Good afternoon. My name is Tashawn, and I will be your conference operator today. At this time, I would like to welcome everyone to the Veeva Systems First Quarter 2018 Results Conference Call. All lines have Thank you. I would now like to turn the call over to Rick Lund, Investor Relations Director.
The floor is yours.
Good afternoon, and welcome to Veeva's fiscal 2018 first quarter earnings call for the quarter ended April 30, 2017. With me on today's call are Peter Gassner, our Chief Executive Officer Matt Wallach, our President and Tim Cabral, our Chief Financial Officer. During the course of this conference call, we will make forward looking statements regarding trends, our strategies, 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 K 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, May 25, 2017. If this call is replayed or viewed today, the information presented during the call may not contain current or accurate information. VIVA disclaims any obligation to update or revise any forward looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter, unless we do so in a public forum.
On the call, we will also discuss certain non GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the Form 8 K filed with the SEC just before this call. With that, thank you for joining us and I will turn it over to Peter.
Thank you, Rick, and thanks to everyone for joining us today. I'm pleased to report the New Year off to an excellent start with revenue and profitability well above our guidance for the first quarter. Total revenue was $157,900,000, up 32% year over year. Subscription revenue grew 33% and non GAAP operating margin was 32%. Once again, we saw reflect the momentum that's building for Veeva.
We're becoming the strategic technology partner to life sciences Spanning R And D And Commercial. It's very exciting to see our customer and industry relationships continually evolve to more strategic levels quarter after quarter. We're also encouraged by our early progress with Vault QualityOne for companies outside of life sciences as we plant additional seeds for long term growth. Turning to the highlights in the quarter. We're recently back from the Veeva Commercial Summit held a few weeks ago in Philadelphia, it was Veeva's largest event ever with more than 1300 people in attendance.
In fact, it's the biggest commercial gathering for the life sciences industry and has become the place to see the latest technology advances not only from Veeva, but also from our ecosystem of partners. We unveiled what will be the next generation of CRM for life sciences with the new Sunrise user interface and the new real time architecture for Veeva CRM. Both the Sunrise and innovations for our customers and the industry as a whole. Customers appreciated our continued focus on their success and on innovation in CRM. We've previously spoken about our aim to be both the leader and liked by our customers and partners.
As you know, these things don't always go together. Building a sustainable market leadership position requires authentic customer success customer relationships. It was clear from Summit that customers are seeing great success with Veeva. They view us as a strategic partner we have translate to new and expanding business around the world. A few good examples in Q1 include our progress with 2 important European farmers.
During the quarter, one made the strategic decision to standardize on Veeva CRM globally. The other went live in the quarter with their 1st region on their way to a global rollout, which is progressing well. We also saw more companies going all in across several areas of commercial cloud in Q1. There was a great mix of enterprise customer expansions as well as net new SMBs establishing Veeva as their commercial foundation. For instance, 2 wins were with high growth biotechs launching their very first products.
We also had a successful initial go live with a top Fifty Pharma who is now standardizing on Veeva CRM OpenData Network and the line in the US. Another top 50 CRM customer implemented Viva network and Viva OpenData in the U. S. Shifting gears to Veeva Vault. The opportunity for Vault continues to increase at a remarkable pace.
There are now 14 Vault products. These applications address every major area of a life sciences company, commercial, medical, clinical, quality and regulatory. All on a common cloud are looking to vault as a potential enterprise standard across a range of areas. I'll give one data point shows how we are becoming more strategic with Vault. The number of customers with multiple Vault products was up more than 70% year over year.
Another example of this was a large Q1 deal with a top 20 pharma that included the full vault rim suite as well as vault quality docs. This expansion builds upon the success they've already had with Vault in other areas such as eTMF and promo apps. This is exciting as it represents a top 20 pharma going all in with Vault. This also bodes well for the newer Vault applications we're building, such as QMS CTMS and EDC. In the Vault Rim area, our first top 20 pharma went live on Viva Vault registrations one of our newest products in the room suite.
