Veeva Systems Inc. Class A

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After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Atto Garrett, Senior Director of Investor Relations, you may begin your conference.

Good afternoon and welcome to VIVA's fiscal 2023 first quarter earnings conference call for the quarter ended April 30th, 2022. As a reminder, we posted prepared remarks on VIVA's investor relations website just after 1 p.m. Pacific today. We hope you've had a chance to read them before the call. Today's call will be used primarily for Q&A with executive officer Paul Schaller, EVP commercial strategy, and Brent Bowman, our chief financial officer. We may make forward-looking statements regarding trends, our strategies, and the anticipated performance of the business, including guidance regarding future financial results. These forward-looking statements will be based on our current views and uncertainties. Our actual results may differ materially. Please refer to the risk listed in our earnings release and the risk factors included in our most recent filing on Form 10-10-10. Forward-looking statements made during this call are being made as of today, June 1st, 2022, based on the facts available to us today. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. VIVA disclaims any obligation to make forward-looking statements. We may disclaim that we will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. Our reconciliation to comparable GAAP metrics can be found in today's earnings release and in the supplemental investor presentation, both of which are available on our website. With that, thank you for joining us.

Thank you, Ato. And welcome to everyone on the call.

It was a great start to the year for Vigo with strong first quarter results We also crossed the $2 billion revenue. Total revenue was up 16% to $505 million, and subscription revenue was up 18% to $403 million.

Non-GAAP operating income was $200 million, or 40% of total revenue. Things are going well.

Demand is strong as customers look to establish the right digital foundations for the future, and our industry partnerships continue to get more strategic.

We're executing well against our long-term plans, and our innovation engine is really firing on all cylinders. We're building a very durable business with a long runway of growth ahead. At this point, we'll open up the call to your questions.

Ladies and gentlemen, if you would like to ask a question at this time, please press star followed by the number one on your telephone keypad. Your first question.

Good afternoon. I guess, Peter, Viva closed one of the largest deals in the history of the company here, arguably in a macro environment where there's clear challenges. Could you just drill down into kind of the decision? It looks like a... Just... trying to better understand why a top 20 pharma would make this move in an environment where there's still some pretty significant challenges.

Yeah, great question. This is really a long-term thinking move by the customer.

Thinking of this in 10- and 20-year horizon, this is about,

but also in the quality and the regulatory area. Development cloud, but a big portion of it. So when they're doing that, it's a very top-down decision. It's like building a huge factory. That's why it's not affected.

What they're trying to do is laying the foundation for efficiency, digital efficiency, getting driven drugs to market faster to help patients.

So it's a long-term play by the customer and sort of an executive-level decision.

The company is generating a significant amount of free cash flow here. What are you thinking about, you know, shareholder allocation, capital allocation, just given the very strong cash asset?

Ash, what do you have in strong free cash flow? Thanks.

Yeah, thanks for the question, Brent. Yeah, so we do have $2.8 billion in cash, and our business model has consistently been able to generate cash, so we're very pleased with that. And our focus is primarily to invest for growth. And specifically, we're going to be looking at ways like M&A for use of our cash. But we're going to think.

where, you know, we have good synergistical connection from a people perspective.

So, you know, M&A is an area that, you know, we're looking at for use of cash, but we'll take it.

Go ahead. Thank you.

Your next question comes from the line of Joe Rubink with Baird. Your line is open.

Great. Hi, everyone. I was maybe just hoping to start by walking through some of the moving pieces, the forecast for the year now versus what was presented a quarter ago, and maybe split out organically what's changed versus certainly FX is in there, and then anything else that relates to your hiring plans and how that is influencing the view into the second half of the year.

execution with Q1.

We executed extremely well across all of our metrics. And if you look out at the full year dollars, now specifically the services, we did call out Fx is not material to DIVA, but with the strengthening of the dollar, the USD, relative specifically and most importantly to euro as well as again it has had an impact so it's about 20 million a new piece of information and it was 30 million on the billing line so absent that FX impact we would have increased our subscription revenue line for the full year and our total billings for the full year. So that's going to give you some context on the top line. Regarding the hiring, we have a outstanding hiring quarter. We hired 203 net employees. That's another quarter of 20-plus percent growth. And in doing that, we were able to still increase our operating income guide for the full year by $10 million. So you can see the operational efficiencies.

about the demand profile we're seeing and that that kind of gives you informs you a bit on our full year view okay thanks Brent that's helpful and then more on product traction I wanted to focus on ETMF because it looks like it actually picked up momentum sequentially just based on the new customer ads and I seem to recall that CTMS was

is already setting up for a big year.

