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

Good morning. And thank you all for being here. This is William Blair's 40th Growth Stock Conference, so a big milestone for us. We're very proud of it. My name is Bhavan Suri. I'm the analyst at William Blair. [Technical Difficulty]

Hey, Bhavan. You're on mute.

There we go. Yes. I can see that. Thank you. I was going to say...

You were saying some incredible things, Bhavan.

I was.

I don't think I read lips but...

It was bittersweet. It was about you. I was saying, it's been an amazing honor and privilege to work with Tim over 5, 6 years now. I forget now. I remember picking up the stock when it was mid-20s, and you guys have done an amazing job. But it's a great pleasure to have Tim Cabral, who's the CFO, but outgoing CFO at Veeva; and Rick Lund, who runs corp dev and investor relations for Veeva. Thank you, gents, for all the years of support and friendship, and for your time today. We're going to do this as a fireside chat, so I'm just going to fire off questions and we're going to talk about the business that Tim, Rick and the team have built.

Tim, at a high level, before we delve into too much depth for the folks on the phone or the meeting that may not know Veeva, can we talk a little bit about what Veeva came from, what the initial plan was to be, and how you built out the business into something materially broader than what was the initial intent?

Sure. Sorry, Bhavan, you're breaking up a little bit. I think I heard most of the question. Rick, you can hear me, correct?

Yes. Yes, I can hear you both just fine.

Okay. All right. All right. Excellent. So Bhavan, first, before I jump in, thank you for the kind words, and thank you for your partnership. I -- a little-known fact. I did know that this was going to be the 40th Annual William Blair Conference, so I waited until the 40th hit before I decided to leave Veeva from an operating role. So it's coincidental maybe, most people would think, Bhavan, but it was very planned.

Thank you. It's very touching.

So it's a good question. I think back in 2007, when Peter and Matt started the company, what they saw was an emerging pattern that you and I both saw in enterprise software in the past, where you start out with horizontal applications and horizontal companies. And you typically find yourself seeing a lot more vertical-facing companies, a lot more deeper, sort of, product-specific companies that really are honed in to optimize for different vertical markets, whether that be large markets like life sciences and financial services or smaller markets. So I think what Peter and Matt saw was this is going to happen in cloud like it did in enterprise software, and we think we could be at the front end. Now the paragraph that was the name of Veeva, originally, Bhavan, I think you know is Verticals onDemand. So the idea was -- let's build a company primarily on the Force.com platform, was the initial plan, where we can add value in specific verticals and in specific product offerings where Salesforce, who, at 2007, was a very successful company, not nearly the enterprise company they are today, but where they were not seeing as much success as a horizontal company. And so that was the original plan. We got into life sciences. We saw the opportunity in front of us within life sciences. And so instead of doing sort of a lean in across multiple industries, we said, let's build an industry cloud model where there's a lot of depth. And that was actually relatively quick in the journey of Veeva that we made that pivot, Bhavan, well before you and I met each other, of course. And over time, what we've really tried to do is fulfill our vision, which is the industry cloud for life sciences, which is what are the most -- what are the biggest challenges of this industry, and how can we help address them with technology, software, people and domain expertise and services. And now, as you've heard us talk more about in the couple of years and, certainly, the Q1 announcement around data as well. So software services and data is really the framework the industry cloud model that we're building. And I would say, I think, Bhavan, like many journeys in life, this one probably never completes itself. We're -- there's always something more we can do, things where we can add more value to our customers and to the industry, areas we can innovate more.

That's great, Tim. So let's touch on the 2 parts of business a little bit, and then I have an interesting conversation to relay after we talked to one of your new customers about what the vision might hold around data. But anyway -- so you've done really well with the Commercial Cloud, which is almost a CRM-type offering, for those of you not familiar with it, for pharmaceutical companies. You've added lots of pieces around that. But as you think about that, you have the vast majority of pharmaceutical sales, medical device sales people using the Veeva platform today, roughly 80% of them or 75%. I forget exactly. But as you think about the growth in that business, over the last couple of years, we all thought it was going to slow slightly, a little bit, because of the penetration and everything else. But it's actually picked up a little bit. Can you talk about what's driving that growth? And what are the growth opportunities in that particular part of the business, which might be Nitro, et cetera. But I'd love to get your thoughts on how that business has been built, and how you expect that to continue growing.

