Earnings Call Transcript - VEEV Q3 2023

Operator, Operator

Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Veeva Systems Fiscal 2023 Third Quarter Results Conference Call. Ato Garrett, Senior Director of Investor Relations, you may begin your conference.

Ato Garrett, Senior Director of Investor Relations

Good afternoon, and welcome to Veeva Systems Fiscal 2023 Third Quarter Earnings Conference Call for the quarter ended October 31, 2022. As a reminder, we posted prepared remarks on Veeva's Investor Relations website just after 1:00 p.m. 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 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-Q. Forward-looking statements made during the call are being made as of today, December 1, 2022, 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 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.

Peter Gassner, CEO

Thank you, Ato, and welcome everyone to the call. We had a strong Q3, delivering results ahead of our guidance. Total revenue in the quarter was $552 million, up 16% year-over-year, and subscription revenue was up 16% to $442 million. Non-GAAP operating income was $219 million or 40% of total revenue. Despite the difficult macro environment, we continue to execute well. Our innovation engine is strong and our strategic partnerships with the industry are increasing. We also had a record hiring quarter and a very strong quarter in clinical with some significant wins. We also announced that we are moving Veeva CRM to the Veeva Vault platform over time. This will allow us to deliver a better application and a better customer experience. At this point, we'll open up the call to your questions.

Ken Wong, Analyst

And Peter, I wanted to dive straight into the move to Vault with CRM. You guys are definitely keeping us on our toes these last few quarters. Maybe just for some clarity, when we think about the contract ending in '25 and then a grace period through '30. Does the noncompete with Salesforce also end in '25? And just would love your take on what that migration path looks like, what would be some potential hurdles that might slow down that transition? And then I have a follow-up for Brent.

Peter Gassner, CEO

Yes, Ken, the contract goes until 2025. So that's where we're not competing together in the market. That's according to the contract. And then there's a wind-down period for existing customers that starts in 2025, and that goes to 2030. So it's business as usual. There's nothing that could change about today and the customers are supported with Veeva CRM until 2030. We expect to have early adopters on the Vault CRM in 2024, with some early adopters, and then the majority moving on in 2025 or so. That's when we'll be selling mainly Vault CRM, and customers will migrate over time. They have plenty of time. So that's the basic of how to think about it, Ken.

Ken Wong, Analyst

Okay. Fantastic. And then, Brent, just quickly on the numbers. In terms of the slight reduction in the clinical subscription or R&D subscription, is that due primarily to FX, or are there some impacts from the billing dynamics that you called out in the prepared remarks or perhaps some macro?

Brent Bowman, CFO

Yes. Overall, yes, we're happy with R&D Solutions growing at about 18%, adjusted for FX on a full-year basis. The little bit of reduction you're seeing is a combination of two things: one is the FX incremental as well as a little bit of deal timing. So those are the two things that drove a little bit of reduction.

Brian Peterson, Analyst

So we're getting a lot of questions from investors on the new agreement. From a financial perspective, is it right to use accrued fees payable to Salesforce that you guys disclosed and kind of annualize that number on the potential impact that you guys would save? Or would there be some offsetting costs to that?

Brent Bowman, CFO

If you look at our 2025 targets, we don't expect there to be a material impact. We're still tracking about a year ahead inclusive of this new announcement. We don't anticipate there to be any real significant investments required. We're going to largely leverage our internal resources and also the power of our Vault platform. Beyond 2025, that's a long time out there. Yes, there is some accounts payable. You can see in our quarterly financials. That's a monthly number, so you can use that as a ballpark estimate.

Brian Peterson, Analyst

And maybe just a follow-up. You mentioned last quarter that we've seen some volatility in sales cycles. I'd just be curious how that progressed throughout the quarter? It sounded like there were some really strong clinical results, but would love to get any color there.

Brent Bowman, CFO

Yes. So really happy with the momentum. Those few deals we talked about in Q2 did close in Q3. So we're very pleased about that. So overall, from a macro perspective, we've seen kind of similar to what we said 90 days ago, not better, not worse. And that's basically a little bit of additional scrutiny that we saw 90 days ago, but nothing significantly different than that.

