Veeva Systems Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 31, 2023

There are 21 speakers on the call.

Operator

And welcome to the Veeva Systems Fiscal 20 24 First Quarter Results Conference Call. All lines have been placed on mute to prevent any anomalies. After the speakers' remarks, there will be a question and answer session. I will now turn the conference over to Gunnar Hansen, Director of Investor Relations. Please go ahead.

Speaker 1

Good afternoon, and welcome to Veeva's fiscal 2024 First Quarter Earnings Conference Call for the quarter ended April 30, 2023. As a reminder, we posted prepared remarks on Veeva's Investor Relations website just after 1 P. M. Pacific today. Any questions.

Speaker 1

Today's call will be used primarily for Q and A. With me today for Q and A are Peter Gassner, our Chief Executive Officer Paul Shawla, EVP, Commercial Strategy and Brent Bowman, our Chief Financial Officer. Any further questions. During this call, we may make forward looking statements regarding trends, our strategies and the anticipated performance of the business, any further discussion, including guidance regarding future financial results. These forward looking statements will be based on our current views and expectations and are subject to various risks and uncertainties.

Speaker 1

Our actual results may differ materially. Please refer to the risks listed in our earnings release any risk factors included in our most recent filing on Form 10 ks. Forward looking statements made during this call are being made as of today, May 31, 2023, based on the facts available to us today. 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.

Speaker 1

We may discuss our guidance on today's call, but we will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. On the call, we may 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 on today's earnings release and in the supplemental earnings investor presentation, both of which are available on our website. With that, thank you for joining us, and I'll turn the call over to Peter.

Speaker 2

Thank you, Gunnar, and welcome everyone to the call. We had a great start to the year, delivering results ahead of guidance with total revenue coming in at $526,000,000 The macroeconomic environment was stable and it was another quarter of strong execution across R and D and commercial. In commercial, development of Vault CRM is on track, and we gave a compelling demo at Summit. We expect to have our first customers live on Vault CRM early we also saw continued momentum in Development Cloud across all areas. Our product strategies in R and D and commercial are clear and compelling, and we have a long runway of growth ahead.

Speaker 2

At this point, we'll open up the call to your questions.

Operator

Anyone again. One moment for your first question. Your first question comes from the line of Joe Vrawick of Baird. Please go ahead.

Speaker 3

Great. Hi, everyone. Maybe just to start off the Commercial Summit a few weeks ago, Curious to hear feedback from customers and partners on what they saw and liked or maybe didn't like out of Vault CRM and any key messages out of the summit that maybe help inform or change how you're thinking about introducing the product Starting 2024 and into 2025.

Speaker 4

Hey, Joe, this is Paul. Thanks for the question. So summit was great. We had nearly 2,000 people there. It was a great event.

Speaker 4

It was our first showcase of Vault CRM. We demoed to a broad audience and generated a lot of excitement. I'd say there was a couple of specific things that our customers were excited about. First is the the idea that they're going to get the full functionality of everything we've delivered in Veeva CRM over the past 15 years. All of that plays forward into Veeva CRM.

Speaker 4

So what that means for our customers is they never have to go backwards. Everything they've invested in, they'll get the advantage of. So full functionality was a really big value prop for our customers. I would say number 2 is the big announcements that we have. Service center, which is for inside sales reps and hybrid reps.

Speaker 4

These are people that need access the core Veeva CRM functionality, but they also need access to things like handling inbound calls and cases. So they're excited that this is all going to be part of one application, but also CRM bot, which is super exciting. You saw some of Peter's remarks about generative AI and this is going to be the first application that we're building is going to be part of all CRM. So that generated a lot of excitement. And I guess maybe the third thing was the approach we're taking to helping the industry move to Vault CRM.

Speaker 4

So same application, same data model, helping customers move their data, their configuration. They're excited about how we're going to help them make the transition. So overall, really positive event, a lot of really positive feedback on our direction in Bal Sierra.

Speaker 3

Okay. That's all great. Thanks, Paul. And then maybe just on the macro, it's been a few quarters now where AVEVA ultimately macro meeting your expectations. I guess sitting here on the outside, the macro and things like biotech funding, it seems pretty dynamic over that same stretch of time.

Speaker 3

Is the delta here just maybe Veeva's opportunity? Is it your execution? How do you maybe reconcile kind of those two comments?

Speaker 2

Yes, I'll take that one. This is Peter. In general, the industry operates on pretty long cycles, especially our very established and large customers. So the ups and downs of the macro environment don't really affect them too much. We do see a little bit more effect in what call our emerging biotech.

Speaker 2

These are small customers, generally don't have approved products. So we see when funding gets tight, we see a little bit of pressure there, but nothing really has changed in the last 90 days at a macro level. So I guess that's why we're not so susceptible to those small ups and downs and business just continues to move forward.

Operator

Thank you. Your next question comes from the line of Ken Wong of Oppenheimer and Company. Please go ahead.

Speaker 5

Fantastic. This first question is for Brent. Just wanted to ask about unbilled AR, saw a big spike up on the cash flow. What drove that and how should we think about that trajectory? Is it just going to be a tailwind until the balance sheet runs to 0?

Speaker 5

What's the right mapping on that.

