Veeva Systems Inc. Class A

background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We do ask that you please limit your questions to one and one follow up, then re-enter the queue for any additional questions that you might have. With that, I would like to turn the conference over to Gunnar Hansen, Director, Investor Relations. Please go ahead.

Good afternoon and welcome to Viva's fiscal 2024 fourth quarter and full year earnings conference call for the quarter and fiscal year ended January 31st, 2024. As a reminder, we posted prepared remarks on Viva's investor relations website just after 1 PM Pacific today. We hope you have 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 Schalba, EVP Commercial Strategy, and Brent Bellman, 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 risk listed in our earnings release and the risk factors included in our most recent filing on Form 10-Q. Forward-looking statements made during the call are being made as of today, February 29, 2024, 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. BBA 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 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.

Thank you Gunnar and welcome everyone to the call. It was a great quarter and year of execution for VIVA with strength across the business and results above our guidance. Total revenue in the quarter was $631 million with non-GAAP operating income of $239 million. For the year, total revenue was $2.4 billion and non-GAAP operating income was $843 million. This past year was important in many ways for Viva and the industry, and I'm proud of all the team accomplished. We delivered the Viva Compass suite, giving the industry a better alternative to legacy data. We established the clinical platform and progressed on our new commercial cloud. It was a milestone year that I think we'll look back on as one of the most significant. We'll now open up the call to your questions.

At this time, I'd like to remind everyone to ask a question. Press star 1 on your telephone keypad. Our first question will come from the line of Joe Ruink with Baird. Please go ahead.

Great. Hi, everyone. Thanks for taking my questions. I wanted to ask about the services outlook and how it's changed from your preliminary views. The shareholder letter mentions investments related to Volt CRM at large customers. Maybe you can just go into the approach you're planning to take with these initial migrations and how it is differing from those original plans. And then related to that question, does this outlook assume there's maybe more large customers, top 20 customers ultimately undertaking migration activity than perhaps has been publicly announced to this point?

I'll take that one. And then, Paul, maybe you can join in as well. There's no major change in our strategy. It's just a refinement as things get closer into view. We've decided and have been able to provide a little more internal guidance about how much investment we'll make in Vault CRM-related services. We think it's just the right thing to do. Moving to Vault CRM wasn't anything our customers asked for. They were happy with Viva CRM. We're going to bring them a better solution over time, an integrated solution with sales, marketing, and medical, all industry specific, all in the same database. But it wasn't anything really they were asking for or budgeting for. So we really want to do the right thing by those customers. Because remember, Vault CRM is just, that's just one of the things that we have with those customers. We have big customer relationships, and Vault CRM is just one of the things. So we want to help them through that. So no real change. And Paul, in terms of progress with top 20 CRM customers, maybe you can give an update.

Yeah, Joe, thanks for the question. We're progressing well with our top 20 customers, really all of our customers. Pleased to announce that we, you heard us announce two top 20 global commitments. We announced that last quarter. I'm pleased to announce a third, moving their existing Viva CRM footprint to they're committing to move all of that over to VaultCRM. So now this is three top 20 pharmas. So that's just another example of the kinds of progress that we're making. We're also in deep conversation with all of the rest of top 20 and many other customers. And those conversations are progressing well, given the innovation that Peter's talked about. We're doing something fundamentally different, integrating sales and marketing and medical in a very tight and unique way. So I'm optimistic you'll hear more about top 20s over time committing to Vault Sierra.

Okay, that's great, Keller, and congratulations on the new win. At the segment level, maybe it looks like the commercial business is set to accelerate based on the outlook. R&D decelerating. I suppose I wanted to focus on R&D because there's quite a lot of traction just in terms of what is being awarded at the moment. I think there were two new enterprise EDC wins with top 20 this quarter, for example. Is maybe the reading between the lines that the level of activity is actually better than might be reflected in revenue just in this upcoming 12 months, but you're seeing visibility for maybe strength beyond this upcoming fiscal 2025?

Yeah, I'll take that one. So if you, you know, if we step back just for a high level and how the business breaks down, overall, the TAM is about 20 billion, right? So it's a big TAM and we're less than 15 percent uh penetrated so we got a long way to go that's important to remember that it's a long-term thing uh that this is going to be a growing and profitable business for many years and then the other thing is quite durable because these products are critical products and they're complex products they're not you know things like email or something like that and then we have a lot of products that fit together so with that with that context um I think it's relevant to look at the different parts. You can really break it down into three parts from sort of a revenue perspective. The development cloud, the R&D area, that's the biggest one. It's about 50% of our revenue right now, and it's about 65% of our overall opportunity, and it's growing roughly 20% or so. And that will really grow well into the foreseeable future. And because we have a lot of new products, we have a clear competitive advantage there. And these are mission-critical systems. Now, what you mentioned, Joe, is customers don't rush in these areas. These are critical systems. They don't rush. And these are some long-term programs. So for example, a couple of these wins that we had, they will roll out and they will get to full revenue four and five years from now. So yes, the fiscal impact comes, comes much later. Um, you know, one thing that important to remember about 10 years ago, uh, when we were going public development cloud, that was quite a bit less than 5% of our revenue. And now it's over 40% and still growing on the 20%. So that's development cloud. And then you've got this, the other areas like our CRM and the add ons, we kind of call that the CRM suite. And in that area, the revenue is stable. It's not really growing because of two things. One, we have really high market share and happy customers on our core CRM, our Viva CRM, and some of the add-ons. And then we need to migrate those customers to Vault CRM before we can sell the new add-on products like marketing automation and service center. So that's kind of a stable 25%. And then the other 25% roughly is a mix of other things in commercial. And if we call that other commercials, This is some stable things like commercial content and cross-ex where we are the market leaders, but we continue to grow at a moderate and steady pace. And customer success is really high with those products. And then newer products like Link and Compass. And these are small now, but they're growing rapidly on a percentage basis. And they have high potential if we can execute well. Now we have to remain seen if we can execute well. So overall, this other commercial area that I talked about, that's growing roughly. you know, 15% or so now, and that can continue to grow into the foreseeable future as well. So, you know, I thought it was good to just give that background on how to look at the business overall.

