Veeva Systems Inc. (VEEV) Q4 2015 Earnings Report, Transcript and Summary

Good afternoon. My name is John, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Veeva Systems Fourth Quarter and Full Fiscal Year 2015 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Rick Lund, Veeva's Investor Relations Director. You may begin your conference.

Thank you, John. Good afternoon. And welcome to Veeva's fiscal fourth quarter and year end 2015 earnings call for the quarter and year ending January 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 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, March 3, 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. Our results for the fourth quarter capped another successful year for Veeva, with Q4 revenue up 39% to $87 million. Annual revenue grew 49% to $313 million. We also produced solid non-GAAP operating margins of 29% in Q4 and more than 27% for the full year. The power of Veeva's industry cloud model is driven by our ability to help our customers succeed. We are tackling some of the industries most significant challenges and the continued strength in our result is further evidence of Veeva’s increasingly strategic position in the life sciences industry. Overall, we had a number of considerable achievements in the past year. We executed well against our plan and delivered exceptional results in every areas of business. We reported strong revenue growth and increased the number of customers across all product lines. We announced new products that will contribute substantially to revenue in the years to come. We focused on customer success, which helped produce our strong subscription revenue retention rates. Let me summarize our accomplishments for the last year in each of our major product lines. First, it was a transformative year for CRM, continued expansion in the core product and multichannel are key drivers for our business today and are fueling our growth going forward. We increased our leadership in core CRM and now have roughly 50% market share. From that foundation of core sales force automation we have delivered on our expanded vision with the first fully-integrated multichannel CRM suite for life sciences in the cloud, providing an industry-specific family of cloud products that enable companies to engage customers across face-to-face, e-mail and digital interactions in the single solution is a tremendous significance for the market. We are seeing some new customers adopt the multichannel approach right from the start of their implementation and existing customers planning to move to a fully-orchestrated multichannel model powered by Veeva. Our market share in core CRM is not only providing a base from which to extend CRM to multichannel but is also allotted to leverage that success into other areas of life sciences like content management, which is another significant leg of our growth story. We established Veeva Vault as an emerging standard for content management and life sciences. As companies look for modern flexible content management applications in the cloud that meet their highly specialized needs, we believe the Vault platform is becoming a solution of choice in key segments of the market. Vault continues to tract to a similar growth trajectory as we saw in the early days of CRM. The traction we’re seeing with major Vault wins throughout the year and deals in the pipeline gives us increased confidence in both the size of the opportunities as well as our ability to capture a significant portion of this large market. We also planted some seeds for future growth with Veeva Network, software and data. Our goal is to offer the best customer data and the best customer master software on a global basis. And we introduced Veeva Commercial Cloud bringing together Network, Vault and CRM. Commercial Cloud is about having best-of-breed applications that can be implemented separately, but are tightly integrated at the business process level to provide an end-to-end solution across commercial operations. By eliminating legacy system’s complex integration and gaps in key business processes, we are delivering accelerated time to value and greater agility for our customers. Our broadening suite and the measurable impact of our solutions is leading to more strategic relationships at the highest levels. With an annual IT spend of $51 billion, life sciences companies have many vendors. Few are considered truly strategic. And we are proud to now be among this group for many of our clients. Recently a CIO of top 20 pharma company best summed this up. Given our footprint across key business functions within this organization, Veeva is now considered one of their most strategic partners along with companies like Microsoft, Oracle and SAP. He made it a point to mention that Veeva’s key advantages are the solutions fit with this business and the consistent track record of success. We have a deep understanding of what the market needs and a history of delivering market-leading innovation. When you combine this with the agility of our cloud technology provides, we believe that we have a distinct advantage. As a case in point, he mentioned Veeva CRM events management. It’s a key problem for this company that we will solve with our plant release in Q2. Not only will he get a best-of-breed event management application with deep functionality, it will work with their existing Veeva applications. Now shifting to the highlights for the fourth quarter. We are pleased to report that as of year-end 276 customers have entrusted Veeva to help address their most strategic business challenges. Customer count is up 39% from the prior year, 191 our CRM customers, 135 our Vault customers and 22 our Network customers. This represents very strong growth in every product line as compared to last year especially with newer products like Vault where the customer count nearly doubled. Overall, the strong adoption of our newer product lines drove the percentage of total non-CRM revenue to roughly 20% for the fourth quarter, more than twice the percentage in Q4 of fiscal 2014. We have made great progress in core CRM with new customers as well as existing customers deploying to more regions than divisions. And we also have significant opportunity with top 20 pharma companies that are not currently Veeva CRM customers and we are making very good progress in some of those multiyear sales cycles. The market is beginning to embrace multichannel CRM. Some customers are starting with multichannel right out of the gate. For example, Q4 saw global CRM project start at two top 50 pharma customers for each deploying multichannel capabilities concurrently with our core CRM solutions. For most, the first move beyond core CRM is with our compliant e-mail solution Veeva CRM approved e-mail. We had another record quarter as measured by new use of subscriptions for approved email. Customers are seeing tremendous success with e-mail open rates that are significantly higher than traditional approaches. We have achieved roughly 10% penetration as measured by users into our core CRM installed base today. We have a healthy pipeline of opportunities including large customers interested in deploying approved e-mail to all CRM users globally. Switching from the commercial side of life sciences, let me take a moment to talk about the medical area. Within the life sciences companies, the medical department sits between R&D and commercial and is responsible for communicating detailed medical information and potential uses of their products. Medical is a strategic and growing area for the industry. Veeva’s current solutions for medical includes CRM to support the medical science liaisons that are responsible for outreach to key opinion leaders also known as KOLs and Veeva Vault MedComms to manage medical content. Today, we announced our intention to acquire a leading KOL data and a services business to enhance our medical offerings. Having key opinion leader data, compliant with CRM for execution involves for compliant content, will allow us to deliver a more complete solution for medical. We’ve also made tremendous progress with our Vault product line. We believe that Veeva Vault eTMF is rapidly becoming the industry standards for content management and clinical trials. Vault eTMF grew from less than a dozen customers at the end of last year to 50 today. And within this total, we are proud to cap 4 of the top 20 pharma companies for a selected Veeva Vault eTMF as their global standard in just last 12 months. Most are just beginning rollouts to their organizations. We are also seeing rapid uptake with our other Vault applications. In Q4, we had a record number of Veeva Vault PromoMats wins. PromoMats is our solution for promotional materials management. We now have more than 70 PromoMats customers and like Vault eTMF, PromoMats is quickly emerging as an industry standard. More broadly, we are starting to see customers adopt multiple Vault applications across the enterprise to unify key content and processes. In Q4 for example, a top 20 Pharma and one of our largest Vault eTMF customers expanded their subscription to include Vault QualityDocs. Having deep industry specific content management applications built on the leading cloud platform is transformative for our customers. We believe Vault will eventually become the industry’s platform of choice for enterprise-wide content management. We will continue to expand Veeva Vault over time, both the Vault applications and the platform capabilities. You will hear more from us on new developments this year. We also made important strides with Veeva Network, customer master software and customer reference data. The customers in this case are the doctors, other healthcare professionals and healthcare organizations. Life sciences companies promote their products too. This data is crucial and innovation is needed as the industry moves to multichannel. So, we are rapidly investing here. Expanding upon our customer reference data offerings in the U.S. and China in Q4, we announced the availability of customer data for the U.K. This will be followed by launches in France, Germany, Italy and Spain in the coming quarters. This is tremendous progress to our goal -- towards our goal of providing high-quality global customer data to the industry. We’ve got the right leaders in place. Early customer feedback has been great and we are set up for success. Let me wrap up by reiterating how pleased I’m with our performance and our outlook for the future. The increasingly strategic nature of our offerings and customer relationships has resulted in the substantial number of seven figure deals in our pipeline. This is being driven by our success across product lines. Veeva CRM continues to show robust growth, as we are leading the industry forward into multichannel and new digital initiatives. Veeva Vault is making dramatic progress as we transform content management in life sciences and Veeva Network is emerging as the solutions to the industry’s data challenges. We expect continued strong growth in our CRM business and for our non-CRM subscription revenue to more than double in the upcoming year. Looking at our longer term strategy, our goal is to build a billion dollar business over time, one that is profitable and has high growth. We know what it takes to get there. In years to come, we will scale our team and our processes. We will continue to innovate our existing products and introduce new products to plan seeds for future growth. And most importantly, our focus on customer success is what will drive our growth over the long-term. With that, I'll turn it over to Tim.

