Vocera Communications' (VCRA) CEO Brent Lang on Q1 2016 Results - Earnings Call Transcript

| About: Vocera Communications (VCRA)

Vocera Communications, Inc. (NYSE:VCRA)

Q1 2016 Earnings Conference Call

April 28, 2016 05:00 PM ET

Executives

Jay Spitzen - General Counsel

Brent Lang - President and CEO

Justin Spencer - President and CFO

Analysts

Sean Wieland - Piper Jaffray

Jeff Garrow - William Blair & Company

Mohan Naidu - Oppenheimer

David Larsen - Leerink Partners

Dillon Hoover - Craig-Hallum Capital Group

Jamie Stockton - Wells Fargo Securities

Gene Mannheimer - Topeka Capital

Operator

Good afternoon, ladies and gentlemen and welcome to the First Quarter 2016 Vocera Communications Conference Call. My name is Liz and I will be your coordinator for today. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder today’s conference maybe recorded.

I’d now like to turn the presentation over to your host for today's call, Mr. Jay Spitzen, General Counsel. Please proceed.

Jay Spitzen

Hello everyone. We distributed a press release detailing Vocera's quarterly results earlier this afternoon. It is posted on our Web site at 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 Securities & Exchange Commission and actual results or events may differ materially.

Let me now introduce our President and Chief Executive Officer, Brent Lang. Brent?

Brent Lang

Thanks, Jay. Good afternoon, everyone. Thanks for joining us on today's call. The first quarter of 2016 was another strong quarter for our business. Bookings, revenue and profitability were all better than expected. The Company also booked another large multimillion dollar transaction, continuing the winning streak of selling large system level deals that started in the second half of 2015.

Implementations at our large enterprise customers including Franciscan Alliance and The University of North Carolina are executing well, and we are encouraged by the momentum in our business.

We continue to see excellent year-over-year bookings growth across all segments of our business. Our core business in the United States grew significantly compared to Q1 of last year, validating the powerful differentiation of our product offering.

Again and again hospitals and health systems are selecting our secure, intelligent, and integrated communication solutions to improve efficiency and patient safety and produce meaningful ROI.

We also achieved solid international growth with particularly robust results in the Middle East. And our new products including the Vocera Collaboration Suite and the Clinical Workflow Engine made meaningful contributions to our success in the quarter.

First quarter revenue was $26.8 million, up 12% over the same period last year and continued our trend of healthy year-over-year growth. International revenues grew 28% compared to Q1 last year.

As a result of our revenue growth and efficient cost management during the quarter, adjusted EBITDA was slightly above our guidance and we are on track to be EBITDA positive for the full-year.

The highlight of Q1 was a $3.4 million booking at Parkview Health System, in Fort Wayne Indiana. Parkview is a really gratifyingly win for us, because they’ve done a small Vocera deployment several years ago, but were mainly using a competitor smartphone solution. This win which is displacing the competitive solution involves a high degree of diligence on the part of Parkview including reference calls, clinical assessments, and head-to-head competitive demos.

Our platform and smartphone solution elevated above our competitor. The functionality of our badge resonated with nursing and our integration capabilities, professional services, and world-class support set us apart.

Parkview was partnering with Vocera to deploy an enterprise grade secured communication and collaboration platform including over 1,100 MC40 smartphones and a 150 Vocera badges. This enterprise booking will support 5,000 users across three facilities with our Collaboration Suite and Voice Solutions.

Although not part of the scope of this original contract we anticipate there is additional opportunity to expand the Parkview’s other six facilities. This win builds on last year's list of large multi-hospital deals were customers recognize the superior power, functionality, and scalability of our solution.

I’d like to speak for a moment from a market perspective. Our first quarter results reflect what we're seeing in the market with clinicians increasingly focusing on communication and coordination solutions as a key IT priority to support a successful migration to new healthcare delivery models.

We were delighted to see many of you at HIMSS, this March. And the highlight of our Investor Breakfast was hearing Franciscan Alliance, discuss their selection process to choose Vocera as their clinical communications solution. Also at HIMSS, we were honored to be featured in the presentation by Lieutenant Colonel Dominicci from Evans Army Community Hospital, highlighting the tangible results the Vocera platform is delivering. He said that over a 10 month period, Evans Army Hospital has seen a 20% improvement in patient satisfaction and based on this they’re predicting returns of over $600,000 annually from their pay-for-performance reimbursement model.

