Veeva Systems Inc. Class A

Ladies and gentlemen, thank you for standing by and welcome to Viva's fiscal 2020 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. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference call over to Rick Lund, Head of Investor Relations. Thank you. Please go ahead.

Good afternoon and welcome to Viva's Fiscal 2020 Third Quarter Earnings Call for the quarter ended October 31st, 2019. With me on today's call are Peter Gassner, our Chief Executive Officer, Paul Shawah, SVP of Commercial Cloud, and Tim Cabral, our Chief Financial Officer. During the course of this conference call, we will make forward-looking statements regarding trends, our strategies, and the 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. 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 veva.com under the Investors section and on the SEC's website at sec.gov. Forward-looking statements made during the call are being made as of today, November 26, 2019. 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 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. 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 gap metrics can be found in today's earnings release, which is available on our website and as an exhibit to the Form 8-K filed with the SEC just before this call. As you may have also seen in our earnings press release, we intend to begin using our website as a channel of public disclosure consistent with Regulation FD. Going forward, please monitor our investor relations website in addition to following our press releases, SEC filings, and public conference calls and webcasts. Finally, I'd like to remind everyone that we recently closed two acquisitions. Both of those transactions closed at the beginning of the fourth quarter and therefore did not impact our third quarter results. However, the forward-looking guidance that we provide today will include financial results for these acquired companies. Details for how we expect those acquisitions to impact the fourth quarter of this year can be found in today's earnings press release. With that, thank you for joining us and I will turn it over to Peter.

Good afternoon and thanks to everyone for joining us today. Q3 was another strong quarter. Results came in ahead of our guidance thanks to great execution by our teams across all areas of the business. Total revenue was $281 million, up 25% year-over-year. Subscription revenue grew 27% and our non-GAAP operating margin was 40%. I'll share a few highlights, starting with Commercial Cloud. It was a very exciting quarter for our commercial business. We entered new areas with the acquisitions of Crossix and Physicians World. We continued our momentum with new customers and delivered success with existing customers. We furthered our leadership in core CRM, winning a number of new enterprise and SMB customers. For example, a top 50 pharma selected us as their standard in Europe to replace IQVIA based upon their experience with IQVIA and their success with VivaCRM in the US market. Not only are we continuing to add more CRM customers, we consistently deliver on our commitment to their success. 14 small and mid-sized CRM customers went live in Q3 across US and Europe. In SMB, Viva CRM implementations typically take just four to six weeks. These projects are fast and reliable because of the quality of our software and our services. It was another great quarter for the rest of commercial cloud as well. We saw a particular strength in events management and open data. Customers are continuing to make the switch to open data, and I'm also pleased to see large customers expanding their use of open data across markets. For example, a top 50 pharma selected Viva Open Data for their U.S. operations, and two other top 50 pharmas are each in the process of rolling out open data to 30 countries. We focus on customer success, openness, and operating as a true partner to the industry. In contrast, IQVIA uses anti-competitive tactics and its monopoly power in data to restrict customer choice. This harms the industry and ultimately harms patients. In the past quarter, we have seen IQVIA anti-competitive tactics become more extreme, especially as it relates to their one key data offering. I'm pleased to report that customers are starting to stand up to IQVIA on these issues and many are considering moving to open data. We are also extending commercial cloud with two significant acquisitions. The CrossLix acquisition closed at the beginning of this month and things are off to a strong start. The team is a great cultural fit with exceptional leadership. CrossLix brings depth in patient data and data science to Veeva. The operational integration is going well and we're starting to refine and execute our plans for new products and tight integration between Crossix, VivaCRM and Open Data. Our customers are excited about their potential. I look forward to the impact that this can have on the industry over the long term. This month, we also acquired Physicians World, a leading provider of speaker bureau services for the U.S. market, which complements our events management software offering. Events is an area where speaker services and events software go hand in hand because of the complexity of logistics and compliance when organizing a physician-led educational event. Physicians World has been a strategic partner for many years. We have a long track record of success together. Now we've joined forces to make it easy for our customers to get industry-leading cloud software and services from a single vendor. I'm really happy to welcome the Physicians World team to Veeva. These acquisitions made for a very busy quarter. I want to thank our corporate development, finance, legal, IT, HR, and product teams for putting in the extra hours to make this happen with speed and quality. Shifting gears to Viva Vault. One of the major highlights of the quarter and our year was Viva R&D Summit, which had record attendance, growing more than 40% to over 2,000 people. There's real transformation underway, supported by Viva Development Cloud. For the first time, the industry has a suite of applications that span the full drug development lifecycle, all on a single cloud platform. It was great to see so many customers showcase their successes and to work with them as they look toward the future. Vault had another excellent quarter across enterprise and SMB. I'll touch on just a few highlights in quality and clinical. A top 20 pharma in Europe selected Quality Docs as their enterprise standard to manage quality documentation. They are a long-standing commercial customer, and QualityDocs is their first Viva R&D application. They've struggled with a host of legacy applications in R&D, and QualityDocs is now the first step in their digital transformation. We see a similar dynamic in clinical, where companies are turning to VivaVault as they modernize and unify their system landscapes. For instance, a Top20 Pharma customer also in Europe selected VivaVault Study Startup Enterprise-wide in Q3. We now have six top 20 pharmas standardized on Study Startup to streamline trial execution. In CDMS, we have been awarded our first large-scale phase three trial with an existing top 20 pharma customer. This is a very large study. It will cover more than 12,000 patients across roughly 700 sites in 32 countries. Congratulations to the CDMS team. Getting such a large study is a testament to the innovation the team is bringing to market and to their hard work making early customers successful. It's a great milestone and speaks to the maturity of our products and services. EDMS is advancing faster than we initially expected thanks to great partnerships with our early customers. I expect to be out of early adopter mode by the end of next year and continue our measured expansion and product innovation from there. I'll also share a few updates on Vault outside of life sciences. Overall, I'm pleased with the team's progress to ensure customer success and product excellence. They've got their focus and are executing well against the opportunity in quality and regulatory for the chemicals, cosmetics, and CBG markets. To put things in perspective, that market, our initial market outside of life sciences, is roughly the same size as our CDMS market. In October, we held our second annual customer event for CPG Chemicals and Cosmetics, hosting more than 50 companies in Chicago. Also in the quarter, the team progressed well in our newer areas. We signed our fourth early adopter, another CPG company, for the new VIVA claims application, and we had a major milestone in regulatory with our first CPG customer go live. We are now in active discussions with seven of the top 20 CPG companies, We're still in early adoption mode in this market and will be for another year or more, but this level of activity, especially with large enterprises, tells us that we're on the right track for long-term success. In all, we had a great quarter and are progressing well against our long-term goals. Our focus on innovation and customer success and our ability to execute across multiple large markets positions us well to be the strategic technology partner to life sciences, and to reach our $3 billion revenue run rate target in 2025. And now I'll turn it over to Tim for a discussion of our financial performance. Thanks, Peter.

