Ladies and gentlemen, thank you for standing by, and Welcome to the Veeva Systems Fiscal 2023 first 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 this time, please 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. Ato Garrett, Senior Director of Investor Relations, you may begin your conference.
Good afternoon, and welcome to Veeva's Fiscal 2023 First Quarter Earnings conference call for the quarter ended April 30th, 2022. As a reminder, we posted prepared remarks on Veeva's investor relations website just after 1 P.M. Pacific today. We hope you've had a chance to read them before the call. Today's call 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-K. Forward-looking statements made during this call are being made as of today, June 1st, 2022, based on the facts available to us today. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Veeva disclaims any obligation to update or revise any forward-looking statements. We may discuss our guidance on today's call, but we will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. On the call, we may also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results.
Our reconciliation to comparable GAAP metrics can be found in today's earnings release and in the supplemental investor presentation, both of which are available on our website. With that, thank you for joining us, and I will turn the call over to Peter.
Thank you, Ato, and welcome to everyone on the call. It was a great start to the year for Veeva, with strong first quarter results above our guidance. We also crossed the $2 billion revenue run rate mark for the first time. Total revenue was up 16% to $505 million, and subscription revenue was up 18% to $403 million. Non-GAAP operating income was $200 million or 40% of total revenue. Things are going well. Demand is strong as customers look to establish the right digital foundations for the future, and our industry partnerships continue to get more strategic. We're executing well against our long-term plans, and our innovation engine is really firing on all cylinders. We're building a very durable business with a long runway of growth ahead. At this point, we'll open up the call to your questions.
Ladies and gentlemen, if you would like to ask a question at this time, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Brent Bracelin with Piper Sandler. Your line is open.
Good afternoon. I guess, Peter, Veeva closed one of the largest deals in the history of the company here, arguably in a macro environment where there's clear challenges. Could you just drill down into kind of the decision for that customer to kind of go all in on Veeva on the clinical side? It looks like a very large comprehensive deal. Just trying to better understand why a top 20 pharma would make this move in an environment where there's still some you know, pretty significant challenges out there. Thanks.
Yeah, great question. This is really a long-term thinking move by the customer. They're thinking of this in 10 and 20-year horizons, so they wouldn't be really fazed by specifics of the macro environment. This is about, yes, applications in the clinical area, but also in the quality and the regulatory area. Not all of our Development Cloud, but a big portion of it. When they're doing that, it's a very top-down decision. It's like building a huge factory. That's why it's not affected by the macro environment. Then if you get it, what they're trying to do is laying the foundation for efficiency, digital efficiency, getting drugs to market faster to help patients. It's a long-term play by the customer and sort of a executive level decision.
Helpful. Just a quick follow-up for Brent here. As you think about capital allocation, the company's generating a significant amount of free cash flow here, a strong balance sheet. How are you thinking about, you know, shareholder allocation, capital allocation, just given the very strong cash assets you have and strong free cash flow? Thanks.
Yeah. Thanks for the question, Brent. Yeah. So we do have $2.8 billion in cash, and, you know, our business model has consistently been able to generate cash. We're very pleased with that. Our focus is, you know, primarily to invest for growth. Specifically, you know, we're gonna be looking at ways like M&A for use of our cash. You know, we're gonna take a disciplined approach as we look at M&A. We have had some very good successes like Crossix and Zinc, where, you know, we have good synergistic connection with them from a technology but also from a people perspective. M&A is an area that, you know, we're looking at for use of cash, but we'll take a disciplined approach about that.
That's all I had. Thank you.
Your next question comes from the line of Joe Vruwink with Baird. Your line is open.
Great. Hi, everyone. I was maybe just hoping to start by walking through some of the moving pieces, the forecast for the year now versus what was presented a quarter ago and maybe split out, you know, organically what's changed versus, certainly FXs in there, and then anything else you would call out, particularly as it relates to your hiring plans and how that is influencing the view into the second half of the year.
