Yahoo Finance Veeva Systems Inc. (VEEV) Q3 2018 Earnings Conference Call Transcript
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Veeva Systems Inc. (NYSE: VEEV)
Q3 2018 Earnings Conference Call
Dec. 5, 2017, 4:30 p.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good afternoon. My name is Chantel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Veeva Systems Fiscal 2018 Q3 Earnings 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. If you'd like to ask a question during this time, simply press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key. Thank you. Rick Lund, Investor Relations Director, you may begin your conference.
Rick Lund -- Director of Investor Relations
Good afternoon, and welcome to Veeva's Fiscal 2018 3rd Quarter Earnings Call for the quarter ended October 31, 2017. 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, December 5, 2017. 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 we 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, Director
Thank you, Rick, and thanks to everyone for joining us today. I'm pleased to report that we once again delivered a great quarter, with revenue and profit above our guidance. Total revenue was $176 million, up 23% year-over-year. Subscription revenue grew 25%, and our non-GAAP operating margin was 33%. Q3 was a great quarter in Commercial Cloud and Vault. Within Vault, we had notable progress in both clinical and quality. We also announced Vault Safety, a new product line for Veeva. I will provide more detail on each of our major areas, starting with Commercial Cloud.
In core CRM, we continue to extend our leadership position as we add new customers, and existing customers expand to additional geographies and divisions. In Q3, we had a major purchase and very successful go live in Japan, with a top 20 pharma headquarters in Japan. We think this will serve as an important live house account for other domestic Japanese pharmas, and sets us up for a bright future across multiple market segments in Japan. With the foundation of CRM success, customers are expanding to other areas of the Commercial Cloud. Just like core CRM, the add on products of Events, Align, Network, and Open Data are usually purchased on a regional basis. The pipeline is building, and we expect steady progress over the coming years.
For example, this quarter, we had one of our biggest booking quarters ever with Events Management. We had some great new regional wins, including three with top 50 global pharmas who had not purchased Events Management in any region before. Last week, I was in Madrid at our European Customer Summit. We had record attendance, with almost 900 people there. The feeling and sense of partnership was very strong. Customers are excited about our progress in multichannel, and they are looking to deploy more Commercial Cloud products with us over time, to get an integrated suite from Veeva, rather than assembling pieces from different vendors and being stuck with the integration burden. At the event, it was clear that we are deepening the strategic long-term partnership with our commercial customers.
Turning to Vault, we had another excellent quarter. In Commercial Vault, business continued at a steady pace. We had a strong booking quarter, with contributions from large and small customers, and across all geographies. Migrations from Zinc to Vault PromoMats are progressing well, with 2018 and 2019 shaping up to be the big years for Zinc migrations.
The largest opportunity for Vault is in the R&D side of life sciences, where we have applications for the clinical, quality, and regulatory areas. Veeva is the only company to offer solutions in all these areas on a single cloud platform. We call this set of applications the Vault Development Cloud. Today, systems for product development and life sciences are not well integrated. Customers have systems from multiple vendors, and many of them are legacy client server systems. This creates a drag on efficiency, speed, and agility in product development. Since it's an area of significant importance and need, Development Cloud is really resonating with our customers.
Now, drilling into a few areas of the Development Cloud. In regulatory, we had a number of wins in the quarter, including one with the top 50 pharma headquarters in Japan. They will use Vault as their standard for registrations globally. This is their first Vault Development Cloud application, and the start of what we hope will be a great partnership on the R&D side.
In clinical, we're making excellent progress in helping companies move beyond the status quo. Vault eTMF is our most mature application in clinical, and it continues to do well. With over 170 customers globally, Vault eTMF is becoming the global standard for clinical document management. It also serves as the strategic entry point for a broader suite of clinical unified products.
CTMS is off to a great start. Customers are looking for a modern cloud CTMS that is part of a broader suite. In the quarter, we signed our first European CTMS customer, and we added our first top 50 pharma. We closed the quarter with 11 CTMS customers and four live today. We are really excited about our rapid progress in CTMS.
I'm equally pleased with our progress in EDC. We now have five Vault EDC early adopters. Initial projects continue to ramp, and we now have our first study live. We have the right focus on product excellence and early adopter success. EDC is a complex application in a large market, with well-established players. It will take years to achieve a market leadership position. We have the right strategy and are making great progress. Customers are looking for a unified suite of clinical products, and they can only find that with Veeva.
Quality is also going well. We added a record number of Quality customers in the quarter, between QualityDocs and QMS, as the value of these two applications on a single platform is very clear. In fact, last quarter, the majority of new QMS customers also licensed QualityDocs at the same time. One of these was the large global CRO that we signed to an enterprisewide Quality deal.
We had our U.S. R&D Customer Summit in October in Philadelphia, with record attendance of over 1,000 people. Like at the commercial event last week, the feeling at the R&D summit was one of deep partnership with the industry. At the summit, we announced our next new product line in the Development Cloud, Vault Safety. Safety in pharmacovigilance is a large and complex market that needs innovation. Safety is a great fit for the Vault platform, and it has many integration point with our Clinical and Quality suites, as well as with Veeva CRM. Customers have been asking us to help with safety for some time now. We're really excited about this market and what it could bring to our Development Cloud. We plan to have Vault Safety available to early adopters in 2019.
Finally, I want to give a quick update on Vault QualityOne, our offering for outside of life sciences. In Q3, we continued to add a few early adopter customers. Most importantly, our projects with early customers are going well, and in many cases, early adopters are already expanding. We are pursuing the market outside of life sciences in the Veeva way. Our focus is to learn from early adopters, make them successful, and develop lighthouse accounts that can lead to reference selling.