Speaker 6

Yes. So a couple of things there. On the unbilled AR, I think there was a decline, right? So and that part of what you're seeing there was on the termination for convenience playing through. But on the OCF line overall, we We're really pleased with our strong execution in the quarter.

Speaker 6

On a full year basis, we've increased the number by $30,000,000 So we're at $840,000,000 which is growing about 20%. So feel really good about the execution and for the quarter and for the outlook for the year.

Speaker 5

Got it. So it wasn't any kind of abnormal contract. This was kind of how you expected it to play out with the removal of or the inclusion of the TFCs?

Speaker 6

Absolutely correct. So from a TFC perspective, just putting in complete context, we know what we expected to happen, happened in Q1 and what we expected to happen for the full year is still intact. So no surprises.

Speaker 7

Got it. Any.

Operator

Thank you. Your next question comes from the line of Brian Peterson of Raymond James. Please go ahead.

Speaker 1

Hi, guys. Thanks for taking the question. And maybe just one for Paul. So Paul, I think there's been some debate on at least from investors on how customized some of the CRM implementations are and how big of a lift it may be to actually migrate over to Vault. Has there been any feedback on that so far?

Speaker 1

And I'd also to understand there was a comment in the prepared remarks that you expect to have some early customers live at the Summit next year. How is that trending relative your expectations. Thanks guys.

Speaker 4

Yes. Hey, Brian. Thanks for your question. Yes, so the way I would think about it is some companies have adhered pretty close to what Veeva delivers kind of standard in our standard product or have done relatively straightforward configurations and other companies have done more customizations, particularly some of the larger companies. So and then there's different ways to make the move to false CRM.

Speaker 4

So one way is to just do in a sense a technical migration. And then another way is to think about changing process, business process change as they make that transition. So the level of complexity of the move is going to depend on how much customization they've done, but also the approach that they're taking to move over if they're going to change process or if they're just going to keep things and just do a simple technical migration. So kind of lots of variables going on there. But what we are doing is we're trying to make it as easy as possible for our customers and we made some really important design decisions to try to make that simple, keeping the data model the same, keeping the application the same, moving all of their data for them, moving their configuration for customers.

Speaker 4

So we're automating as much of a move as possible. Now you're right, we did talk about early customers going live potentially as early as or some in next year. Likely what those will be, will be some net new customers. For example, this quarter we announced 11 new SMB wins. It would likely be a company like that, that would go live in that first move.

Speaker 4

And then I would expect migrations to happen starting in 2025. So the first customers who are on Veeva CRM moving over to Valt CRM starting in 2025, with most of those still happening in the 2026 to 2029 timeframe.

Speaker 8

Great. Thanks, Paul.

Operator

Your next question comes from the line of Rishi Jaluria of RBC Capital Markets. Please go ahead.

Speaker 9

Great. Thanks. This is Rich Bolan on for Rishi. So first question would just be On the 2026 to 2029 timeframe, just curious with some of the new functionality that you're adding into the platform like the bots as well as the service center. Should we think about that as being something that could help those migrations happen a little bit earlier on that curve.

Speaker 9

Is that something that's kind of, I guess, specific to the Vault platform?

Speaker 4

Yes, you're right. Those announcements will be specific to the Vault platform. So we'll build service center that will be part of the Vault CRM application and also the same with CRM Bot that will be part of Vault CRM. So that may or may not be additional incentive for customers to move. But I can tell you that based on the feedback that we've heard from some of that customers are both of them.

Speaker 4

They're excited about those opportunities. And that was the promise. The promise was they get the full functionality AVEVA CRM. They get a deep market leading application and they're going to get new innovation over time.

Speaker 9

Great. Thank you. And then just a follow-up on some of the I know Compass with all of the, I guess, new data personas that have been added there. It seems like you're now kind of ready to take on the incumbents in that space and the messaging has kind of come across that in the past two quarters. So am I thinking about that right?

Speaker 9

And how should we think about the timeline, I guess, for starting to really attack that opportunity?

Speaker 2

Yes, that's the right way to think about the full suite of data products for the commercial area in a streamlined, simplified suite of data products. One thing you could compare it to, It's a different domain, but in our quality area, that's something we've had for many years now and we introduced, we have quality docs, document management system, regulated content management system. We have QMS, which is a structured data quality management system and we have training. It all sits together on a unified data model on one common platform. That's what we're doing for Compass.

Speaker 2

So we have patient now, which is the anonymous patient data, 60,000,000,000 rows of patient data in the U. S. About prescriptions, procedures, diagnoses. Now what we're adding in January is Compass Prescriber and Compass Sales and those are projected data products about prescribers prescribing patterns, the individual prescribers, and also at the zip and state level and the national level. So they all fit together on one common data model, they're separate products, very separate different purposes.

Speaker 2

So for the first time in January, we'll have this suite of products and I think that's what customers will find compelling. And then just like we always do, we have to get a customer to have all three of those products, have to get them live using it, have to get them happy, round off the corners, and have to get them talking to other customers. And that's one thing about competition. Usually the best product and the best service will win. And when you look at Compass and how we talk to customers there, our message is pretty simple.

Speaker 2

It's about better data and better service. And so it's just an execution game. I feel very comfortable about our product strategy. It feels so similar to what we've done in some of our Vault suites before and now it's just down to executing.

