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

It is an exciting opportunity for us. When you look at the -- our revenue mix today, the majority of our revenue mix comes from ELAs from larger companies. there's a segment of the market that tends to buy the technology that we've been talking about, everything from EDC to the trial supplies and RTSM, they tend to buy it more trial by trial. . And we are approaching that market more cohesively in terms of how we position and sell the suite of products to that segment that buys for the trial but also in terms of the importance of the relationships that we have with the CROs. The CROs are here not only a customer of Veeva, but they're also a really core partner, and they can be an important channel to entering that market. They have particularly for small and midsized companies. They have an outsized influence and the decisions that those companies make. So we're still in the early days as they become more adopted. They have to shift over. Remember, there they've been used to, in many cases, using legacy technology for a long period of time. So they may have thousands of people that are very comfortable with the legacy technology and even though we provide technology that may be better, significantly better, they have to go through that change management process to move their teams over to change how they position and how they think and how they interact. So we're in that early stage, but it's great. It's a great longer-term opportunity for us to continue to sell through the CROs and to become the standard hopefully, across many, if not all, of the CROs over time. Adding IQVIA was a really nice advantage. They're one of the largest CROs, as you know, and we're in the early stages of starting to see some of the benefits of that partnership play through.

So now it seems like all of the top CROs or channel partners potentially for you. And you're saying you have to have the sales motion and you have to -- this people to be trained and understand how to maybe position Veeva as part of the sales discussion. What is going on right now? Like is -- when a trial sponsor goes to the CROs, is it just they declare who they want to use for their software, and that's basically what the CRO does? Or does the CRO actually have a preferred vendor that they recommend. Can you just take us through what's actually happening right now? And how do you expect that to change?

Yes. In some cases, the sponsor themselves would make a decision on the core technology. And in other cases, particularly the lower and smaller end of the market, the CRO would make a recommendation on the technology. And we're in different stages with different CROs in terms of -- some have standardized and they tend to recommend Veeva as a standard and others haven't yet, and they may do it more surgically or precisely. And our expectation over time is that more and more CROs adopt the best technology in Veeva as the standard when they do their proposal. So that's a journey. That's something that takes a long time. We don't take that lightly. It's on us to make sure that we continue to have the very best product technology that will help them deliver more effectively, deliver more efficiently. And that's what they want. They want to look to a provider and a partner who can help them provide their services more efficiently.

Now prior to the relationship with IQV becoming aligned commercially. I think historically, you've butter head, so to speak. And IQVIA's data solutions were not allowed in your platform, right? That has obviously changed. What does that mean for certain add-on products that you have related to data? And what does that mean for your own data products, which effectively competes with IQVIA and continues to compete -- is this now a headwind that I can be integrated as a tailwind? Can you unpack that for us?

Yes. It really helps both areas. It's good for IQVIA and Veeva. It's also -- it's great for the industry. So historically, our customers were -- they weren't able to buy some of our software products because they had standardized on IQVIA data, and it's just -- it wasn't going to work. So we actually stopped selling some of these products in different segments of the market. And now we're ramping that up. We're building connectors between our software and IQVIA data. So we're able to create more value. They can continue to standardize on IQVIA. They can use Veeva software now. And master data management is a good example of that. Master Data, you master customer information, and they have a lot of that customer information, we're able to work together. So that market, we are kind of restarting, we're kickstarting that market again, and that is a nice opportunity for us. It's a nice add-on that we didn't really -- we're really selling and now we can continue to sell. And then from a data perspective, there are areas where we compete and we'll both compete respectfully and customers may make a single-source decision. But I think what's also common is customers make more of like a dual source decision, where they may have picked either IQVIA and other data providers or Veeva and other data providers. Now they just may pick Veeva and IQVIA together because our data is able to work well together. So I think it does create an opportunity for both companies to become more of that standard for data sourcing rather than relying on one in a portfolio or a niche -- a set of niche data providers.