Yeah. Thanks, Joe. It's Brent. Yeah. First off, you know, we're pleased with our execution in Q1. We executed extremely well across all of our metrics. If you look out at the full year, we did increase our total revenue guide by about $5 million, that was specifically to services. We did call out FX exposure. You know, traditionally, FX is not material to Veeva, but with the strengthening of the dollar, the USD relative specifically, and most importantly to euro as well as the yen, it has had an impact. It's about a $20 million impact. More than half of that on the revenue line was created in the last 90 days. That's a new piece of information, and that was $30 million on the billings line.
Absent that FX impact, we would have increased our subscription revenue line for the full year and our total billings for the full year. That's going to give you some context on the top line. Regarding hiring, we had an outstanding hiring quarter. We hired 203 net employees. That's another quarter of +20% growth. In doing that, we were able to still increase our operating income guide for the full year by $10 million. You can see the operational efficiency we're seeing in our fundamental model and how that flows through to op income. Demand overall is strong. We're excited about the demand profile we're seeing, and that kind of informs you a bit on our full year view.
Okay. Thanks, Brent. That's helpful. More on product traction. I wanted to focus on eTMF because it looks like it actually picked up momentum sequentially just based on the new customer adds. I seem to recall that CTMS was already setting up for a big year. I kind of think about eTMF as maybe a feeder for broader clinical engagement ultimately. I guess if both ends of the spectrum are doing well, maybe where, you know, what inning, to use an analogy, might we be in terms of penetration of the clinical opportunity and just how impactful that could be for R&D this year?
Yeah. Clinical is certainly a long runway. It's a very big area of life sciences. eTMF, I think we sold our first customer roughly in 2012, and it takes a while to become the dominant player. We're there now with eTMF, and there's a network effect. eTMF is just the thing you do in clinical. Probably the next farthest along is our CTMS and study startup products. They're getting to be, you know, pretty dominant products. Then the clinical data management is yet to come. That's very early in its life cycle, CDMS, the clinical data management. Beyond that, you have the digital trials, the MyVeeva for Patients, things right out to the patient. Really long runway of growth in clinical.
It's a big critical area at macro level, we're just getting started there. You're right, eTMF is a very strong base because that's the foundational system of record of documentation for a clinical trial that every pharmaceutical company is required to have.
Great. Thank you very much.
Your next question comes from the line of Brian Peterson with Raymond James. Your line is open.
Hi, gentlemen. Thanks for taking the question. I just want to follow up on Brent's line of questioning. You know, in terms of these large wins with multiple products, you know, I'm curious, as we think about the later stage pipeline, you know, how many potential products are they looking at? Is it suite adoption across the board? Or, you know, how do we think about attach rates and deal sizes for what's in the later stage pipeline?
Well, it'll vary by customer. Now, there's very few of the large pharma that are going to take that very broad suite approach simply because of the fact that many of the large pharma are started in one area or another with Veeva. I think the most common in large pharma would be looking at a suite of things and then starting in an area of that suite and then graduating from there. In the smaller pharma or the emerging biotech, it's more common to look at the whole Development Cloud all at once and sort of know that that's the direction you're going, but you'll consume products as you need them. For example, the earliest thing you need in a small biotech is probably our quality products because you need that even before you run a clinical trial.
Great. Maybe just a follow-up on hiring. You know, it sounds like you're continuing to add to the team. We've heard from some other software companies that maybe they're scaling back those efforts a little bit. You know, as you think about the investments that you're making and the growth opportunities, you know, how are you thinking about hiring in that posture going forward?
Yeah, hiring, you know, we always want to attract the top talent that has a great, what we call a why Veeva, an authentic reason to be at Veeva, and that's always going to be tough. Right now, the hiring environment is tough, but not as tough as it was before because there's a bit of downturn in the tech market, especially in the early phase of the tech market, the sort of speculative startups. People feel that, and so there's a flight to quality, so hiring has been a bit easier for us. In summary, I'd say it's a good hiring environment, and we certainly don't have any hiring freeze. Thanks, Peter.
Your next question comes from the line of Dylan Becker with William Blair. Your line is open.