Q3 was another quarter of strong financial results. Total revenue was $281 million, up from $225 million one year ago, a 25% increase. We continue to see strength in both Vault and Commercial Cloud. For Q3 of this year, Vault represented 52% of total revenue, up from 48% in Q3 of last year. Subscription revenue grew 27% to $227 million from $178 million last year. Vault contributed 49% of subscription revenue, up from 44% a year ago, indicative of both expansion of Vault usage within our existing customers and new customer additions. Note that the recognition of unbilled revenue from multi-year orders with ramping fees was 110 basis point tailwind to year-over-year growth in the quarter. Services revenue was $54 million, up 16% from $47 million one year ago. As a reminder, Q4 has fewer billable days due to the holidays and our field kickoff, which will impact our services revenue and services gross margins. Our non-GAAP operating income was roughly $112 million, a 40% operating margin, exceeding the high end of our guidance. Top line strength mostly drove this outperformance. We achieved another record hiring quarter with 185 net new employees joining Viva in Q3, bringing our total headcount to 3,012, up from 2,482 one year ago. Moving to the balance sheet, Deferred revenue was $251 million compared to $329 million at the end of Q2. This resulted in calculated billings of $193 million in the quarter, which was ahead of our guidance of $185 million. This outperformance was driven by a strong bookings quarter and better than expected services revenue. Please remember that there are numerous factors that make year-over-year comparisons of this metric highly variable on a quarterly basis. Therefore, we do not believe it 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 fiscal year are the best indicators of our momentum. Looking ahead, we expect calculated billings between $500 to $505 million in Q4 and roughly $1,175,000,000 for the full year. Elsewhere on the balance sheet, we exited Q3 with over $1.5 billion in cash and short-term investments, up from over $1.4 billion at the end of Q2. This increase was driven by our performance in cash from operations, which came in at about $62 million and included $9 million in excess tax benefit related to equity compensation. For the full year, we now expect cash from operations to be roughly $360 million, Excluding this excess tax benefit. Please note, this full year number includes one quarter of estimated impact from Cross-X and Physicians World, which tend to have net cash outflows in Q4. Before going into our guidance, I'd like to provide some details around our recent acquisitions of Physicians World and Cross-X. We acquired Physicians World for approximately $40 million in cash and granted retention equity awards valued at $15 million. Physicians World has a revenue run rate in the low 20 millions and is growing in the single digits with operating margins in the mid single digits. Nearly all of Physicians World revenue will be reported under professional services. In addition to the previously disclosed details of the Cross-X acquisition, please note that almost all of Cross-X revenue will be reported under subscription revenue with the remainder over the next two to three quarters. Lastly, these acquisitions have reduced our cash balance by about $470 million, which will be reflected in our Q4 balance sheet. We're very excited to have both of these teams join VEVA and plan to invest in both businesses going forward. Both deals closed at the beginning of Q4 and our forward looking guidance incorporates the impact of both acquisitions. In today's press release, we give detailed information about our expectations for how these acquisitions will impact our financial results for the fourth quarter. but please note that we won't be breaking this out separately next year and beyond as we will be deeply integrating these new solutions into our commercial cloud business. Now I'd like to share guidance for Q4 and fiscal 2020. In Q4, we expect revenue between 296 and 299 million and non-GAAP operating income of 100 to 101 million. We expect the acquisitions to have a headwind of roughly 400 basis points to Non-GAAP operating margin in Q4. Non-GAAP net income per share is expected to be 51 to 52 cents based on a fully diluted share count of approximately 159 million. For the year, we expect total revenue in the range of 1 billion 88 million to 1 billion 91 million. We anticipate subscription revenue to be in the range of 888 to 889 million. For the full year, we now anticipate organic commercial cloud subscription revenue growth of about 14% and vault subscription revenue growth of about 43%. For fiscal 20, we expect non-GAAP operating income of $409 to $410 million, a margin of roughly 37%. We expect the acquisitions to have a headwind of roughly 120 basis points to non-GAAP operating margin for the full year. We are now targeting non-GAAP net income per share for the year between $2.16 and $2.17, based on a fully diluted share count of approximately $158 million. Let me wrap up by sharing our initial outlook for Fiscal 21. Please note, 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 total revenue is between the range of $1,380,000,000 and $1,390,000,000 for fiscal 21. Within this guide, we expect subscription revenue to be in the range of $1,140,000,000 to $1,145,000,000. Based on our early spending plans, we see non-GAAP operating margins of 35% to 36% for the full year. with the impact of Cross-X and Physicians World resulting in roughly 250 basis points of headwind. In summary, it was another great quarter. The team's outstanding and consistent performance has set us on track to reach our target of $3 billion in total revenue by calendar 2025. As always, thank you for joining the call, and I will now turn it back to the operator for questions.

