Veeva Systems - Q3 2024

Transcript

Operator (participant)

Good day. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to Veeva Systems' Fiscal 2024 Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I will now turn the conference over to Gunnar Hansen, Director, Investor Relations. Gunnar, you may begin your conference.

Gunnar Hansen (Senior Director of Investor Relations)

Good afternoon, and welcome to Veeva's Fiscal 2024 Third Quarter Earnings Conference Call for the quarter ended October 31st, 2023. As a reminder, we posted prepared remarks on Veeva's Investor Relations website just after 1:00 P.M. Pacific today. We hope you have had a chance to read them before the call. Today's call will be used primarily for Q&A. With me today for Q&A are Peter Gassner, our Chief Executive Officer, Paul Shawah, EVP, Commercial Strategy, and Brent Bowman, our Chief Financial Officer. During this call, we may make forward-looking statements regarding trends, our strategies, and the anticipated performance of the business, including guidance regarding future financial results. These forward-looking statements will be based on our current views and expectations and are subject to various risks and uncertainties. Our actual results may differ materially.

Please refer to the risks listed in our earnings release and the risk factors included in our most recent filing on Form 10-Q. Forward-looking statements made during the call are being made as of today, December 6, 2023, based on the facts available to us today. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Veeva disclaims any obligation to update or revise any forward-looking statements. We may discuss our guidance on today's call, but we will not provide any further guidance or updates on our performance during the quarter, unless we do so in a public forum. On the call, we may also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results.

A reconciliation to comparable GAAP metrics can be found in today's earnings release and in the supplemental investor presentation, both of which are available on our website. With that, thank you for joining us, and I'll turn the call over to Peter.

Peter Gassner (Founder and CEO)

Thank you, Gunnar, and welcome everyone to the call. We had a solid Q3 with revenue and operating income ahead of guidance, including total revenue of $617 million and non-GAAP operating income of $235 million. As I shared in our prepared remarks, we had a number of great milestones and new product announcements in the quarter as we progressed in building our industry cloud for life sciences. With a growing set of high-value applications, data, and services in R&D and commercial, we can help the industry become more efficient and effective across the even broader range of areas. We have a significant opportunity ahead, and with a focus on product excellence and customer success, we're becoming an essential strategic partner to the industry. Now we'll open up the call to your questions.

Operator (participant)

If you would like to ask a question, please press star one on your telephone keypad. We do ask that you limit yourself to one question and one follow-up. Your first question comes from the line of Ken Wong from Oppenheimer. Please go ahead.

Ken Wong (Managing Director, Senior Equity Analyst of SaaS and applications software)

Fantastic. My first question is for Peter, maybe Paul. At Investor Day, you guys talked about getting an emotional commitment from customers to move over to Vault CRM. Looks like you got two written commitments now. Maybe give us some color into what went into that decision-making process for these large enterprises, and what kind of signal do you think this might send to the rest of the industry that are potentially looking at Vault CRM?

Paul Shawah (EVP and Commercial Strategy)

Hey, Ken. Thanks for the question. This is Paul. Yeah, so we're super excited about Bayer and GSK. You probably everybody on the call may have seen the press releases, but we also had them join us during the keynote and on the main stage at Europe Summit, which was last week. Super exciting. So they essentially answered your question on the main stage, which was, you know, why did they select Vault CRM? And for them, it came down to something very similar, which was innovation. They're thinking about the future.

They, they're excited about the next generation of CRM and for them, you know, even I'll paraphrase what GSK said, 'cause he said it very concisely, it was this idea that, you know, Pharma CRM is not a commodity, but it's a solved problem, thanks to Veeva. And what that means is this is something that's very hard. It's difficult. It's something that, they've done multiple CRM implementations in the past, and it's not something they wanna spend any energy on. They want a solution that works, and that's proven, and they want to be able to innovate and look forward. So that, in a nutshell, is the reason, is it's innovation, it's looking forward, it's building for the future. So we're super excited to have both Bayer and GSK talk about their selection.

Ken Wong (Managing Director, Senior Equity Analyst of SaaS and applications software)

Got it. And then a follow-up for you, Brent. Just as we look at the billings number for the year, you guys trimmed it $40 million. Any way to help us segment how much of that might be kind of the services piece, the FX piece? And I think you kind of mentioned there's a little bit of maybe some combination of duration and timing involved, but would just love to, you know, kind of understand what the moving pieces are that got you to that $40 million.

Brent Bowman (CFO)

... Yeah, happy to, Ken. So about half of it is related to services, so the services reduction we talked about on Investor Day. The balance of it is really split into a couple buckets. One is on the proportion of quarterly billers versus annual billers in our new business. So we had a higher mix of quarterly billers than we expected. And then the other portion of that is related to timing of deals. So some deals we expected to close in the Q4 timeframe, now it's gonna be early fiscal year 2025. And then to a smaller extent, there was some FX headwinds as well, so relative to our prior expectations. So those are the pieces of it, but the biggest portion of it was clearly services.

Ken Wong (Managing Director, Senior Equity Analyst of SaaS and applications software)

Okay, perfect. Thank you.

Brent Bowman (CFO)

Sure.

Operator (participant)

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

Brian Peterson (Managing Director, Senior Equity Research Analyst of Application Software)

Hi, guys. Thanks for taking the question. So, I'll start with Brent. You know, I think there's been some debate in the past on how the services business correlates to subscription. Is that a leading indicator or not? I've gotten the questions from investors, so I'd love any perspective you have on how we should think about the correlation between subscription and services.

Brent Bowman (CFO)

Yeah, services. Yeah. Hey, Brian. Services is not a leading indicator, and there's a number of reasons. There's the timing of deals, there's product requirements that are different between the type of product you're buying, customer-specific requirements. So that's not gonna be a good leading indicator. And then on the subscription side, you have things like ramping deals and pricing and the like. So there's a number of reasons why those two don't directly correlate, and you shouldn't think of it that way.