Yeah. Hey, guys. Thanks for taking the questions. Maybe Peter, one for you. As we talk about that large-scale deal, historically, maybe there were different purchasing decisions between the sales and marketing and R&D teams, but can you walk through maybe how the broader standardization converges these swim lanes to that executive level that you just kind of touched on, and the confidence that you have given that you served as that industry strategic partner, for potentially more of these deals to kind of work themselves through the pipeline in incoming quarters and years?
Yeah. We have a broader product portfolio that allows us to be closer to the customer, have more strategic discussions, have more account partner coverage because we have a broader product portfolio. It does tend to force the discussion up a level. Now, rarely do we see the discussion combine across the commercial side of the business and the R&D side of the business because those are viewed quite differently. More so what we see is across the different areas of R&D, clinical quality, regulatory. We see that crossing and across the different areas in the commercial area, sales, medical marketing. That's where we see the crossing happening. I would say another significant area where we see crossing, just early signs of crossing is our business started out from the software side. It's really growing now.
It's starting to grow into the data side and in the consulting side. That crossing is happening. Looking at our software or also looking at our data. "Hey, heard something about the data. Maybe it's time to evaluate that software. Hey, maybe we need some help with the business processes." That's where early view, that's where the crossing, I think, is going to happen in the future.
Yeah, that's super helpful. Thanks for the color there. Maybe that kind of leads into the second one for Paul. We talked, I think, about maybe the broader rollout of a prescriber and sales data for Data Cloud this quarter and next, now culminating that with Link and OpenData to form this Data Cloud offering. It's early, right? How do you think about each of these incremental layers adding to that broader network dynamic, driving maybe even like a gravitational pull around adoption as you add more sources, more touch points to that core data asset, that can refine itself and deliver greater value over time as well? Thanks, guys.
Yeah. It's a good question, and, you know, we are expanding our data portfolio, as you've seen over the last several years. You know, starting with OpenData and then, Link. We've had a lot of momentum. We announced Compass. It was called Data Cloud initially, and now the branding is Compass, which is our patient and prescriber and sales data. You know, these data sets are for different purposes and different reasons, but there is a network effect. There is value when you can connect all of these data sets together. We talk about building our data sets on a common data architecture, and what that means is they're fundamentally connected at a lower level, at a more foundational level.
What that means for our customers is they're able to get more value when they start pulling all of the pieces together. You know, it's on us to sell the value of each of those products individually, but our customers get more value over the long term when they combine our data, each individual data products with other data products, but also with our software. We design them to be, you know, interoperable and work together and create more value. There is, in a sense, a network effect, this idea that, you know, more products is more valuable than the sum of each of the individual pieces.
Great. Thanks, guys. Appreciate the time.
Your next question comes from the line of Rishi Jaluria with RBC Capital Markets. Your line is open.
Oh, wonderful. Hey, guys. Thanks so much for taking my questions. First, I wanted to maybe drill a little bit more into the macro side of things. You know, it looks like things are pretty resilient on your front, which is great to see, but also I think expected just given the end market you're dealing with. Can you talk a little bit about maybe are there any areas that you are seeing softness at all? I mean, we have heard about biotech funding slowing down. Some CROs are slowing down their hiring that they've talked about publicly. Then maybe on the med tech side of the business, any kind of macro things there. Maybe help us understand those pieces, then I have a follow-up.
Hi, Rishi. This is Peter. Yeah, really, we're not seeing the macro effects in any particular segment. CRO, life sciences industry overall is pretty robust, right? It's not a cyclical industry, and the science is propelling it forward. Precision medicine, renewed focus on vaccine, RNA platforms. Science is propelling it forward. As far as med tech also, science is moving things forward in med tech as well. In addition, regulatory environment in med tech is becoming, you know, more stringent. There's more regulatory requirements, especially in the clinical area. That's driving adoption. Not seeing any softness.
