Q1 2023 Veeva Systems Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the Veeva systems fiscal 2023 third quarter results conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.
He would like to withdraw your question again press Star one thank you.
Garrett Senior director of Investor Relations you May begin your conference.
Good afternoon, and welcome to Bemis fiscal 2023 first quarter earnings conference call for the quarter ended April 32022.
As a reminder, we posted prepared remarks on Viva is Investor Relations website, just after one PM 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 shallow EVP commercial strategy and Brent Behrman, 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 risk.
Listed in our earnings release and the risk factors included in our most recent filing on Form 10-K.
Forward looking statements made during this call are being made as of today June one 2022 based on the facts available to US today. If this call is replayed or reviewed after today. The information presented during the call may not contain current or accurate information veeva disclaims any obligation to update or revise any forward looking statements we made.
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 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 will turn the call over to Peter.
Thank you <unk>.
Welcome to everyone on the call it.
It was a great start to the year for Viva with strong first quarter results above our guidance.
Also crossed the $2 billion revenue run rate Mark for the first time.
Total revenue was up 16% at $505 million and subscription revenue was up 18% to $403 million.
non-GAAP operating income was 200 million or 40% of total revenue.
Things are going well demand is strong as customers look to establish the right digital foundations for the future in our industry partnerships continuing to get more strategic.
We're executing well against our long term plans and our innovation engine is really firing on all cylinders.
We're building a very durable business with a long runway of growth ahead.
At this point, we'll open up the call to your questions.
Ladies and gentlemen, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Brent <unk> with Piper Sandler Your line is open.
Good afternoon, I guess, Peter Viva closed one of the largest deals in the history of the company here arguably in a macro environment, where there's clear challenges could you just drill down into kind of the decision.
For that customer to kind of go all in on Viva on the clinical side. It looks like a very large comprehensive deal just trying to better understand why a top 20 pharma would make this move in an environment, where there are still some pretty significant challenges out there. Thanks.
Yeah.
Yes. It's great question. This is a really a long term thinking move by the customer.
Thinking of this in 10, and 20 year horizon. So they wouldn't be really fazed by specifics of the of the macro environment. So this is about yes applications in the clinical area, but also in the quality and the regulatory area.
Not all of our development.
Development cloud, but a big portion of it so when theyre doing that it's a very top down decision, it's like building a huge factory.
That's why it's it's not affected by the macro environment and then if you get it what they're trying to do it's laying the foundation for efficiency digital efficiency getting getting drugs to market faster to help patients. So it's a long term play by the customer and sort of at executive level decision.
Helpful. And then just a quick follow up for Brent here as you think about capital allocation. The company is generating a significant amount of free cash flow here.
<unk> balance sheet, how are you thinking about shareholder allocation capital allocation just given the very strong cash assets, you have and strong free cash flow.
Yeah. Thanks for the question Brent So we do have $2 8 billion in cash in our business model has consistently been able to generate cash. So we're very pleased with that and our focus is primarily to invest for growth and specifically we're going to be looking.
At ways like M&A, two for use of our cash.
But we're going to take a disciplined approach as we look at M&A and we have had some very good successes like cross six zinc, where we have good synergistic KOL connection with them from a technology, but also from a people perspective. So M&A is an area that we're looking at great use of cash in but we'll take a disciplined approach to about that.
That's all I had thank you.
Your next question comes from the line of Joe <unk> with Baird. Your line is open.
Great Hi, everyone I was.
Maybe just hoping to start by walking through some of the moving pieces.
<unk> for the year now versus what was presented a quarter ago, and maybe split out organically, what's changed versus certainly factors in there and then anything else you would call out, particularly as it relates to your hiring plans and how that is influencing.
And the view into the second half of the year.
Yeah. Thanks, Joe Brent, Yes, so first off we're pleased with our execution in Q1, we executed extremely well across all of our metrics.
And as if you look out at the full year, we did increase our total revenue guide by about $5 million now specifically to services, we did call out.
