Greetings. Thank you for standing by, and welcome to the Aviva Systems' Fiscal 2022 First Quarter Results Conference Call. I would now like to hand the conference over to your speaker today, Atul Garrett, Senior Director, Investor Relations. Please go ahead.
Good afternoon, and welcome to Veeva's fiscal 2022 Q1 earnings conference call for the quarter ended April 30, 2021. Call. 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 primarily used for Q and A. With me today for Q and A are Peter Gassner, our Chief Executive Officer call. Brent Mobin, our Chief Financial Officer and Paul Shawa, EVP, Strategy. During the course of this call, call.
We may make forward looking statements regarding trends, our strategies and the anticipated performance of the business. 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 on the risk factors included in our most recent filing on Form 10 ks. Forward looking statements made during the call are being made as of today, May 27, 2021, 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. VIVA disclaims any obligation to update or revise 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 will turn the call over to Peter.
Thank you, Atel, call. And welcome to the call, everyone. We had an outstanding Q1 with results well ahead of guidance due to significant out performance in Development Cloud and continued strength in Commercial Cloud. Total revenue in the quarter was $434,000,000 up 29% year over year with subscription revenue up 26 percent to $341,000,000 Non GAAP operating income was $181,000,000 or 42 call. You will find further details about the quarter in our prepared remarks posted on our website at 1 Pacific today.
At this point, I would like to open up the call to questions for Brent, Paul or myself.
And your first question comes from the line of Brian Peterson with Raymond James. Please go ahead. Your line is open.
Thanks, gentlemen. Congrats on the really strong results. So obviously, we saw an acceleration in the Voalte Services revenue. I know this has come up in the past, but Brett, How do I think about the Voalte Services as an indicator of what's going on in the broader business? Is that a future indicator or a coincidence?
Just try to help me frame that a little bit.
Yes. Thanks, Brian. Yes, so services in general is not a good leading indicator, I would say. One thing to keep in mind is just there's just a lot of variability in services revenue. So and why is that?
I mean, different products have different service requirements and Customers have different needs based on their in house capabilities. But what I will say, we're very pleased with the overall service business, the strength that we saw on the development side and broadly.
Got it. Okay. And just maybe on the quality strength, I know we heard that as a narrative last quarter. Peter or Paul, I don't know who wants to take that, but just what you're seeing in terms of the quality product and how that's really ramping up with customers? Thanks, guys.
Yes. Thanks, Brian. This is Paul. Yes, we did have another strong quarter overall in quality, really broadly across development content, but in quality in particular. And I guess I started at the highest level, the unified vision that we have in Development Cloud is working and quality is just a perfect example where We're bringing together documentation with quality management, with training, and they're all progressing really, really well.
Customers are buying into that overall vision. And then they're rolling out and kind of driving to that vision over time. So we had really strong performance in quality in really in all of the areas. And companies are looking to modernize in the quality space and they're looking to be able to be partner to help them there. So we're really pleased with our progress.
Thanks, Mark.
And your next question comes from the line of Donald Hooker with KeyBanc Capital Markets. Please go ahead. Your line is open.
Great. Good afternoon. Thank you. Just like to
hear maybe a little bit more if you would all share with us some of your thoughts around the pharma sales force globally. It seemed Seemed like from the prepared comments, you're walking back some of your concerns or maybe pushing them out. Can you just maybe expand on your thinking there?
Yes, sure. I can give you some color on that. This is something we watch and keep an eye on very closely. There's always Yes, some variability up and down every quarter, but we haven't seen any of the reductions so far that we've talked about, I guess, 2 quarters ago now. But having said that, I guess maybe the context and the color behind that, these are significant changes.
The industry hasn't yet Hit a new steady state and stabilized jet in terms of what the fuel structure is going to look like. So these are big changes for farming companies, which is why I think it'll take a little bit longer. And I think we'll start To see that impact closer to the second half of this year and then likely through the end of next year. So I wouldn't classify it as a walking back. I'd classify it more as just happening a little bit more over time.
