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

Hi, everyone, and welcome to the JPMorgan Healthcare Conference. My name is Anne Samuel, and I'm the health care technology and distribution analyst here at JPMorgan. We're really excited to have Veeva here with us this afternoon. CEO and Founder, Peter Gassner, is going to be presenting. He founded the company in 2007. And less than 2 decades later, they'll be approaching $3 billion in revenue, so have done a really nice job growing the company. We'll have them do a presentation, and we'll do Q&A after that. If you have a question, please raise your hand, we'll send the mic around. So with that, let me turn it over to Peter.

Thank you. All right. Welcome, everyone. Hopefully, you're staying dry and it's not the best weather, but I hope this presentation is better than the weather. This is our safe harbor information. It's also in your -- it's on our website. You can read it. The basics about Veeva. So this presentation will be pretty straightforward, right? Not a lot of sort of marketing stuff, pretty straightforward, 20 minutes, and then we'll have questions. So yes, founded in 2007, we have about 6,000 people. So I remember when we had 2 people, it seems like a lot, but still, we're a medium-sized company, I guess, 6,000 people. About 1,000 customers. Revenue run rate is over $2 billion last year -- or last quarter-on-quarter growth was 16% and about 40% non-GAAP operating margin. So we're a company that is growing and profitable. And we're a employee base company, 6,000 people, a lot of coordination between there, right? What you'll hear today is about how we're really partnering with the life sciences industry. This is the life sciences industry conference, JPM. We're helping a lot of these companies do what they do through providing them technology. You'll hear about our operating model, how it's pretty durable. I do -- we're not like some kind of a social media company. We're a pretty durable operating model. And we focus on execution. That's a hallmark of Veeva. We say execution matters most. You'll hear about that. And we have a long runway of growth. Sort of like a pharmaceutical company has a pipeline, we have a pipeline of products in different stages. That's what you hear about. This is our vision and value slide. It is very operational inside Veeva, I present this, oh, gosh, maybe 20 times a quarter through different venues, every Board meeting, leadership meeting, significant company meeting, et cetera. So this is how we operate the company. Building the industry cloud for life sciences. What we mean is software data, high-value consulting to help the industry get more efficient and effective. We want to be essential to each company in the industry and appreciated by each company in the industry. That's a super high bar because when you become essential, truly essential, you tend to not be appreciated because there's some resentment towards that. And you also get -- you get arrogant and lackadaisical when you're essential. But that's our bar. We want to be essential to the industry and appreciated by the industry. Our values are how we make decisions, stack ranked order. Number one is do the right thing. That's about integrity, honesty and knowing what the right thing is to do and actively doing it. Customer success has 3 parts. It's for the companies in the industry like Pfizer, Novartis, for the people that work in the industry and for the industry overall. We have to help the industry overall get more effective. Employee success more straightforward. That's for our people. It should be a place where they can do their best work, be treated right, have a good work experience for themselves and for their families. And speed is to remind us as we get it done quickly. If we can get it done with quality today, just get it done rather than tomorrow. That's something that can slow down as you become a bigger company. It's very easy when you only have 3 people. You're going very fast. That's why it's our fourth value. We're a public benefit corporation. We were the first company to convert from a regular corporation -- a regular public corporation to a public benefit corporation. I'll explain that significant about Veeva, and I'll explain what that means. So we're a Delaware Public Benefit Corporation. So that's official type of a corporation that has a legal duty to balance the interest of all concerned customers, employees, society and our shareholders. So that's our legal duty. So our Board of Directors doesn't have a pure fiduciary duty only to investors. It has to balance the interest. So that's a fundamental thing. It's more like a family business where you have to balance the interest of that community that you're operating in because otherwise, it doesn't work. Everybody hates your kid at school because you're trying to abuse a community, right? It doesn't work. So that's what we are, we're a public benefit corporation, and we have to have a public benefit purpose, which you can read it there to help make the industries we serve more productive and create high-quality employment opportunities in our communities. For example, one of the items on our public benefit mission right now, one of our objectives is to help in the use of noncompetes in the United States. That's -- we don't get people to sign up for noncompete. So that -- pursuing that goal is not going to help us at all. It's probably going to hurt us. But part of our mission is to do these things. So we are a public benefit corporation. It's something to know. It has a lot of benefits being a public benefit corporation. It helps us attract the talent, I think, to the right type of talent to Veeva. It definitely helps us deepen customer relationships because in the life sciences industry, if -- they can tell their relationship is getting deeper and deeper and deeper with Veeva. If it was for a purely profit motive, it could become abusive. So being a public benefit corporation gives a legal framework that the industry can start to depend on Veeva over the long term, many decades so that we could become essential maybe 1 day to running a clinical trial. That's a pretty important function in society running a clinical trial. And if Veeva was the only way you could do it, that would be weird if