Edgar Filing: VEEVA SYSTEMS INC

veev-10q_20160430.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2016

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-36121

Veeva Systems Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-8235463

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

4280 Hacienda Drive

Pleasanton, California 94588

(Address of principal executive offices)

(925) 452-6500

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 27, 2016, there were 96,768,253 shares of the Registrant’s Class A common stock outstanding and 37,996,223 shares of the Registrant’s Class B common stock outstanding.

VEEVA SYSTEMS INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements.	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Comprehensive Income	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures.	35
PART II. OTHER INFORMATION		36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58
SIGNATURES		59
EXHIBIT INDEX		60

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. Forward-looking statements include information concerning our possible or assumed future results of operations and expenses, business strategies and plans, trends, market sizing, competitive position, industry environment and potential growth opportunities and product capabilities, among other things. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would,” “tracking to,” “on track” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

As used in this report, the terms “Veeva,” “Registrant,” “we,” “us,” and “our” mean Veeva Systems Inc. and its subsidiaries unless the context indicates otherwise.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

VEEVA SYSTEMS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except number of shares and par value)

	April 30,		January 31,
	2016		2016
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	245,942	$	132,179
Short-term investments		211,493		214,024
Accounts receivable, net of allowance for doubtful accounts of $337 and $413, respectively		81,776		144,798
Prepaid expenses and other current assets		9,163		9,963
Total current assets		548,374		500,964
Property and equipment, net		47,659		47,469
Capitalized internal-use software, net		969		979
Goodwill		95,804		95,804
Intangible assets, net		45,446		47,500
Deferred income taxes, noncurrent		9,865		9,359
Other long-term assets		3,675		3,724
Total assets	$	751,792	$	705,799

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,630	$	4,600
Accrued compensation and benefits		11,894		12,451
Accrued expenses and other current liabilities		8,045		11,059
Income tax payable		1,753		750
Deferred revenue		180,776		157,419
Total current liabilities		207,098		186,279
Deferred income taxes, noncurrent		10,287		10,622
Other long-term liabilities		3,861		3,649
Total liabilities		221,246		200,550
Commitments and contingencies (Note 12)
Stockholders’ equity:
Class A common stock, $0.00001 par value; 800,000,000 shares authorized, 96,341,558 and 87,359,026 issued and outstanding at April 30, 2016 and January 31, 2016, respectively		1		1
Class B common stock, $0.00001 par value; 190,000,000 shares authorized, 38,047,403 and 46,186,159 issued and outstanding at April 30, 2016 and January 31, 2016, respectively		—		—
Additional paid-in capital		374,192		361,691
Accumulated other comprehensive income		459		172
Retained earnings		155,894		143,385
Total stockholders’ equity		530,546		505,249
Total liabilities and stockholders’ equity	$	751,792	$	705,799

See Notes to Condensed Consolidated Financial Statements.

VEEVA SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)

	For the three months ended April 30,
	2016		2015
	(Unaudited)
Revenues:
Subscription services	$	96,032	$	68,894
Professional services and other		23,732		21,029
Total revenues		119,764		89,923
Cost of revenues⁽¹⁾:
Cost of subscription services		21,745		15,873
Cost of professional services and other		19,346		16,112
Total cost of revenues		41,091		31,985
Gross profit		78,673		57,938
Operating expenses⁽¹⁾:
Research and development		22,073		12,957
Sales and marketing		26,723		15,496
General and administrative		12,071		8,560
Total operating expenses		60,867		37,013
Operating income		17,806		20,925
Other income, net		2,747		763
Income before income taxes		20,553		21,688
Provision for income taxes		8,044		8,706
Net income	$	12,509	$	12,982

Net income attributable to Class A and Class B common stockholders, basic and diluted	$	12,505	$	12,964
Net income per share attributable to Class A and Class B common stockholders:
Basic	$	0.09	$	0.10
Diluted	$	0.09	$	0.09
Weighted-average shares used to compute net income per share attributable to Class A and Class B common stockholders:
Basic		133,996		131,163
Diluted		145,708		144,734
Other comprehensive income (loss):
Net change in unrealized gains (losses) on available-for-sale investments	$	174	$	(3	)
Net change in cumulative foreign currency translation gain (loss)		113		(8	)
Comprehensive income	$	12,796	$	12,971

⁽¹⁾

Includes stock-based compensation as follows:

Cost of revenues:
Cost of subscription services	$	209	$	111
Cost of professional services and other		1,178		742
Research and development		2,394		1,383
Sales and marketing		2,455		1,120
General and administrative		1,907		1,443
Total stock-based compensation	$	8,143	$	4,799

See Notes to Condensed Consolidated Financial Statements.