As a reminder, in order to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. And our first question comes from Sterling Audie with JP Morgan. Your line is open.

Yeah, thanks. Hi, guys. You mentioned Acuvia and the prepared marks. We've gotten a number of questions around the competitive displacements and and the CRM side. Could you just maybe go into a little bit more detail into those situations and just how you're seeing that competition shaping up?

Yeah. Hey, Sterling. Hi, this is Paul. Thanks for the question. So I'll take that one. You know, they did announce, you know, I think their number was 70 wins historically. And then I think they announced a couple of two small divisions of large enterprise customers. You know, those kinds of things are going to happen. You know, we, based on IQV's kind of aggressive discounting and pricing and their bundling, combined with account-specific factors, those sorts of things will happen. You know, I don't see that as a trend. In fact, you know, Viva's gaining share. I'm really pleased with the progress that we've had in core CRM. Over the last couple of quarters, and this quarter in particular, we've actually grown market share. and I think that's largely driven by the strength that we've had in the small and medium-sized business segment. Pre-commercial customers are going to Viva. They're betting their launch on a vendor and a partner that they can trust and then existing customers are expanding. So I think I'm really pleased with the progress and we continue, our strategy really hasn't changed. We continue to focus on customer success and product innovation and also Executing, which is over the long term, which is what I think customers continue to want.

That's great. One follow up just along those lines. For the investors that are newer to the story, can you help them understand this idea of the one key data? They look at it and say, wow, they've got this data that seems to be almost must have by the customers and they bundle it into the CRM. Is there a risk that you could lose market share before anything happens in the courts or something else in the marketplace?

So the anti-competitive behavior that we've seen from IQVIA has been focused on primarily three of our products. Network is where it started, then Nitro, and then more recently, Andy. It has not been, we haven't seen any impact on core CRM. So I think it's unlikely that that will impact

Your next question comes from Ken Wong with Guggenheim Securities. Your line is open.

Great. Thanks for taking my question, guys. Maybe the first one for Tim, you know, when we're looking at that fiscal 21 revenue outlook, I know the expectation is you guys aren't going to really talk about the M&A too much there, but could you maybe help us unpack how much of that contribution is M&A specific versus what's organic?

Yeah, Ken, as I said in my remarks, we're deeply integrating these two solutions into our commercial cloud business, so it's not our intention to break out the inorganic piece specifically going forward. We wanted to do it this year to lay the foundation of the expectation of what those businesses will contribute, especially after you take into account purchase accounting for the rest of the year. But that's not our plan going forward because we're integrating these businesses so deeply into the overall commercial cloud business.

Got it. And then as far as that, I mean, that 250 basis point headwind to alt margins, I guess any sense for kind of how that fades away after next year? Obviously, I don't want to kind of guide to the following year, but is that something that we should expect in terms of investments will still be something that weighs on the business or more of a one-year impact?

Yeah, so I think there's two components to that, Ken, as you think about next year. One is, as you said, and you heard Peter and I talk about, These are businesses or solutions that we'll continue to invest in. I don't think that's a one year phenomenon. I think that is probably over time. and the other piece of it is obviously some of the purchase accounting spills into next year, which also impacts the operating margin impact that they have. So I think that obviously goes away after the first half of next year. But I think that these are businesses that we're bullish about and we think with investment we have an opportunity for customer success and long-term growth opportunities.

Got it. And then maybe a quick one for Peter. You mentioned CDMS advancing faster than expected and it'll be out of early adopter phase next year. How should we think about what that means from a customer adoption perspective? Is this typically when you might see the kind of the slow adopter, fast followers kind of dynamic kick in or is that, should I interpret that differently?

I don't think there'll be a rush, so to speak, because CDMS Customers have their natural time when they adopt these things, and we're not going to impact that too much. And they will always start small with a system like that. So, no, I don't think they'll – I think it will be steady progress, but start to be significant in revenue in the coming years. I guess if we step back, the main thing, the main news here is Viva handling the most complex and the largest trials. That really says the product has arrived, and that bodes very well for our future.

Got it. Great. Thanks, guys.

Your next question is from Baban Suri with William Blair. Your line is open.

Thanks for taking my questions, guys, and nice job there. I wanted to follow up on Sterling's question a little bit on the competitive front. You touched, obviously, on the commercial side. I'd love to see if you're seeing any more competitive changes on the clinical side And then as you look at sort of the CDMS or specifically EDC part of the clinical side, any change in competitive environment given that obviously the big player there was acquired by Dassault?

