Veeva Systems Inc. (NYSE:VEEV) Q4 2024 Earnings Call Transcript

Veeva Systems Inc. (NYSE:VEEV) Q4 2024 Earnings Call Transcript February 29, 2024

Veeva Systems Inc. beats earnings expectations. Reported EPS is $1.38, expectations were $1.3. Veeva Systems Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Veeva Systems Fiscal 2024 Fourth Quarter and Full Year Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] With that, I would like to turn the conference over to Gunnar Hansen, Director, Investor Relations. Please go ahead.

Gunnar Hansen: Good afternoon, and welcome to Veeva’s fiscal 2024 Fourth Quarter and Full Year Earnings Conference Call for the quarter and fiscal year ended January 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 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, February 29, 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 form.

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: Thank you, Gunnar, and welcome everyone to the call. It was a great quarter and year of execution for Veeva with strength across the business and results above our guidance. Total revenue in the quarter was $631 million with non-GAAP operating income of $239 million. For the year, total revenue was $2.4 billion and non-GAAP operating income was $843 million. This past year was important in many ways for Veeva and the industry. And I’m proud of all the team accomplished. We delivered the Veeva Compass Suite, giving the industry a better alternative to legacy data. We established the clinical platform and progressed on our new commercial cloud. It was a milestone year that I think we’ll look back on as one of the most significant. We’ll now open up the call to your question.

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Q&A Session

Operator: [Operator Instructions] Our first question will come from the line of Joe Vruwink with Baird. Please go ahead.

Joseph Vruwink: Great. Hi, everyone. Thanks for taking my questions. I wanted to ask about the services outlook and how it’s changed from your preliminary views. The shareholder letter mentions investments related to both CRM at large customers. Maybe you can just go into the approach you’re planning to take with these initial migrations and how it is differing from those original plans? And then related to that question, does this outlook assume there’s maybe more large customers, top 20 customers, ultimately undertaking migration activity than perhaps has been publicly announced to this point?

Peter Gassner: I’ll take that one and then Paul, maybe you can join in as well. There’s no major change in our strategy. It’s just a refinement as things get closer into view. We’ve decided and have been able to provide a little more internal guidance about how much investment we’ll make in Vault CRM related services. We think it’s just the right thing to do. It’s not — moving to Vault CRM wasn’t anything our customers asked for. They were happy with Veeva CRM. We’re going to bring them a better solution over time, an integrated solution with the sales, marketing and medical, all industry-specific all in the same database. But it wasn’t anything really they were asking for or budgeting for. So we really want to do the right thing by those customers because remember, Vault CRM is just — that’s just one of the things that we have with those customers.

We have big customer relationships and Vault CRM is just one of the things. So we want to help them through that. So no real change and Paul, in terms of progress with top 20 type CRM customers, maybe you can give an update?

Paul Shawah: Yes, Joe, thanks for the question. We’re progressing well with our top 20 customers. Really, all of our customers pleased to announce that we — you heard us announce two top 20 global commitments. We announced that last quarter. I’m pleased to announce a third moving their existing Veeva CRM footprint. They’re committing to move all of that over to Vault CRM so now this is three top 20 pharmas. So that’s just another example of the kinds of progress that we’re making. We’re also in deep conversation with all of the rest of top 20 and many other customers. And those conversations are progressing well, given the innovation that Peter has talked about. We’re doing something fundamentally different integrating sales and marketing and medical in a very tight and unique way. So I’m optimistic you’ll hear more about top 20s over time committing to Vault CRM.

Joseph Vruwink: Okay. That’s great color and congratulations on the new win. At the segment level, maybe it looks like the commercial business is set to accelerate based on the outlook. R&D decelerating. I suppose I wanted to focus on R&D because there’s quite a lot of traction just in terms of what is being awarded at the moment. I think there were two new enterprise EDC wins with top 20 this quarter, for example. Is maybe the rating between the lines that the level of activity is actually better than might be reflected in revenue just in this upcoming 12 months, but you’re seeing visibility for maybe strength beyond this upcoming fiscal 2025?

Peter Gassner: Yes, I’ll take that one. So if you — if we step back just for a high level and how the business breaks down, overall, the TAM is about $20 billion, right? So it’s a big TAM, and we’re less than 15% penetrated. So we got a long way to go. That’s important to remember that. It’s a long-term thing that this is going to be a growing and profitable business for many years. And then the other thing is quite durable because these products are critical products and they’re complex products. They’re not things like e-mail or something like that. And then we have a lot of products that fit together. So with that, with that context, I think it’s relevant to look at the different parts. And you can really break it down into three parts from sort of a revenue perspective, the Development Cloud, the R&D area.