Thanks, Peter. Q4 results were strong on both the top and bottom line. Total revenue was $87 million, up from $62.8 million one year ago, a 39% increase. This capped out the full year in which total revenue was $313.2 million, up from $210.2 million in fiscal ’14, a 49% increase. For the fourth quarter, subscription revenue was up 46% to $66.5 million from $45.7 million last year. Subscription revenue continues to build across all product lines. Veeva Vault had another notably strong quarter of new bookings. Our business model is built around driving customer success and delivering increasing value to our customers over time. As such, the majority of our growth this last year came from existing customers, expanding their use of our solutions across new divisions, new geographies and with new products. These factors drove a 138% revenue retention rate for the full fiscal year '15. As a reminder, this metric compares annualized subscription revenue of all customers at the end of the previous year with the annualized subscription revenue from that same group of customers at the end of the current year. It therefore measures the growth of our business within existing customers net of revenue attrition. I am especially proud of this metric as I believe it speaks to a very high level of satisfaction among our customers and the large opportunity remaining within our customer base. Services revenue for the quarter was $20.5 million, up from $17.1 million year-over-year. This was down sequentially from $22.4 million in Q3, consistent with my commentary from our last call. Note that Q4 is typically a seasonally slow quarter for services revenue, primarily due to a lower utilization rates associated with the holiday season. Overall, our subscription business continues to grow faster than our services revenue increasing the recurring nature of our total revenue. For the quarter the percentage mix was 76:24 subscription versus services, a 3-point shift year-over-year to subscription and for the full year, the mix was 74:26 respectively, a 4-point shift towards subscription from fiscal '14. In terms of geographic mix for both the fourth quarter and for the full year, approximately 55% of our total revenue came from North America and 45% came from outside North America based upon the estimated location of users. This represents a shift toward international revenue of 2 percentage points from the same quarter last year and 4 percentage points for the year compared to fiscal '14, though it has been relatively stable over the last few quarters. In discussing the remainder of the income statement, please note that unless otherwise stated all references to our expenses and operating results on 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. In Q4, our subscription gross margin was 78%, an increase of more than 140 basis points from a year ago driven by the continued growth of Vault’s Network and CRM add-ons, which had a slightly higher gross margin profile relative to our core CRM products. Services gross margin for the quarter was 25% compared to 28% one year ago. As a reminder, our target utilization rates for our services business produced gross margins in the 20s. Our total gross margin for Q4 was almost 66% and increased over 200 basis points from one year ago. This improvement was driven by the rise in subscription gross margin and the increased contribution of subscription revenue as a percent of total revenue. Turning to operating expenses, we had a strong hiring quarter adding 64 people net across all functions of the organization. We ended the quarter with 951 employees compared to 725 a year ago. Overall, operating expenses grew 27% from the same period last year. In the coming year we plan to continue hiring aggressively across the organization to support the growth of our current product lines and new product initiatives. Overall, our operating margin of 29% in the fourth quarter was up from 23% in the prior year period. This was driven by an improving gross margin and strong revenue growth over the last year. Net income was $16.8 million compared to $9.5 million last year. Note that our non-GAAP effective tax rate of 29% for Q4 was much lower due to the R&D tax credit reinstatement. Since this tax credit was retroactive for the entire year, Q4 benefited from the catch up related to previous quarters. The effective non-GAAP tax rate for the full year was over 36%, which is roughly in line with what we expect going forward. Our fully diluted net income per share was $0.12 compared to $0.07 during the same quarter last year. Without the tax catch up, our non-GAAP EPS would have been $0.10 in the quarter. Before turning to the balance sheet, I would like to provide a quick update on FX. As we discussed on our last call, we typically bill about 80% in U.S. dollars, 10% in euros and the rest in other currencies. In Q4, our revenue was impacted by approximately $800,000 due to changes in FX from last year, consistent with our prior expectations. Assuming current rates remain static, we expect the impact to be $1.5 million on revenue in Q1 and roughly $5 million to $6 million for the coming year, compared to our prior expectations of $3 million to $4 million. Additionally, the realized and unrealized affects of changes in exchange rates in Q4 amounted to an expensive of about $2 million, which is included in the other income and expense line in our P&L. Before I turn to the balance sheet, I wanted to spend the minute discussing trends in our renewal base. The seasonality that we've observed in the past became more pronounced in fiscal ‘15, with the mix of new business signs