Evans also measured a dramatic 81% reduction in patient falls within 10 months of their Vocera implementation. By integrating with their nurse call system, response times have decreased from four minutes to less than a minute within inpatient areas. Evans Hospital reported that nurses are spending an hour and half more per day directly caring for patients and doctors are spending an additional 40 minutes with patients each day as a result of efficiencies driven by our integrated communications system.

Now let me give you an update on our growth drivers in the quarter. We saw significant year-over-year growth in bookings for new U.S hospitals. In addition to the Parkview deal that I described earlier, we had a big win at Stormont-Vail HealthCare, in Topeka, Kansas. The customer was looking for a solution to replace their antiquated wireless phones and also needed a way to send secured text messages to independent doctors and remote clinics.

What started that as an RFP and Stormont-Vail assuming that they would have to cobble together multiple vendors became a great fit for our software platform with its superior workflow intelligence, combining both our voice and messaging solutions.

Uncharacteristic Q1, we also booked a new hospital in the federal market with a win at the Fayetteville VA Medical Center. We also booked some significant customer expansions in the quarter including MetroHealth Medical Center, in Cleveland.

We’ve been deployed in multiple outpatient centers of MetroHealth. They were opening a new Critical Care Pavilion in July. The Critical Care Pavilion is one of the nation’s most technologically advanced centers for emergency medicine, trauma and surgical care and its Cleveland’s highest accredited trauma center. Vocera was the perfect partner for their state-of-the-art facility. Utilizing our badge technology along with integrations to both Rauland nurse call and Philips monitoring.

The quarter also included some impressive wins in other vertical markets including two more Four Seasons Hotel and Ritz-Carlton Property. As you know we placed increased emphasis on enhancing our software platform and we are excited with our progress. Collaboration Suite which enables customers to access our software platform from iOS and android devices was a critical part of several deals again this quarter including Parkview and Stormont-Vail.

The majority of our customer wins now include Collaboration Suite supporting our device of choice strategy by providing customers options for handheld and wearable devices. During the quarter, we also added seven new customers for our clinical workflow engine which is resonating well with customers and prospects.

Our clinical workflow engine is power -- is empowering customers to leverage clinical context, triaging information to enhance communications, and enable quicker action. One great example was a new customer win at Mt. Graham Medical Center, in Safford Arizona. The chief nursing officer wanted to improve the effectiveness of code calling at the facility and understood the power of our solutions. Today a code blue triggers an overhead notification and the code team has to figure out where the code was initiated. Once deployed, our clinical workflow engine will immediately discern and route code blues from the Rauland nurse call system directly to the code team on their Vocera badge, instantly alerting them which room need a response. This will greatly improve the code team's response time in emergency situations and was a huge driver for why Mt. Graham chose our solution.

We also won a large competitive opportunity with our cloud-based care rounding solution at the Jersey Shore University Medical Center part of the Meridian Health Systems.

In Q1, we continue to benefit from a growing base of customers utilizing our software maintenance and support services, resulting in a very healthy renewal rate well above 95%. Overall, we’re continuing our successful transition to an enterprise software platform company and software bookings, a strong leading indicator of future software revenues, grew substantially compared to Q1 of last year.

Our international business also saw solid growth in Q1, while bookings in Singapore and Malaysia were soft. We saw particularly strong bookings in EMEA with growth coming from some large expansions in the Middle East. During the quarter, we booked a large expansion at the Cleveland Clinic in Abu Dhabi and at Sidra Hospital, in Qatar.

At the end of our last call, I highlighted some of our strategic priorities for 2016 and I'm pleased with our execution and progress on those so far this year. Our investment to expand our communications platform by adding even more scalability and new functionality to our solution is helping us drive expansions at some of our largest customers.

In Q1, we introduced a major upgrade to our Collaboration Suite including improvements to the user experience and several enhancements to scalability, reliability, and latency. We also added new clinical integrations to our portfolio, tying us deeper into the clinical workflow and expanding our solution to reach a wider range of users.

