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

Tyler Radke here, I co-head the software team at Citi, and we are excited to have Veeva for the next presentation. We have Paul Shawah, the Chief Commercial Officer; and Brian Van Wagener, the relatively newly appointed CFO. I think it's been about a year now, but first appearance at the Citi Tech Conference. So thanks both for being here.

Brian, I thought we'd kick things off with you since you're a new face for the audience here. Give us a little bit about your background and kind of how the first year has gone as CFO?

Yes. Well, nice to see everybody, and thanks for having us, Tyler, and thanks, everybody, for joining. I am coming up on the end of my freshman year here. So a couple of bumbles and awkward movements along the way. I got stuffed in a couple of lockers, but we made it through. It's been a great ride so far. My background is a little bit unusual for the CFO role. I come more out of the operations side of the business. I started out at Veeva as our COS, Chief of Staff and then moved into sales operations, which I did for several years. And then left for a bit and came back into this role. And I'd say in the first year back, it's been both rewarding and exciting. Rewarding on seeing some of the things we started back in 2017 really come to bear. So you think about Crossix and the physicians world investments that we made, really starting to scale in clinical. A lot of that was really getting started in 2017, and you see those growing into material businesses really contributing to the growth of the business now. On the exciting side, this is definitely a time of transformation and inflection for Veeva. We talked at our Investor Day about entering new markets and horizontal software. That's going to be a big theme, I think, for the long term of Veeva, the third act of Veeva. But also, I think the opportunity that we see in AI, which we've really accelerated our investment and we think can be a big change to Veeva and to the industry. So a lot happening right now, feels a lot like those days in 2017 where we're building new things.

Yes. Great. Well, welcome, and thanks for joining. And I want to make this conversation more elevated and strategic, but I did want to give you the opportunity just to address Q2 results. And I'm sure in your meetings today, you've probably gotten too many questions on the billings performance in the quarter, but maybe could you just level set for folks like what were the highlights in your mind in the quarter, maybe the billings results not -- why were they more subdued, but what would you focus people on as you kind of come away from the quarter?

Yes. We haven't gotten too many questions. I think overall, folks have taken a long-term view on this, which is the view we encourage folks to take. We talk a lot about quarterly billings, not being a great metric for our business. Billings is just inherently a bit lumpy because of timing factors. And so whether it's a large beat or a skinnier beat like we saw in Q2, those are really timing factors, not representative, in my opinion, of the long-term trajectory of the business. So we really look more closely at revenue in a particular subscription revenue as better indicators of the underlying momentum of where we're going. And so we've been very pleased with the execution of the team year-to-date in Q1 and then again in Q2. And you saw us raise our guidance pretty substantially for the full year on all lines, on revenue, on billings, on cash flow. So we're really proud of the results of the team. And I think our confidence in doing that is largely based on being 90 days further in and seeing the pipeline firm up as we look at the large base of renewals that we have in Q4 as well as the new business side. And we're looking forward to a good second half of the year.

Great. Great. So Paul, welcome back to Citi Tech Conference. I think it's been almost, what, 3 years since you announced the transition from Salesforce on the CRM side. And announce kind of the Vault CRM product. I think you're almost up to 10 large pharmas now that at least have verbally committed to Veeva. There's been a few that have gone to Salesforce potentially, but it appears that you're kind of getting about 2/3 to 3/4 of at least the announced decision so far. Is that kind of the way things have tracked relative to your own expectation? Just walk us through kind of how that decision in the last few years have gone relative to your plan?