No, that's a lot of good detail. Thank you very much. I'll leave it there. Thank you.

Your next question comes from the line of Sackett Galea with Barclays. Please go ahead.

Okay, great. Hey, guys. Thanks for taking my questions here. Brent, maybe I'll start with you. Maybe just congrats on those two additional EDC wins. The question is, can you maybe talk about how billings ramps are sort of contributing to next year's billings? You've had great success in the EDC market. Is there a way to think about sort of next year's billings growth with or without the benefits of those ramps? Does that make sense?

Yeah, I understand. Yeah, thanks, Socket. So, you know, we're all pleased at how we exited fiscal year 24, you know, exceeding our billing's guide, so executing well there. And if you think about, you know, the EDC wins by way of example, we're still pretty early days, as Peter said. You know, so five of those top eight wins have been in the last 12 months. So, we're still early in that ramping phase. So, they're contributing. They're contributing more in fiscal year 25 than they did in fiscal year 24. And those aids will continue to contribute more as we look out forward.

Got it. Got it. That's helpful. Peter, maybe for my follow-up for you, it's a little bit of a higher level question. Can you just give us an update on how you're feeling about the health of your end markets? I mean, it seems like things are just relatively stable compared to last quarter, which is great to hear. But since you spend just so much time with customers, how do you think customers are thinking about investing in technology here in 2024 versus what was a tougher 2023?

Yeah, I think there's a little more optimism. You know, the science is going well and we've had this disruption of conflicts and interest rates for a while now and people are getting kind of used to it. So there's a little more optimism. Of course, things could change. I think that'll translate into, you know, a bit more projects that get thought about this year, especially towards the end of the year. But a lot of that time, those things get kicked off in the following year. So a lot of our projects, you just don't wake up one day and say, hey, let me redo my drug safety system. No, these are big projects. There's some change management and there's some thought into it. But overall, I like the feeling that I feel from the industry right now.

Very helpful.

Thanks, guys.

Your next question comes in from the line of Ken Wong with Oppenheimer. Please go ahead.

Fantastic. This first question for you, Brent. As I think about the outlook, you have solid team growth on subscription and billing, yet I couldn't help but notice you mentioned being a little more prudent with the outlook, which I think is language you guys haven't used in the past. So I guess we'd love to get a sense if you guys As we think about the guide, are you baking an additional cushion? Is it just kind of thinking about when the progression of the demand might come back through the year? We'd love any additional color you can give on just how you're thinking about the makeup of guidance.

Yeah, Ken. Overall, philosophically, there's no change to how we approach guidance. You know, there's obviously a number of variables in play, you know, whether it's the macro, you know, and the impact and how that's, you know, impacting our service or our subs business on billings. You've got things like, you know, duration and frequency. So we kind of take a step back and look at all those variables and we think we've taken a prudent approach holistically given the variables at hand. So not a fundamental change in how we guide.

Got it. Okay. Really appreciate that, Culler. And then for Peter, You know, on the EDC side, I feel like historically you guys have talked about that end market through the lens of winning new trials and that being, you know, where maybe the opportunity set was. I couldn't help but notice in January you guys, you know, did a migration of a study portfolio for an enterprise customer. Like, could we possibly see the install base as a potential opportunity going forward based on what you saw with that migration?

Let's see. Kind of think about that. On the EDC, when we sell an EDC deal, there's really two types. One would be an enterprise deal, and that's where we agree, hey, it's a long-term, it's an enterprise agreement that will ramp over time, and over time you'll run all your studies on DIVA. And the revenue for that doesn't change based on how fast they ramp or whether they migrate or whether they don't migrate. Then we have other ones which are study-by-study costs where sometimes it's with a CRO or a small biotech. They maybe only run one or two or three studies and we may compete for that study and win that study. The migration really won't impact our revenue directly at all. What it is, let's say if a customer signs up for an enterprise agreement with ours and they're rolling out and they're quite comfortable with Viva, they might get to a point where they have 20, 30 studies that will run for a long time and they want to clean up their IT environment and they want to have a consistent clinical research site experience. So they use our migration tools to clean that up rather than having some straggling studies on the legacy technology for honestly what could be three, four, five years, you know, and that gets brittle. who knows what could happen with that straggling vendor, whether it has a downtime, security patch needs to be put on, whatever it is, it's just not clean. So that migration capability actually translates into an advantage in our enterprise sales because we have that capability and nobody else really has that capability. So it would only have an effect there. It doesn't really affect in the small market where we're competing study by study.

Perfect. Thank you, Peter. Thanks.

Your next question comes from the line of Brian Peterson with Raymond James. Please go ahead.

Thanks and congrats on the strong wins this quarter. You know, there's been some mention in the past about some customers looking to take large bites of the apple and buying several products at once. We haven't heard a lot about wins across multiple product areas this quarter. I'm curious, are those concentrated with a few customers like the one with BI or is it much more diversified across the customer base? Any color there?

