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

All right. Good afternoon, everybody. My name is Stan Zlotsky from the Morgan Stanley software research team. Thank you for joining us this afternoon. On the line with me virtually is the CEO of Veeva, Peter Gassner. Peter, are you there?

I am. Stan, can you hear me okay?

Yes. I can hear you perfectly. Thank you so much for joining us. So before we dive in, we miss you -- we miss seeing you in person, but this will -- this also is going to work very well. So before we get started, please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at www.morganstanley.com/researchdisclosures or at the registration desk.

So with that out of the way, Peter, once again, thank you for joining us. And maybe just to dive in, last night, you reported your Q4 earnings results, with the investors being busy at our conference and everything else around it. Perhaps give us a quick recap of some of the more important takeaways from your perspective for investors from Q4.

Sure. Thanks, Stan. Yes, we announced end of our Q4, end of our year. So we had good execution in the quarter and the year, and that's important to run the business. So this is the first year we finished over $1 billion, $1.1 billion in revenue, 37% operating margin for the year. We came in our $1 billion revenue goal. Actually, we arrived at that run rate 1.5 years ahead of schedule. We put out a plan in 2015 to get to $1 billion revenue run rate. So it's nice to put out those long-term plans and then executing against them and beat them. In the quarter, it was really about executing on a lot of different markets and also innovating. So for example, we've got in our CRM area. We continue to win a lot of new customers and gain market share. And then Vault had a really strong year, record year and a record Q4 with a lot of wins in the regulatory and clinical area. And then we talked about our operating model for innovation inside of Veeva, how we cultivate internal start-ups and grow into new markets. So those are some of the highlights.

Perfect. And one of the details that you guys provided in your Q4 call, as we always do every single Q4, is really the breakdown for investors between your 2 lines of business, right, Commercial Cloud subscription revenue and Vault subscription revenue. Can you maybe give us a little bit of detail as to what went into setting the guidance for those numbers with the main one, Vault subscription revenue, of 31% growth and the organic number implied for Commercial Cloud of around 10% or so?

Yes. So for -- we'll start with Vault. Vault has a number of new products. As a reminder, that's something we started really in 2011, the sort of lines of code. And we started in the commercial area Vault, and we're doing quite well there. We've established a market leadership position. This takes a while. It takes almost 10 years. And then the large opportunity for Vault is in the Development Cloud. And over there, we see a long runway ahead, less than 10% penetrated for Vault overall in the Development Cloud. Now some of the applications are a bit more penetrated because we've started them earlier, like our eTMF, which was our first clinical application, or QualityDocs, which was our first quality application. And then some of them are brand-new and just in the early adopter mode. That's like our clinical data management system and our safety applications, which are 2 of the newest applications. So for Vault, we see a lot of growth ahead through 2025 and beyond. And then in Commercial Cloud, what's going on there? About half of our growth will -- coming from adding core new CRM seats. So we continue to gain market share there. We had about 50 customer wins -- over 50 customer wins last quarter. And then we have add-on products and new products such as the Crossix and the Physicians World that that's contributing to the growth of Commercial Cloud as well.

Got it. That's great background. And at a very high level, you just -- you brought up your $3 billion revenue target for 2020, 2025. Maybe walk us through how you think about that trajectory from here to the $3 billion, and how are you thinking about Veeva beyond that $3 billion revenue target?

Yes. When we -- 2025 -- in the last year, in 2019, we really -- because we have achieved -- we knew we were achieving our 2020 goals, so we started setting our sights really on 2025. And we announced the revenue goal last year for $3 billion. And the way we think about that is $3 billion of revenue, we want to still be Veeva, which means we can still have -- retain our ability to change, still have our core values, still be a strategic partner to the industry, but also still have room to grow beyond 2025. So the $3 billion revenue, that's largely with products that we have now in our sights, either that we are selling now or have under development so that those -- we have to execute, and we have to do really well. But we need room to grow when we get to 2025. So that's about the innovation and the new products that we have to be coming up with over the next year, 2 years, 3 years. That's something we have a history of doing. We have a pretty good innovation engine, and we have an internal operating model to do that. That's something we really refined last year. And the whole team is very proud of how we can execute in core markets, but also have a model for creating internal innovation and rapidly bringing it to market.

Got it. And maybe just stepping back a little bit. We're asking all our companies at the conference this year in light of everything that's happening out there in the world and coronavirus really in the headlines, how does it affect Veeva? And not even Veeva specifically, maybe even just the industry that you serve more broadly.

