Forward-Looking Statements
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this Form 10-Q. These discussions contain forward-looking statements reflecting our current expectations that involve risks and uncertainties which are subject to safe harbors under the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements include, but are not limited to, statements concerning our plans, objectives, expectations and intentions, future financial position, future revenues, projected costs, expectations regarding demand and acceptance for our technologies, growth opportunities and trends in the market in which we operate, prospects and plans and objectives of management. The words "anticipates", "believes", "estimates", "expects", "intends", "may", "plans", "projects", "will", "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission. We do not assume any obligation to update any forward-looking statements.
Business overview
We are a provider of mobile communication solutions focused on addressing critical communication challenges facing hospitals today. We help our customers improve patient safety and satisfaction, and increase hospital efficiency and productivity through our Voice Communication, Secure Messaging, and Care Transition solutions. Our Voice Communication solution, which includes a lightweight, wearable, voice-controlled communication badge and a software platform, enables users to connect instantly with other hospital staff simply by saying the name, function or group name of the desired recipient. Our Secure Messaging solution securely delivers text messages and alerts directly to and from smartphones, replacing legacy pagers. Our Care Transition solution is a hosted voice and text based software application that captures, manages and monitors patient information when responsibility for the patient is transferred or "handed-off" from one caregiver to another, or when the

patient is discharged from the hospital.

At the core of our Voice Communication solution is a patent-protected software platform that we introduced in 2002. We have significantly enhanced and added features and functionality to this solution through ongoing development based on frequent interactions with our customers. Our software platform is built upon a scalable architecture and recognizes more than 100 voice commands. Users can instantly communicate with others using the Vocera communication badge, or through Vocera Connect client applications available for BlackBerry, iPhone and Android smartphones, as well as Cisco wireless IP phones and other mobile devices. Our Voice Communication solution can also be integrated with nurse call and other clinical systems to immediately and efficiently alert hospital workers to patient needs. We have shipped over 400,000 communication badges to our customers.

We outsource the manufacturing of our products. Our outsourced manufacturing model allows us to scale our business without the significant capital investment and on-going expenses required to establish and maintain manufacturing operations. We work closely with our contract manufacturer, SMTC Corporation, and key suppliers to manage the procurement, quality and cost of components. We seek to maintain an optimal level of finished goods inventory to meet our forecasted sales and unanticipated shifts in sales volume and mix. To date, substantially all of our revenue has been derived from sales of our Voice Communication solution, including product maintenance and related services. Revenue grew 26.2% from $18.3 million in March 2011 to $23.1 million in March 2012. For the quarter ended March 31, 2012, we recorded a net loss of $0.8 million, which included $1.7 million of preferred stock warrant liability revaluation.
Our diverse customer base ranges from large hospital systems to small local hospitals, as well as other healthcare facilities and customers in non-healthcare markets. We have very low customer revenue concentrations. For 2011, our largest end customer represented only 2.8% of revenue. While we have international customers in other English speaking countries such as Canada, the United Kingdom and Australia, most of our customers are located in the United States. International customers represented 12.8% and 10.3% of our revenue for the quarters ended March 31, 2012 and March 31, 2011, respectively. We are developing plans to expand our presence in other English speaking markets and enter non-English speaking markets.
We qualify as an "emerging growth company" pursuant to the provisions of the JOBS Act, enacted on April 5, 2012. Section 102 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we have chosen to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. The decision to opt out of the extended transition period is irrevocable. Critical Accounting Policies and Estimates There have been no material changes to the our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933 with the Securities and Exchange Commission on March 28, 2012 (our "Prospectus").

Components of operating results

Revenue. We generate revenue from the sale of products and services. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is probable.

Revenue is comprised of the following:

• Product. Our solutions include both hardware and software. We refer to hardware revenue as device revenue, which includes revenue from sales of our communication badges, badge accessories, including batteries, battery chargers, lanyards, clips and other ancillary badge components, and our Vocera smartphone. Software revenue is derived primarily from the sale of perpetual licenses to our Voice Communication solution. We derive additional software revenue from the sale of term licenses which can be renewed on a subscription basis. Product revenue is generally recognized upon shipment of hardware and perpetual licenses and, in the case of term licenses, ratably over the applicable term.

• Service. We receive service revenue from sales of software maintenance, extended warranties and professional services. Software maintenance is typically invoiced annually in advance, recorded as deferred revenue, and recognized as revenue ratably over the service period. Our professional services revenue is based on both time and materials, and fixed price contracts, and is recognized as the services are provided. Extended warranties are invoiced in advance, recorded as deferred revenue, and recognized ratably over the extended warranty period.

Cost of revenue. Cost of revenue is comprised of the following:

• Cost of product. Cost of product is comprised primarily of materials costs, software license costs, warranty, and manufacturing overhead for test engineering, material requirements planning and our shipping and receiving functions. Cost of product also includes facility costs, information technology costs and write-offs for excess and obsolete inventory, as well as depreciation and amortization expenses. As we introduce new products, we expect material costs will increase as a percent of revenue for a period of time.

