Company Quick10K Filing
Quick10K
Vocera Communications
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$23.06 31 $718
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-25 Earnings, Exhibits
8-K 2019-05-31 Officers, Shareholder Vote
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-04-08 Officers, Other Events
8-K 2019-02-07 Earnings, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-07-25 Earnings, Officers, Exhibits
8-K 2018-06-01 Officers, Shareholder Vote, Exhibits
8-K 2018-05-14 Enter Agreement, Off-BS Arrangement, Sale of Shares, Other Events, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-02-08 Earnings, Exhibits
BT BT Group 98,385
S Sprint 27,899
VEON VEON 4,515
LITE Lumentum Holdings 4,181
I Intelsat 2,774
ESE ESCO 1,947
GTT GTT Communications 517
GOGO Gogo 349
HEAR Turtle Beach 127
MARK Remark Holdings 36
VCRA 2019-06-30
Part I: Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.01 vcra6302019-ex3101.htm
EX-31.02 vcra6302019-ex3102.htm
EX-32.01 vcra6302019-ex3201.htm

Vocera Communications Earnings 2019-06-30

VCRA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from              to
Commission File Number: 001-35469

VOCERA COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
94-3354663
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
Vocera Communications, Inc.
525 Race Street
San Jose, CA 95126
(408) 882-5100
(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
(Title of class)
(Trading Symbol)
(Name of exchange on which registered)
Common Stock, $0.0003 par value
VCRA
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding as of August 1, 2019
Common Stock, $0.0003 par value per share
 
31,460,653



Table of Contents

VOCERA COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
INDEX
PART I: FINANCIAL INFORMATION
 
 
Page No.
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
PART II: OTHER INFORMATION
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


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Table of Contents

PART I: FINANCIAL INFORMATION

Item 1.
Financial Statements (Unaudited)
Vocera Communications, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Par Amounts)
(Unaudited)
 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
44,901

 
$
34,276

Short-term investments
170,487

 
186,894

Accounts receivable, net of allowance
29,702

 
40,127

Other receivables
5,578

 
4,148

Inventories
5,184

 
4,350

Prepaid expenses and other current assets
4,938

 
4,691

Total current assets
260,790

 
274,486

Property and equipment, net
7,422

 
7,468

Intangible assets, net
7,038

 
9,070

Goodwill
49,246

 
49,246

Deferred commissions
9,918

 
10,303

Other long-term assets
7,189

 
1,525

Total assets
$
341,603

 
$
352,098

Liabilities and stockholders' equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
3,378

 
$
4,217

Accrued payroll and other current liabilities
12,902

 
12,885

Deferred revenue, current
42,303

 
44,053

Total current liabilities
58,583

 
61,155

Deferred revenue, long-term
10,302

 
14,579

Convertible senior notes, net
113,759

 
110,540

Other long-term liabilities
6,479

 
2,957

Total liabilities
189,123

 
189,231

Commitments and contingencies (Note 9)

 

Stockholders' equity
 
 
 
Preferred stock, $0.0003 par value - 5,000,000 shares authorized as of June 30, 2019 and December 31, 2018; zero shares issued and outstanding

 

Common stock, $0.0003 par value - 100,000,000 shares authorized as of June 30, 2019 and December 31, 2018; 31,424,885 and 30,708,138 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
9

 
9

Additional paid-in capital
301,133

 
295,647

Accumulated other comprehensive income (loss)
276

 
(443
)
Accumulated deficit
(148,938
)
 
(132,346
)
Total stockholders’ equity
152,480

 
162,867

Total liabilities and stockholders’ equity
$
341,603

 
$
352,098

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Vocera Communications, Inc.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)

Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
Product
$
23,132

 
$
21,824

 
$
37,135

 
$
42,911

Service
21,627

 
20,862

 
42,933

 
40,017

Total revenue
44,759

 
42,686

 
80,068

 
82,928

Cost of revenue
 
 
 
 
 
 
 
Product
6,912

 
6,683

 
12,246

 
13,028

Service
10,831

 
10,352

 
21,121

 
20,348

Total cost of revenue
17,743

 
17,035

 
33,367

 
33,376

Gross profit
27,016

 
25,651

 
46,701

 
49,552

Operating expenses
 
 
 
