Earnings Call: Q3 2021

Dec 1, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Veeva Systems Fiscal 2021 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Ato Garrett, Senior Director, Investor Relations. Thank you, and please go ahead. Good afternoon, and welcome to Veeva's fiscal 2021 third quarter earnings call for the quarter ended October 31, 2020. With me on today's call are Peter Gassner, our Chief Executive Officer, Paul Shawah, EVP of Strategy, and Brent Bowman, our Chief Financial Officer. During the course of this conference call, we will make forward-looking statements regarding trends, our strategies, and anticipated performance of the business. These forward-looking statements will be based on management's current views and expectations and are subject to various risks and uncertainties, including those related to the impact of COVID-19 on our business, the life sciences industry, and global economic conditions. 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, which is available on the company's website at www.veeva.com under the Investors section and on the SEC website at www.sec.gov. Forward-looking statements made during the call today are being made as of today, December 1, 2020, 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 will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. The guidance we will provide today is in part based on our current assumptions as to the macroeconomic environment in which we will be operating in the future, including the timing and pace of recovery from any negative effects caused by COVID-19. Such matters that are beyond our control and our assumptions may not be correct and may change rapidly. On the call, we will 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. A reconciliation can also be found as an exhibit to the Form 8-K filed with the SEC just before the call. With that, thank you for joining us, and I'll turn it over to Peter. Thank you, Ato. Before we get started, I'd like to extend our sympathies to everyone affected by the pandemic and our gratitude to all those working to help in so many ways, including our customers. The industry has produced effective vaccine candidates, rapid diagnostics, and approved treatments, all in a matter of months. We are proud to be working with these amazing companies, I'm proud of how the Veeva team has stepped up to help. Now, turning to Q3. We had another quarter of consistent execution and results ahead of guidance. Total revenue was $378 million, up 34% year-over-year. Subscription revenue also grew 34% year-over-year. Non-GAAP operating margin was 41%. We are pleased with our results and how we're expanding customer relationships during a major digital transformation. We've been able to help customers with immediate needs to open up digital channels in commercial and clinical, and we're also helping them define the right digital models for the long term. For example, on the commercial side, we recently announced a strategic partnership with an emerging biopharma to help them define and execute an innovative digital-first commercial model. They will utilize the full commercial cloud, including Veeva CRM, Data Cloud, Veeva Link, MyVeeva, and business consulting. That level of trust and confidence in our ability to deliver came through strongly in our Q3 new wins and expansions. We added 19 new CRM customers, our biggest quarterly increase yet. We continued to grow market share and had multiple international expansions in CRM with existing customers. We also progressed well in our newer areas, including Data Cloud, MyVeeva for Doctors, and Veeva Link. We expect these products will set us up for a long runway of growth in commercial. It's an exciting time in commercial and a time of change. We think our customers can generate meaningful productivity gains over the coming years as they increasingly leverage digital. We're excited to enable that transformation through our technology. For Veeva Vault, we've seen significant progress in Veeva Development Cloud adoption. Customers are increasingly purchasing multiple products at once, including a recently announced top 5 pharma who selected Veeva Vault products in clinical operations, quality, and regulatory. This is a major transformation which they will implement over the next 2-3 years. We're also seeing more customers expand Vault usage within each area of Veeva Development Cloud. In clinical operations, Veeva Vault CTMS had a standout quarter. We now have more than 75 customers, including 6 of the top 20, that have chosen to standardize on Veeva Vault CTMS. This is a remarkable pace of adoption given the product was launched just over 3 years ago. This rapid uptake is based on the trust we've built in clinical operations with Veeva Vault CTMS and the power of having a unified suite for clinical operations. An area of clinical I'm particularly excited about is Veeva Clinical Network, where we're bringing real innovation to the industry to help advance the move to paperless and patient-centric clinical trials. Clinical Network connects sponsors, sites, and patients and has the potential to fundamentally change how the industry conducts trials. We announced our first clinical network application, Veeva Vault Site Connect, to connect sites and sponsors, and in Q3 closed our first top 20 customer for Veeva Vault Site Connect. In quality, we had 20 net new customers select Vault QualityDocs, and we now have 12 of the top 20 pharmas as QualityDocs customers. Safety also continues to progress well with our early adopters, and we added 4 new customers. We also started our first safety AI project in the quarter. Outside of life sciences, as the pandemic continues to drive changes in consumer goods and cosmetics, companies are looking to us for agile global solutions that can help them quickly adapt. This dynamic drove a major win in Q3 with another large CPG customer. We also brought together nearly 800 leaders from across consumer goods, cosmetics, and chemicals for an online quality and regulatory summit to share best practices and insights. Overall, we are pleased with our growing reach and momentum in these industries. I'll share some additional thoughts as we look ahead to next year. On the Commercial Cloud side of the business, customers will find new ways to be more efficient by adopting our digital solutions. We believe this will likely drive field force reduction in the neighborhood of 10% over the coming year. At the same time, we expect to increase market share in CRM and see further adoption of CRM add-on products such as Engage, Events, and Align. We also expect greater adoption for Veeva Link, and it will be an important early adopter year for Data Cloud and MyVeeva. We expect Vault to continue