Vocera Communications, Inc.
Q3 2015 Earnings Call Transcript

Published: 28 Oct 2015

[Operator:]

Good afternoon, ladies and gentlemen and welcome to the Third Quarter 2015 Vocera Communications Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder this call is being recorded for replay purposes. I would now like to turn the presentation to over to your host for today's call, Mr. Jay Spitzen, General Counsel. Please proceed.

[Jay Spitzen:]

Hello everyone. Vocera distributed a press release detailing quarterly results earlier this afternoon. It is posted on our website, www.vocera.com and 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. 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. This conference call will contain forward-looking information, including statements regarding Vocera's projected operating results and anticipated market opportunities. This forward-looking information is subject to risks and uncertainties described in Vocera's filings with the Securities & Exchange Commission. Actual results or events may differ materially. Let me now introduce our President and CEO, Brent Lang. Brent?

[Brent Lang:]

Thanks Jay. Good afternoon everyone. The third quarter of 2015 was another strong quarter for bookings, revenue and backlog. Q3 revenue of $26.5 million up 14% over Q3 last year and our fourth consecutive quarter of year-over-year bookings growth validate that the growth strategies we've been implementing are working. In addition, backlog finished at a record level providing us with increased visibility into future revenue. We achieved these outcomes despite mixed results in our federal government business where budget issued at the Veteran's Administration pushed out some of our VA pipeline into future quarters. However, we did book a new army medical center and a couple VA hospital expansions in Q3 and our fed team is feeling positive about our prospects over the long term. Sales of our core communications products was strong as hospitals increased their focus on communications and collaboration solutions to improve patient safety and operational efficiency. The average deal size of initial customer purchases increased as more customers look to communication solutions as a strategic priority. More customers are evaluating house wide [ph] or even system wide purchasing of communication solutions rather than departmental purchases which have been the core of our business in the past. In fact, we booked the largest deal in the Company's history during Q3. This deal helps contribute to our high backlog position since like other large system wide purchases deployments and therefore revenue will be spread out over multiple future quarters. Q3 gave me increased confidence in our business and demonstrated the unique differentiation of our solutions which was reflected in our high competitive win rate during the quarter. I believe that both strategically and operationally we are making good progress towards our vision of becoming the leading provider of communication solutions for the healthcare industry by delivering secure, intelligent and integrated products and technologies. At the market level we continue to see many of the same trends I discussed on the call last quarter. While hospital peers remained focused on improving their financial position in controlling costs the spending environment had stabilized and we believe there was an increased focused on mobility and communication solutions. Hospital sales cycles continued to be elongated, but the overall selling environment for our solutions is gradually improving as organizations recognize the positive impact of communication and care coordination. Current industry trends including consolidation of healthcare providers and increased consumer choice will further drive the desire for cost effective tools that improve efficiency and patient satisfaction and we are well positioned to help meet that demand. We are starting to see larger, more comprehensive opportunities for our platform as hospitals and health systems think strategically about communication and care coordination across their enterprise. One example of this was our win at the University of North Carolina Health System, a $3.6 million booking covering eight hospitals and three clinics. UNC purchased our complete solution to highlight the importance of providing integrated communication platform. Our platform differentiated us from the competition and our integration capabilities unique wearable communications badge and our relationship with Apple all helped us win this deal. More and more organizations are recognizing the importance of delivering critical information to the right person on the right device, supported by intelligent critical workflow. These industry trends and buy behaviors position us well in the marketplace as the leader in this space with over 1000 loyal healthcare customers and a broad communications platform that is deeply integrated into the clinical workflow. Our investments in new product development, technology acquisition and integration partnerships are benefiting our business and enabling us to