Talking with Veeva Systems (NYSE:VEEV) has been a Capital Market Laboratories tradition, over the course of numerous chats with Tim Cabral.
Tim last year retired from his position, turning the reins over to his friend, and little league coach competitor Brent Bowman.
Bowman formally stepped in with the December-quarter report, and this month, he sat down with Capital Market Labs via Zoom for the first time following the company’s March 2nd report.
Some CFO’s immediately put a new stamp on things, but Bowman’s manner and tone very much suggests a smooth hand-over from Cabral. Asked about Veeva’s market opportunity in life sciences, similar to Cabral’s comments in past, he said:
“If you look back at the TAM’s history, over the last five consecutive years we have increased the TAM a billion dollars each of those years,” he said.
“There is an immense amount of opportunity and white space.”
Some of that happens via acquisition, such as the 2019 purchase of startup Crossix Solutions for $427 million, which added $2 billion to Veeva’s TAM, says Bowman. “We’ll continue to find pockets of underserved processes within life sciences and we’ll continue to expand.
Bowman reflected on the company’s recent transition to being a public benefit corporation, or PBC, which formally binds the board of directors to consider the company’s impact on not just shareholders but also employees and customers.
Bowman said the PBC shift has already had a positive lift to hiring. “When you are in a highly competitive recruiting situation, this is actually making a difference, and we are able to win those head-to-head hiring contests” for executive-level hires, he said.
To recap, Veeva’s fiscal Q4 ended in January delivered $397 million in revenue, a 27% increase, yielding EPS of 78 cents. That was better than the $380 million and 63 cents the Street had been modeling.
For the current quarter, the company forecast revenue of $408 million to $410 million, and EPS of 77 cents to 78 cents. That was better than the consensus for $400 million and 74 cents.
Capital Market Labs: Any initial thoughts about the quarter, anything you’d like to emphasize or clarify?
Brent Bowman (CFO Veeva): Just a couple of things to highlight.
Obviously, it was a transformational year across the board, for the industry, and Veeva was happy to be able to serve the industry in a time of need, and help them work remote, and their digital journey.
And that manifested itself financially through a record Q4 from a bookings perspective, across Vault side, as well as Commercial.
And even Commercial, even if you Exclude Engage, which generated a lot of fanfare, which is fantastic, but we [had] broad strength across the board there.
So, it was a great year to join Veeva and help the industry, but a tough year for a lot of folks.
CML: This is the second quarter since you took over for Tim, I think, in which you’re running the quarter. How has the process been for you?
BB:It’s been exciting. It’s been a little challenging, in that I’ve come in remote.
I set foot in the Veeva office one single time. So, I had to build relationships, and be effective in more of a structured manner, because you can’t just bump into people, everything is structured.
I will say, Tim left things in good shape. So, a strong team, strong ethic, knows the business. And, you know, we’ve been able to continue the work that was done before.
The culture of the culture of Veeva is truly phenomenal. And that’s the key, probably, for why I came to Veeva.
I’m not looking for another job after Veeva. I wanted a company where I meshed with the people, the culture, and focused on an industry that mattered, and a company that prides itself on hard work and execution.
So far, my initial perspective coming in from afar, and now being inside, about nine months, and six of that in this chair, you know, it’s all been positive, and better than I would have anticipated.
CML: It’s good to hear that. I guess the same question is one we all need to reflect on, which is, in a remote culture, what’s missing, and how soon do people need to get back to face to face peer bonding, and socializing in the workplace? That’s a very broad question for anyone, obviously.
BB: We have thought a lot about this, and there’s no perfect, single answer.
We are focused on the concept of work anywhere.
When we say work anywhere, we are optimizing for the employee, how that employee can be most successful.
That will vary depending on the person. We are very happy to provide a workspace that will allow them to be productive. And on the flip side, if folks are more productive from a work from home, we will accommodate that. So, that’s important.
But we are also anxious to get people together. So, hopefully, we get through to the next three to six months we’re going to be able to be more in person, and have events, and keep that connectivity, but also keep that culture that’s made Veeva so strong.
We want to make sure that we create the forums to be connected.
CML: Has Peter [Gassner, CEO] said what is expected will be the transition to a new normal? Hybrid, or letting people work mixed, home, office? Or are we waiting on that decision?
BB: We have said work anywhere, with some parameters, as I described.
Now, there will always be some corner cases, where by country, by functional group, it might be a little different, but all in all, the philosophy is work anywhere.
And when things open, appropriately, within each local jurisdiction, we’re going to roll with that.
CML: That’s a new normal. People just work the way they work, without trying consciously to return to exactly the way things were before…
BB: Absolutely correct. I think we are a little smarter than we were back in the old days.
The fundamental principal is optimizing for the employee, and we know that everyone is suited in their preferences.
CML: I don’t recall if you mentioned this on the call, but is there an expectation for T&E? [Travel and entertainment expenses] over a long period of time, that it settles in some different sort of level?