its strong growth, particularly Development Cloud, with progress across the board in clinical, quality, and regulatory. It's still early in terms of revenue for CDMS and safety, but we have very strong early adopter momentum and broad customer interest, which will serve us well in these large markets in the coming years. We're also excited about the future of Clinical Network. We expect another year of consistent growth outside of life sciences in CPG, chemicals, and cosmetics. Finally, I'd like to update you on our proposed conversion to a public benefit corporation. We have completed our communication process with customers and investors, and the feedback has been largely positive. We also completed the comment process with the SEC and are filing a revised proxy this week. We will hold a special shareholder meeting to vote on the proposed PBC conversion on January 13th. In closing, I'd like to say how proud I am of the Veeva team for the exceptional teamwork, flexibility, innovation, and execution throughout the year. It's that combination of trust, great people, and great products that has put us in a position to really help the industry during this time of change. I'll turn it over to Brent for a financial update. Thanks, Peter. Q3 was a quarter of very strong execution. Bookings and services performance were both better than expected, with notable acceleration in development cloud applications like CTMS and QMS that are early in the reference selling cycle. This led to outperformance in both subscription and services revenue. This strong demand in bookings and services also led to a calculated billings total that was $26 million above our guidance for the quarter. Billings also benefited from better than expected billing duration for the business closed in Q3. Hiring performance in Q3 was also especially strong. We ended the quarter with 4,304 employees, a net increase of 280 from Q2. Much of this increase in headcount was within our Vault services teams and in our product teams, especially those product teams working on newer applications like CDMS, Safety, Data Cloud, and MyVeeva. Q3 operating margin benefited from roughly 250 basis points of pandemic-related cost savings from reduced travel and customer events that have moved to virtual, a level similar to the previous quarter. We anticipate a comparable benefit to operating margins in Q4 and into the beginning of next year. Turning to guidance for the fourth quarter. Total revenue is expected to be $378 million-$380 million, with subscription revenue of roughly $315 million and services revenue of $63 million-$65 million. Note that this implies a sequential drop in services revenue of about $10 million-$12 million from the third quarter. While our services business always has a high degree of variability, there are a couple reasons for the size of this change. The biggest factor is our normal seasonal pattern, resulting from fewer billable days around the holidays and our field kickoff. Our digital events business also has a similar seasonal pattern with fewer events around the holidays. Non-GAAP operating income for the fourth quarter is expected to be $136 million-$138 million, a non-GAAP operating margin of about 36%. Note that while Q4 is typically a seasonally lower margin quarter, this year we expect incremental expenses related to additional data supplier contracts as we invest in our Data Cloud product. These expenses will appear in our cost of subscription services revenue line. We will also continue to aggressively hire as we scale to meet near-term demand and plant seeds for longer-term growth. Q4 non-GAAP EPS is projected to be $0.67-$0.68 based on a diluted share count of approximately 162.5 million. We anticipate calculated billings of roughly $640 million in Q4. Note that this includes a benefit of about $10 million related to one large customer we expect to switch from quarterly to annual billing terms. Please remember that there are numerous factors that make year-over-year comparisons of this metric highly variable on a quarterly basis. We do not believe quarterly billings growth is a good indicator of the underlying momentum of our business, and we do not manage to it internally. Our subscription revenue guidance and calculated billings guidance for the full year are the best indicators of our momentum. All of these Q4 guidance metrics imply the following numbers for the full year. Total revenue of $1.446 billion-$1.448 billion. Subscription revenue of about $1.172 billion. Non-GAAP operating income of $566 million-$568 million. Calculate billings of about $1.55 billion. We now project non-GAAP EPS for the full year of $2.83-$2.84 based on a fully diluted share count of approximately 161 million. Note that within subscription revenue, we expect Commercial Cloud to finish the year at about $595 million and Vault to come in at about $577 million. We now expect Crossix to contribute $78 million-$80 million within subscription revenue. This is up $2 million from our previous estimate, as that business has benefited from the gradual rebound of advertising spend within life sciences companies. Within the total revenue line, we now expect a combined contribution from both Crossix and Physicians World to represent $97 million-$100 million for the full year. Finally, we are also raising our guidance for the full year cash flow from operations, excluding the excess tax benefit, to $500 million, up from $475 million previously, based primarily on billings outperformance in Q3. Before I close, let me give an initial outlook for fiscal 2022. Please note that we are still in the process of finalizing the plan and will provide our formal guidance on the Q4 earnings call. Currently, our initial outlook for next year is for total revenue of $1.7 billion to $1.72 billion. Within that guide, we expect subscription revenue of roughly $1.39 billion to $1.4 billion. We will provide more specific guidance on the next earnings call, including breakdowns for Commercial Cloud and Vault. Overall, the life science industry remains healthy and continues to invest for the future, which gives us confidence in this early guide for next year. Based on our early spending plans, we expect non-GAAP operating margins of roughly 37% for the full year. This would represent a compression of about 200 basis points from fiscal 2021, which is driven primarily by 3 things. First, we plan to continue investing in our Data Cloud product through additional data supplier relationships. We're assuming that travel and event-related expenses will start to return at some point next year. We plan to continue hiring aggressively for customer success and product innovation. With that, let me close by saying that I'm extremely pleased with the results in the quarter, and I'm very excited for the foundation we've laid for next year. The team's outstanding and consistent performance gives me confidence in our ability to achieve our target of $3 billion in total revenue in calendar 2025. Thanks for joining us today. Now I'll turn it over to the operator for questions. Ladies and gentlemen, as a reminder, please press star and then one on your telephone keypad to queue for a question. We ask that you please limit yourself to one question and one follow-up. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Bhavan Suri with William Blair. Your line is open. Hey, guys, thanks for taking my question, really nice job there. Maybe, Peter, we'll start with you. You know, we've now seen sort of a handful of vaccine candidates come to market and hopefully have them broadly disseminated over the next several months. I guess as that's happened, I'd love to know if you are seeing how the appetite from existing potential customers might have shifted or has it shifted to sort of think about transforming the clinical technology as a platform. Sort of the idea that we wanna adopt all of the Veeva platform. You mentioned one customer who had chosen to do that. I'd like to just sort of understand even within the existing base and new logos, has there been a shift now there's sort of a sense of light at the end of the tunnel? Has there been sort of some sense of maybe we should start accelerating these initiatives? Are you seeing any of that, or is that too early? 'Cause you sort of said you're not a beneficiary of COVID, not a large beneficiary of COVID, coming out of this, it feels like digitization, cloud, and the integrated platform would make sense. I would love to see if you're hearing or seeing anything, any color from existing and new customers around that. Got it. Bhavin, about the vaccine candidates, I think that is overall largely progressing as the life sciences industry would have expected. Now thinking for the major markets that they're in, mostly people are gonna be vaccinated sometime next year. I think if you would have gone back to sort of the May-ish time zone or so, that would've been broadly, you know, in line with what the life sciences industry overall would've expected. There's no surprises there. The major shift I think that's happening is the realization that digital is very important on the commercial side and on the clinical side. That's probably the major beneficiary, not so much seeing the light at the end of the COVID tunnel, I think that was anticipated, but I think the life sciences industry right now feels more comfortable with digital and wanna invest more. -in digital overall than they as opposed to the way they would be thinking maybe last March or April. Got it. Got it. That'll help us, broadly speaking, that'll help us, but it's not in a particular quarter, it's not a short-term thing. I think it's a secular shift of more digitization coming. Yeah. Yeah. Just to follow up on that, you sort of talked about sort of the setup here, but I think of MyVeeva for Doctors. I'd love to know any early takeaways, but MyVeeva for Patients coming out. You know, when you offer this level of connectivity that really isn't available today and make that flow of information better, I'd love to understand what you're hearing from your customers as you talk to them about MyVeeva for Patients, sort of the excitement, the interest levels. Any color there would be really helpful. Thank you. It's really helping our MyVeeva, both MyVeeva for Doctors, MyVeeva for Patients, is about helping our customers connect more efficiently with their customers. There's a lot of enthusiasm there, but there's heavy change management as well. That's something that'll take some time to work through. It's a business process change, particularly on the clinical side, lots of technology and on the commercial side. I think, you know, slow and steady uptake there because that's a major shift. Too early to give it any type of a ramp. Fair enough. Fair enough. Nice job, guys. Thanks for taking my questions. Thanks. Our next question is from Christopher Merwin with Goldman Sachs. Your line is open. Hi. Thanks so much for taking my question. I wanted to ask you about the growth in CRM customers. I think you had a record increase of 19 new customers. Was that, you know, more commercial, kind of smaller commercial ones? Or just curious any other detail you could share about that nice step up there in customer count. Thanks. Yeah, Christopher, thanks. This is Paul. Yeah, we're really pleased. The 19 that Peter referenced was 19 net new CRM wins, so this is in the core CRM space. We're seeing that really great strength in our U.S. SMB market. These are, you know, many of them are pre-commercial companies that are looking to launch. Others are those that have a legacy CRM system, and they're choosing Veeva. I think there's a couple things that are driving this. The industry is looking to become more digital and more efficient, and they trust Veeva as the partner to get them there because we've delivered on that over the last, you know, several months and over several years, really. I think the other thing is, you know, just the trust in Veeva as a strategic partner. You know, they need to get to digital quicker and they're relying on Veeva as a partner to get them there. Great momentum in CRM. Specifically, those are kind of net new CRM wins. Got it. Maybe just as a quick follow-up to that, I mean, have you seen better and better add-on adoption with those lands? Are those customers landing larger than they have, you know, before? Anything you'd call out there? We do. In fact, what is typically happening, you know, today, which is different than, let's say, 2, 1 or 2 or even 3 years ago, is, you know, companies 3 or 4 years ago may have come in looking for a CRM system, and they walked away with CRM and maybe 1 or 2 add-ons. What is more common today is they're looking for, you know, a broader, more strategic partner, and they're buying more products upfront. Certainly Veeva CRM and then many add-ons at the same time. Typically all of the digital add-ons like Approved Email and Engage, they're just, they're looking to go more digital much faster. We are seeing uptick in CRM, but also the related add-ons as well. Okay, great. Thank you. Our next question is from Ken Wong with Guggenheim Securities. Your line is open. Great. Thanks for taking my question, guys. This is building a bit on Chris's question just now. Peter or Paul, can you guys perhaps talk about the competitive landscape in the CRM commercial cloud area? Anything you're seeing from customers during the pandemic that you think perhaps might help or hurt your competitive position