Vocera Communications (VCRA) Q2 2021 Earnings Call Transcript

Vocera Communications (VCRA)
Q2 2021 Earnings Call
Jul 29, 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 Emily, and I'll be your coordinator for today. [Operator instructions] I now would 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

Thanks, Emily. Hello, everyone. Welcome to Vocera's conference call to discuss our second-quarter fiscal 2021 earnings. This is Sue Dooley, and joining me today are Vocera's CEO, Brent Lang; and Steve Anheier, our CFO.

Earlier today, we distributed a press release detailing our announcement. The release is posted on our website at investor.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.

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

Brent Lang -- Chief Executive Officer

Thanks, Sue. Hello, everyone. I hope this finds you well. We have a lot of good news to cover this quarter so I'll jump right into it.

We just completed the strongest second quarter in the company's history, building on the great start we achieved in Q1. Our solution is a rising priority for hospitals and our market leadership position is translating into consistent outstanding performance. The success was broad-based across our business. Stellar execution from our sales team drove tremendous bookings growth, and our services organization continues to effectively deploy our solution leading with our clinical expertise.

In a moment, I will speak more about the drivers of our robust performance. But first, here are some highlights from Q2. Bookings growth was terrific with many large new customer wins and sizable expansions bolstered by our high competitive win rate and reliable customer renewal. Software bookings set a new record, driven by excellent performance in our Engage software and the full functionality of our software platform.

Revenue in Q2 grew 19% compared to last year and grew 19% overall in the first half of the year. Like Q1, software revenue was a bright spot, with great execution in large new system deployments by our services group. At the end of Q2, our combined backlog and deferred revenue was $218 million up 71% compared to this time last year. This reflects three favorable dynamics, the strength of our bookings, contributions from recent acquisitions, and the healthy and growing trend toward long-term contracts and software maintenance renewals.

In the area of product leadership and innovation, Vocera Ease won the MedTech Breakthrough Award, a real honor among a competitive field of household names with substantial market clout. This award demonstrates the impactful nature of this patient-facing solution. And finally, we closed the PatientSafe transaction in May. We are well underway with the integration and are thrilled with the momentum.

Here are some of the highlights from our sales and services organization during the quarter. Our Q2 bookings performance was simply outstanding. We added several new hospital names, drove expansions among existing customers, and continue to build on the healthy trend of sizable multi-year maintenance renewals, a meaningful indicator of the value our customers align to our solution. These large wins and multi-year renewals enrich our long-term visibility which Steve will discuss more in a moment.

Overall, during the quarter, we had six wins over $1 million, a remarkable performance in any quarter and especially for Q2. These big wins included such names as Summa Health, Tampa General, Newark University, and Kaiser Permanente. And as we previously highlighted during our Q1, we won the largest booking in our company's history with Providence Health Care. This win provides a shining example of our enterprise-selling approach, the strength of our Engage software offering, as well as the opportunity that exists for growth within our installed base.

I'd like to take a moment to share the story of our success. For a decade, Providence has been Vocera customer across a disparate group of facilities and in various limited departmental deployments. In the recent quarters, our enterprise sales leaders elevated the discussion to the C-suite with the aim of creating a unified and strategic enterprisewide approach to communication. Our team worked with the clinical leadership to address the system's most severe and pressing clinical workflow challenges.

Together, we created a plan to roll out our solution across over 50 hospitals, spanning the U.S. over several quarters. We will deploy in the acute care environment limited to nursing, respiratory and key physicians, and there is plenty of room to broaden our footprint as we demonstrate the achievement of the clinical and workflow benefits. With Providence, we hope to set a standard for other leading hospitals who look to them as an example of best practices in their approach to clinical communication and collaboration.

We also won $1 million plus booking at the Malcolm Randall VA this quarter. The fed continues to roll out our solution as the de facto standard, and this win underscores our continuing opportunity for growth in this market. With the Q3 selling season in front of us and plenty of opportunities to land new facilities and cross-sell within existing facilities, we expect to continue our strong bookings momentum in both the short and longer term. In international, Canada produced particularly strong results as the team leverages the northern supply chain purchasing agreement we put in place last year intended to speed up the acquisition process by enabling hospitals to buy from us without having to issue an RFP.

In Australia New Zealand we continue to expand beyond the aged care marker with a great win at the Southern District Health Board, our second acute care facility in New Zealand. Also, our recently signed agreement with Wavelink in Australia will add local expertise to our marketing and sales efforts. International is a large opportunity and a top priority for us, and we are pleased to have a growing overseas pipeline. Outside of healthcare, we've brought in two new Four Seasons Hotels expanding our strong presence within this marquee brand.

On the service side of our business, our teams completed a robust schedule of new customer deployments, motivated by a desire to replace pagers and wireless phones and improve patient care, Care Team safety, as well as throughput and efficiency. Froedtert Hospital, UCLA Health, and Norton Women's and Children's Hospital are all rolling out our solution in large-scale deployments. As we've discussed in prior quarters, our professional services team is executing well, continuing a level of excellence through a combination of onsite and remote services and online tools that allow our teams to be efficient and optimized in time with customers. In other news, we just launched Vocera Edge, our cloud-based clinical communication and collaboration solution, derived from our recent acquisition of PatientSafe.