Okay. And I did say I'm not going to ask an A question, but I'm going to rent. I'm going to ask another a question. From a margin standpoint, I think historically, maybe historically a quarter or 2 ago, maybe you have said that AI margins are going to be between services margin and software margin. Now that your thinking has evolved on this, where do you think the AI margins can actually get to?

Yes. I mean I think -- it's still a little bit early, quite frankly. I think Peter made some comments more recently on the call about how Falcon margins may be more comparable to our subscription margins. I think we'll have to see how that plays out. But I think the underlying assumptions there was with Falcon, the ability to use more deterministic software for certain parts of the process. And then secondarily, to the extent that you see a reduction in token cost over time, we think we can -- because of the value we're delivering because of those 2 points I just made, margins may be more comparable to our subscription. But again, it's still pretty early days with Falcon. I think we're expecting to have our first customer go live later this year in our first top 20 to go live in the first half of next year. We're really excited about it, but it still is a little bit early days, certainly when you think about the margin profile.

Okay. So let's pivot to the CRM side of the business. Within the top 20, you're now at 12%. I think there's been 6 confirmed takeaways by Salesforce. There's 2 outstanding to be determined. Can you just talk about -- so that's pretty much already settled when we talk about win backs in a second. But outside of the top 20, can you just talk about what's your win rate there? What's your traction there? And how does that compare to Salesforce?

Yes. The win rate is very, very high. We -- you've heard us talk about where we are in top 20. There's only 2 decisions left in the 2 kind of outstanding in top 20, we're making a lot of progress on both of those. So we feel really good there. But outside of top 20, we're winning the vast majority and this includes really 2 groups. One, it's companies that are on Veeva CRM that are making a decision to migrate. We win the vast majority of those decisions in addition to companies that are selecting a CRM for the first time. These are net new logos, companies that didn't have anything in many cases before and they're choosing Veeva for the first time. And we've said our win rate is -- in both those areas is over 80% this year that remains the same. That's unchanged. So we're becoming -- and we've also -- just to frame the whole thing kind of where is this whole thing going to land. We've talked about over 70% market share in the CRM space is what Veeva will retain over time. So it's -- the market has spoken. This -- it's very clear. We are the market share leader. We will continue to be the market share leader.

And just maybe tying in this recent quarter, core CRM was really strong. It seems like it's a legacy product. Why was it -- why was this quarter is actually a strong quarter for core CRM.

Well, it includes what we're doing with Vault RM. So it was -- we -- in fact, we said it was our best quarter ever in CRM, and this includes decisions from some top 20s and in some large enterprise customers, companies like Lilly, and Biogen and Regeneron have made decisions to continue with Vault CRM. And then we now have over 180 customers live on Vault CRM. So more migrations done successfully. We've gotten the migration process down to a science on time. These are on budget. They're very, very efficient. So we've executed really well in the migrations, but it's also in the product progress. We had our first top 20 go live in all of the U.S. market with the Agente call report in Vault CRM. So we've talked about the promise of AI in Vault CRM, and now it's becoming a reality with some some significant companies. We expect more and more of that as companies go live on Vault CRM. We expect some will turn AI on day 1 which is a -- that's always been the promise of more innovation, and it's becoming a reality. So we're just executing well on all cylinders in CRM.

And within the top 20, Salesforce did have 6 wins. What gives you confidence that maybe some of those are going to come back to you? And if that does happen, do you have some kind of line of sight of potentially when that could happen?

Yes. I mean, we've talked about that for a number of quarters now. We do have confidence and conviction. And I think what's becoming more and more clear is as more time passes, there's a clear -- there's more and more evidence that supports Veeva's execution compared to what's happening on the other side. So Salesforce, a number of projects have and struggle. They've been delayed. And on the Veeva side, we're executing, as I've talked about, getting customers live, getting them to turn on new innovation. We are in discussion with all of these customers. These companies that have made a Salesforce decision, they're very significant and meaningful customers of Veeva across many, many different areas. We stay close. We're working with them. And that's what gives us the confidence. The difference in execution with Veeva versus what they're running up against in Salesforce. And as more and more time passes, that becomes more and more clear to the overall market.

