This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk20: Good afternoon and welcome to VIVA's fiscal 2023 fourth quarter and full year earnings conference call for the quarter and year ended January 31st, 2023. 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 me today for Q&A are Peter Gassner, our chief executive officer, Paul Shawa, EVP commercial strategy, and Brent Bowman, our Chief Financial Officer. During this call, 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 expectations and are subject to various risks and uncertainties. Our actual results may differ materially. Please refer to the risks listed in our earnings release and the risk factors included in our most recent filing on Form 10Q. Forward-looking statements made during the call are being made as of today, March 1, 2023, based on the facts available to us today. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. VIVA disclaims any obligation to update or revise any forward-looking statements. We may discuss our guidance on today's call, but we will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. On the call, we may also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today's earnings release and in the supplemental investor presentation, both of which are available on our website. With that, thank you for joining us, and I'll turn the call over to Peter.
spk05: Thank you, Eto, and welcome everyone to the call. We had a strong finish to the year with results ahead of our guidance for the quarter end year, thanks to great execution by the Viva teams across all areas. We're early in the significant industry cloud opportunity, and we're executing well. It was a breakout year for clinical data management, and we saw great traction in newer areas such as safety, link, and compass. Our innovation engine is strong and our strategic partnerships with the industry are increasing. We issued guidance for fiscal 24 and initial guidance for fiscal 25 to provide context for the one-time revenue impacts to 2024 related to TFC. Normalizing for TFC and FX, we expect revenue to grow about 15% in fiscal 24 and at least 15% in fiscal 25.
spk04: At this point, we'll open the call to your questions.
spk03: Thank you, sir. And everyone, if you have a question today, please press star 1 on your telephone keypad. If you would like to remove yourself from the queue, that is also star 1. Again, please press star 1. If you have a question, we'll go to Brent Bracelin, Piper Sandler.
spk06: Good afternoon. Peter, really appreciate your kind of long-term thinking here. And so this one's kind of aimed squarely at you here. I would love to get your initial thoughts on how Viva's thinking about incorporating AI and large language models into the business. Is there an opportunity to lean in here to either lower costs internally around AI, or are you thinking about new revenue streams via new products that you could build on kind of these AI advances and large language models? Thanks.
spk05: A good question about AI. Well, certainly chat GPT kind of taken the world's imagination by storm, and it is a significant type of technology. I won't go too long into that, but it's significant. But to answer your question, Brent, I don't see any opportunity to really lower internal costs. Most of what we do is relationship-based in the selling and the marketing and innovation-based, true innovation-based in construction in the product area. So I don't see a um anything there as far as for value for our customers that's something we'll consider over time we won't rush into it we have a lot of data in in viva in the industry cloud overall for the industry and then we have data we have our customers data for each customer so there's potential that we can do some things to answer some questions about the industry overall or and or help the customer answer some questions about their internal operations. And I, I do think the large language models are going to be a thing. And the chat type interface, ask about a question, get a relatively low quality answer that you can kind of move forward from for there. So I think there's a place for it. I don't think it's a revolution and we'll just see how it goes.
spk06: Helpful color. And then one quick follow up for, for Brent, um, really appreciate, uh, initial kind of milestone for fiscal 2025 here implies a rebound to 19% overall growth. In our forecast, it does suggest that the R&D business could rebound and normalize back to 25%, 30%. Is that the right way to think about the drag on R&D this year and then kind of a normalization in R&D growth the following year? Is that the right way to think about the impact here with the counting shift?
spk07: Yeah, so thanks, Brent. We're really excited about the momentum we're seeing in the R&D business. It's a key obvious growth driver for us as we look out 24, 25, and beyond with, you know, particular strength in the clinical space, quality, so really broad-based strength. So it is really driving that growth that you're seeing as you look out into 2025.
spk04: Okay, thank you.
spk03: Next up is Brian Peterson from Raymond James.
spk23: Hi, thanks for taking the question. I wanted to hit on your success in EDC with six of the top 20 customers down the fold. Maybe talk about what's driving that success, and then I'd love to understand, Brent, maybe how to think about the revenue ramp of those deals. How long would those typically get to be fully up to the fully penetrated ARR?
