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Vocera Communications, Inc. (NYSE:VCRA)

Q1 2013 Earnings Call

May 2, 2013, 5:00 p.m. ET

Executives

Jay Spitzen - General Counsel

Bob Zollars - Chairman and Chief Executive Officer

Bill Zerella - Chief Financial Officer

Brent Lang - President and Chief Operating Officer

Analysts

Ryan Daniels - William Blair

Gavin (Weise) – JP Morgan

David Larsen - Leerink Swann

Jamie Stockton - Wells Fargo

Steve Halper – Lazard Capital Markets

Neal [Inaudible] – Sidoti & Co.

Operator

Good day ladies and gentlemen and welcome to the first quarter of Vocera Communications earning's conference call. My name is Phillip and I'll be your operator for today. (Operator Instructions)

I would now like to turn the conference over to your host for today, Mr. Jay Sptizen of General Counsel. Please proceed.

Jay Spitzen

Good afternoon everyone. I am Jay Sptizen, Vocera's General Counsel. Welcome to the Vocera Communications 2013 first quarter conference call. A press release detailing Vocera' first quarter results was distributed earlier today about 1:15 p.m. Pacific Time. And is available on our website www.vocera.com. This conference call is being webcast live on the investor relations page of our website where it will be archived on the events and presentations page.

In this conference call, we will be referencing both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures was provided in our earnings release, which as I mentioned is available on our website.

This conference call will contain forward-looking information including statements regarding our company's operating results and market opportunities for our solutions. These forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from our current expectations. These risks and uncertainties are described in Vocera's filings with the Securities and Exchange Commission.

With that said, I would now like to turn the call over to our Chairman and Chief Executive Officer, Bob Zollars. Bob.

Bob Zollars

Thanks Jay, and good afternoon everyone. We appreciate you joining us on the call today to discuss our first quarter, 2013 results. With me on the call today are Bill Zerella, our Chief Financial Officer and Brent Lang, our President and Chief Operating Officer. Both Bill and I will have some prepared remarks. And then Brent will join us for questions at the end of the call.

Well, let me start by saying that we're disappointed with our first quarter results. We generated revenue of $22.4 million and adjusted EBITDA loss of $1.2 million and a non-GAAP EPS loss of $0.07. Recent macro developments in the healthcare industry had a more profound effect on our existing customer base than we anticipated. And as a result of that and some inconsistent sales execution, we didn’t close a number of expansions during the quarter that we expected.

While our field sales teams are quite optimistic, they've noticed that increased pressure on hospital budgets is delaying some of our larger expansion deals and increasing scrutiny on any spending in these facilities.

We believe uncertainties surrounding the effect of sequestration in the healthcare reform act is affecting both our government and now our commercial business. The impact this is having on our business seems to along getting the sales cycle.

In the first quarter, none of the new government purchase orders we had been waiting for were received. And while we continue to be disappointed with the pace of getting these new government facility contracts finalized, we believe these delayed deals are still included in the new federal budget. We did receive bookings for two government expansions, one in a VA hospital and another in a DOD hospital. And as a result, we remain optimistic that we can close these deals this year, although the timing still remains uncertain.

In the non-government healthcare segment, we saw several large expansions we had expected to close in Q1 not get consummated. We thought it might be helpful to provide a little more color on what we're hearing as well as a description of a handful of these deals in order to better provide transparency on what drove the revenue miss.

Virtually every health system we speak to has put in place large expense reduction initiatives as a result of reform. Just this week, we heard expense reduction targets at two of our existing customers. One needs to cut $200 million and the other $120 million of operating expense.

Every quarter, we have a number of significant expansion deals in the pipeline. And it's normal that we complete some in the quarter and the rest fall in the future quarters. This task order however was very rare in that sizeable expansion deals we're looking to close in the last ten days of the quarter were delayed. Because these deals were expansions at existing customers, our expectation had that these would be booked shipped deals that could immediately turn to revenue. And when they didn’t materialize, our revenue fell off track.

