Written By: Nina Deka, Senior Research Analyst, ROBO Global
Sometimes all a patient needs to heal is peace and quiet. This can be difficult to find in a hospital, where shouting, alarms, and other noises are the de-facto standard of communication.
The newest addition to the ROBO and HTEC indexes is disrupting that noise. Vocera is a communications technology company most known for its badge, which is a wearable, voice-activated device used by employees to speak with one another. What is largely overlooked is the magic behind the badge: Vocera’s integrated software platform. Using a sophisticated, rules-based engine, Vocera’s platform enables hospitals to run more efficiently, improve the quality of life for both patient and clinician, and drive significant ROI.
The evolution of hospital communications
Today, the standard of communication in a hospital largely consists of a one-to-everyone methodology, whereby one clinician uses an overhead paging system or shouts to get the attention of other clinicians or hospital employees. A slightly more tech-savvy way to communicate is the device-to-device method, which consists of phone-to-phone or phone-to-pager contact. For example, someone could use a phone to call Nurse Joe or page Doctor Smith. The limitations of this method become evident when Nurse Joe’s shift ends and he isn’t available to respond, or when Dr. Smith is on vacation. In either circumstance, the patient is still in the hospital and needs assistance. Other limitations are that phones are generally not very sanitary, and physicians must de-glove in order to use them. Also, many phones are in a central area, which limits privacy and mobility.
Long before Alexa, there was Vocera
Vocera disrupted these forms of communication with its badge and integrated software system. The badge is unique for many reasons. First, it’s hands-free, voice-activated, and worn near the clinician’s shirt collar. This means clinicians don’t need to remove their gloves to use it, and they can speak very quietly to activate it. Since the company’s founding in 2000, Vocera has had nearly 20 years to perfect its voice activation technology, making it extremely reliable, irrespective of complexities like scientific terms, duplicate names, or accents. It also carries a signal throughout the hospital system using the hospital’s network, and won’t drop a connection as the provider moves about. These are very difficult features to replicate, even among the largest technology companies today. The result is a noticeably quieter environment, even in the busiest level one trauma centers in the world.
Vocera is the first and only company to enable person-to-role communication
While the badge itself is differentiated, its real secret sauce is the software platform behind it. The platform is integrated with the hospital’s directory and scheduling system, and it uses a sophisticated, rules-based engine to enable a person-to-role communication methodology. In other words, each call is directed based on the patient’s needs. Instead of calling Nurse Joe, the clinician can say, “Call the nurse in charge of patient Jane Thompson,” or “call the crash cart team to Room 340B.”
Now, with over 140 integrations across various hospital systems and devices, Vocera has further revolutionized communication, taking it to a device-to-person level. An example can be seen with the hospital bed. Typically, when a patient lowers a smart bed rail, an alarm is triggered to notify every nurse on the floor that the patient needs assistance. This is problematic because there are dozens of devices on every floor in a hospital. The event of repetitive alarms echoing constantly results in alert fatigue, and it quickly becomes difficult not to tune them out. With Vocera, the platform is integrated with the hospital bed and the patient’s electronic health record. When the bed rail is lowered, the system first verifies whether the patient is at fall risk. If the patient is at fall risk, only the assigned nurse on duty assigned to the patient at that time is alerted to assist the patient. The result is a compelling ROI for the hospital. One DoD facility saw an 81% reduction in patient falls in 10 months, and a 20% increase in patient satisfaction. The University of Arkansas saw a 60% reduction in fall-related injuries and generated $1.27M in savings.
The reduction of fall risk is just one example of Vocera’s value proposition. Cuyuna Regional increased its OR throughput by 250 cases per year, Health First saw a savings of 10 minutes per nurse per shift. Santa Clara Valley Medical Center drove a 50% increase in bed turnover rates. With over a thousand hospital customers, Vocera has accumulated a vast list of case studies.
Meet the Vocera Smartbadge
At the end of 2018, Vocera underwent the biggest product launch in its history with the Smartbadge. The Smartbadge has the weight and hands-free capabilities of the original badge while offering a better user experience. Rather than a simple audio alarm, the Smartbadge can show actionable texts, such as “Jane has elevated potassium.”
The Smartbadge recently won the Medtech Breakthrough Award of 2019 for the Best IOT Healthcare Wearable Device. The Smartbadge device should also drive a lift in software revenue, which generates a higher margin for the company. While we don’t expect every customer to upgrade to the new badge immediately, we believe the product offers a longer-term growth opportunity that points to sustainable growth for years to come.
Multiple drivers of growth in a $6B addressable market
Vocera currently has about 20% market share among US hospitals. Most of the remaining opportunity is greenfield (i.e., most hospitals aren’t using any communication platform other than pagers or overhead calling systems). Vocera is also the exclusive communications platform for both the Veteran Affairs and the Department of Defense. These government hospitals represent a $100M opportunity and, thus far, Vocera is only 50% penetrated into this group. By adding more hospital customers, cross-selling new products into existing customers, and expanding internationally, Vocera is targeting a global addressable market of $6B. Expansion beyond hospitals and beyond the healthcare industry would further broaden the addressable market.
Strong bookings indicate growth acceleration and margin expansion
Vocera faced some headwinds this year that led to a temporary deceleration in growth to 4% y/y in 2019, down from 10% in 2018. One issue was that some customers that were far along in the sales process for the older generation badge chose to wait until the new Smartbadge came out, delaying their contract signing. We believe this is an effect of the launch of new innovation and not a reflection of the company’s future growth prospects. In fact, with the Smartbadge now launched, the company is seeing strong bookings performance, and Vocera anticipates a return to mid-teens growth levels. We believe this is achievable given the aforementioned value proposition, growth drivers, and broad addressable market.
From a profitability standpoint, Vocera has significant operating leverage in its model, and the company expects to drive EBITDA margins of 20% in the long run (up from current levels of ~11%). The company plans to achieve this through increased software sales, because software has higher margins than other products, and is sold as a pull-through with the Smartbadge. In addition to top-line growth, increased sales productivity and other operating efficiencies are also expected to contribute to margin expansion.
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