As I mentioned on our last call, regulatory scenario that's really taking off and having this customer live and successful is yet another positive step. In fact, during the first quarter, we passed the 100 customer milestone for rim and our room customer base has more than doubled compared to Q1 last year. In clinical, the idea of a unified suite expanding clinical operations and clinical data management is gaining traction. ETMF continues to be a strong in all geographies and with customers of all sizes, including CROs. In the first quarter, we had another top 8 CRO select Vault Etmf as their standard.
We're also pleased with the growing customer interest in Vault CTMS. We have signed our first set of early adopter customers and are well positioned to win Our strategy of unifying CTMS and ETMS in a single modern cloud platform is being well received by customers. In addition to our momentum in clinical operations, we also continue to make great progress in clinical data management. During the first quarter, launch event in Philadelphia last week for life sciences companies, CROs and industry thought leaders. The response to progress and discuss the future of clinical data management.
Clinical data management is a large market opportunity that is ripe for disruption and we believe we suite that works together across clinical operations and clinical data management. When we show customers our eTMF, CTMS, and EDC all working together in a seamless way and on a common platform. It is a real eye opener as there is nothing like it in the market today. This is the clinical innovation that they have been looking in adjacent industries outside of life sciences with Vault Quality 1. Last quarter, I touched on some of our first wins, and I'm pleased to share that our momentum continued with early adopter customers during the first quarter.
For example, we had users around the world. Once successful, we believe this customer has the potential for significant expansion. Overall, I'm very excited about our early momentum outside of life sciences. We're executing in the Veeva Way, winning early adopters getting them successful and then leveraging that success to expand as we build a growing and profitable business. This is a long term initiative that will take time to scale but each quarter for Veeva.
We have substantial opportunities in multiple large markets, a proven innovation engine, and a focused commitment to customer success. We have all the pieces in place and the disciplined execution needed to achieve our long term goal of building a multibillion dollar enterprise cloud company. I would like to thank our customers and partners for their continued support. Also a big thanks to the Veeva team for your skill energy and enthusiasm. Together, we're building something very special.
With that, I'll turn it over to Tim to review our financial results in more detail.
Thanks Peter. Q1 was another quarter of consistent strong execution Total revenue was almost $158,000,000, up from nearly $120,000,000 1 year ago, a 32% increase. Vault represented 36 percent of total revenue, up from 29% in Q1 of last year. Subscription revenue was up 33 percent to $127,000,000 from $96,000,000 last year. Momentum across the product portfolio continues to drive our strong of larger from almost $24,000,000 1 year ago.
We continue to see exceptional strength in R&D Vault Services Projects, and expect another strong services performance in Q2 with revenue equal to or slightly higher than Q1. 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 Q1, our subscription gross margin was almost 81%, an increase of nearly 200 basis points from a year ago. This was driven primarily by the faster growth of our Vault products and our non SFA commercial cloud offerings, which have a higher gross margin profile relative to our original SFA product. Services gross margin for the quarter was over 31% compared to roughly 24% 1 year ago.
Over the long run, we believe that our services gross margins should be in the 20s which aligns with our target utilization rates. An increase of over 300 basis points from 1 year ago. This improvement was driven primarily by the rise in both subscription and services gross margins. Overall, our operating income came in at almost $51,000,000, a 32% operating margin which was well above the high end of Across the company, we added 80 people net in the quarter finishing at 1874 up from 1542 1 year ago. We plan to continue investing with a very aggressive hiring plan for Q2 which is reflected in the As a reminder, we have adopted a flat non GAAP tax rate of 35 percent, which we will not adjust quarterly, but will reevaluate on an annual basis.
Turning to the balance sheet, deferred revenue was $238,000,000 compared to $214,000,000 at the end of the 4th quarter. This resulted in calculated billings of a 182,000,000, which was ahead of our guidance of a 175 to a 176,000,000. Please remember that there are numerous factors that make year over year comparisons of this metric highly variable on a quarterly basis. Therefore, we do not believe it is a good indicator of the underlying momentum of our business, and we do not manage to it internally. Our subscription revenue guidance and calculated billings guidance for the full fiscal year are the best indicators of our strong momentum.
