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Veeva Systems Inc  (NYSE:VEEV)
Q3 2018 Earnings Conference Call
Nov. 28, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Christine and I'll be your conference operator today. At this time, I would like to welcome everyone to the Veeva Fiscal 2019 Third 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 of Veeva, you may begin your conference.

Rick Lund -- Head of Investor Relations

Good afternoon and welcome to Veeva's fiscal 2019 third quarter earnings call for the quarter ended October 31, 2018. With me on today's call are Peter Gassnerl, 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 or strategies and the anticipated performance of the business. These forward-looking statements will be based on management's current views and expectations, and are subject to various risks and uncertainties. Actual results may differ materially. Please refer to the risks listed in our earnings release and the risk factors included in our most recent filing on Form 10-Q, which is available on the Company's website at veeva.com under the Investors section, and on the SEC's website at sec.gov. Forward-looking statements made during the call are being made as of today, November 28, 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 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 Gassnerl -- Founder, Chief Executive Officer

Thank you, Rick and thanks to everyone for joining us today. I'm pleased to report a great quarter with revenue and profit exceeding our guidance. Total revenue was $225 million, up 27% year-over-year, subscription revenue grew 25% year-over-year and our non-GAAP operating margin was over 37%. We executed well in both Commercial Cloud and Vault. In Commercial Cloud, we had a number of wins and expansions in all market segments and regions.

Starting with core CRM, our business continues to have steady growth and increasing market share. For example, a top 10 pharma, who is a longtime Veeva customer added more than 5,000 users in the quarter across Asia, Latin America and Europe. This expansion is part of their move toward Veeva as an enterprise standard across the globe.

We also won a global commitment from a large European consumer health company. Over the next two years, they plan to roll out multichannel CRM to 40 markets.

Our success in SMB continues as well. Since the beginning of the year, we've added 31 new CRM logos. These companies are either replacing legacy CRM solutions or starting new with Veeva as they launch their first drug. We're having good success with CRM add-on products as well. For example, Veeva CRM Events Management now has more than 55 customers including 13 of the top 20 pharmas. Many of these are starting with events in one or two regions with the possibility to expand over time.

We also had several wins for OpenData, including another top 20 pharma that recently selected OpenData in the US to replace their current legacy provider. Nitro, our commercial data warehouse built for life sciences, is also progressing well. We now have four customers in the early adopter phase. The projects are going well and we are maturing Nitro in close collaboration with early customers.

I want to take a minute to address the IQVIA legal situation since it's relevant to our Commercial Cloud business. As we previously discussed, the anti-competitive behavior by IQVIA is slowing uptake of Open Data and Network and now also Nitro, as IQVIA is making it difficult for customers to use Nitro with IQVIA data. Despite this anti-competitive behavior, we are making steady progress with Veeva Open Data and replacing IQVIA reference data in a number of situations. This happens on a country-by-country basis within specific accounts. Customers are attracted to OpenData because of its superior data quality, better service and tight integration with Veeva CRM.

On the legal front, the federal judge overseeing our antitrust case against IQVIA ruled against their motion to dismiss, finding all of Veeva's antitrust claims can move forward. We expect to go to trial in mid-2020. We are confident in our case and believe companies should have the freedom to choose the software and data products that meet their business needs without restriction.

Turning to Vault, we had a strong bookings quarter for commercial Vault. This reflects Zinc migrations and the work we are doing to help customers streamline their digital supply chain. On the R&D side of Vault, we made great strides across all areas of development cloud. In regulatory, a European top 20 pharma selected Vault RIM as their enterprise standard. This is the sixth top 20 pharma to select Veeva regulatory solutions. We also had one of our top 20 regulatory customers go live in the quarter. Regulatory is a very important and complex area of life sciences. It's great to see the customer partnerships we're developing.

In Quality, we are seeing steady adoption of QualityDocs and QMS and there is a lot of interest in our newest application, Vault Training. We signed our first training early adopter in the quarter. They are an existing QualityDocs customer who is growing rapidly, so they like the idea of having training and quality control in a single solution for greater efficiency as they scale.

Clinical had an outstanding quarter. We have excellent momentum as the industry looks to unify Clinical. We added another major CRO for Vault eTMF. Now three of the top seven CROs are standardizing on Vault eTMF. With more than 200 customers, Vault eTMF is increasingly becoming the standard for CROs and sponsors.

We also achieved a major milestone in the quarter with our first top 20 pharma selecting Vault CTMS. They are an existing eTMF customer and Veeva CTMS supports their vision to modernize and streamline clinical operations. CTMS is a large complex and mission-critical application. It is a core application in clinical operations. We signed our first early adopter CTMS customer, a small biotech, less than two years ago. Having a top 20 pharma choose Vault CTMS at this early stage is just amazing progress. We're now focused on getting customers live and successful and further refining the product. We believe that Vault CTMS Is on a path to become the market-leading solution.

Turning to clinical data management, our early adopters for Vault CDMS are doing well. In the quarter, we closed our first two studies and went through the database lock process for those studies. This is a major milestone for Veeva and our customers. Existing customers are also signing up for more studies. For example, the top 20 customer we won last quarter is already live with two studies and has started building additional studies, which will go live in the new year. Our CDMS pipeline is growing and our product is maturing. We're very happy with our progress in CDMS.

