Capital Market Laboratories (CMLviz) One-on-One Interview with Veeva's CFO - Veeva is a Game Changer
Capital Market Laboratories (CMLviz) One-on-One Interview with Veeva's CFO - Veeva is a Game Changer
Date Published: 2019-06-17
Written by Tiernan Ray
Edited by Ophir Gottlieb
Hello, all. This is Ophir writing, but most of the story to follow was written by Tiernan.
Lede
We had our one-on-one discussion with the CEO of Spotlight Top Pick Veeva Systems (VEEV). Tiernan Ray did a fabulous job, as always.
Recall that a part of the bullish thesis for Veeva surrounded its ability to expand out of Life Sciences (read: biopharma) and into other data sensitive industries. As you will read from our interview, it's happening. It's happening at scale. The opportunity ahead is apparent and Veeva is turning into a run away success.
We added Veeva Systems to Top Picks on 7-Dec-16 for $42.75. As of this writing the stock is trading at $165.9, up 288%, nearly quadrupling for its entry as a Top Pick.
Story
After Tiernan's interview, I found it helpful to pull out some highlights and include them below. Reading them in context will help yet further, but these stand alone quite well.
* Veeva is changing the game. We are saying there is a better way [].
* [With respect to industries outside of Life Sciences] [W]e took one of our key executives and we put him in this role, and he now builds a team, and we have nearly 100 people on this team, a combination of sales, marketing, and product services folks. So, it's a decent-sized investment right now. The last six months or so, the team has really started to focus on three primary industries, CPG, cosmetics, and chemicals.
* [With respect to a customer in CPG] It's a testament to the speed at which we can listen and learn.
* We trade near-term growth for long-term growth, and we've made that trade-off over the history of Veeva.
* Many companies will bring a product out, and invest heavily before revenue to scorch the earth and sell everywhere, and sell to everyone; that is not right for us.
* We believe our combination of growth and profitability enables us to be thought about as a little bit of a different type of company within what is a very healthy and a very strong sector called cloud computing.
* Vault is now 50% of our business. The opportunity for Vault is a multiple of the opportunity for CRM and Commercial Cloud. This idea of a second act that is even bigger and better than the first act, that's something the investor market hasn't seen before.
Interview
Please find Tiernan's interview with Veeva Systems' CFO Tim Cabral, below.
Cabral's message is nicely summed up in one phrase he used, "All that is in the soup." He was referring to how Veeva spends time studying the business process of customers, and potential customers, be it in the company's core industry of life sciences or outside of that industry, to come to an understanding of what's needed as it rolls out a new software package.
It is that dedication to what one might call the minutiae of an industry that appears to be winning converts to the company's expanding software menu. Veeva sales and profit of $245 million and 50 cents per share comfortably beat expectations, as did its forecast for this quarter and for the full year.
To Cabral, the process of spending on R&D is not about throwing massive amounts of money at a development effort; it's about digging into those details that create the kind of specificity that will earn deals from both existing and new customers. It's all in the soup.
Read the full Q&A for more details on the development process, and on Cabral's thoughts about why, after a nearly 90% surge this year, the stock still has value.
CML: Tim, what are the most important things that you think that investors should take away from the results and outlook?
Tim Cabral: I think it was a great start to the year, we saw a lot of that in Peter's [Gassner, Veeva CEO] script on the call, certainly a lot of anecdotes from Peter and from me.
You saw the numbers reflected that, we had outstanding execution. The other highlights were we had great progress with early products, with the first four early adopters on Safety, which is a huge area of importance for us. And with a new product, Veeva Claims, we also signed a top 20 CPG [consumer packaged goods] company to use that product; that's the first product they are subscribing to from us.
And then on the heels of our Commercial Summit, we had a lot of productive discussions around A.I., especially some of the A.I.-related functionality we are building out in CRM. So, outstanding execution on newer things and great progress with some older products as well.
CML: You also discussed having a "top-twenty" customer for your "CDMS" product, did you not?
TC: We had announced the top 20 CDMS customer back in April, initially. It's just a fantastic milestone for the CDMS team, and it's sort of indicative of, consistent with the evolution of early adopter products, that you get it out there, you start to sign smaller companies, who are more in a position to be an early adopter customer, because the scale is very different, the size and scope of their deployment is very different.
But this is an eight-year customer of ours, across both commercial and R&D. They had been using Phase Forward, the Oracle product, and they were, you know, looking for more innovation in that area, a better platform, a more modern cloud technology platform. They did a pilot with us over the last six to nine months, and were impressed with how strong the overall relationship was.
They saw good returns on the pilot for CDMS, and there was already trust in Veeva to be a good partner for innovation in clinical data management. They are an ETMF customer, so they have been a clinical customer of ours for many years now with other products across the commercial area and within R&D.
So, they have been a really great partner to Veeva the last eight years. That's a big testament to the overall strength in our industry cloud model, to what a strong tech partner Veeva is, and how we are building deep relationships.
