Veeva Systems Inc (VEEV) 2015 Q1 法說會逐字稿

I would now like to turn the call over to Josh Faddis, Veeva's General Counsel. You may proceed.

Good afternoon, and welcome to Veeva's fiscal first-quarter earnings call. 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 www.veeva.com under the investors section and on the SEC's website at www.sec.gov.

Forward-looking statements made during the call are being made as of today. 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 we 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. A 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 will now turn it over to Peter.

Thank you, Josh. I'll first summarize our results for the quarter, then talk about some recent highlights, before turning it over to our CFO, Tim Cabral, for a detailed overview of our financials.

We had a great first quarter. With a total revenue of $66.7 million, up 56% from a year ago, and subscription revenue of $48.5 million, up 74%. We also continue to deliver solid profitability, with a non-GAAP operating margin of 24% for the quarter.

I'd like to start by talking a bit about the Veeva Commercial Summit held last week in Philadelphia. This is an annual event where we bring together current and prospective customers and partners to showcase our commercial offerings and share best practices. The event has grown to nearly 900 attendees, and is now one of the largest gatherings in the world for the commercial side of the life-sciences industry.

Customer and prospect attendance increased 46% over last year, and we also saw far greater diversity in the types of people we drew from across commercial operations. This is a direct reflection of our growing presence in the market and expansion into new areas. We increased core CRM attendance and added far more people with full commercial responsibility.

In addition, we had more attendees focused on a broader set of functions across regulatory, medical, marketing and data. A common theme at Summit was transforming sales and marketing by bringing together data with Veeva Network, content with Veeva Vault, and interactions with Veeva CRM in powerful new ways. Life-sciences companies are laser focused on increasing efficiency, compliance and agility globally. And we are helping them achieve this. The marketers realizing the power of our integrated commercial suite of products delivered seamlessly in the cloud, which we refer to as Veeva Commercial Cloud.

Our customers are looking to better engage the right healthcare providers and organizations across multiple channels. Today, doctors want to learn about products in the same way that you or I would research something. They want to call, click, or visit to get the right information.

Veeva Commercial Cloud is opening up these channels and improving productivity. Veeva users are armed with all the information they need about healthcare providers and organizations with Veeva Network. They can deliver an in-person presentation with Veeva CLM, extend reach with personalized communications via approved email, and provide access to information and services online with Veeva Engage, all while tracking every interaction through Veeva CRM and ensuring customers get the right compliant content at each touchpoint with Vault PromoMats. These products, working together, define Veeva Commercial Cloud, and the customers embracing it are starting to see real competitive advantage.

Larger customers are starting the planning process for how they can move to Commercial Cloud incrementally, and roll out across applications and geographies. They see the benefits and want to get there in an organized way, as they replace their legacy CRM, content management, and master data management systems with Veeva across the globe.

Some of our newer, small- and medium-size customers are starting with the full Commercial Cloud, Network Vault and CRM. They are able to skip the whole client/server generation. They start from a clean slate in the cloud.

Another highlight from Commercial Summit was the announcement of the general availability of Engage, our third CRM add-on for engaging doctors online. We also announced two new CRM add-on products, Veeva Align and Veeva Meetings, planned for general availability in Q2 of calendar 2015. In all cases, these applications expand companies' ability to more effectively align their resources to customers and improve outreach across multiple channels.

At the center of Veeva Commercial Cloud is our flagship product, Veeva CRM. This was yet another strong quarter for CRM, as we saw continued adoption and deployment across current and new customers.

Yesterday we announced that Teva, a top-20 pharma company, is standardizing on Veeva CRM worldwide for both its branded and generics businesses. Following the company's success with Veeva CRM in the US, Teva is replacing a host of legacy systems across its 45 markets with Veeva CRM for 4,500 users.

We saw continued momentum with Veeva Vault as well. We had a top-50 pharma become a seven-figure Vault PromoMats customer. Several months ago, the company started with a small Vault PromoMats pilot to manage promotional materials. This deal represents the expansion of PromoMats to other divisions.

In looking at the larger opportunity within this account, even after this new expansion, there is still potential for more PromoMats deployments across other divisions and geographies. And this seven-figure deal represents only one of the six Vault applications. So, there is still significant room to grow within just this one customer.

On the R&D side of our Vault business, we started the implementation for the large eTMF project that I mentioned on the last call, which is going well. This continues to be an important project for us, and we are already seeing the effects in our pipeline as the word has gotten out.

