So I would say that the renewal success rate has remained really really high so really no change there, but we are seeing an.
An increase in the number of customers who are interested in signing up for multi year.
Maintenance renewals historically in the business the vast majority of the maintenance renewals were done on an annualized basis and so they would sign a new contract the each year with a corresponding.
The new price point in what we're seeing a little bit more of now is customers, who basically want to go ahead and issue the bookings.
<unk> 4 let's say of 3 year maintenance renewals opposed to of 1 year maintenance renewal that obviously provides us additional visibility into the longer term revenue, because we're able to sort of map that out into our financial plan.
Okay perfect 1 of if I could squeeze in does that enable your sales force and then maybe focus on.
The other.
In the out years, such as new client adds or expansions because they don't have to go back for those maintenance renewals. So there's a another benefit there too. Thanks.
So a little bit I mean, we have a dedicated team that manages the with the majority of the maintenance renewals.
It's a different selling exercise they do a phenomenal job of building really.
<unk> with existing customers and it's <unk>.
Very much of the <unk>.
Canticle automated or I should say.
The repeatable process.
And so what that allows us to do is actually focus more time on customer interaction and customer success management and less time on working on those maintenance renewals.
But it is a slightly different team of people than the ones that are going out and driving new customer sales and expansion.
Okay, great. Thank you.
Our next question comes from David Larsen of <unk>.
Please go ahead.
Hi, congratulations on a very good quarter and the continued momentum of the overall business can you, maybe just talk a little bit more about edge and patient safe I, just remember like years ago of patients safe solutions, there was actually like a true.
David that.
Nurses and doctors from sort of handoff between each other to sort of ensure that there were no gaps in care.
Can you maybe just talk about the actual product itself, what it does and the unique sort of value add from the the hospitals point of view with edge. Thanks.
Yes. Thanks.
So I think youre, referring to.
The early founding of the company.
Over the last several years they have pivoted to be primarily focused on the clinical communications and collaboration space. So there's there's no longer any hardware components of their business.
It's a cloud based smartphone app.
Really focused on.
David clinical.
Clinical communication and deep integration into the electronic health record. They do do continue to do some administration work and Theres. Some workflows that involve barcode scanning, but it's entirely leveraging the the camera.
It's part of an iPhone or other smartphone device.
And because.
Because of its cloud based.
It provides reduced administration levels and more flexibility even 2 to sites that might not have the same level of resources and part of the strategy of that patient safe was applying before we acquired them was to create a solution that was very complementary to the work that the electronic health Records. We're.
We're doing so customers that have already made a big investment in 1 of the mobile apps from 1 of the EHR companies can still get a tremendous amount of value by pairing that with what we are now referring to of the edge solution to it.
Sort of Leverages for example, the texting functionality might be built into.
Of the EHR app by adding more of the clinical workflow capabilities some of the voice capabilities.
Some of the clinical integrations and the event driven integrations and so it's more of a complementary piece. The plays alongside those customers that have already decided there they are fairly committed to using the EHR mobile applications.
<unk>.
But the that was the pivot that the company did probably 3 or 4 years ago.
The had just begun rolling out this new solution over the last year or so once they put the engineering work into it and so by the time, we made the acquisition. It was 100% software business sold on a subscription basis.
Great. Thanks, very much and then just 1 quick follow up if I can can you maybe talk a bit about Kaiser was kaiser already of client or not and.
What region of Kaiser did you actually win and what did they buy it seems like that would be a very substantial client.
Yes, they are of very substantial client David.
Some of them as a customer of both on the engage side as well as on the voice and messaging side as well as the badges for.
<unk> of years.
They continue to expand a little bit region by region.
Different timeframe some of what this was in Q2 was another large expansion order.
That included new groups of users in different facilities pretty much across various regions within Kaiser.
Great. Thanks, so much congrats again.
Thank you David.
Our next question comes from meta Marshall from Morgan Stanley. Please go.
Your line is now open.
Hi, This is crunch of the car on for me to thank you for the question and congrats on the great quarter.
I guess, just sticking into the software versus device revenue.
