Vocera Communications, Inc.
Q4 2014 Earnings Call Transcript

Published: 13 Feb 2015

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Fourth Quarter 2014 Vocera Communications Conference Call. My name is Steve, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. I would now like to turn the presentation over to your host for today Mr. Jay Spitzen, General Counsel. Please proceed.

[Jay Spitzen:]

Hello, everyone. Vocera distributed a press release detailing our quarterly and full year results earlier this afternoon. It is posted on our Web site www.vocera.com and also available from normal news sources. This conference call is being webcast live on the Investor Relations page of our Web site, 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 SEC. And 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. I'm pleased to report that both fourth quarter revenue and earnings exceeded expectations and demonstrated the increasing sales and operational momentum that we built throughout 2014. Bookings reached a new high in Q4 generating record backlog and deferred revenue. Total bookings for 2014 were $107 million reflecting tighter budgets and extended sales cycles during the first-half of the year, but our sales execution, operational improvements and the gradually improving hospital spending environment enabled us to achieve sequential bookings growth each quarter throughout the year. Our fourth quarter product mix reflected a pick-up in our new products an increasing success of our strategy to deliver integrated intelligent communication solutions across a range of devices. Furthermore, our competitive win-rate and maintenance renewal rates continue to be very high in the quarter. Looking forward, we are taking a cautious view of U.S. hospital spending at the outset of 2015. As you may have seen recently there remains uncertainty about the hospital economic environment entering 2015 and we expect a conservative start to the year on budgets and spending. While acknowledging these risks, there are several reasons for optimism as we begin 2015. We believe that our 2014 momentum will continue this year because of ongoing customer demand for our core products, increasing traction for our new products and the accelerating growth in Asia Pacific and the Middle East. At the macro regulatory level, we also expect the new quality and pay for value objectives announced by the Department of Health and Human Services two weeks ago will increase the importance of care coordination to achieve population health improvements. As we highlighted in last week's announcement this will make our solutions more valuable to care providers and expand our addressable market outside of the hospital environment. Finally, we expect the level of distractions associated with the rollout of electronic health records to diminish in 2015. As organizations complete meaningfully use requirements and look for ways to improve their return on investment by mobilizing patient data, a goal which we are well-suited to help them achieve. Now, let me turn to some highlights from the fourth quarter and customer wins, growth in new products and international market expansion. In the fourth quarter, new hospital bookings were up compared to Q4 of 2013. Bookings from hospital expansions were also up both year-over-year and sequentially. In addition, as I mentioned our competitive win-rate continue to be high and our software maintenance renewal rate measured in dollars remained at 98% in the fourth quarter. In general, results in the second-half improved significantly from the first-half in terms of year-over-year performance. We saw the hospital spending environment improve and deals that were initially delayed ended up closing later in the year. While the budget environment was tight early on, we were encouraged by the momentum later in the year, which demonstrated strong customer loyalty to our solutions and our unique competitive differentiation. New customer highlights in the fourth quarter included a house-wide deployment at St. Luke's Regional Medical Center in Sioux City, Iowa; a competitive win at a San Diego facility of a major IDN and a competitive displacement for 90 operating rooms at MassGeneral Hospital in Boston. Significant customer expansions in the quarter included badge upgrades at UC Davis Medical Center and Nationwide Children's Hospital in Columbus, Ohio and an expansion across multiple departments at Trinity Medical Center in Birmingham. The fourth quarter also produced some uncharacteristically strong federal bookings for both new and expansion activity. We booked new business at Martin Army Hospital at Fort Benning and Tripler Army Medical Center in Honolulu as well as a badge upgrade of the Charleston VA Hospital. Beyond healthcare, we signed two new nuclear power plants Surry in Virginia and Bruce in Ontario, Canada as well as two veterinary hospitals. I want to conclude this section by highlighting that our customer satisfaction and net promoter scores remain very high, which is something that we are very proud of. New products represented 9% of 2014 bookings a nice increase over 2013, but still a small percentage and one we are focused on growing faster. We invest significantly in new products in 2014 with higher spending on R&D and two tuck-in technology acquisitions. As a result, we introduced three important add-on products in 2014, the Vocera Collaboration Suite, Vocera Care Experience Suite and the Vocera Alarm Management Solution. In Q4, bookings for new products were up substantially year-over-year. The majority of that was the collaboration suite, which has become a meaningful addition to many deals for both new and existing customers. In just a