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Veeva Systems (NYSE:VEEV)
Q4 2019 Earnings Conference Call
Feb. 26, 2019 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to Veeva Systems fiscal 2019 fourth quarter results conference call. [Operator instructions] I will now turn the call over to 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 2019 fourth-quarter and full-year earnings call for the quarter and year ended January 31, 2019. With me on today's call are Peter Gassner, our chief executive officer; Matt Wallach, our president; and Tim Cabral, our chief financial officer. During the course of this conference call, we will make forward-looking statements regarding trends, our strategies and the anticipated performance of the business. These forward-looking statements will be based on management's current views and expectations and are subject to various risks and uncertainties.

Actual results may differ materially. Please refer to the risks listed in our earnings release and the risk factors included in our most recent filing on Form 10-Q, which is available on the company's website at veeva.com, under the investors section, and on the SEC's website at sec.gov. Forward-looking statements made during the call are being made as of today, February 26, 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 -- Chief Executive Officer

Thank you, Rick, and thanks to everyone for joining us today. We had another great quarter, with the results above our guidance. Total revenue was 232 million, up 25% year over year. Subscription revenue grew 25% and non-GAAP operating margin was 36%.

We also announced today that Matt Wallach will transition from his current position as president and is joining Veeva's board of directors. Matt will continue in his role as president until June and will join the board of directors in January next year. This transition will allow Matt to continue to contribute highly to Veeva, while spending more time with his family. Matt has built a very strong leadership team, who will assume his day-to-day responsibilities.

Over the last 12 years, Matt has been an incredible partner to me, the team and to our customers. Thanks to Matt for all that he has done for Veeva and the industry. I look forward to working with him as a member of our board. Now turning back to our financial results, Q4 was one of our best quarters ever and a strong finish to another great year.

In 2018, we brought significant innovations to market like Veeva Nitro, a next-generation commercial data warehouse. Nitro is a packaged cloud application that replaces custom data warehouse projects. This is a real breakthrough for the industry. Nitro also serves as an important foundation for AI and sets us up well for the introduction of our AI engine later this year.

2018 was also a year of continued market expansion and execution. We've performed well in emerging areas, including CTMS, CDMS, QMS and Vault outside life sciences. We kept our focus on early adopter success and product excellence. This is how we create new products that are materially better for the industry.

Thanks to the Veeva team for their excellent work in 2018. Overall, I'm very pleased with the pace and level of innovation and execution across the business. Now shifting to a few highlights from Q4. We had one of our best ever sales quarters for commercial cloud.

In core CRM, we increased market share with more enterprise expansions and new SMB wins. We added another 15 SMB CRM customers in Q4 and a total of 46 in 2018. On the enterprise side, a top 50 pharma selected Veeva as their CRM standard for Europe, replacing their legacy provider. They already use Veeva CRM across the rest of the world and have decided to make it their global standard, based on their success with Veeva in other regions.

Uptake of newer commercial cloud products continued strong as customers expand their use of Veeva. For example, in Q4, two top 20 pharmas purchased Engage Meeting for major regions. Engage is having an important impact by opening up another digital channel for pharma to reach customers, resulting in more high-quality time with doctors. Veeva Nitro is also progressing well.

We ended the quarter with six early adopters, two of which are live. Both customers went from project kickoff to go-live in about five months. This is a major milestone for Veeva and the industry. Typical data warehouse projects are measured in years and once running, soon fall behind.

Having a packaged cloud application that improves over time is a real breakthrough. We are in the early days with Nitro. We also continue to experience headwinds due to anticompetitive behavior from IQVIA, as it relates to using their data in Nitro. But customers are excited by the potential of Nitro to transform how they go to market.

Veeva Vault also had an excellent quarter and year. Vault has grown from 5% of the business about five years ago to nearly 50% in Q4. The growth of Vault speaks to the need for modern cloud applications in R&D and commercial and the power of our integrated suites, all delivered on a unified platform. We are uniquely positioned to help the industry with better systems that enable greater speed and efficiency.

2018 was the strongest year yet for commercial Vault, the new digital asset management capabilities and other innovations added in the year have made the application more valuable. As a result, we are seeing greater demand from companies of all sizes. The R&D side of the business also continues strong in all areas, with several major wins and expansions in Q4. I'd like to share a few details on the clinical area.

Vault eTMF was our first clinical product and we've made steady progress over the years with this mission-critical application. It was released in 2012 and we closed our first top 20 pharma in 2014. Since last quarter, two more top 20 pharmas selected Vault eTMF as their enterprise standard for a total of 11 out of the top 20. We also had a top seven CRO choose eTMF, for a total of four of the top seven CROs.

Our success with Vault eTMF is serving as a springboard into a newer clinical area like CTMS and CDMS. Vault CTMS had a remarkable year. Not only did we closed our first top 20 pharma in Q3 but our CTMS customer count more than doubled over last year to 34. This is very encouraging for a product that was released less than two years ago.

Customers clearly see the benefit of having eTMF and CTMS integrated together on a modern cloud platform. We are also setting up to be a major player in clinical data management over time, with our CDMS product. We signed new customers in the quarter and many of our existing customers are already using Vault CDMS for multiple trials. We're learning, advancing the product and developing a strong customer community.

This year, we will release major capabilities within Vault CDMS that will be real game changers for the life sciences industry. We're very excited about our future in clinical data management. Lastly, I'd like to give an update on our business outside of life sciences. We nearly doubled our base of Veeva QualityOne customers, deepened relationships with early adopters and expanded within our enterprise accounts.

