Q1 2022 Veeva Systems Inc Earnings Call
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Greetings, Thank you for standing by and welcome to the Veeva systems fiscal 2020 to first quarter results Conference call. At this time, all participants are in English and only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session.
Don't need to press star 1 on your telephone if you require any further assistance. Please press star zero.
I'd now like to hand, the conference every year over to your speaker today.
So Gary <unk> Senior director of Investor Relations. Please go ahead.
Good afternoon, and welcome to payables fiscal 2022 first quarter earnings conference call for the quarter ended April 30 in 'twenty 'twenty 1 on.
As a reminder, we posted prepared remarks on these lists Investor Relations website, just after 1 P M Pacific today.
We hope you've had a chance to read them before the call today's call. It will be primarily used for came on board with me today for Q&A, Peter Gassner, Our Chief Executive Officer, Brent moving our Chief Financial Officer, and Paul Shower DPP strategy.
During the course of this call we may make forward looking statements regarding trends our strategies on the anticipated performance of the business. These forward looking statements will be based on our current views and expectations.
Just to various risks and uncertainties, our actual results may differ materially.
Please refer to the risk for listed in our earnings release and on the risk factors included in our most recent filing on form 10-K.
Forward looking statements made during the call are being made as of today May 27, 2021 based on the facts available for us today.
This call is replayed reviewed after today the information presented during the call may not contain current or accurate information.
<unk> disclaims any obligation to update or revise forward looking statements. We may discuss our guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in the public for them on the call. We may also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results on <unk>.
Reconciliations 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 will turn the call over to Peter.
Thank you <unk> and welcome to the call everyone.
We had an outstanding Q1 results well ahead of guidance due to significant outperformance in development cloud and continued strength in commercial cloud <unk>.
Revenue in the quarter was $434 million up 29% year over year.
Scripts and revenue up 26% to $341 million.
Non-GAAP operating income was $181 million or <unk>, 42% of total revenue.
You will find further details about the quarter in our prepared remarks posted on our website at 1 specific today.
This point I would like to open up the call for questions for Brent Paul or myself.
And ladies and gentlemen, as a reminder to ask a question that is star 1 on your.
Your first question comes from line of Brian Peterson with Raymond James. Please go ahead. Your line is open.
Thanks for all and congrats on a really strong result, so so.
So obviously, we saw acceleration in the bolt services revenue I know this has come up in the past, but how do I think about the bolt services as it is.
As an indicator of what's going on in the broader business is that a future indicator of coincident.
Tried on heavy frame that a little bit.
Yes, Thanks, Brian Yes. It services in general is not a good leading indicator I would say no.
1 thing to keep in mind is just there's just a lot of variability in services revenue and why is that different products have different service requirements.
Customers have different needs based on their in house capabilities, but what I will say that we're very pleased with the overall service business. The strength that we saw on the development side and broadly.
Got it okay, and just maybe on the quality shrank I know, we heard that there is a narrative last quarter.
Peter I don't know who wants to take that but just what youre seeing in terms of the quality quality product and how that's really ramping up the customers. Thanks Scott.
Yes. Thanks, Brian. This is Paul Yes, we did have another strong quarter overall on quality really broadly across development operating quality in particular, and I guess I started at the highest level of a unified vision that we have in development cloud is working and quality is just a perfect example, where we're bringing together documentation with.
Quality management with training and they are all progressing really really well customers are buying into that overall vision MMA or.
They are rolling out in kind of driving of that vision over time.
Had really strong performance and quality ox.
And really in all of the areas and.
Companies are looking to modernize from a quality space and we're looking to be able to be that partner to to help on that so we're really pleased with our progress.
Thanks, Paul.
And your next question comes from the line of Donald Hooker with Keybanc capital markets. Please go ahead. Your line is open.
Great. Good afternoon. Thank you just like to hear maybe a little bit more if you would all share with us some of your thoughts around the pharma sales force globally. It seems like from the prepared comments Youre walking back.
Some of your concerns are maybe pushing them out can you just maybe expand on your thinking there.
Yes, sure I can give you some color on that.
