Rick Lund - Director, Investor Relations Peter Gassner - CEO Matthew Wallach - President Timothy Cabral - CFO

Kenneth Wong - Citi Research Tom Roderick - Stifel Hazal Mine Kansu - J.P. Morgan Patrick Falzon - Evercore ISI Jobin Mathew - Deutsche Bank Stan Zlotsky - Morgan Stanley Scott Berg - Needham Amanda Murphy - William Blair Richard Davis - Canaccord Bradley Sills - Bank of America Merrill Lynch

Good afternoon. My name is Kristine, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Veeva Systems' Fiscal 2017 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Rick Lund, Investor Relations Director, you may begin your conference.

Good afternoon, and welcome to Veeva's fiscal 2017 second quarter earnings call for the quarter ended July 31, 2016. 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 Web site at veeva.com under the Investors section, and on the SEC's Web site at sec.gov. Forward-looking statements made during the call are being made as of today, August 30, 2016. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Veeva disclaims any obligation to update or revise any forward-looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. On the call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our Web site and as an exhibit to the Form 8-K filed with the SEC just before this call. With that, thank you for joining us. And I will turn it over to Peter.

Thank you, Rick. Good afternoon and thanks to everyone for joining us today. On the heels of a great Q1, we’ve had an outstanding quarter ahead of our guidance. Total revenue was up 34% year-over-year to $131 million and subscription revenue grew 40% to $105 million. Non-GAAP operating margin was 28%. In short, we had another quarter of strong growth and profitability. This Q2 outperformance was fueled by strength in every major area of our business including products, geographies, and customers of all sizes. We added a record number of net new customers and had one of our best quarters of expanding business within our existing customer base. In the second quarter, we announced four important new applications, two on the Vault side and two in commercial cloud. We are bringing new solutions to market at a faster pace and with greater efficiency than ever before. Discontinued product expansion is enabling us to add greater value to our customers, which in turn helps us develop deeper and more strategic relationships. We believe this sets us up very well for a long runway of growth into the future as we build out our industry cloud for life sciences. Turning to our quarterly progress by area. On the Vault side, we saw strength in both commercial and R&D. We closed three seven-figure Vault deals and added 34 new Vault customers. Existing Vault customers expanded at a solid pace as well and we now have more than a 100 customers with multiple Vault applications. That’s double the number since this time last year. Commercial Vault is progressing incredibly well. Zinc and Veeva together is proving to be a winning combination. It's been nearly a year since we acquired Zinc and I could not be more pleased with the progress through rapid alignment, strong execution, and commitment to customer success we’ve established a clear leadership position in commercial content management. We're winning more deals than ever, customers are happy, and we are expanding our solutions. In Q2, we announced Vault PromoMats DAM edition. Later for December release, this new Vault add-on will bring enterprise digital asset management capabilities to Vault PromoMats for those with more sophisticated asset management needs. Capabilities will include more robust image and video file handling, larger file sizes, more storage, and the ability to easily configure brand portals. Until now companies have had to integrate their core medical, legal, and regulatory review system with a separate enterprise DAM. We will now offer the only industry-specific solution that combines enterprise digital asset management with best-in-class medical, legal, and regulatory review. This is strategic for our customers, because it enables content reuse globally, which can speed time-to-market and we believe can save a large pharma company up to $50 million a year in content creation cost. Our digital asset management strategy is an important differentiator and is already making a big impact on the market. In Q2, it was a factor in helping us secure another seven-figure Vault PromoMats deal with the top 10 pharma. It was a big quarter for our clinical business as well. We had another seven-figure deal with the top 10 pharma company that’s standardizing on Vault CTMS globally. This is the seventh top 20 pharma to standardize on Veeva Vault CTMS. It's the first European-based top 20 and we believe it will be a catalyst for further Vault momentum in Europe. We expanded our clinical market opportunity in Q2 with the announcement of Veeva Vault CTMS for clinical trial management, planned for release in the first quarter of 2017. We believe the market for clinical