Veeva Systems Inc Q3 FY2025 Earnings Call

Thank you for standing by. My name is Joel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Veeva Systems Fiscal 2025 Third 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. I would now like to turn the conference over to Gunnar Hansen, Director of Investor Relations.

Good afternoon, and welcome to Veeva's fiscal 2025 third quarter earnings conference call for the quarter ended October 31st, 2024. As a reminder, we posted prepared remarks on Veeva's Investor Relations website just after 1:00 PM Pacific today. We hope you have had a chance to read them before the call. Today's call will be primarily used for Q&A. With me today for Q&A are Peter Gassner, our Chief Executive Officer; Paul Shawah, EVP Strategy; and Brian Van Wagener, 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. 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. Forward-looking statements made during the call are being made as of today, December 5th, 2024, 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 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. Q3 was another strong quarter of execution and innovation. We delivered financial results above our guidance with total revenue of $699 million and non-GAAP operating income of $304 million. It was a really great quarter of execution by the Veeva team. We saw broad-based adoption in all areas of Development Cloud. We also had a number of significant milestones in commercial, including great progress on both CRM. It's an exciting time as we look ahead to our 2030 goals. We'll now open up the call to your questions.

Thank you. The floor is now open for questions. Your first question comes from the line of Saket Kalia of Barclays. Your line is open.

Okay, great. Hey guys. Thanks for taking my questions here and nice job this quarter. Peter, maybe just to start with you. To your point, Veeva did have some nice innovation this quarter, particularly with Vault CRM. So I was wondering, as you talk to customers about their migration away from Veeva CRM and away from other potential competitors, what's sort of the future roadmaps that you are sort of speaking to them around the benefits of Vault CRM? I guess, as we all sort of wonder about the effort involved in moving off of Veeva CRM, what are you talking about the main benefits when moving to Vault CRM if that makes sense?

Yes, that's a great question. I'll keep it brief. One significant advantage that customers appreciate from Veeva is the continuous innovation of features. The Veeva CRM team has maintained this industry-leading application for years, which is now part of Vault CRM. Staying on this path of innovation means being on Vault CRM, and customers are looking forward to that. Another key aspect is the platform's ability to enhance customer-centricity across sales, medical, marketing, and service, offering a unified view of customer records. This helps companies become more efficient and respectful in their interactions. In life sciences, smaller biotech firms, which may have around 200 employees, can adapt more quickly than larger biopharma companies with 50,000 employees and over 20,000 in the field. Smaller companies are excited about the prospect of quick implementation, while larger companies see potential for future change but remain cautious, viewing it as an option rather than a necessity.

Got it. Got it. Super helpful. Brian, maybe for my follow-up for you. It was great to see the strong Q4 billings outlook remain largely unchanged, of course, on the back of a strong Q3 as well. Maybe the question is, can you just talk a little bit about how much the CBMS ramps are contributing to that, and how you sort of think about CBMS as a driver for billings going into next year as well, even anecdotally?

Yes. Thanks, Saket. So I think we're not going to get into the specific detailed billings information by-product area, but overall within CBMS, I'd say it's playing out about as we expected. You recall a lot of the CBMS growth is predefined multi-year ramps and so those are largely proceeding as expected. And then more broadly in Q4 and generally going forward, I think our growth and our billings are driven more by a broad base of products than any one product in particular.

Your next question comes from the line of Ken Wong of Oppenheimer. Your line is open.

Thanks for taking my question. My first question is for Peter or Paul. You mentioned MLR Bot being a separate license. I'm curious about the early interest you are seeing in that area. Additionally, regarding monetization, will it be similar to your commercial modules, which you have previously indicated could see a 10% to 15% uplift? Or is it something with more added value that you could charge a higher price for?

Yes. Hi, Ken. Thank you for the question. This is Paul. I attended our Europe Summit event where we announced MLR Bot, something we've been considering for a while. We believe it can enhance how our customers obtain approval for commercial content and do it more efficiently. This initiative focuses on using GenAI to analyze and provide insights into which parts of the content require more attention and which can be expedited. There is significant enthusiasm around this as it is a crucial process for life sciences companies. We plan to offer this as a separate license, essentially as an add-on to what we provide in PromoMats. Regarding sizing and monetization, we are still determining the specifics, but our existing customers are very excited about it. We look forward to onboarding some early customers as we move into next year.

Got it, perfect. Brian, in your prepared remarks, you mentioned good billings upside due to services. When I think about the first part of the year, there may have been some delays in services. Now you're indicating potentially stronger services. Is there anything to interpret from that, or is it more likely just a one-time timing issue?

