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

I think we'll get started. Hi, everyone. I'm Joe Vruwink. I cover vertical software at Baird. Our next presentation is from Veeva. Veeva is the leader in cloud software for the life sciences industry across both commercial and R&D solutions. Joining us today is Paul Shawah. He is EVP of Strategy at Veeva. This is going to be a fireside chat format. If members of the audience have questions, you can e-mail Session 1 at R.W. Baird, and I'll read those on the iPad.

But maybe just to begin, Paul, an intro for those that don't know Veeva, what Veeva does and why it's a good investment.

Sure. First, good to be here with you, Joe. And just for Veeva, I'll give you a little bit of an introduction. Veeva Systems are building the industry cloud for life sciences. We talk about that as software, data and business consulting, all working together, great individually, but better when you have all the pieces together. We organized like a life sciences company. We have R&D and commercial and suites of applications in all of those areas. So you'll hear us talk about things like the clinical platform, the clinical suite, regulatory, safety, CRM. Those are all areas that have multiple products in each of those suites. We've grown to the point today where we have over 50 applications across all of those major suites of products. And we continue to innovate. Part of our business model is to establish success in an area and customer success, product excellence and sell additional products into the market. We have an aggressive target of $6 billion in revenue by 2030. We just hit our 2025 goal, which was $3 billion in revenue, and we have the products and a long runway of growth to get there.

That's great. One of the things I find pretty remarkable, the last 3 years have been tough for the life sciences industry. A lot of IT vendors have seen deviation in their financial plans. With Veeva, we're looking at a subscription number that now is actually higher than I would have modeled it 3 years ago. As you just mentioned, you had a $3 billion revenue target that you established in 2019 for 2025, you hit that on plan as well. So that's pretty remarkable just given the macro we all try to analyze and think about how that impacts the business. Why is Veeva so different than a lot of other companies that haven't gotten through this environment in the same shape?

Yes. So the applications that we create, the data sets that we build are -- these are to support some of the mission-critical systems, the core systems of record that the life sciences industry needs. Remember, it's a highly regulated industry. There are some core processes that they do in terms of developing the medicines and going through the clinical trials processes, managing safety and then commercializing those medicines. So the applications are generally not considered discretionary spend. At some point, they need to modernize these areas. And even in some of the difficult times or some of the more uncertain macroeconomic environment times, we're not entirely immune, but we have an ability to help customers modernize and operate more efficiently through that. So it's somewhat of a unique value proposition, and we've been able to maintain that balance of growth and stability over a longer period of time.

When you project over the next 5 years, and you've said kind of the macro assumption is pretty much what we have been seeing. So there's always going to be pluses and minuses, just bake those in at the start. In terms of what Veeva can control, can you maybe walk through, in your mind, key assumptions of how you double revenue? And maybe you can split it apart, like what do you need to get right in commercial and R&D in order to reach $6 billion in revenue?

Yes. So you're right. We have an aggressive goal to hit effectively double the value that we're delivering to the industry over the next 5 years. The 2030 target is effectively doubling where we are our revenue run rate today. We're a multiproduct company. So I wouldn't think about it as coming from any single area. The overall goal is about $4 billion from R&D and about $2 billion coming from commercial. but it's not dependent on any single product. We have to -- the assumptions are that we have to execute well across a number of different areas. And I think certainly, we'll have -- likely have outperformance in some and maybe not outperformance in others. But on average, we have to execute well across a number of different areas to hit our targets.

I'll maybe change this question a little bit just given that answer. But when I think of individual products, it is the case where Veeva has, in some cases, 70% to 90% market share of that product category. Is that at a point where customers see Veeva so prominently in the invoicing across their enterprise that it drives a platform buy-in, and that's a big part of where the incremental growth comes from is just everything is lifted up?

Yes. So first, we do have some established markets that we have relatively high market share in. I'll give you one example. We talked last -- a couple of weeks ago about eTMF. It's an area where we started in 2011. It now has 19 of top 20 high market share in that area. We invest to become the market share leader, but we also take that responsibility very seriously to continue to innovate and to continue to invest in those areas. So this is about continued innovation, building additional products. So we always want to have that continued runway for growth. And that's how we think about it.