Yes. So first, thanks for having us back. Good to be here. Thanks, everyone, for joining. So yes, I mean this looking back, this was the right decision. This has allowed us to innovate in a lot of new different ways. We've been able to announce new applications that we haven't been able to do before and move with speed. Some of the things we've announced just after the Vault CRM transition are now products that are live and have customers using them. So we're excited about the trajectory. In terms of numbers of kind of expectations around customer wins, we've always talked about it as winning the vast or retaining the vast majority of our customers, and I think we're well on track for that. I think you alluded to the top 20 wins. We're at 9 commitments, and we talked about Salesforce at 3 commitments. So that's going very, very well on top 20. We never expected to win every deal. If you look outside of the top 20, I think it's even a stronger win percentage. And when you think about why that is, Veeva has proven. We have over customers live on Vault CRM. We have 2 top 20 pharma companies who've already made decisions and have gone live in some of their major markets. So now it's very much proven. So a win for Veeva is very much -- it's think about it as almost a certainty that they're going to go live and be happy and start to take advantage of a lot of the innovations that Brian talked about with things like Veeva AI that we're super excited about. Whereas with a win with a competitor, this means like this can be a long, extended, protracted custom build project, which does not necessarily turn into a successful and happy customer because we've seen that story play out a number of different times. So I'm very happy with the win rate. I also want to be clear that wins don't necessarily equal a successful and happy customer. We've proven that. So we feel really good about where we are.

Right. So potentially, there's even the opportunity for win backs from Salesforce if the implementations still don't go well?

I think there absolutely is. And remember, with a lot of these customers, we -- they use a lot of Veeva products in a number of different areas, in R&D and even in commercial in a number of different areas in commercial, our commercial content business, Link, Compass, multiple other products. So it's on us to continue to make them successful across all parts of their business. And I think they'll see that start contrast with really strong execution, great products, product excellence. And compared to things that might look more like a longer protracted custom-build project.

So when you speak with a customer today that hasn't made a decision yet, what is sort of a reasonable time frame for them in terms of that migration to go-live process? And I imagine there's a lot of things you've learned with some of these initial customers so that time frame shortened. But like what are you pitching to customers? And I guess, what's sort of the alternative with Salesforce in terms of that time to go live?

Yes, I'll give you kind of -- because it very much depends on the customer, the size and complexity...

Sure. Let's say, a top 20?

If you're talking about a top 20, I would say a fair estimate is about 2 years. You may have some that go live faster. You may have some that take a little bit more time. We have already seen with the 2 top 20s that have gone live. They've gone live in that -- within that 2-year time frame. The projects have even been a little bit faster. That's on the fast side. We're really pleased, especially being some of our first projects to go live. We're pleased with the speed and the collaboration that we've had. So I think it's roughly that 2-year time frame. If you contrast that with a top 20 customer who chooses to try Salesforce, what they're doing essentially is -- Salesforce doesn't have a product today. At some point, they will. But that product won't be mature enough to support all of the requirements in the life sciences industry, which means they're going to have to custom build using services or big SIs, all of the functionality that they need to go live. And that's why it's likely that they're expected to be long protracted projects, which may go through 2028 or 2029 or longer. If they even get to the point where they get it live because going live in one region is very different than going live in multiple regions where the requirements are all very, very different. So that's why we -- you've heard us talk about a win there is very different than a Veeva win because it's where we've proven we can get them live.

Yes. Yes. You talked about how Vault gives you the better capability to innovate faster relative to the Salesforce platform. Like what are some examples of that in terms of new functionality that you've added into Vault CRM that you didn't have in kind of the Salesforce or traditional Veeva CRM?

Yes. So you're right, Vault CRM is, I would say it's significantly better than Veeva CRM. One example is Veeva AI. We didn't have Veeva AI and Veeva CRM, starting the end of this year in CRM, we'll have our first agents. We have 4 agents coming out at the end of this year, and we'll have an additional road map of agents coming out in 2026 and beyond. I expect over time, we may have a library of 50 or even 100 agents that exist in all of our applications. So AI, for sure. A second area which is more foundational or is equally foundational is bringing sales and marketing and medical and service all together in a single application. This is highly unique. The standard in the industry was you bought one system for your sales team and you bought a separate system for your marketing team. And you were kind of stock stitching those things together. It was never perfect, and it never created a great experience for our customers, but certainly, the health care professionals that they were marketing and selling to. With Vault, we've changed that. We've built them all together in a single platform which will help companies be more customer-centric and help them collaborate. Sales and marketing can work together. That was hard to do historically. We're going to make that easier to do.

