Vocera Communications (VCRA) Q4 2020 Earnings Call Transcript

Vocera Communications (VCRA)
Q4 2020 Earnings Call
Feb 11, 2021, 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 Chantal, and I'll be your 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

Hello, everyone. Welcome to Vocera's conference call to discuss our fourth-quarter fiscal 2020 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. This forward-looking information is subject to the 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'll 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. So with that, I'd like to turn the call over to Brent.

Brent Lang -- Chief Executive Officer

Thanks, Sue. Hello, everyone. I hope all of you are doing well. I'm pleased to report that we had an outstanding Q4 and full-year 2020.

I'm so proud of the job that our team is doing by staying focused on serving our customers and supporting each other. It was an incredible year on many levels. We faced unprecedented challenges around the world in 2020, but rallied as a company to deliver the best results in our history. Vocera's true colors as an organization have been shining through and our connection to our mission has never been stronger.

On today's call, I'll start by summarizing the highlights from the fourth quarter and the full year. Then I'll provide some details on our bookings and specifics on some key customer wins. I'll conclude my prepared remarks with commentary on the market environment and our priorities for 2021 before turning the call over to Justin for more details on our financials. 2020 was a year where strong execution by our enhanced sales organization and the rising priority of our solutions translated into excellent performance in our business across the board.

In Q4, bookings once again surpassed the highest level in the company's history, driven by outstanding new customer wins, large expansions and a continuation of our high competitive win rate. As a result, I believe we've gained market share this year. For the full year, we drove bookings of $233 million, driven by our success with new and existing customers and strong performance with our federal business. This represents booking growth of 17% compared to 2019.

Revenues of over $198 million grew by double digits for the full year, evidence that the investments we have made in our sales organization are paying off despite the many distractions and restrictions for hospitals. Customers prioritized spending on our solution and for the most part deployments continued on schedule. Another highlight was when the Vocera Smartbadge made Time Magazine's list of the 100 Best Inventions of the Year, as we helped our customers and prospects gain a whole new understanding of the power of hands-free communication. This remains a key differentiator for our solution.

Finally, as a result of our acquisition in August, EASE became an exciting new part of our value proposition and is already adding to shareholder value. In fact, we won the largest ever booking for this solution in the fourth quarter. Our Q4 bookings performance was simply outstanding. One highlight of the quarter was a multimillion-dollar expansion with Virginia Commonwealth University Health, which is establishing Vocera as their unified communications platform of choice, replacing and unifying a web of disparate and cumbersome legacy communication systems.

VCU has launched a series of workplace violence initiatives and they chose our Smartbadge as part of its comprehensive approach. We are proud to be chosen as their partner in addressing workplace violence. We also had a sizable Engage win at HVM Health, establishing Vocera as their platform for integrations, as they broadened our profile from the OR and ED to the entire enterprise. Additionally, continuing the momentum from earlier in the year, we added more Kaiser facilities as they continued to deploy their strategy for cohesive communications across the health system.

We also significantly broadened our footprint at Norton Healthcare, as more users and use cases surfaced during previous deployments. McLaren Northern Hospital in Michigan was another sizable win, as we continue expanding across this 14-hospital system. We also had numerous other expansions at Texas Health Resources, the University of Virginia, the University of North Carolina, and UT Southwestern, all evidence that our solution continues to prove its high value to our customers. Our services organization also had a very busy quarter, and here are a few of the highlights.

UT Southwestern in Dallas went live and will leverage our solution for multiple clinical workflows. They're using a mix of Smartbadges and traditional Vocera badges to replace bulky legacy devices. Other important go-lives include Toronto General, the University of Chicago and more Kaiser facilities. Despite a challenging COVID environment and full ICUs, our teams were able to continue both remote and in-person customer engagement to deliver on our healthy pipeline of projects as planned.

Our business is becoming to some degree virtualized. In fact, well over half of our professional services hours were delivered remotely this year. We responded to the current environment with new remote services and sales conversations, online tools and virtual demos that are becoming effective new normals. Now, let me provide some additional market commentary on our results.

In Q4 we drove a record number of large wins and continued with healthy customer expansion and successful competitive win rates. Our business is performing well and our solution is in high demand. Principally, the strength this year was broad-based, and we believe is the result of our past investment in enterprise sales acumen, product innovation and market thought leadership. The market for our solution is large and our offering is highly differentiated.

Second, we saw COVID-related puts and takes throughout the year, with urgent COVID orders offsetting some deployment delays. In Q2, we successfully moved many deployments to remote service offerings. Then in Q3 and Q4, access to hospitals improved and our deployment teams got back on site, while continuing to leverage remote capabilities. We completed a full schedule of deployments in Q4 amid the pandemic surge, reflecting the rising importance with which our customers view our solution.

We are seeing the benefits of our solution rising to a must-have priority level, as hospitals look to ensure frontline caregivers are protected and connected. Our solutions have never been more essential. As a result, our large deal pipeline is growing and deals are progressing well. While our world continues to face uncertainty around the continuing pandemic, we are doing what we can to deliver our differentiated solution to a large greenfield market.

Further market conditions remain difficult to predict. But here's how we see hospitals spending priorities in the coming months and years. First, I fundamentally believe the impact of the pandemic crisis on hospitals is elevating the importance of communication and workflow solutions to a strategic level with lasting importance. Based on my conversations with hospital CEOs, the physical and psychological safety of care teams is a priority that is rapidly on the rise and plays right into our strengths.