So I kind of think about ETMS as maybe a feeder for broader clinical engagement ultimately. I guess if both ends of the spectrum are doing well, maybe penetration of the clinical impactful that could be for R&D this year.

Yeah, clinical is certainly a long, long runway. It's a very big area of life sciences. ETMF, I think we sold our first customer roughly in 2012, and it takes a while to really become the dominant player. And we're there now with ETMF, and there's a network effect. ETMF is just the thing you do in clinical. Our CTMS and study startup products, they're getting to be pretty dominant products. And then the clinical data management is yet to come. That's very early in its life cycle, CDMS, the clinical data management. And beyond that, you have the digital trials, the MyViva for patients, things right out to the patient. So really long runway of growth in clinical. It's a big critical area, and macro level, we're just getting started there. And you're right, ETMF is a very strong base because that's the foundational system of record of documentation for a clinical trial that every pharmaceutical company is required to have.

Great. Thank you very much.

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

Hi, gentlemen. Thanks for taking the question. So I just want to follow up on Brent's line of questioning. You know, in terms of these large wins with multiple products, you know, I'm curious, as we think about the later stage pipeline, you know, how many potential products are they looking at? Is it sweet adoption across the board? Or, you know, how do we think about attach rates and deal sizes for what's in a later stage pipeline?

Well, It will vary by customer. Now, there's very few of the large pharma that are going to take that very broad suite approach simply because of the fact that many of the larger pharma are started in one area or another with VIVA. I think the most common in the large pharma would be looking at a suite of things. and then starting in an area of that suite and then graduating from there. In the smaller pharma or the emerging biotech, it's more common to look at the whole development cloud all at once and sort of know that, but you'll consume products as you need them. So, for example, biotech is probably our quality products because you need that even before you run a clinical trial.

Great. And maybe just to follow up on hiring, you know, it sounds like you're continuing to add to the team. We've heard from some other software companies that maybe they're scaling back those efforts a little bit. You know, as you think about the investments that you're making and the growth opportunities, you know, how are you thinking about hiring in that posture going forward?

Yeah, hiring. We always want to attract the top talent that has a great what we call a why Viva, an authentic reason to be at Viva, and that's always going to be tough. Right now the hiring environment is tough, but not as tough as it was before because there's a bit of downturn in the tech market, especially in the early phase of the tech market.

sort of speculative startups.

People feel that, and so there's a flight to quality. So hiring has been a bit easier for us. So in summary, I'd say it's a good hiring environment.

Your next question comes from the line. Your line is open.

Yeah, hey, guys, thanks for taking the questions. Maybe, Peter, one for you. As we talk about that large-scale development,

different purchasing decisions between the sales and marketing and the R&D teams, but can you walk through maybe how the broader state of that executive level that you just kind of touched on and the confidence that you have given that you've served as that industry strategic partner for potentially more of these deals to come? We have a broader product portfolio. That allows us to be closer to the customer, have more strategic discussions, have more... So it does tend to force the discussion up a level. Now, rarely do we see the discussion combine across the commercial side of the business and the R&D side of the business because those are viewed quite differently.

More so what we see is across the different areas of R&D, clinical quality regulatory.

We see that crossing and across the different areas in the commercial area, sales, medical marketing.

That's where we see the crossing happening. I would say another significant area where we see crossing, just the early signs of and then the consulting side. So that's crossing is happening. looking at our software or also looking at our data. Hey, I heard something about the data. Maybe it's time to evaluate that software. Hey, maybe we help.

What's going to happen in the future? Super helpful. Thanks for the color there. We talked, I think, about maybe the broader role out of a prescriber and Sales data for data cloud this quarter and next, now culminating that with link and open data. Think about each of these incremental network dynamics driving maybe even like a good option. If you add more sources, more touch points to that core data asset, that can refine itself and deliver greater value over time as well. Thanks, guys. Yeah, so it's a good question, and, you know, we are expanding our data portfolio, as you've seen, over the last several years.

