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

Excellent. Well, welcome, everybody. Thank you for joining us this morning. I'm delighted to welcome Veeva to the conference. We're very lucky to have CFO, Tim Cabral; VP of Investor Relations and Finance, Rick Lund. Thank you, Tim and Rick for joining us. I always look forward to our conversation.

Thanks, Brad.

Absolutely. I think this is our fourth year. And I know your -- with your announced retirement last year that this is going to be the last. So it's bittersweet. But thank you again for all your support and for the conference and the platform over the years.

Yes. Thanks for the kind words, Brad, and thanks for your partnership. It's -- we've enjoyed it.

Absolutely. You will be missed. So maybe, Tim, why don't we start? You guys just reported fiscal Q1 last week. Any key takeaways from the earnings call? Anything that you want to kind of call out from that?

Yes. I think 3 things, Brad, come to mind as I think about our earnings call last week. First, the overall financial results for the quarter and our updated guidance for the year reflects, I think, 2 things: one, our ability to continue to execute very effectively, which has been a hallmark of Veeva over the years. And in this time, even in the face of some adversity as well as the fact that the industry that we serve, the life sciences industry, is relatively less impacted by COVID than most other industries that I'm sure you cover companies that support, and we're certainly proud of that continued strong execution. Secondly, our product team has been mostly office space up until this crisis has forced everyone to work virtually. And I have to tell you, Brad, I think that this may have been one of our greatest innovation quarters even in the face of that transition and change that we've seen at Veeva. So our innovation engine incredibly, incredibly strong. We delivered a number of new features within the quarter, meaning, we identified them, we coded them and we delivered them to the customers. And within hours, our customers were seeing the benefit of those digital transformation functionality like remote sampling and remote monitoring. And so incredible innovation with speed and impact in the quarter. And then lastly, I would say, and Peter talked about this on the call, Brad, we're humbled and excited to be in a position to help the life sciences industry. As we all know, the life sciences industry is on the front lines of really addressing this pandemic. The expectation is that it's the life sciences industry that's going to find a vaccine or a treatment or deliver more tests so we can figure out how we get back to some level of normalcy. They're working 24/7, and we're excited to be able to be a strategic and trusted partner to help them help society. So those are probably the 3 big key messages from the earnings call last week, Brad.

That's great. You mentioned new features identified, coded and within hours released that's incredible. Maybe since you mentioned it, you could dig in a little bit on the platform and what makes this your platform so extensible and -- or even just the delivery of development cycle so rapid? It seems like a real confidence for Veeva.

Yes. And just so we're clear, we didn't deliver something within hours. Over the course of a month, we coded it, put in our release that was targeted in Q1. And once it was deployed, customers were seeing the benefit within hours, still unprecedented speed, Brad. And I think it's a testament to sort of the model you and I have talked about over a long time. I think when we started the company back in 2007, there were many industry facing software technology companies, but most of them were deep on domain expertise and a little bit light, excuse me, on technology expertise. What Peter and Matt and the team really wanted to do was something fundamentally different. Meaning be equally strong and growth in domain expertise and technology chunks. We're taking the best of the best technology experts and applying them to one industry. And I think whether it's the commercial cloud products or our Vault products that are underpinned by the Vault platform, the ability for us to innovate with speed is -- has been a hallmark of the company over time because of the deep technology expertise that we've been able to attract at Veeva to get after this -- the set of challenges in some of the most critical areas of the life sciences industry. So I think that's sort of maybe the best way to describe the question you asked, Brad.

No, absolutely. No, that's great. And back to Q1 a little bit and just COVID before we move on, you pretty much isolated the impact to Crossix, Physicians World, those acquisitions, hard hit industries, which are pretty small mix of your business, but you did lower your billings guidance. I think you also said that you are taking some factor into account here for a mix of billing shift to quarterly from annual but I don't think you were seeing that yet. So can you help us unpack a little bit what's behind kind of your lower guidance? Because there's just a level of conservatism there as always. Anything you can help us with there, please?