I'll maybe stick on eTMF, but broaden it to the broader clinical suite. So huge market opportunity even in something like EDC, which gets a lot of focus because there's been big public companies in that category over time. Veeva is now at 9 of the top 20. I guess 2 questions. When you get 19 of 20 in a given category, is the growth over? How do customers continue to invest in their solutions at that point? And then what ends up being possible when you get a company you've talked recently where some big pharma companies are going all in at once. So it's not adding individual solutions over time. It's standardization on Veeva from the very beginning. What's the mindset there? What's the ROI or potential they see in doing that so soon?

Yes. So when we hit high market share, the growth is in an individual product area, the growth is not over. There's always -- or historically, we've created more products that we're able to sell into that customer. So they -- when we have high market share in eTMF, but there's still opportunity in other areas like CTMS or Study Startup or payments or now expanding into the clinical data management space. So we're able to create additional opportunities to grow. But also, by the way, even if we achieve very high market share in a single product, the investment there doesn't stop. We take the responsibility of having very high market share as an opportunity to continue to try to advance the industry. And you heard Peter talk about that on our last earnings call, where we're going -- in eTMF, we have high share, and we're looking at the next opportunity to transform the industry. So I think that was question number one is the growth over? I think your second question related to how do companies think about kind of going all in on this. Yes, there's multiple products and multiple vectors of growth, but the all-in versus the kind of the one-by-one approach, we have seen patterns for both of them. And clinical is a perfect example. There's a lot of opportunity to innovate in clinical. There's many different application areas that we focus on in clinical. Some companies take the approach of, I'm going to take the area of highest priority and solve that first, and then I'm going to move on to the next one, and they do that over -- systematically over a period of time, whereas other companies think about it from an all-in. I want to be -- they may want to be transformative. They may want to leapfrog. They may want to move with a significant amount of speed and send a signal to their company, so they take a different approach. The net result is that both segments of companies are somewhat going to the same place. They're going to a place that is a unified suite, is organized, is much more powerful. They're just -- they're taking different approaches to get there.

Do you have examples at this point where you can see if the trial manager is talking to the data engineers on the same platform, they're getting something done faster. We can just show customers now it's this much faster if you standardize or if you take the clinical suite and you add it to quality and regulatory, you can get a drug outright approved this much faster. Is Veeva far enough along where you can -- it's not a hypothetical anymore, customers have delivered kind of the ROI behind the vision.

So yes, we are. And I would say it's different by product area. So each of the different product areas connect in different ways and support very specific processes. But they're all at some level, interrelated. What happens in your safety processes may impact the regulatory communications, communications that you have to a health authority as an example. So those are 2 different areas, safety and regulatory, but they do need to talk to each other. So yes, we see efficiencies. We see more collaboration across departments. It's not easy because it also requires, one, the technology to work well together, but also the change management inside of companies. Many companies are not organized or structured to take advantage of that level of collaboration. So even though the tech will enable it, it will take multiple years for companies to fully realize that value. So yes, we do see it. There are multiple examples of it, but we're also still somewhat early on that journey, which also leads to -- I mentioned in the opening, how we do software and data and business consulting. This is an opening for business consulting for us. It's a very strategic part of our offering. It's a growth area to help drive the change to get the full value out of the suites of applications.

As you say, it's hard for these areas to work well together. They work well at Veeva in large part because of the Vault platform and how it's been architected, but everything has been built knowing it will be on Vault, which is part of the benefit as well. I think that same strategy is now being deployed in commercial. And so we've been talking about how in R&D customers are bringing these different areas together. For the very first time, Veeva can pitch that same idea because CRM is going to be a part of the same environment, everything else is a part of. Am I right that basically, you're carrying over the R&D strategy now into commercial? And what are some of the similarities, differences you would expect in running that playbook as you look to onboard everyone to Vault on the commercial side?

