Veeva Systems Inc (VEEV) Q1 2019 Earnings Call Transcript

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Veeva Systems Inc (NYSE: VEEV)
Q1 2019 Earnings Call
May 29, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, my name is Chantal and I will be your conference operator today. At this time, I would like to welcome everyone to Veeva's Fiscal 2020 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, Head of Investor Relations, you may begin your conference.

Rick Lund -- Head of Investor Relations

Good afternoon, and welcome to Veeva's fiscal 2020 first quarter earnings call for the quarter ended April 30, 2019.With me on today's call are Peter Gassner, our Chief Executive Officer; Matt Wallach, our President; Paul Shawah, SVP of Commercial Cloud; 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 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, May 29, 2019. 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 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 -- Founder, Chief Executive Officer

Thank you, Rick, and thanks to everyone for joining us today. I'm pleased to report another great quarter with results ahead of our guidance. Total revenue for the quarter was $245 million, up 25% year-over-year. Subscription revenue grew 27% year-over-year and our non-GAAP operating margin was 38%. It was an outstanding start to the year. Congratulations to the Veeva team and thank you to our customers for your continued partnership.

I will share some Q1 highlights starting on the commercial side of the business where we had another excellent quarter. We continued to extend our market leadership in core CRM. We added many new Veeva CRM customers on the SMB side in both the US and Europe. Many of these customers also purchased Veeva OpenData at the same time. We also made good progress with global CRM rollouts in existing enterprise customers. CRM add-ons also saw further adoption. Events management Align and Engage continued to do well. For example, a top 20 pharma added more than 700 Engage users in Europe after their success with initial pilots last year.

We hosted our Commercial Summit a few weeks ago in Philadelphia. With more than 1,600 attendees it was our biggest event to-date and is the largest of its kind in the industry. Thefeeling and sense of community was great. It's one of the highlights of our year. We and our customers always get a lot of ideas and energy from summit. The major summit themes were customer success and the emerging use of AI in multiple areas of our commercial cloud. In CRM, for instance, we announced Veeva CRM Approved Notes which will use AI to reduce the compliance risk of taking pre-text notes, providing field reps a better way to manage relationships with doctors. Approved Notes will be part of our core CRM subscription and is planned for release early next year.

Customers are excited about Approved Notes and our continued investment and innovation in CRM overall. In commercial there is a strong desire to do more with AI and advanced analytics. At last year's summit we announced we would build our first AI application Veeva Andi. Veeva Andi is an artificial intelligence application designed to provide customer insights and next best action recommendations right in Veeva CRM. I'm happy to announce that Andi is now available. We had a lot of great discussions about Andi at summit and are developing a pipeline of early adopter candidates. Overall, it was another great commercial summit.

Turning to Veeva Vault, in Q1 we added almost 50 new Vault customers, which was a quarterly record. We saw strength across each Vault application area including early success with new products and continued momentum with more established products. We won our first top 20 enterprise deal for CDMS. This is a big milestone for the product and for Veeva. The customer was looking for a cloud EDC solution on a proven platform. The existing enterprise EDC offerings are older systems and are not true cloud applications. The customer also liked some of the innovative ways our system handles data entry, data review, and protocol amendments as well as our vision for comprehensive data cleaning and reporting with data workbench.

The customer had trust in Veeva because our teams have delivered success for them in multiple areas over the past eight years, both in R&D and commercial. They completed some pilot studies with CDMS in the last nine months and that went well. So last quarter they decided to move forward with a multiyear enterprise deal for CDMS. This was a great win for Veeva. One of our top Company priorities is to ensure the success of this project and to use it to drive innovation in CDMS.

We also signed a multi-product deal with a top 20 pharma in Europe for Vault in the clinical and regulatory areas. This customer just went live with Vault QualityDocs for over 50,000 users around the world. After working with our product and services teams on the QualityDocs implementation, they decided to go forward with eTMF, Submissions and Submissions Archive. This is a great example of customer success leading the way to future business.

We have also signed our first four early adopters for Vault Safety, our newest product line in development cloud. It's still early days for Safety and these were small deals with small companies. But I'm pleased with our overall progress. The product is maturing every day and we have a growing pipeline of early adopter candidates. Safety is a mission-critical application for life sciences. It's complex and will have many integration points with our other Vault applications. So, having a modern solution on a single platform is a great thing for the industry.

Turning to our business outside of life sciences, where we are concentrating on consumer goods, chemicals, and cosmetics. We recently announced a new application Vault Claims. Claims will help manage the product claims lifecycle from creation to approval to marketing usage. When speaking with early QualityOne customers, we saw a real need for claims management application. We have already started a claims project at a new top 20 CPG customer and have early discussions under way with others. Progress with QualityOne continues as well, both expansions in existing customers and bringing on new customers.

For example, this quarter we closed an initial QualityOne deal with another major cosmetics company. While still early, we are finding that companies are responding to our product offerings in consumer goods, chemicals and cosmetics. In closing, we had another great quarter. We executed well across all areas, focused on customer success and product excellence, and have exceptional traction in new markets.

With that, I'll turn it over to Tim to review our financial results in more detail.

Tim Cabral -- Chief Financial Officer

Thanks, Peter. Q1 was another quarter of consistent execution across the Company. Total revenue was nearly $245 million, up from over $195 million one year ago, a 25% increase. Vault represented nearly 50% of total revenue, up from 44% in Q1 of last year. Subscription revenue grew 27% to $198 million from $156 million last year. Our performance in this metric was driven by a very strong bookings quarter, favorable linearity of those bookings and a tailwind of a couple million dollars more from 606 as compared to Q1 of last year.

