Veeva Systems' (VEEV) CEO Peter Gassner on Q1 2017 Results - Earnings Call Transcript

| About: Veeva Systems (VEEV)

Veeva Systems, Inc. (NYSE:VEEV)

Q1 2017 Earnings Conference Call

May 26, 2016 16:30 PM ET

Executives

Rick Lund - Director, Investor Relations

Peter Gassner - Chief Executive Officer

Matthew Wallach - President

Timothy Cabral - Chief Financial Officer

Analysts

Bhavan Suri - William Blair

Richard Davis - Canaccord

Scott Berg - Needham

Tom Roderick - Stifel

Stan Zlotsky - Morgan Stanley

Rich Hilliker - Citi

Darren Jue - JPMorgan

Brendan Barnicle - Pacific Crest Securities

Patrick Falzon - Evercore ISI

Steven Wardell - Leerink Partners

Operator

Good afternoon. My name is Andrew, and I will be your conference operator today. At this time, I'd like to welcome, everyone, to the Veeva Systems' Fiscal 2017 First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]

Thank you. Rick Lund, Investor Relations, Director, Veeva Systems, you may begin your conference.

Rick Lund

Good afternoon, and welcome to Veeva's fiscal 2017 first quarter earnings call for the quarter ending April 30, 2016. With me on today's call are Peter Gassner, our Chief Executive Officer; Matt Wallach, our President; and Tim Cabral, our Chief Financial Officer.

During the course of this conference call, we will make forward-looking statements regarding trends, our strategies, and the anticipated performance of the business. These forward-looking statements will be based on management's current views and expectations, and are subject to various risks and uncertainties. Actual results may differ materially.

Please refer to the risks listed in our earnings release, and the risk factors included in our most recent filing on Form 10-Q, which is available on the company's website at veeva.com under the Investors section, and on the SEC's website at sec.gov. Forward-looking statements made during the call are being made as of today, May 26, 2016. 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 form.

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.

Peter Gassner

Thank you, Rick. Good afternoon and thanks to everyone for joining us. I am pleased to report a great quarter for Veeva. In my view it was our best Q1 ever and I would like to thank the Veeva team for outstanding execution across the Board. Without exception we are seeing strength in every one of our markets across commercial cloud involved and in all of our geographies.

In Q1, we again delivered results above our guidance with total revenue of 120 million, that's up 33% year-over-year. Subscription revenue was up 39% year-over-year to 96 million.

In addition to strong revenue growth, we also delivered non-GAAP operating income of 29 million and 25% margin. We also posted record cash flow in the quarter of 109 million.

Veeva is now one of the largest and most strategic industry cloud providers and we believe we are on our way to becoming one of the few pure cloud players to hit $1 billion in revenue over time.

In the course of the quarter I met with dozens of executives from the largest global pharmas and growing biotech's. It's never been more clear to me that Veeva is becoming the strategic technology partner to a massive and important industry.

And as you saw in our announcement this morning, our industry cloud opportunity continues to expand with the addition of yet another Vault application Veeva Vault QMS for the quality management market. We now have 10 Vault applications expanding clinical, quality, regulatory, medical and commercial.

Vault QMS is our second major application for the quality area. It will be used to manage quality work processes, so the identification of problems in manufacturing, documenting a plan to fix the problems and tracking the implementation of remediation plans. Having Vault QMS in Vault QualityDocs as part of an integrated quality suite is very powerful and can bring whole new levels of efficiency and effectiveness to customers in what is a mission critical area. Before Vault they cannot bring together quality work processes and quality documentation into a single system. This is a real breakthrough through for customers and it's enabled by Vault's unique capability to build both content centric applications and data centric applications on a single platform. It's incredibly powerful.

In terms of market size for Veeva, the addition of QMS now doubles our opportunity in the quality space. Vault QMS will be available in late June. It was developed in roughly 6 months which is incredibly fast for such a robust application. We are able to develop deep application so quickly because of the leverage we get from the vault platform. We expect the release of Vault QMS to add further momentum to our overall vault business which continues to perform at a very high level.

In commercial content I'm pleased to report our integration of Zinc and the migration plan for Zinc customers to Vault PromoMats continues on schedule. The core commercial content business is growing and Vault - Veeva Vault PromoMats is becoming the Global standard.

In the regulatory area since the December launch of our two new applications for regulatory, interest in the regulatory suite has gained considerable momentum. There was only been a few months we already have 11 customers for the new regulatory application, this de-regulatory customers in total and the growing pipeline. The strong growth in Vault is a result of a steady increase of new Vault products, net new Vault customers each quarter and consistent expansion within existing customers. We see a continued trend of customers making further investments in their current Vault applications and broadening into new application areas. We are also seeing tremendous momentum in both the enterprise and SMB markets and cross geographies. We now have 18 seven-figure vault customers, that's double the numbers since last year. This broad uptick bodes very well for the future growth of Vault in the years to come.