Yes. So one point of clarification, Bhavan. Pharma reps, correct, med device sales reps, as you know, that's an area where Salesforce has done well over time. So while there are corner cases where we're participating in that market, in the commercial side, we certainly are in the R&D side in the commercial side, Bhavan. It's a very small number. So what we talk about is, of the core CRM module that we started the company with, we have north of 80% seat share. Now what's been very interesting over time, as you've heard us talk, Bhavan, is the core CRM module is only there to really manage face-to-face interactions, right? And while that continues -- with the exception of the last 3 months, as everyone can imagine, well, that continues to still be the lion's share of interaction between pharma rep and doctors. We've seen, over the last number of years, a march towards a multichannel approach between those interactions. And when I say multichannel, I mean not only face-to-face, but other digital channels like Approved Email, like Veeva Engage. And so I do think the 1 thing -- or the 2 things that I think we've focused on, Bhavan, and you've heard us talk about it a lot is, even at the level of market share that we have for the core CRM module within our commercial suite, we still continue to focus on innovation and on customer success. Typically, at this stage of a journey for a company, it's about how do I monetize this market share? How do I drive margins in the business and optimize for those things? We believe, because the larger opportunity is still very much there in front of us that, even at this high market share, if we move the optimization bar to that, we would miss the opportunity of future product offerings, future innovation that we can bring. So we, I think, have continued to focus on customer success and continued to innovate with speed, which is really driving a little bit of the dynamics of -- almost a little bit of an acceleration in growth in fiscal '20 and in early fiscal '21 as compared to fiscal '19. I think that, coupled with the fact that you are seeing a lot more products being approved through clinical trials, and newly minted commercial companies are looking at Veeva as the de facto standard for how they want to start their journey as a commercial company. So I think that's what we're doing now. As we look into the future, on the Commercial Cloud side, Bhavan, I think there's a number of opportunities. Obviously, these last 3 months has proven that digital transformation will become a critical element of the journey of this industry, and we are uniquely positioned to help them do that very well. You're seeing that in the uptake of Engage and Approved Email. I think we're bringing innovation around data products, like Nitro and Andi and others, which will be a very important part of the effectiveness of the commercial model over time. As you know, that's getting a little bit stuck now, given the fact that IMS data -- IMS will not allow their data to go into our newer products, but we think we'll get through that over time. And over the long run, we think these can be nice businesses for us. And then the recently announced Data Cloud, where we're getting right into the competitive environment of sales data and prescription data, and really in a competitive landscape that is looking for an industry, that's looking for choice and looking for innovation, and it's not getting either of those today, we think we bring that to the table. So the Commercial Cloud story, even though we've dipped into the low teens in terms of growth in the near past, Bhavan, I think has a rich opportunity of sustained, strong growth in the future. So we're super excited about that opportunity. And you're seeing the activity and our actions really underlying that excitement.

Yes. I mean, I think that -- especially the patient cloud opportunity, I think Peter called it transformational when you think about the data powered by Crossix. The question I would have there is -- so I was very excited about Nitro, as you know, having built a data warehouse for Pfizer when I was at a professional services company. I think you undersized that opportunity, in my opinion. But obviously, there is that stickiness factor with IMS Health. But as I think about it, with Crossix, does that alleviate some of that? Is there a chance we start to see Nitro's growth maybe come back to sort of what it might have been, given that we now have some patient data to start joining -- the interaction data of the pharmaceutical rep with the patient to drive these outcomes or analyze these outcomes?

Yes. I think you're hitting the nail on the head, Bhavan. I would caveat it with probably a little bit over time. So I wouldn't say that's a 1- to 2-year phenomenon that could play out in full, as you articulated. But definitely, over a 3- to 5-year time horizon, Bhavan, it could be a very strong driver to the ability for customers to adopt Nitro and to adopt Andi and to adopt Network. And I think it's for 2 reasons: one, if we are successful here, and we deliver real choice and real innovation to this market, which has been just served by truly one, really one vendor over time, Bhavan, I think that, that choice could change the buying decision of particular companies. They may say, look, I want to adopt Nitro and Andi, and if what you're telling me is the only way I do that is to also buy Data Cloud from Veeva, well, then maybe I'll just do that and cut out the third party that is creating a little bit of the -- not a little bit, a direct impact to this industry's ability to deploy, to select and deploy new innovation from Veeva. So I think you're right. And does this create a different dynamic in the competitive environment such that it's a leverage point, if you will, in the ongoing lawsuit? I'm speculative there at best, Bhavan, but it certainly changes the dynamic in both of those areas, which, over the long run, we're still bullish about our ability to be the leader in these areas. And I don't disagree with your assessment of the opportunity of cloud data warehouses that are specific to use cases within a data-dependent industry like life sciences. A commercial data warehouse and other data warehouses, as you know, Bhavan, in other areas of life sciences can be very impactful over time. So super excited about that as a long-term opportunity.