With Edge, customers can now choose how they want to purchase and deploy our solutions. Edge is ideal for hospitals and health systems that have invested heavily in their EHR mobile workflow software, are smartphone-centric, and prefer a cloud-based CCNC solution. This cloud-based solution simplifies system administration and enable bi-directional communication with the EHR. Hospitals can get more value from the EHR and bring the whole Care Team together centered around the patient.

Two-way communication between Edge and the hospital's EHR system makes it easier for clinicians to complete documentation and manage patient-centric communication right from their smartphones. We expect Edge will enable us to extend our market reach, broaden physician use cases and adoption, and deepen EHR integrations to support patient-centric workflows. This is a natural extension of our strategic vision and is particularly well suited to match the speed and scale of each organization's needs to improve patient care, safety, and experience. Now I'd like to describe some of the factors contributing to our healthy market environments.

Then I'll take a moment to describe our view of the growth drivers that lay the groundwork for our future. One major trend supporting our long-term success is the rising importance of staff safety as a priority in healthcare. The events of the past year and a half have culminated in a new era for safety, one that we believe is here to stay. Based on my conversations with hospital CEOs, prioritizing the physical emotional and psychological safety of care teams is rapidly on the rise.

In fact, the Department of Health and Human Services is earmarking $103 million from the American Rescue Plan to reduce burnout and promote mental health among healthcare workforce. Modernizing communications technology is core to these principles. We believe Vocera is not only a critical part of PPE but is also a foundational element of the future of healthcare and running a hospital. I believe we've reached an important inflection point in the desire to adopt better standards and implement change to improve safety.

Care teams simply can't do their jobs unless they feel secure in their roles supported by their organizations and have the ability to communicate with their teams. At Vocera, we strive to lead our customers through thought leadership to define a new normal for hospital operations and to help hospitals envision and implement change. In May, we took our thought leadership initiatives to the next level. We launched the groundbreaking CEO Coalition aimed at driving widespread adoption of initiatives focused on safety and healthcare.

The CEO Coalition unites founding group of 10 health system CEOs who as leaders in the space authored and published a set of standards for safety and healthcare. The coalition is kicking off a national plan for meaningful change and has invited other healthcare leaders to join. Recently Healthcare Finance News mentioned the CEO Coalition in an article as evidence of this rising priority. Another important trend bolstering our success involves hospitals looking to consolidate the number of vendors that they are working with.

They want to deploy platforms that are secure, unified and fully integrated. This plays right into the heart of our value proposition and our selling approach. We have earned a powerful seat at the table to discuss clinical workflow goals, thanks to our broad customer experience and customer clinical expertise. Hospitals require a partner who can deliver results now and prepare them for this new era of safety.

At Vocera, we become the ideal partner because we have the most complete solution in the market, bolstered by a proven ability to support our customers with a mix of internal development and careful M&A. With these market factors as context, I'd like to describe the growth drivers as we enter the second half of 2021 and begin to think about next year. First, with momentum at our side, we continue to work to drive large new customer wins and expand within existing customers who are looking to broaden their use of our solution and extend its benefits to new users. Second, we will strive to continue our strong software growth through new customer wins with Engage, Ease and now Vocera Edge.

Our international teams will seek to build on their momentum and broaden our market penetration across the regions. For our non-healthcare team, we'll seek to reach into new markets like school safety. We're extending our strong brand name in areas, such as hospitality. And finally, we plan to continue to innovate and enhance our product offering, our market-leading position, and our addressable market.

We believe our focus on these priorities is driving success and is laying the groundwork for the quarters ahead. Before I turn the call over to Steve, I would like to summarize my commentary about our results, the environment, and the drivers of our business. Simply put, Q2 completes a tremendous first half of 2021. We achieved our strategic priorities including further penetrating the market with key wins and leading health systems, expanding within our existing customer base, enriching our software mix, growing our international presence, and leading with new product innovation.

As we enter the second half of the year, we are in a great position to continue delivering on these priorities. Our large backlog and deferred revenue provide revenue visibility and help create a solid foundation for our future. Our mission is more relevant than ever, and we have a remarkable momentum in the business. Now Steve will cover the financial details of our Q2 results and our guidance for the rest of the year.

Steve?

Steven Anheier -- Chief Financial Officer

Thanks, Brent, and hello, everyone. We had a very strong second quarter, highlighted by bookings, revenue, and profitability growth, all of which were ahead of our expectations for both the quarter and the first half of the year. Starting with revenue, we delivered $56.2 million or 19% year-over-year growth in Q2, completing an outstanding first half of the year which also grew 19%. Q2 product revenue, which includes both devices and software, increased to $28.3 million or 18% year-over-year growth.

Device revenue of $16.3 million was slightly down from the prior year, but we continue to see good levels of bookings and shipments for our devices. As a reminder, last year's Q2 device revenue was extremely strong in part driven by COVID-related demand. From a first half of the year perspective, our device revenue increased and we continued to have healthy levels of hardware-related backlog, demonstrating the compelling value of hands-free communication. Smartbadge continues to gain momentum with solid bookings growth in both Q2 and for the first half of the year.

Software revenue in the second quarter was a real highlight and grew 76% over the prior year. At $12.1 million, software continues to be our fastest-growing revenue segment and being led by our Engage product line. Engage's strength highlights the growing values customer in place on our clinical integration and events of workflows. An example of this is the Q2 Providence booking that Brent highlighted.

We're engaged with the single largest component of the deal. For the first half of the year, software revenue is up 80% fueled by strong bookings and backlog conversion. Thanks to our strong bookings performance, our software backlog continues to grow and as of June 30th is at an all-time high. The growth in software backlog positions as well for continued software momentum and is the key driver as we progress toward our long-term operating model.