there weren't some guard rails there. So this definitely deepens customer relationships. And it's a source of new ideas, which I didn't expect when we converted a couple of years ago. I'm finding that when you have a social purpose as well, different ideas start to come out that may be useful. So I think it's also a source of innovation. So I'm a big fan of this. I'm a big fan of this thing. And it's not theory anymore, it's working for us. It's been 2 years now. Now that's our corporate structure and our mission. But what really matters, we -- part of our one of our operating principles is that execution matters most. You can talk about stuff. It doesn't matter. It's what individual each 6,000 people do every day, how accurate they are, how they fit together. And so our operating model is we're very clear about what markets we want to go into. Market is a set of products into a type of customer that's a market. We want to be clear on what we're doing and most clear also on what we're not doing. And we want to try to execute on that, and hopefully, that ends up being a correct market, but it starts with being clear. We have a real focus on product excellence. So that's -- we know what we mean by product excellence inside the company, and we keep striving for that product excellence because that's the best way to increase customer happiness and sales efficiency if you have an excellent product. So product management inside Veeva is a very special role, and that's their job. And we want -- we don't -- we like to innovate. That's part of product excellence. Customer success that's -- we take that. That's our second value, right, customer success and that leads to strong growth and profitability because we get into this, what we call, a reference selling model. People at this industry, they talk to each other, not only at this conference, but at other times. And so if we do well by a customer, that word gets out and it's a virtuous cycle. It's what we call our reference selling model when we went on our IPO roadshow, which was a long time ago, almost 10 years ago, I was 10 years younger. We had to explain this reference selling model. Like what does this mean? What does this mean? And I would explain it. And sometimes people say, yes, yes, I get that. But why don't you add more salespeople? I was like, okay, well, you just proved you didn't get it, right? We have a reference selling model. So we get a product ready and then we get early adopters that are willing to work with us when the product is not all there yet. We use that real-life input to make that customer successful and improve the product, get that early adopter success. And then we have reference selling, then we get customers together. So we don't add a lot of salespeople. We spend as much money in product as we do in sales and marketing. So that's a little unusual. This leads to happier selling, more productive people and your field people, your salespeople, your professional services people feel better because they're representing something high quality. We're deeply a high-quality product company. The reference selling is super key and it sounds very simple, but we actually have a lot of operational procedures around this reference selling. The company was -- the go-to-market part of the company was designed around reference selling, which actually, when you start looking into it, it's a pretty deep and elaborate thing. I would say everybody in the Veeva field team knows the term reference selling and what it means. And then some basics on how it breaks down in terms of our revenue, about 93% of our revenue is pharma and biotech, about 4% right now is Medtech, about 3% is consumer products, consumer packaged goods, cosmetics, things like that. Where we started and our biggest market is pharmaceutical and biotech. Medtech is growing pretty fast. We held off on going into Medtech for a long time because we had a lot of business that we had to focus on in pharma and biotech, but Medtech is really going. And we started out selling cloud software. We've now moved into data a little bit, selling data products and that will continue. And we also, 2 years ago, we started up a consulting arm, which is different than our professional services arm. So this is consulting, not like a McKinsey type of consulting, but something similar to industry-specific work that may be a Deloitte or an Accenture or somebody else like that would do. This is actual consulting, about business process work informed by our applications and our data. So that's a big part of Veeva. It's not just a software company. Geographies, 58% of our revenue is North America; 28% Europe; 14% Asia, LatAm, rest of world. That doesn't align to currencies. The bulk of our contracts are in U.S. dollars, but we service a global industry because the industry is global. It's one of the very interesting things about life science, it's very global, right? If you have a medicine that's going to cure a particular thing, it's going to work in Germany or in the U.S., and that's not the case with a lot of products. Life science is inherently a very global industry. So we're very global because of that, and it keeps things interesting. I do think we're becoming essential to this industry becoming. We're not essential now, but we're becoming. And it's a big industry, pharma and biotech, you folks know that, right? $2 trillion industry. It's growing. Why is that industry growing? It's because the science is evolving. We're able to treat more conditions than we could before. And as economies get more prosperous, people want to spend money on their entertainment and their health. And governments want to spend money on health of their citizens and defense of their citizens. So I think the trends -- when I started Veeva, I thought, well, this is a good industry to serve because the macro trends -- the science is clearly evolving. Like nobody is here is saying, "Oh, we understand exactly how the human body works." Nobody is saying that, right? It's clearly, clearly evolving. And it's clearly a need. Human health is going to be something that humans want. I can go longer on that. But our customers, they make the tools that doctors use. Without these tools, doctors can't take care of patients. So that's basically we feel good about