Dylan Becker, Analyst

Maybe Peter, to I think you highlighted some strength in EDC. We spend a lot of time talking about the complexity of a clinical data management piece and the opportunity to expand beyond just per EDC. I know you guys have introduced a number of functional areas here, but can you give us a sense of how you're thinking about putting together the proverbial Rubik's cube around the sources and stakeholders there, not just from an existing process perspective, but unlocking and addressing almost an entirely new set of workflows and capabilities?

Peter Gassner, CEO

Yes. In the clinical sector, we have achieved two significant victories this quarter, with two top 20 companies choosing our EDC, which is a central application for managing clinical data. Additionally, we are launching more applications including RTSM, patient-reported outcomes, and our CDB product. Early implementation of eTMF in clinical operations indicates a positive outlook for the future. Securing EDC with these large companies is also a promising sign for advancements in clinical data management. We envision a wider future as we connect clinical research sites, leading to the development of numerous applications. I'm very enthusiastic about our prospects in clinical, particularly in the clinical data management space, as we are still in the early stages.

Dylan Becker, Analyst

Got it. That's helpful. And then maybe from a hiring perspective, as we look at it, you've already added more headcount than any prior period here or any prior year. I guess how should we think about investment? Obviously, a lot of new initiatives and kind of that 2020 to 2030 growth framework, but how should we be thinking about kind of the resource allocation and obviously a further pace of hiring down the road here?

Peter Gassner, CEO

Yes, it's a great hiring environment. People are looking for quality companies, stable companies doing great work where they can feel aligned to the values and do their best work. The shiny penny of the crazy startup idea is not so shiny anymore. So it's a great hiring environment. We'll really invest across all areas of the business: sales, services, and specialty products, but you're not going to see anything dramatic from Veeva. You'll see the measured pace that we go at. We really focus on quality hiring. We've often come in under our hiring targets. If this grade environment continues, hopefully we won't come in under our hiring targets anymore. So I'm really pleased about that. That's a leading indicator for Veeva when we can hire great people.

Anne Samuel, Analyst

I was hoping maybe you could speak a little bit to the rationale behind moving away from MedTech CRM. You spoke fairly positively at the Investor Day, so just wondering maybe what shifted?

Peter Gassner, CEO

Yes, Ann, this is Peter. MedTech CRM and the Pharma CRM, they share a common foundation. You have to do those things together. So with moving the CRM to the Vault platform, we really had to prioritize Pharma CRM first, take care of our existing customers, and get that base set up. And then, yes, MedTech CRM may come later, but we needed to prioritize the sequence since these applications are tightly interrelated.

Anne Samuel, Analyst

That makes a lot of sense. And then just you had a lot of really nice outperformance on the operating income line in the third quarter. You held on to the full-year guidance. So I was just wondering, is there any shift of expenses there or anything incremental in Q4 that we should be thinking about?

Brent Bowman, CFO

Yes. Regarding Q4, it's always our seasonally lower operating margin quarter. Why is that? Service utilization with the holidays is always a factor, as well as the reset on benefits and payroll tax type items. So that's a big seasonal reduction you will see. And then we're continuing to invest for long-term growth. Those are the two factors, but nothing else unusual.

Craig Hettenbach, Analyst

Just following up on some of the macro commentary. Any sense in terms of just what you're seeing from a number of add-ons and any tightening on that front quarter-to-quarter?

Paul Shawah, EVP, Commercial Strategy

Yes. The situation remains quite similar to what we've observed in recent quarters. Back in June, we mentioned a slight slowdown in the SMB sector, especially at the lower end, with fewer expansions and no significant improvements or declines. Thus, we have not noticed much of a change in that area.

Craig Hettenbach, Analyst

Got it. And then just a question on Crossix you called out as growing about 10%. Clearly, the broader advertising market has been under pressure, but that's an area of relative strength. Just what you're seeing in that market and any sense of when that market could maybe start to reaccelerate again? Any visibility into that?

Peter Gassner, CEO

Yes. There's a bit of caution regarding advertising spend, and I can't predict when that will change. Our focus is on enhancing the value of the application by improving its functionality and integrating it with our CRM products. We are also transitioning to more multiyear agreements and enterprise license agreements with customers to ensure a steady revenue flow and stability in service. I'm very excited about the Crossix business. We have a clear roadmap, and things are progressing well.

Gabriela Borges, Analyst

Paul, Peter, could you walk us through what the transition looks like for a customer to switch from CRM with Salesforce to CRM with Vault? And more specifically, is there a risk that they look to evaluate competitive products when they do that transition?

