Veeva Systems Inc. Class A

Ladies and gentlemen, thank you for standing by and welcome to Viva's fiscal 2020 fourth quarter results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll 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 over to your speaker today, Rick Lund, head investor relations. Please go ahead, sir.

Good afternoon and welcome to Viva's fiscal 2020 fourth quarter and full year earnings call for the quarter and year ended January 31st, 2020. 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, March 3, 2020. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. VEVA 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 GAAP 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 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 everybody that we closed two acquisitions in the fourth quarter. On this call, we will provide details around how these acquisitions impacted our Q4 and fiscal 20 results and how they contribute to our fiscal 21 guidance for total revenue and commercial cloud subscription revenue. In addition, we will, in some cases, provide growth rates comparing periods that include the contribution from these acquisitions to periods that do not. With that, thank you for joining us, and I will turn it over to Peter.

Thank you, Rick, and thanks to everyone for joining us today. Q4 was another strong quarter with results ahead of our guidance. Fourth quarter revenue was $312 million, up 34% year-over-year. Subscription revenue grew 33%, and our non-GAAP operating margin was 34%. The past year was an exceptional one for Veeva. We retained our deep focus on customer success and product excellence. We expanded our leadership position and passed $1 billion in revenue a year and a half ahead of plan. We accelerated our pace of innovation in established and new markets and we made a potentially transformative acquisition with the addition of Crossix. We've refined our operating model for driving innovation in existing markets while also creating new, agile startups within Veeva. This gives our startups, like CDMS and Safety, the autonomy to be laser-focused on new markets while our core teams remain dedicated to transformation in their areas, like in CRM, for example, where we are embedding AI in ways that will fundamentally advance the industry. Also key has been the growth of our leadership team, which has expanded thanks to the exceptional new people we brought on board this year and the very talented people that have developed within Veeva. In all, we have set ourselves up well from a product, operating model, and team perspective to execute on the major opportunities ahead and to achieve our $3 billion revenue target in 2025. Thank you and congratulations to the entire Veeva team for their outstanding work this year. Now I'd like to share some highlights for the quarter and year. It was a record quarter and year for Veva Commercial Cloud. We further extended our leadership in core CRM. Our bookings increased over last year and we also saw an increased pace of new customer wins, adding 53 new customers compared to 46 the year prior. Our strength in core CRM is fueling growth in commercial cloud overall as companies look to Veva as their commercial foundation for the future. For example, in the quarter, a cutting-edge specialty diagnostics customer who is anticipating hypergrowth expanded their use of Viva CRM and adopted five additional commercial cloud applications enterprise-wide. This seven-figure deal was our largest ever in commercial SMB and shows the strategic importance of our solution for companies of all sizes. Viva Open Data also had a number of wins in the quarter as we continued to gain momentum in the data market. One of our key wins was a top 20 pharma that selected open data in the U.S., replacing their current solution. Head-to-head, they found our data was better and more expansive. This is key as they moved to new selling models that require greater depth of information, agility, and the vendor that operates as a true partner committed to their success. Also in the commercial area, I'm pleased to share that Crossix closed the year strong, with revenue coming in right on plan. The acquisition is going exceptionally well. The Cross6 team has brought new DNA around patients and data into Viva. Coming together will go well beyond what either company could have accomplished independently. We have an exceptionally strong joint vision and roadmap, which you'll hear more about this year. Before moving to Vault, I'd like to extend a special thanks to the Viva CRM team for their rapid response to help our customers navigate the challenges surrounding the coronavirus. For Viva CRM customers not currently using Engage Meeting, we are providing free access through September for field users in impacted areas. This allows reps to connect online with the doctors that depend on them for information about the latest research and treatment for their patients. In Viva Vault, we had our best quarter ever, capping off a great year that was driven by strength across product areas and geographies. We are winning more new Vault customers and existing customers are expanding their use. We closed the year with 715 Vault customers, up 25% from a year ago. And existing customers continue to buy more based upon their success with Vault and because of the benefits of having all applications on a single modern cloud platform. Our average Vault customer now has two to three Vault applications. The Vault platform has proven to be a unique and powerful asset allowing us to rapidly develop and scale applications across a range of areas. We now have 18 Vault applications in all. Regulatory is a good example of the momentum we are seeing across the board. In the quarter, a top 20 pharma and a top 50 pharma selected VivaVault RIM as their enterprise standard. These customers were struggling with a patchwork of legacy and custom-built solutions. One will replace more than 80 systems with Vault RIM. Over the past two years, the size of the RIM subscription business has doubled. We now have more than 200 RIM customers and great potential as we look ahead. Clinical is another area of significant strength and opportunity for us. In Q4, we signed our 14th Top 20 Pharma for ETMF. Our established track record of customer success with Vault ETMF is providing opportunities for additional Viva Clinical applications as customers see the benefit of a unified solution on a world-class cloud platform. For instance, in Q4, an existing top 20 ETMF customer standardized on Vault Study Startup. They are the seventh top 20 pharma to standardize on Study Startup. It's been less than four years since we started expanding our clinical suite beyond ETMF, and already a quarter of our ETMF customers have at least one other clinical application. I'm very excited about the growth we are seeing in clinical and the significant runway ahead. I'm also pleased with our progress in newer vault products. Safety and CDMS are two of the biggest opportunities we have on the R&D side and both are showing good early momentum. We have more than a dozen early adopters for safety and more than 60 studies have started on CDMS. These two areas are still small in terms of revenue, but we feel very good about the potential for these products to be market leading over time. This year will be an important one as we build our track record of customer success and continue to innovate in both areas. Outside life sciences, for CPG, chemicals, and cosmetics, we had a number of expansions and added some big wins with new companies, including a top 10 CPG company who will adopt quality one and a top 10 cosmetics company The Standardizing on Regulatory One. In reflecting on the year for this business and looking ahead, we set the right course in the Viva way. We kept our focus on customer success and doing the right things for our early adopters, which is helping establish Viva as a trusted provider in these new industries. It was a great and formative year for Viva. We grew and evolved in important new ways. We have a big opportunity ahead and the right team, Operating Model Technology, and focus on execution to fuel our growth well into the future. With that, I'd like to hand it over to Tim.