deliver a broader communication platform for our customers. Today, more than half a million healthcare workers use our Vocera solutions to improve patient safety and operational excellence. Now let me turn to some highlights from the third quarter in customer win, new products and our international market expansion. We say strong year-over-year growth among US commercial hospitals for both new customer wins and expansions within our established customers resulting in double-digit bookings growth in this area. The UNC win, the largest in our history was clearly the highlight for new hospital customers. The deployment includes a 4000 feet enterprise software license for our communications platform supporting a mixture of Vocera values and iPhones running the Vocera collaboration suite software and we leveraged our strategic relationship with Apple to help win the deal. This win highlights our integration capabilities with Abbott [ph] Nurse Call and our alarm management platform and the flexibility of our solution running on different devices. Other significant new hospital bookings included Darnall Army Medical Center, the Army's newest and surgical hospital at Fort Hood and Citizen's Medical Center where the CEO had come from another Vocera hospital and had seen the dramatic impact that Vocera can have on the hospital culture and patient experience. Another big win was the Driscoll Children's Hospital who purchased a full line of our solutions including software platform, badges, collaboration suite and the Clinical Workflow Engine with integrations into our Alarm Analytics Module and physiological monitors. I was particularly happy about the number and the size of the new hospital bookings in the quarter because this is a very positive sign for the future of our business. We also booked significant customer expansions in the quarter including Health First as well as large Badge refreshes Bena [ph] Health, Trinity Hospital and Metro Health. The quarter also included some impressive wins outside of healthcare with successes at Seabrook nuclear power plant, Clark County Library, a 12-branch library system in Las Vegas and the [indiscernible] Store in Manhattan. Finally we had another quarter of very high software maintenance renewals which demonstrates high levels of product differentiation and customer loyalty. The quality of our professional services and technical support teams are frequently mentioned by our customers as a real differentiator of Vocera solutions. Now let me give you an update on the success of our new product. Although it is still a small portion of our overall business, bookings for our new products were up substantially in Q3 on a year-over-year basis. Our biggest success in the new product area was with the collaboration suite which was included in several of the large wins I mentioned earlier. Our platform strategy and support for a range of different client devices makes Vocera the easy choice by providing customer's options for handheld and wearable devices. In addition, we continue to roll out the Vocera secure texting solution offered free to Vocera customers who have our system installed and were current on software maintenance. Buy offering this functionality, is part of our communications platform. We are increasing the power and differentiation of our solution. As I mentioned, our Clinical Workflow Engine played a key role in some of our new customers wins. The Clinical Workflow Engine provides connectivity to a variety of clinical systems including Nurse Call and psychological monitors and eliminate the need for customers to purchase third party middleware software. We also booked new business for our patient engagement solutions with new subscriptions for our Care Rounds solutions at SUNY Upstate Medical Center and University of Chicago Medicine and added four new members of our experience innovation network. Finally, I want to highlight that we continue to be actively engaged with both Apple and Zebra a number of promising opportunities. Hopeful in sourcing and closing deals and have enabled us to create technology solutions supporting our strategy to give customers a choice of devices to meet their needs for clinical communications. Switching gears, let me update you on our progress in our international markets. Q3 was a strong quarter for international with bookings up 20% compared to Q3 of last year. In Canada, new hospital deployments including St. Mary [ph] Lake and Niagara Health System who purchased a large collaboration suite license and plan to rollout a solution to 5000 users over the next 18 months. In Australia we have a couple more aged care facilities and we also booked a new hospital in the UK called Sheffield Children's NHS Foundation Trust and we sold a further expansion into our large deployment at the Cleveland Clinic in Abu Dhabi. Our sales pipeline in the international market continues to grow and our investments in these markets are beginning to pay off. Overall, I'm very pleased with the continued progress we made in Q3 delivering results above expectations and executing on important strategic initiatives