Vocera Communications (VCRA) Q3 2019 Earnings Call Transcript

Vocera Communications (VCRA)
Q3 2019 Earnings Call
Oct 24, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Vocera Communications conference call. My name is April, and I will be your conference coordinator for today. [Operator instructions] I would now like to turn the presentation over to your host for today's call, Sue Dooley of Vocera investor relations. Please proceed.

Sue Dooley -- Investor Relations

Thank you. Hello, everyone. Welcome to Vocera's conference call to discuss our third-quarter fiscal 2019 earnings. Joining me today are Vocera's CEO, Brent Lang, and Justin Spencer, our CFO.

Earlier this afternoon, we distributed a press release detailing our quarterly results. The release is posted on our website at investors.vocera.com and is also available from normal news sources. This conference call is being webcast live on the Investor Relations page of our website, where a replay will be archived. Before we begin our prepared remarks, I'd like to take this opportunity to remind you that during the course of this call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities.

Such forward-looking information is subject to risks and uncertainties described in Vocera's filings with the SEC, and actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these forward-looking statements. On this call we will refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release.

With that, I'd like to turn the call over to Brent.

Brent Lang -- Chief Executive Officer

Thanks, Sue. Good afternoon, everyone. Thank you for joining us. The third quarter of 2019 was another solid quarter for Vocera, with record revenue of $51 million and good profitability.

As we enter Q4, we are excited by our large deal pipeline, our sizable market opportunity, and our expanding product set, which has never been better. The highlights of the third quarter showcase our market appeal and highly differentiated offerings. Our success winning large deals continued, with eight deals over $1 million, made up of both expansions and new hospital wins. This included four large deals in our federal business, and we are on pace for another record year in the fed.

Overall, device shipments were at record levels, and we are encouraged by how the Smartbadge is building momentum. Our investments in international are driving results, with substantial year-over-year bookings growth, including two international deals over $1 million. Finally, in Q3, our pace of innovation continued, including the launch of our next-generation smartphone app, Vocera Vina. Let me tell you a little bit more about some of these exciting deployment -- developments.

From a bookings perspective, we believe customers across our target markets are embracing our unified platform and the power of our clinical integration, intelligent workflow engine, and best-in-class voice messaging and alerting solutions. We achieved our largest-ever number of million-dollar wins this quarter, demonstrating the value of our technology with both new and existing customers. In the U.S. commercial healthcare market, the highlight was a $2.2 million win at the University of Texas Southwest.

UT Southwest bought our full solution and will leverage Smartbadges for communication, as well as for receiving nurse call and patient monitoring alerts. At Fairview Health, we sold a large, $1.1 million engaged cross-sell, building meaningfully on an existing voice installation. The completeness of our solution and our compelling vision were paramount to both of these wins. Device shipments reached record levels, and we saw uptake of Smartbadges in several of our large commercial new hospital system wins.

In our federal business in Q3, we continued to achieve strong results. The highlight of our quarter in the fed was four wins in the VA, each over $1 million. We also had several smaller, strategic deals in the VA, including some expansions and cross-sell wins, demonstrating the value of our install base opportunity. In total, we set another record for federal bookings in the quarter and year to date.

Our fed team continues to build momentum by leveraging our strong track record in the VA and our authority to operate, and SATOC purchasing vehicles with the DoD. Moving on to our performance in our international markets, I am pleased to say we had two large, strategic wins. First, we won a $1.5 million deal at Cleveland Clinic London. Opening in 2021, and setting the standard for world-class private healthcare, Cleveland Clinic selected our full solution and plans to deploy our software across a mixed device environment, showcasing Smartbadges and the Vina smartphone app.

Second, we won a $1.5 million deal at Sheik Shakhbout Medical City in the United Arab Emirates. Similar to Cleveland Clinic London, SSMC purchased our full solution, including Smartbadges, and is anticipated to be a landmark facility, setting the standard of care for the rest of the region. These exciting wins are powerful statements in their respective regions. International is a large opportunity and a top priority for us, and we are pleased to have a growing overseas pipeline.

We had a busy Q3 for customer deployments, and I'd like to take a moment to tell you about a few installations. Our installation at the University of Virginia is up and running. By November, they plan to replace 2,800 pagers with a mix of devices, including Smartbadges, to connect employees throughout the health system. Another important deployment was in Milwaukee, where Froedert expanded their use of our products by going live with Engage across four hospitals.

Demonstrating the benefit Vocera brings to smaller hospitals, we deployed at the 25-bed Samaritan Pacific Communities Hospital in Oregon. Samaritan is replacing pagers and wireless phones to speed urgent notifications and improve bed turnover. As our expertise and experience in professional services continues to grow, we believe it has become a meaningful differentiator in helping our customers choose us as their partner.And finally, deployments at Nordstrom stores across the country continue and include the brand-new New York Tower, which opened today. Nordstrom team members were impressed by the Vocera-enabled connected fitting room.

