Veeva Systems Inc (VEEV) 2016 Q3 法說會逐字稿

Good afternoon. My name is Mike and I will be a conference operator today. At this time I would like welcome everyone to the Veeva Systems FY16 third-quarter results conference call.

(Operator Instructions)

I will now turn the call over to Rick Lund, Veeva's Investor Relations Director. You may begin your conference.

Thanks, Mike. Good afternoon everyone, and welcome to Veeva's FY16 third-quarter earnings call for the quarter ending October 31, 2015. 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-Q, which is available on the Company's website at www.Veeva.com under the investor section, and on the SEC's website at SEC.gov.

Forward-looking statements made during the call are being made as of today, November 24, 2015. 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. 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 turn it over to Peter.

Thank you, Rick. I'm pleased to report another solid quarter, with revenue above our guidance. We expanded our business while delivering profit margins that are among the best in cloud software. Total revenue in the quarter was $106.9 million, up 28% year over year. Subscription revenue was $81.7 million, up 33%. And we delivered a non-GAAP operating margin of 26%.

We had great execution across the board. And we are seeing the real benefits of our expanding solution set that addresses multiple large markets.

In Q3 we closed significant deals in many of our newer areas. We had our first major wins for Vault Study Start-Up in the clinical area, Vault Submissions in regulatory and Veeva KOL Data in our data segment. These deals are a great indication of our growing traction in major new segments. Through customer success and product excellence, we are increasingly the go-to vendor for the industry to help them address a broad range of challenges and opportunities.

As a result of our continued growth across multiple areas, non-CRM revenue surpassed 25% of total revenue in the quarter with growth that is north of 100% on a year-over-year basis. Much of this growth is being driven by Veeva Vault.

We believe Veeva Vault is on a path to becoming the de facto standard in the regulated content management market for life sciences. Legacy on-premise players are losing relevance. Our solutions are not just well-positioned as an alternative, but are seen as a better approach to managing regulated content.

34 of the top 50 pharmas are now using Vault in some capacity. They often start with just one of the Vault products, typically in a region or division. Success with these initial deployments provides a tremendous space from which we can grow. And we are less than 5% penetrated in this market. So we still have a long runway ahead. We see this in commercial and also in R&D, where we've gained significant momentum in a relatively short time.

We just held our second R&D Summit in November in Philadelphia. Attendance was up 50% from last year. The following week our European R&D forum attracted twice the number of attendees we projected. The feedback from these events was overwhelmingly positive. There is excitement around the innovation and real sea change Vault is bringing about. Projects are fast, as much as four times faster than legacy projects, and are delivered on time.

Having an application that is highly intuitive, like Amazon or Facebook, is a revelation for our customers. The applications just fit their business. Customers are looking for a strategic partner across R&D as they modernize their regulated content management systems with cloud-based solutions. They are turning to Veeva as we continue to expand our capabilities across all three of our R&D pillars: clinical, quality and regulatory.

We announced three new products at the R&D Summit. We're expanding our offerings for regulatory with the addition of Vault Registrations and Vault Submissions Archive. When combined with our existing Vault Submission Solutions, you get a powerful suite of applications for regulatory information management that we call Vault Rim. Vault Rim is a next generation regulatory information management suite that unites submissions documents, product registrations and helps store the interactions into a single source for all regulatory information.

Our first deal for the full Vault Rim suite has already been signed with an emerging biotech ahead of its December release. Although a smaller company and an early adapter, the deal was still in the six figures because of the tremendous value we offer in helping align disconnected regulatory processes worldwide for greater speed, agility and compliance. This helps to get drugs to market faster, and is very strategic for our customers.

Vault Study Start-Up, our newest solution for the clinical area, slated for release in December is also off to a great start with the top 20 pharma and the top 8 CRO early adopters. This new solution helps life sciences companies manage the content and tasks associated with activating sites for clinical trials. This is a very strategic area for our customers, as it is crucial to getting trials done quickly and drugs to market. Vault Study Start-Up works seamlessly with Vault eTMF to assure a single source of trial-related content and greater efficiency in clinical operations.

On the commercial Vault side, a key highlight of the quarter was the acquisition of Zinc Ahead, which we signed and closed in late September. We're very pleased with our progress and the positive market reception. Zinc and Vault customers are enthusiastic about the combination of Zinc's deep domain expertise and Veeva's strength in cloud applications and platforms. And customers are even more pleased as they see the opportunity to integrate the promotional materials approval process with the broader capabilities of the Veeva commercial cloud.