This is why you'll hear us repeatedly talk about our number-one core value: customer success. Customer success allows us to continue expanding within existing customers. And in such a tight-knit industry, our customers are often our best advocates and help us grow.

Overall, we are very encouraged by the market uptake of Vault. Most customers are in the early phases, working on their first pilots with one of the Vault products. These early projects continue to go well, setting us up for leadership in this significant new market.

Finally, I continue to be pleased with our early progress with Veeva Network. In Q1, we added new customers and saw more of our early customers go into production, including our first go-live in China. The thing that I find most exciting about Veeva Network is that, even with the handful of customers that we have now, the network effect is already becoming a reality. Our data is getting better and better, as our data stewards processing an increasing number of change requests everyday from our customers' field reps. And customers are experiencing the business benefit of this network effect from day one.

Our goal is to create a single instance, multi-country customer master solution, which we believe does not exist in the market today. As we expand Network's coverage to other countries around the world, this will become a reality. And, when combined with the hundreds of millions of interactions that are captured within the Veeva CRM system every year, we will have created a unique data set that will be available nowhere else.

The importance of Veeva Network is being recognized industry-wide as well. We recently announced our intent to partner with Symphony Health Solutions, a leading data provider, to pre-align Symphony's US healthcare data with Veeva Network, making it seamless for customers to marry the healthcare provider and healthcare organization records within Veeva Network with Symphony's sales and prescription data. This data integration is typically one of the biggest challenges that our customers face during implementations. So, to have this data pre-integrated with a leading industry player like Symphony is a huge value add for our customers.

So, what does all this mean to the Business and our outlook overall? I'm pleased to report non-CRM revenue has now surpassed 10% of our total revenue in the quarter. The mix is even higher when evaluating our bookings and pipeline of new business. While CRM is continuing to grow, our newer product lines are now becoming more significant contributors to our Business.

Let me wrap up by thanking all the customers that participated in the Veeva Commercial Summit and all the Veeva employees who worked hard to make it happen. It was evident: Commercial Cloud is gaining significant traction, and our customers are happy and engaged. It was a tremendous success all around.

With that, I'll turn the call over to Tim.

Thanks, Peter.

I'm very pleased with the Q1 results on both the top and bottom line. Total revenue was $66.7 million, up from $42.8 million one year ago, a 56% increase, and above our guidance of $62.5 million to $63.5 million.

For the quarter, subscription revenue was up 74% to $48.5 million from $27.9 million last year. Subscription revenue growth on a year-over-year basis was driven by strength across all three product lines, but primarily by continued global deployments in CRM, and growth in sales of both our Vault Commercial and R&D applications. On a sequential basis, this strength also helped to offset the impact of the three fewer days of revenue recognition in Q1.

Services revenue for the quarter was $18.2 million, up from $14.9 million in Q1 2014. These results included a higher-than-expected contribution from Vault and Network implementations. We also saw a positive impact from some one-time milestone-based arrangements.

As a reminder, we do continue to expect services revenues to be variable period to period, depending on a number of factors, including the requirements, complexity and timing of our customers' implementation projects, and the achievement of milestones in some of our professional services arrangements. The primary purpose of our professional services is to ensure our customers achieve success with our cloud solutions.

In terms of geographic mix for the first quarter, approximately 56% of our total revenue came from North America and 44% came from outside North America, based upon the estimated location of users for subscription revenue and the location of projects for services revenue. This was a shift of 5 percentage points towards international versus Q1 from a year ago, driven mostly by rapid growth from Asia. As a reminder, revenue from regions outside of North America is expected to gradually increase as a percentage of total revenue going forward.

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 in the tables from our press release, which is posted on our website and filed with the SEC.

Our subscription gross margin was 76%, up from 75% a year ago, largely driven by the increased contribution of Vault, Network and CRM add-ons. We expect the trend in subscription gross margin to be up over time, as our newer products account for a growing percentage of subscription revenue. As discussed previously, these products have a slightly higher gross margin profile relative to our core CRM product.

In Q1, services gross margin was 27% compared to 28% one year ago. Our target utilization rates for our services business produce gross margins in the 20%s.

Our total gross margin for Q1 was 63% versus 59% one year ago. This 4-point increase was driven by the continued improvement in subscription gross margin and the increase in subscription revenue as a percent of total revenue.