So yes, you're exactly right. And it's somewhat ironic. We started R&D a little bit later than we did in commercial. But we were able to start R&D when we had the Vault platform that was mature enough to support our first R&D application, which was eTMF. So it started from a very simple and clean and powerful space, one platform, multiple -- it grew into multiple applications over the last 15 -- roughly 15 years. And that's created a significant opportunity to create a lot of value for our customers to collaborate across department collaboration that we've been talking about. It's exactly where we want to head in commercial, which is why we made the decision to move our CRM to the Vault platform because it's going to simplify the commercial landscape. We think we can -- when you get to the point where you become the standard, you can create new levels of -- we call it simplify and standardize, new levels of efficiency for customers. So that's what we're aiming for in the commercial space. So I think that was the first part of your question. You had a second part of your question.

Well, I guess now can we talk about Vault CRM? Are there questions there?

Well, I guess I introduced it.

Maybe the decision by Veeva to leave the Salesforce platform, not a light one, but there were a lot of reasons given at the time, and we're now a few years later. So some of the reasons given have manifested in all new products, which is part of why you went down this journey. Maybe at a summary level, and we can go on from there, why Veeva wanted to take control of the CRM platform, the biggest opportunities you saw?

Yes. So part of it is some of what we just talked about, simplifying, standardizing commercial like we have done in R&D. But what that move also allowed us to do is it allowed us to unlock new markets, allowed us to innovate in any direction that we need to for -- based on what we think the market needs. So just over the last couple of years since we've made that announcement, we've had a number of really meaningful announcements in the commercial area, is really related to CRM, getting into the service space, the marketing space, a new area called Patient CRM. We weren't really contractually allowed to enter any of those markets, and this has unlocked not only significant growth opportunity for us, but really a unique level of value that we can deliver to the industry. Now that we can do them, we are architecting them from the ground up to be very life sciences specific to be foundationally different than what exists in the marketplace today. As an example, the standard for sales and marketing today is you buy one system on one platform for sales and you buy another system from another vendor on a different platform for marketing. And guess what, sales and marketing don't talk, no kidding because they're 2 totally separate things, we're going to solve that problem at a very foundational level in a very innovative way. So it opens up growth. It opens up innovation opportunities. That's precisely the reason we made this decision.

What surprised you so far about the migration strategy? We know 4 top 20s have already committed to stay with Veeva. It seems to be 2 top 20s that have committed initially to move over to Salesforce. Is that a surprising that there's 2 that chose to stay with Salesforce? Or would you say the success so far is about what you expected?

Yes. I think it's about what we expected, maybe even somewhat exceeding our expectations around when you think about where we are in the market. So I'll give you some context. So we're a couple of years in now to about 2 years -- a little over 2 years in since we made the announcement. We now have over 80 customers live on Vault CRM. So Vault CRM is working really well. This is not a hypothetical thing. This is reality in the marketplace. We're on the path to having 200 customers live by next year. We've won 4 top 20 decisions that are now publicly announced. We're excited about that. We talked about winning the vast majority. We never said we're going to win every decision, but we're on the path to winning the vast majority. I still think that's the case. We have a very large -- we'll have migrations for top 20 customers that will go live this year. And by next year, at roughly this time, we'll have 3 top 20 customers live. So that's a very significant milestone. So as I think about the progress, both around product and decisions and migrations, it's going really well. I think we're right on track with where we need to be.

I wanted to pivot a little bit and talk about Crossix. Veeva is a fun stock to cover because you try to keep it very simple in the pitch. So Veeva's commercial R&D, okay, great. But then these individual businesses can pop up and really surprise you. So I think we saw that last week where Crossix was this business you acquired at the time, it was a $70 million annual run rate business. Now it's $200 million, still growing 30%. What is it about Crossix that's so fast growing. It has delivered upside over the last 6 quarters now. And again, it's coming in a market environment where not every marketing exposed pharma company has done the best. So why is Crossix standing out?