Thanks, Peter. Q4 was a strong finish to another outstanding year. As a reminder, this is our first quarter with Cross-X and Physicians World, and we are providing an additional level of transparency during this call to assist in your understanding of how these acquisitions impacted our results, and will contribute to our fiscal 21 guidance. Total revenue for the fourth quarter was $312 million, up 34% from $232 million a year ago. Cross-ex and Physicians World contributed more than $19 million of total revenue in the quarter. Vault was 49% of total revenue versus 52% in Q3. For the year, total revenue was $1,104,000,000, up from $862,000,000 in fiscal 19. Excluding Cross-X and Physicians World, total revenue grew 26% year-over-year. For the full year, Vol represented 51% of total revenue as compared to 47% in fiscal 19. Subscription revenue in the quarter totaled $254 million, up 33% from $191 million the prior year. Cross-X contributed roughly $14 million of subscription revenue in Q4, which includes the impact of a purchase accounting write-down of nearly $3 million. This contribution from Cross-Ex represented an incremental seven points of growth in the period. Vault was 47% of subscription revenue versus 49% in Q3. For the full year, subscription revenue came in at $896 million, up from $694 million in fiscal 19. Commercial cloud subscription revenue grew 15%, excluding the impact from CrossX, and vault subscription revenue grew 43%. In fiscal 20, our revenue retention rate was 121%. This metric is defined in the earnings release and reflects annualized subscription revenue growth within existing customers, net of revenue attrition, and continues to illustrate the increasing value we are providing to our customers and the life sciences industry. Services revenue came in at $57 million, up 38% from $42 million last year. Excluding Cross-Ex and Physicians World, service revenue grew 25% year-over-year. For the full year, service revenue totaled $208 million, up from $168 million in fiscal 19. Non-GAAP operating income was $103 million, which came in above the high end of our guidance. This result was driven by revenue outperformance Offset in part by a couple of million dollars of additional one-time commission expenses for both our core business and the acquired Cross-X business. We added 489 net headcount this quarter, including the 384 Cross-X and Physicians World employees joining Viva. Fiscal 20 ended with a total of 3,501 employees, up from 2,553 a year ago. Moving to the balance sheet, deferred revenue was $469 million compared to $251 million at the end of the third quarter. Calculated billings for the fourth quarter came in at about $528 million, which includes roughly $9 million of net acquired deferred revenue, less the acquired unbilled receivables. After adjusting for this, calculated billings in the quarter was $519 million ahead of the high end of our guidance. Crossix and Physicians World contributed $35 million to calculated billings in the quarter. Looking ahead, we expect calculated billings of approximately $330 million for Q1 and $1,500,000 for fiscal 21, with 40 to 41% of those billings coming in Q4. 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. Elsewhere on the balance sheet, we exited Q4 with $1,087,000,000 in cash and short-term investments, down $408,000,000 from the end of Q3. This reduction was mainly driven by the Cross-Ex and Physicians World acquisitions. In Q4, operating cash flow was $39 million, which includes $11 million in excess tax benefit. For the year, operating cash flow came in at $437 million, including a total of roughly $50 million in excess tax benefit. Excluding the tax benefit, operating cash flow for the year was $387 million above our full-year guidance. We had another strong collections quarter in Q4, including nearly $15 million we had planned to collect in Q1 of fiscal 21. For fiscal 21, we expect operating cash flow to be at least $460 million, excluding the excess tax benefit. Next, I'd like to share our outlook for Q1 and for the full year of fiscal 21. For the first quarter, we expect total revenue to be between $327 and $328 million with services revenue contributing roughly 63 million. We anticipate non-GAAP operating income of 117 to 118 million and non-GAAP net income per share of 59 to 60 cents based on a fully diluted share count of approximately 159 million shares. Please note, we will maintain our non-GAAP tax rate at 21% for fiscal 21. As a reminder, This rate is not something that we adjust quarterly, and we'll evaluate it again next year. For the year, we expect total revenue to be in the range of $1,400,000 to $1,405,000, which is an increase from the initial outlook provided on our Q3 earnings call. Within that number, we expect the contribution from Cross-X and Physicians World to be between $105 and $110 million in fiscal 21. We expect subscription revenue to be roughly $1,145,000,000 for the full year. Commercial cloud subscription revenue is expected to be roughly $585,000,000. Included in that number, we expect CrossX to contribute between $85 and $87 million of subscription revenue for the year. This number includes the impact of roughly $2.4 million of purchase accounting write-down, which we will see mostly impacting our Q1 results. Vault subscription revenue is expected to be roughly $560 million, representing an increase of approximately 31% year-over-year. Before moving on, I'd like to provide some additional context for the Vault subscription growth outlook. As we near the end of the ZincMaps migration to PromoMats, Commercial Vault has successfully become the market leader, and with our strong market share, we expect Commercial Vault growth to slow. Additionally, as we have disclosed throughout the year, fiscal 20s subscription revenue benefited from both favorable bookings linearity and a tailwind resulting from the recognition of unbilled revenue from multi-year contracts with ramping fees. Moving on, we expect non-GAAP operating income of roughly $500 million for the full year, a non-GAAP operating margin of almost 36%. Finally, we expect non-GAAP net income per share of about $2.50 for the year based on a fully diluted share count of approximately $160 million. In summary, the team has done an excellent job delivering another record year. Given our focus on innovation and execution, we continue to be confident in our ability to deliver $3 billion in revenue in calendar 2025. Thanks for joining the call today, and I'll now turn it over to the operator for questions.

Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from Ken Wong from Guggenheim Securities. Your line is open.

Great quarter, guys, and thanks for taking my question. The first thing I want to touch on, I'm sure everyone's following it in the headlines, but obviously the impact of coronavirus and any headwinds you might be seeing in China. I guess first, again, what are you guys maybe directly seeing or projecting? And then second, as it relates to your customer base, how should we think about the impact to their business? Obviously, there's probably maybe some tailwinds as well there and how that might flow through for you guys.

All right, this is Peter. I'll take that one. First, our hearts go out to the people, the families that are seriously affected by this, and we hope they have a speedy recovery. As it goes to our customers, they're really working hard to try to develop things that will help the situation, vaccines or cures, actually, for this. And we're helping our customers where we can, but we know they're working around the clock. In terms of our business, we haven't seen projects slowdowns yet. We haven't seen any projects canceled. We've seen a little bit of slowdown as customers adjust to working remotely in some regions. Nothing that would be material to our financials. In terms of EVA, we're in countries that are heavily impacted where we have offices. We've instituted a work from home policy. Now, for Viva, that's very normal. We handle video conferencing very well. We grew up as a very virtual company, so I believe we're well positioned to handle this. One of the things that we're doing, I mentioned on our script, is helping the industry by providing free Viva CRM Engage Meeting licenses to our customers up until September. That way they can continue their interactions with the doctors that they need to, and they can do that remotely. So in summary, our customers are working hard to provide the medicines here. There's no material impact to our business at this time.

Great. And then maybe a quick follow-up just on the competitive landscape. Whether it was product or customer engagement, there's a perception that maybe a door was left open, a crack that allowed competitors to maybe sneak a foot in. Any efforts to maybe button up customer outreach, retention efforts to make sure things like that don't happen down the line?

Yeah, hey Ken, this is Paul. I'll take that one. So let me comment at a high level on the competitive, the overall competitive landscape and then more specifically on what we're doing. You know, the competitive landscape is pretty much, you know, similar to what it's been over the last year. Things haven't really changed all that much. IQVIA is our primary competitor, as you know. They're certainly regional competitors that we have, but they're the ones that are primary in terms of, you know, global kind of scope. Their IQVIA has continued to be aggressive in terms of how they approach the market in terms of pricing and bundling. Some of their projects have been a bit more services-oriented instead of standard product. And I think over the short term, that sort of thing could work out. I think over the long term, custom projects are not great. From Viva's perspective, we had really great success last year. I'm really proud of what we've accomplished. Peter highlighted that we had 53 net new CRM customers compared with the year before where it was 46. So we've grown, and we've actually expanded our share last year. And of those wins, most of them were head-to-head with IQVIA, and many of them were IQVIA replacements. So I'm really proud of what we've accomplished. That's the results. The results, I think, speak for themselves. In terms of what we're doing, We think our strategy is the right one, which is focus on product innovation and focus on customer success. So we're innovating within core CRM in many different ways, and Peter highlighted some of the AI that we're doing. We're also expanding the add-ons, and we're innovating in new add-on areas, and we'll continue to add new products, and then we're relentlessly focused on the customer success side. So that's our strategy to make sure those sorts of things don't happen. I expect at specific accounts. There could be factors that lead to a specific decision, but we're doing our best and we're going to continue to focus on innovation and customer success.

Your next question comes from Carl Kierstad from Deutsche Bank. Your line is open.

