Vocera Communications, Inc.
Q1 2017 Earnings Call Transcript

Published: 28 Apr 2017

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Vocera Communications Conference Call. My name is Kelly and I’ll be your coordinator for today. At this time, all participants are in the listen-only mode. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I’d now like to turn the presentation over to your host for today’s call, Sue Dooley, Vocera’s Director of Investor Relations. Please proceed.

[Sue Dooley:]

Thank you, Kelly. Hello, everyone. Welcome to Vocera’s conference call to discuss our first quarter earnings, this is Sue Dooley. Joining me today are Vocera’s CEO, Brent Lang; and Justin Spencer, our CFO. We distributed a press release detailing our quarterly results earlier this afternoon. 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. 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 risks and uncertainties described in Vocera’s 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. With that, let me turn the call over to Brent.

[Brent Lang:]

Thanks, Sue. Good afternoon, everyone, thank you for joining us. On today’s call, I will start by summarizing the highlights from the quarter. Then I will provide more detail on some key customer wins. I will conclude my prepared remarks with some commentary about market and hospital spending environment. First quarter revenue was $36 million, up 36% over the same period last year. Revenue was also up sequentially over Q4 for the first time in many years. This is fourth quarter in a row where we achieved revenue growth of over 20%, and our revenue visibility remains high as we head into Q2. Our Engage software had good success in the market with some marquee new customer wins. We completed the integration of the acquisition into our business and our unified sales team is are under ROI case studies that they can apply during our clinical assessments with customers. In Q1, we had significant new customer wins at Houston Methodist in Texas and St. Elizabeth’s in Illinois, demonstrating the large Greenfield opportunity. We also received another order from MEDCOM validating our success with the Army. Finally, our installed base produced healthy expansion and a growing supply of business. This success illustrates the value our customers see in our platform and highlights the tremendous growth opportunity we have within existing customers who continue to expand to new departments and new users. Overall, our first quarter results reflects a market that is driving hospitals become more efficient and patient focused. The demand for our product is robust as those new and existing customers seek unified solutions to address their communication and clinical workflow challenges. Our mission is to help hospitals achieve the quadruple aim of improving costs, quality, patient experience and staff resiliency, and Q1 gives us a great start toward delivering on our 2017 strategic initiatives. Now let me dig deeper into some of the highlights from the first quarter. We showcased strong sales execution and integration of the combined offering. One of the highlights of Q1 was a $2.6 million booking at Houston Methodist’s health system. The customer purchased an enterprise-wide deployment of our Engage software for clinical alerts and alarm management, which will be used in conjunction with our collaboration suite software on MC40 smartphones. This field illustrates how quickly we delivered an integrated solution to the market and brought this five more win over the finish line in Q1. With this epic EHR deployment now in place, Hughson Methodist will use our solution to help optimize their EHR and achieve productivity enhancements by standardizing their clinical community on a single platform for communication and event management. We also have a $1.1 million win at St. Elizabeth’s hospital in Belleville, Illinois, not to be confused with the previously discussed $1.2 million Q4 we had in St. Elizabeth’s in Northern Kentucky. We are replacing in-building wireless phones with MC40 smartphones and Vocera Badge and we’ll be levering our Engage software across five clinical integrations. St. Elizabeth’s commitment to patient’s safety drove a focused mobile communications strategy around alarm management and delivery. Falls prevention and patient response time improvements are among the operational priorities we will help them address. As they move to a new facility, care team members will transition from an environment where they carry multiple devices across various platforms to our unified and secured mobile communication platform. As I mentioned, we were pleased to receive a nearly $1 million follow on order from MEDCOM, for a deployment at Moncrief Army Health Clinic. Our hands-free communication system is the name standard for all MEDCOM medical treatment facilities worldwide and our deployment which started in Q1 is going really well. Continuing in the federal team, we’ve had a good ran at Charlie Norwood VA Medical Center in Augusta, Georgia. This medical center has two campuses that provide tertiary