what we're doing, helping these people, helping our customers make better tools for health care. What makes Veeva unique probably is our product footprint. So in life sciences, you take a pharmaceutical or biotech company, they'll have a product development group that's running clinical trials, submitting regulatory submissions, monitoring drug safety, that's their product development group, their product group. They'll also have a very important manufacturing group that's making sure they're manufacturing things with safety and quality, enough supply, not too much supply. So they'll have that manufacturing group. And they'll also have a commercial group that's launching products, sales, medical and marketing. They'll have these 3 groups for sure. Veeva sells products into all 3 of these groups. Those are our major -- our 10 major product areas, and you can see how they're aligned some to product development, 1 to manufacturing, and 5 to commercial. You won't find other technology partners in life sciences that do this. Generally, what you'll find is people that specialize in just one of these lines -- one of these 10 areas. So we started out with CRM in the commercial side, and I tell you it was very -- I was there when we did that when we started to try to sell into clinical and it was hard because people thought, oh, Veeva, that CRM company. Why are you talking this about clinical trials. Now our businesses -- CRM is not the lion's share of our business anymore. We have a big business so we're in clinical, regulatory and safety. So I'm pretty proud of that. We're a real multiproduct company. The only -- we're the only company that sells these things across these areas from 1 company. There's obvious synergies in that because our relationships can go higher, and we can -- we actually care about the integration between these products. We actually care about that because we have many of these products. Nobody else really cares about that integration because if you're a vendor that has just one of these products, you can't put any effort into the integration of these products. So we can help a life sciences company with a better integration between their safety group and their clinical group. And that's actually pretty important, very important for them. We have the economic motive to make that work. If you only have -- I'm only a company that only has a clinical solution, I don't have an economic motive to make this whole thing work together and economic -- I don't need to tell you folks that economic motives matter, right? It's how you keep score. So I think we have a really good -- I think we have a good plan we set out to do something that nobody else tried to do yet, and we're executing on it. We're early. There could be a lot of stumbles along the way, but I feel like we know what we're doing, and now we just got to do it, which leads into my next slide. The same 10 product -- big product areas, are listed here in what we call our product quadrant, which shows the maturity and the market share of the product. You'll notice our CRM is up and to the right. That's our longest-standing, most established product that is quite mature and has a high market share because it's our longest standing and we've executed well. You notice we have a lot of products that have a long way to go in terms of maturity and market share. So we have a pipeline. This is where this -- our product pipeline is strong. And not all of these products are the same size in terms of market potential. But they're relatively similar. All these are -- none of these things are $100 million markets, right? They're all above that. They're all significant markets. So I feel like we got a lot of good work to do, a lot of hard work to do reference selling. So if you look at the one on the very bottom left, Compass, new product. We've just -- it's a data product. We just introduced it. We've got some early customers. We don't have the full product suite yet. It's going to take us a long time to get those early adopters live to get them really successful to challenge the incumbent to replace the incumbent. I want to get it up to the top right, but these are very important products. It's going to take 10 years to get up to the top right. But that's an advantage because it's pretty hard to get it up to the top right. It takes 10 years of effort. Not a lot of companies want to put in 10 years of effort. And then when it gets up there, it's very, very sticky. So that's kind of what we do, move these products up into the right and always create new products. So that's what we do. When they're up and to the right there, they really help the industry standardize. If you look at our -- the second one, there our commercial content system, which is the way life sciences companies review and approve material, what they call medical legal regulatory review. We have an agency program. We train about 500 creative agencies how to use our software. It's the industry standard. That makes the whole industry more efficient and effective. That's super good. It's also -- that's a highly profitable product for Veeva. So I always think if we can make a product and get a good product margin but only capture half of the value so that the industry gets the other half of the value, that's a win-win, right? That's an authentic win-win. And it's all about efficiency, having an excellent product that everybody uses and knows how to use that's where the efficiency comes. We can take some of that efficiency as the inventor. The industry takes some of that efficiency as well. It's not a -- it's a win-win if it's done right. So that's what we want to do, move them up to the right. It's been working like this -- this is the scorecard of growth and profit over the years. We were profitable, I think, from about year 2 or 3 of the company. We only -- we raised $7 million, and we only used $3 million of it. So we always had this just want to run a profitable business, right? Because it feels a little weird if you're not profitable. Somehow the customers are not valuing what you're making. It's not working well. So we always run consistently 35% or more profit. We like to do what we say we're going to do. In 2015, we announced the goal of $1 billion. In 2015, we said we'd get to $1 billion revenue. We