VEEVA SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the three months ended April 30,
	2016			2015
	(Unaudited)
Cash flows from operating activities
Net income	$	12,509		$	12,982
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,405			1,024
Amortization of premiums on short-term investments		420			763
Stock-based compensation		8,143			4,799
Deferred income taxes		(838	)		—
Bad debt recovery		(205	)		(7	)
Changes in operating assets and liabilities:
Accounts receivable		63,227			23,536
Income taxes		380			2,862
Prepaid expenses and other current and long-term assets		1,390			33
Accounts payable		66			(760	)
Accrued expenses and other current liabilities		(2,905	)		(1,336	)
Deferred revenue		23,357			(2,197	)
Other long-term liabilities		411			92
Net cash provided by operating activities		109,360			41,791
Cash flows from investing activities
Purchases of short-term investments		(67,740	)		(100,837	)
Maturities and sales of short-term investments		70,025			47,744
Purchases of property and equipment		(2,057	)		(4,710	)
Acquisitions, net of cash acquired		—			(9,987	)
Capitalized internal-use software development costs		(140	)		(22	)
Changes in restricted cash and deposits		(6	)		1
Net cash provided by (used in) investing activities		82			(67,811	)
Cash flows from financing activities
Proceeds from early exercise of common stock options		—			8
Proceeds from exercise of common stock options		1,345			1,162
Restricted stock units acquired to settle employee tax withholding liability		(1	)		(4	)
Excess tax benefits from employee stock plans		2,861			3,169
Net cash provided by financing activities		4,205			4,335
Effect of exchange rate changes on cash and cash equivalents		116			(7	)
Net change in cash and cash equivalents		113,763			(21,692	)
Cash and cash equivalents at beginning of period		132,179			129,253
Cash and cash equivalents at end of period	$	245,942		$	107,561
Supplemental disclosures of other cash flow information:
Cash paid for income taxes, net of refunds	$	2,965		$	2,642
Non-cash investing and financing activities:
Changes in accounts payable and accrued liabilities related to property and equipment purchases	$	(689	)	$	2,482
Vesting of early exercised stock options	$	16		$	17

See Notes to Condensed Consolidated Financial Statements.

VEEVA SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.

Summary of Business and Significant Accounting Policies

Description of Business

Veeva is a leading provider of industry cloud software and data solutions for life sciences companies. We were founded in 2007 on the premise that industry-specific cloud solutions could best address the operating challenges and regulatory requirements of the global life sciences industry. Our solutions are designed to meet the unique needs of life sciences companies regardless of size and to address their most strategic business functions. From research and development to commercialization, our solutions are designed to help our customers bring products to market faster and more efficiently, market and sell more effectively and maintain compliance with government regulations. We provide multichannel customer relationship management, regulated content and information management, master data management and data and data services that meet the specialized functional and compliance needs of life sciences companies. Recently, we announced that we will begin selling certain of our regulated content and information management applications to companies in regulated industries adjacent to life sciences. Our fiscal year end is January 31.

Principles of Consolidation and Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting and include the accounts of our wholly owned subsidiaries after elimination of intercompany accounts and transactions. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in Veeva’s Annual Report on Form 10-K for the fiscal year ended January 31, 2016, filed on March 31, 2016. There have been no changes to our significant accounting policies described in the annual report that have had a material impact on our condensed consolidated financial statements and related notes.

The consolidated balance sheet as of January 31, 2016 included herein was derived from the audited financial statements as of that date. These unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, our comprehensive income and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending January 31, 2017 or any other period.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that affect the condensed consolidated financial statements and the notes thereto. These estimates are based on information available as of the date of the condensed consolidated financial statements. On a regular basis, management evaluates these estimates and assumptions. Significant items subject to such estimates and assumptions include, but are not limited to:

the best estimate of selling price of the deliverables included in multiple-deliverable revenue arrangements;

the collectibility of our accounts receivable;

the fair value of assets acquired and liabilities assumed for business combinations;

the valuation of short-term investments and the determination of other-than-temporary impairments;

the valuation of building and land;

the realizability of deferred income tax assets and liabilities;

the fair value of our stock-based awards and related forfeiture rates; and

the capitalization and estimated useful life of internal-use software development costs.