Thanks, Ken. I think overall, really pleased with the execution from the team on both the subscription and the services side in the quarter. We saw several projects complete or progress more quickly than we previously expected. And so that's the main driver of the beat on revenue and billings for services. And I think you'll recall that the earlier part of the year, we had several different factors impacting performance, one of which was subcontractor revenue. And so I think what we're seeing now is stabilizing of that base and pleased with the team's work in Q3 and as we look ahead.

Your next question comes from the line of Joe Vruwink of Baird. Your line is open.

Hi, great. Thanks for taking my questions. In the prepared remarks, there was mentioned that Veeva is making progress on several large strategic partnership opportunities in Development Cloud. I wanted to see if these are maybe similar in scope to how Veeva has come to work with the likes of Merck and BI, and what was discussed under kind of those large strategic engagements. And if not or if so, can you maybe speak to any commonality in terms of the discussions you're having, the type of solutions or end objectives that sponsors are looking to achieve and see as possible by just leveraging Veeva in a greater way?

Yes, this is Peter. I'll address that. I want to be careful in my wording. I would say it's similar but not identical to our projects with BI and Merck. It shares a strategic focus across product lines, but each case is unique. A part of this is due to the increased maturity of our products. If you consider our successful One Medicine program with BI, which was initiated a few years ago, we now have more mature products in both clinical and quality areas. This broadens our discussions since we have more offerings to cover. Sometimes these talks may focus specifically on clinical aspects or regulatory and clinical operations, but overall, we are dealing with larger areas than previously. In summary, while there are similarities, there are also significant differences, much like the variety found among the top 20 pharmaceutical companies, which have distinct cultures, product portfolios, objectives, and personnel. Therefore, not all will be the same.

Okay. That's very helpful. Thanks, Peter. And then I guess I'll ask my annual question just given customers are well into their budgeting for the new year, Veeva typically has good visibility at this point in terms of how some of those plans are coming together. How does your visibility on intended performance in 2026 compare to what you normally have at this point in time? Not asking for a number, but just kind of how visibility compares. And would you maybe say it's any better or worse by virtue of things like ramping agreements that you know are coming, or just the state of active discussions with customers?

This is Peter. I would say marginally better visibility as compared to a year ago. I think our customers have settled into this macro-environment a little bit more. I also think we have more bites with the Apple. Every year, we have more mature products. So, therefore, no one particular thing is swinging things one way or the other. And as you mentioned, we have these ramps. So I would say slightly more visibility, but nothing dramatically different.

Great. Thank you very much.

Thanks.

The question comes from the line of Brian Peterson of Raymond James. Your line is open.

Hi, gentlemen, thanks for taking the question, and congrats on the strong quarter. Peter, I just really wanted to hit on the regulatory backdrop. I know there's a lot of potential changes coming in the Trump administration, at least that are being discussed. I'd love to understand what your customer feedback has been there and how you think about the potential implications to Veeva under a new administration.

Paul, do you want to respond to that?

Yes, Peter, I'll take that one. So, Brian, thanks for the question. So first, it's very early, right? There's still a lot of things that need to be settled out as it relates to the administration change, nominations need to be confirmed, priorities need to be established, all of that sort of stuff. And our customers are accustomed to this, right? They've seen administration changes before. They know that in some cases, there's some uncertainty, and things may change in the future. And what we see is our customers are just focused on what they need to do. They have priorities, they have work that needs to get done right now and they're focused on that. So we're not really seeing any change in how customers are making decisions or how they're thinking about projects. And remember, a lot of these projects that they have with us have been planned well in advance. These are mission-critical systems. So things are largely continuing as planned. And I think as things change, as things become reality, the industry will react accordingly. But so far, it's business as usual.

Got it. And maybe a follow-up for Brian. The margin upside this quarter was really impressive. Just anything that you would call out in terms of timing of expenses in the third quarter? I would appreciate any perspective there. Thanks, guys.

Hey, Brian. Thanks for the question. This is Brian as well. In Q3, I believe the revenue outperformance was approximately half due to the revenue exceeding expectations and a quarter related to the timing of expenses during the quarter. The remaining portion was influenced by consistent expense management. Regarding the timing elements you mentioned, there are some items we anticipated would occur in Q3 that will now be pushed to Q4 or Q1. We usually expect some variability in this area, but there’s nothing specific to highlight.

Your next question comes from the line of Ryan MacDonald of Needham and Company. Your line is open.

