Veeva Systems Inc. (NYSE:VEEV) Q3 2023 Earnings Call Transcript

Veeva Systems Inc. (NYSE:VEEV) Q3 2023 Earnings Call Transcript December 1, 2022

Veeva Systems Inc. beats earnings expectations. Reported EPS is $1.13, expectations were $1.07.

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: 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.

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Peter Gassner: 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.

Operator: Your first question today comes from the line of Ken Wong with Oppenheimer.

Ken Wong : And Peter, I wanted to, I guess, just 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 got a follow-up for Brent.

Peter Gassner: Yes, Ken, it is the contract goes until 2025. So that’s where we’re not competing together in the market there. 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 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, some early adopters, and then the majority moving on 2025 or so, that’s when we’ll be selling mainly well 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 : 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 just to FX, or are there some impact from the billing dynamics that you called out in the prepared remarks or perhaps some macro?

Brent Bowman: 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 2 things. One is the FX incremental as well as a little bit of deal timing. So the 2 things, what drove a little bit of reduction.

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

Brian Peterson : So we’re getting a lot of questions from investors on the new agreement. And from a financial perspective, is it right to use accrued fees payable to sales force 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 cost to that?

Brent Bowman: If you look out to 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 : 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: 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.