Good afternoon. My name is Chantal, and I will be your conference operator today. At this time, I would like to welcome everyone to the Veeva Systems fiscal 2018 fourth quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and Thank you.
Rick Lund, Director, Investor Relations And Corporate Development, you may begin your conference.
Good afternoon, and welcome to Veeva's fiscal 2018 fourth quarter and full year earnings call for the quarter and year ended January 31, 2018. With me on today's call are Peter Gasser, 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 atsec.gov. Forward looking statements made during the call are being made as of today, February 27, 2018. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Veeva disclaims any obligation to update or revise any forward looking statements. We will provide guidance on today's call, but we will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum.
On the call, we will also discuss certain non 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. Also, we have made a presentation related to the new accounting standard commonly known as ASC 606 available on the Investors section of our website. As a reminder, beginning in fiscal 2017 and fiscal 2018 financial information according to the new standard. Please note that these numbers are still under review and are subject to change until they are finalized in our 10 K, which we expect to file toward the end of March. 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. I'm pleased to report a strong finish to another great year for Veeva. We once again delivered financial results that were above our guidance. Total revenue in the fourth quarter was $185,000,000, up 23% year over year.
Subscription revenue grew at 26% and our non GAAP operating margin was 28%. This is a great quarter, one of our best quarters. We made great progress in each of our markets We innovated in multiple areas. We continued our focus on customer success and we're planting seeds for future growth. Turning to the different areas for their commercial operations.
Of Veeva CRM to emerging markets, including Latin America and Asia Pacific. These rollouts will happen over the next 12 to 18 months. Both are longstanding Veeva CRM customers who started with us in the U. S. Many years ago.
It's great to see these early partnerships expanding towards global deployments. This progression is consistent with the trend we are seeing toward greater global harmonization and standardization on Veeva. This creates a more efficient environment for IT organizations, enables consistent engagement channels around the world and sets our customers up with a solid Commercial Technology Foundation as they look to leverage more digital engagement in the future. With global CRM as a base, we are seeing steady regional adoption of the broader commercial cloud, including Viva events management and Viva align with a number of wins in the quarter. Overall, we are very pleased with the performance of EVA Commercial Cloud.
Turning to Vault, we had another excellent quarter across all areas. Q4 was the 1st quarter where we had double digit customer additions in every area involved, clinical, quality, regulatory, and commercial. This is an indication of the momentum we are seeing in each of these markets as well as the emergence of Vault as a strategic platform for life sciences. It's especially exciting to see the franchise we are building on the R and D side of life sciences. Veeva is uniquely positioned there to help streamline dog development Since we are the only technology provider with best in class application suites across each of the major areas of development, including clinical, quality, regulatory, and coming next year, safety, all in a single modern cloud platform.
We believe Veeva Development cloud will be transformational for the industry over the long term. Let me highlight a couple of specific wins to give a flavor of our business on the R and D side of Vault. In the quarter, a top 20 pharma, who is an existing eTMF customer, committed to standardizing on the vault rim suite and vault quality docs. This is a large project involving mission critical applications that will roll out over multiple years. They will replace legacy and custom systems as well as manual processes.
From a revenue perspective at full deployment, this deal is over twice the subscription size of our existing Vault Etmf deal. Another top 20, also an existing eTMF customer added Vault QMS this quarter. This is our first top 20 pharma to select Vault QMS. Winds like this and successful deployments are the keys to our strong momentum in QMS. We now have more than 40 QMS customers.
This is great progress considering the product was just released in June 2016. We also had another very strong quarter in clinical. Volk Etmf continues to grow. We added new customers in all regions and expanded with existing customers in the quarter. We are well into reference selling mode with eTMF.
Deployments are quick and predictable. Customers are happy and getting a lot of value. ETMF was our first R and D product and its success is paving the way as we expand in clinical and to the broader development cloud. We are making good progress in other areas of clinical as well, with our early traction in CTMS and EDC. We are seeing rapid uptake on CTMS.
We now have 19 CTMS customers with 7 customers live. This is really driven by 2 things. Customers want a modern, flexible cloud based CTMS system. They also want CTMS on the same platform as their eTMF. EDC is also progressing well.
We now have 6 early adopters to our live. We're focusing our attention on these early adopters. As our work with these early adopters speeds our product development and reference selling cycle, EC will mature further and we expect to start ramping this business later this year. We have a growing pipeline and everything we are seeing with customers and prospects reinforces our view that the market needs a new modern solution. We believe Veeva can be the long term leader in EDC and in clinical overall as we disrupt the market with superior offerings and the unified suite.
