Vocera Communications, Inc.
Q2 2021 Earnings Call Transcript

Published: 31 Jul 2021

[Operator:]

Good afternoon, ladies and gentlemen and welcome to the Vocera Communications Conference Call. My name is Emily and I will be your coordinator for today. I now would like to turn the presentation over to your host for today’s call Sue Dooley of Vocera Investor Relations. Please proceed.

[Sue Dooley:]

Thanks, Emily. Hello everyone. Welcome to Vocera’s conference call to discuss our second quarter fiscal 2021 earnings. This is Sue Dooley and joining me today are Vocera’s CEO, Brent Lang and Steve Anheier, our CFO. Earlier today, we distributed a press release detailing our announcement. The release is posted on our website at investors.vocera.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.

[Brent Lang:]

Thanks, Sue. Hello, everyone. I hope this finds you well. We have a lot of good news to cover this quarter so I will 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 position is translating into consistent outstanding performance. The success was broad-based across our business. Stellar execution from our sales team drove tremendous bookings growth, and 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 robust performance. But first, here are some highlights from Q2. Bookings growth was terrific with many large new customer wins and sizable expansions bolstered by our high competitive win rate and reliable customer renewal. Software bookings set a 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. Like Q1, software revenue was a bright spot, with great execution 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 three favorable dynamics, the strength of our bookings, contributions from recent acquisitions, and the healthy and growing trend toward long-term contracts and software maintenance renewals. In the area of product leadership and innovation, Vocera Ease won the MedTech Breakthrough Award, a real honor among a competitive field of household names with substantial market clout. This award demonstrates the impactful nature of this patient-facing solution. And finally, we closed the PatientSafe transaction in May. We are well underway with the integration and are thrilled with the momentum.

[Steve Anheier:]

Thanks, Brent, 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. Starting with revenue, we delivered $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 18% year-over-year growth. Device revenue of $16.3 million was slightly down from the prior year. But we continue to see good levels of bookings and shipments 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. Smartbadge continues to gain momentum with solid bookings growth in both Q2 and for the first half of the year.

[Brent Lang:]

Thanks, Steve. Before opening up the call for questions, I want to conclude by thanking the entire Vocera team, which continues to execute well as we navigate this stage of the pandemic in a remote working environment. Our mission has never been more relevant than it is now. And I am 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 Coalition and the introduction of Vocera Edge. In selling our solutions, we are leading with software and the results showed the power of our platform. We have a large market opportunity, a highly differentiated solution and a finely tuned selling engine generating robust demand for our unique solution. With that, we are 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.

[Operator:]

Thank you very much. Our first question today comes from Sean Dodge from RBC Capital Markets. Sean, your line is now open.

[Sean Dodge:]

Great. Thanks and congratulations on another great quarter. Brent, you touched on it a bit, but if we take all of your and Steve’s comments around the healthy market demand, the recent large deals just you signed with deployment that will stretch into 2022, did the 45% growth in backlog and deferred revenue when you exclude the acquisition. Help us translate that a little bit more precisely into the visibility you have now on growth into next year? It certainly feels like you are sitting in a much better position now at this point in the year than you have historically. I guess how do you feel about visibility on sustaining mid-teens or better growth into next year?

[Brent Lang:]

Yes. I will start and then Steve can chime in here as well, but I think we feel like where we sit right now it’s midyear this year that we have got better visibility into future years than we have had in the past. And I think that’s representative of the changing nature of our business, the increase in subscription and 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 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 midyear, we are feeling really good about next year.

[Steve Anheier:]

Yes. So, I will just add to that. The key drivers, as you mentioned, are very healthy, the bookings, the backlog, the deferred revenue, which puts us in a great position for 2021. And as Brent mentioned, we used a very historical conversion rate when thinking through our 2021 guidance, which now the top end is 16%, which we obviously aim to be at or be. 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 into 2022 and we will provide the appropriate guidance at the time, but absolutely, these large enterprise bookings that are having multiple quarters to deploy our multiyear maintenance and subscription has given us enhanced visibility into 2022.