 
 
 
 
Research and development
8,943

 
7,323

 
17,089

 
14,637

Sales and marketing
15,478

 
15,266

 
31,497

 
30,288

General and administrative
6,535

 
6,176

 
13,115

 
12,535

Total operating expenses
30,956

 
28,765

 
61,701

 
57,460

Loss from operations
(3,940
)
 
(3,114
)
 
(15,000
)
 
(7,908
)
Interest income
1,332

 
530

 
2,611

 
745

Interest expense
(2,170
)
 
(997
)
 
(4,291
)
 
(997
)
Other expense, net
(159
)
 
(528
)
 
(28
)
 
(807
)
Loss before income taxes
(4,937
)
 
(4,109
)
 
(16,708
)
 
(8,967
)
Benefit from income taxes
80

 
555

 
116

 
643

Net loss
$
(4,857
)
 
$
(3,554
)
 
$
(16,592
)
 
$
(8,324
)
 
 
 
 
 
 
 
 
Loss per share
 
 
 
 
 
 
 
     Basic
$
(0.16
)
 
$
(0.12
)
 
$
(0.53
)
 
$
(0.28
)
     Diluted
$
(0.16
)
 
$
(0.12
)
 
$
(0.53
)
 
$
(0.28
)
Weighted average shares used to compute net loss per share
 
 
 
 
 
 
 
     Basic
31,242

 
29,867

 
31,022

 
29,673

     Diluted
31,242

 
29,867

 
31,022

 
29,673



The accompanying notes are an integral part of these condensed consolidated financial statements.


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Vocera Communications, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(In Thousands)
(Unaudited)

 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(4,857
)
 
$
(3,554
)
 
$
(16,592
)
 
$
(8,324
)
Other comprehensive loss, net:
 
 
 
 
 
 
 
Change in unrealized gain (loss) on investments, net of tax
294

 
(119
)
 
719

 
(202
)
Comprehensive loss
$
(4,563
)
 
$
(3,673
)
 
$
(15,873
)
 
$
(8,526
)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Vocera Communications, Inc.
Consolidated Statements of Stockholders' Equity
(In Thousands, except share amounts)
(Unaudited)
 
Common stock
Additional
paid-in
capital
Accum. other
comprehensive
income (loss)
Accumulated
deficit
Total
stockholders’
equity
 
Shares
Amount
Balance at December 31, 2017
29,412,116

$
9

$
250,854

$
(191
)
$
(122,672
)
$
128,000

Exercise of stock options
59,527


958



958

RSUs released net of shares withheld for tax settlement
62,834


(987
)


(987
)
Employee stock-based compensation expense


4,587



4,587

Net loss




(4,770
)
(4,770
)
Other comprehensive loss



(83
)

(83
)
Balance at March 31, 2018
29,534,477

9

255,412

(274
)
(127,442
)
127,705

Exercise of stock options
56,683


1,004



1,004

RSUs released net of shares withheld for tax settlement
422,247


(6,932
)


(6,932
)
Common stock issued under employee stock purchase plan
78,563


1,625



1,625

Equity component of convertible senior notes, net


23,307



23,307

Employee stock-based compensation expense


5,396



5,396

Net loss




(3,554
)
(3,554
)
Other comprehensive loss



(119
)

(119
)
Balance at June 30, 2018
30,091,970

$
9

$
279,812

$
(393
)
$
(130,996
)
$
148,432

 
 
 
 
 
 
 
Balance at December 31, 2018
30,708,138

$
9

$
295,647

$
(443
)
$
(132,346
)
$
162,867

Exercise of stock options
122,376


1,564



1,564

RSUs released net of shares withheld for tax settlement
60,603


(1,271
)


(1,271
)
Employee stock-based compensation expense


5,544



5,544

Net loss




(11,735
)
(11,735
)
Other comprehensive gain



425


425

Balance at March 31, 2019
30,891,117

9

301,484

(18
)
(144,081
)
157,394

Exercise of stock options
37,239


527



527

RSUs released net of shares withheld for tax settlement
434,838


(8,796
)