Thanks for taking my questions. Peter, maybe I just wanted to ask on the Boehringer deal on the large Vault win there. Just curious as to what the tenor or thoroughness of the evaluation process that maybe they were going through, and how that compares to other prospective migrations in the pipeline from the top 20. Just trying to understand maybe how deep they are sort of evaluating other solutions in the marketplace versus just sort of being a Veeva-only type discussion at this point. Thanks.

Thank you for the question, Ryan. I’ll address this one. Firstly, the announcement with Boehringer Ingelheim was very exciting. It’s an innovative company. You may have heard my discussion with their CIO, Markus, about the innovation and the product launches they have planned over the next five years. They were looking for consistency in a partner that can execute, which they mentioned during our conversation. They noted that many vendors make a lot of promises, but Veeva is one that has consistently delivered for them over the long term. That reliability shouldn’t be taken for granted. This really comes down to execution, along with our complete innovation roadmap and future direction. Did they conduct a thorough analysis? Absolutely. All these customers are carefully considering their options. Each customer has their own unique process and reasons for making decisions. Thus, you will see various decision-making styles. In some respects, they are thorough in their own ways, but ultimately these choices are made by individuals, which leads to differences in their decision-making processes.

Helpful, Paul. Thanks very much. Maybe just a follow-up for Brian. Obviously, with the rollout of these generative AI applications, a few of them being sort of included at no additional charge. How should we think about how that impacts gross margins going into next year? Understanding that obviously, we're not giving guidance yet for next year, but just generally how you think that as though adoption and usage of that, the GenAI apps grows over the next year, any sort of impacts we should expect from a margin perspective? Thanks.

Thanks. Peter, do you want to take that one?

Yes, I'll take that. We recently announced two GenAI solutions: CRM Vault and MLR Vault. We will charge for MLR Vault, which involves hosting and running a large language model provided by major tech companies, and we will cover the compute costs associated with it. For CRM Vault, we will integrate our CRM system with the customers' own large language model, and there will be no charges or compute costs on our side. We will likely impose charges in cases where significant compute power is needed and refrain from charging where it isn't necessary. This will not materially affect our gross margin. Overall, Brian, you’ve shared insights on the gross margin outlook for 2030, and AI will not alter that, as it has been accounted for.

Appreciate the clarification. Thanks, Peter.

Thanks.

Your next question comes from the line of Anne Samuel of J.P. Morgan. Your line is open.

Hi. Thanks so much for taking the question. You highlighted that your safety solutions are approaching a tipping point, and I was wondering if maybe you could provide a little bit more color about what that means. And then could you just remind us of the relative size of this market? What's the unmet need and where Veeva is differentiated here?

Yes, it's more about the sense of nearing a tipping point, which feels different from actually reaching it. We're having in-depth conversations with multiple large customers. Each year, their legacy systems are becoming increasingly outdated, while our cloud-based solutions continue to improve and become more widely adopted. It feels like we're on the brink of a tipping point. We have also expanded our offerings; alongside our core safety processing application, we now have safety signal and safety workbench available, which are essential for our clients. They are seeking a cloud-based system to avoid the cumbersome upgrades associated with their aging legacy systems. Modernization is one aspect they desire, but they are also looking for advanced automation within the safety system to minimize the need for manual intervention. This is particularly important in integrating data from clinical management with safety systems. We can drive significant innovation due to our capabilities on both sides of these applications. While they want automation, they still recognize the necessity of human oversight to stay informed and respond appropriately; they simply wish to eliminate unnecessary repetitive tasks.

That's really helpful. Thank you. And then maybe just one more. You noted that your customers are, as you said, settling into the current macro. And I was wondering, are you viewing this as the new normal? And if not, what are you monitoring for early signs of an inflection from here, and which areas of your business would really see a change first? Thanks.

Yes. I think this level of uncertainty that we have in the macro is now what people are accustomed to now. I guess it could change, right, but we won't know if it's changing unless it does change, we haven't detected that. So they're just sort of settling in on to getting work done. Actually, COVID was not that long ago and that was a real shock to the system, right? That was very, very non-normal. And then the two conflicts that we had started, that was also very, very not normal. But now people are getting a little bit more used to these things, the highest interest rates, right? For a while, the economy have gotten used to very low interest rates. Now it's back to, okay, well, interest is not free anymore. So I don't want to call it really the new normal, but I guess it is.

Really helpful. Thank you.

Your next question comes from the line of Dave Windley of Jefferies. Your line is open.