Digging further into these delays, we believe we were impacted by both the macro issues I mentioned as well as a number of deal specific events that caused their delay. For example, one deal increased meaningfully in size during the contracting phase of the health system wanted to expand the deployment to two additional hospitals in their system. That caused additional approval to be bumped up to the next level of management and ultimately delayed closing.

Another deal was approved by the hospital capital committee only to later get caught in a temporary across the board spending freeze by the hospital's CEO as a result of reduced Medicare reimbursement.

We underestimated the approval process in another.

I want to point out that we're confident that none of these deals mentioned above can be attributed to competitive losses. We're frustrated by these booking delays and we recognize that we have to improve our forecasting ability and sales execution, which had inconsistent quarter performance by territory and geography.

To improve the effectiveness of our sales efforts, we're investing in three new sales and service leadership positions. First, strategic accounts, U.S. sales, international sales, professional services, and technical support will roll up into a newly created position of EVP Worldwide Sales and Services. We're also going to be adding a new position heading up our U.S. regional sales organization.

While we've grown nicely from $41 million in revenue in 2009 to over $101 million last year, to double our revenue again will take additional executive sales leadership. The search for these two positions has already begun. And as part of this process, Bob Flury, our current head of sales will be transitioning to head up our international sales effort, a third new position. And it's something he's very experienced in and has a passion for.

So now withstanding the challenges I've just described in closing expansion deals, the first quarter of 2013 was the strongest quarter in terms of the number of new customer acquisitions that we've seen since 2009.

During the quarter, our voice solution as well as our Xperia health and mobility business units experienced strong new customer wind. These new winds included health systems of all sizes as a handful on non-healthcare customers.

During the first quarter, we also strong bookings in our international business and our supplies business. And our new sales reps performed above expectations in their first calendar quarter in their territories.

The feedback from our sales force continues to be strong. Our customer surveys do show increased uncertainty, yet continue to show high levels of satisfaction and intention to expand their Vocera deployments in the future.

Our recent new customer winds suggests that Vocera is still the industry leader. And we have numerous growth initiatives under way that are quite exciting.

So at that end, I want to review each of our five pillars of growth before the call over to Bill to review the financial results.

As frustrating as Q1 was, there is significant and meaningful progress being made across the board. Our first growth driver is the addition of new hospitals. And in the first quarter of the year, we experienced strong customers ads from a wide variety of health systems from all parts of the country. As I mentioned, this was the best quarter for the number of new hospitals added in over four years. All of these came from the private sector. No new federal hospitals were signed in the quarter. And adding new customers early in the year should be beneficial to our land and expand approach. And will likely allow us to significantly increase our presence in these hospitals over time.

Also during the quarter, we were able to make progress executing within our national accounts that we mentioned on the last conference call. While I'm not at liberty to get into the specifics, we did sign a couple of dignity hospitals as new customers during the quarter. And we're seeing a growing pipeline of deals with Ascension.

The second growth driver further penetrating our installed base is where we faced some challenges in the first quarter. The B3000 upgrade process continues. And we saw several accounts take advantage of this new and improved badge. We expect the pending last-time buy on the B2000 for commercial customers and the related B3000 trade-up program to drive increased demand in the next few quarters.

Maintenance renewals were essentially on track. And as I mentioned, we had a good supply quarter.

Our third area of growth is to continue to focus on cross-selling additional solutions into the install base. There is strong momentum in this third growth driver. During the quarter, we signed five additional health systems to our patient experience collaborative bringing the total membership to 21. This is important strategically for several reasons. First, it helps us build close customer relationships as we work with them to address their most pressing issues in patient care. Second, it provides our engineering team first-hand customer input into our roadmaps. And lastly, once a trusting relationship is established, these health systems are more likely to believe in and deploy our solutions.

And in the first quarter for instance, we had our first collaborative member cross the $1 million commitment level across four different product lines, voice, messaging, good-to-go, and patient experience.

We continue to refine our secure messaging solution, which remains a small portion of our overall business. We're hard at work integrating this solution with our voice solution, which is what our customers are asking for. And we have new versions of the messaging product coming out shortly that improves the user experience and enhances the integration with the voice solution.

