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

Okay. Great. Hi, everyone. Thank you for joining Day 3 of the Baird Conference. We all very much appreciate your attendance. I'm Joe Vruwink from the vertical software team. Next, we have Veeva. Veeva is the cloud software company for life sciences and helping and a lot of what needs to happen if you think about commercial and drug development operations. With us from the company today is Paul Shawah. He is EVP of Strategy; and in the audience, we have Gunnar Hansen, Director of Investor Relations. This is going to be a fireside chat format. so I'll ask for a brief intro from Paul shortly. If anyone in the audience has questions, you can e-mail session at R.W. Baird, and I'll moderate those off the iPad. But why don't we just get started and hear about Veeva. So thanks, Paul.

Yes. Joe, thanks for having us. It's great to be here. Thanks, everyone, for joining today. I'll let you kick it off in any direction that you want to go.

Okay. Just for those that maybe are less familiar with Veeva a bit of a back story and what do you think the key thing to know about Veeva? I think you have an interesting culture. Do you have a mission-driven company. Just kind of a high level on Veeva.

Yes, sure. So Veeva, we're about 16 years old as a company founded in 2007. Our vision is to build the industry cloud for life sciences. So think of us as an industry cloud company. We focus primarily on the life sciences industry. It's where the vast majority of our revenue is. When we talk about industry cloud, we mean building software and data and services specifically for the industry, trying to become a strategic partner to the industry. We often talk about becoming essential to 1 industry but also appreciated, both of which are relatively hard to do, but we are -- have been fortunate to be well down that path. We have 2 primary parts of our business. We have a commercial side. We structure much like a life sciences company, a commercial business and an R&D business, and they're generally run and operated separately. We have a common set of values. But other than that, we operate those businesses separately. We have -- it's about 50-50 between commercial and R&D more or less. And we've become a multiproduct company. So across R&D and commercial, you can think of us as having 10 major product areas, 5 in commercial, 5 in R&D. It's just how it worked out. It wasn't what we were targeting, and about 30 major products. So we're a multiproduct company selling into the commercial and the R&D side of a life sciences company, a portfolio of software data and consulting and service products. Our unique value proposition is that we try to get our products to be the very best. We talk about that as product excellence. And then we try to connect our products our customers don't have to. We do it once for the industry and our customers get the benefit of all of our products working seamlessly together. That creates a whole lot of efficiency. You talked a little bit about -- mentioned our culture and how we operate differently. We are a public benefit corporation. We made that change about 2 years ago. It's somewhat unique. We're the first company public company to make the transition to a public benefit company. And what that means is we now are a multi-stakeholder company. So we think about the financial community for sure, financial stakeholders, but also our customers, the industries that we serve, our employees we're obligated to think about -- we've always kind of operated that way, but we're obligated to think about them as key stakeholders of our business.

Selling software department companies is hard and selling a lot of software to pharma companies is harder. And now you're starting to see Veeva become really just the software standard going all in on Veeva. I guess from a blocking and tackling standpoint, what does Veeva need to be mindful of in order to sell at a global account level to a top 20 pharma company?

Yes. So I mentioned briefly the idea of product excellence. So we have to have the very best products in the market. Ultimately, you can't sell to a buyer if you don't have the very best products. So individually, we have to overinvest to become the leading applications. We build our technology on leading and modern cloud platforms. We use technology to generate data sets, we use technology and data to drive our business consulting. So we have to be the best. That's kind of table stakes. So that's, first and foremost. Second, I would say, is the idea of making our products work together, and we do that. We're somewhat unique and that we've created a platform called Vault, and Vault is a platform that works across many of our products, most of our products, I would say, which allows us to integrate and connect those products more seamlessly together. So our customers invest in 1 platform, and they get many, many products that work together. So product excellence, but also products working together. And then to your point, selling many products to the same company, you have to be trusted. So this idea of a strategic partner, we take very seriously. It's ingrained in how we think and how we operate and how we treat our customers. We don't operate for the short term. We try to think and drive long-term thinking throughout the company, everybody from the CEO down to all of the salespeople that touch our customers, they're account partners, we have to think with our customers' best interest in mind because you could sell that first product, but selling the second and the third only works if you are that trusted partner. So it's on us to make sure that we do that. And it's an industry where people move and they move and they talk and they all know each other. So we have to treat every customer like they're the primary and only customer that we have because it's a relatively focused and high reference selling industry.