On the upside there I guess is the difference in upside.
Is it partly because of customer of election.
So for example customers electing tap of the platform is the smart badge on their phone or something like that with the customer preference I guess, just triangulating the upside there or the difference in upside between software revenue of device revenue would be helpful.
Yeah, Great question. So the first thing I'd say is as we are starting to.
See more of the large enterprise wide bookings like the provenance booking that Brent mentioned, which is the largest booking in the company's history. We are seeing higher percentage of our proportion of the deals being software for it.
Instance, that booking had a really strong engage element component to it. It did also have smart badge, but we.
Section to 1 of the device agnostic, whether it's on the smartphone or the bags and just really give the customer and a full suite of options and but what I'd say is software is our fastest growing segment.
The 8 grew 76% in Q2, and we look at our backlog. It's also healthy in the fastest growing segment in our backlog.
<unk>. So 1 of the key themes of this quarter was just the strength all around from bookings the backlog to revenue in our software business and what we're hearing from our sales forces a lot of these deals are being led by the software now.
Got it that's very helpful. Thank you very much.
Our next question comes from the Irish lung from Dan Beck. Please go ahead. Your line is now open.
Hi, good afternoon, Thanks for taking my question.
I have the follow up on the book close number.
The quite sure from 9% organic growth over Q1, I'm just wondering given that this.
The number now Inc.
Impact from the acquisition of <unk>.
Roughly of Watsco.
The current bookings growth with non current and then I'm also wondering what portion of that bookings related to software I know if the kind of call out that software bookings were very strong from just wondering if you can kind of.
Help us to quantify that what portion is related to software.
Yeah.
So what we can say is if maybe we take a step back and just think about the key drivers of our business and we just had excellent momentum in bookings backlog revenue and just.
Showing that the priority of our solution is elevating now getting specifically to your questions. Our total backlog and deferred revenue, which we report was $218 million, 71% year over year growth when we take up the 2 acquisitions, which is ease and patient day over the last.
This all months its 45% growth was still very healthy we don't go into our split of our backlog of whats the software what's hardware. What we can say is and we said on the script is that our software backlog is at a record high and while that's very important is not only do we have really strong software revenue in the.
The first half of the year, but our bookings replenished that revenue in backlog and an even added to it to create a new high watermark for us. So hopefully that's helpful context.
The only thing of that I would add is that you asked specifically about the the acquired products and.
The magnitude of the software bookings from the acquired products.
<unk> was not substantial during the quarter most of the bookings was driven by our existing businesses.
Cash flow.
So just a very quick follow up for <unk>.
<unk> on the pension.
Those deals are those typically within a year.
What's the contract lines like.
Yes, that's a good question the contracts really vary we've seen them from 1 to 5 years, but a typical contract.
The C is 3 to 5 years is the time and so that was 1 of the key points that we wanted to make sure was clear in the script that this backlog being added from our subscription business.
1 of the 2 acquisitions.
Has a longer time to rollout, but we look of that is the very positive as it gives us more visibility and predictability into 2022 and beyond revenue.
Great from here.
Hi.
Our.
Our next question comes from Matt Hewitt from Craig Hallum Capital Mats. Please go ahead.
Good afternoon, I'll Echo everybody else I'm, just saying congratulations on a really strong quarter the.
Question for me is regarding the patient safe business.
All of you recently added some of smaller customers through that acquisition have you seen any early.
Early signs of success cross selling that into your installed base. Thank you.
Hey, Matt. Thanks for the question. So I would say that we're in the early days here, we only closed the transaction in May So it's still pretty early what I would say is that as our sales organization has gone out and talked to our customer base.
And the prospects, we've gotten very favorable.
To us they are excited about the new functionality.
They're interested in exploring the the cloud option here many of them are evaluating the role the smartphones are going to play and also the role that the EHR based software is going to play and so I think in general.
We got very positive responses the sales cycle for these products is in the 9 to 12 to 18 month timeframe. So I think it's it's too early to know how it's going to translate to the new bookings, we're going to have to see.