(8,796
)
Common stock issued under employee stock purchase plan
61,691


1,809



1,809

Employee stock-based compensation expense


6,109



6,109

Net loss




(4,857
)
(4,857
)
Other comprehensive gain



294


294

Balance at June 30, 2019
31,424,885

$
9

$
301,133

$
276

$
(148,938
)
$
152,480



The accompanying notes are an integral part of these condensed consolidated financial statements


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Table of Contents

Vocera Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 
Six months ended June 30,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net loss
$
(16,592
)
 
$
(8,324
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
3,797

 
3,776

Change in lease-related performance obligations
(572
)
 
(568
)
Stock-based compensation expense
11,653

 
9,983

Amortization of debt discount and issuance costs
3,219

 
733

Other
151

 
24

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
10,425

 
1,621

Other receivables
(1,468
)
 
(187
)
Inventories
(834
)
 
(1,109
)
Prepaid expenses and other assets
(541
)
 
672

Deferred commissions
385

 
972

Accounts payable
(841
)
 
(184
)
Accrued payroll and other liabilities
(2,674
)
 
(4,256
)
Deferred revenue
(6,027
)
 
(1,742
)
Net cash provided by operating activities
81

 
1,411

Cash flows from investing activities
 
 
 
Purchase of property and equipment
(1,778
)
 
(1,929
)
Purchase of short-term investments
(43,384
)
 
(148,228
)
Maturities of short-term investments
61,228

 
21,707

Net cash provided by (used in) investing activities
16,066

 
(128,450
)
Cash flows from financing activities
 
 
 
Cash from lease-related performance obligations
645

 
89

Proceeds from issuance of convertible senior notes, net of issuance costs

 
139,058

Payment for purchase of capped calls

 
(8,907
)
Proceeds from issuance of common stock from the employee stock purchase plan
1,809

 
1,625

Proceeds from exercise of stock options
2,091

 
1,962

Tax withholdings paid on behalf of employees for net share settlement
(10,067
)
 
(8,034
)
Net cash provided by (used in) financing activities
(5,522
)
 
125,793

Net increase (decrease) in cash and cash equivalents
10,625

 
(1,246
)
Cash and cash equivalents at beginning of period
34,276

 
28,726

Cash and cash equivalents at end of period
$
44,901

 
$
27,480

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Costs related to the convertible senior notes in accounts payable and accrued liabilities
$

 
$
204

Property and equipment in accounts payable and accrued liabilities
$
117

 
$
909



The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

Notes to Unaudited Condensed Consolidated Financial Statements

1.
The Company and Summary of Significant Accounting Policies
Organization and Business
Vocera Communications, Inc. and its subsidiaries (collectively the “Company” or “Vocera”) is a provider of secure, integrated, intelligent communication and clinical workflow solutions, focused on empowering mobile workers in healthcare, hospitality, retail, energy and other mission-critical mobile work environments, in the United States and internationally. The significant majority of the Company’s business is generated from sales of its solutions in the healthcare market to help its customers improve quality of care, patient and staff experience and increase operational efficiency.
The Vocera communication and collaboration solution, includes: an intelligent enterprise software platform; a lightweight, wearable, voice-controlled communication badge; and smartphone applications. The solution enables users to connect instantly with other staff simply by saying the name, function or group name of the desired recipient. It also delivers HIPAA-compliant secure text messages, alerts and alarms directly to a range of smartphones both inside and outside the hospital, replacing legacy pagers and in-building wireless phones.
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission, and include the accounts of Vocera and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The year-end condensed balance sheet data was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s interim consolidated financial information. The results for the quarter presented are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other interim period or any other future year.
The accounting policies followed in the preparation of these financial statements are consistent in all material respects with those presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Use of Estimates
The preparation of the accompanying unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. The estimates include, but are not limited to, revenue recognition, warranty reserves, inventory reserves, goodwill and intangible assets, stock-based compensation expense, provisions for income taxes and contingencies. Actual results could differ from these estimates, and such differences could be material to the Company’s financial position and results of operations.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in other long-term assets, accrued payroll and other current liabilities and other long-term liabilities on the consolidated balance sheets. Sales-type leases are included in other receivables, accrued payroll and other current liabilities and other long-term liabilities on the consolidated balance sheets.  
The Company has elected an accounting policy to not recognize short-term leases (one year or less) on the consolidated balance sheet. The Company also elected the package of practical expedients which applies to leases that commenced before the adoption date. By electing the package of practical expedients, the Company did not need to reassess whether any existing contracts are or contained a lease or the lease classification for any existing leases.
Operating lease right of use assets and operating lease liabilities are recognized based on the present value of the lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of future payments. The operating lease right of use asset also includes any lease payments made and excludes lease incentives. Lease terms