You know, starting with open data and then at Lync, we've had a lot of momentum. We announced Compass. It was called Data Cloud initially, and Now the brand name is Compass, which is our patient and prescriber and sales data. You know, these data sets are for different purposes and different reasons, but there is a network effect. There is value when you can connect all of these data sets together. And we talk about building our data sets on a common data architecture, and what that means is they're fundamentally connected at a lower level, at a more foundational level. And what that means for our customers is they're able to get more value when they start pulling all of the pieces together. So, you know, it's on us to sell the value of each of those products individually, each individual data product with other data products, but also with our software.

We design them to be

you know, interoperable and work together and create more value. So there is, in a sense, a network effect is this idea that, you know, more products is more valuable than the sum of each of the individual pieces.

Great. Thanks, guys. Appreciate your time.

Our next question comes from the line of Rishi Jaluria with RBC Capital Markets. Your line is open.

Oh, wonderful. Hey, guys, thanks so much for taking my questions. First, I wanted to maybe drill a little bit more into the macro on your front, which is great to see, but also I think expected just given the end market you're dealing with. Can you talk a little bit about maybe are there any areas that you are seeing softness at all? I mean, we have heard about biotech and then maybe on the medtech side of the business. Any kind of macro things there? Maybe help us understand those pieces, and I have a follow-up.

Really, we're not seeing the macro effects in any particular segment. Life sciences industry overall is pretty robust, right? It's not a cyclical industry, and the science is propelling it forward. The precision medicine, the renewed focus on vaccine, the RNA platforms, So the science is propelling it forward. And now as far as MedTech also, the science is moving things forward in MedTech as well. In addition to the regulatory environment, in MedTech it's becoming more stringent. There's more regulatory requirements, especially in the clinical area, so that's driving adoption. So I'm not seeing any softness.

All right, wonderful. And then, Peter, in your prepared remarks, you talked about some of the success that you're seeing from, you know, having the in-person conferences again and arguably how it's maybe more important than before with everyone working remotely. Can you talk to us a little bit about what has just been the general customer feedback off your first in-person conference in, I guess, more than two years? And more importantly, you know, as these conferences come back and you start to extend those two-day conferences, What sort of impact do you expect? Is that something that, you know, more customers will start to think strategically about going all in on Viva? Is it, you know, just from a networking perspective? What sort of kind of benefits do you expect to see now that we're back to in-person conferences for you guys from a business perspective? Thanks.

Yeah, just the overall speed of business in the long term. Connectivity, relationship building, knowledge sharing. the position that Viva has as the place where you get together in person. Yeah, to learn about Viva, that's one thing. But also, oftentimes we have customers meeting their far-flung teams together in person for the first time at a Viva summit. So they may extend a day and do their own planning meetings, and that's something we facilitate and participate in. So that's... That's really what it means. You know, it moves business forward. Summits have always been a key part of our industry cloud, always been a key part. And in person, it's hard to replicate.

It's more free time for connections, actually.

So, you know, we'll record some of the sessions so you can see them before or after. And at the summit, yes, we'll have sessions, but more free time for connections because that's what customers are craving. I think that's going to help the industry move forward.

All right, wonderful. Thank you so much. Thanks.

Your next question comes from the line of Saqib Khalia with Barclays. Your line is open.

Okay, great. Hey, guys, thanks for taking my questions here. Peter, maybe for you, a lot of talk about Data Cloud in the prepared comments. Can you just talk a little bit about early reception to Data Cloud? And maybe more specifically, how much appetite is there out there for alternative product or alternative data, I should say, in spaces like prescription, for example?

