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

Hello, everyone. Thank you for joining us, and welcome to the Veeva Systems Fiscal 2027 Second Quarter Results Conference Call. [Operator Instructions] I will now hand the conference over to Gunnar Hansen, Senior Director, Investor Relations. Gunnar, please go ahead.

Good afternoon, and welcome to Veeva's Fiscal 2027 Second Quarter Earnings Conference Call for the quarter ended July 31, 2026. As a reminder, we posted prepared remarks on Veeva's Investor Relations website just after 1:00 p.m. Pacific today. We hope you've had a chance to read the before the call. Today's call will be used primarily for Q&A. With me today for Q&A are Peter Gassner, our Chief Executive Officer; Paul Shawah, EVP, Strategy; and Brian Van Wagener, our Chief Financial Officer. During this call, we may make forward-looking statements regarding trends, our strategies and the anticipated performance of the business, including guidance regarding future financial results. These forward-looking statements will be used based on our current views and expectations and are subject to various risks and uncertainties. Our actual results may differ materially. Please refer to the risks listed in our earnings release and the risk factors included in our most recent filing on Form 10-Q. Forward-looking statements made during the call are being made as of today, August 26, 2026, based on the facts available to us today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Veeva disclaims any obligation to update or revise any forward-looking statement. We may discuss guidance on today's call but we will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. On the call, we may also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today's earnings release and in the supplemental investor presentation, both of which are available on our website. With that, thank you for joining us, and I'll turn the call over to Peter.

Thank you, Gunnar, and welcome, everyone, to the call. Q2 was another strong quarter, delivering results ahead of our guidance. Total revenue in the quarter was $928 million, with non-GAAP operating income of $416 million. Execution was exceptional this quarter as we made strong progress in many key areas. It was our best CRM quarter ever. We also are accelerating rapidly in AI overall and especially with Veeva Falcon. And our focused acquisition strategy is working, bringing great people and capabilities to Veeva. It's in an exciting time. AI is enabling the next big chapter for Veeva and the industry. We'll now open up the call to your questions.

[Operator Instructions] Your first question comes from the line of Joe Vruwink with Baird.

I think it's evident over the past few months that biopharma R&D spending is headed in a positive direction, and that also is showing up that Veeva. As pipelines move forward, what are you finding the mentality to be at customers around assessing and adopting something that's brand new in thinking about the Vault application agents or even Veeva Falcon. I'm interested in levels of early interest taking place amidst what seemed like a busier environment and whether that's a reflection of the value customers are seeing pretty quickly when they start looking at the new Veeva offerings.

I'll take that one. Yes, there are a lot of things going on, right? The funding environment is relatively good. There's a lot of changes with AI and sciences moving ahead. So there's a lot of priorities for the customers. And so when that happens, they can't do all things at once, and they generally try to pick some things that they can do and that are a high priority. Your question was related to Falcon. I think Falcon has a lot of interest right now because it's very clear that, that's a high priority, quick cost savings and compliance and efficiency that's on everybody's priority. So I think there's a lot of interest in Falcon. We are the rate limiter right now. We have to get that product ready, start working with the early adopters, but interest in Falcon is very high.

That's great. And then maybe as you think about how customers can now engage with Veeva in an AI framework, you have the application agents, you have Falcon, you have a custom development framework that you've introduced. Are any of those modes of engagement may be becoming larger or a bigger piece of the conversation and do any of those modes matter more or less as you think about how your financial model evolves and what the impact might end up being to Veeva?

Yes, it is a major change for Veeva. So Falcon is agentic labor. That's something different than we've done before. We've done cloud software, data, consulting. Now we have this fourth thing, agentic labor. So it is transforming the discussion. There's 2 different things you could do with Veeva. You can do some agentic labor, you can do core applications. That was never the case before. The important point is Veeva, it fits very well. It's a structural advantage for Veeva to both have the agentic labor and across multiple areas in life sciences, and have the core applications across multiple of those areas in life sciences. So that's why I feel like we're very well positioned. And the conversations are very rich. Gosh, I just hope we got to get that product going as soon as we can. If we had our early adopters live and successful right now, I don't want to be hyperbole, but Falcon would be flying off the shelf, if that was the case. Because one thing to know is there's not an extensive Falcon implementation. There's not of data mapping from one system to the other. There's not a cutover process. There's not ETL to do. So this implementation the full value is faster with Falcon, but the tech underneath it is newer and we have to get our motion down there. If you can tell I hope you can tell, I'm pretty excited about Falcon, and I really think we're on to something.