To that point, while we are still early in the new year, our strong first quarter performance gives us increased confidence in our previous guidance for calculated billings we expect calculated billings of roughly $145,000,000. As explained on the last call, we continue to expect that roughly 35% to 40% of our total calculated billings for the year will come in the 4th quarter, similar to fiscal 2017. Elsewhere on the balance sheet, we exited Q1 with $664,000,000 in cash and short term investments, up from $519,000,000 at the end of Q4. This increase was driven by our performance in cash from operations which came in at $142,000,000. Note that Q1 was the first quarter that we adopted accounting standards update 2016-nine, which changes the accounting treatment of tax benefits associated with our stock based compensation.
Previously, these tax benefits would be booked straight to APIC and appear in the financing section of the cash flow statement. With this change, they will now flow through the P and L and therefore show up in the operating section of the cash flow statement. For Q1, this benefited operating cash flow by $14,000,000. Excluding that benefit, our operating cash flow for the quarter would have been $128,000,000. We expect that $128,000,000 in Q1 to account for roughly 75% to 80% of the full fiscal year operating cash Before turning to guidance, I'll give a quick update on CapEx.
As a reminder, last year we started the final phase of building out our corporate headquarters. A project that we anticipated would require about $8,000,000 of CapEx over 3 to 4 quarters. That project is nearly done and is largely on time and on budget. Of the $4,000,000 of CapEx in Q1, about $3,000,000 of it was related to this project. I expect most of the remaining $3,000,000 of CapEx to be recognized in Q2 as this project winds down.
Let me wrap up by sharing our outlook for next For the second quarter, we expect revenue between $163,000,000 $164,000,000 non GAAP operating income of $46,000,000 to $47,000,000, and non GAAP net income per share of $0.20 based on a fully diluted share count of approximately 152,500,000 For the $65,000,000 to $660,000,000. We continue to expect subscription revenue to be up at least 25% for the full year. For fiscal 2018, we now anticipate non GAAP operating income of a 191 to 195,000,000 a margin of roughly 29%. This is an increase in both dollars and margin from our previous guidance of $180,000,000 to $185,000,000 and a margin of 27.5% to 28%. We are now targeting $153,500,000.
Note that the previously discussed accounting change also affect our diluted share count calculation and is driving a roughly $1,500,000 increase to our expected diluted share count for the year. To conclude, I'm very pleased with the results in the quarter and our outlook for the remainder of the year. Going after the right markets
Your first question comes from the line of Bhavan Suri with William Blair. Your line is open.
Hey, can you hear me okay,
guys? Yes.
Yes, we can, Bhavan.
Great. Congrats. Obviously, nice job there on the quarter. I just want to start off really quickly. On the regulatory side.
It seems like you're sort of gaining a lot of traction there. You've seen impressive growth now over the last couple of quarters, it feels like an inflection point, I guess, Peter or Matt, can you just add some granularity as to why that's gaining traction now Obviously, the unified product suite helps, but sort of what else out there? Is it something external that's helping interaction, or is it just sort of the offering and, sort of just the pressures around that. I'm just trying to understand why that's working now.
Hey, Bhavan, it's Matt. Yeah, I think there's an internal thing and an external So the internal thing that really started right around the time that you saw this inflection point is that we added 2 important applications to our regulatory document management solution. So we had just Vault submissions. And then we added registration tracking and submission time. And by putting the 3 of those products together on a unified platform, the value proposition kind of exploded.
And then we've since announce that we're gonna do a publishing application as well. So from a product perspective, I think we created that inflection point by having the right product set. Externally, there's a new regulation called IDMP coming out of Europe that also created a bit of a tailwind for us. And so when you combine those 2, you see this kind of success that we've had in what is a really important and very strategic area for our life sciences customers.
That's helpful, Matt. And then just as you think about sort of the biologics, we've seen sort of an ongoing increase in focus in biologics is really a focus on again product that's under market patient enrollment. If you were to think about sort of the ROI that your solutions can bring to those, any sense quantifying that sort of in terms of dollars or productivity or something on those lines?
I mean, we have all customers that have documented productivity gains in the 30 to 50 percent ranges. And some of that is because our products are modern, easy to use, and we're kinda running at the complexity of the things that make these processes hard. But a lot of it is also because they're coming off of really terrible systems. You know, they're were designed and built in the eighties nineties. And so, when you compare what they have to do today to what we're delivering, it's not surprising to see 30, 40, 50 percent productivity gains.