care, inmedicine, surgery, neurology, psychiatry, rehabilitation medicine, and spinal cord injury. Our Engage software will be deployed at both facilities encompassing 356 beds and multiple clinical workflows to improve patient experience and safety. Our business with existing customers was particularly healthy this quarter with expansion and supplies delivering robust results and software maintenance and support continuing to produce a very high renewal rate. One customer I’d like to feature today is Banner Health, who has been a long-term Vocera customer. After a badge expansion order and a hardware refresh in Q1, Banner is now utilizing our solution across 14 sites with over 20,000 users. We’re pleased to see this kind of ongoing commitment from Banner for our solution. Another highlight from Q1 would be ongoing success of the deployments at our large enterprise customers. The focus we’re placing on these large accounts is paying off, and I’d like to describe a couple of them this quarter. During Q1 we went live with our Engage software at New York University Langone Medical Center. With 42 nursing units across three facilities and over a 100 beds covered, there are very few facilities in the world using such an advanced and deep implementation of both middleware and event response technologies. Workflows included role in nurse call, fill up the patient monitoring, AirStrip waveform and epic treatment team integration for staff assignment. Digital live was a great milestone for the company. University of North Carolina Rex Hospital also went live with our voice messaging and Engage software solutions. We have almost 11,000 users at UNC in Vocera system. This deployment demonstrates how rapidly we have brought a complete solution to market. Now I’d like to talk for a moment from a market perspective. We know that the question on everyone’s mind remains the political landscape, health care policy and how it impacts hospital budgeting. We continue to listen carefully to industry sources as well as our customers about their budget priorities and spending levels. We’ve said in the past that there are some indications, hospitals are being careful with discretionary spending, but so far we’ve heard is generally business as usual for technology purchases. In our experience, budget priorities have remained constant since the election and while uncertainty around the ACA remains, we think hospitals are becoming used to this background noise and are moving forward with their priorities. We continue to believe the completed EHR deployments are freeing up resources for other IT priorities. Solutions that optimize the EHR and resolved workflow pain points are increasingly prioritized to meet the goals of efficiency, quality and staff and patient experience. Our push to help hospitals to achieve the quadruple aim and our emphasis on addressing ROI based spending priorities, directly addressees these pressures and helps in our conversations with large help system. On our last earnings call I highlighted some of our strategic priorities for 2017, and I’m pleased with our execution and progress on those so far this year. We’ve completed the successful integration of our acquisition, unifying our brand, systems, organization and culture. The combine teams are outselling together. And as you can see from our first quarter’s results, they’re winning and displacing competitive solutions. Our large customer deployments are moving forward on schedule and our ROI based sales approach and utilization of clinical assessments to drive conversation with large IDNs and health systems is working well. We’re successfully selling an integrated solution into our installed base and we’re acquiring new customers with our solution which is now comprised of even greater clinical workflow capability. Awareness of our solution in the market is also rising. And hence this year, despite a reduction in overall, it prevents attendance, we experienced a 15% increase in blue traffic and a record level of regeneration activity. We are further expanding our leadership position as the number one clinical communication and collaboration provider by delivering a unified software platform, simplified mobile app and differentiated device of choice strategy. I’m gratified by our continued progress in Q1 and our enhanced position in the market. Strong momentum in the business is continuing with strategic new customer bookings, successful large scale deployments and high customer loyalty. We believe we are in the early innings as we bring our solutions to an under-served market. Today we’re in roughly 1,100 U.S. hospitals which we believe represents an 18% market penetration. We see a large market opportunity to add new hospitals to that list, while at the same time we continue expanding the use of our solution within our existing customer base. We’re making good progress in the market and I’m confident in our ability to continue to drive double-digit revenue growth in our business, while delivering increasing profitability. Now, I’d like to give our CFO, Justin Spencer, a chance to cover the financial details of Q1. Justin?

