Veeva Systems Inc (VEEV) 2017 Q1 法說會逐字稿

Good afternoon. My name is Andrew and I will be your conference operator today. At this time, I'd like to welcome everyone to the Veeva Systems FY17 first-quarter results conference call.

(Operator Instructions)

Thank you. Rick Lund, Investor Relations Director, Veeva Systems, you may begin your conference.

Good afternoon, and welcome to Veeva's FY17 first-quarter earnings call for the quarter ending April 30, 2016. With me on today's call are Peter Gassner, our Chief Executive Officer; Matt Wallach, our President; and Tim Cabral, our Chief Financial Officer.

During the course of this conference call, we will make forward-looking statements regarding trends, our strategies, and the anticipated performance of the business. These forward-looking statements will be based on management's current views and expectations and are subject to various risks and uncertainties. Actual results may differ materially.

Please refer to the risks listed in our earnings release and the risk factors included in our most recent filing on Form 10-K, which is available on the Company's website at veeva.com under the investors section, and on the SEC's website at SEC.gov.

Forward-looking statements made during the call are being made as of today, May 26, 2016. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Veeva disclaims any obligation to update or revise any forward-looking statements.

We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter, unless we do so in a public forum. On the call we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. The reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the Form 8-K filed with the SEC just before this call.

With that, thank you for joining us and I'll turn it over to Peter.

Thank you, Rick. Good afternoon and thanks to everyone for joining us.

I'm pleased to report a great quarter for Veeva. In my view, it was our best Q1 ever, and I would like to thank the Veeva team for outstanding execution across the board. Without exception, we are seeing strength in every one of our markets, across Commercial Cloud and Vault, and in all of our geographies.

In Q1 we again delivered results above our guidance, with total revenue of $120 million; that's up 33% year over year. Subscription revenue was up 39% year over year to $96 million. In addition to strong revenue growth, we also delivered non-GAAP operating income of $29 million and a 25% margin. We also posted record cash flow in the quarter of $109 million.

Veeva is now one of the largest and most strategic industry cloud providers, and we believe we are on our way to becoming one of the few pure cloud players to hit $1 billion in revenue over time. In the course of the quarter, I met with dozens of executives from the largest global pharmas and growing biotechs. It's never been more clear to me that Veeva is becoming the strategic technology partner to a massive and important industry.

And as you saw in our announcement this morning, our industry cloud opportunity continues to expand, with the addition of yet another Vault application, Veeva Vault QMS, for the quality management market. We now have 10 Vault applications spanning clinical, quality, regulatory, medical, and commercial.

Vault QMS is our second major application for the quality area. It will be used to manage quality work processes, so the identification of problems in manufacturing, documenting a plan to fix the problems, and tracking the implementation of remediation plans. Having Vault QMS and Vault QualityDocs as part of an integrated quality suite is very powerful and can bring whole new levels of efficiency and effectiveness to customers in what is a mission-critical area.

Before Vault, they could not bring together quality work processes and quality documentation into a single system. This is a real breakthrough for customers, and it's enabled by Vault's unique capability to build both content-centric applications and data-centric applications on a single platform. It's incredibly powerful.

In terms of market size for Veeva, the addition of QMS now doubles our opportunity in the quality space. Vault QMS will be available in late June. It was developed in roughly six months, which is incredibly fast for such a robust application. We are able to develop deep application so quickly because of the leverage we get from the Vault platform. We expect the release of Vault QMS to add further momentum to our overall Vault business, which continues to perform at a very high level.

In commercial content, I'm pleased to report our integration of Zinc and the migration plan for Zinc customers to Vault PromoMats continues on schedule. The core commercial content business is growing, and Vault, Veeva Vault PromoMats is becoming the global standard.

In the regulatory area, since the December launch of our two new applications for regulatory, interest in the regulatory suite has gained considerable momentum. Though it's only been a few months, we already have 11 customers for the new regulatory applications, 50 regulatory customers in total, and a growing pipeline.

The strong growth in Vault is a result of a steady increase of new Vault products, net new Vault customers each quarter, and consistent expansion within existing customers. We see a continued trend of customers making further investments in their current Vault applications and broadening into new application areas. We are also seeing tremendous momentum in both the enterprise and SMB market and across geographies.

We now have 18, 7-figure Vault customers, that's double the numbers since last year. This broad uptake bodes very well for the future growth of Vault in the years to come.

Because we can build content-centric applications and data centric-applications with Vault, we can deliver first-ever unified solutions on a single platform. This is why in clinical we can now bring together study startup with ETMF, and regulatory submissions and registrations, and in quality QMS and QualityDocs. This has simply not been possible before and represents a giant leap forward for the industry in eliminating application silos and moving to truly seamless end-to-end processes.