[Sean Dodge:]

Okay, great. Thank you again.

[Operator:]

Our next question comes from Scott Schoenhaus from Stephens. Scott, please go ahead.

[Scott Schoenhaus:]

Hey Brent, Steve, Sue. Can you hear me okay?

[Sue Dooley:]

Yes, we can.

[Brent Lang:]

Hey, Scott.

[Steve Anheier:]

Hey, Scott.

[Scott Schoenhaus:]

Hi. Brent, I think you mentioned in your prepared comments that you are seeing – you saw revenue – you saw strength in your software revenue due to new systems deployments in the quarter. Can you just talk about which software platforms drove this growth? And was the growth mostly from new customers or was it cross-selling and up-selling to current customers?

[Brent Lang:]

Yes, Scott. So, in terms of the product mix, most of the software growth was driven by our core communication collaboration platform, both the voice and messaging piece as well as the Engage piece. We had a particularly strong quarter with Engage. That’s continuing to accelerate as an important part of our business. I think I mentioned last quarter that we are seeing more deals that are actually being led by Engage, where the strategic driver behind the deal is 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 stage, Edge and EASE are relatively small pieces, didn’t play a huge role in the quarter, but it was more our core communications piece. And then the second part of your question, I am forgetting, what was the second part of your question? The deal size, yes. So, the – it was a mix actually. We had really strong new customer deployments, but we also had some great expansions. It’s a little bit counterintuitive, but even as a bookings province technically is an expansion because they are an existing customer. And so it’s a little bit hard to differentiate between the two in terms of what technically falls in one bucket versus another, but we are continuing to see really good strength both with expansions 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 services team was doing deployments with both new and existing, so it’s across the board.

[Scott Schoenhaus:]

Great. Thank you. Congrats on a fantastic quarter, guys.

[Brent Lang:]

Thanks.

[Steve Anheier:]

Yes. Thanks, Scott.

[Operator:]

Our next question comes from Ryan Daniels from William Blair. Ryan, your line is open.

[Ryan Daniels:]

Yes, thank you for taking the question and I will add my congratulations on the quarter as well. Brent, maybe one for you, it seemed like in your prepared comments, you were highlighting renewals a lot more and talking about long-term renewals with the clients. I know you have 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 or length or just ease of which they are becoming accomplished? Thanks.

[Brent Lang:]

Yes. Hey, Ryan. So I would say that the renewal success rate has remained really, really high. the renewal success rate has remained really, really high. So, really no change there. But we are seeing an increase in the number of customers who are interested in signing up for multiyear 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 each year with a corresponding new price point. And what we’re seeing a little bit more of now is customers who basically want to go ahead and issue the booking for, let’s say, 3-year maintenance renewals as opposed to a 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 plans.

[Ryan Daniels:]

Perfect. And one if I could squeeze in. Does that enable your sales force then to maybe focus on other things 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 is another benefit there, too. Thanks.

[Brent Lang:]

A little bit. I mean we have a dedicated team that manages the majority of the maintenance renewals. So it’s a different selling exercise. They do a phenomenal job of building relationships with existing customers, and it’s very much of a mechanical automated or I should say, 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, driving new customer sales and expansion.

[Ryan Daniels:]

Okay, great. Thank you.

[Operator:]

Our next question comes from David Larsen of BTIG. David, please go ahead.

[David Larsen:]

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 PatientSafe? I just remember, like years ago, PatientSafe Solutions, there was actually like a time that nurses and doctors would sort of hand off 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 hospital’s point of view with Edge? Thanks.