Brian Peterson (Managing Director, Senior Equity Research Analyst of Application Software)

Great. And maybe just as a follow-up on the marketing automation side, I thought that was an interesting part of the product announcements out at the Investor Day. You know, how do we think about the ramp of that product? And any early feedback or thought process on what your customers are using today? Thanks, guys.

Peter Gassner (Founder and CEO)

I'll take that one. Yeah, a little. We, you know, we'll start the development of that next year in 2024. So I think that's something you're seeing from Veeva as a strategic partner. We have a lot of products across R&D and commercial, data, software, and services, so we're very strategic partner to our customers. So in general, once we know we're gonna do something, we let our customers know so that they can do long-range planning around that. So in this case, you saw us announce that before we established a development team, for example, for it. So it's very, very early and too early to say what the revenue ramp would be. In terms of what most of our customers are using, they might use Salesforce.com Marketing Cloud, they might use product from Adobe.

Some of the smaller customers will outsource this to agencies, but those are probably the predominant products that are used.

Brian Peterson (Managing Director, Senior Equity Research Analyst of Application Software)

Thank you.

Operator (participant)

Your next question comes from the line of Joe Vruwink from Baird. Please go ahead.

Joe Vruwink (Senior Research Analyst of Vertical Software)

Great. Hi, everyone. You know, in years past, just in this three-Q period, I think Veeva's had a fair amount of visibility and inclination just on the upcoming year because of where big pharma customers stand in their budgeting process. I'm wondering if you could maybe compare current visibility on that FY 2025 revenue target versus what's been the case over recent history. And then just related to that topic, since you know, Brian, you were calling out some variables on just billings in this year, you know, how do some of those things you called out maybe start to influence the puts and takes going into to 2025?

Brent Bowman (CFO)

Hey, Joe. Hi. So we reiterated the $2.75 billion. And, you know, the visibility we have, you know, we every day you move forward, you have better visibility, and we have no less visibility than we had a year ago, so similar as we look out in front of us. And some things to contemplate is we have some, you know, multiyear ramping deals that will contribute, you know, a larger amount next year. That's something that comes into play. But we have a long runway for growth. Our visibility is not less than it has been historically. It's at least as good, and, you know, we're confident in our ability to execute to the number.

Joe Vruwink (Senior Research Analyst of Vertical Software)

That's great. Thanks. Then I wanted to ask the outlook for the commercial segment. It's gone up more than I expected over the course of this year. And in the prepared remarks, I think you are referencing Commercial Content and Link. So kind of a barbell in that you have a very mature product growing nicely and then a still very early product growing nicely. You know, there's understandably been a lot of focus on CRM of late, but how would you kind of frame performance from the non-CRM piece of commercial and kind of what you're seeing in market so far to drive what seems like has been upside to your original forecast?

Brent Bowman (CFO)

Yeah, Joe, it's Brent. I'll, I'll take that one as well. So, you know, we have increased that commercial number through the course of the year, and you put it quite nicely in that it's a combination of our more established products continuing to contribute revenue growth, like content, and then our newer products, like Link, really kicking in nicely, and we're still very early days there. And then the data products, I think you saw in Peter's prepared remarks, really coming along nicely. We're very early days, but we're optimistic in a very long journey there. So those are the things we think about, and Crossix is another one that's contributing, you know, nicely as well to our growth.

Joe Vruwink (Senior Research Analyst of Vertical Software)

That's great. Thank you very much.

Operator (participant)

Your next question comes from the line of Dylan Becker from William Blair. Please go ahead.

Dylan Becker (Senior Equity Research Analyst of Technology, Media, and Communications)

... Hey, guys. Maybe staying on the theme of data here as well. Brent, you just called out Compass. Maybe for Paul, on that side, there's a lot of new customer demand momentum. I know we're releasing some new offerings there early next year, but how do you think about that enthusiasm, maybe kind of validating the strategy and some of the encouraging momentum from customers around that strategy, as we think about that upcoming opportunity? I know it's beyond 2024, but as we think about kind of the going or having that kind of full suite as we think about early next year.

Paul Shawah (EVP and Commercial Strategy)

Yeah. So, it is great validation of what we're doing. We have a very clear product strategy with what we're doing in data. And more broadly, overall, with Data Cloud, we're building a modern data platform. Compass is a key part of that. We started with patient data. We did announce the expansion of that portfolio the beginning part of next year with Prescriber and National. So with those three products in Compass, we're well-positioned to be the standard data provider for even the very largest of pharma companies. And the momentum that you saw in the quarter is a good indicator for us.

It's a good indicator that new customers are starting and trialing our data products, but that existing customers are expanding where we started with one brand, and then we expand to an additional brand. So it is in fact a great validation of our product strategy, our commitment to getting the product excellence. So we're on the right path with Compass. We feel good about that.

Dylan Becker (Senior Equity Research Analyst of Technology, Media, and Communications)

Got it. And then maybe for Peter too, right? As you think about that evolution of Data Cloud to R&D, obviously a lot of kind of pertinent use cases there, but how do you think about that data standardization playing in with the kind of workflow or process standard, standardization and some of the momentum you're seeing in that clinical suite, today, and maybe what the value can accrue from having kind of both a connected workflow and standardized data as we think about, development life cycles as well? Thanks.

Peter Gassner (Founder and CEO)

Yeah, I'm really excited about that. I think our clinical opportunity and data can be as large or maybe larger than our commercial one. It really can be large. Now, we're much earlier, so that has to all be proven out, and there's a very strong synergy between our software and clinical and the data products that we can build. So if you look at it a big picture, I think Veeva's been working pretty hard at cleaning up the software side of life sciences over the last 15 years, and we've made a lot of progress. Still more to go with adoption, but we've clearly got a great footprint for it. Now, with Data Cloud, I see us cleaning up the industry data and harmonizing the industry data, and then we'll make our data and software work very well together.

So that's really what, what we're talking about at the industry for the Industry Cloud, right? It's a digital transformation, which is software and data all working together. So I'm very excited about it. I think the special sauce on the clinical side is, clinical data, all on its own, is not as valuable as clinical data that can work with clinical software. And, I think we're going to revolutionize that area. It'll, it'll just take some time.