Peter Gassner, CEO

So when it looks like really, you could think about it as moving the back end of the application, the back-end platform, and we'll have migration tools that will bring the data across, including the customer customizations and still be able to use all their content that they've developed, their multichannel email templates. We'll use the same front-end applications such as on the iPad. So that's what it will look like. We'll develop a lot of tooling. The customer will have integrations to ride, things like that. And in terms of competition, it's always a competitive market. Whether you're moving platforms or not, you have to continue to maintain your customer relationships, continue to add value and innovation. I don't really see anything different there. The main thing is we're replatforming the application CRM. We're not rewriting it. We're not introducing any kind of a new paradigm. So I feel comfortable that the vast majority of customers will migrate over time. The Veeva Vault platform is a very mature application, and the bulk of Veeva's revenue is on the Veeva Vault platform, and that's where our customers actually have the majority of their Veeva business. So I think overall for customers, this is a positive that simplifies their landscape.

Gabriela Borges, Analyst

The follow-up is for Paul. I believe last quarter, you talked about budget planning at your customers hitting full swing into the second half. So just looking for an update here: what are you hearing on commercial budgets into 2023 and willingness to invest? Specifically, the response to the pricing increases. Is there any negative impact on your ability to cross-sell because perhaps the budget is fixed?

Paul Shawah, EVP, Commercial Strategy

Yes. There hasn't been a significant change in the budget. Our customers have completed their timing process, and we haven't experienced any pricing pressures. In the industry, especially within large enterprises, there is less sensitivity to macroeconomic changes, and we haven't noticed any impact there. As for the inflation increases we've encountered, for the most part, it has been quite smooth for our customers. This is mainly because we have a long-standing reputation as a trusted partner. Historically, we haven't raised license prices, and our customers understand that the current environment is different. Overall, it hasn't posed an issue.

Joe Vruwink, Analyst

Just staying on the CRM conversation. In the past, I think you've acknowledged that typically customer conversations are separate and distinct between commercial and R&D organizations. Yet the shareholder letter made some comments about how a common platform for both now makes sense. So I'm wondering, are customers approaching you differently, thinking about procurement differently, or is Veeva seeing new product opportunities that will benefit from uniting the two offerings?

Peter Gassner, CEO

So no change in customer behavior, Joe. I would say primarily our customers are concerned with the excellence of the application in their area. But as they get more Veeva applications and more Vault applications, they do look for synergies there, synergies in operations. They might create a Veeva Vault center of excellence, that type of thing for efficient operations. Or they may be auditing the Vault platform, and it's easier just to audit one platform. So we see that there. And then the connectivity between the applications, specifically between clinical, medical, and commercial, that's something we do see opportunity with, and I think Veeva will help drive that. Some customers are asking for that. But mainly, we're going to be leading the way there. You really haven't had great solutions for that connectivity, and I think we'll bring innovation there and connectivity that will create the market.

Joe Vruwink, Analyst

Okay. That's great. I have a question about the numbers, specifically regarding Q4 billings. Last quarter's outlook suggested around $927 million, and now the guidance is $909 million. Brent, is the change in guidance mainly due to deal timing? Are we looking at an annual impact reflected in one number and a quarterly impact in another?

Brent Bowman, CFO

Yes. I mean part of it, Joe, you're right. There always is some quarterization. So that's why we always say to look at it on a full-year basis. Q3 benefited about $6 million; that’s more annual billers that would have otherwise likely built in Q4. That’s part of the equation. But it's just a little bit of timing of renewals in those annual billers. So there's nothing fundamental to the business. We're very, very happy with the momentum around the clinical space and the EDC space. So it’s a really good business momentum and no underlying business concerns.

Ryan MacDonald, Analyst

Maybe first one for Peter. You talked about in the prepared remarks about the impact of having the first milestone Vault Safety customer live now. I would just be curious, given that you spoke at the R&D Summit, what you're seeing in terms of increased customer conversations or pipeline development from that event and the go-live here?