Thank you. I've got two, maybe both for Timothy. So Tim, on the Volt subscription revenue growth, I think you closed out fiscal 20 with 43% growth, a fantastic result. It looks like your guidance is for a decel to 31%. So just given that this is obviously your growth engine, do you mind elaborating on the reasons for that Volt slowdown? It sounds like it might be a little bit more on the commercial side, so maybe the clinical trial side. is stronger and there's a mix shift going on. But maybe just to start there, just to describe what's happening. Thanks.

Sure, Carl. Certainly happy with the momentum of the vault business and happy with the guidance. To your point in terms of comparing the fiscal 20 results, and you're correct, 43% was the vault growth number there versus the 21 guide. A couple things to keep in mind. 31. 31%, sorry. I said fiscal 21 and 21, 31% guide. A couple things to keep in mind, and you're right, vault commercial, you know, as we're nearing the end of the zinc maps migration of promo mats, we've really become the market leader in vault commercial. And at this market share, we expect that commercial vault business to slow a bit. But there was also a couple of favorable dynamics in fiscal 20 that we don't expect to repeat this year. One is the favorable linearity of bookings, and we talked about that through the year fiscal 20. And the second was the tailwinds we saw from the recognition of multi-year ELAs. Again, we don't expect both those dynamics to necessarily happen on a consistent basis, and we don't have that in our assumption of the fiscal 21 guidance. But lastly, I would say this is consistent with the way that we viewed the vault business. And this view definitely informed our early fiscal 21 guide that we gave 90 days ago, as well as our $3 billion revenue target in 25. Got it.

Okay, that's helpful, Tim. And then maybe my follow-up is just on the revenue performance in fourth quarter just closed, $312 million relative to your guide of $299. That's a 4% beat, and that's quite a bit higher than I'm used to seeing with Viva. So I'm just wondering if you could elaborate on that. It doesn't sound like the upside came from acquisitions. Pete had mentioned that it was roughly in line. So was there some factor that might have driven sort of more in-period revenue upside than you anticipated three months ago? Thanks a lot.

Sure. I think it was in part acquisitions. When we gave the guidance last quarter, 90 days ago, We had talked about the contribution from acquisitions being roughly $15 million and that came in a bit higher. Most of that was due to a smaller purchase accounting write-off that we had anticipated, as well as good performance from those businesses. I would say the other part of the beat, Carl, was more normal, stronger execution, and stronger bookings in the quarter. and we also saw a little bit more services revenue than we had anticipated 90 days ago. And as we've talked in the past, it's sort of the lumpy part of our business. So that part of the business can move up and down even within a 90-day period.

Got it. Okay, very helpful on both answers. Thank you, Tim.

Thanks, Carl.

Your next question comes from Sackett Kalia from Barclays. Your line is open.

Hey, Peter. Hey, Tim. Thanks for taking my questions here. Peter, maybe just to start with you, I think we said that there were about 140 new vault customers this year that started with one vault solution. Looking back at sort of the history of that product, can you just talk about how the profile of that initial land has maybe changed with those 140 new customers versus what you would typically land with them in the past?

That's a good question. In terms of the profile of where people start for Development Cloud, I really haven't seen that quite change much. They would generally start in one area where they have the most need. It will be in the regulatory area, a quality area, or a clinical area. I'd say if you look at a shift from maybe four years ago, I think we see a little bit more people starting in the quality area now than we used to because our quality suite has gotten much broader. We have our QMS product, our Quality Docs product, which was our original one, and our training product. So that's maybe a little bit higher, but it hasn't materially changed. They will start in the area where they have the most need. The smallest companies will generally start in either the quality area or the clinical area because those would be the first needs of the smallest companies.

Got it. Got it. And then for my follow-up for maybe you, Tim, maybe on CDMS, can you just remind us how that's priced? You know, as you grow the number of trials here and the size of those trials, does that directly impact revenue or billings or are those typically part of kind of broader ELA type of agreements?

This is Peter. I can jump in on that one. There's no particular pattern that would be applicable to all customers. In general, we're going to start small with a new customer. They're going to try us out in certain areas, small trial by trial, small revenue. And that can graduate to an ELA over time, and that takes some time to work through. So there's no particular pattern there. I would say it's actually quite similar also to what we saw in the early days of clinical with Viva five years ago.

Very helpful. Thanks, guys.

Your next question comes from Stan Slotsky from Morgan Stanley. Your line is open.

Perfect. Thank you so much, and I apologize for any background noise during this call. A couple of questions from my end. Peter, you mentioned a top 20 pharma win with your data product. Could you give us a little bit more detail on that win? And maybe just at a higher level, could you give us some updates on how your overall data efforts are going? And then I have a quick follow up for Tim.

Yeah, this was a pretty standard. It was a top 20 pharma in the US, diversified pharma. They're in oncology, many different areas. Therapeutic areas, so their needs for data are quite diverse because they have to navigate a lot of complex health systems. A health system might be the Mayo Clinic or MD Anderson and all the doctors that are related to there. So they need a robust set of data. They had a set of data provided from a legacy provider and the service just wasn't quite what they wanted and the quality and quantity and expansiveness of the data wasn't quite what they wanted. So we were able to show them a better solution, and they're migrating towards it. And that's a project that's long, but not that long. It's less than a year project. So it's a pretty down the middle rip and replace. In terms of our data offerings, our open data, it's a market where it's country by country. So we're the market leader in China. We're doing quite well in the US here. and in Europe it's earlier for us and we're making progress country by country. So I'd say steady as she goes on open data.