• Cost of service. Cost of service is comprised primarily of employee wages, benefits and related personnel expenses of our technical support team, our professional consulting personnel and our training teams. Cost of service also includes facility and information technology costs. We expect our cost of service will increase as we continue to invest in support services to meet the needs of our customer base.

Operating expenses. Operating expenses are comprised of the following:

• Research and development. Research and development expenses consist primarily of employee wages, benefits and related personnel expenses, hardware materials, and consultant fees and expenses related to the design, development, testing and enhancements of our solutions. We intend to continue to invest in improving the functionality of our solutions and the development of new solutions. As a result, we expect research and development expense to increase for the foreseeable future.

• Sales and marketing. Sales and marketing expenses consist primarily of employee wages, benefits and related personnel expenses, as well as trade shows, marketing and public relations programs and advertising. Sales commissions are earned when an order is received from a customer, and as a result, in some cases these commissions are expensed in an earlier period than the period in which the related revenue is recognized. Historically, our bookings have tended to peak in the fourth quarter of each year driving higher sales commissions, and to be lowest in the first quarter. We intend to continue to expand our direct sales force for the foreseeable future and, accordingly, expect sales and marketing expenses to increase.

• General and administrative. General and administrative expenses consist primarily of employee wages, benefits and related personnel expenses, consulting, audit fees, legal fees, and other general corporate expenses. We expect general and administrative expense to increase for the foreseeable future due to the significant costs we expect to incur as we continue to build and maintain the infrastructure necessary to comply with the regulatory requirements of being a public company and as we add personnel to support our growth.

Interest income, interest expense, and other income (expense), net.

• Interest income. Interest income consists primarily of interest income earned on our cash and cash equivalent balances. Our interest income will vary each reporting period depending on our average cash and cash equivalent balances during the period and market interest rates.

• Interest expense. Interest expense includes interest expense related to debt and financing obligations resulting from our credit facility and security agreement. We expect interest expense to fluctuate in the future with changes in our borrowings

• Other income (expense), net. Other income (expense), net consists primarily of the change in the fair value of our convertible preferred stock warrants. Our outstanding convertible preferred stock warrants are classified as liabilities and, as such, are marked-to-market at each balance sheet date with the corresponding gain or loss from the adjustment recorded as other income (expense), net. We will continue to record adjustments to the fair value of the warrants until they are exercised, converted into warrants to purchase common stock or expire, at which time the warrants will no longer be remeasured at each balance sheet date. Upon the consummation of the IPO, on April 2, 2012, these warrants

converted into warrants to purchase common stock. Other income (expense), net also includes any foreign exchange gains and losses.

Provision for income taxes. We are subject to income taxes in the countries where we sell our solutions. Historically, we have primarily been subject to taxation in the United States because we have sold the majority of our solutions to customers in the United States. We anticipate that in the future as we expand our sale of solutions to customers outside the United States, we will become subject to taxation based on the foreign statutory rates in the countries where these sales took place and our effective tax rate could fluctuate accordingly. Currently, each of our international subsidiaries is operating under cost plus agreements where the U.S. parent company reimburses the international subsidiary for its costs plus a reasonable profit.

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Changes in valuation allowances are reflected as component of provision for income taxes.

Results of Operations
The following table presents our results of operations for the periods
indicated. The period-to-period comparisons of results are not necessarily
indicative of results for future periods.
(in thousands)                                    Three Months Ended March 31,
                                                  2012                        2011
Consolidated statement of operations data:                 (unaudited)
Revenue
 Product                                    $       14,637                 $ 11,636
 Service                                             8,482                    6,687
   Total revenue                                    23,119                   18,323
Cost of revenues
 Product                                             5,429                    3,652
 Service                                             3,569                    3,162
   Total cost of revenues                            8,998                    6,814
Gross profit                                        14,121                   11,509
Operating expenses:
 Research and development                            2,511                    2,158
 Sales and marketing                                 7,530                    6,473
 General and administrative                          3,087                    2,239
   Total operating expenses                         13,128                   10,870
Income (loss) from operations                          993                      639
Interest income                                         12                        5
Interest expense                                       (71 )                    (61 )
Other income (expense)                              (1,597 )                   (465 )
Income (loss) before income taxes                     (663 )                    118
Benefit (provision) for income taxes                  (173 )                     37
Net income (loss)                           $         (836 )               $    155

Comparison of Three months Ended March 31, 2012 and 2011

Revenue:
                       Three Months Ended March 31,
                       2012                    2011                Change
(in thousands)  Amount    % Revenue    Amount    % Revenue    Amount      %
Revenue
Product         14,637        63.3 %   11,636        63.5 %    3,001    25.8 %
Service          8,482        36.7 %    6,687        36.5 %    1,795    26.8 %
Total revenue   23,119       100.0 %   18,323       100.0 %    4,796    26.2 %

Total revenue increased $4.8 million, or 26.2%, from the three months ended March 31, 2011 to March 31, 2012.