Peter Gassner, CEO

Excellent question. I guess to step back, we have a safety application that's a very complex application. It's case processing of what are called adverse events; somebody takes a medicine, and they either have a bad reaction or they think they have a bad reaction, and that has to be classified and routed and recorded to health authorities around the world. So it's a very complex application. We're really the first company able to do that as a cloud-native application. That means just like we do everything else, there's one version of the code and all customers run it. So that's a breakthrough. Our customers are used to on-premise applications; they have to upgrade, which causes lots of issues. Now that this customer is live, this is one of the larger top 20 customers. Now there's proof that it works. Mainly customers are thinking, I probably will go with Veeva for safety. And then the question is when, is it next year? Is it 3 years from now, 5 years from now, 7 years from now? So that's really the significance of it. I wouldn't say all the way, but the speed that that implementation happened was probably about half the time that most customers would have expected that it would have taken. So that was also seriously noticed by the industry.

Ryan MacDonald, Analyst

That's a pretty impressive implementation time and go-live time. That's helpful color.

Peter Gassner, CEO

Can you tell that I'm enthused about that?

Ryan MacDonald, Analyst

Just a bit. Maybe my second question is around the Merck strategic relationship or partnership. I'm curious, and this sort of relates to the CRM strategy here, but in a strategic relationship like that, I'd be curious within your discussions, how important it was to Merck to have kind of this unified platform of everything being involved in a type of long-term 10-year strategic relationship there? And how much that sort of guided the strategic decision-making here on the CRM change?

Peter Gassner, CEO

In terms of Merck, I won't get into any details specifically there on Merck. I would say that in a strategic agreement of that nature, generally, we're not talking at the platform level. We're more talking about the operating model, how we operate together, how we — the governance model, and it’s only done based on trust over many years when they see repeated patterns of a customer success orientation of a strategic partnership orientation, and then it's really the governance model that we put in place. So it would be at a higher level versus individual products or platforms.

Tyler Radke, Analyst

Could you provide some details about the large Vault EDC customers you signed in November? Were these contracts displacing a main competitor in the market? Also, can you give us an idea of the size of these contracts and the potential opportunities in those accounts?

Peter Gassner, CEO

Yes, these were wins with our top 20 customers, and they are indeed displacing one of the market leaders since there is a demand for an EDC application. In both instances, we are taking over from one of the top two market players, aside from Veeva. I won't specify the deal sizes in that area, but EDC represents one of our larger applications. These deals are substantial and will grow over several years because with the EDC application, you progress study by study. Thus, this represents a long-term commitment, and the revenue grows quite slowly, even slower than most of our applications, which is simply how it works. Currently, we are advancing with EDC faster than I initially expected. If you had asked me at the beginning of 2020 whether we would be at our current position with EDC, I likely would not have been as optimistic as the reality has turned out. Our emphasis will be heavily on customer success because EDC is the initial step in clinical data management. That is our primary focus. We are very pleased with our progress and will concentrate on ensuring outstanding implementations while enhancing our product based on feedback from these significant customers. We need to excel in various areas, such as customer success, staffing, and services. There is a considerable amount of work to do, but we must continue to improve consistently.

Tyler Radke, Analyst

Yes, that’s great to hear. And maybe on Compass, turning to that, it sounded like you made some comments around continuing to optimize the approach there. Could you just give us an update on how that’s tracking relative to plan? And kind of when you’re expecting that revenue ramp and the timing of when we start to see that in the numbers.

Peter Gassner, CEO

Yes. At Compass, that’s certainly a marathon. That’s a tough market. You have a very entrenched player there that has some questionable business practices that make it hard. We’re happy with our progress on the product, and we have a smallish set of early adopters. I won’t go into the specific count of customers. As to when we really start to generate momentum in the revenue, it’s going to be low. It’s not going to be next year. It’s a very long-term play. I’m confident in our position in the market and our product strategy. I’m confident that the market needs competition. But that one is going to be a marathon, and you just have to stay tuned for milestones. That’s the thing about great milestones. You don’t actually know when they’re coming, but we’ll let you know when they get here.

Stephanie Davis, Analyst

I know we've beaten this to death about the risk when we've been off of the Salesforce platform, but I thought I'd add to it. Could you walk us through the WIP associated with moving off of it? Is this hiring platform engineers? Is this resources that you already have? Or should we think of this as effectively built out as you've already had entrants like MedTech built on the Vault platform?

Peter Gassner, CEO

Yes, Stephanie, I'll take that one. The main thing to know is that when we build applications on Vault, we're highly efficient. There's a lot of work that has gone into the platform. So we don't see really material incremental investment. We're using parts of the CRM application. We're just porting over the back end. For example, we have a very robust iPad client for Veeva CRM. It has all types of functionality in it. We're not going to rewrite that application at all. So that's why the investment is not material to the rest of Veeva because of the leverage, both in the existing application footprint, template, and code, and the leverage we get from the Vault platform.