For the industry we serve, it's a busy time and it's a time of change. There's -- they do a lot of collaboration around the world. Some of them are fine-tuned already to do that in a virtual way, such as Veeva. Some are less so. And with the -- some of them are decreasing travel, and so they're having to get better about doing virtual communications. We're helping many of our customers by providing Engage Meeting, one of our products for the pharmaceutical companies to engage remotely with health care providers. We're providing that free of charge until September, and that's helping some of our customers. We have certainly some customers that are working on treatments and vaccines for the COVID-19 virus. So they're certainly very busy. And I felt -- I read that this morning, Moderna, one of our customers, actually introduced the first candidate for a vaccine. So they're very busy. For us, for Veeva, we've operated in a virtual way quite well for many years here. We just embrace the virtual technology. We haven't seen projects canceled. We've seen some delays in some projects, but nothing that would materially affect our financials. So we're continuing to focus and to be productive and to run virtually in the places where we need to where there's a serious outbreak.

Okay. Perfect. And maybe just looking at the industry, right, more broadly, the industry itself is really evolving towards a specialized precision medicine type of outcomes. Can you give us some context on what this means? Because a lot of investors here are obviously tech investors, not medical professionals and life sciences, biopharma-type investors. What does this mean? And how does this affect Veeva business over the long term?

It's a real profound change that's going on in life sciences. That's the first thing for everybody to know. It doesn't happen overnight, but it's quite a profound change, this move to precision medicine. When Veeva started, it was mostly what's called large-molecule medicines. It could have been in like the cardiovascular area where there was a pill and the pill would work for millions of people and -- that had high blood pressure or cholesterol, and so it was a pill that worked for millions. Now we're moving into very specialized medicines that are more complex. They're often injectables, and even medicines that can work on specific inherited diseases by fixing people's DNA. So it's very targeted medicine that we call precision medicine. It's a fundamental shift in life sciences. It's as transformative in technology. We moved from client server to the cloud, and that was transformative. That's what's going on in medicine now, having medicines that can cure certain types of hereditary blindness. We saw with hepatitis how we see medicines that can cure that. So it's a great time, but it's the time of change for life sciences. So they need to evolve their practices, and that's what we're excited about: giving them technology that can help evolve their business practices so that they can get to these really targeted medicines that, in some cases, may only treat 10,000 people around the world, but it's a critical life-saving thing for those 10,000 people. So our customers sometimes are faced with, in this case, finding the right needles in the very large haystack. It requires a different set of technology and business processes.

And are there specific Veeva products that are best positioned to help your customers drive these types of specialized medicines? Or is it really your entire Development Cloud platform that's in the market for that?

It's really across the board, Commercial Cloud and Development Cloud. Because what's happening is there's a record number of new candidate medicines. So there, you have to be accurate about how you're bringing those products through the clinical trial process, and you need speed and agility. And then there's also a record number of approvals in the FDA and around the world. And the complexity of bringing those products to market are -- is quite complex. That's really across Commercial Cloud and Development Cloud. One way to think about it, when Veeva was started 13 years ago, this is a bit of an oversimplification, but you could relatively think that life sciences were talking to doctors about a simple medicine, in some cases. Now they really have to talk to health systems about very complex medicines. So that will span the clinical trial process right through to the commercialization process.

Got it. So let's stick with the side of -- the clinical side of -- the clinical R&D side of Veeva and talk about CDMS, with a D like David. So this is a market where Medidata was really the incumbent and really the big player in the space, and they're going through -- they're in the process of being acquired right now. What gives you confidence that you guys can continue to be successful in this part of the market and perhaps take over as the #1 spot and become the leader in the space?

Yes. CDMS, clinical data management system, that's a system that's used to collect the data from the clinical research site. So when somebody that's participating in that clinical trial goes into a research hospital receives treatment, data about their disease progression will be collected up there at the site. That's brought in through the clinical data management system to help the life sciences companies prove whether the medicine is effective or not. So it's a very important market where speed is of the essence. So for example, if a clinical trial is going on now in the COVID-19 virus, that data needs to be collected from patients. That's what the clinical data management system does. So it's a critical area where Medidata has been the leader. In that market, we've seen that there wasn't so much innovation over the, I would say, over the past 5 to 10 years. That's really why we got into the market. Customers were looking for alternative, a more innovative alternative, and looking for a clinical data management system on a cloud platform that was also integrated into their clinical operation systems, their quality systems, safety systems, regulatory systems. So we're really the only one trying that, an integrated suite of applications all across the Development Cloud. That's a big undertaking. We started that roughly, I guess, 9 years ago, when we started developing the Vault platform. What gives us hope over the long term is the customer success we're having and the feedback from the customers, and honestly, the engineering team and the development team that we painstakingly put together over the last 3 years. So I see the pace of innovation and the customer success that makes me confident that we'll eventually be the leader in that market.