Finally, a quick update on our business outside of life sciences. We added new customers in the quarter including an important deal with a large cosmetics company for QualityOne. Our early adopters are progressing well and we continue to make progress, building the business.

In closing, we had another great quarter. We executed well across all areas. We continued to invest in new products and markets as we plant the seeds for our long-term growth. Thanks to the Veeva team for their great execution and to our customers for their continued partnership.

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

Tim Cabral -- Chief Financial Officer

Thanks, Peter. I'm very pleased with the Q3 results. We saw a significant momentum in multiple Vaults product categories, coupled with steady progress, growing our leadership position in Commercial Cloud. Execution across these segments of our business produced strong financial results in the quarter.

Total revenue for Q3 came in at $225 million, up from $177 million in the prior year, representing a 27% increase. Vault represented 48% of total revenue, up from 40% in Q3 of last year. Subscription revenue this quarter was $178 million, up 25% from $143 million a year ago. Strong momentum in Vault continued to drive revenue outperformance this quarter with particularly strong traction in Clinical and Commercial Vault. Vault represented 44% of subscription revenue, up from 36% one year ago.

Services revenue totaled more than $46 million, reflecting a 36% increase from $34 million last year and was well above our guidance. This material outperformance in services was due to greater demand across our business, particularly from the Vault R&D segment.

Our revenue performance drove a higher than normal services gross margin of 35%. Since Q4 has fewer billable days due to the holidays and our field kickoff, we expect services revenue to be closer to $40 million and services gross margin to be in the low 20%, similar to Q4 of last year.

Non-GAAP operating income was $84 million resulting in an operating margin of over 37% above the high end of our guidance. The better than expected margin was driven primarily by top line outperformance. We added 106 net headcount this quarter ending Q3 with a total of 2,482 employees up from 2,100 a year ago.

Turning to the balance sheet, deferred revenue was $196 million compared to $259 million at the end of the second quarter. Calculated billings was $156 million which was above our guidance of $150 million. This was driven primarily by the outperformance in our services business. Contribution from better than expected bookings was mostly offset by lower than anticipated average billings duration for the new business closed in Q3. This is because many of our Q3 booking came from customers with Q4 renewals who were billed for only the stub period through the Q4 renewal. 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 approximately $375 million in Q4 which implies $927 million for the full year up from our prior guidance of $915 million. As you consider the full-year billings guide, please note two things. First recall that earlier in the year we had a large customer move their renewal date from Q1 to Q4 which will result in an incremental $18 million of billings for the year. Second, this year's bookings performance has been more weighted toward customers with Q4 renewal dates which means that on average we will bill more than 12 months of subscription fees for the new business booked in this fiscal year. We estimate that this dynamic will increase our annual billings for fiscal '19 by more than $10 million. Therefore adjusting for these two factors, a more normalized billings amount would be close to $900 million representing around 21% growth for the year.

Elsewhere on the balance sheet, we exited Q3 with $1.52 billion (ph) in cash and short-term investments up $42 million from the end of Q2. This increase was driven by performance in cash from operations and included $12 million in excess tax benefit related to equity compensation. For the full-year, we now expect cash from operations to be at least $255 million excluding the excess tax benefit.

Turning to income statement guidance. For the fourth quarter, we expect revenue between $226 million and $227 million, non-GAAP operating income of $77 million to $78 million and non-GAAP net income per share of about $0.40 based on a fully diluted share count of approximately $157 million. When considering this guidance, please remember that in Q4 we will see sequential operating margin compression from Q3 due to higher seasonal spending and fewer billable days. Based on this guidance for the fourth quarter, we now expect full-year revenue to be in the range of $856 million to $857 million, an increase over our previous guidance of $840 million to $843 million.

We anticipate subscription revenue to be $690 million to $691 million for fiscal '19. For the full year, we continue to expect Commercial Cloud subscription revenue growth of approximately 10% but now expect Vault's subscription revenue growth of at least 45%. We anticipate full-year non-GAAP operating income of $299 million to $300 million resulting in a margin of 35%. This reflects an increase from our previous guidance of $281 million to $284 million and a margin of almost 34%. And we expect non-GAAP net income per share of $1.58 for the full year based on a fully diluted share count of approximately $156 million.

Looking ahead to fiscal '20, we are still in the planning process and we will provide formal guidance on our Q4 call. However, at this point, we are confident that we'll reach $1 billion in total revenue for the year and are providing an initial outlook in the range of $1 billion to $1.10 billion in total revenue.

Consistent with our discussion at our Analyst and Investor Day in October, we expect subscription revenue to grow at least 20% in fiscal 2020. Based on our preliminary spending plans for next year, we expect to see a non-GAAP operating margin slightly above 34%. We continue to plan for aggressive hiring and maintain our commitment to invest in our pipeline of products and go-to-market team to drive long-term growth.

In closing, I want to thank the Veeva team for their consistent execution. We are set up well to close the year strong and head into next year with healthy momentum.

Thanks for joining us today. And I'll now turn it over to the operator for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Ken Wong from Guggenheim Securities. Your line is open. Mr. Wong, your line is open.