Okay, perfect, thank you. And then for Tim, going back to Volt 31% revenue guidance for fiscal 21, could you perhaps remind us how much of a benefit did you see in fiscal 20 from those ramping contracts on the Volt side especially on Volt Clinical, Volt R&D. And when you look at fiscal 21, do you expect those benefits to simply not be there or do you expect those benefits to perhaps turn into headwinds as a result of the ramping contract nature? Thank you.

Sure. So in terms of the fiscal 21 results, it was about a 300 point tailwind for those particular types of deals stand in that dynamic, and you are very astute. It goes from being a tailwind to a headwind. Now, to be clear, we still see a lot of opportunity this year around new ELA deals, but the way that ELA deals came in late in fiscal 19 and into 20 really created a growth rate over fiscal 19's results that was a tailwind in 20 that could turn into a slight headwind in 21. But that is included in the guidance that we gave, Stan.

Got it. Thank you so much.

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

Hey, guys. Thanks so much for taking my questions. Peter, I wanted to follow up on the earlier point you brought up about what you're doing with CRM Engage. for the regions that are impacted by Corona. Maybe just following up a little bit on that, it seems like CRM Engage is obviously a really exciting product, but it's obviously a big process change for the industry. I mean, just maybe thinking ahead, is getting an industry like life sciences that's maybe a little bit more resistant to change to adopt some more solutions like this? Even if they're being forced to, is that something that in your mind could serve as that trigger point of, okay, they've tried it maybe because they're forced to, they're used to it, and now that helps maybe accelerate the adoption? Or is there a better way to think about that? And then I've got to follow up for Tim.

I think you're right. Business process change like this that involves compliance, sometimes customers can be measured on that. and they maybe might not adopt too fast. Now they're being forced to do some things. So I think we will see a bit faster adoption of Engage as a result of this. So that's, you know, the real straightforward answer there.

Got it. Okay. Now that's helpful. And then, Tim, just going back to the acquisitions, really appreciate all the detail and transparency in terms of this quarter's numbers and next year's outlook. Just wanted to maybe dial into the gross margin implications from the acquisition. So, business world, very services heavy, get that it weighs on gross margin. How do we think about the gross margin implications from CrossX net of the accounting for acquisition? Thanks.

Yeah, so if you look at our Q4 results, Rishi, and into fiscal 21, I would think that there's We're expecting to be roughly about a 200-ish basis point impact to gross margins from those acquisitions. And as you realize, you'll see some of that in our subscription gross margin, where CrossFix is the majority of subscription, and a little bit of it in our services gross margin, where Physicians World is all services revenue.

All right, that's helpful. Thank you.

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

Hey, guys. Let me echo my congrats and thanks for taking my call. I guess I just want to touch a little bit on EDC or CDMS now. When you look at the primary competitor in that space, at least the more modern primary competitor taken out by Dassault, and, you know, if I think about 2020 was a very big renewal year for them. As you think about the potential to capture some opportunity, I'd love to get some color on sort of how you're thinking about that market, how you guys are evolving, because obviously with at least one top 20 pharma win in the Phase 3 clinical trial space, you're set up well. So just trying to understand how the business is going to evolve this year and how you're thinking about the opportunity vis-a-vis sort of the competitor being acquired and this being a big renewal year for them.

Right. I guess The setback at the high level for Development Cloud, that's our vault in the R&D area. I think it's important to know that that's a very large area for us, and it's very connected. The ETMF and the CTMS connected to the EDC, connected to the safety, connected to the regulatory. That's a big, broad area for us, and it's very early days. It's less than 10% penetrated. Our goal is to have applications and products that we become the market leader in, and that's where we can be really the trusted partner of the industry over the long term. Some of them we have quite some progress on, and some of them are quite new. CDMS particularly, that's where we're quite new. So we're still early there, 60 trials, that's not that many. But what we're seeing is we're very well positioned for leadership into the future. It's the product innovation and the customer success we're having. So we're actually being very measured on the projects that we take on right now. We're laser focused on customer success of these projects. We're about to start a very large trial for a customer, multiple, multiple sites around the world, hundreds of sites around the world, multiple countries. We're just laser focused on the customer success. And then I think the market will take care of itself because what the customers are looking for is not just CDMS only. They're looking for the whole suite of development cloud integrated in together on one common platform. I think it's important to remember that's the vision we started out with back in 2011. And it takes a long time to build that with some serious engineering work. So that's really what we're focused on. We have our eye on that prize. That's the type of thing that gives us confidence in our 2025 goals. So that's really where our focus is of the company is out to that 2025. Got it.