Got it. Got it. Before we move on to Vault really quickly, and this comes up all the time, given noise made by one of your competitors. For a long time, we haven't seen real competition on the commercial side, to be perfectly frank. It was almost a new-generation play, Veeva displacing a legacy player, whether it was Cegedim or our friends at Oracle. But you have had a competitor make noise. And I'd just love to understand how you guys think about the competitive threat. I know I have my thoughts, but I think investors care about what you think. There have been a couple of competitive win announcements made, some of them are based on price, in my view. But I'd love to get your quick thoughts on that.

Yes. No, happy to do it. So I think just, again, I feel like I'm clarifying your question a little bit, Bhavan. I would say, and I don't disagree, I think your assessment of the strength of the competitive environment up until now has been -- it sounds like moderately weak, if you will. In 2007, '08, '09, '10, this was -- this has always been a very competitive environment for us, whether it was Siebel CRM that Oracle bought, or whether it was Cegedim who bought Dendrite and were going after the market. So it's been a competitive market. I would agree, we benefited from -- we brought cloud technology to the market, much like Workday is doing as they're out there displacing a lot of PeopleSoft HCM, and some other maybe PeopleSoft Financials and other core financials. I think ServiceNow, the same thing. So I think that was a material advantage for us, and it enabled speed of innovation, which really created a competitive advantage. Now I don't know, really, if all of that goes away with this new competitor that you're talking about. Now to be clear, this is a competitor on the software side. So there's IQVIA. As you know, IMS Health was a data company. It combined with Quintiles as a CRO company, and they've been trying to build a technology practice over time. And their approach to that has primarily been acquisition. So they've acquired a lot of the things, a lot of the products that we've been competing against over time, mainly Cegedim. They bought their MI business and their OneKey business. So the -- and now what they've done, as you've seen, is they've had a few false starts in terms of what their product strategy is, and they did what -- I guess we see it in a lot of different places. They said, "Well, that Veeva thing seems to be doing really well. Why don't we just -- why don't we follow that lead and try to do the same thing?" As you know, Bhavan, because you were there, you were in the services industry deploying complex software, you don't just fall out of bed and create the next Veeva. Even when you identify the same underlying technology platform and start to build on it, we have millions of lines of code. We have deep IP. We have tremendous domain expertise and top-tier technology talent that have been going after this for the last 13 years. IMS is -- or IQVIA is trying to compete in that arena, and there will be deal-specific factors, which enable them to be successful. But will they become a credible software competitor over time? I would say the jury is absolutely out. And what we've heard back channel, and you may have heard this as well, Bhavan, is that a lot of their deployments today -- I mean some of the couple of big deals that they made a lot of noise around are feeling more like a custom software-and-services build than deploying cloud software. And I think there -- that is becoming problematic. If you look at one of their -- their biggest customer that they won over Veeva a couple of years ago, 18, 20 months later, they've deployed rudimentary CRM in a couple of countries. In our speed, we would be able to deploy a global top 20 company in that same time frame. And again, I think that's a testament to the quality of the software, not just the core CRM module, Bhavan, but what we've talked about, about all the innovation around it. So we think innovation and customer success ultimately wins the day, and that's the path we're taking. And yes, there's a competitor that we need to be thoughtful about, but it's not necessarily changing the way that we're going to market and focusing on our horse, if you will.

Yes. No. And it's -- I'll say it now. When we talked to one of these CROs, I think it was a couple of weeks ago, I don't know if Tim shared it -- Rick shared it. But they -- that CIO of this CRO was incredibly complementary of the speed of innovation. He actually believed you've accelerated the innovation of Veeva. And he thinks that de facto standard you're talking about, I sort of said 10 years, and he sort of said, no, 3 years. So that's, again, just commentary out that's very interesting. But let's turn to Vault. Vault is a little more complicated, and I think investors have a hard time wrapping their hands around eTMF, regulatory submission, safety, CTMS, CDMS, et cetera. But I think, just at a high level, maybe explain the vision around Vault and maybe the market size around Vault, and then we'll go from there.