Got it. And maybe staying with the competitive landscape, probably one of the biggest differences between this year's presentation at our tech conference and a year ago when you were here physically with us, but now you're virtual, other than that, right, the biggest difference was the competitive dynamics around your core CRM solution. And really, those competitive dynamics have intensified a little bit with a well-funded competitor in the space in IQVIA. Can you maybe talk just broadly, what are the competitive dynamics in that market? And what gives you comfort in your long-term targets for your Commercial Cloud part of the business?

In core CRM, we've always had competition over the -- ever since the whole -- the company started. In the beginning, we were the start-up with no market share. And when we had that competitive dynamic in that time, it was against Siebel, Oracle and Cegedim. Now over the years, there's been a series of acquisitions and IQVIA gets into that market, and they've also come out with a new product in -- another new product, actually. They came out with -- IQVIA came out with a CRM product roughly 5 years or so ago, and that didn't do too well. Then they did an acquisition that -- to get a CRM product. That didn't do too well. And now they've made a new product that they call OCE. And it's new. And of course, there's competition out there, which is good for the market. So that's what we're seeing, competition. It's a competition of a different type in that now we are, by far, the clear market leader. So that's a little bit different angle from us. But we're still winning customers. We're still increasing market share. If you look at our core CRM revenue, it's going up. In fact, we won more customers last year than we did the year before. Now if you look at the differences, actually, Veeva is a product company, software engineering company at its core. We have cloud software that keeps getting better. We're in it for the long term. Right now, from what we understand for the IQVIA offering, it's actually more of a services offering. And that may be appealing to some customers in the short term. They get exactly what they want. But over the long term, that doesn't turn into a very successful type of projects or business. So we feel confident about where we are, but we're also appreciative of the competition from IQVIA that makes everybody better.

Well, you mentioned that, right now, primarily that the competition is on the -- around the main differentiated services. Why is that? Why do you think that that's not sustainable moving forward?

Well, professional services -- when you use the professional services to implement the project, it -- first, it can create a very large project that has a long time to go live. So that's an issue right there. But also, what you get is the customer with exactly what they ask for. But they won't get anything that they didn't ask for, so they don't get any outside-in thinking or continuous upgrades and updates on innovation. So for example, just to make a super simple example, when we started out with Veeva CRM, this was before actually the iPad was introduced. Then the iPad was introduced, we upgraded and our customers could move right onto iPad right away. When we started Veeva CRM, there was no concept of doing a remote meeting with a doctor. Now we are ready there. Some of our customers, they hadn't purchased Engage Meeting, but man, they want it in a hurry right now because of this COVID-19 virus. If you're on a custom services project, there's no way to consume new innovation. So in the long term, it's actually crippling. That's why people replace these custom systems over the long term.

Got it. That makes sense. And one of the things that really -- that stood out to us from the Q4 call yesterday was that for the first time in quite some time, we actually heard about the OpenData product is seeing some traction, and you announced a top 20 pharma win with OpenData. Maybe give us a little bit of background on how your OpenData product is going and some of the success points that you're seeing there.

Yes. We are winning a number of new deals for OpenData. When we win, we win because the quality of our data -- people will dig into the quality of the data, the types of the data, the expansiveness of the data and the services around that and the usage terms around that. Do they feel free to use that data in whatever kind of software, whatever kind of manner they want? So that's when we win. We are having some headwinds there on our data business, on our OpenData business, because of -- IQVIA has some certain types of data that they have a basic monopoly on, and they refuse to let that data be matched with Veeva data or they also refuse to let that data be loaded into some of the newer software. So that creates some headwinds. Good news is our antitrust lawsuit against IQVIA is progressing well, and we've had most of the -- depositions are done, and we expect the jury trial in roughly the end of 2021. So that's less than 2 years away. So we feel like OpenData, the strength is the product and the service. The headwind is the IQVIA situation, but we think we'll break through that over time. And again, we're in it for the long run. We're building this industry cloud for 2025 and beyond. And yes, we have a bit of a tailwind -- a bit of a headwind right now with OpenData, but we'll get through at this time.

All right. Perfect. So Peter, I'm actually going to throw out a couple of questions on your M&A, and then we'll open up the floor to questions from investors in the audience. But the 2 questions from me on M&A, right, you made 2 acquisitions at the end of last year. One was Crossix, another one was Physicians World. Maybe taking them one at a time, right? Crossix, was the bigger one of the 2, and it feels somewhat different from some of the areas where you've operated historically. Can you give us a little bit more detail on why you purchased Crossix? What's the opportunity you see? And what's the opportunity that you see for that product?