Got it. That's helpful. And then I just want to touch on open data a little bit. You know, we've talked about this in the past, and there have been some challenges given sort of the competitive environment, given sort of The one data asset that was owned by IMS Health, obviously not part of IQVIA. But it feels like open data seems to be doing, you know, it seems to be doing better maybe, or maybe it's exceeding maybe our, you know, limited expectations from outside. I'd love to understand, has anything changed there? Have you added something to that? Is there, you know, you talk about data in China, but is there something unique there that's sort of helping that business, you know, maybe see a little more growth than it has in the past? How should we think about that going forward, both from network and from KOL and the other pieces of that business?

I think the story of open data is just a superior data product. And we're just buckling down year after year in improving that data product, improving that service, and having the open data use policy that we have. IMS or IQV has very restrictive policies that customers don't like. So that's all to the pro, and that's why we're seeing some new customers. To the con, open data is also affected by the IQVIA anti-competitive policies. So when customers want to match our open data with other IQVIA products, they're prevented from doing that. Therefore, it impacts our open data sales. Make no mistake, our open data sales would be significantly better without these and competitive products and what's causing us to win is just the product superiority and what's causing the tailwinds is this antitrust issue which, you know, we're progressing well. We have about two more years until the trial and that's a jury trial. We feel confident in our outcome but there's no guarantee but at least two years, you know, it's a pretty defined timeframe here and we're hoping to get the right verdict. Also, I would say thanks to the customers. Yeah, I just call out to the customers. Thanks to the customers. We largely finished the depositions in the case, and there were six customers that testified about the anti-competitive tactics of IQVIA harming the industry. So we're really grateful to those customers and their testimony.

Thanks. I was going to follow up with that, just saying about the customers. But thank you for taking my question.

I was reading your mind. I think that's okay in these types of situations.

That's okay.

Your next question comes from Sterling Audie from JP Morgan. Your line is open.

Yeah, thanks. Hi, guys. So in looking at both the vault growth in the quarter and the outlook, can you help us understand how much of that vault growth is coming from adding additional products, because I think you mentioned the average is now between two and three, versus adding more vault in cases where it's not an ELA versus new customers.

That, hmm, I don't have the exact math on that. I think it's, I would guess it's roughly even, maybe skewed a little bit more to customers adding new vaults. Why do I say that? Clinical is a big area, regulatory is a big area, and quality is a big area. So we have three big areas that are sort of in their prime now. We have other very large areas that are not yet in their prime. They're very early, such as safety and CDMS. So the three areas that are in their prime in the development cloud, and then within each development cloud, we have two or three major applications. So on average, it's going to be A mix of adding new applications into a vault and new vaults. And maybe to simplify, I guess, Sterling, I would say that's a 50-50 mix there. But we don't have that exact number for you at this time. Gotcha.

And then one follow-up. Just to remind us, where are you? Tim, we love having you on these calls and would want to keep you forever. But where are you in terms of that process?

Tim and I are working on the search and that's going well. I think it's important to remember that Tim is here until we can find the right successor and also through the transition. So there's no defined transition period. We're focused on finding the right person over the long term and we're seeing some good candidates.

Sounds good. Thank you.

Your next question comes from Sandy Draper from SunTrust. Your line is open.

Thanks so much. I guess just a bit of a follow-up to Sterling's question. Peter, if you can maybe talk a little bit about the two top 20 RIM customers. You know, where are they coming from? Similar backgrounds, both from ETMF, new to Vaults. Just sort of some context about the two top 20s that joined on RIM.

Actually, one was, Sandy, one was a top 20 and the other one was a top 50. So just to be accurate on that one. The specifics of these, actually both of them are headquarters in Europe. Now that's, I wouldn't read any particular pattern into that, but they happen to be both European based. Both of these actually, I would say quite early on in their journey with fault. I don't, they're early on, but I believe both of these have made an emotional commitment to the full development cloud suite. Now, that emotional commitment is much different than purchasing type commitment, meaning they're starting in regulatory, I believe. I don't have the exact specifics, but I think that's the first application. But both of these customers evaluated the development cloud holistically, evaluated the concept of having development cloud holistically actually before they bought our first application.

Okay, great. That's really helpful. That's really helpful.

Sandy, it doesn't always happen that way. Sometimes there will be a particular need in a customer, and they want to solve that need, and they will solve it before evaluating the full picture of development cloud, and some other customers will be more measured and evaluate the full development cloud first before solving a specific area.

Okay, yeah, that makes a lot of sense. I'm going to follow up. My ears perked up when you talked about Cross-X and talked about being transformative. I haven't had a chance to go back and search all transcripts to see if you've used that word before with that acquisition. And I'm just thinking back in the early days, you know, Vault has certainly turned out to be transformative for the business. When you use that word, is it relative to the opportunity for that business, the opportunity to transform your existing product to just Using that word, I just really would love to get some more thought behind what you see when you talk about it being transformative. Thanks.

Yeah, it's very astute to say that. I use that word carefully because we've now worked with the Cross-Ex team hand-in-hand, day-in-day, hour-on-hour over the last 90 days, and that is how I feel about it. That's transformative. The cultural synergy is there, the product synergy, the innovation synergy. Their expertise around data and privacy and patient data is unparalleled. So I do think it's very similar about like Vault. Now, much earlier stage, right? I might have talked to you about transformative potential in Vault in 2013, that type of thing. I might have talked about the potential to be Thank you, Peter.