It's hard to overstate the potential impact this can have on cost, speed to market, and in helping ensure compliance for companies. The market response has been overwhelmingly positive.

We architected Vault to serve companies like Pfizer, Novartis and J&J with mission-critical applications. And we always knew if we were successful in life science, there would be the option to take Vault outside of life sciences. That optionality was built into Vault from day one.

Our customers have seen great success with Vault and word has spread. As a result, over the past three years, we have had growing interest in Vault from companies outside of life sciences who have a need to manage critical content. While we have not actively sold Vault outside of life sciences, we do have a handful of smaller Vault customers outside of life sciences.

This quarter, we will start selling Vault outside of life sciences with a small, dedicated go-to-market team. They will focus on regulated industries adjacent to life sciences, with solutions that are based on our existing commercial content and quality applications. We are excited to bring the benefits of Vault to a new set of companies.

Similar to the way that we have built our industry [cause] for life sciences over the past nine years, we plan to undertake this new effort in the Veeva way: with growth, profit, and customer success. This start in bringing Vault outside of life sciences does not change our guidance. The investments we're making are anticipated in our stated guidance.

Our longer-term profit targets for 2020 are unchanged. I will also note that we are more confident than ever that we are on track to achieve our stated revenue run-rate target of $1 billion in 2020, selling just our current solutions within life sciences alone.

We are still in the very early innings of our industry cloud for life sciences. I believe the market has underestimated the opportunity for industry cloud. You're now just starting to see bigger players make moves towards industry cloud, as there is a growing recognition of the size of the opportunity. Clearly, it was an exciting quarter for Vault, and we are enthusiastic about bringing Vault to more customers. Q1 was also strong for Commercial Cloud.

Broadly speaking, we saw increased engagement and traction, with the top 20 pharmas and a steady expansion from core SFA to multi-channel CRM and commercial Cloud. For example, last quarter we mentioned a new top 10 global pharmaceutical company was beginning and initial CRM deployment. I'm pleased to report that this project is going extremely well, and the scope has now been expanded to include additional divisions.

I'm also pleased to announce that in the quarter we started our first CRM project with another top 20 pharma. They formally selected Veeva for one region with the possibility of expanding globally over time. They will start with core CRM from face-to-face selling, CLM, and approved email.

As with this new top 20, we're beginning to see a number of our newer customer start with core CRM, CLM, and approved email at the same time. We are also seeing strong uptake of these add-on products within the current core CRM customer base.

Our newest CRM add-on products are starting to gain meaningful traction as well. In Q1, our first two customers went live on Veeva CRM Events Management. There's a lot of excitement and demand for the recently released events product and we closed the quarter with 11 Events customers. Veeva Align, our other new CRM add-on, hit some notable milestone in the quarter as well. Two top 20 pharmas are now live with Align. One has rolled out in an additional 34 countries since Q4; that's remarkable progress. We have a growing pipeline for Align, and it's clear to me we are on a path to become the standard in this market over time.

The market response to the new approach we've brought to data with Veeva Network, Veeva OpenData, and Veeva KOL Data is making a real impact. We are seeing growth in momentum. We believe that we are also well-positioned for leadership in these markets over the long term.

You can expect to hear more on the Commercial Cloud front as we gear up for our North American Commercial Summit next month in Philadelphia. We will showcase the success our customers are having with Commercial Cloud and will have some exciting announcements to share.

It's one of our most important events of the year and we are expecting record numbers. With more than 1,000 attendees expected, it's far and away the biggest commercial event for life sciences. I look forward to seeing all of our customers, prospects, and partners there.

In summary, Q1 was a great quarter. We started the year with outstanding execution and growth across the board. With customer success as our driving force, we're set to capture the significant and expanding industry cloud opportunity ahead. As one of the most strategic partners to a very large industry, there's tremendous potential as customers look to Veeva to provide an increasing range of solutions to address their most important challenges.

With that, I will turn it over to Tim.

Thanks, Peter.

Q1 results were very strong. Total revenue was $119.8 million, up from $89.9 million one year ago, a 33% increase. We saw out-performance from both subscription and services revenue, with strength across the business.

Subscription revenue was up 39% to $96 million from $68.9 million last year. Subscription revenue benefited from another strong bookings quarter across products and regions. Services revenue came in at $23.7 million, up 13% from $21 million one year ago.

Our subscription revenue continues to grow faster than our services revenue, increasing the recurring nature of our total revenue. For the quarter, the percentage mix was 80%/20%, subscription versus services, a 3-point shift year over year toward subscription.

