Earnings Call Transcript - VEEV Q2 2020

Operator, Operator

Good afternoon. My name is Chantal and I will be your conference operator today. At this time, I would like to welcome everyone to Veeva's fiscal 2020 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. Thank you. Rick Lund, Investor Relations Director, you may begin your conference.

Rick Lund, Investor Relations Director

Good afternoon. And welcome to Veeva's fiscal 2020 second quarter earnings call for the quarter ended July 31, 2019. With me on today's call are Peter Gassner, our Chief Executive Officer; Paul Shawah, SVP of Commercial Cloud; 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 www.veeva.com under the Investors section and on the SEC's website at www.sec.gov. Forward-looking statements made during the call are being made as of today, August 27, 2019. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Veeva disclaims any obligation to update or revise any forward-looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. On the call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the Form 8-K filed with the SEC just before this call. Finally, I'd like to welcome you to join us at our Annual Analyst and Investor Day on October 2nd in San Francisco. If you haven't received an invite and would like to attend, please feel free to reach out via e-mail at the address ir@veeva.com. If you can't join in person, the event will be webcast with both the live and archived versions available on our Investor Relations website. And with that, thank you for joining us and I'll turn it over to Peter.

Peter Gassner, CEO

Thank you, Rick, and thanks to everyone for joining us today. Q2 was another strong quarter with results above our guidance. Total revenue was $267 million, up 27% year-over-year. Subscription revenue grew 28% year-over-year and our non-GAAP operating margin was 39%. Veeva has now passed the $1 billion revenue run rate. This is a year and a half ahead of the target we first laid out in 2015. With customer success as our driving force, we were able to exceed our goals through exceptional focus and execution. Thank you and congratulations to the Veeva team. Today, we also announced our CFO, Tim Cabral, is retiring next year after a 30-year career and 10 years at Veeva. A search for his replacement is underway and Tim is staying at Veeva through the hiring and onboarding of our new CFO to ensure a smooth transition. I'd like to express our appreciation and thanks to Tim. He's an exceptional leader, having helped guide Veeva from a startup to our current scale. He also built a strong team. Working with Tim at Veeva and at PeopleSoft before that has been a true partnership that I value deeply. Now turning to the details of the quarter. Strong momentum in Commercial Cloud contributed to our outperformance in Q2. In core CRM, we continued to extend our leadership position with new SMB customers, and additional enterprise expansions. And customers continued to adopt more CRM add-ons. This happens on a product-by-product and region-by-region basis. Let me give a couple of examples. Veeva CRM Engage had one of its strongest quarters as four top 20 pharma expanded their use of Engage to new field teams. Customers are attracted by the deep functionality and multi-platform support of Engage and the very tight integration with CRM. We also had an important design win at a top 20 pharma for events management. This customer has been using core CRM globally for many years and recently decided to expand their Veeva relationship to include events management in more than 90 countries over time. They chose Veeva because we have deep functionality and professional services capabilities needed for a global event management rollout. They will replace multiple customer systems and spreadsheets, leading to a more efficient and compliant global process. It's great to see this expanding relationship with a longstanding customer. Turning to Vault, we continued to have great momentum. Vault now has nearly 650 customers, and as of Q2, represents more than 50% of total revenue. This is an exciting milestone. When we started Vault a number of years ago, the potential was clear to me. And as I look ahead, it's also clear that we're in the early days of Vault. This quarter, a newly independent top 20 medical device company standardized on Vault across the organization, including clinical, quality, regulatory, and commercial. With the ability to start from a clean slate, they chose Vault because it's the only solution to provide best-in-class application suites on a single modern cloud platform. Our customer-success focus and commitment to the medical device industry was also key. In clinical, they will use Veeva eTMF, CTMS, and CDMS. Let’s focus in on CDMS. They chose Veeva’s CDMS over their incumbent system for a few reasons. First, they were looking towards the future and long-term partnership, so they liked our pace of innovation. They’ve seen Veeva's CDMS evolve rapidly over the past 12 months and are excited about what's ahead. They also saw that Veeva's CDMS is well suited to running all their types of studies. It can handle complex studies, but also it is practical to use for small studies that are built on short notice. And they also won clinical data management and clinical operations, all on a common platform to gain operational efficiency. We now have a top 20 pharma and a top 20 med device company as lighthouse customers for CDMS. These early adopter accounts are very important, and their success is a major focus for the team. CTMS is also progressing well. We continue to win more deals and now have 50 customers signed in just two years since the product was released. That's amazing momentum in a highly complex area. Our progress here speaks to the significant need in the market for a modern CTMS solution. We believe Vault CTMS is poised to be the leading solution over time. Drilling down into quality. We signed our tenth Top 20 pharma for Vault QualityDocs. Following their success with Vault PromoMats, eTMF and submissions, this customer selected QualityDocs as part of their move away from a legacy content management platform. On the QMS side of quality, we ended the quarter with more than 100 customers. The need for modernization is driving the move to Veeva in this area, as is the benefit of having QMS integrated with QualityDocs and training on the Vault platform. This is another great example of the innovation we're bringing to an underserved market. Finally, I'd like to give an update on our efforts outside of life sciences. I'm pleased with the progress we're making within our three focus industries: CPG, chemicals, and cosmetics. Since announcing the new Vault Claims product last quarter, we now have projects in place at three top CPG companies. We're also executing well in chemicals and cosmetics. Customer success drives our business in all industries. This quarter, we had major go-lives at a top 20 CPG, a top 20 cosmetics company, and two major go-lives in chemical. In closing, we had a great quarter. Our results reflect the customer trust we have gained through consistent innovation, focused execution, and our commitment to their success. With that, I'll turn it over to Tim.