Because we can build content centric applications and data centric applications with Vault, we can deliver first-ever unified solutions on a single platform. This is why in clinical, we can now bring together study startup with eTMF and regulatory submissions and registrations and in quality QMS and QualityDocs. This has simply not been possible before and represents a giant leap forward for the industry in eliminating application silos and moving to truly seamless end-to-end processes.

It's hard to overstate the potential impact this can have on cost, speed to market, and in helping ensure compliance for companies. The market response has been overwhelmingly positive.

We architected Vault to serve companies like Pfizer, Novartis and J&J with mission-critical applications. And we always knew if we were successful in life sciences they would be the option to take Vault outside of life sciences. That optionality was built into Vault from day one. Our customers have seen great success with Vault and word has spread, as a result, over the past three years, we have had growing interest in Vault from companies outside of life sciences who have a need to manage critical content.

While we have not actively sold Vault outside of life sciences, we do have a handful of smaller Vault customers outside of life sciences. This quarter we will start selling Vault outside of life sciences with a small dedicated go to market team. They will focus on regulated industries adjacent to life sciences with solutions that are based on our existing commercial content and quality applications.

We are excited to bring the benefits of Vault to a new set of companies. Similar to the way that we have built our industry across the life sciences over the past nine years, we plan to undertake this new effort in the Veeva way with growth, profit and customer success.

The start in bringing Vault outside of life sciences does not change our guidance. The investments we're making are anticipated in our stated guidance. Our longer-term profit targets for 2020 are unchanged.

I also note that we are more confident than ever that we are on track to achieve our stated revenue run rate target of $1 billion in 2020, selling just our current solutions within life sciences alone.

We are still in the very early innings of our industry cloud for life sciences. I believe the market has underestimated the opportunity for industry cloud. You now just starting to see bigger players make moves towards industry cloud as there's a growing recognition of the size of the opportunity. Clearly, it was an exciting quarter for Vault and we are enthusiastic about bringing Vault to more customers.

Q1 was also strong for commercial cloud. Broadly speaking, we saw increased engagement and traction with the top 20 pharmas and a steady expansion from core SFA to multichannel CRM and commercial cloud.

For example last quarter we mention a new top 10 Global pharmaceutical company was beginning and initial CRM deployment. I'm pleased to report that this project is going extremely well and the scope is now been expanded to include additional divisions.

I'm also pleased to announce that in the quarter we started our first CRM project with another top 20 Pharma, a formally selected Veeva for one region with the possibility of expanding globally over time. They will start with core CRM for face-to-face selling CLM and Approved Email. As with this new top 20, we're beginning to see a number of our newer customer start with core CRM, CLM and Approved Email at the same time.

We also are seeing strong upticks of these add-on products within the current core CRM customer base. Our newest CRM add-on products are starting to gain meaningful traction as well. In Q1, our first two customers went live on Veeva CRM Events Management. There's a lot of excitement, demand for the recently released Events product and we closed the quarter with 11 Events customers.

Veeva Align, our other new CRM add-on hits a notable milestone in the quarter as well. Two top 20 pharmas art now live with Align, one has rolled out an additional 34 countries since Q4, that's remarkable progress. We have a growing pipeline for Align and it's clear to me we are on a path to become the standard in this market overtime. The market response to the new approach we've brought to data with Veeva Network, Veeva OpenData and Veeva KOL data is making a real impact. We are seeing growth and momentum. We believe that we are also well-positioned for leadership in these markets over the long term.

You can expect to hear more on the Commercial Cloud front as we gear up for our North American Commercial Summit next month in Philadelphia. We will showcase the success our customers are having with Commercial Cloud and we'll have some exciting announcements to share.

It's one of our most important events of the year and we are expecting record numbers. With more than 1000 attendees expected, it's far and away the biggest commercial event for life sciences. I look forward to seeing all of our customers, prospects and partners there.

In summary, Q1 was a great quarter. We started the year with outstanding execution and growth across the board. With customer successes are driving force, we set to capture the significant and expanding industry Cloud opportunity ahead. As one of the most strategic partners to a very large industry, there's tremendous potential as customers look to Veeva to provide an increasing range of solutions to address their most important challenges.

With that, I will turn it over to Tim.

Timothy Cabral

Thanks, Peter. Q1 results were very strong. Total revenue was $119.8 million, up from $89.9 million one year ago, a 33% increase. We saw outperformance from both subscription and services revenue with strength across the business. Subscription revenue was up 39% to $96 million from $68.9 million last year. Subscription revenue benefited from another strong bookings quarter across products and regions. Services revenue came in at $23.7 million, up 13% from $21 million one year ago.

