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 Q3 Earnings Call. Thank you. Ric Lund Investors Relations Director, you may begin your conference.
Good afternoon, and welcome to Viva's fiscal 2018 third quarter call for the quarter ended October 31, 2017. With me on today's call are Peter Gassner, our Chief Executive Officer Matt Wallach, our President and Thin 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, December 5, 2017. If this call is replayed or viewed after today, The information presented during the call may not contain current or accurate information. Veeva disclaims any obligation to update or revise any forward looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum.
On the call, we will also discuss certain non GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation 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. I'm pleased to report that we once again delivered 23% year over year. Subscription revenue grew 25% and our non GAAP operating margin was 33%. Q3 was a great quarter in commercial cloud and Vault. Within Vault, we had notable progress in both clinical and quality.
We also announced Vault Safety, a new product line for Veeva. I will provide more detail on each of our major areas, starting with Commercial Cloud. In core CRM, we continued to extend our leadership position as we add new customers and existing customers expand to additional geographies and divisions. In Q3, we had a major purchase and very successful go live in Japan with a top 20 pharma headquartered in Japan. We think this will serve us serve as an important Lighthouse account for other domestic Japanese farmers and sets us up for a bright future across multiple market segments in Japan.
With the foundation of CRM's success, customers are expanding to other areas of the commercial cloud. Just like core CRM, the add on products of events, align, network, and open data are usually purchased on a regional basis. Pipeline is building, and we expect steady progress over the coming years. For example, this quarter, we had one of our biggest booking quarters ever with events management. We had some great new regional wins, including 3 with top 50 global farmers who had not purchased events management in any region before.
Last week, I was in Madrid at our European Customer Summit. We had record attendance with almost 900 people there. The feeling and sense of deploy more commercial cloud products with us over time. They get an integrated suite from Veeva rather than assembling pieces from different vendors and being stuck with the integration burden. At the event, it was clear that we are deepening Turning to Vault, we had another excellent quarter.
In Commercial Vault, business continues at a steady pace. We had a strong bookings quarter with contributions from large and small customers and across all geographies. Migrations from Zinc to Vault Promats are progressing well, with 2018 2019 shaping up to be the big years for Zinc migrations. The largest opportunity for Vault is in the R and D side of life science where we have applications for the clinical, quality, and regulatory areas. Veeva is the only company to offer solutions in all these areas on a single cloud platform.
We call this set of applications, the Vault Development Cloud. Today, systems for product development and life sciences are not well integrated. Customers have systems from multiple vendors, and many of them are legacy client server systems. This creates a drag on efficiency, speed and agility in product development. Since it's an area of significant importance and need, development cloud is really resonating with our customers.
Now drilling into a few areas of the development cloud. In regulatory, we had a number of wins in the quarter, including one with top 50 pharma headquartered in Japan. They will use Vault as their standard for registrations globally. This is their 1st Vault Development cloud application and the start of what we hope progress in helping companies move beyond the status quo. Vault DTMF is our most mature application in clinical, and it continues to do well.
Over 170 customers globally, Vault Etmf is becoming the global standard for clinical document management. It also serves as the strategic entry point for our broader suite of unified clinical products. CTMS is off to a great start customers are looking for a modern cloud CTMS that is part of a broader suite. In the quarter, we signed our 1st European CTMS customer and we added our first top 50 pharma. We closed the quarter with 11 CTMS customers and 4 are live today.
We're really excited about our rapid progress in CTMS. I'm equally pleased with our progress in EDC. We now have 5 Vault EDC early adopters. Initial projects continue to ramp and we now have our first study live. We have the right focus on product excellence and early adopter success.
EDC is a complex application in a large market with well established players, It will take years to achieve a market leadership position. We have the right strategy and are making great progress. Customers are looking for a unified suite of clinical products, and they can only find that with Veeva. Quality is also going well. We added a record number of quality customers in the quarter between quality docs and QMS as the value of these two applications on a single plaque form is very clear.
In fact, last quarter, the majority of new QMS customers also licensed quality docs at the same time. One of these was the large global CRO that we signed to an enterprise wide quality deal. We had our US R and D customer summit in October in Philadelphia with record attendance of over 1000 people. Like at the commercial event last week, The feeling at the R and D summit was one of deep partnership with the industry. At the summit, we announced our next new product line in the development cloud.
Fault safety. Safety and pharmacovigilance is a large and complex market that needs innovation. Safety is a great fit for the Vault platform, and it has many integration points with our clinical and quality suites as well as with Veeva CRM. Customers have been asking us to help with safety for some time now. We're really excited about this market and what it could bring to our development cloud.
We plan to have Vault Safety available to early adopters in 2019.