BB: Yeah, we have benefitted to date from a reduction in travel and events, and that tailwind is 250 basis points over the last three to four quarters.
CML: That’s big.
BB: Yeah, and, we’re transparent, we’re not taking credit for something that isn’t completely durable over time.
What I’ve said in my fiscal 2022 guidance is, generally, some of this will come back in the back half of the year, and that’s been the specificity that I provided.
CML: Let’s get to some of the deeper questions here.
For years Veeva has shown how much larger the life sciences industry is for the company as an addressable market to sell into.
While this question may sound a bit dated, how much more room is there for the company to grow into this single industry?
Is the market much larger than you thought five years ago?
BB: If you look back at the TAM’s history, over the last five consecutive years we have increased the TAM a billion dollars each of those years.
As we continue to look at the life sciences industry, there is an immense amount of opportunity and white space.
Some of the recent examples, with our foray into the data cloud business, leveraging the Crossix business. [Veeva acquired startup Crossix Solutions in 2019.] That added $2 billion to the TAM most recently.
And if you take a look at the significant opportunity focused primarily on life sciences, that’s $11 billion of TAM that we’ve communicated.
Outside life sciences is a billion dollars. And we’re still very early innings in that. And we’ll continue to find pockets of underserved processes within life sciences and we’ll continue to expand.
CML: How committed is the company to continuing to build in these other industries?
BB: Our first priority is serving the life science industry.
And we want to make sure we want we don’t lose focus.
We have expanded outward in substantially highly regulated markets where we can leverage our platform, our technology.
So, again, CPG, cosmetics, and chemical — clearly, that is the area where we’ve gone outside of life sciences — we are greater than $30 million this past fiscal year in OLS [outside life sciences] revenue.
We have set a target for 2025 to be $100 million.
And we will continue to look at adjacent markets, like anyone else, and if it makes sense, we’ll contemplate that.
But today we are focused on the life sciences opportunity, which is quite large.
CML: It sounds like it’s opportunistic. In other words, it sounds like there’s some effort, but you’re not marshaling resources with a kind-of definite design to juice what will come in any reporting period from those other areas.
BB: Correct. We don’t — just, as a matter of practice and process, we manage for the longer term.
We’re executing the business, we don’t set any abnormal quarterly SPFs [sales performance incentives], or annual SPFs, or anything like that.
We’re managing to the basic financial model.
As we look out to 2025, and all the seeds, I think you probably heard this from Tim [Cabral, CFO] a few times, we have planted seeds across our portfolio.
And what we’re revved up, we’re monetizing today, are the seeds we’ve planted four, five, six years ago.
We’ve planted seeds the last few years that haven’t even started to sprout, that we know will sprout and create revenue in the future.
And you know the leadership team is, you know, think about 2030.
What are the growth drivers for 2030? We know what the growth drivers are for 2025 and in that area.
So, we take that longer term view of where the growth is going to come from.
CML: I would assume the growth seeds you are talking about would pertain both to product, and to go-to-market. Is that fair?
BB: Yeah, that’s fair. Predominantly, the seeds are, if you look at the more recent seeds that we planted, on the development side, like with our electronic, ETMF-like quality docs, these are early seeds we planted, and they’re more mature, and we’ve done a great job of monetizing.
Then we have the next bucket of seeds we’ve planted, things like CTMS, on quality management, those are in the sweet spot of the curve.
So, this is where we’ve exited that early adopter and we have that accelerated reference selling model kicking in.
And then there are seeds that are still early on, that we are very excited about, that are very large opportunities.
And this is on the EDC, Electronic Data Capture, or CDMS product, as well as our safety products.
Those are probably our largest opportunities relative to the preceding, they are larger.
So, we are very excited. Those will be very big growth drivers as we start to get closer to 2025 and beyond.
CML: Which means they are not in a reference selling mode?
BB: No, it’s very, very early.
CML: That touches on another question, which is, the product extensions to Vault. What’s a possible breakout success for those extensions?
BB: Yeah, in a pretty similar way to what I just outlined.
If you look at different time horizons, so if you’re talking fiscal year 2022, over the next two to three years, CTMS and QMS are breaking out, and they’re accelerating, and we are very pleased with the adoption.
And why is that?
If you think about how we’re different, we have the Vault platform.
So, we built out this SaaS platform to allow us to very effectively and efficiently build applications that are linked and tied together.
And that’s part of our differentiations relative to competitors.
So, that is part of what the customers are seeing, and they’re going more all-in with Veeva, because they don’t have to stitch it all together.
They don’t have to stitch an EDC compared to a clinical off-site solution to a submission’s regulatory.
They get the benefit of the stitching having been done.
And then, longer terms, as I mentioned, the future breakout on the development side is the CTMS product for safety.
And then on the commercial side, data. We are very early innings in data, where we are going after patient data initially.
And we will then move more into the sales and prescriber data, which is more towards the end of the year.
And we believe we differentiate ourselves based on creating innovation through technology.