couple of quarters since its launch at the end of February 2014, we have seen nice up tick, some competitive wins and even some competitive displacements by Collaboration Suite. For some customers such as the operating rooms at MassGeneral, the hands-free capability of our badge is critical, but for others we are seeing mixed environments with badges and smartphones, which validates our open device strategy. Fourth quarter produced large new bookings for the Collaboration Suite at Texas Health Resources in Dallas and at Intermountain Healthcare in Salt Lake City. We also booked a large badge upgrade that included the addition of the Collaboration Suite at Atlantic Health System in New Jersey and we added our first federal customer for the Collaboration Suite at Hampton VA Medical Center. Care Experience, our suite of subscription software offerings for patients' safety and engagement generated contracts for a range of different applications in the fourth quarter including our discharge communication, care rounds and pre-arrival modules. Customer highlights for Care Experience included Marine General, University of Chicago Medical Center and Lucile Packard Children's Hospital. I also want to highlight that this morning we announced to our customers an upgrade to the B3000 badge. The new B3000n badge began shipping this week and features several new key improvements. Most importantly the badge now operates on both the 2.4 and 5 gigahertz Wi-Fi bands. This will enhance connectivity, voice quality and speech recognition. We added a lighted halo around the call button, which was popular with our early testers because it gives a visible indicator of a users call status. The new badge will sell for the same price and will generally supersede the prior model in future deliveries. Switching gears, international represented a little more than 10% of 2014 bookings. We continue to focus our international investment in Asia Pacific and the Middle East. We are investing to drive an international growth and our goal is to take international a quarter of our business in the next couple of years. However, today, it's still pretty small and generally lumpier than our U.S. business given the larger deal size. We have grown our sales resources and now have 9 people including 7 quota carriers and 2 pre-sales support resources in these two regions. The level of activities throughout both regions built over the course of 2014 giving us confidence in these opportunities. Q4 highlights included an expansion with the Cleveland Clinic in Abu Dhabi and our first sale in Malaysia for two hospitals in a growing health system. While most of our investment is in the Asia Pacific and Middle East regions, we also continued to drive business in more mature international markets including Canada, Australia and the United Kingdom. In the U.K. we booked an order for the Collaboration Suite at Central Manchester University and sold new business at Peterborough and Stamford hospital. In Australia, we booked a large expansion with a chain of long-term care facilities that are finding communication – finding our communication solutions very valuable and caring for patients. These international markets should continue to contribute meaningfully to our business in the years ahead. Now, let me turn to some important enhancements to our strategic vision. Last week, we announced an initiative to expand beyond hospitals with the goal of delivering better care coordination for patients throughout their entire healthcare experience. This strategic initiative supports our mission to help customers deliver a better quality care and is aligned with new reimbursement models associated with population health. To achieve this vision, and because we believe protecting patient information is so important we will be offering a new cloud-based secure texting solution to all of our 800 plus U.S. hospital customers at no additional cost for them to distribute to physicians and other clinicians beyond their walls. Vocera Secure Texting combines the convenience physicians need with the security and patient privacy health systems require. Our new secure texting app is easy to use and provides a HIPAA-compliant alternative to SMS for physicians and care teams. Our secure texting will connect seamlessly with the Vocera Communication Systems installed at our customers and will enable physicians to securely text care teams and improved care coordination operational efficiencies and patient experience. HHS has made it clear in its recent announcements that the move towards value-based pricing is accelerating and this will drive health systems to look for solutions that enable better care coordination and eliminate data [indiscernible]. We see a significant role for Vocera to provide a communication layer that runs parallel to the data layer provided by the electronic health records. Vocera is already the leading real-time directory of clinicians and hospitals and it is a natural fit for us to extend that directory to help our customers coordinate care beyond walls of a hospital. This benefits us by expanding our addressable market by potentially 400,000 additional facilities. This new secured texting product will be generally available in Q2 of 2015 and demos will be available at the upcoming HIMSS Conference in April. I'm very pleased with the progress the company made over the course of the year and my confidence in the future has increased over the past two quarters. I'm looking forward to 2015 particularly given our own internal improvements and the anticipated progress and changing priorities in the hospital sector. Now, let me give our CFO, Justin Spencer a chance to provide some financial highlights. Justin?