As future events cannot be determined with precision, actual results could differ significantly from those estimates.

Revenue Recognition

We derive our revenues primarily from subscription services fees and professional services fees. Subscription services revenues consist of fees from customers accessing our cloud-based software solutions and subscription or license fees for our data solutions. In addition, Zinc Ahead, a company we recently acquired, had a limited number of perpetual license agreements with accompanying maintenance and hosting fees. We have included such on-going maintenance and hosting fees in our subscription services revenues. Professional services and other revenues consist primarily of fees from implementation services, configuration, data services, training and managed services related to our solutions. We commence revenue recognition when all of the following conditions are satisfied:

there is persuasive evidence of an arrangement;

the service has been or is being provided to the customer;

the collection of the fees is reasonably assured; and

the amount of fees to be paid by the customer is fixed or determinable.

Our subscription services arrangements are generally non-cancellable and do not provide for refunds to customers in the event of cancellations. We record revenues net of any sales taxes.

Subscription Services Revenues

Subscription services revenues are recognized ratably over the order term beginning when the solution has been provisioned to the customer. Our subscription arrangements are considered service contracts, and the customer does not have the right to take possession of the software. On-going maintenance and hosting fees for Zinc Ahead solutions are also recognized ratably over the accompanying maintenance and hosting term.

Professional Services and Other Revenues

The majority of our professional services arrangements are recognized on a time and materials basis. Professional services revenues recognized on a time and materials basis are measured monthly based on time incurred and contractually agreed upon rates. Certain professional services revenues are based on fixed fee arrangements and revenues are recognized based on the proportional performance method. In some cases, the terms of our time and materials and fixed fee arrangements may require that we defer the recognition of revenue until contractual conditions are met. Data services and training revenues are generally recognized as the services are performed.

Multiple Element Arrangements

We apply the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2009-13, Multiple—Deliverable Revenue Arrangements, to allocate revenues based on relative best estimated selling price to each unit of accounting in multiple element arrangements, which generally include subscriptions and professional services. Best estimated selling price of each unit of accounting included in a multiple element arrangement is based upon management’s estimate of the selling price of deliverables when vendor specific objective evidence or third-party evidence of selling price is not available.

We enter into arrangements with multiple deliverables that generally include our subscription offerings and professional services. For these arrangements we must: (i) determine whether each deliverable has stand-alone value; (ii) determine the estimated selling price of each element using the selling price hierarchy of vendor specific objective evidence (VSOE) of fair value, third-party evidence (TPE) or best estimated selling price (BESP), as applicable; and (iii) allocate the total price among the various deliverables based on the relative selling price method.

In determining whether professional services and other revenues have stand-alone value, we consider the following factors for each consulting agreement: availability of the consulting services from other vendors, the nature of the consulting services and whether the professional services are required in order for the customer to use the subscription services. If stand-alone value cannot be established for a delivered item in a multiple-element arrangement, the delivered item is accounted for as a combined unit of accounting with the undelivered item(s).

We have established stand-alone value with respect to all of our offerings except professional services for the recently acquired Zinc Ahead business. As a result, we account for multiple element arrangements that include Zinc Ahead professional services as a combined unit of accounting and recognize the revenues from such professional services ratably over the term of the associated subscription services.

We have determined that we are not able to establish VSOE of fair value or TPE of selling price for any of our deliverables, and accordingly we use BESP for each deliverable in the arrangement. The objective of BESP is to estimate the price at which we would transact a sale of the service deliverables if the services were sold on a stand-alone basis. Revenue allocated to each deliverable is recognized when the basic revenue recognition criteria are met for each deliverable.

We determine BESP for our subscription services included in a multiple element arrangement by considering multiple factors including, but not limited to, stated subscription renewal rates offered to the customer to renew the service and other major groupings such as customer type and geography.

BESP for professional services considers the discount of actual professional services sold compared to list price, the experience level of the individual performing the service and the estimated location of the end users for which the services were performed.

We allocate consideration proportionately based on established BESP and then recognize the allocated revenue over the respective delivery periods for each element.

