Q4 2023 Veeva Systems Inc Earnings Call
Speaker 1: I.
Speaker 2: Please wait, the conference will begin shortly.
Speaker 1: I.
Speaker 1: Thanks for watching!
Speaker 3: this fiscal 2023 fourth quarter and full year earnings conference call for the quarter and year ended January 31, 2023. As a reminder, we posted prepared remarks on Viva's investor relations website just after 1pm 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.
Speaker 3: With me today for Q&A are Peter Gassner our Chief Executive Officer, Paul Shala, EVP Commercial Strategy and Brent Bowman our Chief Financial Officer.
Speaker 3: 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.
Speaker 3: Please refer to the risks listed in our earnings release and the risk factors included in our most recent filing on Form 10- Q4 ward-looking statements made during the call are being made as of today, March 1, 2023, based on the facts available to us today. If this call is replayed or viewed after today, information presented during the call may not contain current or accurate information.
Speaker 3: believe aid in the understanding of our financial results. A reconciliation to comparable gap 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.
Speaker 4: Thank you, Atto, and welcome everyone to the call. We had a strong finish to the year with the results ahead of our guidance for the quarter end year thanks to great execution by the Viva teams across all areas. Thank you.
Speaker 4: We're early in the significant industry cloud opportunity and we're executing well. It was a breakout year for clinical data management and we saw great traction in newer areas such as safety, link and compass.
Speaker 4: Our innovation engine is strong and our strategic partnerships with the industry are increasing. We issued guidance for Fiscal 24 and initial guidance for Fiscal 25 to provide context for the one-time revenue impacts to 2024 related to GFC.
Speaker 4: Normalizing for TFC and FX, we expect revenue to grow about 15% in fiscal 24 and at least 15% in fiscal 25.
Speaker 5: At this point, we'll open the call to your questions. Thank you, sir, and everyone, if you have a question today, please press star-1 on your telephone keypad. If you would like to remove yourself from the queue, that is also star-1. Again, please press star-1 if you have a question. We'll go to Brent Bracelen, Piper Sandler.
Speaker 6: Good afternoon. Peter, really appreciate your kind of long-term thinking here. And so this one's kind of aimed squarely at you here. I would love to get your initial thoughts on how Viva is thinking about incorporating AI and large language models into the business. Is there an opportunity to lean in here to either lower costs internally?
Speaker 4: world imagination by storm and it is a significant type of technology.
Speaker 4: I won't go too long into that, but it's significant. But to answer your question, Brent, don't see any opportunity to really lower internal costs. Most of what we do is relationship-based and the selling and the marketing and innovation-based, true innovation-based and construction in the product area. So don't see it.
Speaker 4: for our customers, that's something we'll consider over time. We won't rush into it. We have a lot of data in in Viva in the industry cloud overall for the industry and then we have data.
Speaker 4: We have our customers data for each customer. So there's potential that we can do some things to answer some questions about the industry overall, or help the customer answer some questions about their internal operations. And I do think the large language models are gonna be a thing in the chat type interface. Ask about a question.
Speaker 6: milestone for for fiscal 2025 here implies a rebound to 19% overall growth in our forecast. It does suggest that the R&D business could rebound and normalize back to 25 30% is that the right way to think about the dragon R&D and
Speaker 6: this year and then a kind of a normalization in R&D gross the following year is that the right way to think about the impact here with the county shift
Speaker 4: Yeah, so thanks Brent. We're really excited about the momentum we're seeing in the R&D business. It's a key obvious growth driver for us as we look out 24, 25 and beyond with particular strength in the clinical space, quality, so really broad-based strength. So it is really driving that growth that you're seeing as you look out into 2025.
Speaker 4: Thanks, Brent. We're really excited about the momentum we're seeing in the R&D business. It's a key obvious growth driver for us as we look out 24, 25 and beyond with no particular strength in the clinical space, quality, so really broad-based strength. It is really driving that growth that you're seeing as you look out into 2025. Thank you.
Speaker 5: Next up is Brian Peterson from Raymond James.
Speaker 7: Hi, thanks for taking the question. And so I wanted to hit on your success in EDC with six of the top 20 customers down the fold. Maybe talk about what's driving that success and then I'd love to understand, you know, Brent, maybe how to think about the revenue ramp of those deals. Like, how long would those typically get to be fully up to like the fully penetrated ARR?