Yes. So I think, Brad, it's a combination of 3 things, and I think you said them all for Crossix and Physicians World, there's -- 1 of the 2 areas within the life sciences industry that has been more impacted than others is media spend directed at patients because in that scenario, Brad, if you're a pharma company, directing media spend to patients, but patients can't go to a doctor and talk about a particular treatment or drug, then it's a bit wasted because what Crossix does is it analyzes the effectiveness of that media spend. So we're seeing a little bit of slowdown there. And of course, with the Physicians World being a speaker bureau supporting this industry in small expert doctor-led events, in-person events, which is entirely stopped within this industry, almost entirely stopped, Brad. Those are the 2 drivers, 2 businesses that we acquired, where there's a bit of an impact. And we talked about the revenue guidance for that business from 90 days ago to what we talked about on our Thursday earnings coming down by about $15 million. So the larger chunk of the billings guide reduction was to reflect that, number one. Number two, there are certain customer segments within the industry that are seeing a little bit more impact than the general industry at large. This is pre-commercial SMBs, Clinical Research Organizations or CROs, med device companies, cosmetics companies, which you know is part of our outside life sciences initiative. So there are some customer segments where we're seeing a little bit more impact. And while those only reflect a small -- very small portion of our overall revenue run rate and our expected new bookings, they still have a slight impact to our overall billings guidance, and that's reflected in the guidance. And then the third thing is you talked about, Brad, you're right. While we've only seen on the margin a little bit of payment timing changes being requested from our customer base, we wanted to include some of the potential as renewals unfold throughout the year because that's typically, Brad, when people will start to have those conversations of moving an annual relationship to a quarterly billing relationship, it will happen during the renewal cycle. And we wanted to incorporate some of that as the potential for it to happen, not necessarily that we have seen it happen nor have we heard that people are going to take us up on it. So those 3 factors which, as I said Crossix and Physicians World being the largest of the 3 drove or informed the billings guidance that we gave last Thursday.

Got it. Got it. No, that's very helpful. Thanks, Tim. And there's some real positive impact here, too, as a result of COVID. In many ways, it seems like the value to the commercial suite to Vault is growing. And with all this disruption in the industry, you called out Approved Email and Engage, these are communication tools that help drug companies communicate more with a distributed -- disrupted sales force. Can you talk about what you're seeing here, which is within Commercial? And those 2 that you called out?

Sure. Yes. I think, Brad, and you hear this from a lot of cloud companies. This is an industry that is going through and has been at some level over the last number of years going through a bit of a digital transformation. Now for a regulated industry like life sciences, as you know, we've talked about this before, change management sometimes makes it hard. And they will be more methodical in their adoption of new technology, new transformation like the digital transformation. So obviously, as we delivered Approved Email and Engage over the last few years, we had delivered an Approved Email 5 or 6 years ago; I think Engage probably a few years after that, Brad. We saw that over the long run, the potential for these digital channels. So remember, our core CRM product is primarily managing face-to-face interactions between pharma reps and doctors for the purpose of the pharma reps to continue and help educate the doctors around the globe about the drugs against certain therapeutic areas that the pharma companies are delivering to the market. So core CRM is face-to-face, Approved Email is a virtual channel, where you can engage with a doctor via e-mail as opposed to via face-to-face. And certainly, Veeva CRM Engage is another digital channel or virtual channel, where I can have a Zoom call or I can have a virtual call with a doctor. So these 2 would be considered digital channels, which we knew over the long run, we were going to see more and more adoption, but pharma would do it in its methodical way as it typically does. COVID, as you can imagine, Brad, has created a catalyst for change. Because if a company only stayed in their old face-to-face world and didn't necessarily adopt in a very quick way, other digital ways with which pharma reps and doctors could interact, their sales reps would be -- would not be productive, as you can imagine. So over the course of just February to March, Brad, we saw a 2x increase in Approved Email and a 30, 3-0, times increase in Veeva Engage in that same time period. So the ability for Veeva to innovate, to deliver digital transformation products like this and for our customers to be able to take advantage of that in a time of need is a testament, I think, to the relationship and the partnership we've built with this industry.

That's excellent. That's great. I mean we're all familiar with Approved Email. I think Engage kind of hit our radar more recently as a result of COVID and the uptake that you're seeing there. Can you just describe to us a bit what is Engage? I think you talked about heavily discounted -- the product being heavily discounted to help customers out in the midst of all this disruption, which it sounds like the right move, but that could be a catalyst for monetization going forward. I mean, just if you can help us a little bit on kind of understanding Engage in the pricing?