[Justin Spencer:]

Thanks, Brent. Hello, everyone. Vocera’s first quarter results represented a great start to our year, highlighted by strong revenue growth and profitability that was in line with our expectation. Total revenue in Q1 grew 36% to $36.3 million with double-digit growth in both our Product and Services segment. We entered the year with a strong backlog and deferred revenue position, which helped revenue growth in Q1. The MEDCOM deployments are ahead of schedule and we saw some incremental revenue in Q1 from this faster timeline. While we had a great bookings quarter in Q1 for the Engage product line, the amount of revenue from our recent acquisition were small as we expected. We will begin to convert these Engage bookings to revenue in the second half of this year and they will fuel additional growth in 2018. Product revenue in the quarter increased 45% to $20 million with double-digit growth for both devices and software. Our device revenue grew 36% in Q1, and was driven primarily by the strength of expansions and supplies within our installed base, as well as devices we shift the new facilities including several U.S. Army hospitals. Software revenue grew 74% in Q1 and represented over 16% of our total revenue. Software revenue growth was particularly high this quarter driven by a high volume of new customer deployments. Software continues to be the fastest growing part of our business. Services revenue in the quarter was $15.3 million, up 25% from last year. Our professional services revenue grew over 56% to $4.4 million, as a result of a high volume of new customer implementations that I just mentioned. We believe that we will see another strong year of growth for professional services in 2017. The large portion of our services portfolio is software maintenance and support. With a renewal rate above 95% and several new deployments over the last year, our software maintenance and support revenue grew 17%. This revenue is all recurring and was approximately 33% of our total revenue. A last comment I’ll make related to our revenue is that we continue to have a healthy backlog in deferred revenue position. Based on the seasonality of our bookings we tend to see a reduction in our backlog during the first quarter which occurred as expected. We carry a healthy backlog in deferred revenue position in Q2 with good revenue visibility. Turning now to profitability, our Q1 results were in line with our expectation. I mentioned on the last call that the added costs of the acquired business with reduced profitability in the first two quarters, we expect improvement as the year progresses along with the ramp and revenue. Our gross margin and operating expenses came in as expected in Q1 and we believe we are well positioned to expand profitability on our current cost structure as revenue increases. Now here are some more detail. Non-GAAP gross margin in Q1 was 61% as we expected. Product margin increased to nearly 72% on the strength of both our device and software revenue. Services margin decreased to 47%, reflecting the full impact and fixed nature of the acquired services expenses. We added roughly 55 people in professional services and technical support last year from the acquired business, which increases our overall capacity. So we see significant margin expansion opportunity later in 2017 and beyond, as we ramp this revenue and we align the utilization of these resources with Vocera’s model. As I mentioned last time, we expect our gross margin percentage to be in the low 60%s in Q2 and around 64% for the full year. Non-GAAP operating expenses were $23.4 million, which now reflects a full quarter’s worth of cost from the acquired business. We expect operating expenses to be relatively flat in comparison to Q1 through the rest of this year. We plan to maximize the utility of our combined workforce with higher operating leverage and therefore profit expansion as the year progresses. The integration of Extension Healthcare is complete, and we are now focused on driving sales as one company with their broadened platform solution under the Vocera brand. We’re excited about the talent we brought over, adding strength to our leadership bench and have seen very favorable retention thus far. Our balance sheet continues to be very strong with roughly $71 million in cash and short-term investment and no debt. We use cash in the quarter as expected and our operating cash flow will likely near of the expected improvement in profitability over the next few quarters. Now let me turn to guidance. We’re off to a solid start in the year, and on track to deliver strong revenue growth for the full year. We continue to have a healthy backlog in deferred revenue position and maintain good visibility to revenue. Assets in our past practice at this time of the year, we reiterate our previously issued annual revenue guidance for 2017 of $154 million to $161 million, and adjusted EBITDA of $5 million to $10 million. As an additional note, we have updated our estimates for stock compensation expense to align with the new accounting guidelines, and for tax expense based on the treatment of certain acquisition related deferred tax liabilities. These non-cash changes only affect our net income and per share guidance. Netted against these non-cash changes, we have also released our estimate for acquisition and restructuring expense as the integration has gone well and our deal related costs are lower than we originally planned. For the second quarter, we expect revenue to be between $36 million and $38 million and adjusted EBITDA to be between negative $1 million and positive $400,000. In summary, we were very pleased with the financial results in the first quarter and the momentum we carry into Q2. We are now focused on strong execution in Q2 that set us up for a solid trajectory as we head into the second half of the year. I’ll now turn it back to Brent.