Turning to operating expenses, we continue to add headcount across all functions as the Business scales globally. Overall, operating expenses grew 59% from the same period last year. Sales and marketing expense was $12 million versus $7.5 million last year. R&D expense came in at $8.3 million, up from $5.2 million one year ago. G&A expense was $5.5 million compared to $3.5 million in Q1 of last year.

Overall, our operating margin of 24% in the first quarter was up from 21% in the prior year period, driven largely by the increase in gross margins and supplemented by the favorable impact of some delayed hiring in Q1. That said, we intend to keep investing for growth, and have a relatively aggressive hiring plan for the remainder of the year. In addition, we expect to expand our headquarters to address our growth requirements, therefore, we currently expect some degree of operating margin compression over the coming quarters.

Net income was $10.4 million compared to $5.6 million last year. In Q1, our fully diluted net income per share was $0.07 based on 142.8 million shares outstanding.

Turning to the balance sheet, deferred revenue grew to $74.9 million, up from $67.4 million in the previous quarter. Our calculated billings were up 54% on a year-over-year basis, driven by another strong bookings quarter. However, as expected, this was down slightly on a sequential basis, given the seasonal pattern of our renewals.

We exited the quarter with $345 million in cash and short-term investments, up from $288 million at the end of Q4. $35 million in proceeds from the primary portion of our follow-on offering in March, coupled with strong operating cash flow, contributed to the growth in our cash balance.

Cash flow from operations came in at $18.1 million, up from $13 million one year ago. This was primarily driven by another strong quarter of bottom-line performance and deferred revenue growth.

Let me wrap up by sharing our outlook for Q2 and our revised guidance for the full FY15. For the second quarter, we expect revenue between $68.5 million and $69.5 million, non-GAAP operating income of $15 million to $16 million, and non-GAAP net income per share of $0.07 based on fully diluted share count of approximately 143 million. Due largely to the timing of some implementations, we currently expect services revenue to be down sequentially in Q2 by around $1 million.

For the year, we now expect revenue in the range of $277 million to $282 million, non-GAAP operating income of $58 million to $63 million, and non-GAAP net income per share of $0.26 to $0.28 based on a fully diluted share count of approximately 145 million. This compares to our prior guidance of revenue of $270 million to $275 million, non-GAAP operating income of $51 million to $56 million, and non-GAAP net income per share of $0.23 to $0.25.

Overall, we were very pleased with our performance on both the top and bottom line. Our employees' focus remains on ensuring customer success and it is their efforts that drive our financial results.

With that, thank you for joining the call today, and I will turn it back to the operator for questions.

(Operator Instructions)

Jennifer Lowe, Morgan Stanley.

Thank you. I wanted to touch on the Commercial Cloud a little bit, and the opportunity there as it gives you an opportunity to sell more of the product into these customers. As you think about -- I don't want to call it, I don't want to call it that, but a vanilla sales automation account versus a customer that really embraces the Commercial Cloud -- how do you view that as affecting your revenue opportunity within the client? Is that something that could be a material uplift for you as customers embrace the product suite more holistically?

Yes, Jen, it certainly can. When we get our base CRM product into a customer, and they start deploying it and they start having success, that's often the way things can start on the commercial side with a large customer. Then they will see the quality of our software and our people, have a good experience, have success, and then that'll start opening their eyes to the full potential of the full suite of the Commercial Cloud, which is a set of applications, including two new ones that we introduced. They're integrated together, and integration keeps getting better. So, when they start to experience the Company and realize this, it leads to more products, more divisions, more geographies, and more revenue for Veeva.

Great. And maybe just shifting gears quickly, last quarter you talked a little bit about customer count with Vault and with Network, and also highlighted a couple million-dollar deal wins there. Just curious if there's any update there in terms of where you are with Vault customers or where you're seeing in terms of seven-figure wins with Vault and Network, at this point?

With Vault and Network, we're certainly seeing tremendous pipeline. As we mentioned on the call, we saw another customer cross the seven-figure threshold for Vault, which is just in one application, the promotional materials management application, and not fully deployed there. We do see that. We can see it in the pipeline.

I think the proof point of the -- last quarter, we announced the large eTMF customer who purchased it. And that's become a proof point, and it's provided validation of Vault as an enterprise content management platform. And that's reflected in the pipeline, but these things -- as you know, these things -- they take a while to mature through the pipeline.

Great. Thank you.

In terms of customer accounts, Tim, do you want to take that one?

Yes, Jen, we'll be updating that customer count annually. Quarter-to-quarter movements aren't really necessarily representative of the growth or the momentum of the Business. But I do think the anecdotes that Peter talked to really are more indicative of the Business.