The relationship you announced with Merck last fall is maybe an explicit example of this. And maybe it's worth touching on what that actually means. But when a customer does go all in, so when a drug gets to clinical, later-stage clinical and all of the interactions that happen across all of those teams can all be happening within Vault. What sort of business outcome does that accelerate? And are there examples in markets where companies are thinking and operating this way, and so they can tell others in the industry, this is actually helping us now.

Yes. So for those that may not be aware, we have created what was called a long-term strategic partnership with Merck. We announced it publicly probably about 6 months ago. And this was not something that both companies just started working together and said, "Hey, let's create a partnership." This was something that was created after we had many years of working together already. A long -- a very long history of engagement and trust and consistency and reliability and working well together. So the partnership took our relationship to the next level. So we had probably worked together for 8 or 10 years already, and this was formalizing and trying to get to the next level. And it was about codifying the relationship, trying to streamline how we work together. So for as 1 example, the buying process. So Merck is taking a Veeva-first approach. If we have an application that's fit for purpose, they're going to skip a lot of the upfront process that they go through to do an evaluation to get faster. And the benefit to them is that they skip a whole lot of time, and they can focus that effort on innovation, on collaboration, on thinking about how we work together rather than going through a process where they were likely going to pick Veeva anyways. So this is an opportunity to dramatically streamline how we work together. We're starting to see some of those benefits. You talked about in the clinical space, like what does this mean? What could this mean to have a portfolio of applications kind of all working together. Clinical is a good example where we have a number of products that are all becoming the very best at what they do, a trial master file, an electronic data capture system, a trial management system. And then we have -- which are applications for the sponsor, the life sciences company. But then we're building software for the clinical research sites. We're building software for the patients, and we're connecting the patients to the research sites to the sponsors and also to the CROs, the contract research organizations who work on behalf of those companies. So this is now something very, very different than, hey, we're going to create an application that makes the life sciences company more efficient. We're creating a network that connects all of these really important stakeholders. And when you do that on a common platform and create this level of connectivity you can start to see really significant benefits. So we talk about 1 of our goals as being 25% reduction in cost to run clinical trials and 25% reduction in time to run clinical trials. It's a really bold vision, but we believe when we start connecting [Audio Gap] again efficiencies when you do either -- when you do maybe 1 of those areas, 1 or 2 or more, but when you really connect that ecosystem, you have a lot of efficiencies. And we're in the early stages of early innings. We're well positioned because we're the only company that's really connecting a full ecosystem [Audio Gap] has talked about, and our vision is to connect all the pieces.

Maybe just on that last point of still being early innings, and it is true when we attend industry events, and we ask the industry who they view as a disruptor I always go in thinking there's going to be a series a company that I've never heard of that everyone's going to bring up, but people say Veeva. So in the industry. I think people view you as kind of the upstart even though, obviously, you're a larger company at this point. One dynamic of being in the early innings is you have products around clinical data management and safety, which are just gaining the referenceability and you're starting to see the awareness and CDMS is 1 where you have traction. I mean last year was kind of a historic year. What is it about those 2 categories that's a bit harder to crack? And kind of can you I guess, can help conceptualize what those opportunities mean in the broader scheme of what you're trying to do in R&D?