trial management systems known as CTMS is about the same size as the eTMF market. And it’s ripe for disruption as customers are looking for alternatives to legacy solutions. Veeva Vault CTMS is groundbreaking in two ways. To start, it’s the first CTMS to be built on a true modern cloud platform. The ease-of-use, flexibility, and openness of the Vault platform are critical to support modern clinical trials and we believe Veeva is the first to market with these capabilities. In addition, Vault CTMS is the first to be part of an integrated application suite that brings together CTMS, eTMF, and steady startup on a common platform to unify clinical operations. We feel that our clinical solutions offer breakthrough capabilities and we will be one of the many growth drivers for Veeva over time. This approach to clinical is similar to what we’ve for regulatory with our Vault RIM suite and for quality with Vault QMS and Vault QualityDocs. Though we only began selling the QMS product in June, we’re making great strides. Vault QMS is maturing rapidly and in Q2 we signed four deals. We believe we are seeing this rapid uptake, because our offering unifies quality applications and because customers want to move to the cloud with the modern platform-based solution. In CMTS, QMS, and many other markets within the life sciences industry, Veeva is the first to market with credible modern cloud offerings. That might seem surprising, but it underscores just how early we are in the transition from legacy on premise solutions to industry-specific cloud offerings. It was also a great quarter for commercial cloud. Our strategy of establishing success in core CRM for sales automation and extending from there to other commercial cloud solutions is progressing very well. Expanding beyond core CRM was one of the major themes of Veeva Commercial Summit, which we held this June, in Philadelphia. Having grown to more than 1,200 attendees Veeva Commercial Summit is easily the largest commercial life sciences event of its kind. This year we had early adopter customers both large and small, talk about their success with products like network, Align, Events, and OpenData. While its early innings for many of these products, we anticipate strong adoption over time as customers reach for the benefits of an integrated suite of solutions across multiple regions and divisions. Turning to some of the specific Q2 highlights for commercial cloud. It was an excellent quarter for multichannel CRM with the top 20 global pharmas. A few of our top 20 pharma customers had major new rollouts as they progress toward global deployments. In the regional projects at our last -- at our latest two top 20 pharmas progressed well this quarter, and we are optimistic this successful will lead to global and divisional expansion over time. In SMB, commercial cloud momentum is also good. More SMB customers are going with multiple commercial cloud solutions right from the start. As with our large enterprise customers, we're also pleased with the progress of current SMB customers adding new commercial cloud applications. We are also encouraged by the growing demand for our most recently released CRM add-ons. In the second quarter, we closed a number of new Veeva CRM events management customers and existing events implementation projects progressed well. We now have over 10 events customers live across six countries. We are also continuing to see great early momentum with Align. We signed our first U.S customer in the second quarter, our global pipeline is growing nicely and we are pleased to see the global rollout of a key large customer progressing on schedule. We also announced two new commercial cloud offerings at Summit. Veeva CRM engage meeting planned for late this year and Veeva CRM Engage webinar planned for mid next year. These products will empower companies to far more effectively reach and connect to healthcare professionals and deliver compliant content through digital channels. These solutions have the potential to transform how pharma Engage engages with healthcare providers by finally making screen sharing video calls and webinars easy for doctors and for pharma reps. Due to poor technology and the inherent limitations and compliance risk of siloed systems, this hasn’t been possible before. Customers response at Summit was very positive and we're already working with potential early adopters. In summary, we had a great second quarter that was highlighted by strong performance across all segments, geographies, and product lines. We are seeing strong demand for our established products and great interest in new products we’re building for the future. We are deepening our strategic relationships with existing customers, as well as adding many new customers. I've never been more optimistic about our future. I like to thank all of our employees for their outstanding efforts and teamwork this quarter. And I'd like to thank our customers for their continued support and partnership. With that, I will turn the call over to Tim.