Deferred Revenue

Deferred revenue includes amounts billed to customers for which the revenue recognition criteria have not been met. Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from our subscription services, and to a lesser extent, professional services and other revenues described above, and is recognized as the revenue recognition criteria are met. We generally invoice our customers in annual, quarterly or monthly installments for the subscription services. Accordingly, the deferred revenue balance does not generally represent the total contract value of a subscription arrangement. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent, which is in the other long-term liabilities on the consolidated balance sheet.

Certain Risks and Concentrations of Credit Risk

Our revenues are derived from subscription services, professional services and other services delivered primarily to the life sciences industry. We operate in markets that are highly competitive and rapidly changing. Significant technological changes, shifting customer needs, the emergence of competitive products or services with new capabilities and other factors could negatively impact our operating results.

Our financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents, short-term investments and trade accounts receivable. Our cash equivalents and short-term investments are held in safekeeping by large, credit-worthy financial institutions. We have established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. Deposits in these financial institutions may significantly exceed federally insured limits.

We do not require collateral from our customers and generally require payment within 30 to 60 days of billing. We periodically evaluate the collectibility of our accounts receivable and provide an allowance for doubtful accounts as necessary, based on historical experience. Historically, such losses have not been material.

The following customers individually exceeded 10% of total accounts receivable as of the dates shown:

	April 30,		January 31,
	2016		2016
Customer 1	*			16%
Customer 2	*			15
Customer 3		14%	*

*	Does not exceed 10%.

No single customer represented over 10% of total revenues in the condensed consolidated financial statements for the three months ended April 30, 2016 and 2015.

Recent Accounting Pronouncements

Stock-Based Compensation

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2016-09, “Compensation-Stock Compensation: Improvements to Employee Share-Based Payment”. The guidance simplifies the accounting for share-based transactions, including the income tax consequences, classification of awards as either equity or liabilities on the balance sheet, and classification of employee taxes paid on statement of cash flows when an employer withholds shares for tax-withholding purposes. The new standard is effective for interim and annual periods beginning after December 15, 2016, and early adoption is permitted. We have elected not to early adopt. We are evaluating the impact of adopting this new accounting standard on our consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases”. ASU 2016-02 requires that lease arrangements longer than twelve months result in an entity recognizing an asset and liability. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. We are evaluating the impact of this new accounting standard on our consolidated financial statements and have not determined whether we will early adopt.

Financial Instruments

In January 2016, the FASB issued ASU 2016-1, “Financial Instruments.” This guidance outlines the classification and measurement of financial instruments. The requirement to disclose the methods and significant assumptions used to estimate fair value is removed. In addition, financial assets and financial liabilities are to be presented separately in the notes to the financial statements, grouped by measurement category and form of financial asset. This standard will be effective for our fiscal year beginning in February 1, 2017, and early adoption is permitted. We do not expect this standard to have a material impact on our consolidated financial statements.

Business Combinations

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.” This guidance requires the acquirer to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings for changes in depreciation or amortization, or other income effects (if any) as a result of the change to the provisional amounts, calculated as if the accounting had been completed as of the acquisition date, must be recorded in the reporting period in which the adjustment amounts are determined rather than retrospectively. This standard will be applied prospectively to adjustments to provisional amounts that occur after the effective date. The Company adopted this standard on a prospective basis for our fiscal year beginning in February 1, 2016. We do not expect this standard to have a material impact on our consolidated financial statements.

Cloud Computing Arrangements

In April 2015, the FASB issued ASU 2015-05, “Customer's Accounting for Fees Paid in a Cloud Computing Arrangement.” This guidance is intended to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement, primarily to determine whether the arrangement includes a sale or license of software. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for a cloud computing arrangement as a service contract. The Company adopted this standard on a prospective basis for our fiscal year beginning February 1, 2016. We do not expect this standard to have a material impact on our consolidated financial statements.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 supersedes the existing revenue recognition guidance in “Revenue Recognition (Topic 605).” This update should be applied retrospectively either to each prior reporting period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative effect adjustment recorded in the retained earnings. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic

606): Deferral of the Effective Date.” This Update defers the effective date of ASU 2014-09 for all entities by one year, although companies still have the option to begin applying the new guidance as of the original effective date. In accordance with the deferral, this guidance will be effective for our fiscal year beginning February 1, 2018. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” which clarifies implementation guidance in ASU 2014-09 on assessing collectability, noncash consideration, presentation of sales tax and completed contracts and contract modifications at transition. We are evaluating the effect that these new accounting standards will have on our consolidated financial statements and related disclosures and have not selected a transition method yet or determined whether we will early adopt.