2019 will be a year of focused execution for the team as they build what could be a very big business for Veeva in the long term. In all, it was another great year. Three and a half years ago, we set a goal to reach $1 billion revenue run rate in 2020, with a long runway of growth ahead. We will cross the $1 billion mark this year, one year ahead of schedule.

We have an exceptional team of over 2,500 people working together, with a compelling mission and a common culture. We have deep customer relationships based on a 12-year history of customer success and continuous innovation. Together, these things set the stage for strong organic growth well into the future. Now I'll turn it over to Tim to review our financial results.

Tim Cabral -- Chief Financial Officer

Thanks, Peter. Q4 was a great finish to another strong year. In Q4, we saw record bookings, which sets us up well for fiscal '20. Total revenue for the quarter came in at $232 million, up 25% from 186 million a year ago.

Vault represented 49% of total revenue versus 42% in Q4 of last year. This capped a year in which total revenue was 862 million, up from 691 million in fiscal '18, an increase of 25%. For the full year, Vault represented 47% of total revenue as compared to 39% in fiscal '18. Subscription revenue in the quarter totaled more than 190 million, up 25% from 152 million the prior year.

Vault represented 45% of subscription revenue versus 39% last year. For the full year, subscription revenue came in at 694 million, up from 559 million in fiscal '18, a 24% increase. For the full year, commercial cloud subscription revenue grew almost 11% and Vault grew nearly 48%, both ahead of our previous expectations. In fiscal '19, our revenue retention rate was 122%.

This metric is defined in the earnings release and reflects annualized subscription revenue growth within existing customers, net of revenue attrition. I'm particularly proud of this metric as it demonstrates our customers' willingness to invest more with Veeva over time based on the success that they've had with our products and our people. Services revenue came in at almost 42 million, up 22% from 34 million last year. For the full year, service revenue totaled 168 million, up 28% from 131 million in fiscal '18.

This growth benefited from very strong demand, especially within R&D Vault projects. In Q4, our subscription gross margin was 85%. This metric increased roughly 40 basis points from Q3 and almost 400 basis points from last year's fourth quarter. While subscription gross margin will continue to slowly rise as Vault grows faster than commercial cloud, this level of improvement was also driven by duplicative expenses we incurred in Q4 of fiscal '18, associated with our AWS migration.Services gross margin for the quarter was 23%, down from 35% in Q3 and up slightly from 21%, one year ago.

This is a normal seasonal pattern as Q4 has fewer billable days due to holidays and our field kickoff in January, and has additional costs related to the field kickoff. Non-GAAP operating income was 84 million, resulting in an operating margin of over 36%, above the high end of our guidance. This beat was driven primarily by outperformance on the top line. We added 71 net headcount this quarter, ending Q4 with a total of 2,553 employees, up from 2,171 a year ago.

Moving to the balance sheet, deferred revenue was 356 million compared to 196 million at the end of the third quarter. Calculated billings for the fourth quarter came in at 394 million, which was ahead of our guidance of 375 million. This outperformance was driven by stronger-than-expected bookings, better-than-expected billing duration for the business closed in Q4 and to a lesser extent, outperformance in services revenue. This brought total calculated billings for the year to 947 million.

Looking ahead, we expect calculated billings of approximately 235 million for Q1 and 1,100,000,000 for fiscal '20. Similar to last year, we expect about 41 to 42% of those billings to come in Q4. As you consider the Q4 billings result and the billings guidance for this year, keep in mind the dynamics that impacted billings in fiscal '19. First, we had a customer shift a large renewal from Q1 to Q4, resulting in a nonrecurring incremental $18 million of billings for the year.

Also, as we discussed on last quarter's call, the bookings in fiscal '19 were more weighted toward customers with Q4 renewal dates, which resulted in billings of more than 12 months of subscription fees during the fiscal year for those customers. This dynamic increased our overall fiscal '19 billings results by about 10 million. Normalizing for these two factors would bring our total calculated billings for fiscal '19 down to 919 million. These adjustments also imply that our billings guidance for Q1 and for the full fiscal year of 2020 represent growth rates of about 20% each on a normalized basis.

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. Elsewhere on the balance sheet, we ended Q4 with 1,090,000,000 in cash and short-term investments, up 38 million from the end of Q3.

This increase was driven by 32 million of operating cash flow, which included $15 million in excess tax benefit related to equity compensation. For the year, operating cash flow came in at 311 million, which included a total of 46 million in excess tax benefit. Excluding that tax benefit, operating cash flow for the year was 265 million, above our last guidance and represents a strong collections quarter in Q4. For fiscal '20, we expect operating cash flow to be slightly above 320 million, excluding the excess tax benefit or almost 21% growth from fiscal '19.

Next I'd like to share our outlook for Q1 and for fiscal '20. For the first quarter, we expect total revenue to be between 238 and 239 million, non-GAAP operating income of 85 to 86 million and non-GAAP net income per share of about $0.44 based on a fully diluted share count of approximately 158 million shares. Please note, we will maintain our flat non-GAAP tax rate at 21%. As a reminder, this is not something that we will adjust quarterly but we'll evaluate on an annual basis.