Thanks, Peter. Q2 was another quarter of across-the-board outperformance. Total revenue was $131.3 million, up from $98.1 million one year-ago, a 34% increase. Subscription revenue was up 40% to $105.2 million from $75.3 million last year. Subscription revenue benefited from another strong bookings quarter across multiple products and region, capping our best ever first half of the year. Services revenue came in at $26.1 million, up 14% from $22.8 million one year-ago. Strength in services was broad-based, but was especially notable in Vault's projects. I expect services revenue to be flat to slightly down on a sequential basis in the second half as Q3 and Q4 tend to be seasonally slower services revenue quarters due to summer vacation and the holidays. In discussing the remainder of the income statement, please note that unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings press release that was posted just before the call. In Q2, our subscription gross margin was 79.5%, an increase of nearly 70 basis points from a year-ago driven by the faster growth of our Vaults products and our non-CRM commercial cloud offerings, which have a higher gross margin profile relative to our core SFA products. Services gross margin for the quarter was almost 33% compared to 31% one year-ago and up meaningfully from 23.5% in Q1. The large sequential swing in this metric was driven by increases in both utilization and demand. I expect services gross margin to return to the mid to high 20s in the back half of the year, which is more in line with our normal range in the 20s associated with our target utilization rates. Remember that our services business can be highly variable on both the top and bottom line. So this type of movement in services gross margin can happen from time-to-time. Our total gross margin for Q2 was 70%, an increase of nearly 250 basis points from one year-ago. This improvement was driven primarily by the increased mix of subscription revenue and the rise in subscription gross margin. Overall, our operating income came in at $36.7 million, a 28% operating margin, which was well above the high-end of our guide. This result was driven primarily by our revenue outperformance. In addition, relative to our plan, our early investments on new initiatives have been more efficient than expected. That said, we continue to invest, adding 81 people net in the quarter finishing at 1,623, up from 1,123 one year-ago. The linearity of those hires was weighted towards the back end of the quarter, which also contributed to our outperformance in operating margin. Net income for the quarter was $22.3 million compared to $18.2 million last year. Our effective tax rate of about 37% was slightly higher than normal due to a change in the long-term treatment of one of our foreign subsidiaries and the associated catch up Q1. We expect our effective tax rate to be roughly 36% for the remainder of the year. Our fully diluted net income per share was $0.15 compared to $0.13 for the same quarter last year. Turning to the balance sheet. Deferred revenue was $177 million compared to $181 million at the end of the first quarter. This resulted in calculated billings of $127 million, which represents 32% growth year-over-year. Our calculated billings total for Q2 was well ahead of our $110 million guidance provided on the last call. Based on the strength of our first half calculated billings performance, we are increasing our full-year calculated billings growth guidance to 25% to 26%, up from roughly 24%. To give some context, calculated billings was particularly strong in the first half of the year for two reasons. First, our bookings in Q1 and Q2 have been very strong. Second, these bookings came disproportionally from customers with annual billing terms that also have renewal dates in Q1 and Q2 and therefore are not additive to the second half billings. This has shifted the seasonality of our renewal base more towards the first half of our fiscal year with Q3 being our lowest renewal quarter on a dollar basis. As a result, for this fiscal year, calculated billings growth will likely to be weighted towards the first half. These shifts in the seasonality of our renewal base may happen over time. It's important to keep in mind this ultimately had no impact on recognized revenue. Due primarily to the current seasonality of our renewal base, we expect calculated billings to be approximately $100 million in Q3. Remember, as discussed on prior calls, calculated billings in Q3 of last year benefited from a few one-time items. These items contributed approximately $13 million in that period and will not recur this year. As was the case with our first quarter calculated billings growth of 62%, year-over-year quarterly comparisons of this metric are not good indicators of the underlying momentum of the business. Our increase in -- of calculated billings and revenue guidance for the year is the best indication of our strong momentum. Elsewhere on the balance sheet, we exited Q2 with nearly $480 million in cash and short-term investments, up from $457 million at the end of Q1. This increase was driven by a solid performance in cash from operations, which came in at $12 million. Our expectations for full-year operating cash flow remain consistent with last quarter. Since our operating cash flows can be volatile quarter-to-quarter, we look at our cash flow performance on the last 12 month basis. Over the last 12 months, our cash flow from operations was nearly $144 million, up 61% from previous 12 month period. One additional note around cash flow. We are starting to build out additional space in our headquarters building to accommodate our continued growth. I anticipate this phase of the build out to account for roughly $8 million in incremental CapEx spread out over the course of three to four quarters starting in the late Q3 of this year. Let me wrap-up by sharing our outlook for next quarter and for the rest of the year. For the third quarter, we expect revenue between $134.5 million and $136 million. Non-GAAP operating income of $36.5 million to $37.5 million and non-GAAP net income per share of $0.15 to $0.16 based on a fully diluted share count of approximately $148 million. For the year, we now expect revenue in the range of $525 million to $528 million, an increase from our previous guidance of $516 million to $520 million. We are increasing our expectation for subscription revenue growth as we now expect it to grow in the mid-30s range for the full-year. For fiscal '17, we now anticipate non-GAAP operating income of $138 million to $140 million, a margin of roughly 26%. This is an increase in both dollars and margin from our previous guidance of $127 million to $131 million and a margin of 25%. We are now targeting non-GAAP net income per share of between $0.60 and $0.61 based on a fully diluted share count of approximately $148 million. Overall, I'm very pleased with the direction of the business. Our execution has been solid in the first half of the year, which leaves me very optimistic about the back half of the year and for the long-term prospects for Veeva. With that, thanks for joining the call. And we will now turn it over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Ken Wong from Citigroup. Your line is open.