In discussing the remainder of the income statement, please note that unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings press release that was posted just before the call.

In Q1, our subscription gross margin was 79%, an increase of about 100 basis points from a year ago, driven by the faster growth of our non-CRM products and the CRM add-ons, which have a higher gross margin profile relative to our core SFA product. Our subscription gross margin declined slightly on a sequential basis from Q4, which is the normal seasonal pattern. Because we recognize revenue daily, but virtually all of our expenses are recognized monthly, subscription gross margins in Q1 are typically lower than in the other three quarters as there are fewer days in the first quarter.

Services gross margin for the quarter was 23.5% compared to almost 27% one year ago. Q1 of this year is impacted slightly by the Zinc business, which was not included in last year's results. However, both are within the normal range, given our target utilization rates.

Our total gross margin for Q1 was almost 68%, an increase of nearly 200 basis points from one year ago. This improvement was driven by the increased mix of subscription revenue and the rise in subscription gross margin. Overall, our operating income came in at $29.4 million, a 24.6% operating margin, which was well above the high-end of our guide.

This was driven almost entirely by out-performance on the top line, as we had another solid hiring quarter in which headcount came in almost exactly on plan. We added 68 people net in the quarter, finishing at 1,542, up from 1,022 one year ago. Net income for the quarter was $21.2 million compared to $17.1 million last year.

Our non-GAAP effective tax rate of 34.2% is roughly in line with what we expect going forward. Our fully diluted net income per share was $0.15, compared to $0.12 for the same quarter last year. Without the $2.2 million of FX benefit and the other income and expense line, Q1 EPS would have been $0.14.

Turning to the balance sheet, deferred revenue was $181 million compared to $157 million at the end of the fourth quarter. This resulted in calculated billings of $143 million, which represents 62% growth year over year. Recall that strong year-over-year growth was expected in large part due to previously discussed large customer renewals, which moved into the first quarter from other quarters.

We did not see any new material shifts in customer billing terms in Q1. Even so, the $143 million was well ahead of our $125 million guidance provided on the last call. This out-performance was a function of a strong bookings quarter, which included deals disclosed earlier in the year than expected. This was coupled with a higher-than-anticipated average billings duration on those bookings.

For Q2, we expect calculated billings of roughly $110 million, which represents about 14% growth year over year. As was the case with our first-quarter result of 62% growth, year-over-year comparisons on a quarterly basis are not always indicative of the underlying momentum of the business because of our billings dynamics. Comparisons of full fiscal-year results are more meaningful. Our Q1 performance gives us increased confidence that we can achieve the top end of our previously guided range of 23% to 24% billings growth for the full year.

Elsewhere on the balance sheet, we exited Q1 with $457 million in cash and short-term investment, up from $346 million at the end of Q4. This increase was driven by remarkable performance in cash from operations, which came in at $109 million.

Remember that the first quarter has historically been our seasonally strongest cash flow quarter. With that said, our renewal base has become even more seasonal, skewed toward the late fourth and early first quarters.

Furthermore, Q1 cash flow was amplified by strong bookings in Q4 of last year and in the current quarter, and outstanding collections execution. This Q1 operating cash flow result could represent roughly 85% to 90% of the total operating cash flow we generate this fiscal year.

Since our operating cash flows can clearly be volatile quarter to quarter, we look at our cash-flow performance on a last 12-months basis. Over the last 12 months, our cash flow from operations was $147.7 million, up 62% from the previous 12-month period. This result was favorably impacted by our Q1 performance of $109 million in operating cash flows.

Let me wrap up by sharing our outlook for next quarter and the rest of the year. For the second quarter, we expect revenue between $125.5 and $127 million, non-GAAP operating income of $30 million to $30.5 million, and non-GAAP net income per share of $0.13 based on a fully diluted share count of approximately 146.5 million. For the year, we now expect revenue in the range of $516 million to $520 million, an increase from our previous guidance of $508 million to $513 million. We continue to expect subscription revenue to be up at least 30% for the full year.

For FY17, we now anticipate non-GAAP operating income of $127 million to $131 million, a margin of roughly 25%. This is an increase in both dollars and margin from our previous guidance of $122.5 million to $127.5 million in a margin of 24.5%. We are now targeting non-GAAP net income per share of between $0.55 and $0.57 based on a fully diluted share count of approximately 148 million.

Overall, I'm thrilled with our results from the quarter and I remain optimistic about our outlook for FY17, as well as the long-term prospects for Veeva. We continue to build this Company in the Veeva way, with growth, profitability, and customer success.

With that, thanks for joining the call, and we will now turn it over to the operator for questions.