Services revenue was almost $47 million, up 18% from roughly $40 million one year ago. Strength in services revenue continues to come primarily from R&D Vault projects. I expect Q2 services revenues to be roughly flat with Q1. Our non-GAAP operating income came in over $93 million, a 38% operating margin, which was above the high end of our guide. This was driven primarily by outperformance on the top line. Across the Company we added 92 people net in the quarter, finishing at 2,645, up from 2,243 one year ago.

Turning to the balance sheet, deferred revenue was $364 million compared to $356 million at the end of Q4. Calculated billings for the first quarter came in at $247 million, which was ahead of our guidance of $235 million. This result was primarily driven by strong bookings and outperformance in services revenue. The year-over-year growth rate of calculated billings was 16% in the first quarter. When considering that growth rate, please remember that calculated billings in Q1 of last year included an $18 million renewal of a large customer that subsequently shifted its renewal date to Q4. Adjusting for this, year-over-year calculated billings growth for the quarter would have been 26%.

Please remember that there are numerous factors that make year-over-year comparisons of this metric highly variable on a quarterly basis. Therefore, we do not believe it is a good indicator of the underlying momentum of our business and we do not manage to it internally. Our subscription revenue guidance and calculated billings guidance for the full fiscal year are the best indicators of our momentum. Looking ahead, we expect calculated billings of roughly $220 million in Q2, and a range of $1.115 billion to $1.120 billion for the full year, which is an increase from the $1.100 billion guidance provided last quarter.

We continue to expect about 41% to 42% of our billings for the year to come in Q4. Elsewhere on the balance sheet, we exited Q1 with over $1.3 billion in cash and short-term investments, up from almost $1.1 billion at the end of Q4. This increase was driven by our performance in cash from operations, which came in at $236 million and included $14 million in excess tax benefit related to equity compensation. For the full year, we now expect cash from operations to be $330 million to $335 million, excluding this excess tax benefit. This is an increase from our previous expectations for slightly more than $320 million, excluding the excess tax benefit.

Let me wrap up by sharing the rest of our outlook for next quarter and for fiscal 2020. For the second quarter we expect revenue between $259 million and $260 million, non-GAAP operating income of $94 million to $95 million, and non-GAAP net income per share of $0.48 to $0.49, based on a fully diluted share count of approximately 158.5 million. For the year, we expect revenue in the range of $1.045 billion to $1.050 billion, representing a $20 million increase from our previous guidance.

We expect subscription revenue to grow roughly 24%, and within that we expect commercial cloud subscription revenue growth of at least 11%, and Vault subscription revenue growth of roughly 40%. For fiscal '20, we anticipate non-GAAP operating income of $385 million to $390 million, a margin of about 37%. This is an increase in both dollars and margin from our previous guidance of $365 million to $370 million, and a margin of almost 36%. As you consider this margin guidance, note that we have an aggressive hiring plan for the rest of the year and we are expecting increasing litigation fees as we move into the next phase of our cases. We are now targeting non-GAAP net income per share of between $2.01 and $2.03, based on a fully diluted share count of approximately 159 million.

To conclude, it was a great start to the year. Our product teams continue to lead the industry forward with innovation and our field teams continue to deliver customer success. Given this consistent execution, we remain confident in our ability to deliver at least 20% subscription revenue growth through calendar 2020.

As always, thank you for joining the call, and I will now turn it back to the operator for questions.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Tom Roderick with Stifel. Your line is open.

Tom Roderick -- Stifel -- Analyst

Hi guys, good afternoon. Thanks for taking my questions. So I wanted to ask, first question here just on the clinical side is, it looks like a tremendous Vault quarter again. And pretty exciting to see CDMS get land your first top 20 enterprise deal. I was hoping you could talk about that a little bit more. Two parts to that question, first, of course being sort of the competitive dynamics. As you went in there, I gather you've probably been with this customer for a while. Can you talk about what they were looking to sort of the fix or to change or what the competitive dynamics were that got you over the top on that product. And then sort of secondarily, as you think about the opportunity set of the wallet share within CDMS, how did those deals compare at the top 20 compared to say CTMS. So those are larger as you get into CDMS enterprisewide?

Peter Gassner -- Founder, Chief Executive Officer

Thanks, Tom, this is Peter. As far as competitive landscape for the deal, we're certainly competitive. This is a customer -- long-standing customer of Veeva's that had one of the large enterprise players for CDMS and had that for many years. So there was no formal RFP process, but there was certainly a selection process. And in terms of what they were looking for, -- the CDMS is really -- it's a very critical process for pharmaceutical companies. They are trying to collect clinical data from this research sites, the faster and more accurate they can do it, the better chance they have of completing their clinical trials and completing them quickly. So it's a really, really mission-critical application. And they just needed a true cloud system that had better data collection and workflow, just really a better system overall and a chance to be great. I think that's what they are looking for, a chance to be great. So it's competitive and we won.

In terms of the size of the deal, or you mentioned the wallet share, this is CTMS is the bigger, larger application than -- sorry CDMS is a bigger and larger application than CTMS. So to give you an idea, this deal, it's a multi-year deal, it rollout over time, at the full rollout it will be an eight-figure per year deal. So it's certainly a significant application area for us, it's our largest single Vault application.