Hi. Thank you, and I apologize for any background noise. I was wondering, I know you addressed the question about changes in administration earlier, but if appointments were approved and those in new positions followed through on their intentions to eliminate direct-to-consumer advertising, how would that positively affect your business model? Thanks.

Yes, thank you for the question, Dave. The way you framed it is interesting because there are many conditions that would need to be met for that to occur. There would need to be nominations, priorities, policies, and possibly even legislation to make it a reality. A lot would have to change, and it would likely face challenges; for instance, altering access to patients' rights to information could become a significant barrier. So while many things would need to happen, I think it will indeed face obstacles. If such changes were enacted, it would take a long time due to these challenges, so I don't anticipate any immediate impact on our business. Our customers haven't shown any negative reactions despite the commentary circulating, so I believe they are taking a wait-and-see approach and focusing on the short-term for now.

Your next question comes from the line of Kirk Materne of Evercore. Sorry. Your line is open.

Hi. This is Bill on for Kirk, and thanks for taking my question. In the prepared remarks, you noted that Crossix has been driving commercial growth. What factors at play would you say are driving this performance?

I believe the Crossix team has executed very well, particularly with their innovative work in the audience segment, especially with refining micro audiences. Additionally, our data network is constantly expanding. We leverage this network for both Compass and Crossix, which continues to enrich as we incorporate more data sources. We do face competition in these markets, and I think some of our competitors have stumbled in recent years, making promises they couldn't fulfill. Often, when a new player enters a market and overpromises, it can create an opportunity for us. That's a positive aspect. Furthermore, customers are noticing the integration with our CRM product and the overall CRM suite. But overall, while Crossix contributes to our strength, the main factors driving our commercial success are primarily our CRM products and commercial content offerings. Compass had a solid quarter, and Crossix is just one of the key elements in our overall strategy.

Great. Thanks for taking my questions.

Thank you.

Your next question comes from the line of Gabriela Borges of Goldman Sachs. Your line is open.

Hi. Good afternoon. Thank you. I think this one is for Paul. Paul, I want to revisit the discussion on commercial growth and specifically on what's happening with the seat count dynamic versus the add-on and the upsell dynamic within seat count-based commercial. Maybe just give us an update on how those two factors are playing out and to what extent you're still seeing pressure in seat count and to what extent you feel confident that you can offset any seat count pressure with add on? Thank you.

Yes, I believe your question pertains to the seat count and core CRM, especially in relation to the add-ons. Overall, the market remains relatively stable. Over the past few years, we've mentioned some shifts in dynamics as the industry has embraced digital transformation, which led to some reductions, but that has generally stabilized. While individual companies may be adding or reducing their representative counts, the industry as a whole is quite stable, and I don't foresee much change there. Regarding our add-on products, we are making steady progress, with increasing attach rates each quarter. Some products see higher attach rates, while others have potential for growth. This is the general outlook, and I expect stability in this area over the next couple of years. From a market perspective, it seems we've reached a new steady state.

Yes, that makes a lot of sense. Thank you. The follow-up is on your learning so far from the CRM conversions to Vault that you've already done. Maybe just highlight for us, what do you know today that you didn't know a year or two ago on easing the customer transition to Vault, and how is that helping you navigate some of the conversations on the back?

There is a significant difference between where we were two years ago and where we are today. A few years back, our idea and strategy were still taking shape, but now we've achieved remarkable progress. Our product and market are fully functional, and we have our first early migrations planned to go live this year, with major migrations scheduled for next year. We've learned a lot, particularly about the migration tools we've developed, and we now have confidence in their functionality. We recognize that new challenges often arise, but we've addressed the issues we've encountered, placing our migration technology in a strong position. We've also found ways to make the transition smoother for customers. Additionally, we've focused on helping small and mid-sized customers take advantage of the move to Vault CRM quickly, enabling them to implement new innovations rapidly, including products like Service Center and Campaign Manager. Over time, we'll enhance connectivity with PromoMats and integrate more tightly with Microsoft Teams, Outlook, and other tools. Overall, we continue to learn, execute more effectively, and improve each quarter.

Great to hear. Thanks for the color.

Your next question comes from the line of Brent Bracelin of Piper Sandler. Your line is open.

Thank you. Good afternoon. Reading through the prepared remarks here and the commentary on the call so far, something reads and feels a little different relative to the top 20 appetite to lean into the broader Veeva portfolio here. I know historically, you've talked about the top 20 governor being maybe engaging one product a year, but I get the sense that maybe there is a greater sense of urgency to move off of legacy and embrace maybe multiple products. Walk me through the level of dialog you're having across the whole portfolio with these top 20. Is that the right read, or is it a misread?