In closing, Q3 was another strong quarter with Veeva, with financial results about our guidance. We continue to expand our leadership position in Commercial Cloud. Our Vault Development Cloud is set for success in a very large market, and we have significant potential outside of life sciences with Vault QualityOne. Looking ahead, we expect subscription revenue growth of at least 20% through 2020. We believe Veeva is well-positioned to generate strong growth and profitability for years to come, as we continue to build a multi-billion-dollar company. I would like to thank our customers and partners for their continued support, as well as the Veeva team for your focus on customer success and exceptional execution.
With that, I'll turn it over to Tim to review our financial results in more detail.
Tim Cabral -- Chief Financial Officer
Thanks, Peter. Q3 was another quarter of strong results. Subscription revenue was up 25%, to $142 million from $114 million last year. For the full year, we remain on track for well over 50% subscription revenue growth for Vault and 15% subscription revenue growth for Commercial Cloud. As we've discussed in the past, we believe that subscription revenue is the best topline metric to gauge the performance of our business. Services revenue was $34 million, up 17% from $29 million one year ago, and up from $32 million in Q2. With fewer billable days available in Q4 versus Q3, we expect services revenue to decline sequentially by roughly $2 million in Q4.
Total revenue for the third quarter was $176 million, up 23% from nearly $143 million one year ago. Vault strength continued to be the biggest contributor to our growth, representing 40% of total revenue in Q3, up from 33% a year ago. 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 Q3, our subscription gross margin was 81.5%, an increase of roughly 150 basis points from a year ago. This was driven primarily by the faster growth of our Vault products and our Commercial Cloud offerings outside of core CRM, which have a higher gross margin profile relative to our core CRM products. These benefits were partially offset by the incremental expense associated with our AWS migration. As we ramp the full use of AWS in Q4, I expect a slight compression in subscription gross margin relative to Q3.
Services gross margin for the quarter was 32%, which is down from 38% a year ago and down slightly from 33% in Q2. Given the expected sequential drop in services revenue, and our plan to continue hiring to meet demand for next year, I expect service's gross margins to be in the mid-20% range for Q4. Our total gross margin for Q3 was 72%, an increase of about 50 basis points from one year ago. This improvement was driven by the rise in subscription gross margin, which more than offset the decline in services gross margin.
Our operating income was almost $58 million, a nearly 33% operating margin. Across the company, we added 116 people net in the quarter, finishing at 2,100, up from 1,709 one year ago. While we had a fantastic hiring quarter, some of the expected headcount for Q3 pushed into Q4, which benefited our bottom line results in the quarter. Net income for the quarter was $38 million, compared to almost $32 million last year. As a reminder, we've adopted a flat non-GAAP tax rate of 35%, which we are not adjusting quarterly, but will reevaluate on an annual basis.
Turning to the balance sheet, deferred revenue was $173 million, compared to $223 million at the end of the second quarter. This resulted in calculated billings of $127 million, which was ahead of our guidance of $118 to $119 million. This was primarily related to better than expected billing duration for the business close in Q3, and outperformance on the services revenue line.
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. With that in mind, for Q4, we expect calculated billings in the range of $272 to $274 million. This implies full-year calculated billings of $732 to $734 million, or about 22% growth from fiscal '17.
Elsewhere on the balance sheet, we exited Q3 with $758 million in cash and short-term investments, up from $725 million at the end of Q2. This increase was drive by healthy performance in cash from operations of over $32 million, which benefited from better than expected billings and another strong collections quarter. As discussed on previous calls, this is the first year that we're adopting ASU 2016-09, which changes the accounting treatment of tax benefits associated with our stock-based compensation. For Q3, this benefited operating cash flow by almost $9 million. Excluding that benefit, our operating cash flow for the quarter would have been almost $24 million. And excluding the excess tax benefit, we expect operating cash flow in Q4 to be roughly break even. As a reminder, Q4 is our typically lowest cash flow quarter because of the seasonal patterns of renewals.
Let me wrap up by sharing our outlook for the fourth quarter and an early view of fiscal '19. For the fourth quarter, we expect revenue between $179 and $180 million, which leads to $680 to $681 million for the full year; non-GAAP operating income of $50 to $51 million, which leads to $211 to $212 million for the full year; and non-GAAP net income per share of $0.21 to $0.22, based on a fully diluted share count of approximately $154.5 million. For the full year, we now expect non-GAAP net income per share of $0.91, based on a fully diluted share count of approximately $154.5 million. As you consider our non-GAAP operating income guidance, please recall that Q4 is our highest quarter for certain expenses, so the margin level implied by our guidance should be thought of as seasonal in nature.
Let me now turn to next year. While we have not yet completed our planning process, and we will provide detailed guidance on our Q4 call, at this point, we are comfortable providing an initial guide of roughly $805 million in total revenue for fiscal '19, consistent with our commentary from our Analyst and Investor Day in October, we expect subscription revenue to grow at least 20% in fiscal '19. For next year, we also expect services revenue growth in the mid to high single-digit range. From a bottom line perspective, our early spending plans for next fiscal year would result in a non-GAAP operating margin of roughly 30%. This reflects our continued commitment to invest in our current product portfolio and go to market teams, as well as our efforts to drive longer-term growth.
I also want to highlight that this early fiscal 2019 guidance includes the anticipated impact from the new accounting standard commonly known as 606. As it relates to operating expenses, the impact will be minimal. And while the directional impact to revenue is still uncertain, it will likely be small, with the worst-case scenario being a headwind of a few million dollars. In summary, we're targeting strong growth for next year, and will continue to plant seeds for longer-term growth in order to build a multi-billion-dollar business over time.
With that, thank you for joining us on the call today. I will now turn it over to the Operator for questions.