here? Yeah, it's going really well, you know, as evidenced by some of the numbers, first and foremost. We talked about the net new, the record number of net new CRM wins as a start. I would say the overall dynamics are roughly the same, meaning, we continue to win most deals. We're increasing market share. The one thing that has changed in the competitive landscape is, over the last quarter, we've had two replacements of IQVIA's new OCE product. That's the product that they built on salesforce.com. It's been out in the marketplace for a couple of years now. That's a new dynamic for us. That hasn't happened before. You know, what we're seeing across the market is that companies are trying it. You know, it hasn't met their expectations from a product or from a services standpoint. They're looking to get to digital. They're looking to a partner that can execute it and that they can trust. We've had those two replacements. I expect that those will. You know, those are hard. They take time. I'm expecting we will see more and more of those over time. Great. Thanks a lot, Paul. Maybe one for you, Brent. You touched on some gross margin headwinds as you guys start to build up the Data Cloud product. Just wondering if you might be able to help quantify what that hit might be to gross margins. As we think about our numbers going forward, is that more of a 1-time hit? Is that something that will continue to build over time? Any color there would be helpful. Yeah. As we look at gross margins, going out, and there's a number of investments. You mentioned the Data Cloud. That is something that we'll be building over time, over 2 years. We're not gonna break out specifically how much that will be, but that's been factored into our op margin projections for next year, our guide, as well as factored into our 2025 guide. I guess I'd leave you with that from that perspective. Great. Thanks a lot. Our next question is from Brian Peterson with Raymond James. Your line is open. Hi, everyone. Thanks for taking the question. I actually wanted to start with the efforts outside of life sciences. You referenced another large CPG win this quarter. I'm not sure who wants to take this, but, you know, I know there's a gradual kind of go-to-market build, focus on early adopters, but has the inbound interest from large customers been quicker than you would have expected? And does that potentially accelerate that timeline on the go-to-market side? Hi, Brian. I would say not quicker than I expected. This is a relatively, it's a very sticky application area that we're in there, quality and manufacturing regulatory claims management. It's, you know, hard to get in and hard to get out. It's not something that they will jump on. It's steady. It's how we expected it. Pandemic really has not affected us in there other than a temporary thing here in the cosmetics market, 'cause that's been hard-hit segment. Okay. Maybe just a follow-up. Peter, I think you made the comment on fiscal year 2022 that you were expecting the field sales reps to maybe be down about 10%. I wanna make sure I heard that right, and I'm curious, is that broad-based across the customer base, or is that in some instances they're down more and some are in line? Just, I guess I'm trying to think about that, you know, for fiscal year 2022 then, and how that's kinda factored into your longer-term targets. Yeah, Brian, I'll actually have Paul take that one. Yeah, I'll give some commentary on that. You know, first, the overall 10% number. The way that we think about that is really based on multiple conversations with customers. We're always in very, you know, strategic discussions with customers and thinking about, you know, what the future of the sales force looks like. Also based on Veeva estimates as well. It's what we believe as we look out at the market, and we help the industry become more efficient and more digital. This move to digital is really, really good for Veeva. As we're, you know, as companies adopt more and more of the products in Veeva Commercial Cloud, including products like Approved Email and Engage, they become more efficient, and we're trying to drive that. We're embracing that shift. You'll also see that shift, you know, in our, in our innovation. As we, you know, we're trying to accelerate it with new products like MyVeeva for Doctors, helping the industry get to digital faster and more efficiently. We have, I guess maybe the, the one bigger point to think about is we've, we're super confident in the targets still for 2025 because we've always contemplated some level of reduction. We're just what we're seeing is that the reduction's happening a little bit at an accelerated pace compared to where we thought it would be because the industry's moving to digital faster. If I could just add on there. Oh, sorry, Peter. Sorry, if I could just add on there, Brian. The specific one about some customers more than others, not really so much. I would say it doesn't depend on therapeutic area so much, although the more broad-based general medicines might have a little more reduction. The specialty areas might have a little less. There will be always company-specific factors, but there's no macro trend there why it would affect one customer more than another. Thank you. Our next question is from Stan Berenshteyn with Morgan Stanley. Your line is open. Hey, guys. Good afternoon. Thank you so much for taking my questions, and congratulations on a very strong quarter. Peter, maybe one for you. You mentioned in your prepared remarks that there's potential for global sales headcount in pharma to decline by 10% next year. When you're talking to your existing customers and thinking about, you know, how their spend with Veeva Commercial Cloud would trend, how are they thinking about, you know, the strategic positioning of your product and in order to frankly just enable them to sell, versus, you know, the potential headwind of less seats? Stan, as they reduce seats, what's happening is the selling motion is becoming more digital and more technology-enabled. That's a good trend for Veeva because, you know, they'll be spending a bit more on technology and data to power that technology and a little bit less on the people. That's a good trend for us. The overall, we're happy about the commercial cloud, you know, growth for, we'll certainly grow commercial cloud next year and, you know, on into 2025 because of that trend that's in our favor, actually. This is, as Paul mentioned, this is something we knew. We knew it was gonna come. We thought it would come a little more gradually, the COVID has been kind of a little boost on it. Got it. Got it. That makes sense. Then on billings right duration, I would guess this is for Brent. You mentioned