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may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company accounts for lease components and nonlease components as a single lease component.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB amended lease accounting requirements to begin recording assets and liabilities arising from leases on the balance sheet. The new guidance requires significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. This new guidance was effective beginning on January 1, 2019 under a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply.
The Company elected the package of practical expedients permitted under the transition guidance within the new standard. The adoption of the standard resulted in recognition of right-of-use assets, which includes the impact of existing deferred rents and tenant improvement allowances of $5.1 million and lease liabilities of $6.7 million, respectively as of January 1, 2019. The standard did not affect our consolidated net earnings or cashflows.
In February 2018, the FASB issued new guidance which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and required certain disclosures about stranded tax effects. This standard was effective for the Company beginning January 1, 2019 and may be applied either in the period of adoption or retrospectively. Early adoption is permitted. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule was effective on November 5, 2018. The Company adopted this guidance in the first quarter of fiscal year 2019.
Recent Accounting Pronouncements
In June 2016, the FASB issued new guidance related to the accounting for credit losses on instruments for both financial services and non-financial services entities. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The guidance will be effective beginning January 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.
In January 2017, the FASB issued new guidance to simplify the accounting for goodwill impairment. The guidance simplifies the measurement of goodwill impairment by removing step 2 of the goodwill impairment test, which requires the determination of the fair value of individual assets and liabilities of a reporting unit.  The new guidance requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying value exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments should be applied on a prospective basis.  The new standard is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company is evaluating the impact of this new accounting guidance on its consolidated financial statements.

2.
Revenue, deferred revenue and deferred commissions
The Company utilizes a five-step approach to recognizing revenue which depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Identification of the contract, or contracts, with a customer - A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s

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historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer. Customer payments received by the Company are non-refundable.
Identification of the performance obligations in the contract - Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are capable of being both: a) functionally distinct, whereby the customer can benefit from the goods or service either on their own or together with other resources that are readily available from third parties or from the Company, and b) contractually distinct, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, the Company applies judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation.
Determination of the transaction price - The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer.
Allocation of the transaction price to the performance obligations in the contract - If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price, or SSP, basis. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
Recognition of revenue when, or as, the Company satisfies a performance obligation - The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.
Disaggregation of Revenue
A typical sales arrangement involves performance obligations, such as the sales of the Company’s proprietary communication Vocera Badge, perpetual software licenses, professional services, and maintenance and support services which entitle customers to unspecified upgrades, patch releases and telephone-based support. The following table depicts the disaggregation of revenue according to revenue type and is consistent with how the Company evaluates its financial performance:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Product revenue
 
 
 
 
 
 
 
Device
$
14,504

 
$
15,049

 
$
24,564

 
$
27,697

Software
8,628

 
6,775

 
12,571

 
15,214

Total product
23,132

 
21,824

 
37,135

 
42,911

 

 
 
 
 
 
 
Service revenue
 
 
 
 
 
 
 
Maintenance and support
16,928

 
15,505

 
33,321

 
29,470

Professional services and training
4,699

 
5,357

 
9,612

 
10,547

Total service
21,627

 
20,862

 
42,933

 
40,017

Total revenue
$
44,759

 
$
42,686

 
$
80,068

 
$
82,928


Device revenue - In transactions where the Company delivers hardware, the Company considers itself to be the principal in the transaction and records revenue and costs of goods sold on a gross basis. Hardware revenue is generally recognized upon transfer of control to the customer.
Software revenue - Revenue from the Company’s software products is generally recognized upon transfer of control to the customer.
Maintenance and support revenue - The Company generates maintenance and support revenue primarily from post contract support (PCS) contracts, and, to a lesser extent, from sales of extended warranties on the Vocera Badge. The majority of software sales are in conjunction with PCS contracts, which generally have one-year terms. The Company recognizes revenue from PCS contracts ratably over the contractual service period. The service period typically commences upon transfer of control of the