Hi. Thanks for taking my question. Tim, if I could, maybe the first question is just related to cash flow. So, you guys are keeping that roughly the same and I believe after Q1, you said that Q1 will be about 85% to 90% of cash flow and I think you attack on the $12 million from this quarter, that doesn’t leave a whole lot for the second half. Am I thinking about that right, am I missing something in terms of how I’m calculating those numbers?

Yes, Ken, you’re right. There is -- as we look at our cash flow, it certainly become -- becoming more increasingly seasonal over the last few years with Q1 being the peak and Q4 typically being the lowest as it relates to cash flow. That guidance that we gave last quarter and that we reiterated again this quarter, keep in mind does represent north of 50% growth year-over-year from a cash flow perspective.

And then maybe a quick follow-up on that. When I think about your cash generation, your billing seem to be higher than what you guys thought going into the quarter. It seems like you guys are more efficient with the spend. I guess, I would've figured the cash flow we would have seen an uptick in how you guys are looking at the second half as well?

Yes, when you look at the billings set up as we talked about or as I said in my prepared remarks Ken, we talked about the fact that the majority of the growth is going to be in the first half of the year. And now it's really driven by the set of deals that we saw in Q1 and Q2, which closed with more annual billing terms and ones that had actual renewal dates in Q1 and Q2. So, that's one thing to think about, Ken. And I guess the other thing to think about is, as we think about Q4, I think what we’re going to see is what we saw last year which is a majority of that billing happening in the back half of the quarter, which means it will turn into cash flow in Q1. So we expect that seasonal driver to continue into this year.

Got it. Got it. And then a quick question for Peter. I mean, with last quarter you guys talked about building out your kind of Vault adjacent markets team. I’m just wondering kind of what the progress is there and I think one of the other goals was to hopefully get some reference customers. How close are we to possibly seeing some reference customers?

Yes, Ken, for Vault outside of life sciences, I guess the high level, it's still early days, but we’re making progress, we’re very happy with our progress. Progress is coming in two areas. First, we’re building out the team of sales and services professionals. And then we’re also getting involved in early sales cycles and we’re learning a lot from these earning sales from these early sales cycles and that will help us as we refine our go to market approach going forward. So we’re really happy with the progress and we will provide further update on our progress at our end of the year call.