that you saw a little bit of a benefit in Q3 to billings due to slightly longer duration. Could you dig into that a little bit? Anything to note on FX or anything else one time that you saw in Q3 billings? Yeah. I'll answer your second question first. Regarding FX, very minimal tailwind on FX, so nothing to really to note there. On the duration, you know, it's really a factor, a function of the customer and the specific deal. Sometimes in Q3, you often see co-terminus deals. We saw a few less co-terminus, and that created the duration tailwind that I spoke of. Perfect. Thank you so much. You bet. Our next question is from Rishi Jaluria with D.A. Davidson. Your line is open. Hey, guys. Thanks for taking my questions and nice to see continued strong execution. I wanted to start maybe with talking about Veeva CRM Engage. You know, at the vertical analyst day recently, you gave us some really impressive numbers on Veeva CRM Engage Meeting growth this year. I think you said 891% growth on Veeva CRM Engage Meeting started when you gave that number. Just, you know, how should we be thinking about that? You know, how should we think about traction with the Engage business next year, especially as the Veeva CRM Engage Meeting, you know, free period ends December 31st? Kind of putting that in context as well with the commentary around the 10% reduction in the field sales force that you expect next year. I've got a follow-up. All right. Let me take that one first. You know, the Engage trend continues to go really well. You know, companies are continuing to adopt. They're continuing to learn how to use it, right? This is a change. There's a lot of change management involved in becoming more digital. Our customers are getting better. We're helping them. We're providing not only the software and the technology, but also the domain expertise and the business guidance around doing Engage and using it really efficiently. Our customers are seeing value. We're well into that, into the discussions around renewals. Those are happening. As you know, the free period ends at the end of the year. We expect the majority of companies that started with free Engage are gonna continue in the next year because it's working. You know, this is the product is working in the marketplace, and they trust us as a strategic partner, so most companies will continue with that. Your question was also about next year. I do expect that, you know, most companies will continue, but they won't get to full deployment this year. They'll reach, you know, a significant amount of their users, but I think most companies you'll see also expansion opportunity next year and even into the year to follow as well. Okay. Got it. That's helpful. Then just on the preliminary outlook for next year, I guess a little surprised on seeing the subscription revenue target 'cause that's, you know, closer to 19% growth. I know historically there's been kind of a discussion of sustaining a 20%+ subscription growth rate for the foreseeable future. Just wanna maybe get a sense for what assumptions are baked into the outlook on the subscription front, right? I mean, especially talking about the fact that you're on target to do 24% organic subscription growth this year, ex Crossix and Physicians World, and talking about 19% growth next year. Maybe help us understand that and any moving pieces that might be baked into that. Sure. Happy to. First, very pleased by the strong demand, and their ability for us to drive customer success. This guide for next year lines us up very well for us to hit our 2025 targets. Not gonna get into any splits regarding what's under the hood on that. That's, you know, as typical, that will come in our Q4 call. I'm not gonna give you any color around that, but we are very positive and feel good about the growth we're seeing in the Vault space as well as the continued growth in the commercial space. All right. Great. Thank you, guys. You bet. Our next question is from Sandy Draper with Truist Securities. Your line is open. Thanks so much. A lot of my questions have been asked and answered. Maybe just one on the data acquisition and the cost there. When you're looking at finding new data sources and connections, are you trying to go to customers or data sources that others aren't in the sense that you're gonna try to get exclusive rights to data? Is this data sources that other people are also getting, and you just need to add it? Or are you able to sort of get it through data connectivity or system connectivity and find it in a way that others can't? I'm just trying to understand the approach to building that data set and how to think about, I know you're not gonna specifically carve out costs, but how to think about cost versus what you're paying versus what maybe a competitor might pay. Thanks. Yeah, I'll take that one. We'll keep that a little bit close to the vest, our data acquisition, data production strategy. You know, that's a bit of proprietary things that we're doing that's very unique to Veeva Data Cloud, that's one of the reasons why we really think we found a jewel in Crossix, in the Crossix data platform. The way it ingests, the way it matches the patient data is quite unique. I will give you some broad brush. We hope to come in, yeah, data costs less than our competitors, we hope to have more data sources, multiple triangulations of each different data transaction in the healthcare system. When you think about it, when there's interaction between a patient and a doctor and a payer, multiple people have copies of that information. Because of our technology, we're able to piece that together, we get multiple views on it. At a lower cost because we're not dependent on any one particular view. We're very happy about that. If we step back, you know, what is actually going on with Data Cloud? It's a real difference in how we're making this data, the data products. It's as different as moving from client server to cloud software. We're focusing on the longitudinal patient data, the real picture of the patient as they flow through healthcare events, and the same longitudinal view from the prescriber's point of view too. I would say it's not gonna be too valid to compare us, Veeva, to the entrenched way of doing things because we're gonna do a fundamentally different thing. Got it. That's really helpful, and I guess that maybe will lead me to my follow-up, Peter. In terms of it sounds like once you have to build a data set, but there may be an education process because the entrenched way of doing things is by definition entrenched, and so you're gonna have to get behavioral change and get people to change things that they've been doing for years and years and years. I guess the first step is build a data set