Yes. So the way I would think about it is I mentioned we have 10 major product areas. We have 30 major products. We introduced all of those products to the market through very much the same, what we call early adopter process. We start with a very small number of companies. We're very disciplined in the first, let's say, 3, 4, maybe even 5 years of that product being introduced to the market where we don't want to oversell. We want to focus on a small number of companies and maturing the product and getting it right. And that deliberate process allows us to go fast and allows us to get to product excellence so we can gain market leadership in the market. So we see that process play out. We've seen it play out with a number of products that are more mature that have been part of the Veeva product portfolio for many years, 8, 10, 12 or even 15 years, and we've seen that kind of rinse and repeat. The examples of CDMS is relatively speaking, newer than many of our products. Safety is even newer than that. So what you're starting to see is CDMS has gone from that early adopter product to now it's hitting the steep growth curve. We're now up to 6 of the top 20 large pharmaceutical companies who have committed to that product and who will run all of their clinical trials over time on Veeva technology. So this is a massive commitment that we're seeing from a significant part of the industry. We expect to become the market leader there. We're seeing the same trend happened in safety. We had 0, then we had 1, and we got that first customer live to 1 top 20 and now we have 2 top 20s, our second top 20 committed on safety. So I would say it's the same pattern, time shifted a couple of years behind where CDMS is. In terms of the strategic importance to the portfolio, first of all, CDMS is 1 of the largest single opportunities in the portfolio, and it's kind of the bedrock of the clinical suite of applications. It is the application that allows you to capture all of the data for the clinical trial around patients and help speed. If you can do that really efficiently, you can shave time off a clinical trial. And we all know that days or can be millions or tens of millions of dollars to the life sciences company. Safety is a mission-critical application. You have to get it right. It's 1 of those things that there is no option. It's -- you're dealing with patients and safety and lives of individuals, you have to get that right. So it's -- these are mission-critical apps and they're following -- we're investing to become the leader in each of those areas, and we're seeing that pattern play out.

So moving from an emerging opportunity, let's go back to the heritage of the company, CRM and big announcement last December that's in front of the Salesforce Veeva partnership, for expiry in September 2025. You decided to take TRM and use Vault now as the underlying platform. Biggest question I get is why are we getting this announcement now? And then what's the thinking -- Veeva with market share dominance in CRM, but Salesforce has always been a piece of it, why open yourself up to now Salesforce as a competitor?

Yes. So you're right. We did make that decision to re-platform our -- and this is specifically our CRM application, the primary product area that's built on -- that's not built on Veeva technology is -- [ sale ] is our CRM products, both on the Force.com platform. It's where we started the company. It was the very best option. We -- it wasn't an option at that time to use Vault because it didn't exist. Vault didn't exist until a handful of years into the company. So we made that decision. It was a great decision to collaborate and partner with Salesforce. They've been a great partner. Historically, things have worked really well. We've been together able to become the market share leader. We have over 80% share of the global market of CRM. So it's clearly worked well, which raises the question, okay, why did we do this and why now? Why now is the Vault platform has matured. The Vault platform is now over 10 years old, and it has built -- we have built over 25 applications on the Vault platform, many of which are content-centric applications and many of which are data-centric applications. It's a unique platform. It's built specifically for life sciences and it's matured to the point where it can handle a CRM system. So number 1 is the platform is ready, and it's working, and it's right for the industry. But that wasn't the only decision. The separate -- the second thing that kind of said like, really, why now is our contract expiration was coming up, and we had to think about do we want to commit longer term, let's say, extend the agreement, 5 or 10 or potentially more years into the future. And doing that would put similar contractual or technology restrictions on top of how we operate, and we wanted to fully control customer success. We wanted to fully control our ability to innovate, to build products that we want to choose to do what's right for the industry. Customer success, we wanted 100% accountability for. And today, in that area, we have partial accountability for. Now it's worked historically but projecting that out over 10 or 10-plus years was something that we thought would be better to have control over. So it allows us to do innovation. We just had our big commercial customer event. We had nearly 2,000 people together in Boston, our [indiscernible] bringing the industry together about 1,500 customers. And we announced new innovations, some of which we would not have been able to do, had we stayed on the Salesforce platform. So just 1 example of it's just giving us new flexibility to serve our customers in different ways.

On the pace of innovation quickening, there were some interesting things introduced with the Vault CRM. Maybe we can talk a little bit about it because it's going to allow me to talk about AI. So there was an AI product introduced also a service product. So I guess, embedded with this is new things that maybe in the past you weren't able to do because there was an alternative from Salesforce. Does the -- should we see Veeva in marketing at some point in time? Is there going to be a service cloud? How do you think about kind of the product road map?