Nordstrom guests can use an iPad to connect to team members on their Vocera Badge and receive immediate feedback that service is on the way. It has been a busy year for us in terms of product innovation and advancements. In Q3, we successfully launched Vina, an exciting new smartphone app with an industry-leading, patient-centered approach. Vina presents calls, secure messages, and alerts in a unified and prioritized inbox, and provides an intuitive user experience for clinicians inside and outside the hospital.

Vina is designed to deliver relevant context about clinical events, patient status, and clinician availability, helping care teams improve safety, quality of care, and experience for patients and care teams. Also during Q3, we introduced the next generation of Vocera analytics to our customers. Vocera analytics is a core element of our platform. It is a monitoring and diagnostic tool that provides visibility and insights on all traffic that goes through the Vocera platform.

It can help our customers optimize their use of our technology, demonstrate ROI, and proactively identify and take action to fix infrastructure issues. Analytics is something that I'm very excited about, and we're just getting started in this area. We also launched a new version of Vocera Care Experience in Q3. This entirely cloud-based SaaS offering includes the next generation of our rounding software and our post-discharge patient communication platform called Care Inform.

Both of these modules are now closely integrated with the rest of our platform. Late in August, we published a report about Hackensack Meridian's use of Care Inform to reduce readmit rates among stroke patients by 50%. I'd like to thank our teams for this fast pace of product innovation. We have extended our leadership in the market and significantly enhanced our customers' ability to improve patient safety.

Also, applications like Vocera Care Experience and analytics represent software growth opportunities, and provide new avenues to extend our reach into hospitals and health systems. Moving forward, we are continuing to look for ways to expand our offering across the care continuum, by building, buying, or partnering to enable frictionless patient journeys. Now I'd like to talk about the market and share what we're hearing in our conversations with customers. This month, we convened two important customer-facing meetings.

Our large customer advisory board is an annual gathering of almost 50 customer champions. This direct customer engagement provides us with the opportunity to understand our customers' most pressing needs, and helps us continue to develop and deliver innovation to improve efficiency, lower cost, and enhance patient experience and staff resiliency. We also held the Humanize Health Summit, a two-day forum in San Francisco, which was attended by leaders from some of the nation's top healthcare systems. It was powerful to witness these leaders collaborate around the pressing issues they face today.

Patient safety and staff resiliency are paramount in their quest to achieve quality outcomes. Out in the field, my sales conversations and interactions with hospital executives continue to underscore that improving margins, staff safety, and quality of care consistently rise to the top of their priority list. Hospitals are looking for ways to reduce costs and improve throughput by eliminating friction in bottlenecks and streamlining operations. From a competitive perspective, I believe our differentiated leadership position continues to grow.

Our high win rate demonstrates that our technology continues to be chosen as the best, most complete solution available on the market today. Before I turn the call over to Justin to discuss our financials, I want to take a moment to provide some insight into how we're viewing our progress so far this year. While we believe hospital investment priorities remain squarely aligned with the value proposition that we deliver to our customers, we continue to face certain challenges associated with large enterprise selling and are making investments to mitigate these dynamics to the best of our ability. Based on our Q3 bookings performance, it's clear that some of these initiatives are starting to pay off, but overall, bookings were not as strong as we would have expected.

For instance, we experienced some softness in smaller department-level bookings. We believe budgets are consolidating, and some smaller deals are becoming large deals, increasing our average deal size, but also lengthening sales cycles. And, while our international business showed progress with a couple significant wins, we believe we still have work to do to ensure consistent momentum across the geographies. Finally, we were encouraged by the Smartbadge wins we booked this quarter, and we believe the device is well priced and positioned.

However, the new device represents more of a paradigm shift for our existing customers than we initially anticipated because of its new enhanced software functionality. As a result, it's taking longer than we expected for existing customers to evaluate the Smartbadge. As we enter Q4 and begin to think about 2020, our focus will be on closing wins from our large deal pipeline, building international momentum, and continuing to execute on the Smartbadge transition. As we execute through these market and product transitions, we expect our revenue growth over the next few quarters to be consistent with the last couple quarters.

However, we remain confident in the business over the longer term, bolstered by strategic customer wins, successful large-scale deployments, enthusiasm around our products, and high customer loyalty. With that as context, I'd like to give our CFO, Justin, a chance to cover the financial details around our Q3 results, and then we will discuss our guidance. Justin?

Justin Spencer -- Chief Financial Officer

Thanks, Brent. Hello, everyone. We had a solid third quarter for both revenue and profitability, reflecting the continued momentum and pattern we typically see in the second half of the year. Total revenue in Q3 grew 6% to $50.8 million, with balanced growth across both our products and services segments.