Our subscription revenue continues to grow faster than our services revenue increasing the recurring nature of our total revenue. For the quarter, the percentage mix was 80:20, subscription versus services, a 3 point shift year-over-year toward subscription. 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 and the earnings press release that was posted just before the call.

In Q1, our subscription gross margin was 79%, an increase of about 100 basis points from a year ago driven by the faster growth of our non-CRM products in the CRM add-ons which have a higher gross margin profile relative to our core SFA products.

Our subscription gross margin declined slightly on a sequential basis from Q4 which is the normal seasonal pattern. Because we recognize revenue daily, but virtually all of our expenses are recognized monthly, subscription gross margins in Q1 are typically lower than any of the other three quarters as there are fewer days in the first quarter.

Services gross margin for the quarter was 23.5% compared to almost 27% one year ago. Q1 of this year is impacted slightly by the zinc business which is not included in last year's results. However, both are within the normal range given our target utilization rates.

Our total gross margin for Q1 was almost 68%, an increase of nearly 200 basis points from one year ago. This improvement was driven by the increased mix of subscription revenue and the rise of subscription gross margin.

Overall, our operating income came in at $29.4 million or 24.6% operating margin which was well above the high-end of our guidance. This was driven almost entirely by outperformance on the top line as we had another solid hiring quarter in which head count came in almost exactly on plan. We added 68 people net in the quarter finishing at 1,542, up from 1,022 one year ago. Net income for the quarter was 21.2 million compared to 17.1 million last year. Our non-GAAP effective tax rate of 34.2% is roughly in line with what we expect going forward.

Our fully diluted net income per share was $0.15 compared to the $0.12 for the same quarter last year. Without the $2.2 million of FX benefit and the other income and expense line, Q1 EPS would have been $0.14.

Turning to the balance sheet, deferred revenue was 181 million compared to 157 million at the end of the fourth quarter. This resulted in calculated billings of 143 million which represent 62% growth year-over-year. Recall that strong year-over-year growth was expected in large part due to previously discussed large customer renewals which moved into the first quarter from other quarters. We did not see any new material shift in customer billing terms in Q1. Even so, the 143 million was well ahead of our 125 million guidance provided on the last call.

This out performance was a function of a strong bookings quarter which included deals disclosed earlier in the year than expected. This was coupled with a higher than anticipated average billings duration on those bookings. For Q2, we expect calculated billings of roughly 110 million which represents about 14% growth year-over-year. As was the case with our first-quarter result of 62% growth, year-over-year comparisons on a quarterly basis are not always indicative of the underlying momentum of the business because of our billings dynamics. Comparisons of full fiscal year results are more meaningful.

Our Q1 performance gives us increased confidence that we can achieve the top end of our previously guided range of 23% to 24% billings growth for the full year. Elsewhere on the balance sheet, we exited Q1 with $457 million in cash and short-term investment, up from $346 million at the end of Q4. This increase was driven by remarkable performance in cash from operations which came in at $109 million.

Remember that the first quarter has historically been our seasonally strongest cash flow quarter. With that said, our renewal base has become even more seasonal, skewed toward the late fourth and early first quarters. Furthermore, Q1 cash flow was amplified by strong bookings in Q4 of last year and in the current quarter, an outstanding collections execution. This Q1 operating cash flow result could represent roughly 85% to 90% of the total operating cash flow we generate this fiscal year.

Since our operating cash flows can clearly be volatile quarter-to-quarter, we look at our cash flow performance on a last 12 month basis. Over the last 12 months, our cash flow from operations was $147.7 million, up 62% from the previous 12 month period. This result was favorably impacted by our Q1 performance of $109 million in operating cash flows.

Let me wrap up by sharing our outlook for next quarter and the rest of the year. For the second quarter, we expect revenue between $125.5 million and $127 million, non-GAAP operating income of $30 million to $30.5 million and non-GAAP net income per share of $0.13 based on a fully diluted share count of approximately $146.5 million. For the year, we now expect revenue in the range of $516 million to $520 million, an increase from our previous guidance of $508 million to $513 million.

We continue to expect subscription revenue to be up at least 30% for the full year. For fiscal 2017, we now anticipate non-GAAP operating income of 127 million to 131 million, a margin of roughly 25%.

This is an increase in both dollars and margin from our previous guidance of 122.5 million to 127.5 million and a margin of 24.5%. We are now targeting non-GAAP net income per share of between $0.55 and $0.57 based on a fully diluted share count of approximately 148 million.

Overall, I'm thrilled with our results from the quarter and I remain optimistic about our outlook for fiscal 2017 as well as the long-term prospects for Veeva. We continue to build this company in the Veeva way with growth, profitability and customer success.

With that, thanks for joining the call and we will now turn it over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Bhavan Suri with William Blair. Your line is open.