Note 2.

Acquisitions

Our acquisitions are accounted for as business combinations. In accordance with authoritative guidance on business combination accounting, the assets and liabilities of the acquired companies were recorded as of the acquisition date, at their respective fair values, and are included within our condensed consolidated financial statements. The results of operations related to each company acquired have been included in our condensed consolidated statements of operations from the date of acquisitions. All acquisition-related transaction costs are expensed and reflected in general and administrative expenses on our condensed consolidated statements of comprehensive income for the periods presented.

Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets and represents the future economic benefits of the customer relationships and data technology contributions in support of our data-related offerings. Goodwill is not deductible for U.S. tax purposes.

The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of valuation analyses pertaining to intangible assets acquired, liabilities assumed and tax liabilities assumed including calculation of deferred tax assets and liabilities. Changes to amounts recorded as assets or liabilities may result in corresponding adjustments to goodwill during the measurement period (up to one year from the acquisition date).

Zinc Ahead

On September 29, 2015, we completed our acquisition of Mineral Newco Ltd., the ultimate parent company of Zinc Ahead Ltd, a company organized under the laws of the United Kingdom that is the ultimate parent company of Zinc Ahead Holdings Ltd, Zinc Ahead Ltd, Zinc Ahead Inc., Zinc Ahead PTY LTD and Zinc Ahead (Japan) KK (collectively, “Zinc Ahead”), in an all-cash transaction. Through a share purchase agreement our indirect subsidiary, Veeva U.K. Holdings Limited, acquired all of the share capital of Zinc Ahead. Under the acquisition method of accounting, the total purchase price was allocated to Zinc Ahead's net tangible and intangible assets based upon their estimated fair values as of September 29, 2015.

The total closing consideration for the purchase was approximately $119.9 million in cash. In addition, the agreement, as revised, calls for $9.6 million payable over three years at a rate of one-third per year to employee shareholders and option holders of Zinc Ahead who remain employed with us. These payments have been accounted for as deferred compensation and will be recognized over the service period. Zinc Ahead was a provider of commercial content management solutions. We expect this acquisition to support the continued growth of our commercial content management solutions. Over time, we will seek to convert the users of the Zinc Ahead solutions to our Veeva Vault PromoMats application. As of April 30, 2016, we had incurred $2.2 million in acquisition-related transaction costs which are reflected in general and administrative expenses on our condensed consolidated statements of comprehensive income.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

	Useful Lives of Intangible Assets	Fair Value
Purchase price
Cash		$	119,935

Allocation of purchase price
Cash		$	3,107
Accounts receivable			4,600
Other current and non-current assets			5,140
Deferred tax liabilities, net			(12,316	)
Other current and non-current liabilities			(8,730	)
Net liabilities		$	(8,199	)

Customer contracts and relationships	10 years	$	31,823
Software	4.5 years		10,063
Brand	3.5 years		1,141
Purchased intangible assets		$	43,027

Goodwill		$	85,107

Total purchase price		$	119,935

We did not record any in-process research and development in connection with the Zinc Ahead acquisition.

The following unaudited pro forma information for the three months ended April 30, 2015, presents the combined results of operations for the periods presented as if the acquisition had been completed on February 1, 2015, the beginning of the comparable prior annual reporting period. The unaudited pro forma results include the amortization associated with preliminary estimates for the acquired intangible assets, changes to interest income for cash used in the acquisition, and exclude acquisition-related transaction costs and the associated tax impact on these unaudited pro forma adjustments.

The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating the two companies. Accordingly, these unaudited pro forma results are presented for informational purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations (in thousands):

	Three Months Ended April 30, 2015
	(Unaudited)
Pro forma revenues	$	96,531
Pro forma net income	$	9,916
Pro forma net income per share attributable to Class A and Class B common stockholders:
Basic	$	0.08
Diluted	$	0.07

Qforma CrowdLink

On March 31, 2015, we completed our acquisition of the key opinion leader, or KOL, business and products known as Qforma CrowdLink in an all-cash transaction. We expect this acquisition to support our key opinion leader business. Total purchase price was $9.8 million in cash.