Finally, I want to give a quick update on Vault QualityOne. Our quality product suite for companies outside of life sciences. I am very pleased with our progress in the 1st full year of Veeva expanding to other industries. We are pursuing this opportunity in the Veeva Way with a focus on learning from early adopters, making them successful, and developing live house accounts that lead to reference selling. In total, we now have more than 20 customers outside of life sciences.
These deployments are going well and in many cases early adopters are already expanding. In Q4, we added several new customers, including an initial deal Like the growing relationship with our first top 30 chemical company, this one is also an early project with a significant amount of expansion potential as the relationship progresses. Looking ahead to next year, we will continue to invest in our team, refine our products focus on winning early adopters and ensuring their success. This is the way we will scale QualityOne in a meaningful way over the long term. In closing, Veeva delivered a great performance this past year and another year of financial results that exceeded our expectations.
We're leading in commercial and R and D Vault is becoming a foundational platform across the enterprise and we are seeing early success delivering innovative cloud solutions beyond life sciences. I am also very happy Our progress this year with QualityOne, QMS, CTMS, EDC, and Safety will be significant for Veeva and our customers for many years to come. With that, I'll turn it over to Tim to review our financial results in more detail.
Thanks, Peter. Q4 represented a great finish to another strong year of execution. Our top and bottom line results came in ahead of our guidance and we have raised our expectations for fiscal 2019. Subscription revenue in the quarter was up 26% to $151,000,000 from $119,000,000 last year. Subscription revenue was improved by a stronger than expected bookings performance in Q4 wrapping up a full year in which subscription revenue came in at $554,000,000, up from $434,000,000 in fiscal 'seventeen a 28% increase.
For the full year, commercial cloud subscription revenue grew almost 16% and Vault grew nearly 57%. Both slightly better than our previous expectations. In fiscal 2018, our revenue retention rate was 121%. This metric is defined in the earnings release and reflects annualized subscription revenue growth within existing customers net of revenue attrition. This demonstrates the quarter was $34,000,000, up 11% from $31,000,000 exceeded our expectations by about $2,000,000 due to the strong demand within Volt R&D and a couple of fixed fee milestones that we recognized.
Total revenue for the fourth quarter was $185,000,000, up 23% from $150,000,000 1 year ago. Momentum in Vault continued with Vault representing 42 percent of total revenue in Q4, up from 35% a year ago. This capped a year in which total revenue was $686,000,000, up from $544,000,000 in fiscal 'seventeen, an increase of 26%. In discussing the remainder of the income statement, please note that unless otherwise stated, all references to our expenses and operating results are on a non GAAP basis, and are reconciled to our GAAP results in the earnings press release our subscription gross margin was 81%. This metric decreased by 25 basis points from Q3 as expected and was the result of duplicate expense associated with our AWS migration.
And I expect the costs from our legacy provider to fully roll off by the end of Q2. Services
gross margin for
the quarter was 21% down from 32% in Q3. As expected, Q4 saw fewer billable days due to holidays and our field kickoff in January which for the first time combined North America and Europe. The kickoff also materially increased our cost of services for the quarter. In addition, we continue to ramp our R and D services teams given the Vault demand we are seeing this coming year. Finally, there were a handful of miscellaneous items that lowered services gross margin from the mid-twenty's guidance that we gave on the last call.
I expect services gross $2,000,000, a 28% operating margin, which was down from almost 31% last year. It's important to note we took a one treatment of our employee lunch program. In addition compared to last year, this year's Q4 saw incremental costs associated with our combined field kickoff and the previously noted AWS migration. In the quarter, we also saw continued headcount growth adding 71 people net to finish at 2 171, up from 17 94 1 year ago. Net income for the quarter was $35,000,000.