Got it. Thank you very much guys.

Okay.

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

Hey, guys. Good afternoon. Thanks for taking my question. So in looking at the Vault business, another great quarter optically I guess from looking at 34 new Vault customers. I guess, you had three seven-figure deals. Curious as you gain more and more traction with existing customers, if the sort of seven-figure deals and mid to large six-figure deals, are they coming more easily? Are you getting more self-efficiency inside those customers for new products, whether it's submissions or quality add-ons to the core? And are you starting to see larger rip and replacements of existing footprint, to say document to share point out there?

Sure, Tom. This is, Matt. I think that optically it does look like it's getting easier, but the reality is every one of these deals is hard. And it took years of building this platform to put ourselves in the position to be able to put up these kinds of numbers and add some of the new customers. If I look across the customer base at the pace at which we are cross-selling or expanding, it does feel like it's increasing. The number of companies that have multiple Vaults has more than doubled year-over-year and we feel that in sales cycles. So when we started Vault, just a few years ago, there was never a sales cycle for more than one Vault at a time. And so in addition to the expansion within existing customers, we now RFPs and sales processes that are looking for total enterprise content management capabilities. So that's exciting for us, because we’re the only Company that can provide that. So, I think the optics are accurate. The progress with an existing customers, new customers remains very, very strong.

Great. And just on the concept of selling back to the installed base with a new Vault, are -- did those typically end up being competitive deals where you’re in a bake off situation or is that contemplated that hey, you guys are the lead vendor on eTMF and therefore that has gone well and need to negotiate your way to pricing? How often do those add-on deals end up being competitive situations versus standalone?

Yes, I think generally within smaller customers, we don't have to go through another RFP process. We can close multiple Vault applications including for things like RIM, Registration Tracking, QMS, without going through an RFP process. Within the largest customers, many of them still have rules that any kind of spend over a certain amount needs to go through an RFP process. So that's still the norm.

Got it. Tim, real quick one for you. You guys usually breakout the rough subscription growth for CRM versus Vault and other. Can you provide us some tracking on that or maybe just how you’re tracking towards your end of the year goal?

Yes, sure. So -- and when we look at total revenue, non-CRM actually was just over 35% this quarter, which was up from 23% this time last year. And Tom what I would say is this really reflects the diversity of our revenue and our ability to tackle multiple large markets in parallel. So, very happy about both commercial cloud and vault performance there. One thing to add Tom there is as we talked about before, the vast majority of non-CRM is related to vault.

Got it. And is the subscription mix pretty similar to that total mix?

We haven't broken out subscription mix. Typically what we talked about is growth and what I'll tell you there is, as you heard in my prepared remarks, we did increase our expectation for subscription revenue for this year from sort of the low 30s to the mid-30s. And both CRM and non-CRM are contributing, but what I would say now is we’re looking at non-CRM to more than double in subscription revenue year-over-year.

Great. That’s really helpful. Thank you, guys. Nice job.

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

Hi. This is Mine Kansu in for Sterling. Thanks for taking my question. I want to ask about the new product launches and how do you think that’s going to be changing the competitive landscape like you’ve mentioned the two new Vault products and the commercial cloud. I just wanted to get a better sense of if you see any change from the competitive landscape for you? Thanks.

Yes, sure. So, I will go through them kind of one at a time. This is Matt. So, for CTMS, it really significantly changes the landscape for the eTMF product, because we’re the first and only company to offer an integrated eTMF with CTMS on a single platform and a single cloud platform. So, I think that that really does have a significant impact. In the PromoMats area, the addition of a PromoMats DAM, I think further extends our market leadership and makes it harder for someone to try to start a new company and compete with us. In CRM, it's a really significant differentiator. There's been efforts for the last 15 years, my whole career to do video calling with physicians and the technology has really always helped companies back by eliminating all of the barriers with our Veeva CRM Engage family. I think that it's going to be a significant step forward for our customers and because our customers have done large Veeva deployments regionally and globally, they will be able to turn on this new capability globally in a matter of weeks. Where with our competitors, they would have to cobble something together and to do it globally would literally taken them years. So, I think each of these things contributes to the competitive lead that we’ve have and the competitive mode that we've been digging with technology leadership and good execution.

