Thank you for joining us for the Veeva Systems Fiscal 2021 Third Quarter Results Conference Call. All participants are currently in listen-only mode. After the presentation, we will have a question-and-answer session. I will now turn the call over to Ato Garrett, Senior Director of Investor Relations. Thank you, and you may proceed.

Good afternoon, and welcome to Veeva's fiscal 2021 third quarter earnings call for the quarter ended October 31, 2020. With me on today's call are Peter Gassner, our Chief Executive Officer; Paul Shawah, EVP, Strategy; and Brent Bowman, our Chief Financial Officer. During the course of this conference call, we will make forward-looking statements regarding trends, our strategies, and the anticipated performance of the business. These forward-looking statements will be based on management's current views and expectations and are subject to various risks and uncertainties, including those related to the impacts of COVID-19 on our business, the life sciences industry, and global economic conditions. 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, which is available on the company's website at www.veeva.com under the Investors section, and on the SEC website at www.sec.gov. Forward-looking statements made during the call today are being made as of today, December 1, 2020, based on the facts available to us today. If this call is replayed or viewed 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 statements. We will provide 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. The guidance we will provide today is in part based on our current assumptions as to the macroeconomic environment in which we will be operating in the future, including the timing and pace of recovery from any negative effects caused by COVID-19. Such matters that are beyond our control and our assumptions may not be correct and may change rapidly. On the call, we will 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. A reconciliation can also be found as an exhibit to the Form 8-K filed with the SEC just before this call. With that, thank you for joining us, and I'll turn it over to Peter.

Thank you, Ato. Before we get started, I'd like to extend our sympathies to everyone affected by the pandemic, and our gratitude to all those working to help in so many ways, including our customers. The industry has produced effective vaccine candidates, rapid diagnostics, and approved treatments, all in a matter of months. We are proud to be working with these amazing companies, and I'm proud of how the Veeva team has stepped up to help. Now, turning to Q3. We had another quarter of consistent execution and results ahead of guidance. Total revenue was $378 million, up 34% year-over-year. Subscription revenue also grew 34% year-over-year and non-GAAP operating margin was 41%. We are pleased with our results and how we're expanding customer relationships during a major digital transformation. We've been able to help customers with immediate needs to open up digital channels in commercial and clinical, and we're also helping them to find the right digital models for the long-term. For example, on the commercial side, we recently announced the strategic partnership with an emerging biopharma to help them define and execute an innovative digital-first commercial model. They will utilize the full commercial cloud, including Veeva CRM, Data Cloud, Veeva Link, MyVeeva, and Business Consulting. That level of trust and confidence in our ability to deliver came through strongly in our Q3 new wins and expansions. We added 19 new CRM customers, our biggest quarterly increase yet. We continue to grow market share and had multiple international expansions in CRM with existing customers. We also progressed well in our newer areas, including Data Cloud, MyVeeva for Doctors, and Veeva Link. We expect these products will set us up for a long runway of growth in commercial. It's an exciting time in commercial and a time of change. We think our customers can generate meaningful productivity gains over the coming years as they increasingly leverage digital. We're excited to enable that transformation through our technology. With Veeva Vault, we've seen significant progress in Development Cloud adoption. Customers are increasingly purchasing multiple products at once, including our recently announced top five pharma, who selected Veeva Vault products in clinical operations, quality, and regulatory. This is a major transformation, which they will implement over the next two to three years. We're also seeing more customers expand Vault usage within each area of Development Cloud. In clinical operations, Vault CTMS had a standout quarter. We now have more than 75 customers, including six of the top 20 that have chosen to standardize on Vault CTMS. This is a remarkable pace of adoption, given the product was launched just over three years ago. This rapid uptake is based on the trust we've built in clinical operations with Vault eTMF, and the power of having a unified suite for clinical operations. In the area of clinical, I am particularly excited about Veeva Clinical Network, where we're bringing real innovation to the industry to help advance the move to paperless and patient-centric clinical trials. Clinical Network connects sponsors, sites, and patients, and has the potential to fundamentally change how the industry conducts trials. We announced our first Clinical Network application, Veeva Site Connect, to connect sites and sponsors, and in Q3 closed our first top 20 customer for Site Connect. In Quality, we had 20 net new customers select Vault QualityDocs, and we now have 12 of the top 20 pharmas as QualityDocs customers. Safety also continues to progress well with our early adopters, and we added four new customers. We also started our first Safety AI project in the quarter. Outside of life sciences, as the pandemic continues to drive changes in consumer goods and cosmetics, companies are looking to us for agile global solutions that can help them quickly adapt. This dynamic drove a major win in Q3 with another large CPG customer. We also brought together nearly 800 leaders from across consumer goods, cosmetics, and chemicals for an Online Quality and Regulatory Summit to share best practices and insights. Overall, we are pleased with our growing reach and momentum in these industries. Now, I'll share some additional thoughts as we look ahead to next year. On the Commercial Cloud side of the business, customers will find new ways to be more efficient by adopting our digital solutions. We believe this will likely drive field force reductions in the neighborhood of 10% over the coming year. At the same time, we expect to increase market share in CRM and see further adoption of CRM add-on products such as Engage, Events, and Align. We also expect greater adoption for Veeva Link, and it will be an important early adopter year for Data Cloud and MyVeeva. We expect Vault to continue its strong growth, particularly Development Cloud, with progress across the board in clinical, quality, and regulatory. It's still early in terms of revenue for CDMS and Safety, but we have very strong early adopter momentum and broad customer interest, which will serve us well in these large markets in the coming years. We're also excited about the future of Clinical Network, and we expect another year of consistent growth outside of life sciences in CPG, chemicals, and cosmetics. And finally, I'd like to update you on our proposed conversion to a public benefit corporation. We have completed our communication process with customers and investors, and the feedback has been largely positive. We also completed the comment process with the SEC and are filing a revised proxy this week. We will hold a special shareholder meeting to vote on the proposed PBC conversion on January 13. In closing, I'd like to say how proud I am of the Veeva team for the exceptional teamwork, flexibility, innovation, and execution throughout the year. It's that combination of trust, great people, and great products that has put us in a position to really help the industry during this time of change. Now, I'll turn it over to Brent for a financial update.

