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

Yes. Crossix, it's a great acquisition story, but it's a great business, too. The original deal thesis when we brought the Crossix team in, I guess, about 6 years ago now, was that the IP they developed will be the foundation for what's now our Compass data business. We felt the Crossix business was attractive in its own right. But I think it's surprised us with the investments that we've made and the good execution from that team, just how significant that business can be. When you think about marketers and advertisers, of course, they're going to measure their spend and try to make sure they're spending more effectively. That service can be done by third-party providers. Sometimes it's done by the agencies they work with. But there was really a need, an unmet need in that market for a strong third party that could do that very effectively. And to do it in a way that's now integrated with CRM, right, to build some of those linkages to the CRM and the marketing platforms over time. So that media optimization business is the larger area of Crossix and has been a big driver of growth for the past several years. Last year, Crossix was a key part of the outperformance of the full fiscal year, and that was really driven by the other side of Crossix, the audiences business. And that had been sort of a nascent business when we took over the Crossix team. We made a number of investments in the product over the last 2 or 3 years, and we saw that really explode. So we saw both a healthy end market again, but also a lot of share gain in audiences last year, which is the other side of digital marketing. So if optimization is about measuring and then optimizing the next year's spend, the audiences business is around placing your digital spend upfront with the right segments. And our product is pretty unique and that it allows them to develop really precision segments for the specific therapy they're selling. You want to find cardiovascular patients in the western half of the United States like we help you build that segment. So it's precision targeting in health care that's still HIPAA compliant and anonymized and meets all those regulatory requirements. So it's super unique. And as we have success with that and helping customers get higher ROI on digital spend, they, of course, want to invest more behind it. So it's a market where success can feed growth of the market.

So it sounds like there's some like real kind of secular drivers on that more than cyclicality?

Yes, that's right. And that's why I think you hear us consistently say we think that can be a durable grower. We think there's headroom for growth from a share perspective. We also think the market itself will continue to grow.

Okay. Shifting to CRM, obviously, that you had a lot of questions around top 20s, and I think at least we'll won't be having to track those top 20 wins for much longer, given we're kind of almost through those decisions. But how have the go lives on Vault CRM been going versus your expectations? And I guess for the folks that have gone live, like what are the benefits that they've seen versus the Veeva CRM.

Yes. So for those that may not be as familiar with the Veeva story, our very first product was CRM built on the Salesforce platform. We're in the process of migrating customers now from that Salesforce product to a Vault CRM product on our own Vault platform. That means we're now competing with Salesforce. And there's been a fair amount of noise, I would say, around that for the last couple of years. But we're making really great progress against that. We -- sometimes the top 20 is used as a yardstick for the overall migrations. Right now, of the top 20, 12 have selected Veeva, 6 have selected Salesforce. So there's 2 to go. We like our chances in both. We expect that those will largely be decided and announced by the end of the year. So that's going really well. But more importantly is not the decisions. It's the execution against the decisions that have been made. We talked very early in this about a decision for Veeva is a little different than a decision for Salesforce that we are very confident that we're going to get customers live and happy and having success. And we're seeing that play out. We've got more than 180 customers live on Vault CRM. We're not aware of any customers that are live on Salesforce CRM products. We've got numerous top 20s live, 5 that are live in different regions, 2 that are live globally across all regions. So it's going really well. The migrations are going well. And I think the feedback we've heard from customers is that the migrations have been very smooth. They've been on schedule. They've been on or under budget and that the product is delivering on its promise of innovation in AI but also in sort of the core areas of the application. I think increasingly, as we get further down the road of that migration, we can shift even more of the resources away from the support of the legacy product into the new product. And so that acceleration in innovation is the thing that I think we get most excited about internally over the next few years.

Okay. And not to introduce a third CRM name, but you did recently introduce Aspen CRM. Talk to us a little bit about the strategy there? And you talked about this earlier, lots of products, lots of things going on. How much of a priority, how much investment dollars are you kind of putting behind Aspen?