Your next question comes from the line of Brian Peterson with Raymond James.

Congrats on a strong quarter. So the commercial segment was really strong this quarter. I know you called out a record result. Could you maybe unpack what drove that acceleration in the subscription line item? Would love to get some more color there.

Yes. Brian, this is Brian. I'll take that one. Commercial subs, yes, a very strong quarter. I think the culmination of many quarters of execution, but you see them showing up in the results here, up about 13% year-over-year even when we back out Crossix, it's double digits and the rest of commercial. So it's quite a broad-based strength in the commercial offering across CRM, content, data, Crossix, [ Astra ] most recently. So we feel very good about the execution. Crossix continues to be a strong performer with a lot of headroom for growth. We're continuing to see growth in CRM, which I think a lot of the conversation even is that going to go down, it's actually going up. And we're continuing to see a lot of room to continue growing in a healthy market and Crossix as well as the other areas.

Great. I appreciate the color. I just want to follow up on Aspen. I know you guys are excited about that as well. How should we be thinking about that market opportunity in some of the investments that you're taking to kind of enable that revenue stream?

Aspen, I think it's very early, right? That's the thing to know. This is a start-up inside of Veeva. It's moving very rapidly. It's on 90-day plans. So we have a core market that we're going after, the horizontal CRM in a new way, in a new way that really enables AI and is built on modern technology. So the thing to know that is very agile now. So we're -- what we're focused on is getting the product right, working with our early adopter customers. I'm 100% convinced that there's a market for we're making in Aspen. Can we execute well enough? That's always the hard thing in a start-up. Can you do it? Can you do it better than your competition? And what kind of luck do you have along the way that plays into it? I've done the startup thing before starting Veeva. I've done the startup thing when we started Vault inside of Veeva. We're doing it again and they have lots of friends that have done it. And it's just like that. Can you execute well? Really, really well. And what kind of luck do you have on the way. But sometimes you're wondering whether the market is there or not. You could say maybe we were wondering that when we were getting new markets going 18 months ago, et cetera. Right now, we have enough product, and we're working with some early customers, we are 100% clear that the market is there, 100% clear. It's just whether we can execute and we'll see. So your question was about how to size the investment as well. That's not very small in the Veeva scale. It's not something that Brian, our CFO, notices really on the Veeva scale because you have to keep that very small when you're working with early customers and you're iterating an early product. And actually, these days, you keep it smaller than normal because the base of the zone and is faster with AI, you actually need a smaller amount of developers, very, very, very skilled as well. So it's not a financial drain on the company. It's not a focus train, and it's certainly not any kind of revenue that's figured into our plants at this time.

Your next question comes from the line of Ken Wong with Oppenheimer.

I wanted to circle back on Falcon, Peter. It was great to hear the customer interest. Also great to hear it's not an extensive implementation process but what I didn't get a sense for was as you're trying to introduce virtual labor to your customers, is that a different counterparty that you're selling to versus maybe the CMO or the CIO. And then secondarily, how difficult do you expect it to be to maybe work through the inter politics of shifting the budgets from an IT wallet to maybe an HR labor wallet. Any help in helping us think through that?

Ken, great question. Now I'll be able to tell you this definitively now in a couple of years when we're selling lots of Falcon, I'll be able to give you the readout. So I'm going to gauge into the future and tell you what we know so far. First off, it's actually going to be an easier selling cycle because IT is really not involved in the agentic labor. That's not something they're involved in because it's not like that. If you're selling a solution to Safety this is about the budget of the Safety team. So it's really the head of the unit, the business unit and the head of the sort of the operations of that business unit. So that's super clear. And the other question is, yes, it is a very related buyer. This is actually -- we have not hit the case for Falcon where we're selling into a bar that we are not selling into because we're always selling into the business side with our business applications. Now sometimes more or less. For example, in the areas of Falcon or Falcon is playing, for example, safety, clinical regulatory, that's always been somewhat more of a business to sell IT involved, but somewhat more of a business sell. CRM is the most IT heavy cell that we have in general. So these areas where we're doing Falcon, they were ready, I would say, on the average, 60% of business sell and those are people that we've been selling into for 10 years.