Dylan Becker (Senior Equity Research Analyst of Technology, Media, and Communications)

Great. Thank you.

Operator (participant)

Your next question comes from the line of Ryan MacDonald from Needham and Company. Please go ahead.

Ryan MacDonald (Senior Analyst)

Hi, thanks for taking my questions. Maybe the first one for Brent. You know, talked about hiring fewer people in the quarter, and as we just look out into next year, you know, what areas might you be adding still, and how you're thinking about the hiring environment or hiring plan? You know, given that we're starting now to see, you know, more and more companies rightsize their organization structure heading into next year again. Thanks.

Paul Shawah (EVP and Commercial Strategy)

Yeah. So overall, our hiring strategy hasn't changed. You know, we're focused on hiring for growth, and, you know, we're gonna focus on areas where we can drive customer success and innovation. So that's always been our approach, and we're gonna do it in a disciplined way. You saw in Q3, we had a lower hiring quarter than you had seen in the recent past. Looking out to the balance of fiscal year 2024, it's reasonable to expect that that lower hiring rate continues. I'm not gonna get into fiscal year 2025 at this point. In 90 days, you know, we'll provide our traditional metrics, which would include operating income and margin, and then obviously, headcount will be factored into that.

Ryan MacDonald (Senior Analyst)

Mm-hmm. Super helpful. I appreciate the color. Peter, maybe just a follow-up for you. You know, you talked about in the prepared remarks about some of the newer clinical data products around CDB, RTSM, ePRO, and at your Analyst Day, you know, talking about how this really expands the TAM within that area. As you start to speak with customers or prospective customers about some of these newer products, you know, what sort of appetite are you seeing from those customers around development or co-development on some of these newer areas and sort of willingness to make some of those earlier investments with you in innovation on the product roadmap, you know, amidst the evolving environment? Thanks.

Peter Gassner (Founder and CEO)

Yeah. A great question about the, you know, clinical data software. You have EDC, which is the core of it, the first thing, and then you have others, CDB. You have—we have Study Training, we have ePRO and RTSM. The customers are generally going to be very conservative in that area. So really, we have to innovate first, and then they will come along because this is—these are their studies, right? And they've planned these studies for a long time, so they're going to be pretty conservative. So I think it's an area that starts slowly, but then it, for the same reason why it starts slowly, and then it develops momentum. And if customers end up having something that they really like, boy, will they stick with it. And right now, the industry is not well-served.

If you look at the sort of, I would say, the professionalism of the ePRO applications out there or the RTSM applications out there, they're not of the level of professionalism of Veeva, of what Veeva is doing. Our products are getting there, so that's one thing, which is both the product and the services. And then I think the real topper is the integration, the process integration, for example, between our RTSM and our ePRO. I had a discussion last week with some clinical leaders at a top 20 pharma, and when we were discussing the integration that we will do between our RTSM and our EDC and how that will affect the pre-screening, the screening process and the ability to get patients into the right trial, you know, this can be transformational.

In some cases, when that workflow breaks down, you might lose six months exclusivity on a blockbuster product because the delay of a pivotal trial. That's money you never get back. So that's the criticality of these systems, and it causes a little bit of conservatism, right? "Well, so I might use your RTSM. Who else is using your RTSM for all of your studies?" "Well, nobody is yet. You can be first." "Oh, well, hey, I'll just... I'll wait and see on that." So it's that type of thing. Hard to get in there, really hard to get out if you're doing a good job.

Ryan MacDonald (Senior Analyst)

Appreciate the color. Helpful anecdotes. Thanks.

Peter Gassner (Founder and CEO)

Thanks.

Operator (participant)

Your next question comes from the line of Jack Wallace from Guggenheim Securities. Please go ahead.

Jack Wallace (Vice President and Equity Research Analyst)

Yeah, thanks again for taking my questions. Just wanted to ask about Compass and, you know, the event around clients migrating to, you know, the Vault CRM platform. How much does Compass come up as a logical upsell here, and is it fair to think about the migration event being a natural upselling opportunity?

Peter Gassner (Founder and CEO)

It's a great question, Jack, about Compass and Vault CRM. I would say they're not the same at all. They're quite disconnected. Compass, in many ways is a much more strategic decision because that really affects how you apply your resources, and in Compass, we're reinventing how you can do data. So it's a much more strategic decision. It's related to analytics, and it's purchased at the brand level for brand analytics. So it has these dynamics. Also, for example, Compass is something we sell to companies that are two years sometimes away from having a field force. They're doing their planning, you know, involved in their market potential. So it's quite disconnected versus where CRM is, "Hey, now you're ready to launch.

You just need a system with the full functionality." Veeva, that's kind of a solved problem. So there's what Veeva CRM playing into that. On Compass, it's, "Well, gosh, we've been using IQVIA for 20 years. You're coming with a different approach." "Well, hey," so they're really out of phase, and they don't depend on each other. Now, it's nice to have multiple products to be able to bring in to a customer, so you can provide the full commercial solution, Veeva CRM, commercial content, Crossix for your media measurement, Link for your deep data, Compass. So we have a lot of things that can fit together, and especially for a smaller company, they will look for that partner.

You know, "Hey, I just - I need to get all this in a hurry." But in general, those things aren't linked together, and I wouldn't view Vault CRM as a catalyst for Compass. Catalyst for Compass is gonna be its product excellence and how we... well, we do on our launch of prescriber and nationally anyway.

Jack Wallace (Vice President and Equity Research Analyst)

Gotcha. Yeah, thank you. That's helpful. And then one for Brent around billings, just to, you put a bow around the change in terms and cadence of billings. Help me with the math here. If we had a $12 million headwind in the third quarter, does that mean about $6 million of billings from the third quarter split into the first half of next year? And then, is that your number, say, $6 million-$9 million from the fourth, so add it all up, $12 million-$15 million or so, that just due to billing cadence got pushed into 2025?