And as Bill will mention a little later on in the call, we plan to continue to ramp our R&D spending to take advantage of the many technology opportunities we see out there despite some short-term financial pressure in our installed base.

Our fourth growth driver, international expansion delivered very strong bookings in the first quarter. International momentum was ahead of our expectations and showed particular strength in Canada with their largest booking quarter in their history and Asia PAC where we recently invested in additional sales in clinical resources.

International revenues accounted for approximately 11% of total first quarter revenues compared to 12.8% in Q1 of last year and 7.1% in Q4 of 2012.

And finally, we continued to grow in the non-healthcare market. Our mobility business had a good quarter in terms of new names. We were able to add four customers from three different industry segments, hospitality, education, and power. These new contract winds continued to demonstrate the Vocera Solutions play across multiple markets.

We also had a hotel upgrade house-wide to the new B3000 badge. And there's a lot of activity under way in the retail and hospitality segments emphasizing a combination of B3000 badge and Smartphone client apps. And while the deal size outside of healthcare tends to be smaller on a per-store basis, there are so many sites to sell into, it represents a very substantial market opportunity. We're still in the early days in this business for expecting big things. And I'm proud of what the mobility team has done in the last two quarters when it was created.

So to summarize, we're working hard to improve our ability to close expansion deals that are in the pipeline and to respond to the reduced visibility we have on the timing of these deals. A new phenomenon for us, which we attribute in part to uncertainty introduced into the market by the macro changes I referred to previously.

While noting our disappointment, I also want to convey the excitement and the potential of the opportunities ahead of us. We firmly believe that the 16 sales people we added this year and the sales management changes that we're implementing will increase our ability to manage, forecast, and close on new deals in a more timely manner.

In addition to the new sales and services executive positions described earlier, we recently added a VP of Corporate Marketing. And our new executive is already adding value as she works to build demand for our products and ignite our brand. The market opportunity remains enormous. And we're going to continue to invest and deliver upon it.

That said, there's a quantum visibility that has made us take a more cautious look at our growth in the short term as Bill will describe. So at this point, let me turn the call over to Bill.

Bill Zerella

Thank you, Bob, and good afternoon everyone. I would now like to provide some commentary on our first quarter results and an update on our outlook for 2013.

Revenues for the first quarter were $22.4 million and fell below our projected guidance range. Earlier on this call, Bob highlighted some of the reasons some deals did not close in the first quarter. And I would like to provide a little more color from a financial perspective.

In the final days of the first quarter, we anticipated closing several million dollars of expansion orders from existing commercial customers. Unfortunately, we were unable to complete any of these deals before the close of the quarter. Expansion deals are generally book and ship arrangements that allow us to immediately recognize revenue.

Going down further, product revenue of $13 million in the quarter consisted of $10 million from device sales and $3 million from software sales. The delayed deals primarily impacted our product revenue with both device and software revenue coming in below our expectations.

During the quarter, our B3000 model accounted for 78% of total badges shipped, down slightly from 80% last quarter, but in line with our expectations.

Service revenue of $9.4 million was comprised of $7.3 million of software maintenance and $2.1 million of professional services. The service revenues are derived from maintaining and supporting existing customers. This revenue line was generally in line with our expectation.

As I discuss gross margins and line items from the income statement, please note that these are non-GAAP figures and have been adjusted to exclude compensation and amortization of acquired intangibles. A reconciliation of GAAP to non-GAAP results can be found in our press release, which is available on our website.

Overall gross margins were 62.6% in the quarter versus 61.6% in the first quarter of last year. Gross margins decreased from the 66% levels we reported for the last two quarters. We however have not changed our view of the long-term gross margin target of 70% since we believe all the same drivers remain in place.

Product gross margins were the primary cause of the sequential margin decline coming in at 65.6% for the first quarter compared to 69.8% for the fourth quarter of 2012. Product margins were impacted by less leverage of associated with lower device revenues and a lower mix of software revenue. In the first quarter, software accounted for 23.3% of product revenue compared to 25.7% last quarter and 29.3% a year ago.