Yes, happy to. Yes. So Veeva CRM Engage, as I said, Brad, is a video conference digital channel for pharma reps and doctors. And a really interesting thing, and this is more indicative of the early adopters, if you will, of Engage. The really interesting thing is, if you think about the face-to-face interaction, we've all been in doctors' offices where you see the person come in with a briefcase, that's the pharma rep and that person is trying to find a minute or 2 in between a doctor visiting patients during that day so that, that person could engage with the doctor and talk to them. What we're finding on the digital side is that doctors normally will schedule these video engagements, Brad, on their calendar. And so while a face-to-face interaction, the average duration might be 90 seconds, we're finding 13, 14, 15-minute video engagements through our Veeva CRM Engage, which creates a really interesting interaction between the pharma rep and doctor, a much deeper learning opportunity, almost a multichannel where the pharma rep could bring in a medical scientific liaison, a subject matter expert, as the doctor continues to ask more questions and evolve in his or her learning. So really interesting. But as we talked about, it is change management. It is something you have to figure out how do you deploy. How many video conferences should I have with the doctor? You already -- over the number of decades that you're going to face-to-face interactions and optimizing for that, Brad, you sort of really deeply understand that channel. Changing to a new channel or adopting a new channel is harder. Now with Engage, early on, I think it was probably in February, and we started this in China because as we all know that's where this pandemic started and they started much earlier with shelter-in-place and virtual work processes or remote work processes, Brad. So what we said was we're going to give Engage away for free to help this industry enable their commercial teams to stay productive while we get through this pandemic. And as the pandemic started to go global, we widened the free Engage to essentially global around the world. And we originally talked about that being free through the end of August. But as we've learned more over the last couple of months, that this pandemic may have a little bit of a longer impact and a longer tail. And as we think about budgets of our customers, the budget cycles of our customers and really the adoption, which is what we're focused on now, Brad, we're in conversations with our customers now about whether or not we're going to stick to that August 31 date or we may be more flexible with our customers over time, which is why in my prepared remarks, last week, I said we don't expect material revenue contribution or the revenue contribution will be immaterial from Engage in fiscal '21.

Got it. Got it. While we're on the topic of the Commercial business, thank you for that, Tim. We've seen an acceleration here in the business from -- to mid-teens from 12% in fiscal '19. I don't think anybody would have modeled that in a business that -- where you have 48 of the -- already 48 of the top 50 pharma companies, what's going on in there? What's changed in this business? What's driving that incremental growth and the acceleration that we've seen? You talked about a couple here, but anything else?

Yes. I mean, I think, look, Brad, at a high level, it's a bit of a function of our mantra of being a leader and liked, which is a shorthand for we continue to have an opportunity to deepen our partnerships and deepen our relationships within this industry, through innovation and continued focus on customer success. What I think we've seen in most use cases where companies growth in a particular segment of their business or in their entire business, Brad, starts to sort of get down into the low-teens and maybe even into the single digits is you'll turn your attention away from innovation and more towards sort of monetization, if you will, or sort of how do we drive more operating margin out of this business. I think we've taken a different approach to a commercial cloud business that we've seen over the many years come down in revenue growth. We still think about innovation as a key part of our journey with Commercial Cloud. And over the last couple of years with redoing the entire UI with Nitro and Andi as new areas of Commercial Cloud innovation, with the recent announcement of Data Cloud as another big area of Commercial Cloud innovation. Brad, I think we're doing -- the blueprint we're following is different than what you've seen in most other use cases. And I think that's a testament to this idea of being the leader, but not necessarily resting on our laurels. We need to continue to innovate to deepen the partnership and the relation with this industry, so we can continue to be the leader over the next couple of decades. And I think what you're seeing is a bit of a cascading effect of SMBs, as they're coming out of their clinical and regulatory process and they're commercializing their products, they come to Veeva. You were seeing an accelerated CRM deployment in some of our larger enterprise customers as they globally deploy CRM. And so you're seeing some of those factors that may have been -- may have happened a little bit faster than even we were thinking because I think of the continued innovation, customer success focus and partnership we're building. I think Peter and I are both incredibly excited about the opportunity we have within Commercial Cloud and certainly continue to be confident in our ability to deliver $1 billion business, as we talked about on the 2025 time frame.