That’s the biggest one. It’s about 50% of our revenue right now, and it’s about 65% of our overall opportunity, and it’s growing roughly 20% or so and that will really grow well into the foreseeable future. And because we have a lot of new products, we have a clear competitive advantage there, and these are mission-critical systems. Now what you mentioned, Joe, is customers don’t rush in these areas. These are critical systems. They don’t rush and these are some long-term programs. So for example, a couple of these wins that we had they will roll out and they will get to full revenue four and five years from now. So yes, the fiscal impact comes much later. One thing important to remember about 10 years ago, when we were going public, Development Cloud, that was quite a bit less than 5% of our revenue, and now it’s over 40% and still growing in the 20%.

So that’s Development Cloud. And then you’ve got this — the other areas like our CRM and the add-ons, we kind of call that the CRM Suite. And in that area, the revenue is stable. It’s not really growing because of two things. One, we have really high market share and happy customers on our core CRM or Veeva CRM and some of the add-ons. And then we need to migrate those customers to Vault CRM before we can sell the new add-on products like marketing automation and service centers. So that’s kind of a stable 25%. And then the other 25% roughly is a mix of other things in commercial. And if we call that other commercial, this is some stable things like commercial content and Crossix where we are the market leaders, but we continue to grow at a moderate and steady pace and customer success is really high with those products.

And then newer products like Link and Compass. And these are small now, but they’re growing rapidly on a percentage basis, and they have high potential if we can execute well. Now we have to remain seen if we can execute well. So overall, this other commercial area that I talked about, that’s growing roughly 15% or so now, and that can continue to grow into the foreseeable future as well. So I thought it was good to just give that background on how to look at the business overall.

Joseph Vruwink: Now that’s a lot of good detail. Thank you very much. I’ll leave it there.

Peter Gassner: Thank you.

Operator: Your next question comes from the line of Saket Kalia with Barclays. Please go ahead.

Saket Kalia: Okay. Great. Hey guys, thanks for taking my questions here. Brent, maybe I’ll start with you. Maybe just congrats on those two additional EDC wins. The question is, can you maybe talk about how billings ramps are sort of contributing to next year’s billings right? You’ve had great success in the EDC market. Is there a way to think about sort of next year’s billings growth with or without those — the benefits of those ramps. Does that make sense?

Brent Bowman: Yes. I understand. Thanks, Saket. So real pleased that how we exited fiscal year ’24, exceeding our billings guide, so executing well there. And if you think about the EDC wins, by way of example, we’re still pretty early days, as Peter said, so five of those top eight wins have been in the last 12 months. So we’re still early in that ramping phase. So they’re contributing. They’re contributing more in fiscal year ’25 than they did in fiscal year ’24. And those eight will continue to contribute more as we look out forward.

Saket Kalia: Got it. Got it. That’s helpful. Peter, maybe for my follow-up for you. It’s a little bit of a higher-level question. Can you just give us an update on how you’re feeling about the health of your end markets, I mean, it seems like things are just relatively stable compared to last quarter, which is great to hear. But since you spend just so much time with customers, how do you think customers are thinking about investing in technology here in 2024 versus what was a tougher 2023?

Peter Gassner: Yes. I think there’s a little more optimism. The science is going well. And we’ve had this disruption of conflicts and interest rates for a while now and people are getting kind of used to it. So there’s a little more optimism. Of course, things could change. I think that will translate into a bit more projects that get thought about this year, especially towards the end of the year. But a lot of that time, those things get kicked off in the following year. So a lot of our projects, you just don’t wake up one day and say, hey, let me redo my drug safety system. Now it’s these are big projects. There’s some change management and there’s some thought into it. But overall, I like the feeling that I feel from the industry right now.

Saket Kalia: Very helpful. Thanks, guys.

Peter Gassner: Thanks.

Operator: Your next question comes from the line of Ken Wong with Oppenheimer. Please go ahead.

Kenneth Wong: That’s fantastic. The first question for you, Brent. As I think about the outlook, you have solid teens growth on subscription and billing. I couldn’t help but notice you mentioned being a little more prudent with the outlook which I think is a language you guys haven’t used in the past. So I guess I would love to get a sense as we think about the guide, are you baking in additional cushion? Is it just kind of thinking about when the progression of the demand might come back through the year. Would love any additional color you can give on just how you’re thinking about the makeup of guidance?

