Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Veeva Systems Fiscal 2016 Second 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, Veeva’s Investor Relations Director. You may begin your conference.

Thanks Mike. Good afternoon and welcome to Veeva’s fiscal 2016 second quarter earnings call for the quarter ending July 31, 2015. 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 www.veeva.com, under the Investors section and on the SEC’s website at www.sec.gov. Forward-looking statements made during the call are being made as of today, August 27, 2015. 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.

Thank you, Rick. I’m pleased to report that Veeva delivered another quarter of strong growth and profitability with results above our guidance. Revenue in the quarter was $98 million up 30% from last year and subscription revenue totaled $75 million, a 33% year-over-year increase. We posted a non-GAAP operating margin of 29%. Our outlook for the second half and full fiscal year calls for the continued high growth and profitability that differentiates Veeva within the broader cloud software market. We have further extended our position as a leading cloud solutions provider to the global life sciences industry. This is a $1.6 trillion industry that spends heavily on technology and data and that investment is increasing as life sciences companies look to technology and better data to be more efficient and gain a competitive advantage. We believe that our proven track record of customer success, continued innovation and execution of our industry cloud strategy positions us well to win a large share of the markets we address over time. The ecosystem around Veeva is also building as we are emerging as the de facto standard in a number of our markets. Key providers are forging alliances with us or extending their existing partnerships. Today we have nearly 50 technology and implementation partners and more than 900 Veeva trained consultants. In addition, our agency partner program has grown to well over 300 creative agencies worldwide trained on Veeva. This larger community built around Veeva is important as it provides additional reach and many of these partners are viewed as key opinion leaders by the industry. We’ve deepened our long-standing partnerships with the broad-based players like Accenture and Deloitte. Our relationships with the specialty providers that are solely focused on life sciences are also growing. For instance in the quarter we expanded our…

Thanks Peter. Q2 was another solid quarter on both the top and bottom line. Total revenue was $98.1 million up from $75.7 million one-year ago, a 30% increase. We saw outperformance from both subscription and services revenue those similar to Q1 the upside relative to total revenue guidance was more concentrated in the services line. Subscription revenue was up 33%, $75.3 million from $56.6 million last year. Each of our major product categories contributed to the strength of our subscription revenue growth. We believe we remain on track to generate subscription revenue growth of about 20% from our multi-channel CRM suite of products and well north of a 100% from our non-CRM products for the full fiscal year. Our services business performed well in the quarter contributing revenue of $22.8 million up 20% from $19.1 million year-over-year. These results were driven largely by growth in Vault implementations and accelerated CRM project ramps. Overall, our subscription revenue continues to outpace our services revenue increasing the recurring nature of our total revenue. For the quarter, the percentage mix was 77%, 23% subscription versus services, a two-point shift to subscription year-over-year. The geographic mix of revenue remains relatively stable at 55% from North America and 45% from outside North America based upon the estimated location of users. In discussing the remainder of the income statement please note that unless otherwise stated all references to our expenses and operating results on a non-GAAP basis and are reconciled to our GAAP results in the tables from our press release, which is posted on our website and filed with the SEC. In Q2, our subscription gross margin was almost 79% an increase of approximately a 130 basis points from a year ago. This was driven by the continued growth of Vault, Network and CRM add-ons, which…

[Operator Instructions] Your first question is from Sterling Auty with JPMorgan.

Thanks, hi guys. I want to kick off in terms of the billings growth and the realignment I know it's frustrating for you guys, but you know since it is a metric that’s widely used, is there a sense in terms of where we are within the customer base in terms of the impact of this? And other words are we passed the peak of it? Is this something that we could continue to see via persistent headwind on the billings growth reported numbers in the next fiscal year or like I said is the bulk of this behind us?

