Veeva Systems Inc Q1 FY2025 Earnings Call

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the Veeva Systems Fiscal 2025 First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Gunnar Hansen, Senior Director, Investor Relations. Please go ahead.

Good afternoon and welcome to Veeva's Fiscal 2025 First Quarter Earnings Conference Call for the quarter ended April 30th, 2024. As a reminder, we posted prepared remarks on Veeva's Investor Relations website just after 1:00 PM Pacific today. We hope you've had a chance to read them before the call. Today's call will be used primarily for Q&A. With me today for Q&A are Peter Gassner, our Chief Executive Officer; Paul Shawah, EVP, Commercial Strategy; and Tim Cabral, our Interim 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 risk factors included in our most recent filing on Form 10-K. Forward-looking statements made during the call are being made as of today, May 30th, 2024, 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 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 metric can be found in today's earnings release and in the supplemental investor presentation, both of which are available on our website. With that, thank you for joining us, and I'll turn the call over to Peter.

Thank you, Gunnar, and welcome everyone to the call. It was a strong start to the year with results above our guidance. Total revenue in the quarter was $650 million with non-GAAP operating income of $261 million. As I shared in our prepared remarks, we've reduced our full year revenue guidance by about $30 million from $2.74 billion to $2.71 billion as the macro environment remains challenging. Despite macro headwinds, we continue to execute well and deliver customer success. In R&D, we saw continued adoption in all areas of Development Cloud, including three top 20 biopharma wins that span multiple products. And in Commercial, we're making great progress on our Commercial Cloud Vision with Vault CRM and in Data Cloud early momentum for Compass is strong. We have a clear and compelling product strategy and are building a very durable company with a long runway of growth. We'll now open up the call to your questions.

Great. Hi, everyone. Thanks for taking my questions. Maybe just to start off with the change you're making to the R&D subscription outlook about $17 million. How much of that is deal timing versus some of the other factors mentioned in the stakeholder letter? And then when it comes to deal timing, curious, what are the indications from customers you're hearing that these are programs still set to come through at year-end? So ultimately, they're not lost, but they're more contributors in FY'26 than '25 perhaps?

Yes. Hey, Joe. Tim here. Thanks for the question. As it relates to the reduction in the subscription on the R&D side, a little over 50% is related to the deal timing and the enterprise business. And the remainder is related to the SMB that we discussed. Overall, if you include services there, Joe, it's more of a 60% to enterprise business. And, Peter, do you want to take on the other question that Joe asked?

Sure. And in terms of these deals, these are normally core systems that we're selling. So these are systems that are going to need to be upgraded, modernized, enhanced over time. So our competitive position is really good. We're not losing these deals, just getting deferred. Now in terms of the exact timing, that's our forecast and that's based on a lot of individual customer discussions. So that's accurate to the best of our knowledge at this time.

Okay. That's great. And then I wanted to ask about the Commercial Summit from a few weeks ago. There were quite a few good updates there both new products from Veeva, also sounds like good engagement with partners just in terms of how you plan to approach the CRM migration framework with both tools and processes. What would you say are kind of the big takeaways to focus on from the Summit? And then any feedback from customers or partners afterwards that you found notable?

Yeah. Hey, Joe. This is Paul. Thanks for the question. Yes. So Summit was a really great event, a great success and I would say pretty notable, as we brought together over 2,000 people from across the industry in a wide variety of areas sales, marketing, operations, IT. We had over 100 customers presenting across all those areas from 50 different companies. So pretty broad-based covering everything from Crossix, Compass and what we're doing in CRM commercial content. So great event, a lot of momentum. I would say a couple of big takeaways. One is in the Data Cloud area, specifically in Compass. We had a lot of customers talking about what they're doing with patient data, how it's changing and how they operate and changing our business in terms of finding more customers, finding more patients, and the quality of the data. So Compass had some really specific and good testimonials from customers and partners about the value that it's adding. So Compass was certainly a highlight of the event. And the other one, I would say, is in the CRM area. We talked about our vision for unifying sales, marketing and medical. We're doing something foundationally different there. We're bringing all of those together in a single vault, which hasn't been done before. That was the core of our strategy, but we announced a whole number of innovations in the CRM area that got our customers really enthused and excited—everything from our AI strategy to CRM now being involved, rethinking the content supply chain. So a number of different innovations in different areas, which created a lot of excitement. I'd also say our new products, the momentum that we have there, Service Center and Campaign Manager, we demoed them. So just within a year or so after announcing them, we're now showing demos and both of them are going to be available this year. And I guess maybe to wrap it up in the CRM space, we had our third top 20 on stage talking about their commitment to Vault CRM, why they moved, which was about getting the innovation faster, getting on that innovation train. So really successful event, a lot of momentum, a lot of announcements in a number of different areas. But the feedback was overall extremely positive from our customers. Lots of good signals about our clear product strategy in Commercial. So happy with how things went.