Tom Roderick -- Stifel -- Analyst

Fantastic. That's great. And maybe just a quick follow-on in thinking about that opportunity. I know that CTMS has worked really nice in conjunction with eTMF, given that you have a lot of sort of similar decision makers. This seems to be a little bit of a separate category and you've worked hard to integrate the workflows. But from a resource standpoint, do you need separate independent sales team -- sales reps and a different go-to-market strategy as you start to land these top 20s or does this go right in the existing bag of the same clinical sales reps that's been selling there already on the other products?

Peter Gassner -- Founder, Chief Executive Officer

Yeah, I'd say it's a combination of both. This is a different area, the clinical data management area, which is different than the clinical operations area, where you have CTMS and eTMF. So it's certainly a different area of the pharmaceutical company. We need specialized product consultants and specialized sales people, but they do work with the broader R&D sales team. So it's combination of specialization for certain people and then tying it together to the broader Veeva R&D vision.

Tom Roderick -- Stifel -- Analyst

Wonderful. Congratulations on this deal. I'll jump back in the queue. Thank you, Peter.

Peter Gassner -- Founder, Chief Executive Officer

Thanks, Tom.

Operator

Your next question comes from Ken Wong with Guggenheim Securities. Your line is open.

Ken Wong -- Guggenheim Securities -- Analyst

Thanks for taking my question guys. I guess I wanted to focus also a bit on the Vault. You guys raised the subscription outlook there to 40%. Just wondering what -- kind of what's changed in that dynamic, is it you guys called out faster growth of new customers. Also it sounds like the Vault pipeline is getting some more matured. CDMS you guys found a enterprise customer. Just trying to figure out what are the puts and takes that got you to the higher number?

Tim Cabral -- Chief Financial Officer

Yeah. Ken, this is Tim. I think you sort of answered the question a bit. It is a combination of all those things. Certainly, Q1 represented a very strong start to the year for Vault. We are seeing strength across the board, across the entire development cloud. And the contributing products are the ones that we've seen contribute in the past, meaning eTMF had a great quarter, CTMS had a very good quarter, QualityDocs had a good quarter, and we also had a good quarter on regulatory. So across the board strength and a really strong start to the year enabled us not only to raise the Vault subscription revenue guidance roughly 40%, but the overall subscription revenue guidance to roughly 24%.

Ken Wong -- Guggenheim Securities -- Analyst

Got it. Thanks, Tim. And then maybe for Peter or Matt. The QualityOne opportunity that you guys have touched on that for a while now, it feels like there you guys are focusing a little more aggressively on being a kind of Veeva to Auto for a bunch of these verticals. Can you talk about whether or not you're going to have to accelerate some investments there. And now that you guys have broadened out the portfolio little bit, does it make more sense now to be aggressive in those markets or is this still something further down the line?

Matt Wallach -- President

Hey, Ken, it's Matt. So we're already being aggressive in these markets. We've aggressively added people onto the product team and we've just announced that first product specifically for those three market segments, and we've continued to add sales people in the US and Europe. So it feels like we're being aggressive already. Now, we also are reminding everyone, we're still learning a lot, right. So this is not just another application that goes right in the bag of the life sciences wrapper and we just turn the crank, not that those are easy, but there are more moving parts on these. And so, because we're going after multiple types of companies in multiple market segments, with multiple products and our brand new product, there's still a lot for us to learn.

But I would say, we are already being aggressive here in making sure that early customers are super successful and that we use that and start the reference selling.

Ken Wong -- Guggenheim Securities -- Analyst

Perfect, thanks a lot guys.

Operator

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

Bhavan Suri -- William Blair -- Analyst

Hey, guys. Thanks for taking my question and congrats. I just wanted to touch a little bit on the the breakup of the Vault business and sort of how you guys think about growth there. So speaking about Vault, obviously you grew really fast over the past few years and Vault has become now almost doubled CRM (inaudible). Can you just touch, Peter or Tim, maybe both of you on how you're thinking about the growth formula with Vault going forward between new customers and new ads and how they expand versus the existing customers and the cross-sell expense within that existing base? Thank you.

Matt Wallach -- President

Bhavan, this is Matt. I'll actually take that one. So because we have so many of the large customers, top 50 pharma companies already, the vast majority of incremental revenue is going to come from existing customers. So that's just going to be the dynamic for Veeva going forward. We have multiple -- you know, we had a target of 20 eight-figure customers hopefully by the end of 2020 and it looks like we're on track for that. Those are really significant relationships and well when a new customer -- when an existing customer buys one more Vault, it's certainly good for Veeva but it's great for the customer because there are so many advantages that they get from having another enterprise product on the same platform.

They get IT benefits, they get administrative benefits, and they get tremendous business benefits of having a single source of truth. So in terms of incremental revenue, it's always going to be a larger number from existing customers because we have so many. But the long tale of smaller customers is also important, some of those customers are going to become big, some of those customers if they go with competitors could help competitors get large. So those companies are important to us from every different angle. But the large revenue story is going to come from existing customers and I think we'll see that over time.

Bhavan Suri -- William Blair -- Analyst

Got it. And one on Andi and AI in general and maybe Matt this is for you and Peter, when you think about AI, can that serve or Andi specifically (inaudible) on the rest CRM suite like, whether Nitro or Line or CRM add-on. And then, and then a quick follow-up to that is, currently about like introducing a similar sort of AI engine on the Vault side, right. So X number of steps in uptick in product submissions, regulatory and we can optimize that, we can automate that. I guess are you seeing an appetite method for AI or is that still early. So first just what's the halo effect of sort of getting Andi and AI working on the core CRM side, obviously with Nitro and then b) I guess, is there optionality and interest on the Vault side for that? Thank you.