Given the new tax reform for fiscal 'nineteen, we will change our flat non GAAP tax rate from 35% to 21%. As a reminder, this is not something that we will adjust quarterly, but will reevaluate on an annual basis. Turning to the balance sheet, deferred revenue was $275,000,000 compared to $173,000,000 at the end of the third quarter, This resulted in calculated billings of $287,000,000, which was ahead of our guidance of $272,000,000 to $274,000,000. This outperformance was a result of better than expected billing duration for the business closed in Q4, stronger than expected bookings and outperformance in services revenue. 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 Looking ahead, we expect calculated billings of approximately 875000000 to 8800000000 for fiscal 'nineteen and of roughly $200,000,000 to $202,000,000 for Q1. Please remember that our renewal base is heavily weighted toward Q4 and is becoming increasingly so. For fiscal 'nineteen, we expect that roughly 40% of our total calculated billings for the year will come in the 4th quarter. Elsewhere on the balance sheet, we exited Q4 with $762,000,000 in cash and short term investments, up from $758,000,000 at the end of Q3.
As a reminder, Q4 is our typically lowest cash flow quarter because of the seasonal pattern of renewals while fiscal 'eighteen was the 1st year that we adopted ASU 20sixteen-nine, which changes the accounting treatment of tax benefits associated with our stock based compensation. For Q4, this increased operating cash flow by $9,000,000. While our operating cash flow was $3,000,000, if you exclude that benefit, our operating cash flow would have been an outflow of $6,000,000. For the year, our operating cash which included $46,000,000 related to this tax benefit. Excluding the benefit, our operating cash flow was $189,000,000 for fiscal 'eighteen an increase of roughly 31 percent from fiscal 'seventeen.
For fiscal 'nineteen, we expect operating cash flow to be roughly $240,000,000 excluding the excess tax benefit. As you look at this benefit, I would keep 2 things in mind: first, This benefit is thesis. 2nd, this amount is dependent on individual employee decisions related to equity, which makes it very difficult to predict. Let me wrap up by sharing our outlook for fiscal 'nineteen guided numbers and any guided growth rates are based on fiscal 'eighteen numbers as if restated for 606. In addition, our net income per share guidance takes into account expect revenue between $188,000,000 $189,000,000 non GAAP operating income of $58,000,000 to $59,000,000 and non GAAP net income per share of $0.30 to $0.31 based on a fully diluted share count of approximately 154,500,000 Note that Q1 contains 89 days compared to 92 days for our other 3 quarters.
Our subscription revenue, which is recognized on a daily prorated basis. We currently believe this will negatively impact Q1 revenue by about $5,000,000. 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 expect revenue in the range of $815,000,000 to 820,000,000 which is an increase from our initial guidance of roughly $805,000,000. This is driven by the increased momentum in Vault, especially in the development cloud products, and by our current view that 606 will likely help by a few $1,000,000.
We still expect subscription revenue to grow at least 20% for the full year Additionally, we expect subscription revenue and subscription revenue from Vault to grow at least 40%. 50,000,000 to 255,000,000 for the full year, which implies a non GAAP operating margin of roughly 31%. Note that under the new accounting standard, we are now capitalizing and amortizing commissions, whereas we previously expense these in the period in which they were incurred. Normally, this would have reduced operating expenses similar to what we saw in fiscal 'seventeen 'eighteen when restated for 606. However, unrelated to the accounting change, higher percentage of fixed versus variable compensation.
This better aligns compensation to our long term and strategic selling approach. Due to this change, we expect the impact from 606 on operating expenses to be negligible for fiscal 2019. Turning back to guidance, we expect non GAAP net income per share based on a fully diluted share count of approximately 156,000,000. In summary, I'm very pleased with the way that our team executed in Q4 to complete the year We enter fiscal 'nineteen poised for another year of healthy growth and strong profitability and continue to invest for the long term. With that, thank
Your first question comes from Richard Davis with Canaccord. Your line is open.
You kind of touched on it, but you're looking at the EDC market at an interesting time, right? You've got CROs merging and data sources changing and collection, etcetera, etcetera and all that, but I'm, you know, a cold hearted finance guy. So, you know, help me think about kind of how the revenue path sort of occur in this space. I mean, I know it's early, but will it come in kind of like a small beachhead where you would be in a specific project and then you would expand from there, or is there a possibility that you could get like a big transformation, I don't transformational, but a large deal for the pop in potentially in 2018 or whatever. Thanks.
Richard, this is Peter. I think the the EDC revenue will be incremental. We'll start to see some momentum build in the next year. I don't think in the in the 1st year or 2, it'll be amenable to a large transactional chunk. The reason why that customers will be particularly sensitive about getting a new provider in this area because, you know, it's dealing with patient data.