All right, wonderful. Peter, in your prepared remarks, you talked about some of the success that you're seeing from, you know, having the in-person conferences again and arguably how it's maybe more important than before with everyone working remotely. Can you talk to us a little bit about what has just been the general customer feedback of your first in-person conference in I guess more than two years? And more importantly, you know, as these conferences come back and you start to extend those two-day conferences, what sort of impact do you expect? Is that something that, you know, more customers will start to think strategically about going all in on Veeva? Is it, you know, just from a networking perspective, what sort of kind of benefits do you expect to see now that we're back to in-person conferences, for you guys from a business perspective? Thanks.
Yeah. Just the overall speed of business in the long term. Connectivity, relationship building, knowledge sharing, the position that Veeva has as the place where you get together in person. Yeah, to learn about Veeva, that's one thing. Also to oftentimes we have customers meeting their far-flung teams together in person at the first time at a Veeva summit. They may extend a day and do their own planning meetings, and that's something we facilitate and participate in. That's really what it means. You know, it moves business forward. Summits have always been a key part of our industry cloud, always been a key part. In person, it's hard to replicate on the phone. One of the things we've done is we are optimizing the format going forward so that it's more free time for connections, actually.
You know, we'll record some of the sessions, so you can see them before or after. At the summits, yes, we'll have sessions, but more free time for connections cause that's what customers are craving. I think that's going to help the industry move forward.
All right. Wonderful. Thank you so much.
Thanks.
Your next question comes from the line of Saket Kalia with Barclays. Your line is open.
Okay, great. Hey, guys. Thanks for taking my questions here. Peter, maybe for you, a lot of talk about Data Cloud in the prepared comments. Can you just talk a little bit about early reception to Data Cloud? Maybe more specifically, how much appetite is there out there for alternative product in or alternative data, I should say, in spaces like prescription, for example?
Yeah. Great question. It's definitely early adopter for Data Cloud, and specifically in the area of Compass, the Compass part of Data Cloud, because there's been a vendor there, a company there that sort of set the standard, and it's just the way you do it, and that's for literally more than 20 years. People have just become accustomed to that. It'll take a while before the first customers really have success, before we refine our products, and before people see that, wow, there's a fundamentally different way to do this. Instead of selling data by the record and delivering it in a file, you'll sell it by the use case, unlimited data by the use case, and deliver it through software.
That's different, and that's the definition of an early adopter who's gonna understand that, lean into that change, and it'll be a small part of the market that wants to go that early adopter. It's when the value proposition is proved out, then you can start moving into the mainstream. It's actually happening just like we thought it would happen.
That's great. Good to hear. Paul, maybe for you, maybe just digging into the commercial side a little bit more, particularly the CRM side, how has churn looked there? What are you hearing from commercial customers on how they're thinking about their sales forces long term? Does that make sense?
It does, yes. On the churn and attrition side, you know, first, we had a really strong quarter in CRM. We added 12 customers. We increased our share again in the quarter. So another really strong quarter. You know, there was some churn and some attrition, which is what we expected. It was in line with what we had anticipated and planned for, and was offset. You know, from a user perspective, a seat perspective, it was more than offset by the expansions that we had. You probably heard Peter talk about the wins in the domestic Japanese market, largely offset any churn and any attrition. I think the second part of your question is, how are companies thinking about their sales forces long term?
You know, again, it's one of the most effective, if not the most effective channel to the market, and the sales teams, sales forces work. You know, so the most companies are thinking, you know, on the margins, how do they tweak, how do they gain a little additional productivity and efficiency? How do they become more digital? What's that optimal mix look like? But fundamentally, the sales force is a really critical channel, particularly as many of our customers are more focused on highly specialized medicines. You just need that human being and that human relationship to educate and bring those medicines to market effectively. A really strategic and important channel, and you know, I think we'll see over the you know through the rest of this year some tweaking on the margins, but it's certainly a strong and important channel for the industry.
Very helpful. Thanks, guys.
Your next question comes from the line of Stephanie Davis with SVB Securities. Your line is open.
Hey guys, thank you for taking my question. Congrats on a solid quarter. Could you give us an update on some of your hiring processes? Because you did say in your prepared remarks that another strong hiring quarter. If so, has it had any impact to sales like you mentioned last quarter? Is there any way to tease out the impact of billings timing or rev rec as a result?