Brent Bowman: Yes, Ken, overall, philosophically, there’s no change to how we approach guidance. There’s obviously a number of variables in play, whether it’s the macro and the impact and how that’s impacting our service or our subs business on billings, you got things like duration and frequency. So we kind of take a step back and look at all those variables, and we think we’ve taken a prudent approach holistically given the variables at hand. So not a fundamental change in how we guide.

Kenneth Wong: Got it. Okay. Really appreciate that color. And then for Peter, on the EDC side, I feel like historically, you guys have talked about that end market through the lens of winning new trials and that being where maybe the opportunity set was I couldn’t help but notice in January you guys did a migration of a study portfolio for an enterprise customer. Like could we possibly see the installed base as a potential opportunity going forward based on what you saw with that migration?

Peter Gassner: Let’s see. How to think about that. On the EDC, when we sell EDC field, there’s really two types. One would be an enterprise deal and that’s where we agree, hey, it’s a long term, it’s enterprise agreements that will ramp over time. And over time, you’ll run all your studies on Veeva. And that doesn’t — the revenue for that doesn’t change based on how fast they ramp or whether they migrate or whether they don’t migrate. Then we have other ones which are study-by-study costs where sometimes it’s with a CRO or a small biotech, they may be only running one or two or three studies, and we may compete for that study and win that study. the migration really won’t impact our revenue directly at all. What it is, is, let’s say, if a customer signs up for an enterprise agreement with ours, and they’re rolling out and they’re quite comfortable with Veeva.

They might get to a point where they have 20, 30 studies that will run for a long time, and they want to clean up their IT environment, and they want to have a consistent clinical research site experience. So they use our migration tools to clean that up rather than having some straggling studies on the legacy technology for honestly, what could be three, four, five years. And that gets brittle who knows what could happen with that straggling vendor, whether it has a downtime security patch needs to be put on, whatever it is. It’s just not clean. So that migration capability actually translates into an advantage in our enterprise sales because we have that capability and nobody else really has that capability. So it would only have an effect there.

It doesn’t really affect in the small market where we’re competing study by study.

Kenneth Wong: Perfect. Thank you, Peter.

Peter Gassner: Thanks.

Operator: Your next question comes from the line of Brian Peterson with Raymond James. Please go ahead.

Brian Peterson: Thanks and congrats on the strong wins this quarter. There’s been some mention in the past about some customers looking to take large bites of the apple and buying several products at once. We obviously heard a lot about wins across multiple product areas this quarter. I’m curious, are those concentrated with a few customers like the one with BI? Or is it much more diversified across the customer base? Any color there?

Peter Gassner: I guess I can take that one. I would say this is diversified, more diversified. We had some quality wins and those were with certain customers. We had a big clinical operations win for multiple clinical operations products. That was with a customer in Europe. We have a couple of EDC of top 20 and those were actually with different customers. So, no, it’s spread all around, I think, it’s the best way to say it, both in US. and Europe and just different customers.

Brian Peterson: That’s great to hear. And Brent, maybe a follow-up. I know the cash balance continues to grow. How are you guys thinking about looking at capital deployment priorities over the next few years here? Thanks, guys.

Brent Bowman: Yes. Overall, Brian, continuing to our current capital allocation strategy, no change. We run a profitable business. We generate a lot of cash. So we are focused on M&A as a use of that cash. And we are a disciplined company, and we’ll take a disciplined approach to how we look at M&A. We do consider other uses of cash as a management leadership team, but our focus today is M&A.

Brian Peterson: Thanks, Brent.

Brent Bowman: Thanks, Brian.

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

Rishi Jaluria: Wonderful. Thanks so much for taking my question. I wanted to first ask on AI and maybe ask in a little bit different way because I know it feels like you’re planning your cards a little bit close to the chest on your own AI strategy. But I want to ask what are you seeing out of life sciences companies in terms of how AI has changed on things, whether that’s accelerating drug development, whether that’s more targeted marketing, maybe if you could walk us through kind of what those conversations would look like? And what sort of role you think you can play in those changes? Then I’ve got a quick follow-up.

Peter Gassner: Rishi, I would say the most direct impact, and it’s been happening a while before large language models as well as AI and drug discovery. Very, very targeted AI models that can do things like protein folding and analyzing retina images, things like that. So this is — this is very powerful, but very therapeutic area specific, very close to the science in the R&D, and I — there’s not just one AI model there is multiple specialized AI models. So that’s going on, and that will continue. I would say that’s kind of part of the fabric of the industry now. Then in terms of other areas, really, there’s a lot of experimentation with large language models. And what people look at it for are a) Can I just have general productivity for my people?