I'll take that one. In terms of the CDMS or the clinical side, we're seeing no change in the competitive environment. We're really focused on our own execution with our early adopters, polishing out that product and the service offering and getting ready for that to become a very big business. on the CDMS. On the broader R&D side, development cloud, also no changes in the competitive environment there. Development cloud is really accelerating. When you think about 2,000 people at the R&D customer summit, that's one of the biggest events of the year in life sciences. So really there, the momentum is increasing. I think customers are planning for Viva over the long term. On the development cloud, these are These are very crucial systems, very sticky integrated systems. So customers are thinking 20 years down the road literally on these types of things.

Peter, that's helpful. I guess I wanted to follow up a little bit on that. So if we pick the first part of that, I think the first real vault product, if we go back to traditional nomenclature, was ETMS. And given that's been the market longest, a little color in sort of growth rates and penetration, of that business, given it's the most tenured from that space, would be really helpful. Obviously, CTMS falls, you know, kind of ties into the ETMS space, but I'd love to understand how ETMS has been doing. You touched on RIM and other pieces, but I'd love to understand how that core first product is doing in terms of penetration and growth. Thank you.

Yeah, it's still growing quite nicely, actually. I won't get into the exact penetration rates, but growth, you know, growth as measured by bookings, that type of thing, Very strong in ETMS this year. And you might wonder, okay, well, how can that be? Well, it's a big industry with a lot of players. So yes, our early adopters, I would say we're into the middle, getting into the late majority. If you look at the classic crossing the chasm, there's still plenty of customers that don't have our ETMS yet. And also in life sciences, the industry overall is growing. and the number with the move to precision medicine, the number of biotechs is growing, is up significantly from when Viva started in 2007. So the market is actually for ETMF has probably grown significantly since the time we introduced it in 2012 and it continues to grow.

Thank you guys. Appreciate your time.

Your next question is from Stan Zlotsky with Morgan Stanley. Your line is open.

Hey guys, good afternoon and thank you for taking my question. I wanted to actually go back to the CDMS, the big win for Phase 3 drug trial. That one was very impressive to us because we didn't hear a whole lot of big success with Phase 2 drug trials and now we have this mega Phase 3 dropping in at a top 20 pharma, no less. Maybe just walk us through how this one came together, and are there similar type of engagements that you have on the horizon? I'm not necessarily saying for Q4 or anything else like that, but just as we look forward, is the product mature enough where it can very effectively handle these massive phase three trials? And then I have a quick follow-up for Tim.

Okay. Yeah, this large trial, this was at a customer, Top 20 Pharma, that we have signed a long-term enterprise license agreement with. And then when they do that, they were the first to sign a long-term enterprise license agreement with us in the Top 20. When they do that, they will start with clinical trials that are smaller and less risk, could be smaller Phase 3s, Phase 2s, Phase 1s. And when they're doing that, our product is new and they're testing that out, but also they're adjusting their processes. So now they have their processes as it relates to Veeva figured out enough, and our product has matured enough. Now they're taking on this very, very large trial. So that's kind of unique. We have no other customer doing that yet, but we have a number of customers we're in discussions with that could result into these long-term Enterprise License Agreements. So the level of activity is high. When that's going to actually turn into a booking or a sale, that's something we can't predict yet at this time. But the level of activity is very high.

Okay, perfect. And then a quick follow-up for Tim. On billings, as we think about the Q3 and Q4, Anything to call out from a one-time standpoint, either in Q3, maybe FX or anything like that, and just how we should think about Q4 billings, if there's anything to be mindful of other than the $30 million of calculated benefit to Q4 billings from acquisitions.

Yeah, Stan, no FX impact, obviously, I shouldn't say obviously, no Q3 impact of FX. In terms of Q4 and Q3, there is no one time, and I think what you're hinting at is, you know, is there a movement of someone's renewal date that changes the dynamic of the annual billings or the quarterly billings? No, none of that we saw in Q3 or we are projecting in Q4. Perfect.

Thank you so much.

Your next question is from Brian Peterson with Raymond James. Your line is open.

Hi, thanks for taking the question. So I wanted to follow up on Sterling's first question on the CRM side of things, but it sounds like you're continuing to gain share there. I'm curious where we are in terms of market share. Where do you think that number could get to in just maybe an update on the penetration rates of some of the add-on products?

Yeah, hey, Brian. This is Paul. So, yeah, we're north of 80%. I think we talked about a while, you know, a quarter or two back that we hit that north of 80% mark. You know, it's still growing. I think we can see pretty fair to see line of sight through to 90%. After that, it gets a little harder to predict. So that, you know, the share continues to increase. And I think, again, it's tied to Our ability to execute in the marketplace. I think customers are clearly looking for a partner who can deliver and make sure that they're going to be successful. So we're going to focus on customer success and innovation. So I think 90% is probably a clear line of sight, too. But then after that, it's maybe a little bit harder to predict beyond that.

In any perspective on the attach rates of some of the products like approved email and some of the add-ons that you've had?

Yeah, so approved email continues to be really high. It's north of 60%, and that's really driven by Viva helping move the industry to become more digital, enabling the field teams to be able to communicate with customers via digital engagement. So I would say we've been successful moving the industry there and our customers have had a lot of success doing that. Then if you look across some of the other add-ons, events is moving quite well and that's north of 20%. And then some of the other add-ons like are closer to 10% in terms of account penetration. So there's still a fair amount of runway for the add-on products in terms of the overall opportunity.