I can take that one. I would say this is diversified, more diversified. We had some quality wins, and those were with certain customers. We had a big clinical operations win for multiple clinical operations products. That was with a customer in Europe. We have a couple EDC of top 20, and those were actually with different customers.

spread all around i think is the best way to say it both in u.s and europe and just different customers so it's great to hear and brent maybe a follow-up uh i know the cash balance continues to grow how are you guys thinking about you know looking at capital deployment priorities over the next few years here thanks guys yeah so you know overall brian um you know continuing to our current capital allocation strategy no change um you know we

We run a profitable business. We generate a lot of cash, so we are focused on M&A as a use of that cash. And, you know, we are a disciplined company, and we'll take a disciplined approach to how we look at M&A. You know, we do consider other uses of cash, you know, as a management leadership team, but our focus today is M&A.

Thanks, Brian. Yep. Thanks, Brian.

Your next question comes from the line of Rishi Uluria with RBC Capital Markets. Please go ahead.

Oh, wonderful. Thanks so much for taking my question. I wanted to first ask on AI and maybe ask in a little bit of a different way, because I know it feels like you're playing your cards a little bit close to the chest on your own AI strategy. But I want to ask, what are you seeing out of life sciences companies in terms of how AI is changing things, whether that's accelerating drug development, whether that's more targeted marketing. Maybe if you could walk us through kind of what those conversations look like and what sort of role you think you can play in those changes. Then I've got a quick follow-up.

I would say the most direct impact has been happening a while before large language models as well. is ai and drug discovery very very targeted ai models you know that can do things like protein folding and analyzing retina images things like that so so you know this is um this is very powerful but very therapeutic area specific very close to the science in the r d and i There's not just one AI model, there's multiple specialized AI models. So that's going on and that will continue. I would say that's kind of part of the fabric of the industry now. Then in terms of other areas, really, there's a lot of experimentation with large language models. And what people look at it for are, A, can I just have general productivity for my people? Can they write an email faster? Can they check their email faster can they research some information faster so that's one thing that's going on also use specific use cases like authoring can i can i author a protocol faster can i author a regulatory document faster now faster is one thing also have to be very accurate so i would say there's experimentation on that there's not yet broad production use on that and certainly the some of these critical things, it has to be a lot of quality control on it. So those are probably the two biggest use cases, or really three, research, general productivity, and, excuse me, authoring. And then as far as our role, we've been doing some really heavy work over the last two years on something in our Vault platform that's called the Direct Data API, and that's a That's a pretty revolutionary way of making the data come out of Vault in a consistent, transactionally consistent manner, you know, much, much faster, roughly 100 times faster than it happens now. That's going to be critical for all kinds of AI applications on the top, which we may develop, which our customers may develop. And we're also utilizing that for some really fast system-to-system transfer between our different Vault families. So that's been the biggest thing. thing that we've done. We haven't really invested heavily in large language models. So far, we just don't see quite the application in our application areas. Not to say that that wouldn't change in the future. I guess I would say we're in a pretty good position because AI really, the durable thing about AI is the data sources, you know, the data sources. The AI models will come on top and that'll be largely a tech commodity. But the control and the access to the data sources, that's pretty important, and that's kind of where Viva plays.

Yeah, got it. Okay, that's really helpful. And then you had your first full vault clinical ops suite customer in the deal, sorry, in the quarter. Can you maybe talk about the uplift from ETMF to adopting the full suite, what that looks like, and what you can do to maybe accelerate more of those types of wins? Thanks.

Yeah. Yeah. now that's um the specifics of that customer of course i won't go into the exact specifics here but um i can quickly you know give you my thoughts on it i would say there that that customer had etms and that's one of our our larger applications and has had for a number of years fully deployed that one when they got the other four applications in clinical operations they they more than tripled our end state in clinical operations. So in that case, and I won't go into the exact numbers, but I know it's more than tripled. So it's significant. When you look at the CTMS, the clinical trial management system, that's a really important system. Study training, a really important system for training thousands of research sites around the world and maintaining compliance and doing that in a friendly way. The payments processing, that's another thing that's key, processing the payments out to the clinical research sites. And then our product called SiteConnect, which is about automating the information flow from the sites to the research, sorry, from the sites to the pharma company during the startup, during the conduct of the study, and also critically at the end of the study, things that are called end-of-study media that have to get out to the site, and we're doing that in an automated way. So there's a ton of value there that more than triples our value of eKMR.

Wonderful. Thank you.

And I would say last comment. That customer, you know, it won't always be like that, where a customer says, hey, we just really want to modernize clinical operations, and we're looking to this partner to do it, and we're going to do it in a holistic way over a number of years across a number of products. What's more common is there's a need in a certain area. Study training, the study training group has a need, hey, let's use Viva. the payments group has a need, hey, let's use Viva. That's still the more common use case.

Our next question will come from the line of Stan Berenstein with Wells Fargo Securities. Please go ahead.

Hi. Thanks for taking my questions. So you're all about Compass Prescriber, Compass National. I realize it's still early, but can you share any anecdotes about customer reception, customer demand on those products?