As planned, we have moved quickly to fully integrate the teams, define the migration path for Zinc customers and capitalize on the tremendous reputation Zinc has in the industry. Training of the Zinc team on the Vault products is complete. And the combined sales organization is actively selling and winning business. We also clearly defined the migration path to move Zinc's existing customers to Vault commercial over the coming years.

Overall we believe that the Vault opportunity is at least as big as CRM, and Vault revenue is on a pace to grow well over will 100% this year, just as CRM did at this phase in its evolution. We see a very long runway for Vault growth.

Turning to CRM and the CRM add-ons. Demand for multichannel CRM remains a strong, steady tailwind for us. Our customer success here provides a great foundation from which we build within organizations. Since beginning of this fiscal year we've added 28 brand new CRM logos. Many of them are emerging biotech companies commercializing their products for the first time. Our large global deployments are expanding to more regions and divisions, and we are progressing our relationships with the top 20 pharmas that are not yet Veeva CRM customers.

There is steady demand and continued momentum building with our CRM add-on products as well. For example, Veeva CRM-approved e-mails attach rate grew to 14% in the quarter, driven by many large regional purchases. We're also seeing a strong uptick in the interest for Veeva CRM Events Management, due to increased interest in the compliance capabilities the product delivers.

We had great progress with our data business in the quarter. In addition to our signing our first seven-figure KOL data deal, we also won two significant Veeva OpenData deals with top 50 pharmas. One was a large deal to replace an incumbent legacy data provider in the US. We also signed our biggest data deal to date in China, where we are emerging as the clear market leader. And we're making great progress building our Veeva OpenData offerings in Europe where, by early December, we'll have customer data for all of the top five European markets.

Progress with Network continues. In Q3 we saw two top 50 customers begin to roll out Veeva Network concurrently with their CRM deployments. Looking at the big picture for commercial, it is clear that customers are recognizing the power of Veeva commercial cloud. This is fueling strong, steady growth for Veeva.

By getting an integrated suite from Veeva, CRM, content management, master data management and customer data, they can be more efficient and effective. They can be more agile. This agility is seen as a competitive advantage. In fact, customers have commented that Veeva's commercial solutions helps ensure speed in mergers, acquisitions and spin-outs.

We had a fantastic quarter that highlighted multiple sources of long-term growth for Veeva. We continue to reinforce our clear market leadership in CRM. We made great progress advancing Vault, which we believe can become the de facto standard for regulated content management in life sciences. And we had key wins in our data and network business.

We believe our focus on customer success combined with multiple sources of strong growth position us very well to reach our $1 billion revenue run rate target in 2020. With that, I will turn it over to Tim.

Thanks, Peter. I was pleased with our Q3 results. Total revenue was $106.9 million, up 28% from $83.8 million one year ago and above the high end of our guidance. Overall demand for our solution continues to be robust, especially within Vault and some of our newer products. This helped propel non-CRM revenue to over 25% of total revenue for the first time this quarter.

Subscription revenue was up 33% to $81.70 million from $61.4 million last year. Each of our major product categories contributed to the strength of our subscription revenue growth. Zinc products also contributed more revenue than expected in the quarter. For the full fiscal year we remain on track to generate growth of about 20% from our multichannel CRM suite of products, and well north of 100% from our non-CRM products.

Our services business contributed materially to our revenue outperformance in the quarter, with revenue of $25.2 million, up from $22.4 million last year. This result was driven by several factors, including multiple project milestones that were completed in Q3 which was earlier than expected, a quicker ramp on global CRM rollouts and stronger services demand for Vault projects. Given these dynamics and the seasonal slowdown that we generally see in Q4 services projects, we expect services revenue to be down sequentially next quarter. The geographic mix of revenue remain relatively stable at 56% from North America and 44% from outside North America, based upon the estimated location of users.

In discussing the remainder of the income statement, please note that unless otherwise stated all references to our expenses and operating results are a non-GAAP basis and are reconciled to our GAAP results in the tables from our press release which is posted on our website and filed with the SEC. Also note that these results reflect only one month of the acquired Zinc business.