[Justin Spencer:]

Thanks Brent. Hello everyone. In my comments today, I will provide some color on our Q4 financial results and our outlook for 2015. Vocera's fourth quarter results exceeded our expectations and provided a nice cap to a year of sequential quarterly improvement. The company achieved records in quarterly bookings, backlog and deferred revenue that brought total revenue to $24.6 million. Products revenue was $13 million showing sequential progression from Q3. Device and software revenue both improved sequentially at about the same pace. You heard in Brent's comments that we experienced a number of badge upgrades in the quarter, which were reflected in the higher mix of device revenue in this quarter compared to last year. Product revenue also included growth in our new products, which represented nearly 10% of our total revenue in Q4. While still relatively small and lumpy, new products are expected to be an important growth driver for us in 2015 and beyond. Services revenue was $11.6 million up 12% from last year and up sequentially as well. We benefited from a growing base of customers utilizing our software maintenance and support services and a very strong renewal rate of 98%. Software maintenance and support revenue up 11% from last year and 5% from Q3 is all recurring and was approximately 80% of our total services revenue. Our services offerings are a key differentiator for Vocera and we expect them to continue to grow as our installed base expands. Annual maintenance contracts drive a significant portion of our deferred revenue, which increased the $35.4 million at year end. And that completes the revenue picture, we once again built backlog in the quarter reaching $33.1 million at year end. Please remember that our backlog tends to follow the typical seasonal bookings pattern with lower sales in the first-half of the year and higher in the second-half. We expect this historical pattern to repeat in 2015. On the profitability side, adjusted EBITDA and EPS were better than our Q4 guidance as a result of higher revenues and strong expense control. Non-GAAP gross margin increased from Q3 to 66% and exceeded Q4 2013. The sequential improvement was a result of higher revenue relative to our fixed costs and savings achieved from our cost reduction actions in the second-half of the year. In 2015, we expect our gross margin to follow a seasonal pattern, lower in the first-half and higher in the second-half. Non-GAAP operating expenses increased in Q3 because our bookings and revenues were better than we forecast resulting in higher incentive compensation expense in the fourth quarter all other expenses were inline with our expectations. The cost saving actions we announced last quarter are on track including a redeployment of resources to our growth areas. Including normal inflationary costs, we expect our non-GAAP operating expenses to be down 3% to 5% in 2015 compared to 2014. Now, I would like to comment briefly on our balance sheet. Our balance sheet is very strong with roughly $116 million in cash and short-term investments and no debt. Our cost reduction actions and solid working capital management kept our total cash and short-term investment balance flat compared to last quarter. In Q1, we expect cash to decrease due to the normal paying cycles for certain business expenses. We continue to be very focused on effective capital allocation and management. Now, let me turn to guidance. We are very pleased with how we ended the fiscal year especially the bookings and backlog momentum we saw in the second-half. In 2015, we expect a similar seasonal pattern as we have seen in years past with majority of our bookings occurring in the second-half. Our investments in international markets and new products are taking hold and we expect them to grow nicely during the year. Given this and the seasonal pattern in our federal sales, we currently are expecting a higher proportion of our revenue, profitability and cash flow to occur in the second-half of the year. In the second-half of 2014, we saw a modest improvement in hospital spending that translates into stronger sales. We are cautiously optimistic that this improvement will continue in 2015 as hospital shift budget dollars from completed government mandated initiatives to import investments in patient safety and experience. However, given that it is still early in the year with the new budget cycle, we are taking a conservative view of our business in early 2015 until we see further signs of sustainable improvement. For 2015, we expect revenue to be between $95 million and $100 million reflecting our previous statements that we expect to achieve modest revenue growth this year. We are also committed to delivering improved profitability in 2015 compared to last year. For the full year, we expect the GAAP loss per share between $0.96 and $0.80, non-GAAP loss per share between $0.39 and $0.23 and adjusted EBITDA between $7.7 million and $3.5 million. If we meet our second-half revenue objectives, we expect to achieve breakeven adjusted EBITDA by the end of the year. We have significant operating leverage in our financial model such that every incremental dollar of revenue drops a relatively high amount of profit to our bottom-line. With our strong backlog position entering the first quarter, we have a good visibility to revenue between $21.5 million and $23.5 million. We expect the GAAP loss per share between $0.28 and $0.22, non-GAAP loss per share to be between $0.16 and $0.10 and adjusted EBTIDA to be between $3.6 million and adjusted EBITDA loss to be between $3.6 million and $2 million. Our reconciliation of GAAP to non-GAAP reported measures and guidance are included in the statements accompanying the press release. In summary, we were very pleased with the financial results in the fourth quarter and the momentum we carry into 2015. We entered the year on a very strong financial footing, with strong solid backlog and deferred revenue, a great balance sheet and a more efficient operating structure. With the broad and addressable market and product portfolio that Brent described, we are optimistic about our business in 2015 and beyond. Thank you for your attention. I will turn it back to Brent.