Sex exposure traditionally FX was not material to Viva, but with the strengthening of the dollar the USD relative specifically and most importantly to euro as well as again. It has had an impact so it's about $20 million impact and more than half of that on the revenue line was created in the last 90.
Dave So that's that's a new piece of information and it was $30 million on the billings line. So absent that FX impact we would have increased our subscription revenue line for the full year and our total billings for the full year.
So thats kind of gives you some context on the top line regarding hiring we havent had outstanding hiring quarter. We hired 203 net employees. It's another quarter of 20 plus percent growth and in doing that we were able to still increase our operating income guidance for the full year by $10 million. So you can see the operational efficiency, we're seeing it in our spend.
Our fundamental model and how that flows through to op income. So demand overall is strong we're excited about the demand profile, we're seeing and that kind of gives you a formula a bit on our full year view.
Okay. Thanks, Brent that's helpful and then more on product traction I wanted to focus on ETF because.
It looks like it actually picked up momentum sequentially just based on the new customer adds and I seem to recall that <unk> was already setting up for a big year. So I kind of think about Etfs as maybe a feeder for broader clinical engagement ultimately I guess both ends of the spa.
<unk> are doing well, maybe where what inning to use an analogy might we be in in terms of penetration of the clinical opportunity and just how impactful that could be for R&D. This year.
Clinical is certainly a long long runway. It is a very big area of life life Sciences, each MF, who I think we sold our first customer roughly in 2012 and it takes a while to really become the dominant player and we're there now with <unk> and there is a network of of a network effect.
<unk> is just the thing you do in clinical probably the next farthest along is our is our C. T. M. S and study startup products theyre getting to be pretty pretty pretty dominant products.
And then the clinical data management is is yet to come that's very early in its lifecycle C. Dms that clinical data management and beyond that you have the digital trials.
My Viva for patients things right out to the patient so really long runway of growth in clinical it is a big critical area and macro level. We're just getting started there and you're right E. T. M. F is a very strong base because that's the foundational system of record of documentation for clinical.
Trial that every pharmaceutical company is required to have.
Great. Thank you very much.
Your next question comes from the line of Brian Peterson with Raymond James Your line is open.
Hi, gentlemen, thanks for taking my question. So I just wanted to follow up on <unk> line of questioning in terms of these large wins with multiple products I'm curious as we think about the later stage pipeline how many potential products are they looking at is it is it suite adoption across the board or how do we think about attach rates and deal.
Sizes for what's in our later stage pipeline.
Well.
It will vary by customer now there's there's very few of the large pharma that are kind of take that very broad suite approach simply because of the fact that many of the large pharma or started in one area or another with fever, but I think the most common and large pharma would be.
Looking at our suite of things and then starting in the area of that suite and then graduating from there in the smaller pharma or the emerging biotech it's more common to look at the whole development cloud all at once and sort of no.
The direction, you're going but you'll consume products as you need them. So for example, the earliest thing you need in the small biotech is probably our quality products because you need that even before you run a clinical trial.
Great and maybe just a follow up on hiring.
It sounds like you are continuing to add to the team we've heard from some other software companies that maybe they are scaling back our efforts a little bit as you think about the investments that youre, making in the growth opportunities. How are you thinking about hiring in that posture going forward.
Yes hiring.
We always wanted to attract the top talent that has a great what we call a Y Viva and authentic reason to be in your gut and Viva and thats always going to be tough.
Right now the hiring environment.
And stuff, but not as tough as it was before because theres a bit of a downturn in the in the tech market, especially in the in the early phase of the tech market.
Speculative startups.
Feel that and so there's a flight to quality so hiring has been a bit easier for us.
So in summary, I'd say, it's a good hiring environment than we we certainly don't have any hiring free.
Thanks Peter.
Okay.
Your next question comes from the line of Dylan Becker with William Blair. Your line is open.
Yeah, Hey, guys. Thanks for taking the question maybe Peter one for you as we talked about that that large scale deal historically, maybe they were different purchasing decisions between sales and marketing and R&D.