Okay. Thank you.

Karl Keirstead, Deutsche Bank.

Hey, guys, this is Jobin Mathew on behalf of Karl. Thanks for taking my question. I had a couple of questions; one for Peter, one for Tim.

Peter, you mentioned the non-CRM part of the Business is now about 10%. If I am right, at the end of last year, I think you guys had it under 5%. So, it seems like this is clearly at a tipping point.

Can you talk about the dynamics here with the CRM? Clearly, in CRM you guys had a great run replacing legacy install base out here; is that the same story with Vault and Network? Are you going after Documentum and SharePoint units out there, or do you have any greenfield opportunity that's bigger than what some people may think?

What we disclosed before is last year's subscription revenue, and that was around 5% that was non-CRM for last year's subscription revenue. And now, what we disclosed this time is that, on a quarterly revenue, total revenue more than 10% was for non-CRM. So, it's true we're seeing the growth in percentage as we have more uptake in Vault and in Network.

Now, in terms of the macro level of what we're doing, it's correct: We're replacing client/server applications. So, we're replacing maybe Siebel, that type of thing, in the CRM side. The Vault side, we're replacing, could be Documentum, SharePoint and a few other things. And then in Network, really replacing a lot of variety of client/server toolkits and data sources.

So, I think you're right; it is a similar pattern, and all three of them are big opportunities for us. We're really bringing the customers to the cloud; it's replacing client/server.

Got it. And as we think about the back half of the year, how should we think about the ramp of the non-CRM business for the full year?

Tim, in terms of forward guidance there, can you take that?

Yes, so, Jobin, we did give guidance or revised guidance for the full fiscal year. We have not, to date, given specific guidance on the break between CRM and Vault and Network. And that's not something that we're doing right now, although we're pleased with the growth and momentum of all three product lines.

Got it. And one more question for Tim. So, Tim, looking at your guidance and looking at the performance in the first quarter of this year and what you guys did last year, the billings is obviously very strong, but as you look at your guidance for the second half, it seems there's a slight slowdown which is kind of baked in your guidance. Is that just coming about due to any conservatism from your side around timing of new project deployments? Or is there any other moving pieces that we should be thinking about?

Yes, I think it's a good point, Jobin. I do think that, given it's early in the year and we have a number of quarters still in front of us to execute on, there is probably a little bit of a lean towards being conservative in that guidance. Although it was, what we consider to be, a strong raise from the original guidance. So, I think that's probably the contributor.

Okay, and one last question on the margin. So, the margins clearly outperformed our expectations -- what we had. So, you guys had strong gross margins. But I was also thinking about your spending intentions. How should we think about it? Would it be kind of even throughout the year, or is it more back-end loaded in terms of your hiring plans for this year? Thanks.

Jobin, I think we're aggressive in each one of the quarters as we look at our internal plan from a hiring perspective. Obviously, we see a large opportunity across these three product lines, and want to invest pretty aggressively. And hiring is one of the key ways to do that. So, I wouldn't characterize it as back-end loaded.

Got it. Thanks, guys. Good quarter.

Thank you.

Sterling Auty, JPMorgan.

Hi, this is Jackson Ader on for Sterling. We just had one -- or a couple of questions. The first being: Can we have just a little more color on the mix of R&D from the Vault product versus the traditional side of things?

I don't have the exact numbers on the mix there, but I will say we're seeing traction on both, really. I would say relatively even. Of course, on the commercial side, those were the products that we introduced first, so they've been around for longer. They maybe have deeper.

And then on the R&D side, the opportunities are bigger. There are more applications. But I would say right now, roughly even on our traction across R&D and commercial for Vault

Great. And then just a follow-up: Retention rates -- are they in line with what you've seen historically either on a dollar base or customer base retention rate? Do you have any color there?

Tim, you want to take that one?

Sure, Jackson. High level, retention rates have not changed from what we've seen historically. We do give a revenue retention metric on an annual basis, and we'll continue to do it on that cadence.

Okay. Great. That was all from us. Thank you.

Thank you.

Brendan Barnicle, Pacific Crest.

Thanks so much. Peter, the question I always get from folks is about sort of where you are in the opportunity here. And I was wondering: Are any customers using all three of the core CRM, Network, and even Vault products at this point?