Tim Cabral, CFO

Thanks Peter. Q2 was another quarter of solid execution across the board. Total revenue was $267 million, up from $210 million one year ago, a 27% increase. Momentum across Vault continues with Vault now representing 52% of total revenue, up from 46% in Q2 of last year. Subscription revenue grew 28% to $217 million from $170 million last year. Vault represented 48% of subscription revenue, up from 42% a year ago. Year-over-year growth benefited from particularly strong bookings in the first half of the year and from 190 basis points of tailwind from 606, due to the recognition of unbilled revenue from multi-year orders with ramping fees. Services revenue was nearly $50 million, up 24% from $40 million one year ago. We expect services revenue to be roughly flat sequentially in Q3. We continue to see strong profitability in Q2. Non-GAAP operating income came in about $104 million, a 39% operating margin above the high end of our guidance. This was primarily driven by outperformance on the topline. We made good progress investing in the business with a record hiring quarter. Approximately 180 net new employees joined Veeva in Q2 bringing our total headcount to 2,827, up from 2,376 one year ago. Moving to the balance sheet, deferred revenue was $329 million, compared to $364 million at the end of Q1. This resulted in calculated billings for the quarter of $234 million, which was ahead of our guidance of $220 million. This was a function of a strong bookings quarter, outperformance in services revenue, and better than expected billing duration for the new business closed in Q2. Please remember that there are numerous factors that make year-over-year comparisons of this metric highly variable on a quarterly basis. Therefore, we do not believe it is a good indicator of the underlying momentum of our business and we do not manage to it internally. Our subscription revenue guidance and calculated billings guidance for the full fiscal year are the best indicators of our momentum. Looking ahead, we expect calculated billings of roughly $185 million in Q3, and roughly $1,135 million for the full year, which is a $15 million increase from the high end of our guidance provided last quarter. Also on the balance sheet, we exited Q2 with over $1.4 billion in cash and short-term investments, up from over $1.3 billion at the end of Q1. This increase was driven by our performance in cash from operations, which came in at $100 million and included $17 million in excess tax benefits related to equity compensation. For the full year, we now expect cash from operations to be $345 million to $350 million, excluding this excess tax benefit. Let me conclude by sharing the outlook for Q3 and for fiscal 2020. Next quarter, we expect revenue between $274 million to $275 million, non-GAAP operating income of $103 million to $104 million and non-GAAP net income per share of $0.54 to $0.55 based on a fully diluted share count of approximately 159 million. For the year, we expect revenue in a range of $1.62 billion to $1.65 billion. We expect subscription revenue to be in the range of $871 million to $874 million. And within that, we now anticipate Commercial Cloud subscription revenue growth between 13% to 14% and Vault subscription revenue growth of at least 40%. For fiscal '20, we expect non-GAAP operating income of $401 million to $404 million, a margin of about 38%, roughly a 100 basis point increase from our previous guidance. Coming off of a record hiring quarter, we plan to continue investing for customer success and future growth with an aggressive hiring plan for the remainder of the year. We are now targeting non-GAAP net income per share for the year between $2.11 and $2.13 based on a fully diluted share count of approximately 159 million. Before I wrap up, I'd like to share some additional thoughts on my retirement. As Peter mentioned, we've kicked off the search for my replacement, and I will be here through the full onboarding. As I retire from an incredibly rewarding 30 years in technology, my 10 years at Veeva have been the most fulfilling of my career. It has been a privilege to be part of such a talented team and a truly great company. The impact Veeva is having on our customers and the industry is remarkable. This is evident in our quarter's results and our outlook for the back half of the year. The opportunity ahead, along with the team's focus and consistent execution sets us up for a trajectory of long-term growth. As always, thank you for joining the call. And I will now turn it back to the operator for questions.