spk05: Yeah, I can take those. This is Peter. We're really happy with the success of EDC, I guess. Sometimes things come in bunches, and three of the top 20 in one quarter, I wouldn't expect that every quarter because we'll run out of the top 20 very quickly, right? It happens like that. Why is it happening? Why did it happen all in the same quarter? That's a series of coincidences, really. But why is it happening overall? And we've been saying this for many years. It's just a better EDC product, more complete, it's true cloud, and it and it comes from a viva which we have a clinical operation suite and a clinical data management suite and that's that's what customers want these are long long projects so um full revenue on some of these projects you know you're you're looking at sort of three to five years type of thing um now they're not all the same and um so and i'm not saying that some might not be two and some might not be six but if you if you look at three to five years that's That's kind of a good thing to think about there. So it's a long-term revenue. Right. Now, I will say, if I just add a little color, that's the clinical, the EDC, that's, there's a lot more to the clinical data management suite, too, that's very significant over time. Randomization, trial supply management, ePRO, our clinical database, and there'll be more. So I think you should think about EDC almost like you thought about as the start of our clinical operations. So it's big and significant, but the overall clinical data management is even bigger.
spk23: No, that's good to hear, and it sounds like there's a lot of good news in clinical. Maybe pivoting to the commercial side, I know this was in the premier remarks a little bit, but just in terms of the CRM transition to vault, any early feedback that you can share from customers that you've heard? I'd love to get any perspective on that. Thanks, guys.
spk21: Yeah, I can take that. This is Paul. Yeah, so the Vault CRM is going really well pretty much across all dimensions. We have the product development team working hard. I'd say they're ahead of schedule. We're actually going to have a demo, our first demo at our summit coming up in May. So that's super exciting. I'm excited about that. I know our customers want to see that. You know, there's not a whole lot our customers need to do right now, but we are having conversations with a number of them. And by and large, the feedback's positive. They're just trying to understand what this means for them and what timing looks like and what's entailed, and our job is to make it really easy for them to move. So yeah, overall, going really well with Alt-CRM.
spk04: Thanks, Paul.
spk03: Next up is Joe Ruelink, Baird.
spk09: Hi, great. Hi, everyone. Peter, in the prepared remarks, There's a mention of kind of early momentum and some of the newer areas like safety, which is a hard one to get into. But also something like Link, I think, is one of the more successful new products for commercial in some time. And then, of course, Compass. You know, when you step back and you think of this pod of newer products and then you maybe rewind, you know, and think about the introduction of like submissions or ETMF, you know, the pod of kind of your you know, first go after in the clinical areas. Do you think the opportunity ahead is just as compelling and consequential as kind of that mid-2010 timeframe for VIVA?
spk05: It's a really thoughtful question. I wouldn't draw the exact parallel, but I think the parallel is similar. The reason why is in R&D, there's multiple very separate entry points. Safety is quite a bit different than clinical. It's quite different than regulatory. In the commercial area, sales, medical, marketing, things are more related and they're more fluid together. So it's not distinct entry points. It's all related buyers. But in terms of, yes, a second leg of things, really increasing our potential, that's absolutely what's happening. We have our established markets of the crm suite and of commercial content actually and then we have cross-ex which is pretty well established but has a lot of room to grow you know it has some advertising headwinds right now but it has room to grow and then we have things that are very very early link and and especially compass those are broad things and can lead into other add-on type of things we also i think you're You're pretty accurate in the way you're saying it. The second leg of commercial is things like LINK and Compass and business consulting as well.
spk09: Okay, that's great. And then maybe just a question on reconciling the margin outlook. So there's some immediate impacts of the TFC, T&E is coming back. Is there kind of another category of incremental spend as you think about next year and related to maybe that thought? There was a comment in the remarks of just the evolution of Compass and taking your time to get it right and kind of introducing some new things in 2024. Would that maybe be an example of an area that's receiving incremental investments?
spk07: So, yeah, thanks, Joe. So if you look at the margin guide, I think you nailed it pretty well. So when you adjust for the termination for convenience, you get to, you know, that's about 250 base points of impact. So you get to about 36 and a half. And then there's about another point coming in to travel and events. We had recently our first in-person field kickoff event in a number of years. So we're kind of getting back to normal, to a normal run rate around getting in front of customers and getting together. And then there's the continued investment for growth. And, you know, Compass is one of a number of areas where we're going to continue to invest, where we see an opportunity to drive our durable business model.
spk04: Okay. Thank you very much. Thanks, Joe.
spk03: Our next question is Ken Wong, Oppenheimer.
spk13: Great. Thanks for taking my question. This is for, I guess it could be Peter or Paul. But back to the CRM, the transition, just wondering, you know, with this demo that you guys are going to have in May, how should we think about what this new CRM looks like? Is it really just sort of a lift and shift of what you've got today on Salesforce? Or is there going to be a bit of a reimagination to optimize for the Vault AWS backend?