First quarter service gross margin increased 40 basis points versus the year ago period. And decreased 150 basis points sequentially from 60% to 58.5%. We were able to maintain our strong service gross margins despite the lower revenue through improved staffing utilization.

Turning to OpEx, during the first quarter, sales in marketing accounted for just under 43% of total revenues. As we mentioned on previous calls, we have been aggressively hiring sales people over the last few quarters to capitalize on the growth opportunities Bob outlined earlier in both healthcare and non-healthcare verticals. We are pleased with the performance of these new hires so far. However, it takes time for them to ramp to full contribution. As we grow revenue, we expect that sales in marketing will be in the high 30% range of total revenue, which we feel is appropriate for the full year, 2013.

Research and development grew 6.2% sequentially from the fourth quarter of 2012 and 37% versus the first quarter of 2012 reflecting our continued focus on driving innovation.

Our non-GAAP adjusted EBITDA represented a loss of $1.2 million in the quarter compared to a gain of $3.2 million last quarter and $2 million in the first quarter of 2012. Our non-GAAP adjusted EBITDA was a direct result of the lower revenues we experienced in the quarter and the increase in expenses as we built our sales force and engineering team.

Turning to the balance sheet as of the end of the first quarter, we had $126.4 million in cash and short term investments and no debt. Cash outflow from operating activities was $2.2 million.

Deferred revenue on the balance sheet was $27.2 million at the end of the first quarter, which reflects a 4.1% decline sequentially and an increase of 15.5% year-over-year. Including deferred revenue elements associated with our customer leasing arrangements of $1.2 million, we view our total deferred revenue as $28.4 million as of the end of the first quarter, an increase of 20.6% year-over-year.

Finally, I would like to review the updates to our outlook. In light of the factors discussed today that impacted our business in the first quarter, we are adopting new guidance ranges that reflect a more cautious stance on both revenues and earnings.

As Bob described, we are seeing pressure on hospital budgets weighing our ability to close deals. This is combined with the lack of visibility on the timing of closing government business. According, our second quarter guidance reflects flat to down revenue and lower earnings year-over-year. Since we have not changed our views to the opportunities ahead of us in our ability to drive long-term growth with the right investments, we will continue to invest in our business with a focus on driving more innovation and expanding our sales and marketing activities.

For the full year of 2013, we now expect revenues between $100 and $110 million, non-GAAP net income between a loss of $1.3 million and a profit of $5 million, non-GAAP earnings per share between a loss of $0.05 and a profit of $0.18, and non-GAAP EBITDA between $1.2 million and $7.9 million. Our full year 2013 non-GAAP guidance excludes stock compensation expense of $9.5 to $10 million and amortization of intangibles of approximately $0.7 million. We expect income taxes of approximately $300,000 to $600,000 due to foreign taxes and add-backs in computing our U.S. taxable income.

For the second quarter, 2013, we expect revenues between $23 and $25 million, non-GAAP earnings between a loss of $1.6 million and $400,000, non-GAAP EPS between a loss of $0.06 and $0.02 per share, and non-GAAP adjusted EBITDA of between a loss of $1 million and a gain of $300,000. We expect income taxes in the second quarter to be $100,000 to $200,000.

Our non-GAAP EPS projections are based on a fully diluted share count of $25 million in the event of a loss and $27.3 million in the event of a profit for the full year, 2013, and a share count of $27.1 million for the second quarter.

That concludes my portion of the call and with that, I'll turn it back over to Bob for some closing remarks.

Bob Zollars

Thanks, Bill.

Well, Q1 was disappointing. But we're using that business formula as a business cry to redouble our efforts to invigorate the growth of our business. The long-term market potential hasn’t changed, nor has our excitement about the competitive position that we hold. We're investing in the business across the board, have numerous growth initiatives under way, and are adding executive sales leadership. And we're more determined than ever to build a large and valuable business.

So Phillip, let's open it up for questions as we would be happy to provide any additional color you might find helpful.

Question-and-Answer Session

Operator

(Operator instructions). Your first question comes from the line of Ryan Daniels from William Blair, please proceed.