Operator

Your next question comes from the line of Dylan Becker of William Blair. Please go ahead.

Speaker 4

Hey, guys. Appreciate you taking

Speaker 8

the questions and really, really nice job here. Maybe, Peter, I wanted to hone in on 2 comments in the prepared remarks. 1st, you talked about kind of serving as the AI focal point for the industry. I know you rolled out CRM bot, but wondering how you're thinking about the long term optionality there to utilize AI and machine learning models to automate these key processes. Again, you have highly specialized unique data that gives you a holistic view through the commercial, the clinical and the COMPASS kind of data sets.

Speaker 8

So wondering how you're thinking about the evolution of the AI capabilities over time?

Speaker 2

Yes. We I like our position as it relates to AI, because we're a core system of record. So that's something you're always going to need. I think that's One thing that people should always understand, core system of records will be needed even in the world of AI. If I ask Brent, hey Brent, do you think 10 years from now, you'll need a financial system to manage your financials.

Speaker 2

He's going to tell me, yes, I really need one. You can't take it away. Yes, GPG won't do it for me. I'm making a joke there, but our customers have the same critical operational systems around drug safety, around clinical trials, around regulatory, around their quality processes. So those are always going to be needed.

Speaker 2

Now we're also building our data assets and these are proprietary data assets, Link, Compass and we're building more data assets. Those will also be not affected by AI, but AI will be able to leverage those assets and make those assets more valuable. So I think we'll develop more we'll do basically three things. We'll develop more applications over time, CRM bought the first, we got to get that right. We also, will our proprietary data will get more valuable.

Speaker 2

And the third thing we'll do is make our applications fit very well when customers have their own proprietary AI applications. So especially the Vault platform will do a lot of work in there to make it fit really well with the other AI applications they have from other vendors or that they develop themselves because it's an open ecosystem and that's how That's part of being Veeva. We are this broad platform for the customers and we're an ecosystem in which they can plug in their own intelligence and their own partnerships. So, I'm really excited about how AI is going to play out for Veeva. It's very clear what we need to do.

Speaker 8

That's crystal clear and appreciate the color there. Maybe another one too and maybe this kind of piggybacks off that a little bit. But I think there was a comment around the innovation engine being as strong as ever at Veeva today too, which is again impressive given the historical track record of the business. I wonder is this a function of the relative kind of maturation of some of these larger opportunities like Compass clinical data, safety, quality, etcetera, that you've been able to maybe scratch the surface on and now dig deeper in with those customers. Maybe how that pairs with the customers that are now increasingly look to you for standardization and maybe opening up their roadmaps of saying, hey,

Speaker 2

Yes. 2 things. I think the main thing is we're getting very good at being a multiproduct company. We've been working on that for we've been in business for about 16 years now. We've been a multi product company really, I guess, since 2012 ish, something like that, so more than 10 years.

Speaker 2

Now we have a lot of products and we're getting good at it in our operating model, how we manage economy, what roles and responsibilities are, and there's a lot of people in Veeva that know that operating model and know how to fit into it. So 6,000 people at Veeva. So we can do more parallel processing and we just keep doubling down and getting better at being a true great multi product company, which is relatively rare air. And then at so that I would say the macro level. That's what I mean by our innovation engines.

Speaker 2

For instance, we have people at Veeva now other than me who are good at overseeing others who are doing the innovation. So we have that level of scale, and it's relatively rare. Now also we have deeper customer relationships more than we've ever had and that just really helps because you get the benefit of the doubt when you have that customer relationship, you get early customers faster, you get more clear feedback. And I would say the third thing is also when we make an innovation, we're often making an integration to our existing products. So if you look at, for example, our safety product, it's a very good product on its own, the promise of having it integrate into our clinical products, that's an advantage that another company doesn't have if they're just starting up a safety product on their own.

Speaker 2

So long winded answer there, but it is an insightful question. It's something I'm very proud of our innovation engine. It's rare

Operator

air. Thank you. Your next question comes from the line of Craig Hettenbach of Morgan Stanley. Please go ahead.

Speaker 10

Yes, thank you. Just following up on the macro commentary, are you able to provide some context, just a rough exposure to Emergent Biotech, given that's kind of a source of debate in terms of funding. And then more broadly, I think last year you talked about in the SMB base kind of impact to add ons, just kind of what you're seeing on that front.

Speaker 6

Sure, Craig. This is Brent. I'll take that. Yes. So as Peter mentioned earlier, we're not we don't have a significant exposure to the emerging biotech.

Speaker 6

And if you think about it in terms of total revenue, it's about 4%. So, Kenny, you can think about that and that's comprised of about 1,000 employees with no approved product. So that kind of gives you some context of that part of the business. And then your second question, Craig, I want to make sure I get it right.

Speaker 10

Just on SMB more broadly in terms of the macro, just maybe some impact to add ons kind of what you've been seeing recently?

Speaker 6

Yes. So over the last 90 days, we really haven't seen a significant change in the macro. So it continues to be impacted, but we factored that all into the guide and we're executing well in that area.

Speaker 10

Got it. And then just a quick follow-up for Peter just on the Sanofi announcement recently. And more broadly, kind of what's resonating in the R and D space And what that means for your target, the multiyear target of a 30% CAGR, how are you feeling about that?