One final comment on our software business. As previously discussed, we evaluated the health of our software business by combining software with a subscription and support revenue streams, which we view holistically as a software-related business. We like this view because subscription and support includes the software maintenance contract, as well as our reoccurring SaaS offering, such as Ease, and now Edge. Software plus subscription and support revenue combined for 34% in Q2 and represented 62% of our total revenue, up from 55% in the prior year.

We expect this mix to continue to increase over the long run, driven by demand for our core voice and messaging solution, Engage, and a new subscription-based software offerings of Ease and Edge. Our service business continues to add strong growth rate. Service revenue increased 19% year over year to $27.8 million with growth in both our subscription and support revenue as previously mentioned, and our professional services revenue had a healthy new customer deployment activity. Now turning to our combined backlog and deferred revenue balance, due to the strong bookings in the first half of the year and the contributions of our two most recent acquisitions, Ease and PatientSafe, we have significantly grown our backlog in deferred revenue.

At the end of Q2 our combined backlog and deferred revenue was $218 million, up $91 million or 71% versus last year. The acquisitions accounted for $34 million of the increase, and excluding this, our backlog and deferred revenue balance still grew an impressive 45% year over year. Now turning to something we highlighted last quarter, we have a higher proportion of multi-year subscription and support contracts and a growing number of larger multi-facility deployments that span more than one year. Our Ease and Edge solutions are subscriptions in nature and the majority of those contracts are multi-year agreements and will convert to revenue beyond 2021.

We view all this as positive for our business as our backlog and deferred revenue growth not only provides visibility into 2021 but also to 2022. I'd like to briefly go into more detail on non-GAAP gross margins and operating expenses. Non-GAAP gross margins in Q2 was 69%, representing a 300 basis-point improvement from last year. Our product gross margins increased more than 800 basis points from last year, primarily due to the increase of high-margin software revenue in the quarter.

Our device and services gross margin continue to be very healthy and consistent with historical levels. Non-GAAP operating expenses increased to $31.2 million, mostly due to expenses related to our recent acquisitions and our investments for growth. Now I would like to comment briefly on our profitability. Our adjusted EBITDA in Q2 was $8.6 million and was up 49% from last year.

As a percentage of revenue, adjusted EBITDA was 15% in the second quarter, which increased from 12% in the prior year. The growth in our software business along with our continued focus on driving operating leverage has resulted in expanded profitability which highlights our strong business model. Our GAAP net loss for the quarter was $2.3 million, also better than last year. Transitioning now to the balance sheet.

We ended the quarter with approximately $292 million in cash and short-term investments, up roughly $58 million from this time last year. The year-over-year growth in cash can be attributed to our most recent strengthening of our capital structure and cash generated from operations, partially offset by our two recent strategic acquisitions. Now let me turn to guidance. On the strength of a great first half of the year in both bookings and revenue, we are on track to deliver strong revenue growth for the full year.

Our substantial backlog in deferred revenue provides short-term revenue visibility along with enhanced line of sight to 2022. As previously discussed, the long-term revenue visibility comes from large enterprise bookings that are deployed over multiple years, and also our growing subscription and support business. As a result and for the second quarter in a row, we are increasing our annual revenue guidance. In doing so, we have applied our usual historical backlog conversion and visible revenue rollout methodology and we are raising both the top and bottom of the guidance range by $3 million.

The new revenue guidance range is now $221 million to $231 million. Turning toward profitability. We're also raising the top and bottom of our adjusted EBITDA guidance range by $3 million. We now expect adjusted EBITDA in 2021 to be in the range of $29 million to $34 million, reflecting the impact of the greater top-line revenue expectations and the software-rich backlog mix.

The rest of our GAAP and non-GAAP guidance can be found in our press release. In closing, we are extremely pleased with the overall business momentum and financial results in the second quarter, capping off an outstanding first half of the year and leading through our new guidance range. Our solutions are rising in priority, and our recent acquisitions are adding to our strong product portfolio and enriching our software offerings. Thank you for your time.

And now I will turn the call back to Brent.

Brent Lang -- Chief Executive Officer

Thanks, Steve. Before opening up the call for questions, I want to conclude by thanking the entire Vocera team which continues to execute well as we navigate the stage of the pandemic in a remote working environment. Our mission has never been more relevant than it is now. And I'm very proud of how our people have risen to the challenge of this difficult time.

Our business is performing well and the results we delivered are evidence that our solution is valuable and in high demand. Our teams execute well in Q2 winning impressive bookings accelerating our revenue growth and making important strategic moves with the creation of the CEO Coalition and the introduction of Vocera Edge. In selling our solution, we are leading with software, and the results show the power of our platform. We have a large market opportunity, a highly differentiated solution, and a finely tuned selling engine generating robust demand for our unique solution.

With that, we are ready to conclude our formal remarks. Thank you for listening today. Operator. we're ready to open the line for questions.

Thank you very much.

Questions & Answers:

Operator

[Operator instructions] Our first question today comes from Sean Dodge from RBC Capital Markets. Sean, your line is now open.

Sean Dodge -- RBC Capital Markets -- Analyst

Great. Thanks, and congratulations on another great quarter. Brent, you touched on it a bit, but if we take all of your and Steve's comments around the healthy market demand, the recent large deal you signed with the quarter stretched into 2020. The 45% growth in backlog and deferred revenue, when you exclude the acquisition.