Note that Q1 contains 89 days compared to 92 days for our other three quarters. A fewer days of revenue recognition primarily affects our subscription revenue, which is recognized on a daily prorated basis. We currently believe this will negatively impact Q1 revenue by about 6 million. This also affects our growth and operating margins as virtually all of our expenses are recognized on a monthly basis, while revenue is recognized daily.

For the year, we anticipate total revenue to be in the range of 1,025,000,000 to 1,030,000,000, which is an increase from our initial outlook of about 1,010,000,000. We expect subscription revenue to grow roughly 21 to 22%. And within that, we expect commercial cloud's subscription revenue to grow about 10% over last year and Vault subscription revenue to increase at least 35%. We anticipate non-GAAP operating income of 365 to 370 million for the full year, implying a non-GAAP operating margin of almost 36%.

Finally, we expect non-GAAP net income per share of $1.91 to $1.94 for the year based on a fully diluted share count of approximately 159 million. In summary, I'm very pleased with how our team executed in closing out our best year-to-date. We are prime for another year of profitable growth and continuing to invest for customer success in the long term. Thanks for joining us today.

And I'll now turn to it over to the operator for questions. 

Questions and Answers:

Operator

[Operator instructions] Your first question comes from Tom Roderick from Stifel.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Hey, guys, good afternoon. Thanks for taking my questions here. So I kind of want to put this in the big picture and think about where you guys gave us the Veeva 2020 picture a few years back and now you're a full year ahead of that. Vault coming in almost 50% for the fourth quarter, pretty remarkable.

As you look at CTMS and CDMS, can you give us a sense as to how much ahead of plan those really are. And as your customers kind of look at that relative to -- I think eTMF is a great example with where that's really driving growth, how much overlap do you see in those customers? How much wallet share exists between customers that have eTMF? And how many can kind of bolt on the other two we just talked about there? Would love to hear about the big picture and where that takes Vault in the next two years.

Matt Wallach -- President

Sure. Yes. So Tom, this is Matt. There's a lot of overlap in what customers need, right.

So most customers who get to a point where they need an eTMF, are thinking about submissions and they're going to need regulatory solutions. If they are in clinical trials with an eTMF, they already have probably passed the point where they need things in the quality swing. So there's tremendous synergy and cross-selling need across the customer base. And I think you asked a couple of questions in there.

I may have missed one of them.

Tom Roderick -- Stifel Financial Corp. -- Analyst

No, I think it kind of gets to the heart of it which is where does Vault go ultimately over the next several years? I mean, is this -- if you look out two, three years, is this the 70% piece of the business? Or if you think about safety and quality and some of the other solutions, those kind of bolt on and ultimately take a bigger slice of the pie.

Matt Wallach -- President

Yes, so without providing real specifics in the future which we haven't done, we kind of don't see the end of Vault, right. So the strength of the Vault Platform is that it enables us to build really deep industry-specific applications quickly and profitably. And so within life sciences, we've built out a suite and when you include the safety suite, we built out a suite of really the major applications of what they need on the R&D side. That's going to continue to grow for a long time, as we've been successful in launching new products and you've seen that even this year, with the success of eTMF and CDMS in training and others.

So in terms of what percentage of our revenue does it get to, I think you have to go back and look at the TAM and the TAM for Vault is larger than where we started in commercial cloud. And I think we're proving the ability to get a high market share in multiple markets. And that's the intent here so that we can really build out the industry cloud, something that allows all of our customers to dramatically improve their efficiency.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Great. Matt, I'll ask you one last one here since we've got you on the call. One more time but congratulations on kind of the next step in your adventure here. Can you give us a sense as to CDMS, what you guys have been able to do at the product over the last, let's call it, six to nine months? As you look to move upstream, you look to do more Phase 2, Phase 3 trial work, what are customers saying about the readiness of that product set now in those realms?

Matt Wallach -- President

Yes, so remember we're not just trying to build a better EDC. So let me answer first in terms of phases. So we're at a point now where we can take on any Phase 1, 2, 3, 4 trial. And customers have been pleased throughout.

In fact, the best indication of that is customers that are running their second and third and fourth and even fifth trials with our CDMS already. The other thing to keep in mind is that in the next six to nine months, we're going to redefine what CDMS is and we're going to deliver a data workbench that allows companies to bring all of their different clinical data together in a single data set before they send it over to the statisticians. That's going to be a step change for the industry. So I think the EDC part, we feel like we're ready for any trial and we're starting many.

But where we're really going to change that market is with the addition of a fully integrated data workbench.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Excellent. That's great. Congratulations again. Thank you, guys, appreciate it.

Matt Wallach -- President

Thanks, Tom.

Operator

Your next question comes from Sterling Auty from JP Morgan.

Jackson Ader -- J.P. Morgan -- Analyst

This is Jackson Ader on for Sterling tonight. Thanks for taking my question. Let's -- if we can just follow-up, actually, instead of on CDMS, the top -- the two top 20 wins at CTMS, any early takeaways there, given that there -- the first kind of large customers to take up that suite?

Matt Wallach -- President

Sure. So first, let me correct you. We've only announced one top 20 CTMS customer and that was in Q3. And so that project has been going for a few months now and we're kind of full speed with one of our system integrator partners.

And so far so good. The feedback on the product is good, the feedback on the way that we are approaching the project is good. And it makes sense because this wallet is a new product area for us to deploy at that scale, it's not a new product area in general for us and it's not -- certainly not the scale of the project is not dissimilar form what we've done before. Now we are also seeing the impact in the market of having announced that first customer because as we've seen throughout our growth, when one big top 20 goes in, a lot of eyes go on to that project.