Great. And maybe just one more follow-up. Obviously, we've seen two acquisitions in pretty short order here. Curious appetite for additional limit A with the cash on the balance sheet. Thanks, guys.

In terms of other M&A, we're always looking, right? You look a lot, you don't purchase very many, but you look a lot, and we happen to find two that really fit for us. So we'll always keep doing that. What fits for us is, I can just explain that a little bit, it's when we find a cultural fit and a synergistic fit with the business, and we have the right leader to run that business, and we can find where one plus one equals three. So we're always looking, and sometimes we'll find those, where we can add value for the customers. We can create new value and then we'll execute on that. But, you know, it's generally rare. You look a lot and you find a little.

Thank you. Your next question comes from Rishi Jaluria with DA Davidson. Your line is open.

Hey, guys. Thanks so much for taking my questions. First, just wanted to maybe start off with a comment, Peter, you made in the prepared remarks on IQVIA and how you're seeing customers pushing back against their behavior and adopting open data. Is that something that if this trend kind of continues, it can start to serve as a tailwind for adoption of products like Nitro that in the past have been hurt by the lack of access to data? And then I've got a follow-up.

Yeah, if we look at the set the stage for the overall concept here with IQVF, QVIA has some near-monopoly positions in two types of data. They have the sales data area, and then they have the reference data. That's the open data. And they're preventing that data from going into some of the Viva software products, and that's harming the uptake of those software products, particularly that's Network, that's Nitro, and that's Andy. As it relates to One key, there's competition there now. We have open data, so some customers are moving to open data. Unfortunately, in the case of Andy and Nitro, they would need the sales data and the reference data. So I don't see good progress for Nitro and Andy until we can resolve this issue completely with IQVIA, which will have to probably be resolved by the courts. Where we are seeing progress for NITRO particularly is in companies that use alternative data sources. In some markets, some certain types of countries, not all companies will need IQVIA data. For example, in Japan, there's another data provider there called Ensise that's making great progress in Japan, particularly with the Japanese domestic. That's kind of the lay of the land there. The extreme behavior by IQVIA on one key is actually helping our open data business a bit. That's not going to be the magic that will unlock network or Andy or Nitro. We'll need a more fulsome solution for that.

Got it. That's really helpful. And then I just wanted to maybe go a little bit into if you've seen any If you have any updates for us on the Engage business, if there's been any areas where you're seeing particular traction, and maybe how we should just be thinking about what the runway of Engage looks like from here since we've been talking a lot about commercial cloud today. Thanks.

Yeah, hi, this is Paul. And Engage is doing well, again, as the industry is trying to become more digital. This opens up a channel for field reps, to interact with customers remotely via live meetings. So it's really a way that's increasing access for customers. So customers that may be difficult to see face-to-face or that want to interact with a pharmaceutical company online at their own convenience are using Engage and it's starting to catch on there. But it's a It's significant change management. Remember, this is an industry who's called face to face on customers on doctors for a long time, for pretty much ever. And, you know, this is a change management from a rep perspective, but also from a doctor perspective. So the early what we're seeing with our early customers is they're getting great results. They're getting a lot of time with customers, sales calls that may last between 15 and 20 minutes. And they're also getting access to doctors that they may not have gotten access to face to face. So really significant benefit, but it'll take time because of the change management. So I think as companies learn more over time, I think you'll start to see this market play out, you know, over the next couple of years where it becomes more standard, a standard way of doing business. I think it's still in the early stages, but the results are proving out to play out well.

All right, great. That's helpful. Thank you so much, guys.

Your next question is from Scott Berg with Needham. Your line is open.

Hi, everyone. Thanks for taking my questions. I got one in a follow-up. I don't know who wants to take the first one, but it's on the CrossX acquisition. Spent a lot of time at Dreamforce last week at your booth there trying to understand what the product is and came away with a good understanding. But could you help us understand maybe how you take some of that marketing data and actually integrate it with the rest of your commercial cloud and maybe have a mutual benefit to sell all the solutions more holistically?

Yeah. So CrossX, if you look at the core of what they bring to the table, it's data science and it's understanding of patient behavior. Backing that is data. hundreds of millions, data on hundreds of millions of patients and millions of doctors in the U.S. and all types of data on that. So it's hundreds of terabytes of data and significant data science algorithms on that which Crossix uses to measure the effectiveness of digital marketing. Now where we can take that in the future, that's, you know, we're refining our plans right now. We have CRM, We have Open Data, we have CrossX, and we're making plans both to improve the existing CrossX products and to create brand new products. We're not ready to announce those specific plans yet, but we'll certainly let you know when we're ready for that. But overall, it's exciting. It's Viva's entry into data science, and we bought a company that has 15 years' experience in it. were really the thought leader in it. They were doing data science before there was the term data science. So I'm really excited about it. It's going to be a transformative acquisition for Viva.

Great. Helpful. And then from a follow-up perspective, Tim, you had a big jump in unbilled receivables in the quarter. I think we all understand in the 606 world what causes that generically. But was there a certain type of contract or a certain set of products that made that jump so materially from one quarter to the next? Just trying to maybe help understand that dynamic because it was a little bit unusual from your recent trends.