designed to propel our future growth. As the domestic hospital market continues to stabilize and our own execution improves I'm increasingly confident in our ability to drive growth in the business while improving profitability. Now let me give our CFO, Justin Spencer a chance to provide some financial highlights. Justin? Thanks Brent. Hello everyone. Our third quarter results demonstrated ongoing momentum in our business, meeting both our top and bottom line expectations and setting us up for a strong finish to the fiscal year. Third quarter revenue were $26.5 million up 14% versus Q3 last year with strength in both our product and services revenue categories. Product revenue increased 18% to $14.1 million with double-digit growth in both software and devices. This growth was driven by several new facility deployments as well as robust expansion and recurring supplies purchases from existing customers. Services revenue was $12.3 million up 11% from last year and continued to be a consistent and stable revenue growth engine for us. We again benefited from a growing number of customers utilizing our software maintenance and support services and continued to see a high healthcare customer renewal rate. Software maintenance and support revenue up 11% from last year is mostly recurring and was approximately 80% of our total services revenue. Our customers consistently rate Vocera's technical support and professional services groups very highly and view it as an important part of our value proposition. We expect our services business to continue to grow as our installed base expands and as we sell our broadened suite of software products. To complete the revenue picture, our backlog and deferred revenue are at record levels providing good visibility to revenue in Q4. Non-GAAP gross margin increased to 62.8% from 60.4% last year. Both our product and services margins improved from last year as a result of higher revenue and our continued focus on operational efficiency. We expect our gross margin percentage to be at or slightly above this level in Q4. Non-GAAP operating expenses were $17.6 million down slightly from last year. We remain on track to achieve a 4% to 6% year-over-year reduction in OpEx for all of 2015 as we committed previously. We continue to invest in areas that we believe will drive growth including R&D, sales and services and marketing. For example investments we have made over the last few quarter in tools and training for our sales force has helped increase our sales productivity which was up significantly compared to last year. With the higher revenue in gross margin our adjusted EBITDA loss in the third quarter improved to $400,000 compared to a loss of $3.5 million last year demonstrating the operating leverage we have in our business. We believe we can reach adjusted EBITDA breakeven in the fourth quarter. Our non-GAAP loss per share also improved meaningfully to $0.04 concurred to $0.16 last year. Now, a few comments on our balance sheet. Our balance sheet remains very strong with just over $116 million in cash and short term investments and no debt. Our cash flow performance in Q3 again exceeded our expectations. With cash remaining nearly flat compared to last quarter, our focus on improved cost ability and efficient working capital management has enabled us to significantly improve our cash flow in 2015. Year-to-date our operating cash flow has improved to nearly breakeven compared to a negative $3.9 million in the first three quarters of 2014. While cash flow can sometimes fluctuate from one quarter to the next due to changes in working capital, our cash flow will generally follow our profitability performance in the longer term. Before I turn to guidance, I'd like to provide an update on our shareholder litigation. We are pleased to report that we have reached an agreement in principle to settle the matter for $9 million subject to approval by the court. The settlement will be funded entirely by insurance. As is typically in this situation several months will be required to complete all required formal stuff at which point this matter should be closed. Now let me turn to guidance. Our business momentum and near term visibility to our backlog and deferred revenue give us confidence in our ability to meet higher revenue levels in Q4 and fiscal 2015. As a result, we are raising our full year 2015 revenue guidance from a range of $97 million to $101 million to a range of $101 million to $103 million. The implied guidance for the fourth quarter is $25.3 million to $27.3 million. As [indiscernible] Q4 is typically our largest booking quarter with seasonal highs in backlog and deferred revenue. The rest of the guidance details and a reconciliation of GAAP to non-GAAP measures are included in the financial statement linked to the press release. In summary, our financial results reflect increased sales momentum and improved execution in all areas of our business. We expect to finish the year strong and our laser focus on executing well across the company this quarter so that we can enter 2016 with even more momentum. I'll now turn it back to Brent.