Yes. Rick, do you want to talk about maybe TAM first? And I can maybe talk a little -- and you can talk about vision, and I can add some words there as well.

Yes. Let's dive into Vault. So I think the easiest way for investors to understand Vault is it's our own internally developed platform, on top of which we've developed what's now approaching 20 different applications but across 5 specific functions within a life sciences company. So those are commercial; clinical trials; quality and manufacturing space; regulatory; and then, most recently, the safety area, what's also known as pharmacovigilance. And within each of those 5 functional areas, we now have suites of products. And the important -- what -- the reason this is important is that no one previously in this industry has developed and offered all of these applications across all these areas on a common platform. And there's meaningful benefits, business benefits to having all these applications delivered on the same platform. It obviates the need for all kinds of integration. It enables all kinds of better, efficient -- and more efficient processes, better compliance, et cetera. So that's kind of -- that's the way to understand Vault. In terms of its size, within life sciences, we view it as a $5 billion TAM. That's a bottoms-up estimate based on the products that we have today. And then starting 4 years ago, we began an initiative with a team inside Veeva to start addressing certain industries outside of life sciences. And based on the current scope of that strategy today, which is selling applications that are also on the Vault platform, that adds an additional $1 billion to the TAM. So today, our Vault TAM is $6 billion, both within and outside of life sciences. Tim, do you want to take it from there?

Yes. No, thanks, Rick. I think the only thing I would add there, Bhavan, you said the word vision. Look, our vision as a company is to be industry cloud for life sciences, which, to us, means we want to be the most-trusted strategic partner to this industry and really help them address their most strategic and most challenging either opportunities or biggest challenges, I guess, I would say, Bhavan. And I think Vault plays an incredibly important part there. We know this industry over the many, many decades that it's been around. It's an incredibly important industry to society, to the global society, and we're seeing that even more in the pandemic that we're facing. So helping an industry that is helping extend and improve the quality of life, that is helping solve disease categories, orphan diseases that have yet to be solved, it's humbling for the team here at Veeva, Bhavan. And where we play a role in terms of helping them be more effective in what they do so that they can get better patient outcomes, helping them be faster to market, helping them be more compliant in, and as you know, a very dynamically changing regulatory environment, it is in the heart of the vision of Veeva being industry cloud for this very, very important industry of life sciences. So humbled and excited with what we've been able to do to make an impact with our Commercial Cloud products, but certainly with our Vault products over time.

Let's touch on the data piece that's associated with Vault because we did talk about data with commercial, but there is this data piece as with Vault. Your first Vault was something called eTMF, electronic trial master file, which is kind of all the data that comes from all clinical trial studies to simplify. The other flip side of that is something called EDC, or you're capturing the data from the clinical trial at the very granular level, what the doctor is putting in. This patient came in, and this is the trial, et cetera, or the patient doing the data themselves. And then you're about to launch a product, I think it comes live in December, around patient data as well. And you think about this and there's this potential idea that you become the source of all of the data in that process, not just the eTMF, maybe not just what's submitted to a regulatory organization, but that entire stream. Is that something that you guys are sort of thinking that that's kind of the longer-term vision, that's how Veeva plays out? As you've said, you want to be the kind of provider there. Or am I stretching? Because this was, again, suggested by that CIO at the CRO, that in 3 to 5 years, if they have all this data, that becomes a huge moat as we think about it. Or it almost becomes a moat that the competitor -- that is the sole provider of data has today that stops other people sort of playing there.