Hey, Sterling this is Tim thanks for the question. I don't know about characterize the bulk of it being behind us I think what you're seeing and we’ve talked about it both in last quarter and this quarter, what we’re seeing is some of our larger customers who are aligning their billings with us with more of their fiscal year. I wouldn't say that has been widespread across our customer base nor has it been something that we've heard from all of our customers either. So you know I couldn't characterize it is sort of behind us we’re well through it or that there's a lot in the future either. So I think that's just a little more color for you.

And just a follow-up to that. Are these in each of these situations, is this the customer coming back to you guys saying, hey listen we really want to realign it. How does this discussion, how does that even kind of top up that this is a move that they want to make?

It can come from a number of different places Sterling in terms of that conversation what we've seen some pattern for a couple of these customers has been that alignment with their particular fiscal year. So there is no real significant single pattern but again this is not happening across many customers it is just a few customers that happen to be fairly sizable in terms of their run rate with us.

All right great. Thank you guys, I appreciate it.

The next question is from Bhavan Suri with William Blair.

Hey guys this is Alpair Tukin in for Bhavan Suri can you hear me okay.

Yes, we can.

Congrats on the quarter. I just had a question around the data opportunity you know I understand you guys have a very large install base today and you guys have really expanded your data play with Veeva Network, OpenData and some recent data related acquisition. And I was just wondering how we should think about this data opportunity and how it's going to play out over the next few years?

Hi, Al, this is Matt. So high-level we see the data opportunity together with the master data management software is about half the size of the CRM opportunity. So we think of it is about a $1 billion opportunity. The data that we go after today is something that goes that the reference data that we call OpenData now is something that goes along with our CRM product or a competitor CRM product basically all the time everywhere in the world. If you’re going run a Pharma CRM product you need to understand who the physicians are and other healthcare providers and all of the places in which they practice and so this is something that you know in a perfect world this is a 100% attach rate because our customers need to buy both the CRM software and data hopefully both from the same provider. So we see it is about a $1 billion opportunity we’re very, very early we have data in six countries we have dozens of countries to go. But their early signs are very positive that this is what customers are asking for not just because of the complexity of buying things from multiple providers and some of the restrictions that can lead to, but because there hasn't really been a very innovative approach to creating this data and delivering it right in the hands of the sales reps when and where they need it. And so there's been a lot of opportunity for innovation we think that we’re filling that space and we think it's a very significant opportunity for us going forward. Now I just finish with the KOLs data coming from the acquisition that we closed last quarter that is starting to come together that also looks like a big opportunity. And they’ll be more along those lines to come in the coming quarters as we start to really commercialize that around the world.

Okay, thanks guys. That was the only question from me.

The next question is from Stan Zlotsky with Morgan Stanley.

Hi guys, thank you for taking my question. Just a couple of quick questions for you – so Q2 very nice billings. As we think about the rest of the year you reiterated approximate 30% growth in billings for the rest of the year. Are you incrementally more confident in the 30% number and is it also correct that you maybe a little more comfortable in that number coming in above 30% also? And then I have a quick follow-up after that.

Sure. Stan, this is Tim. To be clear what we talked about was the full-year actual billings number we think is going to be about 13%, but when you take out some of the factors that we talked about in the last quarter's call and the recent factor we talked about in my prepared remarks in this call, we still are very confident the normalized calculated billings number is roughly 30%. I don’t know if I would characterize us being more bullish now than we were last quarter I think we are as confident.

Okay, great. And then a more general question, as you think about the growth of your company are there certain factors that are constraining your growth whether it would be more products being brought to market whether it would be hiring more sales reps or maybe some kind of external factors. That’s it from me. Thank you.