[Brent Lang:]

Thanks, Justin. In summary, I am pleased with the start that Q1 provided for 2017, and I believe our success underscores the strategic importance customers are seeing in our products. We believe the market need for our solutions is increasing and customers are recognizing the unique value of our solutions to their long-term operational success. But we think we’re just getting started. With highly differentiated products and a large market opportunity in front of us, we are excited to build up on this momentum. We look forward to delivering powerful solutions that make a difference to the hospital’s bottom line as well as to the quality of care and staff experience. We believe these are core values and should be prioritized in all environments. I want to thank you for listening today. Operator, we are ready to open up the call for questions. Thank you.

[Operator:]

[Operator Instructions] Your first question comes from Matt Hewitt from Craig-Hallum Capital. Your line is open.

[Matt Hewitt:]

Good afternoon and congratulations on the strongest start to the year.

[Justin Spencer:]

Thanks Matt.

[Matt Hewitt:]

First up, I think you mentioned, it sounds like there was some of the MEDCOM revenues that came in a little bit earlier than you would have anticipated, yet you’re maintaining obviously your full year guidance. Are you looking at the pipeline, seeing the opportunities there and that’s what gives you confidence that the back half of the year is going to remain as robust as maybe we had anticipated exiting last quarter?

[Justin Spencer:]

Hi, Matt. Yes, the MEDCOM deal is progressing really well started in Q1. And we shifted significant amount of the product, the software, the hardware, the implementation thus far going well, we had assumed already in our annual guidance that the majority of that revenue would be in the first two to three quarters. So it’s already kind of fully baked into our annual guidance. What’s happening is maybe a little bit more revenue shifted into Q1, but we still expect to recognize a significant amount of revenue in next quarter – this next quarter Q2 and even a little bit in Q3. So, no change really to the full year estimates or as for the result for the MEDCOM deal. And so the second part of your question, we do have a healthy backlog in deferred revenue position and feel like we’ve got good visibility not just Q2, but to the full year at this point.

[Matt Hewitt:]

Okay, that’s great. And then the service gross margin, a noticeable step down there. You just I think touched on as you’re briefly talking about the additions to the service team, I’m just curious will that bounce back here in the second quarter or is that going to be a progression as the year goes along? And then maybe an update, I know when you announce some of the large deals a year, year and a half ago recognizing the need and how critical those were to get those first implementation is done well and on time, you would gone and hired group to help with that. Is that party still involved or have you kind of taken it all over with internal resources?

[Justin Spencer:]

So in terms of – we began making a more significant investment in our professional services team in early 2016, and it’s been a gradual evolution, but we feel really good about where our resources are and how many we have. And the large deal implementations including MEDCOM have done really, really well. Our services margin in Q2, when we announced the transaction in October we indicated that we would see some margin impact in the services area as a result of bringing in just over 50 people from the extension healthcare organization in technical support and professional services. So the revenue from that part of the business is actually starting to ramp, and we expect to service this margins to increase gradually or the next few quarters and ideally we expect over the next probably three to four quarters to normalize the profitability to will that part of the business with what historically Vocera has been at. But it’s going to take a few quarters to get there and it will be largely a function of the professional services, and the maintenance revenue stream. Now we have a really healthy backlog and deferred revenue positions related with services, so we do have visibility to the revenue increase in that part of the business over the next few quarters.

[Matt Hewitt:]

Great.

[Brent Lang:]

And then regarding to the second part of the question in terms of outside resources, we maintain relationships with outside resources, but one of the nice things about the bench strength that we brought in with the acquisition is we now feel like we’ve got enough capacity inside the company to be able to address most of these service deployments. So we can ramp up those outside services or ramp them down pretty quickly. And right now most of the work is being done with the internal resources, as we sort of buildup the revenue to match that increased capacity. At some point in the future we could obviously turn that outside research back on if it’s necessary.