10

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corresponding software products to the customer. The Company recognizes revenue from extended warranty contracts ratably over their contractual service period, which is typically one year. This period starts one year from the date on which the transfer of control on the underlying hardware occurs because the hardware generally carries a one-year warranty.
Professional services and training revenue - Professional services and training revenue is generated when the Company installs and configures its software and devices at new or existing customer sites. The Company recognizes revenue related to professional services as they are performed.
Contracts with multiple performance obligations - Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis. For deliverables that are routinely sold separately, such as maintenance and support on the core offerings, the Company determines SSP by evaluating renewals over the trailing 12-months. For those that are not sold routinely, the Company determines SSP based on its overall pricing trends and objectives, taking into consideration market conditions and other factors, including the value of the contracts and the products sold.
Contract balances - The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable are recorded at the invoiced amount. A receivable is recognized in the period the Company delivers goods or provides services or when the right to consideration is unconditional. Payment terms on invoiced amounts are typically 30 days. The balance of accounts receivable, net of allowance for doubtful accounts, as of June 30, 2019 and December 31, 2018 is presented in the accompanying consolidated balance sheets. As of June 30, 2019 and December 31, 2018 contract assets totaling $3.4 million and $2.4 million, respectively, were included in prepaid and other current assets in the condensed consolidated balance sheets.

Costs to obtain and fulfill a contract - The Company capitalizes certain incremental contract acquisition costs consisting primarily of commissions paid and the related payroll taxes when customer contracts are signed. The Company determines whether costs should be deferred based on its sales compensation plans, if the commissions are incremental and would not have been incurred absent the execution of the customer contract. Sales commissions for renewals of customer contracts are not commensurate with the commissions paid for the acquisition of the initial contract given the substantive difference in commission rates in proportion to their respective contract values. Commissions paid upon the initial acquisition of a contract are amortized over the estimated period of benefit, which may exceed the term of the initial contract. Accordingly, amortization of deferred costs is recognized on a systematic basis that is consistent with the pattern of revenue recognition allocated to each performance obligation and is included in sales and marketing expense in the condensed consolidated statements of operations. The Company determines its estimated period of benefit by evaluating the expected renewals of its customer contracts, the duration of its relationships with its customers and other factors. Deferred costs are periodically reviewed for impairment. Changes in the balance of total deferred commissions (contract asset) during the three and six months ended June 30, 2019 are as follows:
(in thousands)
March 31, 2019
 
Additions
 
Commissions Recognized
 
June 30, 2019
Deferred commissions
$
10,322

 
$
1,674

 
$
(2,078
)
 
$
9,918


(in thousands)
December 31, 2018
 
Additions
 
Commissions Recognized
 
June 30, 2019
Deferred commissions
$
10,303

 
$
3,401

 
$
(3,786
)
 
$
9,918

Of the $9.9 million total deferred commissions balance as of June 30, 2019, the Company expects to recognize approximately 47% as commission expense over the next 12 months and the remainder thereafter.
Deferred revenue - The Company records deferred revenue when cash payments are received in advance of the performance under the contract. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the consolidated balance sheet date. Changes in the balance of total deferred revenue (contract liability) during the three and six months ended June 30, 2019 are as follows:

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(in thousands)
March 31, 2019
 
Additions
 
Revenue Recognized
 
June 30, 2019
Deferred revenue
$
52,945

 
$
18,264

 
$
(18,604
)
 
$
52,605


(in thousands)
December 31, 2018
 
Additions
 
Revenue Recognized
 
June 30, 2019
Deferred revenue
$
58,632

 
$
33,182

 
$
(39,209
)
 
$
52,605

Revenue recognized during the three and six months ended June 30, 2019 from deferred revenue balances at the beginning of the period was $17.0 million and $29.4 million, respectively. Revenue recognized during the three and six months ended June 30, 2018 from deferred revenue balances at the beginning of the period was $15.5 million and $27.1 million, respectively.
The majority of the Company’s “contracted but not recognized” performance obligations are not subject to cancellation terms. The Company’s “contracted but not recognized” revenue, which represents revenue allocated to performance obligations for revenue contracted, and which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenue in future periods, was $116.4 million as of June 30, 2019, of which the Company expects to recognize approximately 62% as revenue over the next 12 months and the remainder thereafter.