Stephanie Davis, Analyst

Asking this in kind of a different way from a user perspective, are you taking more of an origin approach and bringing the same look and feel as you move to the new platform? Or are there any opportunities in transitioning the three platforms that you switched to either improve the CRM platform in your experience or offering?

Peter Gassner, CEO

Yes. Excellent question. In general, we're going to re-platform the back end. We're not going to change up the user experience or do dramatic things at that time. Now having said that, we have an existing roadmap for CRM that we've really been executing on. Our customers have a lot of new functionality, for example, engage new features that we have engaged, engage Connect that allows compliant messaging between doctors and sales reps. That's just starting to get adopted now because that's a thing that needs compliance oversight. That will continue right into Vault CRM. So I would think of it as replatforming the back end and reinvigorating the front end and the functionality that just keeps going on. That’s been going on for a while, and that will continue on.

Brent Bracelin, Analyst

Peter, you've lived through a few economic cycles. I'd be curious to get your view around what aspect of the pharma MedTech industry is a little unique that maybe investors don't appreciate. We're seeing obviously a pretty material slowdown in growth profiles of some of the largest cloud software vendors. And so what parts of the market you serve, maybe are underappreciated levers that allow you to kind of sustain durable growth? I mean is it a trusted partner relationship? Is it having these multiyear roadmaps that they're going to continue to execute and expand products? Is it just the fact that it's tied to really large, strong vendors? Just trying to think through some of the slowdown we're seeing in other vendors in the cloud space and perhaps a bit of a different picture here from your lens?

Peter Gassner, CEO

There are many perspectives on this topic. I’d like to start by referencing the past couple of years, which have been quite unusual. We haven’t seen interest rates rise this high since the early 1980s, and similarly, inflation levels have not been this elevated since that time. Additionally, the war in Europe is unprecedented in my experience. Given these extraordinary circumstances, there are factors that favor Veeva. First, our strong customer relationships and proven track record provide significant resilience during downturns. Furthermore, our industry is not recession-proof, but it does demonstrate strong resistance. Unlike sectors such as airlines, hotels, or luxury goods, healthcare remains essential; people will always need their medicines regardless of economic conditions. This means that spending tends to remain stable. There is some impact on smaller private companies, which may struggle to secure funding in a tighter financial environment, compelling them to adopt a more cautious expansion approach. Lastly, our products are critical systems of record. Whether times are good or bad, organizations need their clinical trial management systems just as they need their financial and ERP systems. Speculative technology and add-ons are less crucial. This focus on essential systems works to our advantage. Several elements align for our stability. We perform best during periods of relative stability; rapid growth may not be ideal for Veeva, and downturns can also present challenges. Our strongest performance occurs in stable conditions.

Rishi Jaluria, Analyst

I wanted to ask two questions, one CRM question and one non-CRM question to balance things out. So on the CRM side, maybe I want to ask a little bit more explicitly, right? So the non-compete goes away in 2025. Salesforce has obviously been vocal about wanting to get deeper into vertical software. They're obviously trying to find more avenues for growth now that the market continues to get saturated. How should we think about the potential for over time Salesforce to actually become a competitor and start selling their solutions directly into life sciences, whether it's the out-of-the-box functionality, or actually verticalizing the solution themselves? And then I've got a follow-up.

Paul Shawah, EVP, Commercial Strategy

Yes, Rishi, this is Paul. So, yes, the way to think about our partnership with Salesforce is a very long history of a really great partnership. The agreement goes through 2025. And through 2025, what that means is we are Salesforce's preferred partner for the life sciences industry. I don't expect that to change at all between, certainly between now and then. We can't comment on where Salesforce decides to invest and how they decide to focus after that. So I don't see any change there. We do know that the life sciences space is a highly regulated, very specialized industry. It takes a lot of time to get it right. It's a complex space. We're the market leader here, and we expect to make the transition super easy for customers and continue to innovate here. So we can only focus on our horse and not on what others do.

