Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to Veeva Systems fiscal 2019 fourth quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.
If you would like to withdraw your question, press the pound key. I will now turn the call over to Rick Lund, Head of Investor Relations. You may begin your conference.
Good afternoon, and welcome to Veeva's fiscal 2019 fourth quarter and full year earnings call for the quarter and year ended January 31, 2019. 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 dot 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 February 26, 2019. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Ziva 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, and thanks to everyone for joining us today. We had another great quarter with the results above our guidance. Total revenue was $232,000,000, up 25% year over year. Subscription revenue grew 25% and non GAAP operating margin was 36%. We also announced today that Matt Wallace will transition from his current position as president and is joining Veeva's Board of Directors.
Matt will continue in his role as President until June and will join the Board of Directors in January next year. This transition will allow Matt to continue to contribute highly to Veeva, while spending more time with his family. Matt has built a very strong leadership team who will assume his day to day responsibilities. Over the last 12 years, Matt has been an incredible partner to me, the team, and to our customers. Thanks to Matt for all that he has done for Veeva and the industry.
I look forward to working with him as a member of our board. Now turning back to our financial results. Q4 was one of our best quarters ever and a strong finish to another great year. In 2018, we brought significant innovations to market like Viva Nitro, a next generation commercial data warehouse. Nitro is a packaged cloud application that replaces custom data warehouse projects.
This is a real breakthrough for the industry. Nitro also serves as an important foundation for AI and sets us up well for the introduction of our AI engine later this year. 2018 was also a year of continued market expansion and execution. We performed well in emerging areas, including CTMS, CDMS, QMS, and Vault outside life sciences. We kept our focus on early adopter success and product excellence.
This is how we create new products that are materially better for the industry. Overall, I'm very pleased with the pace and level of innovation and execution across the business. Now shifting to a few highlights from Q4. We had one of our best ever sales quarters for commercial cloud. In core CRM, we increased market share with more enterprise expansions and new SMB wins.
We added another 15 SMB CRM customers in Q4 and a total of 46 in 2018. On the enterprise side, a top 50 pharma selected Veeva as their CRM standard for Europe, replacing their legacy provider. They already use EVA CRM across the rest of the world and have decided to make it their global standard based on their success with EVA in other regions. Uptake of newer commercial cloud products continued strong as customers expand their use of Veeva. For example, in Q4, two top 20 pharmas purchase Engage Meeting for major regions.
Engage is having an important impact by opening up another digital channel for pharma to reach customers, resulting in more high quality time with doctors. Even Nitro is also progressing well. We ended the quarter with 6 early adopters 2 of which are live. Both customers went from project kickoff to go live in about 5 months. This is a major milestone for Veeva and the industry.
Typically data warehouse projects are measured in years and once running soon fall behind. Having a packaged cloud app a headwinds due to anticompetitive behavior from IQVIA as it relates to using their data in Nitro. But customers are excited by the potential of Nitro to transform how they go to market. Viva Vault also had an excellent quarter and year. Walt has grown from 5% of the business about 5 years ago to nearly 50% in Q4.
The growth of Vault speaks is the need for modern cloud applications in R&D And Commercial and the power of our integrated suite, all delivered on a unified platform. We are uniquely positioned to help the industry with better systems that enable greater speed and efficiency. 2018 was the strongest year yet for commercial Vault. The new digital asset management capabilities and other innovations added in the year have made the application more valuable. As a result, we are seeing greater demand from companies of all sizes.
The R and D side of the business also continues strong in all areas with several major wins and expansions in Q4. I'd like to share a few with this mission critical application. It was released in 2012, and we closed our 1st Top 20 pharma in 2014. Since last quarter, 2 more top 20 pharmas selected Vault Etmf as their enterprise standard for a total of 11 out of the top 20. We also had a top 7 CRO choose eTMF for a total of 4 of the top 7 CROs.
Our success with Vault Etmf is serving as a springboard into newer clinical areas like CTMS and CDMS. Vault, CTMS had a remarkable year. Not only did we close our 1st Top Twenty farm in Q3, but our CTMS customer count more than doubled over last year to 34. This is very encouraging for a product that was released less than 2 years ago. Customers clearly see the benefit of having eTMF and CTMS integrated together on a modern cloud platform.
We are also setting up to be a major player in clinical data management over time with our CDMS product. We signed new customers in
the quarter and many of
our existing customers are already using Vault CDMS for multiple trials. We're learning, advancing the product and developing a strong customer community. This year, we will release major capabilities within Vault CDMS that will be real game changes for the life sciences industry. We're very excited about our future in clinical data management. Lastly, I'd like to give an update on our business outside of life science We nearly doubled our base of Veeva QualityOne customers, deepened relationships with early adopters and expanded within our enterprise accounts.