Operator, Operator

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

Unidentified Analyst, Analyst

This is actually Dylan Becker on for Bhavan. I guess I just kind of wanted to start off around Nitro and Andi adoption. What are you guys necessarily hearing from customers? And how has the implementation process gone? It looks like you're now projecting cloud growth of 13% to 14% for the year. How much of this is kind of attributable to the Nitro and Andi adoption?

Paul Shawah, SVP of Commercial Cloud

Hey Dylan, this is Paul, thanks for the question. So, with regards to Nitro, we added some additional customers this quarter. Last quarter, we talked a lot about some of the early customers that we had who were on stage at our big summit event, and they were talking about their implementation. Now they've been live for a period of time, and that's going extremely well. So, the product is certainly working in the early market. I would say we're feeling a little bit of headwind from some of the anti-competitive behavior from IQVIA. So, some of the same behavior that they’ve demonstrated with the network, they're also demonstrating with Nitro. So, we have to balance some of the success that we're seeing with these early adopters with some of the headwind that we're seeing as well. I would say with Andi, we're focused on getting the product to the right level of maturity and also getting some of those early customers kind of signed up and live. This is still early days really for both Nitro and for Andi. So, from a contribution standpoint, it's going to take some time before their material and meaningful impact from a contribution perspective.

Unidentified Analyst, Analyst

As you consider the geopolitical landscape regarding drug pricing and regulation, could you remind us if this affects your go-to-market strategy? Additionally, what feedback are you receiving from customers on this matter? Thank you.

Paul Shawah, SVP of Commercial Cloud

Yes, thanks for the follow up. So, it certainly has the potential to have an impact on how we go to market. And also, more importantly, the types of relationships that pharma companies have with their suppliers. We haven't seen any of that yet. Drug pricing has the potential to have a very significant impact across the industry. It would affect all suppliers, Veeva being some of the companies in that same grouping. What I would say is, we haven't seen any impact yet. I'd also say that, as they have more pricing pressure and as they have more cost pressure, the balancing side of that that may create a tailwind is the fact that companies often look to technology to try to drive efficiency. So, I think there's a little bit of a potential headwind, but there's also some opportunity for technology to drive efficiency and cost savings as well.

Operator, Operator

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

Brad Sills, Analyst

Just one on CDMS. Obviously, you're seeing traction there in the top 20 segment of the market. I know you've been working on features as you're kind of moving up with reference building there. Are there any features in particular, you'd point to, to say, well, now CDMS is ready for these top 20s and maybe we're hitting a tipping point?

Peter Gassner, CEO

Good question, Brad. This is Peter. In terms of features, we can always add more, that's for sure. Software is never truly complete, but I would say we are currently well-equipped with features. Naturally, features will continue to evolve over time. What potential users are looking for now is proven success, and some will be more inclined to adopt early than others. I believe we're experiencing the typical technology adoption lifecycle, which is critical for life sciences. Therefore, switching to a new system isn't something they will do lightly or without careful consideration. We are performing well in terms of features, and in some instances, we are actually advancing ahead because we're taking a new approach. When electronic clinical data management began years ago, it focused primarily on collecting patient data points. As medical therapies have grown in complexity, it has become increasingly vital to gather qualitative medical assessments from physicians, particularly from third-party assessors analyzing the data points. This aspect has often been overlooked in medical device and clinical data management systems for many years, leading to a lack of innovation in the market. However, with Veeva's entry, we have introduced strong features to address this gap. In fact, in certain feature areas, we are taking a fresh approach and surpassing the market, and gathering medical assessments is one of those key areas.

Brad Sills, Analyst

And then one more if I may please. Just on commercial, you obviously raised the outlook for this year. Where would you point to in particular on the outperformance? It sounds like you've got a new customer win there but also you're executing well on some of these add-on attaches more company-wide. Any color you can provide on that, please? Thank you.