Ken Wong -- Guggenheim Securities -- Analyst

You guys hear me? Hello.

Peter Gassnerl -- Founder, Chief Executive Officer

Yes. We can now Ken. We can hear you now, Ken.

Ken Wong -- Guggenheim Securities -- Analyst

Okay, fantastic. Sorry about that. Maybe first for Peter or Matt. You guys touched on the first top 20 CTMS customer. You guys have always said that this industry is full of fast followers. Now that you have this anchor tenant, I guess how should we think about the pace of larger customers coming through the pipeline?

Matt Wallach -- Co-Founder, President

Sure, Ken. This is Matt. So yes, this first deal is kind of a landmark deal. We started the CTMS product just a couple of years ago. So this one is very significant. These are big major enterprise implementations though they get -- it's kind of the lifeblood and a life center of a clinical trial. So I don't think that you'll see an avalanche of companies following them and the project is going to take several months to get into production and so we don't have a proof point to say we can do this at scale globally fast until that one's done. So I think that it will be an important event for the industry. We fully expect that the implementation will be successful, but now starts the clock on all of the other large companies looking to see how that first project goes. So it's a little early to think that it's going to turn into dominoes (ph).

Ken Wong -- Guggenheim Securities -- Analyst

Got it. And then Tim maybe if I could squeeze one in for you. You mentioned subscription revenue of at least 20%. I guess is it fair for us to think that vault will still be kind of north of 40% and commercial cloud in the double-digit range?

Tim Cabral -- Chief Financial Officer

Yeah, Ken we're still in the planning process right now and that's typically a level of detail that we give in the Q4 call. So why don't I -- why don't I wait for that Ken and give that to you in 90 days?

Ken Wong -- Guggenheim Securities -- Analyst

Got it. Fair enough. Thanks a lot guys.

Operator

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

Bhavan Suri -- William Blair -- Analyst

Hi, guys. Congratulations. Nice job there. Maybe for Matt and Peter, just starting off at a high level. Some of your new competitors in the commercial cloud space have announced some wins with top 20, Roche, Novo, whatever and start to build up products to better Vault. Just a perspective we'd love to -- I'd love to hear your perspective on the competitive dynamics in the Commercial Cloud. Have you seen any change in competitive environment out there? And then so for these specific wins did you see customers prioritize like a specific attribute price or data or something else that sort of led to sort of those competitive wins?

Matt Wallach -- Co-Founder, President

Sure. So I'll start with the competitive market overall. So the pharma CRM market has always been competitive. We've never won every deal. And along the way we certainly have won most of the deals and that continues to be the case today as we continue to gain market share. There is one major competitor in the market today making a lot of noise that you're referring to. And that company is kind of a combination of all of our old competitors, IMS , Cegedim , Dendrite and all the companies that they acquired along the way. And we typically compete against them on every CRM deal, but we always did. We always competed against one of those companies at least in the past. So that feels the same. It remains to be competitive. Peter talked about adding 30 new CRM customers this year. Almost all of those are against that company. And so our win rates continue to be high. Our focus is continue to have the very best product, make sure our customers remain happy and continue to invest heavily in innovation to extend our leadership position.

Now on those deals specifically, because they have been named in the press, I can't give too much about those companies just with respect to their confidentiality. On the last one that was just announced, I can share a little high-level context though. So that company is the only big pharma that's still running Siebel Pharma in the industry, which is a client/server CRM system that hasn't been enhanced in many years. So as you can imagine, that competitive situation is pretty unique, and I don't expect to see one like it again.

Bhavan Suri -- William Blair -- Analyst

Got it. Got it. Okay. And then turning to actually CTMS and eTMF, sort of the idea has been there's sort of a great cross-sell sort of dynamic there. You've done really well with CTMS but, obviously, eTMF continues to be sort of really kind of a big driver sort of underlying growth and stuff like that. Just are you seeing that cross-sell become more effective within to that eTMF base? I mean, are you seeing sort of sort of the adoption sort of accelerating, an inflection in CTMS because of eTMF? How should we think about those two dynamics playing out? Thanks.

Tim Cabral -- Chief Financial Officer

Yes, Bhavan. I think you're right to this point. There is two vectors of the cross-sell. One is within the clinical suite where eTMF is certainly a leader, couple hundred customers, and we're also proving that we improve our product every year. So our long-term customers have seen that for many years there. Now, they like the collaboration, the community they get with Veeva. So that is then helping us to expand in clinical into CTMS, into steady start-up, which are both relatively new products for us. But once we have those products maturing, yes, that's going to be a great cross-sell.

Now, the other thing you're seeing is the broader cross-sell across the broader development cloud because even though we may start with a company in the regulatory area, we have a good impression in there and do a good project there, that will sometimes influence uptake in the clinical area or in the quality area. So it's really two types of cross-sell, one within a suite and the other one is broadly across the development product (inaudible) feeling our momentum.

Bhavan Suri -- William Blair -- Analyst

Got it. Thanks for the color guys, appreciate it. And congratulations, nice job again.

Operator

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

Stan Zlotsky -- Morgan Stanley -- Analyst

Hi, guys. How are you? And thank you so much for taking our questions. So, maybe from my end, could we -- could we get some color on how you guys are doing on the EDC side of clinical with Vault? And then a quick follow-up.