2019 will be a year of focused execution for the team as they build what could be a very big business for Veeva in the long term. In all, it was another great year. Three and a half years ago, we set a goal to reach a $1,000,000,000 revenue run rate in 2020 with a long runway of growth ahead. We will cross the $1,000,000,000 mark this year, 1 year ahead of schedule. We have an exceptional team of over 2500 people working together with a compelling mission and a common culture.
We have deep customer relationships based on a 12 year history of customer success and continuous innovation. Together, these things set the stage for strong organic growth well into the future. Now I'll turn it over to Tim to review our financial results.
Thanks, Peter. Q4 was a great finish to another strong year. In Q4, we saw record bookings which sets us up well for fiscal 2020. Total revenue for the quarter came in at $232,000,000, up 25% from $186,000,000 a year ago. Vault represented 49% of total revenue versus 42% in Q4 of last year.
This capped a year in which total revenue was $862,000,000, up from 6.91 $1,000,000 in fiscal 2018, an increase of 25%. For the full year, Vault represented 47% of total revenue, as compared to 39% in fiscal 2018. Subscription revenue in the quarter totaled more than 190,000,000 up 25% from $152,000,000 in the prior year. Vault represented 45% of subscription revenue, versus 39% last year. For the full year, subscription revenue came in at $694,000,000, up from $559,000,000 in fiscal 2018, a 24% increase.
For the full year, commercial cloud subscription revenue grew almost 11% and vols grew nearly 48%, both ahead of our previous expectations. In fiscal 2019, our revenue retention rate was 122%. This metric is defined in the earnings release and reflects annualized subscription revenue growth within existing customers, net of revenue attrition. I'm particularly proud of this metric as it demonstrates our customer's willingness to invest more with Veeva over time, based on the success that they've had with our products and our people. Services revenue came in at almost 42,000,000 up 22% from $34,000,000 last year.
For the full year, service revenue totaled 168,000,000 up 28% from $131,000,000 in fiscal 2018. This growth benefited from very strong demand, especially within R&D Vault Projects. In Q4, our subscription gross margin was 85%. This metric increased roughly 40 basis points from Q3 and almost 400 basis points from last year's fourth quarter. While subscription gross margin will continue to slowly rise as Vault grows faster than Commercial Cloud, this level of improvement was also driven by duplicative expenses we incurred in Q4 of fiscal 2018 associated with our AWS migration.
Services gross margin for the quarter was 23%, down from 35% in Q3 and up slightly from 21% 1 year ago. This is a normal seasonal pattern as Q4 has fewer billable days due to holidays and our field kickoff in January, and has additional costs related to the field kickoff. Non GAAP operating income was 84,000,000 resulting in an operating primarily by outperformance on the top line. We added 71 net headcount this quarter, ending Q4 with a total of 2553 employees, up from 2171 a year ago. Moving to the balance sheet, deferred revenue was $356,000,000 compared to $196,000,000 at the end of the third quarter.
Calculated billings for the 4th quarter came in at $394,000,000, which was ahead of our guidance of $375,000,000. This outperformance was driven by stronger than expected bookings, better than expected billing duration for the business close in Q4 and to a lesser extent, outperformance and services revenue. This brought total calculated billings for the year to $947,000,000. Looking ahead, we expect calculated billings of approximately $235,000,000 for Q1 and $1,100,000,000 for fiscal 2020. Similar to last year, we expect about 41% to 42% of those billings to come in Q4.
As you consider the Q4 billings result and the billings guidance for this year, keep in mind the dynamics that impacted billings in fiscal 2019. First, we had a customer ship a large renewal from Q1 to Q4, resulting in a nonrecurring incremental $18,000,000 of billings for the year. Also, as we discussed on last quarter's call, the bookings in fiscal 2019 were more weighted towards customers with Q4 renewal dates, which resulted in billings of more than 12 months of subscription fees during the fiscal year This dynamic increased our overall fiscal 2019 billings results by about $10,000,000. Normalizing for these two factors, would bring our total calculated imply that our billings guidance for Q1 and for the full fiscal year of 2020 represent growth rates of about 20% each on a normalized basis. Please remember that there are numerous factors that make year over year comparisons of this metric highly variable on a quarterly basis.
Therefore, we do not believe it is a good indicator of the underlying momentum of our business and we do not manage to it internally. Our subscription revenue guidance and calculated billings guidance for the full fiscal year are the best indicators of our momentum. Elsewhere on the balance sheet, we ended Q4 with $1,090,000,000 in cash and short term investments, up $38,000,000 from the end of Q3. This increase was driven by $32,000,000 of operating cash flow, which included $15,000,000 in excess tax benefit related to equity compensation. For the year, operating cash flow came in at $311,000,000 which included a total of $46,000,000 in excess tax benefit.
Excluding that tax benefit, operating cash $65,000,000 above our last guidance and represents a strong collections quarter in Q4. For fiscal 2020, we expect operating cash flow to be slightly above $320,000,000, excluding the excess tax benefit, or almost 21% growth from fiscal 2019. Next, I'd like to share our outlook for Q1 and for fiscal 2020. For the first quarter, we expect total revenue to be between $238,000,000 $239,000,000 non GAAP operating income of $85,000,000 to $86,000,000 and non GAAP net income per share of about $0.44 based on a fully diluted share count of approximately 158,000,000 shares. Please note, we will maintain our flat non GAAP tax rate of at 21%.