Teams, but can you walk through maybe how the broader standardization.
Virginia. These swim lanes to that executive level that you can just kind of touched on in the call.
But you have given that you've served as that industry strategic partner.
<unk> potentially more of these deals to kind of work themselves through the pipeline in coming quarters and years.
Yeah.
We have a broader product portfolio.
It allows us to be closer to the customer have more strategic discussions have more account partner coverage, because we have a product broader product portfolio. So it does tend to force the discussion up level now rarely do we see the discussion combine across the commercial side of the business.
And the R&D side of the business because those are viewed quite quite differently more so what we see is across the different areas of our R&D clinical quality regulatory we see that crossing and across the different areas in the commercial area sales medical marketing, that's where we see the crossing happening.
I would say another significant area, where we see crossing just the early signs of crossing is our business evolved started out from the software side, it's really growing now and starting to grow into the data side and the and then the consulting side. So that's crossing is happening looking at our software.
We're also looking at our data he heard something about the data maybe it's time to evaluate that software hey, maybe we help need some help with the business processes. So that's where early early view, that's where the crossing I think it's going to happen in the future.
Yes, that's super helpful. Thanks for the color there and maybe that kind of leads into the second one for Paul.
We talked I think about maybe the broader rollout of our prescriber and sales data for data cloud this quarter and next now, culminating that but with Lincoln open data to form this data cloud offering and it's early right, but how do you think about each of these incremental layers, adding to that broader network dynamic driving maybe even like a gravitational pull.
Around adoption as you add more sources more touch points to that core data asset that can refine itself and deliver greater value over time as well thanks guys.
Yes, so it's a good question and we are expanding our data portfolio as you've seen over the last several years, starting with open data and then link we've had a lot of momentum we announced compass is called data cloud initially and now the branding as compass, which is our patient and prescriber and sales data.
Datasets are for different purposes, and different reasons, but there is there is a network of factories value. When you can connect all of these datasets together and we talk about building our data sets on a common data architecture and what that means is they are fundamentally connected at a at a lower level and a more foundational level and what that means for.
Our customers as they are able to get more value when they start pulling all of the pieces together. So it's on us to sell the value of each of those products individually, but our customers get more value over the long term when they combine our data each individual data products with other data products, but also with our software we designed.
Then to be interoperable and work together and create more value. So there is in a sense. A network effect is this idea that more products is more valuable than the sum of each of the individual pieces.
Great. Thanks, guys I appreciate that.
Your next question comes from the line of <unk> <unk> with RBC capital markets. Your line is open.
Oh.
So much for taking my questions.
First I wanted to.
You drill a little bit more on the macro side of things you know it looks like things are pretty resilient on your front, which is great to see but also I think expected just given the end market youre dealing with can you talk a little bit about maybe are there any areas that you are seeing softness.
At all I mean, we have heard about biotech funding slowing down some CRM OS are slowing down their hiring that's been talked about publicly.
And then maybe on the med tax out of the business any any kind of macro things here or maybe help us understand the pieces and I have a follow up.
Hi, Richard This is Peter it really we're not seeing the macro effects in any particular segment zero life Sciences industry overall is pretty robust right. It's not a cyclical industry and the science is propelling it toward the precision medicine, the renewed focus on that.
<unk> seen.
The RNA platforms to the science is propelling it forward.
And now as far as Med Tech also the science is moving things forward in Med Tech as well in addition to the regulatory environment in Med Tech is becoming.
You know more strict more stringent there's more regulatory requirements, especially in the clinical area. So.
So that's driving adoption, so not seeing any softness.
Alright wonderful and then and then Peter in your prepared remarks, you talked about some of the success that youre seeing from having the in person conferences again in an arguably havent just maybe more important than before with everyone. Working remotely can you talk to us a little bit about what is just the general customer feedback off your first in person conference in.
I guess more than two years.