Speaker 4: Yeah, I can take those. This is Peter. We're really happy with the success of EDC. I guess, you know, sometimes things come in bunches and...
Speaker 4: 3 of the top 20 in one quarter.
Speaker 4: I wouldn't expect that every quarter. It will run out of the top 20 very quickly, right? It happens like that. Why is it happening? Why did it happen all in the same quarter? That's a series of coincidences, really.
Speaker 4: But why is it happening overall? And we've been saying this for many years. It's just a better EDC product. More.
Speaker 4: It's more complete, it's true cloud, and it comes from a Viva, which we have a clinical operation suite and a clinical data management suite. And that's what customers want. These are a long, long project. So full revenue on some of these projects. You know, you're looking at...
Speaker 4: sort of three to five years type of thing. Now they're not all the same and so and I'm not saying that some might not be doing some might not be six but if you if you look at three to five years, that's
Speaker 4: That's kind of a good thing to think about there. So long-term revenue.
Speaker 7: Have a quiet afternoon.
Speaker 4: Now, I guess add a little color. That's...
Speaker 4: The clinical, the EDC, that's, there's a lot more to the clinical data management suite too, that's very significant over time. Randomization trial supply management, E-Pro, our clinical database, and help me more. So I think you should think about EDC almost like you thought about...
Speaker 3: ETMF is the start of our point of thought operations. So it's, uh...
Speaker 4: It's big and significant, but it's the overall clinical data management is even bigger.
Speaker 7: No, that's good to hear. It sounds like there's a lot of good news in clinical. Maybe pivoting to the commercial side. I know this was in the premier of the morris a little bit, but just in terms of the CRN transition to ball, any early feedback that you can share from customers that you've heard, I'd love to get any perspective on that. Thanks, guys.
Speaker 4: Yeah, I can take that. This is Paul. Yeah, so the vault serum is going really well pretty much across all dimensions. We have the product development team working hard. I'd say if they're ahead of schedule, we're actually going to have a demo. Our first demo and our summit coming up in May. So that's super exciting. I'm excited about that. I know our customers want to see that.
Speaker 4: You know, there's not a whole lot of customers need to do right now, but we are having conversations with a number of them and by large the feedbacks positive. You know, they're just trying to understand what this means for them and what timing looks like and what's entailed and our job is to make it really easy for them to move. So yeah, overall going really well with Alcira.
Speaker 8: cold.
Speaker 9: Next up is Dr. Ruink, Baird. Great. Hi, everyone. Peter and the prepared remarks, there was a mention of kind of early momentum and some of the newer areas like safety, which is a hard one to get into, but also...
Speaker 9: Something like Lancad is one of the more successful new products for commercial and sometime and then of course, Compass. When you step back and you think of this pod of newer products and then you may be rewind and think about the introduction of submissions or ETM app, the pod of kind of your...
Speaker 9: first go after in the clinical areas.
Speaker 10: frame for Viva.
Speaker 11: It's a really thoughtful question.
Speaker 11: It's a really thoughtful question.
Speaker 11: I wouldn't draw the exact parallel, but I think the parallel is similar. The reason why is in R&D there's multiple very separate entry points. Safety is quite a bit different than clinical. It's quite a different than regulatory.
Speaker 11: In the commercial area, sales, medical marketing, things are more related and they're more fluid together. So it's not distinct entry points, it's all related buyers. But in terms of, yes, a second leg of things, really increasing our potential, that's absolutely what's happening. We have our established.
Speaker 11: markets of CRM, Sweet, and commercial content actually. And then we have Crossix, which is pretty well established, but has a lot of room to grow. You know, it has some advertising headlines right now, but it has room to grow. And then we have things that are very early, link, and especially compass.
Speaker 11: Those are broad things and can lead into other add-on type of things. So I think you're pretty accurate in the way you're saying it. The second leg of commercial is things like link and compass and business consulting as well.
Speaker 9: Okay, that's great. And then maybe just a question on reconciling the margin outlook. So there's some immediate impacts of the TFC TNE is coming back. Is there kind of another category of incremental standards?
Speaker 4: of an area that's receiving incremental investment. So yeah, thanks, Joe. So if you look at the margin guide, I think you nailed it pretty well. So when you adjust for the termination for convenience, you get to, you know, that's about 250 base points of impact.