Yeah, great question. It's definitely early adopter for data cloud, and specifically in the area of Compass, the Compass part of data cloud, because there's been an event there, a company there that's sort of set the standard, and it's just the way you do it, and that's for literally more than 20 years. So people have just become accustomed to that. So it'll take a while before the first customers really have success, before we refine our products, and before people see that, wow, there's a fundamentally different way to do this. Instead of selling data by the record and delivering it in a file, you'll sell it by the use case, unlimited data by the use case, and deliver it through software. So that's a That's different, and that's the definition of an early adopter who's going to understand that, lean into that change, and it will be a small part of the market that wants to go to that early adopter. Then when the value proposition is proved out, then you can start moving into the mainstream. So it's actually happening just like we thought it would happen.

That's great. Good to hear. Paul, maybe for you, maybe just digging into the commercial side a little bit more, particularly the CRM side, how does churn look there just long-term? Does that make sense?

It does, yes. So on the churn and nutrition side, you know, first we had a really strong quarter in CRM. We added 12 customers. We increased our share again in the quarter, so another really strong quarter. You know, there was some churn and some attrition, which is what we expected. It was in line with what we had anticipated and planned for. And it was offset, you know, from a user perspective, a C perspective, it was more than offset by the expansions that we had. You've probably heard Peter talk about the wins in the domestic Japanese market largely offset any churn and any attrition. I think the second part of your question is how are companies thinking about their sales forces long term? You know, this is the – it's one of the most effective, if not the most effective channel to the market in the sales team's – Salesforce's work. You know, so the – most companies are thinking, you know, on the margins, how do they tweak? How do they gain a little additional productivity and efficiency? How do they become more digital? What's the optimal mix look like?

But fundamentally, the Salesforce is a –

a really critical channel, particularly as many of our customers are more focused on highly specialized medicines. You just need that human being and that human relationship to educate and bring those medicines to market effectively. But it's certainly a strong and important channel for the industry.

Very helpful. Thanks, guys.

Hey, guys. Thank you for taking my question. Congrats on a solid quarter. Could you give us an update on some of your hiring processes? Because you did say in your pair of remarks that another strong hiring quarter.

And if so, has it had any impact to sales like you mentioned last quarter? Is there any way to tease out the impact?

So on your question, Stephanie, hey, it's Brent. So, you know, our hiring at the pace we are, we have Q1 hiring quarter of about net 203 people. And, you know, from our ability to execute on revenue billings, we have the capacity to deliver our guide.

So we feel really good about our ability to deliver on the guide and the headcount we're bringing on board and how they're ramping up. So we feel really good about that.

And another quick one for you, Brent.

Could you help us understand the large deal we talked about earlier we're really excited about? Most importantly on that deal is, you know, it's a great proof point for the operating system. We're not going to get into the specifics of, you know, how any one transaction is accounted for because, you know, we're very focused on customer success and no one deal. So it has been factored into our guidance. You know, when we said guidance, we look at, you know, the pipe that's in front of us, we look at the actuals, we look at the macroeconomic environment. So it's all been factored in.

Thank you.

As a reminder, if you would like to ask a question at this time, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Ryan McDonald with Needham.

Your line is open. Thanks for taking my question, and congrats on every quarter. Peter, you know, I wanted to follow up on the large.

Customer winning and you talked about sort of the decision was being made with 10 to 20 year increments, you know, despite obviously, so essentially ignoring sort of near term macro impact. I'm curious, though, you know, as you think about large deals that you win are getting implemented, given what we're seeing from a macro perspective.

Yeah, Ryan, good question.

No, we're not really. I think what's happening, there was some disruption six months ago, I would say, you know, COVID hitting, Omicron, COVID fatigue, early inflation worries, things like that, the holidays. We're not seeing that, and that hit, you know, Viva and our customers. We're not seeing that type of slowdown anymore. Customers have, you know, they've It generally feels like they've weathered the COVID storm, which we've got to remember, that was really something for life sciences, right? That was really something, disrupted their product plans, et cetera. And then, you know, then we had hiring and then we had inflation. They're kind of through that now. So, no, I don't see those same dynamics.

Maybe a follow-up for you. A question we're getting a lot in almost every investor meeting is obviously given the state of the market and valuations coming down, is questions around share-based compensation and how we should think that's trending. The number was up slightly or maybe more so than we seasonally expected. Can you just remind us on how you're thinking about share-based compensation for 2023?