As a reminder, this is not something that we will adjust quarterly, but we'll evaluate on an annual basis. Note that Q1 contains 89 days compared to 92 days for our other 3 quarters. The fewer days of revenue recognition primarily affect our subscription revenue, which is recognized on a daily prorated This also affects our gross and operating margins as virtually all of our expenses are recognized on a monthly basis, while revenue is recognized daily. For the year, we anticipate total revenue to be in the range of $1,025,000,000 to $1,030,000,000 which is an increase from our initial outlook of about $1,010,000,000. We expect subscription revenue to grow roughly 21% to 22%.
And within that, we expect commercial cloud subscription revenue to grow about 10% over last year and Vault subscription revenue to increase at least 35%. We anticipate non GAAP operating income of $365,000,000 to $370,000,000 for the full year implying a non GAAP minimum per share of $1.91 to $1.94 for the year based on a fully diluted share count of approximately 159,000,000. In summary, I'm very pleased with our team executed in closing out our best year to date. We are prime for another year of profitable growth, and continuing to invest for customer success
At this time, Your first question comes from Tom Roderick from Stifel.
Hey guys, good afternoon. Thanks for taking my questions here. So I kind of want to put this in a big picture and think about where you guys gave the Veeva 2020 picture a few years back and now you're a full year ahead of that. Vault coming in almost 50% for the fourth quarter, pretty remarkable. As you look at CTMS and CDMS, can you give us a sense as to how much ahead of plan those really are And as your customers kind of look at that relative to, I think EPNF is a great example with where that's really driving growth How much overlap do you see in those customers?
How much wallet share exists between customers that have EPMF and how many can kind of bolt on the other 2 we just talked about there. The month is here about the big picture and where that takes Vault over the next 2 years. Sure. Yeah. So, Tom, this is Matt.
There's there's a lot of overlap in what customers need. Right? So most customers who get to a point where they need an eTMF are thinking about submissions and they're going to need regulatory solutions. If they're in clinical trials, with a meeting map, they already have probably passed the point where they need things in the quality swing. So there's tremendous synergy and cross selling need across the customer base.
And I think you asked a couple of questions in there. I may have missed one of them. No, so I think it kind of gets at the heart of it with, which is where does Vault go ultimately over the next several years. I mean, is this, if you look out 2, 3 years, is this a 70% piece of the business, or if you think about safety and quality and some of the other solutions, those kind of bolt on and ultimately take a bigger slice of the pie? Yes.
So without providing real specifics in the future, which we haven't done, you know, we kind of don't see the end of Vault, right? So the strength of the Vault platform is that it enables us to build really deep industry specific applications quickly, and profitably. And so within life sciences, we've built out a suite and when you include the safety suite, we've built out a suite of really the major applications of what they need on the R and D side. That's going to continue to grow for a long time as we've been successful in launching new products. And you've seen that even this year with the success of CTMS and CBMS and training and other.
So in terms of what percentage of our revenues get to, I think you have to go back and look at the TAM. And the TAM for Vault is larger than where we started in Commercial Cloud. And I think we're proving the ability to get a high market share in multiple markets. And that's the intent here so that we can really build out the industry cloud, something that allows all of our customers to dramatically improve their efficiency. Great.
Matt, I'll ask you one last one here since we've got you on the call, one more time, but congratulations on kind of the next step in your adventure here. Can you give us a sense as to CDMS what you guys have been able to do with the product over the last, let's call it 6 to 9 months. As you look to move upstream, you look to do more Phase 2, Phase 3 trial work, what are purchasing, what the readiness of that product set now in those realms? Yes. So remember, we're not just trying to build a better EDC.
So let me answer first in terms of phases. So we're at a point now where we can take on any phase 1, 2, 3, 4 trial and customers have been pleased throughout. In fact, the best indication of that is customers that are running their second and third and 4th and even 5th trials with our CDMS already. The other thing to keep in mind is that in the next 6 to 9 months, we're going to redefine what CDMS is, and we're going to deliver a data at Workbench that allows companies to bring all of their different clinical data together in a single data sets before they send it over to the statisticians. That's going to be a step change for the industry.
So I think the EDC part We feel like we're ready for any trial and we're starting many. But where we're really going to change that market is with the addition of a fully integrated data workbench. Excellent. That's great. Congratulations again and thank you guys.
I appreciate it.
Your next question comes from Sterling Auty from JP Morgan.
Great. Thanks. This is Jackson Ader on for Sterling tonight. Thanks for taking my question guys. Let's, if we can just follow-up, actually, instead of on CDMS, the top the 2 top 20 wins at CTMS, any early takeaways there given that they're the first kind of large customers to take up that suite?