Yes. So we did announce 2 major products in the CRM space. The first is service center. And it's really for a new kind of engagement model in the life sciences industry. We're trying to drive this idea of the health care professionals, the doctors reaching out to the pharma industry. So what's very common is the pharma industry decides who they want to call on, and they have outreach to the pharma -- to the doctors, we're going to enable the doctors to reach into the pharma company. That's possible today, we're going to make that easier. We think it's going to be a model that's going to scale more. So we've created service center, which will enable that, particularly for inside sales teams, but also hybrid reps, reps who traditionally, we're more outbound calling on people, but now may get inbound calls from customers. We're going to build it all into 1 application, 1 experience. Some days, they're selling. Some days, they're managing inbound conversations. They should all be tied together. So that's why we did that one. And then we also announced a CRM Bot, and CRM Bot is our entry into generative AI. Our strategy for generative AI is really kind of threefold. One is we're going to build some applications, CRM Bot is the first example of that. Two is we want to make our data more accessible to AI applications. So we're taking a very open approach. We think it will make our data more even more valuable and as it becomes more accessible. And then 3 is we want to enable our customers. We know that no single company, Veeva or anybody else will build all of the AI that any customer needs. So we want to enable customers to build their own applications and take advantage of our process-based applications and our data sets. So that's the strategy. We're starting with 1 application, that's CRM Bot. And we're going to -- our focus is to try to, in a sense, get AI right for life sciences. It's a highly regulated industry. There's questions about privacy. There's questions about intellectual property rights. We're going to focus and make sure we get it right for the industry. Now your question about does this open us up to do more things in the Salesforce portfolio? We don't have plans to do anything like Marketing Cloud. What Salesforce has, there's a couple of vendors in the industry that serve our customers. It's about 50-50 in the market and it works. So we're not doing something to compete with them. We're doing something to do what's right for the industry. And the service center thing in very specific places, we'll run up against Salesforce, other companies. The strategy is not competing with Salesforce. The strategy is do what's right for our customers and do what's right for the industry and customer success.

At this -- so I always hear, [ why ] this is really ambitious what Veeva is doing in CRM at the big debut of Vault CRM at the Summit a few weeks ago. Peter, the CEO is on stage, and he says Compass is the most ambitious thing in an event where he's debuting Vault CRM, but then separate from that, but the most ambitious thing we're working on is Compass. So what is Compass? And what is the importance about that product?

Yes. So the industry relies on third-party data for much of their -- many of their commercial processes, even their R&D processes. They buy data from third-party vendors. There are has -- historically, there's a lot of data vendors. It's a fragmented space, but there's also a couple of dominant vendors. IQVIA, as an example, is 1 dominant vendor who had a monopoly in the data space for a very long time. So the industry has generally been stuck with 1 vendor who's been around for a long time. Hasn't really innovated in the way that they deliver data and has also, in many respects, taken advantage of that monopoly position. Nobody has really been able to kind of break that monopoly. So those data sets are very -- can be very important. Compass is an alternative. It's a better data set for things like patient data. So patient data, longitudinal patient data is what is the happening around a patient. What are they diagnosed with, what are the procedures, the medical procedures that are happening, what prescriptions happen around that patient, whether it's something that may be infused in an office or in a hospital setting, or something that's picked up at a retail pharmacy or a specialty pharmacy. That data helps customers do things like find patients where they may be, identify the doctors who may be treating those patients, so they know how to reach those doctors, where do they spend their precious selling resources, which doctors should they be calling on, that's called segmentation and targeting. And then it's also used for things like incentive compensation, is the Salesforce having an impact in moving share in their specific territory. So there's some really mission-critical functions that they use that data for and we're creating a better data set by using technology to source our data. So the traditional view was to buy lots of data from different companies and stitch it all together. And our view, our perspective is to use technology that sits at the sources. It connects those data that -- all those data sets together before it's been be identified and then brings it together, and we're able to make that available to the life sciences company with speed. Daily data. So because we use technology, we can deliver data faster to life sciences companies. Because we use technology, we can connect the data set and create a more robust data set. So imagine patient data that you can literally see what happened in an office yesterday. What prescription happened 1 day ago, what diagnosis happened around a patient a day ago so that you can activate your sales team to have them go call on this doctor with this message, just because you saw what happened. Now it's all de-identified. You don't know the specific patients, but this provides a new level of -- a better way of operating for the pharma company. It's a more modern alternative to what they have today. So we're super excited about this. We have patient we'll also have -- we announced prescriber data and national data. And together, those 3 data sets allow us to be a full replacement for some of the alternatives that I had just talked about. That's a big deal for the company. That has never really -- it's a big deal for Veeva, but it's also important for our customers. That single alternative, single vendor alternative has never really existed. And with our complete set of products, it will. And those data sets obviously, will be tightly embedded with our software applications. So to make it very easy for customers to use software and data from a single vendor. So we're excited about the potential here.