So, we have to prove ourselves out either in smaller companies or in studies, very specific clinical studies of larger companies Now, I think over the years, you know, if you look a couple years out, yeah, I think, I think you could have it come in big chunks like the rest of Vault, but it won't start out that way. And by its nature, it's a study based thing. So I think it's going to be more sort of steady increments and not quite so much in big chunks.
Yeah, that makes sense. That's very helpful. Thanks so much. Thanks, Richard.
Your next question comes from the line of Sterling Auty with JP Morgan. Your line is open.
Yeah, thanks. Hi guys.
I actually want to ask a similar question, but around Vault. So, given where we are in the evolution of the Vault business relative to where commercial cloud is, you've given us the guidance for 40% plus growth in terms of the Vault revenue But how should we think about the evolution of how much of the Vault revenue is going to come from further expansion of existing customers versus continuing to add, as you mentioned, double digit new customers in each one of the categories here in 20 in fiscal 'nineteen.
Sure, Sterling. It's Matt. So, I think similar to commercial, there's 50 companies that are significantly bigger than the others and the majority of those companies have some Vault already. And so because those are so much bigger than the others, the majority of our ball revenue will come from kind of cross selling within those top 50 companies. But the one big difference between the commercial business and Vault is that Vault has a much longer tail, right?
So, the commercial business we can sell to the 4 or 500 companies that have a product on the market. For Vault, there's an extra 2000 pharma and biotechs and like 10,000 smaller med device companies that we can sell to. And so the tale of what we consider our SMB or small and medium sized business is much, much larger with Vault. And so that's why you see the customer count increasing so much more quickly with Vault than it did with CRM. And the way that we manage the business is that that is an even more, important part of the overall vol business.
All right. Great. And then one follow-up on QMS. It seems like you are dead. Got really good traction in terms of their early referenceable customers etcetera.
How is this one monetized? So do we need to wait for the second or third purchase to get meaningful revenue or just how is the monetization model in QMS going to work?
So, QMS looks a lot like other Vault applications where it can be an employee based thing, so it's a per user per month with small and medium sized companies. And then with the largest companies, we may do an ELA. And when we do a big ELA for a big global QMS deal, it would look something like what we've talked about in the past. It could be one 3, 5,000,000 in the first, second, 30, or something like that. And I'm using just representative numbers.
But so we call those our escalating ELAs. And as you drill down with 606 with Tim, maybe later in the call, these are the things that cause that, the change in how revenue is recognized on how those contracts are written. So QMS you should think of as just like another one of our big enterprise evolve applications. Nothing different there.
All right. Thank you guys.
Your next question comes from the line of Bhavan Suri with William Blair. Your line is open.
Hey, gentlemen. Thanks for taking my question and congrats there. Another good quarter. I guess, just first question, as you think about the investments you made in 2017, you sort of made more investments, I think, than you have sort of in the past, as you think about new initiatives, right? You had the CRO sales folks you had, OLS salespeople, you sort of increase sort of the EDC sort of space and obviously that's into some of the vault, but different buyer say, eTMF.
And so as you think about those sales investments, I'd love to just understand how you've seen the productivity ramp and has it been in line We want your expectations are a little better. How does those investments actually played out?
Robin, this is Peter. They played out well. They're different, right. OLS, I would say there were more, we're more looking for early adopters we're not going to get quite the sales productivity there that we would have in our established areas in the COO area. That's worked out very well because we have established products that we can sell in there.
So productivity is high there. But And also we we built out last year we we significantly increased our capabilities in the med device area in the field team for med device. And that's also gone very well. So, I'm happy with the build out in all areas. I really measure the productivity in the field by the you know, the depth of the customer relationships we're getting, the the the initial projects we're starting That's, you know, that's the leading indicator of productivity.
So they're all going very, very well for us. I can't point it out to one that's going particularly bad than the others. Now, the ACV will will come when it comes and that just has to do with the phase of the market.
Got it. Got it. And then just on OLS, obviously, you know, if you'd asked me, I'd have said maybe you got a half dozen or maybe maybe 15, 16 customers at 20, it was definitely a positive. When you think about the customers that started adopting this that sort of might be in the implementation phases and you think about the penetration of the OLS product in those markets, Just two questions. 1, who you're displacing?
And then 2, what does that penetration or potential for upsell or ASP lift or share of wallet look like? Over the next 3 to 5 or one of those existing customers, say even that sort of large CPG customer you signed a few quarters ago?