Paul Shawah -- Senior Vice President-Commercial Cloud

Hey Bhuvan, this is Paul. Thanks for the question. Yeah, so on only -- yeah good to see, so this is something we announced a year ago at our summit and then at the time we didn't have a product and we didn't have a team focused on it. And at this summit this year we announced -- we actually demoed the product and showed real life product to customers and there was tremendous interest. We had hundreds of customers at 10 (ph) sessions focused on Andi. So there is a very significant halo effect because of the excitement around the product and the potential for what it can deliver.

Andi is focused on delivering suggestions, next best actions to customers, which really we believe will have a significant impact on a potential to have sales uplift for our customers. So there's a lot of excitement, there's a lot of potential for what Andi can deliver and we are focused on improving a lot of that out in our early adopter program which we're kicking off over the next couple of months, that's next for us.

In terms of -- one other thing I'd say just beyond Andi is just around the concept of embedding AI into the application. So at summit we had also two big announcements, one in the CRM space that Peter alluded to, called the Approved Notes, which is where we're using AI to drive compliance -- better compliance as sales reps and they use pretext in their comments, we will use AI to drive better compliance around that, compliance and visibility to all the notes that they have in the system, a super valuable to customers, that resonated extremely well.

And then also on the Vault side, as you mentioned we're starting and involve promo maps with AI doing Auto claim linking. So what that means is as you make a claim about a specific product, you have to link that back to the underlying reference material. So we're already getting interest and excitement around Vault for AI and we are already making strides in terms of embedding that in there and I think you'll see more of that in the future.

Bhavan Suri -- William Blair -- Analyst

That's really cool. I might squeeze one more in, so as you think about upside, obviously AI in terms of quality and quality process and quality management team(inaudible) is that an area that we talking two years down the road with that gets involved embedded QualityOne and (inaudible) or is that something near term? Thank you and thanks for taking my questions.

Peter Gassner -- Founder, Chief Executive Officer

In terms of outside of life sciences, it is Peter, we're still early there. So we have a basic blocking and tackling to do our new claims product. What's going on outside of life sciences is we're learning a lot. We're developing deep customer relationships and what we're finding is, they have a need for a partner in the quality, regulatory, clinical and claims areas as consumer packaged goods companies. What claim am I making about this new product, how fast can I get things like the label approved, when I change ingredients, how do I need to do my regulatory filings in the different countries, if I were to have a complaint on this product how do I register that, if I need to change of process, how can I do that in a compliant way. So that claims, quality, legal, regulatory set of things is very highly related and there is a need for that integrated in together all on the same platform, so that's what we're focused on. AI will come outside of life sciences, but not in the immediate future.

Bhavan Suri -- William Blair -- Analyst

Got it. Thank you guys, thanks for taking my questions, congrats.

Peter Gassner -- Founder, Chief Executive Officer

Thank you.

Operator

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

Jackson Ader -- JPMorgan -- Analyst

Great, thanks. Hi guys. It's Jackson Ader on for Sterling tonight, question from our side. When we're talking about an enterprisewide CDMS win, can you give us just a little bit more color on how that -- how CDMS is going to be rolled out to Veeva. Is it going to be all trials and all new trials and all new phases going forward, what does that actually look like?

Peter Gassner -- Founder, Chief Executive Officer

Yeah, I can take that one. Yeah, it has to be phased in because in the clinical data management system there's many people inside of the customer that work with many different groups from data management people to statistical type people to the people that do the clinical monitoring. And there's also people in the research side that deal with these systems too. So there will be a phased approach because you have to train people up and get them going on it. At some point, it will be all clinical trials on new ones started on Veeva that maybe you know between 18 months or so from now or two years from now. That's how long it will take because for example in the therapeutic area where you have multiple related trials and you have some system of reuse going on the existing system, you're going to be a little hesitant to break off the sort of add-on trial and put it on the new system, you're going to want to keep that with the family of other related trials. So it's a nuance thing but certainly in the -- two years from now, we would expect the bulk of the trials to be on our system.

Jackson Ader -- JPMorgan -- Analyst

Okay, that makes a lot of sense. And then, can we just clarify, Peter, I think the comment you made about these types of deals for CDMS possibly being eight figures. Is that on an annual basis. Is that a total contract value, what kind of timeframe or subscription are we talking about?

Peter Gassner -- Founder, Chief Executive Officer

Yeah, that's on an annual basis at the terminal at the -- when it's fully ramped up, the subscription fees and that rolls out over several years, but not getting into this specifics of how many years, but that's the figure I quoted, that eight figures was on an annual basis at the terminal run rate.

Jackson Ader -- JPMorgan -- Analyst

Got you. All right, thank you. That's all from us.

Peter Gassner -- Founder, Chief Executive Officer

Thank you.

Operator

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

Scott Berg -- Needham -- Analyst

Hi, (inaudible) congrats on a great quarter. I have one and a follow-up here. I guess a kind of an extension to a couple of the outside life science questions, you're bringing claims there. Can safety set outside of life sciences going forward. I would imagine that there are some similarities between those types of customers there?

Peter Gassner -- Founder, Chief Executive Officer

Yes, it will, safety will. Yeah, it will have a slightly different flavors to it because of the process is different and the regulatory bodies are different, drug safety versus consumer product safety. And that's something for the safety products outside of life sciences that is not for the immediate interest. We feel that safety inside of life sciences, that's going to keep us really busy. And it's mission-critical(inaudible) application, so we're talking probably a couple years out for safety outside of life sciences.

