Good afternoon. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Veeva Systems Fiscal 2019 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. Mr. Rick Lund, Head of Investor Relations, you may begin your conference.

Good afternoon and welcome to Veeva's fiscal 2019 first quarter earnings call for the quarter ended April 30, 2018. 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-K which is available on the company's Web site at veeva.com under the Investors section and on the SEC's Web site at sec.gov. Forward-looking statements made during the call are being made as of today May 24, 2018. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Veeva disclaims any obligation to update or revise any forward-looking statements. We will provide guidance on today's call, but 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 Web site and as an exhibit to the form 8-K filed with the SEC just before this call. As a reminder, beginning this fiscal year, we adopted the new revenue recognition standard commonly known ASC 606 using the full retrospective method, which means that we have adjusted certain of our fiscal 2018 financial information according to the new standard. Please note that all results and guidance mentioned on this call and contained in our earnings release reflect the application of ASC 606. 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 another strong quarter for Veeva financial results above our guidance. First quarter total revenue was $196 million up 22% year-over-year. Subscription revenue grew at 21% and our non-GAAP operating margin was 32%. That was a great start to the year, Veeva team executed exceptionally well. I'm encouraged by the pace and level of innovation we're delivering for customers and the life sciences industry overall. I'm also encouraged by our continued execution and attention to detail as we scale the company in multiple product areas, customer segments and geographies. We just got back from Veeva commercial summit where we brought our customers together for a great event in Philadelphia. This year we had 1500 attendees making it our largest event ever and the biggest commercial life sciences gathering of its kind. At summit, we announced a major new product Veeva Nitro. Nitro is the next generation commercial data warehouse built specifically for life sciences. Nitro was very well received because it has the potential to eliminate another major custom system that has been a real burden for our customers. It also sets up customers to fully leverage the power of AI as they look ahead. Today life sciences companies largely build and maintain their own custom data warehouses for the commercial side of the business. It's a significant challenge and often repeated on a region by region basis. First, it's hard to find the right resources to build and maintain a data warehouse. Once developed these point in time systems quickly fall behind and they end up being replaced every five years or so. And most were built for business intelligence and recording only, so they don't provide the right foundation to support AI. It's similar…

Thanks Peter. Q1 was another quarter of consistent strong execution; subscription revenue was up 21% to $156 million from $129 million last year. Momentum across our product lines continue to drive strong growth especially within Vault. Services revenue was more than $39 million up 29% from over $30 million one year ago. This was a material outperformance from our expectations primarily driven by heavy demand within Vault's R&D. In addition, we did benefit from some onetime items in Q1. So we expect Q2 will likely be $1 million to $2 million less sequentially. Total revenue was over $195 million up from nearly $160 million one year ago, a 22 % increase. Vault represented 44% of total revenue up from 37% in Q1 of last year. Our non-GAAP operating income came in at almost $63 million, a 32% operating margin which was above the high-end of our guidance. This was driven primarily by outperformance on the top-line. Across the company, we added 72 people net in the quarter finishing at 2,243 up from 1,874 one year ago. Turning to the balance sheet; deferred revenue was $290 million compared to $267 million at the end of the fourth quarter. This resulted in calculated billings of $214 million, which was ahead of our guidance of $200 million to $202 million. This result was driven by the outperformance and services revenue better than expected billings duration for the business closed in Q1 and strong bookings. 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 do it internally. Our subscription revenue guidance and calculated billings guidance for the full fiscal year…

[Operator Instructions] And your first question comes from the line of Rishi Jaluria from D.A. Davidson. Your line is open.

Hey guys. Thanks for taking my questions. I wanted to dig a little bit more into Nitro, definitely it's an exciting announcement. I guess to start out with -- can we talk a little bit about the decision to use AWS Redshift and maybe what the economics of the partnership looks like, is it going to be something similar to CRM and maybe alongside that why does the partner versus building kind of your own system from the ground up like you do with Vault? And then, I have one follow-up.