That's great to hear. Thank you very much.

Wonderful. Thanks so much for taking my question. Peter, I want to start with you. In your prepared remarks, you had mentioned one of the impacts on FY'25 guidance is some disruption in large enterprises as they work through their plans with AI. Can you be a little bit more specific? How is that manifesting itself? Is that on Commercial? Is that on Clinical? Is that on both? And what exactly does that mean? And maybe alongside that as we think about your overall AI strategy, at least what we picked up in a lot of our conversations, as companies are increasingly wanting to work with their trusted vendors on their AI strategy. Given that you are such an important partner to the life sciences industry, how do you plan on using that position to help companies with their AI strategy? And then I've got a quick follow-up for Tim.

Let's see. So the first part of it is the disruption, what we mean by that. So if you look at a year or so, a little more than a year ago, AI really burst onto the scene with Gen AI. And that caused a lot of pressure in our larger enterprises. On the IT department—hey, what are we going to do about Gen AI? What's our strategy as a large pharmaceutical company or biotech? That would land in the IT department of these companies. Now for our smaller SMB customers, it doesn't land so much. They have other things to think about, other more pertinent, very stressful things. But in the large companies, with tens of thousands of people, they're looking for these operational efficiencies that they could potentially get through AI and they have a budget to kind of get ahead of that game. So that by the word disruption I meant that through competing priorities into our customers, hey, we had some existing plans. Now with AI, we have to plan for what we're going to do on that, where are we going to spend on innovation, on experimentation, and who's going to do that, what budget would we use, that type of thing. So some of that would take an impact onto us which is core systems. Now those core systems, when we get that type of impact, it will delay a project, but it won't stop it because these core systems are things you need. You can delay them, but all that does is create somewhat of a pent-up demand. I guess, Rishi, there was a good parallel with COVID, the pandemic a few years ago. That created a whole different set of dynamics with vaccines and therapies, work from home, priorities, all types of things that created a disruption, which then, okay, take the focus off of core systems a bit and then it came back again. So that's the first part. That's the answer there. In terms of the AI strategy, our strategy is to really enable customers and their partners to develop AI applications because they're going to be very specific AI applications, Gen AI applications for very specific use cases, whether it's field information, pre-call planning, next best action, what have you. They're going to be very specific applications. That innovation has to come from everywhere. And one of the things it needs is clean data. All of these AI applications need clean, concurrent fast data. So one of the things we did started about two years ago, actually, is put in a new API on the Vault platform called the Direct Data API and that was just released this April and that provides concurrent consistent data about 100 times faster than normal API. So that's, I think that's going to be a great thing. Now when we look to the long term, some of those applications will be developed by our customers, some by partners, and over time, probably some by Veeva as well. But we're concentrating on the foundation versus the APIs for the data, the core system because that's really only Veeva that can deliver that for our customers. So that's what we're focused on.

Okay. Great. That's really helpful. And then Tim, just as I think about the lower guidance, I appreciate there's moving pieces. I understand macro is really rough out there. We've seen that throughout the software earnings season. I guess the question I want to kind of delve into is, it's not a big cut. It's mostly services, a little bit of FX, a little bit of incremental macro, but we've had a lot of guide downs over the past several quarters. What would give us confidence that this is the last cut and we're not going to see further cuts from here? In other words, is the outlook conservative enough and with enough conservative assumptions in it that we won't see another guide down? Thank you.

Yes. Hey, thanks, Rishi, for the question. I think our guidance philosophy, so stepping back for a second, our guidance philosophy has not changed necessarily. We're very thoughtful about it. We look to the information that we have to inform us in our guidance, and I think that's been consistent. As we look at the data and as Peter talked about earlier in terms of our sales forecast, again, we're very thoughtful in terms of that, those insights that we have, specifically to our customer base because we work so closely with them on a number of things. Look, we can't promise you if other macro things continue to deteriorate materially, and that has a material impact or an impact to life sciences that we won't have to do something here. But again, this is the best information we have that informs the guidance that we've given today, Rishi.

Hi, guys. Thanks for taking the question. So, Paul, it's great to see Vault CRM going live and wins this quarter. As you talk to customers and they're going through their migration decisions. I'm curious how big of a deal do you think general availability is or do you think that full functionality later this year may be a bigger swing factor? I'm effectively looking to get more perspective on any key functional points that customers are looking for in Vault CRM?