Rishi Jaluria, Analyst

Okay. That's totally fair. And then, Peter, in the prepared remarks, you talked about maybe some of the progress that you're making on the CDMS side with CROs. I was wondering if you can expand on that, what you're seeing out of them? And maybe has there been any pushback from CROs to adopting the CDMS solution so far? What needs to happen for that to become a significant part of that business?

Peter Gassner, CEO

Yes. We are experiencing continued interest and momentum from the CROs. However, their responses may be cautious and measured due to their established policies and procedures with existing vendors, which means changes occur gradually. The growing interest is driven by more sponsors inquiring about Veeva and some CROs recognizing that it is actually more efficient to operate with our platform. Therefore, I believe this will be a slow and gradual transition. Generally, CROs tend to adopt market-leading technology, and I believe Veeva is on track to become that market leader, which will encourage CROs to follow suit.

Jack Wallace, Analyst

One more on Salesforce. Just trying to think about kind of why now to make the change in re-platforming to Vault. I think I understand the reasons why the switch. But why now? Why not before the last contract resigning? And were there inflationary pressures going forward that you wanted to avoid and because the cost savings better and maybe a better platform in-house? Just thinking about the timing around the change in platforms.

Peter Gassner, CEO

Yes. In terms of the timing, first, it's always good to make changes when things are good. The application is strong, and the customer feeling is strong. So that's a good time to make a change. Also, if you look at why now versus 5 years ago or 4 years ago, the Vault platform is very mature now, very robust. We have safety going, and we have CDMS going. Maybe 4 years ago, perhaps the Vault platform wasn’t quite mature enough and also it had safety and CDMS really stressing it out about 4 years ago. So I think that would have been too early. Why now is, why not wait? It’s the right time. It gives our customers plenty of time to move, plenty of heads-up. The Vault platform is clearly ready, and it's just timing. We can have a better customer experience and a better application. The bulk of our application revenue now, as you saw from the Analyst Day, is on the Vault platform, and that percentage is only increasing. So it's time to bring CRM into the fold. It will be better for Veeva and our customers; it's just the right timing.

Jack Wallace, Analyst

Got it. That's helpful. And then, Brent, this one is for you. The R&D list, it sounds like that's ongoing and will continue through next year and probably '25, you support the migration. Just thinking about the context of that spend relative to the '25 targets. I say next year is going to be a little bit of an odd year with the revenue cadence on the TFC changes. But thinking about the percentage of revenue targets there, is that 17% to 18%, still a good target for the '25 period?

Brent Bowman, CFO

So yes, we're not going to provide future guidance right now, but we're happy with the momentum and execution, as Peter mentioned, growing at 18%. We have our 2025 targets out there, tracking about a year ahead. And remember, that's a run rate target, so we're on track for that about a year ahead, and we're pleased with the broad portfolio we have to execute against.

Ken Wong, Analyst

Lots of stuff spinning in my head right now. So maybe just back on the Vault CRM, would just love a sense of like any thoughts on how this could potentially impact pricing? Would that possibly change? And then second, just one for Brent on the impact of the TFC that you called out at Investor Day, is that something that should hit at the start of the year for fiscal '24? What's the right way to think about when we should start rolling that impact in?

Paul Shawah, EVP, Commercial Strategy

So the way to think about it is the licensing model and the pricing will all stay the same, and all of the same add-ons that we have will also be available with Vault CRM. So nothing really changes there. It will be pretty seamless and easy for our customers.

Brent Bowman, CFO

And then on the termination for convenience, Ken, yes, the $60 million is effective February 1 going forward. How you should think about that is about 60% of that, we expect to have an impact in Q1 of next year. The balance of that kind of diminishes over the balance of the year. The vast majority will be on the R&D Solutions side of the business. So it's going well. We're working with customers, and we're on track.

Brad Sills, Analyst

I wanted to ask about the new hires. You mentioned 483 new hires this quarter. Just curious where the areas are where you're focusing on new hires from a product standpoint and R&D versus sales and marketing, please?

Peter Gassner, CEO

Yes. I believe that was 483 net additions in the quarter. It's really broad-based. It's true, right? If you look at our account executives, our account partners, it's there. It's in our engineering, our product management, our services team, our support team. I think the area where the growth is a bit lower is in G&A. We have a pretty efficient model there. So it’s customer-facing and product-facing people is where the growth is. 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 your outstanding work in the quarter. Thank you.

Operator, Operator

This concludes today's conference call. Thank you for attending. You may now disconnect.