Brent Bowman (CFO)

Yeah, I'm not gonna break down to the specific numbers, but I can give you, like, the directional numbers around this. So I said about half the services, and then there is the duration piece of it, right? So then the balance is split pretty much between two buckets with a little bit of FX. So that duration piece, that's what's that's just a matter of over time, when is that gonna, when it's gonna bill. So we have more quarterly billers than we expected for our new business. So that's about 25%-ish of the residual. And then the other piece was literally the timing of deals. Again, some of that was deals that pushed out from the back half of the year into the first part of the year.

That's at the high level, how to break down the buckets, and that's been contemplated in our $2.75 billion revenue number for fiscal year 2025.

Jack Wallace (Vice President and Equity Research Analyst)

Got it. Thank you.

Brent Bowman (CFO)

Sure.

Operator (participant)

Your next question comes from the line of Stan Berenshteyn from Wells Fargo Securities. Please go ahead.

Stan Berenshteyn (Senior Equity Research Analyst)

... Hi, thanks for taking my questions. First, Peter or Paul, in the prepared remarks, it was mentioned, you know, you had solid bookings under Crossix, including brand expansions. I recall that Crossix has seen some choppy demand in prior quarters. Is the reason that you're seeing a pickup of activity on this front?

Peter Gassner (Founder and CEO)

I guess there, the reasons are, some is just timing, you know, how things laid out. Also, you know, just solid execution by the Crossix team on the product and on the sales and marketing. And, I think some of our competitors also last year sort of maybe oversold what they could actually deliver. So we had a few, potentials where the customers last year went for some things because they were promised quite a few things. The actual delivery didn't match, and so they, in some cases, came back to Crossix. In some cases, they went, you know, went to Crossix for the first time. So really, just solid execution and some timing.

Stan Berenshteyn (Senior Equity Research Analyst)

Got it. And then maybe one for Brent. You know, services gross margin in the quarter, I think, was the highest in eight quarters or so. Is there anything to call out here besides hiring, and how should we think about the progression going forward? Thanks.

Brent Bowman (CFO)

Yeah, and from quarter to quarter, you're going to see vacillation in services margins. If you look forward in Q4, Q4 is a lower margin quarter because of holidays, and you have less days to be utilized. But, you know, we're always going to focus on, you know, having the right amount of capacity to address the service demand we have. And, you know, we did a nice job of executing to that in Q3, and you saw a little bit higher, you know, service margin in the quarter. You know, so, you know, the range of margins you've seen over the last 4-8 quarters, you know, that's probably a reasonable amount to think about. We're not looking to maximize it to 50% or anything like that.

Operator (participant)

Your next question comes from the line of David Windley from Jefferies. Please go ahead.

David Windley (Managing Director and Healthcare Equity Research)

Hi, good evening. Thanks for taking my question. Pharma companies, as backdrop, pharma companies have been trying to move commercial insights deeper into the clinical development stages of their R&D. Veeva is unique in its span of solutions across clinical and commercial. I'm wondering how much you think about the integration of those solutions across clinical and commercial to drive stickiness of Veeva's solutions. How important is the transition of Vault in that effort, and how important is data in that effort? Thank you.

Peter Gassner (Founder and CEO)

Peter, I'll take that one. I would say the most important thing that Veeva can deliver in that area is data, data on a common data platform. So enabling pharma companies to have a common data architecture across specifically commercial and clinical. So talk about product classes in the same way, disease areas, therapeutic areas in the same way, and so have a common vocabulary and common source of truth for the data on both sides. And to be able to interact with key opinion leaders, the same view of a commercial key opinion leader with a clinical key opinion leader. That's a key thing, the most important thing that Veeva can do, and I think we're really the only one setting out to do that.

The second one is enabling the process flow between commercial and clinical, so the connection between, for example, our CTMS system and our CRM system, that's useful. And then maybe potentially, the biggest barrier is process inside of pharmaceutical companies. Do they have processes? Do they have operating models? Do they have responsibility for enabling that flow? Our business consulting can really help there, especially as we're building up our business consulting in clinical. I think, we're going to be experts at helping companies with their business process, because you're right, I do feel, and I know most executives of large pharmaceutical companies feel that there's lost value because their integration, process integration between commercial and clinical is not where they'd like it to be.

David Windley (Managing Director and Healthcare Equity Research)

Thank you for that,

Peter Gassner (Founder and CEO)

If I-

David Windley (Managing Director and Healthcare Equity Research)

Sorry, go ahead.

Peter Gassner (Founder and CEO)

One more. I don't—I think you can't do that if you're not looking at a common view of the data. You won't be able to accomplish it. That's not sufficient to make that connection happen, but I don't... but I think it's necessary to make it happen.

David Windley (Managing Director and Healthcare Equity Research)

That's great. Thank you. As a follow-up and on a different topic, just in thinking about pipeline funnel discussions for your sales team, I think you've talked over multiple quarters, as have others in life sciences talked about slower decision-making, budget scrutiny, you mentioned in your prepared remarks, IRA. Could you shed, I mean, not that you haven't talked about it before, but give us the most updated view on how these kind of macroeconomic and IRA-related effects are affecting decision making, and do you feel like that is getting worse or getting better? Thank you.

Peter Gassner (Founder and CEO)

Yeah, in terms of interest rates, IRA, global conflicts, over the last 60 days, I don't view it as getting, you know, worse or better per se. It's kind of staying stable. It does result in, you know, questioning on decision-making, conservatism. It's kind of a damper on innovation for small biotechs who are, "Hey, maybe I'm going to start up a biotech company. I need to raise funding. Oh, maybe I can't get funding now, so I don't start that up. I don't create that research, so that's a little bit downer. One of the things that has been happening through COVID, and this downturn, is some deferral of things, right? Veeva is a lot of the things we do are core capabilities. You're trying to modernize your core capabilities.

During COVID, sometimes they had other priorities. When there's uncertainty, like conflict in interest rates, et cetera, interest rates, et cetera, okay, priorities shift a little bit. So I do feel there's more deferred maintenance building up, especially in the sort of top 100 life sciences companies. More deferred modernization of systems that, that's gonna have to be taken care of over the next, you know, 2, 3, 4 years. So I think there's some, some demand starting to get pent up.