[Matt Hewitt:]

Okay. Maybe one last one from me, and I’ll be back in the queue. Given the success that you’ve had now for a couple of years and the growing importance of the communication platform within hospitals, have you seen any changes in the competitive landscape? Is there anything that you’re looking at where you’re seeing maybe an opportunity or potentially maybe a little bit of a gap in your portfolio, that one of your peers maybe trying to exploit? And how quickly do you think if that’s the case that you could develop that internally? Thank you.

[Brent Lang:]

Yes. So I don’t think there’s been dramatic changes in the competitive landscape over the last three months to six months. We – if anything, continuing to increase our win rate in the marketplace and with the vision of the Engage software as part of the offering and now delivering a more complete solution to the marketplace, we’re not really feeling like there’s major gaps in our offering as a clinical communication and collaboration vendor. I think there’s always an opportunity to expand the value proposition of what Vocera is giving to the marketplace, but from a competitive standpoint today we feel like we have the most complete offering across the space and the win rate would reflect that that success. So I think for us, as we look at M&A in the future it would more likely be things that would help expand our total available market or enable us to reach into other growing market opportunities.

[Matt Hewitt:]

Okay, great. Thank you very much and congratulations again.

[Brent Lang:]

Thank you.

[Operator:]

Your next question comes from Gene Mannheimer from Dougherty. Your line is open.

[Gene Mannheimer:]

Hey, thank you, good afternoon, and congrats on a good quarter. Can you remind us how much the extension contribute to revenue in the quarter, you said it was small, I just wonder if you could quantify and reiterate the full year expectation from that acquired business?

[Justin Spencer:]

Yes, Gene, it was relatively small. We’re not breaking it out, because we resell the solution, now it’s really an integrated solution with the rest of our software. However, we are very comfortable with previously issued guidance; it’s contributing roughly $15 million of revenue in 2017. And as Brent mentioned in his prepared remarks, we had a really solid beginning to the year with Engage product line, several new deals including a few large ones, and really feel good about the momentum. So we have a good backlog, deferred revenue position with that part of the business specifically and the revenue is expected to be back and waited as we had planned all along. So we’ll see more material revenue impact from that part of the business in the last – in the second half of the year.

[Gene Mannheimer:]

Okay, great. So fair to say that the strength in the Q was really driven predominantly by the core business pre-extension, okay. And then let me ask this, how much of the time the new bids is extension being pitched and what’s the early reception? How often are customers opting for it?

[Brent Lang:]

Well, it’s a great question, Gene. One of things we’re really trying to push the sales organization do is to sell the complete platform. So I would say with new customer opportunities, we’re trying to include the Engage software in almost every single one of those, because we really believe that it’s a core part of the overall solution offering. And I guess the early results from Q1 would indicate that our success there has been quite high and many of the large deals that we closed in Q1 were combinations of Vocera core collaboration suite as well as Engage software being sold together. And I think that that is really very encouraging – reassuring and encouraging as we look forward into the future quarters. Both the Houston Methodist deal as well as the St. Elizabeth’s deal had an Engage component to it. In fact, in the case of Houston Methodist that was the deal that really had started on the Engage side and then expanded across the other products. So we’re feeling really good about the capabilities with the combined platform. And our intent and what we’re instructing the sales force to do is to try to sell that unified platform across all the new deals. As well as going back into the installed base to do the cross LPs, selling the communications capabilities into the Engage installed base and selling the Engage capabilities into our communication installed base.

[Gene Mannheimer:]

Sure, sure. Thank you very much.

[Operator:]

Your next question comes from Steve Halper from Cantor Fitzgerald. Your line is open.

[Steve Halper:]

Hi. Could you just reconcile for me the reduction in the non-GAAP loss approach – the non-GAAP EPS guidance for the year? You brought the range down by $0.5 on either end and you did mention a change in the accounting for stock compensation. Where exactly – in the tax expense, where does that hit exactly?

[Justin Spencer:]

Sure. Hi, Steve. So the non-GAAP EPS amounts, the only change is the tax expense and then to the – so we’ve increased the tax provision expense by some amount and that’s reflected in the table there in the back in our guidance. And then affecting the GAAP net income and EPS are three things. One is an improvement or a reduction in expense related to the acquisition costs, and then additional stock compensation expense, and the tax provision. So the tax provision affects both the GAAP and the non-GAAP and then stock comp affects – stock comp and the acquisition related expenses affect the GAAP.