[Brent Lang:]

Thanks Justin. Appreciate it. Before I close, I want to let you know you will be getting some information shortly from Brad Samson about our HIMSS Investor Lunch on Tuesday, April 14 following [indiscernible] morning briefing. In addition to open Q&A with a broader set of my management team, we will be showing a new live demonstration of how the Vocera system enables flexible instant communication and collaboration between badges, smartphones, patient monitors and medical record systems. And if you really want to understand what we can do, you don't want to miss this. Let me wrap up by saying that I'm proud of the effort and progress we have made with this team over the course of the year. After a tough beginning, we achieved improving results and operationally the company is stronger and leaner. The market need for our solutions is rising and we have significantly expanded the addressable market that we serve. Our differentiation and value proposition improved significantly over the course of 2014 and we saw evidence of this in our second-half wins. During the second week of January, we had our sales kick-off meeting and I'm happy to say that the team is feeling more confident and energized than they have in some time. I'm proud of this team for what they have accomplished and I feel they are well-prepared for 2015 based on the training and tools that they received over the course of the last year. While we think it's prudent to take a conservative view on hospital spending at the beginning of the year, my confidence and our long-term opportunity has grown. And we are looking forward to successful 2015. Thank you for listening today. And operator, we are now ready to open it up for questions.

[Operator:]

Thank you. Ladies and gentlemen, your question-and-answer session will now begin. [Operator Instructions] And your first question comes from the line of Mohan Naidu [Stephens]. Please go ahead.

[Mohan Naidu:]

Thanks for taking my questions guys and congrats on a strong end to the year. So bookings looked decent, backlog is – and how confident are you in the recovery here like comparing it to a year ago time right now?

[Brent Lang:]

I would say we are quite confident. I think that the deal momentum we saw with customers in Q3 and Q4 was strong. And coming into the year with higher backlog and deferred revenue obviously gives us an increased visibility into revenues for Q1. It's a changing market dynamic and there is still a lot of moving pieces. But, I would say that the feedback I'm getting from our sales force is that they are seeing increasing confidence and increasing momentum in the marketplace.

[Mohan Naidu:]

Okay. And just on the follow-up – you added a couple of value-added resellers last quarter and have you added anymore and how far are they away from being productive for you?

[Brent Lang:]

Yes. Great question. I think as I said last quarter, the VARs and the systems integrators; they are going to be really be a supplemental part of our strategy. We are going to maintain a pretty strong focus on direct selling here in the U.S. So we are being pretty selective. So to answer your question directly, we haven't had any additional resellers since the last time we spoke. We will continue to evaluate via options that are out there and in discussions with some folks, but we have not formally announced any additional and we will definitely keep you posted as we bring new partners on board.

[Mohan Naidu:]

Thanks a lot, Brent.