David Windley (Managing Director and Healthcare Equity Research)

That's great. Thank you.

Operator (participant)

Your next question comes from the line of Tyler Radke. Please go ahead.

Tyler Radke (Managing Director and Co-Head of U.S. Software Equity Research)

Thanks for taking the question, and apologies if you covered this. I've been jumping around a few earnings calls tonight. But wanted to touch on the top 20 pharmas that you did migrate over to Vault CRM. I'm just curious, post that announcement, what's the interest and conversation's been with others? And then if you could just share any, you know, milestones or other, you know, goals that you have in terms of the number of pharmas that you hope to have, you know, call it over the next few quarters or years.

Paul Shawah (EVP and Commercial Strategy)

Yeah. Hey, Tyler, this is Paul. Yeah, so in terms of, you know, you mentioned migrations. These companies have announced their selection. The migration will follow. So they'll do a little bit of services work next year, but you can think of their migration starting in 2025. That's when we'll have early customers next year. You can think about that as a milestone. We'll have some early customers go through the migration process with us, treat it like an early adopter program like we do with any other product. So that's what we'll use next year for, and then 2025, we'll be ready to scale. So that's what's next for these companies. They've announced their selection. They want to be able to communicate that internally and align their organization on what their go-forward strategy is.

That's really important for them to get organized and focused and aligned. So they're—they've shifted from decision mode to execution mode. Now, in terms of other companies, we're ready when they are, right? I think this has created some additional urgency. Our expanded, our new Commercial Cloud has created some additional excitement and energy that moving to the Vault platform unlocked a lot of that innovation. But there's no timeline. We're not forcing our customers to go on any particular timeline. I do expect most will go, you know, starting in 2025, but, you know, 2026, 2027, that's when you'll start to see the majority of customers moving.

Peter Gassner (Founder and CEO)

Yeah, I would if I just chime in there, you also have a question about momentum. Our customer summit in Europe, Paul, is over 1,000 people there, right? And Bayer were there, and GSK were there, and they speak both in a large session and in smaller executive sessions. So it's certainly a momentum builder, right? Not only that they're going to Veeva Vault CRM, but why, and what was their thought process? Because these companies are kind of leading the charge. So great reference selling there. Also, things like we demoed we did a concept demo of Service Center for the first time live to the customers there, and I think that was very well received. So the vision starts to get clear, and it's building the momentum.

Tyler Radke (Managing Director and Co-Head of U.S. Software Equity Research)

Got it. Yeah, sorry, I didn't mean migrations. That would have been impressive if you migrated those customers in weeks. I meant more the signing. So good to hear the excitement from other customers. Just as a follow-up, Brent, I know your favorite topic here on billings, but I guess two quick clarifications. Number one is we think about the updated normalized billings guide for this year, you know, and you walked through some of the puts and takes that's driving it down. I guess the changes to billings terms and invoicing duration, wouldn't that be normalized, if you will, in the normalized billings, or is the normalization just for TFC?

And then I know you're not guiding the billings for FY 2025, but just as we think about the historical relationship between revenue and billings and what does seem to be maybe some modest duration headwinds, anything to keep in mind there? Thank you.

Brent Bowman (CFO)

Sure. On your first part of your question, so what we normalize is we normalize this for changes in our renewal base. So if you have an existing customer renewal base, they change frequency or they change duration, we normalize that out, so we take the noise out. What we do for new business is we do our best effort to model what we expect the profile of that new business to come in. And so what you're hearing me say is, the expectation we had for new business, there was the actual fact pattern was a bit different. So we had more quarterly billers in that new business than we anticipated. We thought we'd have a bit more annual. So it's new business, not normalized. It's the renewal portion that we do normalize.

And then your second question is, you know, we've contemplated in the billings, you know, that we are exiting fiscal year 2024 in our reiterated fiscal year 2025 total revenue number. So $2.75 billion, and we feel good about our ability to execute against that.

Operator (participant)

... Your next question comes from the line of Gabriela Borges from Goldman Sachs. Please go ahead.

Carolyn Valenti (Equity Research Associate)

Hi, this is Carolyn Valenti for Gabriela. Just one from me, and gonna be again on the billings dynamic. But just related to the deals that you talked about being pushed from the back half of this year into early next year, there's clearly a change versus your initial expectations, and I know you said there's nothing incremental in the past 90 days on macro, but can you help us reconcile those two comments a little bit?

Brent Bowman (CFO)

Yeah. I mean, you're gonna have—It's gonna be customer by customer, right? There is no exact pattern that you can say across the larger cohorts. And in the first half of the year, I don't know if you recall, we had favorable linearity. So from period to period, it's gonna ebb and flow depending on the specific customer, you know, situation, what approvals they require, the size and scale, and the complexity of the deal. So, you know, it's a continuation of what we've seen. Sometimes it's in your favor, sometimes it's not, and that's what we saw.

Carolyn Valenti (Equity Research Associate)

Thank you.

Brent Bowman (CFO)

Yeah, thank you.

Operator (participant)

Your next question comes from the line of Kirk Materne from Evercore ISI. Please go ahead.

Kirk Materne (Senior Managing Director)

Yeah, thanks very much. Paul, just, you know, there's gonna be a lot of discussion about migrations over the next couple of years, and how should we think about sort of the services work around all this? Meaning you're gonna have a lot of customers, obviously, going through the migration process. How do you make sure that there's not sort of a bottleneck from a services perspective so that, and maybe there's just not enough work, so it's not that big of a deal, but I was just kind of curious, how do you make sure that you have the right customers, especially your big ones, are aligned with either your own services capabilities or your GSI partners? You know, can you just talk about that a little bit? Thanks.

Paul Shawah (EVP and Commercial Strategy)

Yeah, sure. And one of the things we're laser focused on right now is making the migration as repeatable as possible, and that's going to include some product work that we're doing to automate some of the migration. But it also includes scaling out the Vault CRM services team, and we have people now dedicated and focused to that. Part of this is focus pays off, and this is the kind of thing that we think about when we think about executing really well. Part of our strategy is to execute really well in this area, and we're putting dedicated people on it. And that's going to help us create the focus, but also the team to expand and scale and support customers as they...