spk21: Yeah, hey, Ken, this is Paul. So, yeah, good question. The way to think about it is it's primarily a lift and shift. So we're moving the apps that the vast majority of our end users touch every single day remain the same. And those apps today point to Salesforce, and in the future will point to Vault. So that's the simple way of thinking about it. And that's a design decision by us. Now, why are we doing it that way? One, because it's the market-leading CRM. The CRM works. And it works really well for our customers, and it's going to make the move much easier for our customers to get there. So that's how we're thinking about it, and that'll play out, you know, just really easy for the end users. Like everything stays the same. One day it's pointing to Salesforce, and the next day it's pointing to Vault. So there's a lot of engineering work to make that happen. So we'll start to showcase some of that starting at our summit, and then, you know, more and more as time goes on.
spk15: Got it. Great.
spk13: Thanks a lot, Paul. And then for Brent, just a quick clarification on 25. I know it's super early, but just the margin goals would suggest kind of in that 35-ish range, I guess 35 and a half, give or take. Should we think of that as more of a generic plug, similar to what you previously mentioned in the long-term target? So, you know, kind of just mirroring that? Or Or is that a reasonable expectation for how you're envisioning the margin expansion from 24 to 25? Hey, Ken.
spk07: So what we said is at least a billion dollars in operating income. So we're two years out. And that's above our long-term target of 35% plus. And we're going to continue balancing growing revenue as well as the investments required around that. So it's early. We feel good about how we're executing. And
spk16: know we're going to deliver at least you know a billion dollars in off income got it all right fantastic guys thank you yes thank you the next question is ann samuel jp morgan hi thanks so much for taking the question um i was hoping maybe you could walk us through what headwinds and tailwinds you incorporated within the 2024 revenue guidance and does the top end of your revenue range imply any improvement in the macro backdrop
spk04: Yeah, I'll take that.
spk07: So, what we've assumed in our guide for the year is really the continuation of what we started to see in June from a macro perspective. So, we haven't assumed any improvement nor worsening in the macro that we continue to see June through the balance of the year. And, you know, that's some items like, you know, Peter mentioned the advertising spend, a little bit headwind and cross-ex. We assume that into our guidance as well as some of the SMB you know, capital conservation that we saw in the back half of the year. So that's what's informed into our guide as you look out to fiscal year 24. I think you had a second question if you wanted to repeat it.
spk16: Oh, no, that was really helpful. And then, you know, maybe just was hoping you could walk through the cadence of just the pricing adjustments, you know, how those will flow through the model because I think you said in your prepared remarks you don't expect much in fiscal 2024. So how much should we expect this year and how should we think about the cadence going forward?
spk07: Yeah, so we announced effective April 1st going forward that we'll have a price increase of the lower of 4% or CPI. So how to think about that for 24, it's not going to have a material impact on our revenue. You think about Q4 as our largest renewal quarter. It'll have more of an impact on billings in fiscal year 24, and then it'll be more impactful on revenue in fiscal year 25. But realize it could take a few years for that to fully play through. Because we have customers on multi-year arrangements, you have to come up for renewal. So it'll take a few years to see the full amount play through.
spk03: Helpful. Thank you.
spk04: Yeah, thank you.
spk03: We'll go to Stephanie Davis, SVB Securities. Hey, guys. Thanks for taking my question.
spk01: I was hoping you could tell us more about the large cost of CLIMB. Are you seeing a renewed interest in some of these digital commercialization tools despite the tough ad environment? Or when we think about it, will folks be more reactive in adopting these solutions once the market starts to improve so we can see kind of a fast-forward sort of dynamic?
spk05: Stephanie, I believe your question broke up in the beginning. So could I ask you to repeat that?
spk01: Yeah, sure thing. It's just the large cross-ex wins and kind of if this is going to be something we see people prepping for, the environment improving and add, or they're going to add that ahead of it, or they're going to adopt their solutions once the market kind of starts to improve as a reactive move.
spk05: Okay. Yeah. The enterprise-type deals and cross-ex, I think that we're working on some more of those. You know, now it's undetermined when those are going to come in. I don't think those are really correlated too much with the headwinds in advertising. That's more long-term things that people are thinking about. Do they want to standardize and have a common operating model across all their brands and go forward with an enterprise approach? Or do they want to have the budgets brand by brand? So it's just a slow evolution to more of an enterprise vibe. It's not affected by the ups and downs of advertising.