[Brent Lang:]

Thank you, Mohan.

[Operator:]

And your next question comes from the line of Matt Hewitt from Craig-Hallum Capital Group. Please go ahead.

[Matt Hewitt:]

Good afternoon gentlemen and I will let go the congratulations on the strong finish to the year.

[Brent Lang:]

Thank you.

[Matt Hewitt:]

Couple of questions for me, first, you saw a nice pop in gross margins in the fourth quarter particularly on the services side. Were there some maintenance catch-ups or something that was maybe a little more one-time in nature that caused that or is this maybe a – towards upper end of a new range for that metric?

[JustinSpencer:]

Hi, Matt. Q4 as usually a strong quarter for us in terms of our services. We did have slightly higher professional services revenue tied to some either new deployments or expansions. But in aggregate our maintenance revenue stream has continued to increase as a result of a high renewal rate close to 98%. And that revenue also contributed to higher services margins for the quarter.

[Matt Hewitt:]

Okay, all right, understood. Thank you. Secondly, I think you touched on this in the prepared remarks, but there was some incremental incentive bonuses in the fourth quarter given that the better sales performance. Was that also in the G&A as well as there is a nice step up from Q3 to Q4 in G&A?

[JustinSpencer:]

Yes. It would have affected both the sales and marketing as well as the G&A line.

[Matt Hewitt:]

And so looking into Q1, we should see that step back at least on the G&A side to kind of that $4.2 million range?

[JustinSpencer:]

In that area? Yes. It will retrieve just a little bit.

[Matt Hewitt:]

Okay, great. And then maybe one last one for me and I will hop back in. The current number of quota-carrying reps that you currently have?

[Brent Lang:]

As of right now we are in 62 and so we are going to be right around the 60 to 65 range for this year as I mentioned on the last call, we are not planning to bring in a large new class of sales people for this year. Sales productivity in the U.S. is actually going to go up based on our modeling, based on improved sales productivity and sales efficiency. The incremental heads that we are adding predominantly on the international side of things, so I think steady state will be we are at – maybe up two open reps right now. So it will be somewhere between 60 and 65, further course of the year to depending on the ebb and flow of sales people, but 62 as of today.

[Matt Hewitt:]

Okay, great. Thank you very much.

[Brent Lang:]

Thank you.

[Operator:]

And your next question comes from the line of Jeff Garro from William Blair. Please go ahead.

[Jeff Garro:]

Good afternoon guys. And thanks for taking the question. I was hoping you could update us on your progress to listing yourself as a more strategic need for hospitals, more of a must-own product than nice to have?

[Brent Lang:]

Yes. Thanks Jeff. That's a great question and certainly an important strategic priority for us. One of the trends we are seeing in the marketplace is that as health systems integrate vertically and as they consolidate horizontally, we are getting greater and greater consolidation amongst the providers. And in the process of doing that many of the providers are wanting to limit the number of vendors that they interact with. And they are viewing Vocera as a strategic partner for their communication needs. One of the reasons why we are focusing on expanding our offering in the introduction of the Vocera Secure Texting that we introduced last week is really focused around being able to be that trusted advisor across not just the hospital but the full gamut of facilities both in and outside the hospital. And I think that our customers are communicating with us that they view us as an increasingly important strategic partner both because they are seeing how communication itself is such an important driver of patient safety and efficiency. But also because they recognize that we are the market leader and we are one of the few vendors that can actually meet the range of different communication requirements that they have. So I would think that combined with some of the changes we have made in the sales organization to drive better account planning and account relationships as really increased the strategic nature of the relationship between us and our customers.

[Jeff Garro:]

That's great. Very helpful. And then one more if I could, and continue on the sales front, I was hoping you would give us an update on some of the underlying trends such as – how is average deal size shifted over the year as sales cycle showing or elongated. And it sounds like your win rate has increased, so anything new or specific you can update us on in the competitive environment?