Yes. The go-lives that we have and the full functionality are important to those customers considering migrating. But I would say what's more important to them is our direction and our innovation. What they're thinking about, they have enough comfort level. They've operated around Veeva long enough to know that when we say we're going to deliver on something from a product standpoint, we deliver. And these are great proof points, so it just extends that pattern. But the decision is really about, it's the innovation that we're delivering. Some of the things that I talked about earlier with this new way of bringing together different teams, allowing them to collaborate better, solving the content supply chain challenge. To do digital marketing well, you need a lot of content. It needs to be personalized. We're in a very unique position to do that because CRM is now on Vault just like PromoMats is on Vault, and we're going to connect those together in a very unique way. So it's about innovation and it's about making it easy to get there. But of course, having live customers doesn't hurt.

I think the live customers really are the proof point. And today we have smaller customers live because they can purchase it and go live quickly. I think the larger customers, many of them, they're eager to see when some of those three top 20s are live, how are they liking it, what was the process like to get there, what would they have changed, what would they have done differently. So it's always like that. It's a reference selling. I think that will be a big milestone when some of the large customers are live now, they have to go through the migration, which will start next year. So that's going to take a little bit of time.

Hi. Thanks for taking my questions. I wanted to ask you one on margin. You seem to be a little ahead, I think, of target certainly ahead of the street in the quarter and mentioned some timing of hiring. I wondered if you could talk about whether the cost savings or to what extent the cost savings were sustainable, durable savings versus just timing of adding costs like maybe hiring that might need to come back later in the year and in the next fiscal year. Thanks.

Yes. So as it relates to margin, you're right, I think it was a very good performance in Q1. And as you saw in our full-year guide, David, we left operating income at the same level even though revenue is coming down. I do think, over the last couple of quarters, you've heard us talk about very focused hiring. One of the hallmarks of Veeva is being an incredibly efficient company and being Peter and I would talk about sort of lean teams. And I do think that we're seeing that play out a little bit in some of this focused hiring that you've seen over the last couple of quarters. And the result of that is less to your question sort of additional costs. Now of course we have a large market opportunity in front of us and we'll continue to invest appropriately against that large market opportunity. But what you're seeing is a very efficient company to deliver a margin result.

Good afternoon. Thank you. I'll stay on the topic of the last question, which is, Peter, you've been in this industry for some time and we've been in the sluggish environment and spending for a couple of years now. What do you think has to change or what are your customers telling you they're looking for in order to get to a better state of spending and to see maybe a resumption in some of these mission-critical projects kind of come back to steady state. Thank you.

Yes. I mean, to be fair, we are still growing and customers are still doing things. So I can think of a lot of customers and the important projects that they're doing. So I don't want to imply at all that things are stagnant. As far as the macro environment or what could make the industry do better, I think, it's probably the things we talked about: if interest rates take a favorable turn, if some of these global conflicts get resolved in a positive way. I think if the industry navigates the IRA successfully a little bit more, a little bit more political and legislative stability. Those are the things that help the industry. So, it's not that complicated really. They want stability and predictability and it's a capital-intensive industry, especially at the smaller end, which feeds a lot of the innovation. So it is an industry that's a little sensitive to interest rates.

Hey, thanks for taking the question. This is Matt Shea on for Needham. Maybe circling back to the Data Cloud. I wanted to ask about Link. It seems like nice progress there with over 100 customers now and early adopters on your newer products. Where are you attracting these wins from? Are they greenfield opportunities? Are you winning them away from incumbents? And if incumbents, there are a lot of options out there. So just curious what you've seen has been your biggest point of competitive differentiation.

That's a good question. I think it is a mix of greenfield and an incumbent, which is different than something like a CRM system or an eTMF system. There, people have those systems and we’re replacing incumbents. Here sometimes we're replacing incumbents that are just not as competitive, and when we do that, it’s because our data quality is far superior and the software on top of it is far superior. The price is a bit higher than what they're used to before on Link, but the product is far superior. We invested heavily in that product, in that data. And then sometimes, especially for smaller companies, and sometimes even for larger companies, they had no organized system. They would ask a consultant to do some market research and make some reports and things like that. They had no system of reference to go to. So those are the dynamics we see.

Great. Thanks for that. And as a follow-up, slightly different topic. You mentioned in the prepared remarks a couple of different areas where you're kind of breaking into what sounds like incremental, I'll call them, not brand new, but incremental client bases like the Vault CRM medical device clients that you mentioned and in Vault Basics moving down into smaller biotech. Are these incremental TAM opportunities or would these be things that you would have basically already included and contemplated in previous discussions?