Yeah, Scott, one thing to note is when you look at the unbilled receivables number that you'll see in our balance sheet, that is a combination of subscription and services. And we'll typically see that in Q3 because October – becomes a pretty big utilization month for whatever reason for us. So that was helped by services quite a bit. There wasn't any specific new types of subscription deals that we closed in the quarter that would have impacted that, Scott. So I think it's similar to what we've talked about in the past in terms of these multi-year ramping fee deals that do not have the ability for renewal on an annual basis. So I think it's the same type of deal. But in Q3, at the end of Q3, you'll see a little bit of a pop from services unbilled revenue there.

Very helpful. Thanks again.

Your next question is from David Hines with Canaccord. Your line is open.

Hey, thanks for taking my questions. I wanted to ask about physician's world, so maybe for Paul. A bit of a break from the norm, acquiring a largely services business. So I guess the question is, do you see a big opportunity to sell events management software into their base? Was that part of the rationale for the deal? And then just standalone, is there a significant opportunity for margin optimization in that business?

Yeah, David, thanks. So the rationale was really driven by combining great software with great services. So what Physician's World does is the The majority of their business was focused around providing logistics services to their customers. When a life sciences company does an event, they invite a thought leader to talk to a number of customers. They often have to get a hotel. They have to pay the speakers. There's a bunch of logistics that are associated with managing that event, and that's exactly where Physicians World played. Now, these are really significant thought leaders. They're important people to the life sciences company, so you need to provide great White Glove Service, and that's exactly what Physician World provides to customers. So the opportunity for Viva was to provide both of those under one roof because our customers were asking us, they wanted one vendor to make sure that it was really seamless and really fully integrated, and at least to have that choice of having one company provide an end-to-end solution. So that was the rationale for acquiring Physician World I'll let Tim comment on the kind of the margin optimization part of that.

Yeah, so DJ, to Paul's point, this is very important that it be high quality and white glove service. So I don't know if there's, I wouldn't say there's no margin improvement potential, especially as that business scales out. I think the combined events, software business and services business that we now have are all being delivered from Viva. There's an opportunity there from a margin optimization, both in terms of just normal margin and then at some level of economies of scale.

Yeah, okay. Makes sense. And then, Peter, so you've taken a pretty prudent approach to scaling efforts outside of life sciences, and I know this is a playbook. You ran early days in kind of core life sciences markets. So I'm wondering... What is it that you're looking for in your cornerstone OLS clients that could serve as a signal that the time's right to step on the gas in terms of incremental investment there?

I guess what we look for is, do we have product market fit? Do we have capacity? Are we able to take on more customers and not have issues? In the core market that we're going after now, you know, we're getting close. We've got, you know, in the quality and the regulatory product areas in CPG chemicals and cosmetics, we're having a lot of discussions in there. And so we're getting pretty close, but we'll stay in that market, you know, for a good long time here. It's a big market. It's about as big as our CDMS, and we'll be very prudent if and when we pick another market outside of life sciences. That's sort of the hallmark of Viva, right? You really get laser focused on the specific needs of the product and the industry, work it out with the early adopters, and then you know exactly who to sell to and you have exactly the product you need. And that takes time.

Got it. Very good. Thanks, guys. Your next question is from James Rutherford with Stevens Inc. Your line is open.

Hey, thanks. Good afternoon. I've got a couple questions on commercial, if I may. Paul, you talked about winning back that top 50 European pharma from IQVIA. I'm just curious, given how they oftentimes discount these deals pretty heavily and they try to lock in customers for, in some cases, three to five years, I'm just curious what the situation was here and whether this customer was one that went live and wasn't pleased or was it a failed implementation that brought this customer back into the fold? Just any color you can provide there.

Hey, James, thanks. So just to clarify on that one, This was a top 50 company, and they have Viva CRM, and they have Viva in the U.S. marketplace, and they've been a longtime Viva customer in the U.S. and very, very successful. They also had IQVIA, legacy IQVIA, in the European region. So they were operating essentially separately regionally. for a long period of time, which is common, particularly in companies of that size, where they have different systems in different regions. And what they wanted to do was to centralize and harmonize more globally. So they had a decision to make. And they had experience, deep experience with both Viva and IQVIA. And based on their experience, they had to choose a partner that they could trust can execute on a global program. So they, based on that and kind of our track record of success that we've had with them in the innovation, they chose Viva. So wanted to be clear as to what was the context behind that. They knew both Viva and IQVIA quite well.

Perfect. I appreciate that clarification. And a follow-up on commercial, a much longer term question. It seems like there's been a trend that physicians are having fewer and fewer in-person interactions with sales rep. But Some reporting that I've seen has said that newer digital engagement formats like email or virtual meeting may not necessarily be filling that gap entirely with the implication being that physicians are perhaps pulling the information they need directly from the pharmas or something like that. So I'm just curious, given that you all see more data on these interactions than anybody else in the market, is that a fair description? And more generally, what do you think the long-term role is for the pharmaceutical sales rep in this industry?