Speaker 4: So you get to about 36 and a half and then there's about another point coming in to travel events. We had recently our first in-person field kickoff event in the number of years. So we're kind of getting back to normal to a normal run rate around getting in front of customers and getting together. And then there's the continued investment for growth and Compass is one of the most important
Speaker 4: Great, thanks for taking my question. This is for, I guess, it could be Peter or Paul, but back to the CRM, the transition. Just wondering, with this demo that you guys are going to have in May, how should we think about what this new CRM looks like? Is it really just sort of a lift and shift of what you've got today on Salesforce?
Speaker 12: Or is there going to be a bit of a reimagination to optimize for the Volk AWS backend?
Speaker 4: Yeah, hey Ken, this is Paul. So yeah, good question. The way to think about it is it's primarily a lift and shift. So we're moving the apps that the vast majority of our end users touch every single day remain the same. And those apps.
Speaker 4: today point to Salesforce and in the future will point to Vault. So that's the simple way of thinking about it. And that's a design decision by us. Now why are we doing it that way? One because it's the market leading CRM, the CRM works. And it works really well for our customers and it's going to make the move much easier for our customers to get there.
Speaker 4: So that's how we're thinking about it and that'll play out, you know, just really easy for the end users. Like everything stays the same. One day it's pointing to Salesforce and the next day it's pointing to Vault. So there's a lot of engineering work to make that happen. So we'll start to showcase some of that starting at our summit and then more and more as time goes on.
Speaker 12: Got it, great. Thanks a lot, Paul. And then for Brent, just a quick clarification on 25. I know it's super early, but just the margin goals would suggest kind of in that 35-ish range, I guess 35 and a half give or take. Should we think of that as more of a generic plug similar to what you previously mentioned?
Speaker 4: $1 billion in operating income. So we've been two years out. And that's above our long-term target of 35% plus. And we're going to continue balancing growing revenue, as well as the investments required around that. So it's early. We feel good about how we're executing.
Speaker 12: we're going to deliver at least a billion dollars in off income. Got it. Alright, fantastic guys. Thank you.
Speaker 12: in off income. Got it. All right. Fantastic, guys. Thank you. Thank you.
Speaker 5: The next question is, and Samuel, J.P. Morgan. Hi, thanks so much for taking the question. I was hoping maybe you could walk us through what headwinds until when you incorporated within the 2024 revenue guidance, and does the top end of your revenue range imply any improvement in the macro backdrop?
Speaker 4: Yeah, I'll take that. So what we've assumed in our guide for the year is really the continuation of what we started to see in June from a macro perspective. So we haven't assumed any improvement nor worsening in the macro that we continue to see June through the bounce of the year. And that's some items like Peter.
Speaker 4: I think you have a second question if you wanted to repeat it.
Speaker 5: Oh, no, that was really helpful. And then maybe just was hoping you could walk through the cadence of just the pricing adjustments, you know, how those will flow through the model. Because I think you said in your prepared remarks, you don't expect much in fiscal 2024. So how much should we expect this year and how should we think about the cadence going forward? Yeah, so what we to.
Speaker 4: We announced effective April 1st going forward that we'll have a price increase of the lower of 4% or CPI. So how to think about that for 2024, it's not going to have a material impact on our revenue. You think about QPOR as our largest renewal quarter. It'll have more of an impact on billings in fiscal year 2024 and then it'll be more impactful on revenue in fiscal year 2025. But realize it could take a few years.
Speaker 4: or that to fully play through because we have customers on multi-year arrangements, you have to come up for renewal, so it'll take a few years to see the full amount play through.
Speaker 13: helpful thank you yeah thank you
Speaker 5: We'll go to Stephanie Davis as VB Security.
Speaker 5: Hey guys, I have to take my question. I am hoping you can tell us more about the large cross to swim. Are you seeing a renewed interest in some of these digital commercialization tools despite the tough ad environment? Or when we think about it, will folks be more reactive in adopting these solutions once the market starts to improve? So we can see... What is your Dang?
Speaker 11: kind of a fast follower sort of dynamic. Stephanie, I believe your question broke up in the beginning, so could I ask you to repeat that?
Speaker 5: Yeah, sure thing. It's just the large cross-exwinds and kind of if this is going to be something we see people prepping for the environment improving an ad, where they're going to add that ahead of it, or they're going to adopt their solution once the market kind of starts to improve as a reactive.