Scott Berg -- Needham -- Analyst

Great. For my follow-up question, Tim, I was just kind of reviewing the model a little bit and probably nitpicking on a company that has 38% operating margins in the current quarter. But why are you not seeing any leverage around G&A? I kind of look at the spend there and it's been relatively flat as a percentage of revenue over the last three years? Thanks.

Tim Cabral -- Chief Financial Officer

Yes, Scott, I would say we are seeing leverage in G&A. But we're also, as I mentioned in my prepared remarks, seeing increasing litigation fees for a couple of the lawsuits that we're working on and that is hiding the leverage we're seeing within G&A.

Scott Berg -- Needham -- Analyst

Great. That's all I had. Thanks for taking my questions.

Operator

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

Stan Zlotsky -- Morgan Stanley -- Analyst

Hey gentlemen, good afternoon. And Matt, it's good to hear you on the call. I'm guessing this is going to be your last one. Maybe just a question for you in that case. Commercial cloud, the newly planned acceleration to over 11% this year, I don't think many people are really expecting to see an acceleration here versus a year ago. If you were to rank the drivers of the continuing growth in commercial cloud, what would they be? Would it be adoption by new SMB customers, the products (inaudible) Engage, any other add-ons?

Matt Wallach -- President

Hi, Stan. Yeah, this is Matt. Thanks for the call. I'm actually let Paul answer the question now.

Paul Shawah -- Senior Vice President-Commercial Cloud

Hey, Stan. How are you. This is Paul. I get to steal this one from Matt. So, yeah, I mean really excellent quarter in commercial as you've heard. I wouldn't attribute the strength in commercial to any one thing in particular. I'd actually -- the strength is really from broadly in CRM and across the add-ons in general. So to be more specific, in CRM we saw significant expansion from global customers, existing customers, who were completing their global rollouts, as they went and expanded into new markets. We also saw expansions from existing customers as they launched new drugs and they get approval and they build out a sales team. We've seen growth there as well. And also on the SMB side, we continue to win the vast majority of those deals also, so that's continuing to add to the strength. And that foundation for CRM that we're building is giving us really the right foundation to sell the additional add-ons to and we've seen that pull through in this quarter as well with really great traction from events.

And then you know some of the other add-ons that are building momentum like Engage for example, which is newer, we had customers speak at our customer summit talking about how they're changing the selling model, how they're getting access to customers, the doctors that they've never been able to get access to in face-to-face, but now accessing them in a video call and they're getting more time on video than they would've face-to-face. So we're starting to see that traction pull-through on the add-on side. So I would say that strength is really CRM and the add-ons pretty consistently.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. What I was trying to get at was, the guidance for Commercial Cloud for the full year to accelerate to 11%. And I would presume your answer still applies to the going forward for the rest of the year, right? As far as the drivers?

Paul Shawah -- Senior Vice President-Commercial Cloud

(multiple speakers)

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it.

Paul Shawah -- Senior Vice President-Commercial Cloud

Yeah, that's right.

Stan Zlotsky -- Morgan Stanley -- Analyst

Okay, got it. Great. And maybe a quick follow-up. How is the Nitro product doing. We heard in Q4 call, there were six early adopters and you already had a couple live. How is that product doing despite like the competitively restrictive practices diverse we are seeing from -- out in this space?

Paul Shawah -- Senior Vice President-Commercial Cloud

Yeah. So, Nitro is doing really well. And in the quarter we had a couple of early customers go live. In fact we had three customers speak at our customer summit, one was on the main stage and then two shared very detailed presentations about the benefits they're getting from Nitro, which is getting metrics out to the field, into their (inaudible) office faster, putting that foundation in for AI. So our customers, the early adopters are doing very well. We've also added some customers to Nitro also. You know that growth that we have there is really measured. We're focused on early adopters and customer success in the early market. We are fortunately still seeing some of the anti-competitive behavior from IQVIA. So that's creating some headwinds for us with Nitro. And we're hopeful that we're able to get that resolved over time. But, yeah, that has been an impact so far.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. And the last one maybe for Tim. Tim, the strong operating margin performance in the quarter, you mentioned it's largely revenue outperformance. Was there any kind of hiring linearity in the quarter because when we've seen operating margin performance to this degree, it usually coincided with hiring maybe being a little bit more heavily skewed to the back half of the quarter versus a little bit more -- linear throughout? And that's it from me. Thank you.

Tim Cabral -- Chief Financial Officer

Yes, Stan, thanks for the question. We had a really good quarter from a hiring perspective. I think you're right, there was probably a little bit more back-end loaded linearity. But overall, it was a very strong quarter. The one thing that I did say as it relates to the outperformance of revenue in my prepared remarks, especially on the subscription revenue line is, couple more million of 606 impact than we had seen last year. And Stan, I think you probably know this, that is 100% margin.

So that drops right down to the bottom line with no cost of goods sold and no really operating expenses against it. So I think that also benefited the operating margin performance. But I would say lastly, the operating margin of a little over 38% was fairly consistent with what we saw in the second half of last year in terms of what the operating model is starting to firm up and look like as we go forward.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Thank you so much.

Operator

Your next question comes from James Rutherford with Stephens. Your line is open.

James Rutherford -- Stephens -- Analyst

Hey, good afternoon and thanks for taking the questions. A couple from me. First, I wanted to circle back on the CDMS win. Obviously, a very nice milestone. But the question is, perhaps it's too early, but I'm curious how you seen customer conversations change since that deal was announced. And whether it's starting to push things in your favor, when you kind of go against your more legacy competitor in that space?