spk01: All right. Understood. And as a follow-up one, the CRM business, you guys called out a number of SMB wins. Can you tell us how and who you're winning against? I mean, because we spent so much time about the transition away from Salesforce last quarter. Is that factoring into any of these conversations as you go through it?
spk21: Yeah, we're continuing to win. Our win rate really hasn't changed in CRM. We continue to execute really well. And the competitive environment is pretty much the same. It's all of the same players. So the way to think about it is these are generally one of two categories. It's either pre-commercial companies, SMBs that are in either the U.S. market or the European market, or it's domestic companies that you may see in Japan as an example. So those are the kinds of companies that we're winning, and we're winning against traditional competitors. So it's the They may not have anything. If they're a pre-commercial company, they may be buying their first CRM system. If it's a domestic, it may be a local competitor or some of the traditional competitors that we've seen.
spk03: All right. Helpful as always. Thank you. The next question is Gabriella Borges, Goldman Sachs.
spk15: Hi, this is Kevin. I'm for Gabriella. Thanks for taking the question. From a capital allocation standpoint, Peter, can you talk about doing M&A, you know, how are you thinking about doing M&A and realize you're being patient there and trying to find the right asset. But, you know, what are you seeing in the private markets from a competitive standpoint and maybe how does that play into your R&D strategy? Thanks.
spk05: Yeah, always no change in our M&A strategy. We're always quite careful, right? Look for a cultural fit, look for a business fit and something that we can execute on. And those opportunities are rare. I would say we're looking more than we have in the past, but if you compare Viva to three years ago, we have more effort in the M&A area. So we're scouring the market more, and we've always got a few things in the hopper, and they most likely don't come through for a variety of reasons. I still am bullish over the next year or two that we can have something, because I think people are getting a bit more realistic on their valuations And they're realizing that there's not going to be a quick turnaround. So I wish I could give you a schedule of acquisitions, but I can't. But I'm really proud of our acquisition track record, and I think that will continue.
spk04: Thanks, Peter. Thanks.
spk03: Fred Hittenbach from Morgan Stanley has the next question.
spk18: Yes, just a question on the operating margins and the implied, you know, 35.7% in fiscal 25 or at least that much. Can you just talk about the hiring pace and things you're doing this year after what was a very strong fiscal 23 and what environment you're seeing out there as you're looking to hire?
spk05: And I can take that one. This is Peter. The environment is good. It's a more favorable hiring environment than it was 12 months ago, I would say. And I expect that favorable hiring environment to continue for multiple reasons. It's a well-run company. I think people like to work at a well-run company. I think our work anywhere helps. And I think there's less froth and speculation in the market. But we'll really be measured in our hiring, and we've always done that. So we look at where we can grow and we can invest. We keep our teams lean. That's an important thing we do. And we always want to run a good, profitable business. So I think the way to think about it is sort of business as usual as Viva. We don't go crazy in the boom times, and we don't cut back drastically in the tough times. We sort of just keep rolling right over those speed bumps.
spk18: Got it. And then just to follow up on the macro backdrop, it was a little choppy past calendar year, some softness in the middle part of the year, and then it stabilized. Just curious on that, on kind of the CrossX business and SMB where it did soften a little bit. It sounds like there hasn't been much change in recent months, but if you can provide any color there in terms of any types of influence you're seeing in the macro today.
spk05: Yeah, in terms of the macro over the last 90 days, really haven't seen any change over the last 90 days. Now, that's no predictor of who knows what happens 90 days from now, but we don't see any signs. I don't see any signs of rapid change right now. It seems like for a while now we're in a point of consistency, which overall that's good for Viva because we're dealing core capabilities to improve efficiency and effectiveness. And when there's less change in the macro, either for the crazy up or the crazy down, that's what helps us a lot. When there's less change in the macro, people look to build these durable – our customers look to build these durable capabilities.
spk04: Thank you. Thanks.
spk03: We'll take our next question from Rishi Jaluria, RBC Capital Markets.
spk19: Oh, wonderful. Thanks so much for taking my questions. Peter, let me start by diving a little bit deeper into the generative AI piece and less in terms of how it impacts your engineering and software development efforts. And more I want to think about what is the impact on the actual industry itself. I mean, we saw recently, right, there's a pharma company that is putting a drug through clinical trials soon, and the entire drug was designed by generative AI. So there clearly seems to be potential disruption coming to the industry from generative AI. Can you maybe talk about what you think that could happen, what impact that could have on your customers and how you think that'll impact your business? And I've got a follow-up.