Yes, this Peter. We’re really pretty pleased with our growth and our results this quarter growing subscription revenue growth for this quarter 33% forecasting over 30% subscription revenue growth for the year. So we’re really pleased with that. But if you look at the big picture and about our growth and how it comes, we’re building this franchise in our industry cloud for life sciences. And you can see that in few areas, our core CRM business, it’s strong, we have happy customers and so then we’re able to sell add-on products in there and we’re growing that CRM business at about 20% this year and we have a long way to go in CRM and the add-on products. And then we talked about Vault and that’s a tremendous opportunity that’s a $2 billion opportunity there, we have a $75 million business, it’s growing at a 100% and we’re really well-positioned for that opportunity. We’re really the clear leader there with nobody else close and there's no question those customers will move from client server to the cloud so that’s really working out in our favor. And then we have these early things – these early seeds that we’ve planted in Network and OpenData both combined that’s a $1 billion market we've invested over the last couple of years and we’re starting to see early traction. So yes, I'm optimistic. We have the right products, good pipeline of products, we have enthusiastic customers. And then to get your question about hiring et cetera, yes, we’re able to hire the right volume of great people to fuel our growth, record hiring quarter this quarter and that's probably the thing that makes me the most optimistic. We’re hiring great people; they’re going to do great things so I think our future looks pretty bright.

Okay, thanks guys.

The next question is from Brendan Barnicle with Pacific Crest Securities.

Thanks so much. Tim I just wanted to follow-up on Sterling's question about these deals that are – the billing date is changing on we haven't seen that with other SaaS vendors even on big deal, so is there something about life sciences industry where customers are more cash sensitive where they do this kind of shifting around which you haven’t seen it before?

Yes, Brendan I wouldn't say that it’s specific to life sciences and you know these players as well as I do. I don't think cash is an issue for – that the largest of those customers in this industry. I don't know what’s specific about this industry that's driving it. I would say that there is a concentration as we talked about in the past with 70 plus percent of the revenue opportunity being with the largest customers in this industry and that creates some big deals for us and when there are shifts like this it has an impact as we've articulated in the billings number and sort of the billings guidance we've given. So I wouldn't say it's an indication of a weakness in the market that we serve for sure this is a $1.6 trillion industry and its growing and as you heard Peter talk about it continues to drive and need industry cloud solution to continue to drive its business. So I wouldn't say there's anything specific that I can mention. Matt, do you have any – I’m going to turn it over to you, but do you have any follow-up questions that you’ve been in this industry longer than I have.

Yes, I mean I can think of something that I think is potentially different and that is the high number of acquisitions that we've seen in this industry. I mean we get asked all the time how that affects our company from a revenue and from a customer acquisition perspective it's been pretty neutral, but from this billings perspective I was just working with a customer who was acquired three other Veeva customers they use three different Veeva products and they had eight different renewal dates. So they're basically getting an invoice from Veeva almost every month. So this company after all these acquisitions and hold on this is a big number, I want to be able to manage it better, let's choose one-day, let's have that be our renewal date and let’s signs sub orders for everything to get us there. That has huge implications on the billings number, but it's all positive for our business it’s the company wanted to make it easier to do business with Veeva. So I mean that's one thing that stuck out to me and I mean I work pretty closely with that customer to do it and of course that's basically neutral to us. We're doing them a favor, but it's one that we are happy to do as a partner of this industry.

Great.

And Brendan just quickly – hey Brendan I’m sorry just quickly add to match point was a very good one that is just a timing of the billings it is not reducing billings and it doesn’t as we’ve talked about have any impact to the revenue or recognizing or the size and quality of that customer commitment.

Right, right understood. And then Matt to follow-up around total addressable market as you guys have been adding or introducing some of these new products is $5 million still the right TAM for us to think about or if we seen any increase from some of these new additions?

So there are some small increases, but we haven't gone back and recast the entire TAM. I think what you'll see is some continued announcements from us both in the data space and around content management with Vault that I think at some point we will probably recast, but we will give you a sense of the relative sizes of these new things, but I think it's still right to think of the opportunity we are going after is five or little bit more.

And then lastly Matt, as you go-to-market on the networking product internationally is that requiring some changes in go-to-market strategy or sales hires?