to a point, and then it's really educating the market about why you think you're gonna have something better. Is that a reasonable way to think about it? Absolutely. It'll follow the classic early adopter cycle that you find when you're doing true innovation. You'll have to find those people that want to be early on the product maturity lifecycle, but also open to a way of doing things fundamentally different. Now, oftentimes that'll happen with small biotechs, who are really looking for that edge. You'll find that the larger companies may be more conservative, and maybe rightly so. They have a larger boat to steer, so it'll be gradual. I did wanna connect the dots, too, between Data Cloud and our CRM win. Paul mentioned, you know, customers looking for a product and a customer they can trust, which is true. Especially these small biotechs, they're now seeing that vision of Data Cloud. Well, maybe I can get the complete commercial package together, data, insights, analytics, technology, all from Veeva. I think the Veeva Data Cloud business will have a positive effect on our CRM business over time, and it's already even showing today. Great. That was really helpful commentary, Peter. I appreciate it. Thank you. Our next question is for Saket Kalia with Barclays. Your line is open. Okay, great. Hey, thanks for taking my questions here, guys. Maybe first for you, Peter. You know, I think the uptake on CTMS is great to see in Vault Clinical. I think it was something like 75 customers in just 3 years of availability. I'm curious, how would you compare this ramp in CTMS to CDMS and perhaps how each ramp could be different in terms of adoption and perhaps bookings contribution? Does that make sense? Yep. Sorry, I was trying to get myself off mute. Let's see. They are quite different applications. 1 thing is CTMS built, they were started roughly the same time, CTMS, in terms of the applications themselves at Veeva. CTMS maybe a year or a little more year or so before CDMS. CTMS was built on the base of the clinical operations suite that we had from Vault eTMF. That gave it a head start. Overall, CDMS is a, I would guess, a harder or a deeper application to build. CTMS got mature faster than CDMS. Also, customers, when they go to CTMS, they go all in. That's the nature of it. You don't really run 2 CTMSs. When you go for CDMS, that's a little more dangerous, I guess, for the customer, a little more scary because it directly connects to the clinical research site. They'll be a little more hesitant there. They have to build their studies. They'll start with a few trial studies. They'll be a little more cautious. It's a more cautious market, CDMS. Also, we had to build Veeva's reputation in the clinical data management area. That's what we've done over the last few years. In the clinical operations area, where CTMS is, we have been building our reputation there for about six or seven years, so it was well established. That's why CTMS goes faster than CDMS. Make no mistake, one of the best indicators of future CDMS success is the success of CTMS, because CTMS is the heart of clinical. That's what's going on. It's the heart of clinical where your master data is. It's the connectivity. I feel every time we win in CTMS, that increases our likelihood for winning in CDMS. That's very helpful. Maybe, maybe for my follow-up for you, Paul, you know, maybe just to go back to a prior question just on Engage. I think the question was asked for next year. I kind of wanna think about it more longer term. Can you just give some broad brushes on how to size the subscription opportunity with Engage? You know, open-ended, whether that's the total number of users, or pricing or anything that you can, that you can help us sort of size how big of an opportunity Engage could be once that free trial ends. Yeah, it's a good one. I think, you know, as I pointed out earlier, just with a little bit more context, I expect, you know, most of that growth to happen, you know, this year, but also next year and even, you know, the year or two after. Engage will continue to drive, you know, our customers or, you know, help our customers get to digital. From our business standpoint, maybe the way to think about it is we've always given the guidance that our add-ons like Engage and like Approved Email are in the ballpark of, you know, 15%-20% of CRM. Maybe that's one way to give you a really rough estimate. We don't really break it out specifically by users, particularly as a lot of our customers are also thinking about this as more of an enterprise capability as well. The concept of even getting down to a user level is even less important, because it's really like one of those capabilities when you think about doing digital, you go all in on digital. You know, that's kind of a, you know, a, you know, 15% to 20% in that range of overall CRM. Again, we'll get there over time. Very helpful, guys. Thanks. The next question is from Joe Vruwink with Baird. Your line is open. Great. Hi, everyone. I wanted to go back to the Safety.ai project that kicked off this quarter. I was hoping you could maybe speak to the broader opportunity to add AI and workflow automation across some of the other Vault suites. Is it just the case that the pain point associated with case intake is so acute that safety is kind of the logical and biggest opportunity for this type of AI application? If this starts to take off, are there some other adjacencies within Vault where it's also applicable ultimately? I'll take that one, Joe. If you look at AI in general and how it relates to Veeva Vault, one of the ways you could think about that, how we're doing that in our framework, is setting up AI as a series of bots that can handle a task that is a well-formed task so that a human doesn't have to handle it. You mentioned Veeva Vault Safety.AI. Where that plays is, the intake of a case. Some words come in either through an email or some other form. Those words have to be read and understand, well, what is actually going on here? What product is this case about? How do I code the complaint that it's about? Have I seen a duplicate before? That's a pretty high volume thing, and that's where we can apply Veeva Vault Safety.AI on it. You'll see other areas in Veeva Vault. Another area you'll see next year is classifying documents that come in to an inbox as it relates to a clinical trial. That's another relatively high volume area that needs to be done, and that's something where a bot can handle it. You'll see that in the quality suite over time as well in terms of product complaints, which is different than a safety event. That is, you know, I didn't enjoy this product. This product had a bad color, et cetera. That the product packaging was off, et