In Q3 our subscription gross margin was 79%, an increase of approximately 140 basis points from a year ago. This was driven by the continued growth of Vault, Network and CRM add-ons which have a slightly higher gross margin profile relative to our core FFA products. Services gross margin for Q3 came in just below 30%, down slightly from 31% both sequentially and one year ago. Services gross margin was helped by the aforementioned milestones recognized in the quarter. Our total gross margin for Q3 was about 67%, an increase of over 2 percentage points from one year ago but slightly down sequentially due to the higher proportion of services in our revenue mix and the effects of the Zinc acquisition.

Recall that the deferred revenue acquired from Zinc was partially written down due to the purchase accounting rules, although the full cost for the month of October we'll recognize in our P&L. Without the purchase accounting treatment of Zinc's deferred revenue at the time of acquisition, our overall gross margin would've been roughly 50 basis points higher.

Moving down the income statement, operating expenses grew 44% from the same period last year, driven largely by increased headcount. In Q3 we added 260 net new people, most of whom came from the Zinc acquisition, ending with a total of 1,383 full-time employees. As Peter mentioned, we're thrilled to have the Zinc team onboard, and are very pleased with the integration progress.

Overall our operating margin of 26% in the third quarter was down as expected by about 240 basis points from the prior period. Two factors drove this change. First, as part of the Zinc acquisition we incurred $1.8 million of one-time transaction costs, which is included in our non-GAAP G&A expenses. Second, the impact of the write-down of Zinc's deferred revenue on overall Q3 revenue was $1.6 million. Without these two factors operating margins would've been slightly ahead of the prior-year period, but in line with the first half of FY16.

Net income for the quarter was $16.9 million, up from $13.7 million last year. Our non-GAAP effective tax rate of 40.2% is up from 36% last quarter, primarily due to tax adjustments related to the Zinc acquisition. We expect our non-GAAP effective tax rate to return to the high 30%s in Q4. However, if the R&D tax credit is reinstated retroactively as it was last year, our Q4 tax rate will be materially lower. Our Q3 fully diluted net income per share was $0.12, up from $0.09 for the same quarter last year.

Before turning to the balance sheet, I'd like to touch on FX. As we've discussed on previous calls, we typically bill about 80% in US dollars, 10% in euros and the rest in other currencies. Consistent with our expectations shared on last quarter's call, our Q3 revenue was negatively impacted by approximately $1.9 million, or almost 2%, due to the changes in FX versus the same period last year. Assuming current rates remain static, we expect the headwind to be about $1 million on revenue in Q4 and roughly $7 million for all of this fiscal year, the low end of our previous expectation.

Turning to the balance sheet. Deferred revenue was $102 million at the end of the third quarter compared to $109 million in Q2. This resulted in total calculated billings of $99.5 million. It's important to note that Zinc's post purchase accounting contribution of approximately $4 million on the date of acquisition was included in the $102 million of deferred revenue. Excluding this $4 million, calculated billings was roughly in line with our combined billings guidance from the last earnings call and the Zinc acquisition call.

Looking ahead to Q4, we expect year-over-year calculated billings growth of 23% to 25%. This implies growth for the year of roughly 19% for this metric. And we're still tracking to a normalized calculated billings growth of 30% for the year. Please remember that calculated billings is not necessarily an accurate indicator of the growth of our business in any given period and is not a metric that we use internally to evaluate the business.

Moving back to the balance sheet. We exited Q3 with $339 million in cash and short-term investments, down from $438 million at the end of Q2. This nearly $100 million decrease was a combination of the $120 million upfront payment for Zinc, about $4 million in one-time CapEx related to the completion of our new headquarters build-out, and partially offset by strong cash from operations of $19.7 million.

As we've said previously, our operating cash flow can be volatile quarter to quarter, so our cash flow performance is best evaluated on a last-12 months basis. Over the last 12 months our cash flow from operations was $75.3 million, down 12% from the previous 12-months period, which is largely a function of the billing dynamics that I discussed through the course of the year. I expect our last-12 months operating cash flow metric to return to moderate growth over the next several quarters and beyond.

Elsewhere on the cash flow statement, you'll notice that our total CapEx was $4.6 million. The majority of that was related to the final build-out of our new headquarters. The build-out is now complete, although some invoices will be paid in Q4. So next quarter I expect about $1.5 million of build-out-related CapEx. Next year our quarterly CapEx should return to a more normal run rate.

Before turning to guidance, please recall our financials in Q3 incorporate only one month of Zinc. Q4 will include the full impact of the quarterly cost associated with Zinc, although revenue will again be negatively impacted by purchase accounting adjustments.