throughout the year. Specifically, almost half of our new business this year with annual billing terms was closed with customers that had renewal base in Q4. This dynamic amplified the seasonality of our renewal base. Now, almost 40% of our subscription revenue base is build in Q4. While this pattern will change year-to-year based on the terms and renewal base of new business, the increased seasonality this year impacted a few of our metrics like calculated billings, accounts receivable and cash flow. Looking at the balance sheet, deferred revenue grew to a $113 million, up from $85 million in the previous quarter. This significant sequential drop jump was driven to a large degree by the increasing level of seasonality that I just described in our renewal base. Again, since so much of our new business throughout the year was from customers with renewal base in Q4, the renewal portion of our Q4 billings rose significantly. Looking ahead, we expect calculated billings in Q1 to be down sequentially and will likely fall somewhere in the range of $80 million to $85 million. Please remember that the continuously changing seasonality of our renewals, along with the variation in billing terms of our customers and the coterminous treatment of add-on sales, make our calculated billings metric somewhat volatile on a quarterly basis. As a result, this metric is not necessarily indicative of the overall health of our business in any given period or for modeling any growth expectations going forward. Elsewhere on the balance sheet, accounts receivable increased to $93 million from $45 million at the end of Q3. This was also driven by the increasing seasonality of our renewal base mentioned a moment ago, along with the timing of these billings within the quarter. In particular, roughly 60% of our Q4 billings were invoiced in January, which meant that a significant portion of these invoices were still on the balance sheet at quarter end. However, our collections efforts continue to be very strong, as we have already collected well over half of the AR that was outstanding as of January 31st. The timing of our Q4 billings also had a material impact on cash flow from operations, which came in at negative $1.3 million, down from $34.3 million last quarter and $16.2 million in Q4 of last year. Note that our cash flows maybe somewhat volatile on a quarterly basis, so our cash flow performance is best evaluated on a last 12-month basis. For the year, our cash flow from operations was $67.7 million, up 62% from fiscal 2014. We exited Q4 with $398 million in cash and short-term investments, up from $393 million at the end of Q3. At this point, I'd like to give a quick update on our new headquarters building. In Q4, we completed the design and demo work and we've now begun the build out to prepare for our anticipated move-in early this summer. While the demo work is generally expensed and flows through our P&L, the build out work will be capitalized. I expect an aggregate of roughly $15 million of CapEx associated with this project, spread out over Q1 and Q2 of this year. Note that after we complete our move-in, our CapEx should return to a more normal run rate in Q3 and beyond. Before turning to guidance, let me give some details around the acquisition that Peter discussed. This business is a great fit for our product portfolio and we expect it to drive further customers success in the future. However, since the deal has not yet closed and we are still working through our integration plans, we've not including the impact of this acquisition in our annual guidance. The terms of the deal are confidential but since it is a relatively small business, we don't expect the financial impact to be material for fiscal ’16. The deal is expected to close in the second half of Q1. Let me wrap up by sharing our outlook for Q1 for the full fiscal year 2016. For the first quarter, we expect revenue between $87 million and $88 million, non-GAAP operating income of $23 million to $24 million and non-GAAP net income per share of $0.10, based on a fully diluted share count of approximately $145.5 million. Please remember that Q1 contained 89 days, compared to 92 days for our other three quarters. The fewer days available for revenue recognition affects both our subscription revenue, which is recognized on a daily prorated basis along with our services revenue, which is largely based on time and expense projects. We currently believe this will impact our Q1 total revenue by over $2 million. This also affects our gross and operating margin as virtually all of our expenses are paid monthly, while revenue is recognized daily. For the year, we expect revenue in the range of $390 million to $395 million. While we are not guiding specifically to the components of revenue in fiscal ‘16, currently we expect subscription revenue to grow over 30% for the full fiscal year. To provide further context for the subscription revenue growth, we expect subscription revenue from our CRM product line to grow roughly 20% over the next year, while we expect subscription revenue from our non-CRM products to more than double. We are anticipating non-GAAP operating income of $103 million to $108 million and non-GAAP net income per share of $0.43 to $0.45, based on a fully diluted share count of approximately $147.5 million. Overall, I am very pleased with our results from the last year and the quarter. I firmly believe that our commitment to customer success will continue to drive our business and our results going forward. With that, thank you for joining us on the call today and I will turn it back to the operator for questions.