Help us translate that a little bit more precisely into the visibility you have now on growth in the next year. It certainly feels like you're sitting in a much better position now at this point in the year than you have historically. I guess how do you feel about visibility on sustaining mid-teens or better going into next year?

Brent Lang -- Chief Executive Officer

Yes, Sean, I'll start, and then Steve can chime in here as well. But I think we feel like where we sit right now -- it's the mid-year this year that we've got better visibility into future years than we've had in the past. And I think that's representative of the changing nature of our business. The increase in subscription and maintenance revenue, as well as the increase in the large deals that get deployed over an extended period of time, both of those provide visibility into the future.

For the rest of this year, we're using very similar methodologies for determining our guidance, but I would say that sitting here mid-year, we're feeling really good about next year.

Steven Anheier -- Chief Financial Officer

Yes, I'll just add to that. The key drivers as you mentioned are very healthy. The bookings, the backlog, the deferred revenue, which put us in a great position for 2021. And as Brent mentioned, we use a very historical conversion rate when thinking through our 2021 guidance which now the top end is 16%, which we obviously aim to be at or be.

As far as 2022, as Brent mentioned, we do have increased visibility at this time this year versus prior years. I would say Q3 and Q4 will also be very important as we head into 2022, and we'll provide the appropriate guidance at the time. But absolutely, these large enterprise bookings that are having multiple quarters to deploy are multi-year maintenance and subscription has given us enhanced visibility into 2022.

Sean Dodge -- RBC Capital Markets -- Analyst

Okay, great. Thank you again.

Operator

Our next question comes from Scott Schoenhaus from Stephens. Scott, please go ahead.

Scott Schoenhaus -- Stephens Inc. -- Analyst

Hey, Brent, Steve, and Sue, can you hear me OK? 

Sue Dooley -- Investor Relations

Yes, we can.

Brent Lang -- Chief Executive Officer

Yes. Hey, Scott.

Steven Anheier -- Chief Financial Officer

Hey, Scott.

Scott Schoenhaus -- Stephens Inc. -- Analyst

Hey. Brent, I think you mentioned in your prepared comments that you're seeing -- you saw revenue -- you saw strength in your software revenue due to new systems deployments in the quarter. Can you just talk about which software platforms drove this growth? And was the growth mostly from new customers, or was it cross-selling and up-selling to current customers.

Brent Lang -- Chief Executive Officer

Yeah. Scott, so in terms of the product mix, most of the software growth was driven by our core communication collaboration platform both the voice and messaging piece, as well as the Engage piece. We had a particularly strong quarter with Engage, that's continuing to accelerate as an important part of our business. I think I mentioned last quarter that we're seeing more deals that are actually being led by Engage where the strategic driver behind the deal is Engage portion with clinical workflow, and then the communication piece is coming along with that.

So Engage played a really important role at this stage. Edge and these are relatively small pieces that didn't play a huge role in the quarter but it was more our core communications piece. And then the second part of your question, I forget. What was the second part of your question? The deal size.

Yeah. So it was a mix actually. We had really strong new customer deployments but we also had some great expansions. It's a little bit counterintuitive but even as a bookings province technically is an expansion because they are an existing customer.

And so it's a little bit hard to differentiate between the two in terms of what technically falls in one bucket versus another. But we are continuing to see really good strength both with expansions among existing customers, as well as new customer wins. We added a very large number of new hospitals with new bookings this quarter. And obviously, on the revenue side, the service team was doing deployments with both new and existing so it's across the board.

Scott Schoenhaus -- Stephens Inc. -- Analyst

Great. Thank you. Congrats on the fantastic quarter guys.

Brent Lang -- Chief Executive Officer

Thanks.

Steven Anheier -- Chief Financial Officer

Thanks, Scott. 

Operator

Our next question comes from Ryan Daniels from William Blair. Ryan, your line is open.

Ryan Daniels -- William Blair & Company-- Analyst

Thank you for taking the question and I'll add my congratulations on the quarter as well. Brent, maybe one for you. It seemed like in your prepared comments, you were highlighting renewals a lot more. I'm talking about long-term renewals with the clients.

I know you've always had a very high renewal rate in the mid 90% range or so. So is there anything unique that got you to specifically call that out maybe in terms of the renewals, or length, or just ease of which they're becoming accomplished?

Brent Lang -- Chief Executive Officer

Thanks, yeah. Hey, Ryan. So I would say that the renewal success rate has remained really really high. So really no change there.

But we are seeing an increase in the number of customers who are interested in signing up for multi-year maintenance renewals. Historically in the business, the vast majority of the main renewals were done on an annualized basis, and so they would sign a new contract each year with the corresponding new price plans. What we're seeing a little bit more of now is customers who basically want to go ahead and issue the booking for let's say a three-year maintenance renewal as opposed to a one-year maintenance renewal. That obviously provides additional visibility into the longer-term revenue because we're able to sort of map that out into our financial plans.

Ryan Daniels -- William Blair & Company-- Analyst

Perfect. And one if I could squeeze in, does that enable your sales force then to maybe focus on other things in the out years, such as new client, ads, or expansions because they don't have to go back for those maintenance renewals. So there's another benefit there, too. Thanks.

Brent Lang -- Chief Executive Officer

A little bit. I mean we have a dedicated team that manages the majority of the maintenance renewals so it's a different selling exercise. They do a phenomenal job of building relationships with the existing customers, and it's very much of a mechanical automated I should say repeatable process. And so what that allows us to do is actually focus more time on customer interaction and customer success management, less time on working on those maintenance renewals.