spk05: Well, it's pretty early on that. I didn't read that exact press release. I would be surprised if no... no human touched that drug during its development and its approval. And so I don't think that probably happened. I think there's promising things in the early phase of discovering a drug. And that's not actually really due to the large language models or the generative AI. That's more to machine learning algorithms that are math-based. So I guess I... You know, I don't want to be a skeptic here, but I don't see the real revolution. And, you know, that's the thing about revolutions. You'll know it when they happen. And so far, I really haven't seen it.
spk19: Okay. Totally, totally fair. I appreciate that. And I wanted to think about, you know, the impact from a number of drugs coming off patent, you know, this year and maybe the next 18, 24 months. Obviously, the big one with Abby's Humira. How are you thinking about the potential puts and takes on that? Is that going to have an impact on the number of former reps and maybe lead to further cuts, which has an impact on the CRM business? And maybe conversely, you know, given the patent close coming up, can that be a tailwind for R&D as some of the big companies try to iterate on drugs faster and get new drugs, blockbuster drugs out to market? Thanks.
spk21: Yeah, I can take that. This is normal course of business for the industry. As you look at it over the next five years compared with the last five years, the amount of revenue that's at risk over the next five years as a percentage of the overall industry revenue is actually slightly less than the last five. So it's kind of interesting, the patent thing, it happens. This is normal course of business for the industry. Now, what tends to replace the revenue from those drugs that are lose their patent expiration is new medicines. So you brought up the AbbVie example, you know, there's, and this is in the public domain, there's expectations that new medicines from AbbVie will be just as large, if not larger, than Humira was in the marketplace. So that's very common, right? The industry invests a lot in R&D, they innovate, and new medicines replace the revenue from previous medicines, which, to your point earlier, means more clinical trials, It means more launches, more drug approvals, and ultimately it means sales reps continue to sell and launch these new medicines. So it's kind of this virtuous cycle in the industry. I expect that to continue, if not get stronger, because of the amount of investment the industry is making.
spk04: All right, great. Really helpful. Thank you so much.
spk03: Up next is Saket Kalia Barkley.
spk08: Okay, great. Hey, guys, thanks for taking my questions here. Paul, maybe for you, just a little bit off that last line of questioning, I was wondering if you could talk about what you're hearing from customers on just overall pharma sales rep plans for this year, calendar 23. I think it was said in the prepared remarks that Viva CRM seats flat year over year, How do you think about that for next year?
spk21: Yeah, so this calendar year, I expect it to be roughly flat also, but I'll take a little bit of a step back and just to paint the overall picture for you and for others that may not have been following as closely. So we've always talked about a roughly a 10% reduction. Through the last fiscal year, we've seen the majority of that play out. This year, we expect we'll see some additional reductions. play out, but I think it's going to stabilize. The market's going to hit and operate at this new steady state, and I think we'll actually end up slightly less than the 10% that we predicted. So we're seeing signs that the market is stabilizing, but I think this year we'll have some gains in CRM and the CRM suite, but we'll also see a slight reduction in the market, so you can think of it as relatively flat.
spk08: Got it. That's very helpful. brian maybe for my follow-up for for you um you know for for tfc i think going back to the annals today we're expecting about a 60 million impact i think that's a little bit higher higher now as we look at the 24 guide can you just can you just talk about some of the mechanics there what changed and and also just remind us whether that tfc is going to have any impact on on billings or cash flow yeah hi saget
spk07: Yeah, so in the Q3 timeframe, we quoted a $60 million termination for convenience impact. And that was from existing deals in place at that time. You fast forward, we had a very successful Q4 quarter. We closed three large CMS deals. And with that, we added another $15 million of revenue pull forward. So that's 60 to the 75. And then in addition to that, there's about $20 million of anticipated deals that we expect to close in fiscal year 24, that would have pulled forward revenue. So when you add the 75 and the 20, you get to 95, and I think that's very prudent to consider when you're looking at the growth rates year on year. So that's how to think about it.
spk08: Got it. And just to clarify, no real impact to buildings or cash flow. This is really an accounting point for RevRec, correct? Correct.
spk07: Yeah, and really, yeah, to follow up. So there's no impact in the total revenue value of these contracts. It is purely timing. And to your point, there is no impact to billings and no impact to OCF.
spk04: Very helpful. Thanks, guys.
spk03: We will take a question next from Dylan Becker, William Blair.
spk11: Hey, guys. Congrats on the quarter. I appreciate you taking the questions. Maybe following up on the TFC piece and understand kind of some of the near-term accounting dynamics But how are you guys thinking about that incremental multi-year kind of willingness and adoption, maybe for Peter, as validation of kind of that long-term strategy you guys have kind of called out? And maybe as for Brent as well, as kind of giving you some of that initial confidence and outlook as we think about giving guidance for fiscal 2025?