This is something we watch and keep an eye on very closely there is always some variability up and down every quarter, but we havent seen any are there any other reductions so far that we've talked about I guess 2 quarters ago, now, but having said that.
I guess, maybe the context on the color behind that these are significant changes the industry hasnt, yet hit a new steady state and stabilized yet in terms of what the field structure is going to look like so these are big changes for pharma companies, which is why I think it'll take a little bit longer and I think we'll start to see that impact closer to the second half of this year and then likely through.
Into next year or so.
I wouldn't classify it as a walking back on classified more as.
Just happening a little bit more over time.
Okay, and then I guess in recent quarters Theres been a lot of buzz around defense for decentralized clinical trials.
Across the aerospace and pharma in general is that does that require for you guys any incremental investment is there something else you would either as a whole bunch of these day central decentralized clinical trials companies coming coming to market.
Just wondering for you on if there is is that a new maybe new product area or is that sort of what you already have is there something else you need there.
Yes decentralized trials.
Part of what we call them digital trials. So that's moving clinical trial to pay per listener patient centric decentralized trials itself refers to most often can be meaningful to 2 parts.
Parts of the trial process with the patient and the patient's home still supervised by.
A caregiver, but that may be true in home nurse or that may be through a zoom call something like that so we do have significant.
<unk> technology investment in that area and that'll be ongoing things like might be for for patients. For example that will fit into your centralized clinical trial, what we're doing for for E consent on site connect product and then we'll connect that into our clinical.
Clinical suite for the sponsors so it's a big opportunity in the area of investment per for us it could be a bit for 100, it's what we call digital trials.
Okay and maybe on.
Just for 1 last 1 in and just kind of on.
Kind of 1 from left field for me.
I guess have you all ever thought about or is there any kind of thought about expanding sort of into more preclinical functionality is there any opportunity there I guess, maybe the argument being filled.
All of these more advanced biotherapeutics in cell and gene therapies is there a greater need for linked together workflows.
Perhaps across clinical and preclinical and discovery and all of that is there a sort of an expansion opportunity. There for you at some point over time.
I'll play there for Peter and I'll play left field, there today and I get that 1 out of left here. So we broadly characterize current.
<unk> preclinical some people would also characterize that as the research area of pharmaceutical that's not an area where we are for.
Focus at this time when you keep an eye on it.
You never say never in the future, but that's not there's no ongoing investment or product from Veeva at this time.
I'd say its slightly connected that would be an area that would be likely connected to the rest of our products and we have no plans at this time.
Thank you.
And your next question comes from the line of Ken Wong with Guggenheim Partners. Please go ahead. Your line is open.
Ken Your line is open.
Sorry about that mute button. This is an extension of the last question to some degree up Peter when we talk to our contact from the life science industry theme that keeps popping up is kind of this past year led to a potential re imagining of clinical workflows from trial to submission to post production.
It could potentially lead to a re platforming from any customers I guess, how much truth is there in that particular statement do you think and then just given your end to end stack is it fair to assume that veeva would be a potential beneficiary of such a re platforming.
Okay.
Hi, Ken.
That's fair to think that the customers are definitely imagine anything with COVID-19 and across all industries.
Cause people to think maybe some assumptions that they had in the past were not valid and so now they're trying to question everything more open for innovation I think.
Tremendous downsize of Covid in terms of loss of lives from treatment mobility that type of thing, but it is spurring innovation adversity creates generation. So that is what's going on so this question questioning.
When we look at re platforming I think really what I see from other customers is re imagining efficiency digital data investment in.
I think we're getting a slight tailwind from.
Again, we have a long cycle with our customers. So it's not something that youre going to immediately see.
But that will be continued and moderate tailwind for us for the next 3 or 4 years really.
Alright.
Positive trend when customers look to innovation, because our product footprint well positioned.
We did a lot of things.
As we moved into digital last year, especially with my Veeva in the digital trials.
We've engaged a conditioning as well so I think we're on a good position.
Position cash.
Got it very helpful. Peter Thanks for the insights for customer interest there.
Dennis if theres a good amount of pent up demand for when you guys finally rollout.
Rest of the prescription data.
Across the U S and to the extent international at some point.
Yes, so we're certainly focused on the U S market at this point.