Thank you.

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

Hi. This is actually Patrick Falzon on for Kirk. Congrats on the quarter. Peter or Matt, I was wondering if you guys have any view on the new electronic common technical document formatting that the FDA is going to start requiring next spring. Do you think this legislation is having any influence on Vault demand right now, or will it start to influence buying patterns in the next couple of quarters?

Hi, Patrick. This is Matt. So ECTD that you’re asking about actually have the impact already. So we’re sort of coming out of the additional demand that was created as a result of that. So Vault clearly benefited from that over the past couple of years. The next one that is coming is called IDMP and we think it's going to have a significantly large impact in the submissions in the RIM area. We’ve already seen project starting even though they don't need to be completely in compliance for couple of years. So, I think that sort of the regulatory roundtable, every couple years there is something else that impact the industry and as a cloud vendor we can stay ahead and be a great partner to our customers.

Great. Thanks. And if I could just squeeze one follow-up. In terms of the seven-figure Vault deals, for those primarily in the commercial side of the businesses or was that more of a balance between commercial on R&D?

I will take that one. There was actually one in the commercial and two in the R&D. One in the commercial, the PromoMats side, that’s brand-new customer for us on the Vault side. And we had an eTMF one in Europe, which was great. That was our first eTMF customer in Europe and we think that’s really good news, to start that reference selling model in Europe. Then also we had one -- the other one was with a Japanese domestic company. Domestic Japanese producer, now its four also on the R&D side. And that was a first for us in Japan too and we’re hoping that can create some momentum there in Japan. So it was really a mix across all geographies in areas.

Great. Thanks and congrats on the quarter.

Thank you.

Your next question comes from the line of Karl Keirstead from Deutsche Bank. Your line is open.

Hey, guys. This is Jobin Matthew sitting in for Karl. Great quarter. Thanks for taking my question. So I had couple of questions. The first one is on the new CTMS product. Who do you guys compete with over there? Do you -- would you see the likes of Medidata out there in the market or is it more some of the legacy competition that you guys have out there? And second on the financials for Tim. I know you mentioned the non-CRM subscription revenue should more than double this year, but what about the CRM subscription revenues. What are your expectations for growth over there for that this year? Thanks.

Hey, Jobin. Its Matt. I will take the first of your question. So, competitively I sort of look at our entry into the CTMS market and the QMS market and the registrations tracking market as pretty similar from a competitive standpoint. So in each of these areas we compete against a pretty broad set of largely smaller companies that are focused just in that one area. And so it's sort of the best-of-breed approach and we comment we’re competing with an integrated suite of a best to be products and we're in the cloud and generally these legacy providers are not. In CTMS specifically, you asked about Medidata. Medidata, this is one of their many products and it's the first time that we will compete directly with Medidata, but we will continue to partner well with them as well because we have a large number of joint customers, it's good for the industry that we continue to work together. And I think that we will coexist for years to come.

And then, Jobin, its Tim. In terms of the CRM subscription revenue growth, that is implied in our overall subscription revenue growth. It is slightly higher I would say, but still it roughly is 15%.

Got it. Thanks.

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

Hey, guys. Good afternoon and thank you for taking my question. So a couple, just a couple from last. You mentioned out the hiring, you’re still continuing to hire aggressively. Although you’re seeing some of the efficiencies around new products. What are these efficiencies and how is overall hiring environment that you’re seeing out there? And then I’ve a quick follow-up for Tim

Okay. Hire environment, we think it's good. We think it's great time to invest in people that’s what we outlined at the beginning of the year There was some sort of shine off the speculative tech bubble and was continuing to see that play out. So the hiring environment is good. We are getting more [indiscernible] interest of Veeva across all areas of the Company and geographies. And in terms of efficiency, really what we're seeing is at the start of the year we laid out a plan to invest heavily in the field and end products to make some new products. We’re making those a little bit more efficiently, I would say slightly more efficiently than we thought through greater leverage of the Vault platform. We are really getting some efficiencies there due to the technical construction of the Vault platform, we’re able to bring these applications out quickly and just a little more efficiently than we thought.