Yeah, it's very early. It's a good question. Especially, well, Compass Patient, but especially Prescriber and National, these are quite innovative products. So it's going to take a while for customers to understand and adopt these. It's almost like going from the cloud, sorry, from client server to cloud. It's sort of, whoa, you know, it's a different way of doing things. So the reaction from the customers has first been, For some, you know, they're busy and they're not interested. For some, they're like, oh, I want to look into this. And then when they look into this, like, oh, wow, this is really different. And they have to absorb that a little bit. This is really different. And then for some early adopters, they have jumped on like, wow, I can target physicians that I've never been able to target before. I can see data on my competitors' products that are administered in a medical setting, not a retail product, I can see that down to the zip code level and the HCP level. And I can see things like unattributed scripts that where we don't, where the health, the doctor is not specified, but they can see the health system. These are things that were just not possible before. So, and for a long time, not possible for really 20 years here. So now it's the process of, whoa, that data is available. You know, what should I do with that data? How can I optimize? So it's going to take some time and it's for early adopters, which will generally come in innovative companies coming to market. They don't have any existing infrastructure and they're innovative type people. And hey, let's just go for that. And then what we've had is some brands in large companies. that are small brands, pre-commercial brands, and they're thinking, wow, they have some freedom and latitude to go off and do what they do, and they're getting this new data set, and they're like, okay, we'll go for that. Where the hardest ones and what just takes time, the well, the big established brands, because they have a motion, and it's going, and it's working, very reticent to disrupt that. because they have a limited patent life of these products, and they don't want to be risky in there. So that's a little bit of color of what we're seeing.

That's very interesting. I appreciate that. Maybe as a follow-up, just sticking with the marketing theme here, you called out strength and cross-ex. It seems it's pretty broad-based based on the prepared remarks. Is it just overall market growth, or are you actually taking shares well here?

I believe we're taking share, yeah. What's happened is we've just continued a track record of customer success, just sort of grinded out all the customers that are successful with CrossX, our data network, for what we're doing there is the largest and most applicable. So I think during some boom times, there was a little more experimentation with other areas. Some people got their fingers burned a little bit. I think that, you know, we haven't. We haven't burned anybody's fingers. So, customer success leads the way.

I think that's the main thing. Great. Thanks so much.

Your next question comes from the line of Brent Breslin with Piper Sandler. Please go ahead.

Thank you. Good afternoon. I was hoping to go back to the demand environment. with a specific lens towards the SMB segment and then the top 50 enterprise segment. Can you maybe just compare, contrast what you're seeing in SMB? Are there any green shoots there or not? And then also compare that with the enterprise top 50 segments, what you're seeing there relative to this year versus last year? Thanks.

I'll take that one. This is Peter. Emerging biotech, the smallest end of the segment, is still tough sledding there. This year we saw a record number of companies get acquired and go out of business, and a small number of new companies were able to get escape velocity because of the funding environment. It's tough, and it continues to be tough, and you never know when it turns around until it turns around. All you know is that it hasn't turned around yet. Then in the top 50, I would say... The feeling is just kind of a bit resigned that, hey, we're in for this, there's some global conflicts, there's inflation, there's IRA act, but that hasn't hurt us too bad yet, so we just keep going. Also, I think there's a renewed focus on execution and long-term execution. They're really seeing that that's important. I think there's some excitement about the science as well. Like, for example, we have some really big brands now in the obesity area. That's something that didn't exist three, four years ago. And so that's renewing people's optimism like, wow, the science will lead the way. So it's really different in the top 50 versus the emerging biotechs.

Helpful color there. And then my follow-up is back to M&A. And the question here is fiscal 2025 is going to be a very important year in that cash flow could exceed a billion for the first time. You have $4 billion in cash. Just thinking through the philosophy on M&A, historically it's been around small technology tuck-ins. You're a much bigger business. You got a lot more cash flow generating coming in every year. Would you ever think about a maybe larger bolt-on acquisition to go after a new area? Just thinking through M&A a little differently given the size of the business today and the outsized cash generation you're generating now as well.

Yeah. I can talk through the general philosophy of M&A. I think it's no secret. I can just give you the formula. First of all, it has to make some business sense with the market. It has to be a market that we're interested to go in. Either it's complimentary or somewhat adjacent to what we're doing. So that would be a number one. It has to have a cultural fit with the company that you're considering acquiring because otherwise it just absolutely will not work. And, you know, 80% of acquisitions fail. But Aviva, we've had all of our acquisitions succeed. So it's this discipline. The cultural fit is a real thing, and it's an indicator of many things. Not that our culture is the best culture or whatever, but a company that doesn't fit with our culture, it will not be a successful acquisition. Third, you need to have a very clear product and organizational structure plan that's been thought out ahead of time so that you can announce it to both teams on the day you would acquire them. If that doesn't happen, it's an indicator that you don't have enough bench strength to operate this thing. And therefore, you'll lose it in the integration or the business strategy isn't actually clear because you can't say it to people. So in that, I think those are the parameters. So I don't think we would be limited by size. If we saw something that was you know, that was right, that fit those parameters. And that would cost us $3 billion. Well, then we would go for that. But the other thing you need to is you need a willing seller. And so it's timing is it and that's why, you know, 80% of acquisitions fail is because people rush in and they buy things that don't fit these parameters, we're just not going to do that. You know, I would rather return money to shareholders than wasted on a failed acquisition.

Makes sense. Thank you. Thanks.

Your next question comes from the line of Jack Wallace with Guggenheim Securities. Please go ahead.

Thanks for taking my question. I just wanted to go back to the guide. It seems like there's been a lot of good momentum coming into the year. We've got some price increases. We've got some ramping deals. I think the pipeline is healthy of ruling buyers. The timing's maybe a little bit of a question mark. I don't want to belabor the term prudent here, but it does feel like there's more sources of potential upside and a higher floor of whether it's billing or subscription revenue that you kind of knew you had coming into the year and that it's just a matter of grinding out a handful of strategic wins in order to I would get to the high end or get above the guidance ranges. Am I thinking about that correctly?