And that can be measured in all parts of the process. So, you know, that's what gives us such, such enthusiasm for what we're doing on the R and D side with fall.
Got it. And I'll squeeze one last one in. If you look at the CROs, you guys are selling into a CROs, obviously a nice win within the top 8 CRO. But how do you view them in terms of their capabilities sort of to develop analytical tools, given sort of the data they capture and leverage that sort of as they think of that be a potential competitor as you think about the analytics in the space and the data? Or do you think that's an avenue where they sort of standardize around your technology?
So, you know, those productivity gains that you would get, if you're a sponsor, you would get equally you're a CRO. And so there's been great interest in our solutions from CROs. And the quality of the data that gets into a system is improved. If the system's easier to use, it's fresher. People are not writing things down in a notebook and entering it later.
So by having a better system, there are actually better data inputs. So that makes the data offerings that that come from some of the CROs that much better. So I think that they see us as a partner and an enabler, more often than than a competitor.
Got it. Thanks for taking my questions guys and nice job. Thank you.
And your next question comes from the line of Rishi Jaluria with JMP Securities. Your line is open.
Questions. First, I just wanted to start on the Vault outside of Life Sciences side. It's nice to hear there's another early customer win. And I know we're very early in the stage, but I just wanted to get an idea from how how how far away are we from starting to see referenceable customers within that side of the business to to maybe see a little bit of momentum pick up there?
I'll take that one. This is Peter. We're doing well outside of life sciences. So quality management, you know, that's where we're starting. It large and underserved market.
We're bringing them the single solution we call Vault QualityOne. It's a combination of Vault QualityDocs and Vault QMS. And so things are going really well. Let me give you one example to show that. The QualityOne team, they're just recently got back from a large trade show.
It's called ASQ. It was in Charlotte this year 2500 quality professionals. And we were there. The QualityOne team was there showing our products, you know, that people are seeing the expertise of our people. And it's really clear, the customers, they want a true cloud solution from a great software company, and that's what Veeva can offer.
So the assignment is really there. And in terms of the reference selling, it it starts incrementally. And it's even happening now to a small degree. We have some early adopters live, they're live with their first early implementations. We're starting to get around a little bit.
So the reference selling is happening kind of like how we expected it would be. I guess the main point to is we're in this for the long term, and we're doing well.
Okay. Got it. And on the EDC side of the business, you know, can you give us a sense for how your pipeline, with EDC looks right now or, or have there even been any kind of notable, early customer signings or or deals on that end of the business?
Okay. So for EDC, that's progressing really well. We're in discussions with a number of potential early adopters And market reception has been really positive both from sponsors and CROs. Let me give you some color on why they're very positive on it. First, innovation has really been lacking in the EDC area.
That's the fact. And we're delivering an EDC solution that really easy to use, which is critical when you're supporting clinical sites, if you want to do that in the right way. And then we're also bringing EDC along with CTMS, eTMF, study startup, all on a common cloud platform. That's not been done before. So that's a real game changer.
So a combination of these things creating a lot of enthusiasm and collaboration with the customers. We don't have, early adopters signed as of this quarter, but that's that's normal. We're really focusing on the collaboration and the signings of the early adopters will come. The main thing is we're set up well for the long term with EDC.
And your next question comes from the line of Sterling Auty with JP Morgan. Your line is open.
Yes, thanks. Hi guys. You mentioned in your prepared remarks, some further rollout of CRM by existing customers. At this point, what's left in terms of customers that have signed for either global rollouts or a certain number of seats but haven't fully deployed. So in other words, what's the backlog of seats still look like in CRM?
Hey, Sterling, it's Matt. So we're right around 2 thirds penetrated of the 450,000 potential users that we've talked about. And so there's, you know, there's a third left. The focus remains on getting those last large customers to complete their global rollouts. We made progress in a couple of those big accounts last quarter.
But then a lot of the effort is on the the add on products where, you know, we really are becoming more and more strategic by picking off big important areas where they have just a mess, you know, custom systems, a whole bunch of different providers, data and spreadsheets. I mean, that still happens with things like alignment management and event management around the world. So, still effort to get more base users, but a lot of global effort to sell those add ons because we're able to create a lot more value for customers.