Thanks, Peter. Q3 was a quarter of very strong execution. Bookings and services performance were both better than expected, with notable acceleration in Development Cloud applications like CTMS and QMS that are early in the reference selling cycle. This led to outperformance in both subscription and services revenue. This strong demand in bookings and services also led to a calculated billings total that was $26 million above our guidance for the quarter. Billings also benefited from better than expected billing duration for the business closed in Q3. Hiring performance in Q3 was also especially strong. We ended the quarter with 4,304 employees, a net increase of 280 from Q2. Much of this increase in headcount was within our Vault services teams and in our product teams, especially those product teams working on newer applications like CDMS safety, Data Cloud, and MyVeeva. Q3 operating margin benefited from roughly 250 basis points of pandemic-related cost savings from reduced travel and customer events that have moved to virtual, a level similar to the previous quarter. We anticipate a comparable benefit to operating margins in Q4 and into the beginning of next year. Turning to guidance for the fourth quarter, total revenue is expected to be $378 million to $380 million with subscription revenue of roughly $315 million and services revenue of $63 million to $65 million. Note that this implies a sequential drop in services revenue of about $10 million to $12 million from the third quarter, while our services business always has a high degree of variability. There are a couple of reasons for the size of this change. The biggest factor is our normal seasonal pattern resulting from fewer billable days around the holidays and our field kickoff. Our digital events business also has a similar seasonal pattern with fewer events around the holiday. Non-GAAP operating income for the fourth quarter is expected to be $136 million to $138 million, a non-GAAP operating margin of about 36%. Note that while Q4 is typically a seasonally lower margin quarter, this year, we expect incremental expenses related to additional data supplier contracts as we invest in our Data Cloud product. These expenses will appear in our costs of subscription services revenue line. We will also continue to aggressively hire as we scale to meet near-term demand and plant seeds for longer-term growth. Q4 non-GAAP EPS is projected to be $0.67 to $0.68 based on diluted share count of approximately $162.5 million. We anticipate calculated billings of roughly $640 million in Q4, which includes a benefit of about $10 million related to one large customer we expect to switch from quarterly to annual billing term. Please remember that there are numerous factors that make year-over-year comparisons of this metric highly variable on a quarterly basis. Therefore we do not believe quarterly billings growth is a good indicator of the underlying momentum of our business, and we do not manage to it internally. Our subscription revenue guidance and calculated billings guidance for the full year are the best indicators of our momentum. All of these Q4 guidance metrics imply the following numbers for the full year: total revenue of $1.446 billion to $1.448 billion, subscription revenue of about $1.172 billion, non-GAAP operating income of $566 million to $568 million, and calculated billings of about $1.550 billion. We now project non-GAAP EPS for the full year of $2.83 to $2.84 based on a fully diluted share count of approximately $161 million. Note that within subscription revenue, we expect commercial cloud to finish the year at about $595 million and Vault to come in at about $577 million. We now expect prospects to contribute $78 million to $80 million within subscription revenue. This is up $2 million from our previous estimate and that business has benefited from the gradual rebound of advertising spend within life sciences companies. Within the total revenue line, we now expect a combined contribution from Crossix and Physician's World to represent $97 million to $100 million for the full year. Finally, we are also raising our guidance for the full year cash flow from operations, excluding the excess tax benefit to $500 million, up from $475 million previously, based primarily on billings outperformance in Q3. Before I close, let me give an initial outlook for fiscal 2022. Please note that we are still in the process of finalizing the plan and will provide formal guidance on the Q4 earnings call. Currently, our initial outlook for next year is for total revenue of $1.700 billion to $1.720 billion. Within that guide, we expect subscription revenue of roughly $1.390 billion to $1.400 billion. We will provide more specific guidance on the next earnings call, including breakdowns of Commercial Cloud and Vault. Overall, the life science industry remains healthy and continues to invest for the future, which gives us confidence in this early guide for next year. Based on our early spending plans, we expect non-GAAP operating margins of roughly 37% for the full year. This would represent a compression of about 200 basis points from fiscal '21, which is driven primarily by three things. First, we plan to continue investing in our Data Cloud product through additional data supplier relationships. Second, we're assuming that travel and event-related expenses will start to return at some point next year. Lastly, we plan to continue hiring aggressively for customer success and product innovation. With that, let me close by saying that I'm extremely pleased with the results in the quarter, and I'm very excited for the foundation we've laid for next year. The team's outstanding and consistent performance gives me confidence in our ability to achieve our target of $3 billion in total revenue in calendar 2025. Thanks for joining us today. And now, I'll turn it over to the operator for questions.

Our first question comes from Bhavan Suri with William Blair. Your line is open.

Hey, guys. Thanks for taking my question, and really nice job there. Maybe Peter, we'll start with you. We've now seen sort of a handful of vaccine candidates come to market and hopefully have them broadly disseminated over the next several months. I guess, as that's happened, I'd love to know if you are seeing how the appetite from existing potential customers might have shifted or has it shifted to sort of think about transforming the clinical technology as the platform, so sort of the idea that we want to adopt all of the Veeva platform. You mentioned one customer who had chosen to do that. But I'd like to just sort of understand sort of even within the existing base and new logo sort of has there been a shift now that there's sort of a sense of light at the end of the tunnel, has there been some sense that maybe we should start accelerating initiatives? Are you seeing any of that or is that too early? Because you sort of said you're not a beneficiary of COVID or not a large beneficiary of COVID. But coming out of this, it feels like digitization, cloud, and the integrated platform would make sense. I would love to see if you're hearing or seeing anything, any color from existing and new customers around that?

Got it. Bhavan, regarding the vaccine candidates, they are generally progressing as expected for the life sciences industry. The major markets are anticipating that most people will be vaccinated next year. If we look back to around May, this aligns with the industry's expectations, so there are no surprises. The significant change is the growing recognition of the importance of digital on both the commercial and clinical fronts. Digital is likely to be the main beneficiary, rather than a focus on the end of the COVID situation, which was anticipated. The life sciences industry now seems more comfortable with digital and is likely to invest more in it compared to their mindset in March or April.

Got it.

And that will assist us in a general sense, but it’s not tied to a specific quarter and isn’t a short-term initiative; I believe it represents a long-term transition towards increased digitization.

Yes. And then just to follow-up on that. You sort of talked about sort of the setup here, but I think of MyVeeva for Doctors, love to know any early takeaways of MyVeeva for Patients coming out. When you offer this level of connectivity that really isn't available today and make that flow of information better, I'd love to understand what you're hearing from your customers as you talk to them about MyVeeva for Patients, sort of the excitement, the interest levels, any color there would be really helpful? Thank you.

Yes. It's really helping our MyVeeva, both MyVeeva for Doctors and MyVeeva for Patients, by enabling our customers to connect more efficiently with their customers. There is a lot of enthusiasm, but there is also significant change management involved, which will take some time to navigate. This represents a business process change, especially on the clinical and commercial sides, so I expect a slow and steady uptake because it's a major shift. It’s too early to provide any kind of projection on its ramp-up.

Fair enough. Nice job, guys. Thanks for taking my questions.

Thanks.

Our next question is from Christopher Merwin with Goldman Sachs. Your line is open.

Hi, thank you for taking my question. I wanted to inquire about the growth in CRM customers. I believe you had a record increase of 19 new customers. Were these mostly small commercial ones, or can you share any other details about this increase in customer count? Thank you.

Yes, Christopher, thanks. This is Paul. We're really pleased with the 19 new CRM wins that Peter mentioned, particularly in the core CRM space, and we're seeing strong growth in our U.S. SMB market. Many of these new customers are pre-commercial companies looking to launch, while others are transitioning from legacy CRM systems to Veeva. A couple of factors are contributing to this trend. First, the industry is focusing on becoming more digital and efficient, and they trust Veeva to help them achieve that, as we have demonstrated over the last several months and years. Additionally, there is a strong trust in Veeva as a strategic partner, encouraging them to transition to digital solutions quickly with our support. Overall, we have great momentum in CRM with these net new wins.

Got it. And maybe just as a quick follow-up to that, I mean, you've seen better and better add-on adoption with those wins, and are those winning larger than they have before or anything you'd call out there?

We have seen a shift in how companies approach our offerings compared to a few years ago. Previously, companies might have sought a CRM system and left with just that and maybe a couple of add-ons. Now, they are looking for a more comprehensive and strategic partnership and are purchasing more products upfront, including Veeva CRM along with several add-ons simultaneously. There’s a noticeable trend toward adopting more digital solutions quickly, such as Approved Email and Engage. We're experiencing an increase in both CRM and associated add-ons.

Okay, great. Thank you.

Our next question is from Ken Wong with Guggenheim Securities. Your line is open.

Great. Thanks for taking my question, guys. This is building a bit on Chris' question just now. Peter or Paul, can you guys perhaps talk about the competitive landscape in the CRM Commercial Cloud area? Anything you're seeing from customers during the pandemic that you think perhaps might help or hurt your competitive position here?

Yes, things are going really well. This is reflected in some of our numbers, particularly the record number of new CRM wins. Overall, the dynamics remain consistent; we continue to win most deals and are increasing our market share. However, one notable change in the competitive landscape over the last quarter is that we have seen two replacements of IQVIA's new OCE product, which they built on Salesforce.com and has been in the market for a couple of years. This is a new development for us. What we are observing is that companies are trying this product, but it hasn't met their expectations in terms of product quality or service. As a result, they are seeking a trusted partner who can effectively execute their digital needs. We have experienced these two replacements, and while they are challenging and take time, I anticipate that we will see more of them in the future.

Great. Thanks a lot, Paul, and maybe one for you, Brent, you touched on some gross margin headwinds as you guys start to build up the Data Cloud product. Just wondering if you might be able to help quantify what that hit might be to gross margins, and as we think about our numbers going forward, is that more of a one-time hit, is that something that will continue to build over time? Any color there would be helpful?

Yes, as we look at gross margins going out, so there's a number of investments, so you mentioned the Data Cloud. That is something that we'll be building over time over a couple of years, and we're not going to break out specifically how much that would be, but that's been factored into our ops margin projections for next year, our guide, as well as factored into our 2025 guide. So, I guess I'd leave you with that, from that perspective.

Great, thanks a lot.

Our next question is from Bryan Peterson with Raymond James. Your line is open.

Hi, everyone. Thanks for taking the question. So I actually wanted to start with the efforts outside of life sciences. You referenced another large CPG win this quarter. I'm not sure who wants to take this, but I know there's a gradual kind of go-to-market build focus on early adopters, but has the inbound interest from large customers been quicker than you have expected, and does that potentially accelerate that timeline on the go-to-market side?

Hi, Bryan. I would say not quicker than I expected. This is a very sticky application area that we're involved in, specifically regarding quality and manufacturing regulatory claims management, making it difficult to enter and exit the market. Therefore, this is not something that they will jump on. It has been steady, as we anticipated. The pandemic has not significantly impacted us there, aside from a temporary issue in the cosmetics market, which has been a hard-hit sector.

Okay, and maybe just a follow-up, and Peter, I think I made the comment on fiscal year '22, that you were expecting the field sales reps to maybe be down about 10%. I want to make sure I heard that right, and I'm curious, is that broad-based across the customer base or is that in some instances they're down more, and some are in line. Just, I guess I'm trying to think about that for fiscal year '22, and then how that's kind of factored into your longer-term targets?

Yes, Bryan, I'll actually have Paul take that one.

Yes, I'll provide some insights on that. First, regarding the overall 10% figure, our perspective is informed by numerous discussions with our customers. We consistently engage in strategic conversations about the future of the sales force and also base our views on Veeva's estimates. As we observe the market, we see an opportunity to help the industry become more efficient and digital. This transition to digital is highly beneficial for Veeva. As companies increasingly adopt more products from Veeva Commercial Cloud, including offerings like Approved Email and Engage, they enhance their efficiency, and we are supporting that transformation. You'll also notice this shift reflected in our innovation. We're working to speed up the process with new products like MyVeeva for Doctors, facilitating a quicker and more efficient move to digital for the industry. One key takeaway is that we remain very confident in our targets for 2025, as we have always anticipated some level of reduction. However, we are observing that this reduction is occurring at a faster pace than we initially expected due to the industry's rapid shift to digital.

Thanks, Paul.

In addition to that…

Well, sorry, Peter.

Sorry, and just to add on there, Bryan, the specific one about some customers more than others, not really so much, I would say it doesn't depend on therapeutic areas so much, although the more broad-based general medicines might have a little more reduction, that specialty areas might have a little less, and then there will always be company-specific factors, but there's no macro trend there why it would affect one customer more than another.

Thank you.

Our next question is from Stan Zlotsky with Morgan Stanley. Your line is open.

Hey, guys. Good afternoon and thank you so much for taking my questions, and congratulations on a very strong quarter. Peter, maybe one for you, you mentioned in your prepared remarks there's potential for global sales headcount in pharma to decline by 10% next year. When you're talking to your existing customers and thinking about how they're spending with Veeva, Veeva's Commercial Cloud would trend. How are they thinking about the strategic positioning of your product in order to frankly just enable them to sell, versus the potential headwind of less sales reps?

Yes, Stan, as companies reduce their sales teams, the sales process is becoming increasingly digital and reliant on technology. This is a positive development for Veeva because it means they will invest more in technology and data while relying less on personnel, which benefits us. We are optimistic about the growth of the Commercial Cloud and anticipate continued growth next year and into 2025. We were aware of this trend and expected it to occur gradually, but COVID has accelerated it somewhat.

Got it, got it. That makes sense, and then, on billings right duration I would guess this is for Brent, you mentioned that you saw a little bit of a benefit in Q3 to billings, due to slow longer duration. Could you dig into that a little bit, and anything to note on FX or anything else one time that you saw in Q3 billings?

Yes, I'll answer your second question first. So regarding FX, very minimal tailwind on FX, so nothing to really note there, and then on the duration, it's really a factor, a function of the customer and the specific deal and sometimes in Q3, you often see coterminous fields, we saw a few less coterminous, and that created the duration tailwind that I spoke of.

All right, thank you so much.

Next question is from Rishi Jaluria with D.A. Davidson. Your line is open.

Hey guys, thanks for taking my questions and nice to see continued strong execution. I wanted to start maybe with talking about CRM Engage at the virtual analyst; they recently gave us some really impressive numbers on Engage meetings growth this year. I think you said, 891% growth on Engage meetings started when you gave that number, just how should we be thinking about that, how should we think about traction with the Engage business next year especially as the Engage meetings, free period and December 31st and kind of putting that in context as well with the commentary around that 10% reduction in the field sales force that you expect next year? And then, I got a follow-up.

Let me start with that. The Engage trend is progressing very well, with companies consistently adopting it and learning how to use it effectively. This represents a significant change in their approach to digital transformation. Our customers are improving, and we are supporting them by providing not only software and technology, but also the necessary domain expertise and business guidance for using Engage efficiently. We are aligned with our customers' needs and they are recognizing value in our offerings. Discussions regarding renewals are occurring as the complimentary period concludes at the end of the year. We anticipate that most companies that started with free Engage will continue next year because the product is performing well in the market and they view us as a trusted strategic partner. While I expect most companies will maintain their use, they may not achieve full deployment this year. They will likely reach a substantial number of their users, and many will have expansion opportunities next year and beyond.

Okay, got it. That's helpful, and then, just on the preliminary outlook for next year. I guess a little surprised on seeing the subscription revenue target because that's closer to 19% growth, and I know historically there's been kind of the discussion of sustaining 20% plus subscription growth rate for the foreseeable future. Just want to maybe get a sense for what assumptions are baked into the outlook on this subscription fund right. I mean, especially talking about the fact that you're on target to do 24% organic subscription growth this year ex Crossix and Physicians world, I'm talking about 19% growth next year, maybe help us understand that and any moving pieces that might be a good thing there.

Sure. I'm happy to. So, first I'm very pleased by the strong demand and our ability for us to drive customer success. So, this guide for next year lines us up very well for us to get our 2025 targets, not going to get into any splits regarding what's under the hood on that, that's typical that would come in our Q4 call. So I'm not going to give you any color around that, but we're very positive and feel good about the growth we're seeing in the Vault space, as well as the continued growth in the commercial space.

All right, great. Thank you, guys.

Our next question is from Sandy Draper with Truist Securities. Your line is open.

Thanks so much. A lot of my questions have been asked and answered. So maybe just one on the Data acquisition and the cost there, when you're looking at finding new data sources and connections? Are you trying to go to customers or data sources that that others are in a sense that you're going to try to get exclusive rights to data as this data sources that other people data connectivity or system connectivity, and finding a way that others can? I'm just trying to understand the approach to building that dataset and how they think about, I know you're not going to specifically carve out costs, but how to think about cost versus what you're paying versus what maybe a competitor might pay? Thanks.

Yes, I'll take that one. We'll keep that a little bit close to the best Data acquisition, Data production strategy. So that's a bit of proprietary things that we're doing, that's very unique to Data Cloud, and that's one of the reasons why we really think we found a jewel in the Crossix and the Crossix Data platform, because the way it ingests, the way it matches the patient data is quite unique, but I will give you some broad brush, we hope to come in data cost less than our competitors, and we hope to have more data sources. So multiple triangulations of each different data transaction in the healthcare system, because when you think about it, when there's interaction between the patient and the doctor payer, multiple people have copies of that information because of our technology, we're able to piece that together, so we get multiple views on it, and at a lower cost because we're not dependent on any one particular view, so very happy about that. Then if we step back, what is actually going on with Data Cloud. It's a real difference in how we're making the state of the data products, it says different as moving from client server to cloud software. So we're focusing on the longitudinal patient data, the real picture of the patient as they flow through healthcare events in the same longitudinal view from the prescribers point of view. So I would say, it's not going to be too valid to compare us either to the entrenched way of doing things, because we're going to do a fundamentally different thing.

Got it. That's really helpful, I guess that maybe will lead me to my follow-up, Peter, in terms of so it sounds like once you have to build the dataset, but there may be an education process, because the intense way of doing things is by definition and trends, and so, you're going to have to get behavioral change and get people to change things that they've been doing for years and years and years. So I guess the first step is build the data set to a point and then it's really educating the market about why you think you're going to have something better, is that a reasonable way to think about it?

Absolutely, it'll follow the classic early adopter cycle that you find when you're doing true innovation because you'll have to find those people that they want to be early on the product maturity lifecycle, but also open to a way of doing things fundamentally different. Now, oftentimes, that'll happen with small biotechs, we're really, really looking for that edge, you'll find that larger companies may be more conservative, and maybe rightly so they have a larger boat to steer. So they'll be gradual. I didn't want to connect the dots between Data Cloud and our CRM win, as Paul mentioned, customers looking for product and a customer they can trust, which is true, but also especially the small biotechs, they're now seeing that vision of Data Cloud well, maybe I can get the complete commercial package together; Data Insights, analytics, technology, all from Veeva. So I think the Data Cloud business will have a positive effect on our CRM business over time, and it's already even showing today.

Great, that's really helpful commentary, Peter. I appreciate it.

Thank you.

Our next question is from Saket Kalia with Barclays. Your line is open.

Okay, great. Hey, thanks for taking my questions here guys. Maybe first for you, Peter, I think the uptake on CTMS is great to see in Vault clinical. I think it was something like 75 customers in just three years of availability, and I'm curious, how would you compare this ramp in CTMS to CDMS and perhaps how each ramp could be different in terms of adoption then and perhaps bookings contribution? Does that make sense?

Yes, I was just trying to unmute myself. The two applications are quite different. CTMS was developed around the same time as CDMS, with CTMS starting a bit earlier. CTMS has a foundation in our clinical operations suite, which gave it a head start; thus, it has matured faster than CDMS. CTMS directly connects to clinical research sites, which makes them more cautious as they need to set up their studies carefully. They will begin with a few trials, approaching the market with caution. In contrast, we spent around six or seven years building Veeva's reputation in clinical data management, which established CDMS a bit later. Therefore, CTMS has progressed more quickly than CDMS. A significant factor for future CDMS adoption will be its relationship with Vault. One way we're approaching this is by setting up AI in series with Vault to manage specific tasks autonomously. For instance, safety data AI can assist with case intake, processing incoming information via email or other means to understand the context, identify the product involved, and code complaints effectively, including identifying duplicates. This involves high volume processing where we can leverage safety.ai. Additionally, next year, you'll see AI used for classifying documents related to clinical trials, another high-volume area suitable for Vault handling. Over time, you’ll also see this in our quality suite regarding product complaints, which differ from safety events, focusing instead on issues like product packaging or other non-safety related complaints. This is where we will see increasing automation.

Okay. That's great, and I wanted to make sure I'm just totally clear on the outlook for Engage. Paul, when you talk about most of the growth kind of happening this year is that just insight on the potential new users that you already have visibility on and kind of the contribution of those new users from a financial standpoint will therefore slow when next fiscal year, fiscal 2022 is, is that the right sequencing?