Sure. So first let me correct you. We've only announced 1 top 20 CTMS customer, and that was in Q3. And so that project has been going for a few months now. And we're kind of full speed with one of our system integrator partners.
And so far so good. The feedback on the product is good. The feedback on the way that we are approaching the project is good. And it makes sense because this, while it's a new product area for us to deploy at that scale, it's not a new product area in general for us and it's not certainly not the scale of the project is not dissimilar from what we've done before. Now we also are seeing the impact in the market of having announced that first customer because as we've seen, throughout our growth, when one big top 20 goes in, a lot of highs go on to that project.
And so there's going to be a lot of attention on this project in the coming months. And that helps to speed our sales cycles and other enterprise accounts. Sorry. I think there were 2, but only one last quarter. One one quick follow-up on on the financials.
Mentioned that billing duration increased a little bit more than expected in the fourth quarter. Is that only billing duration or are you also seeing a little bit of contract duration increase as well? Jackson, this is Tim. So not necessarily contract duration, and to be to make one point clear, we don't bill for multiple years in advance. Like some other SaaS companies might do to drive a billings number.
So I think if you look at, billings duration, increase it it was probably more driven by more annual billers versus quarterly billers and more Q4 folks who were, opting for another year. So longer billing duration from those 2 factors, I think we're the primary drivers, but not overall contract duration. Okay. Alright. Thank you.
Your next question comes from Bhavan Suri from William Blair.
Hey, guys. It's actually Arjun Bhatia on for Bhavan. Congrats on the quarter. Just wanted to follow-up on the ETMF real quick. Mean, clearly, you're seeing some good momentum there, still with another top 7 CRO and I think 2 top 20 pharmas, this quarter.
Just given that this is a more mature Vault application for you, can you give us a sense for how should how we should be thinking about ETMF growth going forward, do you still see a significant untapped market opportunity there? Or should we see the growth slowing down in ETMF over the next year or so?
Sure. So, yes, so Peter said on the call, we have 11 top 20 now that have committed to Etmf as their global standard. And it's a bit over 200 customers in general. There's probably a couple thousand companies that need any TMF. So that market is not saturated.
But I think the thing to think about with eTMF is that, that has been the lead application for the clinical suite in the clinical operations area. And so I think the things to start to watch over time are how many of those big ETFF customers are also doing CTMS and how many are adopting the study startup module. And then very importantly, over time, how many eTMF customers are also using CDMS, where the overlap hasn't been as great yet because we've been going after CDMS kind of by itself. But over time, all of these applications, the way that they work together, is going to create a value proposition that's going to be unmatched. By anyone.
In fact, we're really there already. And we're starting to see more and more companies adopting the entire clinical suite. I think the right way to think about eTMF is as the initial kind of lead application for the broader clinical suite.
Okay, that's helpful. Thanks. And then maybe just a follow-up, Tim, on the subscription retention number, we saw 122% which is an increase from last year and it's great. I'm just curious how new product contribution is layering in there with the cross sell versus customers expanding usage, of subscriptions to existing products?
Yeah, Arjun. I think in in that's, metric, I think it's more the expanded use of the existing products. As well as customers adopting products that are new to them when you say new I think to a lesser, much lesser extent is the contribution from some of the newer products that we've announced. So I think the large one is expanded use of their existing products. 2nd is products that are new to them and 3rd and to a much lesser extent is newer products that we brought to the market in the last couple of years.
Got it. That's very helpful. Thanks for taking the question and congrats again
guys. Thank you.
Your next question comes from Saket Kalia from Barclays Capital.
Hey, guys. Thanks for taking my questions and having me on the call here. Tim, maybe to start with you just a slightly different way of asking the prior question on Volt specifically. Clearly, a lot of room to grow there in terms of customer base As you think about the fiscal 2020 guide on subscription, how do you think about that lever of growth in customer base versus some of the other levers like more vaults per customer, and such, how do you think about that sort of equation qualitatively? Yes.
So picking up on the point that Matt made in terms of, specific theory TMF that you could say this across the development cloud, there's certainly a longer tail of potential companies that can by Vault and Vault applications from Veeva than we saw on the commercial side. We did add 100 and roughly 125 new Vault customers, new Vault logos in fiscal 2019. So we're very excited about about continuing to work with new customers. But I do think, and with that said, I think the pattern of a large percent of revenue coming from our stall base will continue to happen in Vault as we've seen it in Commercial Cloud. And you saw that, in fiscal 2019, really being driven by a very strong retention, excuse me, revenue retention rate, which was a the vast majority of our subscription revenue maybe if my follow-up for you, Matt, we've talked about the building of reference accounts using eTMF that may also consider CTMS as well.
Can you just maybe talk higher level what do you hear from customers on the desire to consolidate vendors in those 2 functions? And perhaps it's a bit of a dumb question, but as you consider a best of breed strategy versus a more fragmented one, how do your customers sort of approach those 2 functions specifically?