spk05: Well, I'll take the first part of that. a vote of confidence from the customers in the EDC area, in the clinical data management area, which is one of the most critical and one of the most complex things. And these long multi-year rollouts, yeah, we take that as a vote of confidence and we're really humbled by that. And we know we got to execute really well. So that's where we feel like in clinical data management, we got to sort of a tiger by the tail and we got to pay attention and make sure we deliver on that. So yeah, very excited about that. And how's that flows through to the financials that's for Brent.
spk04: Yeah.
spk07: And when, you know, you asked about how we look out the forecast, we do our forecast at a pretty granular level and we, you know, we work with the business and think about it as a product level at a market level area level as well. And these ramping deals play into that as well. So when you combine all of those, that informs our guide and, you know, we feel good about looking out at 2025 at at least, you know, $2.8 billion in revenue.
spk11: Got it. Super helpful. Maybe switching over to another area as called out on the compass side of the equation and kind of prioritizing dedicated sales teams. Is there anything to call out in the go-to-market piece, any kind of sales that needs to change there, and then maybe how that evolves and maybe benefits from the broader rollout of the sales and subscriber piece in fiscal 2024 as well?
spk05: I can take that one. In general, we have structured our sales team in terms of the commercial sales team and the R&D and quality sales team. And so they have a lot of products that they represent, and that helps our customers, helps Viva be a strategic partner, and that's what our customers want. Sometimes when a product is different enough or new enough or something is different about it, we'll have a specialized sales team. And we made that decision for Compass. It's a very specific product and it's going to be a big product. It has a kind of an entrenched competitor. So no change in our philosophy. We've always had that philosophy. Every year we sort of make those decisions whether we need a specialized sales team. So that's a decision we made some number of months ago and feel real comfortable with it.
spk04: Got it. Super helpful. Thanks, guys.
spk03: And we'll go back to Charles, right?
spk17: Yeah, thanks for taking the question. I wanted to follow up on CrossX a little bit more. You know, Peter, I think you said that the macro doesn't really affect the selling cycle for CrossX. It's really a decision whether someone wants to go to enterprise or stay brand by brand. But, you know, you have called out a little bit of weakness in this category. What is then Klein saying in terms of maybe not moving forward? I know you signed a top 20 pharma here in this, or you announced this quarter, but for others where, you know, people are not willing to move forward yet, you know, what is sort of their talking points as to why they're not interested or maybe not yet looking to do it?
spk05: Yeah. Well, I think when overall the media spend goes down, then that has a negative effect on Viva because let's say a brand is going to do TV advertising and then feels like, wow, I really want to measure that with CrossFix versus if they decide, oh, I'm not going to do TV advertising. We're going to conserve that budget. Okay, then they wouldn't spend with Cross-X to measure that. So that's where it has impacts on these when customers are buying more a la carte, which is the bulk of our business still in Cross-X. They're buying brand by brand, module by module. When their spend goes down, they would conserve on their spend with Cross-X. And also when there's more confusion about where their budgets are going to be, then they tend to be a little less bullish on spending.
spk17: So then in that case, maybe not directly, but indirectly, it is still tied to the macro, maybe not so much like an R&D budget kind of stuff, but it's really just sort of general economic macro environment is fair to say.
spk05: Yeah, I guess to the general economic environment or... and more specifically to the advertising environment inside of life sciences. Now that, again, impacts more of the a la carte type of things we do, which is the bulk of our business in the cross-ex, the year-to-year a la carte. And our goal is to move people more to these multi-year agreements where it's more of an enterprise agreement. It's not exactly an all-you-can-eat, but sort of like that, but smooths out the spend and simplifies things for ourselves and for our customers.
spk17: Appreciate that. And Brent, just a quick follow-up. I kind of missed it. I think someone asked earlier about the cadence for the impact of TFC. Obviously, a bigger piece maybe in the first quarter, but as we model it through the rest of the year, how should we think about the rest of it falling through? Is it more in second quarter or more even?
spk07: Yeah, so yeah, $52 million is what we called out of the $95 million as an impact in Q1. And then the balance of that will continue in a diminishing way through the balance of the year. So Q3 will be less than Q2, and Q4 is expected to be less than Q3.
spk04: Okay, great. Thank you.
spk03: Up next is Ryan McDonald, Needham & Company.
