Veeva Systems Inc - Ordinary Shares - Class A

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One on One Meeting With Veeva CFO - Cabral talks about playing the long game in building a business outside life sciences

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Today we review our one-on-one meting with the CFO of Spotlight Top Pick Veeva Systems (VEEV).

We added Veeva to Top Picks on 7-Dec-16 for $42.75. As of this writing the stock is trading at $144.92, up 239%.


We last wrote about Veeva on 11-27-2019 with the dossier Veeva Continues to Execute With a Path to a Tripling of Revenue (paywall).

We will leave that dossier as the stand-alone research for the details surrounding the company, its future, and its thematics.

We have spoken with Veeva’s CFO many times over the years, and each time we learn something new. This meeting was no different. Tim Cabral is one of the truly exceptional CFOs we have the pleasure of speaking with.

Here are our prior talks:

Update 08-31-2019
Veeva CFO Interview – Opportunity is as Big as it has Even Been

Update 06-13-2019
Exclusive Interview with Veeva’s CFO – Veeva is a Game Changer

Update 02-27-2019
The Veeva Story is Astonishing: CFO Cabral confidant in the ‘product hit machine’

Update 11-29-2018
Veeva Beats, Raises, CFO: Staring at a billion dollars, and beyond


There’s something quite powerful about having a history with executives because we can read quite clearly their projections and how the company has delivered on those projections. With Tim we see a CFO that simply delivers — every time.

Now we move onto the interview and summary written by Tiernan.


One-on-One With Tim Cabral
Shares of life science software pioneers Veeva Systems have declined by roughly 9% since the company reported a solid fiscal Q3 on November 26th, with results and the outlook for this quarter ahead of consensus.

As he has often done, chief financial officer Tim Cabral sat down with Capital Market Labs to discuss the details of the quarter. Cabral, who announced his retirement earlier this year, has said he will stay on at Veeva until his successor is determined, a process that is underway.

The two foci of the conference call with analysts that followed the report, on the evening of November 26th, were the company’s ongoing legal battles, and the company’s announcement earlier in November that it would spend almost $500 million to acquire two startup companies, Crossix and Physicians World.

Talking with CML, Cabral made clear that Veeva’s approach to markets is one of carefully nurturing clientele over many years. It has taken a dozen years to bring its life sciences software business to the point where the technology is being used to manage clinical data for a massive Phase III trial run by one of the top-20 pharmaceutical companies in the world.

“To be able to use that solution for that complex and scaled-out a project, is pretty amazing,” said Cabral, referring to the client win for the company’s CDMS software for “clinical data management.”

It’s a long game, and that’s the point, said Cabral, when asked, as he and CEO Peter Gassner are often asked, when the company will show big gains outside the life sciences business.

Veeva has identified three industries that are not life sciences where it intends to make progress, consumer packaged goods, chemicals and cosmetics. It will take time, he emphasized.

“As you know, it’s not just the producing of the software”” said Cabral. “It’s the underlying relationship in life sciences that we have been building for 12 years now.”

By contrast, Veeva is only three years into its exploration of the three industries outside life sciences. Things take time, in other words.

Asked whether his company should be bulking up on deals to stuff its pipeline, Cabral was adamant that the steady nurturing of customers is better than simply piling on lots of M&A.

“We’ve been approached by almost every bulge bracket bank today,” he says, to issue large debt and do lots of deals. His answer continues to be, Why take on that complexity, “if the cash we have is sufficient for what we need to do?”

To recap, Veeva reported revenue of $281 million in the October quarter, up 25%, and EPS of 60 cents. That was higher than the average estimate for $275 million and 54 cents. For the current quarter, the company sees revenue of $296 million to $299 million incuding revenue from acquistions, and EPS of 51 cents to 52 cents, versus consensus for $279 million and 53 cents.

For the full year 2020, the company sees revenue of $1.38 billion to $1.39 billion, which includes the revenue from the two deals announced in the quarter.

The company also reiterated a forecast that it will have $3 billion in revenue come calendar 2025.

Capital Market Labs: What do you think is most important for investors to take away from the results and outlook?

Tim Cabral: As I think about the quarter, the one thing to continue to take away about the Veeva story is that we are still in the early days of a significant opportunity.

And the one anecdote that investors leaned in on is that we just got selected from a top 20 [pharmaceutical] company deploying CDMS [Veeva’s Clinical Data Management System software] to do one of their large Phase III trials.

That level of product innovation and product growth, to be able to do that in just a few years of development, to be able to use that solution for that complex and scaled-out a project, is pretty amazing.

So, I think that’s an anecdote, that’s the big over-arching message.