Righ. Right. Okay. And Brian, on the financial side of the CRM migration, clearly, running your own infrastructure and your own platform has a lot of gross margin benefits over time. Obviously, in the near term, you're kind of having to pay for 2 platforms. But how should we think about the financial benefits of from the gross margin side of this transition?

Yes. I mean the main story is all the things that Paul was talking about around product excellence and customer success and unlocking and recharging the growth engine for CRM. There is also some margin benefit. That's not the main story, I think, behind this transition. I think the best way to think about that is as customers complete their migration from Veeva CRM on Salesforce to Vault CRM on the Vault platform. We will stop incurring those royalty payments generally within 2 or 3 months of the customer completing that roll off. We've quantified that at about $80 million in royalties that we currently pay to Salesforce that we would stop paying over time. That will be offset a bit by some of the hosting costs, as you mentioned. So the way that I would expect that to play out is in the short term, in the next couple of years, there's probably, if anything, a bit of a modest headwind to COGS because we have those migrations going on in parallel to the Veeva CRM still running on Salesforce. You'll start to see some net benefit to that as we get into the out years closer to 2030. And then as we get into 2029, 2030, certainly completing that cycle.

Got it. Okay. Going back to 2 quarters ago, Crossix was a big driver. I think we got the most questions on Crossix we've ever gotten maybe back to when the original acquisition was. But business seems to be doing well. You talked about it growing north of $200 million in ARR. What do you think is kind of unique about either the environment or that business this year that's kind of led to that strength?

I think a couple of things. So we -- sometimes these changes happen and these inflection points happen and they look sudden. I would say to us, this doesn't feel sudden. This is an area that we've been investing in since we made that acquisition more than 5 years ago now. And we made that investment along a couple of different fronts. One was continuing to really invest in the product, in particular, the audiences' product, which had been a little bit more passively managed kind of a nascent business. We put a lot of energy into that. Second is putting a more dedicated and focused field team on it. And then third is really experimenting with different commercial models and pricing structures that better align to how customers want to buy. And so to us, that looks like actually sort of a gradual movement, and you saw that start to burst through over the past few quarters. Under the hood, it's both segments of the business, the measurement business, which is more subscription-like and the larger part of the business continuing to perform well. And then this year, in both Q1 and Q2, we've seen particularly strong business out of the strong growth rather out of the audiences business, which is the usage-based component of Crossix. That's driven by, I think, healthy customer marketing budgets, a good proportion of that going through digital channels and then ultimately them selecting the Crossix audiences segments to target their advertising. So we continue to see that as a growth engine for the company looking out. I think we've started to hit that point of market leadership in the measurement business. There's definitely still room to grow. And then the audiences business, which we've spoken about being the smaller part of that $200 million run rate but faster growth, we think has the potential to be quite a bit larger over time. So it's certainly got a healthy growth runway. So we're quite excited about the potential for where Crossix can go.

Got it. Okay. I wanted to talk about the legal dispute, which recently became a partnership with IQVIA. So I guess just to first start off on that, if you could just kind of walk us through the quick -- I know there's been a lot of back and forth, but the history of that and how you're viewing this partnership in terms of the benefits that it gives Veeva in the end to this dispute?

Yes. First, we're super excited about the partnership with IQVIA, and I think it's fair to say I can speak for them, where I think they're equally excited to have put a lot of the disputes behind us and also now start to think about the future and collaboration. This started roughly 10 years ago. We were primarily in the software business. They were primarily in the data business. And they entered the CRM market, which led to some issues around using their data and our software. And it's just kind of was focused on that for roughly the last 10 years. So some of our software products were blocked from being used by customers. That has since changed as they have exited the CRM business. We've become more of a leading player in the clinical space with our EDC product and certainly in clinical operations. So the world has changed since then. And I think now we both decided that it's better that we put those disputes behind us, and there's a much, much bigger opportunity for both companies, but more importantly, from our customers to partner together. In terms of benefits for them, it opens up the commercial space for them to use their data and a lot of our products. Our Network, master data management, Nitro, it's a data warehousing product. Also, our business consulting is now able to use their services. So it just creates less friction for customers. It makes it easier for them as they position their data products that they all just work in Veeva, which is good. They've also joined our partner program in other areas like AI. So they're now a Veeva AI partner. And who knows where that's going to lead. That I think offers a lot of potential for where we might innovate together. And then on the clinical side, it opens up that clinical market where they were one of the top CROs that could not access Veeva software as equally as all of the other CROs who were existing partners of Veeva. So now this creates a lot of opportunity for them to use and get access to the best technology in the market. And then for Veeva, for our customers, this is -- it reduces friction, it reduces uncertainty, it creates a platform for 2 of their most strategic partners now being able to work together and innovate on their behalf. So this is a significant win for our customers and I think for both companies as well.