3.
Fair Value of Financial Instruments
The Company’s cash, cash equivalents and short-term investments are carried at their fair values with any differences from their amortized cost recorded in equity as unrealized gains (losses) on marketable securities. As a basis for determining the fair value of its assets and liabilities, the Company follows a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. During the six months ended June 30, 2019, there have been no transfers between Level 1 and Level 2 fair value instruments and no transfers in or out of Level 3.
The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The fair value of the Company’s Level 2 fixed income securities is obtained from independent pricing services, which may use quoted market prices for identical or comparable instruments or model-driven valuations using observable market data or other inputs, corroborated by observable market data. The Company does not have any financial instruments which are valued using Level 3 inputs.
In addition to its cash, cash equivalents and short-term investments, the Company measures the fair value of its Convertible Senior Notes on a quarterly basis for disclosure purposes. The Company considers the fair value of the Convertible Senior Notes at June 30, 2019 to be a Level 2 measurement due to limited trading activity of the Convertible Senior Notes. Refer to Note 8 to the consolidated financial statements for further information.

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The Company’s assets that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of June 30, 2019 and December 31, 2018, are summarized as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
 
Level 1

Level 2

Total

 
Level 1

Level 2

Total

Assets
 
 
 
 
 
 
 
Money market funds
$
3,630

$

$
3,630

 
$
3,737

$

$
3,737

Commercial paper

39,945

39,945

 

16,570

16,570

U.S. government agency securities

1,269

1,269

 

3,325

3,325

U.S. Treasury securities

240

240

 

2,730

2,730

Corporate debt securities

161,020

161,020

 

166,759

166,759

Total assets measured at fair value
$
3,630

$
202,474

$
206,104

 
$
3,737

$
189,384

$
193,121



4.
Cash, Cash Equivalents and Short-Term Investments
The following tables present cash, cash equivalents and short-term investments (in thousands) as of June 30, 2019 and December 31, 2018:
 
As of June 30, 2019
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair value
Cash and cash equivalents:
 
 
 
 
 
 
 
Demand deposits and other cash
$
9,284

 
$

 
$

 
$
9,284

Money market funds
3,630

 

 

 
3,630

Commercial paper
31,994

 

 
(7
)
 
31,987

Total cash and cash equivalents
44,908

 

 
(7
)
 
44,901

 
 
 
 
 
 
 
 
Short-Term Investments:
 
 
 
 
 
 
 
Commercial paper
7,950

 
8

 

 
7,958

U.S. government agency securities
1,270

 

 
(1
)
 
1,269

U.S. Treasury securities
240

 

 

 
240

Corporate debt securities
160,447

 
585

 
(12
)
 
161,020

Total short-term investments
169,907

 
593

 
(13
)
 
170,487

Total cash, cash equivalents and short-term investments
$
214,815

 
$
593

 
$
(20
)
 
$
215,388



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As of December 31, 2018
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair value
Cash and cash equivalents:
 
 
 
 
 
 
 
Demand deposits and other cash
$
28,049

 
$

 
$

 
$
28,049

Money market funds
3,737

 

 

 
3,737

Commercial paper
2,491

 

 
(1
)
 
2,490

Total cash and cash equivalents
34,277

 

 
(1
)
 
34,276

Short-Term Investments:
 
 
 
 
 
 
 
Commercial paper
14,091

 

 
(11
)
 
14,080

U.S. government agency securities
3,339

 

 
(14
)
 
3,325

U.S. Treasury securities
2,740

 

 
(10
)
 
2,730

Corporate debt securities
167,110

 
28

 
(379
)
 
166,759

Total short-term investments
187,280

 
28

 
(414
)
 
186,894

Total cash, cash equivalents and short-term investments
$
221,557

 
$
28

 
$
(415
)
 
$
221,170

 
 
 
 
 
 
 
 