Safety has long been a core part of our mission and a sweet spot of our value proposition. In fact, nurses have told us they feel safer when they're wearing their Vocera badge. Through deep, trusted relationships, we're helping our customers define a new normal for hospital operations, as we can address both safety and operational efficiency challenges. As a result, our mission is more relevant today than ever.

The idea that communications technology is an essential part of PPE is one that continues to resonate in my conversations with customers and prospects. Nurses and other frontline workers simply cannot do their jobs unless they have the ability to communicate with their teams. Being able to do so hands-free is invaluable and is not just a COVID requirement. We believe hands-free communication is the new normal that's here to stay.

Nurses and other caregivers should not have to risk contamination for communication. Our technology has been shown to preserve PPE, speed care delivery by reducing donning and doffing and improve caregiver safety by eliminating potential exposure to infection. In addition, as hospitals strive to resume elective surgeries and try to recapture lost revenue, throughput has become a critical element of restoring hospital financial viability. Operational efficiency is core to our value proposition and I believe throughput will be one of the most important themes of 2021 and beyond.

Awareness of the need to modernize clinical workflows and care team communication has never been higher and Vocera offers an effective and immediate solution to helping hospitals achieve their throughput goals. Furthermore, interest in identifying a partner of choice in clinical communications is on the rise. Hospitals tell us all the time they're looking to consolidate the number of vendors they're working with, and they want to build platforms that are secure, unified and fully integrated. As an example of this, customers and prospects are thrilled that EASE is now part of Vocera, because we are a trusted brand.

EASE sales cycles are improving because customers know Vocera is behind the product, a testament to our strong brand value. In another example, we were honored last month when Lake of the Woods Hospital in Ontario called our solution, quote, a future-proofing communication system, highlighting the robust flexibility of our platform. They're installing Vocera as their secure communication system, and embedding it into their hospital workflows today so that when they move into their new fully integrated smart hospital, they will be ready from day one. Our clinical sales approach, the customer benefits from our innovative solutions combined with added capabilities from M&A to make us the leader in our space, and we believe the logical partner of choice.

Customers and prospects appreciate that we can address a variety of hospital workflow challenges, with an eye toward enhanced ROI and patient experience. And we've been investing in our business while others have been retreating. Now, I'd like to take a moment to highlight a couple of our key priorities for the coming year. The primary focus for us in 2021 will be to continue to expand our footprint with new customers and drive expansions among our installed base.

We are scaling and enhancing our platform offerings to meet our customers' growing mission-critical needs as we further increase our presence across health systems. We also plan to pursue the tremendous opportunity to cross-sell our newer solutions into our installed base. In particular, Engage Software, the Smartbadge and our EASE family of communication applications represent exciting growth drivers for our business. In addition, we'll continue to focus on our international and non-healthcare businesses as important components of our growth strategy.

Next, we will embrace our learnings from 2020 around virtualizing our offerings in services, sales, marketing and product innovation. We believe the last year has changed the way business will be done in the future, and we are leaning into this transformative opportunity to improve our effectiveness and efficiency, enhancing the value of our services that we deliver to customers. Finally, we will continue to look for ways to expand our offering across the healthcare continuum by building, buying or partnering to enable frictionless patient journeys and improve patient and staff experiences. We've made a lot of investments to date to drive innovation, and we expect to continue to do so in 2021.

Examples include our new Vocera skill for Alexa, new analytics capabilities and enhancements to our products that we identified, thanks to our deep customer relationships. Our strong balance sheet and healthy financial model enable us to invest for growth and further differentiate our solutions. At the foundation of these priorities is a continued focus on environmental, social and governance issues as we build a business that is built to last on many levels. When looking at our company through an ESG lens, we always start with our mission to transform communications in healthcare.

I'm struck by the progress we've made over the years to ensure that we have the products, people and processes in place to drive profitable long-term growth in a responsible and sustainable manner. This approach will remain important in our planning for 2021 and beyond, and we intend to publish our first ESG report this year. Now I'd like to turn the call over to Justin for a discussion of our financials. Justin?

Justin Spencer -- Chief Financial Officer

Thanks, Brent. Hello, everyone. We had a very strong fourth quarter across the board, capping off an excellent year of financial performance and accelerating our momentum into 2021. I'll first summarize our Q4 results and then turn to our outlook for 2021.

Total revenue in Q4 was $56.6 million, up 14% from last year. For the year, revenue increased 10% to $198.4 million, exceeding our expectations. Importantly, our substantial bookings growth enabled us to meaningfully increase our combined backlog and deferred revenue, which puts us in a strong position for 2021. I'll discuss this in a greater level of detail a bit later.

Product revenue, which includes both devices and software, increased 12% to $30.3 million in the fourth quarter. Device revenue was up 21% as the unique benefits of our hands-free communication devices continued to drive demand from new and existing customers. Our Smartbadge continued to gain traction in the market as our shipments of this device increased significantly in 2020 compared to last year. We envision having two hands-free badges in the market for the foreseeable future as they are each designed and priced to address the needs of different segments in our target markets.

Software revenue was down slightly compared to Q4 last year, but the underlying drivers are very healthy. As a reminder, the timing of software revenue is largely determined by the schedules of our customer deployments and the license sizes, which can vary from one quarter to the next. As our software revenue is largely perpetual, it is recognized when we deliver it to our customers. We expect healthy growth in software revenue in 2021 as we have record software backlog, up nearly 50% compared to this time last year.