Got it. No, that makes a ton of sense. Thank you. You mentioned the Data Cloud. Maybe we could talk a little bit about that. It's a relatively new offering. I guess, why don't we just start with kind of what is the Data Cloud with the differentiation there? And I believe you said the Crossix team will be helping with development here. Maybe just a little bit of kind of the road map and where this product is going?

Yes. Well, I would say, Brad, that when we acquired Crossix in November, and we started to talk about Crossix, Peter's conversation was around how transformational Crossix can be. Now when we acquired them, we obviously had a sense of the fact that we were going to get after this Data Cloud business, and we wanted to make sure we had embedded that effectively enough. And so now what we're seeing is the results of the rhetorical narrative of what Peter has talked about. And so Data Cloud would be very simple, is our first step into what's known as prescription data or sales data. So this is an incredibly important part of the commercial models within life sciences, the effectiveness of how they analyze and understand the effectiveness of their entire field forces. So sales data, prescription data is a very important and strategic part to commercial, and we have the opportunity now, we think, to go into a market which, while it's being led by sort of the single vendor, sort of a monopolistic vendor in IQVIA, it is an area much like other areas that we've entered before, Brad, where there is a need for disruptive innovation. There's a need for a choice, there is a need for the opportunity for a company like Veeva to come in and fundamentally change the approach with which these products solutions are delivered to the industry. And so that's the opportunity we have in front of us. For now, our focus is on the U.S. market only and on specialty drugs only which, while it's a small part of the overall pharma business, it is the highest growing part of the pharma business. So we feel like we're going to be able to learn and really fulfill the vision that Peter's talked about around the Data Cloud, which is a technology-driven data solution, where the speed with which we can innovate the ability to deliver those new innovations in a very effective way and the openness with which we'll engage with our customers over time will be the 3 major areas of difference from what they're experiencing today. So super excited about it. It's powered by the Crossix platform, which is a very strong patient and prescription data platform. And you're right, we have members of the Crossix team, members of the Veeva team together that are going to be building this data cloud over time. Now, Brad, to be very clear, while we're incredibly excited about the opportunity here, much like you've seen us talk about with Vault many years ago, you didn't see us talk about Commercial Cloud at the beginning because we were a private company. This is a long making. This will shift over many, many, many years if we are successful. So we're excited about this opportunity for sure.

Got it. Got it. I have a question that came in from the investor base on this, specifically on the Data Cloud. I guess, the question is, does this push you in greater competition with IQVIA? Maybe you could just talk a little bit about the IQVIA dynamic?

Sure. Yes. And so the short answer is yes. This is -- so IMS Health, which is the company that combined with Quintiles to create IQVIA. They are the company that is the market share leader. They sort of have a monopoly position in sales data in the U.S. and many markets around the world, Brad. So yes, this is absolutely a direct competition with IQVIA over time, over time. So their focus is more in what is retail pharmacy related products, which is the larger part of the number of drugs or the larger part of revenue in pharmaceutical companies. But yes, this will be a direct competitive solution to IMS' Health sales data solution.

Got it. Thank you. Thank you for that. Good. And then why don't we shift to Vault a bit, the company has just done very well with this business, building out features, starting -- you've been very clear that you're on this reference selling approach path where you start-up and address the needs of smaller biotechs and the midsized firms. And then eventually, you build out the feature set for large pharma and let those customer references kind of aid you in the sales cycle and kind of pull you up market as the features kind of evolve. And you've seen very good progress, very steady progress with existing customers, adding more Vaults. I think in the last Analyst Day, it was 2.38 number of Vaults per customer, up from 2.1. I guess, where are we with Vault? What have been kind of the key products that have driven the growth to date? And which ones are kind of more on the come that you would expect to see more contribution from potentially in the next year or just going forward?