The Company has determined that the unrealized losses on its short-term investments as of June 30, 2019 and December 31, 2018 do not constitute an “other than temporary impairment.” The unrealized losses for the short-term investments have all been in a continuous unrealized loss position for less than twelve months. The Company’s conclusion of no “other than temporary impairment” is based on the high credit quality of the securities, their short remaining maturity and the Company’s intent and ability to hold such loss securities until maturity.
Classification of the cash, cash equivalents and short-term investments by contractual maturity was as follows:
(in thousands)
One year or shorter

 
Between 1 and 2 years

 
Total

Balances as of June 30, 2019
 
 
 
 
 
Cash and cash equivalents (1)
$
44,901

 
$

 
$
44,901

Short-term investments
108,573

 
61,914

 
170,487

Cash, cash equivalents and short-term investments
$
153,474

 
$
61,914

 
$
215,388

 
 
 
 
 
 
Balances as of December 31, 2018
 
 
 
 
 
Cash and cash equivalents (1)
$
34,276

 
$

 
$
34,276

Short-term investments
109,451

 
77,443

 
186,894

Cash, cash equivalents and short-term investments
$
143,727

 
$
77,443

 
$
221,170

 
 
 
 
 
 
(1) Includes demand deposits and other cash, money market funds and other cash equivalent securities, all with 0-90 day maturity at purchase.



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5.
Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net loss
$
(4,857
)
 
$
(3,554
)
 
$
(16,592
)
 
$
(8,324
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average shares used to compute net loss per common share - basic and diluted
31,242

 
29,867

 
31,022

 
29,673

 
 
 
 
 
 
 
 
Net loss per share
 
 
 
 
 
 
 
   Basic
$
(0.16
)
 
$
(0.12
)
 
$
(0.53
)
 
$
(0.28
)
   Diluted
$
(0.16
)
 
$
(0.12
)
 
$
(0.53
)
 
$
(0.28
)

The following securities were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive:
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Options to purchase common stock, including ESPP
656

 
1,236

 
690

 
1,283

Restricted stock units
1,671

 
1,955

 
1,760

 
1,991



6.
Goodwill and Intangible Assets
Goodwill
As of June 30, 2019 and December 31, 2018, the Company had $49.2 million and $49.2 million of goodwill, respectively, with $41.2 million and $8.0 million allocated to the Company’s Product and Services operating segments, respectively. As of June 30, 2019, there were no changes in circumstances indicating that the carrying values of goodwill or acquired intangibles may not be recoverable.
Intangible Assets
Acquisition-related intangible assets are amortized either straight-line, or over the life of the assets on a basis that resembles the economic benefit of the assets. This yields amortization in the latter case that is higher in earlier periods of the useful life.
The estimated useful lives and carrying value of acquired intangible assets are as follows:
 
 
 
June 30, 2019
 
December 31, 2018
(in thousands)
Range of
Useful Life
(years)
 
Gross
 Carrying
 Amount
 
Accumulated
Amortization
 
Net
 Carrying
 Amount
 
Gross
 Carrying
 Amount
 
Accumulated
Amortization
 
Net
 Carrying
 Amount
Developed technology
3 to 7
 
$
10,050

 
$
8,945

 
$
1,105

 
$
10,050

 
$
7,731

 
$
2,319

Customer relationships
7 to 9
 
10,920

 
5,249

 
5,671

 
10,920

 
4,645

 
6,275

Backlog
3
 
1,400

 
1,249

 
151

 
1,400

 
1,203

 
197

Non-compete agreements
2 to 4
 
460

 
460

 

 
460

 
460

 

Trademarks
3 to 7
 
1,110

 
999

 
111

 
1,110

 
831

 
279

Intangible assets, net book value
 
 
$
23,940

 
$
16,902

 
$
7,038

 
$
23,940

 
$
14,870

 
$
9,070



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Table of Contents

Amortization expense was $1.0 million and $1.0 million for the three months ended June 30, 2019 and 2018, respectively. Amortization expense was $2.0 million and $2.3 million for the six months ended June 30, 2019 and 2018, respectively.
Amortization of acquired intangible assets is reflected in the cost of revenue for developed technology and backlog and in operating expenses for the other intangible assets. The estimated future amortization of existing acquired intangible assets as of June 30, 2019 was as follows:
(in thousands)
 
Future amortization
2019 (remaining six months)
 
$
1,691

2020
 
1,242

2021
 
1,130