Right. Right. Yes. It's definitely a long time coming in terms of that dispute. But I guess I'm curious, though, because Veeva historically has had some pretty big aspirations on the data side as well with Compass. And I think in some of the Analyst Days, Peter has almost described, the data business is like a third leg of growth beyond obviously, commercial and R&D. So how should we just think about the like relative scale of where those data businesses could be now? And are you able to like offset that now with kind of the growth in some of these other products, whether it's Network or Nitro, Andi, the data warehousing products?

Yes. So in the data space, really nothing changes from our strategy and our investments that we're going to continue to make in data. We still think data is a very significant opportunity today for sure in commercial. And potentially, it could be in clinical over time -- or the R&D or clinical segment over time. So data is a big area of focus for us. We're making a lot of investments. The value proposition for our products hasn't changed. So Compass, for example, we have visibility to data that we think is highly unique to Veeva based on how we gather and collect the technology that we use, which is based on the Crossix data platform that source all of our data and match it. We think we have better visibility in a broader, more accurate data set. And we also use technology to deliver that data to customers, which is more efficient. So we believe we can do it faster. So daily data versus things that historically have taken a whole lot longer, weekly or even monthly. So that value proposition has not changed, and we're going to continue to invest, and we'll compete respectfully with IQVIA in the data market, but we're in it to win in that market, and we think we will over the long term. And it's also a core part of building the industry cloud. We talk about industry cloud as software, data and consulting. It's one very significant leg of the stool because companies need all 3 of those. They need to have all 3 of those pieces working well, and we think we're uniquely positioned to make them work well together. Software data consulting. It's never been done before in the industry by a single strategic partner, and we think we can add a lot of value by doing that.

Right. But I guess just to double-click on that, I mean, what does IQVIA -- like IQVIA obviously very dominant in the prescription data space, like what are you trying to build? Is it -- would you say it's kind of more complementary? Or is it, hey, we want to directly take on IQVIA maybe more respectfully than the past? Like does it -- and does the lawsuit resolution change the scope of that data business at all?

Yes, it can be complementary in some cases. Some companies like to source data from multiple sources. So that is a potential. But there's also the opportunity where companies want to standardize on a single data set. So I think both of those are possibilities. And I think we're setting ourselves up where this could be a replacement where a company can standardize on all Veeva software and all Veeva data. We're at least providing that as an option to our customers. It's on us to make sure we have the best software and the best data. And so yes, I think it's a significant opportunity for us, whether we're complementary or whether we are a full-on replacement.

I think what you're circling around, Tyler, is there's really no change to the way we're approaching the data business. So our conviction in it, our commitment to it. We still think we're building a better product and a more modern data platform, and we're going to go out and sell it. But -- we also think that we're both big companies. It's not uncommon in larger companies to have a situation where you're partners in some places and competitors in some places, and I don't think we foresee an issue with that.

So in other words, there's nothing you had to give up in terms of the ambition or the scope of what you do there as part of that?

No, I don't see either company giving up anything in this partnership. I see both companies actually gaining. I think there's a broader opportunity for both companies working together than there was where we were just a couple of weeks ago.