No I wouldn’t say it requires changes the model that we see where software people can sell software and data people can sell data. That's sort of largely true inside and outside of the U.S. and so as we've expanded we add data specialist people that know how to talk about data, sell data and they work very closely with our software, our existing software team. So nothing really unusual there, it feels a lot like itself when we started to scale up that team in the U.S.

Great. Thanks guys.

The next question is from Tom Roderick with Stifel.

Hey gentlemen good afternoon. I wanted to just kind of shift the discussion here back to the CRM side an I guess one of the things that jumped to me this quarter was the fairly dramatic improvement or increase on the approved email on line. So it’s really nice to see some – we are going to real steep uptake and attraction of that product. The question behind that is as we've seen sort of a natural slowing or deceleration to the CRM business and now you have CLM and approved email as the second product contributing into new products out. At what point and maybe secular growth level how do we think about where CRM sort of bounces out from a two-year, three-year growth perspective? Is this a product that can still grow even with penetration in the space be and sort of what it is, can it still grows sort of mid-teens if you look out two years, three years is slower than that and what are the drivers and inputs and how you think about that?

Matthew you want to take that one?

Yes, Peter I’ll take it. So without providing specific guidance about beyond this year. We think that there's still plenty of room to grow here in both the base CRM and the add-ons. Let me give a little bit color of where the growth is coming from now and how I think it will change. So this year's growth – this fiscal year is even with this great success of approved email the vast majority of growth is still new [CDATs]. So its the base product may be coming along with CLM and approved email but the vast majority of CRM growth this year is new seats. I think that will continue next year, but coming into this year we were selling two add-ons going into next year we’ll have five. And Events and Align are significant opportunities for us engage all three of them they are very early but at some point next year they’re going to start to really drive some revenue as well. So I think the shift in growth in CRM shifts a little bit towards the add-ons next year, but I think that it still the majority is new CDATs next year. So between the ability to continue to commercialize these five add-on products and even the ability to commercialize new ones over time we still see a long runway of growth in the CRM market.

Great. Tim let me shift to next question and ask you a little bit about margins you guys have easily outpaced your expectations for the first half of the year. And yet I also heard you say you hired a record number of people this quarter. So is that shift - is that's sort of signaling renewed effort or newer efforts perhaps on very small products and network products that is a sort of sustained higher level of investment that we should expect for the coming quarters was the 100 plus people sort of a bit more of a catch up. How do we think about the pace of investment in particular how you staff for that?

I guess I will pick that one, this is Peter. Yes, I don't think the quarter was any type of anomaly I think we are stepping up our investment and that’s really across all areas because the business is growing across R&D sales marketing and services. We’re making new products we’re improving existing products that drives the growth in R&D. Therefore, we have more products we need more people to sell those products we have more customer relationships to manage in that you know that drives investment sales and services. So I think its best I could talk about a couple of examples. We’re investing in new applications in the regulatory area the Vault regulatory area with our RIM product, these are brand-new products, brand-new product team, we got to increase the team. We need specialist to bring those markets et cetera so we have to invest there. If you look at investment we’re making in OpenData that's a big investment around the globe we have data in six countries now but you know soon we’ll have many more. So that takes investment and we tend to really focus our investments I don't - I think its going to continue at this good price. We tend to focus them. Also we – we don't tend to waste money you know we invest the right amount we move fast to get results and one example I can give is about OpenData in Europe, our very first-person for OpenData in Europe we hired them 15 months ago. Today, we’re selling data in three countries in Europe and we’ll have the whole of Western Europe covered by the end of this year we already have early customers et cetera. So we move pretty quickly and yes we’re in investment mode now as a company we have good opportunities ahead.

That’s great. Perfect thank you guys I appreciate it.

The next question is from Karl Keirstead with Deutsche Bank.