There are no contingent cash payments related to this transaction. We had incurred $0.4 million in acquisition-related transaction costs which are reflected in general and administrative expenses on our condensed consolidated statements of comprehensive income. The assets, liabilities and operating results of Qforma CrowdLink have been reflected in our condensed consolidated financial statements from the date of acquisition and have not been material.

Through the transaction we acquired the outstanding equity interests of Mederi AG, and the selected other KOL-related business assets and liabilities of Qforma, Inc. and other affiliated entities. Under the acquisition method of accounting, the total purchase price was allocated to Qforma CrowdLink's net tangible and intangible assets based upon their estimated fair values as of March 31, 2015.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

	Useful Lives of Intangible Assets	Fair Value
Purchase price
Cash		$	9,750

Allocation of purchase price
Cash		$	56
Accounts receivable			1,085
Deferred tax assets, net			143
Other current and non-current assets			50
Other current and non-current liabilities			(731	)
Net assets		$	603

Database	5 years	$	1,800
Customer relationships	4 years		800
Software	5 years		500
Existing technology	5 years		200
Purchased intangible assets		$	3,300

Goodwill		$	5,847

Total purchase price		$	9,750

We did not record any in-process research and development in connection with the Qforma CrowdLink acquisition. Pro forma results of operations have not been presented because the effect of this acquisition was not material to the consolidated financial statements.

Note 3.

Short-Term Investments

At April 30, 2016, short-term investments consisted of the following (in thousands):

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available-for-sale securities:
Asset-backed securities	$	11,020	$	30	$	(1	)	$	11,049
Commercial paper		16,151		—		—			16,151
Corporate notes and bonds		34,223		37		(22	)		34,238
U.S. agency obligations		95,444		33		(6	)		95,471
U.S. treasury securities		54,572		20		(8	)		54,584
Total available-for-sale securities	$	211,410	$	120	$	(37	)	$	211,493

At January 31, 2016, short-term investments consisted of the following (in thousands):

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available-for-sale securities:
Asset-backed securities	$	5,456	$	—	$	(2	)	$	5,454
Commercial paper		5,970		—		—			5,970
Corporate notes and bonds		38,341		26		(40	)		38,327
U.S. agency obligations		124,626		14		(54	)		124,586
U.S. treasury securities		39,720		4		(37	)		39,687
Total available-for-sale securities	$	214,113	$	44	$	(133	)	$	214,024

The following table summarizes the estimated fair value of our short-term investments, designated as available-for-sale and classified by the contractual maturity date of the securities as of the dates shown (in thousands):

	April 30,		January 31,
	2016		2016
Due in one year or less	$	160,382	$	151,214
Due in greater than one year		51,111		62,810
Total	$	211,493	$	214,024

We have certain available-for-sale securities in a gross unrealized loss position, all of which have been in such position for less than 12 months. We review our debt securities classified as short-term investments on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. We consider factors such as the length of time and extent to which the market value has been less than the cost, the financial position and near-term prospects of the issuer and our intent to sell, or whether it is more likely than not we will be required to sell the investment before recovery of the investment’s amortized-cost basis. If we determine that an other-than-temporary decline exists in one of these securities, the respective investment would be written down to fair value. For debt securities, the portion of the write-down related to credit loss would be recognized to other income, net in our condensed consolidated statements of comprehensive income. Any portion not related to credit loss would be included in accumulated other comprehensive income (loss). There were no impairments considered other-than-temporary as of April 30, 2016 and January 31, 2016.

The following table shows the fair values and the gross unrealized losses of these available-for-sale securities aggregated by investment category as of April 30, 2016 (in thousands):

			Gross
	Fair		Unrealized
	Value		Losses
Asset-backed securities	$	469	$	(1	)
Corporate notes and bonds		10,101		(22	)
U.S. agency obligations		24,158		(6	)
U.S. treasury securities		25,949		(8	)

The following table shows the fair values and the gross unrealized losses of these available-for-sale securities aggregated by investment category as of January 31, 2016 (in thousands):

			Gross
	Fair		Unrealized
	Value		Losses
Asset-backed securities	$	2,249	$	(2	)
Corporate notes and bonds		14,296		(40	)
U.S. agency obligations		82,806		(54	)
U.S. treasury securities		33,486		(37	)

Note 4.

