Veeva Systems Inc. (VEEV) Earnings Call Transcript & Summary

Good morning. Thank you for joining us today. I'm Mimi Kong. I'm part of the IR team at Veeva, and I am happy to introduce Paul Shawah, who will give our presentation today.

Good morning, everyone. The faithful here on Thursday. Thanks to so many of you for joining, and thanks to our friends at JPM for having us for a number of years now. This is always a highlight for us to be here at this event. So I'm responsible for commercial strategy at Veeva. And I'm going to walk you through a little bit of a high-level view on Veeva and what we're doing in the marketplace and what our value proposition looks like for the life sciences industry. And I'll start by showing safe harbor. I won't read this. You can take a second to scan it. I may have a few forward-looking statements, but mostly, it won't be a data readout. It will really be about what we're -- who we are and what we're doing as a company. And the best way to really understand who Veeva is, is to understand our vision and our values. And this is how we run the company. We talk about this a lot. We show this multiple times through the quarter to our employees, to customers, to investors, to everyone that we talk to, so they understand who we are as a company. We're building the industry cloud for life sciences. And what that means is we're building really very specific, life sciences-specific applications and software for the industry, combined with data and services. So software, data and services together make up the industry cloud, combined with a broad partner ecosystem. So we have a model where we're very open and collaborative with the rest of the industry in order to enable companies, life sciences companies, to develop their drugs more efficiently and then commercialize them more effectively. So that's what we do as a company. We're building that industry cloud. And values are the way that we make decisions at our company. These are the principles that we think about. Do the right thing. We write down just as we grow to make sure that this is really important to operate and continue to operate legally and morally and ethically. And it's important to keep it written down and see it as a reminder. But really, our #1 value is around customer success, making inherent a lot of energy and effort and focus on making our customers successful. That's the lens that we look at first whenever we're making a significant decision. So whether it is a decision around a new product, a new market that we enter, an acquisition that we're thinking about, all the way down to very specific day-to-day decisions about how we operate, we think with that lens of customer success. And this is about the people that we serve. So we think about their success in the company that they operate in. We think about their company, how do we make that company more successful. So they generate the value that they should be getting from our software, but we also think more broadly about the industry. Part of what we're trying to do, building the industry cloud, is to make the industry more effective and more efficient and to shift that industry. So that's how we think about customer success, and a key part of enabling that is having great employees. So we overinvest in our employees to make sure they're challenged and they have the right autonomy to do the job that they need to do to drive customer success. And then speed, we also write down because as we've grown from a start-up to a much larger company to where we are today, we want to use speed as a competitive advantage for us. And we want to act and operate in a very nimble fashion, so we remind ourselves that this is critically important. You'll hear us talk about the Veeva Way. And the Veeva Way are principles that we think about in terms of how we operate. And this is, I believe, is a fundamental competitive advantage that Veeva has in the marketplace in terms of how we operate. These are really simple principles, but -- and they're very simple to say but they're hard to execute on. And I think that's where Veeva has built a track record of operating, aligned with these principles. So strong growth and profitability. Whenever we introduce a product into the marketplace, we are looking for both revenue growth, top line growth, but also profitability. Why is that important? Why does that matter? Well, long term, building a sustainable and a great software product that's not profitable is not a good strategy. You don't end up with great software when you're not profitable. It just -- it doesn't happen. So we don't like to sacrifice profitability and margin for top line growth. It's just not something we fundamentally do as a company. It feels like it's the easy thing to do in the short term, but it's the wrong thing to do in the long term, and we tend to think longer term. So that's been a core part of our DNA. We focus on big strategic markets, so areas within life sciences that are super strategic to our customers, the running and operating of clinical trials, the data capture and data management associated with a clinical trial. So you can get a -- get all of the data needed to get a drug approved, all of the quality processes, safety management and then through the commercialization. So these are really significant strategic areas for a life sciences company, and those are some of the core foundations of what we focus on as a company. So we pick a big strategic market. And when we pick a big strategic market, our strategy is to invest in great product and innovation in that market until we're the clear market leader. And then once we're the clear market leader, we continue to invest, and all of our products get