[Steve Halper:]

So the $3.6 million of stock comp from the quarter, is that indicative of the next quarters – the next three quarters?

[Justin Spencer:]

No, it’s going to increase. So really you should look at, because the way, the timing of our grants is we issue equity grants to our employees including executives in the first and second quarter of the year. So the stock comp expense is going to be higher in the second half.

[Steve Halper:]

By what magnitude, apart for us to estimate that?

[Justin Spencer:]

Yes. By some amount, I would just kind of gradually ramp it up from where it is today.

[Steve Halper:]

Okay. Thank you.

[Operator:]

Your next question comes from Nicholas Jansen from Raymond James. Your line is open.

[Nicholas Jansen:]

Hey, guys, thanks for all the color in the prepared remarks. Just a couple of quick ones from me. If you kind of look at the new customer wins, I guess I’m just trying to get a better understand of are they all encompassing win? Just want to kind of get your sense of when you are announcing some of these larger transactions, how do we think about the timeline and the potential for further penetration within these bigger customers?

[Brent Lang:]

Hey, Nick. So it definitely varies from customer to customer. In some cases they’ve rolled out the products pretty much else wide, in others it’s more, still across a subset of them. I tried to give as much color as I can during my descriptions about them. In the case of Houston Methodist, the Engage portion was rolled out pretty much else wide, some of the communication elements were more limited and I think there is some expansion opportunity there. The MEDCOM deal that was obviously in another hospital sort of an add-on to the previous ones, I think there’s more upside there because that was more on the communication side and didn’t include the Engage portion or any kind of connectivity or integration portion in there. So it really varies. I think the goal now with the sales force is to try to sell the complete platform and try to sell as wide as possible. Sometimes it’s a function of what available budgets are there to be spent now versus in the future and so hospital may start smaller and then expand from there. And we’re still selling a large portion of our overall bookings and therefore revenue is still coming off of the expansion part of our business and the supply part of our business. Obviously, the growth at the top end is coming from these larger deals. But we had particularly a good quarter within our installed base. I didn’t spend much time talking about in the script, but just across the board with supply, with maintenance renewals, with expansions, the installed base certainly really did a nice job of executing in Q1 which can historically be a pretty quiet period. So we were really happy with the help of the installed base.

[Nicholas Jansen:]

And can you just remind us, how much of your sales force time is spent on going back to your existing customer base versus perhaps doing some larger I think from an enterprise perspective?

[Brent Lang:]

Yes, just as a reminder, we essentially have few parts to our sales group. Our customer relationship management team which is focused on selling in for the installed base and then our U.S. Health Care team which is really focused on new customers. There are some expansion business within that portion of the business as well, but mostly they’re focused on new customers. From a quarter carrier headcount, it’s split roughly evenly between those two organizations. There’s more dollars being produced out of the installed base because that incorporates the maintenance fees, the supply fees and expansion. But in terms of amount of resources applied to it, it’s roughly split half and half between those two groups.

[Nicholas Jansen:]

Great. I will hop back in queue. Good quarter, guys.

[Brent Lang:]

Thanks Nick.

[Operator:]

Your next question comes from David Larsen from Leerink. Your line is open.

[David Larsen:]

Hi, can a talk a bit about your experience within the VA and also the DOD? And if VA basically has an RFP in the market or RFI in the market for a new EHR solution, how could that impact you, if at all?

[Brent Lang:]

Hey, Dave. So we felt separately for the VA and DOD, it’s a separate decision making process. On the VA side, it’s really all of the decision are driven at the vision level which are these regional decision making authorities. On the DOD side, it’s more based on the branch of the military whether it’s Army, Navy or Air Force. The deal that we closed in Q1 on the DOD side was with another Army hospital, so it was somewhat of an extension of the MEDCOM transaction that we had in the past. On the VA side, the VA win was actually an Engage win. As we mentioned, the time of the acquisition, Extension Healthcare had substantial amount of success in the VA prior to the combination with Vocera, and this deal in Q1 was an example of that. In terms of the impact of the RFP on their EHR side, we haven’t seen any impact from that on the selling process. The one thing that we’ve heard is that there’s been a commitment to interoperability. The part of that process is that they are committed in operating with Vocera and that was imbedded enough in those organizations at this point, that they view as a strategic part of their overall operational workload. And so I think that any EHR decision is going to be dependent on being interoperate with the work that we’re doing.