If you unpack the quarter, certainly that Phase III was very good. And then continued momentum in SMB business, which has been really strong US and Europe the last number of years. And obviously, while we put press releases out of the two acquisitions in commercial cloud [Crossix and Physicians World, two privately held startups], Peter and I spent time on it on the call, discussing what it means to our evolving and strengthening commercial cloud offering.

CML: I think you said on the call that the Phase III trial with CDMS was 12,000 patients, was that correct?

TC: Yeah, that’s right, and then the number of sites — 12,000 patients, across 700 sites, in 32 countries.

CML: This is the largest deployment to date for CDMS?

TC: Oh, yes, yes.

Now, it’s not up yet, we are in the process of deploying it for that, just to be clear, but they have made that decision, which is significant in terms of the scale, the maturity and the strength of the product.

CML: So, the natural question the Street starts asking is whether there will be 10 more such deals for CDMS next quarter…

TC: Well, certainly not next quarter, but over time, getting ten more is the recipe.

You bring a product out, you work closely with early adopters, you build their success, which is a combination of deeper product fit, and strong reference-able customers. Once we come out of that stage, the product is highly effective.

And a set of reference-able customers — which, in this industry, it’s a very small community — who are willing to talk about the product. That’s the recipe in CRM, to start, and every other product since then, it has been a tried and true approach.

The thing I would say, and you and I have talked about this before, is that it’s not about the speed with which we have gotten new customers on the platform. This is not a maximize-revenue-today game, it’s a long game.

How do we build a strategic partnership? This clinical data management side, you don’t try to deploy 10 top 20s in the first couple of years. Success is paramount here, that’s a long-term opportunity, which is what you’ve seen.

CML: This Crossix deal, I don’t see how it’s that big a deal, there’s lots of data science companies out there, so why is this acquisition significant? Why is it worth roughly half a billion dollars?

TC: They bring a few things we didn’t have before. You’re right, there are a lot of companies out there.

Crossix bring a level of expertise we really didn’t have. Think about data scientists, running a data business, we have a part of our offering, OpenData, that is about the data business, but we are mostly a software company, we are still in the learning stage of how to effectively run a scale-out data business. We are doing well in OpenData, but they add to that.

Two, their asset is around patient data, which is very synergistic with what we do. We are focused on pharmaceutical companies and health care providers, and they are focused on a patient data asset that fits very well with that.

And third, they monetized this patent data asset to a constituency we have not yet reached, brand marketing managers. As we build out our portfolio, tapping into new budgets and new economic buyers, this gets us into the brand teams and brand managers, that is not an area where we have had an offering before. Those three things create a level of synergy.

CML: Can you elaborate what you mean by a brand manager?

TC: Think about the team that owns the promotion of a particular product. Think about a new product coming out of clinical trials, and going to be commercialized.

This is the team that really owns the go-to-market, the advertising, the promotion. As you can imagine, besides alcohol, pharma drugs are the largest promoted or advertised product in the world. These folks are driving that. These are pretty massive budgets.

What Crossix does is combine patient data and what patients are doing. Think about the channels with which pharma companies promote and advertise their products. What Crossix has done is brought those two worlds together to be able to analyze and answer the question of how effectively those promotional dollars are being spent, the effectiveness of campaigns.

You don’t want to spend tens of millions on a campaign that is not having an impact.

CML: So, they are showing outcomes for campaigns?

TC: They are showing how drugs, what drugs patients are using. They have all that data that’s anonymized, and you can get a sense of where there is a heavy population of patients that need to be treated.

As we integrate the data, we can build new products from that combination. It’s more than just what we have today.

CML: And so what about Physicians World? It seems like this is just a conference organization business, where you have some people who book hotels and schedule speakers. So what’s the big deal?

TC: You are correct, that’s a really good analogy and it’s apt here.

Now, add to your use case the regulatory overhang with which these pharma events happen. And the doctors on the speaking circuit, who need to be highly efficient. The speaker bureau services company helps them do that. You’re right, but let me step it up a level.

You heard us talk about Industry Cloud in past, not just about delivering software, but also about data and services to an industry, so that the whole ecosystem for those three things works more effectively.

One thing, as we get deeper and deeper with these customers, is they want to buy software and complementary services from the same vendor. Buying from different vendors, and having to stitch it together, is becoming more and more complex and difficult.

We have events management software, and we had an ecosystem of partners for speaker bureau services, and we are hearing from our customers they want us to bring it together. Now, they come and get the highest quality of software and services to enable them to run these events as efficiently and effectively as possible.

CML: It’s really one of those things where it’s different from the main things you do, but you have to do it to nurture those customer relationships, is what you’re saying?

TC: You’re totally correct. That’s correct for this opportunity.

There may be other services categories that could be more material. This was more around customer success, and the combo of those two, and making those two things sticky, continuing down the path of deeper and stronger relationships.