Questions and Answers:
Operator
At this time, I would like to remind everyone, in order to ask a question, press * then the number 1 on your telephone keypad. We'll pause for just a moment to compile a Q&A roster. Your first question comes from Jesse Hulsing with Goldman Sachs. Your line is open.
Jesse Hulsing -- Goldman Sachs -- Analyst
Yes, thank you. On the CTMS front, it sounds like you're getting nice early traction. How much of a pull is the eTMF customer base there? Are you seeing CTMS predominantly adopted by existing eTMF customers?
Matt Wallach -- President, Co-founder
Hey, Jesse, it's Matt. So, as we expected, the pull is strong, because the integration between eTMF and CTMS is very deep and tight. You actually use CTMS to create documents that have to end up in eTMF. And if you can deliver that all in a single product on a single platform, that's pretty valuable. So, the vast majority of the CTMS customers were eTMF customers either first, or they actually bought the two products together.
Jesse Hulsing -- Goldman Sachs -- Analyst
That's helpful. And I know it's early, but as you look to your planning for next year, do you think you have enough product market fit to really press on the gas for QualityOne and the outside life sciences go to market efforts? Thanks.
Peter Gassner -- Chief Executive Officer, Director
Yes, Jesse. So, for QualityOne, remember, that's an effort we just started last year. So, we're really pleased with that product progress. So far, we have the team in place. I think what we'll look for next year is increasing our customer count and really focusing on those early adopters still, making sure they're successful. And then we have to scale it out also within the account, so to see if we can work up to some seven-figure customers next year, because that takes a different level of product support and a different level of thinking about the account. So, that's what we're focused on last year. We're really bullish about the market for QualityOne, and we think we can be the leader there, but it's a progress to get there.
Jesse Hulsing -- Goldman Sachs -- Analyst
Thanks. Good.
Operator
Your next question comes from the line of Bhavan Suri with William Blair. Your line is open.
Bhavan Suri -- William Blair -- Analyst
Hey, guys. Thanks for taking my question, and congrats. Just a couple quick ones from me. One, you gave a lot of color on CTMS, and EDC, and Quality. Matt or Peter, just sort of an update on regulatory and submissions, and how those are trending and tracking too, vis-a-vis the expectations?
Peter Gassner -- Chief Executive Officer, Director
Sure. Yeah, like we've said in past calls, we don't talk about every product line on every call. However, that was certainly not an indication that things are anything but positive with regulatory. It still feels like we have -- it's really the trifecta of those three products, the submissions, document management, submissions archive, and registrations. And customers are excited about the publishing capabilities coming next year. The big news in regulatory are a few major projects that we're doing. One is a couple of year-long project. We're gonna replace about 120 different systems with just the RIM Suite of Vault, and one of these top 10 pharma companies. And that's just one of a few very major transformation projects that we're working on right now. So, I think the smaller size companies, lots and lots of references, and the market is moving with reference selling. I think the market is looking at these first global Rim transformation projects, and we couldn't be more excited about where we are with those.
Bhavan Suri -- William Blair -- Analyst
Great. And then just a quick follow-up. You guys sort of talked a little bit about last quarter investing in a sales force specifically focused on CROs. Just wondering how that's going. It's sort of obviously -- you had some nice wins with that global CRO, but just sort of how that sales force is tracking, vis-a-vis, A, expectations and sort of as you're looking at the CRO market, what products are you seeing interest and uptake in? Thanks.
Peter Gassner -- Chief Executive Officer, Director
Sure, yeah. So, it certainly feels like it was the right investment to make. I think we have a good team already in place. And that Quality deal is actually a really good indicator of that. So, the relationship that we're building with the big CROs is quite strategic. And when you sell Quality to a CRO, a CRO is not manufacturing products. It's a highly regulated service. But it's so highly regulated, when something goes wrong, they have a lot of the same steps as someone who's actually manufacturing a drug. And so, at that company, there's more than 10,000 employees that're gonna be using Vault Quality. And many of those people are people that are talking to pharma companies each and every day, either working their accounts or trying to sell new deals.
And so, when we look broadly at what is the product set that we would focus on for CROs, clearly, it's eTMF and CTFS to really run the daily operations. But EDC is a tremendously large opportunity there. And QualityDocs and QMS are also perfectly applicable for their businesses. And then there's actually two more. In the regulatory area, many of the companies have a growth business. The CROs have a growth business to do outsource submissions on behalf of their pharma customers. And then the last one that they're really excited about is safety, because a lot of these companies also are doing all kind safety inputs -- what they call it, adverse advent capture, and all kinds of tracking and managing safety events when they happen. So, it's a very broad product footprint. It's almost the entire development cloud that we're working on. And so, I'll just repeat, the relationship that we can build with the CROs over time -- it feels quite strategic.
Bhavan Suri -- William Blair -- Analyst
Thanks for the color, guys. Congrats.
Operator
Your next question comes from the line of Kirk Materne with Evercore ISI. Your line is open.
Kirk Materne -- Evercore ISI -- Analyst
Thanks very much, all, and congrats. I guess the first one was, Peter, you mentioned the large deal in Japan. I know you guys don't try to get into geographies too specifically, but your comments on that opening up a new opportunity is interesting. I was wondering if you could just give us some color on sort of maybe the size the market or where you think you are, and how meaningful that might be? And then, I just have one follow-up for Tim.