(Operator Instructions)

Bhavan Suri, William Blair.

Hey guys, congratulations, fantastic job, and thanks for taking my questions.

Just to touch a little bit, you did provide great color on the CRM business and Vault. But maybe, Matt or Peter, just a little bit of color on how the network and data products are doing. Any significant customer wins in that area?

Hey, Bhavan, this is Matt.

So, as Peter said in the prepared remarks, we continue to have success across all of our products, network and OpenData included. I think the big highlights in just the last 90 days, probably with network it's a lot of go-lives. We had -- I think we were live in dozens of more countries with network. Most of it was one large customer that's doing a major global deployment. That gives us an increased confidence in the ability for this to be a single, global customer master solution for even the largest companies, so that was really good.

On the OpenData side, we have data in over 35 markets now, and as it continues to mature, as more and more companies use it, we again, gain confidence in our ability to be a real, true, global alternative to what the industry has been doing. So, we remain confident about those businesses and we had good wins in both of those last quarter.

Great, that's really helpful.

And then one just more broader fundamental question for me. Given this potential regulatory change in the US around pharmaceutical pricing, you've navigated that through Europe, the European markets. But how are you thinking about that, and how should we think about the impact of any of that regulation, should it happen, on the businesses themselves?

Well I think any major changes in pricing certainly cause concern for our customers, and I think it can be played out in multiple ways. I think for us, we are still seen as a way to do things more efficiently, more quickly, and to allow companies to react more quickly to changes in the market. So, I think that the adaptability and the flexibility of true multi-tenant cloud solutions helps to position us as a Company going forward if the business and the underlying economics of the business changes. Because they're going to have to make up -- if it's lost revenue, they're going to have to make it up somewhere else. And because we offer a really flexible platform, I think that we'll continue to be a really valuable partner.

Great. Thanks again and thanks for taking my questions.

Richard Davis, Canaccord.

Hey, thanks. I might be a little bit hard to hear. For some reason, my phone is not working super well.

Anyways, hey, you highlighted the functionality sets on Vault, and that's impressive. Is there a way from the outside -- should we think about your new product strategy, because you have a lot of smart developers there? Is it add-ons to Vault, or is there at least at a high level, I know you like to talk about futures. But directionally, where do you see this Company going or what are the holes that you're filling at least, to think about is there another leg to the story in terms of product stuff? Thanks.

Richard, this is Peter. You brought out one that I really like, smart developers. I think we are very proud of our product team. We've just assembled a great team, a lot of it here on the Vault side here in Pleasanton, and that started five years ago. We started with some of the best application and platform experience around people with experience from companies like PeopleSoft, and Siebel, Salesforce.com, these type of things.

So that's deep in the DNA of our product team and I think that that's what you'll see from Veeva going forward. We're an application Company; we'll develop more application as we see fit.

But we are also very disciplined, and I think you've seen that in Veeva. Our idea is to have a set of applications and have them really become leading, not a very many applications that are okay. So that's this strategy we've had so far at Veeva, and that's strategy we'll continue. You're right that a lot of these new applications are coming out on Vault; that's our big platform investment and we want to leverage that.

Got it, thank you.

Thanks, Richard.

Scott Berg, Needham.

Hey, everyone, congratulations on a really strong quarter.

Couple quick ones for me, not sure who wants to take it, maybe Matt or Peter. But can you talk about upsell bookings in the quarter versus new logo bookings in the quarter? Just trying to understand if the mix of the business or the strength of the quarter was based on more new customers signing, or was it just more upsells to your existing install base?

This is Matt.

I think consistent with our growth in the past several quarters, it was a combination of both. Significant upsells on CRM in adding new countries, new divisions, some of that driven by some acquisitions that were done. And companies were expanding into those newly acquired divisions. We also did -- had another great quarter with approved email, and as Peter mentioned earlier, Events Management is starting to kick in.

So on the commercial Cloud side some good expansion, and some brand-new customer wins. And on the CRM side, most of those the customer wins were for a bundle of multi-channel products. So it was CRM, CLM, and approved email out of the gate, and we're seeing that more and more often.

On the Vault side, we added a lot of new customers again, as we have each of the past two quarters, and it was really balanced across the different areas: commercial, clinical, quality, and regulatory. But then we also had just tremendous expansion within existing customers for Vault.

I will share one number, the number of Companies that now have more than one Vault increased 35% in just Q1, which was amazing cross-selling. And so, we're really seeing a combination of both upsales and new bookings from brand-new companies.