Our device revenue of $19 million increased 12% from prior year, a record for Vocera, and was fueled by shipments of both the Badge and Smartbadge. As expected, Smartbadge shipments increased from last quarter, and we continue to be encouraged by the pipeline for this device. We anticipate that the Smartbadge mix will continue to increase over the next several quarters, as customers see how this new device demonstrates the full power of our software platform. Meanwhile, the Vocera Badge continues to have strong appeal in the market.

Sales of this device were robust in Q3, driven by our federal business, Nordstrom, and other key customers. Software revenue was $9.5 million, compared to $10.3 million in the same period last year. As we look forward over the next few quarters, we believe our software business will return to robust growth. There is high software content in several of the large deals we booked in Q3 that we expect to ship in the coming months.

And the newer products that Brent mentioned earlier, including the Smartbadge and our new Vina mobile app, should drive higher software sales, a key driver of our long-term operating model. Our software maintenance and support revenue, which provides a solid economic foundation for our business, grew 9% in Q3 compared to the same period last year. Our revenue pattern for software maintenance and support revenue is predictable, as it is recurring and is recognized over an extended period of time. Also fueling this was our high maintenance renewal rate, which continued to be well in excess of 95%, reflecting the benefits our customers experience from using our products.

Professional services revenue of $4.7 million was up 6% compared to last year. We had a healthy professional services backlog and continue to innovate in this area, via both product enhancement and process refinements, to achieve the best outcomes for our customers in terms of cost and experience. Lastly, our combined backlog in deferred revenue increased to roughly $122 million in Q3, up from $117 million in the third quarter of last year. This was also up sequentially from Q2, and we expect to increase this further in Q4, following our normal pattern of building backlog and deferred revenue in the second half of the year.

On the profitability side, our adjusted EBITDA increased 13% to $9.5 million in Q3. At 19% of total revenue, our Q3 adjusted EBITDA reflects the strong leverage we have in our financial model as we grow. And, we achieved positive GAAP net income in the quarter, a key milestone in our profitability journey. Now let me get into some more detail on our non-GAAP gross margins and operating expenses.

Non-GAAP gross margin in Q3 was 66%, improving sequentially from the first half. The decrease in product margin compared to last year is primarily driven by lower relative software mix in Q3, which can happen from time to time, given our software revenue model. Our gross margins in both devices and software continue to be healthy, reflecting our differentiation in the market. Non-GAAP services margin was again strong, at 56%, primarily reflecting the continued growth of our recurring software maintenance and support revenue.

Non-GAAP operating expenses of $24.9 million was flat compared to last year. The investments we have made over the last years to enhance our scalability have enabled us to keep our operating expense growth in check, while continuing to invest meaningfully in the areas that we believe will drive long-term growth, such as R&D and sales initiatives. As a result, we continue to believe that there is more opportunity to drive operating leverage as we grow. To cap off my Q3 commentary, we continue to have a strong balance sheet, with roughly $221 million in cash, and believe we are well-positioned to capitalize on new growth opportunities.

Now, turning to guidance, as Brent mentioned, we saw a lot of progress in Q3 in our strategic initiatives. We're encouraged by this, and we're confident our market position continues to be strong. But with one quarter remaining in the year, our growth is not where we had hoped it would be. Reflecting this, our revenue guidance for the fourth quarter is $46 million to $51 million.

Our adjusted EBITDA is expected to be between $5 million and $9 million, and GAAP net loss per share between $0.15 and $0.02. The implied revenue guidance for the full year is $176 million to $181.8 million. For the rest of the guidance details, along with a full reconciliation of GAAP to non-GAAP guidance can be found in the guidance table of our press release. Wrapping up, despite this near-term transition, we remain confident in our growth potential longer term, including the strength of our customer base, our market leadership position, and the potential of our new products.

Meanwhile, we are managing our expenses so that we can continue to deliver profitability and invest in areas that we expect will fuel our long-term growth. I will now turn the call back to Brent.

Brent Lang -- Chief Executive Officer

Thanks, Justin. With Q3 behind us, we are focused on execution and closing out a strong year. As we think about next year, while our growth may remain moderated in the near term, we are confident we are taking the right steps to secure long-term growth. We will continue to invest in international, work to ensure a smooth Smartbadge transition, and continue to enhance our sales process in order to harvest our large deal pipeline and bring in new customer wins and expansions.

It's still early days in the evolution of hospital communications, away from pagers, loudspeakers, and wireless phones. Our differentiated technology and our large greenfield opportunity inspire us to pursue the goals we set out to achieve, namely, to transform healthcare and make a lasting difference for patients and caregivers. This thesis remains unchanged, and we remain confident about the future. With that, we're ready to conclude our formal remarks.

Thank you for listening today. Operator, we are ready to open the line for questions. Thank you very much.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Ryan Daniels from William Blair.