Understood. And then Brian, just a follow-up on some of the investments. It sounds like with Aspen, it might be sort of small upfront, but as we think about you guys ramping on Falcon, ramping on Aspen, ramping on some Vault, Vault agents, Vault AI. I mean should we expect maybe an uptick in terms of sales investments, R&D investments, anything we should be thinking about relative to how you guys are spending today?

As Peter talked about, Ken, we're very excited about Falcon and the path that it can be on. But you've also seen us over time consistently think about both growth and profitability. And so it's not different entering a new market like Falcon. Maybe the dynamics of the market are very slightly different. But it's the same overall approach that we're taking there. And so we scale investment as we scale revenue. There's certainly nothing material that I would call out for this fiscal year. It's all factored into the guidance that we've updated for FY '27. And as we get another couple of quarters ahead and gauge into the future of next year, we'll factor that into our guidance for next year.

Your next question comes from the line of Saket Kalia with Barclays.

This is [ Ryan Padle ] on for Saket tonight. Peter, maybe my first for you. From the customers that are planning to transition the Salesforce away from Veeva CRM, what do you hear from those customers? What are they saying right now about the decision? And do you think longer term, it could be possible for Veeva to win some of those back?

Yes. Ryan, I do. There's a handful of customers -- large customers that did select Salesforce, many of them even 2 years ago. Those projects are having trouble, right? They're not going smooth, and we have some project delays because it turns out you -- the product is very deep and you need that. So yes, I think we can win back some of those customers, maybe some of them completely, others of them in some certain regions and not others. I think the bulk of that win back would probably be in 2027 and 2028 because Veeva CRM, they have that backstop until the end of 2029. So this is the time when it starts really to get real, right? Because during 2029, there's no more backstop of, oh, we can keep using Veeva CRM because they know they have to go evolve here. Yes, we're very optimistic about that. And the best thing we can do there to help that is really focus on our existing customers that did decide to go with us for CRM and a very successful and improve the product. And for the customers that didn't choose Veeva, we have a good relationship with them, and they've told us that, hey, we said, "Hey, we want to be your Plan B." And they really embrace that, and that's the way they view that because these customers they have businesses to run, right? They got to get their medicines to patients. It's great they love having a backup option if their Plan A doesn't work out.

Really interesting. I appreciate that. Brian, maybe my follow-up for you. Can you just talk a little bit about what you're seeing on the R&D subscription line? And maybe specifically, where you see Veeva in the journey between some of the, let's call them old guard products versus some of the newer growth areas that you're investing in. Just as we think about that revenue mix shift and how it's involving.

Yes, it's a great question, Ryan, because we're right in the middle of that transition that you pointed to. And I think very pleased with the progress and the execution that we're making. But the old guard that you're referring to would be things like I guess, eTMF and CTMS and [ QDOC, in QMS ] and our regulatory suite that have fueled a lot of the growth in R&D to date. And a lot of the growth as you look out over the next few years to 2030 and beyond, is being driven by a different set of products, EDC, [ Eco, or TSM ], Safety, LIMS. And these are big, very strategic products with a ton of headroom, but they're very early. So we're excited about that. We're executing really well against that, but there's a little bit of a changing of the guard that's happening there. And the S curves don't stack up exactly. So you see some of that factored into the guidance for the balance of the year. But we're very confident and excited about the long-term trajectory of the R&D business and obviously pleased to be raising the guide again here in Q2.

Your next question comes from the line of Alexei Gogolev with JPMorgan.

Hello, everyone. I wanted to go back to the Falcon discussion. So with [ 5 ] also early adopters and first go live as expected this year, what are the key readiness gates you most clear? And how do you expect the human in the loop requirement to evolve by workflow type?

I'm sorry, [indiscernible] there was a breakup and it said, what are the key you have to clear and I didn't hear the word in the middle.

Peter, I was talking about the key readiness gate you must clear and how do you expect the human in the loop requirement to evolve by workflow trades?