Got you. And then one follow-up. On the CTMS side, you mentioned some early wins here. Curious the size of this type of companies or the geographies that you see the early adoption there?
Yeah. So in CTMS, we did sign the first few And the pipeline looks like amazing. I mean, this is just a home run for us. We already know the clinical operations folks. We have over 100 50, Vault Etmf customers, CTMS is bought by the same guys.
And we know that there's, they're really yearning for innovation there. And you probably remember Sterling, I actually started Sibel Clinical in 1999. That is still the market share leader in CTMS. If you can believe it. So the market is looking for something.
And there's the customers that we've attracted It includes top 50 pharma companies. It includes small biotechs. It includes, medical device companies. So there's really been interest from all over.
And your next question comes from the line of Richard Davis with Canaccord. Your line is open.
Hey, this is, thanks very much. So thinking about QualityOne, it's, basically what I'm just trying to figure out is kind of how do you think about X expanding it? And in terms of, is there a penetration rate, a revenue level, in a timing market benchmark that you would reach before you kind of expand and I guess the the real derivative question is, you know, the blessing and the curse of what you've built is that it's like a Swiss army knife. You can do a lot of things with it. And so what you have to do as a senior manager is kind of keep your salespeople focused and things like that.
So it just basically I'm just trying to kind of assess, you know, where you draw the lines, where, you know, if I was a salesman, you know, what would you say? No, you can't do and what you can do and and how you kind of keep your guys from running off in 20 different directions? Thanks.
This is Peter. That's a great question. And this is something Veeva has really honed this skill over the last 10 years, right? That's what we call the Veeva way, which is you build great business applications, enterprise business applications, really run to the complexity and nail all the hundreds of business requirements. And then you have people really assigned to that with a focus that guidelines, dedicated people, and you execute in a way that customer success comes first, and then you do your reference selling from there.
I think it's very clear. It's abundantly clear now that outside of life sciences, we're taking the same approach it's outside of life sciences. It's not specific to a vertical, but it's a specific to an application domain. In this case, the the QualityOne application, which is a very specific application, very specific use cases, very specific buyer, and our sales team is is trained, that's what they go for. They ask those types of questions to those types of people.
And if there's not a genuine need for that, type of thing, then they move on. So I would say, you know, it's a discipline that we've honed incrementally over the last 10 years and we've gotten pretty good at it now. That's probably the best way to answer that. And, it's very natural for us. This is just the way we execute and it's working quite well.
No, that's that's helpful because you and I have seen companies not do that and it work. So congratulations on that front. Thanks.
Right, right. Discipline and focus, I think that's one of our hallmarks.
Thank you.
And your next question comes from the line of Jesse Hulsing with Goldman Sachs. Your line is open.
Hi, this is Kevin Kumar on for Jesse. Thanks for taking my call. So operating margins during the quarter benefited from strong sales and marketing leverage year over year. Just wondering what's driving that and how will quality won impact that at least in the near to medium term?
Yes, Kevin, this is Tim. So I think, as you heard in my prepared remarks, we did talk about, a very strong revenue performance and some of that was upside of some catch up one time items, which would impact the the metric you're looking at. I agree with what Peter just talked about in terms of a hallmark of Veeva has been a very focused field approach that's created you know, best in class sales and marketing, metrics like the one you're talking about. The second part of your question, was what again, Kevin? I'm sorry.
I missed that.
Just regarding QualityOne and kind of near term medium term impacts to sales and marketing spend?
So quality 1, as Peter just talked about as well, is, is in its early stage, and we have a focused team there. I think it's early now to determine how that necessarily is going to impact the metric that you're specifically referring to that sales and marketing metric. But as Peter talked about, we'll absolutely do it in the Veeva way, which is we will be focused. We'll be disciplined and we'll go through the stage of early adopters first and move into reference selling. Obviously, the investment we're going to make in the QualityOne area is included in the guidance that I gave
And your next question comes from the line of Stan Zlotsky with Morgan Stanley. Your line is open.
Hey, guys. Good afternoon. Thank you so much for taking my question. So one thing that actually really stood out to me was the top 5 the win with QualityOne was a top 5 CPG company. And as far as, you know, if you're able to go and change any of the details there, but what are you replacing, right?