Ryan Daniels -- William Blair and Company -- Analyst

Yeah. Thanks for taking the questions, guys. Obviously, the key focus will be on Q4 sales and the flat year-over-year growth versus the expectation for stronger performance. I'm curious if you can go into a bit more detail on the impact of each of the three things you outlined, meaning how much of this do you believe is due to an extended sales cycle, how much due to some of the international noise and weakness, and then how much on existing clients taking longer to assess and install, or purchase the new Badge? If you could break that down, that would be helpful.

Brent Lang -- Chief Executive Officer

Sure, Ryan. Thanks for the question. I appreciate it. I think that certainly the most important one is this transition we're seeing in the market between departmental-level buying and enterprise-level buying.

We're seeing a larger or increasing number of bigger deals and fewer and fewer decisions that are being driven at the departmental level. This is having a positive impact in terms of average deal size, but in many cases, it's adding complexity, as big deals need to go through additional approval cycles and building consensus across the organization. International, the second one that you referenced and I also referenced in my remarks, is more a function of bringing consistency. You know, we feel like we actually had a really strong Q3, and we're looking forward to some of the deals for the remainder of this year and into next year.

But, if you look at it on a year-to-date basis, it's certainly below where we had wanted it to be. I think in that case, it's more a question of us continuing to do the work that we've already begun, to do more sales enablement, more marketing support, some leadership changes that we've made internationally, to have an opportunity to get their teams in place. You know, the pipeline is there internationally, and the -- you know, our competitive differentiation and our offering seems to be resonating really well, so it's really more a matter of bringing more consistency to that part of the business. And in the case of Smartbadge, you know, I think this is actually a net-net positive for us over the longer term.

What we've realized is that what we bit off with the introduction of the Smartbadge was truly an industry-changing activity. And while there remains a lot of excitement around it, we're recognizing that customers are having to rethink their strategy around clinical integration, around messaging, around their software platform, and even the infrastructure around silly things like their chargers, batteries, training, you know, some of the infrastructure. So particularly within the install base, I think that is a bigger impact. So if I was going to rank order them, I probably would say the transition in the deal is overriding the biggest element of it; Smartbadge would be second, and I think international would be third.

But we view all of them as sort of temporary issues that, over the longer term, we feel like either the market will self-correct, or we'll be able to execute and fix on our own and actually lead toward more bullishness in the business on a longer-term basis.

Ryan Daniels -- William Blair and Company -- Analyst

OK, that makes sense. I'll hop back in the queue. Thanks.

Operator

Your next question comes from the line of Vikram Kesavabhotla from Guggenheim Securities.

Vikram Kesavabhotla -- Guggenheim Securities -- Analyst

Hey. Thanks for taking the question. I just want to talk about that longer sales cycle in a little more detail. You know, as you're seeing these deals transition to larger sizes, is it mostly the administrative process or the approval process that's causing them to take longer, or is there anything to call out with respect to budget pressure or the competitive landscape that is causing these deals to take longer to close?

Brent Lang -- Chief Executive Officer

Yeah. Good question. I would characterize it primarily on the administrative side, and if I break down the sales process in just sort of two halves, there's a portion on the front end which is the evaluation of the product, getting to what we think of as vendor of choice. The reason that that's extended in this sales process is because the number of interested parties and decisionmakers that want to have a say in that decision increases a lot when you go to these housewide deals.

Each department head, the CMIO, the CMO, the CNO, the CIO, all these people want to be involved in that decision making and evaluation process, and so it's more of a calendaring and administrative issue, just to get demos completed for those folks. We're not seeing any kind of competitive impact on that. It's really just a matter of building consensus among the organizations. The second half is sort of post-vendor of choice selection to purchase order, and that is where we're seeing probably an even longer elongation, as these organizations that have gone through, in many cases, mergers with other health systems or structural changes within their own internal administrative bodies, are trying to navigate what's required in order to get from vendor of choice to purchase order.

That can involve statements of work, the other legal aspects of it. It can involve the funding mechanisms. It can even involve just simple operations and day-to-day activities getting in the way of getting the final paperwork closed. When you're talking about over $1 million size deals, there are just more hands in that, and I think probably that's the piece that we're seeing more elongation, where we've been named vendor of choice.

But in order to get approvals for $1 million-plus or $2 million-plus or larger deals, it's oftentimes having to go to several additional committees for final approval, up to and including at the board level, approvals. And obviously, the board meetings only occur on a sporadic basis, and so in some cases, we're bound by the calendar. I would tell you that we're not seeing any change in terms of competitive front. Our win rate remains very, very high.

At the customer level, excitement for our solution remains very, very high. We're just not losing deals in that context. It's really more that time from vendor of choice and to P.O., and then ultimately to deployment, that's taking longer than the smaller deals would have.

Vikram Kesavabhotla -- Guggenheim Securities -- Analyst

OK, great. And maybe just as a quick follow-up, as we look ahead to the fourth quarter and to 2020, can you just give us some comments on what you're seeing in terms of RFP volume and the pipeline right now, relative to what you saw at this time last year? Thanks.