[David Larsen:]

Okay, great. And in terms of the American Health Care Act, I things heat up, what impact could that have on your base? And are you having any discussions with clients around it? Are there any delays you’re potentially seeing or not? And I’m sorry, I’ve got on a call little bit late. So, if you already talked about that, sorry about that.

[Brent Lang:]

Yes, that’s okay. I did talk about it quite a bit in the early part of the script. But the bottom line is that we’re really not seeing any dramatic shift, it’s basically business as usual for technology purchases. Clearly there’s a lot of noise and there’s a lot of kind of wait and see what’s going to happen. But from a policy perspective and from a budget perspective, what we’re seeing is that hospitals committed to their technology spending priorities, in most cases before the election, and they are sticking to those. And so we haven’t seen delays or any substantial impact in terms of spending on our product line as a result of the uncertainty. And more importantly, I think we’ve talked about this before, but the focus of what we’re selling in the marketplace, we really believe in policy independent. Our focus on the quadruple aim, focusing on cost, quality, patient experience, and staff resiliency is largely independent of what happens with the insurance markets or any these other dynamics shifts. Hospitals know that they need to improve their cost structure. They know that they need to focus on quality of outcomes and patient experience. And the piece that I think about Vocera is really uniquely owning this whole area of resiliency and staff experience. There’s been a lot of discussion recently about burnout amongst nurses and doctors, and the negative impact that technology has had on that, particularly the electronic health record. And what we’re hearing more and more is organizations that are trying to optimize their existing EHR deployments by utilizing Vocera to sort of streamline some of the households and complications that have resulted as a result of that EHR deployment. So there are looking at us a way of streamlining communication and improving those elements of the quadruple aim.

[David Larsen:]

Great. Thanks and congrats on a good quarter.

[Brent Lang:]

Thanks Dave.

[Operator:]

Your next question comes from Nina Deka from Piper Jaffray. Your line is open.

[Nina Deka:]

Hi, everyone. Thanks for taking the question.

[Justin Spencer:]

Sure.

[Brent Lang:]

Hi, Nina.

[Nina Deka:]

Hi, can you describe what type of competitive advantage you have, if any within your implementation capabilities in terms of reducing the burden among your customers IT staffs? And how would say that this advantage have changed from where it was three years ago?

[Brent Lang:]

That’s a great question. I think I would point to two areas. Number one, we just have more experience. With 1,400 hospitals using the Vocera system today, we’ve got a team of professional services people who have a tremendous amount of experience in these hospital environments, running into the challenges whether it would be on the Wi-Fi side, whether it’s with specific clinical integrations. So we gone way up the learning curve on that and we have a scalability to respond to larger deployments because of the size of the professional services organization. I would say that the biggest thing that’s changed with the acquisition is that now we can go in as a unified vendor and deliver a very complete end-to-end solution. So we’re not having to coordinate with multiple vendors at the customer side, customers typically don’t like to have to coordinate multiple vendors. And I think having the completely solution under one roof is certainly simplifying that aspect of it. So I think those would be the two things that I would point to. And on the product side obviously the breadth of the solution is really unmatched in the marketplace. And then in the services that kind of wraps around that, has to be able to handle all these different components to it. I guess the final thing I would point to is, we have a very strong focus on balancing both technical and clinical resources. We’ve made a fairly substantial investment in not just having technical people within professional services who understand how to configure and deploy the software and configure the wireless networks or monitor the wireless quality, but also on the clinical workflow side. And with the clinical resources, these are people who are oftentimes trained as nurses, and worked in hospital environments. They speak the language, they understand what it means to do some of the clinical integration, what some of the downsides of alarm fatigue might result in. And as a result, can sit down and really act as a partner with the customer as we work through the deployment and the training and the roll out of these systems, because they’re working having direct personal experience of having worked in these environments.