Speaker 2

Sorry, I didn't catch that question about the which announcement?

Speaker 10

The Sanofi announcement.

Speaker 2

Okay. And that one, I know we do a lot of work with Sanofi. I don't know the specifics of the announcement. Paul, are you more in the detail

Speaker 11

of that?

Speaker 4

Yes, I think you're probably referring to the Sanofi quality announcement where they've adopted our quality documentation, quality management where they've adopted our quality documentation and quality management suite. Is that Yes. That's correct. Yes. So I think what you're seeing there, first of all, we're excited about quality.

Speaker 4

It's a significant market. We've introduced a lot of new applications and innovation in there and this is another good example of that unified quality that value proposition playing through and I think that's what Sanofi saw. They're trying to streamline and modernize their quality processes and they're standardizing on bulk quality to do that. So super exciting, a good example of another large company kind of in a sense going all in to modernize the quality of manufacturing process.

Operator

Thank you. Your next question comes from the line of Brent Bracelin of Piper Sandler. Please go ahead.

Speaker 12

Hi, guys. This is Hannah Rudolph on for Brent today. Thanks for taking my questions. Just first one for you, Paul. I guess, are there customers that are waiting for all 3 of your Compass products to BGA before adopting them as a full suite rather than just adopting 1 at a time.

Speaker 4

We have been the way we announced and launched this, we focused in on patient data. So We're focused in on customers that can get started relatively quickly and they're exploring, they're testing our patient data. Most of them are finding that to Peter's point earlier, it's actually better data. They're getting a broader view into the market. They're finding more patients.

Speaker 4

They're finding more doctors. So that's the very specific market segment that we've been focused on. We haven't been focused on trying to sell the full suite because it hasn't been available yet. So I wouldn't say that companies are holding back because we're not really focused on that part of the market yet. Now given the fact that We're not that far away from having that full set of products.

Speaker 4

By January of next year, we'll have everything we need to be a full replacement. It will open up a broader part of the market for us.

Speaker 12

Okay. Makes sense. And then second one for you, Brent. How are you thinking about the monetization

Speaker 6

Yes, it's really early right now. We're focused on ensuring that we have the right product working with our customers. So that's our focus right now. Let's get the product right and then we'll get into more of the details on kind of the sizing and the opportunity there. But we're excited overall about the opportunity we have in front of us.

Operator

Any. Thank you. Your next question comes from the line of Ryan MacDonald of Needham. Please go ahead.

Speaker 13

Hey, thanks for taking the question. This is Matt Hsieh on for Ryan. I wanted to start with some of the new applications you guys announced around Vault CRM, the service center and the CRM bot. I know at the service center you announced it would be free, but the CRM bot is not clear if it will be free. So do you plan on monetizing the CRM bot or some of your other generative AI investments in the future.

Speaker 13

And as we think about likely additional applications you add around the CRM, do you view this as a lever to potentially increase revenue per count over time or more so as a retention tool as you go through the replatforming on default?

Speaker 2

Yes, I can take that one. So if we start with Service Center, that's included in Veeva CRM. It will probably result in more CRM licenses over time because maybe somebody that was a pure inside sales rep, maybe they didn't use Veeva CRM, some type of thing like that. So it's included in the license, but it may mean more users. CRM, Bob, that's not an included product, so that will have a license that will most likely be licensed by the user.

Speaker 2

So that will be net new. But as Brent mentioned, we're focused on getting the product right and we don't have pricing for that or sizing for that

Speaker 13

yet. Got it. That's helpful. And then with your data assets, Link and Compass, what has been the selling point when competing against some of the other debt incumbents? Has service quality and integrations across the broader platform, but enough to displace existing vendors or do you anticipate being competitive on price as well?

Speaker 13

Just would love to get some of your strategic go to market thinking around those data assets.

Speaker 2

With Link, which we've had for a while, specifically Link Key People, that's It's often somewhat of a new category for customers, this real time customer intelligence. So either they did it internally or they had a vendor that was sort of substandard in that area. So it's kind of There, it's we're kind of creating the market and teaching people here's the value you can get with a data asset like that. And that that is continuing on as we broaden out the Link suite for key accounts and then we're bringing it out for clinical trials and for clinical research side. So that's more of an education campaign.

Speaker 2

For COMPASS, yes, that's a direct replacement, where the major incumbent there is IQVIA. And IQVIA has a set of data products, there are quite a few They've built up over time and there it's more simple. Hey, we have a more modern solution, fewer moving parts. They can probably save some money on that, but that I don't think that's the primary reason they would go with us. It'd be a more modern product that works for more complex medicines, better data and better delivery, but that one's a replacement.

Speaker 2

Just like originally when the company started, there was a Siebel CRM that was from Oracle that was the dominant market leader in pharma CRM and that was a replacement job, replacement parts. Veeva CRM is better, it's cloud, it's better, Out with placebo and with the VIVA. This is going to be similar type of thing, out with the IQVIA for that data in with the VIVA. No, make no mistake, that's hard work, right? We have to execute well to make that happen.

Operator

Thank you. Your next question comes from the line of Gabriela Borges of Goldman Sachs. Please go ahead.