Bhavan Suri

Hey, guys congratulations, fantastic job and thanks for taking my questions. Just to touch a little bit you did provide great color on the CRM business and Vault but maybe Matt or Peter just a little bit of color on how the network and data products are doing, anything sort of significant customer wins in that area?

Matthew Wallach

Hey, Bhavan, this is Matt. Yes. So as Peter said in the prepared remarks, we continue to have success across all of our products network and open data included. I think the big highlights in just the last 90 days probably with Network it's a lot of go lives. We had - I think we were live in dozens of more countries with Network, most of it was one large customer this doing a major global deployment that gives us an increased confidence in the ability for us to be a single global customer master solution for even largest company.

So that was really good. On the OpenData side, we have data in over 35 markets now and as it continues to mature as more and more company's use it, we again gain confidence in our ability to be a real true global alternative to what the industry has been doing. So we remain confident about those businesses that we had good wins in both of those last quarter.

Bhavan Suri

Great, that's really helpful. And then one just more broader fundamental question for me. Given sort of this potential regulatory change in the U.S. around pharmaceutical pricing you've navigated that through Europe, the European markets but how are you guys thinking about that, sort of how should we think about the impact of any of that regulation should it happen on the businesses themselves?

Matthew Wallach

Well, you know I think any major changes in pricing certainly cause concern for our customers. And I think it can be played out in multiple ways. I think for us we are still seeing as a way to do things more efficiently, more quickly, and to allow companies to react more quickly to changes in the market. So I think that the adaptability and the flexibility of true multi-tenant Cloud solutions helps the physician and us as a company going forward if the business and underlying economics of the business changes because they're going to have to make up if its lost revenue or they going to have to make it up somewhere else and because we offer a really flexible platform I think that we'll continue to be a really valuable partner.

Bhavan Suri

Great, guys. Thanks, again, and thanks for taking my questions.

Operator

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

Richard Davis

Hey, thanks. I might be a little bit hard to hear sometimes for some reason my phone is not working super well. Anyways, you highlighted kind of the functionality sets on involved and that's impressive, is there a way from the outside - should we think about your new products strategy because you have a lot of smart developers there and is it add-on to bolt or is there at least at a high level I know you like to talk about futures but directionally, where do you see this company going or what are the holes that you are filling at least to think about is there another leg to the story in terms of product stuff? Thanks.

Peter Gassner

Richard, this is Peter. You brought out one that I really like smart developers. I think we are very proud of our product team. We've just assembled a great team. A lot of us on the Vault side here in Pleasanton have started five years ago. We started with some of the best application and platform experience around people with experience from companies like PeopleSoft, Siebel, Salesforce.com, these types of things.

So that's deep in the DNA of our product team and I think that that's what you'll see from Veeva going forward. We're an application company. We develop - we will develop more application as we see fit but we are also very disciplined I think you've seen that in Veeva, our idea is to have a set of applications and haven't really become leading, not a very many applications that are sort of okay so that's this strategy we've had. So far in Veeva that's the strategy we'll continue. You're right, that a lot of these new applications are coming out on Vault, that's our big platform investment and we want to leverage that.

Richard Davis

Got it. Thank you.

Peter Gassner

Thanks Richard.

Operator

Your next question comes from the line of Scott Berg with Needham. Your line is open.

Scott Berg

Hey, everyone. Congrats on the early strong quarter. Couple quick ones for me not sure who wants to take it maybe Matt or Peter but can you talk about upsell bookings in the quarter versus new logo bookings in the quarter. Trying to understand if the mix of the business or the strength of the quarter was based on more new customers signing or was it just more upsells to your big installed base?

Matthew Wallach

Yes, this is Matt. I think consistent with our growth in the past several quarters it was a combination of both significant upsells on CRM in adding new countries, new divisions, some of that driven by some acquisitions that were done and companies were expanding into those newly acquired divisions.

We also acquired had another great quarter with Approved Email. And as Peter mentioned earlier events management is starting to kick in. So on the commercial cloud side some good expansion, and some brand new customer wins

And on the CRM side most of those new customer wins were kind of for a bundle of multichannel products. So it was CRM, CLM and Approved Email out of the gate and we're seeing that more and more often.

On the Vault side we added a lot of new customers again, as we have each of the past two quarters and it was really balanced across the different areas commercial, clinical, quality and regulatory. But then we also had just tremendous expansion within existing customers for Vault. I will share one number.

The number of companies that now have more than one Vault increase 35% in just Q1 which was amazing for cross-selling. And so we're really seeing a combination of both upsells and new bookings from brand-new companies.

Scott Berg

Fantastic color, thank you. And I guess a follow-up to the Vault question is, now that you're looking to expand verticals, could you provide any color in terms of maybe number of sales reps geographic regions that you're initially target or maybe the exact verticals that your thinking to expand us to obviously regulated environments include something like financial services, but more than just being through about try to get an understanding of maybe what that opportunity looks like in the near-term?