Yes. This is Peter. I'll take that one. Let me share a little more color first as background about the two customer wins on eTMF, 2 top 20 wins that we that we announced since last quarter. So it comes in a variety of manner So one of these was a European company.
1 of them was a a US company. In one of the companies, we started in the regulatory area first and continuing there. And then they got the Etmf. In the other company, this was our 1st development cloud application whatsoever, now it turns out in both of these companies, our commercial vault is used in there. So In terms of your new customers versus existing customers, many, many customers are our customers now, but not in all areas.
And then the way to think about the customers, not necessarily do they want to consolidate on more vendors? When you get to these mission critical applications, they want the best solutions because these are mission critical for a top 20 pharma They might have well over a thousand people working just on their eTMF application, running their clinical trials. And when you combine Etmf and CTMS, certainly well over a thousand people. They're concerned about the productivity, the efficiency, the effectiveness, the compliance, speed of those people. So that's what's really driving it when they see how the eTMF and the CTMS fits together and makes their people more productive.
That's what really causes this pull through. The vendor consolidation is nice, but it's really the excellence of the solution that's driving our success.
Thank you.
Your next question comes from Kirk Materne from Evercore ISI.
Hi, thanks, Doug. Thanks for taking the questions. Congrats on the quarter. I guess my first question would be maybe for Matt. Matt, as you get into these larger strategic conversations with your customers.
I guess, who you're talking to on the client side and who you're working with and say a partnering perspective, Is that been changing? I assume that you have more of the global system integrators in there helping you map out sort of the process changes just kind of curious how that's evolved maybe over the last year or 2 as you get into, say, larger eTMF deals? So rather than answering that specifically for eTMF, let me answer that more broadly and then I can come back to clinical. So in general, I think because of the nature of the relationships that we have because companies are buying so many products from Veeva, that the relationship is getting escalated in terms of the level that we're talking to. So we speak, we've always spoken to divisional CIOs Now we speak to a lot of global CIOs.
We also are talking to CFOs and in many cases, to the chief executives themselves. Now for, if you think about specific areas of Vault, like clinical, the most important people are, like, heads of those areas. So there's head of regulatory, global head of regulatory, there's a global head of quality, there's a global head of clinical, and those are people that when we had maybe one application to sell, in each of the suites didn't make a whole lot of time for us. We were talking to, you know, maybe the document management team. But when we have an entire unified suite, of products that cover document management, data management, business process, automation, then we're talking to the heads of those divisions.
So for sure, we have been elevated in the discussion. And I think it's naturally happened as we've had a broader product portfolio and the projects themselves are more and more strategic. Okay. And then just one follow-up so much. I think QualityOne.
Yeah, obviously, really nice momentum around that, that, that product in this offering in the life sciences category. Guess when you look at the investments that you all want to sort of build, I guess, or put into play, you need to continue to drive that growth, Can you just talk maybe just qualitatively about, I assume it's more, is it more specialist salespeople that have industry domain experience? Are there things, yes, signal continuing to have to sort of build out with this product from an industry perspective? I'm just kind of curious what's, what do you all have to do to kind of you continue to drive that to create sort of a 3rd pillar of growth? Thanks.
In terms of QualityOne, 2 broad areas of Invest One is in the go to market. This would be the services and the sales, and the other one is in creating the product excellence for the system of product management and product engineering. So we'll have balanced investment, across both. And that's really what it takes to build the QualityOne business. We're having good success with our early adopters, you know, and then a product takes a while to reach a product excellence.
So we have to find those specific things that the customer needs design those products, build those products, we have to add the services capacity as we get more and larger relationships. And as we get more more customers interacting with us, more existing customers and more new prospects we add in the field. So it's a really a balanced approach When I look back, it's very similar to when we enter any new market. It's balanced, investment across the product and the sales. Growing through the reference selling model.
Your
question comes from Ken Wong from Guggenheim Securities.
Great. Thanks for taking my question guys. Peter, maybe a follow-up on QualityOne as well. With all the early success of QualityOne in fiscal 2019, should we think about fiscal year 2020 as pursuing the more the market in a more controlled manner you guys have been doing or are you guys ready to really chase this opportunity?
I I would
say controlled manner is absolutely right, guided by customer success. So that's our main, you know, main main focus Both outside of life sciences is a yeah. That's a tremendously large opportunity. We need to focus in on our early customers, get the right ones, increase the product excellence and the customer success and get better as a Veeva team at executing outside of life sciences get incrementally better every quarter. So, yeah, you're right to say it's continuation and incremental progress you won't see any step changes from Veeva this year outside of life sciences.
Got it. Fair enough. And then, Tim, looking at the EBIT margin outlook, 36% a nice step up this year. That's also above your fiscal 'twenty one goals of $33,000,000 to $35,000,000. I guess, how should we think about the trajectory of margins longer term, if you guys were ready to comment on that at all?