With that said, we expect revenues between $109 million and $111 million for the fourth quarter, which implies $404 million to $406 million for the year. For the fourth quarter the revenue contribution of the Zinc business is expected to be around $4 million after the effect of the purchase accounting treatment. As we head into next fiscal year, we will not be breaking out Zinc contribution as we are well into the integration process and the distinction between revenues from Zinc products and from PromoMats will not be meaningful.

We expect non-GAAP operating income of $25.5 million to $26.5 million for the fourth quarter, which implies $108.7 million to $109.7 million for the year. This Q4 guidance implies operating margins of 23% to 24%. After Q4 the effects from purchase accounting reductions will be minimal, although we believe that Q4 will represent a near-term trough for operating margin performance.

We expect non-GAAP net income per share of $0.11 for the fourth quarter based on a fully diluted share count of approximately 145.5 million. For the full year we now expect non-GAAP net income per share of $0.46 to $0.47 based on a fully diluted share count of approximately 145 million.

We will provide detailed guidance for FY17 on our Q4 call as we have done historically. However, given the recent Zinc acquisition we are making an exception this year to provide an early revenue outlook. Our preliminary plans support total revenue growth in the mid-20%s for next fiscal year.

So in summary, I'm excited about our Q3 results and the current trajectory of our business. Based on our FY16 performance and initial views on FY17, we believe we are firmly on track to reach our target to achieve $1 billion revenue run rate in 2020.

Thank you for joining us on the call today. I will turn it back to the operator for questions.

(Operator Instructions)

Kirk Materne, Evercore ISI.

Thanks very much, and apologize for the background noise. To start, Peter, I was wondering if you could talk a little about some of the Vault progress you guys have made, in particular on the R&D side? You guys obviously had your meeting in Philadelphia, or your customer conference in Philadelphia.

Can you talk about the relationships you're seeing emerge on the R&D side? The kind of -- I guess, interest people have on the R&D side, and when you're talking about some of these bigger Vault wins, are they the coming into through the commercial side, or you're really starting to penetrate just directly on the R&D side? Thanks very much.

Kirk, If you look back a year ago, 18 months ago, 24 months ago we had a lot of progress on the commercial side and on the clinical side with CMS. I think the big, broad picture now for Vault on R&D is we're broadening outside of clinical to really also the quality area and the regulatory area. That is the big picture.

With that, because our product portfolio is broadening across these three pillars, and we have more successful customers in each of these three pillars, we are being viewed as more strategic. These are highly strategic and related areas of R&D, the clinical, quality and regulatory area. And what we are finding is success in one area is leading to successes in other areas. So our relationships is broadly becoming more strategic and more broader in R&D.

Now, if you talk about big Vault wins, one of the big ones we had this quarter, a seven-figure deal, was actually in the regulatory area. Our first seven-figure, as measured by annual contract value, subscription value, seven-figure deal for the Vault Submissions product. And that's just an indication of how we are growing on the R&D. It's very exciting area for us.

Thanks very much. Congrats on the quarter.

Brendan Barnicle, Pacific Crest Securities.

Thank you so much. Peter, I was hoping to follow up on the wins you guys had with the Network product. I was interested in what the use cases you were seeing there and how folks were deploying those.

On Network specifically, Matt, why don't you take that one?

We made reference to a couple of large companies that are now deploying Veeva network along with their Veeva CRM implementation. The use case there is to get a clean version of their customer data. This is all of the -- it's basically the White Pages and the Yellow Pages of who all of the doctors and other licensed healthcare providers are, and all the places that they work and the affiliations between them.

It is straight down the middle for the reason that we started Veeva Network. And that is where we are having success.

It has been exciting because this was something that we were starting with one country at a time. In the past couple of quarters, this past quarter particularly, we have seen more regional, and now these two global deployments. So that was the initial -- the initial vision of the product was a single global customer master system. And that is exactly what we announced just a few minutes ago.

And Matt, when you look at your pipeline, do you see more of those deals that are combination deals like that?

We do, yes. Word is getting out that basically you can change the game in master data management. That you don't have to have a separate customer master system in every country, but you can do this regional and even globally.

So I think there'll be a lot of eyes on these first couple of major projects. And if history is a good indicator, after we have success with a couple of major pharma companies we should be able to leverage that into an even more expanded pipeline across the industry.

Great. And then Tim, just a quick follow-up for you on that mid-20% growth for next year. How should we think about the services piece of that? Should that be more like the growth you've seen this year?