[Brent Lang:]

Yes. So in terms of sales cycle, I think what we saw in the first part of 2014 was an elongation of the sales cycle many of those deals ended up coming back to us in the second-half. I think I mentioned to some of you that the example of Banner Health, this was a large badge upgrade, badge replacement deal that originally came to us in Q1, they were looking for quotes, swap out of about 3000 of the older B3000 badges. That deal ended up getting pushed out of the quarter. But in Q3 it came back and they ended up placing the order for that replacement. We saw that pattern quite a bit in the first-half of 2014, I think in the second-half of 2014, we started to see an acceleration and certainly, we think the sales cycle is actually better now than it was during that early part of 2014. From a competitive dynamic, as I mentioned we continue to have very high competitive win rates. I think we continued to gain market share in the marketplace. The landscape itself has not really changed meaningfully, we see pretty much the same line-up of competitors. One of the reasons why we introduced the Vocera Secure Texting solution was because we wanted to make sure we offer the complete set of solutions to our customers and can create a competitive barriers around potentially a market entrant coming in and trying the offer just a low end texting solution. And so that I think actually increases our level of differentiation and competitive barrier in the marketplace. And it's interesting the announcement of badge just in the last week has resulted in a number of customers coming back to us to have those conversations not necessarily being aware that we had that functionality. So I think that launch has worked to our advantage. So I think overall, the landscape has stayed pretty consistent, although I guess the two things I'd point to you would be shortening sale cycle and kind of increasing competitive barriers.

[Jeff Garro:]

Great. Thanks again for taking the questions.

[Operator:]

And your next question comes from the line of Jamie Stockton from Wells Fargo. Please go ahead.

[Jamie Stockton:]

Hey, good evening. Thanks for taking my questions. I guess maybe the first one, your backlog I think if I read it correctly is up $9 million year-over-year. The revenue guidance is maybe up a couple of million dollars versus 2014. Could you just talk about whether this is conservatism, or is there something in the backlog that that would – has the duration of the backlog extended, is there some other factor that's going on that would make you not see more revenue in 2015?

[Brent Lang:]

Hi, Jamie. Yes. So it's a good question. We did build back log to a record level and so as we entered 2015, we feel good about our starting back log and deferred revenue position. The backlog is – does have a duration such that there is reasonable amount of our backlog that is expected to be delivered beyond Q1. So we still remain an in-house good visibility into our Q1 revenue with the backlog and the deferred revenue that we have. And equally we are also taking a relatively kind of cautionary view of the early part of the year. We think things have improved and we are just looking for stronger signs that's going to be a sustainable improvement.

[Jamie Stockton:]

Okay. That's great. I guess maybe two other quick ones, one is on the – you got the newer version of the B3000 badge, could you just remind us where we are in the upgrade cycle. And then my other question is, I guess following up on Jeff's from a competitive dynamic standpoint. I did see that one of your kind of app only competitors had some lay-offs and I'm just curious if the – market dynamics that you are seeing is kind of revalidating that the user friendliness of a badge or some sort of device is the model that you think a lot of hospitals will stick with it for years especially for nurses. I will stop there.

[Brent Lang:]

Sure, Jamie. I will take a stab at that. So first of all, in terms of the refresh cycle, it's kind of a continually refreshing model we have. Customers who are refreshing parts of their facility at different times the typical life of the badge is around three years but it tends to roll through different parts and different parts of the organization and it's sometime hard for us to track what is expansion of new badges versus replacement of existing badges. But, I think we would estimate that there is still a fairly large number of B2000 badges out in our installed base. I couldn't give you an exact number but we have seen it gradually increasing, so the introduction of the B3000 and should help accelerate that and any customers who are waiting for 5 gigahertz capability, this will be sort of removing that as a block towards going ahead and doing the refresh. But, I think you will continue to see that as being kind of core piece of our business on a go forward basis. On the competitive front, I can't really speculate about what was going on with the competitors, but I think that two things I would say, first of all, we knew that it was a pretty tough selling environment particularly in the first part of the year and we experienced that along with everybody else. I do think that our value proposition is winning in the marketplace and as I mentioned we got some competitive displacements where customers who have tried some of these other solutions are now coming back to Vocera and are looking for the platform capabilities that we offer as well as the choice of devices that we offer. Interestingly enough, I was just looking some of the data – some of the customers' interest we generated from last week's Secured Texting announcement and interestingly enough several of the inbound enquiries once we got on the phone with them were people who ultimately decided they wanted to evaluate the badge. So here was a marketing launch that was focused on Secured Texting on smartphones and at the end of the day when we talk to them about the various offerings, they recognized that – hands free badge was correct. I mean and example of Mass General, this was a classic case study where they had evaluated a smartphone solution and really decided that texting was completely inappropriate for an operating room environment and they really needed the wearable badge in order to be able to have the kind of conversations that they needed. So I think that – I think the market is recognizing that purpose built devices that have the ability to withstand the ruggard hospital environment and have the ability to roam across the Wi-Fi network in the hospital and are cleanable and have the voice quality, capabilities and the hands free capabilities. That's going to continue to be a key differentiator for us. But, as I mentioned in the prepared remarks, we are seeing an increasing number of mixed environments where certain users in the hospital are interested in hands free and others are interested in having a smartphone solution maybe because they are accessing electronic health records or because they are using the screen for something else. And so I think the uniqueness of our value proposition is to have a single platform, a single database and set of work flows that can then be extended out to a choice of a different devices that are appropriate regardless of the work flow of a particular person.