Hi. I think the perspective of being more comprehensive is really specific to the development cloud area, as that's where our suite is the most developed and proven. In that area, I wouldn't say there's a dramatic increase in pace, but there is definitely more engagement compared to a year ago. This is largely because every year, as we deliver more high-quality products and gain another year of demonstrated customer success, it serves as a reinforcing factor. This creates a favorable environment for us, while also bringing a significant responsibility. For instance, when the CIO of Boehringer Ingelheim expressed that they choose Veeva because our products deliver on our promises, we take that seriously; it's a considerable responsibility. Therefore, we must follow through on our commitments. Each year, as we uphold our promises, trust grows, and that trust acts as a catalyst for business growth, as it should.

Brian, you reported a 43.5% operating margin, which is the highest we've recorded for Veeva and represents the biggest outperformance relative to your guidance in three years. This indicates a strong start for the first quarter. However, could you explain the cost discipline you implemented during the quarter and how it allowed for leverage? Your guidance suggests that additional expenses will arise in Q4, so please elaborate on your approach to cost control and leverage this quarter and its implications for next year.

Hey, Brent, thanks for the question. It's a nice start certainly, but really a testament to the great execution from the Veeva team. More than half of that outperformance on the margin as I mentioned is due to the revenue side and so that's outstanding execution across our sales team, our services teams, the product teams, and the team is working to create value for our customers every day. So we're continuing to be really pleased with the execution on that front. And then as far as the second part of your question around our philosophy around cost management. No real change that I'd say to that philosophy. We think about managing costs on a period-by-period basis. We make investments in growth as we feel we need to. And there happened to be a few expenses this quarter that moved out to other quarters and then that ongoing cost discipline that you've heard from us in the past. So overall, strong execution from the team on both the top and the bottom line.

Your next question comes from the line of Stan Berenshteyn of Wells Fargo. Your line is open.

Hi. Thanks for taking my questions. First, I would just like to follow up on Vault CRM. At the Investor Day, you had suggested more top 20 commitments likely to be announced over the next six months or so. So clearly, these conversations are maturing. Now as you reflect on these discussions you're having with clients, what have been the gating factors to get these commitments? And with Vault CRM already out in the wild, as you say, has the hurdle for these commitments come down at all?

Yes. Hey, Stan. Yes, first, we're excited about where we are. We got our fourth top 20 commitment. We're executing really well. We're pleased with the progress there. I do continue to expect additional commitments over the next several months. Yes, I mean it's a significant advantage having a real product, right, having a product in the market, and we have customers live, we have customers migrating to it. We're innovating in the product in many different ways. And I got to hear a lot about that innovation, our customers' reaction to that innovation in person and at our customer summit event, everything from what Peter talked about, sales, marketing and medical in a single Vault that's foundationally different. Our AI strategy, we talked about how we're executing well against that. So in a sense, I would say, yes, each deal that we have, we make a little more progress. But certainly, I would also kind of balance that with every customer is a little bit different. They optimize for different things. We're certainly not going to win every deal, but we still expect to win the vast majority of the deals that are out there and we're pleased with kind of where things stand and the progress we're making so far in top 20 and beyond.

Great. And then quickly, on your pivot toward horizontal enterprise applications, when can we expect a more concrete product strategy that you'll be able to share with us? Thanks.

Yes. I'll take that one. In terms of the new market horizontal business applications, we're taking a platform-specific approach there. In terms of any update in terms of exactly what application area or customer segment, there is no specific timeline for that. We'll just have to let that play out, and we'll let you know when we have more information available.

Your next question comes from the line of Tyler Radke of Citi. Your line is open.

Yes. Thanks for taking the question here. As you think about FY ‘26, I know you're not giving formal guidance, but just any way of framing how we should think about the growth in the context of this year and in your long-term targets. And as we think about the macro-environment, clearly your numbers have been very resilient. But just given you do have longer sales cycles, have you seen any change in sort of the early stages of those larger deals that you know maybe layering in towards the back half of next year, for instance, that you could call out? Thank you.

Hey, Tyler. So as Peter covered, I think we've got probably a little bit better visibility to next year, marginally speaking than prior years, but we're not giving FY ‘26 guidance at this time. Overall, for the year, our updated guidance reflects subscription growth of about 15%. So really pleased with that growth rate against our long-term growth targets.