Peter Gassner -- Chief Executive Officer, Director
Yeah, that's in the Japan market for -- Japan CRM in domestic Japanese pharma, and that's a market that we've not penetrated very well yet. It tends to be a conservative market, so this was really a landmark customer for us. What I'm excited about is really the sense of partnership there, and how well the implementation went, and how well the word is getting around. I was in Japan about three weeks ago, meeting specifically with the Japanese pharmas. And that one event is causing a lot of good feeling about Veeva that will translate into good CRM business there, but also into Development Cloud business over there. So, I think it was a real testament to Veeva's ability to operate well in Japan with Japanese companies on something that had very high visibility at this company. This was a very, very strategic project with visibility at the C-Suite level, and our team really worked well, our product team and our services team. So, I guess what you're hearing is enthusiasm from me for our ability to execute in Japan and for what it means for our future, both R&D and commercial.
Kirk Materne -- Evercore ISI -- Analyst
Okay. And then just one follow-up for Tim. Tim, I guess I realize it's preliminary, but your initial operating margin guidance for fiscal '19, I guess I was a little surprised there's not more of an uplift from moving to 606, given you can capitalize more of the commission costs over the lifetime value of the customer. I don't know if you're sort of waiting to get a little bit more, I guess, insight into that before getting too prescriptive on that front. But is there some reason why -- it seems like most successful companies are going to get a little bit of a benefit from that. I guess maybe you're just -- can you just give me some color on that? Not that it's a huge -- you guys are already obviously very profitable, but I was wondering if you could just give us a little color on that? Thanks.
Tim Cabral -- Chief Financial Officer
Yeah, Kirk, sure. Happy to add some color. I think you're right on two fronts. Number one, as an already strong operating model, the impact for us is gonna be a little bit less than some other companies who will get a much bigger boost in this. The other thing that I would say is, as we discussed at the Analyst Day, our amortization period is only three years, and most of our peer group, I've heard, is at least five. And some, I've even heard, are higher than that. So, again, the impact for us in operating expenses specifically as it relates to capitalizing commissions is going to be a little bit less. All those things, Kirk, I would say were included in my thinking as we put the guidance together.
And the last thing I would say -- you're correct as well -- we're still going through the process of fully understanding the 606 impact, both beyond fiscal '17, which we disclosed in the Analyst Day a month-and-a-half ago. So, I think you hit most of the points in your question, actually, Kirk.
Kirk Materne -- Evercore ISI -- Analyst
All right, great. Thanks. Happy holidays.
Operator
Your next question comes from the line of Brad Sills with Bank of America Merrill Lynch. Your line is open.
Bradley Sills -- Bank of America Merrill Lynch -- Analyst
Oh, hi, guys. Thanks for taking my question. I just wanted to ask about the commercial options. You mentioned events online being strong this quarter. Could you remind us kind of where you are in terms of penetration of the opportunity and selling not just those, but other options, into the installed base? Thank you.
Matt Wallach -- President, Co-founder
Sure. Thanks, Brad. So, if I kind of start at the top, the right way to think about Commercial Cloud is the CRM base product and then all the add-on products. And so, to put that all in context, we've just eclipsed 70% of the users with the base CRM product. The add-on products, CLM is still above 80%, Approved Email is still around 40%, Events is either right at or just about 10% penetration, and then Align and Engage are still approaching 10%.
And what we've found, as Peter said in his prepared remarks, is that the add-on products are a bit more regional than some of the CRM deals that we had closed over the years. And so, it's just gonna take some time to build that penetration. And just because we win at a company with Events or Align doesn't mean we necessarily get them globally. So, that reference selling that we do across the industry, we also sometimes will be doing it across the company as we use success in one region to drive sales in the other.
Bradley Sills -- Bank of America Merrill Lynch -- Analyst
Got it. Great, thanks. And then one more if I may, please, Tim, on the guidance expectation for 20% kind of plus subscription growth embedded in that. Is there any change in kind of the rough growth rate between Commercial and Vault this year versus next? Thank you.
Tim Cabral -- Chief Financial Officer
Yeah. So, Brad, good question. And certainly, we're early in the planning process here. We will give more details, as we have in the past, in 90 days from now when we do our Q4 call.
Bradley Sills -- Bank of America Merrill Lynch -- Analyst
Got it. Okay. Thanks, Tim.
Operator
Your next question comes from the line of Brent Bracelin with KeyBanc Capital Markets. Your line is open.
Brent Bracelin -- KeyBanc Capital Markets -- Analyst
Thanks for taking the question. Good afternoon. Tim, I had a follow-up for you I'll start with, and then one for Peter. First is, if you think about that initial view for next year, it looks like professional services has been growing in that mid-to-high teens for the last three years. I think your initial view was that could be growth in the mid to high single-digits. So walk me through kind of what's the view on professional services and why you think that potentially could slow versus the last three-year growth rate? And then I have one follow-up for Peter.
Tim Cabral -- Chief Financial Officer
Sure, Brent. So, if you think about services, there's probably three things to think about that were included in or informed the comment on the services revenue growth. First, as you know, most of our services revenue is not recurring. So, it'll always have a slower growth profile than the subscription business because we need to build it from almost dollar one every quarter, every year.
Secondly, as you've heard us say over time, the nature of that business is variable quarter-to-quarter and lumpy. So, it's certainly less predictable than subscription. And the other thing that has happened a few years ago with our Commercial Cloud business, but is now starting to happen more and more with our Vaults business, is our implementation partners are really starting to build out their Vault practices. So, it's likely that maybe even starting next year, they'll start to shoulder more of the revenue pie over time. Those would be the three big reasons, Brent, that were informed in the guidance that we gave around services revenue.
Brent Bracelin -- KeyBanc Capital Markets -- Analyst
Very helpful there. And then shifting gears to Peter, I know you'll talk a little bit more about '18 in the next conference call, but at a high level, maybe walk us through how you guys are thinking about the narrative that the opportunity next year -- what are you excited about in the framework of Vault being really strong in the last couple years? It's now become a little more mature opportunity for you. So, walk us through, as you think about next year, what are you most excited about?