And more importantly, as these conferences come back and you start to extend those two day conferences, what sort of impact do you expect is that something that more customers will start to think strategically about going all in on Viva is it just just from a networking perspective, what sort of kind of benefits do you expect to see now that we're back to in person call.
Versus after you guys from a business perspective. Thanks.
Yes, just the overall speed of business in the long term connectivity relationship building knowledge sharing.
Physician that Viva has as the place where you get together in person.
To learn about Viva that's one thing, but also too.
Oftentimes they have customers meeting there.
Far-flung teams together in person, but first time out of Viva summit.
May extend a day and do their own planning meetings, and that's something we we facilitate and participate in so that's.
That's really what it means it moves business forward.
Some of US have always been a key part of our industry cloud I've always been a key part and in person that's hard to replicate on the phone one of the things. We've done is we're kind of optimize we are optimizing the format going forward so that it's.
More free time for connections actually so.
We will record some of this session. So you can see them before after and at the summit, Yes, we'll have sessions, but more free time for connections because thats what customers are craving I think that's going to help the industry move forward.
Wonderful. Thank you so much.
Thanks.
Your next question comes from the line of <unk> Kalia with Barclays. Your line is open.
Yeah.
Okay, Great Hey, guys. Thanks for thanks for taking my questions here.
Peter maybe maybe for you.
A lot of talk about data cloud in the prepared comments can you just talk a little bit about early reception to data cloud and maybe more specifically how much appetite is there out there for alternative product in or alternative data I should say in spaces like.
Prescription for example.
Yes, great Great question.
Definitely early adopter for <unk>.
Our data cloud and specifically in the area of campus. The campus part of data cloud because there's been a.
And are there a company there that sort of set the standard and it's just the way you do it in and Thats for literally more than 20 years. So people have just gotten become accustomed to that so it will take a while before the first customers really have success before we refine our products and before.
We'll see that Wow, there is a fundamentally different way to do this instead of selling data by the record and delivering it in a file.
You'll sell it by the by the use case unlimited data by the use case and deliberate through software, but that's a.
That's different and that's the definition of a of an early adopter of who's going to understand that lean into that change and it will be a small part of the market that wants to go to that early adopter and Swan when the value proposition is proved out.
Then you can start moving into the mainstream so it's actually happening just like we thought it would happen.
That's great good to hear.
Paul maybe for you.
Maybe just digging into into the commercial side, a little bit more particularly the CRM side, how is churn looked there.
And what are you hearing from from commercial customers on how they're thinking about their sales force is long term.
Does that makes sense.
It does yes, so on the churn and attrition side first we had a really strong quarter in CRM, we added 12 customers and we increased our share again in the quarter.
So another really strong quarter.
The there was some churn and some attrition which is what we expected it was in.
In line with what we had anticipated and planned for and it was offset from a from a user perspective, a <unk> perspective, it was more than offset by the expansion that we had you've probably heard Peter talk about the.
The wins in the domestic Japanese market are largely offset any churn and attrition.
<unk>.
I think the second part of your question is how our company is thinking about their their sales force is long term.
This is the it's one of the most effective if not the most effective channel to the market and the sales teams sales forces work.
So most companies are thinking on the margins how do they how do they tweak how do they gain unless you're a little additional productivity and efficiency how do they become more digital what's the optimal mix look like but fundamentally the salesforce is a really critical channel, particularly as many of our customers are more focused on highly.
Specialized medicines, you just need that human being and that human relationship to educate and bring those medicines to market effectively so really strategic and important channel.
I think we'll see over there.
The rest of this year, some tweaking on the margins, but the.
But it's certainly a strong and important channel for the industry.
Very helpful. Thanks, guys.
Your next question comes from the line of Stephanie Davis with SBB Securities. Your line is open.
Hey, guys. Thank you for taking my question congrats on solid quarter.
Could you give us an update on some of your hiring processes, because it takes us and they'll pay the marks that another strong hiring quarter.
And if so has it had any impact as mentioned last quarter.
Are there any way to tease out the impact of billings timing our Rev. Rec as a result.