Paul Shawah, SVP of Commercial Cloud

Yes, this is Paul. The strong performance in our commercial segment is attributed to a few key factors. Firstly, we're observing that our enterprise clients are expanding into their respective regions more rapidly than we had anticipated. This expansion is ongoing, and we expect to see more of it on the enterprise side. Additionally, there is notable strength among small and medium-sized businesses, particularly those that are pre-commercial and launching their first products. They aim to have the most successful launch by leveraging modern technology, and we are witnessing considerable success in that area. Another trend is that many of these customers are opting for Veeva CRM and including several add-ons in their initial purchases, which is encouraging. Moreover, we are seeing strong performance from some of the add-ons, particularly with Engage, where numerous enterprise customers are starting global expansions. While this development will take time and unfold over several months or years, it is a trend we are excited about as companies demonstrate results and build their business cases. We've also observed better-than-expected performance with Approved Email and OpenData, likely driven by the industry’s push to accelerate its digital transformation. Overall, we are seeing robust strength in both CRM and its add-ons.

Operator, Operator

Your next question comes from Sandy Draper with SunTrust, your line is open.

Sandy Draper, Analyst

I have a question about hiring. Tim, I believe you mentioned that you had a record number of hires in this quarter. I'm curious about what factors are influencing that. How significant is wage inflation, and are you competing mainly with other companies in the life sciences sector, or is it more about tech talent, or a combination of both? I'm trying to understand how challenging it will be to hire as you continue to grow and boost revenue. Thank you.

Tim Cabral, CFO

Yes, Sandy, this is Tim. Thank you for your question. Peter, do you want to add anything regarding our hiring efforts? Several factors have contributed to what is our strongest hiring quarter ever. You pointed that out correctly, Sandy. First, we have a robust university hiring initiative called Generation Veeva. Typically, we see a lot of hiring during Q2, and occasionally a bit spills into Q3, particularly for engineering and consulting roles. This initiative has been a focus for us over the past couple of years as we aim to enhance our industry cloud expertise, which we can develop through university recruits as they progress within the company. Secondly, regarding your wage inflation question, we have successfully opened up new hiring markets and have concentrated our efforts in these areas. While Pleasanton in the Greater Bay Area remains a strong market for us, we have also recently focused on Toronto and Columbus, where we are finding talent for product, customer service, and back office roles. I believe that expanding our hiring markets has aided our recruitment efforts significantly. Peter, do you have any further insights to share?

Peter Gassner, CEO

Yes. Tim summed it up well. It's about expanding locations, you have to do that. And then in terms of competition, it depends on the segment, whether it's fresh out of college, okay, that's tech companies and just helping companies in engineering, you're competing against tech companies in the field for general sales positions, you may compete against all tech companies, and then in some of our domain specific areas, like strategy. Yes, there we're competing against other life sciences specific companies. So it's always the same, right? You have to compete, if you have the best team, that's where you get the best company.

Operator, Operator

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

Kirk Materne, Analyst

Peter, I was just wondering if you could talk a little bit about the outside life sciences or the OLS business. Just in terms of referenceability and kind of where you are there. And what your thoughts might be around sort of upping the sales motion, if you are getting closer to referenceability? Thanks.

Peter Gassner, CEO

Yes, we're happy with our progress outside life sciences, it’s still early days. So our concentration really now is in some of these large customers we have rounding out the products. We are getting more referenceable over the time, and you won't see a hockey stick type of effect, but more of an even acceleration of the market and that's what we're seeing.

Kirk Materne, Analyst

And Tim maybe just on your 606 comments. Is there anything left on that front in terms of sort of ramped deals that we should be thinking about I guess exiting this year and into next year?

Tim Cabral, CFO

Thanks for the question, Kirk. Regarding the revenue recognition under the new guidance, we anticipate seeing a slight increase in revenue due to unbilled revenue from multi-year contracts that include ramping fees and are non-cancellable. Ultimately, it depends on the mix of these types of contracts. We're still in the early stages of Vault, where these opportunities arise. There is potential for the volume or balance of these contracts to either remain stable, grow, or decrease. We do not make specific forecasts on this. As I mentioned last quarter, if the impact becomes significant to our results, as I noted in the previous two quarters, I will provide clarity and details. We internally view it similarly to foreign exchange impacts; when it becomes material, companies like ours will discuss it.

Operator, Operator

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

Ken Wong, Analyst

So obviously, a couple of good CDMS wins these last two quarters. Peter, how do you see the recent acquisition of metadata impacting the CDMS market, you view that as a general kind of a tailwind or headwind for you guys?