[Brent Lang:]

Thanks Justin. Third quarter results showed excellent execution among our sales and service teams, effective cost control and operational execution. Interest in our core products is retuning and the new product offerings are starting to gain more traction. Our business has a lot of leverage and as we grow we remain on the path to profitability. I appreciate the dedication of our employees and the continued support of our customers. We are excited to build on this momentum and look forward to a strong finish to the year. Thank you for listening today. Operator, we are ready to open it up for questions. Thank you.

[Operator:]

[Operator Instructions] Our first question comes from the line of Jamie Stockton from Wells Fargo.

[Jamie Stockton:]

Yes, thanks for taking my questions. I guess maybe the first one Brent on the UNC deal how important do you feel like the integration with Epic was in getting that business?

[Brent Lang:]

I wouldn’t say it was important, but it was one of many integrations. I think that they really were excited about our integration capabilities across multiple areas including Nurse Call and physiological monitoring. The Epic piece was a piece of that, but it was not I would say the main driver.

[Jamie Stockton:]

Okay and then maybe just one more for you on kind of the overall business, I mean what's your gut tell you about the sustainability of the momentum that you seem to have, I mean you referenced hey we signed the biggest deal in the company's history during the quarter. I mean if I look back at kind of history salesperson and productivity metrics, you guys have climbed out of the hole that you were in and maybe you are not all the way back to where you were three or four years ago, but you've made up a lot of the ground. Can you just talk about whether there is a lot of room for improvement from here on stuff like salesperson and productivity are we mostly going to see incremental momentum in the business be more international? I guess maybe I'll stop there. Thank you.

[Brent Lang:]

Sure, yes I think there is multiple pieces that are moving. First in terms of sales productively, as you mentioned we have made some substantial progress in that over the last several quarters. However, we do see additional room for improvement there and we've modeled that into our systems. Paul Johnson, our head of sales has been monitoring that very closely and we have not yet reached the target we'd like to see in terms of total sales productivity. So we think there is additional upside there. The head count in our sales organization particularly here in the U.S. is remaining relatively flat and we're up a few from where we were before, but it is relatively flat. We see increase in productivity from some of the tools and some of the account management and account planning activities as well as the broadened product offering which drives greater productivity for the reps because they are selling multiple solutions. So I think that the trend towards system wide sales seems to be a pattern we're seeing larger deals in our pipeline. So I wouldn't consider UNC to be a one-off situation. We see renewed strength in our U.S. business that has been coming back largely over the last several quarters. The international growth I think is yet to be really factored into the numbers at this point. International in terms of revenues was still some 10% of our business this quarter and we’re still seeing a strong international pipeline there and so to the extent that that layers that are on top of that could drive additional growth from it, but is there obviously, multiple different levels that are impacting the results.

[Jamie Stockton:]

Okay, thank you.

[Brent Lang:]

Yes, thank you.

[Operator:]

Our next question comes from the line of Matt Hewitt from Craig-Hallum Capital Group.

[Matt Hewitt:]

Good afternoon. Congratulations on the momentum and the success here in the third quarter, just a couple questions from me first of all the success that you’re seeing with Apple was your partner, may be you could go into a little bit of how those RFPs or how those potential deals are coming into your pipeline is Apple leading and you are kind of taking the reins from there or you leading and made single by the way we’re partnered with Apple and that’s kind of helping drive that business.

[Brent Lang:]

I would say it's more of the latter, we are driving the majority of these deals based on the capability of our software platform and our software in general as we go through the sales process many of the customers are going to evaluating which device they want to be using and what mixture of devices they want to be using to support the platform and once they narrow in on that solution often times we can get them and touch with the appropriate people within our partner organizations. The way they help the dialogue I think is that when the customers then get’s in touch with those organizations they can validate the robustness of our solution and the opportunity for our software platform to run on the various devices and that form of help in the selling process help us in closing the deals.

[Matt Hewitt:]

Okay and regarding the order that you would mention on the government side that that got pushed are those potentially Q4 transactions or is it uncertain at this time?

[Brent Lang:]

Some will be Q4s, some will be orders that come in next. It depends a little bit between difference between the DoD and VA. The VA orders are more likely to be coming in early 2016 and but we’re seeing some strength in DoD in Q4 as well so, historically most of our fed business was booking in Q3 because lot of that into the fiscal year what we’re seeing is – orders being spread out little bit more evenly across multiple quarters from a bookings perspective obviously the conversion to revenue on those within the spread out depending on when the deployments would occur.

[Matt Hewitt:]

Okay may be on more from me and I’ll hop back in the queue. The HIPAA phase II audits that are coming up here in early 2016 will that have any impact will that drive sales in any way?

[Brent Lang:]

I don’t think so. It hasn’t come up in a lot of our customer conversations that I am aware off, I don’t anticipate that being a big driver.

[Matt Hewitt:]

Okay, all right, thanks guys. Congratulations on the quarter.

[Brent Lang:]

Thank you.

[Operator:]

Our next question comes from the line of David Larsen from Leerink.

[David Larsen:]

Hi, guys congratulations on a good quarter. Can you talk about the new products that you have been bringing into market that are focused more on care coordination and what impact did those products have on your sales success this quarter? Thanks.