[Jamie Stockton:]

Okay. That's great. Thank you.

[Brent Lang:]

Thank you.

[Operator:]

And your next question comes from the line of Gavin Weiss from JPMorgan. Please go ahead.

[Gavin Weiss:]

Hi. I thought you touched a little bit on the budget planning process and guidance for this year and whether or not, there are any changes with adjusted on board versus what you have done in the past?

[JustinSpencer:]

Yes. Hi, Gavin. So we went through a very thoughtful budgeting process that we concluded at the end of the year and fine tune here at the beginning of the year we have updated actual. I think we have a solid plan that we are executing against internally with some upside opportunity against that in terms of our approach to guidance we wanted to provide both annual guidance as well as quarterly guidance that we – we are confident in and that we feel that we can executive well again. So no changes from prior year in terms of annual versus quarterly, we talked about a number of other types of disclosures but at this point felt that the type of guidance disclosure that we is appropriate.

[BrentLang:]

Gavin, I would just add that I have been really pleased with the job that Justin has done since he came on board. You guys may notice that the timing of this call is actually earlier than what we historical would have done. The team did a really good job of getting the books closed and getting prepared for this communication in a timely fashion. Think the budget process that we ran coming into the year was much more detailed level than what we have done in prior years in terms of looking it detailed departmental budgets on a project basis and I think a lot of credit for that goes to Justin and his team. So I think from a budgeting perspective we are feeling pretty confident in where we are, we tried to take the learnings from past years in terms of what the leading indicators are and what are metrics that really are important drivers of our revenue in our expenses across the income statement. And we are trying to apply those into our guidance moving forward. So I'm really happy with where the team is today.

[Gavin Weiss:]

Okay. That's helpful. And you talked about the growth in international sales, can you just remind me what is the difference on the margin profile versus U.S. versus international?

[Justin Spencer:]

It's not substantially different Gavin, it's – we were able to achieve attractive margins in the international regions as well.

[Gavin Weiss:]

Okay, great. Thank you very much.

[Operator:]

And your next question comes from the line of David Larsen from Leerink. Please go ahead.

[David Larsen:]

Yes. Congratulations on a good quarter, can you talk a bit about the Collaboration Suite and specifically which products within that suite of solutions are selling well into the sort of long-term growth projections for those new products? Thanks.