Okay. And then I guess in recent quarters, there's been a lot of buzz around decentralized clinical trials Across the CRO space and pharma in general, is that does that require for you guys any incremental investment. Is there something else you would need? There's a
whole bunch of
these decentralized clinical trial companies kind of coming to market. I'm just wondering for you all. Is that a new maybe a new product area or is that sort of what you already have? Is there something else you need there?
Yes, decentralized trials, that's part of what we call digital trials. So that's moving clinical trials to paperless and patient centric. Decentralized trials itself refers to most often to being able to do parts with the trial process with the patient in the patient's home still supervised by a caregiver, but that may be through in home nurse or that may be through A Zoom call, something like that. So we do have significant technology investment in that area and that will be ongoing. That's Things like MyViva for patients, for example, that will fit into decentralized clinical trials, what we're doing for eConsent, our site connect product, and And then we'll connect that into our clinical suite for the sponsors.
So it's a big opportunity and area investment. But for us, it will be a bit broader. It's what we call digital
12. Okay. Maybe I'll just throw one last one in and just kind of one from left field for me. I guess, have you all ever thought about or is there any kind of thought about expanding sort of into more preclinical functionality? Is there any opportunity there?
I guess, maybe the argument being With all these more advanced biotherapeutics and cell and gene therapies, is there a greater need to link together workflows Perhaps across clinical and preclinical and discovery and all that, is there a sort of an expansion opportunity there for you at some point over time?
I'll play this is Peter, and I'll play left fielder today and I got that one out of left field. So we broadly characterize that as a Preclinical, some people would also characterize that as the research area of pharmaceutical. That's not an area where we're focused At this time, when you keep an eye on it, then you never say never in the future, but that's not there's no ongoing investment or product from Veeva at this call. Yes, I would say it's lightly connected. That would be an area that would be lightly connected to the rest of our products and we have no plans at this time.
Thank you.
And your next question comes from the line of Ken Wong with Guggenheim Partners. Please go ahead. Your line is
Sorry about that new button. This is an extension of the last question to some degree. Peter, when we talk to our contacts in the life science industry, A theme that keeps popping up is kind of this past year led to a potential reimagining of clinical workflows from trials to submission to post production, which could potentially lead to a replatforming for many customers. How much truth is there in that particular statement do you think? And then just given your end to end stack, is it fair to assume that Veeva would be Potential beneficiary of such a replatforming?
Ken, that's fair to think that the customers are definitely Reimagining things COVID across all industries has caused people to think maybe some assumptions that they had in the past were not valid. And so now they're trying to question everything, more open to innovation, I think. Tremendous downside to COVID in terms of loss of life and freedom mobility, that type of thing. But it is spurring innovation. Adversity creates innovation.
So that is what's going on. So there's questioning. When we look at replatforming, I think really what I see from the customers is re imagining efficiency, digital data investment. And Yes, I think we're getting a slight tailwind from that. Again, we have a long cycle with our customers.
So it's not something that you're going to immediately see, But that will be continued and moderate tailwind for us for the next 3, 4 years really. And it's Positive trend when customers look to innovation because our product footprint is well positioned. We did a lot of things As we moved into digital last year, especially with My Veeva and the digital trials and Veeva Engage position us well. So I think we're in a Good position and in a favorable position, Ken.
Got it. Very helpful, Peter. Thanks for the insight. And then a quick one for you, Paul. Just wondering on data cloud, I think you guys talked about seeing more customer interest there.
Any sense if there There's a good amount of pent up demand for when you guys finally roll out the rest of the prescription data and kind of across U. S. And to the extent international at some point? Yes. So we're Sure, at some
point. Yes. So we're certainly focused on the U. S. Market at this point.
And as you know, our first product in data cloud as patient data. We will, as you mentioned, have prescriber and sales data over time. So the focus right now is patient data. It's on building the best patient data product and launching a patient data and it's working in the early market. So we're really proud of the success and the value that we're creating for customers in the early market.
In terms of pent up demand, this is a long journey. We're investing for the long term here. We're excited about the innovation and our customers Are excited about the innovation we can deliver, but they recognize that this is really a long term play. So we're in it for the long haul and we're excited about the progress we've made so far.