Peter Gassner -- Chief Executive Officer, Director
Well, I'm excited about working with the team. We have a great team here. We have a real clear product strategy. It has three prongs. It has Commercial Cloud, which is a steady and growing business where we're really the leader in the industry, and we're using that to develop strategic partnerships with our customers over the long-term. And I'm excited about the innovation there in the products doing. We're some really interesting things with the products -- new user interface. So, that, it's a customer success -- excitement with the customers. And of course, moving them to the broader commercial cloud from CRM.
And then the big opportunity is in the development cloud. In that area it's a really -- we're really early days. We have a lot of products that are in the very early stage. So, CTMS, QMS. EDC, and now Vault Safety. So, these are big products, but in the early stage. So, I'm looking forward there to building out those products, working with the early adopters, and setting those things up for growth for the next five, seven years. And of course, we have some products that are in the nice area of the growth cycle within the development cloud -- the regulatory products, the eTMF products, the QualityDocs products.
And then we got the third leg of the stool, outside of life sciences with QualityOne. And that's not even two years old. I'm looking forward to these early adopter customers expanding, becoming large customers, and growing with them. So, I think it's gonna be a great year for Veeva across all three legs of those growth.
Brent Bracelin -- KeyBanc Capital Markets -- Analyst
Great. Very helpful. Thank you.
Operator
Your next question comes from the line of Karl Keirstead with Deutsche Bank. Your line is open.
Karl Keirstead -- Deutsche Bank -- Analyst
Oh, hi, thanks. So, Tim, I've got two cash flow questions for you. First, it feels like you've raised your cash flow guidance for fiscal '18. I think on the last call you said that full-year should equal roughly the first half ex the tax benefits. It looks like you're gonna do better than that. So, I just wanted to ask, is that largely due to the margin outperformance, or are there other drivers to that guidance revision? And then next year, you're probably gonna tell me to wait three months, but I'll ask anyway. As I think about cash flow for next year, I guess one dynamic in mind is that your cash flow growth both this year and last fiscal year has significantly outpaced your revenue growth and your operating income growth, your net income growth. And as we think about cash flow for next year, do you think that that gap might normalize, and it'll grow a little bit more in line with your operating income? Thanks, Tim.
Tim Cabral -- Chief Financial Officer
Yeah. So, in terms of cash flow for this year, Karl, and thanks for the question -- in terms of cash flow, you're right. We have seen better performance, and that's primarily driven by the bottom line results and the outperformance on the topline as well. So, it's a combination of those two things, which drives a little bit higher billings, which you've seen us raise throughout the year, as well as better cash flow performance in the year. As you saw in my Q4 guidance, I do expect it to be break even when you take or when you exclude the benefit of the stock comp tax change that we talked about.
I will ask you to nicely wait for 90 days before, we talk specifically about cash flow for fiscal '19 and more specific detail around the shape of that, and the relative relationship between that and our operating income or topline growth guidance.
Karl Keirstead -- Deutsche Bank -- Analyst
Okay. Maybe just given that, I can sneak in one more. Do you mind -- I think on the last call, you talked a little bit about a hiccup on the network data side. Do you mind giving us an update on that? I know that that's not gonna turn on a dime, but so, was it, for instance, any bigger a year-over-year revenue drag than perhaps it was last quarter? Any color on that, please?
Tim Cabral -- Chief Financial Officer
Sure, Karl. So, no, we continue to have headwinds in the network in OpenData business, but we did have some important wins last quarter. In OpenData, we closed deals in multiple countries on multiple continents. In the network, we did have one top 20 pharma company that decided to move their reference data in the U.S. to Veeva OpenData and to U.S. Veeva Network as their customer master. And that was a sales cycle they've been working on for a while. So, it was good to see that one come through. So, some progress. I would say no breakthrough. But every time we make a little progress and we have another happy customer, word gets out a little bit more. So, we're still hopeful that it will become the leader in that business over time. But as we've talked about before, it's taking longer than we would have hoped.
Karl Keirstead -- Deutsche Bank -- Analyst
Yeah, got it. Thank you both.
Operator
Your next question comes from the line of Scott Berg with Needham. Your line is open.
Scott Berg -- Needham & Company -- Analyst
Hi, everyone. Thanks for taking my questions. And I apologize for any background noise. I'm in an airport. Two questions from me. I'll start with -- I don't know if this is for Peter or for Matt, but can you just kind of talk about the success that you've had between CTMS and eTMF? Can you talk about the upsell progress, the overall in the business, maybe today versus two years ago? How much more quickly are you able to upsell customers, and maybe some growth trends around ASP? Just trying to understand maybe what that looks like.
Peter Gassner -- Chief Executive Officer, Director
Yeah. In terms of upsell to customers, I don't think that has particularly changed. What's changed is we have a broader product footprint that's changed. We've also given customers an earlier heads-up as to our strategic plans, that we're becoming a more strategic partner to our customers in many cases with our most strategic technology partners. So, we're announcing our intent earlier. So, for example, with Safety, we announced our intent at the last R&D summit a few months ago. Now, that product won't be available for early adopters until 2019. So, what we're doing, I think we're priming the pump a little bit more because we're giving customers an early heads up. Why are we doing that? I guess we're becoming little bit more predictable. As a large company, we have to plan a little bit farther ahead. And also, we're not worried about competitors or our ability to execute because we have the Vault platform where we want it. We're very confident we can build those applications. And we're just not worried about competitive threats in these areas.
So, overall, I don't think it's really changed. We really have to sell each application on its merits and on its value. But our product portfolio is broader, and we're announcing products earlier than we have, let's say, two years ago.