Yes. So Crossix is a business that we acquired about 5 years ago. We knew it was a really strong potential high-growth business opportunity. And we actually use the Crossix technology as the foundation. That's part of the secret sauce is how they source and match and bring a lot of data together, and that powers all the Crossix analytics, the marketing analytics that we do, the audiences, but it also powers Compass, our patient and our prescriber data in the Compass. So we got a lot of leverage out of that acquisition. But we've made significant product investments in Crossix over the years. And that includes expanding our footprint in our measurement business. And think of Crossix as 2 businesses. It's marketing measurement and optimization. And then it's also Crossix Audiences, which is for programmatic advertising, reaching very specific audiences in a highly regulated life sciences specific way. We've made investments across both of those businesses. And those investments in the product, the innovation have paid off. We're establishing ourselves as a clear market leader in the measurement side, and we're on the path in the audiences side. It's more of a usage-based market. So I'd just caution you to think about it's consumption-based, so a little bit of lumpiness quarter-by-quarter, but certainly a great opportunity for us, and I think a good growth engine for us over the next several years.

Does Crossix work better if you're on Veeva's CRM? Or do some of the adjacent commercial categories like Veeva is also the leader in commercial content management with PromoMats? Does that work better if you're on Veeva's CRM?

Yes. So we talked earlier about the concept of these suites of products that have to be excellent on their own, but that also work better together. And Crossix is exactly like that. It's the very best marketing analytics in the market today, but it's much better when you start to plug it into areas like CRM. So for example, Crossix is marketing analytics, CRM is all about field activity. So now you can measure marketing activity with visibility into what's happening from the field. Am I reaching my target audience with media? And are they getting called on by my sales reps or not getting called on by my sales reps? And you can start to see effectiveness based on that. We all know that if you market and sell to the same customer in the same period of time, you have a significant uplift. We can see that. We make that super easy to see. It's a hard problem to solve. We're solving. It's a perfect example of connecting sales and marketing. So that's just one example. Similarly, when you connect PromoMats into the CRM system, CRM system is enabling salespeople that use promotional content and to the extent that you can give them that content faster, more efficiently, you have benefits. So great products that stand alone, but also a lot of value when you start connecting them together.

Maybe a few macro questions. So we started on R&D and their biotech funding, a Mercier environment where pharma companies might not be in full control of how they price a drug, which influences how they want to invest behind it. That has been a headwind for R&D activity. And then on the commercial side, if you obviously impede drug approvals, you have less coming to market, that has impacts. How does any of that impact Veeva in some of the specific solution areas we've been talking about?

Yes. So there's certainly been a fair amount of uncertainty in the macroeconomic environment along a number of different dimensions. You can argue maybe higher uncertainty over the last 6 or 12 months than we've seen beyond that. But the industry is not -- this is not unusual for the industry to be facing uncertainty around macro environment or regulatory pressures or any of those kinds of shifts. So uncertainty is generally not a good thing, particularly over the long term, but our customers have just focused on what they can control. They're staying close to the administration and trying to look at kind of where these things are going to land and where they're going to end up. We haven't yet seen any material impact, just to be clear from what we've seen so far. So we're watching to see how things play out. Now you asked specifically how does this impact our products. Again, we're back to the core systems of record. These are the kinds of things that they need to modernize over time. So if there is some slowdown, it often creates a level of pent-up demand. And they look to quality vendors like Veeva to help them navigate through the change. So we haven't seen the impact yet, but we certainly want to be the strategic partner that customers turn to, to help them navigate but also be efficient through some of these changes.

Okay. Final leg of the stool, we haven't really talked about yet, the data piece, and that will bring me to AI in a moment. But with data, since we were just talking about Crossix, Crossix had IP that became very integral to some of the newer data products. And now the way Veeva is bringing data to market is different than how the industry has typically consumed data. Maybe we can talk about Compass. There's been a lot of good data products, but maybe for the sake of time, Compass specifically and what you're hoping to do there, what Compass could mean for Veeva over the next 5 years?