Can they write an e-mail faster? Can they check their e-mail faster? Can they research some information faster? So that’s one thing that’s going on. Also, specific use cases like authoring, can I — can I author a protocol faster? Can I author a regulatory document faster? Now faster is one thing, but also have to be very accurate. So I would say there’s experimentation on that. there’s not yet broad production use on that. And certainly, some of these critical things has to read a lot of quality control on it. So those are probably the two biggest use cases. Really three. Research, general productivity and authoring. And then as far as our rule, we’ve been doing some really heavy work over the last two years on something in our Vault platform that’s called the Direct Data API.

And that’s a pretty revolutionary way of making the data come out of fault in a consistent — transactionally consistent manner much, much faster, roughly 100 times faster than it happens now. That’s going to be critical for all kinds of AI applications on the top, which we may develop, which our customers may develop, and we’re also utilizing that from some really fast system to system transfer between our different Vault family. So that’s been the biggest thing that we’ve done. We haven’t really invested heavily in large language models. So far, we just don’t see quite the application in our application areas, not to say that, that wouldn’t change in the future. I would, I guess, I would say we’re in a pretty good position because AI really — the durable thing about AI is the data sources, the data sources.

The AI models will come on top, and that will be largely a tech commodity, but the control and the access to the data sources, that’s pretty important, and that’s kind of where Veeva plays.

Rishi Jaluria: Yes. Got it. Okay. That’s really helpful. And then you had your first full Vault Clinical Ops Suite customer in the deal, sorry, in the quarter, can you maybe talk about the uplift from eTMF to adopting the full suite, what that looks like and what you can do to maybe accelerate more of those types of wins? Thanks.

Peter Gassner: Yes. Now that’s the specifics of that customer, of course, I won’t go into the exact specifics here, but I can quickly give you my thoughts on it. I would say there that customer had eTMF, and that’s one of our larger applications and has had for a number of years, fully deployed that one. When they got the other four applications in clinical operations, they more than tripled our opportunity, our end-state in clinical operations. So in that case. And I won’t go into the exact numbers, but I know it’s more than tripled. So it’s significant. When you look at the CTMS, the clinical trial management system, that’s a really important system study training, really important system for training thousands of research sites around the world and maintaining compliance and doing that in a friendly and friendly way.

The payments processing. That’s another thing that’s key, the processing the payments out to the clinical research sites and then our product called Site Connect, which is about automating the information flow from the sites to the research, sorry, from the sites to the pharma company. During the start-up, during the conduct of the study and also critically at the end of the study, things that are called end-of-study media that have to get out to the site and we’re doing that in an automated way. So there’s a ton of value there that more than triples our value of eTMF.

Rishi Jaluria: Wonderful. Thank you.

Peter Gassner: And I would say last comment that customer won’t always be like that where a customer says, hey, we just really want to modernize clinical operations, and we’re looking to this partner to do it, and we’re going to do it in a holistic way over a number of years across a number of products. What’s more common is there’s a need in a certain area, study training. The study training group has a need, hey, let’s use Veeva or the payments group has a need, hey, let’s use Veeva. That’s still the more common use case.

Operator: Our next question will come from the line of Stan Berenshteyn with Wells Fargo Securities. Please go ahead.

Stan Berenshteyn: Hi. Thanks for taking my questions. So you rolled out Compass Prescriber Compass National. I realize it’s still early, but can you share any anecdotes about customer reception, customer demand on those products?

Peter Gassner: Yes. It’s very early. It’s a good question, especially well, Compass patients, but especially prescriber and national, these are quite innovative products. So it’s going to take a while for customers to understand and adopt these. It’s almost like going from the cloud sorry, from client server to cloud. It’s sort of, well, it’s a different way of doing things. So the reaction from the customers has first been for some, they’re busy and they’re not interested. For some, they are like, oh, I want to look into this. And then when they look into this, like, well, wow, this is really different. And they have to absorb that a little bit. This is really different, and then for some early adopters, they have jumped on like, wow, I can target physicians that I’ve never been able to target before.

I can see data on my competitors’ products that are administered in the medical setting, not a retail product, I can see that down to the ZIP code level and the HCP level. And I can see things like unattributed scripts that where we don’t — where the — the health, the doctor is not specified, but they can see the health system. These are things that were just not possible before. So and for a long time, not possible for really 20 years here. So now it’s the process of wow, that data is available, what should I do with that data? How can I optimize? So it’s — it’s going to take some time, and it’s for early adopters, which will generally come in innovative companies coming to market. They don’t have any existing infrastructure and they’re innovative type people and hey, let’s just go for that.