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

Good morning, everyone, and welcome to the last day of the 26th Annual Needham Growth Conference. I'm Ryan MacDonald, and I lead the digital health research efforts here at Needham. This morning, we're saving -- we're called the best for last, a good way to finish out the conference, but it's my pleasure to be joined by the team from Veeva, who've got CFO, Brent Bowman; and Senior Vice President of Commercial Strategy, Paul Shawah. Gentlemen, thanks for joining me today.

Our pleasure. Thank you.

Thanks, Ryan.

Right. So for those who are dialed in, we've got about 40 minutes for this fireside chat. I've got a list of questions, obviously, for Brent and Paul. But if you do have questions for them that you'd like to get asked and answered, feel free to put it into the chat, and then I'll make sure to keep an eye on that as we go through and make sure you get those questions answered. But with that, we'll dive right in. So Brent, Paul, I would be shocked if anyone listening today, we're unfamiliar with Veeva. Let's start with just a brief overview of the business for anyone living under a rock for the last decade.

Thanks, Ryan. I can give you a quick overview. So we talk about Veeva as we're building the industry cloud for life sciences, and we mean software, data and services, high-value services, implementation services, but think things like business consulting. We're now 15 years in as a company, where our aspiration has become a strategic partner to the industry, providing all of those capabilities, software data and services, and we do it across commercial and R&D. And it's generally how life sciences companies are structured. They have the group that develops the medicines through clinical trials processes and they have the side of the -- and that's called R&D and then they have the side that does the commercialization, bringing those medicines to market. And we have products, suites of products in each of those areas. So for example, in R&D, what you'll hear us talk about things like clinical data management, clinical operations, regulatory, quality and safety. And then on the commercial side, you'll hear us talk about some of our product categories across software and data and the software area -- areas like core area like CRM, our commercial content business, our marketing analytics business with Crossix, and then some very data-specific businesses, our Compass, which some of the data that life sciences companies buy to do things like find patients and segment and target their customers. So that's how we're organized. And think about it as 5 main areas in R&D, 5 main areas in commercial. Many, many products in each of them and part of our unique strategy is to deliver really great products that all work together and we're in the early stages of a significant opportunity.

Absolutely. And a lot of great products and opportunities for growth here, and we'll definitely dive into those as we go through the conversation. But just to frame up maybe the conversation for investors. I want to start with maybe some of the recent events and just sort of talk through those a little bit. And I really want to take us back to sort of the third quarter pre-announcement at the Analyst Day. You talked about that you're lowering your guide a bit as a result of sort of life sciences companies, tightening their belts. And so that had a bit of an impact in Q4, but also sort of into '24. Can you just talk sort of refresh investors what you're seeing in terms of the macro headwinds? And when you started to see that?

Yes, happy to dig into that. So yes, you're referring to the Q3 earnings call where we described the macro a little slightly worse, really specifically in our services business. If you think about our services business of what we do, it's the more discretionary piece our subscription software business is really strategic foundational technology. So look, we can talk a bit about that in a second. But specifically, what we said is on our services business, we have 2 pieces of our service business. Implementation and post-implementation services. So on the post-implementation services, that's probably the most discretionary. So think about business consulting other sort of customization work that might be done. We saw that get delayed, deferred or skinny down a bit. So we saw a bit of that. And then on the implementation services, those implementations are still going on. They're still happening, but we saw some customers take a bit of a more economical approach. And what we mean by that is maybe can we co-source, like use of our resources with your resources. So we saw some of that play out, and that had an impact on our guide as we looked at fiscal year '24 and fiscal year '25. And I think most importantly, if you take a step back, we -- the subscription business, we didn't see an incremental headwind or anything like that. What we've seen is kind of a continuation of what we've seen over the last 18 months, 2 years. There are pockets of additional scrutiny because these are large strategic multiyear arrangements. So we're not seeing those deals go away. We're not losing those deals to competition. So we feel really good about kind of our positioning and momentum there.

And maybe just as an additional point of clarification. Obviously, life sciences, biotech, if we're kind of grouping those together. It's obviously been a challenged market for like you said, the last 12, maybe 18 months, and you've seen sort of other companies see impacts earlier. Can you just maybe clarify like why maybe it was later to see those impacts? And do you think it's a continuation of just what we've already seen? Or is there sort of an incremental concern going into calendar year '24 here?

What we -- our view and our position and how we've guided is that the macro doesn't get significantly better and does not significantly worse. And so why do we think that? And it's a couple of -- it's what I just said a few minutes ago in that -- what we sell is foundational. And these are 60-, 90-day sales cycles. When you hear us announce a large clinical win or a quality win or a commercial win, these are typically deals that have been progressed over a year to 2 years. And they're going to cut across any near-term headwinds. So I think what you would -- what we see is, okay, maybe instead of a deal closing in Q3, it closes in Q4. Not -- so that's the type of things we're seeing. So we don't -- we're -- in our view and how we're guiding, we're not assuming any incremental macro headwinds.