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

Hey, thanks very much. Congrats on the results. Peter, I want to ask one on the R&D suite. I think we have a pretty good idea of how your CDMS relationships can potentially scale to be pretty large over time. I have less of a feel for how material your customer relationships and safety might be. So can you just try and frame that for me? And are those relationships where you start small and then scale like CDMS? Or do you typically land a little bit larger in safety?

In safety, in general, what we're seeing right now is we actually land smaller than we do in CDMS because they're generally there. The revenue goes with the amount of safety case incidents the customer has. So right now we're getting into quite small companies that have a low volume of safety cases and this is also an area I would say in the safety area where customers are very measured in their approach, very, very measured. So I think we'll go broad and small. It'll be probably not jumping in the way of ELA's, things like that that CDMS does, but it's very similar in its market size like CDMS and it's very similar in that Safety is needed by a very small company. As soon as you're starting to do a clinical trial, as soon as you have a medicine that's given to a human, you're gonna need a safety system. So in that way, CDMS and safety are parallel, but CDMS is revenue based, starts out based on the trial, versus safety is based on the number of safety incidents that happen. So it's a little bit different profile.

Okay. Yeah, that's helpful.

The other similarity I would say, too, is it just, these are areas, safety is an area where there's been really not much innovation over the last years. I would say even less so than CDMS in terms of innovation. So we feel quite confident in our approach. Also, safety has a tremendous amount of integrations to the rest of the development cloud. So if a customer is using our Let's say our CTMS system or our CDMS system, there's a tremendous benefit of getting our safety system and then not having to build and maintain the integrations. So I think that'll give us an advantage over time as well. That's just going to take a while to play out.

Sure. That makes sense. And then a bit of a hypothetical for a second question, but obviously healthcare is a hot button political topic. And since it's Super Tuesday, I figured I'd ask a question along those lines. If there are attempts to rein in drug pricing, right, be it narrative or actual policy, and industry margins were to come under pressure, how do you think that impacts your customers' engagement with Viva?

Yeah, hey, this is Paul, David. Thanks for the question. So, clearly good timing as we're approaching the election season in the U.S. You know, I think our customers certainly think about this. I don't think they overthink. When we talk to some of our customers about this exact issue, You know, there our customers are global. Viva is global. You know, the U.S. is one market. There's regulatory changes that happen in every market all the time. And, you know, typically no one market really drives the overall business. So I think there's, although there's concern and there's thinking about it, I think, you know, the impact may end up being slightly muted. And I think there's also a potential impact that, you know, where there's pressure on pricing, I think the other balancing side of that is increased access. When you may increase volume, you may reduce overall unit pricing. The impact may be slightly negative, but I think there's thinking about that side of it as well. So I think our customers are being balanced and not being too overly concerned when they think about that. But this is all, like you said, it's hypothetical. We're projecting as much as you are on this.

No, Shirley. No, that's helpful. Thanks, guys.

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

Gentlemen, thank you for taking my questions. Congratulations on a nice finish to a great year. I know there's not a lot of precedence to this, but Peter, you've been here since the beginning and many of your team has been as well. As you think about the response from the life science community to what we're facing with the coronavirus issues going on around the world, I don't know what the right precedent is. Maybe you take yourself all the way back to when H1N1 was a topic in the community. How do you think the life sciences companies in the world and your customers play this out as we go forward? Certainly some We'll put more money towards R&D and search for a vaccine. Historically, does this result in a bump to R&D spend, and can that be a good thing? Just kind of take us through the longer term, the midterm impact of what we might be facing here.

I think it's still early days in coronavirus, so any kind of a long-term prediction could be inaccurate because I don't think we – nobody knows exactly what the situation is going to be six months from now. My personal belief is this underscores the importance of core research and development in life sciences and how important of an industry this is for the world. So I think overall it will potentially attract people into the life sciences industry and potentially have a greater appreciation of the life sciences industry. Especially as we're moving into precision medicine, which is the other revolution that's happening in life sciences, the ability to specifically target or repair a very specific disease, a very specific gene. So it's really a golden time for life sciences, and maybe coronavirus in its own way will shine a spotlight, I certainly hope. One of our customers can develop a vaccine or a cure for coronavirus, and I think That'll be a shot in the arm for the industry and really underscore the importance of this industry.

Fair enough. That's really helpful. I appreciate that. And for my second question, let me just kind of turn to outside of life sciences. You focused on three particular market segments or industries that you've had some success in. Can you speak to what some of the customer feedback has been as you look at CPG and cosmetics and chemical? How are they finding success with relation to the products that you're putting into market there? And do you kind of look at some additional verticals where you might find some additional success in 2020? Or should we kind of continue to focus on these three specific verticals as we think of outside life sciences this year? Thanks.