Great. This is Peter. I'll take that one. Yes. If we look at Nitro as being a commercial data warehouse application there's many technologies that would go into that some of which we're going to build, some of which we're going to embed in. At the database layer Amazon Redshift is a clear right choice because this is a data warehouse type application. We want to do it in the cloud and Redshift has really emerged as a great database and a clear leader there. In terms of the economics, we won't get into specifics there, but I think we're not going to see very material cost of goods sold on Nitro and I would say less than what we'd see cost of goods sold on our CRM product, but we'll see how that plays out over time.

Okay. That's helpful. And I guess kind of following up on that. Can you give us a sense for how the integration between Nitro and Vault and Commercial Cloud solutions might look like once the product scaled out?

In terms of the integration that'll be a key part of the value proposition. So between for example, Nitro is focused on the commercial area. So the key integrations with a couple of our key products are Veeva CRM and the Vault PromoMats. So we'll build that integration in a very seamless way so that customers won't have to build it, won't have to maintain it. And that's a pretty complex integration. So you're right to point out these integrations are a core part of the value prop and that's a core part of the value we're delivering.

Okay. Got it. That's helpful. Maybe if I can sneak in a housekeeping question for Tim. When you talk about your calculated billings expectation for the next quarter and following year that is including this new definition of calculated billings with bundled accounts receivable, correct?

That's correct, Rishi.

Okay, great. Thanks guys.

Your next question comes from the line of Pat Walravens from JMP Securities. Your line is open.

Oh great. Thank you. Congratulations. Just following up on Nitro, can you talk a little bit Peter about what the most common use cases would be? I mean is that things like pairwise correlations between genes and specific diseases or is it things like sales force productivity?

The common use cases are sales force productivity, marketing productivity which types of content are being the most effective predicting in some ways sales forecasting. And then, also when we look in the AI use cases that's about for example, could be at the specific sales rep or the specific sales manager level what to do in the next week. Some suggestions about what to do also maybe what not to do in the next week. So those are the most common use cases.

Okay. Thank you. And why start in Japan?

For Japan, Matt you want to take that one?

Sure. Yes. So Japan has some specific market dynamics that are different from anywhere else in the world. Specifically the distributors actually send daily sales data that has to get all the way out to the sales reps. And so we had customers for the last few years really pushing us to help them to solve that problem. And so just seemed like a ripe opportunity to get started in the data warehousing space there. But with the use case that's slightly different than what we'll see in the rest of the world.

Okay. Thank you.

Your next question comes from the line of Brad Sills from Bank of America Merrill Lynch. Your line is open.

Oh, hey guys. Great. Thanks for taking my question. Just wanted to ask about the top five RIM deal obviously you're seeing real traction at that end of the market with regulatory. What's your expectation for clinical, would you see some potential validation in regulatory for clinical in some of these top 20 accounts.

Sure. Hey, Brad. It's Matt. So, yes, it was a big deal that we celebrated that first big go-live in RIM. And clearly there is connections between all of the different areas within development cloud. So a lot of our big RIM customers that actually started with clinical and that influenced their appetite for doing something in RIM and for quality. And the one that we just referenced this one that just went live, actually their first Vault development cloud application was RIM and so we're hopeful that over time that will influence the clinical and quality area. But for sure, we see that influence across the industry with large and small companies. And there have been some patterns in the order in which companies approach it. But, it really just depends upon where their business needs start. What we've seen consistently though no matter where they've started is that the ability for us to cross-sell the next solution is really aided by a successful implementation of the first one not unlike what we've seen in other parts of our business.

Great. Thanks Matt. And then, maybe one on safety, I know it's early, but if you could provide any color on where you're seeing early interest maybe some low hanging fruit in the pipeline just opportunity for safety. Thanks so much.

So actually your first question is a good lead and into the safety one because safety systems have to be integrated to quality systems, clinical systems and regulatory systems. So the more companies have adopted the development cloud, the more likely they are to look at safety as a logical next step. What we've learned in the last 90 days was basically more confirmation that we're on the right track. We've been engaging with dozens of companies that are getting more and more excited for the arrival of that product later this year.