During April, our secure texting product passed a rigorous third-party SOC 2 audit, validating that our communications platform meets the strictest security and safety standards for service providers, and providing independent verification of our enterprise class infrastructure operating control and platform security.

In another major milestone achieved just last week, the Vocera B3000n badge received fifth certification. The fifth certification validates that the badge and its associated firmware meet the strict security and encryption standards required to operate on federal government wireless networks. These two certifications are the latest validations that our solutions and infrastructure are secure, scalable, and enterprise class.

We’ve also achieved important milestones with some of our large enterprise customers including UNC and Franciscan. At Franciscan, our first deployment went live in mid-April and was met with a high level of excitement from their unit managers. At UNC, we went live at the Hillsboro facility on schedule. The customer is excited that we've begun the rollout at the main medical center this quarter.

As I said in our last call, success of these large deployments is a critical priority for us and I'm thrilled with our progress. I'm also happy with the execution and productivity of our sales and marketing teams. We are encouraged by the returns we're seeing from the investment in demand marketing and lead generation. There is a very large market opportunity for us in the U.S where many hospitals are still using pagers, outdated phones, and overhead paging system.

Overall, I’m pleased with the start that Q1 offers to 2016. Growth in our business is continuing to accelerate with impressive bookings growth, high customer loyalty, and improving profitability. We're executing across all metrics and making good progress towards our long-term operating model. I'm confident in our ability to drive double-digit growth in the business while delivering increased profitability over time.

Now let me give our CFO Justin Spencer, a chance to provide some financial highlights from Q1 and guidance for Q2. Justin?

Justin Spencer

Thanks, Brent. Hello everyone. Vocera’s first quarter results exceeded our expectations on all front. We had double-digit revenue growth and very healthy deferred revenue and backlog levels as a result of excellent first quarter booking.

We also delivered improved profitability year-over-year and generated positive cash flow in the quarter. Total revenue in Q1 grew 12% to $26.8 million with double-digit growth at both our products and services segment.

Product revenue in the quarter increased 11% to $13.8 million reflecting the continued value that our platform has in the market. Software revenue was roughly 13% of our total revenue. We added significantly to our software backlog in Q1, fortifying our expectation of strong growth in 2016 in this category as a result of our broadened platform sales and large deployments.

Services revenue in the quarter was $13 million, up 14% from last year. Our software maintenance and support revenue grew 11% as a result of an expanded customer base and a renewal rate above 95%. Software maintenance and support revenue is all recurring and was approximately 38% of our total revenue. The growth of our customer base and the high maintenance renewal rates also resulted in deferred revenue of $38.8 million, up 14% over Q1 last year.

Professional services revenue were $2.8 million roughly 10% of our revenue, an increase over 25% compared to last year. This growth was consistent with our prior guidance that professional services would likely grow at a faster rate because our new customer acquisition growth has accelerated and we’ve begun deployment of several large deals.

Now let me provide a brief update on the progress of our previously announced large deployments. I mentioned on our call in February that our seven largest deals and backlog at year-end were expected to represent approximately 6% of our total revenue in 2016 and less than 2% in Q1.

Our deployments were off to a solid start and our progress is right on track with its previously issued guidance. Looking forward, we expect revenue from these large customers to gradually ramp over the next several quarters, based on the deployment schedules. And where there is opportunity to accelerate those schedules working with our customers, we will do it.

Overall, we continue to have good revenue visibility with our combined backlog and deferred revenue balance up versus last year and at a record level for Q1.

Changing gears, we continue to deliver our commitment to expand profitability. We exceeded our EPS and adjusted EBITDA guidance for the quarter and delivered our fifth consecutive quarter of year-over-year improvement. This continues to be an important priority for us as we grow.

Non-GAAP gross margin was 64%, up from last year. Strong product margin was a result of higher device revenue and our continued focus on operational efficiency. As we discussed on our last earnings call, services margin while healthy overall, was down slightly compared to last year as a result of higher mix of professional services revenue related to a large customer implementation.

While professional services margins are lower than our Company average, our capability here is a major driver of our software growth and a key differentiator and source of great customer satisfaction.

With that said, we're right on track with our gross margin expectations for 2016. And as we built scale and drive more software revenue, we see a path, even a higher gross margin longer term.