[Nina Deka:]

Great, thanks. And then just one follow-up. If you could describe how the Banner relationship has evolved over time, how long were they partnered and what where they initially buying in the very beginning?

[Brent Lang:]

Yes, the Banner relationship is well over 10 years old. We probably sold our first Banner Hospital back in 2005-2006 timeframe. They’ve been a very loyal customer to work. They’ve started out with just one hospital and over time had grown to adding multiple departments in that hospital and then adding multiple hospitals on to that system. And so now, most of the Banner facilities are using the Vocera capability. And it is a good illustration of the recurring nature of our business, because obviously there’s maintenance renewals associated with that. There’s the increases in the size of their licenses and their users, and then there’s the refresh aspect of the badges and batteries that coming on a regular basis as they upgrade to the latest and greatest version. We take tremendous amount of pride in our customer loyalty and customer satisfaction and maintain a strong relationship and it certainly pays off with customers like Banner who continue to see great promise in their in their utilization of Vocera over the years.

[Nina Deka:]

Great, thanks. Congrats on the quarter.

[Brent Lang:]

Thanks Nina.

[Operator:]

[Operator Instructions] Your next question comes from Mike Tamas from Oppenheimer. Your line is open.

[Mike Tamas:]

Thanks, good afternoon, and congrats on the nice quarter. Seems like there’s been several quarters of healthy expansion, just wondering if there’s anything in particular driving that house of M&A, aging devices and do you see it continuing?

[Brent Lang:]

I think the thing that I would point to is really the market dynamics have shifted to be much more favorable towards our solutions that, coming out of a year where there was a tremendous amount of focus on the electronic health record rollout where our IT resources and dollars were very focused on that deployment. And now that that’s largely behind us for most hospitals, they’re really looking at what are their other spending priorities and IT priorities and more importantly how can they improve utilization of their EHR and reduce some of the hazard factor. I think in parallel to that, we have executed more effectively over the last couple of years. On the sales side, Paul Johnson done a great job of building a sales organization, that’s really focused on enterprise selling and concentrated approach, working with customers on understanding the value of our platform and selling higher in the organization at the fee suite, which has resulted in larger deals. And on the product side, we’ve really moved from being viewed at a point product around voice communication to really being used as a complete solution. The platform, scalability, the security, the functionality, the ability to have a choice of devices running off about platform, and integration, functionality, and clinical integration capabilities are making a product and most frankly making the company, we viewed very differently from the marketplace. And I think it’s really the combination of improvement in the market dynamics and then the execution that we’ve had on both sales and marketing as well as on the product side, that’s really helped drive the growth.

[Mike Tamas:]

All right, thanks. And then could you give us an update on non-healthcare vertical?

[Justin Spencer:]

Sure. Non-healthcare, we view non-healthcare pretty opportunistically. We don’t make a lot of proactive investments in non-healthcare largely because we feel like the value proposition in healthcare is so strong. We have a small team of people that’s out calling on a couple limited markets in hospitality and nuclear and some of these other verticals. We didn’t have any standout wins in Q1 in that space. But we – if you look at the announcements over the last couple of quarters, we continue to add some nice properties in the four seasons and several weeks in power plants that closed last quarter. So it’s an incremental piece of our business, it’s not something that we’re banking on as being a major growth driver, but it’s always make that incremental business.

[Mike Tamas:]

All right, thanks a lot.

[Justin Spencer:]

Yes.

[Operator:]

There are no further questions at this time. I’ll now turn the call over to Mr. Brent Lang for closing remarks.

[Brent Lang:]

Okay. Thanks everybody for dialing in today, I really appreciate your time. As we said, we’re happy with how we got thing started to be at the beginning of the year, and we’re looking forward to a strong remainder of the year, and I look forward to sharing with you on the go forward basis. Thanks a lot.

[Operator:]

This concludes today’s conference call. You may now disconnect.