With this with this product going eventually, you know, across the entire organization, Was there some incumbent that you're replacing? And for an engagement of that size, what kind of selling cycle was how long was the selling cycle rather? And was this customer also involved in the early beta testing of the QualityOne product? And then I have a quick follow-up for Tim.
Length of the sales cycle. In this case, this is a initial deal with a very large company. I would say the length of the discussions, Roughly 9 months, I would guess, give or take. And they start with, some awareness. In this case, I think it was an awareness of this person inside the consumer packaged goods company of Veeva because of somebody that used to work in life sciences then went to work to this company and told another person about, hey, this VIVA stuff.
So it was a very natural, you know, organic. And and that person knew somebody from Veeva and they reached out to us. So that's how that particular one started. And, in terms of competitive, this is the first initial deal with the top 5 CPG company. Interestingly enough, it's actually a platform deal that's very close to quality 1, but it's not actually quality 1 in the in this case.
We're in there talking about QualityOne, and they ended up having a need that's very critical and very close to quality in a similar group, but not exactly quality. So, and that's, that's not, I would say, the normal, but, that's going to happen sometimes. And then so for, therefore, we vet the type of thing. Is this a good use for our platform? In this case, it was because it was adjacent to QualityOne.
Also, it was a perfect use case where they had tend to manage and a lot of data to manage. The Vault platform is uniquely situated for that. The bigger opportunity, of course, in this company is with the QualityOne area, and that's something we'll work on over time. So that's sort of the color, but every particular use case is going to be different. Oftentimes, the customer success and reference selling is gonna come into play.
Now if you look at this particular customer, our our opportunity in that customer is going to be determined also about the success with the success of this early project because word of that is going to get around. So that's why we always focus on the customer success for the early customers.
Got it. And then the platform essentially that was sold that's just a traditional content management type of replacement that you're seeing there. Right?
Actually, in terms of competitors there, Yeah. I'm sorry. I I didn't address that second part of your question. Competitors there for the 1st platform project were were actually a variety of things from content management platform to purse purpose built applications from companies more on the more on the quality and manufacturing side. So there was a whole list of maybe a half a dozen or so competitors was then windowed down to a few finalists and then we were selected.
So very this is a very important project for the customer. So this was a very thorough process. And then if you look at in the in this particular customer in the QualityOne area, they have multiple across multiple divisions from multiple companies, some purchased, some built on content management platform. So if we were eventually be successful there, we would replace more than 100 separate systems. But that's this is a long term game.
That's not going to happen overnight.
Got it. That's very helpful. Thank you. And one for Tim. Tim, any FX impact in the quarter that that we need to be, aware of?
No, Stan, there wasn't any, FX, any material FX impact, I would say, in the quarter.
Got it. And the 2,000,000 benefit that we saw in the subscription revenue line. When did it fall through directly to, to operating income and operating margins, were there some expenses along the way that had to be taken out as well?
Yes, I would say the vast majority, very very immaterial amount of expenses, Dan. So I would say you could consider those falling to the operating income line.
Perfect. All right. Thank you very much guys.
And your next question comes from the line of Ken Wong with Citigroup. Your line is open.
Hey guys. You guys mentioned Vault Projects helped drive services upside. And I guess with that segment doing so well, what kind of runway do you see in terms of holding at this $30,000,000 run rate for services?
Ken, this is Tim. Again, as you as you think about our services business, as we've talked about in the past, It is lumpy. It is driven by large projects. We certainly see the demand across our product portfolio which gives us confidence in terms of the value that the service business brings to our customers as well as the size that you could have, modeled if you will from the guidance that we gave you 90 days ago for the annual guidance. So not an area where I would say this is a specific run rate from a revenue per quarter perspective, Ken.
But certainly, strong momentum across the product portfolio and a strong pipeline, specifically driven, as I said in my prepared remarks, around R&D Vault Projects.
Got it. So we shouldn't necessarily think the fault is still in this kind of 80s, 90s growth rate that we should see services kind of stay here. It can fluctuate even if Vault is growing at the same clip.