Brent Lang -- Chief Executive Officer

I would say both are up substantially. The pipeline right now, particularly our large deal pipeline, is larger than it's ever been before, and I think that's what gets us excited about the future. More and more of this business is going to RFP, and I think that's a reflection of the fact that this is not a one-off initiative by an individual inside of a department, but it's more of a strategic evaluation and initiative that's being managed and funded at the C-suite level of the health system. And typically, in that environment, they're going to go through more of a formal RFP process.

Vikram Kesavabhotla -- Guggenheim Securities -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of David Windley from Jeffries.

David Windley -- Jefferies -- Analyst

Hi. Thanks for taking my question. Good afternoon. I joined a little late, so I apologize if my context on this is a little off.

But in our notes at the top of your comments, you talk about I think eight deals over $1 million. Relative to your answer to the last question, are those deals where you're describing that you've gotten the vendor of choice nod, or where they're actually progressing to bookings?

Brent Lang -- Chief Executive Officer

Those are all formal bookings. We don't typically talk about deals until we've received an actual booking from the customer, and that's a very disciplined approach that we take where it's a firm commitment to buy in the form of a purchase order. And so, anything that's in that kind of vendor of choice to booking category is something that's still in process, and we wouldn't talk about it on a call like this.

David Windley -- Jefferies -- Analyst

OK. Yeah, I just want to make sure I'm clear on terminology. I think you also talked about in terms of salesforce attention and deployment, that 80% are focused on new deals, 20% focused on upsell. In light of lengthening cycle time, would it make sense to have more of your selling effort focused on kind of existing clients and moving, say, already friendly clients up the consumption continuum, rather than having to break in to somebody new, where the cycle time to ultimate revenue is less known?

Brent Lang -- Chief Executive Officer

Yeah. Directionally I agree with what you're saying. I would correct the notion that 80% of the salesforce is focused on new deals. I think maybe we've said that, you know, it's 80% of the effort or something, but in terms of the actual salesforce deployment, the vast majority of them have a mixed bag of both an install base of customers, as well as new customers that they're targeting.

And in fact, there's, you know, chunks of the sales organization that's focused on either maintenance renewals or on our supplies business, and then there's a number that are focused on those existing customers, as well. One thing that I would highlight to support your point, actually, is that I believe four of those eight million-dollar deals were in fact expansion deals. So, you're absolutely right; the strategy, even when these larger, over million-dollar deals, is to work with the install base, either in cross-selling engage, or expanding to new groups of users or new departments, and we've had good success in that environment.

David Windley -- Jefferies -- Analyst

And then last question. Again, sorry if you discussed this in detail, but last quarter and when we were together during the quarter, you talked in some granular detail about two very large deals that had pushed out of the quarter for reasons that seemed very achievable, imminently achievable during the third quarter. Did those land in the third quarter, or have they still been pushed out further?

Brent Lang -- Chief Executive Officer

Yeah. I don't think we want to get into the specifics of individual deals, but I would tell you we're feeling very good about that process. You know, the analogy that I've used before is kind of the planes circling O'Hare Airport, each landing individually. It's the arrival time that's somewhat up in the air on some of them.

None of those deals have disappeared. I think all of the ones that we were talking about in the Q2 timeframe have now closed. But the more relevant point is that we need to have more airplanes in the air and more arrivals at any given point in time, and none of the ones we were talking about went away. I think they've all booked at this point in time.

Operator

Your next question comes from the line of Matthew Gillmor from Baird. Please go ahead.

Matthew Gillmor -- Robert W. Baird and Company -- Analyst

Hey, thanks for the question. Following up on the elongation of the sales process, sounds like that's driven by a combination of both larger deals, and then maybe some additional consideration around Smartbadges and folks trying to understand how that will best fit within their strategy. Can you give us any sense for where you think you are in this process? You know, it seems like the elongation's gotten longer and longer and longer. Are you seeing any evidence that we're at a nadir, or at a trough, I should say? And then, how are you kind of factoring this into guidance? Can you just give us any sense along those lines?

Brent Lang -- Chief Executive Officer

Yes, so Matt, thanks for the question. The way I would characterize it is, it's not that the large deal sales cycle itself is getting that much longer, but more that more of the deals are in that large deal sales cycle. So as we move -- you know, if you moved a dozen deals from a department-level deal to these enterprise deals, and each of those transitions represented a change from a nine-month sales cycle to an 18-month sales cycle, then you're going to have this natural valley during that transition period of time. And I think what's happening to our business is that more and more of it is moving into that category of the larger enterprise deals.

Yes, there are some factors that even on the enterprise deals, because of the dynamics in the market, are being elongated. But I think the bigger dynamic for us is just the number of deals that are falling into that larger deal category. I think, you know, we're getting closer to the point of reaching a steady state, although the challenge is just understanding the specific timeframe associated with those. And I think part of the reason why we're being more conservative with guidance, and I'll let Justin speak to this, as well, is that we just are recognizing that there's a natural lumpiness in the business as we navigate these larger transactions.