On your question, Stephanie, hey, it's Brent. You know, our plans were hiring at the pace we are. We had, you know, like I said, a strong Q1 hiring quarter of about net 203 people. From our ability to execute on revenue and billings, we have the capacity to deliver our guidance. We feel really good about our ability to deliver on the guidance and the headcount we're bringing on board and how they're ramping up. We feel really good about that.
Another quick one for you, Brent. Could you help us understand the large win flow through to billings? Like, should we think of this as being billed all at once, or is it going to give a halo effect to further quarters, beyond Q?
Yeah. You know, the large deal we talked about earlier, we're real excited about that. Most importantly on that deal is, you know, it's a great proof point for the operating system for development. Now, we're not going to get into specifics of, you know, how any one transaction is accounted for because, you know, we're very focused on customer success and no one deal is the same. It has been factored into our guidance. You know, when we set guidance, we look at, you know, the pipe that's in front of us, we look at the actuals, we look at the macroeconomic environment. It's all been factored in.
Super helpful. Thank you.
As a reminder, if you would like to ask a question at this time, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Ryan MacDonald with Needham. Your line is open.
Hi, thanks for taking my question, and congrats on a great quarter. Peter, you know, I wanted to follow up on the large customer win, and you talked about sort of the decision being made with 10- 20-year increments, you know, despite obviously. Essentially ignoring sort of near-term macro impact. I'm curious though, you know, as you think about implementations and project work, are you seeing any changes in sort of the pace of which those large deals that you win are getting implemented given what we're seeing from a macro perspective?
Yeah. Ryan, good question. No, we're not really. I think what's happening. There was some disruption six months ago, I would say. You know, COVID hitting, Omicron, COVID fatigue, early inflation worries, things like that, the holidays. We're not seeing that. That hit, you know, Veeva and our customers. We're not seeing that type of slowdown anymore. Customers have, you know, they've. It generally feels like they've weathered the COVID storm, which we got to remember that was really something for life sciences, right? That was really something, disrupted their product plans, et cetera. You know, we had hiring, and we had inflation. They're kind of through that now. No, I don't see those same dynamics.
Thanks for the clarification. Brent, maybe a follow-up for you. You know, a question we're getting a lot in almost every investor meeting is if obviously given the state of the market and valuations coming down, is questions around share-based compensation and how we should think that's trending throughout fiscal 2023. You know, we noticed obviously compared to fourth quarter number was up, you know, slightly or maybe more so than we seasonally expected. Can you just remind us on how you're thinking about share-based compensation for 2023?
Yeah. I mean, share-based compensation is a key portion of our overall compensation philosophy. If you think, you know, about our base salary and then kind of the overall equity portion of the dollars. It's an area that is reflected. It's been reflected into our guidance, and it's an instrument that we think is important from a retention perspective and from an employee success perspective. It is definitely a lever that we use to drive a fair overall compensation structure for employee success.
Thank you.
Your next question comes to the line of Kirk Materne with Evercore ISI. Your line is open.
Hey, guys. This is Adi on for Kirk. But thanks for taking the questions. Just wanted to ask a little bit of a follow-up on the FX stuff. Obviously, you said there's the headwind, but can you talk a little bit about what you're seeing specifically in the pipeline that kind of gives you the confidence for taking up the guide? Whether that's just starter deals or is it just like kind of across the board.
Yeah.
The second question was just.
Yeah, sorry. Go ahead.
Yeah, no, go ahead. You had two parts. I'm sorry. I thought you had one more question. Go ahead.
Yeah, no. Second part was just about you had a really strong start with billings this quarter. Why not raise it going forward? Is there, and also, is there like any FX impact on billings outside just that revenue component? Thanks.
Yeah. Yeah, happy to answer that. Just kind of a step back just to level set on the FX impact. Overall, you know, real happy with the strength of the business. Now, the FX impact was on the full year basis, was $20 million on revenue, and it was $30 million on billings. That's a headwind on both of those line items. Overall, on an op income perspective, there's kind of a natural hedge with our cost structure relative to revenue in foreign currency. It's minimal to no impact on the op income basis. Important to kind of level set on that.