And so there's going to be a lot of attention on this project in the coming months. And that helps to speed our sales cycles and other enterprise accounts.

Jackson Ader -- J.P. Morgan -- Analyst

Got it. Sorry, I think there were two but only one last quarter. One quick follow-up on the financials. You mentioned that billing duration increased a little bit more than expected in the fourth quarter, is that only billing duration? Or are you also seeing a little bit of contract duration increase as well?

Tim Cabral -- Chief Financial Officer

Jackson, this is Tim. So not necessarily contract duration. And to be -- to make one point clear, we don't bill for multiple years in advance like some other SaaS companies might do to drive a billings number. So I think if you look at billings duration increase, it was probably more driven by more annual billers versus quarterly billers and more Q4 folks who were opting for another year.

So longer billing duration from those two factors, I think were the primary drivers but not overall contract duration.

Jackson Ader -- J.P. Morgan -- Analyst

OK, all right. Thank you.

Operator

Your next question comes from Bhavan Suri from William Blair.

Arjun Bhatia -- William Blair -- Analyst

Hey, guys. It's actually Arjun Bhatia on for Bhavan. Just wanted to follow up on eTMF real quick. I mean, clearly, you're seeing some good momentum there still with another top seven CRO and I think two top 20 pharmas this quarter.

Just given that this is a more mature Vault application for you, can you give us a sense for how we should be thinking about eTMF growth going forward? Do you still see as an untapped market opportunity there? Or should we see the growth slowing down in eTMF over the next year or so?

Matt Wallach -- President

Sure. Yes, so Peter said on the call, we have 11 of the top 20 now that have committed to eTMF as their global standard. And it's a bit over 200 customers in general. There's probably a couple of thousand companies that needed eTMF.

So that market is not saturated. But I think the thing that to think about with eTMF is that has been the lead application for the clinical suite and the clinical operations area. And so, I think the things to start to watch over time are how many of those big eTMF customers are also doing CTMS and how many are adopting the Study Startup module. And then very importantly over time, how many eTMF customers are also using CDMS where the overlap hasn't been as great yet because we've been going after CDMS kind of by itself.

But over time, all of these applications, the way that they work together, is going to create the value proposition that's going to be unmatched by anyone. In fact, we're really there already. And we're starting to see more and more companies adopting the entire clinical suite. So, I think the right way to think about eTMF is that the initial kind of lead application for the broader clinical suite.

Arjun Bhatia -- William Blair -- Analyst

OK, that's helpful. And then maybe just a follow-up on the subscription retention number. We saw 122%, which is an increase from last year and it's great. Just curious, how new product contribution is layering in there with the crossovers as customers expanding usage of subscriptions to existing products.

Tim Cabral -- Chief Financial Officer

Yes, Arjun, I think, in that metric, I think it's more the expanded use of the existing products, as well as customers adopting products that are new to them. When you say new, I think to a lesser -- much lesser extent is the contribution from some of the new products that we've announced. So, I think the large one is expanded use of their existing products, second is products that are new to them and third, and to a much lesser extent, is newer product that we brought to the market in the last couple of years.

Arjun Bhatia -- William Blair -- Analyst

That's very helpful. Thanks for taking the question and congrats again, guys.

Operator

Your next question comes from Saket Kalia from Barclays Capital.

Saket Kalia -- Barclays Capital -- Analyst

Hey guys. Thanks for taking my questions and having me on the call here. Tim, maybe to start with you, just a slightly different way of asking the prior question on Vault, specifically. Clearly, a lot of room to grow there in terms of customer base.

As you think about the fiscal '20 guide on subscription, how do you think about that lever of growth in customer base versus some of the other levers like more Vaults per customer and such? How do you think about that sort of equation qualitatively?

Tim Cabral -- Chief Financial Officer

Yes, so picking up on the point that Matt made in terms of specific to eTMF but you could say that it's across the development cloud, there's certainly a longer tail of potential companies that can buy Vault and Vault applications from Veeva than we saw in the commercial side. We did add roughly 125 new Vault customers, new Vault logos in fiscal '19. So we're very excited about continuing to work with new customers. But I do think, and with that said, I think the pattern of a large percent of revenue coming from our installed base will continue to happen in Vault, as we've seen it in commercial cloud and you saw that in fiscal '19 really being driven by a very strong retention -- excuse me, revenue retention rate, which was a vast majority of our subscription revenue growth in the year.

Saket Kalia -- Barclays Capital -- Analyst

Got it. That's really helpful. Maybe for my follow-up for you, Matt, we've talked about the building of reference accounts using eTMF that may also consider CTMS as well. Can you just maybe talk higher level, what do you hear from customers on the desire to consolidate vendors in those two functions? And perhaps it's a bit of a dumb question but as you consider "best of breed" strategy versus a more fragmented one, how do your customers sort of approach those two functions specifically?

Peter Gassner -- Chief Executive Officer

Yes, this is Peter. I'll take that one. Let me share a little more color, first, a background about the two customer wins on eTMF, two top 20 wins that we announced since last quarter. So it comes in a variety of manners.

So, one of these was a European company, one of them was a U.S. company. In one of the companies, we started in the regulatory area first and continuing there and then they got the eTMF. In the other company, this was our first development cloud application whatsoever.