Non-GAAP operating expenses were $17.9 million, down sequentially from Q4 and up 9% from last year. Our sales and marketing expense increased from last year due to the timing of the HIMSS Conference, which was held in Q1 versus Q2 last year and our strong bookings performance in Q1 which resulted in higher sales incentive compensation expense.

In 2016, we remain on track for operating expenses to grow roughly 46%, significantly less than our expected rate of revenue growth. Our balance sheet continues to be very strong. In Q1, we added $3.5 million of cash to our balance sheet, primarily the result of the solid collection effort. While there will likely be some fluctuation in cash flow from one quarter to the next, we expect to generate positive operating cash flow in 2016 and end the year with a roughly flat cash balance relative to the beginning of the year.

As I mentioned on our last call, our CapEx will likely be around $3 million, higher than the last few years as we are currently renovating our San Jose headquarters location. We continued to be very focused on effective capital allocation and management.

Now let me turn to guidance. We had a great start to the year in Q1 and expect that momentum to continue in Q2 on the strength of our backlog and deferred revenue level. We remain on track to deliver double-digit growth and reiterate our annual revenue guidance of $111 million to $116 million and our goal of positive adjusted EBITDA for the full-year 2016.

For the second quarter, we expect revenue to be between $26.5 million and $28.5 million and adjusted EBITDA between -- to be between negative $1.3 million and positive $200,000. GAAP and non-GAAP per share guidance, as well as the reconciliation of GAAP to non-GAAP reported measures are linked to the press release and accompanying statements.

Brent Lang

Thanks, Justin. I’m proud of the teams’ execution and positive Q1 performance. I believe our outstanding results speak for themselves. Our success in the market demonstrates the value customers are seeing in our products. We continue to win in the market and large enterprise scale deals continue to be an important part of our business.

Our high customer loyalty is a testament to our products and services and the value they deliver. Communication and collaboration solutions are becoming a must have for hospitals and health systems and we're the clear market leader, well-positioned to meet this demand.

During the quarter, Vocera was named by Becker's Hospital Review as one of the top 150 great places to work in healthcare for 2016. We're proud of this recognition and I want to thank all of our employees for making Vocera such a great place to work.

Today we announced that Mike Berglund will be joining our Board of Directors on June 1. Mike have been President and CEO of Five9 since January 2008. Five9 is a publicly traded company on the NASDAQ exchange and has experienced rapid growth making it one of the largest and fastest-growing providers of cloud context center software.

We were looking for someone who has successfully charted the path of rapid growth as a public company, and we're delighted to have identified such an outstanding individual. Before Five9, Mike was the CEO of a handful of enterprise software and cloud-based company. Mike will be replacing Hany Nada, who as I mentioned on our last call will be wrapping up his 13 years of service to the Company in June. I want to thank Hany for his insight and guidance over the years to help build the Company.

And finally, I would like to thank our General Counsel Jay Spitzen for his 17 years of service to the Company. You will all recognize Jay as the deep authoritative voice that kicks off our earnings calls, but behind the scenes Jay has been instrumental in helping build the Company even before its formal creation, working with our founders on the original document incorporation. His sharp legal mind and proactive can-do business approach have guided and helped us close deals, grow and succeed. We are currently interviewing finalists for the GC [technical difficulty] and Jay will be working with the new GC during a transition period. I really appreciate everything that Jay has done for the Company and I want to wish him all the best. Thank you for listening today.

Operator, we are ready to open it up for questions.

Question-and-Answer Session

[Operator Instructions] Our first question comes from the line of Sean Wieland with Piper Jaffray.

Q - Sean Wieland

Hi. Thanks so much and congrats on a nice quarter. So I'm seeing a trend here on some of these larger deals and was wondering if you could -- is there some common thread that you can tie among the recent larger wins, some kind of commonality and the reasons why they’re selecting Vocera?