cetera. That's a complaint. It's things like that where you'll see that automation over time. That's great. I wanted to make sure I'm just totally clear on the outlook for Engage. You know, Paul, when you talk about most of the growth kind of happening this year, is that just insight on the potential new users that you already have visibility on and kind of the contribution of those new users from a financial standpoint will therefore flow in next fiscal year, you know, fiscal 2022? Is that the right sequencing? When I was referencing companies that have turned on free Engage and will continue to renew, and that will end up being, you know, the larger contribution. When you look at the overall size of the Engage market, the bump that we'll see this year will be larger than the bump that we see next year, and even perhaps the year beyond that as well. Because many of our customers have turned on free Engage, and we expect the majority of them to continue with the renewal. We'll see a significant increase this year. You know, and over time, you know, more and more of our customers, those same companies will expand their usage of Engage, but also net new companies will happen as well. The companies that haven't turned on Engage yet for whatever reason, will start to turn it on over time. Maybe, Joe, if I might be able to add, that'll manifest itself as a bump in billings this fiscal year, and then you will see that revenue contribution in fiscal year 2022, just to be clear. Okay, great. Thank you. Our next question is from Ryan MacDonald with Needham & Company. Hi, Ryan MacDonald, Dom for Stoppard. Thanks for taking my question. At the Analyst Day, Brent, I believe you had slides showing modules per customer trends by year, with penetration increasing from 2.41 in FY 2020 to 2.52 recently. As the company looks at subscription growth expectations moving forward, but you're expanding your penetration by less than, you know, a quarter of modules annually, how should we think about the view of the cross-sell cadence to be over the near term to drive, you know, 20%+ subscription growth? Does model penetration need to increase or decrease to achieve these growth rates? I think you should expect to see a consistent cadence of additional upsell within our install base with the balance of new business as well. I don't think the motion from that perspective, you should expect to change for us to be able to hit the targets that we've established. Excellent. As a follow-up, you know, it's great to see that Crossix starting to come in above initial expectations for this year and sort of recovering a bit. If we look at, look at the expectations for Physicians World, it seems like those have remained, I think, relatively consistent. As we are now starting to get, you know, visibility into a vaccine, how are you starting to think about the recovery for that Physicians World business and perhaps some assumptions that you're looking at going into calendar year 2021? Thanks. I'll take that one. In terms of Physicians World, that'll Excuse me for a minute. That'll recover sort of with, I think with the vaccine where people feel comfortable, broadly speaking, in the face-to-face events. We're looking towards, you know, sometime towards the end of next year. I think that would be a reasonable expectation for the Physicians World business. Having said that, we are starting to get early momentum and starting to lead a bit in innovation we're doing around digital events. You know, there's a potential that in the long term, as we look at maybe not next year, but the following year, I believe we're gonna be gaining market share there and adding more value with both digital and face-to-face events and other services around that. I'm pretty bullish on the Physicians World business. It'll have another nine months of a little lagging effect right now. Excellent. Thanks again. Our next question is from Brad Sills with Bank of America Merrill Lynch. Your line is open. Oh, great. Hey, guys. Thanks for taking my question. I wanted to ask about Clinical Top 50. It's been a market segment that you've seen some real progress in recently. Can you remind us kind of where we are in the replacement cycle for that particular segment? You know, are we, you know You've got a number of wins there already in the top 20 category. Should we expect more of those types of wins, or are you looking at the next tier down where you could see more progress? You've been on this very steady kind of reference selling approach there. It seems like you've got the references now and so perhaps we could see a tipping point of replacement. Any color you can provide on kind of where we are in that cycle. Thank you. Yeah. These are important systems for the clinical operations and then the clinical data management. When we talk clinical, there's those two areas, clinical operations, clinical data management. In clinical data management, we are very, very early. Just, you know, we have a handful of customers very, very early, so it's, you know, basically, you know, mostly greenfield. There's legacy players out there that we have to replace, and that'll happen over the next, you know, literally 5 and 10 years. It's a long road. In clinical operations, we have our eTMF, which has pretty good market share. That was our first application. Out of those top 50, I don't have the exact number of how many use our eTMF, but there's still a decent amount to go that we have to get. There's more in CTMS, and there's payments, which is a new module. There's relatively new module. There's study startup. The big thing in clinical is the Clinical Network. That's a whole new, whole new leg of applications, and that applies to the top 50 and also all the other clinical applications. We are very early days in clinical. We only really have one maturely, roughly maturely penetrated application, and that's eTMF, and still that has a way to go. It's early days. Got it. Thanks, Peter. You mentioned, you know, expectation for kind of consistent growth in outside life sciences. It sounds like pretty balanced across CPG, chemicals, cosmetics. Is that just a function of kind of, you know, awareness needs to build in that category in order for you to see more acceleration there? Is it just go-to-market resources? Is it product? Maybe we just don't need to expect that business to really ramp and there's because there's so much opportunity within life sciences. I guess any color on kind of what's driving that more kind of balanced, you know, steady growth in that business. First of all, we're happy with that growth, you know, the numbers we gave at the Analyst Day. It's going pretty nicely when you, when you look at it, you know, grow to $100 million or so in that, in