Plan I want to give a
quick update on Vault QualityOne, our offering for outside of life sciences. In Q3, we continued to add a few early adopter customers Most importantly, our projects with early customers are going well and in many cases, early adopters are already expanding. We are pursuing the market outside of life sciences in the Veeva way. Our focus our focus is to learn from early adopters, make them successful, and develop lighthouse accounts that can lead to reference selling. In closing, Q3 was another strong quarter for Veeva with financial results above our guidance.
We continue to expand our leadership position in commercial cloud. Our Vault Development cloud is set for success in a very large market. And we have significant potential outside of life sciences with Vault QualityOne. Looking ahead, we expect subscription revenue growth of at least 20% through 2020. We believe Veeva is well positioned to generate strong growth and profitability for years to come as we continue to build a multibillion dollar company.
I would like to thank our customers and partners for their continued support as well as the Veeva team for your focus on customer success and exceptional execution. With that, I'll turn it over to
Thanks, Peter. Q3 was another quarter of strong results. Subscription revenue was up 25% to $142,000,000 $114,000,000 last year. For the full year, we remain on track for well over 50% subscription revenue growth for Vault, and 15% subscription revenue growth for Commercial Cloud. As we've discussed in the past, we believe that subscription revenue is the best topline 17% from $29,000,000 1 year ago and up from $32,000,000 in Q2.
With fewer billable days available in Q4 Q3, we expect services revenue to decline sequentially by roughly $2,000,000 in Q4. Total revenue for the 3rd quarter was $176,000,000, up 23% from nearly $143,000,000 1 year ago. Vault's strength continued to be the biggest contributor to our growth, representing 40% of total revenue in Q3, up from 33% a year ago. 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 that was posted just before the call. In Q3, our subscription gross margin was 81.5%, an increase of roughly 150 basis points from a year ago, This was driven primarily by the faster growth of which have a higher gross margin profile relative to our core CRM product.
These benefits were partially offset by the incremental expense associated with our AWS migration. Attrition gross margin relative to Q3. Services gross margin for the quarter was 32%, which is down from 38% a year ago, and down slightly from 33% in Q2. Given the expected sequential drop in services revenue, and our plan to continue hiring to meet demand for next year, I expect services gross margins to be in the mid 20% range for Q4. Our total gross margin for This improvement was driven by Our operating income was 116 people met in the corner, finishing at 21100, up from 17091 year ago.
While we had a fantastic hiring quarter, some of the expected headcount for Q3 pushed into Q4, which benefited our bottom line results in the quarter. Netting them for the quarter was $38,000,000 compared to almost $32,000,000 last year. As a reminder, we've adopted a flat non GAAP tax rate of 35 percent, which we are not adjusting quarterly, but will reevaluate on an annual basis. Turning to the balance sheet, deferred revenue was $173,000,000 compared to $223,000,000 at the end of the 2nd quarter, This resulted in calculated billings of $127,000,000, which was ahead of our guidance of $118,000,000 to $119,000,000 This was primarily related to better than expected billing duration for the business closed in 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 Our subscription revenue guidance and calculated billings guidance for the full fiscal year are the best indicators of our momentum. With that in mind, for Q4, We expect calculated billings in the range of $272,000,000 to $274,000,000.
This implies full year calculated billings of 732 $734,000,000 sheet, we exited Q3 with $758,000,000 in cash and short term investments, up from $725,000,000 at the end of Q2. This increase was driven by healthy performance expected billings and another the accounting treatment of tax benefits associated with our stock based compensation. For Q3, this benefited operating cash flow by almost 9,000,000. Excluding that benefit, our operating cash flow for the quarter would have been almost $24,000,000. And excluding the excess tax benefit, we expect operating cash flow in Q4 to be roughly breakeven.
As a reminder, Q4 is Let me wrap up by sharing our outlook for the fourth quarter and an early revenue between $179,180,000,000, which leads to $680,000,000 to $681,000,000 for the full year. Non GAAP operating income of $50,000,000 to $51,000,000, which leads to $211,000,000 to $212,000,000 for the full year. And non GAAP net income per share of $0.21 to $0.22 based on a fully diluted share count of approximately $154,500,000. For the full year, we now expect non GAAP net income per share of $0.91 based on a fully diluted share count of approximately 154,500,000 As you consider our non GAAP operating income guidance, please recall that Q4 is our highest quarter for certain expenses, so the margin level implied by our guidance should be thought of as seasonal in nature. Let me now turn to next year.
While we have not yet completed our planning process, comfortable providing
an initial
from our Analyst and Investor Day in October, we expect subscription revenue to grow at least 20% in fiscal 2019. For next year, we also expect services revenue growth in the mid to high single digit range. From a bottom line perspective, our early spending plans for next fiscal year would result in a non GAAP operating margin of roughly 30%. This reflects our continued commitment to invest in our current product portfolio and go to market teams as well as our efforts to drive longer term growth. I also want to highlight that this early fiscal 2019 guidance includes the anticipated impact from the new accounting standard commonly known as 606.