We know roughly what that timeline looks like, so we'll be ready to support it. And I would say the third part of it is enabling our partner ecosystem. So we are working closely to make sure that they know what our role is, and they know what their role is, and how they can help us, and how we can help scale, support customers really across the globe. Remember, this is the U.S., it's Europe, it's Asia, it's LATAM. So we have a lot of customers, and we're going to, we're making sure that we're ready with our own tooling, our services, and our partners.

Kirk Materne (Senior Managing Director)

Yeah, and you mentioned that, you know. Oh, go ahead, please.

Peter Gassner (Founder and CEO)

I'll just chime in there a little bit. You know, one way to think about it is, we had a big, big bolus of work around Veeva CRM between 2012 and 2017. You know, roughly speaking, maybe we, we moved, you know, somewhere around half the market, a bit less than that, from Siebel or Cegedim or some other things to, to Veeva CRM. That was a big bolus of work that was done by Veeva Services and our partners, like Accenture and regional partners, over a 5-year period. Now, we have this 5-year period from 2025 to 2030. We probably have about as much work to do.

Now, we have more movement to do because we have to move, you know, 90% of the industry over, but the effort is less, less than, you know, significantly less than half of the, of the effort, and certainly in the migration, it's less than half. So we have to mobilize our own services and the partners to do that, but it's these are things that we know how to do.

Kirk Materne (Senior Managing Director)

That, that's helpful, Peter. Thanks for dimensionalizing that. And then, Brent, one more just on, on billings. You know, in terms of the duration changes that you're seeing, are these bigger customers that just want to break it up into, you know, bite-sized pieces from a payments perspective, smaller customers just trying to save cash? I was just wondering if there's any commonality that you're seeing that's sort of hitting duration right now. I realize it fluctuates, but has anything changed, I guess, on that front? Thanks.

Brent Bowman (CFO)

Yeah, yeah, nothing fundamentally changed. I mean, specifically, a couple of the large items were simple co-terms. So you have, you know, they're just co-terming to the number of deals they have onto a common date. So it's nothing more fundamental than that.

Kirk Materne (Senior Managing Director)

Great. Thank you all.

Brent Bowman (CFO)

Sure.

Operator (participant)

Your next question comes from the line of Jailendra Singh from Truist Securities. Please go ahead.

Jailendra Singh (Managing Director)

Thank you, and thanks for taking my questions. Given some of the macro issues you guys have talked about, I was just curious, how are price increase conversations trending so far, especially in an environment when macro has got a little challenging? Just making sure, you guys still feel good about your 4% price increase expectations for next year.

Peter Gassner (Founder and CEO)

I can take that one. Overall, yeah, we're not doing price increases. We are doing, we keep up with the CPI, and we're doing it in a very customer-friendly way. So we're capping that by 4%, and we're doing that in arrears by giving the customers at least eight months notice, depending on when their order forms is. So no, you know, it's going well, and I definitely don't view it as a price increase. It's very predictable from Veeva, so the macro is not really affecting that.

Jailendra Singh (Managing Director)

Okay. Then my follow-up is around the, you know, the comment you had in your prepared remarks about data market and life science moving somewhat slower than the software market, and you called out anti-competitive behavior from one of your peers.

... Can you elaborate more on that? Is that something you have observed more recently after you push in this market? And how does those market dynamics impact your approach and, generally just, push in this market?

Peter Gassner (Founder and CEO)

Yeah, I've called out the behavior of our competitor, IQVIA. No, that's not a dynamic, recent dynamic. I've been aware of that for more than 10 years, and of course, IQVIA has been in court multiple times for this. So it's not a... It's just not a new dynamic. I just felt in the prepared remarks to call it out, that in data, it can be a bit slower moving because of the conservatism in that area. Conservatism in that area, that's understandable. And then the anti-competitive behavior of IQVIA also creates significant barriers there.

Because let's say the customer is using IQVIA data for one data product, and we're selling one data product, and our services are necessary to mix those two data products together to provide a solution for the customer as well, IQVIA is not going to allow us to do that. They're not going to grant what's called a third-party agreement. So that's what slows things down. But, you know, we're making great progress, and it's easier for a small company when they start up. So I think next year you'll see some smaller companies commercializing for the first time that just decide, "Look, I'm going to be IQVIA free for my whole life, and I'm going to start out that way. I don't need to deal with that old stuff anymore." I think that's going to happen, but, you know, it's...

That's a long way from, hey, most of the top 20 using Veeva for most of their data products, for most of their brands. That's a, you know, that's a 15-year journey.

Jailendra Singh (Managing Director)

Great. Thanks a lot.

Peter Gassner (Founder and CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Craig Hettenbach from Morgan Stanley. Please go ahead.

Craig Hettenbach (Executive Director and Senior Equity Analyst)

Thank you. Just following up on the Bayer and GSK commentary. Is there anything in particular about those customer relationships that made it logical for them to be early adopters on both CRM? How are you thinking about the cadence for additional customers from an announcement perspective, like next year?

Paul Shawah (EVP and Commercial Strategy)

Yeah, Craig, good question. Yeah, every customer is unique. They're all in their own different stages, whether that's things related to their business or their pipeline or when they may have product launches. GSK and Bayer, we've had good, long-standing partnerships with both companies for a very long time. And, you know, their thinking, they both had this idea of leading thinking. We want to put the decision-making process behind us, and we want to start focus on executing. They were confident. They did their due diligence. They very quickly became very confident in their answer and their approach, so they wanted to put a clear stake in the ground and make that decision and communicate it and now shift into execution mode. So I would say, you know, just strong partnership.

We've delivered very well and consistently for them for a very long, very long time. They trust Veeva, so they're ready to move forward. In terms of other customers and the rest of the market, we're certainly in conversations with the rest of top 20. All of the large enterprise companies, of course, are small and medium-sized customers. Many of those conversations have started. It's not a mathematical thing. You won't see... We know we have the next roughly 5 or 6 years, but it's not mathematical. It's dependent upon many different factors and variables. So I would think of it as we're in that early customer stage right now, and then over time, you'll start to see it ramp up. And, you know, some of these, you may not see announcements.