Yeah, it's a good question. And, you know, I would say that for, you know, the in-person interactions, you know, that it's actually not really decreasing over time. You know, if you look at the number of reps globally that are in the industry, that's actually increased a bit over time. It shifts a little bit by country. Some countries tend to decrease and companies within countries tend to decrease and others tend to increase as their portfolio changes over time of drugs, Goff Patton. And then as new drugs are launched, they may reduce in one area and then increase in another area. So the number of refs has been relatively constant. And as the market is launching more specialized drugs, they tend to be more scientific in nature. And you need people. You need human beings. And the relationship becomes really, really important to getting those drugs out into the marketplace and into the hands of the right customers and the right patients. So I don't see, I certainly don't see, I haven't, the data does not show that it's diminishing. It actually shows it's pretty constant. And I see digital increasing at the same time. So when I look back at our approved email utilization and even newer with Engage, the utilization is increasing over time. So the industry by and large is doing more digital at the same time that they're doing roughly about the same, roughly the same amount of face-to-face interaction. And I think that's where it will trend for a while, particularly as the industry becomes more scientific and as the industry approaches more precision-type medicines. I think that mix will continue for a long time.

Got it. Very helpful. Thank you.

Your next question comes from Sandy Draper with FundTrust. Your line is open.

Hi, this is Stan Bernstein. I'm for Sandy. Thanks for taking my questions. A lot of my questions have been asked, but maybe to put a finer point on it, you mentioned IQVIA became more anti-competitive this quarter. Can you maybe elaborate on what exactly was escalated this quarter versus the past? And then maybe as a follow-up, to what extent does CrossX have the capabilities to provide a data alternative to IQVIA? And Peter, maybe you already touched on that, but is there any potential to provide some kind of a data offset or data alternative to IQVIA? Thanks.

Yeah, the first question about IQVIA, just, you know, more, I guess more of the same from IQVIA, but maybe more rhetoric from their field team. I guess that's some of the echoes. We've even seen in some of our vault products where the customers wanted to put in some one key data and IQVIA said, okay, you can't put it into the vault product. Now, the reality is That one key data is not so important to the Vault products at all. So the customers just said, okay, we're going to go forward anyway. And in one case, it led them to using open data in one of those things. So that's the type of stuff they haven't done before. So I think they're getting a bit desperate or some type of thing. And it's having a bit of a backlash in the customers. So that's that one. In terms of Crossix, Do they have assets that we can leverage into other data products? Certainly there's a lot of healthcare data and assets that CROSIX has. It doesn't have all the things that we would need yet to do any kind of a sales data, anything like that, but it's certainly something that it's not impossible that we do that in the future. We don't have any specific plans at this time, but it's always an option.

Got it. Thank you.

Your next question comes from Chris Murden with Goldman Sachs. Your line is open.

Okay. Thanks for taking my question. For Quality One, you called out, I think, a CPG customer going live with a regulatory product, and I know you mentioned multiple customers taking claims already as well. Can you maybe help us think about the magnitude of some of these deals or maybe how We should be thinking about milestones in general for Quality 1 as you continue to build up referential customers there.

Yeah, these are... The things I think about are when we have activity in the top 20s, that really can move the needle for us. Not the initial activity, but over the long term. And as we look to have customers of $10 million a year or more and many more. And that just takes time to build up. And to do that, you need to have multiple successful products into these large enterprises. And it all starts with a product somewhere in a division. And even before that, it starts with discussions, building relationships and the customers really understanding their business That's what I'm excited about over the last quarter or two, the depth of relationships we're building and the inquiries we're having and the discussions we're having.

Okay, great. And maybe just coming back to CrossX for a minute, it sounds like there's quite a bit of work being done, not only in their products, but perhaps some new products as well. And I know it's early, but is it fair to say that in the context of next year's guidance, it doesn't really include any benefit of those new products or cross-sell? with your existing sales force?

Yeah, new products. Boy, any new products we would make, that takes a while, too. First, you've got to make the products. You've got to get a few early adopters. So even if you look at products that we announced three or more years ago, things like Safety or CDMS, those are very, very early. So if you would look at them, they're not very material to our financials now at all. So that takes years. Thank you for joining us. So we have to build out the field team, the product team, and safety there. Also CDMS, more to build out on the product, more to build out on the field team as we see that business starting to ramp. And in the cross-ex area, that's where we'll look to our new product roadmap and what we need to build out there. So the three significant areas of investing, that's what makes me excited because that makes sure our future is bright all the way through 2025 and beyond. Okay, thanks.

Your next question is from Tom Roderick with Stiefel. Your line is open.

Hi, everybody. Thank you for taking my questions. So I guess on the first one, I want to kind of go back to the, I think it was Stan that asked this earlier, just a question on the CDMS win. And, you know, I think it's obviously a big deal to land a Phase III trial. Can you just talk a little bit more about the dynamics of what is required with that product aside from just sort of scale and being able to scale up to 12,000 patients along those lines? What additional features were required for you to kind of get into this win? I would imagine it was a pretty long competitive process. Perhaps you could talk about that. And then lastly, at the analyst day, you spoke about the clinical query language. I know it's very early and probably customers haven't seen much of that yet, but what has the response been? to the idea of a new and perhaps more flexible query language on the back end of that. Thank you.