Great. Thanks, Paul.
Thanks, Ken.
And your next question comes from the line of Avan Suri with William Blair. Please Go ahead. Your line is open.
Great. Thanks, guys. This is Dylan Becker actually on for Bhavan tonight. Congrats on the quarter and appreciate you taking our questions. I guess first, as we're seeing kind of an increased willingness here, you've noted kind of several customers throughout the quarter, looking to standardize across kind of your clinical suite and leverage the solution.
And it makes a lot of sense All of this data across common platform, right, to accelerate the development. So I guess, the question is how should we be thinking about The importance of further standardization, the future driver supporting the cross sell efforts, especially related to some of the earlier stage offerings, CTMS, CDMS safety, etcetera.
Dylan, this is Peter. I'll take that one. What's going on is, they're looking for integrated suite, not so much. Standardization on technology is nice and that's useful. They will get a common Vendors that they can trust, common way to do audits, common way to do integrations, that type of thing.
But the real benefit that they look for is common business practices. So when we have the clinical operations suite integrated with the clinical data management suite and there can be seamless flow across there, That's what's exciting people and that will just be a long term competitive advantage for VIVA because Clinical trial efficiency, that is extra important to life sciences companies. That's the essence of a life sciences company, getting products approved to market quickly. So it's not the standardization of technology, but it's the seamless business process that they're looking for.
Right, Right. Yes. Thank you. And then
maybe one for Paul too.
And I don't want to dig kind of too deep into it, but I guess Can you talk about you just kind of mentioned some of the early traction around the data cloud piece, but as this kind of is a driver of on the commercial side as well and kind of some of the releases that we've seen from IQVIA in in recent days here. Can you remind us if and kind of what any impact this might have on that data cloud segment as well?
Yes, there's no impact in terms of IQVIA and there's There's obviously been a lot of noise in the marketplace and kind of their anti competitive behaviors that they have a history of, but that really has no impact at all So no material impact that we no impact at all, I should say, around 8 o'clock.
Perfect. Thank you guys very much.
And your next question comes from the line of Stephanie Davis with SVB Leerink. Please go ahead. Your line is open. Thank you for taking my question, guys, and congratulations on a really strong quarter. We've seen a pretty meaningful uptick in funding for health tech companies that compete with the Voalte's creative products.
So I love your early take on how you're thinking about these players. Should we think of them as more pure play competitors that are just subscale or is there potential partnership and integration that maybe increase the value of Vault as a platform?
Hey, Stephanie. This is Peter. Yes, certainly, not just in HealthTech overall, the early market is awash with capital right now. And so you get multiple new entrants. Now you get lower quality entrants on the average because You're getting diffusivity and money in a surplus.
So I think that's what's going on. In terms of some of those, Many of those will be competitors in one of our application areas. So they will be a competitor in one of our application areas. I think that's overall good for the industry. It will sharpen Veeva's competitive focus and lead to product innovation.
And then some of them will be partners and really fit into the Vault platform nicely. Those will tend to be smaller, more practical, Our lower funded companies, because the high funded companies, they have to go for the highest, highest market. I think That's fine. It's good competition. I think it'd be difficult for them in many ways because the pharmaceutical companies are not looking for a quick win Flash in a pan like that.
They're really looking for a long term partner that has the full suite. So overall, I view that trend as positive for VIDA.
We'll continue on that thought of the less funded players will probably be most likely partners. How do you think about M and A for growing
update. Yes. M and A, I would say not different in that space versus other Places that we've been in, we would look for M and A for growth. So where we can get a seed of something that will really either help the industry overall and thereby help the Eagle. You saw that with Think.
We completed that acquisition completed the migration of those customers. We did the acquisition 5 years ago, completed that. That was good for the industry, brought their DNA into Veeva, made our products better. You would see what we did with Crossix. We bought Crossix.
They had a certain asset. We're leveraging that asset and bringing it into data cloud. So that's what we would look for. With the proceeds of innovation that we can grow.