I think services will be lumpy. In terms of the growth rate, I would reference you back to the growth rate we gave in the last call from a Vault's perspective where we talked about the subscription revenue line being at least 50% this year. And with Q1's performance, we're increasingly confident in that number. Got
it. And then you guys now have EDC out in the market And you guys had mentioned hearing some good things from customers. Anything in terms of kind of the FUD that's out there with metadata and whether or not that has kind of across customers' lines?
So many data sometimes walks into into, customer meetings with a lawsuit in their hand. So they're trying everything they can, for marketing purposes. I think customers mostly see through that. My discussions with customers, EDC, CTMS, any of those with clinical customers, gets past that stuff platforms are there. So we say it's a unified suite.
Other companies say they've got it, but it's more kind of a collection of things. And so the conversations very quickly get to, how did you guys build eTMF study startup, CTMS and EDC all in one platform? And then we talk about what is really the business benefit of being able to model end to end processes without having to move users or documents or data from system to system. So if you were listening into these conversations, it's exactly what we would have hoped when we architected this as the long term product strategy in clinical.
And your next question comes from the line of Brad Sills with Bank of America Merrill Lynch. Your line is open.
Hi guys. Thanks for taking my question. I wanted to ask about the options for CRM. Is this a selling motion that the sales force is really been focused on? And is there an opportunity going forward more so for cross selling into the base?
Some of these options like territory alignment, email, etcetera.
Yeah. So, the commercial Salesforce has in their bag, the base CRM product and these options. We generally will call we'll call them add on products. So it's a lot of the same buyers. Sometimes there could be some new buyers for like, you know, if it's alignment management, there could be someone who specialized there.
The IT team would be the same. If it's event management, that may span medical and marketing and sales. But there's going to be continuity between the people that would be involved in a CRM project or a medical CRM project. So we see a lot of same people a little bit more of marketing, in medical than we did a few years ago because of things like Engage and medical CRM. But that's you should think of that as one commercially focused team from Veeva going out, talking to the same customer and trying to deliver additional value by expanding the number
And your next question comes from the line of Tom Roderick with Stifel. Your line is open.
It's actually Parker Laid on Tom. Wanted to go back to a large domestic Japanese pharma CRM win you announced earlier this year. I was wondering if you could comment on the progress of that rollout so far? And whether or not you're seeing any pull through, in that domestic Japanese market and just how large of an opportunity that can be for you guys? Thanks for taking my question.
Sure. Yeah. So that project has continued well. Pharma companies and on the commercial side. The other thing that is happening with domestic Japanese pharma companies is they're starting to adopt Veeva Vault on the R and D side.
So we've we announced one big deal. I think there was a press release with Daiichi Sankyo, but we've actually had made great progress with others. So that domestic Japanese pharma, domestic Japanese pharma industry feels like it's much more open than it was just a couple of years ago, both on the commercial and the R and D side.
And your next question comes from the line of Brian Peterson with Raymond James. Your line is open.
Hi. Thanks for taking the question. So one for Peter or Matt. You've been pretty successful in expanding the product portfolio with consistent methodology of starting with early adopters and then on to reference selling. As you've gone through a number of these new products, what's the average amount of time that a product typically spends in the early adopter phase?
And how should we think about that with some of your recent products EDC and QualityOne?
Yes, the time in the early adopter phase, that's going to depend from product to product. So I don't I don't think there's a particularly format formulaic answer. I can give you some products are heavier in the business process. They they take a bit longer to implement just because they're they're more detailed. Maybe they're more detailed in the data migration, those types of things.
So for example, I would say the registrations is one of those tremendous amount of data that often has to be cleansed for, you can get it into the system. So that slows down the cycle a little bit, but that's okay. That's how that works. And in terms of some applications are more critical than others or more more careful than others. EDC is an example where you're collecting patient data, data about for the first time.
This is a very critical area both for Veeva and for our customers. So I think that's going to be one where they're particularly careful about as as they go into it that may have a little bit slower. But overall, it all it all evens out. It's all really the same, you know, get the get the early adopter customers, get them live and happy in the in the reasonable time frame that makes sense and for them and for Veeva, and then you start going into your reference selling. Got
it. Thanks, Peter. And maybe one for Tim. Just on the services again, Is there any time frame that we should think about maybe partners taking a more active role with Vault? And you might see a little bit of a decoupling between the subscription growth and the services growth?