[Operator Instructions] And our first question comes from the line of Jason Maynard of Wells Fargo. Your line is open.

Hey. Good afternoon, guys. I have a couple questions here. The first thing is, I think it maybe useful to talk a little bit more about the dynamics that you're seeing that are causing such, what I’ll call sort of an extreme seasonality and just in terms of how customers opt to purchase additional products and frankly, why they opt for those billing terms? And then the second thing, I am curious within your outlook for next year, can you maybe provide a little bit of commentary on your expectations around ramping headcount and how you are thinking about operating expenses and ultimately, what the operating margin structure should look like for next year at that high level? Thank you very much.

Hey, Jason. This is Tim. Thanks for the question. On the first comment you made, which was the seasonality and I'm assuming you're talking about the seasonality of billings that I have talked about in my prepared remarks. As we've talked about before, we do have one year terms on our orders and we allow customers to buy add-on orders throughout the year and that’s co-terminus to that that anniversary date that’s established. What we found this particular year that was more pronounced than in years past was the add-on orders that happened throughout the year had a much higher percentage of add-on orders going to customers that had a Q4 renewal date, which really amplified the seasonal effects we saw previously. We do have a number of customers that have a calendar year and we do have a number of customers that with that calendar year have a desire to have their anniversary day with us aligned to that calendar year, which means we get a lot of 1/1 or early January or late December anniversary dates. So that's a little more color Jason to the seasonal billing that we talked about. In terms of hiring, I will say a bit on hiring. We intend to continue to aggressively hire next year against, well, for our existing product lines and/or new product initiatives. We see the operating margin, which in the guidance that we gave is in the 26% to 27% range, that that's what we are projecting our operating model to look like for the coming year. So it is an aggressive and best year for us, for those -- for our current product lines for new product initiatives.