And that in data cloud is patient data and we will as you mentioned have a prescriber and sales data over time. So the focus right now on patient data from building.
And our products and our.
Longitudinal patient data and it's working in the early market.
So we're really proud of.
On the success.
GAAP net.
Net we're creating for for customers.
Any early market in terms of pent up demand. This is a long journey and we're investing for the long term here. We're excited about the innovation and our customers are excited about the innovation, we can deliver but they recognize that this is really a long term play.
So on oriented for the long haul and we're excited about the progress we've made so far.
Great. Thanks, Paul.
Thanks, Ken.
As a reminder, if you'd like to ask a question that is star 1.
And your next question comes from the on line.
And share you with.
Blair. Please go ahead your line is open.
Great. Thanks, guys. This is that dawn Becker actually on for Bob on Tonight, but congrats on the quarter and I appreciate you taking on.
Question.
First.
And we're seeing kind of as you go to kind of several customers throughout the quarter.
Looking to standardize across kind of your clinical suite and leverage the solution.
A lot of sense to have all of this data across a common platform right to accelerate the development.
Thinking about the importance.
Further standardization and the future driver.
It related to some other earlier stage offerings <unk> safety et cetera.
And doing this Peter I'll take that 1.
What's going on is they're looking for an integrated suite. That's so much standardization on technology is nice and that's useful day, we'll get.
Common vendors they can trust common way to do audits come in on weighted the integrations that type of thing, but the real.
But they look towards common business practices. So when we have the clinical operations suite.
Weighted with the clinical data management suite, and there can be seamless flow across their debt.
That's right.
Exciting people.
That'll just be a long term competitive advantage for veeva, because clinical trial efficiency debt that is.
Extra important for life Sciences company that see absolute for the life Sciences company.
Getting products approved to market quickly.
On the standardization of technology, but it's the seamless business process that they're looking for.
Right right, yes. Thank you.
And then maybe go on for Paul 2.
And I don't want a day kind of too deep into it but I guess can you talk about what you just mentioned from the early traction around the data cloud piece.
But as this kind of as a driver of sustainability on the commercial side as well.
Kind of some other releases.
Yeah.
In recent days here can you remind us.
And kind of what any impact this might have on that day to cloud segment as well.
Yes, there is no there is no impact.
In terms of.
Theres, obviously going on automotive in the marketplace and kind of there.
Anti competitive behaviors.
History on product really has no impact at all on data cloud debt costs are on product that's data that we're sourcing.
On innovating in a really different way for the marketplace. So no material impact on impact on all our ships around 8 o'clock.
Perfect. Thank you guys very much.
And your next question.
Stephanie Davis with SBB Leerink. Please go ahead your line is open.
Thank you for taking my question guys and congratulations on another strong quarter.
We think in a pretty meaningful uptick in funding for health Tech companies that compete with about 2 other products. So I'd love your early take on how you're thinking about these players.
Should we think of them as more pure play competitors I guess sub scale or is there a potential partnership and integration that maybe increase the value of both on the platform.
Okay. That's interest Peter Yes, certainly not just in health Tech overall.
Market early market's awash with capital right now and so you get.
Multiple new entrants now you get lower quality entrance on the average because here.
Youre getting diffuse city and monies in the surplus so I think that's what's going on in terms of some of those many of those will be competitors in in 1 of our application areas.
There will be a competitor in 1 of our application areas I think that's overall good for the industry.
Sharp in theaters.
Competitive focus and lead to product innovation and then some of them will be.
Partners and really fit into the vault platform nicely those will tend to be smaller more practical lower funded companies because the high from that company. They have to go for the highest price market.
I think that that's fine that's good competition I think it would be difficult for them in many ways because.
On the pharmaceutical companies that are not looking for a quick win flash in the Pan line that they are really looking for a long term partner that has the husband for the suites. So overall I view the trend is positive for either.
We will continue on that thought of me being less funded players on probably the most likely partners. How do you think about M&A, okay from that space.
Yes on M&A I would say not different in that play space versus other places.
Look for M&A for growth.
Where we can get a seed of something that will really either help the industry overall and thereby help Peter you saw that with same correct. We completed that acquisition completed the migration of those customers. We did the acquisition 5 years ago completed debt that was good for the industry brought their DNA into veeva.