[Brent Lang:]

Yes. Thanks, David. So I think you’re referring to the early founding of the company. Over the last several years, they had pivoted to be primarily focused on the clinical communication and collaboration space. So there is no longer any hardware component of the business. It’s a cloud-based smartphone app that’s really focused on clinical communication and deep integration in the electronic health record. They do continue to do some administration work, and there is some workflows that involve barcode scanning, but it’s entirely leveraging the camera that’s part of an iPhone or other smartphone device. And because it’s cloud-based, it provides reduced administration levels and more flexibility even to sites that might not have the same level of IT resources. And part of the strategy that PatientSafe was applying before we acquired them was to create a solution that was very complementary to the work that the electronic health records were doing. So customers that have already made a big investment in one of the mobile apps from one of the EHR companies can still get a tremendous amount of value by pairing that with what we’re now referring to as the Edge solution. So it sort of leverages, for example, the texting functionality that might be built into the EHR app by adding more of the clinical workflow capabilities, and some of the voice capabilities, some of the clinical integrations and event-driven integrations. And so it’s more of a complementary piece that point alongside those customers that have already decided they are fairly committed to using the EHR mobile applications. But that was a pivot that the company did probably 3 or 4 years ago, and they had just begun rolling out this new solution over the last year or so once they put in here and work into it. And so by the time we made the acquisition, it was 100% software business sold on a subscription basis.

[David Larsen:]

Great. Thanks very much. And then just one quick follow-up if I can. Can you maybe talk a bit about Kaiser? Was Kaiser already a 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?

[Brent Lang:]

Yes. They are a very substantial client, David. We have had them as a customer, both on the Engage side as well as on the voice and messaging side as well as the badges for a number of years. They continue to expand a little bit region-by-region in different time frames. So what this was in Q2 was another large expansion order that included new groups of users and different facilities pretty much across various regions within Kaiser.

[David Larsen:]

Great. Thanks so much. Congrats again.

[Brent Lang:]

Thank you, David.

[Operator:]

Our next question comes from Meta Marshall from Morgan Stanley. Please go ahead. Your line is now open.

[Karan Juvekar:]

Hi. This is Karan Juvekar on for Meta. Thanks for the question and congrats on the great quarter. I guess just digging into the software versus device revenue and the upside there? I guess, is it difference in upside? Is it partly because of customer election differences? So for example, customers electing to have the platform as a smart Edge on their phone or some like that with the customer preference? I guess just triangulating the upside there or the difference in upside between software revenue and device revenue would be helpful?

[Steve Anheier:]

Yes, great question. So the first thing I’d say is, as we’re starting to see more large enterprise-wide bookings like the providence booking that Brent mentioned, which was the largest booking in the company’s history. We are seeing higher percentage or proportion of the deals being software. For instance, that booking had a really strong engage element component to it. It did also have smart base, but we really want to be device agnostic and whether it’s on a smartphone or the badge and just really give the customer a full suite of options. And – but what I’d say is software is our fastest-growing segment. It grew 76% in Q2. As we look at our backlog, it’s also healthy and the fastest-growing segment in our backlog. So, one of the key themes for this quarter was just the strength all around from bookings to backlog to revenue in our software business. And what we’re hearing from our sales force is a lot of these deals are being read by the software now.

[Karan Juvekar:]

Got it. That’s helpful. Thank you very much.

[Operator:]

Our next question comes from Iris Long from Berenberg. Please go ahead. Your line is now open.

[Iris Long:]

Hi, good afternoon, team. Thanks for taking my question. So I have a follow-up on the bookings number. It is quite strong from 9% organic growth over Q1. I’m just wondering, given that this number now increased the impact from the acquisitions. Roughly what’s the set of current bookings versus non-current? And then I’m also wondering what portion of that booking is related to software. I know, Steve, that you kind of callout that software bookings were very strong. So I’m just wondering if you can kind of help us to quantify that, what portion is related to software?

[Steve Anheier:]

Yes. Hi, Iris. 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 it’s showing that the priority of our solution is elevating. Now getting specifically to your question, our total backlog and deferred revenue, which we report was $218 million, 71% year-over-year growth. When we take up the two acquisitions, which is EASE and PatientSafe over the last 12 months, it’s 45% growth, so still very healthy. We don’t go into our split of our backlog of what’s software versus what’s hardware. What we can say is, and what we said on the script is that our software backlog is at a record high. And what that’s very important is not only do we have really strong software revenue in the first half of the year, but our bookings replenish that revenue and backlog and even added to it to create a new high watermark for us. So hopefully, that’s helpful context.