Do the work to build the pipeline and close those deals once we get the budget approvals, but I would say.
<unk> early returns based on the original outreach has been quite positive.
Got it thank you.
Yeah.
Our next question comes from Michael Polack from Bad Michael. Please go ahead.
Hey, good evening, 2 quick ones if I can.
<unk> for Steve can you quantify Steve just the contribution from the 2 acquisitions to revenue in the quarter kind of to give us the flavor for what the.
Organic growth rate wells, that's number 1 and the number 2 zooming out.
A lot of business here multiyear.
Year implementation cycles, you know Brent I'd be curious just for your.
The assessment of.
Sure.
Services organization do you expect to have to add resources here over the next 6 to 18 months of some of these.
Bigger a multi site deals start to start to rollout.
Yes, Michael Thanks. Good question, so from the acquisition I characterize it as still very modest from a revenue increase we when.
When we acquired patients' day back last quarter, we said they would have of 3 million full year revenue impact and we're still tracking to that number so very modest for the quarter and somewhere with ease.
However, you can see in the backlog of that.
It did add approximately to the combined $34 million of backlog. So we see future growth in both EPS and patients safe.
Because of our size and we will be in the cloud there'll be in the subscription and support line and a revenue stream for.
For the quarter of that line grew 19.
A percent year over year. So it had a very healthy growth rate and we continue to see and believe that will be 1 of our fastest growing revenue segments, but specifically to the quarter of very modest impact from <unk> in patients. If we see it more of a longer term play.
And Michael to your second question about the services organization.
We do anticipate needing to continue.
To grow those organizations, we are investing in customer success by bringing on more professional services resources..1 thing the way I would highlight of the pandemic has really given us the opportunities to innovate in terms of how we deliver professional services.
<unk> on site and remotely and we've invested in.
Buying tools that we can use the leverage to reduce the amount of travel and on site work that needs to be done. So I would say that our overall level of efficiency has also gone up but given our current utilization rates of the professional services team, we do anticipate adding.
Additional head count within those groups just in order to support.
So.
It's an investment in our future.
And Michael if you look at the service margins. They remained very healthy and hopefully was a bright spot that.
The investment community it picked up with just our overall gross margin growth in the quarter was strong driven by software.
Fair to say that investments.
<unk> in your the second half of the year and the guidance.
Sure sure Yeah, Yeah, absolutely yeah, okay. Thank you so much.
Our next question comes from Stephanie Davis from SVP Leerink Stephanie. Please go ahead.
Hey, guys Congrats Macquarie.
And thank you for taking my question.
Hoping we could explore the edge pop on the little bit more income.
Use cases that are in development.
Should we thinking about this more as.
Our platform for the patient facing tools, and where do you draw the line around things that fit into the big question facing share.
Yeah.
The influence of the purchasing something you'd rather keep.
Off the pipeline.
You broke up a little bit Stephanie so I'll try to address the question and then maybe you can clarify if I don't address the point you are getting after the the primary use cases for the edge platform.
Our focus on acute care facilities.
Similar to the way the traditional vocera platform as the bulk of their the customer base. There is the acute care facilities.
Although the day.
Workflows within those acute care facilities are more some of our more geared towards physicians, who are onsite within those facilities. We also think based on the cloud nature of the product that there is an opportunity.
Unity to extend out to ambulatory and physician practices in areas outside of the acute care environment.
And the integration with EHR makes it ideal for some of those workflows and dynamics as well does that does that answer your question.
No. It's helpful I'm trying to get at is that help.
The work flows.
Wholesale gutsy link to what kind of a broader physician base interest starkly half. So would you then want to branch out into some other areas of software that are more physician facing the jazz decision support type of that.
Yes, I mean, I think we're at the stage of our company's growth where we're looking.
The 4 opportunities to expand our Tam, we do that both organically and inorganically in many of the opportunities we're looking at.
For M&A would add new Tam opportunities for us in some of the new products. We're introducing if you think about the Alexa skill that we talked about earlier this year some of the analytics work.
But they're doing with new do insights capabilities.
These are expanding into new areas that we haven't traditionally been in.