As it relates to operating expenses, the impact will be minimal. And while the directional impact to revenue is still uncertain, It will likely be small, with the worst case scenario being a headwind of a few $1,000,000. In summary, we are targeting strong growth for next year, and will continue to plant seeds for longer term growth in order to build a multibillion dollar business over time. With that, thank you for joining us on the call today. I will now turn
Your first question comes from Jesse Halston with Goldman Sachs. Your line is open.
Yes, thank you. On the CTMS front, it sounds like you're you're getting nice early traction. How much of a, a pull is the eTMF customer base there, are you seeing CTMS predominantly adopted by existing ETMF customers?
Hey, Jesse, it's Matt. So as we expected, the pull is strong because the integration between eTMF and CTMS is very deep and tight. You actually use CTMS to create documents that end up in the eTMF. And if you can deliver that all in a single product on a single platform, that's pretty valuable. So the vast majority of the CTMS customers or eTMF customers either first or they actually bought the two products together.
That's helpful. And I know it's early, but as you look to your planning for next year, do you think you have enough product market fit to really press on the gap for QualityOne and the outside life sciences go to market efforts Thanks.
Yes, Jesse. So for QualityOne, it's important to remember that's an effort we just started last year. So We're really pleased with that progress so far we have the team in place. I think what we'll look for for next year is increasing our customer account and really focusing on those early adopters still, making sure they are successful. And then we have to scale it out also within account.
So see if we can work up to some 7 figure customers next year because that takes a different level of product support and a different level of thinking about the account. So that's what we're really focused on next year. We're really bullish about the market. Quality 1, and we think we can be the leader there. But it's a progress, to get there.
Your next question comes from the line of Bhavan Suri with William Blair. Your line is open.
Hey, guys. Thanks for taking my questions and congrats. Just a couple of quick ones for me. 1, you gave a lot of color on CTMS. And EDC and quality.
Matt, or if you would just love an update on regulatory submissions and how those are trending and tracking to vis a vis expectations.
Sure. Yeah, like we've said in past calls, we don't talk about every product line on every call. However, That was certainly not an indication, that things are anything but positive with regulatory. It still feels like we have it's really the trifecta of those three products, the submissions, document management, submissions, archive, and registrations. And customers are excited about the publishing capabilities coming next year.
The big news in regulatory are a few major projects that we're doing. One of them is a couple of year long project. We're going to replace about 120 different systems with just the RIM suite, of all, at one of these top 10 pharma companies. And that's just one of a few very major transformation projects that we're working on right now. So I think in the smaller size companies, lots and lots of references and and the market is moving with reference selling.
I think the market is looking at these 1st global, rim transformation projects and we're we couldn't be more excited about where we are with those.
Great. And then just a quick follow-up.
You guys had sort of talked a little bit about last quarter investing in a sales force specifically focused on CROs. Just wondering how that's going, it's sort of you had some nice wins with that global CRO for sort of how that Salesforce is tracking, vis a vis a vis a vis expectations there? Sort of as you're looking at the CRO market, what products are you seeing interest and uptake in?
Sure. Yeah. So it certainly feels like it was the right investment to make. I think we have a good team already in place. And that quality deal is actually a really good indicator of that.
So the relationship that we're building with the big CROs is quite strategic. And when you sell quality to a CRO, you know, a CRO is not manufacturing products. It's highly regulated service, but it's so highly regulated when something goes wrong, they have a lot of the same steps as someone who's actually manufacturing the drug. And so at that company, there's more than 10,000 employees they're going to be using vault quality. And many of those people are people that are talking to pharma companies each and every day, either working their accounts or trying to sell new deals.
And so when we look broadly at what is the product set that we would focus on for CROs? Clearly, it's eTMF and CTMS, to really run the daily operations, but EDC is a tremendously large opportunity there. And quality docs and QMS are also perfectly applicable for their businesses. And then there's actually 2 more. In the regulatory area, many of the companies have a growth business, the CROs have a growth business to do outsource submissions, on behalf of their pharma customers.
And then the last one that they're really excited about is safety, because a lot of these companies also are doing all kinds of safety inputs, you know, what they call it adverse event capture and all kinds of tracking and managing safety events when they happen. So it's a very broad product footprint. It's almost the entire development cloud that we're working on. And so I'll just repeat. The relationship that we can build with the CROs over time feels quite strategic.
Your next question comes from the line of Kurt Mattern with Evercore ISI. Your line is open.
Thanks very much, Alan. Congrats. I guess the first one was, Peter, you mentioned the large deal in Japan. I know you guys don't try to get into geographies too specifically, but your comments on that opening up a new opportunity was interesting. I was wondering if you give us some color on sort of maybe the size of the market or where you think you are and how meaningful that might be?