Peter Gassner -- Founder, Chief Executive Officer

Yeah, I think we certainly noticed in the industry. Clinical data management is a tight community. They are kind of scientifically oriented, fact oriented, really interested in the patient outcomes and getting therapies out to patients, getting therapies approved. So information flows fast, I would say faster in the scientific and clinical community. It flows faster than in the commercial communities. So there's a lot of interest. We've seen an uptick in conversations. I think there is an uptick in customers' thinking, well, maybe that could be possible for me. So there is more interest I think in pilots by large customers.

Now whether that will turn into fruition or not, that's something that we'll see over the next 12 months. But certainly the interest is up. And I think a lot of eyes are on this project. How successful will it be, there's a lot of people wanting to know that.

James Rutherford -- Stephens -- Analyst

Okay, that's helpful. And then a follow-up for Tim if I may. I think, last we heard outside of life sciences was contributing I think over $10 million of revenues is what you had said. I'm curious if you can frame up where the ARR in that product stands today and how much it might contribute to fiscal '20? Thank you.

Tim Cabral -- Chief Financial Officer

Yeah, James, thanks for the question. We haven't talked specifically this year about outside life sciences in terms of what the contribution is. What I would say qualitatively is, what Peter and Matt said earlier, which is we're seeing really good early progress with our early adopter customers. The innovation that we're seeing from the product team, you heard in Peter's prepared remarks, that the momentum continues to be strong. We haven't specifically quantified what that -- the size of that business is at this time, no.

James Rutherford -- Stephens -- Analyst

Okay, thank you very much.

Operator

Your next question comes from Brent Bracelin with KeyBanc Capital Markets. Your line is open.

Brent Bracelin ` -- KeyBanc Capital Markets -- Analyst

Great. Good afternoon and thanks for taking the question here. I had one question and one follow-up. The question I wanted to drill down again is something you've talked a lot about today and that's on the demand side, but wanted to kind of help frame what's happening. Obviously you're raising the full year guide by $20 million, subscription growth accelerated to 27%, the highest in more than a year. Is this byproduct of customers going all in on Veeva that you talked about at the Analyst Day. Is this more of a financial mechanics of just Vault increasing as the mix grows to close to 50%. Are you -- do you have increasing confidence on both the Vault and commercials parts of the business, as you think about kind of what surprised you most this quarter and given you the optimism here, what would you attribute it to?

Peter Gassner -- Founder, Chief Executive Officer

This is Peter, it's overall good execution in our product, good execution in our field, that's number one, you know. You can take those things granted, right, it's actually we have a saying that we say execution matters most, it's what we do every day, every week, every month, every quarter. The grand idea is just a grand idea. So I think it's just consistent great effortby the Veeva team and partnership by our customers, that's the bulk of what's going on.

Now what that -- I guess there's a couple other things, there's a backdrop involved. We now have 17 Vault applications and they are for very specific areas, diverse sets of areas. So that does create a halo effect. Customers are starting to see, wow, I can -- my internal operations can be much more efficient with Veeva. I can get a lot of applications, they're integrated together and the projects are generally successful and I like working with the people. So with 17 applications, now there's more bites at the apple with any particular customer.

So I think those are the two things going on. And then reputation; reputation grows every year with continued success, as long as you continue to have success. So the longer we have success, the reputation grows. We have more products and we are continuing -- the Veeva team is continuing to hustle everyday, go the extra mile for the customer. So that's it. No real magic, but just great execution.

Brent Bracelin ` -- KeyBanc Capital Markets -- Analyst

Thank you. That's helpful. And then I guess Tim for you, just as we think about the monetization opportunity around Nitro and Andi, we've certainly seen other SaaS companies kind of layer in and weave in AI functionality with -- as part of the platform to differentiate. What is the monetization path for you as you think about -- as we think about Nitro and Andi add-ons, are these going to be new consumption based models tied to kind of usages more people use Nitro or Andi you're going to get revenue tied to it, walk us through the monetization opportunity around those two new products? Thanks.

Paul Shawah -- Senior Vice President-Commercial Cloud

Yeah. Hey, Brent. So, this is Paul. You mentioned two things there, one was Nitro and the other was Andi, so I'll take them separately. Nitro is the commercial data warehouse and you know there is certainly a monetization concept around Nitro which will be driven by basically the size of the organization, we're using our field users as as a metric for that and that's a significant opportunity and we've talked about being roughly the size of CRM. That's a foundation for AI, it's not necessarily the AI capability, it is what AI is driven from.

Andi is the application engine and that does a very specific thing. It drives insights and it drives suggestions directly to the field. The industry -- people in the industry typically talk about that next best action and we will also monetize that as well. And that's on a per user per month basis for our customers. And then you also heard Peter in his prepared remarks talk about some of the AI that we're building into the application and some of those components are just about really driving efficiency, making the application smart kind of smarter, more compliant and some of those are differentiating and just value-add that just are part of the existing license. So what Peter talked about as Approved Notes, that's part of the Veeva CRM co-license and what we talked about is Auto Claim Linking, that's part of the Vault PromoMats license. So you see a little bit of a mix of both, where some are very specific products and then others are embedded into the application.

Brent Bracelin ` -- KeyBanc Capital Markets -- Analyst

Helpful color and thanks a lot.