And on CRM front, you recently introduced Aspen CRM, which is your pursuit of the horizontal app strategy called out previously. I guess what do you think gives you the right to win in the horizontal space? CRM is a very crowded market, highly competitive. Can you just lay out your strategy and your vision here?

Yes, sure. It's certainly -- it's a very significant market, which I think speaks to the fact that it's crowded and there is a lot of competition. I think there's still a big opportunity to do CRM really well. And I think historically, if you look back at the ROI that companies have -- the investments they've made in CRM have been disproportionate to the ROI that they've achieved. We think we can do something that's better, it's faster, it's cheaper, like a CRM that you can get up and running very, very quickly that you can get a lot of value from. We would love nothing more than companies to say, "Hey, I love my CRM system. I'm getting all the value that I had anticipated out of that," that's uncommon today. And it's -- we think it's uncommon but unnecessary also. So our opportunity is not only to deliver the next generation of platform and technology but also to be a more friendly company, a more transparent company to be easier to do business with. And you see that even on the website. It's just very clear what our licensing model is, how it's going to be, it's super transparent and we want to do that from a partner and a company that people can trust, which Veeva has earned that right for sure in the life sciences industry, we think we can do it horizontally also.

Okay. And your CRM business is about 50% of your Commercial Cloud business. So commercial cloud obviously has Crossix has data clouds, all these other products, I think PromoMats, MedComms. If we think about this other bucket outside of CRM, what's -- what are you excited about there? Where are you seeing traction and momentum in the business?

Yes. I think first and foremost, Crossix has been a very strong performer. After we made that acquisition about 6 years ago, we've continued to make investments in a lot of their products, those investments are paying off in the products, also in the go-to-market, focusing on broader segments of the market. So from a product perspective, it's measurement and audiences. We made huge investments in audiences -- we've become the market share leader, the very best product in measurement. We're doing the same in the audience side. So we're increasing share in that part of the market. So Crossix has been a very nice and strong and will be a durable grower over many, many years to come, particularly as digital becomes more of an important channel to the market, a way that companies are investing in new digital engagements, they need to measure that effectiveness. Beyond Crossix, we've seen strength really in all parts of the business, commercial content. We're the established market share leader, but we're also innovating there and Falcon MLR is yet another layer to that. connecting the Agentic layer that does the review and approval process with the core underlying enterprise application, big advantage for Veeva. So I see that as a continued area of growth and then in the data products, and Link has led the way from a data side for one of the first link product is called Linke People, and we've become the market share leader in that space. And there's a series of additional products that follow that that are much earlier stage in the market, but we feel really confident in those. And then some earlier-stage products like Compass, Compass patient data, COMPASS prescriber data, very significant market opportunities for us. These are markets that play out over a long period of time, but the early parts of the market, we're doing well. And we're getting those early customers, we're establishing the right to win in the broader market.

So 12 months from now, if you're back here, hopefully. And you're kind of recapping the success that you've seen over the previous 12 months. What do you think would be the 2, 3 things that you would highlight that really demonstrated that you've executed against your vision?

Yes. I think it will be a -- I think it will continue to be broad-based. I think you'll hear me talk about Crossix again. I think you'll hear us talking more about the agentic layer. So what we're doing with Falcon and Falcon MLR is the 1 that's available today. There may or may not be more in the commercial space. And I think you'll hear us talk about continued progress in data. Every quarter that goes by, we're making more and more progress from a product perspective, but also a market adoption perspective. So I think it will be more of the same and maybe even some new announcements.

That would be great. Awesome. Well, thanks so much. Thanks, everybody, for joining us.

All right. Thanks, Ken.