Now in turns out in both of these companies, our commercial Vault is used in there. So, in terms of new customers versus existing customers, many, many customers are our customers now but not in all areas. And then the way to think about the customers is not necessarily do they want to consolidate on more vendors. When you get to these mission-critical applications, they want the best solutions because these are mission critical.

For a top 20 pharma, they might have well over 1,000 people working just on their eTMF application, running their clinical trials and when you combine eTMF and CTMS, certainly, well over 1,000 people. They're concerned about the productivity, the efficiency, the effectiveness, the compliance, the speed of those people. So that's what's really driving it when they see how the eTMF and CTMS fits together and makes their people more productive, that's what really causes this pull-through. The vendor consolidation is nice but it's really the excellence of the solution that's driving our success.

Saket Kalia -- Barclays Capital -- Analyst

Makes a ton of sense, Peter. Thanks very much.

Operator

Your next question comes from Kirk Materne from Evercore ISI.

Kirk Materne -- Evercore ISI -- Analyst

Hi. Congrats on the quarter. I guess my first question would be maybe for Matt. Matt, as you get into these larger strategic conversations with your customers, does -- and it's who you're talking to on the client-side and who are you working with from, say, a partner perspective, has that been changing the stream that you have, more of the global system integrators and they are helping you map out sort of the process changes? I'm just kind of curious how that's evolved maybe over the last year or two as you're getting in -- you did say larger eTMF deals.

Matt Wallach -- President

So rather than answer specifically for eTMF, let me answer that more broadly and then I can come back to clinical. So, in general, I think because of the nature of the relationships that we have, because companies are buying so many products from Veeva that the relationship is getting escalated in terms of the level that we're talking to. So, we've always spoken to divisional CIOs, now we speak to a lot of global CIOs. We also are talking to CFOs and in many cases, to the chief executives themselves.

Now for -- if you think about specific areas of Vault like clinical, the most important people are like heads of those areas. So, there's a head of regulatory, global head of regulatory, there's a global head of quality, there's a global head of clinical and those are people that when we had maybe one application to sell in each of the suites, didn't make a whole lot of time for us. We were talking to maybe the document management team. But when we have an entire unified suite of products to cover, document management, data management, business process automation, then we're talking to the heads of those divisions.

So, for sure, we have been elevated in the discussion. And I think it's naturally happened as we've had a broader product portfolio and the projects themselves are more and more strategic.

Kirk Materne -- Evercore ISI -- Analyst

OK. And then maybe just one follow-up on the second question, QualityOne. You obviously have really nice momentum around that product in those offerings in the life sciences category. When you think about the investments that you all want to sort of build, I guess or put into play, to continue to drive that growth, can you just talk maybe just qualitatively about -- I assume it's more -- is it more specialist salespeople that have industry, the main experience? Whether things still continue to have to sort of build out those products from an industry perspective? I'm just kind of curious what's -- what do you all have to do to kind of continue to drive that -- to create a sort of third pillar of growth really well?

Matt Wallach -- President

Yes, in terms of QualityOne, two broad areas of investment, one is in the go to market, these would be the services and the sales and the other one is in creating the product excellence because this is in the product management and product engineering. So, we'll have balance of investment across both and that's really what it takes to build the QualityOne business. We are having good success with our early adopters and then product takes a while to reach a product excellence. So, we have to find those specific things that the customer needs, designed those products, build those products, we have to have those services capacity as we get more and larger relationships.

And as we get more customers interacting with us, more existing customers and more new prospects we add in the field. So, it's really balanced approach. When I look back, it's very similar to when we enter any new market. It's balanced investment across the product and the sales, growing through the reference selling model.

Operator

Your next question comes from Ken Huang from Guggenheim Securities.

Ken Huang -- Guggenheim Securities -- Analyst

Great. Thanks for taking my question, guys. Peter, maybe a follow-up on QualityOne as well. With all the early success of QualityOne in fiscal '19, should we think about fiscal year '20 as pursuing a more -- the market in a more controlled manner as you guys have been doing? Or are you guys ready to really chase this opportunity?

Peter Gassner -- Chief Executive Officer

I would say controlled manner is absolutely right, guided by customer success. So that's our main, main focus. Vault outside of life sciences is -- that's tremendously large opportunity. We need to focus in on our early customers, get the right ones, increase the product excellence and the customer success.

And get better as a Veeva team is executing outside of life sciences, get incrementally better every quarter. So yes, you're right to say it's continuation and an incremental progress. You won't see any step changes from Veeva this year, outside of life sciences.

Ken Huang -- Guggenheim Securities -- Analyst

Got it. Got it. Fair enough. And then, Tim, looking at the EBIT margin outlook, 36%, a nice step-up this year, that's also above your fiscal '21 goals of 33 to 35.

I guess, how should we think about the trajectory of margins longer term if you guys are ready to comment on that at all?

Tim Cabral -- Chief Financial Officer

Yes, not ready specifically to quantify how we're seeing that play out over the longer run. As you and I have talked about before, Ken, we think about -- we've really only modeled the business in an investment mode. So we haven't thought about the business in sort of a steady state mode from an investment perspective and where margins could go. I would say that what you're seeing in both the performance of fiscal '19 and the guide for fiscal '20 is two really strong dynamics happening.