Great. Thank you so much Matt.

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

Hey, guys. Thanks for taking my question. This is Daniel Greenfield on Kirk. Just wanted to touch base on the partner channel again. I mean do you guys feel like as your portfolio broadens you're going to need to expand on that more, I guess just talk about the evolution of that ecosystem as you guys become a more strategic platform vendor? Thanks.

Hey Daniel. So I would say if we look at it through two lenses, one is the very large systems integrators. I think the broader product portfolio is making us a more and more important part of their go-to- market strategy in their revenue growth. So large Sis are getting more interested in working with Veeva and our customers as we have a broader portfolio of solutions to bring. Then on the smaller sort of niche partner side, each time we go into a new space there's a whole collection of companies that have specialized just there. So and safety is a great example there's a big ecosystem of safety specific companies that we never spoke to that now we're starting to talk to. I think we'll see similar things around data warehousing and AI as that evolves over time as well. So the partner channel is basically as important as it's always been and we're able to replicate a lot of the way that we work with them when we go into new areas.

Great. That's helpful. Thanks.

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

Hi, everyone. Thanks for taking my questions here. I guess I've got -- just one quick one. Tim you had kind of reiterated the company's expectations that continue growing subscription revenues at a 20% plus rate through 2020. I just wanted to see how you guys are thinking about that from maybe a product contribution standpoint now that we're six months farther into discussing those goals. As Vaults can be the major driver there at least generically of that growth during that timeframe, but new products like Nitro, how much do they factor into helping drive those goals?

I think, if you think about Scott, the new products like Nitro. We will approach the go-to-market similarly to other new products that you've heard us announce and bring to market over time, which is we start with the early adopters and we spend a bit of time there maybe the course of one to two years to really make sure that those early adopters are being incredibly successful. Before we move into the reference selling model and then revenue will scale out from there. So specifically Nitro doesn't really materially contribute to that time period that you're talking about. It will contribute more to the post 2020 timeframe.

Got it. Very helpful. Thanks for taking my question.

Your next question comes from the line of Sterling Auty from JPMorgan. Your line is open.

Yes. Thanks. Hi guys. So just along the Nitro question line¸ I missed it if you said it, but how should we think about what the total addressable market for the solution would be? And what are the technologies that it would actually be replacing from what companies?

Sure. Hey, Sterling. I'm glad that you are able to make it to the call. So Nitro -- data warehousing is a big and valuable space for life sciences companies. In the commercial space, it's one of the largest areas of spend. So when we look at the market for Nitro specifically, we look at it as similarly sized to the base CRM market. In terms of what we replace, there is no single vendor that is the leader there. So it's a collection of companies that have outsourced data warehouses that are built on a number of different technologies. There's still some old Terradata or Netezza appliances and databases out there, but there's never been an application. So there's never been a cloud application where on the first day of the data warehousing project -- the data warehouse is done and all of the Veeva CRM and all of the Vault [QMS] [ph] data is already in it. And then, the project is to add other third party data sources and to build the BI layer with familiar tools like Tableau and Qlik. So we're not replacing anything that looks like Nitro, but the job that Nitro will do has been done by a collection of different kind of custom built and cobbled together systems over the last few decades.

Great. Thank you.

Your next question comes from the line of David Hynes from Canaccord. Your line is open.

Hey. Thanks guys. So just two related questions tied to the CRM, the core product. Curious update on kind of the add-on pipeline. I mean it seems like mostly innovation we're hearing you guys talk about is, involved in new markets and now that the data warehouse, curious is there still a focus on the add-on pipeline. What should we expect to come? And then, the second part of that question is, how do you think about pricing as a lever to growth for the core CRM? Thanks.