Yes, so on your so on your question Stephen Hagan Sprint so are our.
Our plans were to continue hiring at the pace, we are we haven't.
Like you said, a strong Q1 hiring quarter without net 203 people and from our ability to execute on revenue and billings, we have the capacity to deliver our guidance. So we feel really good about our ability to deliver on the guide and the head count, we're bringing onboard and and how they're ramping up so we feel really good about that.
Another quick one for you Brian could you help us understand the large wins flow through to things like should we think of this as being built all at once or they're going to give a halo effect for the quarter.
Beyond <unk>.
Yes, so the large deal we talked about earlier, we're really excited about that even most importantly on that deal is.
Great proof case proof point for the operating system.
Hi.
For development.
Now, we're not going to get into the specifics of.
How any one transaction is accounted for it because.
We're very focused on customer success and no one deal at the same so it has been factored into our guidance. When we set guidance. We look at the pipe that's in front of US we looked at the actuals, we looked at macroeconomic environment. So it's all been factored in.
Super helpful. Thank you.
As a reminder, if you'd like to ask a question at this time. Please press star followed by the number one on your telephone keypad.
Your next question comes from the line of Ryan Macdonald with Needham Your line is open.
Hi, Thanks for taking my question and congrats on a great quarter Peter.
I wanted to follow up on the large customer win you talked about sort of the decision was being made with 10 to 20 year increments. Despite obviously so.
Ignoring sort of near term macro impact I'm curious, though as you think about implementations in project works are you seeing any changes in sort of the pace of which those large deals that you win are getting implemented given what we're seeing from a macro perspective.
Yeah, Ryan Good question no we're not.
Not really I think what's happening there was some disruption six months ago, I would say COVID-19 hitting omicron COVID-19 fatigue early inflation worries things like that the holidays.
We're not seeing that and that hit Viva and our customers, we're not seeing that type of slow down anymore.
Customers have.
It generally feels like they weather the Covid storm, which you got to remember that was that was really something for life Sciences right that was that was really something disrupted their product plans et cetera.
And then you know then we had hiring and then we had inflation it kind of kind of through that now.
So no I don't see those same dynamics.
Thanks for the clarification, Brent maybe a follow up for you.
Question, we're getting a lot in almost every investor meeting is this obviously given the state of the market and valuations coming down.
<unk> is around share based compensation and how we should think that's trending.
Throughout fiscal 'twenty, three we noticed obviously compared to fourth quarter number was up.
Slightly or maybe more so than we seasonally expected can you just remind us on how youre thinking about share based compensation for 2023.
Yes, let me share based compensation as a key portion of our overall compensation philosophy and do you think given all about.
Our base salary and then kind of the overall.
Equity portion of the balance so it's an area that we are.
It reflected it's been reflected into our guide.
And it's an instrument that we think is important from a retention perspective and from an employee success perspective. So it is definitely a lever that we use to to drive a fair overall compensation structure for employee success.
Okay.
Okay.
Your next question comes from the line of Kirk <unk> with Evercore ISI. Your line is open.
Hey, guys. This is Eddie on for Kirk.
Thanks for taking the questions just wanted to ask a little bit of a follow up on the on the FX.
Obviously, you said there was a headwind, but can you talk a little bit about what youre seeing specifically in the pipeline that kind of gives you the confidence for taking up the.
So taking up the guide on whether that's just larger deal other than just like kind of across the board.
And then second question was just yeah, sorry, good yeah. No granted you had two parts and sorry, if I can throw one more question go ahead.
Yes, the second part was just about.
You had a really strong start with billings this quarter.
Why not raise it.
Going forward is there and also is there like any FX impact on billings outside just that revenue component.
Yeah, Yeah happy to happy to answer that so just kind of a step back just over a level set on the FX impact so so overall.
We're happy with the strength of the business that the FX impact was on a full year basis was $20 million on revenue and it was $30 million on billings. So that's a headwind on both of those line items overall on the op income perspective, there's kind of a natural hedge with our cost structure relative to revenue.