The other piece that's important, you know, more than half of that FX headwind was created in the last 90 days. As a result, you know, that impacted our ability to increase the full-year guide for both subs revenue as well as total billings. Absent that, we would have increased our guide for those two numbers. You also asked what gives me confidence in the guides for the year. We do expect for slight revenue acceleration in the back half of the year. Why do we have confidence in that? We have confidence in that because we do have good visibility to the deal flow for the year.
You know, we are a strategic partner to a critical industry, and our software and solutions are serving the need of their critical business processes. This isn't a transactional business that, you know, we manage on a quarter-to-quarter basis. Because of that, we have good visibility. With that, you know, we have confidence on the full-year guide.
Awesome. Thank you.
Thank you.
Your next question comes from the line of Ryan Bressner with Morgan Stanley. Your line is open.
Hi, thanks for taking my question. I found your disclosure on T&E being 1.5% in FY 2023 versus 3% pre-COVID interesting. Do you expect T&E to remain near this level looking forward? Is that becoming a broader trend in the pharma industry? Trying to think about it in the sense of the bigger picture discussion on the changing role of pharma reps and how this could maybe imply how the industry is evolving and what tools are needed to kind of adapt to this hybrid environment moving forward.
Okay. I think it's a kind of a two-part question here. Brent, why don't you take the first one as to our internal, and then Paul, you can take the second one as the industry, because those are actually two different things.
Let me kick that off, then. You're right. You know, as we have been highlighting, we expected spending, travel and event spending to come back in and be a bit of a headwind to op income in fiscal year 2023. That has happened. We're at about 1.5% of revenue. We're about 0.5% of revenue in fiscal year 2022. That's a good thing. Why is that a good thing? Because as Peter mentioned, with the excitement we had with in-person events, with the commercial summit we had last week, that's a great example. The other piece to think about is we're a work anywhere company.
What is really important, and we've gotten that, we believe we've gotten that right from day one, and we've been consistent. With that, you know, connecting is really important. We expect, you know, different functional groups to travel, to stay connected, and that's all going to be, you know, part of the equation. Now, looking out, where could this be? It's early, right? Where this ultimately lands, you know, is to be determined. For the guide for the year, we expect the travel and events to, you know, accelerate a bit through the course of the year. That's our expectations for now. There was a second part. If I don't mind, can you repeat the second part of the question again, just so I'm answering the right question?
Sure. I guess the second part was just on what this might imply in the industry if this is continuing across all of pharma for a changing role of pharma reps, and how maybe the broader selling model in the industry is changing, what that means for headcount and technology.
Yeah. What it means. You know, we've talked about some of the shift that's happening in the industry where you know, the industry is becoming a little bit more efficient. They're increasing their mix of digital into the sales force. That's one impact that's changing. That's creating a little bit of an opportunity for companies where they become more productive. They're able to do more with less, and we're seeing that play out. We've been talking about that for some time. I think the other impact that we're seeing. That will have an impact on overall headcount, particularly of the field sales force. But there are other roles beyond just the sales reps. One example are medical, like field medical teams.
These are the more high science type people who call on doctors or thought leaders and scientific experts. That's one example of a different kind of role. Many companies are thinking about different roles in the field. Medicals are one good example, and some of those are actually increasing. The role of medical is becoming more important over time. We're seeing other kinds of roles emerge in the commercial and in the medical side. There's in some cases some reductions. In other cases, there's increases. You know, we've kind of talked about that overall sizing for some time now. We see kind of the size and the shape shifting just a little bit. You know, we're happy to be part of helping the industry be able to kind of make those adjustments and become more productive.
Very helpful. Thank you.
There are no further questions at this time. I'll turn the call back to CEO Peter Gassner for closing remarks.
Thank you everyone for joining the call today, and thank you to our customers for your continued partnership and to the Veeva team for your outstanding work in the quarter. Thank you.
This concludes today's conference call. You may now disconnect.