Well, generally, I would we'll be placing different types of vendors. Maybe the most common vendor we'll be replacing is actually a custom built system on a documentum or on a SharePoint. It could be on something else like OpenText. That's the most common thing that we're replacing, we may be replacing a legacy QMS provider. Now in terms of cross sell or growth, these, these large customers like that CPG customer, I, I do believe that can be you know, an 8 figure annual subscription deal over time, but that, that will probably play out over the next, you know, if it plays out, that will play out over the next Oh, you know, to get to that level is really 3, 4, 5 years.
Probably 4 or 5 years because that's when you're doing multiple projects with this customer across multiple regions. You're doing quality 1. You're doing some adjacent things. There's certainly potential to be for those to be, we figure customers.
Very helpful guys. Thank you and congrats again. Appreciate it.
Your next question comes from the line of Rishi Jaluria with DAA Davidson. Your line is open.
Hey guys, thanks for taking my questions. And it's nice to see some continued strong results. I guess first, Peter, as we look at Vault EDC, I mean, it's nice to see the early adopters and go live Can we see kind of a similar sales motion with EDC with reference selling and kind of expansion just given nature of clinical trials and how that may be different from other areas of life sciences. And then I have a follow-up for Tim.
Yeah, we definitely think we'll see reference selling for sure because inside of life sciences, this EDC area When you're selling into an area of life sciences called data management, then it's a specialized area and word of success really gets around. So, this year, for example, we're working on our early adopters. We'll get them live, get them happy, improve our products, We have our R and D summit coming in the fall in Philadelphia. We hope to get our early adopters there. Get some prospects there to see that and feel that enthusiasm.
So, that'll be very similar to the other other parts of life sciences. It'll be a reference selling game for sure.
Got it. That's helpful. Thanks. And, and, and, Tim, just kind of more a housekeeping question, but Can you help us understand what sort of benefit you'll see next year from the lower tax rate on cash flow? Because this might recollection is correct.
FY18 wasn't a full cash tax paying year. So, just maybe if you could walk us through that, that'd be helpful. Thanks. Sure. Yeah, the, with the new tax reform, we will actually see both a tailwind and a headwind on operating cash flow the tailwind, as you mentioned, Rishi, will simply come from a lower tax rate being applied to our GAAP income before tax.
But what may not be as obvious is that we will also see a headwind benefit from equity compensation as the tax rate declines. So there's a tailwind and a headwind that is impacting us from the tax reform and the operating cash flow line.
Your next question comes from the line of Stan Zlotsky with Morgan Stanley. Your line is open.
Perfect. Thank you so much guys.
A couple of very quick ones for me.
On the first one, the 20 customers outside of life sciences, which products are these customers getting into? Is it the quality 1 or is there something else that they're that they're buying in that segment? And second question, just probably would be for Matt. The sales comp structure changes that you're making for fiscal 'nineteen you just maybe dig into that a little bit more? And, that's it for me.
Thank you. Okay. In terms of QualityOne,
We are selling into those 20 customers outside of life sciences. Yes, we are selling QualityOne in there and in some cases we are selling platform deals. Now, when we, when we first start talking to customers outside of life sciences, we'll be talking to them about QualityOne, and that's a very important, very strategic area. They like our vision, but they may not be able to start there right away. That might spark interest in, hey, well, this this fall platform looks great.
Can we use it where if we're going to have to replace this other custom system that we have? Can we use it for that? So we'll obtain some platform projects. In fact, the top, the new top 30 chemical company that I talked about, that's actually a small platform project we were in there talking about QualityOne that sparked interest in this, platform project. So that can happen As you may recall, we started with our large consumer packaged goods company.
We started in the platform area that has then moved into QualityOne. So it's always those, it's always those 2 products. In terms of the sales compensation, I guess I can take that one too. You know, sales compensation, that's a, that's a very important thing over the long term. We look at it closely every year, And when we looked at the way we do reference selling today, the products we have, the strategic nature of our customer relationships it became clear that the old sales comp model, you know, we need to make some changes there.
And one of the changes was to increase the fixed compensation and lower the variable compensation for the salesperson. We expect the total sales compensation to be about the same on the average for each individual person, of course, the, you know, high performers, making, more than the low performers, but we're just changing the mix, the fixed to variable. And those changes are rolled out already. They're going well. We communicated to in Q4.
So existing people like it. We're bringing on new people. Under that model and it's going really well. So it's really about setting up for the future. It's about, being proactive with our sales comp model.
All right. Perfect. Thank you, guys.