Yes, just to keep you on your toes, we also bought another name in. So Aspen is something different for Veeva. We announced it about a year ago, I think at our Investor Day, last year. And that's a move outside of life sciences. So everything we've been talking about so far is the life sciences space, which is 98% of our revenue today. Aspen is a move into horizontal software. And our first product in Aspen is going to be in CRM. We've got early adopters that we're working with right now. The team is making great progress. But we run that as a start-up inside of Veeva. It's got a lot of autonomy. It's got a lot of focus. It reports directly to Peter and we do that pretty deliberately. It allows them to be able to work very differently from big Veeva and function more like a start-up with short-cycle road maps. It also means that Peter is working directly with them versus filtered through other things. So that team is doing some really exciting work, and we think that the CRM market is ripe for a new entrant. And not everybody is going to agree with that. I think we're comfortable taking an unpopular opinion on that. But I think as we look across CRM, I don't talk to many people that say, I love working with my CRM. It really helps me. It's well designed. It's made for me, it's working effectively. We think there's an opportunity to do that much better to make a product that works better, like Zoom did with web conferencing several years ago and to sell that in a way that is much cheaper than the products on the market are today, and that's much more nimble and easier to evolve and sustain over time. But it's early days there. I don't view that as a near or even midterm meaningful financial opportunity. That's more of something that plays out in kind of a post 2030 time line that we're planting the seeds for now. and we're really pleased with the progress that team is making.

Okay. Brian, I'd be curious if you take just on some of the big announcements from your peers in the CRM space around headless and partnerships with Anthropic and seemingly kind of giving up the UI layer and maybe one interpretation of it. How does Veeva view that strategy? How important is it for you to own the UI layer for your customers?

I think of it less about do you have to own the UI layer then are you meeting the customer and the user where they are for the business process that has to be done. So our strategy is maybe a little bit broader than head list, which we've called dual mode, which is just to say, yes, you can access our applications through Claude or ChatGPT or MCP server and navigate them that way. And for some use cases, for some queries, that's going to be the right thing to do. But most of my history of Veeva is leading our sales operations team. And so I could say personally, I would never want to give up the entirety of the UI. The UI is how you focus your team on the job to be done. These are the steps that you need to follow. These are the priorities for right now. So UI adds a lot of value to many workflows and many processes. So I don't think it's either or. I think it's the ability to support both, and that's how we're thinking about the development of our products that our customers would be able to use those MCP servers to navigate through their preferred AI pain if they want to do that and also have a UI in the application that it's using. And then the third is Falcon, which becomes a user outside of the individual human that's using the application. So there's a lot of ways that the applications will get used, we think.

Right. And maybe we could shift a little bit to the R&D side of the business. I think for basically, since the IPO many years ago that had been a 20% and some years, much higher than that type of growth. This year, the guidance assumes that, that growth rate does take a decent step down, I think, into the mid-teens or so. Help us understand what's driving that? Because on one hand, we look at the TAM, right? These are multibillion-dollars -- greater than $10 billion revenue market. You're not highly penetrated there as you are in core CRM. So why is growth slowing if there's still so much more room to go?

Yes. I think overall, it's playing out largely as we had expected would be the headline there. When you think about R&D, we have a lot of products, but there have been 5 or so that have driven the majority of growth to date and then some add-ons that sit around them. So eTMF, CTMS, QualityDocs, QMS in our regulatory suite have been the 5 that really fueled growth to date in R&D. And they're large products, but they're getting to the point where they're at maturity. eTMF has 20 of the top 20 as customers. So there are some ramps continuing to come in, but there's no more selling to do on eTMF. It's just about making sure we maintain that position of product leadership. CTMS is not that far behind it. The quality products are not far behind it. So those products are at a pretty high level of maturity and growth from here on out is driven by a different set of products. It's driven by products like EDC and eCOA and RTSM, I'm sorry for the acronyms. But it's driven by a number of products across clinical, quality and safety. And so I think all you're seeing is that those S curves don't just stack up exactly. But it going to takes some time to get the new products to the scale that they're fueling the overall business. And that's largely what we expected. We alluded to that at the start of the year pretty directly when we gave our guidance. And Q3 is where you start to see some of that step down happen.

Yes. And how do you think about -- I mean, clearly, you have long-term targets out there that embed some level of S curve I'm sure. But how do you kind of think about this sort of gap in those S curves? And is there something we should track? I mean, I know you guys do a good job of usually calling out these top 20 wins. Are those kind of the leading indicators of these newer products starting to see ramps? Or how should we get comfortable around that, hey, that S curve is coming not too far down the road?

Yes. I think the main thing is obviously to look at the momentum of revenue in the business. And we're pretty transparent with how we call the business. We don't put a lot of hype into our numbers. And so we call it like we see it, and we're very direct on that. We'll give guidance for next year as we get closer to next year. We remain confident in the 2030 targets that were long-range targets we announced a couple of years ago, just not quite a couple of years ago. So I think we're pleased with the progress that we're making on these new products and the trajectory that they're on and that we're still on pace.

Yes. Got it. And maybe as we think about the tying this back to the broader vision, and you led off saying, Veeva is a vertical software maker, right? You got to make sure all your products work together. And I think that was a big piece of also this Veeva CRM to Vault CRM going to have it all on a common code base. Talk to us about like are there customers that have kind of gone all-in on Veeva, what does that look like? Is it a percentage of their wallet share, and just how do you think about how big this company could be if that vision is achieved?