I think the way to think about it is we'll provide updates when there's kind of a material update to give. You may not see an announcement for every customer, but we'll, when there's something material, we'll kind of let the street know.

Craig Hettenbach (Executive Director and Senior Equity Analyst)

That's helpful. Thanks, Paul. And then, Peter, you made a comment regarding the IRA in terms of smaller biotech innovation. That's certainly in focus here. I'm curious, just your larger pharma companies, any feedback you're hearing from them, whether it's maybe trade-offs they're making as they kind of manage around this, any feedback there?

Peter Gassner (Founder and CEO)

Yeah, they're looking at that in terms of their product planning. Where will they invest? Hey, should they invest in that molecule? Should they delay running a trial or accelerate running a trial? So certainly, it affects their planning. But, you know, pharma is good at that. They have to adjust to these factors, these government factors around the globe, and so I think they're adjusting, and it may become the new normal in a, you know, in a year or two. So no dramatic change, but it's just causing some adjustments.

Craig Hettenbach (Executive Director and Senior Equity Analyst)

Thank you.

Operator (participant)

Your next question comes from the line of Charles Rhyee from TD Cowen. Please go ahead.

Lucas Romanski (VP)

Hi, this is Lucas on for Charles. I want to ask about the Development Cloud and the subscription growth framework you guys have going forward. If I look back at the Investor Day slides, where you guys break out customers and products per customer, it shows that you guys are seeing fewer total products sold in the Development Cloud through fiscal first half.

At the same time, you're guiding to 22%-23% growth in 4Q, after accounting for the impact of TFC, which is a step down from, you know, 3Q and 2Q. You guys have noted that you're not seeing any impact from macro on subs quite yet, but this is, you know, a notable step down in growth. Is this an indication that the segment is starting to mature a bit, and that we should think about this category growing at a more mature rate going forward? And then, understand that we'll get guidance at the next print, but is this 22% growth rate ex TFC, a good jumping off point for R&D subs growth, in fiscal 2025?

Brent Bowman (CFO)

Yeah. So, you know, to your point, we reiterated the fiscal year 2025 guide at $2.75 billion. So clearly, that factors in subscription and services and the mix underneath that. You know, what we did see was timing. You know, when you talk about in the year, so there's some timing that impacted fiscal year 2024, that will have a less of an impact on fiscal year 2025. But importantly, we have a long runway for growth in front of us. You know, we're very early days, and across the portfolio, specifically in R&D. And to your point, we'll get into the details in about 90 days.

Lucas Romanski (VP)

Okay, thanks.

Brent Bowman (CFO)

Thank you.

Operator (participant)

Your next question comes from the line of Brent Bracelin from Piper Sandler. Please go ahead.

Hannah Rudoff (VP and Equity Research Analyst)

Hi, guys. This is Hannah Rudoff on for Brent. Thanks for taking my questions. Encouraged to hear about your early traction with Vault CRM. For those 6 non-Vault Veeva CRM customers you landed in the quarter, do most of them plan to migrate to Vault CRM before that 2030 deadline, or is that even part of the discussion when you're signing with them?

Paul Shawah (EVP and Commercial Strategy)

Yeah, so we had a good strong quarter with CRM overall, so we had nine wins. And you're right, some of them are on Veeva CRM. And, you know, each of those is a discussion with the customer, what's right for them and based on their timing. And yes, of course, that's the strategy, is to they'll start on Veeva CRM, and then at some point, before 2030, they'll move over to Vault CRM. Certainly for some of these customers that are now doing Veeva CRM, you know, that transition path becomes pretty clear and very clean. So they have full awareness and knowledge, and that's part of the strategy.

Hannah Rudoff (VP and Equity Research Analyst)

Great, super helpful. Then, at your European Commercial Summit, other than Vault CRM, what commercial developments were customers most excited to hear about?

Paul Shawah (EVP and Commercial Strategy)

Yeah. Gosh, you're asking me to pick one. We had a very lively Europe Summit. So and part of that is related to, you know, we now have our commercial products, our software products that are moving and all part of the Vault platform. So that unlocks a lot of potential for us. So we were able to announce quite a bit. One is that Peter alluded to the Service Center demo. Remember, we announced that five or six months ago at our U.S. Summit, and now we demoed it live. So really strong execution. That resonated really well. The announcements around marketing and patients, patient CRM, were certainly appreciated.

And then, in the data space, we had a new data announcement around Pulse data, and Peter talked a lot about that during our investor day. But more broadly, what we're doing in data, the innovation we're bringing—we're bringing in data by creating this common data architecture. So you asked for one thing, I gave you four or five, but it was really a... It's kind of an action-packed summit with lots of announcements, and we created a lot of momentum in multiple different areas.

Brent Bowman (CFO)

I think-

Hannah Rudoff (VP and Equity Research Analyst)

Great. Glad to hear about-

Brent Bowman (CFO)

There was a lot of Paul, there was a lot of excitement around modular content in the commercial content areas as well, right? That, that track was very lively because we've done things over the last year in modular product content, and now it's getting adopted in the field. So there's great excitement over that one too.

Paul Shawah (EVP and Commercial Strategy)

For sure-

Hannah Rudoff (VP and Equity Research Analyst)

Thank you.

Paul Shawah (EVP and Commercial Strategy)

And that's just to you know go into that a little bit deeper, we're executing really well on the commercial content side and modular content. But as we think about you know what Vault allows us to do, it's bringing that content closer to the engagement channel. It's a platform that uniquely supports both of those contents and the engagement whether it's the sales channel or field medical or even marketing in the future. So it's highly unique, and we're in a unique position to be able to solve that content distribution from the time you create it in a very modular, efficient way, all the way to the time it gets out to the end customer, whether it's a marketing channel or a sales channel.

Yeah, that was also another exciting announcement.

Hannah Rudoff (VP and Equity Research Analyst)

Super helpful commentary. Thank you.