Brent Lang

Yes. I’d love to highlight that. Thanks, Sean. I think first and foremost that these are organizations that have moved the decision process from a departmental level decision up to an enterprise level decision. And as a result of that change they’re really looking for a platform approach that can scale across the organization and that means they're looking for something that’s enterprise grade from a security standpoint, from a scalability standpoint, from a clinical integration standpoint, they're really trying to find something that can meet their needs more so than just maybe historically trying to solve a specific communication problem within a department or within a smaller group of people. And for us, I think that really plays to our advantage, because we feel like we’ve the most secured and most scalable platform in the marketplace. And so that I think have leveraged our strength, if you will, to win those deals. The other thing that I’ve seen is a much broader involvement within the customer during the decision-making process. These are often decisions that are being made with stakeholders for multiple departments, including clinical and IT and financial resources and really across the whole health system. They end up being a more exhaustive and detailed valuation process and again I think that works to our advantage when people really get to know the power and capability of what Vocera is offering in the marketplace.

Sean Wieland

And how are you equipped now to handle additional deal flow from a resource perspective?

Brent Lang

I feel good about it. We have been scaling the organization on the professional services side to be able to deliver on the projects that we’ve in-house. For the most part the rate determining step on these customer deployments has been the customer readiness. So we still have professional service resource capacity that we can scale up to address these. We’re also doing some things to invest in making the deployments more efficient, things like computer-based training. One of the biggest blocks of time during the deployment process is actually end-user training and so we’re investing in training tool to drive greater efficiency there and with some of the integrations the more experience that we get doing integrations with various nurse call vendors or with various patient monitoring systems, they become easier and easier. So, my expectation is that our level of efficiency will also increase and that will allow us to get better use of the capacity that we’ve announced.

Sean Wieland

That’s great. Thanks so much.

Brent Lang

Yep. Thank you, John.

Operator

Our next question comes from the line of Jeff Garrow with William Blair.

Jeff Garrow

Yes, good afternoon guys. Congrats on the quarter and thanks for taking the question. I may want to ask a couple of broader ones. The first one is, saw this week that the Joint Commission has updated its position on texting orders for patients. Just curious whether you feel the Commission is kind of lagging behind, what you're seeing on the ground or whether you think this shift will be a positive push for mobile communications moving it up providers’ priority list?

Brent Lang

We see it as a definitely a positive push. That is certainly been something that has given cause to people in terms of what they could use, the secure texting platform for and any time the use cases are going to be broadened and the value can be increased as a result of being able to use the secure platform for a broader range of use cases. I think that’s very much a positive for us. At the end of the day, these organizations are becoming very focused on controlling cost and increasing efficiency and improving workflow. And to the extent that they can use technology and tools to capture those efficiency gains, I think that’s a very positive direction for us.

Jeff Garrow

Great. Great. Then adjacent -- a big picture question thinking about the SOC 2 audit that you guys recently passed. Curious if clients are now requiring this type of qualification or asking for other types of security verification or certification before moving forward, given some recent security breaches we've seen with healthcare providers?

Brent Lang

Yes, great point, Jeff. I think that security and privacy have become very much top of mind for these decision making organizations. Some of them are requiring the SOC 2 certification. In fact, we had some very specific customers over the last six months that had that as a requirement. Others are just looking at it as a further proof point of the security of the platform. So it may not be a specific requirement, but that it’s further evidence of the security and stability of the platform. It’s something we take very seriously, and we've invested heavily in making sure that the platform is totally robust and secure and meets the needs of the customers.

Jeff Garrow

Great. Thanks for the update guys.

Brent Lang

Thank you.

Operator

Our next question comes from the line of Mohan Naidu with Oppenheimer.

Mohan Naidu

Congrats on another great quarter guys. Thank you very much for taking my questions. Brent, maybe on the enterprise deals, obviously we’ve seen a good number of them in the recent quarters. Can you comment on the win rate, especially for the customers who are looking for these enterprise level communication platforms? Is there really a competition there? Are you becoming the sole source vendor for those solutions?

Brent Lang

I would say that we are happy with our win rate. I think you can always do better, but we’re winning the majority of the deals that we’re interacting with. I think I’ve said in the past and it’s consistently maintained that we’re winning 70% plus of the deals that we directly engage with. And I think it’s the element that Sean, touched on earlier in terms of the scalability of the platform, the security, the choice of device capability, the level of integration capability. Those are all things that are helping us win those deals. It's certainly not a sole source situation, and frankly I think that's a positive sign. The fact that we have competitors coming into the space is really a validation that the market that we’re selling into is becoming more of a meaningful and in-growing market, and a growing -- growing priority for the decision-makers. And so competition keeps us on our toes and makes us work harder and drive for innovation and new growth in our products. But for history, we’ve been winning the vast majority of these deals, we’ve been interacting with.