Justin Spencer -- Chief Financial Officer

Yes. And as we -- you know, as we look forward here over the next few quarters, I think this is clearly a dynamic that we try to factor in to our overall guidance. But what we're seeing is, we see a robust pipeline of large deals. We're definitely seeing a clear shift of purchasing from a departmental level to these larger deals, and so in terms of our expectations over the next few quarters while we work through this, we've moderated our growth assumptions.

But in a long term, we think this is a real net positive, because the larger deals have inherently larger deal sizes, and there's a much larger annuity stream that comes with those, which we think will add even more stability to our business model over the long run.

Matthew Gillmor -- Robert W. Baird and Company -- Analyst

And maybe one follow-up. Can you -- is there a way you can just quantify sort of how large some of these very large deals are, just to give us some sense for kind of the opportunity that's ahead?

Justin Spencer -- Chief Financial Officer

Yeah. We have a fairly kind of simplistic or artificial cutoff of anything over $1 million is what we call a large deal. And as Brent mentioned earlier, they can fit either as an existing customer who is expanding to, you know, a new hospital, or even within a hospital across multiple products, or a brand-new customer who is purchasing the solution on an enterprise level across the entire health system. We have deals in our pipeline that are in that large deal category that range from that million dollar and up to several million dollars.

And, you know, when you get into the larger health systems, there the opportunities are in the multimillion-dollar levels.

Operator

Next question comes from the line of Sean Wieland from Piper Jaffray.

Sean Wieland -- Piper Jaffray -- Analyst

Hi. Thanks. So, given all this, have you updated how you're calculating your guidance, your fourth- quarter guidance, or predicting the deal closure cycles in any way, and can you share that with us?

Justin Spencer -- Chief Financial Officer

Yeah. Hi, Sean. For the current quarter -- for the current quarter, we've applied a very consistent framework for how we calculate our guidance, and our guidance relative to our results has been quite strong in terms of forecasting revenue in the current quarter. And so, we start with our backlog and our deferred revenue, we -- and the visibility that we expect from that, and our supplies, and the remainder is the amount of book shipped.

When we're estimating the amount of book shipped that we expect to close in the quarter, we look at the size of our pipeline relative to our bookings target and calibrate from there. What we are seeing -- the reason we've chosen to provide a little bit of a longer-term view here, or I should say a view of moderated growth over the next few quarters, is to just make sure that expectations are in line with this transition that we're going through, as we transition our bookings pattern from more departmental purchasing to larger deal sizes. And we'll, you know, in February, we'll come out with formal 2020 guidance at that point.

Sean Wieland -- Piper Jaffray -- Analyst

So, you've used the word moderate a few times in describing your outlook, which, I'm not quite sure what that means. Is moderate going to be above zero, and can you comment on 2020? Should we be expecting 2020 to be a flat year or, you know, what does moderate mean, in your view?

Brent Lang -- Chief Executive Officer

So, the language that I tried to highlight in my portion of the script was that we expect growth to be similar to what we've seen in the last couple quarters as we look into the next couple quarters. So it's clearly not zero. It's not down, but it's also not in the mid-teens range that we've talked about historically.

Sean Wieland -- Piper Jaffray -- Analyst

All right. And then one last quick one. How did the fed business do relative your expectations in the quarter?

Brent Lang -- Chief Executive Officer

It was right on track. I think we were really pleased. Obviously, Q3 is always a big quarter for the fed, and they delivered as expected, so we were really happy with how that played out.

Sean Wieland -- Piper Jaffray -- Analyst

OK. Thank you very much.

Operator

And your next question comes from the line of Gene Mannheimer from Dougherty & Company.

Gene Mannheimer -- Dougherty and Company -- Analyst

Thanks. Good afternoon. I don't want to beat a dead horse here, but I wanted to just kind of go back to the increasing complexity of the sales as they get larger. Do you feel you have the right structure and alignment in place to meet the complexity of these longer sales cycles and decision processes? For example, do you need a more consultative push? Do you need more product and domain expertise? Do you need a more of a hunter-farmer model? I'm just trying to get a handle on if you're thinking about those things.

Brent Lang -- Chief Executive Officer

Thanks, Gene. Yes. Spending a lot of time thinking about those things and generally feel like we're in a work in progress on that. Clearly, there's been a transition in our sales organization as we've had to migrate from the more department-oriented deals to the larger deals, and that's been in the form of the tools of sales enablement aspects.

It has come in the form of who we're marketing to and how we're marketing on those. But it's also come in the context of the skillsets and capabilities and structure of the salesforce itself. I would characterize 2019 as a year where we've been more aggressive in changing the makeup and structure of the sales team, where we found certain individuals who were just not able to make the transition to the more enterprised level selling. They may have been, you know, very successful when it was more of a departmental or more of a device sale.