Your next question comes from the line of Tom Broadderick with Stifel. Your line is open.
I'm curious a little bit to hear a bit more the EDC and CTMS decision cycles, if you look at some of your top 20 customers, I recognize that those decision cycle sort of come up as new trials come about and on the clinical side that doesn't happen every day But maybe you can talk a little bit about the pace of new opportunities that you see out there. Are you given the chance at some of those top 20s to displace the existing competition or do they kind of continue to roll over what they're using? And then when you look at the aggregate of those opportunities, and from a dollar basis, does that start to add up to what you're already doing involved? In other words, capable of seeing 8 figure deployments between EDC and CTMS at those, top 20s? Thanks.
Sure. Yeah. So you're lumping CTMS and EDC. So let me just start by splitting that. So, CTMS looks like a more normal, I shouldn't say normal.
It looks like many of the other Vault locations where, we're starting with smaller companies and when you get a CTMS deal, they generally use it for everything. And of the 19 companies, some of them are replacements of a competitive product and some of them are smaller companies that are actually deploying a CTMS for the first time. As we talk to companies in top 20, the largest companies, CTMS is one of the most heavily integrated products. And so the sales cycles will be relatively long. And those are big major enterprise deals.
Where they're going to rip out a system that could have literally dozens of integrations to other systems. And it's a, it's a major project. It's not 2 or 3 month project that's more like a 9 to 12 month project. So those will start, in the next year or 2 as the early adopters get on stage and tell the larger companies how successful they've been with the product. And then once we're moving, with those large companies, it'll look like a lot of the other Vault applications.
EDC is different because of the nature of of it being a trial by trial thing. And so we're already talking to top 20 companies, but we're talking to them today about their phase 1 and 2 trials. So these are smaller trials. And they would look identical within a large CRO or a small CRO or a large pharma company or a small one. Kind of a phase 1, phase 2 trial as a phase 1, phase 2 trial.
And as Peter talked about it, we're going to ramp that business the end of the year going into next year, what he's referring to is that we're going to have the ability to go after phase 3 trial. So the really big global trials that generally you would see from the larger companies. And so eight figure deals here, those are going to come when we can go after phase 3 trials at the largest companies. And as Peter said, we're a year or 2 away from being able to really compete successfully for those. So the market dynamics in both of those segments are different from each other, but they're well understood and it's basically what we expected when we made the decision to
go into those markets. Perfect. That's a great distinction. Thank you. Let me turn my second question here over to the commercial cloud.
Thinking about a business that grew 10% here in fourth quarter. Sounds like you're still projecting 10% subscription growth for 20 18 calendar year. So how should we think about the breakout of that? I mean, it seems as though you've had some major top 20 deployments that have been rolling out a lot of seats, particularly in North America. So so some great traction there though.
We know that can't last forever. As we get into your, you know, fiscal 19 calendar 18 here, how much of that 10% growth is seed driven? How much of it is add ons at this point? Thanks.
Yeah, sure. So, it's looking pretty balanced now. So, there's always new seat add ons from small companies, from companies in new geographies. We closed our first deal in Korea with a Korean domestic pharma company, a company that many of us hadn't heard of, 2, 3 years ago. And then we talked about these 2 top 20s that are expanding in emerging markets.
So, yes, there's still new seed ads. That's probably about half of the incremental revenue. And then the other is doing well with the add on products, which as we've said are generally being sold more regionally. And so there's more sales cycles there. But we do get to use the reference selling, sometimes even within the same company, right?
So if someone tries one of those add on products, In Asia, it can lead to deals in Europe and the U. S. So, it's pretty balanced this year,
between new seats and add on products. Perfect. That's really helpful. Thank you guys. Nice job.
Your next question comes from the line of Brad Sills with Bank of America Merrill Lynch. Your line is open.
Hey, guys. Thanks. I wanted to ask a question on safety. I know it's probably early here, the product's not out yet, but what's your expectation here for safety. Is there an installed legacy installed base here that you view as right for displacement?
Could we perhaps safety going in higher than the other products involved, further up market and then kind of move from there than we've seen in the past?
Sure, Brad. So the safety market, I think, is perfect for Veeva to disrupt. There's 2 main companies that basically dominate the top 50 in many small, smaller companies. 1 was bought by Oracle years ago One is a smaller company, but the 2 of them have been the clear market leaders for at least 15 years. It's probably over 20 years.