Speaker 14

Hi, this is Kelly Valente on for Gabriela. So you provided some visibility into fiscal year 2025 last quarter. Can you just walk us through under what circumstances that outlook could turn out to be too bullish or in what circumstances you kind of exceed that outlook and how your visibility into that now compares now to last quarter?

Speaker 4

Yes. So thanks for

Speaker 6

the question. So looking out at fiscal 2025, we reiterated our guidance. So at least $2,800,000,000 and at $1,000,000,000 in operating income. And we're expecting that the current macro situation is constant. There's no change, there's no improvement, it doesn't get worse.

Speaker 6

So that's kind of our assumption as we look out in time. So we're excited about the opportunity. We're early days in a large market opportunity and that's the best look of the business we have right now. All right.

Speaker 14

Thank you. And then wanted to circle back to the Merck partnership you announced last year. I realize it's still early days with that, but are you seeing any impact to Ziva's business as a result of that partnership either from product roadmap perspective or any additional product adoption from Merck?

Speaker 2

I'll take that one. I couldn't comment on specifics of Merck product adoption. I would really say that the partnership is working. We're thrilled with the partnership. I Merck is getting value from it by a very open relationship with Veeva that's helping to transform their business to be more digital and data driven.

Speaker 2

We're certainly getting value out of it because we're learning how to manage a customer with a true, true partnership with that like that that starts at the CEO level. So we're rethinking about what's possible. I don't it's not shaping our product strategy so much as specifically what we'll do and what products, but I think it is shaping our delivery strategy and how we manage in partnership and partner with customers because it's a whole different selling motion. It's a more it's not a selling motion. It's a partnership motion.

Speaker 2

So couldn't be more happy with that. To me, it's one of the highlights of our year.

Operator

Thank you. Your next question comes from the line of Jack Wallace of Guggenheim Securities. Please go ahead.

Speaker 7

Hey, thanks for taking my questions. I wanted to ask about the competitive environment for the CRM business. It's been 6, 7 months since the announcement to move to your own platform. What have you seen so far from your larger of your other competitors, Salesforce and IQVIA? Thank you.

Speaker 4

Yes, Jack. Thanks. I can take that. So we still see IQVIA pretty consistently. We also see regional competitors.

Speaker 4

None of that has changed. We continue to compete with them. We win Most of the time, I'm excited about the 11 new wins that we've added in the quarter. So we're continuing to add customers in a pretty tight environment. So I'm excited about our progress, our execution in CRM.

Speaker 4

With regard, you asked about IQVIA, you asked about Salesforce also. I'll give you some commentary on Salesforce. It's been 6 months since we made that announcement. The partnership, the way we're working together to support our joint customers is working well. I'm not surprised by that, But I'm pleased that that's continuing.

Speaker 4

So we continue to work well together from an operational day to day standpoint. I would add the maybe the one thing that's changed is Salesforce does have the technically have the right to compete with us in the pharma CRM space. We did terminate we announced terminating our agreement with them. There's language in the contract, which gives them that right. So I guess that maybe that's a little bit of a difference, but the reality is, I guess, maybe the bigger picture is the space needs pharma CRM.

Speaker 4

We're the market leader in this space for a reason. We've invested a lot in building a very, very deep industry specific application. And I haven't seen any competitor, any company really go down that path. Nobody is there and nobody is really even close to that. So we continue to focus on customer success, continuing to innovate and really enabling that very deep functionality for the industry.

Speaker 4

So pleased where the competitive environment is.

Speaker 7

Thanks. That's helpful. And just as a follow-up to that, the wins in the quarter, particularly the competitive wins, were those in North America and Europe or were most of those in the Latin America and Asia where you're still muscling out local players.

Speaker 6

Most of them were in North America. There were

Speaker 4

a couple in year 1 or 2, I believe, in Europe, but the majority were in North America. And these are Most of them were also companies commercializing for the first time. There were a couple of competitive displacements that we had. So companies that had existing products like IQVIA and we've replaced them. So it's a bit of a mix, but biased more towards the U.

Speaker 4

S. Market.

Operator

Thank you. Your next question comes from the line of Jalendra Singh of Truist Securities. Please go ahead.

Speaker 11

Thank you and thanks for taking my questions. I want to go back to discussion around macro environment. In your prepared remarks, you call out the funding environment continuing to put pressure on project scrutiny. Can you provide a little bit more color there? What kind of projects are being scrutinized?

Speaker 11

Is it across the board or specific to certain type of solutions? Are you seeing this project getting like pushed out to a later date or getting canceled? And what does Elkaydas assume in terms of these projects going through?

Speaker 2

Yes. So So we haven't seen any real changes in the last 90 days. If you compare with 2 years ago, for example, funding environment is tighter. It's not as easy for small biotechs to get funding at the valuations that they want. And project scrutiny is tighter.

Speaker 2

It's not as easy for large companies to justify spending for the future because they're a little more apprehensive about the current. So but none of that has changed in the last 90 days and it's been included in our guidance. And you asked specifically how does the project scrutiny play out. Honestly, just extra scrutiny. Let's say they're going to it doesn't depend on product area.

Speaker 2

It could be in the quality area, in the CRM area, the safety in the regulatory area. And there's just extra scrutiny this project is going to be done. How much is the budget for this project? When is the ROI going to happen for our company and just double check that. Now with that project scrutiny.