Righ. Right. Okay. Makes sense. I do want to talk about the R&D side of the business, which obviously is an important growth driver. Lots of different parts of the business, whether quality, regulatory, some of the clinical side. Maybe just starting off high level, like where do you feel like the industry is in terms of that modernization path? And how are you just sort of thinking about the biggest drivers of growth within R&D?

Yes. So you're right in that, R&D is broad, and it's clinical, which includes clinical data management and operations, quality, regulatory, safety. And each of those areas are multiple applications. So there are suites of multiple products. And we have -- we've delivered those products over many, many years now, starting back in 2010 and 2011 with some of our first products in the R&D space. And some of our products now are reaching very high penetration in the market. We just announced this last quarter that we have 20 of top 20 with standardized on eTMF, which creates a very unique opportunity for us to continue to innovate, continue to advance and move the industry forward. That's a unique position to be in. We take that very seriously. But you can see that, that's our first product, and it now has 20 of top 20, still has more room to grow in the long tail of R&D companies. So we're not completely sold out there. But what it gives us the opportunity to do is to expand into many of the other products in the suite. And you've seen that with CTMS as an example, which works closely with eTMF. We're not quite as high penetration, but we're high penetration in CTMS and then the broader suite of clinical operations and clinical data management products become more valuable because they're part of a suite of products that all work together. Remember where a lot of these companies were coming from is each of these areas, they needed a different vendor with a different technology platform. And it was on them to stitch those pieces together. And what Veeva has is something very different, the Vault platform that natively makes all of these products work together. They don't have to spend time stitching products together. So that's a very unique value proposition. So the growth opportunity in front of us, where we have relatively low penetration. It's on the order of 15%. The growth opportunity is expanding these suites of -- expanding the adoption of these suites of applications and then even delivering new applications and Veeva AI and a lot of these products over the next several years.

Right. Right. What -- as you think about the sort of building blocks to the R&D growth this year and then obviously you have long-term targets that imply continued healthy growth in R&D? Like what do you think the biggest contributors from a net new ARR, net new ACV are going to be? Is it going to be -- I mean, obviously, clinical, massive market, but maybe you have like larger competitors in that space? Where do you kind of see it from a product perspective coming from?

It's pretty broad. It's -- it may not be the answer for you, but it's pretty broad-based because remember, a lot of these areas are -- clinical is a very significant area. It's about 1/3 of our overall company TAM. Quality is next and then regulatory and safety are behind those 2 in terms of relative size of the total market opportunity. So that's one simple way to think about the contribution, but really, all of those areas will contribute. We expect significant contribution from safety. It's early stage. It's a really great product. It's at the right point in the market at this inflection point where we now have a number of top 20s who are live and happy in a very conservative area. So we'll see contribution from safety. We'll continue to see from regulatory and then certainly quality and clinical given the size, given the number of applications that we have. So I expect it to be broad-based.

Right. And you also recently announced plans to get more into the horizontal enterprise application market, which I think was maybe a little surprising, just to talk about products, quite broad. But what -- like where do you start in that? And are there specific industries or customers that you think are kind of the obvious use cases or low-hanging fruit?

I guess I'll pick that up. So on new markets, we're very excited about that, but it's a long-term play for Veeva. And I really think of this as the third act of the company. And we started with CRM. We moved into Vault and the R&D side, and this is really about the third act. If you think about it that way, it's going to take some time for that to get to a scale where it contribute meaningfully to growth and be a part of the growth engine of Veeva. So we talk about this and are talking about it quite early in the life cycle. But we've been focused for the past 9 months or so since we announced it at Investor Day last year, really on building the platform level and getting the platform constructed such that we can start to build our first applications on it. And then in Q1, we spoke to the first application area being the CRM area. And that our goal for the balance of the year was to build that first application and sign up our first early adopter. So there's no change to the overall trajectory that we're on. The reason we're excited about it is because we think there's a lot of potential to do things differently in horizontal software. I think sometimes we feel Veeva maybe get short shrift as being a really strong enterprise software company because we're focused on life sciences. People look at us and say, okay, you've got channel benefits or you've got something about the network of life sciences, but our core capability is really being an outstanding software company. And so as we look at the market for horizontal software, what sticks out primarily is that we're still largely on version 1 of horizontal, and it would be very surprising if version 1 were version final. There's very few examples of that if you trace back in the history of software. And Peter specifically has pointed to the areas that he's very excited to drive innovation at the platform level and then to the ability to bring the same product excellence and customer success mindset that we bring to the life sciences industry to other places. I will say sometimes as a buyer of software, I wish I had Veeva to buy from because there's not often that same level of relentless commitment to making our organization successful with the software we buy, as I know we bring to our customers in life sciences. So I think it's that mindset and that approach and that software DNA that we're going to bring into a new space, and we think it could be -- a lot of potential in the long term, but also it's a long-term play, not short term.