Ryan Daniels - William Blair

Hey, guys. Thanks for taking my question. Given that you’ve seen the emergence of hospitals taking a more discretionary stance on your solutions, what can you do about that internally from a standpoint of validating the ROI or pushing that more? Again, you know, just thinking that while this might be an initial capital deployment or increased capital deployment to expand, I think you’ve also got some pretty good data that shows this can drive returns as long as they use it effectively and can drive greater utilization in some of the units. So any color there?

Bob Zollars

Yeah, Ryan, it’s interesting because there’s some contrasting data points in the quarter. We actually had a very good new names quarter we described. So attracting new customers wasn’t the issue. Where we saw a lot of the delays and just lack of closure was in the larger expansions. I think as you go up the stack in dollar amount per PO, that’s where we’re running into some pushback. And a lot of the pushback that we’re hearing is not Vocera specific, it’s sort of across the board slowing down and waiting. And I think when hospitals go through changes like this, the first thing to do is just kind of freeze everything and then they adopt and then they move on. I think we’re seeing a little bit of that.

So I think it’s incumbent upon us to be a couple of things. One, prove the ROI and the value that we’ve delivered through a lot of the use cases that we’ve gotten, studies that we’ve done. Two, I think our land and expand approach works and so we may even be more successful at breaking down some of these expansion into smaller bites and doing them over time a little bit. Three, we’ve got our leasing solution that we had a handful of folks take advantage of in the quarter but I think that can become a more important aspect of the business. And then five is sort of, you know the new sales force we have. If you had to just focus on one quarter, which does not a trend make, the hunters, the folks going after the new names are delivering, they’re doing their job. We had a great quarter.

I’d say where we fell short was in the account manager, the farmer side of the business for the most part and that’s where we missed our numbers on the install base, which is – usually, it’s been the other way around for us, so Q1 was a bit of an anomaly. These are some of the things we’ve got to focus on.

Ryan Daniels - William Blair

Okay, that’s helpful. And then, you know, if you think of some of these big delays, the expansions put on hold, is any of that starting to fall off in the second quarter as these hospitals have kind of refigured the budget, they understand what the sequester cuts are going to do, maybe they’re moving forward? How many of those are kind of outright stopped do you think for the year and therefore out of your guidance versus how many of those do you think can still continue and we’re just delayed maybe a quarter or two?

Bob Zollars

Yeah, we’ve already gotten a couple of the deals that were delayed but frankly it’s hard to say and that’s the reason we’re being so cautious in our guidance. It’s just hard to tell with any clarity exactly how these will unfold. We’ve had a couple customers say, you know what, rather than go system wide, maybe we should bread it down into bites and our CEO or our capital board approval will go that way. But we’re hoping it’s not a long-term issue but we’ve put guidance out there that I think is just cautious because we don’t want to be in this position gain, frankly. And with the lack of visibility we’ve get with some of this change, it happened so quickly late in the quarter that we just want to be cautious.

Ryan Daniels - William Blair

Okay, and then, I don’t know if you can comment on this, but more of your shares are trading in the aftermarket and the fact that you’ve got more than $5 in cash and haven’t done any acquisitions, would a share repurchase be something that the board would consider going forward?

Bob Zollars

Yeah, good question. We have not talked about a share repurchase just because we think the best use of that cash is in a targeted M&A, to continue to go out and add technologies and products to the pipeline and we’ve been pretty active in that market, although we haven’t pulled the trigger. We’ve been looking at a lot of very interesting ideas and technologies that are out there. But the balance sheet does give us some flexibility and I think that would be where we would use the cash.

Ryan Daniels - William Blair

Okay, thanks. I’ll hop back in the queue.

Bob Zollars

Thank you.

Operator

Your next question comes from the line of Gavin Lickie from JP Morgan. Please proceed.

Gavin (Weise) – JP Morgan

Hi. Thanks for taking my question. You talked about this exiting the strongest quarter number as new customers. What would you say on average are the size of those deals relative to new customers in previous quarters and when should we expect to see the revenues from these new contracts?