But it is a slightly different team of people than the ones that are going out driving new customer sales and an expansion.

Ryan Daniels -- William Blair & Company-- Analyst

Great. Thank you.

Operator

Our next question comes from David Larsen of BTIG. David, please go ahead.

David Larsen -- BTIG -- Analyst

Hi. Congratulations on a very good quarter and the continued momentum of the overall business. Can you maybe just talk a little bit more about Edge and PatientSafe. I just remember it like years ago, PatientSafe solutions, there was actually like a baton that nurses and doctors would sort of hand off between each other to sort of ensure that there were no gaps in care.

Can you maybe just talk about the actual product itself, what it does, and the unique sort of value add from the hospital's point of view with Edge? Thanks.

Brent Lang -- Chief Executive Officer

Yeah. Thanks, David. So I think you're referring to the early fundings of the company. Over the last several years, they had pivoted to be primarily focused on the clinical communication and collaboration space.

So there's no longer any hardware components of their business. It's a cloud-based smartphone app. It's really focused on clinical communication and deep integration into the electronic health record. They do continue to do some administration work and there's two workflows that involve barcode scanning, but it's entirely leveraging the camera.

It's part of an iPhone or other smartphone device. And because it's cloud-based, it provides reduced administration levels and more flexibility, even to move to sites that might not have the same level of IT resources. And part of the strategy of PatientSafe was applying before we acquired them was to create a solution that was very complementary to the work that the electronic health records were doing. So customers that have already made a big investment in one of the mobile apps from one of the HR.

companies can still get a tremendous amount of value by pairing that with what we're now referring to as the Edge solution. It sort of leverages -- for example, the texting functionality might be built into the HR app by adding more of the clinical workflow capabilities, some of the voice capabilities, some of the clinical integrations, event-driven integrations. And so it's more of a complementary piece that plays alongside those customers that have already decided they're fairly committed to using the HR mobile applications. But that was a pivot that the company did probably three or four years ago, and they had just begun rolling out this new solution over the last year or so once they put the engineering work into it.

And so by the time we made the acquisition, it was 100% software business sold on a subscription basis.

David Larsen -- BTIG -- Analyst

Great, thanks very much. Then just one quick follow-up, if I can. Can you talk a bit about Kaiser? Was Kaiser already a client or not? What region of Kaiser did you actually win and what did they buy it seems like they would be a very substantial client. 

Brent Lang -- Chief Executive Officer

Yeah, they are a very substantial client, David. We've had them as a customer both on the Engage side, as well as on the voice and messaging side, as well as the badges for a number of years. They continue to expand a little bit region by region in different timeframes. And what this was in Q2 was another large expansion order that included new groups of users in different facilities pretty much across various regions within Kaiser.

David Larsen -- BTIG -- Analyst

Great. Thanks so much. Congrats again.

Brent Lang -- Chief Executive Officer

Thank you, David. 

Operator

Our next question comes from Meta Marshall from Morgan Stanley. Please go ahead. Your line is now open.

Karan Juvekar -- Morgan Stanley -- Analyst

Hi. This is Karan Juvekar on for Meta. Thanks for the question and congrats on the great quarter. I guess just digging into the software versus device revenue and the upside there, I guess is the difference in upside -- is it partly because of customer selection differences for example customers electing to have the platform as a Smartbadge on their phone or something like that with the customer preference.

I guess just triangulating the upside there or the difference in upside between software revenue and device revenue would be helpful.

Steven Anheier -- Chief Financial Officer

Yeah. Great question. The first thing I'd say is as we're starting to see more large enterprisewide bookings, like the Providence booking that Brent mentioned which is the largest booking in the company's history, we are seeing higher percentage or proportion of the deals being software. For instance, that booking had a really strong Engage element component to it.

It did also have a Smartbadge. But you know we really want to be device agnostic. And whether it's on the smartphone or the badge and just really give the customer a full suite of options. But what I'd say is software is our fastest-growing segment.

It grew 76% in Q2. And we look at our backlog, it's also healthy and the fastest growing segment in our backlog. So one of the key themes to this quarter was just the strength, all around from bookings to backlogs to revenue and our software business. And what we're hearing from our sales force is a lot of these deals are being led by the software now.

Karan Juvekar -- Morgan Stanley -- Analyst

Got it. That's very helpful. Thank you very much.

Operator

Our next question comes from Iris Long from Berenberg. Please go ahead. Your line is now open 

Iris Long -- Berenberg Capital Markets -- Analyst

Hi, good afternoon, team. Thanks for taking my question. So I guess I have a follow-up on the bookings number. It is quite strong at 9% organic growth over Q1.

I'm just wondering given that this number now includes the impact from the acquisitions from roughly what's the current bookings versus non-current. And then, I'm also wondering what portion of that bookings that's related to software. I know, Steve, that you kind of called out that software bookings were very strong. I'm just wondering if you can kind of help us to quantify that what portion is related to software.

Steven Anheier -- Chief Financial Officer

Yeah. Hi, Iris. So what we can say is if maybe we take a step back and just think about the key drivers of our business and we just have excellent momentum in bookings, backlog, revenue, and just showing that the priority of our solution is elevating. Now getting specifically to your question, our total backlog in revenue which we report was $218 million 71% year-over-year growth.