Peter Gassnerl -- Founder, Chief Executive Officer

Okay. Yes, I'll take that. On EDC, we -- one thing to know, we have changed the name of that area. We refer to it as our clinical data management system, right, because we're really addressing the whole clinical data management area, not only the EDC. So that's -- we'll refer to it as CDMS, clinical data management system, which EDC is a product. It's really -- there's two things going on there. One is the customer success. So, you know, we're learning anything about our product, about our services. We're adding new customers. We're making them happy. We're developing a great customer community, very happy with that. And then the other part is the innovation, some things we introduced that are in September. For example, what we call Data Workbench, which is a data cleaning and reporting environment that we'll have available next year. That's something the industry has been looking for forever, an integrated data cleaning, data capture medical coding. So it's really those two things, Stan. It's the customer success and intimacy that we're having and then the real product innovation. That's why we're still bullish on that area.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it, makes sense. And then just going back to open data and the anti-competitive dynamics that you're seeing there, just remind us how big that -- rather small technically, that part is of your business, just to give investors a sense for how much of the company's overall business is really at risk as a result?

Rick Lund -- Head of Investor Relations

Yes. So we've stopped breaking out all of the specific pieces of not just Commercial Cloud but also in Development Cloud. We think of open data network, but we did it recently enough that we can refer back to it. So -- and it was at our Analyst Day a couple of years ago, we said that it was like $150 million market, something like that, around open data and then a bit more on network. So it's larger than a CRM add-on, but it's smaller than a new application involved, for example.

Tim Cabral -- Chief Financial Officer

And Stan, this is Tim. To be clear, our revenue right now in that business is -- I would characterize it as in that sort of mid-to-low single digits in terms of contribution to revenue.

Stan Zlotsky -- Morgan Stanley -- Analyst

That's exactly what I was looking for. Alright. Thank you so much guys.

Operator

Your next question comes from the line of Rishi Jaluria from D.A. Davidson. Your line is open.

Rishi Jaluria -- D.A. Davidson -- Analyst

Hi, guys. Thanks for taking my questions. It's nice to see continued strong execution. Peter, I wanted to start with you on the Nitro side and the comments you made around IQVIA there. Just can you help us understand the dynamics and maybe how some of the behavior from IQVIA is impacting, what you're seeing out of Nitro and if this was in line with what you expected upon exploring and getting early adopter of Nitro, if that -- or if this is any different from your expectations? And then I've got a follow-up for Tim.

Peter Gassnerl -- Founder, Chief Executive Officer

Okay. This sets the stage for Nitro. The big story with Nitro is really the product innovation. This is something that the life sciences industry hasn't seen before, an application that does its commercial data warehouse with a data model in it with upgrades three times a year. They're used to custom building in this area. So that's the really big news and the tight integration with the Veeva CRM. So you change a configuration in Veeva CRM, it automatically reflects in your clinical data warehouse. And what people do with this, they load in activity data from Veeva, but all -- they load in all types of other data; medical claims data, sales data, formulary data, shipment data. And they use this to answer questions to operate their commercial business. So that's the big context of Nitro.

Now, as it relates to IQVIA, what IQVIA is doing is making it difficult and cumbersome to load different types of IQVIA data into Nitro, so for example, restricting which data elements can be put in Nitro and being very slow on approving IQVIA data into Nitro. Now this is a commercial data warehouse and we've never seen this behavior from IQVIA before with any other vendor. So this is quite surprising and shocking. Now your question was, did we expect this? We -- I would say, we didn't know what IQVIA would do in this area because we thought this would be a blatant antitrust violation and we didn't know if they would be so bold. And the only way sometimes in life to find out is to go through that door. So what we found is, yes, IMS is being that bold. So they are clearly trying to limit (ph) things. Now what we're finding is Nitro is quite important to customers and they really want it and IQVIA is not the only data sources out there. So we have many customers using alternative data sources other than IQVIA.

Rishi Jaluria -- D.A. Davidson -- Analyst

Okay. Great, thanks. That's helpful. And definitely, I don't mean to drill down too much on IQVIA because I understand getting -- even early adopters (inaudible) shortly after having Nitro is obviously very impressive. And then Tim, just a kind of one -- actually a question around Vault. Kind of taking a step back, have you seen, at least with the more mature Vault products -- or maybe mature is not the right word to use, but have you seen a decline in the services attach rate on those components as you've had more reference customers and more experience, or has it kind of maintained the same?

Tim Cabral -- Chief Financial Officer

Yes. So when you think about -- Rishi, when you think about our services business, obviously, there's a number of factors that impact that. So as products are more used by our customers, as we have more customers on certain products, there's different attach rates to those different products, but there's also different contribution from our ecosystem partners depending upon what projects you're talking about. So we haven't necessarily seen a specific decline based on age of a product, but there is a lot of factors that impacts the services business from a revenue contribution in those ways.

Rishi Jaluria -- D.A. Davidson -- Analyst

Okay, that's helpful. Thanks guys.