Bob Zollars

Yes, Gavin, good question. The size in this quarter was down a little bit from prior quarters, so [inaudible] was down but not materially. As you recall, new customers have struck the representative about 15% of our revenue in any given quarter. So as these people buy, their revenue will show up in the following couple of quarters as bookings convert to revenue when the product is shipped. So we’ll start to see some of that rolling out. And I think over the longer term they’ll begin to expand as they roll their expansions, you know departments into departments and so forth.

Gavin (Weise) – JP Morgan

Okay. That’s helpful. And then I guess if I look at the back half of the year, it certainly improved based on your guidance. Is that just your anticipation of these new customers or is it more of potential government revenues and potential – you know, these deals that have been delayed coming through?

Bob Zollars

I’ll comment and then you guys jump in. I think it’s a combination of all five of our growth drivers. We’re actually building momentum sort of across the board on those initiatives so it’s the new numbers success early in the year. It’s the tenure of our sales force frankly because only do we have – we’ve added 16 new reps this year, we replaced 12 underperforming reps sort of the back half of last year and into this year. So we’ve got a pretty good portion of our sales force that’s just coming up to speed and becoming more productive.

And so far, the new folks are ahead of the expectation we set for them, you know, early on in that regard. A lot of great momentum in our mobility business outside of healthcare. Good momentum in [inaudible]. So it’s tough because it was such a tough quarter, yet we’ve got a lot of really good things happening across the five growth drives. And so that’s why we’re confident in the back half.

Gavin (Weise) – JP Morgan

Okay. Thank you very much.

Bob Zollars

Thanks.

Operator

Your next question comes from the line of David Larsen from Leerink Swann. Please proceed.

David Larsen - Leerink Swann

Hi. Can you comment on inside ownership? Where are we now? I think at the last conference call, I think you said 4 million shares were owned by insiders. Are they all sold or…

Bill Zerella

Hey David, it’s Bill. I don’t believe there’s been a significant change in our inside ownership, not that I’m aware of. I haven’t tracked any recent changes but to my knowledge, certainly the investments held by VenRock and GGD, I don’t believe have changed. I believe, you know, RRE sold most of their position a few months ago, which just leaves Vanguard that had 700,000 shares that we understand were going to be distributed sometime this quarter. I don’t know if those plans have changed or not. I haven’t been in touch with them. So I’m not aware of any significant changes since the last time we talked about this.

David Larsen - Leerink Swann

Okay, and then in terms of VA versus DOD, would you say that for government facilities, it’s – like in terms of your sales prospects, it’s 80% VA, 20% DOD or is it more 50/50?

Bob Zollars

The VA is definitely a larger set of hospitals, I think there’s 160 or so VAs and probably 60 DODs. We’ve got good activity on both. The DOD facilities tend to be larger and I think the sequestration is, from everything we’re hearing, hitting the DOD harder than it is the VA system. So there’s a lot of different variables in play. We actually have people dedicated to both segments, both VA and DOD under one leader of our federal sales effort and so we’re going after both of them. We’ve got a lot of good discussion going but boy, it’s just frustrating from a sequestration and timing perspective.

David Larsen - Leerink Swann

Okay, and then, I mean, just a general comment, I mean, last time I checked, reimbursement rates weren’t going up for hospitals anytime soon. It seems like hospitals are going to be facing reimbursement pressure for a long time. It may be beyond 2013. I guess that’s just a comment rather than question. Thanks a lot.

Bob Zollars

Hey, David, just on that last comment, you know for those of us that have been in this market a long time, this may be a new flavor of things we’ve been through but this market is [inaudible] different cost pressures over the years, every so many years. And this one may be a little bit more intense but in every case that I’ve lived through over the last 30-plus years there has been sort of an immediate reaction which is to freeze, stop spending, don’t do anything and then figure out exactly what your reimbursement is going to be, adopt, make the cuts where you need to and then you move back to a more normalized cycle. I think that’s what we’ll see here. I don’t think this is going to be a permanent freeze out but I do think it – it actually surprised us a bit this quarter on just the number of places that are facing pretty large expense cuts under the 2% Medicare decline.