Speaker 5: to see the large cross-exwinds and kind of, this is going to be something we see people crafting for, the environment improving and adding, where they're going to add that ahead of it, or if they're going to adopt their solution, once the market kind of starts to improve as a reactive, third move. Yeah.
Speaker 11: The enterprise type deals in Crossex, I think that we're working on some more of those. Now I'm determined when those are going to come in. I don't think those are really correlated too much with the headwinds and advertising. That's more long-term things that people are thinking about. Do they want to? No.
Speaker 11: standardize and have a common operating model across all their brands and Go for it with the enterprise approach
Speaker 11: Or does they want to have the budgets brand by brand? So it's just a slow evolution to more of an enterprise vibe. It's not affected by the ups and downs of advertising.
Speaker 5: All right, understand that the follow up one, the CRM business, you guys called out a number of SMB wins. Can you tell us how and who you're winning against? And because we spent so much time about the transition away from Salesforce last quarter, is that factoring into any of these conversations as you go through it?
Speaker 11: Yes, we are continuing to win. Our win weight really has not changed in CRM. We continue to execute really well. The competitive environment is pretty much the same. It is all of the same players. The way to think about it is these are generally one of two categories. It is either
Speaker 7: pre-commercial companies, SMBs, that are in even the US market or the European market, or it's domestic companies that you may see in the UK as an example. So those are the kinds of companies that we're winning and we're winning against traditional competitors. So it's the, they may not have anything if they're a pre-commercial company, they may be buying their first serum system.
Speaker 7: If it's a domestic, it may be a local competitor or some of the traditional competitors that we've seen.
Speaker 5: All right, helpful as always. Thank you.
Speaker 5: The next question is Gabriella Borgis, Goldman Facts.
Speaker 11: Hi, this is Kevin from Gabriella. Thanks for taking the question. From a capital allocation standpoint, Peter, can you talk about doing M&A? How are you thinking about doing M&A and realize you're being patient there and trying to find the right asset? But what are you seeing in the private markets from a competitive standpoint? And...
Speaker 11: are rare. I would say we're looking more than we have in the past, but if you compare Viva to three years ago, we have more effort in the M&A area. So we're scouring the market more, and we've always got a few things in the hopper, and they most likely don't come through for a variety of reasons.
Speaker 11: I still am bullish over the next year or two that we can have something because I think people are getting a bit more realistic on their valuations and they are realizing there is not going to be a quick turnaround. I wish I could give you a schedule of acquisitions, but I can't. Today I amainersteiner and I am not aare you with examine the kids.
I'm really proud of our acquisition track record and I think that will continue.
Thanks for this. Greg Hittenbach from Morgan Stanley has the next question.
Yes, just a question on the operating margins and the implied, you know, 35.7% in physical 25 or at least that much. You just talk about the hiring pace and things you're doing this year after what was a very strong physical 23 and what environment you're seeing out there. Very sure, because you're looking at.
favorable hiring environment to continue for multiple reasons. It uses a well-run company. I think people like to work at a well-run company. I think our work anywhere helps. And I think there's less froth and speculation in the market.
But we'll really be measured in our hiring and we've always done that. So we look at where we can grow and we can invest. We keep our teams lean. That's it.
an important thing we do, and we always want to run a good profitable business.
So I think the way to think about it is sort of business as usual as speaker. We don't go.
We don't go crazy in the boom times and we don't cut back drastically in the tough times we sort of just keep rolling right over those speed bumps.
Just to follow up on the macro backdrop, it was a little choppy past calendar year, some softness in the middle part of the year, and then it stabilized. Just curious on that, on kind of the Cross-X business and SMB where it did soften a little bit. It sounds like there hasn't been much change in recent months, but if you can provide any call there in terms of...
Rapid change right now. It seems like we're for a while now we're in a point of consistency which overall that's good for VGA because we're dealing core capabilities to improve efficiency and effectiveness and when there's less change in the macro.
either for the crazy up or the crazy down, that's what helps us a lot. When there's less change in the macro, people look to build these durable capabilities, our customers look to build these durable capabilities.
crazy up or the crazy down, that's what helps us a lot. When there's less change in the macro, people look to build these durable, our customers look to build these durable capabilities. Thank you.
Thanks. We'll take our next question from Rishi Jhiluria, RBC Capital Markets. Oh, wonderful. Thanks so much for taking my questions. Peter, let me start by diving a little bit deeper into the generative AI piece and less in terms of how it impacts your engineering and software development efforts.