And I just have one follow-up question, I guess, on the seasonality effect. Are you seeing any change in terms of customers opting to actually deploy any of the products or making -- maybe just making decision on when they buy an add-on. Does that impacted or is it just merely a function of how the billing cycle works when you have so many co-term billings near the end of the year?

Yeah. I don’t think that is driving customer decisions in terms of deployment. I don’t think there is a direct correlation there, Jason. Again, I think it’s -- we had a pronounced number of customers that had a Q4 anniversary date by add-ons throughout the year. And so in that scenarios, we’ll have customers that will -- were building for the add-on at the time that we sell that new deal and then we’ll build them again in the renewal period which we had a large percent, in fact 40% of our renewal base now is in Q4. So that was the driver. And that doesn’t drive their decision on deployment.

Got it. Great. Thank you.

Our next question comes from the line of Bhavan Suri from William Blair. Your line is open.

Hey guys. I’ll just take a step back and look at sort of the army channel approach in the core CRM offering. When you start off with CRM, all the large pharmas had a solution clunky on-premise whatever. And now, with the integration of Vault in the omnichannel, have you skated to ahead of where those guys are? And are they sort of playing catch-up to sort of the omnichannel approach because obviously, you’ve been hearing about the retail for long time but certainly for pharma, it feels like it's relatively new?

Yeah. Hi Bhavan. This is Matt. So yeah I would say that our products are ahead of where the industry’s capabilities are today. We’re generally not replacing existing systems for things like approved e-mail or for an integrated online detailing. There are other competitive products out there. There's never been anything that is integrated though. And so as hard as it is for an industry to transition from a face-to-face for single channel selling capability to an omnichannel one, that in and of itself is hard from a business process perspective. The technology has also never helped in the past. And so you kind of had the double whammy of difficult to change and no integrated technology. So we’ve eliminated that second one. So now the technology for multichannel selling in CRM in pharma and in life sciences is no longer a barrier. And so now we see many more projects around business process improvement and optimization to take advantage of that technology.

Okay. That’s helpful. And then two quick follow-ons from me. Just an update on sort of the CRO market and sort of, you had a nice win last quarter. How that’s plugging away? And then you’ve always had solid referenceability in the clinical side of Vault. But any uptick there on the submissions in the quality side to help drive sort of further penetration and obviously those referenceable customers tend to drive sort of that broader based discussion given that it’s a small industry?

Sure. So on the CROs, they continue to be an important target for us with Vault eTMF product, so for the management of clinical documentation. We did win additional CRO customers although they were smaller ones than the top eight CRO that we announced the quarter before. And there is kind of a multiplier effect every time that we win a CRO customer, they end up giving demonstrations and talking about the value of Vault to all of their prospects and customers. And so it is an important channel we’ve continued to do well there. And I think that we know how to partner well with other service providers. And there has been a bit of glow onto the submissions in quality perspective. Some of it is companies that started with the eTMF but a lot of it is also companies that have started with us with the QualityDocs implementation or submissions. And so we’ve see strength in all of them. I think the biggest difference is that with eTMF and now with quality, we have these large reference customers. We have a large top 10 or top 20 pharma company that we can point to as an example. We don't yet have that one with submissions. And so that’s going to be one of the things that we try to turn the corner on this fiscal year.

Got it. Got it. That’s really helpful. Thanks for answering my questions guys.

Our next question comes from the line of Jennifer Lowe of Morgan Stanley. Your line is open.

Hi guys. This is actually Stan Zlotsky sitting in for Jennifer. So, thank you for taking my questions. So just to kick off the Qforma CrowdLink acquisition, can you just maybe help us understand better how it plugs into your existing product portfolio? And is it mainly meant for the network side of the business to enhance data there or is it more horizontal across all of your product suites?

Hi Stan. This is Matt. So KOL data, key opinion leader data is used in lots of different parts of a pharma company. It’s used for product launches. It’s used for physician targeting. It’s used sometimes for clinical trial, investigator identification and so it’s not just a play on the network business, which is our reference data business. But it also helps to strengthen like our CRM product for scientific liaisons, is much stronger with the data, deep data on KOLs that plugs into it. The KOL market at the high level is about a $100 million a year market. That was not in our temp prior and it gets us into non-IT budgets. So, KOL data has generally bought at a launch budgets or market access budgets or medical budgets.

Okay. That’s helpful. Thank you. And switching gears slightly you mentioned the record number of seven figure deals in the pipeline and that's impressive. But I think people are also expecting as you get bigger, you are going to have more big deals like that in the pipeline. Maybe just to help us understand the number of these types of deals a year ago same time, what kind of dynamics did you see there?