[Brent Lang:]

Yes, hi David thanks. So I think what we’re seeing is that customers are recognizing that Vocera has one of the broadest product portfolios when it comes to care coordination and communication and they are looking towards a vendor that can be more of a unified solution for them rather than having to work across multiple vendors for multiple pieces of technology solution. And so they come to Vocera viewing us as the market leader and as they think about how they coordinate communications across may be not just a department but across in its higher hospital or entire health system they’re interested in some of those newer products that help us drive the communication outside the hospital when across the multiple hospital facilities its really part of the overall portfolio.

[David Larsen:]

So you mentioned a couple of significant wins in the quarter, did they purchase the Care Coordination Solutions as well as the Badges?

[Brent Lang:]

Yes, the software platform was a core part of the purchase decisions and in some cases they have been running out on a mixture of badges and smartphones, in some cases they also are involved for example the Care Rounding modules that's part of our care experience product line.

[David Larsen:]

Okay, great, thanks. And then Justin the gross margin expanded nicely year-over-year. But on a sequential basis I think it pulled in by maybe 100 basis points. Can you maybe just talk about that a little bit?

[Justin Spencer:]

Yes, the gross margin is up year-over-year mostly it’s result of favorable mix, we’ve also been focused on reducing some of cost in our operations area, we don’t get too concerned about normal fluctuation like that from quarter-to-quarter, it can vary just depending on the mix of software and devices, but overall this is a gross margin structure that we see carrying forward into through Q4 and then to 2016.

[David Larsen:]

Okay, great. And then Justin your sales and marketing and also your G&A line items sequentially improved is that sort of your cost restructuring efforts bearing fruit?

[Justin Spencer:]

Yes definitely, for the full-year we've really have been focused on aligning our cost with the revenue base by and large we’re pretty much complete with the restructuring efforts we were earlier in the year. So, we’re at a new kind of base line level of spending and we expect to carry that forward through the end of the year and then into 2016.

[David Larsen:]

Okay, great thanks and congrats again on a good quarter.

[Justin Spencer:]

Thank you, David.

[Operator:]

Our next question comes from the line of Ryan Daniels from William Blair.

[Ryan Daniels:]

Yes, thanks for taking my questions. I’ll add my congratulations as well. I guess for the first one you talked about both today and in the past how communication and care coordination are becoming more of a C-Suite issue and I’m curious obviously that’s helping your sales, but has it required any rethinking of your sales modeling or any of your sales and marketing initiatives as you kind of seeing this change take place in the market?

[Brent Lang:]

Yes, hey Ryan, interesting question. I think two things that I would point to you there, one we have really been focusing with our sales force on training them and enabling them to be able to tell the broader story, some of that is required even in some cases upgrading to people who are more comfortable with an enterprise sale process and selling higher in the organization. The second thing I would point to is that the deep integration elements of some of these deals will require slightly higher level of professional services and it’s something that we’re actually really proud of we think our professional services organization is really world class, so it’s a competitive advantage that we feel like we can leverage even stronger, but it does change the makeup of the deals a little bit slight increase in the portion of professional services in the deal.

[Ryan Daniels:]

Okay, that’s helpful and a follow-up to that is that changed your view on using VARs? I know you have talked about that, but especially if the integration in professional services is more intense, I assume you want to keep that in-house and at the same time you’re seeing more demand for your complete platform, does that kind of change your view on VARs going forward?

[Brent Lang:]

Yes, I think as we look at adding reseller partners to the business what we’re realizing is the VAR maybe not be the right type of partner, I think that there are some strategic partners that we’re looking at, would have got deeper level of capability that would be more likely to be the kind of partner – would make sense for our business the traditional VAR likely does not have that level of sophistication higher to sell to the C-Suites or to be able to handle the professional services components of some of these deeper integrations, but some of our strategic partners are more likely to be help us down in that case.

[Ryan Daniels:]

Okay. Two more quick ones, you mentioned the movement towards more system wide sales which is an interesting trend versus just seeing specific department like ED can you talk a little bit more about how broad that is, is that just an emerging trend you’re seeing you are starting to see the majority go. I don’t know if you actually track kind of that as part of the sales pipeline would be curious how broad that trend is?