Equally important, we evaluate the health of our software business overall by combining both the software and subscription and support revenue streams together, which we view holistically as our software-related business. We view it this way because subscriptions and support revenue includes the software maintenance contracts that are tied to the ongoing customer utility of our software, as well as our recurring SaaS offerings such as EASE. Software and subscriptions and support revenue combined grew 10% in Q4 and represented 55% of our total revenue for all of 2020, and we expect this mix to increase even more in the future. Our services revenue in Q4 was $26.3 million, up 16% compared to last year.

Both of our revenue streams in this segment had double-digit revenue growth in Q4. Our recurring subscriptions and support revenue was particularly strong in the fourth quarter, up 17% as we continued to achieve high renewal rates for our software maintenance and support contracts and had new revenue from our recently acquired EASE business. We are very pleased with the momentum of EASE thus far as the amount of annual recurring revenue under contract as of the end of 2020 is higher than we planned when we closed the acquisition in Q3. Now before I transition to our profitability, I'd like to comment on backlog and deferred revenue, another highlight of the quarter.

Our backlog and deferred revenue increased 28% to a record $174 million, driven by our strong bookings and overall execution. While some of this increase is attributed to contracts that will convert to revenue over multiple years, we achieved a healthy increase in the portion that we believe will convert in the next 12 months. This increase provides higher visibility to our 2021 revenue than we have had in recent years. Regardless of any uncertainties and headwinds that might arise in the near term, our higher backlog and deferred revenue provides a solid foundation for future revenue growth.

Now on to profitability, another bright spot. Our adjusted EBITDA in Q4 was $13.1 million, up 89% from last year. Our adjusted EBITDA margin in the fourth quarter was 23% of revenue, exceeding our target annual financial model goal of 20% for the second straight quarter. Our adjusted EBITDA for all of 2020 was $30.3 million, up substantially versus 2019 and represented sizable progress toward our target model, even after normalizing for the travel expense savings we saw during the year.

Our GAAP earnings were positive in Q4 and improved substantially for the full year. With that as context, here is some more color on our non-GAAP gross margin and operating expenses in Q4, as well as some perspective on what we expect in these areas in 2021. Non-GAAP gross margin in Q4 was 70%, up over 6 percentage points versus last year. Both products and services margins increased from Q4 last year, reflecting the revenue growth and contribution of our higher-margin revenue streams.

As a reminder, product margin in Q4 '19 was unusually low because of a large customer shipment of third-party devices with a lower gross margin profile. Overall, we have continued to focus on delivering our products and services more efficiently, including supply chain efficiencies, performing more of our professional services work virtually and a variety of other cost savings initiatives that drive scale and improve our gross margin. As we now look forward, we expect our non-GAAP gross margin percentage in 2021 to increase slightly from 67% in 2020 as our high-margin business continues to grow, and we realize even greater leverage from revenue growth on the fixed costs in our business. And with our typical pattern of revenue seasonality expected again in 2021, we anticipate our gross margin percentage to be in the mid-60s in the first half of the year and nearing 70% in the second half.

Non-GAAP operating expenses of $28.2 million were up 9% compared to last year, with a full quarter of EASE and increased investment in our growth initiatives. From a full-year perspective, our non-GAAP operating expenses grew 5% or half the rate of revenue. Travel expenses were low again in Q4, and we expect this trend to continue, at least for the first half of 2021. Given the opportunity ahead of us, we are investing in R&D and sales and services in 2021 to drive long-term growth in our business.

We expect our non-GAAP operating expenses to be around 55% of our total revenue. Operating expenses will increase sequentially in Q1 compared to the fourth quarter and then grow slightly over the following three quarters. To cap off my Q4 commentary, our cash balance ended at approximately $230 million, up roughly $19 million from the third quarter of 2020, driven largely by strong collections. Excluding the cash used for the EASE acquisition in Q3, we added nearly $26 million of cash to our balance sheet in 2020.

Our balance sheet continues to provide a strong foundation for our business with both ample liquidity to weather near-term market uncertainty and capital to fuel our longer-term growth. Turning now to guidance, while there is still ongoing uncertainty in our markets as customers continue to navigate the challenges associated with a pandemic, our overall revenue visibility as we begin this new year has improved as a result of a higher level of backlog and deferred revenue. Thus, we are now reinstituting annual guidance with the goal of providing investors a view of what we expect for our business in 2021. This guidance is based on a consistent framework comprised of the revenue for the year that is currently visible to us through our backlog, deferred revenue and supplies business, plus the amount of revenue we expect from new bookings in 2021.

These new bookings are dependent on overall market conditions and our own sales execution. With the improved visibility, enhanced sales efforts and product innovation, balanced with somewhat uncertain market dynamics, we are planning for higher growth in 2021 with an expected revenue range of $215 million to $225 million. Given the seasonality of our business and the revenue timing differences that can sometimes cause individual quarters to fluctuate, we believe an annual perspective represents the best view for measuring the ongoing performance of our business. As a result, we will not be providing quarterly guidance.

However, as an aid for how we anticipate the year to unfold, we expect our revenue to follow a similar seasonal pattern to prior years, with roughly 45% of our annual revenue in the first half and 55% in the second half. Additionally, due to typical seasonality and lower bookings in the first part of the year, Q1 is historically the lowest of the four quarters for both revenue and earnings, and we expect a similar quarterly revenue distribution in 2021. Even with the investment I mentioned earlier, including higher travel expense in the second half of 2021, we expect our non-GAAP profitability to expand this year compared to 2020 and progress further toward our target model. We expect adjusted EBITDA to be between $30 million and $35 million in 2021 and expect it will follow the historical pattern in which our adjusted EBITDA is much higher in the second half of the year.