Yes, Brendan. We will certainly want to give more guidance in the next call -- more specific guidance. We're not breaking out services and subscription on this call. Why don't we leave that for next call, if that's okay?

Okay. Thanks, guys.

Stan Zlotsky, Morgan Stanley.

Thank you so much for taking my question. To start off with, can you guys give us a sense for what the ARR growth rate was in the quarter? And perhaps break it down a little more into what it was organically, if you could?

So Stan, ARR growth rate is not something we have given before. What we've talked about, of course, is subscription growth rate, which you saw in the quarter from a year-over-year perspective was 33%.

The Zinc acquisition did contribute a little bit, but it was only one month of the Zinc business. So I would say the vast majority, nearly 100%, was organic growth in that 33% subscription growth.

Okay. Are you guys contemplating ARR as something that you guys might start talking to next year?

Not something that we've talked about yet specifically, Stan. I'll leave it at that.

Okay. And maybe just to, and you -- maybe you cannot answer this one either. The mid-20% guidance for next year, what kind of dynamics are you assuming there between non-CRM products versus the core CRM business?

Given the Zinc acquisition, we wanted to give just a little revenue outlook, Stan. And the expectation is that we'll give more detailed guidance for the full fiscal year in our next call.

Okay, got it. I will just stop there. Thanks, guys.

Amanda Murphy, William Blair.

Can you guys hear me?

We can hear you.

All right. Sorry about that.

My question was around, just to follow up something you talked about in the prepared remarks. Obviously pharma consolidations has been a big topic of discussion.

So I'm wondering, can you help us think about the impact to your business on both sides of the coin? Thinking about CRM, presumably SG&A synergies are a target there. So thinking about the impact to you from continued consolidation on the CRM side, and then also on the Vault side would he helpful. Thank you.

Sure. This is Matt. So as we've stated before, the M&A activity among our customers has been neutral to positive for Veeva. The reason has been because the bulk of the deals have been with -- between companies in complementary therapeutic areas.

And so we saw that with the recent (technical difficulties) and Diax, and AstraZeneca and ZS Pharma. Even Pfizer and Allergan is a very large deal, obviously two top 20 pharmas. But those companies actually have very complementary strengths across therapeutic areas. We expect that overall across product lines, it's going to be neutral to positive.

Now, you asked specifically product line by product line. CRM obviously is going to be dependent upon the number of sales reps, which is not as dependent on number of companies as it is on the number of products that are actively marketed. So if two companies combine but they market the same number of products in the same number of therapeutic areas, than the size of the sales force we have seen generally does not change.

On the Vault side, I think it is a similar story because generally companies that are combining will not stop clinical trials and the Vault eTMF product is charged by the number of active clinical trial sites. The Submissions omissions product, in the same regard. They are not going to shut down active R&D cycles because of acquisition. So I don't think that it really affects the Submissions product.

The one area that is potentially could is in quality because it is the total number of employees. But the product is licensed in pretty broad bands. Not every single user, but thousands of users or in some cases even tens of thousands of users. I think if you look across the product line CRM and Vault, I think that you would see that the effect would be as we have seen in the last 8.5 years, summarized as neutral to positive.

Got it. Very helpful. One quick follow-up there.

Another topic of discussion du jour, I guess, is thinking about biotechs and volatility and then drug pricing with big pharma, obviously a lot of focus on that. Clearly your results are quite strong. But I'm curious in your discussions with those companies, does that dynamic present an opportunity for you going forward, or is there any risk there, just thinking about funding? Potentially, obviously some of them have still quite strong balance sheets, but just thinking forward on whether this is a opportunity or a risk for you in this space.

First of all, the number of biotech IPOs, whether that goes up or down it does not really affect to a great extent our revenue going forward. Certainly it is good for everyone if there is more IPOs, but generally what you'll see is less IPOs means more private financings. In biotech if you have a potential drug that is going to do something unique, you can find funding for it. And so we have really never been affected at this Company by the boom or bust in the IPO cycle because the funding has not dried up for biotechs.

In terms of drug pricing, I think that you're seeing a temporary lighting rod from the current political cycle. I think that it is a bit overblown, but it is fun headlines for sure.

We certainly have not seen any impact. I don't think that there will be tremendous impact to us. If drug pricing really does become affected through this political cycle, if the US really starts to cut down and to do some of the things that other international governments done, I think it would be probably both an opportunity and a threat.

It would be a threat if companies' budgets are going down. But it would be an opportunity that they would invest to try to be even more efficient with things like technology. So I think overall neither of those things we see as risk to our business.