One, the effectiveness of the operating model of the industry cloud operating model, I should say, Ken, as we think about it from a sales and marketing efficiency and effectiveness perspective. And two, something that we more recently talked about, probably over the last 12 to 18 months, is -- and I think Matt talked about it earlier today, the efficiency and the effectiveness and the power of the Vault Platform and the ability it has to quickly build enterprise-grade applications in a very efficient, capital efficient way. So I think you see the results being driven by those two dynamics, Ken, And I don't think that changes as you look out into the future.

Ken Huang -- Guggenheim Securities -- Analyst

Thanks, thanks for the color there.

Operator

Your next question comes from Rishi Jaluria from D.A. Davidson.

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

Hey, guys. Thanks. Thanks for taking my questions. And Matt, congrats on what you have done over the past 12 years.

I wanted to start with the CRM Engage side of the business. Nice to see two top 10 pharmas expanding into that. Can you just give us a little bit more color? I mean, are these pilots with may be a couple of reps? Is it something with may be slightly broader adoption than that? And what needs to happen with those customers to see them turn into reference customers and kind of continue the flywheel from there? Then I've got a follow-up.

Matt Wallach -- President

Rishi, it's Matt. So, we've been talking about CRM Engage for at least 18 months to kind of in the pilot stage. Both of those deals represent more than a pilot, like 1,000 or more users. And so I think what has happened in this market is what we expected.

It's a big business process change to have reps that are used to doing only face-to-face calls, also do some video calls. So, both of these companies ran extensive pilots, they were very successful and now they're doing larger deployments that cover entire countries. And what has to happen in order for that to become the norm is probably two things, first, these guys have to be successful and then generally, what we've seen is they have to get on stage at the Veeva Summit, tell the rest of the industry the impact that it's had. And luckily, for us, the rest of the industry normally does not have directly competing products.

So, our customers are pretty open with each other and they want to get the right drugs to the right patients. I mean, that's the people that we serve each and every day, really do care about that mission. So, they help each other when there is something that is going well. And so, I think if those customers are successful, we get them on stage at the Veeva Summit to tell the rest of the industry that I think that we'll see a lot more deals like that.

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

Got it, that's helpful. And then on the Vault outside of life sciences, you've clearly seen really solid traction with QualityOne. But I think it's pretty apparent that there's probably a ton more applications to other regulated industries, especially given how broad the Vault applications have become. I guess how do you think about the decision or the possibility to build out other Vault applications for other highly regulated industries? Or maybe even potentially opening up the Vault Platform for ISPs to develop custom-built solutions for those industries that you're not in right now?

Peter Gassner -- Chief Executive Officer

Rishi, this is Peter. Certainly, the Vault Platform is a pretty flexible platform. It's a world-class platform, we put a lot of effort into it. The platform is only one thing.

It takes a lot of effort to make these applications. So, we're going to really focus on the areas for this year, at least on the areas where we're focusing QualityOne. It's a big area, it's very early days. And actually, the industry cloud for life sciences, I would still consider that very early days.

That's been -- I think sometimes people underestimate that, how early on we are in, in there. So, we're going to focus down in those areas and create customer success. Now one specific question you asked was about ISPs, creating on the Vault Platform. That's not something we're planning at this time.

We're focusing in on the applications. It's not to say that we couldn't do it in the future, but at this time, we're going to remain focused in our application area.

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

All right. Thank you so much.

Operator

Your next question comes from Sandy Draper from SunTrust Robinson Humphrey.

Stan Berenshteyn -- SunTrust Robinson Humphrey -- Analyst

This is Stan Berenshteyn on for Sandy. Thanks for taking my questions. So first, I guess just jumping to eTMF, you recently called out four of the top CROs standardizing on Vault eTMF. I'm just curious, what does that mean for the incremental footprint that you're gaining from these standardizations? And maybe if you can comment on who you are displacing?

Peter Gassner -- Chief Executive Officer

Well, in terms of -- so the last comment there was who we're displacing, oftentimes, we're displacing kind of custom builds or legacy client services. And it's sometimes a combination of both. People have a legacy client server application that partially meets their needs and then they had to develop custom things on top of it. So that was the second part.

And I'm sorry, I missed the first part of your question?

Stan Berenshteyn -- SunTrust Robinson Humphrey -- Analyst

In terms of the incremental footprint that you're gaining from these standardizations, I don't know maybe if you can quantify in terms of percentage gained or maybe some kind of dollar figures on a relative basis?

Peter Gassner -- Chief Executive Officer

Incremental footprint. Certainly, for these CROs, there are really seven top CROs and we announced them, that we have four out of the top 7. So those are significant 7-figure deals for Veeva and various significant applications for our customers but I wouldn't really comment further than that.

Stan Berenshteyn -- SunTrust Robinson Humphrey -- Analyst

OK. And then maybe just one more follow-up to Rishi's question. A couple of quarters ago, I believe you called out that there's demand for a QualityOne type of product for your regulatory suite. I'm just curious, whether there has been more demand for such a product from clients or whether you given more thought to that? Any color on that would be helpful.

Peter Gassner -- Chief Executive Officer

The quality and the regulatory areas, those are tightly linked in those highly related industries and specifically, when you look into the consumer-packaged goods and the chemicals and the cosmetics, where we're focusing outside of life sciences, they are tightly linked. So yes, we're seeing good demand for them. We're seeing, although QualityOne is our lead application, we're seeing customers interested in and in some cases, purchasing our regulatory products. So we think that's going to be great for Veeva over the long term as we develop a suite of products for those customers.

Operator

Your next question comes from Brad Sills from Bank of America.