[Brent Lang:]

The only thing that I would add is that you asked specifically about the acquired products and the magnitude of the software bookings from the acquired products was not substantial during the quarter. Most of the bookings was driven by our existing businesses.

[Iris Long:]

Got it. That’s very helpful. Just a very quick follow-up, so for the EASE and the PatientSafe, those deals, are those typically within a year? What’s the contract lines like?

[Brent Lang:]

Yes. That’s a good question. The contracts really vary. We have seen them from 1 to 5 years, but a typical contract, you see is 3 to 5 years is the time. And so that was one of the key points that we wanted to make sure was clear in the script that this backlog being added from our subscription business or the two acquisitions, has a longer time to roll out. So we look at that as very positive as it gives us more visibility and predictability into 2022 and beyond revenue.

[Iris Long:]

Great. Thank you.

[Operator:]

Our next question comes from Matt Hewitt from Craig-Hallum Capital. Matt, please go ahead.

[Matt Hewitt:]

Good afternoon. I'll echo everybody else and just say congratulations on a really strong quarter. The question for me is regarding the PatientSafe business. You recently added some smaller customers through that acquisition. Have you seen any early signs of success cross-selling that into your installed base? Thank you.

[Brent Lang:]

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 talk to our customer base and prospects, we’ve gotten very favorable reviews. They are excited about the new functionality. They are interested in exploring the cloud option here. Many of them are evaluating the role that 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 time frame. So I think it’s too early to know how it’s going to translate to new bookings. We’re going to have to do the work, build the pipeline and close those deals once we get budget approvals, but I would say that the early returns based on the original outreach has been quite positive.

[Matt Hewitt:]

Got it. Thank you.

[Operator:]

Our next question comes from Michael Polark from Baird. Michael, please go ahead.

[Michael Polark:]

Hey, good evening. Two quick ones, if I can, perhaps for Steve. Can you quantify, Steve just the contribution from the two acquisitions to revenue in the quarter? Kind of to give us a flavor for what the organic growth rate was? That’s number one. And then number two is zooming out, winning a lot of business here, multiyear implementation cycles. Brent, I’d be curious just for your assessment of your services organization, do you expect to have to add resources here over the next 6 to 18 months of some of these bigger multi-site deals start to rollout?

[Steve Anheier:]

Yes, Michael, thanks. Good question. So from the acquisition, I characterize it as still very modest from a revenue increase. We – when we acquired PatientSafe back last quarter, we said they would have a $3 million full year revenue impact and we are still tracking to that number. So, very modest for the quarter and similar with EASE. However, you can see in the backlog that they did add approximately combined $34 million of backlog. So we see future growth in both EASE and PatientSafe because they are SaaS and will be in the cloud. They’ll be in the subscription and support line in our revenue stream. For the quarter, that line grew 19% year-over-year. So we had a very healthy growth rate, and we continue to see and believe that will be one of our fastest growing revenue segment, but specifically to the quarter, a very modest impact from EASE and PatientSafe if you see at more of a longer term play.

[Brent Lang:]

And Michael, to your second question about the services organization, we do anticipate needed to continue to grow those organizations. We are investing in customer success by bringing on more professional services resources. One thing that I would highlight is that the pandemic has really given us the opportunity to innovate in terms of how we deliver professional services, both on-site and remotely, and we’ve invested in online tools that we can use to 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 the growth. So it’s an investment in our future.

[Steve Anheier:]

Yes. And Michael, if you look at the service margins, they remain very healthy and hopefully, it was a bright spot that – the same community picked up was just our overall gross margin growth in the quarter was strong, driven by software.

[Michael Polark:]

Fair to say that investment is considered in your – the second half of the year in the guidance?

[Brent Lang:]

For sure, yes.

[Steve Anheier:]

Yes, absolutely.

[Michael Polark:]

Yes. Okay, thank you so much.

[Operator:]

Our next question comes from Stephanie Davis from SVB Leerink. Stephanie, please go ahead.