Okay. Makes sense. Paul, I know you were meeting with customers a bunch in your day-to-day job. How have you seen kind of customers respond to what sort of feels like continuous headlines on policy changes for large pharmas in biotechs? How are -- how is this -- sorry, impacting their technology budgets or modernization initiatives, if at all?

Yes. I mean there's certainly a level of uncertainty and angst across a number of different areas, which we have seen and has been going on for some time. But I think the industry has done a really nice job of operating well through that. They're dealing with it appropriately. And in many levels, they're the CEOs and executives of life sciences companies are working closely with the administration on anything from tariffs to pricing, most favored nations and dealing with them appropriately because, ultimately, it's a shared ambition to have -- to be able to have access to new and innovative medicines for patients. So I think it's happening at the right level, but at the level of kind of how they operate, they continue to need to modernize their systems. These are projects that were often planned over a long period of time. They're staying very focused on executing well. So we've very much seen business as usual in terms of how they're operating. And I give credit to the industry for being able to -- even in a somewhat uncertain environment, continue to execute really, really well.

Okay. So still kind of business as usual despite...

It has been. Yes.

Okay. Okay. Great. I know you probably have an Investor Day coming up this fall or at least that's kind of been the normal cadence for things. But as we think about the 2030 targets that you've put out sort of implying a low teens growth, which is a healthy number. What do you think maybe investors like underappreciated at least in terms of your visibility into that goal? Obviously, you have a great track record of setting targets and exceeding them and you're a leader in the space, but like what gives you the confidence that maybe is not as apparent to us, investors that are kind of just looking through the financials.

I would say the main thing, and this is the hardest one for us to communicate is what Paul mentioned earlier around that growth being so broad based. That's what gives me a lot of confidence as a leader in the company, and I think would give me confidence as an investor is that it's a portfolio approach to the business. So when I started in 2017, it was 15 products. Now it's 50. It will absolutely be more over time. And what that means is that there's not any one product that the future of the company hinges on. And so when we look at it, this year, for example, you've had Crossix running above our expectations. There's going to be a product every year that's above expectations. There will probably be one that's behind expectations, but we've got that benefit of the portfolio. And so many products that are entering that very steep phase of adoption, that it's really about the execution against the opportunity in front of us. When we released those goals, I think they were a little bit surprising to some people because it meant really sustaining a level of growth that we've been sort of working our way down towards. But I think what gives us the conviction in it is there's so many big products that still have a long way to go. There's QMS, there's RTSM. There's EDC, which still has a lot of growth yet to come. There's safety, which we think is at the inflection point. There's Crossix. There's a lot of business left to execute on. And so for us, it's really heads down and focused on the execution.

And then just finally, the other piece on margins. How -- I guess, how are you thinking about internally leveraging AI or just the incremental margin efficiencies going forward?

Yes. I think we're very excited about the potential for AI as others are. I would say we probably view it more as a new tool in the arsenal, not a revolution in our way of working. We've had a lot of tools that have helped our teams, in particular, our developers to get more productive and more effective over time. As we think about the purpose of AI, what are we using it to do? We're probably more focused on quality and speed than on margin accretion per se. So that doesn't mean there won't be opportunities to do that, but we think more about our values and using AI to help us drive customer success.

Awesome. Well, Paul, Brian, thank you very much for the time. We're at the end of the session and appreciate everyone joining us.