Yes. Let me take those. So — the — let me address the medtech one first. That was an interesting one. It's a medtech company that is committed to Vault CRM. It will be one of our largest new deals as they scale to their full deployment. This is a company that operates like a pharma company. Their selling model is not unlike a pharma company. This is a conversion from custom Salesforce. The company has been talking to us for a number of years. They wanted to use Veeva CRM, but we weren't able to sell it to them. So this is one that now took advantage of the opportunity of us moving to the Vault and they get all of the — everything that we're able to offer in Vault CRM. So that's an exciting one. There are other companies like that, but that's a subset of the overall medtech CRM market. And then you mentioned Vault Basics, and Vault Basics is about these very small companies and being able to get them started on something that we run and operate for them. There is no implementation. It's very efficient. It's efficient for them. We're getting them access for the very best software in a very efficient way. All of these are included in the overall market opportunity that we talked about. We talk about our total TAM. It's not additive to that. It's growing into that.

I would say on that Vault Basics. I'd just chime in there. This is Peter. That's a super interesting area. I'm very excited about that for these companies under 200 employees to get Veeva Vault systems with no implementation costs and to be able to run on our processes. So we're not asking them how would you like to configure processes, etc. They're just moving right onto industry standard Veeva processes. We couldn't address that end of the market very well before. Now we can. And then the companies can graduate to full Vault. It is this you could start with QuickBooks and then you could just flip the switch and graduate to SAP and start that SAP implementation. That would be crazy, right? That's what we're doing with Vault Basics. And surprisingly, yes, Paul is right, it's included in our overall $13 billion R&D TAM. But this segment of Vault Basics it's actually about a $100 million segment or maybe even a little more that we couldn't address before. So super excited about it. And just a little more color. We have four values in the company. Staff ranked. It's do the right thing. That's about integrity, customer success, employee success. And then the fourth one is speed, that's about getting things done quickly and correctly the first time if you can. Vault Basics, that idea was started in the second half of last year, less than 12 months ago, and to accomplish that already with these customers. That's tremendous. And then we have to remember that the decision, the announcement to go to Vault CRM from the Salesforce platform was only announced 18 months ago, and the decision was just shortly before that. Now we have hundreds of product team members working on Vault CRM, hundreds of people. We have Veeva CRM successfully in stability mode. Three enterprise, top 20s committed and multiple customers live. So I think that gives me a lot of optimism. I always thought we could slow down our speed. We would get bigger and our speed would slow down. It turns out we're going pretty fast. So I'm glad you asked about Vault Basics and reminded me of Vault CRM.

The follow-up I have is on CTMS. And more specifically, how are you thinking about developing functionality across the different phases of the clinical trials, the Phase 1, Phase 2, etc.? Share with us how that functionality is progressing and how you feel about the completeness of the solution across different phases of the trial? Thank you.

The clinical data management area, we have multiple products in there, for example, our EDC product that collect the patient data. We have randomization and trial supply management, and we have ePRO to collect the data directly from patients. All of those will work across all phases and do work across all phases today. So we have that complete functionality that works for all the different phases. But those products are in different levels of maturity. So it's really about the complexity of the trial, which generally you get in — you get Phase 2, Phase 3 and some Phase 4 is pretty complex. And we can handle all of those trials. But with EDC that's where we have the most proven track record. And so I would say, it's the most mature product in the clinical data management area. The RTSM is the, I would say, the next most proven and ePRO is the younger product and it just takes time to mature and for customers to have the reference selling model start to work. So we're beyond the — I guess to answer it directly, we're beyond that stage where we could only work for certain phases of the trial; we can work for all phases of the trial, for all of our products at this time.

Thank you, and thanks for taking my questions. I missed the first few minutes of the call, so apologies if you already covered this. First, I wanted to ask about the pricing environment. There have been some discussions that pharma companies have been tighter than usual on pricing negotiations given the macro environment. Have you guys seen any of that as contracts come up for renewal, even in pursuing new business? And as we look across your portfolio, are there certain areas where you see less or a more competitive pricing environment?

I'll take that one. No change in the pricing dynamics. And, no, there's no particular area where we see less or more. So it's business as usual there. We have to make a great product and prove the value, but no particular change.

Okay. And then a quick follow-up, any update on the permanent CFO search process? Any update on timeline or skill set experience focus would be helpful.

The search continues and it's going well. I feel it's an orderly process. We're certainly talking to good candidates. I'm not going to disclose specific progress. But I would say we're active in it and we are making progress. And we'll give you an update when we can. Thank you, everyone, for joining the call today and thank you to our customers for your continued partnership and the Veeva team for your outstanding work in the quarter. Thank you.

Ladies and gentlemen that concludes today's call. Thank you all for joining. You may now disconnect.