Peter Gassner, CEO

The acquisition of metadata has raised many questions from customers, which is to be expected. However, we have not noticed any changes in the market. Our focus with CDMS is on developing the best product, acquiring customers, ensuring they are satisfied and successful, and driving innovation. So far, we have seen no impact from the acquisition. The future implications are uncertain, but our primary focus remains on our customers at this time.

Ken Wong, Analyst

Any sense if that might give you guys maybe a bigger window to reach out to customers? And there's I guess is sort of a change in terms of who they have to deal with now? Or has that also been fairly neutral at this stage?

Peter Gassner, CEO

So it will cause a customer to consider, that's probably one thing they will consider as they're evaluating a system. But it's not something that we've seen materially affect any of our business or affect any type of competitive dynamics at this time.

Ken Wong, Analyst

Yes got it. And if I can squeeze one in for Tim? Earlier you touched on duration helping billings. Can you talk about what's causing this? And should we expect this trend to continue?

Tim Cabral, CFO

Ken, thanks for the question. So that was of the billings beat, that was a smaller component of the billings beat, probably roughly half of the billings beat that we talked about was stronger bookings in the quarter. As it relates to duration, it really becomes a mix of the deal that we close in any particular quarter. And it can change based upon when the customers’ renewal date is and depending upon the length of the add-on order. It could depend upon whether the customers that were closing in a particular quarter are more quarterly billers versus annual. So there's a lot of different factors which play in there Ken and it really depends on the mix as to whether or not that creates a little bit of uptick in billings. Now you can imagine with the complexity there, we're likely on the conservative side as we think about forecasting for that particular component. But as I said, that was not the biggest part of the beat in the billings area.

Operator, Operator

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

James Rutherford, Analyst

A couple from me. First, on artificial intelligence. We observed a rise in your innovation around AI. Of course, you had Andi and then AI for PromoMats. And recently, you launched Safety.AI. So the question is, is it fair to say that you all will just apply AI to really every aspect of commercial involved and I guess OLS down the road as well. And the second part of that question is, is AI kind of a meaningful TAM expander or these are just mostly feature additions that you'll kind of continue to use to differentiate the product, so a little help on the context for AI?

Peter Gassner, CEO

AI is a long-term trend. I remember studying computer science in the late 80s during the early days of AI, and it has continued to evolve, becoming more useful and impressive over time. Regarding Veeva, you'll see various AI applications from us that we can implement now due to advancements in AI that weren't possible before. You've mentioned Safety.AI and Andi, which are new AI applications for us. We will also integrate AI into many areas of our existing applications, such as automatic claims linking in PromoMats and text sentiment recognition in CRM. The expansion of our total addressable market will come from developing more applications, and as AI continues to advance over the years, it will enable us to create additional applications. It's important to understand that this growth will be gradual; AI's capabilities will not change overnight.

James Rutherford, Analyst

And then Paul, one for you, if I may. We took note of the MuleSoft partnership announced recently. I'm just curious if you can help us understand how that fits with your Nitro strategy, MuleSoft, obviously, being a leader in iPads and API Management? So I think Mule is just kind of a way to grease the skids and help life science companies get that data into Nitro more quickly and easily? Just some thoughts around how that fits from a technology perspective? Thank you.

Paul Shawah, SVP of Commercial Cloud

Yes. We view MuleSoft a bit differently, with our recent announcement with Salesforce focusing on our Vault applications. There are various ways to transfer Nitro data into Nitro, which is a separate consideration. As our customers expand their Vault usage and incorporate more Vault applications in critical areas, the number of systems that need to be integrated increases. We see the MuleSoft connector as a means to facilitate those integrations, making them more seamless, faster, and easier for customers to support and maintain over time. So, think of MuleSoft specifically in relation to Vault applications, as that is the primary focus of the integration at this time.

Operator, Operator

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

Rishi Jaluria, Analyst

Tim, congrats on all your achievements in Veeva over the past 10 years. It's been a pleasure. I think you set a great standard for other SaaS company CFOs to follow. So on that I would love to hear, what are you looking for in your replacement to kind of ensure that it's going to be a very seamless transition from you to whoever takes over your seat?