The seven figure deals and specifically on Vault and I look back 12 months ago I don’t have the exact statistics for you, nor the disclosure or exact specifics. We certainly have more seven figure deals in the pipeline. Now the interesting thing is why is that? Well, we’ve kind of cross the CASM with Vault, I would say. We're becoming the emerging standard and we had our first customer, R&D Customer Summit earlier this year and that has generated a lot of momentum. That’s where customers get together, they talk and they share the success that they're having with Veeva. So that's really -- it's not immediate that in event generates pipeline but over the long-term, over months, events like that generate pipeline and that’s really what we're seeing. So with eTMF, I think it’s -- at the tip of the spear I would say in terms of our R&D products, we have now 4 out of the top 20 life sciences companies. They picked eTMF over the last 12 months and I would say where it gets around, especially in R&D side of life sciences. Life science is very collaborative. They meet at TransCelerate and in other places, they discussed this. And I would say they are positive on Vault because of a few things, products working well for them and they're constantly surprised by the speed of implementation, the rapid time to value. So this combination of things, the product working and the colonization of ideas between customers, that’s what’s generating the record number of deals in the pipeline for Vault.

Okay. Perfect. Thank you. And then last one for me. 135 total Vault customers, also a big number, very impressive. Just maybe help us clarify how many of those customers are non-CRM customers?

Sure. This is Matt. So the number is actually inexact one. So, we used to say like roughly approximately, so it’s exactly half of Vault customers, also have Veeva CRM. And so that shows our ability to cross-sell within the existing installed base, but then it’s also a lot of growth with the Vault R&D products where these are companies that may not even have a product on the market yet, so they may not even be a target for our commercial products yet. So, yes, it's been great success in both. It’s 50-50.

Terrific. Thank you so much, guys.

Our next question comes from the line of Karl Keirstead of Deutsche Bank. Your line is open.

Thank you. Maybe Tim, I want to horn in on our guide for 20% subscription revenue growth in fiscal ’16. I don't think you disclosed that metric for fiscal ‘15, but given subscription revenue growth overall of 58%, that seems like a fairly steep slowdown. And I wanted to understand how much of that is you being conservative as you approach a new fiscal year, or are there factors at work and at guidance? I mean you're still only at 50% mark there. The CRM add-on market seems fairly healthy. You just put up the fiscal year of 50% billings growth, a substantial amount of that surely is core CRM. So, I guess I can't quite equate in my head why we would get a decel of that magnitude? Thank you.

Yes. Karl, this is Peter. And I will take that. So overall, things are going well in the business. We are executing to our plan. As you mentioned, in Q4, we had our subscription revenue growing 46%. Now in terms of subscription revenue for next year, we’re expecting it to grow over 30% in subscription revenue. So we’re pretty pleased with that. I think it’s important to note that our products are at varying stages of maturity within their markets. So CRM, our first product, we expect CRM subscription revenue to grow at more than 20% this year. And we have a long runway for future growth towards the CRM. For non-CRM products for next year, we expect subscription growth to more than double and with the majority of that coming from Vault. There also say we have a -- as I mentioned at the end of my talk, we have a long opportunity ahead of us, a great opportunity because we are becoming one of the most strategic partners to life sciences and that’s a big industry, the $1.6 trillion industry, spent over $50 billion a year on IT. They need to move to the cloud and we are helping them get there. So we remain pleased with our results and our forecast for next year and also the longer term.

Got it. Okay. Thank you for that. And Tim, if I could ask a follow-up. Just on the relationship between the non-GAAP operating margins and cash flow, I know I’ve asked you this on prior calls. But it was obviously skewed in the quarter just reported for the seasonality issues that you highlighted. As we look into fiscal '16, should that relationship between operating cash flow margins and non-GAAP operating margins normalize as it has in prior periods? Thank you.

Karl, thank you for the question. I think if you look at it from a long-term perspective and you take the impact of tax in those two metrics, then I think you are right, there is a relationship. As we talked about, or as I talked about in my prepared remarks, there is some volatility. And we saw that in fact in the Q3 print as well as this print that volatility come to fruition, and those are being driven by in this particular case that material move from a seasonally perspective of our subscription revenue base. So I think the short answer is long-term, there is some correlation there, but quarter-to-quarter there may not be.

Got it. Okay. Thank you, gentlemen.

Our next question comes from the line of Brendan Barnicle of Pacific Crest Securities. Your line is open.

Thanks so much, guys. In Vault, you guys in the past talked about how that could translate to some other industry, specifically like med devices. And I know you wanted to pursue the pharma and obviously you’re having a lot of success there, so there is a lot there to still do. What’s the consideration as you go through as you think about maybe taking that to in adjacent vertical?