Your next question comes from the line of Craig Hettenbach of Morgan Stanley. Your line is open.

Thanks. Just going back to the horizontal strategy and the strength in the core business margin profile today, how do you think about that in terms of perhaps giving you a little bit more leverage to make some of these investments as you get that going?

Yes, I'll address that. Our primary focus is to do what is best for our customers, which involves maintaining lean teams, ensuring product excellence, and delivering significant value, as reflected in our financial performance. We allocate nearly twice as much to product development compared to sales and marketing, highlighting our commitment to efficiency. Regarding horizontal business applications, we don't necessarily need additional funds for investment. Instead, it requires a small, dedicated team with a clear focus. We have ample cash flow to invest in new market horizontal business applications. As for the increased revenue we're anticipating, we plan to direct most of it towards customer support, customer success, and enhancing our existing products in the Life Sciences sector. Ultimately, the revenue generated in Life Sciences will be reinvested back into that sector.

Got it. Got it. And then I just had a follow-up question on services. As that market looks to be stabilizing, how do you think about that on like a multi-year profile from a growth? Even if it's a range, like what's a reasonable growth assumption in services looking out the next couple of years?

Hey, Craig, this is Brian. So I think as with the revenue guidance, we won't give specific guidance on services revenue until after our Q4 results, but happy with how the team are continuing to execute and the momentum we saw coming out of Q3.

Your next question comes from the line of DJ Hynes of Canaccord. Your line is open.

Hey, guys. Congrats on a nice quarter. Hey, Paul, one of the questions I picked up since Salesforce reported earlier this week is that they called out Life Sciences Cloud as a component of three of their top 10 deals in the quarter. I'm not asking you to speak for them, but as you see what's happening at your customers, is there any sense that Salesforce is showing up more often?

Yes. I mean it's certainly in our larger customers, they're in the vast majority of our customers having conversations and that's no surprise, right? That's not something where we are surprised about. We've expected to see that. In terms of are they showing up more frequently? I don't know that there's a change. We certainly still see them in the market. And they're the primary competitor. I think as I alluded to before, IQVIA is out of the game, their product sunset. We're competing with Salesforce. They don't have a product yet. So that's really who the primary competitor is at this point.

Yes. So on the TFC side, just recall that's predominantly a revenue side normalization. So it impacts the margins a bit. But I think we are certainly excited to jump into next year and to stop having both normalized for TFC and non-normalized for TFC results to report. On the revenue side, it impacted the growth rate year-over-year by about 2%.

Your next question comes from the line of Jailendra Singh of Truist Securities. Your line is open.

Thank you and thanks for taking my questions. I want to go back to Vault CRM. Congrats on the fourth top biopharma commitment. Can you confirm whether it's an existing CRM customer or your new CRM customer? And related to that, can you remind us what is the average length of time from a customer commitment to Vault to migration to when they are live on the platform? If it is largely based on customer preferences, how do they typically think about when they want to migrate post-commitment?

Certainly. The migration process varies significantly based on the size and complexity of the customer. For a top 20 customer, the migration timeline can be much longer, potentially up to two years, compared to a small or mid-sized customer, which may take about four to six weeks. The timing of their commitment is also influenced by their own business considerations, including key launches and whether to proceed with migration before or after these events. Each customer has unique needs and priorities. Our goal is to ensure the migration is as seamless and straightforward as possible while facilitating their decision-making process.

That question, Paul, was the top 20 win. Was that a new customer for us or an existing customer?

Yes. The top 20 that we just announced was an existing customer. I believe you are referring to the Boehringer Ingelheim announcement, is that correct, Jailendra?

Yes. Yes.

Boehringer Ingelheim has been a long-term customer of Veeva, initially in commercial and more recently in R&D. We have collaborated closely with them in the commercial aspect, helping them succeed with Veeva CRM, and they are now placing their trust in us for Vault CRM for the future. They remain one of our existing customers.

And my follow-up is on the decent acceleration in net headcount increase in the quarter. Anything to read into that? I mean, clearly, you're seeing some good momentum here. Any particular areas you guys are focused on with respect to headcount additions? Or is it more across-the-board?

Hi. This is Brian. I'll take that question. So we were happy to see headcount increase in the quarter. We're continuing to make investments in growth. It's broad-based, but certainly in our product areas is a key focus as we look ahead to next year and something we're pleased with the execution around.

Thanks, guys.

Your next question comes from the line of Andrew DeGasperi of BNP Paribas. Your line is open.