Yes, Brendan, we do, and I'll give you a couple flavors of that, because it depends when you're talking about the small-, the medium-, the large-size customers. So, we do have some large-size customers that are using all three products, but we don't have any large customers that are fully deployed with all three product lines. That takes a while when you think about divisions, geographies, applications.

Now, if you talk about the small-size customers, we have some really interesting and exciting things going on. We started selling our R&D applications, the first versions of them, maybe 18 months ago. And as those applications were very early, they were suitable for small companies, small biotechs, emerging biotechs, just moving off of paper and file shares. So, they got the version 1 Vault and it was great on the R&D side.

Well, now, if you look 18 months later now, those companies, some of them that have been quite successful, they're getting ready to commercialize their first products. And when they do that, they will only commercialize in one country, in one product, and in the US. So, they are still relatively small companies, but well funded and going. Those companies now are getting our Commercial Vault, Network and CRM, the whole Commercial Cloud, all at once.

So, when they come to market, they basically have been able to skip this whole client/server generation and be very efficient. And we think that's a great proof point to say: Hey, clearly, this industry cloud from Veeva is a better way to go. And especially if you have a clean slate, just put it all in. That's an indicator that even the big companies, over time, will want to organize ways, surgically start putting in things because they can't replace it all at once. It's just too much disruption across the product lines, geographies and divisions.

And, Peter, with any of the announcements that you made at the user conference last week, does that do anything to that $5-billion TAM you've historically talked about? Does it change in any way?

Matt, do you want to take that one?

Sure. The announcements that we made were mostly in the CRM area, and so I'd focus in on the $2-billion TAM that we have always defined for CRM. And the way that we define -- the short answer is, no, it's all within the $2 billion. And that's because the way that we've defined it is that it's the CRM and other sales productivity and compliance tools that sales reps use.

Two of the big areas of spend are meetings management, and territory alignments and planning. And so, those are always included in the TAM, and always on our product roadmap. It's just kind of a question of when we would get there. So, those are big opportunities, but within the $2 billion.

Great. And then, Matt, just quickly, you mentioned that -- expect margins to decline through the back half of the year. Do you expect operating margins to bottom out this year, or would we expect them to continue to find a bottom sometime next year?

Tim, you want to take that one?

Yes. This is Tim. I think it's a little bit early to tell. I don't know if we would consider a bottoming out this year. I think we'll see some compression from where we landed in Q1 of 24%.

And over the long term, I think, as we talked about before, our long-term model is probably right in that neighborhood as well. So, I don't think there's going to be -- I don't think this year becomes a point of bottoming out, Brendan.

Great. And then, Tim, you touched on retention earlier. Any commentary on hiring during the quarter? What you saw?

Well, we touched on revenue retention earlier. In terms of hiring, we had a very aggressive target, as we do for the remainder of the quarters in Q1. And we were a little bit short of that, so we're continuing to aggressively hire throughout the year.

Great. Thanks, guys.

Richard Davis, Canaccord.

Hey, thanks. So, one, I'll take Brendan's question one step further. So, if you had 100% of the tax rate with your existing add-ons, would your revenues be about 50% higher than they are today? Is that kind of a rough math? Am I correct on that, or is that in-line or not?

I don't think we could -- yes, I think that's probably kind of an extrapolation -- we haven't really added it up that way. I think there's a lot of factors that go into that. So, I think we're not going to slice down the TAM quite that far.

I'll just make it up. That's okay. (laughter)

And the second question -- I got a question from an investor. He said: Look, there's all these biotech companies been going public; there's been kind of a burst in funding, a burst in business formation. You kind of touched on it -- how people are jumping straight to the cloud.

The corollary to that is, not only are these firms I guess more likely to use cloud, but is it also logical to assume that there might be an increase in the number of sales people to whom your software and platform would be useful? In other words, the TAM gets bigger in that fashion -- in other words, think about it that way. Thanks.

I think a good question is: In that area, is the TAM increasing because the dynamics of the industry changing more innovation. Matt, why don't you give it your thoughts on that one.

Sure. So, the normal cycle is that products get approved, new products get approved. These biotechs, they go public, they announce a new product, and then release it. But then you also have products coming to the end of their patent expiration. So that's kind of the norm or Yin and Yang in the industry.

I don't think that with the biotech boom, that's necessarily going to change and all of a sudden there's so many new approvals that the TAM changes materially. So, we don't plan for that kind of TAM expansion. We think the market is -- I mean, it really has been pretty static in terms of the size. But it's been shifting. Some of it has been shifting towards emerging markets.