Peter Gassner

Scott, this is Peter. That Vault outside of Life Sciences that's a big potential market for Veeva. The broad speaking market is applications that are fit for regulated industries and that's as broad as you can get. So we are not going to be targeting on specific industries, specific verticals at this point with that small go to market team, but we are looking for things that are adjacent to Life Sciences, that are good fit for our existing applications in the commercial - in the commercial content and quality management area.

So in terms of that, it's early days and we have a pretty simple strategy here that's based on the Veeva way of doing things which is get some early adopter customers through have a great product, get them live and happy very enthused with the product. And then we start that reference selling model where these happy customers are telling other similar customers about it and that's basically the Veeva model how we've grown the business. That's how we will grow it in Vault outside of life sciences.

Scott Berg

Great. That's all I have. Congratulations on a good quarter.

Operator

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

Tom Roderick

Hi, gentlemen. Thanks for taking my question. So by my record-keeping there weren't a whole heck of a lot of additional top 20 customers at CRM that you hadn't as of yet won. So I was hoping you could talk a little bit more about the process of the one that you did win this quarter, the new logo on the core CRM and Commercial Cloud side there. Can you talk a little bit about what that competitive environment looks like, who you are displacing and sort of how long that sales process was knowing that there's again not a lot of those left to win for you?

Matthew Wallach

Sure. This is Matt. I would say that the education process before the real sales process started - lasted approximately 9 years. And this is a company that was a top 20 pharma when we started the company and I was at Siebel when they started their Global Siebel deployment many, many years ago so they were kind of on our list of targets from the beginning. That was very satisfying to finally get our first win at this big company.

The process was as competitive as any process we've had. We are basically up against IMS, who has acquired Cegedim, who had acquired Dendrite and many other companies along the way. And I think that we won because this company was moving towards the ability to sell and market across multiple communication channels and with a much more digitally enabled strategy. And they weren't able to do that on their old system and they believe that they could enable that most effectively and most quickly on the Veeva CRM platform.

Tom Roderick

And Matt, I apologize if I missed it, but was that win as contemplated today plan for a global rollout or is that just a regional piece, can you talk about the scope of that win?

Matthew Wallach

Like most of our big CRM wins, it started in one geography, so it is not yet a global deployment.

Tom Roderick

Got you. Building after thematic year of continuing to win displacements against sort of legacy on-premise competitors, and of course we've been seeing that with your partner, sales force out there as well, curious what - for what you're seeing in the entrenched competition on the Vault side, seems like there's been a lot of discussion about what might happen to document them out there relative to their positioning inside of VMC. Curious if your customers are talking about that and if you are starting to see an accelerating decision path within the life sciences rolled around on-premise document management solutions?

Peter Gassner

Tom, this is Peter. I think we are seeing acceleration in Vault but I believe it’s due to the broad success we are having in Vault. Vault, there's so many customers have Vault now and there's been dozens and dozens of implementations and they've all gone exceedingly well and quickly. So I think that's what's accelerating the business on Vault.

As of the first to Documentum, I don't think I see any particular change there. Documentum has not made a lot of investment or progress in that. That's an older software stack and it is clearly a client/server stack. So we don't really see any change in that environment. Have not seen any change since Dell purchased it from EMC.

Tom Roderick

Got you. I'll jump back in queue guys. Thank you very much. Appreciate it.

Peter Gassner

Thanks.

Operator

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

Unidentified Analyst

They guys this is Joe Mathews [ph] sitting in for Karl, thanks for taking my question. Congrats on another great quarter. So the 50 customers that you mentioned in regulatory, seems like a tipping point where most of your success in Vault so far had been led by eTMF, what is it within your product's suite that you feel has kind of hidden inflection point and can you talk about some of the larger deployments that happened there?

Matthew Wallach

Sure. This is Matt. I might add we actually have more quality customer than we have regulatory. So you talk about a tipping point, it's not just clinical and regulatory it is also quality. And I think the story is pretty similar across all three of those application areas. So for small companies that are buying an Enterprise Content Management System for the first time they have the ability to buy what is now the market-leading product but because it offers a service they can afford it.

So you have small companies who are now getting world-class capabilities and we are doing very well competitively. And that is accelerating as word is getting around that it's so fast to implement and the end users are so successful. But the larger company's it's basically are reference selling. So we had the press release to custom our squid is going to adopt one of the brand new applications in the regulatory area, there's a lot of eyes focused on that project. We are going to do everything we can to ensure that, that goes well and word will get around quickly around the large pharma companies that it's a much better alternative.