Yeah, so what I would say is, you know, I wouldn't interpret the choice of words of prudent as there's this incremental level of conservatism that's baked into the guide. So, I guess I would start there. You know, we've considered all the factors that we've talked about on the call today. And, you know, we've considered those, and we think we have a guide that's reflective of the best calls of the numbers like we have historically. So, I would think of it that way. There's a number of, you know, items to contemplate in, like the services portion of the business, which can be a little bit bumpy at that business. But overall, we feel really good and have conviction on the numbers we provided. That's helpful.

And then, just from the 1Q guide, was there any lingering impact from reproductions heard about over the last couple of years, just impacting 1Q. And then just on the third one here, the services, just seems like you're taking a more aggressive approach there. I'm just wondering how much kind of automation potential does that play to help improve the CRM migrations? Thank you.

I can take the first portion of that on your question around rep reductions. There's The digital portion of those reproductions, that's largely behind us, so I wouldn't think of that as an incremental headwind as you look at fiscal year 25. Got it. Thank you.

Your next question comes from the line of Carl Kersted with UBS. Please go ahead.

Thank you, Brent. Could we talk about your decision to raise the operating income guidance for fiscal 25? To me, that's meaningful. A number of software companies seem to be going the other way where against a backdrop of needing to lean into R&D, invest in AI. They're posting somewhat skinnier margin upside, but you've raised it to a pretty high 30s level. Can you talk about your calculus there?

Yeah, I happen to. So maybe just first taking a big step back. So we provided a billion-dollar-plus guide about a year ago, which is a bit not typical, and we wanted to provide some context around the TFC approach standardization. So now you fast forward 12 months and from that, you know, we've been executing well, right? We've been executing over the past year and the 39% reflects that. And that reflects our operating model and the efficiency and effectiveness we get out of our operating model and also the power and efficiency of the vault platform. So it really comes down to that where we're making the investments we see are necessary to drive customer success and growth. We're not shortchanging those and, But overall, it's just about execution.

And Brett, maybe as my follow-up, I'm sorry, are we going to say something?

Yeah, I was going to say, this is Peter, as we scale, I think we're getting a little more efficient. We're getting more efficient in our processes, in our customer relationships, in our use of our Vault platform, and we're being diligent. We have this concept we call lean teams. We're not doing layoffs, but we want lean teams. We want the smallest teams possible with high-performance people that can perform well together. So this kind of discipline, that's why our margins are increasing, and I think you'll see that from us, increasing margins over time.

Got it. Okay, helpful. And then maybe as a follow-up, if we could just go back to the optimism comment. It sounds like both of you, Peter and Brent, are dissuading us from thinking that that increased optimism would have any real impact on revenues and billings this year. I think we're hearing that message, but if I could just press, why not? Why not if your clients are getting a little more optimistic? Could projects that might be stalled start to move forward? Discretionary spend start to come back? Why not?

I think most of these things that we deal with, we have very little discretionary stand other than, other than in services, right? Cause we deal with these critical systems and complex systems and they have more thinking time, right? They have more, they have more thinking time. So I just don't think it's stuff that would impact this year. And having said that, you know, we don't, we don't know what's going to happen this year. We do live in some uncertain times. We have, you know, some interest rate things going on. We've got two global conflicts going on. So, you know, we have to figure that uncertainty in. It's not a guarantee that in September everything's going to be the same as it is right now.

Got it. Okay, thanks for that caller.

Your next question comes from the line, Ryan McDonald with Needham & Company. Please go ahead.

Thanks for taking my questions. Maybe first to start out with CRM. Notice the nine wins in the quarter and the even mix of five vault and four Viva CRM. Just curious what you're hearing in terms of the rationalization from customers on still selecting Viva CRM. Is it something that they don't want to wait until April of 24 to be able to do so or anything like that. And then are you contracting in a different way now for Viva CRM versus Vault, whether it be duration or putting in commitments to migrate over to the new CRM? Just any color there would be helpful.

Yeah, Ryan, I can take that. This is Paul. So the conversations we have with all of these customers, it's a dialogue. We go in with full transparency. We talk about why they may want to choose one or the other. We don't go in with a preconceived notion. We listen and talk to the customer. And then based on what their requirements are, we guide them. We try to lead the customer and make sure we make the right decision. There may be reasons to do Viva CRM that includes some very specific features and functions that they really need. early on that they want to start there with. That would be a common example of why they may choose Viva CRM over Vault CRM. But those things are going away quickly. Just to give you a perspective, we'll be at general availability in April. We're well on the way and on track for that. And at full parity with everything in Viva CRM, we'll be in Vault CRM by the end of this year. So it's really a timing issue. And starting in April, everything will be Vault. And we're comfortable and confident in that timeline and that milestone. So that gives you some guidance there. In terms of how we're contracting, we're contracting in a very similar way. There's not really a material change. The licensing is not exactly the same, but it's very similar. And then in terms of timing of contracts, it's pretty much all the same annual deals that we do, and it's all per user based.

Super helpful. I appreciate that. Maybe the follow up on the data strategy. Obviously, early days, you know, with the new prescriber national data available now. But one thing we've seen to picked up from other vendors in the data space is that there's sort of this constant need for whether it be maintenance or additions to grow their data sets over time. you know, to remain competitive and maybe those are vendor specific issues. But I'm curious now, you know, that you've got prescriber and national rolled out in addition to patient, how you're thinking about sort of that data expansion or acquisition strategy moving forward, whether that's organic or if you, and you license it from other sources or maybe M&A makes sense. Just curious how you're thinking about data expansion strategy moving forward.