[Brent Lang:]

Hey, David. Thanks. Appreciate the support. So even as a name would imply that it's actually set up of multiple products that might be sold individually the Collaboration Suite is actually sold as a suite. It includes both voice communication capabilities as well as texting and alert capabilities all within one packaged application on the smartphone. So when a customer buys that application license or a user on their smartphone, they are getting both speech recognition base calling as well as directory base calling on the screen as well as the ability to send quick chat messages as well as more structured messages that we would refer to as alerts. Those are all capabilities within that application. And so when they – and I guess the – just to build on that a little bit, part of the structure of what we are launching with Vocera Secure Texting is a pure texting product that's cloud-based that is only focused on that basic secured texting functionality. So you will end up with kind of a good, better, best strategy where we got Vocera Secure Texting is kind of our baseline, there will be a premium version of that where users can pay and uplift charge in order to add additional functionality to Vocera Secure Texting. And then kind of the premium products – the most premium product will be the Collaboration Suite which incorporates all that texting, altering functionality as well as the voice calling capability. In terms of modeling it moving forward, we are being conservative in our revenue modeling for how much that representative of the total business. So I don't think while it's growing rapidly it's starting off of a relatively small base. As I mentioned I think on the call, the new products in total, which would include Collaboration Suite as well as Care Experience, were only about 10% of revenues in Q4. So we expect that to grow, I don't really want to put a number on where that is in steady state, I think it's just too early to know what the mix is going to be.

[David Larsen:]

Okay. It's very helpful. And then obviously your backlog increased I think by about 36% year-over-year, so that looks very good. The bookings – I think the bookings came in about $107 million and I think they were about $114 million in 2013. How does the backlog grow so substantially when – and is that correct and then the bookings declined, how did the backlog grow so much?

[BrentLang:]

Yes. So I can start that Justin don't be afraid to jump in here, so you are correct bookings in 2014 were $107 million, bookings in 2013 were $114 million so they did decline. We saw a strong seasonal pattern to that. So bookings in the first-half of the year were substantially down on a year-over-year basis. And bookings in the second-half of the year came back and in fact Q4 as I mentioned was actually higher than it was in Q4 of 2013. So there is a timing difference here between obviously bookings and how that translates into revenue. But, you can sort of think of it is as time shifted so the $107 million in bookings obviously we for the year only did revenues of just over $95 million. So the delta between the $95 million and $107 million is all going to be going into backlog and so that's what drives that backlog up.

[David Larsen:]

Okay, terrific. Thank you.

[Operator:]

[Operator Instructions] And your next question comes from the line of Sean Wieland from Piper Jaffray. Please go ahead.

[Sean Wieland:]

Thank you. Thank you very much. How is the integration with HIPAA going in the collaboration suite?

[JustinSpencer:]

Hey, Sean, it's going well. We are continuing to work with them on additional functionality; the next phase of that integration is actually to do some two-way interaction where we can update elements of the electronic health record system with input back from the Vocera user either on their badge or on their smartphone. So we are pleased with the way that's going. We probably got couple of dozen or more customers who are using some form of integration there. We have also got Allscripts up and running with integration. So similar to the integration I talked about on last quarter's call. So continues to be a focus for us and it's an opportunity I think for us to be viewed as the question earlier that came in as a more of a strategic priority because we can take the investment that's made – have been made in the electronic health record and make that data more accessible and more usable to a broader group of people and make it accessible mobile, so That they can get access to wherever they happen to be.

[Sean Wieland:]

Sure. Okay. And then following up on Mohan's value-added reseller question, what about – did the value-added resellers contribute to bookings in 2014?

[Brent Lang:]

Not in the U.S., no. We have resellers internationally who obviously drove business in some of the international markets, but for the U.S. market, no, the healthcare market was all direct.

[Sean Wieland:]

So do you have much of that contribution in your guidance for – do you have any expectation that they begin – factored into your guidance for 2015?

[Justin Spencer:]

We do not, no. It would be incremental on that of that. I should point out actually in the U.S. that I don't think them as a reseller but technically our business into the federal government goes through a government procurement contract that as to be just for federal requirements, so we go through an organization for that piece. But, the piece is sold directly; it still went through the government contractor.

[Sean Wieland:]

Got it. That's very helpful. Thanks so much.

[Operator:]

There are no further questions.

[Brent Lang:]

Okay. Well, I appreciate everyone's time today, good dialogue and thank you for taking the time. We will probably see most of you next at HIMSS in Chicago. And I really encourage you to try to participate in that event. We are going to be bringing some really interesting live demos for some of the newer products and show how all ties together to create the solution. So thanks for your time today and we will talk to you soon.

[Operator:]

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Thank you very much and have a very good day.