Yes, not ready specifically to quantify how we're seeing that play out over the longer run. As you and I talked about before, Ken, we think about we've only really modeled the business in an investment mode. So we haven't thought about the business in sort of a steady state mode from an investment perspective and where margins could go I would say that what you're seeing in both the performance of fiscal 2019 and the guide for fiscal 2020 is 2 really strong, dynamics happening. 1, the effectiveness of the operating model of the industry cloud operating model, I should say, Ken. As we think about it from a sales and marketing efficiency and effectiveness perspective, And 2, something that we've more recently talked about probably over the last 12 to 18 months is, and I think Matt talked about earlier today, the efficiency and the effectiveness and the power of the Vault platform and the ability it has to quickly build enterprise grade applications in a very efficient, capital efficient way.
But I think you see the results being driven by those 2 dynamics, Ken, and I don't think that changes as you look out into the future.
Your next question comes from Rishi Jaluria from VA Davidson.
Hey guys, thanks. Thanks for taking my questions. And, that congrats on what you've done over the past 12 years. Wanted to start with the with the CRM engage side of the business, you know, nice to see, 2 top 10 pharmas spanning into that. Can you just give us a little bit more color?
I mean, are these are these pilots with maybe a couple reps? Is it something with maybe slightly broader adoption than that? And and what needs to happen with those customers to see them turn into reference customers and kind of continue to flywheel from there. Then I've got a follow-up. Hi, Rishi.
It's Matt. Yeah. So we've been talking about Sierra Engage for at least 18 months, kind of in the pilot stage. Both of those deals represent more than a pilot, like a 1000 or more users. And so I think what has happened in this market is what we expected.
It's a big business process change to have reps that are used to doing only face to face calls, also do some video calls. So both of these companies ran extensive pilots. They were very successful, and now they're doing larger deployments that cover entire countries. And what has to happen in order for that to become the norm is probably 2 things. First, these guys have to be successful.
And then generally, what we've seen is they have to get on stage at Aviva Summit, tell the rest of the industry the impact that it had. And luckily, for us, less than the industry normally does not have directly competing products. So our customers are pretty open with each other, and they want to get the right drugs to the right patients. I mean, that's the people that we serve each and every day really do care about that mission. So they help each other when there's something that is going well.
And so I think if those customers are successful, we get them on stage at Aviva Summit to tell the rest of the industry that I think that, we'll see a lot more deals like that. Got it. Thanks. That's helpful. And then on the Vault outside of Life Sciences, you've clearly seen really solid traction with quality 1.
But I think it's it's pretty apparent that there's probably a ton more applications to other regulated industries, especially given how broad the Vault applications have become. I guess, how do you about the decision or the possibility to build out other Vault applications for for other highly regulated industries or maybe even potentially opening up the Vault platform for ISVs to develop, you know, custom built solutions, for those industries that you're not in right now. Thanks.
Yeah, Rishi. This is Peter. Certainly, the Vault platform is a it's a pretty flexible platform. It's a world class platform. We put a lot of effort into it.
Platform is only one thing. It takes a lot of effort to make these applications. So We're gonna really focus on the areas for this year at least on areas where we're focusing QualityOne. It's a it's a big area. It's very early days.
And, actually, the industry cloud for life sciences, I would still consider that very early days. That's been, I think, sometimes people underestimate that. How how early on we're we're in them there. So we're gonna focus down in those areas and and create customer success. Now one specific question you asked us about IFCs creating on, the Vault platform.
That's not something we're planning at this time. We're focusing in on the applications. It's not to say that we couldn't do it in the future, but at this time, we're gonna remain focused, in our application area.
Great. Thank you so
much. Your next question comes from Sandy Draper from SunTrust Robinson Humphrey.
Hi. This is Hassane on for Sandy. Thanks for taking my questions. So first, I guess, just jumping to Etmf. You recently called out 4 of the top CROs standardizing on Vault TTMF.
I'm just curious, what does that mean for the incremental footprint that you're gaining from these standardizations and maybe if you can comment on who you are displacing?
Well, well, in terms of, so the first, the last comment there was, who were displacing. Oftentimes, we're displacing kind of a custom builds or legacy, client service things. And sometimes it's a combination of both people have a legacy client server application that partially meets their needs, and then they've had to develop custom things on top of it. So that was the second part. And I'm sorry, I missed the first part of your question.
In terms of the incremental footprint, that you're gaining from these standardization? I don't know, maybe if you can quantify in terms of percentage gained or maybe some kind of dollar figures on a relative basis?
Incremental footprint. And certainly for these CROs, there are really 7 top CROs, and we announced, you know, that we have 4 out
of the top 7. So those
are significant, 7 figure deals. For Veeva and very significant applications for our customers, but I wouldn't really comment further than that.
Okay. And then maybe just one more follow-up to Rishi's question. A couple of quarters ago,
I believe you called out,
there's, you know, demand for quality, one type of product for your regulatory suite. I'm just curious whether, you know, there's been more demand for such a product from clients or whether you've given more thought to that. Any color on that would be helpful.