And more I want to think about what is the impact on the actual industry itself? I mean we saw recently right, there's a pharma company that is putting a drug through clinical trials soon and the entire drug was designed by generative AI. So there clearly seems to be potential disruption coming to the industry from generative AI.
Can you maybe talk about what you think that could happen? What impact that could have on your customers and how you've got to impact your business? And I've got a follow-up.
Well, pretty early on that, I didn't read that exact press release. I would be surprised if no.
No human touch that drug during its development and its approval. And so I don't think that probably happened. I think there's promising things in the early phase of discovering a drug and that's not actually really due to the large language models or the generative AI. That's more to...
machine learning algorithms that are math based. So I guess I don't want to be a skeptic here, but I don't see the real revolution. And that's the thing about revolutions, you'll know it when it happens, and so far, really haven't seen it. Okay, totally, totally fair. Appreciate that.
I wanted to think about the impact from a number of drugs coming off patent this year and maybe next 18, 24 months, obviously the big one with Abbeys, Humira. How are you thinking about the potential puts and takes on that? Is that going to have an impact on the number of farmer reps and maybe lead to further cuts, which has-
Yeah, I can take that. You know, this is normal course of business for the industry. You know, as you look at it over the next five years, compared with the last five years.
The amount of revenue that's at risk over the next five years as a percentage of the overall industry revenue It's actually slightly less than the last five. So it's kind of interesting the patent thing, you know, it happens This is normal course of business for the industry. Now what tends to replace the revenue from those drugs that that Lose their patent expiration is new medicines
So you brought up the ad-v example. You know, there's, and this is in the public domain, and there's expectations that new medicines from ad-v will be just as large if not larger than Humira was in the marketplace. So that's very common, right? In the industry, invest a lot in R&D, they innovate.
and new medicines replace the revenue from previous medicines, which to your point earlier means more clinical trials, it means more launches, more drug approvals, and ultimately it means sales reps continue to sell and launch these new medicines. So it's kind of this virtuous cycle on the industry, I expect that to continue if not get stronger.
because of the amount of investment the industry is making. All right, great. Really helpful. Thank you so much. Up next is packet. Colleo, please. Okay, great. Hey guys, thanks for taking my questions here. Paul, maybe for you just a little bit off that last line of questioning.
I was wondering if you could talk about what you're hearing from customers on just overall former sales rep plans for this year, calendar 23. I think I've said in the prepared remarks that VIVA, VIVA, CERM, CETS, flat year of year, how do you think about that for next year?
Yeah, so this calendar year, I expect it to be roughly flat also, but I'll take a little bit of a step back and just to paint the overall picture for you and for others that may not have been following it closely. So we've always talked about a roughly a 10% reduction through the last fiscal year. We've seen the majority of that play out.
This year we expect we'll see some additional reductions play out, but I think it's going to stabilize the market. It's going to operate at this new steady state. And I think we'll actually end up slightly less than the 10% that we predicted. So we're seeing signs that the market is stabilizing, but I think this year...
We'll have some gains in CRM and the CRM suite, but we'll also see a slight reduction in the market. So you can think of it as relatively flat. Got it. That's very helpful. Brent, maybe for my follow-up for you. You know for TFC, I think going back to the analyst, they were expecting about a 60 million impact. I think that's a little bit higher now as we look at the 24 guide. Can you just talk about some of the mechanics there? What changed?
And also just remind us whether that TFC is going to have any impact on Billings or cash flow. Yeah, high-second. Yeah, so in the Q3 timeframe, we quoted a $60 million termination for convenience impact, and that was from existing deals in place at that time. You fast-forward, we had a very successful Q4 quarter.
We throw the close three large CDMS deals and with that we add another $15 million of revenue pull forward. So that's 60 to the 75 and then in addition to that there's about $20 million of anticipated deals that we expect to close in fiscal year 24 that would have pulled forward revenue.
are casual. This is really an accounting point for RevRack, correct? Yeah, and it really has to fall up. So there's no impact in the total revenue value of these contracts. It is purely timing. And to your point, there is no impact to Billings and no impact to OSEA.
Very helpful. Thanks, guys. We will take a question next from Dylan Becker, William Blair.