enhanced 3 times a year in order to stay out in front of where the industry is because the industry is changing. It's not stagnating. So our products, we want our products to stay out in front of what the customers and the market needs. And if we do all of those well, we drive customer success, so there's kind of a relentless focus on customer success. This has been our operating principles. Again, super easy to say. Veeva has kind of a long track record of executing. And when you execute well over a long period of time, you build a lot of trust in the -- with your customers. And that also becomes a significant asset and again, an advantage in the marketplace. The result of how we've operated over the last 12 years as a company, and this is the last 10 years, gives you an indication of strong top line revenue growth, but also increasing profits. So the model works, and it's incumbent on us to continue to drive and execute against that same operating model in the industry, find a new big market, build great software, make our customers successful and then rinse and repeat. And we've been doing that for a long, long time. We have -- at our Analyst Day back in October, we shared our targets for 2025. About 5 years ago, we shared our -- we came up with targets for 2020, and the targets for 2020 were in the $1 billion in revenue. We actually hit that target over a year early. When we set out 5 years ago to achieve that $1 billion target, we didn't exactly know how we would get to that number. But we knew we needed really strong execution and operations and new products to enable us to get there. And we've built the right foundation to achieve that. Again, we hit that target early and we hit it with high profitability. And then we set out -- we laid out our plans for the next 5 years and our targets, which are now to hit $3 billion by 2025, which will roughly come, about 1/3 of that, from our commercial business, Commercial Cloud, and then about 2/3 of that from Vault. So just in kind of rough numbers what that estimate looks like. And then we talk about our operating margin as 35%-plus. Not that we're targeting to hit 35.1%, that's not our strategy. Our strategy is to give ourselves some room to make decisions, investment decisions for the business that are right for our customers, that are right for the market, that are right for Veeva and all of the investors in the room. So we want to have that flexibility in areas like safety, where we have a newer product, and it's -- we're in early adopter stage, and we have to invest significantly in that product to get it to the point where it's really ready to become the market leader for the industry. So that margin profile is really just an example of a way that will indicate that we're going to make the investments that we need to do to continue to drive customer success. As we look at the marketplace in the life sciences industry, this is not really a shock to anyone here. We're seeing a significant shift in the portfolios. Being here at JPM for the last 4 days, you've heard a lot of really interesting stories about gene therapies and interesting diagnostics and biomarker testing that leads to earlier detection and ultimately earlier treatment of diseases. That's very linked to the specific DNA of an individual, an individual human being, which is ultimately the shift towards precision medicine. But there's the precision medicine, which is up, far up on the right, but there's also this shift that's happening away from kind of traditional small molecule medications, through to biologics and more specialized medicines. This is happening generally in the industry and will continue to happen and play out over the next several years. So this is how we look at the market. Why is this important? As the shift in the product portfolio changes, what also happens is the way that you develop your -- these new innovative therapies and the way you commercialize them is fundamentally different. It's very different bringing a statin, which may be -- that's a pill, a traditional small molecule medication. The trials that you would run, the scale of those trials, the complexity of those trials compared to a highly personalized medicine, which has a diagnostic biomarker, that may cost hundreds, tens or hundreds, if not millions of dollars, from a treatment perspective. The way you develop and the way you bring that, commercialize that, is fundamentally different. So what that means is we need to help the industry evolve as they become more specialized, as they become more precise. So this has been a core part of our strategy. The industry is looking to Veeva as a trusted partner to lead them down this path, to lead them on this journey, to developing and commercializing more effectively and more efficiently. So this creates opportunity for Veeva. And the way that we deliver on that opportunity is the combination of great technology, great software, which is, for Veeva, is all true cloud software, multi-tenant cloud software, combined with data and services. So what we have -- what we're delivering for the industry is more than just a technology product. We're delivering technology, and in cases where it makes sense, we're delivering the data that companies need to enable and power and fuel their processes, but also the services. So you've seen -- you all know us to be very, very strong on the software side, and we've also made significant investments in data and services. So a couple of good examples on the data side, we had a very significant acquisition towards the end of last year with a company called Crossix, who is the leader in patient data and analytics in the life sciences space. They sell into marketing teams. They have