[Stephanie Davis:]

Hey, guys. Congrats on the quarter and thank you for taking my question. I was hoping we could explore the Edge platform a little bit more and some of the use cases that are in development. Should we think about this more as a platform for physician facing tools? And where do you draw the line around things that fit into the physician facing to share a spirit influence as opposed to something you’d rather keep off the platform?

[Brent Lang:]

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’re giving after. The primary use cases for the Edge platform, our focus on acute care facility is similar to the way the traditional Vocera platform is. The bulk of their customer base there is acute care facilities. Although the workflows within those acute care facilities are more – some are more geared towards physicians who are on-site within those facilities. We also think based on the cloud nature of the product, that there is an opportunity to extend out to ambulatory and physician practices and areas outside the acute care environment. And the integration with EHR makes it ideal for some of those workflows and dynamics as well. Does that answer your question?

[Stephanie Davis:]

So it’s helpful. What I’m trying to get at is that it helps with the workflow, but this also gets you into a kind of a broader physician base that you historically have. So would you then want to branch out into some other areas of software that are more physician facing, such as decision support, stuff like that?

[Brent Lang:]

Yes. I mean I think we’re at the stage of our company’s growth where we’re looking for opportunities to expand our TAM. We do that both organically and inorganically. And many of the opportunities we’re looking at for M&A would add new TAM opportunities for us and 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 that we’re doing with new 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 end users carrying awareness of Vocera device and being able to use either the screen or the voices are face 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 platform.

[Stephanie Davis:]

And should I think about – because you mentioned M&A first, is this more of a buy strategy as opposed and it will be a balance of both?

[Brent Lang:]

It’s both. Yes, I think we look at every opportunity in a build by our 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 decided that, that 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 and that kind of thing.

[Steve Anheier:]

And Stephanie to add to that, our balance sheet is even stronger this year than last year at this time even after the two acquisitions as we said in the script, after the convertible note raise. And so, we have about $58 million more of cash than we did last year, it just gives us a lot of flexibility for the inorganic or organic growth rates in past we can take.

[Stephanie Davis:]

Helpful. Thank you, team.

[Brent Lang:]

Thanks, Stephanie.

[Operator:]

Our next question comes from David Windley from Jefferies. David, please go ahead.

[David Windley:]

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 ‘22. And you’ve also both emphasized the conversion 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.

[Steve Anheier:]

Sure. And so, you did pick up on that correctly. The third and fourth quarter are always important entering the next year. I think not to miss so that our record backlog in deferred revenue, as we said, gives us great visibility to 2021, which led to our guidance raise and the 16% top of the end growth. But as we said, it does give us more visibility at this time and since 2022. So we look to improve on that in Q3 and Q4. But we like where we sit right now for that. As far as the pipeline, it 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, and how it rolls out the probability. But we really see broad-based strength. And the government, specifically, as you know, is usually a typically a really strong Q3. We think we will have another good second half of the year. We watch that closely. It can come down for 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 ROIs becoming the facts of standard choice there.

[Brent Lang:]

The only thing I would add on top line is I continue to see the trend towards larger enterprise-wide deals. So the portion of the pipeline that’s tied to these larger deals is definitely increasing. And at the trend we’ve seen developing over the last several years, and we’re definitely seeing that continue to transition.

[David Windley:]

Thanks for that. In regard to sales activity and sales cycle, certainly, we’re in a different place than we were more than a year ago when the pandemic first hit, but some increase in infection rates and things like that, fortunately, maybe not as much hospitalization. I’m just – I’m getting that, is there any impact at all in your ability to kind of maintain the attention of your client or prospective client counterparts in the sales cycle as we progress through the second half?

[Brent Lang:]

I think we remain very much of a top priority. 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 really important aspect. The other thing that I would say is that while there is a lot of distraction and obviously, a lot of things going on in the hospital environment, we are seeing somewhat of a reduction in the level of bureaucrat decision-making processes. I think hospitals are recognizing that they need to streamline their own operations. And we’ve seen situations where once they have been able to identify the funding, the decision-making process is maybe even a little quicker than it has been historically. And I don’t know if that’s a result of just them wanting to make sure that they are keeping as much of their resource available to focus on the pandemic and other health through equity related issues and therefore, kind of streamlining the overall decision-making processes a little bit.