that neighborhood by 2025. What happens there is that's a, that's a slow and steady growing industry there. It's, you know, you've got a lot of capital costs. It's not one that's prone to jump very quickly, and it has a natural adoption life cycle. Companies have investments in previous technologies. They need to see those through, write those off, and it tends to be a very cautious and capital-efficient industry. That's what's going on there. No, it's not due to, you know, we need more feet on the street or something like that, or product immaturity. It's just, you know, it's that reference selling cycle. You only have so many early adopters, middle majority, and then you have late adopters. Got it. Thanks so much, Peter. Thank you. Our next question is from Stephanie Davis with SVB Leerink. Your line is open. Thank you for taking my questions, and congrats on the quarter. Just a quick question, given some of the startups we're seeing in the space. Just there's a growing number of drug development facing IT startups. What are your IT and M&A priorities in these adjacent markets with that in mind? Do you have any lower bounds for assets that you could or would acquire either on scale or product maturity, as many of them are relatively new? Thanks, Stephanie. In terms of M&A, that's something we always keep our eye on. We're always looking. In general, we would like to, if we can find something that is in a market that we would like to go into, and we can find a seed of innovation that will provide us with a boost or a boost of either technology or knowledge, we will do that. Where we can find something that's applied to a certain area and we feel like we can acquire that asset, those people that fit with our culture, and then give them a bigger canvas to play on so that they can accomplish more. The best example I have there is with Crossix. Crossix is full of marketing analytics that has a tremendous data platform behind it. When we combine Crossix with Veeva, we can take on the full, you know, life sciences data play, which is 10 times larger than marketing analytics market there. There's not a specific area that we're looking at, or that I can talk about now, but we're always looking and keeping an eye on it. All right. Understood. Following up with some of the earlier questions about your data product, how real is the trend towards real-world evidence, and when could we see maybe some offerings that are a little bit more laid out within your solution? Yeah. In terms of real-world evidence, that's a real thing, right? You have, you know, your sort of non-real world or traditional data that might be used for sales compensation, targeting and planning, that type of thing, and you have a real-world evidence which can be used in the commercial side but also in R&D side. That is real. Our focus is not in the real-world evidence versus in the commercial data, we gotta get that right. That asset we have in that Crossix data platform absolutely is that gonna be re-relevant for real-world data in the future, and we would do it in a very innovative way. First things first, and that's longitudinal patient data. We'll get that going, and then we'll expand from there. Would you be more likely to sell off that data for now or keep it to yourself and look at some innovation and development a little bit later? Oh, yeah, we would not sell any raw data rights. We, you know, we've spent a long time building that Crossix data network, that data platform, and we'll continue to build it and then build it. We use that for our internal use in our consulting group. They do use that, but then we'll use it to make products for customers, but it's not a type of thing where we would OEM or anything like that. All right. Understood. Thank you, guys. Thank you. Our last question is from Sterling Auty with JP Morgan. Your line is open. Yeah. Thanks. Hi, guys. Super high level question to start. You know, with the outcome of the presidential election, assuming it holds as is, and the potential for the run-offs in Georgia, is there anything that you're keeping an eye on from a regulatory or a legislative action that you think would have direct impact one way or other, either on the business or to your customers that could impact your business in the next year or two? Yeah. Hey, Sterling. Thanks for the question. I mean, we're certainly keeping an eye on, you know, what's happening with the election and also what happens around legislation and policy, as are our customers. You know, the reality is, the industry is a big industry. It's a global industry. These kinds of things, elections happen all the time. Legislation changes, policy changes all the time. It tends to be balanced out by, you know, a lot of the innovation that happens in the industry, innovating in new medicines, and really everybody focused on driving patient outcomes and doing the right thing for patients. That's a long way to say that, you know, some of these changes, they tend to be awash with the innovation. We haven't seen any impact yet on our customers, and, you know, we don't really expect any impact of some of those changes in the political landscape over the near term either. All right. Excellent. 1 follow-up question. There's a couple of questions around CTMS, and I'm just kind of curious, has anything changed in the competitive landscape in terms of you had that 1 legacy, you know, stronghold with Oracle Siebel CTMS? You know, I had, you know, Medidata had an offering, but you kind of came in, and I think we're doing a better job winning. Has anything changed in terms of any other vendors that you're seeing more active in that space or any change to kind of win rates or displacements? Sterling, no new entrants that we're aware of, no change to the competitive dynamics. You know, we're really replacing the client server there. I guess the only change is, you know, customers are seeing that Veeva has success in CTMS at scale. It's a large enterprise, so that's sort of de-risked it for people. I think many customers are thinking, "When would I go to Veeva CTMS? When does it make sense to?" Because at this point, I think we have the best alternative to the market and a proven solution. Got it. Thank you, guys. Thanks, Sterling. This does conclude the Q&A session. I'll now turn the call back over to Peter for any closing remarks. Thank you all for joining us today. I'd also like to extend a special thanks to Rick Lund for all his years of service and contributions at Veeva. This is Rick's last earnings call with us, and we wish him well in his next role as a CFO. I wish you all a happy holiday season, and we look forward to talking with you next year. Thank you. This concludes today's conference call. You may now disconnect.