In terms of data acquisition, yeah, we, But we make end data products that we sell to our customers. And, of course, we buy data inputs, call it data acquisitions. We have a pretty unique strategy as it relates to Compass where we're really multi-sourcing. We're sourcing data from a lot of different sources. And we have a really excellent industry-leading patient tokenization process that's kind of fundamentally different than the common one out there. So when we do this, we can multi-source from a lot of different places, bring it together and avoid duplicates. So when we do that, we'll have more data sources than what's common, but no data source will be particularly extra critical to us. So when we see a good deal for a data source and a good set of terms, which means we can, you know, we can contract it for a number of years and we know what the cost is and it's and it's not that expensive, you know, we'll do that. And if we see something that's not good, such as, hey, we don't have stability over multiple years or the cost is too high than we want to pay, then we just won't purchase that. So you're not going to see anything dramatic from Viva. There's no step function and costs or something like that. Very importantly for us, these data acquisitions, they power both our CrossX business and our Compass business. So that's very different, right? With one set of data purchases, we're able to power two good-sized businesses, and so that lowers our percentage data cost.

Super helpful, Collar. Thanks, Peter.

Your next question comes from the line of David Windley with Jefferies. Please go ahead.

Hi, good evening. Thanks for taking my question. Peter, does Annex 1 have any stimulative impact on your quality products, the need for your quality products? Does that regulation in Europe influence that at all?

uh you know i'm i i don't know that one i probably if i do some research i can figure out what annex one is but we'll have to get back to you we can get back get back to you offline as long as it's not a material non-public thing so sorry about that one you stumped me on that one sorry well i'm sorry i did that but i'll ask a different one instead so um on the on the data comments that you just made about your data sourcing strategy does the breadth

I think I understood you to say that ability to be flexible allows you to buy when you see good deals. I was going to ask, does the breadth cause you to have to pay more money or does your operating expense base grow disproportionately because of the breadth of that data? Maybe the answer is the opposite.

I can only really comment on our strategy. I wouldn't really know exactly as it compares to others. We believe we have a lower overall data cost because of this. That's what we believe. Now, the main reason we do this is for data quality. So if you're getting data from three different sources that are somewhat overlapping, you have a better chance of getting data quality. And this is one of the reasons why we can project data for medical claims, which is, you know, it might be something that's done at an infusion center. We can also project something for something that you pick up at Walgreens or CVS. Why? Well, because we're sourcing data from multiple points along the line. So the real benefit is more holistic view of the patient. We can project data for over 4,000 brands. And you can only do that, you can't do that if you're just projecting based on a few large retailers' data. You can't do that because, you know, if you look at 20 years ago or 25 when these legacy data products were started, or even when Viva started in 2007, the biggest brand at the time was Lipitor. And you got Lipitor at the drugstore. You know, the biggest brand now is Keytruda, and you don't just walk into the drugstore and get that. It doesn't work that way, or Humira, et cetera. So ours is a modern approach that I think is the only way really to do it well for today's complex therapies. And I do think it will have lower data cost over time. I do think that, but I don't have to prove that.

Got it. And then a follow-up relatedly, and again, not to ask a stumper, but this change healthcare cyber hack thing, situation where some data is being held hostage in a fairly significant healthcare data switch, is that a situation that, say, in the future when your products are more mature, that that actually feeds to the way that you're collecting data and makes you more reliable than maybe some others might be?

Yeah. As it relates to change, I am aware of that. Of course, not the very specific details of the attack. I am aware of how the attack was made, but I'm not aware of the, you know, what's going on inside the change. But, and I'm not going to disclose whether we get data from them or not, but yes, it is a switch. Now, the good thing that happens here for the healthcare system, most of the pharmacies are operating on relatively modern software such that they can point their software to different switches. And there are standards that are in play. So that's a good thing that the healthcare system can recover. For us, again, you know, without going into a lot of details, whichever way the data gets routed, there's a real good chance we're going to pick it up because we're picking it up in multiple places along the way. So I'm not, even if we were at scale in our business, I would, it's certainly unfortunate what happened with change and I think it's terrible what's going on with the cyber attacks, but it wouldn't affect our compass or cross-expedition.

Yeah, I appreciate you taking my questions. Great, thank you. Thank you.

Our next question will come from the line of Craig Hattenbach with Morgan Stanley. Please go ahead.

Thank you. Following questions from Brent on the margins, nice to see the strong guidance in fiscal 25. Can you just touch on, there's some element of services OPEX coming down. Is this, do you think, a new run rate beyond 25, or is there any normalization when you think about margins after this year?

Yeah, I would say overall, you know, the margin uplift who we're seeing isn't really driven by services. I would say it's really a more broad thing. It's broadly how we're executing, and that's, you know, how... We leverage, again, our operating model, you know, thinking about lean teams and really disciplined hiring broadly. So we feel good about how we've executed there. And that's basically what's informed our guide for the full fiscal year. I'm not going to talk, you know, beyond fiscal year 25 at this point in time. But, you know, we feel good about our ability to hit, you know, those operating income and off margin targets.

Got it. And then just a follow-up for PETA, just on the momentum you're seeing in EDC wins, can you touch on what you think is resonating most with new customers and then just key differentiating factors versus competitive offerings?