Speaker 2

We do our projects generally do pretty well on that. What has not done well is companies that focus on more discretionary spend or more just one off project type of stuff. That doesn't do well and you see a lot of those companies having more issues. But ours are our projects are investment in core capabilities that people need for the long term and those tend to Be a little more thoughtful and go through.

Speaker 11

Yes, that's very helpful.

Speaker 2

I would say, if to put a clear point of that, experimentation. There's less experimentation going on now than there was 2 years ago, and that's due to more scrutiny.

Speaker 11

Okay, that makes sense. And then a quick follow-up on normalized billings quarterly cadence. Now kind of we can calculate what the growth is for implied in fiscal Q3 number. Can you remind us on the drivers behind the growth acceleration you expect from what you expect in Q2 fiscal quarter to Q3? And of Of course, we had talked about Q4, but just curious like if you can remind us on the growth drivers for billings in second half?

Speaker 6

Yes, sure. And so yes, so we're providing normalized billings to try to take some of the noise out of the equation for you. So on to some On a full year basis, we increased our number by $5,000,000 so that's growth of about 15%. So we're pleased with the execution there. Specifically to Q3, what you've seen in some of our newer business, the underlying renewal base has shifted a bit.

Speaker 6

So it was shifting away from the first half more to the back cap Q3, Q4. So that's part of why you're seeing an acceleration in the billings growth. Also the price increase CPI will start to come into play in Q3 Q3 and Q4 as well. So those are a couple of the contributors on why we are comping the acceleration in the back half of the year.

Operator

Any. Thank you. Your next question comes from the line of Saket Kalia of Barclays. Please go ahead.

Speaker 15

Okay, great. Hey, guys. Thanks for taking my questions here. Peter, maybe for you, I any.

Speaker 4

I was wondering if you could just talk

Speaker 15

a little bit about the clinical data management business a little bit. And maybe specifically, whether you think some of the displacements, which have been great by the way for the I think it was 6 of the top 20, whether some of those displacements are adding more value and potentially higher revenue run rates than what customers were paying for before. Does that sort of make sense like or do you feel like Veeva EDC is kind of replacing what a customer had before kind of one for 1 or do you find that Veeva is able to add more value and maybe command a little bit more.

Speaker 2

Yes. I think we're able to add more value because we're modernizing. So if you look in the clinical data management area, one of the the core area of that are our EDC, electronic data capture. Customers are able to build their clinical studies faster. So that means getting their clinical studies going faster their being able to do their amendments to studies without downtime, without data unload.

Speaker 2

So that means they can work better with their clinical research side. Those are just a couple of the examples. So it's a better system that helps similar efficiency. In terms of what they pay for it, I think they probably pay us

Speaker 4

actually a

Speaker 2

little bit less usually. It depends, right? Our customers are all over the map with the different competitors, but maybe on the average they pay us a little bit less. But I think their cost is significantly less because they have to put less people manpower on it. So we always want to do that.

Speaker 2

We want to deliver more value at a lower price. We want to innovate and make things better and more efficient. We want to share some in some of that return, but the customer the industry gets some of that return. And then if you look in the clinical data area, one point I want to bring up, We have 2 top 20 customers now that have our clinical data management and our safety product, only 2 and only one of them is live With both and just recently live with both. Now what we'll do here over the next 12 months is develop a highly efficient integration between those systems, highly efficient and standardized integration at the business process level.

Speaker 2

The industry hasn't seen that before because no company has had both of those systems, clinical data management and a drug safety system. That efficiency, the customers are just going to get and it's going to make the industry just much, much more efficient. So that's what we always want to do, charge less, deliver more and run a real profitable business.

Speaker 15

Yes, absolutely, it shows. Brent, maybe for my follow-up for you, very helpful answer by the way before just on the billings acceleration in the second half. I have a little bit more of a mechanical question, which was just the normalized billings and calculated billings. I think there was a minor difference between the 2 before. Now we're thinking about them being roughly equal.

Speaker 15

Just for our own sort of edification, can you just go one little deeper just into what changed, if anything, around your expectations on billings terms that maybe make both of those now a little bit more similar than what you were thinking before?

Speaker 6

Yes, happy to Saket. So, first, what are we normalizing? So what we're normalizing is for our renewal business, if there's a change in frequency or a co term. So we have a view entering the year of what that's going to look like for the full year. So once we got into Q1, there were a few customers where they had changing billing terms.

Speaker 6

So basically, those new deals offset what we thought before. So On a full year basis, calculated billings and normalized billings are 1 and the same. You're going to have differences quarter to quarter, but for the full year it nets out.

Operator

A keypad. Your next question comes from the line of Stephanie Davis of SVB Securities. Please go ahead.

Speaker 16

Hi, guys. Thank you for taking my question. I just wanted to follow-up on the sales force questions that you had a little bit earlier. Asked another way, what has feedback been so far from your client base about the transition off of the platform and into your new in house platform. Is it appearing on the radar yet?

Speaker 4

Yes, I mean for it is a topic of conversation certainly with our larger customers. The global customers, companies in the large enterprise. They're focused on this. This is something that they know they're going to have to do at some point and focus on over the next several years. Remember, our customers have through 2,030.