Yes, absolutely. And maybe just to get a sense of like more recent sentiment, obviously, one of the largest health care if not the largest health care conference happened last week on the West Coast, with a lot of your customers sort of participating in that. Just would love to get your sense on what you felt like how much was there optimism in the industry still caution? Any updated view over the last few weeks?

Yes. So that was -- yes, I attended the conference last week. This is -- obviously, it's a very important conference for the health care industry. So I think Peter probably summarized it best. So post his presentation, he was asked a question. He said, you were here a year ago. You're here now -- like kind of what's your feeling? What are you getting? So -- and in the paraphrase -- him, you spoke to over 30 leaders of life science companies and his takeaway was cautious optimism relative to the prior year. And I think what he was really getting at is the momentum in drug development and in the science and then that underlying kind of you could feel a little bit more excitement around that. I think that Peter could feel that in all of those business conversations. Now those aren't financial metrics, right, per se, but I think it's good to understand the feeling of the industry and the leadership of large life science companies.

That's great to hear. It's good to hear. Okay. We've made 4 whole questions. I've got to ask about CRM transition now or our audience might riot. So obviously, that's a big topic for fiscal '25 and beyond on the Vault CRM transition here. And I believe the current plan was to sort of have some of your first customers live by your summit in May. Sort of before we kind of hit early adopter, maybe help level set investors on why the shift away from sales force towards the Vault CRM. And then how confident are you in the ability to make sort of that strong market share you have in the CRM space?

Yes. So first, just maybe one clarification. We have first customer live we're moving -- just to kind of refresh everybody on the timing. We announced this, I think it was roughly December 1, 2022. So it's now about 13 months since we've announced it. We're moving very fast. We actually had our first customer live -- go live last year and roughly the fourth quarter of last year. So we're moving very quick. We're executing well. We'll have additional customers going live. We signed our first last year. We signed a couple of additional ones that'll go live in the beginning part of this year. So that's -- these are new companies, companies that are having their first CRM system. The first companies that migrate, they'll migrate over starting in 2025. So that's when we'll see some of those. And we've had a couple of customers commit to migrating already. Particularly 2 large 2 top 20 companies, Bayer and GSK, and they've talked about that publicly as to what their strategy is and why they're doing that. And for them, it was all about innovation. They said, "Hey, we're looking forward. We have something that's great and that works, and it's the market-leading CRM. We're going to focus on the future in innovating." So that has been -- that's been really positive and a good indicator of the momentum that we have. Now the why we did this, why did we make that decision? It plays out in their comments. We made the decision to have complete control so that we can innovate. And we've announced a number of innovations just in the last 6 months, we've announced integrated service, integrated marketing, patient engagement and patient CRM system. These are really significant areas and the significant value that we can create for customers that we wouldn't otherwise have been able to do. So that's the why is innovation and moving forward. And then I think your question on -- it's related to your question on the confidence, how do we have the confidence in our market position and what that's going to look like? Our strategy is 2 things. One is innovate, make it better. So we're going to deliver. We have the market-leading product. It's -- they're only going to get something that's better, and that's with a lot of the innovations that I just talked about. But the second part of that is also make it really easy for them to get there. We have a clear path for customers to get there. Migrating is a whole lot easier and a whole lot less expensive than doing anything and less risky than doing anything else. So I think if we innovate and make it better and we make it easy, that's our strategy. It's pretty simple.

Yes. And usually, I think in these situations, you start -- more start seeing smaller customers that will sort of go along the migration path first, but you sort of bucked that trend with Bayer and GSK with massive customers here that are sort of committing early to Vault CRM and sort of that transition early on. I'd be curious, like, how did you get 2 large customers like this to sort of make that commitment so early in the process here?

Yes, you're right. So we move fast, but credit to them also, these companies move very quickly and -- and they got to the -- they did a lot of due diligence, right? They wanted to make sure that they really understood what was happening and why it was happening, what the benefits were. And we were clear on that and had those discussions. And for them, it was about getting to clarity, something that the right decision that they believe for them and doing it quickly, doing it with speed. They want to focus on innovating. They don't want to focus on deliberation and analysis and spending honestly a whole lot of time on something that they pretty much knew the answer to. So I don't -- and I don't say that in a dismissive sort of way at all. It's something they took very, very seriously. But it became clear that this was the right path focusing on the future. So we're excited about that. Not every company will go at the same pace. Certainly, you're going to have companies that go -- decide to go early. You're going to have companies that decide to go later, and there's no right or wrong here, right? For these companies, they want to move with speed and get to the future state as fast as they could.

Now in the past, and we've seen that sort of on these first customers, when you go through the migration process, sort of they can take -- you take a bit more time on the front end when you're going through the migration, make sure you're getting it right, but then it helps you sort of establish a playbook for future migrations. I guess as you think about the Bayer and GSK migrations, how important is the pace with which you're able to get them migrated over as we look over the next couple of years?

You're right. I mean they will be trailblazers. They will be going first, certainly the first largest companies. So they're on the front end of that. And that sometimes means we'll go through some bumps together, and they understand that and they appreciate that, and we're going to make sure that they're successful and we're going to learn with them, and they're going to establish the path for the rest of the industry. It's not unlike -- this is not an unusual process for us. It's not unlike any product that we introduced in the marketplace. So you can somewhat think of them as the early adopters, early in a migration instead of early in picking a new product.