Yes, the quality and the regulatory area, those are tightly linked in most highly regulated industries. And it's specifically when you look into the consumer package goods, the the chemicals and the cosmetics where we're focusing outside of life sciences, they are they are side fueling. So, yeah, we're seeing good demand for them from there. And we're seeing other quality one is our lead application. We're seeing customers interested in, and in some cases, purchasing our regulatory products.
So we think that's going to be great for VIVA over the long term as we develop a suite of products for those customers.
Your next question comes from Brad Hills from Bank of America.
Hi guys. Thanks for taking my question. I wanted to ask about the concept of the data workbench that you mentioned earlier, Matt. Sounds like a real differentiator to, you know, maybe be a catalyst, for CTMS, CDMS. Is that the right way to think about it And if so, could you elaborate on what that data workbench concept really, really needs for the solution?
Sure. Yes. So I guess it would be right to think of it as a catalyst, although it's one of the catalyst. So I think the initial catalyst, that we initially bait this whole strategy of going into this this market on was that the world needed a better EDC. And I think that we that's been confirmed over and over in every sales cycle every time we talk to a customer, there is need in the market for something that is more modern.
But what we also found was that EDC wasn't the only one of their big problems, that the EDC vendors had basically forever been competing against each other, and no modern company had gone after the problem, which is the data workbench. And the problem that that tries to solve is that there's now data that comes from multiple sources during the clinical trial, and some of this is because of precision medicine. So for example, you may have to get a genetic sequence from every patient that joins the trial. That's not captured in or stored in EDC, but it has to end up in the clinical, data workbench before it gets sent over to the statisticians, things like images, and things like data that may come off of mobile devices, All of these different data sources all have to be combined and merged and lined up accurately so that they can do the analysis on the data. And so that's just been an area that there hasn't been any tech great technology company that went after it for more than 10 years.
And it was almost forgotten. But when we spoke to companies about Better EDC, they said that's great. We need that, but here's an even bigger problem for some of them. That once they get all the clinical data captured in the EDC, it was taking them weeks or even months to combine it all with the other data sources. So that's a big source of value for customers if we can reduce that time from months to weeks or from weeks to days.
Great. That's great. Thanks, Matt. And then one more, if I may, please, just on the commercial growth target for 10% subscription revenue this year. Could you stack rank
where that growth is going
to come from? Has that changed at all from say what we saw this past year? It sounds like there's more of a awaiting towards SMB, you're seeing some real traction there. Is that the right way to look at that? Thank you.
Yes, Brad, this is Tim. As you look at that, roughly 10% subscription revenue growth guide for commercial cloud, as we look out in fiscal 'twenty, We think about half of that will come from, incremental CRM seats and the other half will come from cross selling the rest of the applications within the commercial cloud. But I do think that this is a year where we're going to see a transition to more than half of it in the future coming from those cross sells, as you know, we heard an earlier question about products like CRM Engage and others. That doesn't yet take into account what we ultimately believe Nitro and our AI product, Andy, could bring. That's something that, we haven't really touched on in the future, Brad, but as you can imagine, that will be a material revenue contributor, in a few years from now as it gets through and out of the early adopter stage.
Great. Thanks Tim.
Your next question comes from James Rutherford from Stephens Inc.
Hey. Good afternoon, and congratulations on the results. Best message is Matt on the transition also. Wanna start off with the rim and to get your thoughts on how Brexit may or may not affect this business. And I asked because it seems there's a lot of kind of questions around the drug registration process and how that will work post Brexit, which organization will be responsible for registering, product in the UK.
But the questions are, how are you preparing REMS from a product perspective to help your customers with the complexity? And then how is that is that complexity perhaps a tailwind for your rim business? As companies look for help to kind of manage that, that process?
So it's a really interesting question. So there are different regulatory authorities in different parts of Europe. But luckily for us or more, I would say, luckily for our customers, they move very, very slowly. So as you've seen, Brexit has sort of been watching, certainly like watching a train crash, in, in a slow motion. If you were to look at the way that regulatory authorities move, it's even slower than that.
So if there are going to be regulatory changes as a result of Brexit, it's not going to be one of the first things that happen and I think that our customers will have a lot of time to adjust. Now it's a good question because in general, when there are regulatory changes, are customers can get there faster because our product development cycle is faster than regulatory changes. But I don't see this one being a tailwind because I think it's going to take a very long time.
Okay. Thanks for that and sort of sticking with the macro theme here, but this time on kind of drug prices domestically, clearly, it's still top of mind for Washington with the meeting this week. And I know you're very close to this issue. I'd love to just hear kinda how you think that debate might play out. Is this time kind of different.
And then, you know, what impact might you see from your, you know, commercial business or your Vault, business if there were some sort of meaningful action to sort of synthetically lower drug prices?