[Brent Lang:]

Yes, I think that the trend is being accentuated by the consolidation in the marketplace. As health systems merge with other health systems and also vertical integrate with physician practices there is definitely a movement within the industry to try to centralize making and standardize on solutions as opposed to historically what we saw a lot of budget control was being managed at a lower level of the organization. We’re seeing particularly activity by academic medical centers that are working to build relationships out into their community and are trying to standardize on communication solutions. It’s not like there is suddenly hundreds of deals that are just leveled over. We're definitely seeing a consolidation and a larger number of these customers who are actually approaching us and saying hey they are looking for strategic solutions to try to address these concerns. I think the other thing that is worth noting here is that in many cases the deployment of the electronic health record has been taking care of or at least under control and it’s giving them little bit more breathing room to focus on other things that can improve operational efficiency and can improve the patient safety and patient experience and communication and collaboration is a national extension of that. And then frankly the mobility elements of mobilizing even the data to maybe capture and the HR is driving organizations to think about this and it seems the EHR was a system wide strategic decision they’re not looking at the follow on projects in a similar strategic manner and I think that is leading towards these processes.

[Ryan Daniels:]

Okay. Perfect super helpful call, you actually hit my follow-up there too, so I will hop out. Congrats again, thanks.

[Brent Lang:]

Thanks.

[Operator:]

Our next question comes from the line of Steven Halper from FBR.

[Steven Halper:]

Yes, as you think about your next year, what do you think of the sort of primary objectives that you want to accomplish? Again I’m assuming you will provide your outlook when you report year end results, but just talk about the expectations generally speaking?

[Brent Lang:]

Yes, hey Steve. I will start and maybe Justin will want to jump in here. So we won’t be providing any guidance on 2016 today. We will be giving 2016 guidance in February on our Q4 results call, but I would tell you at high level we still maintain strong bias towards growth, we are looking forward to Q4 and getting to breakeven on an EBITDA basis. But the strong bias within the business is to continue to invest for growth and we like our prospects both in terms of international and new products and the increasing strength in our core U.S business and that gives me more confidence and being able to drive top line growth for 2016. Justin, do you want to add to that?

[Justin Spencer:]

Yes I would say that, yes the focus on integrations and workflow continues to be an area where we’re putting a lot of emphasis from a product development standpoint and that’s an area where we’re experiencing quite a bit of differentiation relative to our competitors in the marketplace and so that will continue to be a main focus for us next year and then just continuing to focus on arming our sales team with the tools and training we have more opportunity there in terms of the systems and the processes internally to really give our sales force the tool that they need to sell effectively in the market.

[Steven Halper:]

Do you have the right amount of people and the right people in place quantity and quality I guess?

[Brent Lang:]

I think we’re pretty close, yes I think that we don’t anticipate large increases in the U.S. sales force. There are a couple of areas that we’re looking to make the investments one would be around more inside sales people that can help drive pipeline for the sales force that is working out of field. The other area is that with the consolidation of some of this decision making and more of a tops down selling approach we are looking again at the [IVO] national talent type selling that will be more top down oriented. But in general we are feeling really good about the sales force right now and I think the training and enablement has gone on over the last year or so it has really helped and the team seems to be functioning with a high degree of capability right now.

[Steven Halper:]

Okay. Thank you.

[Operator:]

Our next question comes from the line of Gene Mannheimer from Topeka.

[Gene Mannheimer:]

Thanks good afternoon and congrats also on a good performance. I wanted to ask a question on your software bookings. I appreciate the comments Brent about how those are improving with the new product offerings, yet I look at software revenue it’s been pretty flat basically for the last four quarters. When do we start to see those software bookings become a more meaningful component of revenue?

[Brent Lang:]

Yes, first of all our software revenue actually was up double digits year-over-year. So we have seen that increase in and in fact it has been gradually better here and the finally we are able to exceed, in the double digits. So we’re really pleased with that and that category is really being driven by not just our voice software but its well – with our new products and we had a solid quarter in the new product area including the collaboration suite and clinical workflow engine as well as the care experience. So to the extent that those solutions or those software products continue to flourish, that will drive the future software revenue.

[Gene Mannheimer:]

Okay, okay thanks, and with and respect to the UNC deal which we discussed earlier $3.6 million booking how do, how many approximately over how many quarters does something like that manifest into revenue?