Got it. Thanks very much.

Richard Davis, Canaccord.

Brendan may have been getting at this, but I am trying to triangulate around if we are tracking towards 30% growth and we are adding eight months of inorganic growth contribution, why should next year be in the mid-20%s growth rate wise? Is that -- therefore, is that all services, because we have services growing 15% next year and we still got to high 20%s. Maybe our Excel spreadsheets are messed up, but I'm trying to triangulate around that. Thanks.

Richard, this is Peter. In terms of our outlook for next year, really pleased with that, with the mid-20% growth. That is really solid growth across the board as we scale.

We did make some comment specifically about the Zinc specifically. It's important to remember about -- that Zinc and Veeva had overlapping products in the commercial content management area there.

So what we've done is we've moved quickly to combine those teams. They are no longer distinct business. They operate together. So that is what you see in our outlook going forward.

So overall we're very optimistic about the future and our growth, particularly because it's coming from multiple areas, multiple major markets. And that can fuel our growth, not just next year but beyond that because we're starting these seeds of multiple growth. And so that's why we feel confident to get to our $1 billion run rate in 2020.

Okay. Thank you so much.

Tom Roderick, Stifel.

Hey, gentlemen. Happy Thanksgiving. Thanks are taking my question.

Wanted to follow up on the data point that non-CRM has crossed over 25% of, I think, it was total revenues in the quarter. That is a pretty nice jump up from the last communication, that message. I know we have just a small contribution from Zinc ahead this quarter.

Has there anything -- been anything within the non-CRM the has taken a real step forward, or we are sort of seeing a continuation of similar growth rates on Vaults, just a little bit more contribution from Network? And then the Zinc ahead Zinc Ahead contribution. I guess maybe even behind that, are we starting to see an inflection point from Network and the OpenData products?

I think if you look at that 25%, really the bulk of that -- I would say the majority of that is really from Vault. Because that is more mature in its product lifecycle as compared to OpenData and as compared to Network.

If you look specifically in Vault, actually the largest part of that is on the R&D side. That is particularly exciting for us because that is also a vastly underpenetrated area. Even though Vault is the fastest growing and the largest growing part of that 25% of revenue, it is still a very underpenetrated at less than 5%.

The high level, Vault is the big story of that 25%. It has a lot of runway to go.

And when we turn to the CRM side of the business, what sort of add-on products are you staring to see create a little bit of a flywheel effect for you there? And yes, I think we've always talked about the 15% to 20% price benefit. Is approved e-mail starting to be a real contributor, and are you seeing anything else that's tacking onto that?

Yes, Tom. This is Matt.

So CLM continues to be very, very high penetration. Almost every new CRM customer also buys CLM. Approved email is continuing to expand and now is becoming significant in terms of a revenue contributor.

The other three are still early. Engaged is still small and not contributing majorly. And then Events and Align, we're still really in the early adopter phase. We wouldn't expect significant revenue contribution from Events and Align until probably second half of next fiscal year.

We're going along as planned. The demand for these products is as we would have hoped. We have had actually a couple of breakthroughs on the Events side as well. But even if we signed these deals quickly, they are not going to contribute significantly to revenue until second half of next year.

Got it. And real quick last one for you. You may have committed this. I'm sorry if I missed it.

Did you lay out what expectations might look like for deferred revenues for the fourth quarter, or calculated bookings? I know you had laid out some targets for the year prior to the Zinc Ahead acquisition and commented at the Analyst Day. Any update you can give us, or maybe just repeat from you said on the call on that point?

Sure. In the call -- in my prepared remarks, excuse me Tom, where we talked about for Q4 was an actual calculated billings performance of between 23% and 25% which would land us for the overall year right around the 19% calculated billings number. However, with that said, we're still in line for the 30% normalized calculated billings number that we've discussed in the past calls.

Got it. Any change to how had you had been thinking about the Zinc Ahead contribution relative to the last four months of the year as you had laid it out before?

No, not necessarily any change from the Zinc acquisition call that we talked about, Tom, in terms of billings specifically.

Got it, okay. Very helpful. Thank you, guys.

Sterling Auty, JPMorgan.

Thanks. Hi, guys.

In the prepared remarks you talked about faster CRM rollouts. Can you maybe give us a little bit more color. Is this some of the multiyear large implementations that you're referring to or some of the shorter term? And how much a play out in the coming quarters in terms of impacting services and subscription revenue?