When we take our the two acquisitions which is Ease and PatientSafe, over the last 12 months, it's 45% growth so still very healthy. We don't go in to our split of our backlog what software first what's hardware what we can say is and what we said on the script is that our software backlog is at a record high. And while that's very important, it's not only do we have really strong software revenue in the first half of the year, but our bookings replenish that revenue in backlog and then even added to it to create a new high watermark for us. So hopefully that's helpful context.

Iris Long -- Berenberg Capital Markets -- Analyst

Yup.

Brent Lang -- Chief Executive Officer

The only thing that I would add is that you asked specifically about the acquired products and the magnitude of the software bookings from the acquired products was not substantial during the quarter. Most of the bookings was driven by our existing businesses.

Iris Long -- Berenberg Capital Markets -- Analyst

Got it. That's very helpful. Just a very quick follow-up. So for Ease, can the patients take those skills? Are those typically within a year? What's the contract length like?

Steven Anheier -- Chief Financial Officer

Yeah, that's a good question. Those contracts really vary. We've seen them from one to five years. But a typical contract you'll see is three to five years is the time.

And so that was one of the key points that we wanted to make sure was clear in the script that this backlog being added from our subscription business, or the two acquisitions has a longer time to roll out but we look at that as a very positive as it gives us more visibility and predictability into 2022 and beyond revenue.

Iris Long -- Berenberg Capital Markets -- Analyst

Great. Thank you.

Operator

Our next question comes from Matt Hewitt from Craig-Hallum Capital. Matt, please go ahead.

Matthew Hewitt -- Craig-Hallum Capital Group -- Analyst

Good afternoon. I'll echo everybody else and just say congratulations on a really strong quarter. The question for me is regarding the PatientSafe business. You recently added some smaller customers through that acquisition.

Have you seen any early signs of success cross-selling that in your installed base. Thank you.

Brent Lang -- Chief Executive Officer

Hey, Matt. Thanks for the question. So I would say that we're in the early days here, we only closed the transaction in May. So it's still pretty early.

What I would say is that as our sales organization has gone out and talked to our customer base and prospects, we've gotten very favorable reviews. They're excited about the new functionality. They're interested in exploring the cloud option here. Many of them are evaluating the role that smartphones are going to play and also the role that EHR software is going to play.

And so I think in general, we got very positive responses. The sales cycle for these products is in the 9 to 12, 18-month timeframe. So I think it's too early to know how it's going to translate to new bookings. We're going to have to do the work in to build a pipeline and close those deals ones with his budget approvals.

But I would say that the early returns based on you know the original outreach has been quite positive.

Matthew Hewitt -- Craig-Hallum Capital Group -- Analyst

Got it. Thank you.

Operator

Our next question comes from Michael Polark from Baird. Michael, please go ahead.

Michael Polark -- Baird -- Analyst

Hey, good evening. Two quick ones if I can perhaps for Steve. Can you quantify, Steve, just the contribution from the two acquisitions to revenue in the quarter. Kind of to give us a flavor for what the organic growth rate was.

That's number one. And the number two zooming out you know winning a lot of business here multi-year implementation cycles. Brent I'd be curious just for your assessment of your services organization. Do you expect to have to add resources here over the next six to 18 months or some of these bigger multi-state deals start to roll out?

Steven Anheier -- Chief Financial Officer

Yeah, Michael thanks. Good question. So from the acquisition, I characterize it as still very modest from a revenue increase. We when we acquired PatientSafe back last quarter we said they'd have a 3 million full-year revenue impact and we're still tracking to that number.

So very modest for the quarter and some are with Ease. However, you can see in the backlog that they did had approximately combined 34 million of backlog. So we see future growth in both Ease and PatientSafe because of their size and will be in the cloud. They'll be in the subscription and support line in our revenue stream.

For the quarter, that line grew 19% year over year. So it had a very healthy growth rate and we continue to see and believe that we'll be one of our fastest-growing revenue segments. But specifically to the quarter, a very modest impact from Ease and PatientSense. We see it more of a longer-term play.

Brent Lang -- Chief Executive Officer

And Michael, to your second question about the services organization. We do anticipate needing to continue to grow those organizations. We are investing in customer success by bringing on more professional services resources. One thing though I would highlight is that the pandemic has really given us the opportunities to innovate in terms of how we deliver professional services, both onsite and remotely, and we've invested in online tools that we can use to leverage, to reduce the amount of travel and onsite.

Work that needs to be done. So I would say that our overall level of efficiency has also gone up. But given our current utilization rate of the professional services team, we do anticipate adding additional headcount within those groups just in order to support the growth. So it's an investment in our future.

Steven Anheier -- Chief Financial Officer

Yeah, and Michael, if you look at the service margins, they remain very healthy, hopefully was a bright spot that -- the same community is ticked up. Our overall gross margin growth in the quarter was strong driven by software.

Michael Polark -- Baird -- Analyst

Fair to say that investments are considered in the second half of the year in the guidance.

Brent Lang -- Chief Executive Officer

For sure, yeah. 

Steven Anheier -- Chief Financial Officer

Yeah, absolutely. 

Michael Polark -- Baird -- Analyst

OK. Thank you so much

Operator

Our next question comes from Stephanie Davis from SVB Leerink. Stephanie, please go ahead.