Made our products better.
You would see what we did with cross it we bought cross ex they had a certain assets, we're leveraging that asset and bring us into day to cloud. So that's what we would look for with net proceed of innovation that we can grow.
Sorry help on those Laughlin guy on those.
Alright.
Good day.
So the question for you.
Who often come in the smaller countries actually seek.
Innovation.
Okay.
So I just have a quick 1 because I feel like Arthur them. So much work on this.
Philosophy doesn't at least mentioned now on the call could you take a very non.
On a killing.
Yeah, Yeah yeah.
All other he might score so you've got a lot of noise about like UBS can you just give us a refresh on litigation, but the price case downside scenario really is intended to return on that.
Mountain.
Yeah, certainly a lot of noise that Korea issue really intentionally misleading press release this information campaign.
Pain, but.
That situation there with their anti competitive behavior of the cases, all upside for Veeva because.
Status quo is this restrictive data environment that high acuity is created so thats the status quo.
And we net.
The thing about decrease in press release for my Cube is really about the case, it's about a procedural.
For the procedure when can we expect the jury trial in 2023, and where your comfort on that case and expect to win.
We did win that would really provide more choice for the industry on that.
That would be ex.
Seller for commercial cloud, if we would win but we will see and Thats in 2023.
All right very helpful. Thank you. Thank you.
Thank you.
And your next question comes from on line.
Randy.
Stifel. Please go ahead your line is open.
Great. Thank you for taking my questions great to hear from you all congratulations on the great results Peter I'm glad Stephanie just kind of poke at the IQ via thread there little bit customers, saying to you about this fairly sort of acrimonious.
No discussions in the public arena many.
Many many of your customers use both parties are they getting nervous at all that you know, perhaps I keep via data might not be accessible inside of your CRM systems in the long run that that could create some some issues with respect to your core positioning on that front I'd love to hear what they're saying to you and then convert.
Lee.
Our day opening up and saying Hey.
We really really do want to choice and it's about time, we get this choice, so I'd love to know which way, they're pushing on that threat.
Oh come on pick that 1.
Yeah. This is non positive for this.
The kids right now on the law on they don't really care.
The slide or why its just noise for them. So they don't they don't appreciate it.
Generally no that's caused by a carrier, but still it doesn't matter. They don't appreciate it.
They are not nervous with Ikea VR customers for life Sciences companies and they're really.
Veeva in Nigeria, where the partners with suppliers to the industry. So I don't feel any nervousness from our customers. They knew that <unk> would do something like not allow their data and cause EBIT CRM, hey, they've kind of another way to analyze that data and be.
Appreciate that for my carrier to end up by Covid had been losing business. So theyre not.
Moving to be pushed around by Covid.
Where are they different this is about as choice. So I think data cloud for example that truly enthusiastic for the customers they want us to hurry that mature faster habit for complete faster.
More choices always a positive for veeva.
1 is on a positive sorry more choice.
This is a positive from customers noise about lawsuits is never a positive for customers.
Great.
That's actually Peter I appreciate that.
It's a little bit more and look at these gross margins in there.
They are on all time highs here.
Seemingly no reason why that can't continue I guess, the 1 thing that stood out to me in the prepared remarks was the discussion point that the last name.
And then just sort of brings to mind anytime you can kind of end of life customers on 1 platform and move them all over to modernize version there might be lasting benefits for the gross margin line. There how should we think about other opportunities across the platform.
For them outside of that and is this kind of a high watermark for gross margins on how do we get higher from here.
Our highest margin quarter debt.
Not to date.
And how I think about it is we're on growth mode right now, we're continuing to invest for customer success.
And we're aggressively hiring and specifically in the products sales and services area.
Business consulting is a focus area. So we think that will pay off long term from a growth perspective.
Some other things that are in better.
In play regarding our gross margins as you look out during the course of fiscal year 'twenty 2.
Would you expect travel to return to some level of normalization. There are certain services utilization was running at an all time high.
This quarter as well so there's a lot of things that happened in Q1 that drove the high.
Op margin percentage so all in all pleased with that great.