Operator

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

Kirk Materne -- Evercore ISI -- Analyst

Congrats on a good quarter. I was wondering if you all could just comment on QualityOne and outside of life sciences. I think last quarter you've mentioned you're seeing good traction in the CPG and chemicals area. I was wondering if those are still sort of the primary places you're seeing adoption and if there is any another verticals that you might have your eye on for next year at this point? Thanks.

Peter Gassnerl -- Founder, Chief Executive Officer

In terms of QualityOne, really we're happy with that progress (inaudible) they are focusing on CPG and chemicals, but there are also sub-verticals in there. So, one of the interesting ones, we're starting to tap into a little bit is cosmetics a bit more, and that's a type of the consumer packaged goods, very specific one and we will see more of that. We will see more of that sub-verticalization, I'd say, we have good traction both in US and in Europe. So, the European is really coming onboard strongly, has a channel as well. And what I get really energized about is we're just getting better at it every quarter. We're getting better at servicing the customers outside of life sciences, we're getting better at the selling motion, implementing these projects, and our product is getting better. We're getting more fine-tuned so feels really good, what we're doing outside of life sciences.

Kirk Materne -- Evercore ISI -- Analyst

One extra one or one additional one. I don't know if Tim or Matt wants to take this, but I was just kind of curious as you guys become more strategic to your partners in these evolve into broader solution sales, how are you thinking about sort of the evolution of services business, meaning do you feel good about the amount of sort of partner traction you're having so that as these projects potentially get bigger, you can hand over more of that professional services work others or do you feel like your services business is something you're going to have to kind of bulk-up perhaps in terms of your own organic headcount?

Matt Wallach -- Co-Founder, President

Yes, this is Matt. I think what we found is that our customers want us to do a lot of the services work. So, we're not with the case where as soon as something gets mature, the partners do the whole project, it doesn't work that way. In an industry cloud, we end up having the most expertise in how to design and configure and implement our own product and our partners do all kinds of things around the product. So, we aren't generally not getting into their areas, they're generally not getting into our area. So, as we continue to grow the installed base, we needed to continue to grow the services teams. But as we become more strategic and there is more and more companies that have lots of products from Veeva, it creates another whole stream of services, the health companies take advantage on having clinical, quality, regulatory, medical, all on the same platform. They have never had that before and so, their focus has been getting clinical to be better or getting regulatory to be better, getting quality to be better.

But if you have bolstered in all three of those areas, you can actually start to streamline processes across them. This is one of the thing that I have spent a lot of time talking to our big FI partners about the more -- even more strategic partners, management consultants that there is opportunity because we're eliminating the technical barriers to streamline in that it can lead to reorganizations and it can lead to some dramatic improvements at customers. So, I know our partners are excited about that, it's something that sort of hasn't existed in the past because the technology was holding companies back.

Operator

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

Scott Berg -- Needham -- Analyst

I guess, I have one here and a follow-up. First of all Peter, you called out the large regulatory wins with the European-based customer. As you look at that product specifically in that region, is there anything different with its use case versus here domestically in North America?

Peter Gassnerl -- Founder, Chief Executive Officer

No, no difference because these are large multinationals. They have to do product registrations all around the world, so there is really no difference.

Scott Berg -- Needham -- Analyst

And then, I guess from a follow-up perspective, I don't know if maybe Matt or Tim want to take this. As you look at the guidance for next year in these operating margins, obviously they're pretty healthy in terms of initial guidance, but how should we think about some of the investments there, knowing that you're still kind of finalizing those clients? Do you do anything differently in terms of maybe sales icon additions, product development investments or maybe something more outside of life sciences, that you know if there is any notable change there relative to what you've done recently?

Tim Cabral -- Chief Financial Officer

I think it's consistent with what we've done in the past. We are still in growth mode at the company. So inside of life sciences, we're investing in the products, new product innovations, of course investing on existing products, but we have some quite new products, CDMS, even safety, which we haven't introduced yet, Nitro and we are done innovating. So, there is a lot of product investments but also is go-to-market. As you mentioned, we're becoming more strategic with our customers, we're getting into things like medical device, additional sub-verticals in OOS, so we have to invest in the field as well, that's a balanced investment across product and go-to-market in all areas.

Operator

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

Tom Roderick -- Stifel -- Analyst

So, Matt I think, I have asked this probably a couple of quarters ago and I think it's probably time to ask to just to get an update on it, but relative to, I guess, what you're calling CDMS now, I'm really interested in understanding sort of the progression as some of your customers of all sizes are thinking about using this, taking it from phase 1 to phase 2 and phase 3 trials, I'd love to hear just a little bit of the update on, are you getting into larger organizations as you go in and land some of these phase 2 and phase 3 as I know it's very natural, it makes sense that start-ups can probably be a little bit more nimble, they're not sort of bogged down from a data model.

But I guess the question is, as you start to target some larger ones, it sounds like the product is getting ready for prime time here. What are some of the challenges with existing data models, existing deployments, how much of a hurdle is it to get them to sort of swap out of what they're doing or is it as easy as a large pharma runs a new phase 2 and they're looking at a new CDMS or EDC system however they look at it as a fresh decision every time. Can you kind of talk us through that? And then I've got a follow-up on that.