Peter Gassner -- Founder, Chief Executive Officer

Yeah, I would just add on to that, broadly speaking, some AI is going to be added into the existing subscriptions, some are going to be brand new AI applications that are a subscription on their own. And I wouldn't be surprised if we have transaction-oriented AI pricing in the future where it fits. So Veeva -- I think the thing to remember is, Veeva will run to the complexity. We will really find the application that really, really fits for an area, and part of that is finding the pricing model that fits for that area, and that's going to depend on the use case, just as it does in a transaction-oriented system it can depend on the use case and in the AI oriented system.

Brent Bracelin ` -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

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

Brian Peterson -- Raymond James -- Analyst

Hi, gentlemen. Thanks for taking the question and congrats on the quarter. So just on the record Vault wins, I'm just curious how much of that is a function of having the 17 Vault applications that you referenced, or is there anything that we can actually read into in terms of deal close rates or anything with sales velocity that's accelerating that as well?

Matt Wallach -- President

Well so -- and this is Matt. It's a good question, Brian. So that was the number of new logos, so companies that bought their very first Vault. And so that is -- it's going to be because of success of those Vaults that they bought at other customers. So is it because there are so many Vaults? I guess, yeah, I mean that would contribute to it that there's going to be more opportunities, more shots on goal per se, but I think that what is driving faster adoption by new companies is that these companies are all in the same industry. The overarching objective of people that work in the life sciences industry is to help patients. And so what we find and the reason why our reference selling is so intense is because if they can help another company help patients, they'll do it. So our happy customers are pretty eager to talk to prospects about their use of Vault and because their use has been so positive across so many of these applications, we're getting a lot of opportunity to introduce Vault to new companies.

Brian Peterson -- Raymond James -- Analyst

Got it. Thanks, Matt. And Tim, maybe one for you, you or just Paul. Given the success that you're having across the product portfolio, I'm curious how should we be thinking about service capacity investments and the impact on margins going forward? Thanks guys.

Tim Cabral -- Chief Financial Officer

Yeah. So, Brian, on the services side of Vaults, we have a really strong team there, a lot of good domain expertise in that team and as you've seen us grow the Vault business over time, obviously a lot of pattern recognition on best practices that a company like Veeva can be a cross-pollinator or a pollinator of best practices across the industry. So that's happening. In terms of the capacity model, we continue to not only build talent through our Generation Veeva which is our college recruiting engine which has gone fabulously well over the years, certainly in the last couple of years, we've accelerated that, as well as finding great people in the industry. So we're not necessarily capacity constrained. And one other thing I would add to that Brian is over time like you saw on commercial cloud, we've built quite a nice ecosystem of partners in the US and Europe primarily, and starting to some early stages in Asia. So from a capacity perspective, we're in good shape given those dynamics.

Brian Peterson -- Raymond James -- Analyst

Thanks, Tim.

Operator

Your next question comes from Rishi Jaluria with DA Davidson. Your line is open.

Rishi Jaluria ` -- DA Davidson -- Analyst

Hey guys, thanks for taking my questions. I wanted to start on Veeva Claims. It looks to be a brand new products versus QualityOne where you are taking existing solutions in QMS and QualityDocs and kind of repackaging them into something new. Should we expect this idea of purpose-built over last products to be a new normal? And then alongside that is there a potential for a little bit of a margin hit since you're actually investing dollars in product development versus retooling existing solutions? And then I've got a follow-up.

Peter Gassner -- Founder, Chief Executive Officer

Yeah, it is the right way to think about it, the Claims are the new -- brand new application. It's in a separate Vault from the QualityOne Vault, it's a stand-alone. And the reason for that is, it's a very specific use case, as a different set of users and it rolls out in a different way. So for example, our first customer from four claims was a top 20 CPG customer. Now it turns out this is the first application that they bought from Veeva because they had a very specific need in their claims and it needs to roll out on its own way.

Now, that customer we believe will buy other products from Veeva over time. So now in terms of the margin hit, the other application is QualityOne and the regulatory, they need effort and specific features for outside of life sciences. So I would see no really difference in the margin hit. This will be small things that you won't be able to see in terms of overall cost. You have to remember that we are getting a lot of leverage from the Vault platform that is, if you look at the maturity of the Vault platform now versus even two years ago, it's pretty striking. Like that's the -- if you look at the iceberg where most of the effort is under the covers, the most of the effort in our product area is actually under the covers in our Vault platform. You see the application sales, but the leverage and the operating model and the power of the sales is actually a lot of it coming through the Vault platform where we've made tremendous strides over the -- really over the last two, three years.

Rishi Jaluria ` -- DA Davidson -- Analyst

Got it. That's helpful. And then just as a follow-up, I wanted to maybe take a step back. So in 2015, so four years ago, you put out this $1 billion target or $1 billion run rate target for calendar year '20. Clearly, you've overachieved that and if we go by your guidance, you're going to hit that $1 billion run rate next quarter. So, about a year and a half or so ahead of schedule with significantly higher margins. If you were to take a look back, where was it or what particular areas was it that you're able to kind of hit that goal significantly ahead of schedule and with higher margins. Was it things like Vault taking off faster than expected, was it a larger kind of set of solutions that you are able to go after or anything else that would be helpful? Thanks.

Peter Gassner -- Founder, Chief Executive Officer

Yeah, that's a great question. As we think back to 2015 quite some time ago now and we had the plan. So your basic question is what went better than expected. I would say the number one thing is that nothing bad happened, right. And when you're making that long range of a plan, you have to assume that there will be some unexpected bad news along the way, right. Nothing bad happened. We -- I guess since 2015 we've roughly doubled the size of the Company close to or so. And we've retained our energy and in fact got some acceleration I think. We've actually got more efficient as we've got larger and more efficient in our selling side. I don't think we anticipated that we would get more efficient as we grew larger. So that's happened well.