Property and Equipment, Net

Property and equipment, net, consists of the following as of the dates shown (in thousands):

	April 30,			January 31,
	2016			2016
Land	$	3,040		$	3,040
Building		20,984			20,984
Land improvements and building improvements		14,141			14,106
Equipment and computers		6,430			5,910
Furniture and fixtures		6,735			6,453
Leasehold improvements		1,768			1,323
Construction in progress		128			—
		53,226			51,816
Less accumulated depreciation		(5,567	)		(4,347	)
Total property and equipment, net	$	47,659		$	47,469

Total depreciation expense for the three months ended April 30, 2016 and 2015 was $1.2 million and $0.4 million, respectively. Land is not depreciated.

Note 5.

Capitalized Internal-Use Software

Capitalized internal-use software, net, consisted of the following as of the dates shown (in thousands):

	April 30,			January 31,
	2016			2016
Capitalized internal-use software development costs	$	3,967		$	3,801
Less accumulated amortization		(2,998	)		(2,822	)
Capitalized internal-use software development costs, net	$	969		$	979

During the three months ended April 30, 2016, we capitalized $0.2 million of internal-use software development costs. During the three months ended April 30, 2015, we capitalized an immaterial amount of internal-use software development costs.

Capitalized internal-use software amortization expense for the three months ended April 30, 2016 and 2015 was $0.2 million and $0.2 million, respectively.

Note 6.

Intangible Assets

The following schedule presents the details of intangible assets as of April 30, 2016 (dollar amounts in thousands):

	April 30, 2016
	Gross							Remaining
	Carrying		Accumulated					Useful Life
	Amount		Amortization			Net		(in years)
Existing technology	$	3,880	$	(2,151	)	$	1,729		2.3
Database		4,939		(2,398	)		2,541		2.8
Customer contracts and relationships		33,643		(2,567	)		31,076		9.2
Software		10,867		(1,717	)		9,150		3.9
Brand		1,141		(191	)		950		2.9
	$	54,470	$	(9,024	)	$	45,446

The following schedule presents the details of intangible assets as of January 31, 2016 (dollar amounts in thousands):

	January 31, 2015
	Gross							Remaining
	Carrying		Accumulated					Useful Life
	Amount		Amortization			Net		(in years)
Existing technology	$	3,880	$	(1,957	)	$	1,923		2.6
Database		4,939		(2,103	)		2,836		3.0
Customer contracts and relationships		33,643		(1,693	)		31,950		9.4
Software		10,867		(1,106	)		9,761		4.2
Brand		1,141		(111	)		1,030		3.2
	$	54,470	$	(6,970	)	$	47,500

Amortization expense associated with intangible assets for the three months ended April 30, 2016 and 2015 was $2.1 million and $0.4 million, respectively.

The estimated amortization expense for intangible assets, for the next five years and thereafter is as follows (in thousands):

	Estimated
	Amortization
Period	Expense
Fiscal 2017	$	6,172
Fiscal 2018		7,791
Fiscal 2019		6,963
Fiscal 2020		6,062
Fiscal 2021		3,628
Thereafter		14,830
Total	$	45,446

Note 7.

Accrued Expenses

Accrued expenses consisted of the following as of the dates shown (in thousands):

	April 30,		January 31,
	2016		2016
Accrued commissions	$	1,531	$	2,798
Accrued bonus		1,751		2,957
Deferred compensation associated with Zinc Ahead		2,784		1,120
Accrued other compensation and benefits		5,828		5,576
Total accrued compensation and benefits	$	11,894	$	12,451

Accrued fees payable to salesforce.com		4,210		4,222
Accrued third-party professional services subcontractors' fees		774		1,152
Sales taxes payable		975		1,597
Other accrued expenses		2,086		4,088
Total accrued expenses and other current liabilities	$	8,045	$	11,059

Note 8.

Fair Value Measurements

The carrying amounts of accounts receivable and other current assets, accounts payable and accrued liabilities approximate fair value due to their short-term nature.

Financial assets and financial liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial assets and financial liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and considers factors specific to the asset or liability.

The following table presents the fair value hierarchy for financial assets measured at fair value on a recurring basis as of April 30, 2016 (in thousands):

Level 1

Level 2

Level 3

Total

Cash equivalents: