Veeva Systems Inc (VEEV) Q1 2024 Earnings Call Transcript

Hello, and welcome to the Veeva Systems' Fiscal 2024 First Quarter Results Conference Call. I will now hand the conference over to Gunnar Hansen, Director of Investor Relations. Please proceed.

Good afternoon, and welcome to Veeva's fiscal 2024 first quarter earnings conference call for the quarter ended April 30, 2023. As a reminder, we posted prepared remarks on Veeva's Investor Relations website just after 1:00 p.m. Pacific today. We hope you have had a chance to read them before our 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, Commercial Strategy; and Brent Bowman, 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 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-K. Forward-looking statements made during this call are being made as of today, May 31, 2023 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 statements. We may discuss our 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 earnings 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. We had a great start to the year, delivering results ahead of guidance with total revenue coming in at $526 million. The macroeconomic environment was stable and it was another quarter of strong execution across R&D and Commercial. In Commercial, development of Vault CRM is on track, and we gave a compelling demo at Summit. We expect to have our first customers live on Vault CRM early next year. We also announced two new Compass data products in our first AI application, CRM Bot for Vault TRM. We also saw continued momentum in Development Cloud across all areas. Our product strategies in R&D and Commercial are clear and compelling, and we have a long runway of growth ahead. At this point, we'll open up the call to your questions.

Your first question comes from Joe Vruwink of Baird. Please go ahead.

Hi, great. hi, everyone. Maybe just to start off, the Commercial Summit a few weeks ago. Curious to hear feedback from customers and partners on what they saw and liked or maybe didn't like out of Vault CRM. And any key messages out of the summit that maybe help inform or change, how you're thinking about introducing the product starting 2024 and into 2025.

Hi Joe, this is Paul. Thanks for the question. So Summit was great. We had nearly 2,000 people there. It was a great event. It was our first showcase of Vault CRM. We demoed to a broad audience and generated a lot of excitement. I'd say there were a couple of specific things that our customers were excited about. First is the idea that they're going to get the full functionality of everything we've delivered in Veeva CRM over the past 15 years. All of that plays forward into Vault CRM. So what that means for our customers is they never have to go backwards. Everything they've invested in they'll get the advantage of. So full functionality was a really big value prop for our customers. I would say number two is the big announcements that we have. Service Center, which is for inside sales reps and hybrid reps. These are people that need access to the core Veeva CRM functionality, but they also need access to things like handling inbound calls and cases. So they're excited that this is all going to be part of one application, but also CRM Bot, which is super exciting. You saw some of Peter's remarks about generative AI, and this is going to be the first application that we're building. It's going to be part of Vault CRM. So that generated a lot of excitement. And then I guess maybe the third thing was the approach we're taking to helping the industry move to Vault CRM. So same application, same data model, helping customers move their data, their configuration. They're excited about how we're going to help them make the transition. So overall, really positive events, a lot of really positive feedback on our direction in Vault CRM.

Okay. That's all great. Thanks Paul. And then maybe just on the macro. It's been a few quarters now where Veeva has ultimately macro meeting your expectations. I guess, sitting here on the outside the macro and things like biotech funding, it seems pretty dynamic over that same stretch of time. Is the delta here, just maybe Veeva's opportunity? Is it your execution? How do you maybe reconcile kind of those two comments?

Yes, I'll address that. This is Peter. Generally, the industry works on long cycles, particularly with our established and large customers. Consequently, the fluctuations in the macro environment do not impact them significantly. However, we notice a greater impact on what we refer to as emerging biotech, which consists of smaller customers that typically lack an approved product. When funding becomes constrained, we experience some pressure there. Nevertheless, there hasn't been any significant change at a macro level in the past 90 days. That's why we're not particularly vulnerable to these minor fluctuations, and business continues to progress steadily.

Thank you. Your next question comes from the line of Ken Wong of Oppenheimer & Company. Please go ahead.

Hi, fantastic. This first question is for Brent. Just wanted to ask about unbilled AR, saw a big spike up on the cash flow. What drove that? And how should we think about that trajectory? Is it just going to be a tailwind until the balance sheet runs to zero? What's the right mapping on that?

Yes. So a couple of things there. On the unbilled AR, I think there was a decline, right? So in that part of what you're seeing there was on the termination for convenience playing through. But on the OCF line, overall, we're really pleased with our strong execution in the quarter. On a full year basis, we've increased the number by $30 million. So we're at $840 million, which is growing about 20%. So I feel really good about the execution for the quarter and for the outlook for the year.

Got it. So it wasn't anything unusual with the contract; this was pretty much how you anticipated it to unfold with the removal or inclusion of the TFCs?

Absolutely correct. So from a TFC perspective, just put it in complete context, we know what we expect to happen, happened in Q1 and what we expected to happen for the full year is still intact. So no surprises.

Thank you. Your next question comes from the line of Brian Peterson of Raymond James. Please go ahead.

Hi, everyone. Thanks for the opportunity to ask a question. I have one for Paul. There seems to be some discussion among investors about how tailored some of the CRM implementations are and the level of effort required to transition to Vault. Have you received any feedback on this? Additionally, I noticed a remark in the prepared comments about expecting some early customers to be operational at the Summit next year. How is that progressing compared to your expectations? Thank you.

Certainly. Thank you for the question, Brian. To clarify, some companies have closely followed the standard Veeva products or made straightforward configurations, while others, particularly larger companies, have opted for more customizations. There are various approaches to transitioning to Vault CRM; one could entail a technical migration, while another could involve rethinking business processes during the move. The complexity of the transition will depend on the level of customization and the approach taken—whether they choose to change processes or simply carry out a technical migration. There are many factors at play here. Our goal is to simplify the process for our customers, and we've made key design choices to facilitate that, such as maintaining the same data model and application, and handling data and configurations for customers. We're automating as much of the transition as we can. You're correct that we've mentioned early customers potentially going live as soon as our Summit next year. These will likely be new customers; for instance, this quarter we announced 11 new SMB wins, which could be representative of those going live initially. More significant migrations are expected to start in 2025, with the bulk occurring between 2026 and 2029 for customers transitioning from Veeva CRM to Vault CRM.

Your next question comes from the line of Rishi Jaluria of RBC Capital Markets. Please go ahead.

Great. Thanks. This is Rich Poland on for Rishi. So first question would just be on the 2026 to 2029 time frame. Just curious with some of the new functionality that you're adding into the platform like the bots as well as the service center, should we think about that as being something that could help those migrations happen a little bit earlier on that curve? Is that something that's kind of, I guess, specific to the Vault platform?

Yes, you're right. Those announcements will be specific to the Vault platform. So will be service center that will be part of the Vault CRM application and also the same with CRM all be part of Vault CRM. So there may or may not be additional incentive for customers to move. But I can tell you that based on the feedback that we've heard from Summit customers are excited about both of them are excited about those opportunities. And that was the promise. The promise was they get the full functionality of Veeva CRM. They get a deep market-leading application and they're going to get new innovation over time.

Thank you for that. I have a follow-up question. Considering Compass and the new data personas that have been introduced, it seems like you are now poised to compete with the current leaders in that area, and the messaging has indicated this over the last two quarters. Is my understanding correct? Additionally, what is the timeline for seriously pursuing this opportunity?

Yes. That's the right way to think about the full suite of data products for the Commercial area and a streamlined, simplified suite of data products. One thing you could compare it to, it's a different domain, but in our quality area, and that's something we've had for many years now, and we introduced QualityDocs, document management system, regulated content management system. We have QMS, which is a structured data quality management system, and we have training. It all fits together on a unified data model on one common platform. That's what we're doing for Compass. So we have patient now, which is the anonymous patient data, 60 billion rows of patient data in the U.S. about prescriptions, procedures, diagnoses. Now what we're adding in January is Compass Prescriber and Compass Sales, and those are projected data products about prescribers' prescribing patterns, the individual prescribers and also at the Zip and State level and the national level. So they all sit together on one common data model. They're separate products, very separate different purposes. So for the first time in January, we'll have this suite of products. And I think that's what customers will find compelling. And then just like we always do, we have to get a customer to have all three of those products, have to get them live using it, have to get them happy, round off the corners, have to get them talking to other customers. And that's one thing about competition. Usually the best product and the best service will win. And when you look at Compass and how we talk to customers there, our message is pretty simple. It's about better data and better service. And so it's just an execution game. I feel very comfortable about our product strategy. It feels so similar to what we've done in some of our Vault suites before, and now it's just down to executing.

Thank you. Your next question comes from the line of Dylan Becker of William Blair. Please go ahead.

Hi, guys. Appreciate you for taking the question and really, really nice job here. Maybe, Peter, I wanted to hone in on two comments in the prepared remarks. First, you talked about serving as the AI focal point for the industry. I know you rolled out CRM Bot, but wondering how you're thinking about the long-term optionality there to utilize AI and machine learning models to automate these key processes. Again, you have highly specialized unique data that gives you a holistic view through the Commercial, the clinical and the Compass kind of data sets. So wondering how you're thinking about the evolution of the AI capabilities over time?

I believe we are in a strong position regarding AI because we serve as a core system of record, which will always be necessary. It's important for people to recognize that core systems of record will continue to have relevance even in an AI-driven world. If I were to ask Brent whether he thinks he'll still need a financial system in ten years, he would definitely say yes; that system is indispensable. Similarly, our customers rely on critical operational systems for drug safety, clinical trials, regulatory compliance, and quality processes, which will always be essential. Additionally, we are enhancing our proprietary data assets, such as Link and Compass, and we are developing more. While AI won’t diminish their value, it will enhance them further. We plan to focus on three main areas: developing more applications over time, with CRM Bot being the first, ensuring our proprietary data continues to increase in value, and making our applications compatible with our customers' proprietary AI solutions. Particularly with the Vault platform, we will work to ensure it integrates seamlessly with AI applications from other vendors or those developed in-house, promoting an open ecosystem that is integral to Veeva. I am genuinely excited about the opportunities that AI presents for us and have a clear vision of the path forward.

That's crystal clear, and I appreciate the color there. Maybe another one, too, and maybe just kind of piggyback off that a little bit. But I think there was a comment around the innovation engine being as strong as ever at Veeva today, too, which is, again, impressive given the historical track record of the business. I wonder, is this a function of the relative kind of maturation of some of these larger opportunities like Compass clinical data, safety, quality, et cetera, that you've been able to maybe scratch the surface on and now dig deeper in with those customers. Maybe how that pairs with the customers that are now increasingly look to you for standardization and maybe opening up their road maps and saying, hey, here's how I want to develop the plan with Veeva? Thank you, guys.

Yes, we are becoming quite proficient as a multiproduct company. We have been in business for about 16 years and have operated as a multiproduct company for over 10 years now. We offer a wide range of products and are refining our operating model, responsibilities, and how we manage the economy. With 6,000 people at Veeva, we can process tasks in parallel, which enhances our ability to be an effective multiproduct company—a rarity in our space. This is a key aspect of our innovation engine. Additionally, we now have capable leaders overseeing innovation, which brings us to a significant scale. Our customer relationships are stronger than ever, giving us the advantage of trust and faster access to feedback from early customers. Furthermore, many of our innovations are integrated into existing products. For instance, our safety product stands out on its own, but its integration with our clinical offerings provides a competitive edge that new companies lack. It's a complex answer, but it's something I take great pride in, as our innovation engine is indeed unique.

Thank you. Your next question comes from the line of Craig Hettenbach of Morgan Stanley. Please go ahead.

Yes, thank you. Just following up on the macro commentary, are you able to provide some context just the rough exposure to emerging biotech, given that's kind of a source of debate in terms of funding. And then more broadly, I think last year, you talked about in the SMB space kind of impact to add on just kind of what you're seeing on that front.

Sure, Craig. This is Brent. I'll take that. As Peter mentioned earlier, we don't have a significant exposure to the emerging biotech sector, which accounts for about 4% of our total revenue. This segment consists of approximately 1,000 employees with no approved product. That should give you some context about that part of the business. Regarding your second question, Craig, I want to ensure I understand it correctly.

Just on SMB more broadly in terms of the macro, just maybe some impact to add on kind of what you've been seeing recently.

Yes. Over the past 90 days, we haven't observed any significant changes in the macro environment. It still has an impact, but we have included that in our guidance, and we are performing well in that area.

Got it. And then just a quick follow-up for Peter, just on the Sanofi announcement recently. And more broadly, kind of what's resonating in the R&D space and what that means for your target, the multi-year target of a 30% CAGR, how are you feeling about that?

Sorry, I didn't catch that question about which announcement.

The Sanofi announcement?

Yes, I think you're probably referring to the Sanofi quality announcement where they've adopted our quality documentation and quality management suite. Is that... So I think what you're seeing there, first of all, we're excited about quality. It's a significant market. We've introduced a lot of new applications and innovation in there. And this is another good example of that unified quality suite, that value proposition playing through. And I think that's what Sanofi saw. They're trying to streamline and modernize their quality processes, and they're standardizing on our quality to do that. So super exciting, a good example of another large company kind of in a sense going all-in to modernize the quality of their manufacturing process.

Thank you. Your next question comes from the line of Brent Bracelin of Piper Sandler. Please go ahead.

Hi, guys. This is Hannah Rudoff on for Brent today. Thanks for taking my question. Just first one for you, Paul. I guess are there customers that are waiting for all three of your Compass products to be GA before adopting them as a full suite rather than just adopting one at a time?

We have concentrated on patient data in the way we announced and launched this. We are targeting customers who can start quickly, and they are currently exploring and testing our patient data. Most of them are discovering, as Peter mentioned earlier, that it is actually superior data. They are gaining a broader perspective of the market by finding more patients and more doctors. This is the specific market segment we are focusing on. We have not been trying to sell the full suite because it hasn't been available yet, so I wouldn't say that companies are holding back since we are not focused on that area yet. Given that we are close to having the complete set of products, by January of next year, we will have everything necessary to serve as a full replacement, which will open up a wider part of the market.

Okay. Makes sense. And then second one for you, Brent. How are you thinking about the monetization of your CRM Bot product and then any future AI products release?

Yes, it's really early right now. We're focused on ensuring that we have the right product working with our customers. So that's our focus right now. Let's get the product right, and then we'll get into more of the details on kind of the sizing and the opportunity there. But we're excited overall about the opportunity we have in front of us.

Thank you. Your next question comes from the line of Ryan MacDonald of Needham. Please go ahead.

Hi. Thanks for taking my question. This is Matt Shea on for Ryan. I wanted to start with some of the new applications you guys announced around Vault CRM, the service center and the CRM Bot. I know at the service center and you announced it would be free, but the CRM bot, it's not clear if it will be free. So do you plan on monetizing the CRM Bot or some of your other generative AI investments in the future? And as we think about likely additional applications you add around the CRM, do you view this as a lever to potentially increase revenue per account over time or more so as a retention tool as you go through the replatforming onto Vault?

Yes, I can address that. With the Service Center, it’s part of Veeva CRM and could lead to an increase in CRM licenses over time. For instance, someone who previously worked as an inside sales rep and didn’t use Veeva CRM may now start using it. While it is included in the license, it may result in more users. The CRM Bot, however, is not included in the current product offering and will probably require a separate user license, meaning it would count as net new. As Brent mentioned, our priority is to ensure the product is developed effectively, and we haven’t yet determined the pricing or sizing for it.

Got it. That's helpful. And then with your data assets, Link and Compass, what has been the selling point when competing against some of the other data incumbents? Has service quality and integrations across the broader platform, but enough to displace existing vendors or do you anticipate being competitive on price as well? Just would love to get some of your strategic go-to-market thinking around those data assets.

With Link, which we've had for a while, specifically Link key people, it's often somewhat of a new category for customers. This is real-time customer intelligence. So either they did it internally or they had a vendor that was sort of substandard in that area. So it's kind of there, we're kind of creating the market and teaching people, here's the value you can get with a data asset like that. And that then is continuing on as we broaden out the Link suite, the Link for key accounts and then we're bringing out for clinical trials and preclinical research sites. So that's more of an education campaign. For Compass, yes, that's a direct replacement where the major incumbent there is IQVIA. And IQVIA has a set of data products, there are quite a few that they've built up over time. And there, it's more simple, hey, we have a more modern solution, fewer moving parts. They can probably save some money on that. But I don't think that's the primary reason that would go with us. It'd be a more modern product that works for more complex medicines, better data and better delivery, but that one is the replacement. Just like originally, when the company started, there was a SebelCRM that was from Oracle that was a dominant market leader in Pharma CRM. And that was a replacement job, replacement parts. Veeva CRM is better. It's cloud, it's better out with Sebel and with Aviva. This is going to be a similar type of thing out, with the IQVIA for that data and with Aviva. No. Make no mistake, that's hard work, right? We have to execute well to make that happen.

Thank you. Your next question comes from the line of Gabriela Borges of Goldman Sachs. Please go ahead.

Hi. This is Kelly Valenti on behalf of Gabriela. Can you share some insight into the outlook for fiscal year '25 based on last year? Could you explain the scenarios in which that outlook might be overly optimistic or where you might surpass it? Additionally, how does your current visibility compare to what you had last quarter?

Yes. So thanks for the question. So looking out at fiscal year '25, we reiterated our guidance. So at least $2.8 billion and at least $1 billion in operating income. And we're expecting that the current macro situation is constant. There's no change. There's no improvement. It doesn't get worse. So that's kind of our assumption as we look out in time. So we're excited about the opportunities. We're early days in a large market opportunity, and that's the best look of the business we have right now.

And then I want to circle back to the Merck partnership you announced last year. I realize it's still early days with that, but are you seeing any impact to Veeva's business as a result of that partnership either from a product roadmap perspective or any additional product adoption for Merck?

I'll take that one. I can't comment on the specifics of Merck's product adoption. I believe the partnership is effective. We're very pleased with it, and I think Merck is gaining value from a very open relationship with Veeva that is helping to transform their business to be more digital and data-driven. We are also benefiting from it as we learn how to manage a customer with a genuine partnership that begins at the CEO level. This has prompted us to rethink what's possible. It's not necessarily guiding our product strategy in terms of what we will do and which products we will focus on, but it is influencing our delivery strategy and how we manage and collaborate with customers, as this requires a different sales approach—one based on partnership. I'm extremely pleased with this development, and to me, it is one of the highlights of our year.

Thank you. Your next question comes from the line of Jack Wallace of Guggenheim Securities. Please go ahead.

Hi, thank you for allowing me to ask my questions. I'm interested in the competitive landscape for the CRM business. It's been six or seven months since your announcement to transition to your own platform. What insights do you have about your larger competitors, Salesforce and IQVIA? Thank you.

Yes, Jack. I can address that. We still observe IQVIA consistently, along with regional competitors. That hasn't changed, and we continue to compete with them, winning most of the time. I'm excited about the 11 new wins we've gained this quarter, as we're adding customers even in a challenging environment. I'm pleased with our progress and execution in CRM. Regarding your question about IQVIA and Salesforce, it's been six months since we announced our partnership, and I'm glad to report that our collaboration to support joint customers is working well. We're maintaining a strong operational partnership day-to-day. One change to note is that Salesforce has the technical right to compete with us in the pharma CRM space following the termination of our agreement. There is language in the contract that grants them this right. However, the larger context is that the pharma CRM space needs our expertise, and we remain the market leader for a reason. We've made significant investments in developing industry-specific applications, and I haven't observed any competitor truly pursuing that path. So, we're focused on ensuring customer success, continuing to innovate, and delivering deep functionality for the industry. I'm pleased with the current competitive landscape.

Thanks. That's helpful. And just as a follow-up to that, the wins in the quarter, particularly the competitive wins for those in North America and Europe or most of those in the Latin America and Asia where you're still muscling out local players?

Most of the wins were in North America, with a few in Europe, but the majority were indeed in North America. Most of these companies are also commercializing for the first time. We experienced a few competitive displacements, replacing existing products like those from IQVIA. Overall, it’s a mixed bag, but it skews more towards the U.S. market.

Thank you. Your next question comes from the line of Jailendra Singh of Truist Securities. Please go ahead.

Thank you. And Thanks for taking my questions. I want to go back to discussion around macro environment. In your prepared remarks, you called out the funding environment continuing to put pressure on project scrutiny. Can you give a little bit more color there? What kind of projects are being scrutinized? Is it across the board or specific to certain type of solutions? Are you seeing these projects getting like pushed out to a later date or getting canceled? And what does your guidance assume in terms of these projects going through?

Yes. We haven't seen any significant changes in the last 90 days. Compared to two years ago, the funding environment is tighter. It's more challenging for small biotech firms to secure funding at their desired valuations, and project evaluations have become stricter. Larger companies are also more cautious about justifying future spending due to apprehension about market trends. However, none of this has changed in the past 90 days and is reflected in our guidance. Regarding project scrutiny, it results in increased oversight regardless of product area, whether it's quality, CRM, safety, or regulatory. There's a focus on ensuring that projects are feasible, including budget assessments and expected return on investment timelines. Generally, our projects perform well under this scrutiny. In contrast, companies that concentrate on discretionary spending or one-off projects face more challenges. Our investments are centered on essential core capabilities that are needed for the long term, and those projects tend to be evaluated more thoroughly.

Yes, that's really helpful.

I'd say, to put a clear point of that experimentation, there's less experimentation going on now than there was two years ago. And that's due to more scrutiny.

Okay. That makes sense. And then a quick follow-up on normalized billings quarterly cadence. Now kind of we can calculate what the growth is for embedded in fiscal Q3 number. Can you remind us on the drivers behind the growth acceleration you expect from what you expect in Q2 fiscal quarter to Q3? And of course, we have talked about Q4, but just curious like if you can remind us on the growth drivers for billings in the second half?

Yes, sure. And so yes, so we're providing normalized billings to try to take some of the noise out of the equation for you. So to anchor on a full year basis, we increased our number by $5 million. So that's growth of about 15%. So real pleased with the execution there. Specifically to Q3, what you've seen in some of our newer business, the underlying renewal base has shifted a bit. So it was shifting away from the first half more to the back half, Q3, Q4. So that's part of why you're seeing an acceleration in the billings growth. Also the price increase CPI will start to come into play in Q3 and Q4 as well. So those are a couple of the contributors and why we are confident in the acceleration in the back half of the year.

Thank you. Your next question comes from the line of Saket Kalia of Barclays. Please go ahead.

Thanks for taking my questions. Peter, could you discuss the clinical data management business? Specifically, do you believe the recent displacements, which have been significant for six of the top 20, are providing additional value and possibly higher revenue run rates compared to what customers were paying previously? Do you think Veeva EDC is replacing what a customer had before on a one-to-one basis, or is Veeva adding more value?

Yes, I believe we are adding more value through modernization. In the area of clinical data management, one key component is our electronic data capture. Customers can build their clinical studies more quickly, which allows them to initiate studies faster and make amendments without downtime or data unloads. This enhances collaboration on the clinical research side. This is just one example of how we provide a better system that boosts their efficiency. Regarding pricing, our customers may pay us slightly less on average, but their overall costs decrease significantly since they need fewer personnel. Our goal is to offer more value at a lower price, innovate, and improve efficiency, while also sharing some benefits with the customers. Regarding the clinical data sector, we currently have two top 20 customers using our clinical data management and safety product, with only one of them live on both recently. Over the next year, we plan to create a highly efficient and standardized integration between these systems at the business process level. This kind of integration has not been seen in the industry before, as no other company has offered both clinical data management and drug safety systems together. This efficiency will greatly benefit customers and enhance industry efficiency overall. Our objective is to charge less, deliver more, and maintain a profitable business.

Yes, absolutely, it shows. Brent, maybe for my follow-up for you, very helpful answer, by the way, before just on the billings acceleration in the second half. I have a little bit more of a mechanical question, which was just the normalized billings and calculated billings. I think there was a minor difference between the two before. Now we're thinking about them being roughly equal. Just for our own sort of notification, can you just go on a little deeper just into what changed, if anything, around your expectations on billings terms that maybe make both of those now a little bit more similar than what you were thinking before?

Yes, happy to, Saket. So first, what are we normalizing? So what we're normalizing is for our remote business, if there's a change in frequency or a co-term. So we have a view entering the year what that's going to look like for the full year. So once we got into Q1, there were a few customers where they had changing billing terms. So basically, those new deals offset what we thought before. So on a full-year basis, calculated billings and normalized billings are one and the same. You're going to have differences quarter-to-quarter, but for the full year, it nets out.

Your next question comes from the line of Stephanie Davis of SVB Securities. Please go ahead.

Hi, guys. Thank you for taking my question. I just want to follow up on the Salesforce questions that you had a little bit earlier. Asked in another way, what has feedback been so far from your client base about the transition off of the platform and into your new in-house platform? Is it apparent on the radar yet?

Yes. This is definitely a topic of discussion with our larger global customers, particularly those in the enterprise sector. They recognize that they need to address this in the coming years. While customers have until 2030, for many large companies, this is a significant issue. They need to plan and consider their options carefully. We are working closely with these customers to help them understand what this means for them and the benefits they can realize. The past six months have been focused on grasping the implications and the rationale behind it. The Summit played a key role in helping them see the reality of the situation and understand the path forward, which will ultimately lead to new innovations for them. There will be work required to make this transition, and we aim to help minimize that effort. Compared to other alternatives that aren't available in the market, this transition will be much smoother. Their focus has shifted to digesting, understanding, and now appreciating the innovation we plan to deliver over time.

All right. Helpful. And then just a quick follow-up on billings. You had the $5 million of normalized billings this quarter. Could you kind of parse out the unbilled receivables, takedown benefit, the benefit from some of the new clients that you called out? And how are you bridging that growth rate to the acceleration in the second half to 18%?

Yes, if we break down what happened in Q1, we experienced a nice beat, partly due to more annual billers than we anticipated and also due to the overall strength of the business. We assessed that thoroughly. The unbilled accounts receivable you mentioned did not affect our outlook on the full year’s normalized billings, so there is no direct impact there.

Thank you. Your next question comes from the line of Tyler Radke of Citi. Please go ahead.

Yes. Thanks for taking the question. I wanted to come back to the Compass suite. It sounds like you're expecting some customers next year at your Summit to be rolled out on that product. Is that going to be kind of net new customers similar to the 1G you referenced in terms of adopting the Vault CRM suite or are you actively engaging in customers who look to be displacing IQVIA and rolling out on the Compass suite?

I think it will be a mix. It may be a mix of a particular brand, maybe for our patient product in a large customer, it could be in the top 20. But for a full replacement sort of being IQVIA free, that will come from a small customer, whether they're existing or a brand-new customer, that will come from a company that sort of maybe has one brand, whether just precommercial, that were not quite ready to launch. That will be the pattern, which is very similar to what we see in many of our products, right? Continue for a smaller, more nimble company to just go all in with Veeva.

Got it. That's helpful. And then on the R&D side, you talked about a lot of nice wins in EDC and the broader clinical suite. I was wondering if you could just talk about the trends you're seeing in CDMS, and I believe you have had some product and sales leadership departures on the R&D side, but just kind of help us understand how you're adapting to some of the changes and just given CDMS tends to be longer sales cycles, just how customers are thinking about that in the current environment?

It's going very well in the clinical data management area. What I mentioned in my prepared remarks is actually not a new deal there so much as the customer that went live in six months, a top 20 customer that went live in six months on our core EDC product. That's kind of for all these studies, that's kind of unheard of. That's super, super fast. That's the thing that many customers generally would do in 12 months, 18 months, even two years. So I think that's going to generate its own kind of momentum, especially we have our R&D Summit coming up in the fall. That customer will be talking there about what they did. So I'm really pleased with that and the competitive environment is actually quite benign. It's not moving. If you look at the competitive environment, it's not moved since we entered it into it. Now that's just with our core our EDC product, you also call that CDMS, but that's a core electronic data capture. We're also starting to make early progress in our other areas, randomization and trial supply management, that's a big area as well. And then the EPRO patient-reported outcomes, that's a big area as well. And there's never been a company that has been a leader in all of those three categories before. I think we're set out to do that over time. And it's just sort of what Veeva does, make an integrated suite of products that's all great. And the fact is in the clinical data management area, there's none that's ever been a company that's accomplished that. So while I'm very excited about our EDC progress, that's just getting started for clinical data management.

Thank you. Your next question comes from the line of Charles Rhyee of TD Cowen. Please go ahead.

Yes, thanks for taking the question. Peter, I think you guys mentioned Crossix briefly that it kind of contributed to revenue growth. If I recall, this is one that you've called out in the past talking about the environment being tough, maybe causing some slowing growth in the near term. Can you give us an update here? Has the environment improved at all for Crossix maybe give us a little bit more detail there.

Yes, this is Brent. I'll address that question. Overall, the macro environment has not changed in the last 90 days, and this applies to Crossix as well. In the latter half of last year, we experienced some challenges with marketing budgets, which are still present. Nonetheless, Crossix remains an exciting business for us, very strategic and important to our customer base. We are enthusiastic about the opportunities ahead, but there has been no change in the macro environment.

Okay. And then, Brent, maybe just a follow-up. In the guidance, you're implying a step up in the operating margins call it, 34-ish percent. You had these Summits and kickoffs. Can you give us a little bit more sense for the mix in the OpEx line that we should kind of expect? I'd imagine sales and marketing steps up in the second quarter. Maybe just give us a little sense for the cadence, how we should think about sort of the various OpEx lines?

Yes, it's going to unfold throughout the year because we have a field kickoff in one quarter and a Commercial Summit and R&D Summit in different quarters. I wouldn't overestimate that but think of it as a gradual increase overall for the year, which should be relatively smooth. Q1 was the field kickoff, which is an example of where it may be somewhat larger.

Thank you. Your next question comes from the line of Stan Berenshteyn of Wells Fargo Securities. Please go ahead.

Hi. Thanks for taking my questions. Maybe just revisiting the EDC win you announced, I'm just curious, have they provided any feedback as to why they switched away from their legacy DC provider and can you share with us who their legacy EDC vendor was or is, I should say?

Yes. In general, we are consistently replacing one of the two main incumbents for large systems, which would be Medidata or Oracle, and we've replaced both. The reason for this change is primarily focused on modernization and improved customer relationships. Modernization means better applications and a better experience for clinical research sites, as well as quicker initiation for clinical research studies and easier modifications to those studies. Additionally, Veeva offers both a clinical operations suite and a clinical data management suite, and we handle the delivery, maintenance, and upgrades of the integration between them. We fully manage that burden for the customer. It’s straightforward: we provide more modern solutions, better service, and greater integration through our clinical operations suite.

Okay. And then maybe a quick one on Commercial. Can you give us any updates on Crossix? Are you seeing any changes in the growth rates there? And any updates on global pharma sales rep numbers?

Regarding Crossix, I'll address that and then Paul can discuss the sales representatives' numbers. The Crossix business is ongoing and will experience fluctuations each quarter due to its dependence on marketing spending and campaigns, which can vary. In that sense, it resembles our Professional Services business. Our strategy for Crossix is to enhance its integration with our CRM system, making the connection tighter and more bidirectional to better align sales and marketing at our customer sites. This is generating significant enthusiasm. It's important to note that Crossix utilizes the same core data platform that we leverage for development. We are committed to Crossix, excited about its potential, and eager to transition more of our customers to enterprise license agreements over time, which will help stabilize some of the quarterly fluctuations. Now, Paul can share insights regarding the pharmaceutical sales representatives.

Yes, I'll give you an update there. Just in terms of the reductions, the majority of the reductions have already played out through the system. And then most of the remaining reductions that we had talked about for a long time will play out through the remainder of this year. And I expect when it's all said and done, it will end up being slightly less than the 10% that we initially had projected and talked about it. We did see very slight reductions in the quarter, roughly in line with what we had anticipated.

Thank you. Your next question comes from the line of Natalie Hao of Bank of America. Please go ahead.

Thanks for taking my question. So earlier, you touched a bit on Veeva Quality. And in the press release, you mentioned that QMS won a top 20 pharma. So the Quality segment seems to have a pretty large opportunity. Can you talk a bit more on what has been driving the strength in that category and expand a bit more on how you're really going to capture the opportunity there? Thank you.

Yes, Quality is a big area for us. So in that Quality suite, we have QualityDocs, which is quality documentation management, standard operating procedures, things like that. We have the quality management system, which is managing quality, managing deviations, things called CAPA. Then we also have training in there. Then we also announced LIMS, our laboratory information system for manufacturing and our validation product, which is computer systems and other validations. And then also, we have what's called Learn GXT, which is our learning content for quality. So it's a very big area, and that's never been available from one vendor before, all on the unified data model and platform. So that's what we have. It's quite unique. We set out to build that. The early plans of doing that were roughly 10 years ago, and it takes a long time to execute on that. We're very excited. What's fueling the momentum there is customer success. First of all, these systems are not things you change out easily or lightly. Long implementations, and you don't do it unless you need to do it. So each customer has their own time frame when their existing systems are running out of gas. I would say they're not investing much these days in their legacy systems because there's broad awareness that Veeva is probably a better alternative. I do get the feeling now for most customers, they think they probably will be going to Veeva for our core established products, training, quality Docs QMS. The question is when. And then there's a lot of wait and see about our new products, validation and LIMS. Hey, is that product going to be real? I don't want to be first. Let's get that gone. So that's how it is. It's a long, long replacement cycle. When we talk about a long runway for growth ahead, those are the types of things, the seeds we've planted in, things like LIMS where we don't even have our first customer. EPro, where we just have a few customers. Compass, we have nobody on patient and prescriber. Our safety suite, we have more to build out in our safety suite. That's why I say long runway of growth, and there's no magic to it, it's driven by customer success.

Thank you. There are no further questions at this time. I would like to turn the call back to Peter Gassner for closing remarks. Please go ahead.

All right. Thank you, everyone, for joining the call today, and thank you to our customers for your continued partnership and to the Veeva team for really an outstanding work in this quarter. Thank you.

This concludes today's conference call. You may now disconnect.