said our goal is to get to $1 billion revenue in 2020. And we reached that a year early. So we reached that in 2019. In 2019 then, we set a new 5-year goal of $3 billion revenue and we're about 1 year ahead of that plan. And we're looking forward to 2030, right? Hopefully, if we can meet our 2025 goal, we'll make a 2030 goal. So it's -- we have some goals that we set out. Whether the we're going to meet them or not, that you don't know when you set out that goal 5 years ahead of time because a lot of things can happen. But setting out a financial goal, I thought was pretty important. You just see the financial goals here. There was also -- for the employees, there's a couple of other things in there that their goals. So for example, in that $3 billion, yes, it was $3 billion, but it was also room to grow. That was the second one. And the third one was still Veeva, which was retaining our ability to change because that can break down. If you don't watch it, you can lose your ability to change, right? So -- but this is the financial audience, right, but -- so that's the $3 billion, but there was 3 equally important things on there. $3 billion, which, to us, meant about 10,000 people. We're going to have room to grow, and we want to still Veeva. So we -- I like to have milestone goals because otherwise tomorrow never gets here. We got next year's goal. Well, next year never gets here. It's always next year. So I'd like to have a milestone goal. Annual goals for sure, but then a milestone goal. You work towards, if you achieve it, pick a new one. I think it makes things more predictable also for the financial community. When we grow, we want to grow in the right way, I put a lot of focus on this. It's the team. You have to attract talent the right way, set some big goals. You got to keep our speed. We keep a lot of autonomy. We have one of our operating principles that says autonomy over alignment, which means we really get paid for innovation, creativity that requires autonomy and sometimes alignment or efficiency is going to suffer before that -- because of that. So we're conscious of that. We make that trade-off. We go for autonomy first. And then if we can see a way we can align stuff between our different groups, okay, we do it. So for example, we don't have a centralized engineering team or a centralized product management team. We have different groups. And inside of Veeva, there are some groups that are start-ups that run completely autonomous. And that's part of -- creates our energy. And we want to innovate not only in our technology but in our operating model. We've innovated significantly in our operating model, the way our field teams run, the way our incentive compensation work, the way our human resources practices work. I like that. I'm pretty operational CEO, and I think that flows down into Veeva. So we've actually innovated a lot in our operating model, and you could see it there right in becoming a public benefit corporation, right? That has nothing to do with innovation in software design or something like that. So we actually -- there's a method behind our madness of what we do, that's designed to make multiple products selling into an industry. And we have methods in operating procedures behind that. And I think we also get innovation through new people and ideas, a healthy mix of promoting from within and bringing leaders in from outside. For example, a couple of years ago, we brought in a person to run our customer team for the U.S. market for Commercial. This is a pretty important team. And we brought in a person from McKinsey, a seasoned leader from McKinsey, not a person from tech. And that person kind of changed our DNA, kind of injected a little thing here and there. And we like to do that. We like to have a variety of people because it's not that complicated. People bring their ideas. And if they're open minded, they share their ideas and absorb ideas. So I think that's important to remain vibrant. We do have multiple drivers of growth. As we mentioned in the product quadrant, we're quite early with those products we have. And we do have plenty of other ideas. There's no shortage of ideas. You just can't do too many things all at once. Otherwise, you'll fall over and customer success will suffer. So I really think we're very early in what we can do. We have a good innovation engine, and we have a pretty proven operating model. There's no question that Veeva can operate and execute well on multiple products. And I always tell people that building a product company is hard. 90% of the time, it fails, right? You never have an economic model that works with your first product or you get beat by a competitor or whatever. You just go out of business, it's fine. Out of those, 90% of them cannot transition to a true multiproduct company because that's really hard. You have to sort of tear apart what are your company processes versus your product processes. In Veeva, we went through that from about 2010 when we started making our first product line to probably about 2014. That was 4 years of hardness around that. But now that's just who we are. We're -- I don't want to compare us to Microsoft or something huge and successful like that. But Microsoft is a good example, that's a multiproduct company, and they know how to do that thing. In our own way, we know how to do that. A product that's used in the manufacturing environment is very different than the product that's used in the clinical trial environment, the type of people you talk to, with the value profits that are very, very different, we can execute in all of these different areas. And we have a multiproduct operating model that will suit us. So back to where I started. I think you could see we're a strategic partner to the industry. We do want to make it more efficient and effective. We want to share that value, some with Veeva, some with the industry, a very durable operating model because these are very sticky system of records. These are not things that get implemented easily or get -- you don't -- it's like a heart surgery, you don't get an optional heart surgery, right? you got to have to have something really wrong to get it. So these are very sticky products. We execute well and we got growth ahead. And with that, how do I do on time?