Speaker 4

For some of these large companies, this is a big deal. They have to make sure that they plan and think about So we're working very closely with all of our large customers to help them understand the implications, what it means for them, also the benefit that they get out of this. So I think there's a lot of the last 6 months was about understanding what does this mean and the rationale. And I think the summit helped with that, having them see it and understand that it's real and understanding that there's a path forward and that they're ultimately going to get a new level of innovation for them. Now There's certainly going to be work to do to get there.

Speaker 4

Our customers will have to this will be projects for our customers. It's on us to make sure that we minimize the size of that and certainly relative to doing some other alternative that doesn't really exist in the market today. This will be a whole lot easier. So that's how they're thinking about it. They're helping the last 6 months was about digesting and understanding and now appreciating some of the innovation we're

Speaker 6

going to deliver over time.

Speaker 16

All right, helpful. And then just a quick follow-up on billings. You had the $554,000,000 of normalized billings this quarter. Could you kind of parse out the unbilled receivables takedown benefit, the benefit from some of the new clients that you called out. And how are you bridging that growth rate to the acceleration in the second half to 18%.

Speaker 6

Yes. So if we can maybe just break it down to what happened in Q1. So from a Q1 perspective, we had a nice beat and a portion of that was from more annual billers than we expected and then part of it was the underlying strength in the business. So we flow that through. The unbilled AR that T4 Like that question you're asking has no impact on how we look at the full year normalized billings.

Speaker 6

So, there's not a direct impact there.

Speaker 17

Awesome. Thanks, folks.

Speaker 6

Sure.

Operator

Any. Thank you. Your next question comes from the line of Tyler Radke of Citi. Please go ahead.

Speaker 18

Thanks for taking the question. I wanted to come back to the Compass suite. It sounds like you're expecting some customers next year at your Summit to be rolled out on that product. Is that going to be kind of net new customers similar to the ones you referenced in terms of adopting the Vault CRM suite? Or are you actively engaging customers who look to be displacing IQVIA and rolling out on the Compass placing IQVIA and rolling out on the Compass suite.

Speaker 2

I think it will be a mix. It may be a mix of a particular brand, maybe for our patient product in a large customer, it could be in the top 20. But for a full replacement sort of being IQVIA free. That will come from a small customer, whether they're existing or brand new That will come from a company that sort of maybe has one brand, whether just pre commercial that were not quite ready to launch. That will be the pattern, which is very similar to what we see in many of our products, right?

Speaker 2

It's easier for a smaller, more nimble company To disco, all in La Viva.

Speaker 18

Got it. That's helpful. And then on the R and D side, you talked about a lot of nice swings in EDC and the broader clinical suite. I was wondering if you could just talk about the trends you're seeing in CDMS. And I believe you have had some product and sales leadership departures on the R and D side, but just kind of help us understand how you're adapting to some of the changes And just given CDMS tends to be longer sales cycles, just how customers are thinking about that in the current environment?

Speaker 2

It's going very well in the clinical data management area. What I mentioned in my prepared remarks is actually not a new deal there so much as a customer that went live in 6 months, a top 20 customer that went live in 6 months on our core ABC product. That's kind of for all new studies, that's kind of unheard of. That's super, super fast. That's the thing that many customers generally would do in 12 months, 18 months, even 2 years.

Speaker 2

So I think that's going to generate its own kind of momentum, especially we have our R and D Summit coming up in the fall. That customer will be talking there about what they did. So I'm really pleased with that and the competitive environment is actually quite benign. It's not moving. If you look at the competitive environment, it's not moved since we entered into it.

Speaker 2

Now that's just with our core our EDC product, we also call that CDMS, but that's core electronic data capture. We're also starting to make early progress in our other areas, randomization and trial supply management, that's a big area as well. And then ePRO, patient reported outcomes, that's a big area as well. And there's never been a company that has the leader in all of those 3 categories before. I think we're set out to do that over time.

Speaker 2

And it's just sort of what CEVA does, make an integrated suite of products that's all great. And the fact is in the clinical data management area, there's never been a company that's accomplished that. So while I'm very excited about our EDC progress, that's just getting started for clinical data management.

Operator

Thank you. Your next question comes from the line of Charles Rhyee of TD Cowen. Please go ahead.

Speaker 19

Yes. Thanks for taking the question. Peter, I think you guys mentioned cross checks briefly that it kind of contributed revenue growth. This is one that you've called out in the past, talking about the environment being tough, maybe causing some slowing growth in the near Can you give us an update here? Has the environment improved at all for cross X?

Speaker 19

Maybe give us a little bit more detail there?

Speaker 6

Yes, this is Brent. I'll take that question. So overall, we've talked about the macro over the last 90 days hasn't changed and that's applicable for caustic as well. It was one of the areas in the back half of last year that had a little bit more of the headwinds with marketing budgets. So it is still in that unchanged state.

Speaker 6

So it's still a very exciting business for us with a lot of very, very strategic and meaningful to our customer base. So we're excited about the opportunity, but no change in the MAPRIL.

Speaker 19

Okay. And then Brent, maybe just a follow-up. In the guidance, you're implying a step up in the operating margins, call it 30%, 34% ish. You had these summits and kickoffs. Can you give us a little bit more sense for the mix and the OpEx lines that we should kind of expect?

Speaker 19

I'd imagine sales and marketing steps up in the Q2. Maybe just give us a little sense for the cadence, how we should think about sort of the various OpEx lines?