Operator (participant)

Your next question comes from the line of Brad Sills from Bank of America. Please go ahead.

Brad Sills (Managing Director and Senior Equity Research Analyst)

Oh, great. Thank you so much. I wanted to ask about the comments on, you know, some of the deals slipping that affected the quarterly billings into next year. Any more color there? I mean, we typically hear about deals slipping, and then they close in the subsequent quarter. So, you know, what are the puts and takes that are impacting that, and what gives you that confidence that these will close next year? Thank you.

Brent Bowman (CFO)

I'll take that one then. You know, each deal is different, but I would say by and large, just timing that gets pushed out by, you know, some random bounces of the ball and some conservatism and extra scrutiny. So, that's what it is.

Peter Gassner (Founder and CEO)

... What gives us confidence is the competitive environment is stronger than ever, right? So that's what gives us real confidence, both in each of our product areas and then customers seeing that, wow, we can bring complete solutions across R&D and commercial software and data. Also, the customers being slightly a bit more conservative, they're not, customers are spending less on speculative projects, so they tend to go more towards Veeva and core capabilities. So that's what gives me even more confidence about our strong market position. And then, since our products aren't optional, over time, I have a lot of, I have a lot of confidence that our, our market share, we're in a better market position than we were 12 months ago.

Brad Sills (Managing Director and Senior Equity Research Analyst)

Wonderful. Thank you. And then if you could comment, please, Peter, on just the clinical deal pipeline and how that's been impacted. You know, it would seem less impacted by the macro because it's trial-related, but these are also big transformational projects, if it's a new customer, for example. So any commentary or observations on how the macro has impacted that clinical business, which is such a critical growth driver? Thank you.

Peter Gassner (Founder and CEO)

Yeah, we have a small amount of our businesses in the clinical and the very small customers, you know, maybe that have under 500 employees, under 300 employees. So that's certainly impacted because sometimes people can't get the funding to do the trial or, you know, they may go out of business. So, that's impacted specifically. Other than that, the general conservatism doesn't impact clinical any more than it would be regulatory, or safety, or quality. These are large infrastructure projects, you know, and they're just having a bit more scrutiny than they used to.

Brad Sills (Managing Director and Senior Equity Research Analyst)

Understood. Thank you, Peter.

Peter Gassner (Founder and CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Richard Poland from RBC Capital Markets. Please go ahead.

Rishi Jaluria (Managing Director and Senior Equity Research Analyst)

Yeah, hey, this is actually Rishi Jaluria from RBC. Not sure why it put my colleague's name, but thanks so much for taking my question. I actually wanted to ask two questions around generative AI. First, I would love to maybe drill a little bit into kind of a theme that we've been hearing more as we've been doing our conversations with partners and industry, which is that as generative AI is working behind clinical trials, it is leading to maybe more of a tailwind towards personalized and precision medicine. Which feels like not only should that benefit your CDMS platform, but even on the data side, what you have with Compass, correct me if I'm wrong, seems like it's maybe a little bit more tailored to that.

So maybe if you could help us understand, you know, some of the trends that you're seeing out there and how that can play out, and then I've got a quick follow-up.

Peter Gassner (Founder and CEO)

Yeah. In terms of the generative AI, you know, honestly, I haven't seen a big impact in clinical. There's good experimentation and projects around helping to write or evaluate protocols, for example, but not, you know, using things like generative AI to do statistical analysis or predict where the patients are. I think there the more appropriate tool which people are using and continue to use more and more of is data science. Really having the right data, running the right algorithms, being systematic about it. So, yeah, I just haven't seen that impact of generative AI. You see it more in other areas that relate to content creation and asking of questions, writing safety narratives, things like that.

Rishi Jaluria (Managing Director and Senior Equity Research Analyst)

Got it. No, that's, that's really helpful. And then maybe just sticking on the theme of clinical and gen AI. Look, coming off the EU Commercial Summit, I'm sure you heard, you know, a lot of use cases from customers that they want to explore around gen AI on the clinical side. I think a lot of those very straightforward. Maybe on the clinical side, right, I mean, we talked a little bit about CDMS, but I imagine there's a lot of data you have, Peter, as you point to your point around content, including regulatory submissions to the FDA. You know, I imagine there's probably use cases around the type of language that people can use to expedite their approvals and so on and so forth.

Maybe you could talk a little bit about what sort of use cases you're hearing from customers that they want you to be part of, when it comes to the clinical side of the equation. That'd be really helpful. Thank you.

Peter Gassner (Founder and CEO)

Yeah. So some are just very straightforward, what's called clinical master data. Who are the investigators? Who are in the sites around the world, and what is their patient characteristics like? That's hugely important for site selection, but also for recording your internal operations, how efficient are you? Then, so that's what we call OpenData Clinical. SiteBase is the deep profiles around all the sites and investigators, all their specialties, all their activity. So that's again for more detailed site selection. Then Clinical Pulse, that's something we've announced, which we'll be producing next year. And that's things like, okay, I'm a pharmaceutical company, and I've picked these two milestones to measure, what's the time between my last patient visit and my lock of my clinical database?

I'm a pharmaceutical company, what's my time there? Okay, now, what's the industry's average time there? So that I can start to see, am I ahead, behind there? What's my opportunity for improvement or not? And that's just one measurement. So I think it's those three areas that customers are excited about from Veeva. The clinical master data, the deep data, specifically around site selection, critically important, and then the Clinical Pulse to optimize their internal business processes and benchmark against the industry.

Rishi Jaluria (Managing Director and Senior Equity Research Analyst)

Wonderful. Thank you so much.

Peter Gassner (Founder and CEO)

Thank you.

Operator (participant)

We have no further questions in our queue at this time. I will now turn the call over to Peter Gassner, Chief Executive Officer, for closing remarks.

Peter Gassner (Founder and CEO)

I'd like to close by thanking our customers for their trust and partnership, and our employees for their continued commitment to our values of do the right thing, customer success, employee success, and speed. Thank you.

Operator (participant)

This concludes today's conference call. Thank you for your participation, and you may now disconnect.