Thanks fantastic color, thank you. A follow-up to the Vault question is now that you're looking to expand verticals, could you provide any color in terms of maybe number of sales reps, geographic regions that you initially target or maybe the exact verticals that you're thinking to expand this to? Obviously regulated environments include something like financial services, but there's more than just [finster] about this. Trying to get an understanding of maybe what that opportunity looks like in the near-term.

Scott, this is Peter.

That Vault outside of life sciences, that's a big potential market for Veeva. The broad speaking market is applications that are fit for regulated industries, that's as broad as you can get. So we are not going to be targeting on specific industries, specific verticals at this point, with that small go-to-market team, but we are looking for things that are adjacent to life sciences, that are good fit for our existing applications in the commercial content and the quality management area.

So in terms of that, it's early days, and we have a pretty simple strategy here that's based on the Veeva way of doing things. Which is get some early adopter customers through having great product, get them live and happy, very enthused with the product. And then we start that reference selling model, where these happy customers are telling other similar customers about it. And that's basically the Veeva model, how we've grown the business. That's how we will grow it in Vault outside of life sciences.

Great, that's all I have. Congratulations again on another good quarter.

Tom Roderick, Stifel.

Hi gentlemen, thanks for taking my question.

So by my record-keeping, there weren't a whole heck of a lot of additional top 20 customers in CRM that you hadn't, as of yet, won. So, I was hoping you could talk a little bit more about the process of the one that you did win this quarter, the new logo on the core CRM and Commercial Cloud side there. Can you talk a little bit about what that competitive environment looked like, who you're displacing, and how long that sales process was, knowing that there's, again, not a lot of those left to win for you?

Sure, this is Matt. I would say that the education process, before the real sales process started, lasted approximately nine years. This is a Company that was a top 20 pharma when we started the Company. I was at Siebel when they started their global Siebel deployment many, many years ago. So they were on our list of targets from the beginning. So it was very satisfying to finally get our first win at this big company.

The process was as competitive as any process we've had. We were basically up against IMS, who has acquired Cegedim, who had acquired Dendrite and many other companies along the way. And I think that we won because this Company was moving towards the ability to sell and market across multiple communication channels and with a much more digitally enabled strategy. And they weren't able to do that on their old system, and they believed that they could enable them most effectively and most quickly on the Veeva CRM platform.

And Matt, I apologize if I missed it, but is that -- was that win as contemplated today a plan for a global rollout or is that just a regional piece? Can you talk about the scope of that win?

Like most of our big CRM wins, it started in one geography, so it is not yet a global deployment.

Got you. Building off the thematic here of continuing to win displacements against legacy on-premise competitors, and of course, we've been seeing that with your partner, Salesforce, out there as well, curious what -- for what you're seeing in the entrenched competition on the Vault side, seems like there's been a lot of discussion about what might happen to document them out there relative to their positioning inside of EMC. Curious if your customers are talking about that, and if you're starting to see an accelerating decision path within the life sciences world around on-premise document-management solutions.

Tom, this is Peter.

I think we are seeing acceleration in Vault, but I believe it's due to the broad success we are having in Vault. Vault, there's so many customers that have Vault now and there's been dozens and dozens of implementations, and they've all gone exceedingly well and quickly. So I think that's what accelerating the business on Vault.

As it refers to Documentum, I don't think I see any particular change there. Documentum has not made investment or progress in that. That's an older software stack and it is clearly a client/server stack. So we don't really see any change in that environment, have not seen any change since Dell purchased it from EMC.

Got you. I'll jump back in queue. Thank you very much. Appreciate it.

Karl Keirstead, Deutsche Bank.

Hello. This is Jobin Mathew sitting in for Karl. Thank you for taking my question.

So congratulations on another great quarter. So the 50 customers that you mentioned and regulatory seems like a tipping point where most of your success in Vault so far have been led by ETMF. What is it within your product suite that you feel has got a hidden inflection point? And can you talk about some of the larger deployments that happened there?

Sure, yes, this is Matt. I might add, we actually have more quality customer than we have regulatory. So you talk about a tipping point, it's not just clinical and regulatory, it's also quality. And I think this story is pretty similar across all three of those application areas.

So for small companies that are buying an enterprise content management system for the first time, they have the ability to buy what is now the market-leading product. But because it's software as a service, they can afford it.

So you have small companies who are now getting world-class capabilities, and we're doing very, very well competitively. And that is accelerating as word is getting around that it's so fast to implement and the end users are so successful.

With the larger companies, it's basically our reference selling. So we had the press release that Bristol-Myers Squibb is going to adopt one of the brand new applications in the regulatory area. There's a lot of eyes focused on that project. We are going to do everything we can to ensure that that goes well, and word will get around quickly around the large pharma companies that it's a much better alternative.