Yes. I think at a high level, Brad, as we look at Vault, Vault is a great case study for a combination of what we talked about earlier around domain expertise and technology expertise. So as you know, we built our -- the Vault Platform, underlying technology platforms, which we continue to innovate on, continue to improve. And it has enabled us to be incredibly effective and efficient in delivering new applications on that platform into the life sciences market in a very sort of fast away, if you will. I think it also is a testament to the trusted relationship and partnership we build within this industry where they are now looking to Veeva to continue to expand problems and the challenges that with software that we deliver, we can help address for them. So as you know, Vault started in commercial originally, and we moved over to the R&D side of the business and have expanded within clinical and quality and regulatory and now safety over time. No other companies have that portfolio of products nor do you have any other company that's really crossing those major areas of focus like Veeva is. And again, I think it's a testament to the relationships that we're continuing to develop and deepen as well as the deep technology expertise we have. Now as you step back and look at Vault, Brad, I think there's sort of 3 different segments of products that are at different stages of their product life cycle. So as I said, we started in Commercial, I would say, PromoMats, our promotional materials and medical communication are sort of in the mature stage of their life cycle. And as you know, along the way, we acquired Zinc Ahead, our biggest competitor for PromoMats. And with the combination, we have a very high market share there. So while those are contributing decent recurring revenue, there's not as much market share to go get, we're still winning deals as we go along. We're getting new users, Brad, in those products, but those are in the mature stage of their life cycle in the high market share stage of their life cycle. The middle segment would be core products in the R&D area like electronic trial master file, quality docs and submissions across clinical, quality and regulatory. Those are the first products we deliver, Brad, into those areas. And those have continued to be sort of the bellwether or the industry standard for critical areas within clinical, quality and regulatory. Those have been over the last couple of years, the primary revenue growers and those products probably continue to be the primary revenue growers over the next 1, 2 or 3 years. So those are the mid-segment, and they're still in the growth curve, but they're up the curve a little bit. And then we have the products that are Clinical Data Management; Safety; Clinical Trial Management System; Quality Management System, QMS; our QualityOne products outside life sciences, these are still in the very early stages. And if you look at those, Brad, in terms of total addressable market opportunity, that segment represents the largest of our TAM. So what's really cool about this journey we're on is that the segment that's in the most mature part, Brad, is the smallest TAM. The mid-segment is a bigger than that and a multiple of that. And the largest opportunity we have is in the early adopter stage. So all in, we're in the very early innings of our Vault journey. And the other thing that I think is really exciting for us and you can hear it in Peter's voice, and you're certainly hearing it in mine. With our relationships, with our partnerships, with our innovation, I think, over time, we have the ability to fundamentally help this industry transform some of its most critical processes, whether that's digital transformation as a major part of that, Brad, or other transformation like we're seeing and having conversations about. So super excited about that opportunity.

That's great. That's great. And we just have time for one more, I think. And I'll just maybe end it with a follow-up to that question. Clinical, you guys have been making real steady progress with CDMS in the top 20 pharma. That's kind of the most sophisticated use case, and I know it's a big market opportunity for you. A couple of deals for a phase trial -- Phase III trials that you won with top 20 in the last year or so. Are we at the point now where we could start to see that replacement cycle accelerate here in that industry?

Yes. So right now, we have 1 top 20 pharma and 1 top 20 med device company, Brad, in terms of where we have enterprise license agreements for CDMS. Now while we're seeing really good momentum, our focus, as you know, we're a very focused on brand. Our focus is on the early adopter success of these products and these customers. Because what we know, and at least we've proven in pharma CRM, in electronic trial master file, promotional materials, as examples, is this is a very long game. And the way you win a long game is that you're appropriately patient. And so our early adopter focus on making these customers successful really refining and tuning the product fit, continuing to innovate during this cycle so that when we move into the reference selling stage, and we are actively looking at renewal cycles that we can turn over, Brad, in a more focused way, we have referenceable customers, deep product fit and deep, deep understanding of the incremental or the disruptive innovation that we're bringing to the table, the unique innovation and value we're bringing to the table. If we do those 3 things well during early adopter phase, Brad, we have an awesome chance to win the long-term opportunity here, which is -- could come over the next decade or more.

Sure. Absolutely. Well, I think we're out of time here. Tim, I want to thank you again for all your support and a great job over the last several years at Veeva. You will be missed. We look forward to learning who your successor will be and getting to know him or her. And thanks again for your participation today.

Yes, happy to do it, Brad. Thanks as always for your partnership.

Absolutely. Thanks, again, guys.

Bye-bye.

Bye-bye.