I think that this other message that Peter talked about a little earlier that the combination of content centric and data centric applications when you put that on the same platform, you start to be able to improve processes and automate processes in a way that is better than literally has ever been available before. And so as the industry continues to evolve, there is more and more joint partnerships and more and more joint selling and more and more outsourcing to CROs and to contract manufacturing organizations, all of those things lend themselves to having a Cloud-based solution that's very easy to externalize. So I feel like there's a lot of reasons for it. And if I had to summarize it all in a nugget, it is what Peter just said, we have so many implementations that have gone so well that word gets around quickly. And that's really key to the reference selling that is enabled us to be so successful in building the industry Cloud.

Unidentified Analyst

Got it. A couple questions for Tim. Tim, do you mind giving us a breakout within the billings of what the contribution from zinc was and maybe what was the one-time effect from previous customers paying up this last year instead of last year. And with regard to your billings guidance for the full year, it seems like - it seems a bit conservative to us just given that you posted a 62 bit in your billings growth, but you've left your billings target for the full-year unchanged, maybe you can talk about the reasons behind that? Thank you

Timothy Cabral

I heard your first and third questions. I didn't catch your second question. Can you say that second part of that question one more time, I am sorry?

Unidentified Analyst

Yes. I just had two questions, so the first question was what is the breakout of Zinc ahead and what is the contribution from the one-time payments in 1Q and the second question is why is the billings for the full-year unchanged despite a blowout 1Q? Thanks.

Timothy Cabral

Okay. So in terms of Zinc, one thing drove and we'd noticed last quarter was going forward we are not planning on breaking out Zinc performance separately. The Zinc team is fully integrated into the Veeva commercial content business and is not being run as a separate business. With that said, Zinc has certainly met our expectation across the Board and we are very pleased with the way the Zinc business has integrated so quickly.

In terms of your second question, on the Billings, we are certainly happy with the first quarter result but it's early in the year. Some of the beat was a function of things coming in earlier than expected but the beat did make us comfortable to raise slightly the guidance to the high end of the range that we gave 90 days ago.

Unidentified Analyst

Got it. Great quarter. Thanks, guys.

Operator

Your next question comes from the line of Stan Zlotsky with Morgan Stanley. Your line is open.

Stan Zlotsky

Hey, guys. Thank you very much for taking our questions. So the move outside of life sciences is certainly very exciting. How are you thinking about that move considering your core competencies life sciences and how do partnerships fit into that move beyond life sciences and then I had a quick follow-up for Tim.

Peter Gassner

Okay. How do we think about outside of life sciences? So I think our core competencies are really building cloud technology. It's also understanding of life sciences and also the reference selling model and just basic have the execute business of this type of scale. So I think we're going to leverage a lot of our core competency outside of life sciences, certainly the reference selling model, certainly the platform how to be an application company how to build advocacy in the customers. So I think there's a lot of leverage.

In terms of partnership, we have a small go to market team and we'll be looking for the appropriate partnerships we are not going to provide details on that at this time. I would say another thing we leverage is our core competency at Veeva to sell into smaller companies and large companies and we can do that quite well. I feel no company is too large for Veeva to sell into, that's a core competency of Veeva. But then again we have a lot of small company's very successful, small bio-techs. So I hope that gave you a little more color there on outside of life sciences.

Stan Zlotsky

Got it. Thank you. And quick follow-up for Tim. What is the non-CRM revenue in the quarter and how are you thinking about the full-year guidance for 15% CRM growth and approximately 100% non-CRM growth in light of the results in Q1? That's it for me, thank you.

Timothy Cabral

Yeah, in terms of non-CRM revenue for the quarter stand as we've talked about in the past we've given guidance for the full-year and given our Q1 performance, we are definitely still on path to roughly 100% growth in non-CRM and the 15% growth, excuse me in CRM business. So both of those after the Q1 results continue to be on - continue to be on the path.

Stan Zlotsky

And what was the percent of revenue from non-CRM in the quarter?

Timothy Cabral

I don't think we've given that before, Stan and that's something that we have given on a quarterly basis I don't believe.

Stan Zlotsky

Okay, thank you.

Operator

Your next question comes from the line of Kenneth Wong with Citi. Your line is open.

Rich Hilliker

Hi, everyone. This is Rich Hilliker on for Ken. Kind of staying on the same topic outside of the life sciences market, first of all, I was wondering if you could comment a little bit on the competitive landscape and if and how competitors are attacking that market?

Peter Gassner

This is Peter, Rich. Competitive landscape in this enterprise content management overall, there is a lot of competitors in there. It's a really a fragmented market. If you look at how Veeva is approaching that market, it's for content applications and specifically with the couple that we are starting within the commercial content and equality area. So we don't really see consolidated competitors there. We think we can bring great applications to market in the Cloud and really do well in that market. The way to think about Veeva is, again, an application company. So we are building applications like the Salesforce, ServiceNow work that type of thing and we have a platform that supports it but what we are going after is the content management applications, the application layer.