Stephanie Davis -- SVB Leerink -- Analyst

Hey, guys. Congrats in the quarter, and thank you for taking my question. I was hoping we could explore the Edge platform a little bit more and some of the use cases that are in development. Should we be thinking about this more as a platform for physician-facing tools? And where do you draw the line around things that fits into the physician-facing, Vocera sphere of influence, as opposed to something you'd rather keep off the platform? 

Brent Lang -- Chief Executive Officer

You broke up a little bit, Stephanie, so I'll try to address the question, and then maybe you can clarify if I don't address the point you're getting after. The primary use cases for Edge platform are focused on acute care facilities, similar to the way the traditional Vocera platform is. The bulk of their customer base there is acute care facilities. Although the workflows within those acute care facilities are more geared toward physicians who are onsite within those facilities.

We also think based on the cloud nature of the product that there is an opportunity to extend out to ambulatory and physician practices and you know areas outside the acute care environments. And the integration with the HR makes it ideal for some of those workflows and dynamics as well. Does that answer your question?

Stephanie Davis -- SVB Leerink -- Analyst

It was helpful, but what I'm trying to get at is that it helps with the workflows, but there's also gets you when to kind of a broader physician base you historically have. So would you then want to branch out and to some other areas of software that are more physician facing, which has physician support, stuff like that.

Brent Lang -- Chief Executive Officer

Yeah, I mean I think worth a stage of our company's growth where we're looking for opportunities to expand our TAM. We do that both organically and inorganically and in many of the opportunities we're looking at for M&A would add new TAM opportunities for us. And some of the new products we're introducing. You know if you think about the Alexa skill that we talked about earlier this year some of the analytics work that we're doing with new insights capabilities.

These are expanding into new areas that we haven't traditionally been in. And the reality is we've got an incredible platform reach where we've literally gone millions of end-users caring and wearing of Vocera device and being able to use either the screen or the voices or face to access not just other people but data and information and clinical results, and we see this as an opportunity to grow over time to add a tremendous amount of new use cases to our platform and. 

Stephanie Davis -- SVB Leerink -- Analyst

And so thinking about -- because you mentioned M&A first.  Is this more of a buy strategy as opposed to a build, or what will be a balance of both?

Brent Lang -- Chief Executive Officer

It's both. I think we look at every opportunity build-buy-partner mindset. In some cases, we end up partnering with third-party solutions and integrate them. In some cases, we build them internally.

And in some cases, you know we decided that best course of action is to actually make an acquisition. But it really depends on a lot of factors related to market opportunity and the available competitive landscape and that kind of thing.

Steven Anheier -- Chief Financial Officer

Yeah. And Stephanie, to ad to that, our balance sheet is even stronger this year than last year at this time, even after the two-hour acquisition. this has been scrapped after the convertible note race and so we have about $58 million more cash than we did last year which just gives us a lot of flexibility for the inorganic or organic growth rates in path we can take.

Stephanie Davis -- SVB Leerink -- Analyst

Helpful, thank you, guys.

Operator

Our next question comes from David Windley from Jefferies. David, please go ahead.

David Windley -- Jefferies -- Analyst

Hi, thanks. Good afternoon. Thanks for taking my questions. Steve, you mentioned the importance of third and fourth quarter as it relates to kind of building the outlook for '22.

And you've also both emphasized that the Conversion software in the first half but yet still record high backlog. How does the pipeline look behind that? How is that building? Is that also replenishing? And maybe specifically, within that how does the government pipeline looking as we sit here in the third quarter which is typically strong for the government? Thanks.

Steven Anheier -- Chief Financial Officer

The only thinking ]you did pick up on that correctly. The third and fourth quarter are always important entering the next year. I think not to miss record record backlog and deferred revenue as we said, gives this great visibility to 2021, which led to our guidance raise and the 16% top of the end growth. But as we've said, it does give us more visibility at this time into 2022.

So we look to improve on that in Q3 and Q4, but we like where we sit right now for that. As far as the pipeline, it's something we monitor very closely. and we continue to see growth in our pipeline. And you know we look for in many ways to look at our pipeline how it rolls out, the probability, but we really see broad-based strength and the government specifically as you know is usually a really strong Q3 we think we'll have you know another good second half of the year we watch that closely it can come down to the last week.

So we don't want to make any concrete statements but we continue to feel really good that we could take a step back on the government and just the long-term opportunity to continue to land and expand and grow almost becoming the de facto standard feels fire.

Brent Lang -- Chief Executive Officer

The only thing I would add on the pipeline is continuing to see that trend toward larger enterprisewide deals, the portion of the type of pipeline that is tied to the larger deals is definitely increasing and that's a trend we've seen developing over the last several years, and we're definitely seeing that continue to transition. 

David Windley -- Jefferies -- Analyst

Thanks for that. In regard to sales activity and sales cycle, we're in a different place than we were more than a year ago when the pandemic first hit. But some increase in infection rates and things, like that fortunately maybe not as much hospitalization. I'm just I'm getting that.

Is there any impact at all in your ability to kind of maintain the attention of your client or prospective client counterparts as we progressed to second half.

Brent Lang -- Chief Executive Officer

I think we remain very much of a top priority. I think the increased focus as I mentioned in my prepared remarks around safety in healthcare and reducing burnout among the nurses is continuing to be a really important aspect. The other thing that I would say is that while there's a lot of distraction and obviously a lot of things going on in these hospital environments we are seeing somewhat of a reduction in the level of bureaucratic decision-making processes. I think hospitals are recognizing that they need to streamline their own operations.