Hey guys, congrats on the quarter. I appreciate you taking the questions. Maybe following up on the TFCPs and understand kind of some of the near term accounting dynamics. But how are you guys thinking about that incremental multi year kind of willingness and adoption, maybe for Peter as validation of kind of that long term, long term strategy, you guys kind of called out and maybe as for Brent as well. It's kind of giving about that initial confidence and outlook as we think about giving guidance for for fiscal 2025.
I will take the first part of that. Certainly the vote of confidence from the customers in the EDC area, in the clinical data management area, which is one of the most critical and one of the most complex things and these long multiyear rollouts. We take that as a vote of confidence.
and we're really humbled by that, and we know we got to execute really well. So that's where we feel like in clinical data management, we got a sort of a tiger by the tail, and we got to pay attention and make sure we deliver on that. So yeah, very excited about that, and how does that flow through to the financials that's for Brent? Yeah, and when you asked about how we look out the forecast, we do our forecast at a pretty granular level.
We work with the business and think about it at a product level, at a market level, area level as well. And these ramping deals play into that as well. So when we combine all of those, that informs our guide. And we feel good about looking at 2025 at least $2.8 billion in revenue. Got it. Super helpful. Maybe switching over to another area as called out on the compass side of the equation.
and prioritizing dedicated sales teams. Is there anything to call out in the go-to-market piece, any kind of salesmovers that needs to change there, and then maybe how that evolves and maybe benefits from the broader rollout of the sales and private piece in fiscal 2024 as well?
I can take that one. In general, we have structure of sales team in terms of the commercial sales team and the R&D and quality sales team. So they have a lot of products that they represent and that helps our customers, helps be the via strategic partner and that's what our customers want.
Sometimes when a product is different or not, or new enough, or something is different about it, we'll have a special life sale team. And we made that decision for a compass. It's a very specific product and it's going to be a big product. It has a kind of an entrenched...
So no change in our philosophy. We always have that philosophy every year. We sort of make those decisions. Whether we need a specialised fail team. So.
That's the decision we made some number of months ago and feel real comfortable with it. Got it. And we'll go back to Charles Wright, talent.
Yeah, thanks for taking the question. I wanted to follow up on CrossEx a little bit more. Peter, I think you said that the macro doesn't really affect the selling cycle for CrossEx. It's really a decision whether someone wants to go to Enterprise or...
or stay brand by brand. But you have called out a little bit of weakness in this category. What is then Klein saying in terms of maybe not moving forward? I know you signed a top 20 pharma here in this quarter.
for others where people are not willing to move forward yet. What is sort of their talking points as to why they're not interested or maybe not yet looking to do it? I think when overall the media spend goes down.
Then that has a negative effect on Viva because let's say a brand is going to do TV advertising and then it feels like while that.
I really wanna measure that with Cross-X versus if they decide, I'm not gonna do TV advertising. We're gonna conserve that budget, okay, then they might, they wouldn't spend with Cross-X to measure that. So that's where it has impacts on these when customers are buying more a cart, which is the bulk of our business still in Cross-X.
They're buying brand by brand module by module. When their spend goes down, they would conserve on their spend with crossings. And also when there's more confusion about where their budgets are going to be, then they tend to be a little less bullish on spending.
So then in that case, maybe not directly, but indirectly, it is still tied to the macro. Maybe not so much.
the Like an R&D budget kind of stuff, but it's really just sort of the general Economic macro environment is is sort of very yeah, I guess I guess to the general economic and environment or
more specifically to the advertising environment inside of life sciences. Now that again impacts more of the all the type of things we do, which is the bulk of our business in the cross-ex, the year-to-year all the carpet. And our goal is to move people more to these multi-year agreements, where it's more of an enterprise agreement. It's not exactly an all you can eat, but...
sort of like that that smooth out the stand and make and simplify things for ourselves and for our customers. Appreciate that and Brent just a quick follow up I kind of missed it. I think someone asked earlier about the cadence for the impact of TFC. Obviously a bigger piece maybe in the first quarter but.
as we model it through the rest of the year, how should we think about the rest of it falling through, so more in the second quarter or more even? Yeah, so, yeah, 52 million is what we called out of the 95 as an impact in Q1, and then the balance of that will continue in a diminishing way through the balance of the year. So Q3 will be less than Q2, and Q4 is expected to be less than Q3. Okay, great, thank you.