Scott Berg -- Needham & Company -- Analyst
Thank you. Very helpful. And then the last question probably is for Tim. And maybe I need to be patient like Karl for three more months. So, when you look at operating margins next year in your initial guidance, a 30% level or better is kind of in line to maybe below where we were the last quarter two, and that could be reflective of the add to your overall workforce, that's maybe a little bit behind. But where should we think about those investments coming next year? Are they any different than what we've see in the last two years? It almost seems like -- it sounds like you're maybe accelerating investments in a particular area or two. Thank you.
Tim Cabral -- Chief Financial Officer
Yeah. Scott, I don't know if it's necessarily different than what you've heard us talk about in terms of our investments, and it's along the lines -- I think Peter might have answered a question a couple quarters ago that I will likely repeat here, which is, I think there's investments that we see in products as we -- to Peter's point on your first question, Scott -- as we continue to build out our product portfolio and our product footprint and introduce new products to the market, like Veeva Safety or Vault Safety. So, I think it's in the product area. It's in the go to market area, as I think about what Peter talked about in terms of commercial cloud, development cloud, and then outside life sciences, there's certainly more to do from an investment perspective in our go to market approach there, both with frontline salespeople as well as strategy and market owners, as we call them.
And then I think what you'll see is an increased investment in services as it relates to continuing to meet the demand that we have in services. And you saw me give a little bit of guidance for next year of a mid to high single-digit growth there. So, I think those are the primary areas that we're seeing investment. And I don't know if that's necessarily changed in the last few quarters.
Scott Berg -- Needham & Company -- Analyst
Thank you. I'll jump back in the queue.
Operator
Your next question comes from Richard Davis with Canaccord. Your line is open.
David E. Hynes, Jr. -- Canaccord -- Analyst
Hey. Thanks guys. You got D.J. on the line for Richard. So, maybe on Vault Safety, Peter or Matt, just help us kind of frame the opportunity in pharmacovigilance, that you guys have so many Vaults now, it's hard to know kind of which ones can really move the needle in terms of growth. I know this is a big opportunity, but it would be helpful to kind of hear you set that up
Matt Wallach -- President, Co-founder
Sure. Well, I think to understand the size of it, first, let me just talk for a moment about what it is, why it's important. So -- and you'll hear it referred to in many different ways. So, safety, drug safety, pharmacovigilance, PV, adverse event tracking. That all means the same thing. And it's really about two things. It's about protecting patients and protecting the value of the company. So, these safety systems ensure that all the potential adverse events triggered by a drug or its production are logged and analyzed. So, it's a highly regulated and highly important process for every life sciences company. Done poorly, patients can be harmed. And not following the regulations can actually lead to products being pulled off the market.
So, it's a big, complex, messy market, but despite its really heavy importance, it's been dramatically underserved by technology providers for many years. So, we think we can build a much better safety system on the Vault platform, have it be the exact same platform that's shared with clinical regulatory quality. And there's a lot of integration that needs to go back and forth between safety and those other systems. And so, that's kind of the context of what we're going to deliver. In terms of the size, we think of the safety market as similar to the regulatory market. So, if you take the four applications in our RIM suite, we think it's roughly that size. And so, it's one of the larger IT technology investments that our customers will make.
And the last thing on this one is, we've had -- we have 25 products now. We've had a lot of product announcements. As I travel and talk to executives and our customers, I can't remember higher excitement for a product before we delivered it. And I mean, it just has been -- I mean, I guess it's been tremendous, but it's been kind of what we are hoping for. So, I'm not totally surprised, but the applications that we're going to be replacing here are really some of the oldest legacy applications out there. And because it's such an important market, it's been very painful for our customers. So, it'll be a very welcome new product introduction, and we think it's gonna be significant. And it just really rounds out the whole development cloud as becoming the infrastructure, the electricity that this industry uses to develop new products.
David E. Hynes, Jr. -- Canaccord -- Analyst
Yeah, OK. That's helpful. And then, in terms of QualityOne and the expansion outside of life sciences, help us think about kind of where we are in terms of reference ability of your earlier wins. I know you've talked about a top five CPG customer in the past. Are these folks ramped to the point where you can lean on them to drive incremental business? Is it still too early for those customers to kind of speak on your behalf? Any color on the sales process in the new markets would be interesting.
Peter Gassner -- Chief Executive Officer, Director
D.J., I would say it is a little early. They're very early in their implementation. So, I think we do get -- have customers calling each other a little bit, but it's more in terms of, hey, Veeva's feeling good. It's not true reference selling. Now, I'll say one of the events we're looking forward to next year is our customer summit. We're gonna have a customer summit for QualityOne toward the end of the spring, and that would be our first one. And I think we'll have good attendance there. So, the reference selling is gonna start a little bit in this coming year, but I would still consider us in early adopter mode.
David E. Hynes, Jr. -- Canaccord -- Analyst
Yup, OK. Great color. Thanks guys.
Operator
Your next question comes from Ken Wong with Citigroup. Your line is open.
Kenneth Wong -- Citigroup -- Analyst
Hey, thanks for taking my question, guys. Tim, maybe you can start off on the comment you made earlier about some hiring that was pushed into Q4. Just wondering, is this just you guys having a harder time finding candidates, and whether or not the pace of hiring has potentially picked up in the Q4 already?
Tim Cabral -- Chief Financial Officer
I wouldn't say that. I think this was more a few couple handfuls of candidates specifically as opposed to any big trend, Ken, that I would say we're having more of a challenge in terms of hiring. And Q4 is looking strong as well, early. We're a month in, as you know, and Q4's hiring is looking very strong as well.