And the reality is we've got an incredible platform reach where we've literally got millions of of end users carrying of wearing a vocera device in.
The word to use either of the screen or the voice user interface to access not just other people, but data and information and clinical results and we see this as an opportunity to grow over time to add a tremendous amount of new use cases to our to our platform.
And should I think about because you mentioned M&A first edition of <unk>.
<unk> strategy of emotion.
The abound.
It's both it's both yes, I think we look at every opportunity.
Build buy or partner mindset in some cases, we end up partnering with third party solutions and integrate them in in some cases, we build them internally and in some cases, we side.
The best of course of action is to actually make an acquisition, but it really depends on.
A lot of factors related to the market opportunity and the available competitive landscape in that kind of thing, yes, Anthony to add to that our balance sheet is even stronger this year than last year at this time, even after the 2 acquisitions.
The script.
The convertible note raise.
And so we have about 58 million more cash than we did last year, but just gives us a lot of flexibility for the inorganic or organic growth rates in past we can take.
Helpful. Thank you team.
Thanks, Kevin.
Our next question comes.
As in the mid <unk> from Jefferies. David. Please go ahead.
Hi, Thanks, good afternoon, thanks for taking my questions.
Steve You had mentioned the importance of.
Third and fourth quarter as it relates to kind of building the outlook for 'twenty 2.
And you've also both emphasize.
Sized.
The the conversion of the software in the first half, but yet still record high backlog how does the pipeline look behind that how is that building is that also replenishing and maybe specifically within that how does the government pipeline.
Looking.
As we sit here in the third quarter, which is typically strong for government. Thanks.
Sure and so you did take up on that correctly, the third and fourth quarter are always important.
Entering the next year, I think not to miss that our record backlog and deferred revenue as we said.
Great visibility to 2021, which led to our guidance raise and the 16% top of the <unk> growth.
As we said it does give us more visibility at this time into 2022.
So we look to improve on that in Q3, and Q4, but we like where we sit right now for that as.
Gives us the pipeline is something we monitor very closely and we continue to see growth in our pipeline.
And.
We look for in many ways, we look at our pipeline of how it rolls out the profitability, but we really see broad based strength in the government specifically as you know usually typically of a really strong.
As far the.
We think we will have.
Another good second half of the year, we watch that closely it can come down to the last week. So we don't want to make any concrete statements, but we continue to feel really good that we could take a step back on the government and just the long term opportunity to continue to land and expand and we're almost becoming.
Q3 of the fact, the center of choice there.
The other thing I would add on pipelines that were sort of hitting.
The trend towards larger.
Enterprise wide deals so the the.
Portion of the the pipeline that is tied to the these larger deals is definitely increasing and.
That's the trend we've seen.
The developing over the last several years and we're definitely seeing the continue.
The transition.
Thanks for that.
In regard to sale.
Sales activity and sales cycle.
Certainly we're we're in the different place than we were more than a year.
Seen pandemic first hit but some some increase in infection rates and things like that Fortunately, maybe not as much hospitalization I'm just.
Getting that is there is there any impact at all in your ability to kind of maintain the attention of your your client or perspective client counterparts in the sales.
Sales cycle.
As we progressed through the second half.
I think we remain very much of the top priority and I think the increased focus as I mentioned in my prepared remarks around safety.
In health care, and reducing burnout amongst the nurses.
Is continuing to be a.
When the important aspect the.
The other thing that I would say is that.
While theres a lot of distraction and obviously a lot of things going on in the hospital environments. We are seeing somewhat of a reduction in the level of.
Bureaucratic decision, making processes I think hospitals are recognizing that they need to.
The streamline their own operations, and we've seen situations, where once they've been able to identify the funding the decision making processes, maybe even a little quicker than it has been historically and I don't know if thats. The result of just Tim.
Wanting to make sure of that Theyre, keeping as much of the resource available to focus on the pandemic and other health.
Directly related issues, and therefore kind of streamlining the overall decision, making process is a little bit.
That's interesting thanks, and then Brian you had mentioned.