Foreign currency, so it's minimal to no impact on the op income basis, so important that kind of level set on that the other piece. That's important that is more than half of that FX headwind was created in the last 90 days so as a result.
That impacted our ability to increase the full year guide for both subs revenue as well as <unk>.
Total billings absent that we would have increased our guide for those those two numbers. You also asked what gives gives me confidence in the guidance for the year. So we do expect fore sight revenue acceleration in the back half of the year and why why do we why do we have confidence in that we have confidence in.
Because we do have good visibility.
The deal flow for the year.
We are a strategic partner to <unk>.
Critical industry in our software and solutions.
Our serving the need of their critical business processes. So this isn't a transactional business that we manage on a quarter to quarter basis. So because of that we have good visibility so with that we have confidence on the full year guide.
Awesome. Thank you.
Thank you.
Your next question comes from the line of Ryan <unk> with Morgan Stanley . Your line is open.
Hi, Thanks for taking my question.
Our disclosure on <unk> being one 5% in FY 'twenty three versus 3% pre Covid interesting do you expect <unk> to remain near this level moving forward is that becoming a broader trend in the pharma industry trying to think about it in the sense of.
Bigger picture discussion on the changing role of pharma reps and how this could maybe imply how the industry is evolving and what tools need to kind of adapt to this hybrid environment in Florida.
Okay.
Kind of a two part question here Brent why don't you take the first one to ask our internal and then Paul you can take the second one is the industry because those are actually two different things.
Yes, So let me let me kick that often yes, so youre right.
As we have been highlighting we expected spending traveling to that spending to come back in.
A bit of a headwind to op income in fiscal year 'twenty three and that has happened. So we're at about one 5% of revenue we were about a half a percent of revenue in fiscal year 'twenty two.
The good thing now why is that a good thing because as Peter mentioned with the excitement we had with in person events with the with the commercial summit, we have last week. That's a great example.
Other piece to think about as you know.
We work anywhere company and what is really important and we've gotten that we've gotten that right from day, one we've been consistent so but with that connecting is really important so we expect.
Functional groups traveled to stay connected and that's all going to be part of the equation now looking out where could this be it's early right where this ultimately lands.
As you know is to be determined.
For the guide for the year, we expect.
Travel and events to accelerate a bit through the course of the year, that's our expectation for now.
There was a second part.
Hello mine can you can you repeat the second part of the question again, just so I'm answering here great question.
Sure I guess the second part was just on.
What this might imply in the industry. This is continuing across all of pharma part of changing raw pharma.
Pharma reps and how maybe broader selling model in the industry is changing what that means for head count and technology.
Yeah.
Yes.
It means so.
We've talked about.
Some of the shift that's happening in the industry where.
Key issues, becoming a little bit more efficient they are increasing their mix of digital into the sales force. So that's one impact that's changing is creating a little bit of an opportunity for companies, where they become more productive they're able to do more with less and we're seeing that play out we've been talking about that for some time I think the other impact that we're seeing so that that will have.
A.
On impact on overall head count, particularly of the field sales force, but there are other roles beyond just the sales reps. One example, our medical field medical teams. These are the more high science type.
Type people, who call on doctors are thought leaders in scientific experts.
That's one example of a different kind overall many companies are thinking about different roles in the field medical one. Good example, and some of those are actually increasing so the role of medical is becoming more important over time.
We're seeing other kinds of roles emerge in the commercial and in the medical side. So there is in some cases there is some reductions in other cases there is increases in.
We've kind of talked about that overall sizing for some some time now.
Yes.
We see the kind of the size and the shape shifting just a little bit and we're we're happy to be part of helping the industry to be able to kind of make those adjustments and become more productive.
Very helpful. Thank you.
There are no further questions at this time I will turn the call back to CEO , Peter Gassner for closing remarks.
Thank you everyone for joining the call today and thank you to our customers for your continued partnership and to the Viva team for your outstanding work in the quarter. Thank you.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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