We have about 12 minutes of Q&A.

I ran over.

Yes. It was great presentation. Thank you so much. We have a pack house you guys really know how to drive crowd.

I'll start with a couple of questions. If you do have a question, raise your hand, we'll get a mic to you. But I want to start with year ahead of plan. You've said to reach your $3 billion target. That's a really big milestone. Can you talk about what areas of the business have surpassed your expectations? And what's really driving that outperformance?

So I think when the when the goal was made, you've got to assume a lot of bad things are going to happen because we have these multiple product areas. You've got to -- I mean you got to assume there's going to be some major, major missteps. And I think the main thing is we didn't have any major missteps, which is not always going to happen, right? But that happened. Clinical area did well. The quality area did better than we expected. The commercial content area did better than expected. But I think the main thing is nothing train wrecked out of all those because you have to take risk when you're making new products, right? Without risk, there's no reward. So I thought we were taking an appropriate risk and that we would have some failures or just incorrectness and we really didn't. So nothing -- there was no blooper that came in, like, oh, this area was 3x more. It wasn't like that. It was just -- there were no failures.

And what I've said is broad-based strength, it seems complementary to what Peter said, it's boring, but it's true with the diversified broad portfolio of products, we've executed well broadly, and that's helped us track about a year ahead.

And there's a lot of moving pieces in the industry right now. Maybe we could start with industry tailwinds. What are some of the things that are really kind of industry-wide that are driving adoption of your product?

So tailwinds would be, it's basically our customer success because these are critical systems. Every pharmaceutical company has to have a drug safety system. Why? That's regulated. You can't just do that, give medicine to people and not track what's going on. So they have to have it. We have success in our products. So that's our -- that's by far our biggest tailwind. I would say the industry itself is growing because of science. So when the industry grow -- if we have customer success, when the industry grows, we'll have a tailwind. Headwinds are, of course, funding. The funding environment has been tough, right, for -- mostly for smaller biotechs. So that's put some crimp on some company's expansion plans. So if they can't expand, they would buy less from us. If they go out of business, they would -- and they're not buying very much from us when that happens. So those are probably the headwinds and the tailwinds. I would say also a tailwind for us is we haven't had a type of thing that's been majorly disruptive to the industry, that has brought their focus on to something that is just not related to what we do. We had a little bit of that when COVID started 3 years ago that caused some tailwinds for us in certain areas, but it caused some headwinds in certain other areas. It just caused disruption like, "Oh, focus is not on that, focuses on this." I think right now, the industry is in a little more stable. There's no crisis of the day.

Just touching on the headwinds that you mentioned just because I think it's something that's on everyone's mind. Can you explain to us why some of these macro pressures you're seeing are impacting you more on the commercial side as opposed to the R&D side?

Why more on the commercial side, I think it's just a bit. We have a big business on the commercial side, and it's an easy way for people to adjust. Their field team might be smaller, they might not launch a product. So there that has to do with our mainly with our CRM and then related add-on products there. So that's probably why. It has a more immediate cycle on the commercial side. On the R&D side, you'll see longer sine waves because they have to plan way ahead.

And then maybe just to add a bit there. So it's more user base, as Peter said, on the commercial side. And also on our Crossix business, we saw a little bit more macro on the marketing and analytics side on the programmatic portion of our business. So those were a little bit -- a couple of the areas on the commercial side where we saw more of an impact.

Yes. So we have like Crossix that would depend on the amount of advertising spend. When people cut back on their advertising spend, some of that flows through to less revenue for Veeva.