Hey guys. This is Jobin Mathew sitting in for Karl. Thanks for taking my questions. I wanted to focus on the Vault business clearly that's been kind of the foundation for all the growth that you are seeing, so when you said the annualized revenue run rate of $75 million what's the mix of software and services over there? And also when I look at the customer count increases, I think on an annualized basis I think you've grown your Vault customers by over 50%. Where are these new customers coming from? Is it the top 50 Pharma or is it more a smaller start ups what’s the mix there? Thanks and I have a follow-up.

Okay Jobin. Good question. Let me start with the big picture and then I’ll dive down into the details of that $75 million. The big picture if you look at what happens, in the content management space it’s very similar to CRM customers or they’re stuck on client server, they need to move to the cloud because they have these slow systems that are difficult to maintain inflexible can be externalized. So they have to move things to the cloud that what’s going on in content management we’re well-positioned because we have the products there in the successful early customers. Now color on the $75 million I guess and the 100% growth rate I think as you'd expect most of that revenue is subscription revenue. But what's more interesting is most of that revenue is actually on the R&D side of Pharma. And that’s incredibly fast progress in R&D area, which of course is the bigger area, the much bigger area of content management in life sciences. To give you some context it was just two years ago that we sold our first $100,000 deal in R&D so it’s growing very fast and thanks to Vault. Now we are a provider, the only provider that can provide things across R&D and commercial. Now in terms of the top 50 where does this revenue come from I don't have the exact breakdown there, but it comes in different manners, sometimes with a small biotech, 100 people, 50 people, we will be the first application basically. Hey, let's move all of our important documents off paper because we need to get organized and compliant, we need to be ready for any potential partners, shifts or acquisition. So that happens and then all the important stuff involved where you have the other type of thing with a very large company, a top 20 type Pharma or Biotech. I was just at one last week where they started very small, very specific process in the quality management area of their company, now they're very happy with it and I had a meeting there and it was all about how can we expand, how can we expand in the different areas of quality, how about regulatory, how about clinical et cetera. So it's really a mix of the large companies and the small and it's actually majority of it is in R&D side of Pharma rather than the commercial.

Got it. And what’s the mix of software and services in the total size of the Vault business today?

We are not breaking that down giving exact breakdowns to that level, but as you'd expect it's mostly subscription.

Okay, got it. And then I have a follow-up question. I just wanted to come back to this billings issue. So this isn’t something new that we’re seeing now, obviously we saw it with Workday last night when they said that they were giving some form of new terms of payments to their customers. I'm just trying to understand what's causing this so can I ask in terms of the Pharma customers, at what stage are they in terms if they move to SaaS based solutions? Is there still some pressure on CapEx versus OpEx? And is some of that pressure flowing over to the OpEx side as well which is causing people to push out some of their payments. I'm just curious on any thoughts there. Thanks.

Hi Jobin, this is Matt. Yes, so for sure there is this normal cloud computing shift from capital expenditures to operating expenditures. I think that this industry is generally still a little bit behind from most other industries. For the majority of our customers the first cloud projects they did was Veeva CRM. For a lot of our small R&D customers the first cloud projects they ever did were Veeva Vault. And so it does take some time to mature and to figure out how budgets change. And so that's why we’re not done with this. I think it’s important to even reiterate. That’s something that we create, we’re flexible, but as the number of products that they buy from Veeva grows as the amount of money that they’re paying to Veeva each year grows, it becomes more and more important for them to line it up with their – sometimes very lengthy budget cycles and it just becomes easier to manage.

Okay, thanks.

The next question is from Kirk Materne with Evercore ISI.

Hi, this is actually Patrick Falzon on for Kirk. Congrats on the quarter. As it relates to the big name Vault [wins] are these net new customers for you guys or you up selling into existing CRM customers in those instances and I guess more generally what kind of traction are you seeing with Vault and net new customer accounts?