Okay, great. And for Tim, what was the FX impact in the quarter on billings and revenue?

Stan, good question. So, it was actually fairly immaterial for us and let me give a little more color there. Obviously with Brexit happening in the quarter and the impact that had on pound I would tell you that we are really not exposed to the pound overall parts of our business are, but for the most part overall. It's not a big deal. So it didn't have a material impact on our financial performance or billings.

Okay, great. Thank you guys.

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

Hi, everyone. Congrats on the impressive quarter. I have two quick questions. First of all, I don’t know Mat or Peter want to take this, but as you look at the quarter and the bookings in the order, your mix seem to be pretty broad-based, lot of commentary there in terms of our performance there, but where there any products that skewed in their performance much more than your expectations?

Its, Peter. I will take that one. No, I would really say its broad-based. I can point to a particular product that’s skewed in terms of our overall bookings. I would say if you look back over the quarter one of the real surprising things was again just launching this QMS product in June and then already signing four customers. So, that I would say, hey you guys, I would say, you got to fire on all cylinders to hit that right and we did. But in terms of the macro level where the percentage of bookings come from. Now there is no -- its short based. Broad-based in terms of products and geographies.

Great. And I guess, a follow-up for Tim. You guys recorded 70% gross margins on a non-GAAP basis for the first time in the Company history and I know your guiding, your subscription gross margins a little bit lower in the second half based on this utilization rate. That was still ahead of our expectations making that 70 hits more next year. As you've been able to reach 70 and you’re seeing the mix of business, what bookings are coming from? Is there any reason not to believe that you could at some point get to the 75% to 80% gross margin level, given your current product strength.

Yes, Scott, what I would say is the guidance that we gave -- excuse me, guidance is the wrong word. The model that we talked about in our 2020 timeframe was a low 70s gross margin. Inclusive in that was a little bit over 80% in terms of subscription in gross margin. You made a comment that our subscription gross margin might be showing a little bit of decline in the back half. I think which you meant is services gross margin which is inherent to my comment. So I think the 72% to 73% which was the operating model that we talked about in the 2020 timeframe is what you probably want to think about with subscription gross margin continuing to show increases into the low 80s.

Great. That’s all I’ve. Thanks for taking my questions.

Thanks, Scott.

Your next question comes from the line of Amanda Murphy from William Blair. Your line is open.

Hi, thanks. Good afternoon. I just had a quick follow-up on the Vault side to obviously you’re gaining a lot of traction there, but I’m just curious given all the pressures in the industry around regulatory dynamics that you’ve talked about and then obviously just in terms of focused on the part of pharma, biotech to improve time to market, and lower cost etcetera. I mean, what’s your key -- what are the key barrier to adoption at this point just in terms of not getting new customers on board and then cross-selling additional apps, I know one of the famous for example you talked about was just targeting different points in the organization, in terms of sales touch point. Curious what you’re hearing in terms of push back and then any improvement in terms of length of the sales cycle over time.

Hi, Amanda. This is Matt. So I think sales cycle is generally have stated about the same, because it’s a pretty structured process once RFP comes out. So I don’t -- I wouldn’t actually expect to see big changes there. The one thing is that we do see more deals that we can win without an RFP. Although it's not that big outside of the smaller companies. In terms of the overall dynamics, kind of nailed the things that are driving it although there's also this moved to the cloud, right. So, many of the lot small and large pharma CIOs have a cloud first mentality. So that's another thing in addition to time-to-market and regulatory changes that are driving demand. You asked about the barriers. What -- how could we go faster basically. Markets have a normal cadence. No one ever turned over an entire legacy software market in the year. And so it is a multistage, multiyear process really every time we launch a new product. We are replacing systems of record that are on premise or hosted highly customized systems, custom integrated with lots of other enterprise systems. So this is something that happens in a normal cadence and these markets turn over every four years, every eight years depending upon the different market segment. So I think we're doing the right things in terms of focusing on the product, focusing on customer success, and continue to invest in our people and products to make sure that we can help our customers achieve those objectives is getting time to market faster and staying in compliance with these change in regulations.