And we've seen situations where once they've been able to identify the funding the decision-making process is maybe even a little quicker than it has been historically. And I don't know if that's a result of just them wanting to make sure that they're keeping as much of their resource available to, focus on the pandemic and other health directly related issues and therefore streamlining the overall. 

David Windley -- Jefferies -- Analyst

That's interesting. Thanks. And then, Brent, you had mentioned in the past I think more kind of a beta stage, but some attention and focus and investment in analytics as a product. Any update on that?

Brent Lang -- Chief Executive Officer

Yeah, it's progressing nicely word. We're learning a lot from the beta. This is obviously a new area for us. But I think it's an area we'll continue to see more and more focus from the silver over the coming quarters.

David Windley -- Jefferies -- Analyst

Very good. Thank you. 

Operator

Our next question comes from Jessica Tassan from Piper Sandler. Jessica, please go ahead.

Jessica Tassan -- Piper Sandler -- Analyst

Hi. Thank you for taking the question. So I think you guys facilitated some emergency deployments during COVID. We're interested to know to the extent that those deployments are outside of your installed base, kind of how are they converting to permanent contracts, and have you sort of turned over every stone? Or do you have a significant amount of backlog of those emergency deployments with whom you've yet to engage? And just then any color maybe on the conversion rate you've experienced to date would be helpful.

Thank you.

Brent Lang -- Chief Executive Officer

Hey, Jess. So I think you know in general the way to think about this is the temporary license keys which I think is what you're referring to that we started issuing in Q2 and Q3 of last year have all this point either been converted or have had expired. So if it's not there's no really additional overhang there. We've seen no benefits from customers who saw the value of our solution, and once funding did become available we hadn't made those conversions.

But that was probably toward the end of last year which really hasn't been a dynamic this year. I think the dynamic this year has been more around focusing on what they can do to reduce the level of stress and intention for the nurses. How can I free up more time for them? And how can they make them safer to be able to deliver frontline care? But the emergency deployment dynamic is largely in the rearview mirror at this point.

Steven Anheier -- Chief Financial Officer

Yeah, that is a good question. Most of that was deployed by Q2 and expired in Q3. I would say the broader highlight would be that just the priority of our solution seems to be elevating and we're really seeing that come through our financial results. So maybe a broader just enhanced need for clinical communication collaboration along with the battery-free -- or the hands-free device.

Jessica Tassan -- Piper Sandler -- Analyst

Got it. That's helpful. And if I could just follow up with them, do you have any engagement metrics on the Engage for iPhone app. Maybe what percent of clinicians with access have downloaded and then what percent didn't and how often.

I think.

Brent Lang -- Chief Executive Officer

I don't know that we have any statistics specifically around that. As I mentioned earlier, Engage is becoming much more important part of the overall sales process. If you roll the clock back several years, the typical sales pattern would be that the customer would buy the communications aspect, voice and messaging first, and then they would think about clinical integration almost as an afterthought, maybe at a subsequent appointment. What we're seeing in the marketplace today is that many of these large strategic deals are actually being driven through Engage with the clinical workflow aspect being the strategic driver as a way of reducing cognitive overload and clinician burnout, and then the communication piece is kind of bundled in with that.

We obviously can see utilization within our customer base, but I don't know specifically about your question as it relates to the app. 

Operator

Our next question comes from Gene Mannheimer from Colliers Securities. Gene, please go ahead.

Gene Mannheimer -- Colliers Securities -- Analyst

Thanks. Good afternoon, and congrats on a great quarter and first half. My question I think relates to the last one and you talked guys about how device revenue was was down year over year. I think about 5% due to that tough comp that was COVID related.

So the question is how much of those emergency deployments were in last year's quarter. If you could quantify that that would help us get more of an apples-to-apples comparison on device sales. Thank you.

Steven Anheier -- Chief Financial Officer

Yeah, Gene, hopefully, we can get some color around there. As what you said, device revenue was down in the quarter on a very tough compare. On the first half of the year basis, however, it is up year over year and still represents approximately 30% of our total revenue, so still significant. The thing I can give you is that the device backlog is up significantly year over year, so that bodes well for the second half of this year.

But we didn't break out specifically last year the device for COVID versus non-COVID. But hopefully, those other metrics are helpful.

Gene Mannheimer -- Colliers Securities -- Analyst

That's great. Thank you.

Operator

Thank you, ladies and gentlemen, for all of your questions. We currently have no further questions registered. I will now hand it back to Mr. Lang to conclude today's conference.

Brent Lang -- Chief Executive Officer

OK. Thanks, everybody, for your time today. We really appreciate it. We look forward to following up to answer any additional questions you might have.

Have a great day.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Sue Dooley -- Investor Relations

Brent Lang -- Chief Executive Officer

Steven Anheier -- Chief Financial Officer

Sean Dodge -- RBC Capital Markets -- Analyst

Scott Schoenhaus -- Stephens Inc. -- Analyst

Ryan Daniels -- William Blair & Company-- Analyst

David Larsen -- BTIG -- Analyst

Karan Juvekar -- Morgan Stanley -- Analyst

Iris Long -- Berenberg Capital Markets -- Analyst

Matthew Hewitt -- Craig-Hallum Capital Group -- Analyst

Michael Polark -- Baird -- Analyst

Stephanie Davis -- SVB Leerink -- Analyst

David Windley -- Jefferies -- Analyst

Jessica Tassan -- Piper Sandler -- Analyst

Gene Mannheimer -- Colliers Securities -- Analyst

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