Thanks for fitting me in. I just had two questions. First on the migration of these customers to Vault CRM. And I was just wondering, do we start seeing an impact to gross margin? In other words, that royalty that you paid for Salesforce for Veeva CRM, is that going to improve over the next two years as these customers migrate, or should we see this sort of improve later as the agreement ends?

There is some secular change in gross margins as we look out, but these recall are pretty long-range migrations. They're still a long time to go in the Vault migration story, both the decisions that customers are making as well as their migration away from Veeva CRM on the Salesforce platform towards Vault CRM on the Vault platform. And so that adjustment that shift to margins over time and that improvement will take some time for you to see in the results and really spread out between now and 2030.

Thanks. Regarding the direct-to-consumer advertising comments you made earlier, could you clarify if Crossix is the only product focused on that, or are there others within the commercial cloud portfolio? Also, in terms of the strength you observed this year, has there been a change compared to the previous year?

Yes. Crossix is the primary tool we use for direct-to-consumer advertising and audience measurement. While it focuses on direct-to-consumer, it also caters to healthcare providers. Crossix has been performing well for us, along with CRM, add-ons, commercial content, and our data products like Data Cloud, Veeva Link, and Veeva Compass. Overall, we have seen strong performance in the commercial area.

Great. Thank you.

Your next question comes from the line of David Larsen of BTIG. Your line is open.

Hi. Congratulations on the very good quarter. The CROs have obviously reported some challenges. Obviously, you're not a CRO doing the clinical trials, but you do sell into that space. Can you maybe just talk about what the difference is there? Why are they seeing challenges but you are not? And has there been any impact to like things like study training, or site connect, or any more of those clinical trial-related focus products? Thank you.

This is Peter. I'll take that one. The CROs, they do make a lot of their revenue associated with particular studies. So as a customer is planning a study and then they're deciding to go forward and then they're bidding out services and the CRO selects and wins the services, that's a long lag time until the CRO gets revenue and they get revenue from those studies over the next year or two years or even three years. So I would say a year or so ago and two years ago and one year ago, there were more customers facing uncertainty and certainly smaller customers facing funding issues and so they were stopping planned trials. They don't usually stop the trials that were in flight. So they were maybe stopping some planned trials that would have turned into CRO revenue maybe this year. So that's maybe my best estimate of what you're seeing from the CROs. Now how does that affect Veeva? It doesn't really because most of our revenue is not on a study-by-study basis. CRO is a good channel for us and some of that is study by study. For example, the EDC is study-by-study. Randomization in trial supply management is study-by-study for us in the CROs. But for example, our ETMF product and our CTMS product, those are long-term enterprise license agreements that are not affected by the ups and downs of study volume. So we're not 100% insulated from the ups and downs in studies, but pretty darn close.

Thanks very much. And then for Vault CRM wins, I think there were 14 in the quarter. That seems like a very good number. There were like three and five and five in fiscal 3Q and 4Q of '24 and 1Q of '25. 14 sounds like a lot. Is that a new sort of steady state and why is there like such an uptick? Thanks.

Yes, I think it was 13 if I remember correctly. We see roughly that amount each quarter. In fact, I believe it was exactly 13. This number tends to vary each quarter. Generally, these are companies selecting a CRM system, and most customers already have some type of system in place. Although there are still some we can win over, the majority of the 13 are pre-commercial companies. They might be preparing their field medical teams or getting ready for their commercial launch, and we are winning nearly all of those deals, which is very exciting for us. Many of these customers will continue to grow and expand as they transition from the pre-commercial phase to a larger commercial operation. Our win rate is extremely high.

Thanks very much.

Your next question comes from the line of Charles Rhyee of TD Cowen. Your line is open.

Yes. Thanks for taking the question. I wanted to ask about, obviously, with the Walgreens strategic partnership, maybe talk about a little bit more where you think you are in your journey in adding data sources to Compass and data cloud in general, and maybe just give us a sense on how you feel sort of your competitive position in the market there is currently.

This is Peter. We are consistently seeking new data sources and approach this with patience. When we identify opportunities to expand our data network, we pursue them, provided they are reasonable opportunities. The partnership with Walgreens has been advantageous, and we see potential for more similar partnerships. Regarding our competitive position, I believe we have the most robust data network in the industry. This network supports both Compass and Crossix and is centered around patient-first data. We are acquiring a significant amount of data related to patients, beyond just retail pharmacy information. I am confident in our current status, the number of data sources at our disposal, and our effective matching of patient data across multiple sources. This accuracy enables us to develop outstanding products in both Compass, in measurement and audiences, and in Crossix, as well as in Compass for our patient and prescriber products. These offerings represent a disruptive innovation for the industry, challenging long-standing methods. Although change requires time, we are consistently onboarding more customers for Compass patients, and we are gaining momentum. It may be a small flywheel for now, but it’s in motion, and I am very pleased with our progress.