Tim Cabral, CFO

Yes, Rishi first thanks for the kind words. I think as Peter and the Board and I look for the key attributes of a replacement, it's someone who, as I think I've tried to build is, can be a really good business partner to Peter, to the leaders within the company and can connect to the Board as well. Someone who has some level of domain expertise around SaaS would be very helpful as well, because as you talked about the pattern recognition of what are the key metrics and the thing that make sense to a SaaS business. Again, it doesn't have to be someone who's been in SaaS for 20 years with some familiarity would be very helpful. I am more of a finance person, our Chief Accounting Officer, Michele is much more of an accountant. So maybe we fit a mold more like me where it's more of a finance background, as opposed an accounting background. But I wouldn't rule out either of those, but I think I would lean-in in that direction. And then really, someone who has the level of passion that I think is required for this job and really wants to take on what I think is an unbelievable opportunity at an unbelievably impactful company like Veeva. So I don't know if that was a resume in description, but there's some of my thoughts.

James Rutherford, Analyst

And then Peter one for you, if I'm not mistaken, I believe Tom Schwenger joins next month, would love to kind of hear your perspective on what do you expect or what we should hope for out of Tom's joining in maybe his first 90 days at Veeva especially given that the R&D summit is coming out in the next week and a half, two weeks? Thanks.

Peter Gassner, CEO

Yes, Tom is joining next month, and he is a highly accomplished veteran who brings valuable customer relationships and extensive knowledge of managing large teams and generating significant revenues from his time at Accenture. Tom will focus on sales, customer success, services, and strategy as President and CEO. He will be based in Philadelphia to cover that region. Tom will be a key member of the management team and will work closely with me. His strengths include a deep understanding of life sciences, large-scale execution, and team building, which I expect he will leverage as he joins us.

Operator, Operator

Your next question comes from David Hynes with Canaccord Genuity. Your line is open.

David Hynes, Analyst

So I want to follow up on the CDMS line of questioning. As I think about purchase decision considerations say for a top 20, is there a competitive advantage to sticking with an incumbent where there may be a data history? Or is each trial such a unique entity that, in theory, it would be easier to cut over to a new vendor?

Peter Gassner, CEO

Good question. Each trial has its own independent data. The long-term storage of the data, meaning where it goes after the trial concludes, operates as a separate system. It's not typically the same as the clinical data management system; you can consider it more like a separate data repository or data warehouse. So, that's not a barrier. However, what complicates the decision to switch is that your clinical data management system needs to integrate with other systems. If you introduce a new clinical data management system, it requires additional integrations, as well as testing and validation. This means that for some time, you'll be managing multiple systems simultaneously, which can be burdensome. That's why changes in this area are not made lightly. Did I answer your question?

David Hynes, Analyst

That makes perfect sense. And then maybe kind of a bigger picture question. As we think about product roadmap for Vault, maybe over a three-year period or so, should we expect new efforts to predominantly stay within life sciences? Or we're getting to the point where the suites pretty built out, so maybe we start to see more in new verticals? And I want to be clear, I'm not asking about sales execution opportunity. I know there's still a huge runway in life sciences, but more just kind of how the product evolves?

Peter Gassner, CEO

There has been a consistent history of underestimating the potential within life sciences, which I've witnessed in 2010, 2015, and now as we approach 2020. I believe there's still significant expansion opportunity in this area. We are still relatively early in the industry cloud for life sciences, which may seem surprising. For example, the clinical data management and safety areas are both new for us. There are many additional possibilities in life sciences, particularly as we gather more data. While we are performing well outside of life sciences, I wouldn't overlook the potential in this sector. Additionally, our core platform, Veeva Vault, is in its early days. When substantial investment is made in a platform, it typically takes a long time to see full monetization, spanning over 20 to 30 years. Veeva itself is only 12 years old, and Vault is just eight, so we are still in the beginning stages.

Operator, Operator

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

Brent Bracelin, Analyst

Thank you, I guess one for Peter and one follow up for Tim if I could. Peter, it's clearly been an incredible first half for Veeva, milestone quarter here crossing over $1 billion run rate. I think there's few companies that they're able to do this with accelerating growth across two major product categories. So things are clearly humming right now. My question is more about next year. As you look at the product pipeline, customer opportunity, what are you most excited about looking out in the next year given things seem to be going really well right now? But what are you most excited about next year? And then one quick follow for Tim.