Great opportunity to continue to get.
So on best vault products.
Spaces for us.
Yeah, Great point, Okay I appreciate it great job. Thank you.
And your next question comes from the line of Brad sales with Bank of America. Please go ahead. Your line is open.
Hi, This is Jerry on for Brad on.
Congratulations on a great quarter.
I wanted to ask about the outside life Sciences opportunity you touched on a little bit on your prepared remarks, but can you maybe provide some updates on you know where you are today and where you are in terms of building out that go to market organization. Thank you.
Uh-huh Ishares Peter Yeah, we're on track with.
Outside of life Sciences, there, we're focused on consumer goods and consumer packaged goods and chemicals.
Moving to add some customers and expand in existing customers. We believe we are on track to.
Sort of in the $100 million.
Bringing this business for 2025, so we're on track for that I'm really pleased with the customer success.
And that's what's fueling our business there. So all is growing pretty well outside of life Sciences.
Gotcha, and then I see other team is on the appetite for like event services businesses or physicians brought on.
Covid has been start to dissipate Inc.
Again.
Yeah, Hey, Sharon this is Paul yes, we are starting to see that.
That demand return and I guess I'd characterize the demand around digital events, which is ramping up that's ramping it's been ramping up for some time now on with Lilly, we focused our business onto a disappointing customers doing digital events, but we're also starting to see a little bit of an uptick in mortgage in personal lines as companies are starting to think of it.
And the reopening and getting back face to face.
Yes. It is.
That kind of dynamic continue going for now the good news will prefer we think support on whether it's digital or whether it's on personal.
Okay.
Awesome. Thank you so much.
And your next question comes from the line of scans from <unk> with Morgan Stanley. Please go ahead. Your line is open.
Yeah.
Perfect. Thank you so much guys.
I wanted to switch for a second to 2 billings and obviously very strong starts for the year.
Is there anything on billings and when you're 2 mindful of as far as maybe like onetime in the quarter.
And and how that the strength of billings to start the year informed your overall confidence in the billings guidance increase for the full year.
Yeah. Thanks, Tien gasoline in Q1, we had outstanding Billings result dwelling.
Net of 26% there were no 1 time items in the quarter to note debt that was a tailwind or a headwind to that number so on that.
Beach definitely formed our guide.
Good portion of our guidance, we looked out for the year.
So good broad based strength with no debt cloud and services both on <unk>.
<unk> nicely.
Say in the beach, probably about 2 thirds of that was on the subscription side and about a third in services. So overall really good contributions to the billings growth rate.
Got it perfect and I wanted to just go back to 1 on the earlier questions around the head count.
The overall reduction in head count across the health care and pharmaceutical sales industry.
How does that inform your thinking around commercial cloud growth for for the remainder of this year.
Yeah. So.
Reaction cash.
Not a meaningful impact on the rest of this fiscal year.
Counted for.
On that into our modeling already so we don't anticipate any material impact 1 way or the other on its already accounted for on our guidance and typically those kinds of things, whether we saw a smaller or larger reduction.
When we modeled it in in too.
Those things tend to play out over time based on renewal cycles. So.
Really no change there.
Well I guess, what I was trying to say is as much as maybe the those potential head cuts on head count cuts would come in the back half of this year well begin to get you to maybe impact you and you guys are on.
Long term strategic annual plus contract.
Is there a potential where we could see upside for the commercial cloud.
Subscription revenue line.
Those cuts don't materialize like you guys have been talking about for last couple of quarters.
Yes, so stay on sprint so for the fiscal year.
In my prepared remarks, I mentioned it so we didn't see any inc.
Increase in the.
<unk> in Q1, and we do expect that to increase in the second half for the year and that increase in fact is included on our guide so.
So we've contemplated that in for the second half of fiscal year 'twenty 2.
Got it thank you guys.
Yes.
And your next question comes from the line of Sterling Auty.
With J P Morgan Chase.
Company.
Hey, This is drew on for Sterling you mentioned, the return to travel and normalization and from the operating expenditures are there any cost savings that you think are sustainable in the model on after that.
In the post Covid environment.
Yeah, So I'll talk about fiscal year 'twenty 2.