That's helpful, and maybe just a follow-up on Crossix, obviously a key driver of growth in commercial. Can you give us a sense what the Crossix growth rate has been through the first three quarters relative to the 11% growth for commercial? Just give us a sense, is it growing faster, or is it in line? Any color there would be helpful. Thanks.

Hey, this is Brian. I will take that one. We won't get into specific product-level growth rates, but overall, pleased with how the Crossix team has performed this year and executed against the market opportunity. It's a really strong and healthy growing market, and we're continuing to take share in that and something we hope continue going forward.

Your next question comes from the line of Brad Sills of Bank of America. Your line is open.

Thank you. I would like to ask about the overall demand environment. It seems that conditions are relatively stable, but I wonder if there are any signs of improvement in the big pharma sector. I noted some comments regarding the R&D segment of the commercial business. Are you observing any indications that spending might be on the rise? Thank you.

I believe that the current environment is favorable for Veeva, though not exceptional. It has stabilized compared to a year ago, showing some improvement. These enhancements focus on long-term capabilities, particularly within the development cloud and for larger customers. While we won't see drastic fluctuations, I am optimistic about the momentum we are building. These are significant developments that align with our 2030 objectives, which center on delivering greater value to the industry. I felt encouraged by the progress we made last quarter and by the productive discussions both the Veeva team and I had with senior executives. Overall, it was a positive quarter.

That's great to hear. Can you provide an update on the re-platforming effort? How do you feel about approaching some of the larger accounts? Are you becoming more comfortable with that, and do you have any early indications of how it's progressing? Thank you.

Yes, I feel very confident about the re-platforming of Veeva CRM onto Vault CRM. We announced this initiative two years ago, and while it's natural to feel uncertain at the outset, we approached it with a focused mindset. We now have live customers and have integrated numerous essential product features into the platform. The Veeva CRM has adapted to ensure full functionality compared to Vault CRM, and we also introduced two new applications, Campaign Manager and Service Center. We're excited about this progress. If someone had told me two years ago that we would be where we are today, I would have taken that opportunity immediately. It indicates we navigated challenges successfully, and I'm very pleased with our progress.

That's great to hear. Thanks, Peter.

Your next question comes from the line of Steven Valiquette of Mizuho Securities. Your line is open.

Thank you for the opportunity to ask questions this afternoon. I'm glad to be discussing the Company again. I have a couple of inquiries. First, regarding the Development Cloud, following our initiation, we conducted some channel checks on industry R&D spending trends. One question I have relates to a point mentioned earlier, but I’d like to explore it further. It appears that clinical trial initiations globally have actually been on the rise for the last two quarters after experiencing a year-over-year decline for a couple of years. As a follow-up, do you analyze data points like this closely, or do you primarily focus on discussions with your customers for your insights into the marketplace? Additionally, at the recent Analyst Day, the breakdown of your total revenue by customer type appeared different this year compared to last year. Could you remind us what percentage of your total business is attributed to CRO customers in terms of revenue? I remember it was no more than 5% last year, and I would like to confirm if that is still accurate. Thank you.

Yes. Hi, Steven. I'll address the first question and then Brian can discuss CRO revenue and its percentage. Regarding clinical trial starts, we do monitor that as it is one of several metrics; however, I advise against focusing too heavily on any single metric. We certainly do not do that. Peter mentioned how we are somewhat shielded from recent fluctuations in clinical trial volumes, which is just one example. Therefore, we do not place too much emphasis there. In the long term, it is significant, but in the short term, it is less critical as most of our agreements and our customers' purchasing behaviors are geared more towards enterprise capabilities rather than clinical trial starts. So, while we consider it, we do not prioritize it above all other metrics. I’ll now hand it over to Brian to address your second question about CRO revenue.

Yes. So on the second part of your question around CRO revenue specifically, at Investor Day, as you saw, we embedded the CRO channel within top 20 enterprise and SMB so it's a little bit harder for the year-over-year comparison. But the last time we disclosed it, it was about 5% of revenue and it's not materially changed from that.

Got it. Okay. All right. Thank you.

This concludes our Q&A session. I will now turn the conference back over to Veeva CEO, Peter Gassner, for closing remarks.

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

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