And I get this will be a multiyear transition. But as you're starting to have some of those early conversations, what level of visibility would you say you have in sort of a CRM roadmap for the remainder of the top 20 at this point?

Yes. We're certainly in conversations with all of our large customers, many of our small customers and some small customers are ready to talk about it and others certainly have other things. But I would say, in the mid- to large-sized companies, we're talking to nearly all of them. So that gives us a pretty good visibility and I do think there'll be that mix. It will look like some will be ready to go. Some of them we talked to and they're like, "Hey, we got it, like we want to go. We want to go into 2025. We're ready to do that." And others say things like, hey, we have a launch in 2025. And we want to go soon after that launch, we'll start in 2026. So let's put those conversations on hold, we want to have them just not right now. So we'll see that mix. It'll -- you'll see companies go at different timings for a variety of different reasons.

Got it. And as you think about sort of any time you have sort of in replatforming our change in this sort of manner. Obviously, some customers will want to take that opportunity to evaluate options in the market. Maybe we start seeing RFPs in this space. How are you trying -- are there any strategies you're putting in place to try to prevent that sort of RFP process from happening? And maybe, Brent, on your side is -- is there -- is Veeva interested at all in providing financial incentives, ramping deal structures, anything to try to, again, try to keep those customers on Veeva versus trying to go out to RFP?

The strategy is to continue to execute well. We got to build a great product, which we're doing, and we now have customers live on it and customers committed. It's to make it very easy -- or as easy as possible to get there and it's to make it great. Like it's -- the strategy is very simple. We're not doing -- we're not doing unusual or unnatural things to try to force a customer to make a decision, right? We're going to -- we're going to go down the path of providing them something that's great and that's easiest to get to. So that's the strategy. In terms of RFPs some companies think of it as like there's not a good use of time, and we're not going to spend any effort and energy in an RFP, particularly those companies who have this clarity on their decision-making process. Other companies are forced to do one. Sometimes our procurement process dictates that they have to do in RFP. And so we'll see everything over the course of the next couple of years. Those that don't do one, those that do one and that are perhaps even forced to or those that want to. All of those will happen. But we're ready for all of them. Our strategy doesn't change for any mix of those customers, our strategy is the same. Deliver a better and even better product. It's the market-leading product. We're going to innovate there and make it as easy as possible to get there.

And we're going to charge a fair fee for that for the value they're getting. And we're going to treat this like any other product launch migration and how we price. So yes, that's just our approach and it's fundamental to how we operate.

Excellent. I don't think -- I think we're done with my CRM questions for now. I can't guarantee for the audience, but we'll move on to some other exciting growth levers across the business as well. So in commercial, in particular, Crossix and the data cloud initiatives, I think have been -- are really important, I think, for the growth in the business. So the commercial business over the next few years. Starting on the Crossix side. So earlier last year, you had noted some weakness in the Crossix business, but that appeared to recover in third quarter with Peter noting a strong bookings quarter. We've seen softer marketing spend across the industry in 2023. But did the recent improvements feel more anomalous to you? Or do you expect marketing spend to sort of growth reaccelerating as we go into '24 and '25?

Yes. So our Crossix business, this is measurement and optimization, campaigns and audience targeting. This was the first area when the macro started to hit that we felt it a bit where marketing budgets and this is our fiscal '23 calendar '22, we felt that impact. And now if you fast forward into fiscal year '24 and how we're looking out at '25, it's playing out -- there was no surprises in '24. The word -- I don't know if I'd like to use the word stabilization, but it played out as we expected in '24, and it has been a contributor to our commercial growth in fiscal year '24, and we expect that to also be a driver of growth in the fiscal year '25. So and it's just a function of executing well on our product team and continuing to advance those products and adding value. So -- we're not seeing anything getting a step function worse. It's playing out nicely as expected.

That's helpful. And Paul, would you say -- I mean, we've seen a big shift over the last couple of years on sort of sales and marketing spend with life sciences companies shift more digital. And obviously, the ROIs there, I think, are proven to be much higher than some of the traditional channels. Do you -- when you're talking to customers, do you still see that intent to continue that mix shift towards sort of digital spend over time?

There was an acute spike that happened certainly during the pandemic and what we saw were things somewhat normalized from that. They started to return back. So I would say it's more digital than it was 4 years ago, and it's less digital than it was during the spike in the pandemic. And I think it's starting to hit a steady state. Yes, you will continue to see those channels become continue to be used and adopted and tested and experimented with. But I think the industry has started to settle down in terms of like, "Oh, my gosh, what should the spend mix look like and the channel mix look like?" And there was a lot of learnings that happened. It was actually -- it was good for the industry to be able to -- start to be able to become more efficient and take advantage of new technology. And that generally is a good thing. So I think the industry has ended up in a better place, but I would say, a little bit more of a steady state than it has been over the past couple of years.