We are referring more to the larger ones. Smaller CRM implementations are pretty predictable now.

The larger ones, there is a lot more moving parts, deploying the CRM system to 50 or 100 countries. Sometimes what we have found over time is that the assumptions at the beginning of a project, many of them change by the time you're done.

So what we have seen is a couple of large ones that are going extremely well where all the contingencies, we're blowing right through them because we're just not hitting roadblocks. So it is the larger ones that we are referring to there, Sterling.

All right, fantastic. Then on the what's your multiple quarters during the year, right, where we had customers doing the shift of renewal dates. Anything in this quarter?

And maybe it might be helpful just to remind us all how that should unfold over the next couple of quarters in terms of some of those larger renewals, and the impact it would have on billings.

Yes, Sterling. This is Tim. So overall I would say this is an area that we look at as customer success.

So when our customers do look to, or need to, if you will, shift their renewal date, we are happy to have those conversations. And as you know, in some cases we have made those changes.

In terms of the Q3 results, if you recall we did mention on the Q2 call that there was going to be one realignment of a renewal date from Q3 to Q1, and that happened. But beyond that, there is nothing else significant that happened in Q3, which is why our billings was in line with the guidance, or how we discussed our billings.

As a relates to into the future, I think under the umbrella of customer success as those requests come to us we will consider them and likely say yes, because we believe that adds value to the growing relationship that we have with our customers.

Okay. Thank you.

Peter Lowry, JMP Securities.

Thanks. Can you talk about the pace of hiring in the quarter and how you see the current recruiting environment?

Yes, Peter. This is Tim.

We actually, as you might have seen in my prepared remarks, we added 260 net new to the organization. A good chunk of that was the new Zinc team members. We are very excited they are onboard here.

We also added more than 100 folks to the ranks throughout the quarter. And so it was a really strong hiring quarter for us.

In terms of the recruiting, or the employee environment, as you know we recruit in many different geographies around the world. So that creates a little bit of risk mitigation from any one geographic talent pool.

We do continue to be very competitive in the Silicone Valley market where our headquarters are for really good product people. And we certainly hired our fair share this quarter. But around the globe it was north of 100 in terms of adding new folks to Veeva this quarter.

Okay, great. Thanks. Are you seeing adoption of the Veeva CRM Suggestions, and what type of feedback you getting on that solutions?

Hi, Pete. This is Matt.

So first, just to remind everyone, CRM Suggestions is part of an upgrade for Veeva CRM. It is not something that we charge separately. So even with additional uptake, that is not going to hit our revenue line.

There is a lot of interest, first from partners where we have signed up additional partners. These will be the companies that do the actual predictive analytics that we then serve up through the Veeva Suggestions product screens. And from customers and prospects who are interested in leveraging those capabilities. It is about what we would have expected, given the very positive response that we had to the launch of the product -- or the announcement of the product in June.

Okay, great. Thank you.

Karl Kierstead, Deutsche Bank.

Thanks for taking my question. Question for you, Tim, on cash flows.

I think more investors and analysts are valuing Veeva shares on a cash flow multiple. So getting our FY17 operating cash flow estimates right is pretty important.

Your comment on that was that in the next 12 months on operating cash flow, we should see moderate growth compared to the prior 12 months. And I guess I wanted to ask you is, is that a normalized growth rate for operating cash flow, or in FY17 is that still weighed down by these changes in billing terms? And assuming it is, is there any guidance you can give us as to what a normalized operating cash flow growth might look like in 2017? Thank you.

Yes, Karl. Good question.

We were thinking high level revenue outlook on next year of the mid-20%s, but appreciate wanting to get that color.

As we look at operating cash flows historically, meaning the last 12 months, we do see the impact of the dynamics of the billings that we saw throughout the year, meaning moving some of that billings out to future periods. I think my comments on moderate growth would be more in line with historical growth rates from a cash flow perspective as we think about next year. And all else being equal, given the fact that we've moved some of the billing -- some of the renewals into Q1 of next year, that should help drive to that number.

Okay, good. Thank you. And then as a follow-up, maybe you don't to give this but I will ask it anyway.

You mentioned 25% of your revenues non-CRM. Any specific color on Vault, given that you gave us that run rate revenue number of, I think, $75 million last quarter? Are you able to give a comparable number this quarter, or would you prefer just to stick to that broader non-CRM number?

This is Peter, Karl. I think on that we'll stick to the broader number.