Peter Gassner, CEO

Next year, there's a lot of excitement. We are bringing in new people to the company at an impressive rate. I was just in Denver recently, with nearly 250 individuals from what we call Generation Veeva. These are recent graduates, typically two years or less out of college, working in consulting, R&D, commercial, and engineering in Pleasanton and Toronto. I am thrilled about the workforce we are developing here. On another note, we are also hiring experienced individuals like Tom Schwenger, which helps to strengthen our middle management. Overall, I am excited about having close to 3,000 people, all united by a common culture and learning to collaborate effectively. In terms of our product offerings, I am particularly enthusiastic about the potential in clinical data management and safety. There are new areas ripe for innovation and still in their early stages. Additionally, I am looking forward to advancements in our commercial cloud solutions. Every year brings new opportunities, and I truly believe that this one will be outstanding. I am eager to dive into these prospects. However, I do not have any financial guidance to share at the moment.

Tim Cabral, CFO

No we cannot give financial guidance.

Peter Gassner, CEO

But overall, it's, I'm really excited about the mojo of the company, and that's created by the people coming into the company and the common culture where people can work together and enjoy it at greater scale. It's a beautiful thing.

Brent Bracelin, Analyst

Absolutely. Tim, just, again, to extend my congratulations on the retirement here. Certainly well earned, a great run, and you will be missed. Just drilling down into the Commercial Cloud growth, I mean we're seeing here now the second quarter of accelerating growth there. What's driving the improving visibility, you guided up for the full year here a little bit on the growth profile there? Are these Engage and event management rollouts big enough to kind of drive a sustained improvement in growth there? Or should we think about these things as kind of a couple of quarter rollouts that kind of will then roll off? Help me understand the improvement on a Commercial Cloud growth side?

Tim Cabral, CFO

Sure. And Brent, thanks for the question and thanks for the kind words. Yes, we're very pleased with what we're seeing in Commercial Cloud. I would say that the recent uptick in growth that we've seen in the first half of this year, which is you've seen it impact our guidance, is mainly due to particularly strong bookings in the last few quarters. And I would echo what Paul said earlier, in terms of where we're seeing the strength from a bookings perspective. It’s in CRM enterprise expansions that are going faster than we had anticipated. It's in SMB wins that are better than we anticipated. And as Paul said, we are seeing some particular strength in some of the areas, some of the add-on areas Brent, I should say, namely, Engage which Peter talked about Approved Email, and OpenData. So I think that's where we're seeing particularly strong bookings in the last three quarters, which is really driving the uptick in revenue. And as you remember, we've always characterized this as a steady growth business over time, even given this performance. That view hasn't changed in our minds.

Operator, Operator

Your next question comes from Karl Keirstead with Deutsche Bank.

Karl Keirstead, Analyst

I've got two fairly prosaic numbers questions for Tim. So Tim, maybe I missed it but did you update the full year billings guide? I think on the last quarter of $1.12 billion. And if I recall, you suggested that 41% to 42% of billings might drop in the fourth quarter, just want to make sure I didn't miss that?

Tim Cabral, CFO

Yes, Karl, thanks for the questions. The updated billings guide for the year was $1.135 billion, which is an increase of $15 million over last quarter. We attribute this in part to the outperformance in Q2.

Karl Keirstead, Analyst

Got it. Okay, thanks for that, sorry I missed that. And then the second question was on your operating cash flow guidance Tim, which was for the full year ex the tax benefits a little bit above our estimate. And I calculate first half operating cash flow growth of a super strong 40% in the first half, so congrats on that performance. And I'm just wondering what it's from, is it just a function of the operating margin outperformance flowing into the operating cash flow line? Or is there a little something extra? Thank you.

Tim Cabral, CFO

Yes, if you exclude the excess tax benefit, then you have the correct answer. It's really about the performance of operating income, which is growing faster than our top-line revenue and contributing to cash flow. I must also acknowledge my team for their phenomenal work, along with the assistance from the field team and the customer success initiatives we've implemented over time, leading to another strong collections quarter and an impressive first half in collections. You're right that this is primarily driven by operating income. When you factor in the excess tax benefit, the year-over-year growth in operating cash flow is even higher than that of operating income.

Operator, Operator

Your next question comes from Chris Merwin with Goldman Sachs. Your line is open.

Chris Merwin, Analyst

Just as it relates to quality. One, I was wondering, if there's any update to the revenue run rate there? And then maybe on a product level, can you just talk a bit more about the traction you're seeing with the newer claims product? I think you might have mentioned some strength in CMG. But just curious what types of customers are taking that product so far? Thanks.