Thanks, Brendan. This is Peter. I will take that one. I would say the most adjacent vertical to where we are at now in pharma, biotech is med device which we consider part of life sciences. And we are selling Vault into life sciences and we have a number -- sorry into med device, we have a number of customers there. And I think that’s a trend that will increase as we go forward. We are very determined in the beginning to start in pharma and biotech and establish our beachhead there, concentrate on our customer success, get the momentum going. And now I think, we are moving out into med device, and I would say not a major way but a measured way. And as far as things outside of life sciences, that’s not something we are going to tackle at this point. We have a lot of runway ahead inside pharma, biotech and med device. So we are going to stay there for a while. We are happy with that opportunity.

So could you -- just following up on that. You originally talked about like a $2 billion TAM for Vault. I don’t know that that included med device. So is it just an incremental TAM or do you have any size on what that might be?

Well, Matt, do you want to comment on that?

Yes, Brendan. Sure. So when we calculated the TAM for Vault in general, we did include a small percentage of the medical device customers, a 100 actually to be exact. And so it was kind of a sprinkling, it was not a major part of the model. If you do the research, there is like 23,000 medical device companies, a lot of them small, but there are many billion dollar med device companies. So it’s real -- I would say that, we haven’t gone after kind of in any meaningful way. And when we did the analysis of the TAM, it was sort of the same with med device. So there is certainly plenty of opportunity there.

Great. Thanks, guys.

And our next question comes from the line of Richard Davis of Canaccord. Your line is open.

Hey, thanks guys. it’s actually DJ in the line for Richard. So maybe just two quick questions. First, want to build on Karl’s question on the CRM growth and opportunity. I know you guys have 50% market share now, which I think is up from 25%, 30% at the time of the IPO. How high is up in terms of a reasonable expectation for CRM penetration? And then I guess the second question will be on the network side of the house. You guys brought your first top 10 customer live in Q3. Just curious on how that's going? And maybe thinking about the referenceability of that account as you kind of target other top-10s this year?

Hi, D.J. Yeah. So in terms of CRM growth, we have line of sight to about two-thirds market share. Most of that would come from existing customers. And as we start to break into new large companies that are not yet Veeva partners, that’s when we think we can get above that two-thirds. So we look at about 350,000 of the 450,000 users, it’s something that feels realistic. And then of course, that’s the starting point for starting to sell all of the multi-channel and other CRM add-on products. We think this year will be an important year for us as we commercialize both the aligned and the events management products where there's been just tremendous interest thus far. In terms of network, the top-10 customer that went live late last year has continued to be very happy. We have hundreds of data changer plus an hour. We continue to be able to turn them around in under a day, which competitively is a serious advantage for them. And so we feel good about that business and especially the success of that first really customer.

Excellent. All right. Thanks, guys.

Our next question comes from the line of Sterling Auty of J.P. Morgan. Your line is open.

Hey, thanks. It’s actually Darren Jue on for Sterling. I’m just wondering if you have a view on what pharma sales rep headcount reflect this year? I know some of the industry analysts are talking about 2015 being a pretty strong year for new drug launches. And I guess, that would presumably be a positive for sales rep numbers. But I’m just wondering what your expectations are? And whether you’re starting to see that through the early part of the year?

Yeah. Sure. This is Matt. So we’ve seen total sales rep numbers around the world, say about equal really since we started the company. So that 450,000 number has stayed pretty static. There's been some movement within countries but I've also seen those headlines that there's a lot of launches coming this year. I’ve met with consultants and VPs of sales and CEOs of foreign companies who believe that they will be expanding the size of their sales force this year and next. And so I don’t know that we've necessarily reached a specific turning point where there’s going to start to be a lot of growth there. We’re not planning for a whole lot of growth as we look at our business forward. But we also don't think that the declines that we’ve seen in some countries in the past years will continue. And actually I think we’ve even seen a couple of expansions already this fiscal year. And yes, they are around a specific drug launches. So I think it’s reasonable to expect that more drug launches will lead to more expansions. And you're right, that should help us.

Okay. Perfect. And then I guess, I’m just wondering if you could just share some color on what kind of attach rates of CRM add-on products you're looking to achieve for the year?

So, where we are with the first CRM add-on are close with marketing is well above what we model. So we model to get to about a two-thirds attach rate over five years. We’re about four years in for CRM and we’re above 75%. And we announced earlier on the call that we’re at about 10% of users for approved e-mail. I don’t think we’re going to give specific guidance on that. But I think that we should expect very healthy growth there because in the life sciences industry, particularly with the adoption of technology, there’s always a few companies that want to be first, they want to be the early adopter. And because these companies compete in a lot of the same therapeutic areas and they really have very similar business models, you see a lot of fast followers. And so I think that the approved e-mail penetration that we’ve had so far in a very high open rates we've had from the first couple dozen customers, I think will translate into great growth this year. In terms of Align and Events Management, this is the first year and the first year of a product we generally don’t bet on very large growth. We focus not on how many customers can we get with the brand new product, but we focus on making the early adopters very successful. So our focus for this fiscal year for Events and Align is to make sure that the early adopters have great success and I would expect more of a focus on getting new customers and revenue growth for those two add-ons starting next fiscal year.