Got it. And then just in terms of potential apps on the Vault side that you could launch going forward. What other areas do you see opportunity and obviously you think you’ve got 10 now at this point and then also just on the CRM side, are you still targeting one to two CRM add-ons a year? Thanks.

Yes. So, we’re not going to comment specifically about new markets. But what I will say is that within life sciences there's still a lot of opportunity to move legacy applications into the cloud. And thanks to your questions on your birthday, Amanda.

Thanks.

Your next question comes from the line of Richard Davis from Canaccord. Your line is open.

Hi. Thanks. Is there any commonality when you see these RFPS that’s where the budget dollars are coming from? And the reason I ask is just you’ve seen this I’m sure, some of the large platform firms will sign overarching contracts and not to say will fine if you decommission some component of our software you’re still going to pay the full both in that kind of stuff and I’m just trying to figure it where the budget dollars are coming from thanks?

Yes, this is Peter. I think that that does on the different applications. So it’s first off usually for the applications we have that will be a discrete budget for those applications. Maybe not necessarily for some of the smaller ones, but for all of the main ones. There is an existing system or process that’s doing that and generally will have a distinct budget. Then when you go from there, it will either be on the business side or the IT side and there's is a rough pattern for different applications that is a norm but it varies company by company. We haven't seen this pattern in general of --the budget is the overall basket of lots of application. So that we remove one, hey, that doesn't work. We have to remove them all. In general, we don't see that. Its nice discrete parts, especially when you look at in Vault on the R&D side or on the commercial side. Regulatory that’s the separate set of things from clinical, which is a separate set of things from quality and they keep their budgets separate.

Got it. That’s helpful. Thanks.

Your final question comes from the line of Brad Sills from Bank of America. Your line is open.

Hey, guys. Thanks for taking my question. I just had one on Zinc Ahead, now that it's been almost a year since the acquisition. Can you provide a little bit of color on how that’s been performing in both the pipeline and it sounds like you saw some uptick this quarter in the PromoMats business. How much of that was coming from Zinc Ahead. Just little color on how Zinc Ahead is performing both in the pipeline and on existing business? Thank you.

Yes.

Yes, it has been almost a year now sine the acquisition. And as you recall, our strategy for the acquisition, Zinc had a competing product with the Veeva PromoMats. We are supporting the Zinc product until the year 2020 and we’re gradually removing people on to the PromoMats product which is our go forward product. So overall, progress is exactly according to plan. We've done a lot of domain expertise from the Zinc team and we’re using that to increase our lead in our Vault PromoMats product. Some customers already completed their migration to PromoMats more underway and I would say we’re winning more deals now in PromoMats than we have ever before. Also when we look at this the PromoMats is a digital asset management edition that we brought out. I don't – it’s not clear that would been possible without the acquisition of Zinc, because we really brought a lot of domain expertise together and it was a combination of the Zinc people and the Veeva that were making this digital asset management solution. So we’re really seeing the synergies that we thought and both from the financial side, from the intellectual property side, it's really been a good one for us.

Great. Thanks, Peter.

Thank you.

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

Thank you. It was an outstanding quarter. With great progress involved in commercial cloud and thanks again to the Veeva team for your outstanding efforts in teamwork and also to our customers for your continued support and partnership. Thank you for joining us on today's call and we look forward to seeing many of you at our upcoming Analyst Day at the end of June -- sorry September -- end of September.

Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.