Peter Gassner, CEO

In terms of the claims product, we have our early adopters there, that product is very, very early. And they're all in the consumer packaged goods, which is where claims are generally going to be targeted and scoring well, but early with that. We're implementing with the first customers iterating the product. In terms of revenue, we're happy with the progress outside of life sciences, but that's not something that we break out at this time. And we'll give you further updates as we have them.

Chris Merwin, Analyst

And maybe just one follow-up on eight-figure customers. It sounded like last quarter that was going really well. Just curious, if there's any update there and just on track to reach that target 20 by the end of the fiscal year?

Tim Cabral, CFO

Yes, Chris, this is Tim. I believe you summed it up accurately. We are focused on developing deeper and broader relationships with our customers. This is due to several factors: our customer success efforts, the innovation of our products, and our expanding product portfolio, which allows us to have a more significant impact for our customers. We generally provide updates on this during our Analyst Day, so I will hold off for now but anticipate sharing more then. As you recall, this was part of our strategy to achieve a $1 billion revenue run rate, which we surpassed this quarter. Peter highlighted this in his remarks, and we are very proud and excited about reaching this milestone, thanks to the exceptional execution of our team over the last four years since we set that target.

Operator, Operator

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

Parker Lane, Analyst

It’s actually Parker Lane in for Tom, thanks for taking my question. So one area we haven't heard much about involved recently is PromoMats. So I just wondering if you can talk about what remaining runway you see in your existing customer base for PromoMats adoption and any recent changes you made to that product that make it more appealing to the market? Thanks.

Peter Gassner, CEO

PromoMats is performing exceptionally well and is a leader in its market segment. We're pleased with the adoption rate. We still have some Zinc migrations underway, and support for Zinc customers will continue until the end of next year. As these migrations occur, we typically see growth since PromoMats offers features that Zinc does not, leading to extended usage. We're also adding more customers, particularly in the SMB market, as new clients seek to commercialize. We're particularly excited about two developments. First, the auto claims linking feature is poised to enhance customer success, though it won't generate new revenue for Veeva. Second, the MedComms application in the commercial Vault is gaining traction for handling medical inquiries and managing medical content. We've recently added several features that should further boost its usage. Overall, we're very pleased with PromoMats' performance and the successful integration of the Zinc acquisition for both us and our customers.

Parker Lane, Analyst

Got it. And then multiple people have referenced the strength of Engage this quarter. Just wondering if that's a factor of increased demand from the market? Or have there been specific features that have finally come out that people have been looking for and been more receptive to really spur that growth and double the customer account over the last year?

Paul Shawah, SVP of Commercial Cloud

Yes, I will address that regarding Engage. This is essentially two main points. First, it represents a new approach to the market. Consider an industry that has traditionally prioritized in-person interactions; now we offer them the option to engage remotely. This has required significant change management. Over the past few years, many customers have been experimenting, learning how it works, and understanding customer responses, as well as identifying effective practices. They've gathered enough information to build a solid business case and drive demand. We are witnessing an increase in interest from various markets worldwide that are keen to enhance adoption. Thus, the learning and change management process is ongoing and progressing quickly. This is simply a typical phase in the lifecycle of a new product like this. The second factor contributing to this growth is the shift in our customers’ thinking, as they seek to embrace digital solutions faster and develop the necessary infrastructure to support their future sales models. Every customer is considering how their future sales approaches will look, with digital becoming an increasingly significant component. Our goal is to facilitate this market transition through a wave of innovation, with Engage being one of the key products driving that change.

Operator, Operator

Ladies and gentlemen, we have reached the end of the allotted time for questions-and-answers. Our final question will come from Pat Walravens with JMP Securities. Your line is open?

Joey Marincek, Analyst

This is Joey on for Pat, congrats on the quarter. And thank you for taking our question. Just going off to product questions. We're wondering about any new product initiatives you may have in the pipeline, particularly regarding Vault? Thank you.

Peter Gassner, CEO

In terms of new product initiatives, there are many activities underway. We continuously enhance existing products by refining them, adding new features, and ensuring compliance with regulations. This also includes integrating our product suite, which keeps us busy. Regarding entirely new products, we have plenty of ideas and are always considering new options, but we don't have anything to announce at this moment.

Operator, Operator

I will now turn the call back over to Peter for closing remarks.

Peter Gassner, CEO

Thank you operator. I would like to thank everyone for joining us today, and we look forward to seeing many of you at our Analysts Day in San Francisco on October 2nd. And special thanks to the Veeva team for your effort and teamwork and to customers for their trust and support. Thank you.

Operator, Operator

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