David Larsen - Leerink Swann

Okay, and then Brent, is Brent on the phone and is there any commentary on selling into these four large systems that were assigned in 4Q ’12? Has that process started? Do you have some comments on those?

Brent Lang

Yes, it’s definitely in process. We actually had some good success with Dignity and the pipeline is building within the Assention hospitals. I think what we’re seeing is that, you know, it is still a hunting license, there’s still plenty of selling to be done at the individual facility level but it’s definitely helping facilitate those conversations.

David Larsen - Leerink Swann

Okay, thanks, guys.

Operator

Your next question comes from the line of Jamie Stockton from Wells Fargo. Please proceed.

Jamie Stockton - Wells Fargo

Yeah, good evening, guys. Thanks for talking my questions. I guess maybe the first one, the portion of the guidance reduction that is directly related to the government business and how it continues to be pressured by the sequester, is there any way you can call out that dollar amount versus what you had been expecting when you originally gave guidance for this year?

Bill Zerella

Yeah, Jamie. So let’s go back first to review the previous guidance, which was 1.20 to 1.30. And the way we kind of further clarify that was that the 1.20 level, that included little, if any, government business and at the 1.30 level would include, we’ll call it a good year for our government business.

What we’ve done now with our revised guidance, if we think now about the impact that we’re d seeing on the commercial side from tightening budget, we combine that with kind of the continued lack of visibility on the government side, our new guidance range does not really include any new customer wins on the government side, whether the low end or the high end. And really, what we’re saying is that in that guidance, really is only a nominal amount of government business.

Jamie Stockton - Wells Fargo

Okay. And just one more on the government business. You know, I think you guys are expecting the B3000 to be certified sometime this summer, you know, while understanding that you’re not counting on any new government business in your current guidance, you know, is there – would you expect that to be a positive catalyst as far as either, you know, triggering some deals or at least improving the conversations that you’re having with some of these hospitals because the current badge would essentially be the one that is certified?

Brent Lang

Yeah, this is Brent. So I can answer that one of two ways. First, the government hospitals are definitely interested in moving to the B3000 badge. I think they see the benefits of the, you know, the improved durability and that kind of thing, but I don’t think that’s the primary thing that’s holding up those deals. I think this is really more part of their budgeting and decision making process. So I don’t think we’ve received any communication from them saying we’re delaying the deal until the B3000 gets certified, they’re delaying the deal until their budgets get certified and I think it may end up being, coincidentally in the same timeframe but I wouldn’t necessarily think of the B3000 certification as being the driver for a waterfall of big government deals.

Jamie Stockton - Wells Fargo

Okay. And my last question, just as far as sales force headcount is concerned, if you could give us an update there, it sounds like Bob referenced some underperforming sales people that had been replaced. I didn’t know if the new sales adds were a net number or what. If you could just give us a count on quota carrying sale people and maybe how many are directly working on the healthcare business, that would be great.

Brent Lang

Let me just review the numbers here. So in our at-full-strength sales organization for 2012, that was 54, that number is 70 for 2013. We’re essentially at full strength now. As part of getting to that 70 number, we added 16 new positions, five of those 16 were in non-healthcare, they represented our mobility business unit focusing on retail hospitality and energy. So there are 65 of them that are focused on healthcare and right now there’s a couple that are in transition but for the most part we’re full strength. But 12 that were mentioned by Bob earlier in terms of the replacements, most of that was done in the latter part of last year or early part of this year. So that’s pretty much behind us at this point.

But I think the key point from all that is you sort of take those two groups together, the new people as part of the overall sales organization is a relatively high percentage and as those folks ramp up and learn the markets, introduce themselves to their customers and build confidence, we’re expecting them to be able to be more effective over time. We’re actually very impressed with the people we’ve got on board and it’s just a matter of them ramping up their capability and having some time in the job.

Jamie Stockton - Wells Fargo

Okay, thank you.

Operator

(Operator Instructions). This concludes the question-and-answer session of our call. Thank you for participating, you may now disconnect.

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