I think that this other message that Peter talked about a little earlier, that the combination of content-centric and data-centric applications, when you put that on the same platform, you start to be able to improve processes and to automate processes in a way that is better than literally has ever been available before. So, as the industry continues to evolve, there's more and more joint partnerships and more and more joint selling and more and more outsourcing to CROs and to contract manufacturing organizations. All of those things lend themselves to having a cloud-based solution that's very easy to externalize.

So feel like there's a lot of reasons for it, and if I had to summarize it all in a nugget, it is what Peter just said. We have so many implementations that have gone so well that word gets around quickly. And that's really key to the reference selling that has enabled us to be so successful in building the industry cloud.

Got it. A couple of questions for Tim.

Tim, do you mind giving us a breakout within the billings of what the contribution from Zinc was? And maybe what was the one-time effect from previous customers paying up this quarter instead of last year?

And with regard to billings guidance for the full year, it seems like -- it seems a bit conservative to us, just given that you posted a 62% billings growth, but you've left your billings targets for the full year unchanged. Maybe you can talk about the reasons behind that. Thank you.

Jobin, I heard your first and third questions. I didn't catch your second question. Can you say that second part of that question one more time, I'm sorry?

Yes, I just had two questions. So the first question was what is the breakout of Zinc Ahead and what is the contribution from the one-time payments in 1Q? And the second question is why is the billings growth for the full year unchanged despite a blowout 1Q?

Thanks

Okay, so in terms of Zinc, one thing, Jobin, that we noted last quarter was going forward, we're not planning on breaking out Zinc performance separately. The Zinc team is fully integrated into the Veeva commercial content business and it's not being run as a separate business. With that said, though, Zinc has certainly met our expectations across the board, and we are very pleased with the way the Zinc business has integrated so quickly.

In terms of your second question on the billings, we are certainly happy with the first-quarter result, but it's early in the year. Some of the beat was a function of things coming in earlier than expected, but the beat did make us comfortable to raise slightly the guidance to the high end of the range that we gave 90 days ago. Got it, great quarter. Thanks.

Stan Zlotsky, Morgan Stanley.

Hello. Thank you very much for taking our questions.

So the move outside of life sciences is certainly very exciting. How are you thinking about that move considering that your core competency is life sciences? And how do partnerships fit into the move beyond life sciences? And then I had a quick follow-up for Tim.

How do we think about outside of life sciences? Well, I think our core competencies are really building cloud technology. It's also understanding of life sciences and also the reference-selling model. And just basic how do you execute a business of this type of scale?

So I think we're going to leverage a lot of our core competency outside of life sciences. Certainly the reference selling model, certainly the platform, how to be an application Company, how to build advocacy in the customers. So, I think there's a lot of leverage there.

In terms of partnerships, we have a small go-to-market team, and we will be looking for the appropriate partnerships. But we are not going to provide details on that at this time. I would say another thing we'll leverage is our core competency at Veeva to sell into smaller companies and large companies; we can do that quite well.

I feel no company is too large for Veeva to sell into. That's a core competency of Veeva. But then again, we have a lot of small companies, very successful, small biotechs. So I hope that gave you a little more color there on the outside of life sciences.

Got it, thank you.

And a quick follow-up for Tim. What was the non-CRM revenue in the quarter and how are you thinking about the full-year guidance for 15% CRM growth and approximately 100% non-CRM growth in light of the results in Q1?

That's it for me, thank you.

Yes, in terms of non-CRM revenue for the quarter, Stan, as we've talked about in the past, we've given guidance for the full year, and given our Q1 performance, we are definitely still on path to the roughly 100% growth in non-CRM and the 15% growth, excuse me, in the CRM business. So both of those after the Q1 results continue to be on the path.

What was the percent of revenue from non-CRM in the quarter?

I don't think we've given that before, Stan, and not something that we've given on a quarterly basis, I don't believe.

Okay, thank you.

Kenneth Wong, Citi.

Hi, everyone. This is Rich Hilliker on for Ken.

Staying on the same topic, outside of the life sciences market for Vault, I was wondering if you could comment a little bit on the competitive landscape and if and how competitors are attacking that market?

This is Peter, Rich.

Competitive landscape in this enterprise content management overall, there is a lot of competitors in there. It's really a fragmented market. If you look at how Veeva is approaching that market, it's for content applications. And specifically with the couple that we're starting with and the commercial content in quality area, so we don't really see consolidated competitors there.

We think we can bring great applications to market in the cloud and really do well in that market. The way to think about Veeva is again, an application Company, so we are building applications like the Salesforce, ServiceNow, Workday, that type of thing, and we have a platform that supports it. But what we're going after is the content management applications, the application layer.