And then I just have one follow-up for Tim.
Okay. Yeah. That's in the Japan market for, Japan CRM in domestic Japanese pharma. And that's a market that we've not penetrated very well yet. It tends to be a conservative market.
So this is really a landmark customer for us What what I'm excited about is, really the sense of partnership there and how well the implementation went and how well the word is getting around. I was in Japan about 3 weeks ago, meeting specifically with the Japanese farmers, And that one event is causing a lot of good feelings about Veeva that will translate into good CRM business there, also into development cloud business over there. So I think it was a real testament to Veeva's ability to operate well in Japan with Japanese companies on something that had very high visibility at this company. This was a very, very strategic project with visibility, you know, at the C suite level and our team really worked well, our product team, our services team. So I guess what you're hearing is enthusiasm for me for our ability to execute in Japan and for what it means for our future, both R and D and commercial.
Okay. And then just one follow-up for Tim. Tim, just, I realize it's preliminary, but your initial operating margin guidance for fiscal 2019, I guess I was a little surprised there's not more of an uplift from moving to 606, given you can capitalize more of the commission costs over the lifetime value of the customer. I don't know if you're sort of waiting to get a little bit more, I guess, insight into that before getting too prescriptive on that front. But is there some
reason why it seems like most of
the SaaS companies are going to get a little bit of a benefit from that. I guess maybe you're just, can you give
me some color on that? Not that
it's a you guys are obviously very profitable, but I was wondering, just give us a little color on that. Thanks.
Yeah. Sure. Happy to happy to add some color. I think you're right on 2 fronts. Number 1, as a already, strong operating model, the impact for us is going to be a little bit less than some other companies who will get a much bigger boost, in this.
The other thing that I would say is as we discussed at the Analyst Day, Our amortization period is only 3 years and most of our peer group I've heard is at least 5. And some I've even heard are higher than that. So again, The impact for us and operating expenses specifically as it relates to capitalizing commissions is going to be a little bit less. All those things, Kirk, I would say, were included in my thinking as we put the guidance together. And the last thing I would say, you're correct as well is it's we're still going through the process of fully understanding the 606 impact, both beyond fiscal 2017, which we disclosed, in the Analyst Day a month and a half ago.
So I think you hit most of the points in your question actually, Kirk.
All right, great. Thanks. Happy holidays.
Your next question comes from the line Brad Sills with Bank of America Merrill Lynch. Your line is open.
Oh, hi guys. Thanks for taking my question.
I just wanted to ask about the commercial options. You mentioned events aligned being strong this quarter. Could you remind us kind of where you are in terms of penetration and the opportunity in selling not just those, but other options into the installed base? Thank you. Sure.
Thanks, Brad. So by kind of start at the top. The right way to think about commercial cloud is the CRM based product and then all the add on products. And so to put that all in context, we just eclipsed 70% of the users with the base CRM product. The add on products, CLM is still above 80%.
Approved email is still around 40%. Events is either right at or just about 10% penetration and then align and engage are still approaching 10%. And what we found as Peter said in his prepared remarks is that the add on products are a bit more regional than some of the then, excuse me, then some of the CRM deals that we had closed over the years. And so it's just going to take some time to build that penetration. And just because we wanted a company with events or a line, doesn't mean we necessarily get them globally.
So that reference selling that we do across the industry, we also sometimes will be doing it across a company as we use success in one region to drive sales in the other.
Got it. Great. Thanks.
And then one more if I may, please, Tim, on the guidance expectation for 20% kind of plus subscription growth embedded in that, is there any change in kind of the rough growth rate between commercial and Vault this year versus Next? Thank you.
Yes. So, Brad, good question. And certainly, we're, we're early in the planning process here. We will give more details as we have in the past in 90 days from now when we do our Q4 call.
Your next question comes from the line of Brent Bracelin with KeyBanc Capital Markets. Your line is open.
Thanks for taking the question. Good afternoon. Tim, I have a follow-up for you. I'll start with and then one for Peter. First is, if you think about that initial view for next year, it looks like professional services has been growing in that mid to high teens the last 3 years.
I think your initial view was that could be, growth in the mid to high single digits. So walk me through kind of what's the view on professional services and, and, and why you think that potentially could slow versus the last 3 year growth rate? And then I have one follow-up for Peter.
Sure, Brent. So if you think about services, there's probably three things to think about that were included in or informed, the, the comment on the services revenue growth. First, As you know, most of our services revenue is not recurring. So it'll always have a slower growth profile than the subscription business. Because we need to build it from almost dollar 1 every quarter, every year.