Very helpful.
And those will often come in those sorry, I didn't finish. Sorry,
I didn't
complete question for you. Those will often come in the smaller companies actually, those seeds of innovation.
Call. Impressive. So I just have a quick one because I feel like Otto has done so much work on this. He would kill us if we did not at least mention it on the call.
Could you
just It's a very nice guy. He's not going to kill him. He might scold. He Michael, so you've had a lot of noise about IQVIA. Could you just give us a refresh on litigation what the worst case downside scenario really is in some of the recent announcements?
Yes. Certainly a lot of noise. IQVIA issued a really intentionally misleading press release and disinformation campaign. But That situation there with their anti competitive behavior, the case is all outside Proveeva because the Status quo is this restricted data environment that IQVIA has created. So that's the status quo.
If and we call. Nothing about this recent press release from IQVIA is really about the case. It's about a procedural ruling. So our case, the antitrust case is going ahead. We expect a jury trial in 2023 and we are confident in our case and expect to win.
Now if we did win, that would really provide more choice for the industry and that would be, accelerant for commercial cloud if we would win. But we'll see. That's in 2023.
All right. Very helpful. Thank you. Thank you.
Thank you.
And your next question comes from the line of Tom Redig with Stifel. Please go ahead. Your line segment.
Great. Thank you for taking my questions. Great to hear
from you all. Congratulations on the
great results. Peter, I'm glad Stephanie just kind of poke at
the IQVIA thread there a
little bit. And I guess I wanted to ask a little bit of a different version of that question, which is what are your customers saying to you about this fairly sort of acrimonious discussions in the public arena between you and a competitor, both of which Many, many of your customers use both parties. Are they getting nervous at all that perhaps IQVIA data might not be Accessible inside of your CRM systems in the long run that that could create some issues with respect to your core positioning on that front. I'd love to hear what they're saying to you. And then conversely, are they opening up and saying, hey, we really, really do want the choice and it's about time we get this choice.
So I'd love to know which
way they're pushing on that thread.
Tom, I'll take that one. The customers in general, they this is not positive for this and this noise. So they feel like, hey, there's 2 kids Fighting on the lawn, they don't really care who started the fight or why, it's just noise for them. So they don't appreciate it. I would say, I think they generally know that it's caused by IQVIA, but still it doesn't matter.
They don't appreciate it. They're not nervous With IQVIA, our customers, they are life sciences companies. They are really EVA and IQVIA, we are the partners with suppliers to the industry. So I don't feel any nervousness from our customers. They knew that if IQVIA would do something like not allow their data into Viva CRM, A, they'd find another way to analyze that data and they wouldn't appreciate that from IQVIA, they would end up IQVIA losing business.
So they're not Willing to be pushed around by ATVIA. Where they give it is about is choice. So I think data cloud, for example, that's Truly enthusiastic for the customers. They want us to hurry, get that mature faster, have the full complete faster. More choice is always a positive for Veeva.
Noise about fighting in press releases, that's not a positive. Sorry, More choice is a positive for customers. Noise about losses is never a positive for customers.
That's excellent detail. I appreciate that. This is a little bit more in the weeds, but Brent, question for you. I mean, we look at these gross margins and they're at all time highs here. Seemingly no reason why they can't continue.
I guess the one thing that stood out to me in the prepared remarks was the discussion point that the Last X Inc. Customer has transitioned over promo, Matt. And it just sort of brings to mind anytime you can kind of end of life customers on one platform and move them all over to a modernized version, There might be lasting benefits to the gross margin line there. How should we think about other opportunities across the platform outside of that? End.
Is this kind of a high watermark for gross margins? And then how do we get higher from here?
Yes. I mean, thanks for the question. Yes, this Was an outstanding quarter, obviously, from an op margin perspective, the highest op margin quarter that we've had to date. And how I think about it is, We're in growth mode right now. We're continuing to invest for customer success.
And we're aggressively hiring Specifically in the products, sales and services area, business consulting is a focus area. So we think that will pay off long term from a growth perspective. There's some other things that are in play regarding our gross margin as you look out during the course of fiscal year 'twenty two. We do expect They traveled to return to some level normalization. Their services utilization was running at an all time high this quarter as well.