So if you look at what's out there, it's really a plethora of things. In some cases, honestly, we'll be replacing paper processes, processes that were quite complex and we're actually going to be replacing paper because they're highly regulated and haven't been automated yet.

In many cases, we are going to replace custom client server systems, and in some cases, even mainframe systems. It's really not a consolidated market, and you'd be surprised at the amount of legacy that is out there.

Great, thank you.

Sterling Auty, JPMorgan.

Thanks, it's Darren Jue on for Sterling. I just wanted to come back to Vault, and I know you've given a number of reasons why you're seeing a lot of success there. But just a broader question around the health of the life sciences industry, are you actually seeing like a pickup in a number of clinical trials being run, or the number of drug filings that are being made? Is that partly explaining the growth in the Vault business?

I think it does contribute, and this is Matt, thank you for the question, Darren. So, I think in two ways, one is that there's been more new drug approvals in the past two years than in any two-year period in the last 60 years. So that comes with it a lot of commercial activity, obviously, but it also helps to drive funding for new clinical trials.

I also think that we are probably about hitting a tipping point with the combination of gene therapy and some specific diagnostics around genetics and more personalized medicine, where I think the next 10 years of life sciences, we may see more real true breakthroughs than we've seen in any 10-year period before. You look at Companies like Spark Therapeutics that are trying to cure blindness with a single injection that goes in and changes your gene, your genetic mutation. That type of thing expands very rapidly when you can fix hereditary and genetic diseases literally with a single injection.

We see all kinds of innovation around our customer base. So I think it's a very, very vibrant and innovative industry, and I actually think that we are approaching the Golden Age of life sciences. I don't think that the Golden Age was all the big blockbuster drugs. I think that drove certain types of activity. But with more personalized medicine it means there's going to be more companies investigating more science, and that's going to create more opportunity for Veeva as the industry cloud player.

Great, thanks. And maybe a question for Tim. I know you talked about the margin out-performance being driven almost entirely by the revenue upside, but I think in the last call, you talked about seeing sequential improvements in margin as we moved through the year. But the guidance for 2Q actually suggests a slight dip in the margin. So I'm wondering were there any costs that maybe got shifted out of 1Q, or what would be the reason for the margins to dip a little bit?

Darren, before I get to that question can I do this, I apologize. Stan, you asked the question I thought was more nuanced. You were asking a very simple question, which was the non-CRM revenue contribution, which we of course have given before. This quarter, it was a little bit north of 30%, so let me get past that.

Darren, in terms of the operating margin performance, you are correct. The beat here in Q1 on operating margin was driven by the revenue out-performance. We are committed, of course, to continue to maintain this business of both high growth and high profitability. But given Q1 came in much higher, it's possible that we could see some quarters that are flat or slightly down.

We did raise our guidance, as you saw, overall for the year both in operating income and in margin with that number now at 25%. And that still enables us to exit the year roughly at 26% in an operating model, as we talked about on the last call. So I think overall, we will continue to see that march towards the roughly 26% operating model by year end.

Okay, thank you.

Brendan Barnicle, Pacific Crest Securities.

Thanks so much.

Peter, I wanted to follow up on your comments on the move outside of life sciences in Vault. I think you said that you're going to be able to make that move without any impact to margins. I just wanted to make sure that I heard that right and maybe get a little more color on how you can make a move like that and make those investments without any broader impacts?

Thanks, Brendan.

Yes, the move outside of life sciences doesn't affect our guidance for the year and doesn't affect our margin, even for our 2020 targets for margin in the year 2020. And also, it doesn't affect our revenue. We've given a stated goal of a $1 billion revenue run rate toward 2020, within 2020 and that's just inside life sciences.

So the question of how are we doing that, we have to build the business. We will build the business with growth and profit, and that is really the reference-selling model. We have a tremendous platform involved and we can build applications on it rapidly, as we've done with QMS. And many of those applications are applicable outside of life sciences.

So we will always have a good field model where we have a targeted buyer. We know we are going after, it's application sale. You get those customers live and happy, and then they start telling other customers that's the reference-selling model, so that's really where the leverage comes from. That's -- we're leveraging two things in the model, the existing investment in the bulk platform, we are reusing that. And then in our go-to-market, it's the leverage of the reference-selling model, and that's how we'll be able to maintain our margins and our growth as we build this new business.

Great, thanks for that clarification. And also in your prepared comments, you talked about QMS filling a hole that had existed in quality management. What had people done in the past?