So if you look at what's out there, it's really a plethora of things. In some cases honestly we'll be replacing paper processes, process for a quite complex and we are actually going to be replacing paper because they're highly regulated and hasn't been automated yet. In many cases, we are going to replace custom client server systems and in some cases even mainframe systems. It's really - it's not a consolidated market and you'd be surprised at the amount of legacy that's out there.

Rich Hilliker

Great. Thank you.

Peter Gassner

Thanks.

Operator

Your next question comes from the line of Sterling Auty with JP Morgan. Your line is open.

Darren Jue

Hey, thanks, it's Darren Jue on for Sterling. I just wanted to come back to Vault and I know you've given a number of reasons why you're seeing a lot of success there but I just had a kind of broader question around the health of the life sciences industry. Are you actually seeing like a pickup in a number of clinical trials being run or the number of drug filings that have be made, is that partly explaining the growth in Vault business?

Matthew Wallach

I think it does contribute, and this is Matt. Thanks for the question Darren. I think in two ways, one is that there's been more new drug approvals in the past two years than in any two-year period in the last 60 years, and so that comes with a lot of commercial activity, obviously but it also helps to drive funding for new clinical trials.

I also think that we are probably about hitting a tipping point with kind of a combination of genes therapy and some specific diagnostics around genetics and more personalized medicine where I think the next 10 years of life sciences we may see more real true breakthroughs than we've seen in any 10 year period before.

If you look at companies like Spark Therapeutics that are trying to cure blindness, with a single injection that goes in and changes your genes, your genetic mutation that type of thing expanse very rapidly when you can fix hereditary and genetic diseases, literally with a single injection. And we see all kinds of innovation around our customer base. So I think it's a very, very vibrant and innovative industry. And I actually think that we are kind of approaching the Golden age of Life Sciences. I don't think that the Golden age was all the big blockbuster drugs. I think that drove certain types of activity, but with more personalized medicine it means, there's going to be more companies investigating more science and that's going to create more opportunity for Veeva as the industry Cloud player.

Darren Jue

Great, thanks. And maybe a question for Tim, I know you talked about the margin out performance being driven almost entirely by the revenue upside. But I think in the last call you talked about seeing sequential improvements in margin as we move through the year but the guidance for 2Q actually suggest a slight dip in the margin. So I'm wondering where there any cost that maybe got shifted out of 1Q or what would be the reason for the margins to dip little bit.

Timothy Cabral

Yeah. And Darren before I get to that question, can I do this, I apologize? Dan you asked the question that I thought was more new ones, you asking a very simple question which was, what was the non-CRM revenue contribution which we of course have given before. This quarter it was a little bit north of 30%. So let me get past that.

Darren in terms of the operating margin performance you are correct, the beat here in Q1 on operating margin was driven by the revenue outperformance. We are committed of course to continue to maintain this business of both high growth and high profitability, but given Q1 came in much higher, it's possible that we could see some quarters that are flat or slightly down. We did raise our guidance as you saw overall for the year both in operating income and in margin with that number now at 25% and that still enables us to exit the year roughly at 26% in an operating model as we talked about on the last call. So I think, overall, we'll continue to see that march towards the roughly 26% operating model by year-end.

Darren Jue

Okay, thank you.

Operator

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

Brendan Barnicle

Thanks so much. Peter, I wanted to follow up on your comments on the move outside of life sciences in Vault. I think you said that you are going to be able to make that move without any impact to margins. I just wanted to make sure that I heard that right and maybe get a little more color on how you can make a move like that and make those investments without any broader impacts?

Peter Gassner

All right. Thanks, Brendan. Yes, the move outside of life sciences doesn't affect our guidance for the year and doesn't affect our margin even for our 2020 targets for margin, in the year 2020. And also it doesn't affect our revenue. We've given a stated goal of a $1 billion revenue run rate toward 2020 within 2020 and that's just inside life sciences. So the question of how are we doing that, we have to build the business. We will build the business with growth and profit and that is really the reference selling model. We have a tremendous platform involved and we can build applications on it rapidly as we've done with QMS and many of those applications are applicable outside of life sciences.

So we have always have a good field model where we have a targeted buyer. We know we are going after, its application sale. You get those customers live and happy and then they start telling other customers that's the reference selling model, so that's really where the leverage comes from. That's the leveraging two things in the model, the existing investment in the Vault platform, we are reusing that. And then the - go to market it's the leverage of the reference selling model that's how we'd be able to maintain our margins and our growth as we build this new business.

Brendan Barnicle

Great, thanks for that clarification. And also in your prepared comments you talked about QMS kind of filling a hole that had existed in quality management, what had people done in the past?

Peter Gassner

Matt, you want to take...

Matthew Wallach

This is Matt. Yes, so large companies have used on-premise client server software. There's a few companies that have been leading in this market for a long time and so it's kind of a normal legacy on-premise environment that we've seen in a couple of other areas like CRM, or with Documentum, but it's generally been best-of-breed companies not companies with broad integrated suites.