Speaker 4

Yes, it's going to I mean, it's

Speaker 6

going to flow through the course of the year because think about we have field kickoff in 1 quarter, we'll have a commercial summit in another quarter and R and D Summit in a different quarter. So I don't think I would try to over model that, think about that as an incremental step up overall for the year and it's relatively smooth. Q1 with the field kickoff, that would be the one example where it's a little bit larger.

Speaker 19

Okay. Perfect. Thank you. Sure. No problem.

Operator

Your next question comes from the line of Stan Berenstain of Wells Fargo Securities. Please go ahead.

Speaker 20

Hi. Thanks for taking my questions. Maybe just revisiting the EDC win you announced. I'm just curious, have they provided any feedback as to why they switched away from their legacy EDC provider? And can you share with us who their legacy EDC vendor was or is I should say?

Speaker 2

Yes. So I wouldn't mention In general, we're always replacing 1 of the 2 main incumbents for large systems that would be Medidata or Oracle and we've replaced both of those. And the case for change is really around modernization. It's around modernization, better customer relationship. So modernization would be around better application, better experience for the clinical research sites, faster to go to clinical research study, faster to do a change of a clinical research study.

Speaker 2

And then also the ability that Veeva has a clinical operations suite as well as a clinical data management suite and we deliver, maintain and update and upgrade that integration between those two things. So we completely take that burden on for the customer. So that's what it is. It's not that complicated, more modern, better service and more integrated because we have the clinical operation any Okay. And then maybe a quick one on

Speaker 20

commercial. Can you give us any updates on cross sex? Are you seeing any changes in the growth rates there? Any updates on global pharma sales rep numbers?

Speaker 2

In terms of Crossix, I'll take that one and then Paul maybe the from a sales reps number. Cross Sector business continues on. It will have its ups and downs quarter by quarter because it's related to marketing spend and campaigns and that can go up and down a little bit. So in that way, it's a little bit more like our professional services business. The directions we're taking in Crossix is to use it to Crossix and our CRM system to integrate them more tightly together going forward.

Speaker 2

They're integrated now, integrated more tightly, more bidirectionally to help integrate sales and marketing at our customer sites and That's something they're really excited about. And remember the for Crossix, that's the same core data platform that we use to leverage to build companies customers to enterprise license agreements over time and that will then smooth out some of that up and down in the quarter. And then in terms of the pharmaceutical sales reps, Paul?

Speaker 4

Yes, I'll give you an update there. Just in terms of the reductions, The majority of the reductions have already played out through the system. And then most of the remaining reductions that we had talked about for a long time will play out through the remainder of this year. And I expect when it's all said and done, it will end up being slightly less than the 10% that we initially had projected and talked about. We did see very slight reductions in the quarter, roughly in line with what we had anticipated.

Operator

Thank you. Your next question comes from the line of Natalie Howe of Bank of America. Please go ahead.

Speaker 17

Thanks for taking my question. So earlier you touched a bit on Veeva quality and in the press release you mentioned that Vault QMS won a top 20 pharma. So the quality segment seems to have a pretty large opportunity. Can you talk a bit more on what has been driving the strength in that category and expand a bit more on how you're really going to capture any activity there? Thank you.

Speaker 2

Yes. We have quality is a big area for us. So in that quality suite, we have quality docs, which is the quality documentation management, standard operating procedures, things like that. We have the quality management system, which is managing quality events, deviations, things called CAPOs. Then we also have training in there.

Speaker 2

Then we also announced LIMS, our laboratory information system for manufacturing and our validation product, which is computer systems and other validations. And then also we have what's called Learn DXP, which is our learning content for quality. So it's a very big area and that's never been available from one vendor before, all on a unified data model and platform. So that's what we have. It's quite unique.

Speaker 2

We set out to build that. The early plans of doing that were roughly 10 years ago and it takes a long time to execute on that. We're very excited. What's fueling the momentum there is customer success. First of all, these systems are not things you change out easily or lightly.

Speaker 2

Long implementations and you don't do it unless you need to do it. So each customer has their own time frame when their existing systems are running out of gas. I would say they're not investing much these days in their legacy systems because there's broad awareness that Veeva is probably a better alternative. I do get the feeling now for most customers, they think they probably will be going to Veeva for our core established products, training, quality docs, QMS. And the question is when?

Speaker 2

And then there's a lot of wait and see about our new product validation and limbs. Hey, is that product going to be real? I don't want to be first. Let's get that going. So that's how it is.

Speaker 2

It's a long, long replacement cycle. When we talk about a long runway for growth ahead, those are the types of things. The seeds we've planted in, things like limbs, We don't even have our first customer. EPRO, where we just have a few customers. COMPASS, we have nobody on patient and prescriber.

Speaker 2

Our safety suite, we have more to build out in our safety suite. That's why I say long runway of growth and there's no magic to it, driven by customer success.

Operator

Thank you. There are no further questions at this time. Any. I would like to turn the call back to Peter Gassner for closing remarks. Please go ahead.

Speaker 2

All right. Thank you everyone for joining the call today and thank you to our customers for your continued partnership and to the Veeva team for really an outstanding work in this quarter. Thank you.

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Earnings Conference Call
Veeva Systems Q1 2024
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