Well, as we get into this middle part of the market, I think a required thing would be positive customer references. If our existing customers weren't happy and productive, these current sales would not be happening. because it is very easy for them to reach out to their peers and get a very authentic, hey, you're using Viva today. How are you feeling about that? So I would say our customer success is leading the way. And then in terms of capabilities, it's agile study build to be able to build a complex study that has multiple arms quicker and more reliably. That's a big benefit. I would say the um the sort of what i would say no coding uh the a lot of the existing at least a couple of the existing uh providers actually end up doing a lot of coding actual coding work when you when you build a study now that is interesting for whoever's coding that study but it's a bit of a headache for the people managing the study because when you have coding It's hard to keep that under control and the complexity grows and there can be errors and unforeseen things. So with Viva, you don't do the custom coding. I would say the other one is, you know, people want a clinical platform and that is clinical operations and clinical data management. And that's not something you can get from the existing leaders in the clinical data management area. So that then the customer has to develop a common data architecture between their clinical operations and their clinical data management from two different vendors. They have to develop the integrations. They have to keep those integrations running as both products change. And that's really a headache that people don't want to deal with. So I would say it's those things that are contributing. And you might ask, well, how come everybody's not buying at all today then? Well, you know, customers have priorities, and this is changing a very, very critical system, and you better have a good reason to do it. You don't do it unless you have pain in that area, and not all customers have pain all at the same time.

Helpful. Thank you. Thanks.

Your next question comes from the line of Ann Samuel with J.P. Morgan. Please go ahead.

Hi, thanks for taking the question. I was hoping to go back to the earlier question around optimism. You know, we've heard from some others in the industry that, you know, the annual budget flush did happen to some extent, you know, late in the quarter. I was curious, you know, did you see that at all? And maybe any other notable green shoots that you can point to that, you know, are maybe driving your comments around optimism in the space? Thanks.

I guess I can take that one. For the budget flush, We don't really see that too much because ours are more critical and complex things, not so much discretionary. So we just don't really see that as much. That may have happened. We just don't see it as much. And then in terms of the optimism overall, I want everybody to be clear. This is based on a feeling, on an intuition, based on lots of discussions. So we have deep relationships in the customers because we have big strategic partnerships. So that's all. There's no, I can't calculate it down into science. You know it when you feel it, and we feel it, but there's no, you can't really quantify that.

Thanks very much. Thank you. Our next question comes from the line of Gabriela Borges with Goldman Sachs. Please go ahead.

Hi, this is Callie Valencia for Gabriela. Question for me is, It'd be great to get an update on any impacts you're noticing in the industry due to any regulatory changes, particularly as biopharma companies think about potential future impacts of the Inflation Reduction Act and how that might change the way they invest. And then also just how customers are thinking about the risks associated with the upcoming election and how you're thinking about any potential impacts.

Yeah, Kelly, this is Paul. So I guess the way to think about regulations, and particularly you brought up specifically the IRA, our customers are certainly thinking about it, and they're thinking about it first and foremost on the drug development side, because that's really the long cycle in terms of what that starts to impact. The decisions that they make today around where they're... kinds of molecules they're going to invest in, small molecules, large molecules, which indications they're going to try to get approval for. Those are the kinds of things that will have an impact as it relates to the IRA. So those decisions and thinking is happening now. So I would say that it's more acute on the R&D side than it is on the commercial side. From a commercial standpoint, it doesn't really hit until 2026. And then it's somewhat gradual and it's somewhat focused and acute on specific companies. So more thinking and more action on R&D. And I think over time, it'll start to impact more of the commercial side. But companies are responding. They're making decisions. They're making changes. And they're also innovating. You heard some of the optimism around the science and the innovation and the new medicines. So I think there's also a lot of optimism that the industry will continue to innovate and kind of drive through some of the negative or the potential headwinds of IRA. Now, in terms of other things like elections and kind of other regulatory changes, those things are generally, this is a generalization, but they're generally neutral to net positive because when you modernize and you become more digital, you generally need to, it helps companies become more agile. When regulations are put in place, you need to comply. You may need to change and drive change management. And that usually is to the benefit of becoming more digital and using technology to comply with regulations. So it's kind of a generic answer, but hopefully that gives you a sense of how we think about it and what we typically see.

Very helpful caller. Thank you.

Our next question will come from the line of Jalindra Singh with Truist Securities. Please go ahead.

Thank you, and thanks for taking my questions. I have a couple of clarification questions on your macro commentary. First, a quick clarification with services side. You seem to be indicating that the environment has been largely unchanged since your last earnings call. but one of the factors you called out in a lower outlook for services is project timing. So have timelines been getting more elongated, or is it more that your expectation from some of these projects coming back is now pushed out a little?

I mean, so what we said was it hadn't gotten worse or better in the last 90 days. So we did see an impact, obviously, in services we talked about 90 days ago. So that has continued a bit on the project timing side. So that is what has largely driven the services reduction that we talked about in our guide. That was the primary driver. And there's a couple of other items that we contemplated into the implementation excellence as well as some of the investments we're making. So if you take all of that together, that's what's informing our guide and the slight reduction that we had.

Okay, and then one quick follow-up on the R&D spending. Clearly, I think it's very well known that a lot of R&D dollars are going in obesity, weight loss, GLP-180, and even you flagged that. Our understanding is pharma companies might be doing a decent chunk of these trials in-house versus outsourcing to CROs. Do you think those R&D dollar allocation to in-house trials is providing some tailwinds for your development cloud business?

I think... I haven't seen a dramatic shift in insource versus outsourcing on trials. That goes back and forth, so I haven't seen a dramatic change. And right now, I think that doesn't really affect our business too much, the insource or the outsource. If they outsource, maybe we can pick it up through the CRO. And the big companies, they're always going to insource a lot of their their trials anyway, so it doesn't really affect us right now.