The past I think more kind of of beta stage, but.
Some attention and focus and investment in <unk>.
Analytics is a product any update.
Date on that.
Yes, it's progressing nicely.
We're learning a lot from the date of this is obviously a new area for us.
But I think.
An area of continuing to see more and more focus from the silver over the coming quarters.
Very good thank you.
Our next question comes from Jessica Tucson from Piper Sandler Jessica. Please go ahead.
Hi, Thank you for taking the question.
So I think you guys facilitated in the emergency deployments during the Covid.
We're interested to note to the extent of those deployments around the outside of your installed base kind of.
How are they converting to permanent contracts and have you sort of turned over every stone or do you have the.
The amount of backlog of those emergency deployment, with whom you've yet to engage and just any color maybe on the conversion rate you've experienced to date would be helpful. Thank you.
Hey, Jess so I think.
I think in general of the way to think about this is that the temporary license keys, which I think is what youre referring to that.
Start of issuing in Q2 and Q3 of last year.
Kind of all of at this point either been converted or have expired. So if it's not.
No really additional overhang there.
We've seen.
<unk> seen benefit from customers, who saw the value of our solution and once funding does become available where the hidden made those conversions, but that was probably towards the end of last year. So it really hasnt been a dynamic for.
This year I think the dynamic this year has been more around focusing on what they can do to reduce the level.
Of stress.
Intention for the nurses, how can they free up more time for them and how can they make them the safer to be able to deliver frontline care, but.
The emergency deployment dynamic is largely in the rearview mirror at this point yet.
The good question most of that was deployed last Q2 and expired in Q3.
I'd say the broader highlight would be the just the priority of our solution seems to be elevating and we're really seeing that come through our financial results of <unk>.
Broader just the.
Enhanced need for clinical communications and collaboration along with the battery.
The hands free device.
Got it that's helpful and if I could just follow up with them.
Do you have any engagement metrics on the engaged for iPhone app, maybe what percent of clinicians with access of downloaded it and then what percent use it and how often.
Inc.
I don't know that we have any statistics.
Specifically around the deals.
As I mentioned earlier engages becoming.
Much more important part of the overall sale process. If you roll the clock back several years. The typical sales pattern would be the the customer would buy the communications aspect voice and messaging first and then they would think about clinical integration almost as an afterthought.
At a subsequent deployment what we're seeing in the marketplace. Today is that many of these large strategic deals are actually being driven through engage in with the clinical workflow aspect being the strategic driver as the way of reducing cognitive overload and clinician burnout.
And then the communication piece is kind.
Bundled in with that.
You know, we obviously can see utilization.
Within our customer base, but I don't know specifically about your question as it relates to the App.
Yeah.
Our next question comes from Jean Manheim at.
From Kelly of Securities Jin. Please go ahead.
Thanks, Good afternoon, and congrats on the great quarter in the first half.
My question I think relates to the last 1 and you talked a guys about how device revenue was <unk> was down year over year, I think about 5% due to that.
The tough comp that was COVID-19 related. So the question is how much of that those of emergency deployments were in last year's quarter, If you could quantify that.
It would help us get more of an apples to apples comparison on device sales. Thank you.
Yes Jean.
We can give some color on there.
So as you said device revenue was down in the quarter on a very tough compare on the first half of the year basis. However, it is up year over year and still represents approximately 30% of our total revenue. So it's still significant.
The thing I can give you is the backlog device backlog.
Hopefully.
<unk> year over year, so that bodes well for the second half of this year, but we didn't breakout specifically last year the device from COVID-19 versus non COVID-19, but hopefully those other metrics are helpful.
That's great. Thank you.
Yeah.
Yeah.
Thank you, ladies and gentlemen for all of your questions. We currently have no further questions registered I'll now hand back to Mr. Laing to conclude today's conference.
Okay. Thanks, everybody for your time today really appreciate it and we look forward to following up with you. The answer any additional questions you might have have a great day.
Thank you, ladies and gentlemen for joining US today. This now concludes today's conference call. You may now disconnect your lines.
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Yes.
Okay.
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