We see traction in both ways certainly with existing customers and really if you look at maybe the top hundred Pharma, Biotech’s most of them are our customers. Now in some Pharma or another so pretty soon we’re going to collect all the logos. But we really have a mix of both the largest number of net new customers of course are in the small and emerging biotech right there is many hundreds of them and so we’re collecting new logos all the time there. We have very low penetration. I guess that's the thing to remember about Vault that – it starts in a particular functional area, division or geography that’s how it starts especially in a large company in one of the top 50 started in area, geography, particular application and then it grows from there. So right now we estimate as we mentioned little less than 4% penetrated so the growth is coming in all areas.

Great. Thanks.

The next question is from Peter Lowry with JMP securities.

Great, thank you. Can you talk about where your customers are pulling you next? What are they asking for and then how do you manage that demand versus executing on the existing product that you already have?

This is Peter I’ll take that one. Yes, that’s something I have a lot of experience in over the last 20 years in enterprise software. I once had a mentor of mine say you can go out of business just doing what your customers want and you have to balance that with the market and what they need and you have to have a good vision looking forward. I can tell you when we started Vault in the first line of code in 2010 there was not a customer asking for right. So the big macro level pictures you’ve to get out, you’ve to leave the deck, you’ve to [indiscernible] where the part is going to be, but then as you calibrate on these macro level best then you can really use your customers to guide you. So a great example is the large investment we are making in RIM, the regulatory area of Vault, we have Vault out there, we have it in the clinical area, we start seeing this need in the regulatory, we start seeing customers asking for and multiple customers and starting to really understand why they're asking for and does that makes sense and then we sort of pounce on that. We’ll make then okay that's it and we’re all in and we’re in it to win it. So that's kind of how we look at it. Macro level things you got to leave the deck and then incremental things you got to listen to multiple customers and make a decision.

Great, thank you.

We have time for one more question. The last question is from Steven Wardell with Leerink Partners.

Hey guys, thanks for taking my question. Can you tell us about what you're hearing from Veeva Vault prospects in the market recently, what are the issues that they're talking to you about in general and in particular just in general was the first part of that and then particular you mentioned that 30 of the top 50 Pharma have begun using Vault in some capacity that's great news. My impression is that buyers of Vault kind of have longer decision time frames than buyers of CRM and they have a greater challenge transitioning their software systems to a Vault like product than CRM this greater kind of a transition cost and are you finding something else or you finding that they are able to make decisions faster or that they are able to transition with less challenge, less cost transitioning?

Well, I’d say Vault has more variety than CRM in a couple different ways. First of all yes we would sell Vault to the largest Pharma customers just like we do CRM, but you got to remember we're selling to 50 person Biotech involved and those are people who never even need CRM yet. It’s not only that we are selling all the way from all R&D and manufacturing side all the way to commercial so there is more variety. So I would say some Vault cycles are faster than CRM sales cycle. It’s more about getting their first systems this might literally be a three-week discussion and the way we go. Now if you're talking about the system to store the most important clinical document set up at the largest Pharma company that's probably going to be a longer sales cycle than CRM just because the importance is higher. So that’s kind of what we are seeing in more variety that common themes are you got to move fast, you got to be externalize, you need a cloud-based system so that's either a small company saying of course I'm going right to the cloud, there's no way I’m installing some software or existing customer has them on premise and they know they have to get rid of it. I think also they like performance, global performance and the notion of this stuff especially in R&D is very global. Global teams working on it. They like the fact that they can have good performance and also its externalized access and if you look at the manufacturing area, this area outsourced manufacturing is there's serious economic benefits for our customers if they can do that and do that correctly, very clear competitive advantage. And to do that either have to shuffle around a lot of paper or you need an externalized system. So that's also a driver, but I would say at a high-level we’ve comeback there is a lot more variety involved and there is in CRM because of small and large companies and because of the different areas.

Great, thank you. End of Q&A

I’ll now turn the call over to Peter Gassner, CEO for closing comments.

Thanks everyone for joining the call. Before we go I’d like to thank our existing customers and employees and also welcome all of our new customers and employees. We are excited to have you with us and I look forward to many successful years together. Thank you.

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