Brad Sills -- Bank of America -- Analyst

Oh, hi, guys. Thanks for taking my question. I wanted to ask about the concept of the data workbench that you mentioned earlier, Matt. It sounds like a real differentiator to maybe be a catalyst for CTMS, CDMS.

Is that the right way to think about it? And if so, could you elaborate on what that data workbench concept really means for the solution?

Matt Wallach -- President

Sure. So, I guess it would be right to think of it as a catalyst although it's one of the catalysts. So I think the initial catalyst that we initially base this whole strategy of going into this market on was that the world needed a better EDC. And I think that's been confirmed over and over and, in every sales cycle, every time we talk to customer, there is need in the market for something that is more modern.

But what we also found was that EDC wasn't the only one of their big problems. That the EDC vendors had basically forever been competing against each other and no modern company had gone after the problem, which is the data workbench. And the problem that that tries to solve is that there's now data that comes from multiple sources during a clinical trial. And some of this is because of precision medicine.

So, for example, you may have to get a genetic sequence from every patient that joins a trial. That's not captured in or stored in EDC but it has to end up in the clinical data workbench before it gets sent over to the statisticians, things like images and things like data that may come off of mobile devices. All of these different data sources all have to be combined and merged and lined up accurately so that they can do the analysis on the data. And so that's just been an area that there hasn't been any -- great technology company that went after it for more than 10 years.

And it was almost forgotten. But when we spoke to companies about better EDC, they said that's great, we need that. But here's an even bigger problem for some of them. That once they get all the clinical data captured in the EDC, it was taking them weeks or even months to combine it all with the other data sources.

So that's a big source of value for customers if we can reduce that time from months to weeks or from weeks to days.

Brad Sills -- Bank of America -- Analyst

That's great. And then one more if I may, please, just on the commercial growth target for 10%, subscription revenue this year. Could you stack rank where that growth is going to come from? Has that change at all from, say, what we saw this past year? It sounds like there's more of a weighting toward SMBs, you're seeing some real traction there, is that the right way to look at that?

Tim Cabral -- Chief Financial Officer

Yes, Brad, this is Tim. As you look at that roughly 10% subscription revenue growth guide for commercial cloud, as we look out in fiscal '20, we think about half of that will come from incremental CRM seats. And the other half will come from cross-selling the rest of the applications within the commercial cloud. But I do think that this is a year where we're going to see a transition to more than half of it in the future, coming from those cross-sells.

As we heard earlier, question about products like CRM Engage and others. That doesn't yet take into account what we ultimately believe Nitro and our AI product, Andi, could bring. That's something that we haven't really touched on in the future, Brad, but if you can imagine, that will be a material revenue contributor in a few years from now as it gets through and out of the early adopter stage.

Brad Sills -- Bank of America -- Analyst

Thanks.

Operator

Your next question comes from James Rutherford from Stephens Inc.

James Rutherford -- Stephens Inc. -- Analyst

Hey, good afternoon and congratulations on the results. Best wishes Matt on the transition. I want to start off with the RIM and to get your thoughts on how Brexit may or may not affect this business. And I asked because it seems there's a lot of kind of questions around the drug registration process and how that will work post Brexit, which organization will be responsible for registering product in the U.K.

The questions are how are you preparing RIM from a product perspective to help your customers with the complexity? And then how is that -- is that complexity perhaps a tailwind for you and the business as companies look for help to kind of manage that process?

Peter Gassner -- Chief Executive Officer

That's a really interesting question. So, there are different regulatory authorities in different parts of Europe. But luckily for us, or more I would say, luckily for our customers, they move very, very slowly. So, as you've seen Brexit has sort of been watching -- sort of like watching a train crash in slow motion.

If you are to look at the way that regulatory authorities move, it's even slower than that. So, if there are going to be regulatory changes as a result of Brexit, it's not going to be one of the first things that happen, and I think that our customers will have a lot of time to adjust. Now it's a good question because in general, when there are regulatory changes, our customers can get there faster because our product development cycle is faster than regulatory changes. But I don't see this one being a tailwind because I think it's going to take a very long time.

James Rutherford -- Stephens Inc. -- Analyst

And sort of sticking with the macro theme here but this time on kind of drug prices domestically, clearly, it's still top of mind for Washington with the meeting this week. And I think you're very close to this issue. I'd love to just hear kind of how you think that debate might play out? Is this time kind of different? And then, what impact might you see from your commercial business or your Vault business if there were some sort of meaningful action to sort of synthetically lower drug prices?

Peter Gassner -- Chief Executive Officer

Well, I'm sort of flattered by the question. You noticed they didn't invite me to Washington this week, but I'll try to give you a little of my impression. It does feel serious. And it has felt serious for about a year, year and a half.

When I was at the JP Morgan Healthcare Conference in January, there seemed to be a bit of a sigh of relief that people thought that the industry is self-regulating itself and being public about not doing price increases or not doing price increases more than 10%. That seemed to be having an effect. But I don't think that the industry is out of the woods. I think that if nothing else, we're going to see more transparency and I think in certain therapeutic areas, we're going to see some more compression in prices.

But this industry, the real engine of this industry is the innovative drugs. And it's hard to tell a company that spent $1 billion on a breakthrough drug that saves people's lives that well, you know, we need it for half the price. So I think there's always going to be room for innovation in this industry, it's one of the things that keeps us charged up about. Now your question was what is the impact on us? I think it's a bit indirect.