[David Windley:]

That’s interesting. Thanks. And then, Brent, you had mentioned in the past, I think, more at kind of a beta stage, but some attention and focus and investment in analytics as a product. Any update on that?

[Brent Lang:]

Yes, it’s progressing nicely. We’re learning a lot from the beta. This is obviously a new area for us. But I think an area you’ll continue to see more and more focus from us over the coming quarters.

[David Windley:]

Very good. Thank you.

[Operator:]

Our next question comes from Jessica Tassan from Piper Sandler. Jessica, please go ahead.

[Jessica Tassan:]

Hi, thank you for taking my question. So I think you guys facilitated some emergency deployments during COVID. We’re interested to note to the extent that those deployments are 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 a significant amount of backlog of those emergency deployment with whom you have yet to engage and just any color maybe on the conversion rate you have experienced to date would be helpful? Thank you.

[Brent Lang:]

Hey, Jess. So I think, in general, the way to think about this is that the temporary license key, which I think is what you’re referring to, that we started issuing in Q2 and Q3 of last year, have all, at this point, either been converted or had expired. So it’s not, there is no really additional overhang there. We’ve seen benefit from customers who saw the value of our solution. And once funding did become available, we hadn’t made those conversions, but that was probably towards the end of last year. So it really hasn’t 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 and intention for the nurses, how can they free up more time to them and how can they make them safer to be able to deliver frontline care. But the emergency deployment dynamic is largely in the review here at this point.

[Steve Anheier:]

Yes, Jess, that is a good question. Most of that was deployed by Q2 and expired in Q3. I would say the broader highlight would be that just the priority of our solution seems to be elevating, and we’re really seeing that come through our financial results. So maybe a broader enhanced need for clinical communication collaboration along with the battery or the hands-free device.

[Jessica Tassan:]

Got it. That’s helpful. And if I could just follow-up with them, do you have any engagement metrics on the Engage for iPhone app? Maybe what percent of clinicians with access have downloaded and then what percent you did and how often? And thanks.

[Brent Lang:]

I don’t know that we have any statistics specifically around that. As I mentioned earlier, Engage is becoming a much more important part of the overall sales process. If you roll the clock back several years, the typical sales pattern would be that the customer would buy the communications aspect, voice and messaging first and then they would think about clinical integration, almost as an afterthought, maybe 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 and with the clinical workflow aspect being the strategic driver as a way of reducing cognitive overload and clinician payout. And then the communication piece is kind of bundled to meet that. We obviously can see utilization within our customer base, but I don’t know specifically about your question as it relates to the app.

[Operator:]

Our next question comes from Gene Mannheimer from Colliers Securities. Gene, please go ahead.

[Gene Mannheimer:]

Thanks. Good afternoon and congrats on a great quarter in first half. My question, I think, relates to the last one. And you talked guys about how device revenue was down year-over-year, I think about 5% due to that tough comp that was COVID related. So the question is, how much of those emergency deployments were in last year’s quarter. If you could quantify that, that would help us get more of an apples-to-apples comparison on device sales? Thank you.

[Steve Anheier:]

Yes, Gene. Hopefully, we can give some color around 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 still significant. The thing I can give you is that backlog – device backlog is up significantly year-over-year. So that bodes well for the second half of this year. But we didn’t break out specifically last year, the device from COVID versus non-COVID. But hopefully, those other metrics are helpful.

[Gene Mannheimer:]

That’s great. Thank you.

[Operator:]

Thank you, ladies and gentlemen for all of your questions. We currently have no further questions registered. I will now hand back to Mr. Lang to conclude today’s conference.

[Brent Lang:]

Great. Thanks everybody for the time today. We really appreciate it and we look forward to following up with you to answer any additional questions you might have. Have a great day.

[Operator:]

Thank you, ladies and gentlemen for joining us today. This now concludes today’s conference call. You may now disconnect your lines.