Matt Wallach -- Co-Founder, President

Sure. As we think about the largest companies, what is consistent with the smaller ones is that they can start on a new trial as you just described, a new phase 2, even a new phase 3. They can try Vault for a new trial and it's not like CTMS project or RIM or Quality or CRM, where you have to migrate all the old documents and data over, you can literally start clean. You start with an empty database, when you set up a new trial for EDC or CDMS. So, they can start and the barrier to getting in there, beyond some of the maturity of the product although I would say we're really getting beyond that now, is that they have institutional knowledge about using other tools. And so either people on their own clinical data management teams or their CROs have lots of institutional knowledge about how to build and manage trials in other systems.

But that is not nearly as large of a switching cost as having to move an enterprise system that's integrated with 25 other technologies. So, we still feel really good about the ability to penetrate the market. We do think that it's always going to start with pilot projects as we enter new large and small companies. So, it could be a while before we have kind of an enterprise standard for all trials, but that's clearly what we're working toward and we have a lot of confidence that we're going to get there.

Tom Roderick -- Stifel -- Analyst

So I guess the follow-up on that and I appreciate the detail of sort of laying out, hey this is still a product line and it's low-single digit or mid-single digit millions, but if I think back to the early days of Vault, I mean it kind of jumped from product launch to mid-single digit millions to mid-teens to something above $40 million in three years. Is there any reason as you sort of look at the progression of CTMS and CDMS that they can't follow a similar progression? Are the markets not quite as big? Are there not as many products to customers not pay as much or is there a very real possibility that you could follow that progression of things continue to go well?

Matt Wallach -- Co-Founder, President

So, first of all I don't want to confirm the numbers that you threw out there for Vault. I don't have the early Vault numbers. I don't remember how many years it took to get to $40 million so I don't remember that one. But to answer your question specifically, the market is certainly big enough for both CTMS and CDMS to take-off quickly, but don't forget that we are very deliberate about the way that we introduce new products and work with early adopters for sometimes years because we are building a foundation on which we want to deploy the whole industry. So in CDMS, it's a billion-dollar business potentially. We are not going to hurry up and be in a hurry while we are building a foundation for a billion dollar business. In CTMS, it's a multi hundred million dollar business that is super, super connected with eTMF and Study Startup and CDMS. So while the potential is clearly there, I think that the market need is there and the competitive environment feels open, feels like an excellent time to be going after each one of these areas in Clinical. Don't forget that we are deliberate in the way that we are doing and we would much rather have very happy customers after a couple of years then twice as many customers but not as happy. So we are always going to try to balance that.

Tom Roderick -- Stifel -- Analyst

That's great. Wonderful. Nice job, guys. Thank you for the detail. Appreciate it.

Operator

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

Brian Peterson -- Raymond James -- Analyst

Thanks for taking the question and congrats on really strong results. So maybe just one for me on QualityOne. I wanted to understand at this point in your winning customers across multiple different industries, are we at a point where customers are actually coming to you or it's actually a little bit more of inbound interest? And as you looked at different kind of end markets here, is there any commonality or different vendors of the systems that you are replacing?

Peter Gassnerl -- Founder, Chief Executive Officer

I would say there is certainly more inbound now as -- even if you compare it six months ago. That's something we specifically measure both qualitatively and quantitatively. But it's still -- that's not the majority of it, right. We are still not known that well and it takes time, but I think that trend will continue. We will have more inbound consistently over the next couple of years. In terms of trends of common patterns of things we are replacing, it's -- one common pattern is it's all client servers. These are aging systems. They don't change them very often. It's client server and it's usually a combination of things. It's a combination of some Excel spreadsheet and some content management platforms which can be from OpenText or it can be SharePoint. There are some Documentum out there. It's just a smattering. So there is -- the only common thing is client server. There is no common vendor that we are running into. It's really -- I mean, largely I would say characterizing it as custom-built client sever stuff that we are replacing.

Brian Peterson -- Raymond James -- Analyst

Got it. Thanks, guys.

Operator

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

Sterling Auty -- JP Morgan -- Analyst

Yeah. Thanks. Hi guys. Just wondering in terms of back to the operating expense and the investment, especially with the stuff that's outside of life sciences, maybe just in general sense where you are in total sales and marketing headcount and what should be the thought around where that would head over the next one or two years to support the endeavors outside of life sciences?

Tim Cabral -- Chief Financial Officer

Yeah, Sterling this is Tim. So right now I would characterize the size of the go-to-market team in our outside life sciences as in the dozens. Remember as Peter talked about earlier, we are still in the early adopter stage. So the focus is on a select few, few dozen, if you will early adopter customers and really focusing on making those folks successful. I think, how that evolves over time it will -- it's an area of investment for us and it will certainly grow but not something that right now we have a specific set of numbers that we would share in this context around that. So again an area of investment, a few dozen people today and something that will grow as we get through the early adopter stage over the coming years.

Sterling Auty -- JP Morgan -- Analyst

Okay. And then one follow-up on Commercial Cloud. You've kind of given us the guidance for the 10% growth. We've watched that number bounce around a little bit. Based on some of the deal signings that you announced in the quarter, should we think about more steady 10% growth from here or will the timing of kind of the ramp on some of those contracts create some variability in that Commercial Cloud growth rate?