spk22: Hi, thanks for taking my questions. Peter, maybe first for you, it's great to hear the continued success, albeit at the early stages, for the likes of Compass and Link. But I'd be curious to get your thoughts on what you're seeing in terms of sales cycles right now. We've heard of other competitors in the space talking about elongation and having issues there. Just curious if you're seeing any of that, and if you are, does this sort of benefit you in a way as it enables you to continue to mature the product offerings in the marketplace while maybe end market customers are digesting what they have? Thanks.
spk05: I think our macro environment has stabilized. I don't see any change in the deal scrutiny right now. Is it maybe a little bit more than it was a year ago? Maybe, but it's not appreciably so. If we look at last year on the macro environment, probably percentage-wise, the larger impact was in the S&B area. When the funding goes down, companies have to conserve cash. They might merge. They might get acquired. They might go out of business. They have uncertainty, so they wouldn't make decisions there. I think that is also stabilized. The funding environment is a bit more stable now. It hasn't gotten better, but it's stabilized. So I really am not seeing this impact of elongated sales cycles at this time. Now, having said that, I always think our For the past 15 years, I thought our sales cycles were long, and that just goes with the nature of the business.
spk22: Thanks for the color on that. I appreciate it. And maybe a follow-up for Brent. You know, obviously with the expectation of sales and prescriber data coming into play and being generally available later this year, as that data set builds and as you build sort of the book of business for those data sets, will you see any gross margin pressure initially with the inclusion of those data sets while you're sort of in the early stages of monetizing it? Thanks.
spk05: Yeah, I can take that one. No, we don't see extra gross margin there from those products. We're always looking for data that we can add into the CrossFix platform, but that data is really shared. The patient data is the root of it. And then we do, we transpose it, we do projections to get to the prescriber. So, we'll add data incrementally, but I don't, there won't be any large change when we get to the prescriber product.
spk04: Excellent. Thanks for taking my questions. Thank you.
spk03: Next up is Joe Goodwin, JMP.
spk14: Great. Thank you for taking my question. great to see that quality uh and the quality small quality suite is still still moving forward well um i guess can you just elaborate on the vault limbs product that you're all working on and its importance for your position in the quality market all right you got about 30 minutes because i love that product here we go all right uh
spk05: LIMS is interesting. It is for testing materials. Largely pharmaceutical companies, biotechs, they'll make materials in batches. They're not making units. They're making batches, batches of things that then would be packaged and serious things that are either ingested or intravenous into the human body. So the quality of them is super important for obvious reasons. LIMS is Laboratory Information Management System, what we call QC or Quality Control LIMS. That's where you keep the specifications of how you should test this medicine along the way of its life cycle. During its multi-day, it could be weeks, process of making this medicine in a batch, what tests should be done? And there's a whole variety of tests, some as simple as what's the color? know in the ph to some very sophisticated tests those specifications have to be designed and and approved in the system and then data is entered in either through apis or through manual and that's the quality control process that's a big part of the quality control process that then is used to see hey is can we release this medicine in this market to be ingested or injected into humans very important area and we're going to build it inside of our quality vault which means it will become unified with our qms system our quality doc system and our training system nobody's ever done anything like that before and i think it's going to be a real transformation in quality control processes in life sciences which will allow people to release their medicine faster which is a real It keeps the company much more agile. So this is very much top of mind in the supply chain area of our customers, supply chain manufacturing. It's a big product. It'll be one of our biggest ticket items in the quality suite. It's definitely not an add-on product to QMS or something like that.
spk04: Got it. Thank you.
spk03: Our next question is Dan Berenstein, Wells Fargo Securities.
spk02: Hi, thanks for taking my questions. On CRM migration, so when customers begin migrations, do you anticipate that in the year in which these migrations take place, that there may perhaps be some impact on new product uptake from those clients until perhaps the migrations are completed?
spk21: Yeah, so I would think of it as maybe three timeframes, before the migration, during the migration, and after the migration. Certainly before the migration, you know, the way we're planning this, the way we've designed this is that new capabilities, new products that they do, we're going to migrate those automatically for customers. So we want customers to continue to innovate and we'll move that innovation over within the vault automatically. So that's before. Then during, you know, it can be a small to a larger project depending on the size of the company or their complexity. You know, that may be a little bit of a distraction during that period of time, and then certainly after is an opportunity for even more innovation. So that's kind of generally how I would think about it. It's going to be a project just like any other kind of project.
spk02: Got it. And then maybe a quick question on R&D solutions. So it looks like this year you added close to $220 million in revenue within R&D. Can you just share with us what percent of that amount came from top 20 pharma, and what percent came from pre-revenue biotech? Thanks.