Mohan Naidu

That’s great. Maybe one follow-up to the question that Sean asked about implementations. Do you need to expand the teams or do you have the capacity rate now to run through the current deals that you have?

Brent Lang

We feel generally pretty good about our resource load on these implementations. We are still continuing to hire in a few cases in the professional services team, obviously as we continue with our success in future quarters related to adding new deals that would have an implication on us having to look at additional resources. We also have relationships with third-party contractors that can help supplement us on a contracted basis and that helps us when we have temporary blips in demand for our services. But right now we’re feeling good. We’ve hired several new professionals here recently. They’re getting trained and actively involved in these projects. So, overall we feel really good about where we are.

Mohan Naidu

That’s great. Maybe one last question on VA. Brent, I think you commented a couple of quarters ago that some of the VA deals slipped from third quarter or fourth quarter. We’ve seen one DoD deal come in, but any comments on what's going on with VA?

Brent Lang

Yes, I feel good about it. I think its back on track. We’re getting positive vibe [ph] signs from the VA. As I mentioned, it’s a little unusual to get a VA booking in Q1 based on their fiscal year. So we are pleased to see the Fayetteville VA deal coming in Q1. And as I mentioned in the last call, we closed a couple of DoD deals in Q4. So our fed team is still really bullish. I spent some time with them at our Presidents Club a couple of weeks ago and they’re feeling really good about our relationships there. The study -- the ROI work that Lieutenant Colonel Dominicci has done with Evans is becoming now possible to be deployed or used in other environments to help justify those purchases. So, I think we have a further runway ahead with DoD and VA facility.

Mohan Naidu

All right. Sounds good. Congrats again.

Brent Lang

Thanks, Mohan.

Operator

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

David Larsen

Hi. Can you talk about for serviceability to enhance patient satisfaction, and I think you mentioned one of your customers showed some significant improvement in HCAHPS scores and how relevant is that in the sales process today? Thanks.

Brent Lang

Absolutely, David. I think that patient satisfaction is becoming very much of a top of mind issue for the decision makers. In more of a market, the consumers are playing a greater role in choosing where they receive their healthcare, that is going to be an absolute must win or much have for a lot of these organizations. The ways that we end up impacting patient satisfaction the most are in the areas of response time and attentiveness. So for example, through an integration between a Nurse Call System and the Vocera System we can improve the response times where for how long it takes for a nurse to come and see a patient if they’re in pain or if they need something, that’s a big driver of patient satisfaction. And in fact in general, if you look at the HCAHPS survey questions, roughly a third of the questions in the survey are some form of communication, whether its patient doctor communication or clinician-to-clinician communication. And so, improving the timeliness of that communication and the effectiveness of that communication, we documented multiple times the direct impact that, that can have on HCAHPS scores and it ends up being a major driver for organizations. The saying amongst the hospitals and I’m talking to is, that there is this linkage between quality, safety, patient experiences and cost. And they aren’t necessarily in conflict with each other. In fact the organizations that have seen improvements in quality and safety and patient experience have also seen improvements in their cost to serve a population of patients. And those trends working in conjunction with each other really represent the future of where I think healthcare is going.

David Larsen

That’s great. So then, for your prospects that you’re talking to now, what sort of software solutions do they have in place to measure HCAHPS scores and improve upon them? Do they have anything now, or is it like a green field market or not? Can you give any more color around that?