Secondly, as you've heard us say over time, the nature of that business is variable quarter to quarter and lumpy. So it's certainly less predictable, than subscription. And the other thing that happened, you know, happened a few years ago with our commercial cloud business, but is now starting to happen more and more with our Vault business. Is our implementation partners are really starting to build out their Vault practices. So it's likely that maybe even starting next year, they'll start to shoulder more of the the revenue pie over time.
So those would be the 3 big reasons, Brent, that, were informed in the guidance that we gave around services revenue.
Very, very helpful there. And then shifting gears to Peter, I know you'll talk a little bit more about 'eighteen, you know, in the next conference call, but at a high level, maybe walk us through how you're kind of thinking about, the narrative that the opportunity next year? What are you excited about in the framework of Vault being really strong in the last couple of years? It's now become a little more mature opportunity for you. So walk us through as you think about next year, what are you most excited about?
Well, I'm excited about working with the team. We have a great team here. We have a real clear product strategy. It has 3 prongs. It has commercial cloud.
Which is a steady and growing business where we're really the leader in the industry and we're using that to develop strategic partnerships with our customers and over the long term. And I'm excited about the innovation there and the products, doing some really interesting things with the products, new user interface. So that is a customer success, excitement, with the customers. And of course, moving into the broader commercial cloud from CRM. And then the big opportunity is in the development cloud.
In that area, you know, it's a really we're really early days. We have a lot of products that, are in the, in the very early stage. So CTMS, QMS, EDC and now Vault Safety. So these are big products, but in the early stage. So I'm looking forward there to building out those products, working with the early adopters, and setting those things up for growth for the next 5, 7 years.
And of course, we have some products that are in the in the nice area of their growth cycle within Development Cloud, their regulatory products, eTMF products, quality doc products. And then we got the 3rd leg of the stool, the outside of life sciences with QualityOne. And that's, you know, not even two years old. I'm looking forward to these early adopter customers expanding, becoming large customers and growing with them. So I think it's going to be a great year for Veeva across all three legs of those growth.
Your next question comes from the line of Karl Keirstead with Deutsche Bank. Your line is open.
Oh, hi. Thanks. So Tim, I've got 2 cash flow questions for you. First, it feels like you've raised your cash flow guidance for fiscal 2018. I think on the last call, you said that full year should equal roughly the first half ex the tax benefits.
It looks like you're going to do better than that. So I just wanted to ask, is that largely due to the margin outperformance or are there other drivers to that, a guidance revision And then next year, you're probably going to tell me to wait 3 months, but I'll ask anyway. As I think about cash flow for next year, I guess one dynamic in mind is that your cash flow growth both this year and last fiscal year has significantly outpaced your revenue growth and your operating income growth or net income growth? And as we think about cash flow for next year, do you think that that gap might normalize and it'll grow a little bit more in line your operating income. Thanks, Tim.
Yes. So in terms of cash flow for this year, Carl, and thanks for the question, In terms of cash flow, you're right. We have seen better performance, and that's primarily driven by the bottom line results and the outperformance on the top line as well. So it's a combination of those 2 things, which drives a little bit higher billings, which you've seen us raise throughout the year, as well as better cash it to be breakeven when you take or when you exclude the benefit of the stock comp tax change, that we talked about. I will ask you to nicely wait for 90 days before we talk specifically about cash flow for fiscal 2019 and more specific detail around the shape of that and the relative relationship between that and our operating income or top line growth guidance.
Okay. Maybe just given that, I can sneak in 1 more. Do you mind, I think on the last call, you talked a little bit about a hiccup on the network data side. Do you mind giving us an update on that? I know that that's not going to turn on a dime, but was it, for instance, any bigger year over year revenue drag than perhaps it was last quarter?
Any color on please.
Sure, Carl. So we continue to have headwinds in the network and open data business. But we did have some important wins last quarter. In open data, we closed deals in multiple countries on multiple continents. In the network, we did have 1 top 20 pharma company that decided to move their reference data in the U.
S. To Veeva OpenData and to use Veeva Network as their customer master. And that was a sales cycle that we've been working on for a while. So it was good to see that one come through. So some progress, I would say no breakthrough.
But every time we make a little progress and we have another happy customer, word gets out a little bit more. So we're still hopeful that we'll become the leader in that business over time. But as we've talked about before, it's taking longer than we would have hoped.
Your next question comes from the line of Scott Berg with Needham.
Everyone. Thanks for taking my questions, and I apologize for any background noise in the airports. Two questions from me. We'll start with, I don't know if this for Peter or for Matt, but just kind of talk about the successes that you've had between CTMS and ETMF. Can you talk about the upsell watch the overall in the business maybe today versus 2 years ago,
you know, how much more quickly
are you able to upsell customers and and maybe you know, some growth trends around ASPs. I'm trying to understand maybe what that looks like.