Brendan, this is Matt, so large companies have used on-premise client server of software. There's a few companies that have been leading in this market for a long time, and so it's a normal legacy on-premise environment that we've seen in a couple of other areas like CRM, or with Documentum. But it's generally been best-of-breed companies, not companies with broad, integrated suites.

I think most of the competitors in this area really only do this, they just to QMS. And many of them just do QMS in pharma. A couple of them do QMS in pharma and some other adjacent industries. Smaller companies, interestingly, have not been able to afford a lot of those solutions and a lot of them have been really struggling, either with paper or with companies that just generally haven't had good scalable platforms.

So there is no cloud competitor for us there. We're going to be the first Company that has a cloud QMS solution. And the fact that is beautifully and perfectly integrated with our cloud quality doc solution just creates tremendous value for these companies, and they've never had that ability before.

Thanks, Matt. I think Peter also mentioned that this is going to increase your TAM in the quality space. Do you have some TAM numbers around quality?

Well we've talked and the Vault TAM generally, we've talked about it is about 20% of the $2 billion TAM was in commercial. So the 80% was roughly split between quality, clinical, and regulatory. Now the split changed a little bit, because we've added a steady startup application in clinical, we've added registrations tracking and submissions archive in regulatory, and we didn't really update the TAM around that.

QMS is the largest of these additional Vault applications that we have launched so far. So we'll do a more deep dive on the TAM at the analyst day when we have more time, but suffice to say, it's well above $2 billion now. But we will be much more specific at the analyst day.

Terrific, thanks a lot, guys.

Kirk Materne, Evercore ISI.

This is actually Patrick Falzon on for Kirk. Congratulations on the quarter. Can you just discuss the pace of hiring relative to your comments earlier this year, in terms of stepping up your recruiting efforts, particularly as it relates to adding new sales resources?

Yes, Patrick, this is Tim. So the Q1 hiring, it was unplanned. We added 68 net, and most of that was in the development and the products area, as well as in the field area, as we talked about 90 days ago on the call. And the pipeline, from a global hiring perspective, continues to look very good here into Q2 and into Q3 where we have, in our plan, most of the hiring we discussed in the Q4 call.

So we are on plan and it continues to look good in terms of our ability to attract really high-quality talent. I remember Richard's comments earlier on the call about our development folks. Our continued ability to attract those types of people, as well as strong sales and marketing people has been great.

Great, thanks, and if I could follow-up with one more. You gave some stats around your CRM add-on products in the prepared remarks. But can you give any additional color there and talk about how some of the newer products, like Events, are scaling?

Sure, yes, this is Matt.

So I'll do it in the context of the recent CIO event that we had. We brought together about half of the commercial CIOs at the top 20 pharma companies. Events was a big topic there.

This has been an area that has been really difficult to automate and very difficult to automate consistently around the globe. So, one of the big value propositions that we keep hearing from customers is to have a consistent system that can drive consistent processes across geographies, as some of the spend disclosure regulations continue to expand around the world.

So we are in, as Peter said, we have 11 customers there; that's fast for a CRM add-on, particularly one that is not easy. This is a major system and it's a major area of spend. Companies spend, I think it's about $1 billion a year on Events, so it's a big area of spend. And I think we really got right in the approach that we took. And so far the early customers that are going live have been thrilled with the results. So, it feels like we've built the right thing and our go-to-market strategy so far has been working.

Great, thanks. Congratulations again on the quarter.

Steven Wardell, Leerink Partners.

Hey, great, thank you.

Can you tell us a little bit more about Vault? How long is the sales cycle for Vault? And also what happens to the prior solution that was in place when there was a prior solution in place? Does it get shutdown and the documents carried over to Vault, or has it kept running to support the documents that were originally put on it?

In terms of the sales cycle, it's typical enterprise software. Large companies six to nine months in the sales cycle, generally within RFP; small companies two to four months also within RFP. That's generally what we've seen. IT's pretty consistent with what we saw in CRM, as well.

In terms of what they do with the old systems, one of the goals what you buy Vault is to retire the old system and to get the cost savings associated with that. So, most of our Vault implementations have a data migration component, and that's a pretty standard thing. Pharma companies have been rolling over their old documentation from content management system to content management system forever, because some of these documents have to survive the life of the company plus 15 years.

So J&J has 100-year-old documents that they can't throw away, as an example. So yes, data migration is a normal part of most of our projects, and our customers can't wait to retire the old systems once they get Vault in place.

Great, thank you.

There are no further questions at this time. I will now turn the call over to Mr. Gassner for closing remarks.

Thanks. We're leased to have kicked off the year with an outstanding first quarter. And I like to close by thanking our team for their great work and thanking our customers for their continued trust and partnership. Thank you.

This concludes today's conference call> You may now disconnect.