data on over 300 million lives in the U.S. market. So if you do the math, it's north of 90% of the patients in the U.S. market. They have very detailed data, consumer demographic, but more importantly, clinical and medical claims data on all of these patients, data down to the EMR and lab level from -- for a vast majority of the U.S. patients. And they use that data to help pharma marketers measure and optimize their campaign effectiveness. And we see synergy by bringing our core competency in the field and field execution and scaling combined with this rich new patient data asset and data science that they bring to the table, and we're looking forward to really new innovation when you combine those 2 assets together. So we'll enhance their capability by bringing field data into their marketing, their marketing measurement and optimization, but we'll also take their data and we'll enable better commercial execution based on that. And then in services, we also had an acquisition of a company called Physicians World, which is just a good example of a services provider who provides speaker bureau services to life sciences companies. They were one of the very best in terms of providing service to customers. And we're combining our software with their service offering. So we provide a full stack. We will continue to be open in that space, and that's fundamental to Veeva's model. We make -- we're very open. Our customers -- we give our customers choice. When you look across the full portfolio of products that we have at Veeva, some of you who have been following us for a long time know that we started in the commercial space with CRM. So way up in the top right. I have it called label-bare multichannel CRM. That's where we started as a company, and it was actually just CRM. It wasn't even multichannel at the time. And then we expanded with a number of add-ons to make CRM more digital. And we've since expanded beyond just commercial into medical, but then also with Vault into the R&D space. And again, in a lot of these areas that are so fundamental to the life sciences companies, how they capture data for a clinical trial, on how they're able to accelerate their speed through a trial and be more nimble through that trial process and collecting and locking and ultimately submitting that data, the operations of a trial, all managed through -- now through Veeva Systems. Quality management, really critical in a life sciences company to have documented processes that you can follow and be consistent to make sure you deliver on quality, the regulatory aspect of being able to manage all of the submissions to get the submissions compiled, created and submitted faster and then tracking all of those registrations across the globe through different countries and different markets. And then safety, managing essentially the pharmacovigilance process, the intake of safety events, the triage and processing and then ultimately, the reporting and measurement of that. So you can see we've expanded from CRM, one product on the commercial side, to multiple products in commercial to multiple products in R&D. Today, we have over 30 products that span the entire life sciences company. The one other point I'll make here is the idea of being, we call it, unified and best-of-breed. So these are not just products that we ship that are kind of standalone. The first thing we think about is having each one of these products be the very best at what it does. So we want that product to be standalone, differentiated than anything else in the marketplace and better than anything else in the marketplace. And that's what we mean by best-of-breed. It's got to be the very best. But there's another value-add of having all of these built by one company on a common platform, and that's this idea of being unified. We're fully seamlessly integrated. So within, let's say, the clinical operations stack of products, the trial master file and the clinical trial management system and the processes and project management to get the study started up faster in the management of payments, all of those processes are interconnected, and we talk about them as being unified. And what we're replacing in the industry are individual point solutions for each one of these things that don't really talk together. They don't really talk to each other, and ours do. And that's an advantage for companies because when you buy the second product, it's actually more valuable than the first product because it works with the first product. And the third product is more valuable than the second because they all work together. That's the value of unified when we talk about this concept of unified and best-of-breed. And then across from clinical to quality, to regulatory to safety, we're connecting some of the points across the different silos. So these are typically different functions in a life sciences organization and we're enabling the handoffs between these groups to be more seamless because the data that you generate in a clinical trial is ultimately used as part of a regulatory submission, and that regulatory submission is used to get approval, which is then used to generate the information for -- that you may use in the market to commercialize that drug. So all of these pieces are connected both vertically as well as horizontally. And that's a key part of our strategy by doing it all on common platforms by a company who's building the industry cloud. So that's one view of our product portfolio. Another view of our products, these are the same products you saw on the last slide just organized differently to show the uptake and penetration in the marketplace. So if you look up into the right, you see some of the most mature and