Yeah, I mean, share-based compensation is a key portion of our overall compensation philosophy. If you think you know about, you know, our base salary and then kind of portion of the balance. So it's an area that we are, you know, reflected. And it's an instrument that we think is important from a retention perspective and from an employee's perspective. perspective. So it is definitely a lever that we use to drive a fair overall compensation structure for employee success.

Your next question comes to the line of Kirk Maturne with Evercore ISI. Your line is open.

Hey, guys. This is Adi on for Kirk.

um but thanks for the questions i just wanted to ask a little bit of follow-up on the on the fx book um obviously you said there's the headwind but um can you talk a little bit about what you're seeing specifically um in the pipeline and yeah the second question was just yeah yeah sorry good yeah no grant you have two parts i'm sorry if i can't deliver our question go ahead yeah part was just about you had a really strong start with Billings this quarter. Going forward, is there any FX impact on Billings outside just that revenue component? Thanks.

Yeah, happy to answer that. Level set on the FX impact.

So overall, real happy with the strength of the business.

Now the FX impact was on the full year basis was 20 million on revenue and it was 30 million on off income perspective. There's kind of a natural hedge with our cost structure relative to revenue in foreign currency.

So it's minimal to no impact on the off income basis.

So important to kind of level set on that. The other piece that's important that is, you know, So as a result, you know, that impacted our ability to increase the full year guide for both.

Our guide for those two numbers. Confidence in the guide for the year.

So we do expect for slight revenue acceleration. And why do we have confidence in that? We have confidence in that because we do have good visibility to the year. We are a strategic partner to a critical industry, and our software and solutions need their critical business processes. So this isn't a transactional business that we manage on a core-to-core basis.

quarter basis. So, because of that, we have good visibility.

So, with that, you know, we have confidence on the full year guide.

Awesome. Thank you. Thank you. Hi. Thanks for taking my question.

I found your disclosure on P&E being 1.5% and F-123 versus 3% pre-COVID. For me, you're just level moving forward in this farm industry. I'm trying to think about a picture discussion on the changing role of farmer reps and how this could maybe imply what tools need to kind of adapt to this hybrid environment in the Florida.

Okay, so I think it's kind of a two-part question here. Brent, why don't you take one, and then Paul, you can take the second one as the industry, because those are actually two different things.

Yeah, so let me kick that off. So you're right. As we have been highlighting, we expected travel and event spending to come back when to up income in fiscal year 22. So we're at about 1.5% of revenue. We're about 0.5% of revenue in fiscal year 22. That's a good thing. Now, why is that a good thing? Because, you know, as Peter mentioned, with the excitement we have, With the commercial summit we have last week, that's a great example.

You know, the other piece to think about is, you know, we're a work-anywhere company. And what is really important, and we've gotten that right from

day one we've been consistent so but with that you know connecting is is really important so we expect you know different functional groups travel to stay connected and that's all going to be you know part of the equation now looking out where could this be it's early here we expect the the tea traveling events to you know accelerate a bit through the course of the year uh i don't mind can you can you repeat the second part of the question again just one

Answering the right question. Sure. I guess the second part was just on what this might imply in the industry and how maybe the broader selling model in the industry is changing, what that means for headcount and technology.

You know, we've talked about some of the shit that's happening in the industry where The industry is becoming a little bit more efficient. They're increasing their mix of digital.

That's one impact that's changing where they become more productive.

They're able to do more with less, and we're seeing that play out. We've been talking about that for some time. I think the other impact that we're seeing, so that will have an impact on overall headcount, particularly of the field of Salesforce. But there are other roles beyond just the sales reps. One example are medical, like field medical teams. These are the more high science type people who call on doctors or thought leaders and scientific experts. That's one example of a different kind of role. Many companies are thinking about different roles in the field. Medical is one good example, and some of those are actually increasing.

So the roles emerge in the commercial and in the In some cases, there's some reductions.

In other cases, there's increases. And, you know, we've kind of talked about that overall sizing for some time now. Yeah, so we see kind of the size and the shape shifting just a little bit, and we're looking at the industry to be able to kind of make those adjustments.

Very helpful.

Thank you, everyone, and thank you to our customers for your continued partnership and to the Viva team for your outstanding work in the quarter. Thank you.

This concludes today's conference call.