Brent Lang

Well, typically the HCAHPS score measurement is just done using the standard patient satisfaction paper survey forms that are sent out in a fairly standardized manner. What we’ve done with our rounding solution is provide more real time feedback for the organization. So if you remember the rounding solution is an iPad based solution where a nurse can make rounds or nurse leader can make rounds to patients and collect satisfaction information in real time. And on the backend when we uncover issues or when the nurse uncover satisfaction issues, we can generate messages and alerts and alarms directly to other users in the system, other Vocera’s using the system letting them know that there is a dietary issue or maybe the temperature of the room is wrong, or the patient is in pain, or is not feeling like they’re getting the attention that they want. And so what happens a lot of times is that by getting that real time feedback we can help the hospital address those satisfaction issues immediately. And so what happens by the time they go home and they fill out the HCAHPS survey questionnaire maybe three or four weeks later the patient’s memory of their time in the hospital is a positive one rather than still dwelling on something that may have been a lingering satisfaction issue while they were there.

David Larsen

Okay, great. Thanks a lot. And then, can you give any comments around where your backlog stands at the end of the quarter or none if not, no problem at all. Thanks.

Justin Spencer

Yes. It’s a metric that we disclose once a year. But qualitatively I think Brent and I both alluded to that, that because of the strength in our bookings in Q1 which were above our expectation. Normally we have a pretty significant step down in our backlog, and in Q1 we’re fortunate to hold backlog pretty steady. So it provides that in combination with the deferred revenue, it provides really good visibility for us in Q2, and then the second half of 2016.

David Larsen

Okay, great. Thanks very much.

Operator

Our next question comes from the line of Matthew Hewitt with Craig-Hallum.

Dillon Hoover

Hi, guys. This is Dillon, on for Matt. So you guys are doing great right now in the execution front. Revenues are above expectations, bookings, profitability, the deals are getting larger. You guys are winning those larger deals. I’m wondering if you could peel back the curtain on the conversation around guidance. Why not take the guidance up at this point even modestly to really quantify your confidence in the business for the rest of the year?

Justin Spencer

Yes. So, I’ll take a crack at it, and then Brent jump in if you like. So, as we mentioned on the last call and reiterated here today, a significant portion of our success -- our booking success is tied to these larger transactions. And the conversion of backlog to revenue is longer than what we historically have seen. And so, we’re in the early stages of these large deployments. Things are going really, really well. And we’re off to a really solid start in Q1. But we still have a long way to go in Q2 in the second half. And so we felt at this stage that, we’re still on track for our double digit growth where we are trying to accelerate these deployments working with our customer where we can. But we just felt that the most prudent thing to do at this time was to continue our track record of providing conservative guidance and coming back and hopefully beating that guidance when we report.

Dillon Hoover

Okay. I appreciate the color. And then secondly and lastly for me, I might be reading in this too much. In the press release this multi-million dollar win demonstrates the strength of momentum in the software platform, where there badges a part of this win as well or is it just software?

Brent Lang

No, there were badges. Its part of the deal and there were also MC40 smartphones that’s part of the deal. But really I think the significance of it once again was that the customer was most interested in the power and capability of the software platform and then the choice of devices that went along with that. The total booking value did include hardware as well. But I think we really won the deal by a combination of the features and functionality of the software platform and then the choice of device on the hardware side.

Dillon Hoover

Okay, great. Thanks and congrats on another good quarter.

Justin Spencer

Thanks.

Brent Lang

Thanks, Dillon.

Operator

Our next question comes from the line of Jamie Stockton with Wells Fargo.

Jamie Stockton

Hi, good evening. I guess, maybe first Brent, do you feel like you guys are where you want to be as far as some of these larger deals for the collaboration suite having good references that you can point to, or is there -- still there maybe still some period of time where, three, six months from now we’re going to be at the point where we can point to organizations that have really experienced a clear tangible benefit and that might be an incremental boost that we get.

Brent Lang

It’s a great question, Jamie. I think we’re still in the fairly early stages of this transition or this new product area for us. If you look at the number of reference customers we have for our traditional voice products with literally a 100s and 100s of reference customers that are very happy, because of the collaboration suite and the smartphone solutions are relatively new over the last year or so, we don’t have the same kind of volume of reference customers. And in fact some of the deals that we end up loosing are deals where the customer really made the decision several years ago when they did their initial evaluation, we may not have even had an offering to bring to market or we may not even been invited to participate in the evaluation process. Some of the competitive wins that have been announced in the market place were actually deals that were decided literally years ago. So I think that, you’re absolutely right. As we deploy these large enterprise deals and we have more reference customers using the collaboration suite. And by the way the feedback has been extremely positive for the customers that have done their deployments. That just makes that fields process even easier, because we know that customers rely very heavily on their colleagues and other hospitals and other health systems when they’re evaluating these purchases. And so, that’s why we put it as such a high priority to make sure that these large scale enterprise deployments go so well because we know the value and power of those references on a go forward sales process.