Thanks guys.
Yes, Brian. Good question. So the what we don't know yet is how that will evolve in Vault across the different product areas. But I would say that over the long run, we will see and we we certainly have an ecosystem today that partners with us on both the commercial side and the R and D side. And I think over time, that will take a bigger percent of the pie.
But we don't have a sense for exactly what that timing will be across the product Folio and across the different, unified suite areas.
And your next question comes from the line of Scott Berg with Needham. Your line is open.
Hi, everyone. Thanks for taking my questions. I got 2 quick ones. I'll start with one and then a follow-up. First of all, on the top 20 pharma customer that's selected the Enterprise Vault contract.
Is that the first one? And how should we think about pricing on a deal like that? If someone just sued chooses I don't know, quality or or or CTMS or Etmf. How does pricing? How should we think about pricing on a on an enterprise contract like that?
Yeah. So, that customer was already a Vault user. They had deployed Vault Promomats, Vault Medcoms, Vault Etmf, globally already. So this expansion into doing quality docs and rim, is the first time we have a top 20 pharma company that will standardize all of their regulated content management across those five areas. Then this company also by buying the REMS Suite also started with a data centric application, bought registrations at the same time.
So it's a it's kind of a landmark event that we have one of the top 20 pharma companies replacing all of their documentum all of their legacy content management for their most important documents globally across every part of the company. It's exactly what we had hoped and what we had planned for 6 years ago when we launched the product. In fact, the first PowerPoint we ever put together for Vault was Vault as an enterprise platform. And while we have achieved that in many smaller companies, this is the first top 20 to do it. So obviously, we're excited about that.
The pricing of our products is by product. So we're not a company that that gives you one price and you can use all the Veeva products. It's part of the model of making sure that every single one of our products is the absolute best of breed that is available. That requires that we get a fair price for each one of those products. So we don't bundle everything together.
And very often these are separate sales cycles. But even when they come together, we still are gonna have to sell the head of quality and the head of clinical and the head of regulatory separately. And those sales cycles and those products require a lot of specific
selling EDC, when you talk about the combined platform with CTMS and eTMF, do you envision the sales on that really to be all three products together or do you think EDC ends up selling, on a standalone basis by itself. Thank you.
Yeah. I think we'll see both. I think there'll be a lot of deals that are only EDC. We just sell it right into the clay the clinical data management team. But then remember, there's already 150 companies that have at least one of the clinical application from Veeva.
So with them, you would think of that as a suite deal. And then we have already entered into sales cycles where companies, are looking at all of the clinical applications together. So I think we're gonna see all three of those, different scenarios play out over time.
And your next question comes from the line of Kirk Mattern with Evercore at ICI. Your line is open.
Hi. Hi. This is Tom Mau on for Kirk. Can you just talk a little bit about the pace of hiring in Q1. And given that OpEx seems to have come in a little bit below, our expectation or maybe your expectation, should that should the pace of hiring accelerate over the course of the year?
And I have a follow-up.
Yes, Tom, this is Tim. We, we look at the pace of hiring in Q1 as very good across all the areas within the business, including product sales and marketing and customer success or customer facing related areas. What I would say about the Q1 results And the pace of hiring that impacted that was some of the hiring came in later in the quarter and some of it pushed a little bit into Q2. We do have a very, we have a big opportunity in front of us. So we have an aggressive hiring plan in Q2 which was included in the guidance that I gave in my prepared remarks.
Got it. And just on 606, how do you think that would impact your margins just given how your commissions are amortized?
Yeah. So, Tom, to be clear, today, we actually don't amortize commissions. We take them as incurred As you identified with the new standard, that's a specific rule, that we will comply to. So that particular area, we'll see an uptick in our margins. It's still early.
Obviously, as we're going through that process. So wouldn't quantify it at this point in time, but that specific thing will have an uptick to our operating margins.
And that concludes today's Q and A session. I'll turn the call back over to Peter Gassner for closing remarks.
Thank you operator. I would like to thank everyone again for joining us today and a special thanks to the Veeva team for your exceptional to our customers for your continued support and partnership. Thank you.
And this concludes today's conference call. You may now disconnect.