And in terms of upsell to customers. I don't think that has particularly changed. What changes we have a broader product footprint, that's changed. We've also given customers an earlier heads up, as to our strategic plans that we're becoming a more strategic partner to our customers. In many cases, we're our most strategic technology partner.
So we're we're announcing our intent earlier So for example, with safety, we announced our intent at the last R and D summit a few months ago. Now that product won't be available into early adopters in tough 2019. So what we're doing, I think we're we're priming the pump a little bit more because we're giving customers an early heads up. Why are we doing that? We, I guess, we're becoming a little bit more predictable as a large company.
We have to plan a little bit farther ahead. And also, we're not worried about competitors or our ability to execute because we have the Vault platform where we want it. We're very confident we can build those applications. And we're just not worried about competitive threats in these areas. So overall, I don't think it's really changed.
We really have to sell each application on its merits and on its value, but our product portfolio is broader and we're announcing products earlier than we have, let's say, 2 years ago.
Thank you. Very helpful. And then the last question probably is for Tim. Maybe I need to be patient like Carl is for 3 more months. But when you look at operating margins next year in your initial guidance, the 30% level or better is kind of in line to maybe below where we were the last quarter too, and and that could be reflective of the add to your, to your overall workforce that may be a little bit behind.
But, where should we think about those investments coming next year? Are they any different than what we've seen in the last 2 years? It almost seems like it it sounds like you're maybe accelerating investments in a particular area or 2. Thank you.
Yes, Scott. It, I don't know if it's necessarily different than what you've heard us talk about in terms of our investments, and along the lines. I think Peter might have answered a question a couple of quarters ago, that I will likely repeat here which is I think there's investments that we see in products as we to Peter's point on your first question, Scott, as we continue to build out our product portfolio and our product footprint and introduce new products to the market like, visa safety. Or vault safety. So I think it's in the product area.
It's in the go to market area as as I think about what Peter talked about in terms of commercial cloud, development cloud. And then outside life sciences, there's certainly more to do from an investment perspective in our go to market approach there, both with frontline salespeople as well as strategy, and and market owners as we call them. And then I think what you'll see is an increased investment in services as it relates to continuing to meet the demand that we have in services. And you saw me give a little bit of guidance for next year of a mid to high single digit growth there. So I think those are the primary areas that we're seeing investment, and I don't know if that's necessarily changed in the last few quarters
Your next question comes from Richard Davis with Canaccord. Your line is open.
Hey, thanks guys. You got D. J. On the line for Richard. Maybe on Vault Safety, Peter or Matt, just help us kind of frame the opportunity in pharmacovilligence.
You guys have so many vaults now. It's it's hard to know kind of which ones can really move the needle in terms of growth. I know this is a big opportunity, but it'd be helpful, to kind of hear you set that up.
Sure. Well, I think to understand the size of it first, let me just talk for a moment about what it is, why it's important. So and you'll hear refer to many different ways. So safety, drug safety, pharmacovigilance, PV, adverse event tracking, that all means the same thing. And it's really about 2 things.
It's about protecting patients and protecting the value of the company. So these safety systems ensure that all the potential adverse events triggered by a drug or its production are logged and analyzed. So it's a highly regulated and highly important process for every life sciences company. Done poorly, patients can be harmed and not following the regulations can actually lead the products being pulled off the market. So it's a big, complex messy market, but despite its really heavy importance, it's been dramatically underserved by technology providers for many years.
So we think we can build a much better safety system on the Vault platform, have it be the exact same platform that's shared with clinical, regulatory quality, and there's a lot of integration that needs to go back and forth between safety and those other systems. And so So that's kind of the context of what we're going to deliver. In terms of the size, we think that the safety market is similar to the regulatory market. So if you take the 4 applications in our RIM suite, we think it's roughly that size. And so it's one of the larger IT technology investments that our customers will now.
We've had a lot of product announcements. As I travel and talk to executives at our customers, I can't remember higher excitement for a product before we delivered it. And I mean, it just has been, I mean, I guess it's been tremendous, but it's been kind of what we were hoping for. So I'm not totally surprised, but the applications that we're going to be replacing here are really some of the oldest legacy applications out there. And because it's and we think it's going to be significant.
And it just really rounds out the whole development cloud as becoming the the infrastructure, the electricity that this industry uses to develop new products.
Yep. Okay. That's helpful. And then in terms of QualityOne and the expansion outside of life sciences, help us think about kind of where we are in terms of referenceability of your early wins. I know you've talked about a top 5 CPG customer in the past.
I mean, are these folks ramp to the point where you can lean on them to drive incremental business? Is it still too early for those customers to kind of speak on your behalf And any color on the sales process in the new markets would be interesting.