The key sort of regulatory hurdles, if I heard correctly. Yes. Agentic labor is by human labor in a way. It's non-deterministic. So you have to prove that you have the right training and guardrails around humans, and that's the same thing we have to do around our agents and the human we provide for the human in the loop with [indiscernible] as well because you can see the outcome of what the agent did and does inside of the Vault applications. So from what we can see is it's working very well. It's not -- this approach is completely similar to what customers are doing today on certain internal projects. The difference is they would like to be able to do it at scale in a very repeatable motion. So I would guess, 3 years ago, we would probably have to be teaching the customers a lot about what is AI, what is the agentic labor? How do you do this? How do you do that? That's we really don't have to do that so much anymore. The customers know how to deal with it. They just want a partner that can scale it across multiple areas.

And also on the Data Cloud topic that you added, 14 data cloud customers, where is Data Cloud proving most differentiated? And how are you positioning connected data as a prerequisite for AI outcomes in commercial workflows?

So we don't position Data Cloud as a prerequisite for AI. It's more of an accelerator. The claim in your data is, the better your AI process are going to work, especially in certain areas. What's working well for us in Data Cloud is OpenData, so clean reference data. Now that's a hard project to do because it involves changing a lot of things [indiscernible] systems. But we have some momentum there, and I think that's going to continue. We have strong momentum in Compass for certain therapeutic areas of complex therapies where our Compass products can see different things in the flow of complex products in the U.S. that other people -- other offerings can't see -- and then we have real market leadership with our Link product and Link key people, and we're expanding there with the add-on products of Link. So I think medical insights, linked key accounts for the U.S., linked workflow for Congresses. So overall, data it is not a thing that can accelerate very, very fast. It's not like selling fast fashion on Instagram, right? That can accelerate fast and then disappear. Data is not like that. It's a long, slow grind but we're certainly happy with our progress, and it's very synergistic with Veeva. If you look at what Veeva -- why is Veeva being successful, we have a very synergistic product plan. We have software applications that work with our data and consulting that knows about our software and data, and we have agents that work with our applications that are known by our consulting and that leverage our data. So it's not a random set of products. It's -- we're building the industry cloud and the more our customers realize it, the more benefits they get because things fit together.

Your next question comes from the line of David Windley with Jefferies.

I wanted to ask Peter on Falcon quickly. Are your early adopters exclusively sponsors or OEMs? Or are you also seeing some service providers approach you to adopt Falcon capabilities?

Our early adopters are with sponsors. Now we have had some interest with service providers. And I say that carefully, interest, they're interested, but we really haven't engaged heavily there yet because you have to be focused when you start working with your first customers. Service providers will have similar needs to sponsors, but not the same. So we're focusing on the sponsors first, and I fully expect over time that this will be useful for outsourced service providers, but we have to work on the sponsors first.

Great. And pivoting for my follow-up, a lot of moving parts in China over the course of this year, maybe over the course of the last several years, regulatorily drug development-wise, et cetera, how do you see the China market as an opportunity for Veeva right now?

Yes, China is certainly moving fast. I mean when we look at my track career standing it's over 30 years here, it's astounding the transformation in China and what it means for the global economy and what can be accomplished and the whole notion of a parallel tech stack antenna. So yes, it's moved so fast and it continues. And it's great to see that from my perspective, it brings variety. So our opportunities there. We have quite a few products that are made by our Veeva China team in China for China. So we have our China CRM suite, and that's gaining market share that's written on the China tech stack, et cetera. We have our data products made in China specific for the China market. And there's other things that we can do in China there in China for China. But one of the big benefits is those products fit with our global products. For example, China CRM fits with our global [ PromoMats ] product. So there's a synergy there. China is a good business for us and we're proud to do that in China, and it's profitable for us there, and it's growing, but it's also synergistic with our global business because our global customers, when they have their headquarters in the U.S. or Japan or Europe, they want a team, a global Veeva team that can help them with China also. So it's very synergistic. We really love our China business.

Your next question comes from the line of Rishi Jaluria with RBC.

It's nice to see continued strength in the business. I want to start with a question on Aspen and the pricing model. I can think the publicly posted pricing model is really interesting and compelling as application software companies were kind of figure out kind of the pivot to more consumption, et cetera, and you're talking about charging per human or per agent. Can you maybe walk us through how you see that pricing model starting how the puts and takes of that and what lessons or learnings can kind of be picked up from that as you see more Falcon adoption, more AI adoption in the broader Veeva suite and trying to kind of price accordingly for this new AI world? And then I've got a quick follow-up.