[Brent Lang:]

Yes, we anticipate that it will be converted to revenue over the next 18 to 24 months.

[Gene Mannheimer:]

Okay, thanks and then last, can you provide just in a random a metric like the percent of customers that are buying multiple products today versus a year ago, you track those metrics?

[Brent Lang:]

Well, our new products, the new software products that we have alluded to represent roughly in the neighborhood of 10% of our total bookings in revenue and our long term models you see those growth to 20% to 25%. A lot of the new proposals that we're putting out to lot of the new quotes have multiple products in them and we’re really pleased with that is customers are really wanting to deploy a true kind of enterprise grade or system level solution. So I think that percentage is going to increase as a whether it’s a consolidation or the real focusing side the hospitals that are trying to really improve operational efficiency they will start to evaluate them [indiscernible] portfolio that we have

[Gene Mannheimer:]

Okay, great. Thank you.

[Operator:]

Our next question comes from the line of Sean Wieland from Piper.

[Sean Wieland:]

Thank you very much and let me congratulations. Was there a meaningful contribution from the DoD or other government [indiscernible] may be – on the DoD?

[Brent Lang:]

Hi Sean, sorry about that. I think you were cutting out a little bit, I think you asked about the DoD?

[Sean Wieland:]

That is correct yes. Was there a meaningful, you had highlighted last quarter did you expect the strong DoD quarter wanted to know if there is any meaningful contribution?

[Brent Lang:]

So we did book some DoD business in the quarter it was actually below our expectations and I think relatively small portion of that converted to revenue in the quarter. The bulk of the DoD and fed business in general is still in the pipeline and is expected to close either in Q4 or in the first part of 2016?

[Sean Wieland:]

All right, that’s great. Thank you.

[Brent Lang:]

Thank you.

[Operator:]

Our next question comes from the line of Mike [indiscernible] from Oppenheimer.

[Unidentified Analyst:]

Thanks and good afternoon and congrats also on a nice quarter. I don’t know if you mentioned it this quarter, but I believe the last quarter bookings grows 10% year-over-year and you've talked about typical second strength and bookings, I don’t know if you've disclosed that percentage this quarter or could you give us any directional help there?

[Brent Lang:]

Yes, so bookings growth this quarter on a year-over-year basis was slightly higher than that it was around 14% year-over-year bookings growth and you are not correct, we generally see stronger bookings in the back half of the year with Q3 and Q4 being our larger bookings quarters, there is more seasonality to our bookings then there tends to be in our revenue. And so Q3 and Q4 bookings tend to be higher so to see that kind of growth on a year-over-year basis on the quarters that are really the most meaningful quarters is very encouraging from my perspective.

[Unidentified Analyst:]

Great, thanks and if I could just ask a quick follow up on some of the public hospitals have been kind of pre-releasing some numbers that have really disappointed investors on some levels I guess and I mean it seems productivity solutions like yours would actually help with some other issues and obviously result team to kind of find the phase of what public hospitals, I don’t know if you can just comment on some of these large chains how hospital budget environment is, from your perspective versus what they are seeing from the regulatory mandates, ICD-10 and that are interfering and hurting admissions and that sort of thing.

[Brent Lang:]

Yes, so I guess the first comment I would make is that the vast majority of our business is in to the non-profit hospitals as opposed to the full profit or the public hospitals and so I don’t think we've got as many data points as we might. That was the larger piece of our business, but I will say that I think our solutions are really solution that’s helping some of these problems. And if you think about the challenges that they’re facing around communication and care coordination and frankly the challenges they have trying to mobilize some of the data that they've captured in their electronic health records, Vocera is really well positioned to help them with those challenges. As you think about the market trends whether it’s consolidation or vertical integration or changing reimbursement models or consumerization of healthcare, those are all market factors that are driving people to increase their ability to have real time communication, care coordination and so I think that is market moving in our direction, I think the market trend is helping us. I can’t really speak to the details of the public company hospital results as I mentioned that is just a very small piece of our business overall.

[Unidentified Analyst:]

Okay, thanks very much.

[Operator:]

There are no other questions in queue.

[Brent Lang:]

Okay, thanks everyone for taking the time to call in today. We really appreciate the questions and you listening intently and we look forward to following up with you in the future. Have a great day.