Sure. So I'll take the second question first. I really like looking customers in the eye and telling them that we have never raised their price. So a company that bought Veeva CRM, 11 years ago pay the exact same price. And we hope to be able to do that into the future. So we do not plan to use any kind of pricing power to grow the company. In terms of the add-on pipeline, so I'm not sure are you asking about the add-on products we have today that we haven't talked a whole lot about. Are you asking about other potential products?

Yes. As more I asking not necessarily what's to come, but should we expect there to be the introduction of additional add-ons. I mean it was a pretty powerful lever to drive and I think you've talked in the past around 15% to 20 % uplift on CRM pricing for every incremental add-on. We haven't had many incremental add-ons released lately. So, curious how you're thinking about that as fiscal ‘19 plays out?

Yes. So through this year I think the focus is going to be on some of the ones that we still consider to be brand new engaged meeting and engaged webinars. Engaged webinar combined with the events management module is really quite powerful. And we're just at the very, very beginning of that. And then, since we're talking about add-ons, I think it's a good distinction that let's not think about Nitro was an add-on, all right? So Nitro was a market similarly sized to CRM. So we'll talk about CRM and CRM add-ons in the similar way that we have them. And when we talk about Nitro, it's going to be with a little bit of a different narrative.

Yes. Okay. Makes sense. Thanks guys.

Your next question comes from the line of Bhavan Suri from William Blair. Your line is open.

Hey guys. Thanks for taking my question and congrats. I guess just [Technical Difficulty] that Takeda, Shire merger does that happen, how is that [Technical Difficulty]?

Bhavan, I'm sure the transcript won't get it, but I think I got the question. You're asking about the Takeda, Shire merger. So we've….

Correct, in fact Veeva.

Yes. We got it. So we've always said on these calls the high volume of mergers and acquisitions in this industry have been neutral to positive for Veeva. And couch that that a mega merger would be negative. Now the Takeda, Shire merger would be the largest one that we've seen since starting the company. But the two companies don't operate in a large number of overlapping therapeutic areas, it's just a couple. So they're unlikely to stop any clinical programs and unlikely to have large layoffs in the sales force. So from a financial perspective, the future impact would be maybe a slight headwind, but it would not be a material change even though it is such a large merger. But I would say more importantly we have a strong partnership with both of those companies and we're going to work closely with them through this merger to make sure that it even gets stronger as a result.

Got it. Oh, that's helpful. Thanks. And then, I'll just ask a quick one on the CRO initiatives, you've been targeting those guys just hoping to get some color on where you are, any progress you've made in sort of how see in sort of any successful sort of engagement with those guys. I know I think [indiscernible] may have been a [indiscernible] customer I forget exactly, but I was wondering you had any updates to that business.

CRO business continues to go well I won't give any comments on any particular customer. But the general dynamic that's going on, the CRO, they have to serve the life sciences industry. They serve the very large life sciences customers. They serve all the way down to the very small. So they have to be aware of their needs and what they're doing. CROs will see and are seeing our broadening footprint that is serving many different parts of life sciences especially on the R&D. So we Veeva we're getting more strategic with their customers. So that's one thing they think about. And the second thing is that our footprint that we can sell into CRO is continually getting broader especially as EDC moves forward and when it moves out of the early adopter stage. So while I don't have anything specific to report, certainly our momentum in our pipeline is doing well and we have a specialized team focusing on CRO. So I'm quite confident with that business over the long-term.

Great. Thanks for taking my questions guys.

Your next question comes from the line of Brian Peterson from Raymond James. Your line is open. Again, the next question comes from the line of Brian Peterson from Raymond James. Your line is open. Your next question comes from the line of Stan Zlotsky from Morgan Stanley. Your line is open.

Hey guys. Thank you for taking my question. A couple of quick ones for me. First one, just going back to Nitro, how does the product fit in with your existing data products, right? So you like network and everything else you have in the data side because that seems like a very natural extension. And also how is network -- how's the other Nitro going to price? And then, I have a quick follow-up for Tim.