That data stays for a lot of a years.
There is a company that has a strangled on that platform, and we think we’re going to innovate, leveraging the Crossix platform, bringing a richer set of data together, that will provide better insights to the pharma industry.
CML: Who is that?
BB: IQVIA doesn’t allow their data to be used in all the software out there. They play a little unfairly in the marketplace. They use their market dominance to control their customers.
CML: The area of genomics is interesting. Is there any relevance to Veeva of genomics as a data heavy, data sensitive, AI reliant, and fast-growing segment?
This sounds like perfect Veeva territory — it’s hard, requires specialty, and is very much Life Sciences.
BB: Yeah, I guess, my response would be it’s not an area that we are focusing on right now. It’s part of the adjacent markets that over time we would possibility contemplate.
CML: If it doesn’t stand out to you, then it’s probably not significant at the moment. Let’s move on.
Is there anything about Veeva’s change to a public benefit corporation that you wanted to go over?
BB: We are seeing positive outcomes of moving to a PBC.
It doesn’t change the motion of how Veeva’s operated.
We have always operated in a multi-stake-holder mindset. This basically formalizes it, and it holds the board accountable to not only consider the shareholders but also the industries we serve, our customers and our employees.
So, where are we seeing tangible benefits?
We’re seeing it in two-fold. One is as large pharma companies make significant commitments to Veeva, this is a way for us to formally show our commitments back to the industry.
So, if you think about customers, $100 million customers over time, there are software companies that lock you in and raise prices and do things that are not so nice.
We are committing back. And this supersedes Peter [Gassman]. We trust Peter, but in 20 years, Peter will probably not be the CEO. So, this gives longevity to what we truly believe is a more durable financial model over time.
And the second piece of this would be in employee hiring and retention.
Employees want to work for companies with a purpose.
And when you are in a highly competitive recruiting situation, this is actually making a difference, and we are able to win those head-to-head hiring contests.
CML: You’re already seeing an effect in hiring?
BB: We’re already seeing that. We have at executive levels seen cases where people mention this directly, your being a PBC, that’s really important.
CML: They’re not just flattering you?
BB: It feels real. And with a younger generation, I would use my son as an example, they know what a B corp is, they know what a PBC is.
CML: And what do you mean when you say a “more durable financial model”?
BB: Well, we think by doing right by your customers, you have a better chance of them doing right by you over the duration.
So, if you are only about the money, we believe your financial model will be less durable over time.
CML: Last question. What should investors view Veeva’s growth rate as for the next few years that it has amassed scale?
Has scale fundamentally shifted this from 30% per annum to something more like 15%?
BB: Yeah, we provided our fiscal year 2022 guidance, which is about 21% on the top line, and we are very pleased with the balanced growth across the diverse portfolio that we have.
But we also have the 2025 targets we’ve established.
And we feel confident about our ability to hit $3 billion in revenue in 2025. And that’s $2 billion in Vault and $1 billion in Commercial.
So, we have a lot of good growth drivers, and that will get us to 2025 and beyond.
CML: And so, as far as the balance sheet, you’ve had a disciplined approach to acquisitions and to capital markets.
But there are companies that are issuing a billion dollars a year in equity as part of a growth strategy.
Have people said you should tap the balance sheet more, because people love Veeva stock, and you should issue tons of stock all the time.
Has anyone approached you about that?
BB: Well, bankers have approached us about that!
Yeah, I would say that our capital allocation hasn’t changed.
We are focused on investing in the business for organic or inorganic growth.
Peter might have mentioned, we are building out our corporate development team, where we focused on creating growth opportunities.
We don’t just buy growth, though. We are not going to go just buy a bunch of companies just to pump up the top line.
It has to be a cultural fit, a people fit, a technology fit.
Crossix is a prime example of that, one plus one equals three.
And so, we are very targeted in that. Going into the debt market, we don’t have any plans like that.
CML: Or massive kinds follow-on equity offerings, because the market is there?
BB: Yeah, understood, but that’s not part of our plans.
CML: Anything else to add?
BB: No, I don’t think so. It’s nice to have the time to have a real conversation.
CML: Indeed. Keep up the good work!
Each company in our 'Top Picks’ has been selected as a future crown jewel of technology. Market correction or not, recession or not, the growth in these areas is a near certainty.
The precious few thematic top picks, research dossiers, and executive interviews are available here:
Thanks for reading, friends.
The author has no position in Veeva Systems atthe time of publication.
Please read the legal disclaimers below and as always, remember, we are not making a recommendation or soliciting a sale or purchase of any security ever. We are not licensed to do so, and we wouldn’t do it even if we were. We’re sharing my opinions, and provide you the power to be knowledgeable to make your own decisions.
The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories (“The Company”) does not engage in rendering any legal or professional services by placing these general informational materials on this website.
The Company specifically disclaims any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if we have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.
The Company makes no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that The Company endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.
ined on those sites, unless expressly stated.