Tim Cabral -- Chief Financial Officer

Yeah. Sterling, we're still in our planning process for next year and into the future. Obviously, we see Commercial Cloud as a steady grower for us and a steady contributor from a revenue perspective but not giving any specific guidance beyond this year on that particular number in this call. We will give that level of detail in the Q4 call.

Sterling Auty -- JP Morgan -- Analyst

Okay. Thank you.

Operator

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

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Oh, hi, great. Thanks, guys. Wanted to ask a question on the CRO win, obviously, making real good progress there with Clinical. Did that channel have -- did it have an influence on that new clinical win with the top 20 that you had mentioned? Should we be focusing on that channel, potentially the tipping point for broader adoption for Clinical Vault?

Peter Gassnerl -- Founder, Chief Executive Officer

Those -- you're referring to the CRO, the eTMF win in the CRO and then the top 20 pharma that chose eTMF, there was no direct correlation between those two but in general word of mouth is getting out in the industry. So it does help. The more wins we get, the more people talk about Veeva, it's not just the win, it's when the customers are live and successful enjoying the product, enjoying the interaction with our people and when the project goes live and successful and you are on time or under budget, they're not used to that in clinical. So the word gets around about Veeva and Clinical. So no direct connection but they are somewhat related.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great. Thanks, Peter. One more if I may please. Just on the QualityOne win in the cosmetics top 20. Is that a whole suite that that customer purchased? Any color on kind of the use case there would be helpful please. Thank you.

Peter Gassnerl -- Founder, Chief Executive Officer

Sure. This one was actually in Europe. This is a cosmetics company in Europe, I would say a high-quality cosmetics company where the price is high and the quality needs to be very high. And this is a large division inside of a much larger, what I would consider a huge company. And they deeply concerned with quality and with compliance -- this was actually one where we reached out to them. We created an event some time ago in Europe around -- in the cosmetics industry and we got people to come there and talk and that's how they got to know of us. Then we dug into their use case. They were typical -- they used some content management platforms, they used some spreadsheets, they weren't really satisfied or confident in their capability to have track all this quality events, have all the compliance that's needed. Because cosmetics, we have to remember, these are things that are put on people's skin. They have to go through the FDA process, right, this is quite serious. So -- then we showed them our product and they were blown away by the fit-to-purpose and the flexibility of the product. This is a thing that is in the -- and full ramp in this company. It's approaching a seven-figure deal, I would say it's a high six-figure deal and this is again one division of this very large conglomerate.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great. Thanks, Peter.

Operator

Your next question comes from the line of Sandy Draper from SunTrust. Your line is open.

Sandy Draper -- SunTrust -- Analyst

Thanks very much. Most of my questions have been asked and answered but maybe just coming back to the regulatory market. Hearing from a fair number of companies that this market is picking up, you guys are obviously getting good momentum. When you think about, are there legislative or regulatory changes that are pushing this? Is it just the products are more mature, the time is right? What do you think is driving the broader mark in your success? Because I'm just hearing pretty consistently multiple people talking really positively about either adopting regulatory or the customers need to change and move on to a new regulatory platform? Thanks.

Peter Gassnerl -- Founder, Chief Executive Officer

Yeah. So there are some new regulatory changes. There's always some, every couple of years there's something minor, but I don't think that there's one big major regulatory change that is the biggest driver of the additional adoption of what we're seeing. I think that it's a combination of that with the maturity of the product and the success that we've had with the first big top 20 that have gone live. And as much successes we have had there with the first big top 20 that have gone live.

And as much success as we've had there, the first go-live of a top 20 pharma company on Vault RIM was actually this calendar year. And now we have -- actually there was one last year, sorry -- one last year, a much bigger one this year, and now we're sort of rolling. And so at our R&D Customer Summit just a couple of months ago, there were multiple top 20 pharma companies on stage talking about their success with the product, with thousands of users. And that is much more the catalyst than anything else to adoption across other companies.

Our customers basically do the same thing globally, all right. So, the regulations affect all of them in the same way and so when they're at one of our events and they hear a company that's just like them, they are successful with our product and it's dramatically better than the way that they do it today than that's hard to walk away from that event and I think, man we should do that too.

Brian Peterson -- Raymond James -- Analyst

Great, that makes sense.

Tim Cabral -- Chief Financial Officer

One macro level thing I'll add is our customers if you look at now versus ten years ago, they had more products because of the specialized medicines that are coming out. So that increases the regulatory burden and the manufacture of these products, which impacts of the regulatory environment is getting much more complex as we get into personalized medicine and biologics, it's much more complex in a large molecule versus a small molecule. So, complexity is just increasing and now they see, hey there is a cloud solution that can do the job and that's what's creating the momentum, it's slightly tampered by, this is a super mission-critical system. You don't change it out like things, it's not for the (inaudible) to change it out so that tampers it down a little bit.

Brian Peterson -- Raymond James -- Analyst

Got it. That's really helpful. And when you think about deployment and maybe more importantly contracting, is it pretty much for regulatory? Is it always going to almost be global either initially or with a long-term plan to go global or I'm just trying to think about does it ever make sense or can someone just start with Europe or US and setting of what we can keep multiple regulatory systems or is this something that when they make the decision, they go global right away?