Yes. So Compass plays in an area of patient data. So think of everything that happens around a patient, prescription claims, medical claims around a patient, diagnoses procedures, but also prescriber data. So the prescriptions that happen from a health care professional. These areas have been -- they're -- it's critical data sets. Virtually every life sciences company buys one or the other or both for many of their different brands. It's a very significant market. It hasn't had a lot of innovation over literally the last 30 years in terms of the way the data has been sourced and distributed, and we're applying a technology approach to solving this problem. And we're using Crossix as that foundation, that technology foundation to source the data, to bring the data sets together and then to deliver it back to the customer. So that technology approach allows us to create a more complete data set to -- that's more accurate. It's more longitudinally accurate around a patient, as an example, more complete, but also deliver it to customers faster, literally daily data. So when you're a life sciences company, you can literally see what happened in a doctor's office yesterday in most cases. So the speed, allowing -- that allows companies to operate at different levels of speed. So we're trying to bring the industry to a new level of expectation, quality, speed, performance, also getting the data -- purchasing it differently, buying data, getting a universe of data that you can use things like AI, you mentioned AI and draw and make decisions about it. This is all a step change opportunity for Veeva, and we're at the very early stage of doing that. We're -- I would say we're still in the early part of the market in both of our data sets. So there's a significant opportunity ahead for us with Compass.

This is a bit of a sensational question, I guess. But if Veeva with Compass is able to either surface more patients than customers thought were possible for a given rare disease, let's say, or instead of a typical rare disease candidate is probably undiagnosed for a number of years in their health care journey, Veeva allows customers to identify earlier. Are those the type of things you need to demonstrate? And if you do demonstrate them, why isn't this a multibillion-dollar product inside Veeva over time?

Yes. So I do think the way you described it is maybe one possible use case of how you might use Compass data. It's certainly not the only use case, and I wouldn't say it's the -- that's the kind of thing that we need to prove to be able to be -- to enter into the market. We can prove out a lot of the things that I talked about, a more complete data set, more accurate, in some cases, unlocking areas where customer visibility has been blocked. The current data set doesn't have the visibility that they want or expect, and we can kind of shine a light on it with the data set. So I don't think we need to be as kind of advanced as that, but I do think there is that potential when you use Compass in the right way to maybe be able to find or help diagnose a patient sooner than you might. You're right, it takes on average 5 to 7 years to diagnose a patient with a rare disease. So that's an opportunity. It's not the only opportunity. It's not something that we need to prove out. Why does it take so long? In many areas, our product is already the very best in the marketplace. And I say it that way because there's some -- it varies by therapeutic area. But there's an incumbent in place and there's a lot of effort to switch out the incumbent even though you have a better data product, and you can prove that you have a better data product. So we have to prove this brand by brand. It's the buying cycle in life sciences that takes time. You buy one brand, you establish success and you move on to the next one. And that's the cycle that we're going through right now. And we've seen some enterprise customers start small with one and then expand to multiple brands and then expand to an ELA. That's the pattern we're looking for, and I think that's what will play out over the next several years.

Maybe in the time we have left, Veeva's AI strategy, and I would maybe characterize it Veeva is making the Vault platform the best it can possibly be to support AI development. That's from a technology standpoint and also a partner program. And then Veeva selectively is going to have their own AI products they monetize separately. Is that an approach that resonates relative? There's certainly examples where a SaaS vendor is going to be agents for everything, and that's the approach. How is Veeva maybe a point in contrast to other AI strategies we've seen?

Yes. And so I think that's a fair characterization. We'll build Gen AI applications. We'll have some of our first agents this year, which is remarkably fast. We'll have AI also pervasive in the Vault platform, allowing the flexibility that you talked about for customers to, yes, they can buy a Gen AI application from Veeva, but they can also build their own agent if they want to. I believe that's the right approach because there's no one-size-fits-all agent. In fact, that's with this industry specifically, it's not about generic horizontal agents that come and solve all the problems. It's you really have to have deep agents embedded in a deep application to solve the unique problems of the industry. We'll build some of them, but no vendor will be able to build all. We'll also enable our customers to build their own.

Great. With that, we're out of time, but please join me in thanking Paul. There's going to be a breakout session for those that have further questions. Next up in this room, we have Applied Industrial Technologies.