And so, we've been very proactive in making those transitions, and we've got a number of new folks who've come in that we believe have more of that enterprise selling capability. And then, they enable the tools that we give them, whether that's the account planning, whether that's the ROI sales tools, whether that's the clinical executive team, the nurses that support those clinical workflows, or the technical expertise to be able to support the questions around scalability, around security, more of the enterprise-class questions. It becomes much more of a team-based selling. And so, while I think we've made tremendous progress on that, I don't think we're done.

I think there's more work to be done there, and we continue to evolve as we move forward on that. Some of this is learning on our part, and some of it's actually also learning on the part of our customers, where they're making decisions that they may not have been exposed to before, and they're having to navigate the organizational structure of their own organizations. And so, I think we're taking it very seriously, and I would say we're on the right path, but we're not done.

Gene Mannheimer -- Dougherty and Company -- Analyst

Well thought out. Thanks for that, Brent. And then my other question would be I guess about longer-term growth. You know, you've discussed that in the near term, growth is going to -- revenue growth's going to be more muted.

But when you talk about the long-term resumption of growth, how long term is that, and will we be looking at a double-digit type of trajectory past next year?

Brent Lang -- Chief Executive Officer

I remain really excited about the long-term growth prospects of this business. I think, you know, as I said in my prepared remarks, I think our product solution set right now is better than it's ever been. We remain really excited about the greenfield opportunity in this business. We still think we're in the early innings here, and so I don't see any reason why we couldn't get back up to that kind of growth level in the future.

We see these product and market transitions as temporary, and my expectation is that at some point in the future, we could get back to the higher growth rates that we've experienced in the past. As you know, both Justin and I try to be as absolutely transparent as possible about the business, and we like to call it like we see it, and we felt like we wanted to be transparent at this point. But also, we want to make it absolutely clear that we remain very bullish on the long-term prospects and see a market that, you know, we're reminded every day is still made up of hospitals that have got a bunch of pagers and in-building wireless phones and overhead loudspeakers that are just not getting the job done. And the number of hospitals that continue to come to us and just tell us what an incredible difference our products are making in their environment as they navigate away from these legacy solutions.

Particularly in times of stress or particular difficult times, during nursing strikes or other challenging environments, the value that our product suite can bring into the environment, both in terms of patient safety, as well as in terms of staff resiliency and quality outcomes, continues to make it a very, very powerful and compelling solution. So, I think our long-term prospects remain very positive.

Gene Mannheimer -- Dougherty and Company -- Analyst

OK. Very good. Thank you.

Operator

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

Lucas Baranowski -- Craig-Hallum Capital Group LLC -- Analyst

Yeah. This is Lucas Baranowski on for Matt Hewitt here at Craig-Hallum. Just a couple of questions here. You've talked in the past about the potential for the Smartbadge to drive a higher attach rate for Engage and some of the software offerings.

Now that some of those larger Smartbadge wins have started to come in, has that been the trend that you're seeing?

Brent Lang -- Chief Executive Officer

Yes, absolutely. In fact, several of the deals that I talked about on the call, which were newer customer deployments, they were buying Smartbadges, and they were also buying voice messaging and Engage clinical integration. So the mix of devices across Smartbadges and smartphones, and then the full suite of software is becoming the norm in most of our new customer wins. I would say where it's taking longer, and what I was trying to allude to in the call, was that it's really the existing customers that are taking more time to do the evaluation because they have a lot of inertia tied to a historic way of doing things with our previous version of the Badge.

But particularly for the new customer wins, we're seeing the Smartbadge be a real driver of selling the full stack of our software, including Engage and messaging.

Lucas Baranowski -- Craig-Hallum Capital Group LLC -- Analyst

OK, great. And then, turning to the Nordstrom rollout, I believe a large portion of that occurred during the quarter. How much of that is left to occur in Q4?

Justin Spencer -- Chief Financial Officer

We shipped and delivered all of the product, the Badges and the software. The professional services work is ongoing. We're through a meaningful number of stores, but there are a few that remain, which will complete it -- be completed by the end of the year. That's gone really well.

As Brent mentioned earlier, a new Nordstrom store in New York just opened today, and it's showing the demonstration of our technology in the stores. So we're really encouraged by how that deployment has gone.

Lucas Baranowski -- Craig-Hallum Capital Group LLC -- Analyst

OK, thank you very much. That's all I had.

Operator

And your next question comes from the line of Mike Ott from Oppenheimer.

Mike Ott -- Oppenheimer and Company Inc. -- Analyst

Good afternoon. Thanks for taking my question. With a few weeks of 4Q under way here, curious how you're seeing the hospital spending environment in general as we head into 2020. And are you seeing any political headwinds at all?