So there's a lot of things that happened in Q1 that drove the high op margin percentage. So all in all, pleased with it. Great opportunity to continue to get leverage out of the model as we continue to sell best Revolt product space as well.
Yes. Great points.
Okay. Appreciate it. Great job. Thank you.
And your next question comes from the line of Brad Sills with Bank of America. Please go ahead. Your line is open. Hi. This is Sherry on for Brad.
Congratulations on a great quarter. I wanted to ask about the Applied Life Sciences opportunity. You touched a little bit on your prepared remarks, but Can you maybe provide some updates on where you are today and where you are in terms of building out that go to market organization? Thank you.
Hi, Sher, this is Peter. Yes, we're on track with outside of life sciences there. We're focused on consumer goods and consumer packaged goods and chemicals. We can add some customers and expand in existing customers. We believe we're on track to call.
Sort of in the $100,000,000 range of business for 2025. So we're on track for that. I'm really pleased with the customer success. And that's what's fueling our business there. So all is going well outside of Life Sciences.
Got you. And then are you seeing any changes in the appetite for life events, services businesses or for physicians' board as COVID headwinds start to dissipate? Thanks again.
Yes. Hey, Sherry, this is Paul. Yes, we are starting to see that demand return. And I guess I Characterize the demand around digital events, which is ramping up. That's been ramping up for some time now.
And we've really focused our business on to supporting customers doing digital events. But we're also starting to see a little bit of an uptick in more of the in person events as companies are starting to think about The reopening and getting back face to face. So yes, it is I expect that kind of demand to continue going forward. The good news is we're focused on supporting both. So as customers prefer, we can support whether it's digital or whether it's in person.
Awesome. Thank you so much. And your next question comes from the line of stands for the company with Morgan Stanley. Please go ahead. Your line is open.
Perfect. Thank you so much guys. Wanted to switch for a second to billings and obviously very strong start
to the
year. Is there anything in billings that we need to be mindful of as far as maybe like one time in the quarter And how that the strength of billings to start the year informed your overall confidence in the billings guidance increase for the full year? Yes.
Thanks, Dan. Yes, so in Q1, we had outstanding billings result growing at 26%. There were no one time items in the quarter to note. That was a tailwind or a headwind to that number. So that beat definitely formed our guide, a good portion of our guide as we looked out for the year.
So good broad based strength with dev cloud and services both Contributing nicely. I would say in the beat, probably about 2 thirds of that was on the subscription side and about a third in services. So overall, really good contributions to the billings growth rate.
Got it. Perfect. And I wanted to just go back to one of Earlier questions around the headcount, the overall reduction in headcount across the healthcare Sales Industry. How does that inform your thinking around commercial cloud growth for the remainder of this year?
Yes. So the reductions have Not a meaningful impact on the rest of this fiscal year. We've accounted for that into our modeling already. So We don't anticipate any material impact one way or the other. It's already accounted for in our guidance.
And typically those kinds of things, whether we saw a smaller or a larger reduction, 1, we've modeled it in and 2, those things tend to play out over time based on renewal cycles. So, we're really no change there.
I guess what I was trying
to say is in as much as maybe those the potential headcount cuts would come in the back half of this year or begin to maybe impact you and you guys are on the long term strategic annual plus contract. Is there a potential where we could see upside to the commercial cloud subscription revenue line If those cuts don't materialize like you guys have been talking about for the last couple of quarters?
Yes. So, it's Stan,
it's Brent. So, For the fiscal year, so in my prepared remarks, I mentioned it. So we didn't see any increase in the reductions in Q1. And we do expect that to increase in the second half of the year. And that increase in fact is included in our guide.
So we contemplated that into the second half of fiscal year 'twenty two.
Got it. All right.
Thank you, guys.
And your next question comes from the line of Sterling Auty with with JPMorgan, Chase and Company. Hey, this is Drew on for Sterling. You mentioned the return to travel and normalization of some of the operating expenditures. Are there any cost savings that you think are sustainable in the model after the post in the post COVID environment?