All right, Dave. Thanks a lot.

Our next question will come from the line of Brad Sills at Bank of America. Please go ahead.

Oh, great. Thank you so much. I wanted to ask about the data cloud. Peter, it looks like some pretty exciting releases here, enhancements here, the prescriber and Compass National. Could you just elaborate on those? It seems like no better time than the presence to come to market with a revamped data cloud. So what are you excited about there, and how could that cycle augment growth?

Yeah, I'm – excuse me.

I am excited about it, and I think the timing is great. There hasn't been a new entrance in that market for that type of data, really, for that projected data for more than 15 years since Viva started. And it's critical data. It's used for segmentation and targeting, field force sizing. How big is your field team? Who are you going to call on the tactics that you're going to use? Use for incentive compensation, business planning, critical things. And I feel like we're, you know, we had a vision when we bought CrossX. Hey, we would get CrossX. It has a data network. We like the CrossX business. We can grow it. And we can add more data sources, grow that data network, and use that to really do something innovative in data around Compass. And we stuck to the plan. And I'm proud of over the last couple of years, we've always taken the innovative approach on Compass, not the easy approach of copying what's out there. And so now it's coming to fruition, and it feels great. It just feels like when we started Vault, you know, it It's innovative so that, you know, only one out of 20 people really get it, right? Because it's innovative and it's different and it's, whoa, what is this? But I think the facts are on our side. So I think the timing couldn't be better. And I'm really happy with the team we have. And I'm really happy we have some happy early customers. But I don't want to get out ahead of our skis. With Prescriber and National, we We just released them in the end of January. Gosh. So we released the December data set in the end of January. That's a long way from having happy customers that are using it for a year, paying incentive compensation on it, really happy with the product and the service. But that's the hard work we've got to do over the next year. But if we execute, I think the future is pretty bright.

that's great Peter one more if I may please on the commercial cloud understand that you're going through the transition here to the new platform it sounds like while that's going on that will weigh on the ability to cross sell some of these newer solutions should we take that to mean once you're kind of through that transition I guess a year and a half two years from now maybe that's optimistic but at that point you will have the opportunity to better cross sell and upsell some of these newer solutions in the suite And maybe we're due for a reacceleration at that point.

Well, in terms of, we will have the, you know, reacceleration. I don't want to make any, you know, projections out that far. But certainly the ability to cross-sell will start opening up in the next, you know, within two years or so. But that will then gradually open up, right? They'll still be customers using Viva CRM in 2028, I think, hopefully by 2029, and certainly by 2030, they'll be all migrated. So it's the correct way to think about it. This replatforming, you think about it, since we're in the life sciences industry, you could think about it as a strong medicine that Viva has to take for the industry to do this replatforming. It's not... You know, it's not a positive to the revenue in the short term, but it's the right thing and it will be a positive to the revenue in the long term. For example, this marketing automation that we're building, I think it's going to be extra, extra, extra innovative because it'll be life sciences specific. It'll be regionally aware, which is the way you do this stuff in Japan and Germany and the U.S. is quite different in life sciences. And it'll be aware of the field, the sales teams. So you could use our marketing automation to inform your sales team of marketing for sure, but let your sales team control some part of marketing. Or you could use a campaign to control your sales team because they're all operating on the same gate of the same segment. So it's like having Marketo inside of Salesforce.com and industry specific. That's not been done before. As you can tell, I'm excited about the future, and we'll be able to show some of these products at our customer summit in May, especially the call center one. The service center is really coming along. So I'm really happy about it, but we've got to take this medicine for three or four years, and it doesn't taste good right now. How about that?

Understood, Peter. Well, thanks for the optimistic view on the longer-term exiting that. Thank you.

Our final question will come from the line of Charles Rhee with TD Cowan. Please go ahead.

Thanks for squeezing me in. Really just some follow-up questions maybe for Brenda on just the guidance then. Obviously, margins you're guiding sort of 38% in the first quarter, full year more like 39. Any color you can give in terms of how we should think of cadence for margins through the course of the year? And then secondly, in the subscription revenue guidance, How much of that is already contracted at this point, and how much maybe do you need to win over the course of the year? Thank you.

Yeah, what I would say regarding the off-income, off-margin, we feel, again, we provide guidance for the full year and Q1. There always can be a little bit of movement between quarters, but overall, we feel really good about how we're executing and the efficiency that we have. So I'm not going to provide any additional color on how Q2, Q3, and the slope of that curve, but just know that we're executing well and we feel good about those numbers. Then your other, your secondary question, I'm sorry, I didn't write it down, was around subscription.

In the subscription revenue guidance, how much of that is already contracted versus how much you maybe need to win through the course of the year?

Yeah, what I would say is our visibility is at least equally as good, if not better than it was, you know, in previous times. So, you know, we have visibility and a part of that continues to get informed as we close more business and we have these ramping deals. So visibility is at least as good as we've had in the past.

Okay, I appreciate that. Thanks so much. Yep, thank you.

I'll now hand the call back to Peter Gassner for any closing remarks.

Hey, first off, thanks to everybody who asked these really thoughtful and insightful questions. Thanks for your interest in Viva and your understanding of Viva. The good questions help everybody have more clarity. I really appreciate that. And then I'd like to close by thanking our customers for their trust and partnership and the Viva team for all the work in the year and that I believe will have a major impact on the industry and drive our growth for years to come. Thank you.