Brent Lang -- Chief Executive Officer

No. I don't think we've seen any changes at all. I think we're feeling good about Q4, and so far, the issues of staff resiliency and patient safety and quality of care seem to be immune from the D.C. belt.

Mike Ott -- Oppenheimer and Company Inc. -- Analyst

That's great to hear. And congrats on the two million-dollar-plus international deals. I realize one was in the U.K., but Brexit issues there seem to be heating up more recently. Curious if that has led to any impact on your business.

Brent Lang -- Chief Executive Officer

I think it's too early to know, but it's something we're certainly watching. You know, the nice thing about the Cleveland Clinic London deal is that it's a private hospital, so it's not subjected to the same sort of funding mechanisms that the NHS deals would be. And I think in the short term, we probably would prioritize opportunities with the private hospitals in the U.K. over some of the NHS opportunities.

But, you know, the team in the U.K. is actually building good momentum. Some of you may remember we moved one of our star employees over to the U.K. to manage that organization, and he's done a really nice job of building momentum, both within the install base, as well as building pipeline.

I'm actually going to be over there next month, meeting with customers and meeting with the team, and also meeting with some investors, and looking forward to, you know, getting on the ground and seeing the dynamic there. But the beautiful thing about the Cleveland Clinic in London is it's going to provide a tremendous lighthouse account for us because other thought leaders in the country will clearly be looking to Cleveland clinic as they think about their own communication needs. And we think it will become a great showcase account for us as we grow that region.

Mike Ott -- Oppenheimer and Company Inc. -- Analyst

Great. Thanks very much.

Operator

Your last question for the evening is from the line of Stephanie Demko from Citi.

Stephanie Demko -- Citi -- Analyst

Thank you, guys. Given the elongation of new client sales, how much run might you have left in the -- across the opportunity? And to follow-up to that, is there anything you can do, like a reshuffling of the salesforce, that could accelerate this, just to kind of offset some of the slowing growth in other channels?

Brent Lang -- Chief Executive Officer

Yeah. Great thought, Stephanie. In fact, we see a tremendous opportunity remaining for cross-sell into our install base. The number of our legacy voice customers who are not using Engage is still very, very high, and that can be not just a small cross-sell, but in many cases, can be a very large dollar amount in those cross-sells.

And some of the other legacy middleware players in the space are faltering right now, and so we see it as an opportunity to go back in and cross-sell our solution into the install base there. There's also an opportunity to cross-sell messaging, and obviously, as we continue to roll out Smartbadge, we see that as an upgrade opportunity, as well. So, clear that the salesforce is balancing between new customer opportunities and install base, but we see the install base opportunity as a great growth driver, as well.

Stephanie Demko -- Citi -- Analyst

And then you have seen any pushback on the kind of cross sales or elongation there. What causes it, just given we haven't seen a rapid adoption of these yet and it kind of seemed like a given to some. Is it they already have a competitor's solution, or is it just they're not ready for adoption?

Brent Lang -- Chief Executive Officer

The biggest issue is that they already have our solution, and I say that somewhat ironically. But, you know, if you go to a customer that's invested millions of dollars into the B3000n or B3000 form factor, or even a B2000 form factor, that form factor was largely compatible with each other. It had the same battery, it used the same charger, it used the same accessories. The functionality and the user interface of the device was the same, so it didn't require any additional training.

And with some of our larger install-base customers who we rely on for large badge refreshes on a fairly regular basis, they're looking at it and they're saying, there's a lot of inertia associated with the prior form factor. For them to make the move to Smartbadge, it requires them to think about everything from batteries and chargers to training and rollout. But more significantly, it has them thinking about the change in their workflow, because they've primarily been using pure voice workflows for most of their use of Vocera. With the Smartbadge, they now can start thinking about, engage in some of these other pieces.

And, while that's a great opportunity, it's a more complex decision than simply saying, I'm going to swap out 500 B3000n badges for 500 Smartbadges, because of some of those other infrastructure elements that I mentioned.

Stephanie Demko -- Citi -- Analyst

All right. Understood. Well thank you. Speak to you again.

Brent Lang -- Chief Executive Officer

Thanks, Stephanie. OK. Well thank you very much for your time today. We look forward to speaking with all of you in the future.

And have a good evening. All the best.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Sue Dooley -- Investor Relations

Brent Lang -- Chief Executive Officer

Justin Spencer -- Chief Financial Officer

Ryan Daniels -- William Blair and Company -- Analyst

Vikram Kesavabhotla -- Guggenheim Securities -- Analyst

David Windley -- Jefferies -- Analyst

Matthew Gillmor -- Robert W. Baird and Company -- Analyst

Sean Wieland -- Piper Jaffray -- Analyst

Gene Mannheimer -- Dougherty and Company -- Analyst

Lucas Baranowski -- Craig-Hallum Capital Group LLC -- Analyst

Mike Ott -- Oppenheimer and Company Inc. -- Analyst

Stephanie Demko -- Citi -- Analyst

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