In terms of Nitro and how it relates to network and open data. Nitro is not dependent on network or for open data. So it will -- Nitro will work whether the customer uses our network product or whether the customer uses a competitive product or whether the customer uses open data or they use a competitive product. There is a requirement for Nitro that you have to be using Veeva CRM because that's where the core of all the activity data comes from et cetera. So that's the lay of the land there We want to be very open in the Nitro layer, but it's just not -- there's a large part of the industry uses Veeva CRM and it wouldn't be practical to build Nitro and try to figure out the data mapping within a non-Veeva system. And in terms of pricing for the Nitro, was there a specific question there?

Is it going to be per user pricing or is it going to be based on volume of data?

Yes. And then for the specific pricing that way -- that's something we'll work out with our early adopters and we don't discuss that at this time. We're looking at a variety of options and I'm sure we'll settle on the right things for the customers.

Okay, perfect. And then, a quick follow up for Tim on billings. Could maybe help us quantify how much of the beat in Billings in this quarter was from pro services and if there was any FX impact on billings calculated in the quarter. Thank you. That's it for me.

Sure. And Stan, so no FX impact on billings for the quarter. And in terms of the percent of the beat that was in pro service outperformance it was about half, about 50% of that billings beat this quarter came from pro services.

And duration was probably a quarter or so….

Duration was the next largest. Stan, I'm sorry. Finish your question.

No. Just wanted to get the breakdown of the rest, the other 50%.

Yes. The other 50%, I would say two-thirds of it was duration and the other third was better than expected bookings.

Okay, perfect. Thank you, guys.

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

Hi. It's actually Parker Lane in for Tom. Thanks for taking my question. You alluded [indiscernible] within the QualityOne customer base this quarter. I was wondering if you could go back though and discuss the expansion you've seen with some of your early adopters there and whether or not you've learned anything from those customers as far as product expansion and the product roadmap is concerned. Thanks.

I'm sorry can you repeat that specific question, I couldn't catch the first part of it and I want to be accurate on it.

I was just mentioning that you have some nice sizable customers outside of life sciences and I'm wondering in your discussions with them on being -- this is a new market, have there been any new product areas that you consider that are sort of adjacent to the QualityOne market you could address over time?

Yes. So we are having good success with QualityOne outside of life sciences and in some large customers particularly in the CPG and the chemicals area. And when we do that we always get exposed to different product opportunities and when a customer starts working with our platform, hey we're working with you here Veeva. We have a need over on this side or over on that side. Something adjacent, so that's really being going on for the past year or so. We haven't locked in on any new product area that we're ready to talk about but there's certainly a lot of adjacent opportunity in that. The trick is to really figure out when to jump into one of those and which one to jump into and we were not ready to talk about any specifics there just yet.

Got it. And then on the clinical front view you also referenced some nice customer wins in EDC and CTMS, so quickly doing pretty well there. Can you tell us what the appetite is for a full clinical suite that you're seeing in the market and what sort of momentum you've had in replacing some of the existing competitors out there that have been deeply embedded in this market for some time? Thanks.

Thanks Parker. So I mean we're definitely seeing an increased appetite for going all in with clinical. The really logical ones are eTMF Study Startup and CTMS. Those tend to go together, its similar people, similar budgets and very tight integration between the different pieces. So there's a lots of examples of companies expanding. In fact, one specific example is, I think almost every CTMS customer is an eTMF customer also. All of the Study Startup customers are eTMF customers. So those things go together and I think that as the CTMS product matures, it's going to -- when that is as mature as eTMF and Study Startup that is an integrated suite that's never been possible before. I think EDC, we still see a lot of connections and sometimes it's the same people, sometimes its different people, but people see it as their clinical IT landscape and they understand that one platform is better than two or three or five. Competitively, we see the same companies that we always saw in each of these areas. Some are strong in eTMF, some are strong in EDC, some are strong in CTMS. We don't have a competitor that is strong in all of them. So not only do we try to have an integrated suite, but we also are trying to create the very best product in each one of those areas. And so we see a lot of momentum across clinical U.S., Europe and building in Japan as well.

Excellent. Thank you guys.