Yes. So I'll talk about fiscal year 'twenty two and what we're seeing a bit. So We're seeing travel start to return to normalization and that's going to progress starting in the next couple of months as we work through the balance of the year. We believe that the Advanced will largely be virtual for the balance of the fiscal year 'twenty two. All of that's been contemplated into our guide and That's why I explicitly stated about 175 bps of tailwind.
Over time, how much of that will be permanent? Time will tell. I don't feel confident with the information at hand to give you a number on there.
Got it. Thank you. And your next question comes from the line of Chris Merwin with Goldman Sachs. Please go ahead.
Hi, Jeff. Hi, Jeff.
On for Chris. Thanks for taking my question. Just on Engage, it sounds like
that was a tailwind to
growth in the quarter. How penetrated that product across the CRM customer base today? And how should we think about the runway there?
Yes. This is Paul. Engage, we talked about last quarter as being roughly 60% penetrated in the overall Engage market. So if you think about the broader Engage opportunity, we have We've captured roughly 60% of the market and we'll expect to see continued growth in Engage normalizing to where it was. We obviously had a significant bump in Q4 given the conversion.
But That's that will play out over time. It will be more of a normalized growth rate going forward.
Got it. And then given the recent investments in headcount, curious about customer adoption with the profits?
Yes. So, caustic is generally independent of the kinds of reductions that you're seeing. I would say that there is an overall shift to companies operating more digitally and trying to reach customers in new and different ways. And Fundamentally, CrossX's business is based on supporting media and advertising and marketing, which is digital. So we saw good strength this quarter in cross section.
We anticipate that strength will continue going forward.
And your next question comes from the line of Ryan MacDonald with Needham. Please go ahead. Your line is open.
Hi, thanks for taking my question. And I apologize if it's repeated. I'll get dropped temporarily here. But wanted to ask on the Our prepared remarks about the commentary around Vuelink and the business consulting services. I think it's been an interesting dynamic that the comment around that is doubling year over year in terms of consulting.
It's not the first time we've heard that and it seems to be an emerging trend. Peter, I'd be curious just to hear thoughts on what do you think is causing sort of this increased reliance on consulting services from customers? And how does this change your view, if at all, on how the component of service as a percent of total revenue and how that grows going forward? Thanks.
In terms of the percentage revenue and how that grows going forward, I don't expect any material change there. Consulting business is growing, but it's still Small as when you look at the bulk of our business, which is actually subscription and professional services, Consulting is a bit higher value service that focuses on business process, business process types things, not just implementing our software. So it's growing, but it's never going to be the biggest part of Veeva and that type of thing. What it is, is complementary. So it's been very complementary.
And Consulting needs will go up a little bit as we have multiple products. So one of the things that consulting is very good for is Putting together the business processes that are needed when you're implementing processes, for example, across clinical and regulatory or commercial and story or commercial and medical. So that's where you get a lot of the value when you redesign these business processes, roles and responsibilities. So necessary and view it as the icing on the cake, but it's not the cake.
Excellent. Thanks for taking my question.
Your next question comes from the line of Tyler Radke with Citi. Please go ahead. Your line is open.
Hi, good afternoon. This is
YC calling in from Tyler today. Congrats on the result. That looks pretty strong. And then I just had a quick question regarding, we are starting to see more customers going in Full Suite has actually shown in the last quarter and current quarter in like quality and regulatory and including new customers all in commercial call. So I just would like to see how is this food suite BU trend like coming in versus your expectation initially?
And then also What are some of the implications that we might see going forward? Thanks.
Yes. The full suite, That can happen also on the R and D side and the commercial side. Generally, that would be with smaller biotechs because they're nimble, they don't have existing structure. They want to get started in a very modernized way and they just go online. So I expect that So applicable to our large enterprises because they have lots of people, lots of processes and they have to pick the parts that Thank you everyone for joining today's call.
I'd like to thank our customers for their continued partnership and our employees for their commitment to customer success. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.