Yes, DJ, I would say it's a little early, they're very early in there. Implementations. I think we do get, have customers calling each other a little bit, but it's more in the terms of, hey, Veeva is feeling good. It's not true reference selling. Now I'll say one of the events we're looking forward to next year is our customer summit.
We're gonna have a customer summit for QualityOne, towards the end of the spring, and that'll be our first one and I think we'll have good attendance there. So the reference selling is going to start a little bit, this in this coming year. And but I would still consider us an early adopter mode.
Your next question comes from Ken Wong with Citigroup. Your line is open.
Hey, thanks for taking my question guys. Tim, maybe we can start off on the comment you made earlier about, some hiring that was pushed into Q4. Just wondering, is this just you guys having a harder time finding candidates, and whether or not the pace of hiring has potentially picked up in Q4 already?
I wouldn't say that. I think this was more, you know, a few couple handfuls of candidates specifically as opposed to any big trend. Ken, that I would say we're having, more of a challenge in terms of hiring. And Q4 is is looking strong as well early. We're a month in, as you know, and Q4's hiring is looking very strong as well.
Got you. And then maybe if I could on QualityOne well. Peter, you mentioned earlier kind of this year is really kind of keeping track of kind of your early adopters kind of seeing what develops I'm just wondering in terms of the early learnings, any tweaks to product or integration or go to market that you guys think might make sense to to adapt going forward?
We'll always be fine tuning that. So net year, we'll be doing more things in Europe. So we'll have to fine tune our approach there for Europe. Overall is fine tuning things like packaging a little bit, positioning, how we become more effective in the sales cycle. That's really one of the things we do in the early adopter mode.
We we figure out what's working and then we do more of that. And in terms of the product also, yeah, we're getting good ideas for extensions to QualityOne to make it even more appealing. And we're even getting early ideas for for things after QualityOne, right? We're not we're not going to do any of those, this next year because we really have our plate full quality 1, but we're getting early ideas. So it's a constant learning process in quality 1.
We think it's going to be a really big market. It's just underserved and we have to be opportunistic and agile and help shape that market. Great. Thanks
a lot guys.
Thanks. Your
next question comes from the line of Tom Roderick with Stifel. Your line is open.
Hey, gentlemen, good afternoon. Thanks for taking my question. Happy holidays. So, I'm curious what the pricing trends look like here on the core CRM side. I understand there's not a whole lot of new seats left to be won.
But as you're going through the renewals, is there an instance, any instances where you're starting to see any sort of back on existing pricing. Do you intend to sort of offset that with the upsells around CLM and approved email and now events in the line are taking shape? Or to the contrary, are you seeing a price lift that's still pretty consistent with that 20% that you were sort of hoping for by module as you go back through the years and that's sort of the way that you would hope that to play us. So any comments on pricing and the renewal base would be really interesting.
Yeah, sure, Tom. So, we're very proud to look customers in the eye and tell them that we've never raised price on a customer for one of our products at a renewal. And so the companies that buy Veeva CRM next year, of the same size as companies about it 10 years ago will literally pay the same for the base product. And we think that that's key to developing a deep partnership with the industry so that when people move around from company to company, they don't realize, oh, we got a great deal from Veeva. These guys didn't.
No. We strive for consistency and market pricing. Then now on renewals, you know, here and there, there's always going to be pressure on pricing as people try to to get more out of their vendors, but it's just not, a discussion that we generally have. In terms of how we're doing on the pricing of the different modules and the uplift that we saw, it also remains consistent. And I think we're able to keep those price points because we're able to prove the value.
So for example, last week in Madrid, We had a customer on stage talking about their deployment of Veeva align. And they had a slide with very specific metrics productivity improvement and cycle time improvement before and after the adoption of Vivo line. And there were like, I don't know, sixty or seventy people in the room And I think 90% of them took their phones out and took a picture of that slide. And so working with customers to be able to quantify the value, helps us to keep the market prices consistent over time so that, customers, CIOs, business folks, and procurement understand the value that we're delivering.
Excellent. Great color. One follow-up question for you here, just on the QualityOne Suite. Sort of under standing that the dynamic of that market is sort of made up of two pieces quality docs in QMS. Is there either side of that equation that is more ripe for placement and more right for disruption at this point?
Are they both sort of dramatically in need of of evil? What do you hear from the customer base, particularly as you get outside of life sciences of where the, where the, wedge in the door might be most prominent at this point.
I think it's around both, but probably a bit more on the quality docs. In the QMS, I think you have people, a little more hesitant, a little bit more conservative. There are also some companies where we where the QMS processes are quite light, and that they still need quality docs processes. And that's where you get into a industry that's a little less regulated. So the quality docs is, probably the a bit broader marketer that we sell them together, so we don't really separate them.
But The docs area probably has a bit broader appeal overall and is a bit easier to get into as our first wedge inside of a company.