Your next question comes from the line of Brian Peterson from Raymond James. Your line is open.

Thanks guys. I’m sorry about that apparently this telephone is bamboozling me here, but so I wanted to get on eTMF, it hasn't really come up yet but I think you mentioned that this was the second best quarter ever for eTMF. So just want to be clear, is that a new business dynamic or is that revenue, can you expand a little bit on what drove that?

Thanks Brian. And by the way, congratulations that's the first time we've heard the word bamboozle on our earnings call, so that's pretty good. Well, that's a more serious question of eTMF. The dynamics there -- is the markets relatively big. This is something eTMF, even though we've been in this market for quite a while and we have a lot of customers. There are large customers, it goes all the way down to quite small customers, there are pharma, biotech, med device, PRO customers, they all need eTMF. And some of these implementations are long, so it's something -- sometimes a deal that we have entered into maybe two years ago there's still some revenue increase, now as a customer would complete the rollout of an enterprise license agreement or maybe they would just add incrementally more studies. So there's really no change in the dynamic, it's just a point out that this is a really large market and it plays out over multiple years and over multiple geographies and customer segments.

Got it. Thanks for that. And maybe one for Tim. Just you kind of outlined the early adopter phase that you have with Nitro and how that's going to take -- play out over the next few years. We have a lot of products that are in this early adopter phase now. So when should we think about those transitioning out of that phase. And is there any particular time period that we really see some accelerated sales and marketing investments? Thanks guys.

Yes. It's a good question, Brian, in that we have announced a number of new products over the last 18 months and they're in that early adopter stage or in the case of Nitro as you mentioned specifically we have it in Japan generally available and it will be later on this year that will be in the United States. So the early adopter stages in front of us. I think as we look to the subscription revenue guidance that we gave through 2020, the majority -- the vast majority of where that is coming from, was from the core products in Vault and in the commercial cloud that we had up into that that time period although we will see some contribution from some of the newer initiatives like QMS like outside life sciences. I think those will really start to contribute materially to revenue after that 2020 timeframe, is what I would say. So again, short strokes, there will be some contribution in revenue between now and 2020 with more of the material revenue contribution outside -- past that timeframe.

Understood. Thanks Tim.

Your next question comes from the line of Ben Rose from Battle Road Research. Your line is open.

Good afternoon. I have a couple of questions first for Tim. I think this is the first time we've seen the unbilled receivables account on the balance sheet and was curious to know if this is traceable to a particular customer or products and whether we should expect to see the existence of this account going forward.

Yes, Ben. The real driver here is, with the adoption of 606. And the way that we are treating the revenue recognition of some of our multi-year arrangements, we have identified that account to articulate what the impact is from those particular accounts and how we are accelerating revenue in front of Billings in some cases. Now, what you'll see over time, Ben, just a little more detail there. Typically that account was within accounts receivable and what that account would have had as a sub-account was we bill services revenue, after we take the revenue. So when we take a month of revenue like let's say April, we will take the revenue in Q1, but we'll bill it in Q2. So, that also is part of the unbilled receivables that you'll see going forward to the month of services billing and revenue.

Okay. That's helpful. And then for Peter. With regard to Nitro, is it logical to assume that your product roadmap would include the application of Nitro to various parts of the development cloud?

Well, at this time, we're focusing Nitro in the commercial area. In Nitro and then we'll follow that with an AI engine over time targeted to late 2019 late next year. So that's our focus right now and that type of technology is very applicable to the development cloud. But we've made no commitment to do that at this time. We're going to really focus on our early adopter success and giving the technology right. So type of warehouse application for the development cloud that's something we'll always be evaluating but we've made no decisions on that at this time.

Okay. Thank you very much.

Thank you.

There are no further questions at this time. I will turn the call back over to Mr. Peter Gassner for closing remarks.

Thanks for your time today everyone and thanks again to the Veeva team. We appreciate all the outstanding work, execution and focus on product excellence that allows deliver for our customers. So have a great evening everyone. Thank you.

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