Okay. Thank you.

And our next question comes from the line of Tom Roderick of Stifel. Your line is open.

Hey, gentlemen. Good afternoon. So, I guess, my question here is, is going back to the Vault product line and thinking about the R&D side of that line, you mentioned you had your first top 10 pharma win for the QualityDocs product. Can you anecdotally go through that win? How long you’ve been working with that customer? How long sales cycle look like for QualityDocs? And what that does to the ASP when you're able to engage them on that product line relative to say eTMF and some of the other products that you have been able to land with that customer?

Okay. This is Peter. That’s a great question. I would say that sales cycle is -- was heavily influenced by the eTMF in this case this customer has an IT group that is involved with both the QualityDocs and the eTMF. Although, the business users are completely separate, one is the clinical side and one is the quality side. I think it's fair to say that that opportunity in that particular customer wouldn't -- probably wouldn't happen for us, but for the success that we had in the eTMF, I think that's fair to say. And as -- but as to why the customer implemented replace their system, that I think, it was just time for them to replace their system. They had some issues and aging technology that it became time more of a lifecycle issue. So I don't think we impacted the timing of that deal. I think we won the deal because of our track record of success in eTMF. As far as size of the deal, I think, there are -- they will end up being similar in size. Although, the eTMF will -- in that particular customer will be larger, but I don't think you can characterize that overall, because different customers have -- are going to have different characteristics, how much they focus on clinical versus are they manufacturing.

Got it. That’s helpful. Thanks. Tim, maybe, I could follow-up on the topic of the seasonal nature of billings and how that sort of influencing the way we think about bookings or billings growth for Q1? I may have missed it on the call if you gave it, how should we think about the general pace bookings or billings as we look at for the entire year? Is it fair enough to think about that is growing at same pace as revenue would you expected to grow faster or slower? Can you help us that with just the directional view of the full year picture on bookings or billings growth?

Yeah. Tom, we are not in a position to give guidance on the bookings or billings for the entire year. What I did state in the call or in my prepared remarks was, we expected the calculated billings in Q1 to be between 80 and 85, and the reason why we gave that guidance was because of the material seasonal shift that we saw in Q4 and you saw those numbers of about 118 million and the seasonal change if you will between Q4 and Q1. So we thought it prudent at this time given that materiality of that change to give some color and commentary on that. But as it relates to the overall billings number that’s not something we are prepared to give specific guidance on that.

Okay. I understand. Thank you, guys. Appreciate the help.

And our next question comes from the line of Steven Valiquette of UBS. Your line is open.

Thanks. Good afternoon. So, I guess, for me just a quick follow-up question on competitive landscape? I guess, now that another quarter is past, just curious if there is any new updates in the pending acquisition of one of your competitors in Europe by U.S. company might be impacting your overall marketing efforts? Is that situation maybe creating more opportunity to have a gain share, let say in either CRM or other overlapping areas?

Okay. This is Peter. Yes. We are seeing acquisition of Cegedim, the CRM business -- CRM and Data business of Cegedim by IMS. I think we’re benefitting due to some disruption, anytime there is an acquisition like that or sometimes employee that doesn’t find exactly the right place or some discontinuity in the customer management. But I don’t think we’re seeing a change. I think that’s something there in the background that’s been happening over the last quarter to two quarters. I don’t think we’re seeing any type of change. I think it’s become business as usual for us I guess.

Our next question comes from the line of Steven Wardell of Leerink Partners. Your line is open.

Hi. Thank you. I had a question about 138% net revenue retention number. I’m just curious. Can you tell us representative stories of your customer buying your CRM product and the customer buying your Vault product? How does that become 138%? Did they start in one part of the company with that product and expand to another part of the company with that product, did they -- if they buy CRM, do they expand and get Vaults later? Just in general, I’m curious how customers behave and wind up at high net revenue retention number like that? Thanks.

Okay. Sure, Steve. This is Matt. So it happens in a couple of ways. So it can even happen within an existing product line. So this could be a customer that buys CRM for the U.S. and Europe and then in the next year buys it for Asia and Latin America. That would be in the revenue retention as over 100%. It could also be a Vault customer that starts with eTMF and then implements quality the next year. That would be over 100%. And it would be the one that you are specifically customer starting with CRM and then expanding in the Vault. And so the nature of these products that companies often start with a pilot, where they may start in one region or one division and then expand over time will allow us to probably continue to keep that number above 100% as the larger companies continue to expand their usage of Veeva.

Great. Thank you.

We have no more questions at this time and this concludes today's conference call. You may now disconnect.