For outside of life sciences, we're focusing on the CPG, cosmetics, and chemicals. And within that, we're focusing on our quality products, quality one, and our regulatory products, regulatory one. Customer feedback is consistent. They like our platform, they like our applications, and they like our long-term partnership approach. You know, we don't feel like a vendor to them. We're focused on their success, and we're always thinking long-term and what we can do. They like that. They like the fact that we are a company that knows how to handle large global customers. We're very adept at that, and they feel that. So that's the customer success type of feeling that we're creating. And we're happy with that business. The growth there is steady, and the customer success is good.

In terms of new verticals,

That's not something we're looking to do at this time this year. We know we're still early in those verticals that we targeted, so we're going to buckle down there and focus on the customer success.

Outstanding. Thanks for the help. Appreciate it.

Your next question comes from Brad Sills from Bank of America Securities. Your line is open.

Oh hey guys, thanks for taking my question. Just wanted to ask about CDMS. I think it was last quarter you had your first phase three trial win in the top 50. Are there more deals like that in the pipeline? Do you need more deals like that when you refer to your kind of, you know, very measured reference selling approach there? Is that the validation that you need in that market where you could start to see that tipping point of a replacement cycle in clinical? Just remind us kind of where we are in terms of reference selling and maybe even roadmap. Maybe there's something coming on the roadmap that could be a catalyst for that business. Thank you.

Yeah. CDMS, remember, it's early. It's quite early, 60 trials. We're starting a major phase three trial. We've done phase three trials before. We've done a number of them. But what we were referring to last quarter is we're starting a major phase three trial with a large company. One of the largest trials they've ever done. First patient in here for those types of thing, I think for that trial is going to be in a matter of weeks. So that's really where our focus is. There's a lot of momentum in the market. We're being very measured in how many customers we take on and that type of thing. And it's not to do actually with a product feature or anything that's going to unlock the market, but it's more as we get more of these large trials enrolled and as we scale up our services, support team and round up all the product features, that's when it's really gonna happen. It's a reference selling model. So at some point in the future, I'm hoping we have a customer summit and a customer says, yeah, all our new trials, we put them on Veeva and we've been running them for two years and we're super happy and these are the benefits we're seeing. That's when it really starts to flow. So it's a long-term game. We mentioned our commercial vault. We have to remember that was 2011 when we sold our first commercial vault application, ProMats. And roughly 10 years later there, we're in a real leadership position in terms of the market. CDMS takes a while, but I feel very confident in our position. Also, interestingly enough, since we started CDMS, since we announced it, there has actually not been a new entrant to the market. So I feel we have a good advantage. We have a leading cloud platform, and we have a good head start here. I don't feel like we're competing with somebody. I just feel like we really have to focus on the customer success. and then things will turn out quite well for us.

Thanks, Peter. Then one more if I may. Just in outside life sciences, I guess where are you in terms of building out the sales force, the go-to-market? Those are obviously different verticals with a different domain expertise in go-to-market. You guys have been very steady in building references ahead of building out a sales organization. I guess where are you in your build-out of go-to-market in those three other verticals? Thank you.

Outside of Life Sciences there, I would say the way to characterize that is it's going to be a steady grower for us, and you won't see any type of a burst in terms of expenses, right? We'll be measured in the growth of our field, and that'll roughly align. Actually, I think the growth of our revenue will outpace the growth of our expenses in Outside of Life Sciences. So it's steady as she goes. We're finding our groove inside, particularly actually inside CPG and cosmetics, regulatory and quality, chemicals a little bit, you know, of the three chemicals, I would guess it's not as far as ahead of the other two. But so you're going to see nothing dramatic outside of life sciences from us, just steady growth.

Thanks, Peter.

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

Thanks very much for taking my question. I just noticed for commercial cloud, it looks like customer growth accelerated really nicely there in 2020. And I know you called out a big customer win in SMB. So I was wondering if you could just talk a bit more about the improving traction that you're seeing in that customer segment and how also we should think about the runway there. Thanks.

Yeah, this is Paul. Thanks, Chris. SMB was one of the really significant drivers for us. We had a really strong year last year in commercial cloud overall, and SMB was one of those big drivers. I think part of that is just the approvals that have been happening. If you look at the European market, the U.S. market, the FDA, the number of approvals has been quite high, and we are winning the majority of those. Fortunately, we're in a position where those companies They want to innovate. They want to do things differently. They need to have a very successful launch. They want to launch in many ways in a digital way. So they look to Veeva as their choice. So the number of approvals has driven some of that strength. Hopefully that will continue in the life sciences space for many more years. What we've also seen is the breadth of What they buy from Viva. You know, some small and medium-sized customers come to Viva looking for a CRM system, and what they end up with is something much larger and much more significant than that because they learn more about what is possible with Viva and more broadly in commercial cloud. So that has driven some of the strength that you've seen over the last, really over the last couple of years, but in particular last year, particular strength in the SMB segment.

Got it. Thanks very much.

We are out of time for questions today. I would now like to turn the call over to Viva's CEO, Peter Gassner, for closing remarks.

Thanks again for your time today, and thanks again to the team for all the work for the customer success and for the industry trust and partnership that you're developing. I look forward to connecting with many of you all virtually at Morgan Stanley Conference tomorrow. Thanks, everyone.

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