We expect GAAP earnings to decrease in 2021 due mainly to the full-year effect of the costs associated with the EASE acquisition. These costs include amortization of intangibles and the expense associated with the success-based earnout. Additionally, our 2020 GAAP results included a $2 million one-time tax benefit in Q3 that was associated with the acquisition and will not recur in 2021. We also anticipate less interest income on our cash from lower interest rates in the market.

However, by Q4, we expect GAAP earnings to once again be above the prior year as our revenue expands. The momentum of our business is growing, and we look forward to 2021 with a lot of optimism and expectations for healthy growth. We have a strong and unique value proposition in our market with a loyal and expanding customer base. We continue to see a large market opportunity ahead of us and are investing across our business to drive long-term profitable growth.

Our recurring revenue and loyal customer base, along with a solid sales pipeline and healthy backlog and deferred revenue, provide a strong foundation for growth in the future. I'll now turn the call back to Brent.

Brent Lang -- Chief Executive Officer

Thank you, Justin. I want to say again how proud I am of our team's great performance this year. We had an impressive Q4 with record bookings, double-digit revenue growth and a significant increase in our backlog, capping off a successful and meaningful year for our company. I want to thank our team who dedicated their talents to developing our solutions, extending our market reach and delivering thought leadership and contributing to our unique culture.

At Vocera, we are driven every day by our mission to improve the lives of caregivers and patients through improved communication. Our solution is in high demand because it solves important problems for the valuable workers on the front lines. As we begin the year on strong footing, there are still pandemic-related uncertainties ahead, but the opportunity we see before us has never seemed brighter. Before closing, I'd like to personally invite all of you to our virtual investor briefing on March 1.

It should be another great event following the model of our in-person events from prior years. Feel free to contact Sue to register or if you have any questions. 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 Sean Dodge with RBC Capital Markets. Your line is open.

Sean Dodge -- RBC Capital Markets -- Analyst

Thanks. Good afternoon. Justin, I wanted to start by offering my congratulations. We're happy to see you off to some very meaningful things.

We'll certainly miss working with you.

Justin Spencer -- Chief Financial Officer

Thanks, Sean.

Sean Dodge -- RBC Capital Markets -- Analyst

I guess on the guidance, I'm curious, so the ranges you've laid out don't really show the model generating any operating leverage at the EBITDA line for the year. Maybe just walk us through -- you mentioned ramping R&D investment. I guess, is 2021 going to be a little bit of a bigger investing year? Or is this the EASE acquisition? Or is this something to do with revenue mix?

Justin Spencer -- Chief Financial Officer

Hi, Sean. Good questions. So we actually do see, overall, continue to believe that we have a really strong economic model with a lot of operating leverage. Keep in mind that 2020 our spending was unusually low in part because of much, much lower travel expenses, as well as during a good portion of the year, we had clamped down on hiring.

We've since started to open up hiring a bit more so that we can direct our hiring in these growth areas that we're investing in. On top of that, yeah, we are investing in EASE. We're really, really pleased with the progress and the momentum that is building with EASE. It has surpassed our expectations up to this point.

And so we were purposely investing more in that business because we see a significant long-term potential. We provided an EBITDA guidance range that correlates to the range on revenue. Our goal is always to hit or even exceed the kind of the top end of our range. So we try to be conservative with both our revenue and our profitability guidance.

But we are definitely investing a bit more. We believe it's going to be able to translate for us to longer-term revenue growth.

Sean Dodge -- RBC Capital Markets -- Analyst

OK. So it was more 2020 was unusually good from an expense standpoint. And less so, there's anything kind of notably different about the trajectory going forward?

Justin Spencer -- Chief Financial Officer

That's right.

Sean Dodge -- RBC Capital Markets -- Analyst

OK. Great. Thank you.

Operator

Our next question comes from Scott Schoenhaus with Stephens. Your line is open.

Scott Schoenhaus -- Stephens Inc. -- Analyst

Hi, Brent, Justin, Sue and team. Congrats on the nice quarter and record backlog. I wanted to touch upon your two most recent software acquisitions, Engage and EASE. I know you have made or are making good progress on the cross-selling opportunities on the Engage side.

Or sorry, yeah, on the Engage side. But now that you've done EASE and acquired EASE in August, could you talk about the cross-selling you're seeing there and the opportunities ahead?

Brent Lang -- Chief Executive Officer

Yeah. It's a great question, and a key growth driver for the business. I think what we've demonstrated is that when we bring these software products into our organization and our sales infrastructure, we're really able to accelerate the selling efforts. It takes time.

These are slow, long decision-making processes. But on the Engage side, we're really seeing an acceleration there. And some of this is both new business, as well as competitive displacements. The integration/middleware market is a little frothy right now, where some of the older legacy solutions are being phased out.

And so there's a great opportunity for us to capture some of those competitive displacements there. And as a result, we're seeing the percentage of our customer base that's using Engage continuing to grow up -- continue to increase. And then on new deals, it's included in almost every single new deal. EASE, much smaller business, very early stages we -- most of the customers that they had at the time of the acquisition were not current Vocera customers.