Yes. I can actually take them both there, and I'll take the Physicians World one first because that's the smaller one and it's more self-explanatory. Physicians World is a service offering to help pharmaceutical companies plan and execute events with physicians, particularly here in the U.S. They have to do that in a compliant way and in an efficient way. And what we found is that service goes on along very well with our Events Management software. The customers were looking for us to provide that as a package together, and what we want to do was what's right for the industry. So that was a purchase there and pretty straightforward purchase of a services business. Crossix, that was the bigger one. That's the bigger acquisition and one that has potential to be transformative because that Crossix business is nothing like what Veeva's had before. Crossix has data, a tremendous amount of data about patients in the U.S. And they use that to measure marketing effectiveness, effectiveness of digital marketing. So if you look at Crossix, they're experts in patient data, the privacy policies around that and data science, the data science around that. So we're talking about many terabytes of patient data. So they bring a new DNA into Veeva. We've been really happy about the -- how the existing business is performing. There's some nice mutual synergies in the field with the Crossix business and the existing Veeva Commercial Cloud business. So the field team is able to collaborate very well there. But we're really excited about the product road map going forward, the innovation that can come out of that. That's not anything in particular, though I'll go into this at this time. But that is why I call it potentially transformative for Veeva. It brings us into this new area of patient data and patient privacy and data science. And that -- Stan, I would say, one of the reasons why that's so important. When you look towards precision medicine, it's all about the patients and the patient data. It's reaching very specific patient audiences, both for the clinical side of things and the commercial side of things. So the patient data is a key thing. And that's why we moved into this area that Crossix has.

Got it. That makes sense. Well, let's see if there are any questions in the audience. No. So I'm just going to keep right on rolling. So maybe...

There you go.

I'm sorry?

There you go, Stan.

Yes. No, I have no shortage of questions. That's the least of my problems. Maybe going back to the M&A for a second, right? Physicians World. I think a lot of people understand the importance of events and key opinion leaders to driving especially new product launches in the world of life sciences. But specifically to the acquisition, what is it about it that you felt that you needed to actually own the asset rather than maybe a very tight partnership to continue to drive pull-through of your events module?

Yes. At the highest level, this is what customers were asking for. We thought by owning the asset, we can shape the service offering and the software to work very well together. Now I would say, in general, that's not something you'll see us do too much of. But in this very targeted case, we felt it was not necessary for customer success, but it could bring a new level of customer success. So it's really -- it's -- customer success is the way to think about this one.

Got it. Got it. Maybe just shifting gears slightly, Vault outside of life sciences. It's been a focus area for you guys for a couple of years. Give us a little bit of an update on where you are with this motion, this new motion for you as a company to really push outside of life sciences. And what are some of the success -- some of the recent success points that you're seeing?

Yes. We're happy with the business. It continues to go well. We focus in this consumer packaged goods, CPG, chemical and cosmetics industries. And we sell them solutions in 2 areas: in the quality area and in the regulatory area. And the business is going well. We're focused on the customer success there. So we have a number of projects with both top 10 CPG companies and cosmetics companies. We announced a couple of wins with 2 CPG companies -- actually 1 CPG and 1 chemical -- sorry, 1 CPG and 1 cosmetic company last quarter. So there, it's about continuing the success of those projects, getting into the reference selling mode, particularly in CPG and the cosmetics industry. So we're really happy with that. It's a good business for us and a steady grower.

Got it. And maybe just to close things off with the session, Peter, when you look at your upcoming fiscal '21 calendar year '20, what are some of the areas that you're really excited about coming into this year?

I always get excited about the short term and the long term. For the short term here, for this year, I get excited about our annual plan and the things we have to execute on, the big customer projects, the product innovation across Crossix and in safety and in CDMS and in core CRM, and our customer summit is coming up. So that's the execution. These are all the plans we've put in place. And we've got a great team, so executing on that. And then over the long term, it's really this vision of building the industry cloud for life sciences, which we're still in the early days of. It's about a $2 trillion industry. That's a huge and important industry, and we want to be their most strategic technology provider, to be essential and appreciated and to be a real partner of the industry. It's often -- people are surprised how big that business can grow. So right now, we're putting in our motions for $3 billion in 2025, with plenty of room to grow beyond that. 2025 might seem like a long way away, but we're really planting those seeds right now. So I guess, Stan, I'm excited about harvesting some seeds and planting new ones. So I'm kind of a farmer, Stan.

That's a great analogy, Peter. And I think that's a great place for us to stop. Thank you so much for your time this afternoon, and I hope you have a great rest of your day.

All right. Thanks, Stan.

Thank you.