I mean, I think it could go in either direction. If our customers are squeezed then they need better applications that provide more value and that would help us. If they are squeezed and nothing else changes and they just want to kind of take a pound of flesh from all of their partners and vendors, then they're going to come to us, we are going to be on that list. So, we haven't seen an impact from it.

I think it would take a pretty significant change for you to see that change in our financials in any meaningful time period.

James Rutherford -- Stephens Inc. -- Analyst

Right. Thank you very much.

Operator

Your next question comes from David Hynes from Canaccord.

David Hynes -- Canaccord Genuity -- Analyst

Hey, thanks, guys. Maybe I could ask a couple of questions on Nitro. As I think of early adopters there, is it the initial time to market that will have users saying, man, this is really different? Or is there an a-ha moment that comes later, maybe as they kind of start to make changes to their initial deployment? And I guess the reason I ask is I'm just trying to gauge kind of how long it will take for word to get out that you guys are really onto something here.

Peter Gassner -- Chief Executive Officer

I think it's the time to market and the ease and the integrated approach with Nitro. So one of -- and very interesting things about Nitro is that it can be used by the sales team, the field reps out in the field. They can get their reports, they're very customized type of reports right on their iPad, in their CRM. But also, for the head office, they can do the more free-form reports that they need to do in their reporting tools, reports and analysis and really, data science.

So both of those things, combined with the speed of getting the implementation going and the fact that as their CRM changes, they don't have to recode their data warehouse. So, I think it's just such a new concept. It's going to take a while. This is not what people are used to, David.

What they are used to is custom build for 20 years. So, it's going to take a while for people to get used to the new way of Nitro because this is fundamentally different. And it'll start with smaller companies first because they have less investment in existing infrastructure.

David Hynes -- Canaccord Genuity -- Analyst

Yes. And maybe just sticking with how this scales, I mean, in your view, how important is resolution to the challenges with IQVIA to your success? And assuming there isn't resolution there, I mean, is it possible that their anticompetitive behavior actually ends up becoming a tailwind to your own data businesses?

Peter Gassner -- Chief Executive Officer

Well, certainly, the IMS anticompetitive behaviors is a tailwind. It's a tailwind to Network, it's a tailwind to Nitro and to our data business. So, we're -- and it's just harmful to the industry overall. The actual productivity of the industry is harmed.

So, we're focused on bringing the right facts to court. We think that that trial will come in probably the latter half of 2020, when it comes into the trial. We're pretty confident in our case and we expect to do well but there's no question, it's a tailwind now across the commercial side of our business.

David Hynes -- Canaccord Genuity -- Analyst

OK, great numbers. Thanks guys.

Operator

Your next question comes from Brian Peterson from Raymond James.

Kevin Ruth -- Raymond James -- Analyst

Hi, guys. Kevin here on for Brian. Can you give us a little more color on the trajectory of your services business going forward? Clearly, the mix of Vault will be a driver but how should we think about the service's intensity for some of your growth initiatives? And maybe how you expect the role of that size to evolve as you work to get these customers up and running?

Tim Cabral -- Chief Financial Officer

Kevin, this is Tim. I think if you look at what you saw in the fiscal '19 results, the way that I think about it is probably only four months of fiscal '18, you really saw the growth in Vault or the contribution of Vault's R&D projects. Whereas in fiscal '19, you saw a full 12 months of that. Which means that the growth from fiscal '19 over fiscal '18 looks a little bit unique in that way, is what I would say, Kevin.

As we look at the overall services business, again, it is a business that we think about for our customer success. In newer product areas, we do find that our customers look to us to be the primary in those services projects for the most part. And over time, as products get more known and more mature in the market, the percent of the pie could go to the SIs. But we always will play a part and connect with our customers as they love our products but they also really love our people, from a service and from a domain expertise perspective.

As it relates to the newer products, it's a little harder to tell as we have more nascent products and what the ultimate attach rate will be of services, those can play out either like CRM did or like RIM has in the recent past or could be not as big of an attach rate and we'll learn more as we get those products into the market and work with our customers.

Kevin Ruth -- Raymond James -- Analyst

That's very helpful. Thanks.

Operator

That was our last question. I will now turn the call back over to Peter Gassner for closing remarks.

Peter Gassner -- Chief Executive Officer

Thank you for your time today, folks. We look forward to seeing many of you at the Morgan Stanley conference tomorrow. In closing, I'd like to thank the entire Veeva team for their outstanding work in 2018 and thank our customers for their continued partnership. I look forward to a great 2019 together.

Thank you.

Operator

[Operator signoff]

Duration: 62 minutes

Call Participants:

Rick Lund -- Head of Investor Relations

Peter Gassner -- Chief Executive Officer

Tim Cabral -- Chief Financial Officer

Tom Roderick -- Stifel Financial Corp. -- Analyst

Matt Wallach -- President

Jackson Ader -- J.P. Morgan -- Analyst

Arjun Bhatia -- William Blair -- Analyst

Saket Kalia -- Barclays Capital -- Analyst

Kirk Materne -- Evercore ISI -- Analyst

Ken Huang -- Guggenheim Securities -- Analyst

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

Stan Berenshteyn -- SunTrust Robinson Humphrey -- Analyst

Brad Sills -- Bank of America -- Analyst

James Rutherford -- Stephens Inc. -- Analyst

David Hynes -- Canaccord Genuity -- Analyst

Kevin Ruth -- Raymond James -- Analyst

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