Yes. So when I was referencing companies that have turned on free Engage and will continue to renew, and that will end up being the larger contribution. When you look at the overall size of the engaged market, the bump that we'll see this year will be larger than the bump that we see next year, and even perhaps the year beyond that as well, because many of our customers have turned on for Engage, and we expect the majority of them to continue with a renewable. So we'll see a significant increase this year, and then, over time more of our customers, those same companies will expand their usage of Engage, but also net new companies will happen as well, the companies that haven't turned on Engage yet for whatever reason, will start to turn it on over time.

And maybe, if I might be able to add, that'll manifest itself as a bump in billings this fiscal year, and then you will see that revenue contribution in fiscal year '22, just to be clear.

Okay, great. Thank you.

Our next question is from Ryan MacDonald with Needham. Your line is open.

I'm Ryan MacDonald on Scott Berg. Thank you for taking my question. At the Analyst Day, Brent, I noticed the slide showing the trends in modules per customer, with penetration increasing from 2.41 in fiscal '20 to 2.5 recently. As the company looks ahead at subscription growth expectations, while expanding your penetration by less than a quarter of a module annually, how should we consider the near-term cross-sell cadence needed to achieve over 20% subscription growth? Is it necessary to adjust penetration to reach these growth rates?

You should expect to see a consistent flow of additional upsell within our existing customer base, along with new business as well. Therefore, I don't anticipate any changes in our approach that would impact our ability to meet the targets we have set.

Excellent, and as a follow-up, it's great to see the cross excess starting to come in above initial expectations for this year and sort of recovering a bit, but if we look at the expectations for Physicians World, it seems like those have remained, I think relatively consistent. As we are now starting to get visibility into a vaccine, how are you starting to think about the recovery for that physician's world business and perhaps some assumptions that you're looking at going into calendar year '21? Thanks.

I'll take that into the traditional world that will. Excuse me, gentlemen. That'll recover sort of with I think with the vaccine where people feel comfortable, broadly speaking in the face-to-face event, so we're looking towards sometime towards the end of next year I think that would be a reasonable expectation for the physician to begin. Now having said that, we are starting to get really momentum and starting to lead a bit in innovation we're doing around digital. So there's a potential that in the long-term as we look at maybe not next year, but the following year, I believe you're going to be gaining market share there and adding more value with both digital and face-to-face events and other services around that. So, I'm pretty bullish on the physician world business. It'll have another nine months, of a little lagging impact right now.

Excellent, thanks again.

Our next question is from Brad Sills with Bank of America Merrill Lynch. Your line is open.

Thanks for taking my question. I wanted to ask about the clinical top 50, a market segment where we've seen significant progress recently. Can you remind us of our position in the replacement cycle for this segment? You've already achieved several wins in the top 20 category. Should we anticipate more of these wins, or are you focusing on the next tier down for further progress? Your consistent reference selling approach seems to be paying off, and it appears you have the necessary references now, potentially leading to a tipping point in replacements. Any insights you can share on our current status in that cycle would be appreciated. Thank you.

Yes, it’s a crucial system for clinical operations and clinical data management. In the realm of clinical data management, we are still in the early stages with only a few customers, primarily targeting new opportunities since there are established players we need to replace, which will take around 5 to 10 years. In clinical operations, our eTMF has a solid market share, being our first product. While I can't specify how many of the top 50 are eTMF users, there are still many potential customers we need to reach. Additionally, there are opportunities in CTMS and the new Payments and Studies modules. The clinical network represents a completely new set of applications relevant to both the top 50 and other clinical applications. Overall, we have just started in the clinical space, with eTMF being the only application where we have made significant progress, but there is still much to achieve as it’s still early days.

Got it. Thanks, Peter, and then, you mentioned your expectation for kind of consistent growth outside Life Sciences, it sounds like pretty balanced across CPG, chemicals, cosmetics, is that just a function of kind of awareness needs to build in that category in order for you to see more acceleration there, is it just go-to-market resources, is it product, maybe we just don't need to expect that business to really ramp and there's because there's so much opportunity within Life Sciences, but I guess any color on kind of what's driving that more kind of balanced, steady growth in that business?

First of all, we're happy with that growth numbers, we gave at the Analyst Day. So it's closed pretty nicely, when you look at it, $100 million or so in that neighborhood by 2025. Now, what happens there is that's a slow and steady growing industry there, it's you've got a lot of capital costs, it's not one that's prone to jump very quickly, and it has a natural adoption lifecycle. Companies have investments in previous technologies, they need to see those through, write those off, and it tends to be very cautious and capital efficient industry. So that's what's going on there, and now it's not to, we need more feet on the street or something like that, or product in the system. That record selling cycle, you only have so many early adopters, middle majority, and then you have late adopters.