spk07: Yeah, we're not going to break out that level of detail, but if you think about where our install base, and we get a large portion of our revenue from the enterprise and our top accounts, so that's largely contributing, but we do have a good cross-section of customers that buy across the whole R&D solution set. So we're pleased with with the success and how we're executing there.
spk04: Great, thanks so much.
spk03: We'll go to Jack Wallace, Guggenheim Security.
spk10: Hey, thanks for taking my questions, and sorry in advance for the boring accounting questions, but here we go. So this one's for Peter, you're saying then, right?
spk07: This is for Peter, the boring accounting question?
spk10: Exactly. So I want to just get a better understanding of the mechanics of the TFC impact, and I appreciate we had a couple of bigger deals that signed in 4Q, and some anticipated it sounds like they were going to sign the rest of the deal. So the fundamentals are strong, but that means we're going to have less of an impact in the early years of those contracts on the revenue line. I think I get that part. The part I'm a little bit unsure about is the $52 million impact in the first quarter. So using simple math on the subscription line, the 460 from 4Q, less the 52 million, less the 8 from FX, gets you to 405 after you add, let's say, 5 million sequential. Now, that 52 million of TFC, why doesn't that get annualized into a $208 million headwind for the year? If I'm thinking about that resetting the revenue base lower, again, without the benefit of being able to recognize unbilled AR entry year?
spk07: I mean, the way to think about it is, so in a post-T4C world, you think about for the fiscal year 24, how much revenue would have been above billings? You think about it from that perspective simply in that year. So there's the amount that relates to existing deals, and then there's the amount related to the $20 million that deals we would have closed. So you're normalizing back to that rule where billings and revenue need to be aligned. When you aggregate that all up for the full year, it's $95 million. And the amount that impacts Q1 is $52 million, largely the unbilled AR portion. But that's at the highest, most simple way. That's how I think about it.
spk10: Got it. And just to clarify, the unbilled AR portion, that would be a I guess what you're saying, a one-time impact or impairment to the one Q, your revenue number, that then, say, Q2 steps back up by that amount or maybe something less than that.
spk07: Yeah, and it's simply a direct reduction to revenue that flows through the off-income in Q1. But the important piece here is the total value of these deals is not diminished or impaired. You're just taking that revenue and off-income, over the remaining life of those individual orders, which could be an additional one year, an additional two years, three, four years, and so on.
spk10: Gotcha. And then, so just the last follow-up on that is, with the headwind diminishing over the course of the year, is that related to, say, the midstream deals that are operating, say, above the multi-year ACV?
spk07: It's those deals, the remaining deals before renewal where there's still an amount of revenue above billings. That's the remaining residual, the 95 minus the 52, and that amount is diminishing over Q2 through Q4.
spk04: Okay, thank you. You bet.
spk03: Next up is Natalie Howell, Bank of America.
spk12: Hey, thanks for taking my question. You touched on R&D earlier and throughout this call, and I wanted to ask a little bit more on clinicals. So you mentioned that you're only 5% penetrated in clinical data and 30% in operations. Does clinical represent an opportunity more for new customers, or rather, does it target the existing base? And for my second question, still on R&D, you mentioned some strength in development cloud. What products coming in fiscal year 24 will help sustain the R&D growth rate that we can look forward to? Thank you.
spk05: I'll take that one. This is Peter. In the clinical, a lot of that is going to be from existing customers, but that's, you know, for example, some of our most established products are in clinical, ETMS, and we have a lot of ETMS customers. To those customers, we can sell other clinical operations products, ETMS, study training, and we can start to sell clinical data management. So they are existing customers, but we'll be getting into new departments is the way I would think about it. In terms of brand new customers, brand new, those will usually come in a small SMB. Companies that aren't commercial yet, they're just clinical, they're running their first couple of trials, they may or may not have our quality suite. And then in terms of where the revenue is coming from in development cloud, the real growth areas are for us, the clinical area, both clinical operations and clinical data management, and also quality. Quality has a long runway to go, and we have a deep pipeline there. Regulatory and safety, those are contributing pretty well, but the two biggest ones are – the biggest one is clinical, and the second biggest is quality.
spk03: Awesome. Thank you.
spk04: Thank you.
spk03: that was our final question i'd like to hand the call back to mr peter gassner for any additional or closing remarks thank you everyone for joining the call today and thank you to our customers for your continued partnership and to the viva team for your outstanding work in the quarter thank you and everyone that does conclude today's conference we would like to thank you all for your participation today you may now disconnect
Disclaimer