Kenneth Wong -- Citigroup -- Analyst
Gotcha. And then -- and maybe if I could on QualityOne as well, Peter, you mentioned earlier, kind of this year is really kind of keeping track of kind of your early adopters, kind of seeing what develops. I'm just wondering, in terms of the early learnings, any tweaks to product, or integration, or go to market that you guys think it might make sense to adopt going forward?
Peter Gassner -- Chief Executive Officer, Director
Yeah, we'll always be fine-tuning that. So, next year, we will be doing more things in Europe, so we'll have to fine-tune our approach there for Europe. Overall, fine-tuning things like packaging a little bit, positioning, how would these become more effective in the sales cycle. That's really one of the things we do in the early adopter mode. We figure out what's working, and then we do more of that.
And in terms of the product also, yeah, we're getting good ideas for extensions to QualityOne to make it even more appealing. And we're even getting early ideas for things after QualityOne, right? We're not gonna do any of those this next year because we really have our plate full with QualityOne, but we're getting early ideas. So, it's a constant learning process in QualityOne. We think it's gonna be a really big market -- it's just under-served, and we have to be opportunistic and agile and help shape that market.
Kenneth Wong -- Citigroup -- Analyst
Great. Thanks a lot, guys.
Operator
Your next question comes from the line of Tom Roderick with Stifel. Your line is open.
Tom Roderick -- Stifel, Nicolaus & Co. -- Analyst
Hey, gentlemen, good afternoon. Thanks for taking my question. Happy holidays. So, I'm curious what the pricing trends look like here on the core CRM side. I understand there's not a whole lot of new seats left to be won, but as you're going through the renewals, is there any instances where you're starting to see any sort of pushback on existing pricing? Do you tend to sort of offset that with the upsells around CLM and Approved Email, and now Events and Align are taking shape? Or, to the contrary, are you seeing a price lift that's still pretty consistent with that 20% that you're sort of hoping for by module as you go back through the years, and that's sort of the way that you would hope that to play out? So, any comments on pricing in the renewal base would be really interesting. Thank you.
Tim Cabral -- Chief Financial Officer
Yeah. Sure, Tom. So, we're very proud to look customers in the eye and tell them that we've never raised prices on a customer for one of our products at a renewal. And so, the companies that buy Veeva CRM next year, of the same size as companies that bought it ten years ago, will literally pay the same for the base product. And we think that that's key to developing a deep partnership with the industry, so that when people move around from company to company, they don't realize, oh, we got a great deal from Veeva. These guys didn't. No. We strive for consistency in market pricing. Then -- now, on renewals, here and there, there's always gonna be pressure on pricing as people try to get more out of their vendors, but it's just not a discussion that we generally have.
In terms of how we're doing on the pricing of the different modules and the uplift that we saw, it also remains consistent. And I think we're able to keep those price points because we're able to prove the value. So, for example, last week in Madrid, we had a customer onstage talking about their deployment of Veeva Online. And they had a slide with very specific metrics of productivity improvement and cycle time improvement before and after the adoption of Veeva line. And there were like, I don't know, 60 or 70 people in the room, and I think 90% of them took their phone down and took a picture of that slide. And so, working with customers to be able to quantify the value helps us to keep the market prices consistent over time so that customers, CIOs, business folks, and procurement understand the value that we're delivering.
Tom Roderick -- Stifel, Nicolaus & Co. -- Analyst
Excellent. Great, great color. One follow-up question for you here, just on the QualityOne suite. Sort of understanding that the dynamic of that market is sort of made up of two pieces, QualityDocs and QMS. is there either side of that equation that is more ripe for displacement and more ripe for disruption at this point? Are they both sort of dramatically a need of upheaval? What do you hear from the customer base, particularly as you get outside of life sciences, of where the wedge in the door might be most prominent at this point?
Peter Gassner -- Chief Executive Officer, Director
I think it's around both, but probably a bit more on the QualityDocs. In the QMS, I think you have people a little more hesitant, a little bit more conservative. There are also some companies where we -- where their QMS processes are quite light, and -- but they still need QualityDocs processes. And that's where you get into an industry that's a little less regulated. So, the QualityDocs is probably a bit broader market, or -- we sell them together, so we don't really separate them. But the Docs area probably has a bit broader appeal overall and is a bit easier to get into as are our first wedge inside the company.
Tom Roderick -- Stifel, Nicolaus & Co. -- Analyst
Fantastic. Thank you, guys. Nice job.
Operator
Your next question comes from the line of Stan Zlotsky with Morgan Stanley. Your line is open.
Stan Zlotsky -- Morgan Stanley -- Analyst
Hey, gentlemen. Good afternoon, and thank you for taking my questions. Maybe one -- well, maybe two for Matt. On the EDC product, it looks like you guys picked up an additional three customers in the quarter. If you were to characterize the customers this quarter versus the initial two that signed, and are they about -- from a profile perspective, are they all about the same kind of profile customers?
Matt Wallach -- President, Co-founder
Yeah, Stan. I would say they're generally the same. They're companies that are working on their first products. These three happen to all be publicly traded, so they're a little bit more valuable companies, and they all chose Vault EDC to run Phase I trials. And I would say that the sales cycles were also similar. They were all competitive. The people that made these choices all had past experience with Medidata, and Oracle, and other EDC options. And I think that's what drove them to look for something new.
And then the last piece of color on that, of those three, two were existing Veeva customers for another Vault application, and one of them was buying something from Veeva for the very first time.
Stan Zlotsky -- Morgan Stanley -- Analyst
That's very helpful. Thank you. And one thing you guys mentioned was the Zinc migrations, and how '18 and '19, you're expecting to see most of them. And as much as you're still working toward the 2020 goal of moving all the customers over, what have you seen from customers who have migrated thus far? What kind of pricing -- not pricing, but value uplift have you been able to get from those customers when they moved over from Zinc over to Veeva Vault?