And what we are seeing a bit.
So.
We're seeing travel start to return to normalization and thats going to progress.
<unk> net.
Next couple of months as we work through the balance of the year bleed.
Believe that advanced will largely be virtual for the balance of the fiscal year 'twenty 2 on all of that's been contemplated into our guidance. That's why I explicitly stated on about 175 bps of tailwind.
Over time, how much of that will be permanent.
<unk>.
I don't feel confident with the information on hand to give you a number on that.
Got it thank you.
And your next question comes from the line of Chris Merwin with Goldman Sachs. Please go ahead.
Hi.
On for Chris Thanks for taking my question.
From engaged it sounds like that was a tailwind to growth in the quarter, how penetrated is that product across the CRM customer base today, and how should we think about the runway there.
Yeah. This is Paul we talked about last quarter as being roughly 60% penetrated in the overall engaged market. So if you think about the broader engage opportunity we have.
We've captured roughly 60% on the market and we will expect to see continued growth and engage normalizing to where it was we obviously had a significant.
On a significant bump in Q4, given the conversion, but that's that's that will play out over time, where it'll be more of a normalized growth rate going forward.
Got it and then given the recent investments in head count adds curious about on a customer adoption.
Thanks.
Yes, so across the exchanges.
Generally independent of volume.
The kinds of reductions that you are seeing I would say that there is on overall shift to company's operating more digitally and trying to reach customers in new and different ways.
Fundamentally cost ex this business is based on supporting media and advertising and marketing, which is which is digital. So we saw good strength this quarter and profit can we anticipate that shrink will continue going forward.
Great. Thank you.
And your next question question comes from the line of Ryan Macdonald with Needham. Please go ahead. Your line is open.
Alright, Thanks for taking my question on I apologize, if it's repeated debt.
Debt dropped temporarily here, but wanted to ask on the prepared remarks about the commentary around Veeva link and business consulting services.
It's been an interesting dynamic debt.
The comment around the doubling year over year on in terms of consulting it's not the first time, we've heard that.
Seems to be an emerging trend.
Peter I'd be curious just your thoughts on what do you think is causing sort of this increased reliance on consulting services from customers and how does this change your view if at all on how the component of service as a percentage of total revenue on how that grows going for it.
Yes.
In terms of the percentage of revenue and how that goes going forward I don't expect any material change their consulting business is growing but it's still small as well.
If you look at net.
Bulk of our business, which is actually subscription and professional services consulting is a bit of higher value.
Service that focuses on business process business profit type things not just implementing our software. So it's growing but it's never going to be the biggest part of veeva in that type of thing, but it is complementary.
So it's been very complementary.
Hum.
Consulting needs will go up a little bit and we have multiple products. So 1 other things that consulting is very good for us stitching together the business processes that are needed when you're implementing processes for example across clinical and regulatory or commercial and medical so that.
That's where you get a lot of the value when you redesign these business processes roles and responsibilities so necessary and veeva, that's the icing on the cake, but it's not the case.
Excellent. Thanks for taking my question.
Your next question comes from the on line of Tyler Radke.
Please go ahead your line is open.
Yes.
Yeah.
Hi, Good evening day wisely cognates on pilot today.
Congrats on the result that looks pretty strong and then I just had a quick question regarding income we are starting to see more customers going in on sweet, especially on that last quarter and current quarter in line quality and regulatory.
Including our new customers are in commercial cloud. So I just would like to see how it can be.
<unk> trend line, how maintaining versus your expectation initially and then also what are some other implications that we might see going forward. Thanks.
Yes.
Full suite.
Can happen also on the R&D side and the commercial side.
Generally that would be with smaller biotech because they're they're nimble. They don't have the existing infrastructure. They wanted to get started on the very modernized way.
And they just go on line.
So I expect that trend to continue sort of balance it is maybe accelerated a bit in the small biotech, but that's not really applicable to our large enterprises because they have lots of people lots of processes and they have to pick the parts that they pay off to Mike.
That concludes our questions at this time on like this.
On this call back over to Peter for closing remarks.
Well. Thank you everyone for joining today's call.
I'd like to thank our customers for their continued partnership and our employees for their commitment to customer success. Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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