Product revenue increased $3.0 million, or 25.8%. Device revenue increased $2.1 million, or 25.4%, and software revenue increased $0.9 million, or 26.9%. The increase in device revenue, which related entirely to our Voice Communication solution, was driven primarily by an increase in unit sales of badges and related accessories from new customers making initial purchases, existing customers expanding deployments within their facilities to new departments and users, and customers replacing badges. A portion of the increase in device revenue was a result of higher average selling prices as a result of lower discounts and a change in mix as customers move to the B3000 badge, which has a higher list price than the B2000 badge. The list prices for our products did not change substantially in 2012. The increase in software revenue was primarily a result of an increase in sales of Voice Communication software licenses, primarily to existing customers to support enterprise expansions.

Service revenue increased $1.8 million, or 26.8% from the three months ended March 31, 2011 to March 31, 2012. Software maintenance and support revenue increased $1.1 million, or 22.8%, and professional services and training revenue increased $0.7 million, or 38.6%. The increase in software maintenance and support revenue was primarily a result of a larger customer base increasing software maintenance revenue by $0.9 million. The increase in professional services and training revenue included $0.4 million as a result of an increase in the number of new deployments and expansions of our Voice Communication solution.

Cost of revenue:

                           2012               2011             Change
(in thousands)            Amount             Amount        Amount      %
Cost of revenue
Product                     5,429               3,652     1,777      48.7 %
Service                     3,569               3,162       407      12.9 %
Total cost of revenue       8,998               6,814     2,184      32.1 %

Gross margin
Product                      62.9 %              68.6 %    (5.7 )%
Service                      57.9 %              52.7 %     5.2  %
Total gross margin           61.1 %              62.8 %    (1.7 )%

Cost of product revenue increased $1.8 million, or 48.7%, from the three months ended March 31, 2011 to March 31, 2012. The increase in cost of product revenue was primarily due to higher unit shipments. Gross margin as a percentage of revenue decreased in the 2012 period compared to the corresponding period in 2011 as we incurred higher initial manufacturing costs for the B3000 badge. We expect the cost to manufacture the B3000 to decline throughout the remainder of 2012.

Cost of service revenue increased $0.4 million, or 12.9%, from the three months ended March 31, 2011 to March 31, 2012. This increase was primarily due to a $0.4 million increase in employee wages and other personnel costs in our services organization to support growth in customer deployments and technical support. Headcount increased by 9 from 65 as of March 31, 2011 to

74 as of March 31, 2012.

Operating expenses:
                                    Three Months Ended March 31,
                                     2012                     2011                Change
(in thousands)               Amount      % Revenue    Amount    % Revenue    Amount      %
Operating expenses:
Research and development     2,511           10.9 %    2,158        11.8 %      353    16.4 %
Sales and marketing          7,530           32.6 %    6,473        35.3 %    1,057    16.3 %
General and administrative   3,087           13.4 %    2,239        12.2 %      848    37.9 %
Total operating expenses    13,128           56.8 %   10,870        59.3 %    2,258    20.8 %

Research and development expense. Research and development expense increased $0.4 million, or 16.4%, from the three months ended March 31, 2011 to March 31, 2012. This increase was primarily due to personnel costs and other expenses associated with an increase in headcount from 46 to 50.

Sales and marketing expense. Sales and marketing expense increased $1.0 million, or 16.3%, from the three months ended March 31, 2011 to March 31, 2012. This increase was primarily due to a $0.7 million increase in employee wages, $0.1 million due to additional travel costs as our sales force becomes more mobile and $0.1 million of consulting fees.

General and administrative expense. General and administrative expense increased $0.8 million, or 37.9%, from the three months ended March 31, 2011 to March 31, 2012. This increase was due to a $0.4 million increase in employee wages and other personnel costs, a $0.2 million increase in bonuses, and a $0.3 million increase in audit fees, offset by a $0.1 million decrease in consulting and temporary labor expenses.

Other income (expense):
                                 Three Months Ended March 31,
(in thousands)                  2012                2011    Change
Interest income                    12                 5         7
Interest expense                  (71 )             (61 )     (10 )
Other income (expense), net    (1,597 )            (465 )  (1,132 )

Interest income. Interest income increased slightly from the three months ended March 31, 2011 to March 31, 2012 due to higher cash balances.

Interest expense. Interest expense increased slightly due to higher borrowings at the end of the three months ended March 31, 2012.

Other income (expense), net. The $1.1 million decrease in other expense from the three months ended March 31, 2011 to March 31, 2012 is due primarily to the change in fair market value of the convertible preferred stock warrants, as a result in the increase in the valuation of the Company due to the initial public offering.

Liquidity and capital resources

As of March 31, 2011, we had cash and cash equivalents of $14.2 million and debt borrowings of $7.8 million.

On April 2, 2012, we completed our initial public offering in which we and existing stockholders sold 6,727,500 shares of common stock at $16.00 per share, before underwriting discounts and commissions. We sold 5,000,000 shares and existing stockholders sold an aggregate of 1,727,500 shares, including 877,500 shares as a result of the underwriters' exercise of their over-allotment option. We received net proceeds of approximately $74.4 million, after deducting underwriting discounts and

before offering expenses, from our initial public offering. We did not receive any proceeds from the sale of shares by existing stockholders in our initial public offering.
We believe that our existing sources of liquidity will satisfy our working capital and capital requirements for at least the next twelve months.