Got it. Thanks so much, Peter.

Thank you.

Our next question is from Stephanie Davis with SVB Leerink. Your line is open.

Thank you for taking my questions, and congrats on the quarter. Just a quick question, given some of the startups we're seeing in the space. There's a growing number of drug development phase and IT startups, what are your IT and M&A priorities in these adjacent markets with that in mind, and you'll be lower bounds for assets that you could or would acquire either on scale or product maturity, as many of them are relatively new?

Thanks, Stephanie. In terms of M&A, that's something we always keep our eye on, we're always looking in general, we would like to, if we can find something that is in a market that we would like to go into, we can find a seed of innovation that will provide us with a boost, or a boost of either technology or in the core knowledge, we will do that, or where we can find something that's supplied to a certain area, and we feel like we can acquire that asset, those people that fit with our culture, and then give them a bigger canvas to play on, so that they can accomplish more. The best example I have there, it's with the Crossix, Crossix for marketing analytics that has tremendous data platform behind it, when we combine Crossix with Veeva, then we can take on the full life sciences Data Play, which is 10 times larger than marketing analytics on the market there. So there's not a specific area that we're looking at, or that I can talk about now, but we're always looking and keeping an eye on it.

All right. Understood and then following up with some of the earlier questions about your Data product, how real is the trend towards real-world evidence? And when can we see maybe some offerings that are a little bit more laid out within your solution?

Yes, real-world evidence is definitely significant. We have traditional data that is often used for sales compensation, targeting, and planning, and then there is real-world evidence that can be applied to both commercial and R&D aspects. Our priority isn't on distinguishing between real-world evidence and commercial data; we need to get that aspect correct. The asset we possess in the Crossix data platform will be crucial for real data in the future, and we plan to integrate it effectively. Initially, we will focus on obtaining longitudinal patient data and then expand from there.

Would you be more likely to sell off that data for now or keep it yourself and look at them invasion and development a little bit later?

Oh, yes. We would not sell any raw data rights. We have a long time selling that Crossix data network, that data platform, and we'll continue to do it and then build it. We use that for our internal use in our consulting group that may be used that, but then we'll use it to make products for customers, but it's not a type of thing where we would OEM or something like that.

I understand. Thanks a lot.

Thank you.

Our last question is from Sterling Auty with J.P. Morgan. Your line is open.

Yes, thanks. Hi guys. So, super high-level question to start, you know, with the outcome of the Presidential Election, assuming it holds as is and the potential for the runoffs in Georgia, is there anything that you're keeping an eye on from a regulatory or legislative action that you think would have direct impact one way or the other, either on the business or to your customers that could impact your business in the next year or two?

Yes. Hi, Sterling. Thanks for your question. So, I mean, we're certainly keeping an eye on what is happening with the election and also what happens around legislation and policy as our customers, but the reality is, the industry is a big industry. It's a global industry. These kinds of things elections happen all the time. Legislation changes, policy changes all the time and it tends to be balanced out by a lot of the innovation that happens in the industry innovating a new medicines and really everybody focused on driving patient outcomes and doing the right thing for patients. So that's a long way to say that, some of these changes they tend to be a wash with the innovation. We haven't seen any impact yet on our customers, and we don't really expect any impact of some of those changes in the political landscape over the near-term either.

All right, excellent, and then one follow-up question. There were a couple of questions about CTMS, and I'm curious if there have been any changes in the competitive landscape regarding your position against the legacy stronghold with Oracle, Siebel, and CTMS. Metadata had an offering, but you stepped in and seem to be handling it better. Have you observed any other vendors becoming more active in that space or noticed any changes in win rates or displacements?

There are no new competitors that we are aware of, and the competitive dynamics remain unchanged as we are primarily replacing the client/server setup. However, it’s important to note that customers are noticing Veeva’s success with CTMS on a large scale at major enterprises. This success alleviates some risks for potential adopters, leading many customers to contemplate when it makes sense for them to transition to CTMS, as they currently view it as the top option in the market with a proven solution.

Got it. Thank you, guys.

Thanks, Sterling.

And this does conclude Veeva's Q&A session. I'll now turn the call back over to Peter for any closing remarks.

Thank you all for joining us today. I'd also like to extend a special thanks to Rick Lund for all his years of service and contributions at Veeva. This is Rick's last earnings call with us, and we wish him well, and his next role as a CFO, and I wish you all a happy holiday season, and we look forward to talking with you next year. Thank you.

This concludes today's conference call and you may now disconnect.