So they represented a nice chunk of new customers for us. So the opportunity to cross-sell that into our installed base is really exciting. And we are offering incentives to our sales organization to encourage them to make introductions of that product into their installed base with our existing customer relationships. We think it's a natural fit.

It doesn't overlap with our existing product offering at all, and it's very consistent with our mission. So we're hopeful that we can drive really nice cross-selling opportunities there, but it's very early days at this point.

Scott Schoenhaus -- Stephens Inc. -- Analyst

Thanks for that color, Brent. Then as a follow-up, maybe can you give us a sense if you can or maybe just some parameters of how much software is in your backlog or baked into your revenue guidance for 2021? I know, Justin, you mentioned in your prepared remarks that software and subscription and support revenues will be growing year over year in 2021. But I just wanted to make sure you also meant that as a percent of total revenues, you expect those buckets to grow as well.

Justin Spencer -- Chief Financial Officer

Yeah. So as both a percent and in absolute dollars, the software is a much higher portion of our overall backlog than it has been over the last few years. And that's driven by a lot of the cross-selling efforts that Brent touched on earlier. As I mentioned in my prepared remarks, our software backlog alone is up nearly 50% year over year.

That's the highest increase that we've had that I can remember. So we feel like we've got -- we're in a really solid position. And the software, because it's perpetual it is dependent on the timing of the customer implementations and many of the customers that we now have in our backlog are of a much larger size. And so the timing can fluctuate.

But if we look at our expectations for software over a longer term horizon, in this case, over 2021, we expect really healthy growth in that category going forward.

Scott Schoenhaus -- Stephens Inc. -- Analyst

Great. Thanks, guys. I'll hop back in queue.

Operator

Your next question comes from Vikram Kesavabhotla with Guggenheim Securities. Your line is open.

Vikram Kesavabhotla -- Guggenheim Securities -- Analyst

Yeah, thank you for taking the question. I wanted to start on the guidance for 2021. You referenced you ended this year with backlog up 28% year over year. And the revenue guidance for this year, I think, implies about 11% growth at the midpoint.

Could you just help us reconcile those numbers in a little more detail, and maybe some of the underlying assumptions there around revenue conversion or anything else that might be relevant? Any color would be helpful. Thanks.

Justin Spencer -- Chief Financial Officer

Sure. Hi, Vik. As we sit down and think about our guidance, we have thought about a variety of factors, starting with the external market that we're competing in and the dynamics around hospital spending. Overall, we believe that the market environment is improving, although there's still a lot of uncertainty, and it's a very fluid and dynamic marketplace.

But what we're seeing is that our value proposition is really resonating in the market, and that gives us more confidence as we go forward. That's also in balance with some of the internal metrics, particularly you mentioned one, which is our backlog and a couple of things I'll mention around our backlog and deferred revenue. The combined balance is at about $174 million, which is a record, that's up 28%. There is a growing portion that is multiyear.

And the reason for that is we're having more success with these larger customers who are committing to much larger and multiyear contracts with us. And that provides -- that's a real benefit for us over a longer period of time. Having said that, if you just kind of set that aside, the multiyear backlog aside, we still have a very healthy amount of backlog and deferred revenue that we expect to convert over the next 12 months. So one of the reasons why the 28% growth in backlog and deferred revenue is not necessarily converting to that level of revenue growth is just because of the multiyear dynamic in our backlog and deferred revenue.

We've also got a -- we'll also start to see our subscription businesses start to take hold. EASE being a key one there over time, and many of those contracts are between two and three years. Now having said all that, we clearly don't try to aim at the midpoint of the range. So as we think about our guidance or our growth aspirations, we're clearly trying to shoot for the upper end, if not, hopefully, higher than that.

And we try to be really conservative with our guidance. So we're thinking of a growth rate that is a bit higher than the midpoint just from an internal execution standpoint. Hopefully, we expect to be able to do that here as the quarters unfold, and that would put us in a really good position.

Vikram Kesavabhotla -- Guggenheim Securities -- Analyst

OK. Great. That's very helpful. Thank you.

Maybe just one follow-up question. I think in your prepared remarks, you said that you think you've been gaining market share in this environment. Can you just talk about where your win rates are today relative to historical levels? And maybe on a related note, how much of your recent bookings have been coming from existing customers versus new customers relative to what you typically see? Any color there would be great. Thank you.

Brent Lang -- Chief Executive Officer

Yeah. So in terms of competitive win rates, I would say Q4 was actually maybe even a little bit higher than we've seen historically, but it's remained at very, very high levels. We obviously don't have perfect visibility because we don't necessarily see every deal out there. But of the deals that we can track and that we have visibility into, it remains really, really high.

As it relates to new versus existing, we really saw strength in both pieces of our business. Some of the large deals that I talked about in the prepared remarks, even some of these multimillion-dollar deals, were in fact, expansions. And it's an interesting dynamic where our customer may start with a fairly small deployment. And then once they get comfortable with the product, they come back with a housewide deployment.

And so there's some big dollars associated with those existing customer expansions, but we are also seeing lots of new customer wins. And in fact, in Q4, I mentioned we had the largest number of enterprise wins in a quarter. One area in particular that I wanted to highlight that I think we are definitely gaining share on is in the Engage space with our clinical integration software and middleware. And that's been a great success story for us, not only going back into the installed base, but also helping us to win new customer wins as more and more people think about it as a kind of combined unified platform that's bringing voice and messaging and clinical alerts and alarms altogether into a unified platform that they then want to roll out across their health system.