Yes. I think it's a very interesting point, Bhavan. And I would say, given what you've heard us announce, you are likely stretching a little bit, but I don't think by a lot. And now as you know, and you've heard Peter talk, and you've heard Rick and I talk over time, even if there's an opportunity that exists, we need to make sure that, from a customer success perspective, it's the right opportunity to go after. And so this is an area where we want to be very, very thoughtful about how these things all come together. To your point, being the aggregator, the creator at some level, the deliverer of data that crosses these major business process areas, then that's an incredibly important role and one that we do not take lightly at all. So I think what we're focused on right now are the things you've heard us talk about. How do we build with innovation, with speed, with delivery and customer success in mind, a very credible alternative to sales data and prescription data to really help the commercial teams within this industry be even more effective in terms of how they're promoting and detailing their products. How do we do that? At the same time, how do we create digital transformation opportunities for the commercial side of the business to be very adaptable and very effective across a multitude of channels? And again, we're seeing that ability be more acute today than in the history of the life sciences industry, to be quite honest. At the same time, how do we bring innovation, like really true, deep innovation, to likely the largest and most important business process within this industry, which is clinical trials and clinical data management? That's another area where innovation has not been delivered to this market. If you look at the way that clinical trials are run today, if you look at the lack of network effect across the constituency, if you look at the lack of agility and digital approach to clinical trials, Bhavan, you would -- you know this better than I probably, you would feel like we're in the 1990s or early 2000s. There's a massive opportunity. And as new drugs, specialty pharma, as these types of opportunities are coming through the R&D shops of life sciences, if we can participate and we can make them better, faster, we create a better outcome for society at large. So as you could tell, the excitement is palpable in terms of the opportunities in front of us, Bhavan, but we will be very thoughtful in terms of how we approach that opportunity, potentially take advantage of that opportunity. And it starts with do the right thing, which is our #1 value as a company; and customer success, which is our #2 value. And those we hold very close to the decision-making process.

Yes. The Veeva Way, as I've learned.

The Veeva Way, yes. Yes.

So let's wrap it up with actually a numbers question, given you are the CFO. You've talked about this $3 billion run rate target. Just let's talk through -- we've talked a lot about different businesses, but how do these all roll into that target? And how do you view investments continuing to deliver that target while still, when you exit that run rate, there's growth driven by innovation, new products, maybe complemented by sales as we get through it?

Yes. It's a good question, Bhavan. I'm glad you asked it. I was going to pass it to Rick. But since you said, you're the CFO, I'm assuming you want me to answer this question, which I'm happy to. The one thing that I'd put a little texture, and I know you picked this up, Bhavan, and those that have been following Veeva for a while likely did as well. Peter made a specific point in his prepared remarks in the Q1 call. In the face of adversity, in the face of this pandemic, Peter was very clear. He's more confident on May 28 of 2020 than he was 90 days prior -- before this pandemic was really what we see it is today, Bhavan. He was more confident about our ability to hit that $3 billion target. And I think that is really -- that adds important texture, I would say. And the reason why is because -- and you're mentioning of a CIO from the CRO, sorry for all the acronyms. The CIO from the CRO said it. The speed of innovation, the rapid need for agility around digital transformation and the depth of relationship and partnership that we built with this industry has created a dynamic, Bhavan, where the conversations in the last 90 days with C-level folks, with decision makers at pharma have changed in enough of a way for Peter to make that statement, which is amazing. Now I just said a bunch of things with no numbers, and you said you wanted a numbers answer. So from a $3 billion perspective, in terms of revenue in calendar '25, we've talked about $2 billion of that coming from our Vault area and $1 billion coming from that from our Commercial Cloud area. And the reality is that, as we look at where we are today and how we'll get there, it will be a combination of some of those products that are in sort of the -- what I would call the middle of their journey, like eTMF and QualityDocs and Submissions. These are the de facto leaders, but there's still room to grow here, and they'll contribute over the coming years to that growth. We talked about multichannel CRM. That still has legs to contribute to that. And if we get through this, Nitro and Andi could be a small contributor as well. I think, over that 5-year horizon, Bhavan, the bigger contributor will be some of the newer, large-market products like CDMS, clinical data management; like safety; like CTMS; like QMS; and in part, a little bit on the outside of life sciences side. But I think those become -- they get into their material revenue contributor phase in that time period. And then the seeds we're planting, bigger outside of life sciences, potentially; Nitro, potentially; CDMS is a long play; and certainly, Data Cloud, are some of use cases, if you will, or examples of seeds we're planting because it's not $3 billion. That's not our destination. As you know very well, Bhavan, it's $3 billion with potential for future continued growth. So the opportunity is amazing. I've been incredibly fortunate to be connected to a company like Veeva, where execution has been as consistent and as high quality as I've ever seen in my career. And I think we've built an opportunity, Bhavan, to continue to make an impact. And that's really what Veeva is all about.

Yes. No, I firmly believe you have. I know we're out of time. I do want to thank you both. Thank you for your support. I wish you all the best. As you and I will always be in touch, but in this public forum, wish you all the best. And thank you for the time today. Appreciate it.

Thanks, Bhavan, for your partnership as well.

Appreciate it, Bhavan. Thank you.