And in the large markets, we see a shift towards digital: digital promotion, digital strategies, multi-channel. And so, that's why in our CRM business you've seen these announcements in more multi-channel areas. So, approved email was the first; so, we got out of face to face and we had the email channel. But the two that we announced last week were the web channel or mobile web channel, and then screen sharing.

So, still CRM, still driven by sales reps in the middle of the conversation, but allowing them to traverse more channels, and we see a lot more spend. I mean, the data is something like 75% growth in spend in digital over the last few years. So, I think that's more the important dynamic in the industry than the number of companies going public from a kind of revenue potential perspective for Veeva.

Thank you very much.

Tom Roderick, Stifel.

Hi, guys, good afternoon. So, first question I just want to ask is on the geographic side of the equation. If the math I follow is correct here, it still looks like the US is growing about mid-40%s, year on year, in growth. How does that sort of jive relative to where you're putting investments in the sales organization? And should we think about that 40%-plus growth rate being a sustainable level for the US for the foreseeable future? Maybe just help us think about geographically where you see the growth sort of splitting out. Thanks.

Yes, Tom, this is Tim. We certainly -- well, first of all, we don't break out any regional guidance in terms of growth rates or opportunity, although we see opportunity across all three regions. And as we talked about last time, we just started to invest in Latin America; so, the four regions we are in. We are making investments across the board because we see a large opportunity in each one of those regions.

From a growth rate perspective, obviously we've been in the US for the longest. So, it is our largest, both sales capacity, as well as revenue region, for sure.

And when you look at the traction with some of the newer products, particularly Vault, what parts of the world are most attractive to you on that right now? Or perhaps a better way of phrasing it is: Where do you see less competition on the Vault side of the equation?

On Vault, we see it start in the US first; that's what we have traditionally seen. I think part of that is the US is a large market and a contiguous market in terms of countries, where Europe is more smaller countries put together. So, I think you see that trend: a lot of times, products starting off in the US first, and that's generally what we see.

But we're starting to see good pickup in Europe and in Asia, particularly Japan, some in Asia-Pac. So, I think that's the pattern we've seen, and will probably continue to see.

Great. Last one from me: I know that in the Summer and Fall, you sort of signaled an expectation that services would grow slower than subscription. That's happened; but at the same time, the pace of that services growth has kind of picked back up.

Is it fair to think about services as a decent leading indicator, and that right there is a good indication that indeed Vault is picking up traction and will contribute to subscription more meaningfully? Or is that sort of concurrent or lagging as an indicator on the services side?

Yes, so, Tom, this is Tim. I would say that I don't think that you could characterize it as a leading indicator. I think, while in Q1 we saw both strength in services revenue and subscription revenue, I don't know if that characterizes long term as a leading indicator.

I think that we do see very strong demand, or did see, I should say, in Q1 and into Q2 and Q3 strong demand for services. And we see strong pipeline for subscription as well. So, again, not a leading indicator. I think both are moving well, and I see strong growth in both.

Great. Thank you, guys.

Jason Maynard, Wells Fargo.

Hey, guys, good afternoon. I just wanted to maybe spend a little bit of time on the master data management network offering, and get a little bit of color kind of on two vectors. One would be: Are you finding customer receptivity and interest in this product taking off as you educate, or are people ready and willing to make the move as the product matures?

And then the second point is: This is an industry that's been riddled with a lot of homegrown, do-it-yourself labor. And I'm curious what do you think from a pricing standpoint you can extract as a percentage of that over the long run? Because there's clearly a lot of non-software spend that goes into sort of calculating the available market opportunity. Thanks.

As far as Network taking off, yes, I think there's a lot of excitement around Network. Network is a very innovative new concept. So, I think people are really starting to grasp it now. It takes a while.

We have our first early adopters going live, and we have our first seven-figure deal in the US. And after that starts going live, people really starting to see it. So, we certainly have a lot of field activity around Network. But not everybody jumps at once at it, because Network, that's a significant item for the customers in terms of change management and in terms of wiring it into their systems. But I fully expect it to take off.

Now, in terms of, let's say, what their spending today in terms of building these things, maintaining these things, which, as you're right, is software but it's more than that. Lots of services and hardware and all types of things, and delays. What will happen is we will get some of that, and our customers will reap the benefit, too. So, overall, they'll certainly spend less with Network, but we still think Network is a sizable business.

Great. Thank you.

There are no further questions at this time. Thank you for joining today's conference call. You may now disconnect.