Vikram Kesavabhotla -- Guggenheim Securities -- Analyst

Great. Thank you.

Operator

Your next question comes from Ryan Daniels with William Blair. Your line is open.

Ryan Daniels -- William Blair & Company -- Analyst

Yeah. Thanks for taking the question and all the color so far. I wanted to go back to one of the earlier comments about what you're seeing in the selling environment. I think you mentioned throughput is kind of being a key.

And I can see that being beneficial for organizations as it can help with their profitability, patient satisfaction, probably provider satisfaction, less burnout. So if that's kind of a key thing resonating in the market, can you speak to what you're doing to capitalize on that through case studies, etc.; and also, what you think you can do in the future with the device or your broader platform integration to further enhance throughput to allow that to continue to drive strong sales? Thanks.

Brent Lang -- Chief Executive Officer

Yeah. Thanks, Ryan. You're absolutely right. We believe that 2021 is going to be characterized by a really strong focus around hospital economics.

Many hospitals are suffering as a result of the pandemic, and they're looking for how they can control costs. And they're also faced with a fairly large backlog, both of elective surgeries that have been delayed and other healthcare in general that's been delayed. And so we expect there to be a bit of a push in the hospitals as patients start to come back in higher numbers, and hospitals are really eager to start generating that revenue again. And so they're going to be in this kind of constrained environment where many of them are suffering from nursing shortages and maybe a bit constrained.

And so the opportunity to sort of make better utilization of the assets that they have in place is going to be a key theme. And the operational efficiency that Vocera is able to bring to the table, it's literally shaving minutes off of hundreds of different procedures and processes where we just make everything a little bit more streamlined and seamless and frictionless, and getting the right information to the right person at the right time allows clinicians to triage their time more effectively, improve length of stay, improve transaction times, all that kind of stuff. And so to your point, we've put a lot of energy into trying to document those various case studies into some success stories. We've actually built an economic value calculator that helps our sales reps go into a hospital and apply some of the metrics that we've seen at previous customers into prospect environments and demonstrate the dollar savings that we can generate if they were to implement our solutions.

And as it relates to sort of how the product might evolve, one of the areas that I'm really excited about as we move forward, is in the area of analytics. We capture a tremendous amount of data about the workflows and communications and alerts alarms that occur within our hospital base. So we've got this real treasure trove of data. And one of the investment areas for 2021 that we're focusing on is kind of utilizing that data to turn it into real insights that we can deliver to our customers to help them optimize workflows and to potentially take even more inefficiency out of the system to drive greater throughput and essentially effectively increase their capacity.

Ryan Daniels -- William Blair & Company -- Analyst

Great. That's super helpful. And Justin, just wanted to wish you all the best. I know you'll probably be on the next call or two, but it's been a pleasure working with you, and we wish you much success.

Thanks.

Justin Spencer -- Chief Financial Officer

Thanks, Ryan.

Operator

Your next question comes from Sean Wieland with Piper Jaffray. Your line is open.

Jess Tassan -- Piper Jaffray -- Analyst

Hi. Thanks for taking my question. This is Jess on for Sean. Congrats on the quarter.

I think our first question is just on EASE and Engage, could you just give us a little detail on how those are deployed and billed? I think you mentioned that EASE is a subscription. Is that true of Engage as well, and just interested to know if those sales and deployments can be 100% virtual at least within your existing installed base?

Brent Lang -- Chief Executive Officer

Yeah. So they're handled a little bit differently. So Engage is more like our traditional software business. So the typical Engage licenses are sold on a perpetual basis, and then there's an annual recurring maintenance stream associated with it.

The pricing is dictated by the number of different integrations and then the number of beds or the size of the deployment. We are experimenting with more of a subscription-type of pricing there, but the bulk of the business historically with Engage has been on a perpetual plus maintenance basis. EASE, on the other hand, is a pure SaaS deployment. It's cloud-based, and it's sold on a subscription basis based on the size of the hospital and the number of departments that it's rolling out into.

So in some cases, they might roll it out only in the operating room environment, but in more and more cases that we're seeing it's being rolled out into the med-surge environments as well. And so it scales up and down depending on where it's being used and the size of the facility. In both cases though, we've really evolved our ability to do more of the deployment remotely. We still like to get on site to help with training and making sure that the customers are comfortable using the solutions.

But in the COVID environment, we've been able to pivot and do the vast majority of those deployments remotely and even software deployments that are done on site with Engage, oftentimes we can do a lot of work remotely. So we've got quite a bit of flexibility there.

Jess Tassan -- Piper Jaffray -- Analyst

Thank you. That's helpful. And then just a follow-up, what's the role or potential opportunity for the combination of these two products in kind of a hospital-to-home environment or maybe like in a hospital's effort to convert to value or to episodic value-based care for a specific episode?

Brent Lang -- Chief Executive Officer

You're talking about with Engage and EASE specifically?

Jess Tassan -- Piper Jaffray -- Analyst

Exactly.

Brent Lang -- Chief Executive Officer

Yeah. So we see that as a real trend. It's definitely accelerating. And part of why we were excited about the EASE application in the first place was because of the connection with the patient and the patient's family member.

And we see that as an opportunity to really grow and expand in the area of patient engagement, not only while they're in the hospital, but pre-arrival and post discharge, we think that opening up that communications channel with the patient and the patient's family member actually generates a huge value proposition for us. Similarly, with Engage, as you go outside the hospital into skilled nursing and long-term care and eventually into the home, the idea of remote monitoring and then leveraging Engage as a way of pulling information about the patient and using that and routing that to the appropriate caregivers is a very important value proposition as we move more and more toward care being delivered outside the hospital environment.