A question from the audience. As you mentioned earlier, the promise of -- this is an R&D question, the promise of bringing everyone together on Vault is you do intend to accelerate clinical trial time lines. A question was -- and I'll phrase it slightly differently, you're seeing technology like wearables, decentralized trials, there's more data being generated, but it would seem like insights are already accelerating. There should be an opportunity to accelerate. I would contend that the question is I think there's a promise, but it's really not being executed upon. So there's a lot more data feeding into a clinical trial, but then we're not using the data. How does Veeva fix this? I mean you have a network product, you're trying to connect the stakeholders. How do you kind of view -- maybe we can talk about the clinical database you have, but when we think about EDCs, which have been around for a long time and there used to be a big public company that was just EDCs. Do we need something better than EDCs for the way the industry is moving?

Yes. This is an example of the shift that's happening in the industry from where the primary set of data used to be from the electronic data capture. Literally, the patient going into a research site the researcher measuring something about the patient and entering it into a system, and that was the vast majority of data to run a trial. That has changed, as you know, with everything you just described, that patient being more distributed, not having to go into the office, doing wearables, maybe doing self-reported data about -- that they don't even have to go into the clinical research Stage IV and doing that in a very distributed, decentralized way. But also their lab work and imaging and all of the other things that happen around that patient are critical to the clinical trial. And Veeva is taking a different approach. Instead of just doing the EDC, which is 1 -- it's an important part of the data, but it's not everything. We are connecting, we're helping to collect data from these other sources like patient-reported outcomes like data from a wearable, for example, and bring all that data together and mash it together to make it easier to analyze because the results of the trial are based on the full view of all of the data that you need. And today, that's very, very hard to do, especially if all you do is electronic data capture. So you mentioned CDB, the clinical database, it's bring -- the clinical database solves exactly that problem. So we're going squarely after the complexity of the trial, the consumption and the analysis of all of those data sets, and then using technology to simplify that rather than this being kind of a one-off services-based project, we want it to be solved with the technology.

Maybe last question. Just on forecast you've provided. I know a lot of people were surprised back in March where you not just guided to this upcoming year, you actually put some guideposts and calendar 2024, fiscal 2025. What was the thinking there? And I guess, what provides the confidence to give a 2-year out number?

Yes. So the 1 major change that we had announced that for -- that went into effect the beginning of 2023 was TFC termination for convenience, which we now have made available in all of our master agreements with our customers, which allows us to, in a sense, match the revenue to when we're actually realizing it. So it's a better way for you to have visibility into what's actually happening in the business. So that TFC change went into place, and it's playing out over 2 years. So we wanted to provide better visibility into the underlying business momentum. How is the -- this was about transparency, which is why we went and projected out through the next -- this current but also guided to the next fiscal year as well. So transparency, better visibility into how the business is operating over a 2-year period. And we think longer term, anyways, we do a more detailed growth plan, that's bottom-up, product by product, led by our strategy team in each of these areas, and we build that up from the ground up. So we're confident in that level of visibility because it's literally based on the companies, the universe of companies that we talk to all the time. So it's not unusual for us to have that visibility anyways.

Great. Paul, thank you very much. Please join me in thanking Paul and Veeva.

Thank you, Joe. Appreciate it.