Next is Ryan McDonald, Needham & Company. Hi, thanks for taking my questions. Peter, maybe first for you, it's great to hear the continued success, albeit at the early stages for the likes of Compass and Lync, but I'd be curious to get your thoughts on what you're seeing in terms of sales cycles right now. We've heard of other competitors in this space talking about elongation and having issues there.
Just curious if you're seeing any of that or if you are, does this sort of benefit you in a way? Is it enables you to continue to mature the product offerings in the marketplace while maybe end market customers are adjusting what they have? Thanks.
I don't I think our macro environment has stabilized. I don't see any change in the deal scrutiny right now.
Is it maybe a little bit more than it was a year ago? Maybe, but it's not not appreciably so. If we look at last year on the macro environment, probably percentage-wise the larger impact was...
In the SMB area, when the funding goes down, companies have to conserve cash, they might merge, they might get acquired, they might get that to go out of business. They have uncertainty so they wouldn't make decisions there.
I think that is also stabilized. The funding environment is a bit more stable now. It hasn't gotten better, but it's stabilized. So, I really am not seeing this impact of the elongated sales cycles at this time.
Now, having said that, I always think for the past 15 years I thought our sales cycles are long and let's just go through the nature of the business.
Thanks for the color on that. I appreciate it. And maybe a follow-up for Brent. You know, obviously with the expectation of sales and prescriber data coming into play and being generally available later this year, as that dataset builds and as you build sort of the book of business for those datasets, will you see any gross margin pressure initially with the inclusion of those datasets?
while you're sort of in the early stages of monetizing it? Thanks. Yeah, I can take that one. No, we don't see extra gross margin there from those products. We're always looking for data that we can add into the Cross-6 platform. But that data is really shared.
the patient data is the root of it. And then we do we transpose it, we do projections to get to the to scribe. So we'll add data incrementally, but I don't, there won't be any.
Large change when we get to the subscriber product.
Thanks, John . Thanks for taking my questions. Next up is Joe Goodwin, JMP. Thank you for taking my question. Great to see that quality. And the quality is still moving forward. Well, I guess can you elaborate on the Vault Limbs product that you all. Thank you.
and not making units or making batches, batches of things that then wouldn't be packaged. And serious things that are either ingested or intravenous into the human body, so the quality of them is super important for obvious reasons. LIMS is laboratory information management system, what we call QC or quality control.
should be done and there's a whole variety of tests. I'm as simple as what's the color, you know, and the pH to some very sophisticated tests. Those specifications have to be designed and approved in the system. And then data is entered in, either through APIs or through manual. And that's the quality control process.
That's a big part of the quality control process, but then is used to see, hey, can we release this medicine in this market to be indebted or injected into humans?
Very important area. And we're going to build it inside of our quality vault, which means it will become unified with our QMS system, our quality doc system and our training system. Nobody's ever done anything like that before. And I think it's going to be a real transformation.
in quality control processes in life sciences, which will allow people to release their medicine faster, which is a real, it keeps the company much more agile. So this is very much top of mind in the supply chain area of our customer supply chain manufacturing. It's a big product. It would be one of our biggest ticket items in the quality suite.
customers begin migrations? Do you anticipate that in the year in which these migrations take place that there may perhaps be some impact on new product uptake from those clients until perhaps the migrations are completed? Yeah, so I would think of it as maybe three time frames.
before the migration, during the migration and after the migration. Certainly before the migration, you know, the way we're planning this, the way we've designed this is that new capabilities, new products that they do, we're going to migrate those automatically for customers. So we want customers to continue to innovate and we'll move that.
that innovation over with them evolved automatically. So that's before then during, you know, it can be a small to a larger project depending on the size of the company or their complexity. You know, that may be a little bit of a distraction during that period of time and then certainly after is an opportunity for even more innovation. So that's kind of generally how I would think about it. It's going to be a project just like any other kind of project.
Got it. And then maybe a quick question on R&D solution. So, looks like this year you added close to 220 million in revenue within R&D. Can you just share with us what percent of that amount came from top 20 pharma and what percent came from pre-revenue biotech? Thanks.
Yeah, we're not going to break out that level of detail, but if you think about where are installed Ace and we get a large portion of our revenue from the enterprise and our top accounts. But so that's largely contributing, but we do have a good cross section of customers that buy across the whole R&D solution set. So we're pleased with.
with the success and how we're executing there. Great, thanks so much. We'll go to Jack Wallace, Guggenheim Security. Thanks for taking my questions and starting advance for the boring accounting questions.