Yes. So cloud software, we've got to remember, it hasn't been around for 50 years, right? I was counting in the early days of salesforce.com, and that was not even 25 years ago, right? It was for me, it was 23 years ago. So very early, and the pricing model sort of arrived and the technology model arrived and the way we do things arrive, and you see that all in the first-generation big cloud companies big cloud application company. There's a way you do things, right? So Aspen is taking a different approach that may or not -- may or may not prove effective. It's to say, well, it's a different approach. A different technical stack, a different approach there and a different pricing approach. It's just much more simple. You get your productivity $50, $50 a user a month. So it's not this crazy price, and you can't -- you don't know what it is, and you have to taggle with your sales rep for discounts and if your big companies this and that and 14 different additions. Now it's more like modeled off of Amazon Web Services. There's a price, okay? And it's a good product. You can buy us. You don't have to buy it. It's a good product. So we will lean into that. And then there's, of course, usage overage, okay. Let's say you buy 5 users, it's $50 a month and you put a terabyte of data in there for some reason. Well, okay. Well, that's not anything that anybody thought about. So there'll be overage charges that you will pay monthly on [indiscernible]. So you kind of is a mix. You get, I would say, we're shooting for mostly predictable because that's, at the end of the day, large businesses would really want mostly predictable. But you have to have this escape patch to say, yes, I can't use unlimited compute because that's kind of -- that doesn't make sense. So now we're also going to listen to our early customers, and we're a very customer-friendly company and if there's a better way to do it, we'll certainly do that. We're after authentically customer success. You got to remember, we're a public benefit corporation. We're after success for our customers, the industries we serve and Veeva on our investors. So the thing is make it simple, get rid of all this noise that have built up in the systems over time.

All right. That's really helpful. And then maybe just thinking through as Falcon and kind of your AI products grow, can you talk a little bit about under the hood, what sort of the AI stack looks like? And maybe more importantly, as these become a bigger portion of the business, drive greater usage and obviously, as you pointed out, Peter, greater customer success. How should we be thinking about the impact on margins, both gross margins as well as free cash flow margins. And is there an opportunity over time to leverage more multimodality and even some of the open weight models as they improve to control some of that potential gross margin headwind?

Yes. Again, I don't really want to make predictions on Falcon because it's early. But in general, I don't think we're going to have a gross margin problem. I think the gross margins will be roughly similar to our software. And here is why when we really go deep into Falcon and we have what we call Falcon copies, where we have the real customer data that we're testing, the agents with and developing agents with, we know what's going on. So more and more and more of that work goes into the deterministic software. And we use the nondeterministic models, the anthropic models, et cetera, when we need to. So it's not a lot of this value is going into the agent. And then I believe everybody knows that the cost of these models are going to go down versus whether they're with better hardware, or open weight models or et cetera, et cetera. The current cost of the models is not sustainable, not based on what we're doing, but based on this notion of what software development is doing, eating up 50% of the tokens in the world and hundreds of billions of dollars. Somebody is going to build a better mousetrap for that over time, and that will compress the prices. That's our belief. But even if that wouldn't happen, I think Falcon would be a great business because we're pushing a lot of things into the deterministic layer.

Your next question comes from the line of Tyler Radke with Citi.

Brian, just going back to your comments on the R&D side of the business and talking about kind of the stacking of those S curves. I was wondering if you could just be a bit more precise in terms of the timing and when you see the kind of the growth inflection happening from those S curves. And if you were to just sort of stack rank those products, you mentioned what sort of have the biggest opportunity to be the next $500 million or $1 billion products within R&D?

Yes, thanks for the question, Tyler. I think we are excited, risky about all of those products, all the 5 that I mentioned, EDC, eCOA, RTSM, Safety, LIMS, every one of those is very large and very strategic in their area. Few of them are around clinical, Safety in its own big space, LIMS and Quality. So each of these is very significant opportunity and at slightly different stages as you look across them, but all of them pretty early. And so I think that's what gives us the confidence as we look out to 2030, for example, that we're on track for those goals is we're making great progress on the product, great progress in the execution, great progress getting customers live and happy and successful and reference selling. We don't put exact timing on that, right? We don't generally talk year-by-year. So I'm not going to give guidance out beyond this year. But I think we feel very confident in the trajectory that we're on with those products in R&D.