So I think most of the competitors in this area really only do this, they just do QMS and many of them just do QMS in pharma. Couple of them do QMS in pharma and some other adjacent Industries.

Smaller company's interestingly have not been able to afford a lot of those solutions and a lot of them have been really struggling either with paper or with companies that just generally haven't had good scalable platforms.

So there is no cloud competitor for us there. We are going to be the first company that has a cloud QMS solution and the fact that it is beautifully and perfectly integrated with our Cloud QualityDoc solution just creates tremendous value for these companies they've never had that ability before.

Brendan Barnicle

Thanks Matt. I think Peter also mention that this is going to increase your TAM in quality space, o have any TAM numbers around quality?

Peter Gassner

Well we've talked about it in the Vault TAM generally, we talked about it is about 20% of the $2 billion TAM was in commercial. So the 80% was roughly split between quality, clinical and regulatory. Now this split changed a little bit because we've added a steady startup application in clinical, we added registration tracking submission archive and regulatory we didn't really update the TAM around that. QMS is the largest of these additional Vault applications that we have launched so far. So we'll do a more deep dive on the TAM at the Analyst Day when we have more time, but suffice to say, it's well above 2 billion now but we will be much more specific at the Analyst Day.

Brendan Barnicle

Terrific. Thanks a lot guys.

Operator

Your next question comes from the line of Kirk Materne with Evercore ISI. Your line is open.

Patrick Falzon

This is actually Patrick Falzon on for Kirk. Congratulations on the quarter. Can you guys just discuss the pace of hiring relative to your comments earlier this year in terms of stepping up your recruiting efforts particularly as it relates to adding new sales resources?

Timothy Cabral

Yes Patrick, this is Tim. So the Q1 hiring was on plan. We added 68 net and most of that was in the development and the products area as well as in the field area as we talked about 90 days ago on the call. And the pipeline from a Global hiring perspective continues to look very good here into Q2 and into Q3 where we have in our plan most of the hiring that we discussed in the Q4 call. So we are on plan and it continues to look good in terms of our ability to attract really high-quality talent. I remember Richard's comments earlier on the call about our development folks, our continued ability to attract those types of people as well as strong sales and marketing people has been great.

Patrick Falzon

Great. Thanks and if I could follow-up with one more, you guys gave some stats around your CRM add-on products in prepared remarks, but can you give any kind of additional color there and talk about how some of the newer products like Events are scaling?

Matthew Wallach

Sure. This is Matt. So, I guess, I will do it in the context of recent CIO event that we had. We brought together about half of the commercial CIOs of the top 20 pharma Companies. Events was a big topic there. This has been an area that has been really difficult to automate and very difficult to automate consistently around the globe. And so one of the big value propositions that we keep hearing from customers is to have a consistent system that can drive consistent processes across geographies, as some of the spend disclosure regulations continue to expand around the world.

So we are in - so as Peter said, we have 11 customers there, that's fast for a CRM add-on, particularly one that is not easy. I mean this is a major system and it's a major area of spend. Companies spend I think it's $1 billion a year on Events, so it's a big area of spend. And I think what we really got right in the approach that we took and so far the early customers that are going live have been thrilled with the results, so it feels like we built the right thing and our go to market strategy so far it's been working.

Patrick Falzon

Great, thanks. Congrats again on the quarter.

Operator

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

Steve Wardell

Hey, great. Thank you. Can you tell us a little bit more about Vault, how long is the sales cycle for Vault and also what happens to the prior solution that was in place when there was a prior solution in place? And I think it shut down the documents carried over to Vault or does it kept running to support the documents that were originally put on it?

Peter Gassner

Yes. So in terms of the sales cycle it’s kind of typical enterprise software, large companies six to nine months in the sales cycle generally within RFE [ph]. Small companies were kind of two to four months also within RFE. That's generally what we've seen it's pretty consistent with what we saw in CRM as well.

In terms of what they do with the old systems, one of the goals when you buy Vault is to - is to retire the old system and to get the cost savings associated with that. So most of our Vault implementations have a data migration component and it's a pretty standard thing.

Pharma companies have been rolling over there old documentation from content management system to content management system forever because some of these documents have to survive the life of the company plus 15 years.

So J&J has 100 year-old documents that they can't throw away, as example. So yes, data migration is a normal part of most of our projects and our customers can't wait to retire the old systems once they get Vault in place.

Steve Wardell

Great. Thank you.

Operator

And there are no further questions at this time. I will now turn the call over to Mr. Gassner for closing remarks.

Peter Gassner

Thanks. We're pleased to kick off the year with an outstanding first quarter and I'd like to close by thanking our team for their great work and thanking our customers for their continued trust and partnership. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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