I think those are really the things. Outstanding execution, good decisions on process and no unexpected bad news, and so we got there. And I would say along the way we probably had some key things that just happened to break our way and that accelerated us.

Rishi Jaluria ` -- DA Davidson -- Analyst

Got it. That's helpful. Thank you.

Operator

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

Kirk Materne -- Evercore ISI -- Analyst

Hi, guys. Thanks very much. Thanks for taking the question, congrats on the quarter. Given that you guys are just coming off summit, I was actually curious just based on some of Matt's earlier comments. Is there are a number of Vaults that a customer -- after a customer buys, that the discussions sort of tips more to a discussion almost more about the platform meeting. They will get the point now where companies are betting on their platform as much as they are betting just on some -- obviously expect probably get products to go along with that. You know I'm just kind of curious (Technical Difficulty) talking about, the benefits from just having everything on an integrated platform, as they are about the specific product features for each of (Technical Difficulty) early for us, but I'm kind of curious if you compare say this year and last year, and things are heading in that direction. Sounds like the (inaudible), but just curious on your thoughts?

Matt Wallach -- President

Yeah, I don't think it's too early to think that way. I mean, when we first invented Vault, I remember the very first PowerPoint slide we put together was Vault as an enterprise platform. So the idea was that companies would make that part of the electricity that runs the company. And we thought it could take four, five, six years before we got there. And we did get there faster than I think we expected at that time. The way you asked your question is interesting. I think that when you buy the first application, you're probably not thinking this is my platform across the board.

When you buy the second application and see the benefits of having two major systems of record on the same platform, which has never been possible before across clinical, regulatory, quality, medical and commercial, I think when you get the second one is when the discussion at least starts internally is like, hey, we got great benefit from the second one, what if we got them all. And so we don't have a formula here and I think a lot of companies are different. But I don't think that the first successful project necessarily is the on-trade to an enterprisewide deployment. But I do think the second successful one is a good way to think.

And so as a specific example, we talked in the prepared remarks about one company just went live with all of their employees, 50,000 employees around the world with QualityDocs, that was actually their second Vault, they also had PromoMats. And then their decision to expand the Submissions Archive, Submissions, and eTMF is basically making it an enterprise platform. So I hadn't planned it this way, but that specific example does support the answer there.

Kirk Materne -- Evercore ISI -- Analyst

Okay, that's helpful. And then maybe just one last one and(Technical Difficulty) your success. When given the (Technical Difficulty) there is certain size and scale in terms of the number of customers, the amount of ARR, where it's kind of sort of turn on gas even more from just a distribution in sales perspective, maybe making sure that you're covering a bigger portion of the US or the amount of targets that you might have out there that are specific industries. Are we a year away from that or are we there, I was kind of curious that, if you want to have success with the customers and your customer success translates into more selling opportunities, where are we on sort of like -- now it's time for us to start focus on adding distribution capabilities or just distribution coverage more broadly? First is just having to focus on making sure this(inaudible) really successful different customer perspective?

Peter Gassner -- Founder, Chief Executive Officer

Yeah. I would say we're early days, we're really focused more on customer success. We just introduced this Claims application, for example. We have some customers using our regulatory application in outside of life sciences, but it's new, it needs more features. We have our top 20 CPG that's rolling out QualityOne through all of their manufacturing sites, but they're less than halfway through that. And they have to get through that and then we have to optimize that. So we are really focused on the customer success. Now we are incrementally adding headcount in the field, that's for sure. But we feel we will be tremendously successful outside of life sciences if we buckle down, stay true to the Veeva way and use these projects to make our products excellent. And what can get in the way there is, if it becomes a sales game and you're just trying to complete as many sales as you can, with a product that's not quite ready.

Now one thing to know is, we don't feel competitive pressure outside of life sciences. We're doing something quite unique there with this Vault platform, with applications for quality, regulatory, clinical, and claims, that's -- it's not that we're competing with anybody in that. We're sort of also evangelizing or espousing this model outside of life sciences that you can get this and there is value in that, and that takes time.

Kirk Materne -- Evercore ISI -- Analyst

Great. Thanks very much for taking my question.

Operator

I apologize. We are out of time. I'll now turn it back to Peter for closing remarks.

Peter Gassner -- Founder, Chief Executive Officer

Thanks everyone for your time today. And we'd like to thank our employees for their dedication, as well as our customers and partners for their trust and partnership. Thank you.

Operator

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

Duration: 61 minutes

Call participants:

Rick Lund -- Head of Investor Relations

Peter Gassner -- Founder, Chief Executive Officer

Tim Cabral -- Chief Financial Officer

Matt Wallach -- President

Paul Shawah -- Senior Vice President-Commercial Cloud

Tom Roderick -- Stifel -- Analyst

Ken Wong -- Guggenheim Securities -- Analyst

Bhavan Suri -- William Blair -- Analyst

Jackson Ader -- JPMorgan -- Analyst

Scott Berg -- Needham -- Analyst

Stan Zlotsky -- Morgan Stanley -- Analyst

James Rutherford -- Stephens -- Analyst

Brent Bracelin ` -- KeyBanc Capital Markets -- Analyst

Brian Peterson -- Raymond James -- Analyst

Rishi Jaluria ` -- DA Davidson -- Analyst

Kirk Materne -- Evercore ISI -- Analyst

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