Matt Wallach -- Co-Founder, President

So, more often than not, almost every time they go global out of the gate. And the reason is because the products are now more global. It used to be 10, 20 years ago, you may launch a product in a market and not launch it in -- it could be a US product, but never gets launched in Japan or China or Europe, that has changed pretty dramatically over the past decade. And now, they try to have simultaneous launches across the globe.

And so, it is pretty unusual for us to do something in just one part of the world. We do have one company that implemented the entire suite for a set of products like they chose in therapeutic areas, that was their way of starting small. But generally the RIM products don't start small, they go from one application to the next. So they might start with the planning of the content and the actual document management with the Vault Submissions product, then do the submissions archive and then do the registrations tracking, and then the publishing could be last. That's more the order that we see versus country by country.

Operator

Your next question comes from the line of Brent Bracelin from KeyBanc. Your line is open.

Brent Bracelin -- KeyBanc -- Analyst

I wanted to dive in a little bit more into the broader Vault product suite. I guess, Matt for you which is quickly, here you talked about customers going kind of all in at the Analyst Day around Vault, if you think about the strength and upside in the quarter, how much of it was driven by 500-plus customers that are all kind of broadly adopting it or were there one or two big customers that are going all in, that drove the bulk of the strength and momentum this quarter?

Matt Wallach -- Co-Founder, President

Yes, so it's -- I think we've gotten to a size where there is no one deal that is going to shape a quarter, all right because of the way that we recognize revenue and the size of the company at this point. So now, is it a small number of really big companies or is it a large number of smaller ones, it's really across the board. I don't know that the split in my head, but it's at least 100 small deals. I mean we're firing on all cylinders and then there's these big massive enterprise decisions that are happening on with the largest companies. So, it really feels like we're hitting each segment of the market and across multiple geographies.

Brent Bracelin -- KeyBanc -- Analyst

Helpful color there. And then Tim, as a follow-up for you around the Vault business, 44%, I think of subscription 48% of the total, as you think about this mix shift toward Vault and think about the growth trajectory of the business across pro services and then subscription, how should we think about that mix shift impacting just the growth profile of the overall business?

Tim Cabral -- Chief Financial Officer

If you think about this year specifically and the information Brent that we talked about on the call in the prepared remarks in terms of Vault subscription growth of at least 45% for this year and Commercial Cloud, roughly 10%. I think that is what's driving the mix shift. I don't know -- and obviously driving the overall growth of the business. I think that's the way that I would think about it. Now as I said earlier, we're not giving that detail yet for next year or future years in terms of what those two businesses will grow. As we've done in the past, we'll do that in the Q4 call, but I think that's contributing to the overall growth of the company as Vault becomes bigger and more of a contributor.

Operator

Your next question comes from the line of Peter Lohrey from JMP Securities. Your line is open.

Peter Lohrey -- JMP Securities -- Analyst

You have a lot of great talent in the life sciences space, can you talk about how you're thinking about talent acquisition as you expand outside of life sciences?

Peter Gassnerl -- Founder, Chief Executive Officer

Peter, I'll take that one. If you look at Veeva, what's the big picture of Veeva. We're -- and what gets me excited is our customers, our products and our team. And it starts with a team, we've always had a great mix of super great software engineers, world-class folks and then domain people that really know the domain, the life sciences domain. As we move outside of life sciences, same thing, great software people. We have that in the core platform and the core application development area and we are adding people that have domain experience.

They have domain experience in the quality field, we have a person on the QualityOne team, they actually used to work at the FDA for example. We have a person that worked at one of the large consumer packaged goods companies, we have a person that worked at a food producing company and that's what really gets me charged up to see the great people that are attracted to Veeva. And they see somebody that's focusing in the domain that they know about, that has a track record of excellence and a platform behind it and we're just drawing all kinds of sparky people to Veeva, it's one of the most enjoyable parts of my job to see that happen.

Operator

There are no further questions. At this time, Mr. Peter Gassner, I will turn the call back over to you.

Peter Gassnerl -- Founder, Chief Executive Officer

All right, thank you all for joining us today and I'd like to call out the Veeva team again for their great execution and thanks to our customers for your partnership over the years. Have a great holiday and we'll see you next quarter.

Operator

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

Duration: 59 minutes

Call participants:

Rick Lund -- Head of Investor Relations

Peter Gassnerl -- Founder, Chief Executive Officer

Tim Cabral -- Chief Financial Officer

Ken Wong -- Guggenheim Securities -- Analyst

Matt Wallach -- Co-Founder, President

Bhavan Suri -- William Blair -- Analyst

Stan Zlotsky -- Morgan Stanley -- Analyst

Rishi Jaluria -- D.A. Davidson -- Analyst

Kirk Materne -- Evercore ISI -- Analyst

Scott Berg -- Needham -- Analyst

Tom Roderick -- Stifel -- Analyst

Brian Peterson -- Raymond James -- Analyst

Sterling Auty -- JP Morgan -- Analyst

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Sandy Draper -- SunTrust -- Analyst

Brent Bracelin -- KeyBanc -- Analyst

Peter Lohrey -- JMP Securities -- Analyst

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