So, they've really split the market. Both are traditional on premise legacy software solutions. So, when we look at market, we think it looks a whole lot like going after documentum or going after Sibel and CRM. And the level of importance of these systems is one of the other things that gets us excited about it, because this for many companies, this is one of the most important systems. I had one customer tell me if the adverse event system, the safety system goes down, the CEO gets an email right away.
And while our other systems, many of them are important, the CEO is not informed the moment one of those things has an outage. So, this is a really important thing. They spend a lot of money on it. We think this is going to be maybe even larger than something like our whole regulatory business. So bigger than the whole Vault Rin suite.
And that's because of the level of importance and the depth of the product. It is a big product. So you'll see this year, we're going to be building it. We'll have an early adopter in the year next year, what we'll probably be going after smaller companies. It'll be a couple of years before we're announcing big deals with top 20 pharmas.
Great, thanks. And one also on commercial, if I may, with the VENSA line, I think, you know, last quarter, you you had cited that you expect a longer tail of a here more departmental expansions than companies kind of going all in with one of those two products. Is that still the expectation going forward? And maybe just a reminder on kind of how penetrated you are and what kind of a cycle we're looking at for those 2. Thank you.
Sure. Yeah, so it still feels more regional, though we did sign 1 large events deal that was a global deal, but we think that that's not going to be the norm here. So it can still happen for sure. And that was a company that really wanted to streamline their global processes around events management. But generally what we've seen both for events and align is that they would they would think about those things regionally.
They run their businesses more regionally. So, it does align to how some of them have deployed CRM and some of their business processes before. In terms of penetration, they both had a good year events, I think had a particularly great Q4, a lot of new projects, a lot of excitement, and it's now eclipsed 10% of our customers are using events in at least one place. A line is still chasing that 10% penetration rate.
Your next question comes from the line of Scott Berg with Needham. Your line is open.
Great. Thanks guys. This is actually Peter Levineian for Scott. So just one question for me, to piggyback off some of the EDC questions. Can you provide any additional color on your go to market strategy.
I kind of asked that question. If there's a specific group of pharmas or trials that targeting, whether it be kind of more complex trials, like oncology or gene therapy, or is it more targeting trials with much larger patient studies, safer blood pressure or diabetes type kind of medication trials? Thanks.
Yeah. Or over our end market for EDC is all all types of trials from the phase 1 all the way to the phase 4 for small molecule, large molecule, big trials, small trials. Now where we're gonna get traction first is in the less complex child. That'll be phase 1 and phase 2 in general. Although we we one of our early adopters is in a is in a pretty complex Phase 2 oncology trial.
So it can happen where we'll get into a complex trial, but in general, we're going to be in the simpler trials. We expect to by the end of the year, we'd like to have all the features and functions and things that we need in our service to handle trials of all site of all sizes, then we're just gonna have to prove that out with some early adopters and get into that reference selling mode.
Great. Thank you.
Your next question comes from the line of Brian Peterson with Raymond James. Your line is open.
Hi guys. Thanks for taking the question and congrats on the quarter. So, just wanted to hit on the outside of life sciences effort. You mentioned that you could see an 8 figure subscription relationship potentially over 4 to 5 years. I'm curious, do you have an 8 figure relationship in quality today in life sciences.
And as you think about the platform demand outside of life sciences thus far, has that interest been a lot stronger than you expected when you started initiatives?
Let's take the second one first. I think that platform interest outside of life sciences has been about what we've expected actually. We we knew that when we, when we showed quality 1, not everybody's gonna be, you know, amenable to replacing their quality system right away and they're generally a little risk adverse in that area, we knew we'd be enthused about the system, we knew we'd be sometimes talking with people from the IT side, this would bring up thoughts about other systems. So I think that was,
that was planned Now in terms
of, 8 figure customers inside of life sciences that are specific only to equality, that's the level of detail that we, we don't break out I think we've mentioned before, we certainly have quite a few 7 figure deals in the quality area, but we're not going to break out into whether we have individual eight figure customers in the quality area.
Got it. And maybe one follow-up for
What I would say oh, sorry. Go ahead. You know, some of these, customers in the quality area for the OLS, some of these are very large customers, right, that are doing manufacturing all around the world, more manufacturing heavy than our life sciences customers. And when I say an 8 figure customer there. It may not only be quality 1.