Fantastic. Thank you guys. Nice job.
Your next question comes from the line of Stan Zall with Morgan Stanley.
So maybe one well, maybe 2 for Matt. On the EDC product, it looks like you guys picked up additional 3 customers in the quarter. If you were to characterize the customers this quarter versus the initial 2 that signed, are they about from a profile perspective, are they all about the same kind of profile customers?
Yes, then I would say they're generally the same. They're companies that are working on, their first products. These 3 happen to all be publicly traded, so they're a little bit more valuable companies. And they all chose Vault EDC to run phase 1 trials. And I would say that the sales cycles were also similar.
They were all competitive. The people that made these choices, all had past experience with Medidata and Oracle and and other EDC options. And I think that's what drove them to look for something new. And then the last piece of color on that, of those 3, 2 are existing via customers. For another Vault application and one of them was buying something from Veeva for the very first time.
And One thing you guys mentioned was the Zinc migrations and how 2018 2019 you're expecting to see most of them And as much as you're still working towards the 2020 goal of moving all the customers over, have you seen from customers who've migrated thus far? What kind of pricing? Sorry, not pricing, but value uplift here you've been able to get from those customers they moved over from Zinc over to Vivo Vault.
This is Peter. I won't go into specific percentages and things like that, but we are seeing a good uplift because it's a more valuable product And so for example, we just added, digital asset management capabilities right into Vault and a brand portal. So it's a more valuable product I think customers see that. In terms of the 2018, 2019 being the big migration years, I think that's because, frankly, we've done a really good job of stabilizing the Zinc product and providing, great customer ports. So customers feel comfortable with that.
They know that, the lights turn out there at the end of 2020, so it's not, And that just sets you sets us up for a 2018 2019 or the time to do it. We've had early adopters do it already for sure. We had a large a presentation by a large company, I believe, a top top 20 or top 30 company in Europe, top 30 company in Europe, that has completed their migration some months ago and was able to talk about the success of it, the process of it, what they liked, and what they didn't like. So that, I think that'll further fuel, the migrations because coming, it's becoming a very known quantity now. It's probably a known process how to get from A to B.
Got it. Thank you. And just last one for, for Tim. On billings performance in Q3, you mentioned that some of the upside came from longer duration of billings as well as on the professional services side. It x out the duration and higher than expected post services.
Was that driving all of the upside or was there essentially organic, so to speak, upside to billings in Q3? Thank you.
Yeah. I would say those were the, the vast, vast majority stand of the beat. And on the duration side, it was more a function of some of the newer business or more of the newer business were annual billers as opposed to quarterly billers, it was just the mix of new business in Q3, which drove that billing performance primarily.
Your next question comes from the line of Sterling Auty with JP Morgan. Your line is open.
Yes, thanks. Hi guys. I actually had two questions for Tim.
What portion of your contracts are multiyear that include, price accelerators in them?
That is probably still in the low double digits, I would say, Sterling. So 10% would be, I wouldn't call it a guess, but 10% would be my best educated number. So roughly 10%.
Okay. Great. And then my one follow-up is when you move to 606, do you plan on doing modified or full retrospective restatement?
We're doing full retrospective.
All right, perfect. Thank you.
Your next question comes from the line of Rishi Jaluria with D. A. Davidson. Your line is open.
I guess first, Peter, I know it's obviously early with QualityOne, but at scale, I mean, can this be a bit more of a channel friendly product where you can leverage, industry expertise from some of your partners, both existing as well as new ones that might get attached to the product in order to drive the go to market strategy with QualityOne? And then I have a follow-up for Tim.
That's a good question. I believe the channel will most likely be with assistant integrators. Actually, I feel it will be very similar to inside of life sciences. Potentially different partners. But I don't think it will be a reseller type model.
I mean, as it goes into the future, I guess, anything is possible. But right now, it feels like a direct selling model with, tight partnerships with system integrators that specialize in the quality area.
Okay, got it. That's helpful. And then, Tim, just really quickly, How has the services attach rates with some of the more mature vault products like the commercial side been trending as there's been greater adoption and references? Thanks. Rishi, good question.
So I think what we're seeing in the Vault area is for some of the, you know, to your point, some of the more mature products, we're seeing something similar
to what we saw with the
CRM area where the attach rates slow down over time. And that's that's a combination, I think, both of the actual overall pie. Reducing as well as more partner, more of our ecosystem is taking some of that revenue. So it's slowing over time. Services attach rate, I think, in the development cloud area, continues to be strong and we're seeing good demand in that area as well, which led to the guidance that we talked about in my prepared remarks.
There are no further questions at this time.
Thank you all for joining us today. We look forward to talking with you in the new year. Until then, happy holidays to everyone.
This concludes today's conference call. You may now disconnect.