Peter Gassner -- Chief Executive Officer, Director
Stan, this is Peter. I won't go into specific percentages and things like that, but we are seeing a good uplift, good system, more valuable product. And so, for example, we just added digital asset management capabilities right into Vault in a Brand Portal. So, it's a more valuable product, and I think customers see that.
In terms of the '18, '19 being the big migration years, I think that's because, frankly, we've done a really good job of stabilizing the Zinc product and providing great customer support, so customers feel comfortable with that. They know that the lights turn out there at the end of 2020, so it's not -- and that just sets you -- sets us up for a 2018 and 2019 are the time to do it. We've had early adopters do it already, for sure. We had a large -- a presentation by a large company -- I believe the top 20 or top 30 company in Europe that has completed their migration some months ago and was able to talk about the success of it, the process of it, what they liked and what they didn't like. So, that -- I think that'll further fuel the migration. Because it's becoming a very known quantity now. It's becoming known process, how to get from A to B.
Stan Zlotsky -- Morgan Stanley -- Analyst
Got it. Thank you. And just, last one for Tim. On billings performance in Q3, you mentioned that some of the upside came from longer duration of billings as well as on the professional services side. Ex out the duration and higher than expected per services, was that driving all the upside or was there essentially organic, so to speak, upside to billings in Q3? Thank you.
Tim Cabral -- Chief Financial Officer
Yeah, I would say those were the vast, vast majority, Stan, of the beat. And on the duration side, it was more a function of some of the newer business, or more the newer business were annual billers as opposed to quarterly billers. So, it was just the mix of new business in Q3 which drove that billing performance, primarily.
Stan Zlotsky -- Morgan Stanley -- Analyst
Got it. Thank you.
Operator
Your next question comes from the line of Sterling Auty with JPMorgan. Your line is open.
Sterling Auty -- JPMorgan -- Analyst
Yeah, thanks. Hi, guys. Actually, I had two questions for Tim. Hey, Tim, what portion of your contracts are multi-year that include price accelerators in them?
Tim Cabral -- Chief Financial Officer
That is probably still in the sort of low double-digits, I would say, Sterling. So, 10% would be -- I wouldn't call it a guess, but 10% would be my best educated number, so roughly 10%.
Sterling Auty -- JPMorgan -- Analyst
Okay, great. And then, my one follow-up is, when you move to 606, do you plan on doing modified or full retrospective for your statement?
Tim Cabral -- Chief Financial Officer
We're doing full retrospective.
Sterling Auty -- JPMorgan -- Analyst
All right, perfect. Thank you.
Operator
Your next question comes from the line of Rishi Jaluria with D.A. Davidson. Your line is open.
Rishi Jaluria -- D.A. Davidson Research -- Analyst
Hey, guys. Thanks for taking my questions. I guess first, Peter, I know it's obviously early with QualityOne, but at scale, I mean, can this be a bit more of a channel assembly product where you can leverage industry expertise from some of your partners, both existing as well as new ones, that might get attached to the product in order to drive the go to market strategy with QualityOne? And then I have a follow-up for Tim.
Peter Gassner -- Chief Executive Officer, Director
That's a good question. I believe the channel will most likely be with the systems integrators. Actually, I feel it will be very similar to inside of life sciences -- potentially different partners. But I don't think it will be a reseller type model. I mean, as we gaze into the future, I guess anything is possible, but right now, it feels like the direct selling model with tight partnerships with system integrators that specialize in the quality area.
Rishi Jaluria -- D.A. Davidson Research -- Analyst
Okay, got it. That's helpful. And then, Tim, just really quickly, how has the services attach rates with some of the more mature Vault products like the commercial side been trending as there's been greater adoption and references? Thanks.
Tim Cabral -- Chief Financial Officer
Rishi, good question. So, I think what we're seeing in the Vault area is for some of the -- to your point, some of the more mature products, we're seeing something similar to what we saw with the CRM area, where the attach rates slow down over time. And that's a combination, I think, both of the actual overall pie reducing, as well as more partner -- more of our ecosystem is taking some of that revenue. So, it's slowing over time. The services attach rate, I think, in the development cloud area continues to be strong, and we're seeing good demand in that area as well, which led to the guidance that we talked about in my prepared remarks.
Rishi Jaluria -- D.A. Davidson Research -- Analyst
All right, great. Thanks, guys.
Operator
There are no further questions at this time. I will now turn the call back over to CEO Peter Gassner.
Peter Gassner -- Chief Executive Officer, Director
Thank you all for joining us today. We look forward to talking with you in the new year. Until then, happy holidays to everyone.
Operator
This concludes today's conference call. You may now disconnect.
Duration: 61 minutes
Call participants:
Rick Lund -- Director of Investor Relations
Peter Gassner -- Chief Executive Officer, Director
Tim Cabral -- Chief Financial Officer
Matt Wallach -- President, Co-founder
Jesse Hulsing -- Goldman Sachs -- Analyst
Bhavan Suri -- William Blair -- Analyst
Kirk Materne -- Evercore ISI -- Analyst
Bradley Sills -- Bank of America Merrill Lynch -- Analyst
Brent Bracelin -- KeyBanc Capital Markets -- Analyst
Karl Keirstead -- Deutsche Bank -- Analyst
Scott Berg -- Needham & Company -- Analyst
David E. Hynes, Jr. -- Canaccord -- Analyst
Kenneth Wong -- Citigroup -- Analyst
Tom Roderick -- Stifel, Nicolaus & Co. -- Analyst
Stan Zlotsky -- Morgan Stanley -- Analyst
Sterling Auty -- JPMorgan -- Analyst
Rishi Jaluria -- D.A. Davidson Research -- Analyst
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