In terms of that 25%, that is -- the bulk of that is Vault. And I wanted to expand on that a little bit.

The big picture from Veeva I think is we're becoming the go-to vendor for life sciences. And this is really something unique. It's something that has not been done before, really, as we are building our industry cloud.

So while the bulk of that is from Vault, and we talked about new seven-figure deals and new application areas. Okay, we got registration seven-figure deal. Also had a significant deal on the Study Start-Up area, brand new deal.

I wanted to call attention to a little hidden gem here in the prepared remarks which was the KOL Data seven-figure deal. That is something quite remarkable. This is from a small acquisition that we did back in April, bought a small business around KOL Data and services. I'm thrilled with that progress and it shows what we can do with this industry cloud model.

We're taking that small business, and this is a crucial area for our customers, this understanding key opinion leaders, it's crucial for drug launch and ongoing commercial success. And so we're investing in that business and making it a global cloud-based solution. We're investing enough to really make sure that we are the leader in that area, and we're turning it into an area where you can get seven-figure subscription deals for one country for one customer.

So I would say that while in the rear-view mirror, the bulk of that is involved in that going to certainly continue for the next year or so. Right now we are planning to see it through multiple long-term areas of growth. That is really how we get to our $1 billion of run rate in 2020. That is probably the right way to think about it.

Okay. Thank you both for those comments.

Ken Wong, Citigroup.

Earlier you talked about speeding through the Zinc integration and migration planning. How have customers responded to the migration message?

Thanks, Ken. Really well, because -- I think what they have appreciated is our speed and clarity in the message. They've also appreciated the value that the Zinc team brings and the domain expertise with the Veeva team and the cloud application and the platforms.

So they see those synergies and then our migration message has been very clear, that we will provide a clean migration path from Zinc products to PromoMats and that will happen over the next coming years. I couldn't be more pleased with the level of customer engagement and in the level of customer goodwill that we're creating for this -- from this acquisition. It's been a real highlight of the quarter.

Got it. So it does sound like the medium longer-term plan is to have the Zinc guys move over to PromoMats at some point?

Yes, absolutely. We've said we would support the Zinc products for about five years.

Now, I expect the migrations to start in earnest sometime next year and the bulk of those to be handled over the next two or three years. Yes, so there is no confusion there. And the customers are really looking for that synergy when we combine the Zinc domain expertise with the Vault products. Yes, it really is a very organized process.

Got it. And then a quick follow-up for Tim.

You mentioned $4 million contrition in Q4. Are you able to perhaps break out what's subscription versus services in that number?

The vast majority of that, Ken, is subscription.

Okay, great. Thanks a lot, guys.

Thanks, Ken.

Steven Wardell, Leerink Partners.

My question is, which of your products are you today able to sell on a global basis? And are there any other of your products that you think you will be able to sell on a global basis in the future?

Hi, Steven. This is Matt.

The CRM product, the multichannel CRM, is something that we've been selling on a global basis for about five years. And the larger the company, the more likely they are to be running a global CRM program.

We think about Vault, in almost every case we are selling into global companies and we're selling global projects, particularly on the R&D side. Quality, clinical and regulatory, those are global systems.

And on the commercial side, we have seen a lot of the medical, med-coms deals be global. And PromoMats started regional. We just finished actually in this past quarter our largest global deployment across several thousand users at a large pharma company. And I think that that will help set the stage for additional global deployments there.

So Vault generally is global. Veeva Network and OpenData have always been regional. So master data management and reference data have always been regional.

We talked a little bit on the call so far that we have some progress in making Veeva Network more of a global offering. And we still have a lot of work to do in creating reference databases for OpenData to make that a global offering. But that is where we are heading there.

And then the last one is our KOL business, which Peter was just talking about. The KOL business is a business that has never been global. KOL Data has always been regional, and even regional by brand team, by department.

We're trying to create a single global subscription. And so we're working with one of our large customers. They think that they buy KOL Data about 250 times a year. What we are talking to them about is a single place where they will get all of their KOL Data.

It's going to be transformational if we're successful there. But we are still early on the KOL Data side in making that a truly global offering.

That is an interesting question. Thank you.

Great, Thank you.

I will now turn the call over to Peter Gassner for closing remarks.

Thanks for joining us. We are very pleased with our strong execution for the quarter. And I would like to thank our employees and customers.

And I would like to a moment to welcome the Zinc employees and customers to the Veeva family as well. Thank you very much.

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