Yes. I tend to think about it more on an area-by-area execution basis. We have a lot of different types of customers that we work with. So when you think about any large company, they have different ways of working. Some are more top down and they drive things programmatically, some are more decentralized and they would operate application by application for us. And I think part of what's important for us to do is to be able to work in either mode, to be able to work with the CEO and the Board when that's a conversation that they want to have around transforming their company and to be able to work with the director of an area of clinical operations when they want to modernize one clinical application. There's no one right or wrong way to do it, and we work with our customers in both ways. We do have some customers that have said we are going to standardize on Veeva. If there's a Veeva application that's fit for purpose, we're buying it. And we have memos of understanding and contracts, different structures to do that. We have customers that have said I'm going to standardize in one area. And we have customers to continue to go application by application. I think ultimately, our goal is to be the standard for the industry in every application we build. So that yardstick of eTMF supporting 20 of the top 20. That should be our yardstick that should be 50 of the top 50. We've got to earn that. It's going to take time to do that. But our goal is to be that kind of industry partner to all of our customers across every area.

Yes. I did want to touch a bit on profitability. Brian, I think there's some debate in the software industry as AI, a profitability booster or detractor for software companies. On one hand, you all are taking advantage of the efficiency that AI gives you in terms of operations, coding, et cetera. On the other hand, AI revenue has more COGS and certainly, AI talent is expensive. So how do you think about as Veeva becomes more of an AI company, what does that mean for profitability knowing that your long-term targets are, I'd say, a little flexible with the plus above, but they're a bit below where you are today. So how should we think about Veeva's profitability moving forward?

Yes. I think on the long range, we don't give long-range margin targets. We have a floor that we talk about to give people confidence we're not going to have an excessive investment cycle. But I think we've always thought about balancing growth and profitability. If you look at the early days of Veeva, I mean, Veeva was profitable very, very early on, a little bit unusual at the time for a tech company. And so that's pretty deeply embedded in the DNA of what we do. So when I think about AI, I think what I think about is how do you build products that deliver clear and differentiated value to customers. Because if you do that, you can charge for it. If you're delivering commodity AI then you're going to get marked down to the underlying commodity of the token input. But our Vault AI agents in the applications are definitely not commodity AI. They're -- we have full product teams building these things to work in pretty sophisticated ways. The Falcon products absolutely are not commodity. They're going to be taking a significant amount of manual repetitive labor costs out of our customers' operations that they can use to invest back in growth or pull through to the bottom line, they'll make decisions on how they want to redeploy those resources. But I don't worry about the ability to drive a profitable business when we deliver a product like that, that works. Where exactly that lands. I think it's a little bit too early to say. Peter, our CEO, on the last call, was pretty direct in saying there's not a reason to think we can't get software-like margins out of the Falcon business, in particular, over time. That doesn't mean we will. We've got to go and create enough value that we can do that. But I believe we can. And it starts with picking the right use cases and building the agents to deliver enough value that we can capture a fair share of that for Veeva.

Yes. That makes sense. There's a lot of events coming up for you in the next few months. I think you have your -- both your R&D Summit and Commercial Summit, if I'm not mistaken, as well as Investor Day probably in early November, typical timing holds true this year. What would you encourage investors to focus on both from product announcements as well as what to look forward to at Investor Day.

Yes. We're excited about all of those. We've got our Europe Commercial Summit coming up a little bit later this year, North America R&D coming up and our Investor Day on November 5, Gunnar? November 5. So we hope to see some of you there, too. We, I think, have covered so many of the topics that are of focus for us. I mean it is a broad-based business at this point, 10 application areas, 50 applications, an entire new area of AI that we're opening up in Falcon. So I think really just leaning into the progress that we're making in those areas, the road map that we're talking about for Aspen. We're looking forward to giving more detail on those things. Obviously, as we get a little bit closer. But it is an exciting time for Veeva. You go through these waves in companies like ours where you are innovating and expanding the aperture of the business and then where you're focused on execution of the opportunity in front of you. And it feels a bit like we're doing both right now, which is exciting, but we're certainly expanding the aperture. There's a lot of new things happening. And I think also a lot of really strong execution on the things that we've been known for, for the last couple of decades. So we look forward to sharing more about that with you at Investor Day and some of the announcements coming...

Yes, I look forward to a lot of exciting things ahead. Brian. I think it's a great place to wrap up as we're out of time. Thank you for a great discussion. Thanks, everyone, for joining. And I think we have the lunch keynote kicking off here in a few minutes. Thank you.

Thank you, everybody.