But here we go. So this one for Peter, you're saying then, right? Is that this is for Peter, the born of town in question? Exactly.
So I want to just get a better understanding of the mechanics of the TFC impact. And I appreciate we had a couple of bigger deals that signed in 4Q and some anticipated it sounds like they were going to sign the rest of the deal. So the fundamentals are strong, but that means we're going to have less of an impact in the early years of those contracts on the revenue line.
I think I get that part. The part I'm a little bit unsure about is the $52 million impact in the first quarter.
So using simple math and subscription line, the 460 from 4Q less the 52 million less the 8th from FX gets you a 405 after you add let's say 5 million sequential.
Now, that 52 million of TFC, why doesn't that get annualized into a $208 million headwind for the year? If I'm thinking about that resetting the revenue-based lower, again, without the benefit of being able to recognize on Bill AR and Tree Year.
I mean, I mean, the way to think about it is, so in a post-T4C world, you think about for the year of fiscal year 24, how much revenue would have been above billions? You think about it from that perspective simply in that year. So there's the amount that relates to existing deals.
And then there's the amount related to the 20 million that deals we would have closed. So that is you're normalizing back to that rule where billions of revenue need to be aligned. When you aggregate that all up for the full year, it's $95 million. And the amount that impacts Q1 is $52 million.
largely the unbuild AR portion, but that's at the highest most simple way that's how I think about it. Got it. And just to clarify the unbuild AR portion, that would be a, I guess what you're saying, a one-time impact.
portion, but that's at the highest most simple way that's how I think about it. Got it. And just to clarify the the unbuild AR portion, that would be a, I guess what you're saying, a one time impact or a impairment to the one queue.
revenue number that then they queue to steps back up by that amount or maybe something less than that. It's simply a direct reduction to revenue close to the off-camp, the off-camping to you one. But the important piece here is the total value of these deals is not diminished or impaired.
It's over. You're just taking that revenue and off-income over the remaining life of those individual orders, which could be an additional one year, an additional two year, three, and four years, and so on. Gotcha. And then, so just the last fall upon that is...
with the headwind diminishing over the course of the year, is that related to the midstream deals that are operating stay above the multi-year ACV? The midstream deals are operating stay above the multi-year ACV?
It's those deals, the remaining deals before renewal where there's still an amount of revenue above billings. That's the remaining residual, the 95 minus the 52, and that amount is diminishing over Q2 through Q4. Okay, thank you.
It's those deals, remaining deals before renewal, where there's still an amount of revenue above billions. That's the remaining residual, the 95 minus 52, and that amount is diminishing over Q2 through Q4. Okay, thank you. You bet.
Next up is Natalie Howe, Think of America. Thanks for taking my question. You touched on R&D earlier and throughout this call and I wanted to ask a little bit more on clinical. So you mentioned that you're only 5% penetrated in clinical data and 30% in operations. Does clinical represent an opportunity more for new customers or rather does it target the existing base?
And for my second question, still on R&D, you mentioned some strength in development cloud. What products coming in a fiscal year 24 will help sustain the R&B growth rate that we can look forward to. Okay, so I'll take that one and the speeder in that clinical. In that clinical.
A lot of that is going to be from existing customers, but that's, for example, some of our most established products are in clinical ETMS, and we have a lot of ETMS customers. To those customers, we can sell other clinical operations products, ETMS, study training, and we can start to sell.
clinical data management. So they are existing customers but we'll be getting into new departments in the way I would think about it.
In terms of brand new customers, brand new, those will usually come in the small SMB. Three companies that aren't commercial yet, they're just clinical. They're running their first couple of trials. They may or may not have our quality sweet. And then in terms of where the revenue is coming from in development cloud, the real growth areas are for us, the clinical operations and clinical data management. Thank you.
And also quality. Quality has a long runway to go and you have a deep pipeline there. Regulatory and safety, those are contributing pretty well, but the two biggest ones are, the biggest one is clinical and the second biggest is quality.
quality as a long runway to go and you have a deep pipeline there. Regulatory and safety, those are contributing pretty well, but the two biggest ones are, the biggest one is clinical and the second biggest is quality. Awesome. Thank you.
Thank you. That was our final question. I'd like to hand the call back to Mr. Peter Gasner for any additional or 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. And everyone that does.