I'm sort of flattered by the question. You noticed they didn't invite me to Washington this week. But I'll I'll try to give you a little of my, my impression. It does feel serious, and it has felt serious for for about a year, year and a half. When I was at the JP Morgan Healthcare Conference in January, there seemed to be a bit of a sigh of relief that people thought that the industry's self regulating itself and being public about not doing price increases or not doing price increases more than 10% that seemed to be having an effect.
But I don't think that the industry is out of the woods. I think that if nothing else, we're going to see more transparency, And I think in certain therapeutic areas, we're going to see some more compression in prices. But this industry that the real the real engine of this industry is the innovative drugs. And it's hard to tell a company that spent a $1,000,000,000 on a breakthrough drug saves people's lives that, well, you know, we need it for half the price. So I think there's always going to be room for innovation in this industry.
It's one of the things that keeps us charged up about it. Now your question was, what is the impact on us? Mean, I think it could go in either direction. If our customers are squeezed, then they need better applications at that provide more value, and that would help us. If they're squeezed and nothing else changes and they just wanna kind of take a pound of flesh from all of their partners and vendors, then they're gonna they're gonna come to us.
We're gonna be on that list. So we haven't seen an impact from it. I think it would take a pretty significant change for you to see that change in our financials in any meaningful time period.
Great. Thank you very much.
Your next question comes from David Hynes from Canaccord.
I could ask a couple of questions on Nitro. As I think of early adopters there, is it the initial time to market that will have users saying, man, this is really different. Or is there an moment that comes later maybe as they kind of start to make changes to the initial deployment. And I guess the reason I asked is I'm I'm just trying to gauge kind of how long it will take for work to get out that, you know, you guys are really onto something here.
I think it's the time to market and ease and the integrated approach with with Nitro. So one of the very interesting things about Nitro is that it can be used by the sales team, the field reps, out in, out, you know, in the field. They can get their reports, the very customized type of reports right on their iPad in their CRM. But also for the head office, they can do the more frequent form reports that they need to do in their reporting tools, reports, and analysis, and and really data science. So both of those things combined with the the the speed of getting the implementation going, And the fact that as their CRM changes, they, they don't have to recode their their data warehouse So I I think it's just such a new concept.
It's gonna take a while. It's not what people are used to. David, that what they're used to is a custom build, you know, for 20 years. So it's it's gonna take a while for people to get to get used to the new new way of Nitro because it's fundamentally different. It'll start with smaller comp companies first because they have less, investment in existing infrastructure.
Yes. And maybe just sticking with how this scales. I mean, in your view, how important is resolution to the challenges with IQVIA, to your success and, and assuming there isn't resolution there. I mean, is it possible that their anticompetitive behavior actually ends up becoming a tailwind to your own data businesses?
Certainly, the IMS anti competitive behavior is a is a tailwind. You know, it's a tailwind to network. It's a it's a tailwind to Nitro and to our data business. So and it's just harmful to the industry overall. The actual productivity of the industry is harmed.
So we're focused on bringing the right facts to court. We think that that trial will come in probably the later half of of 2020, when it when it comes into the trial. We're pretty confident in our in our case, and we expect to do well, but there's no question. It's a it's a tailwind now across the commercial side of our business.
Yes.
Okay, great. Good numbers. Thanks guys.
Thank you.
Your next question comes from Brian Peterson from Raymond James.
Hi, guys. Kevin here on for Brian. Thanks for taking my call. Can you give us a little more color on the trajectory of your services business going forward? Clearly, the mix of Vault will be a driver, but how should we think about the services intensity for some of your growth initiatives?
And maybe how you expect role of SIs to evolve as you work to get these customers up and running? Yes. Hey, Kevin, this is Tim. I think if you look at what you saw in fiscal 2019 results, you know, the way that I think about it is probably only 4 months of fiscal 2018, you really saw the, the growth in Vault or the contribution of Vault's R&D projects, whereas in fiscal 2019, you saw a full 12 months of that, which means that the growth from fiscal 2019 over fiscal 2018 looks a little bit, unique in that way is what I would say, Kevin. As we look at the overall services business, again, It is a business that we think about for our customer success in newer product areas.
We do find that our customers look to us could be the, the primary in those services projects for the most part. And over time, as products get more known and more mature in the market, the percent of the pie could go to the SIs. But we always will play a part and connect with our customers as they love our products, but they also really love our people from a services and from a domain expertise perspective. As it relates to the newer products, it's a little harder to tell as we have more nascent products and what the ultimate attach rate will be of services. Those can play out either like CRM did or like RIM has in the recent, in the recent past or could be not as big of an attach rate.
And we'll learn more as we get those products into the market and work with our customers.
That was our last question. I will now turn the call back over to Peter Gaster for closing remarks.
Thank you for your time today, folks. We look forward to seeing many of you at the Morgan Stanley conference tomorrow. In closing, I'd like to thank the entire Veeva team for their out and thank our customers for their continued partnership. I look forward to a great 2019 together. Thank you.
This concludes today's conference call. You may now disconnect.