Jamie Stockton

Okay. That’s great. Maybe one more for you, Brent. The cash balance is up a little bit sequentially. What's your temperature on the M&A front, have valuations actually come down out there and made some stuff more interesting, or was that just kind of a head bake [ph] and many of the deals you’re looking at are so relatively expensive?

Brent Lang

I think we’re at the early stages of that transition. So let me comment it in two front. One in terms of our interest in using some of our cash balance to do M&A. We are absolutely committed to that and we continue to look at a large number of deals. We’re looking at a couple of different categories and investing time and energy on trying to find the right strategic partnerships there. But having said that, I think that we were still seeing private company valuations that are really kind of out of whack with certainly the public company valuations, and we want to just proceed with caution there. And I do think that based on what's happening in the venture community right now, we are going to continue to see a correction. We’re starting to hear more stories of companies that are having trouble raising their next round or maybe are raising money at a down round. That will obviously have a time lag with it before entrepreneurs are really interested in sort of taking that and internalizing that new reality. But having said that, M&A is a growth driver for our business and we are committed to creating additional scale and creating new growth drivers to add on additional revenue to the business, and we are aggressively looking in the market place for deals that make sense for us.

Jamie Stockton

Okay. And maybe one more, Justin. Justin, do you have the cash flow numbers in front of you for the quarter, the operating cash flow and CapEx?

Justin Spencer

I do. Our cash flow from operations was $3.6 million and the CapEx number was around, I believe was around $900,000. And then our negative $560,000 of cash flow from investing, and then financing was a positive $500,000.

Jamie Stockton

Okay. That’s great. Thank you.

Operator

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

Gene Mannheimer

Good afternoon and congratulations on a good start to the year. My question revolves around not so much the backlog. I mean, we understand that, that that’s big and it gives you a good visibility into the year. But as we look beyond that, I guess, the question is, are there enough big elephants out there for lack of a better term to keep revenue growing in the double digits on a sustainable basis past next year as you work off that backlog. What are you seeing in the pipeline and are there enough large deals out there to keep you busy?

Brent Lang

Hi, Gene. Thanks for the question. We absolutely believe that we have visibility into being able to continue to drive double digit growth. As I mentioned the green field opportunity in even just in the U.S. healthcare business is very large. There’s a number of organizations that are still in the early stages of defining their next generation communication solutions. And while we have a lot of focus on deploying those that we’ve already closed, and that will be a bigger driver for 2016. We’re also developing a pipeline and even focusing our sales resources more over the long-term on driving additional large system wide deployments. So I see a large total available market opportunity in front of us, both with health systems as well as with the federal government. Right now, we’re up to about 40 of the VA hospitals out of a -- I think there is a 111 or so left to go. On the DoD side we got about 20 DoD facilities, we expect to continue to win those. On the international front, the pipeline is growing nicely and on the software side, the software -- new software products are building traction, and so I think, as I look at it the near-term opportunity to grow revenue faster and really goes back to the question around short-term and medium term guidance is a function of can we drive these deployments faster and help accelerate the deployment pace. But over the medium to long-term, as you said it’s going to be a function of continuing to win new customer deals in the market place with the health systems and with the federal government deals and that will continue to be able to drive in the future. Our bookings growth rate over the last couple of quarters in theory would be able to drive revenue growth even above what we’ve been seeing over the last couple of quarters. And so, we’re really excited about the prospects of where this could take us. Obviously we’ve got work to do and we’ve got to close that business in order to be able to just sustain those growth rates over the long-term.

Gene Mannheimer

That’s great. Thank you.

Brent Lang

Thank you.

Operator

[Operator Instructions] I’m showing no further questions in queue at this time. I’d like to turn the call back to Mr. Lang for closing remarks.

Brent Lang

Okay. Thank you. Thanks everyone for taking the time to join the call, and we look forward to interacting with you in the future. Take care.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone have a great day.

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