It may, it may be some of the platform things are associated with quality 1. So I think that's how you should That's how she had read it. We'd be a very important supplier to some of these customers outside of life sciences doing quality 1 and some other things. And in a big customer, that can add up to an 8 figure, a year customer.
Got it. Thanks. And maybe one follow-up for Tim. Just on the retention metric, as you guys clearly scale the customer base, 122% this year. Any help on how we should be thinking about that metric relative to revenue growth going forward?
Thanks guys.
Yeah, sure, Brian. It was, 121. I may have, I stuttered on that. Maybe you heard 120. So it was 121.
And typically I would say over the last 3 years, 3 to 4 years, what we've seen is a pretty close relationship between overall subs revenue growth and that revenue retention rate. Typically, we're seeing anywhere between sort of 2 thirds of or 70% of Sometimes it could be a little higher, but right in that range, Brian, of the subscription revenue growth that's attributable to the existing customer base, So it's probably the relationship that you would want to look at as we move forward.
Your next question comes from Jesse Halsing with Goldman Sachs. Your line is open.
Hey, thank you guys for taking my question. Had a question about quality 1. I am curious what you are seeing, on the reference ability side, life sciences, your profitability is incredibly strong. It sounds like you closed another top 30 chemicals company was the original chemicals company involved in referencing on that? And if you are seeing that sort of reference ability, should we expect clustering in some of these in some of these industries like chemicals as a couple of big, big buyers tip over more to follow.
Yeah. In terms of that new top 30 chemical company, there may have been some references behind the scenes that of course, you know, it's hard to know exactly what, what sways things in your favor, but nothing direct that we know about, because we're very early in that cycle. However, this, I believe it's in May, we're going to get our QualityOne customers together in Cincinnati. For the first time for, quality 1 summit in Cincinnati. And that's the first time we'll get customers together and really start that reference selling cycle in earnest.
So right now, no, we're not, we're not in reference selling mode yet. To the second part of your question, yeah, I do expect things to go in clusters. I think the reference selling works and a chemical company listens to a chemical company and a consumer packaged goods company listens to another consumer packaged goods company. I think just natural. And that's also the way employees flow to.
Employees often move, in similar types of companies.
Yeah. That makes sense. And one quick one for Tim. Once you're done with this migration to AWS What should we expect for gross margins? Should we expect those to trend higher and any sense of how much higher they can go?
Sure, Jesse. Yes. As it relates to subscription gross margin, as you heard in my prepared remarks, we are, right now, paying AWS cost and we're still paying our legacy provider as we go through this period of transition. Once that rolls off and we targeted fully to roll off by the end of Q2, I think you'll start to see subs revenue or excuse me, subs margin continue to climb up as you saw in the past. So it'll continue to inch up as we get more leverage in that particular
Your next question comes from the line of Kirk Materne with Evercore ISI. Your line is open.
Hey, guys. This is Daniel Greenfield on for Kirk. As you all continue to evolve into a more strategic platform for your large customers, do you feel you have all the necessary bandwidth in terms of services resources internally. And then, you know, how are you thinking about your own services business for building out your partner ecosystem as you continue to broaden your portfolio? Thanks.
Hi, Daniel. Thanks for the question. So So, basically, we split projects with partners. And this is, over time, this has become more
and more the way that we
do it. Where we do certain parts of an implementation and they do other parts. And so when we think of scaling our services business, we think of scaling to do our piece of those implementations. And so there's always a partner ecosystem that is helping us to scale. So, I don't think that the relative importance of partners has really changed over time.
We did the same type of thing with CRM in the early years and even today. And we set up that same type of relationship with multiple implementation partners in each area as we and kind of flowing through the partners is looking not one application at a time, but looking at Vault as a real enterprise platform. And so right now, we're leading that and we have most of those discussions with our customers and customers very often want to have those discussions with us I hear from CIOs, even CEOs often, they want to have a Vault First or Aviva First strategy, where they'll actually say why couldn't we do it with Veeva? I think our partners are now starting to give that same kind of messaging when we're not in the room. I think that that's going to be a theme as we continue to become more and more strategic and companies buy more and more vaults all on this unified platform, really making us a strategic partner to the industry.
There are no further questions at this time. I will now turn the call back over to Peter Gassner.
Thanks for your time today. We are pleased with our outstanding results for the quarter and for the year and would like to thank our employees for their outstanding work as well as our customers and partners for their trust and partnership. Thank you.
This concludes today's conference call. You may now disconnect.