Jess Tassan -- Piper Jaffray -- Analyst

Great. Thanks so much.

Operator

Your next question comes from Benjamin Flox with Jefferies. Your line is open.

Benjamin Flox -- Jefferies -- Analyst

Hi there. Good afternoon, and congrats on a great year. And Justin, let me just echo everyone else's congratulations and wish you the best in your future endeavors. Brent, I think you've kind of touched on this in the last couple of responses, but more broadly, like how do you view the white space of this industry, not so much in terms of client, but in terms of solution? The legacy business has always been more provider to provider, but we're seeing maybe a bit more of a shift to provider to patient, more video instead of audio.

Can you just kind of help frame that in the context of how you're allocating R&D dollars and also just longer term?

Brent Lang -- Chief Executive Officer

Yeah. The framework that we're using is tied to this idea of the real-time health system, which is a Gartner terminology. And the way I sort of simplistically think about the real-time health system is if you sort of chart out a patient's journey through the health system from the time that they're admitted, they're given labs, they're evaluated, they may have procedures, eventually they get discharged, they go into a long-term care, skilled nursing facility. Eventually, they're being treated at home.

All those various stages of a patient's journey represents potentially sources of delay or friction or frustration. And our vision is really around using technology and the flow of information and connectivity between people to really streamline and remove as much of the friction in that patient journey as possible. And obviously, we started primarily in the hospital and started primarily at the bedside. But as we see our solutions evolving, both our existing solutions, as well as things we're building in the future and potentially looking at as additions to the company, we're really sort of looking at that full care continuum.

And what we can do is try to create a seamless of a patient journey across that care continuum as possible. I think there's tremendous opportunity here. And as health systems become more and more integrated, they're starting to look at the cost and the value that they're creating, not just within the hospital, but across the whole care continuum. And so we want to match that in terms of how we think about our own solutions and offerings into the marketplace.

Benjamin Flox -- Jefferies -- Analyst

Got it. Got it. That's great. I guess one follow-up, unrelated question.

What are you seeing in terms of sales cycle kind of post holidays in terms of how the first quarter is unwound as we've seen COVID cases kind of spike up early in the year and then start to taper off? Any major callouts there?

Brent Lang -- Chief Executive Officer

Yeah. I think it's way too early to know. I mean the year typically starts off pretty quiet anyway and every year, but I don't think we've seen any changes at all really.

Benjamin Flox -- Jefferies -- Analyst

OK. Great. Thank you.

Operator

[Operator instructions] Our next question comes from Matt Hewitt with Craig-Hallum. Your line is open.

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

Good afternoon. Thanks for taking my questions. First one, regarding the $174 million in backlog and deferred, I'm curious, do you have a breakdown on how much of that is expected to be deployed this year versus over the next two to three?

Justin Spencer -- Chief Financial Officer

Yeah, Matt, it's roughly 70% of that is expected. And that's fairly consistent with previous years.

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

OK. Great. And then just one follow-up, if I might. Regarding EASE, I think on Q3, you talked about adding to the sales team there.

How has that progressed? How many were you able to add in the Q4 and maybe to start this year? And how -- is there an attach rate or some type of a metric that you could provide to, I guess, further provide evidence on how well that product or that software has been working for you so far?

Brent Lang -- Chief Executive Officer

Yeah, Matt. Thanks. I would just characterize it as being really early stage. We definitely added a few sales people, but it was off of a very small base, and the revenue base is also very, very small.

So this is a solution which we're really excited about, but think of it more of a start-up within the company as opposed to representing a large number of salespeople or a large amount of revenue today.

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

Got it. Thank you.

Operator

Your next question comes from David Larsen with BTIG. Your line is open.

David Larsen -- BTIG -- Analyst

Hey, Justin, congratulations again on all the success that you've brought to Vocera over the years, and congrats on a good quarter. Brent, can you maybe just talk a little bit about the use case for COVID? With hospital volumes under a little bit of pressure in 2020 and into 2021, you would sort of think that maybe the buying decisions would slow, but that's obviously not the case. Buying decisions have actually increased and accelerated for Vocera. Can you maybe just talk a little bit about the use cases? Are these badges part of the PPE purchases? Just any thoughts there would be very helpful.

Thank you.

Brent Lang -- Chief Executive Officer

Yeah. Thanks, Dave. You're absolutely right. I think it's part of the workflow that they're recognizing hands-free is just really, really critical.

So in many cases, these clinicians are now wearing gowns and gloves and masks. And in order to communicate they're faced with the choice of either having to leave the patient's room, potentially take off their PPE and then access their phone and then kind of resterilize and then reput on their PPE and then go back and serve another patient. Or if they're using the hands-free capability of Vocera, they can basically continue doing their clinical work without having to go through that whole process. And so that's actually, I think, really raised the level of awareness of the importance of hands-free, and it's been a core part of their purchase process and their evaluation of how they, as I said, prevent contamination, but also allow for communication.

And I think the idea that Vocera is part of the PPE, in fact, we started using this terminology PPET, which is personal protective equipment and technology. Because if you look at it more holistically, it's not just about putting plastic around a caregiver's body, it's about giving them the tools to be able to do their job. And I think that's been an important recognition by the caregivers. And I would just highlight that we don't think this is a temporary thing.