some of the products that have the highest adoption in the marketplace. So CRM and CLM and Approved Email and Vault PromoMats have very high share in the marketplace, are adopted by a large number of customers and have driven much of our -- much of the growth that we have seen so far. In all of those areas, there is some opportunity for continued growth. But the idea is that we have products along the entire spectrum, from those that are -- the really high adoption and establish this foundation for companies to build on. And then we can sell add-on products to them and then we can expand into net -- entirely net new areas. So you can see the pipeline starting all the way on the left, where we have products, which are newer and really being used by those innovators in the marketplace, the first 1 or 2 or 3 companies who use them, learn -- they learn, we learn, we mature our products. And we get them to the point where they start to be ready for early adopters in the majority, more of the majority of the marketplace. So that's our strategy in terms of making sure we have -- we continue to create an engine for growth, not only today, but also for the future. And then 2 views, 1 from a commercial view perspective. We organize our businesses into 2 big areas: Commercial Cloud and Vault. And this is the Commercial Cloud view, so it's roughly the 12 or 13 products within commercial combined together. And what it's showing is the trend that we've added more customers over time historically. And you can see, by fiscal year, we've added more customers, but at the same time that we add more customers, each individual customer is adopting more commercial products. So they're expanding in their portfolio, which demonstrates -- and they're expanding at a faster rate than we're adding customers, which is why you see that number, the average number of products per customer, continuing to increase. And we view that as a really strong indicator of customer success because as you buy the first product, again, that second one and that third one and that fourth one become more valuable, making everything essentially stickier and creating value for our customers. So we're generating this trend on the commercial side, but also similarly on the Vault side of our business, which is where most of our R&D applications fall. Customers tend to start with one or a couple of vaults and to the point where they can -- they get live and they demonstrate value. And over time, they expand to multiple vaults. So our latest average is roughly 2.38 vaults per customer out of about 15 vaults that exist today. So it gives you a sense of how penetrated are we by number of vaults and the idea being that there's a lot of runway, there's a lot of opportunity in front of our customers and in front of Veeva. We're still kind of early days in the marketplace, both on commercial, but also in, as you know, on the Vault side as well. And then just from the bigger picture perspective, the overall size of that opportunity has grown over time. So when we started the company, it was really focused on that commercial and Commercial Cloud side, part of the chart here. But that's continued to grow as we've expanded the number in the portfolio of products that we have across Vault and R&D, with the acquisition of Crossix in the patient data and analytics side, but then also a portion of our business that's outside of life sciences. I didn't spend a lot of time talking about that today given the audience that this is at. We're at the JPM Healthcare event. But we do have a part of our business, which is called outside life sciences, which is for chemicals, cosmetics and -- chemicals, cosmetics and consumer goods companies. See, I'm at JPM, and I forget everybody else outside of this industry, where we have a very specific product focused on that set of the marketplace. And just to wrap up before we go over and we do some Q&A. I do think -- hopefully, that gave you a sense of how we run and operate our company, how we think about innovation and what some of our core operating principles are. I do think we're in very much the early days of a really big and bold vision. The life sciences industry presents a very significant opportunity. We are aspiring, and I think we're well on that path to becoming a strategic partner, a truly strategic partner of the industry. Life sciences companies want -- they want strategic partners. They don't want hundreds and hundreds of vendors. They want companies they can rely on and trust and build those long-term relationships with. So we're on that path. We have a track record of kind of consistent market execution and entering new markets and then winning in a new market and then establishing success and then repeating that in new areas. And that's a trend that we're continuing to focus on. And then innovation within existing products, but also for net new products, is a key part of our strategy. So all of those 30 products that we have and it will innovate every single -- every 4 months, we'll innovate in each of those areas in addition to developing net new products, which goes back to my earlier comments around growth in terms of revenue and profitability because if we were unprofitable in those areas, you wouldn't invest, and that fundamentally becomes a challenge. You can't create great software sustainably over time if you're not generating a return, and that is what allows us to continue to invest in existing products. And together, that creates a business model advantage for Veeva, we think a really strong competitive advantage. Thank you very much for all coming on Thursday morning. It's my pleasure being here. Thanks to JPM, and we'll see everyone over in the Q&A. Thank you.