CML: Are you investing at the right rate? You have on the order of a billion in cash and equivalents on the balance sheet, after doing these two deals…?

TC: Yeah, I think you have it right, between a billion and $1.1 billion.

I think one other thing I would bring to the equation of what you just said, is, we engage with this market, and as customers are spending more and more, the challenge they have around moving software vendors in and out is not something that’s of interest to them.

So, the stability we can show with this balance sheet is something that enables customers to feel better about decisions they make that may be a decade-plus or longer. That’s helpful as well.

Having that growing cash balance of the business, that is what creates the stability. Beyond that is the optionality to do acquisitions, or, to your point, to reinvest in the business.

CML: Speaking of opportunities, there were several questions on the call this quarter, as there always are for Veeva, about when the business is going to inflect outside of life sciences. Is there a sense of when that business will hockey stick?

TC: Yeah, so, I think in this call, you heard a couple of things in OLS [outside life sciences]. We wanted to make sure the investor constituency understood both the size of Industry Cloud within it [life sciences] as well as the current size of what we are targeting outside of life sciences.

What we did for first time is we talked about outside life sciences as more of an analogy to one of the products in our Vault suite, as opposed to thinking about it stand-alone.

This is not the second coming of Vault, it is like a major product within Vault. That’s not to say it’s the only area we may pursue. That’s the size of the current market we are focused on.

Number two, I think that success is a hard bar. I would say it that way. As we have had success bringing new products to market, and as we got through the early adopter phase in life sciences, the pattern that’s created has enabled people to think that’s just going to happen again with OLS.

But, as you know, it’s not just the producing of the software, it’s the underlying relationship in life sciences that we have been building for 12 years now. We are three years into relationships in CPG [consumer packaged goods], cosmetics, and chemicals.

People may be missing that it can take a while to build those relationships. In industry cloud, it’s product fit, but also trusted relationships to get to escape velocity.

All that said, outside life sciences is progressing as we expected. I would say there are two very specific proof points. Getting through the early adopter stage is one. We are seeing customers come back and buy more from us.

One very larger customer uses it first one one use case, and then they come back and buy it for a different use case. Or they widen the global use case for it across their teams in different locations. That is a very good sign we are hitting the market in the right way.

Second, as we build those relationships, if we find other applications to bring to market that they would trust us to do. And that is Vault Claims Management.

So, those two things signify the underlying opportunities. But we are in relationship mode, we are circa 2010 in Veeva life sciences. That’s very early, still, to build those trusted relationships. Those are the two things we wanted people to understand.

Number one, the existing early adopter customers using more and buying more from us, and number two, identifying new applications that those markets enable us to build and bring to market.

CML: The philosophy, in other words, is not one of stuffing a lot of product into the existing pipeline…

TC: I think you’re right. You need to understand the context in which we live. We are focused on primarily a single industry. It can only take on so much change at one time.

And, B, it’s regulated. So, there’s a little bit of, I wouldn’t say allergic reaction to change, but whatever the analogy is, if something is working effectively, I don’t want to change it by going out and buying a bunch of stuff and having 20 initiatives instead of five or six.

I think that creates a risk scenario which doesn’t help us in the long run, and certainly doesn’t help our customers. It’s not a land grab. It’s about innovating with our customers, it’s about helping delivering software that helps them do what they are trying to do, which is getting better patient outcomes over time.

This will always be a very long, sustainable, growing market, not a fast-changing, quick sale.

And then, the other thing, certainly I’ve been — we’ve been approached by almost every bulge bracket bank today, every one in the world doing convertible debt, to raise and do deals. I’m raising a convert debt round every year, what else do I need to do?

If I don’t have the proceeds for it, why take on that constituency [of investors] and that complexity, if the cash we have is sufficient for what we need to do?

CML: One last question about addressable markets. You touched on it a bit on the call, the matter of personalized medicine. Does the rise of personalized medicine make for a larger total addressable market [TAM] for you?

TC: We have quantified the TAM we have in the market today, and the two end markets, the major category of end markets, LS and OLS. And that adds up to $9 billion to $10 billion today.

What I would say is, over the course of being a public company, we have shown a unique ability to identify new opportunities, to create more value for customers, which creates more TAM for us.

The TAM growth journey at Veeva is not nearly done. Now, I don’t know where the next couple billion of TAM comes from. Whether from existing business processes we go after. I don’t know where that comes from, as I sit here today.

But I am very bullish on this area where we have the opportunity to innovate more and more, and create more value for our customers, and build a larger TAM for ourselves.

CML: Thanks very much, Tim.


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Thanks for reading, friends. Neither author has a postion in Veeva Systems (VEEV) on the date of publication.

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