We think that the use of PPE and hospitals is likely to continue for the foreseeable future. And now that people have recognized more of the importance of hands-free, we expect that to continue to be a driving force for our business in the future. There have been some very specific use cases that are tied to COVID, where, for example, they're putting a Vocera badge with the patients at the bed rail or some other specific use cases. But in general, it's just the same workflows that they've been doing, but recognition of hands-free.

And then as it relates to EASE specifically, EASE was originally designed for the operating room when a family had a child, for example, in the operating room to allow that family to get updates while they're in the operating room. But in a COVID environment where family members are not even generally allowed in the hospital, let alone in the operating theater, the ability to communicate with the family members about the status of their patients, maybe if patient has just been intubated or maybe they've just been taken off intubation. You need these transitions in care that are so valuable to the family members of the patient, can very easily be updated and the beauty of the EASE solution is that it does it in a way that's not intrusive to the workflow of the clinician. So it doesn't get in the way of the nurse being able to do their job.

And I think that's what's so critical about it is the sort of seamless nature of it. As it relates to Engage, the idea of more remote monitoring and keeping track of vital signs and other information about the patient, and then knowing what to do with that information and routing it to the appropriate care provider, that value proposition continues to be really strong, both from a patient safety and from an efficiency standpoint. So I think pretty much across the board, we're seeing that the evolution of the way care is being delivered as being beneficial for our value proposition.

Operator

Our next question comes from Stephanie Davis with SVB Leerink. Your line is open.

Joy Zhang -- SVB Leerink -- Analyst

Hi. This is Joy Zhang on for Stephanie Davis. Congrats on the quarter. I just wanted to circle back to the software cross-sell question again.

Now that you mentioned EASE is still in early innings and Engage is growing nicely, can you just provide more granularity on what cross-sell assumptions you're baking into your FY '21 guidance?

Justin Spencer -- Chief Financial Officer

Well, it's just inherent in our business model is the opportunity to sell additional products into our base. In fact, the vast majority of our bookings in a year, Joy, come from our existing customers. So every year, we make incrementally more progress in cross-selling solutions, whether it's adding messaging to our voice customers, Engage and now EASE. This is just an ongoing part.

So there's nothing outsized or unusual about our assumptions, but we do expect to make steady continued progress in cross-selling to our base. And as the base increases, that provides an expanded opportunity for us to be able to cross-sell these solutions. And we're always looking to either invest in in new products organically or inorganically to be able to identify additional solutions that we can leverage through our sales force and through the base that we've got.

Operator

Our final question comes from the line of Eugene Mannheimer with Collier Securities. Your line is open.

Eugene Mannheimer -- Collier Securities -- Analyst

Thanks. Good afternoon. Fantastic quarter, and Justin, congrats on your promotion. Hey, I wanted to just ask this question.

If you -- if more revenue is coming out of your backlog this year, why wouldn't you have better than 70% visibility into your guidance since I would think that less book shipped is implied in your outlook? Any clarification would be great there.

Justin Spencer -- Chief Financial Officer

Sure. So our visibility is, Gene, is a little bit higher compared to prior years. And so that's a good thing. And as we think about our guidance, we're trying to be conservative, just acknowledging that it's still a fairly kind of turbulent and dynamic market out there.

But for sure, the backlog that we have allows us to have a higher level of visibility going into the year than we've had over the last several years. So that's a really positive thing. There is a higher proportion of our backlog that is multiyear, and that will not likely convert in 2021. But having said that, there's also a very healthy amount of backlog that supports our visibility and our revenue for the year.

So when we kind of sit down and do all that calculus, we have more backlog, we have higher visibility. And therefore, we feel even better about the guidance range that we're putting out there, trying to be conservative, but also hopefully being in a position to have some upside to our business here over as the year progresses.

Eugene Mannheimer -- Collier Securities -- Analyst

Makes sense. Thanks for that, Justin. So the $174 million in backlog and deferred revenue, are you able to disclose how much of that does EASE contribute? I assume it's relatively small, but any color there would be helpful.

Justin Spencer -- Chief Financial Officer

Yeah. It is quite small right now, but it's building, but it's -- I wouldn't say that -- it's just -- it's quite small right now. But we're really pleased with the bookings that we saw and the building base of annual recurring revenue that's under contract now. And so as the year progresses, within one to two years, it will start to represent a larger portion of the overall balance.

Eugene Mannheimer -- Collier Securities -- Analyst

Sure. OK. Thanks a lot. Appreciate it.

Operator

There are no further questions at this time. I will turn the call back over to Brent for closing remarks.

Brent Lang -- Chief Executive Officer

Thank you, and thank you, everyone, for participating in today's call, and we look forward to chatting with you in the future.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Sue Dooley -- Investor Relations

Brent Lang -- Chief Executive Officer

Justin Spencer -- Chief Financial Officer

Sean Dodge -- RBC Capital Markets -- Analyst

Scott Schoenhaus -- Stephens Inc. -- Analyst

Vikram Kesavabhotla -- Guggenheim Securities -- Analyst

Ryan Daniels -- William Blair & Company -- Analyst

Jess Tassan -- Piper Jaffray -- Analyst

Benjamin Flox -- Jefferies -- Analyst

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

David Larsen -- BTIG -- Analyst

Joy Zhang -- SVB Leerink -- Analyst

Eugene Mannheimer -- Collier Securities -- Analyst

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