As far as the CDMS and the large trial, what we needed to do there, wow, there were a lot of things in the product but around the product. So, for example, we talk about 700 sites all around the world, I think 30-plus countries. We had to get our support infrastructure up to speed and very understanding about clinical because you're actually doing the end-user support for clinical investigators in Japan, in Russia, etc. So that's an example of one thing we had to get ready. We had our performance, right? We had to have our performance tested, ready, architectural things buttoned up. Sample test environments, et cetera, to handle that level of scale and complexity of data that's going in there. And then administration. Okay, how are you going to administer all these clinical investigators that are coming in around the world? You have to handle all the loose ends and the loose corners that only come with experience. Software is sometimes, you know, it can be like a person. You've got to go through some bumps and bruises to get to maturity. So it's just the maturity of the software and all the processes around the software, including the scale of our professional services team and our partner network. Nobody has ever run this large of a study on Veeva CDMS before, and our approach is different. The technology is different. It's more agile. So there's different operating roles that need to be established inside of the pharma company, and that all needs to get worked through the system. In terms of the CQL, I would say there's, I wouldn't say a handful, but certainly tens of people inside the industry who really get it, what this CQL can be. It's sort of the early adopters who are thinking forward because you have to remember Workbench is not available to any customers yet. We're targeting towards the early part of next year for it to be available to the first early adopters. So We haven't seen the impact of the CQL or the data workbench yet. So far, the excitement is around the much better clinical data management system.

Outstanding. Okay, that's great. Thank you, Peter. Tim, simple one for you. Maybe we have to wait on this. I didn't hear if you gave the RPO number. Is that something we just need to wait for the queue on, or do you have that handy that you can share that with us?

I don't have it handy yet. Right in front of me right now, Tom. We'll have it in the queue for sure. Rick and I can, well, we should wait for the queue.

I'll wait for the queue. Perfect. That's it for me. Thank you, guys. Appreciate it.

Your next question is from Brad Sills with Bank of America Merrill Lynch. Your line is open.

Oh, great. Thanks, guys. I wanted to ask about the 7 of 10 CPG firms that you mentioned. That sounds like great progress in pipeline, in discussion there. for Outside Life Sciences. If you look at where those customers are today and what they're using Quality 1 for versus, say, some of the earlier wins, I guess, how are you seeing the use cases evolve outside life sciences, particularly within that CPG vertical, which sounds very good?

Yeah, we're having active discussions with seven out of the top 20 CPGs, and what we see there is A lot of cross-pollination between the quality area and the regulatory area. So that's a common theme. When we talk with the customers, we see a lot of concern and interest in environmental stewardship, a lot of knowledge that the consumer goods is always faster moving, faster moving all the time in different parts of the world. So they want to get from from innovation out to the store shelf as fast as they can. A lot of concern about the environment and what they need to do to be environmentally friendly and good stewardship of the environment. So those are common themes. And the other one is looking for a partner that can scale across quality and regulatory to These companies that have over 50,000 people and they just have not had a partner that has been able to do that so far. So they would implement departmental solutions, maybe a quality, maybe if they have 20 manufacturing plants, they might have 20 quality solutions. Now they're seeing, okay, potential Viva to have a unified quality system or a unified regulatory system rather than one for every different country or every different plant. Those would be the common themes.

Got it. Thanks, Peter. And then one more, if I may, please. I didn't hear you mention outside life sciences is one of the top areas of investment. Should we take that to mean that you're still kind of early on in your reference selling there such that, you know, maybe the investment cycle, you know, for go-to-market sales personnel, you know, might be longer term?

We're Yeah, I think in terms that we're certainly investing appropriately outside of life sciences, I think the delta increase in spending will be actually larger in the cross-ex in the safety in the CDMS because we see more product work there that we have to do over the long term. We're still investing in outside of life sciences. It's just that it'll be a little bit heavier in those three other areas.

Got it. Thanks, Peter.

And our last question is from Kirk Mittern with Efficor ISI. Your line is open.

Hi, guys. This is actually Peter Berkley on for Kirk. Thanks so much for taking the question. You know, you mentioned a couple times your kind of growing partner ecosystem. I kind of just wanted to see if you could dive into that a little bit further, provide some color, you know, on how you're continuing to leverage this partner ecosystem to, you know, drive sales and scale both within and outside of life sciences.

Yeah, hey, Peter, this is Paul. You know, we, when we think about providing solutions to our customers, certainly Viva is a very significant strategic partner to the industry, whether it's inside of Life Sciences or outside. But we're not the only, certainly not the only technology provider that any company will have. So, you know, a really big part of our model is to be partner friendly. and to give customers choice. We have a very open partnership model, even in areas where we have existing solutions. So the Physicians World Acquisition is one good example. We made an acquisition in an area where we saw services being really strategic and a key area for our customers. They were asking us to get into that area and help them. Yet, we continue to partner in that same exact area. So we have other logistics services providers and we'll continue to support them for the industry. So our philosophy around partnering is to be very open, to give our customers choice and to make it really, really easy for customers to do business because we know that we're not going to be the only vendor in their landscape and our mission is to help make our customers successful. And part of doing that is making integrations and services accessible and really easy for customers.

Okay, great. Thanks so much. That's very helpful. Just maybe one quick follow-up if I can. Just curious if you can provide any color on the continued search for a CFO to follow up with Tim.

Yeah, hey, Peter. This is Tim. So we continue to build the pipeline on that particular role. It's very important, as you can imagine, to both Peter and myself. So we continue to build the pipeline both Identifying candidates and getting some interesting inbound folks and talking to our network of people who know this role quite well. One thing to remember, and I think you do remember this, Peter, is I've committed to the board and to Peter and the management team and the company here that I'm here until we bring that person on and get that person onboarded effectively. So there's no real timetable for Thanks, Peter.

Ladies and gentlemen, this does conclude the Q&A period. I'll now turn it back over to Peter Gassner for any closing remarks.

Thank you, Operator. I would like to thank everyone for joining us today. We wish you all a wonderful holiday. Thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.