This may be the most important area within life sciences, the clinical area. This is the cornerstone of the development area, the pipeline to get to commercial products. This is the most mission-critical area. So, this is about customers trusting Veeva, this early in our journey in this area with this one product.
Think about it in two different functional areas, clinical operations and CDMS, and CTMS. We have a nice history now and a number of really strong customers.
Clinical data management is a different function within a company, so we are very early in our journey around clinical data management. To trust that we will be their partner in such a mission-critical area, where we are relatively young in that area, is a testament to an industry cloud model.
Also, I'd point out that what goes on here is that we are bringing several things together: data cleaning and reporting, all together in a single platform.
These applications are typically stand-alone systems, they are disconnected. Veeva is changing the game. We are saying there is a better way to manage clinical data in a trial, to build the study faster, and to execute the study much more efficiently.
I would add that the Data Workbench is another area where we have been able to come in and deeply start to understand the business processes and the challenges this industry has with existing solutions out there. The Workbench evolved from that discussion. If you think about it, there are a lot of different formats and data types that need to be collected from clinical trials.
Think about when the patient visits at a site, or they may have a wearable [technology gadget], and you need to take information from that. They may need to get X-rays or take a scan. One challenge for industry is to bring together all these data types and sources, so that a statistician can review the data and conclude on the results.
This is a business process that is taking multiple weeks and months, and consultants, so we want to bring software there. This is truly a way to bring all this data together in an incredibly efficient way, with an ability to see where there are still challenges and where we can bring innovations. That is something that will be a really big differentiator.
And other areas like regulatory and quality, it is such a powerful message. All of that is in the soup that created the opportunity.
CML: Can you tell us the identity of these newer deals, like the CPG company?
TC: No, we haven't said the name, you know, that's pretty typically in this industry.
CML: How should we understand your go-to-market process with the newer, non-life sciences verticals? Is it an outbound or inbound selling process for you?
TC: It certainly was more inbound up till two years ago when we decided we wanted to make a more concerted effort, and so now we have more [of an] outbound attitude.
So, we took one of our key executives and we put him in this role, and he now builds a team, and we have nearly 100 people on this team, a combination of sales, marketing, and product services folks. So, it's a decent-sized investment right now.
Where we started couple years ago was with adjacent verticals to life sciences, but it could be other regulated industries such as manufacturing and services. Over the course of the first 12 to 18 months of that effort, we are in a heavy learning mode to understand where the pockets of opportunity are.
The last six months or so, the team has really started to focus on three primary industries, CPG, cosmetics, and chemicals. Those are the areas where we think there is the most opportunity today, in the medium term, for Veeva.
The effort is still opportunistic if they are not in life sciences or those three, we can still have a team that can catch that, and vet it, but it really is about focus for us, to galvanize the team around, you are a CPG set of folks, and you are a set of chemistry folks, etc.
Applying the Veeva focus to the industry, and I think that's good. We also have a new product outside of life sciences, Veeva Claims, it's the kind of thing that you need when you have claims, something like, "These blue crystals will make your teeth three times white," or three levels of whiteness.
Those companies that make those claims need to make sure that they are very rigorous in attaching that claim to the related reference material that proves that claim is true, and that when the claim changes over time, they make sure of where they've put that claim across all their promotional material, so that they can change it appropriately.
So, change management is super important. This is something we built from the ground up, and we attracted a top 20 CPG company to buy that for the first time. It's a testament to the speed at which we can listen and learn.
The process of managing those claims that a company makes about product, if you think about that, that's super complex. With this software, I have full visibility into those claims.
Because there is compliance risk there, from creating to substantiating the claim to approvals to usage of those marketing materials, and then to find where those claims are. That's all software helping to do that. That's what Veeva is delivering.
CML: Do you think you're making the right level of investment in R&D, or could you produce more if you stepped that up?
TC: I think for now; this is the right level of investment. We're certainly making incremental investments there, but, you know, we have a very specific go-to-market approach.
We have an early-adopter stage, where we focus deeply on the handful of early adopters for a particular market, while we are building a product that could be competitive and, at least, on par with what's out there, and maybe even better.
Early on, our focus is how do we really make sure we are building a product that will be excellent over the long term.
So, we, in our thinking, we trade near-term growth for long-term growth, and we've made that trade-off over the history of Veeva.
And certainly, as we think of the opportunity outside of life sciences, right now, we are in the early adopter stage; that investment is different from when you move out of early adopter and you do reference selling. The investment is right for where we are in the evolution of the product.
There are many ways to be successful. Many companies will bring a product out, and invest heavily before revenue to scorch the earth and sell everywhere, and sell to everyone; that is not right for us. We want to build a long-term partnership, and a strong foundation in these specific industries, and you don't do that very well if you burn the deployments of the first fifty customers and they don't go well.
Not to get to get too editorializing here, but in a horizontal company, if you have the ability to sort of hide, if you are selling into 50 industries, and a few things blow up in a few industries, it's no big deal. If you are selling to one industry, or a few, it is essential that you get it right. If you do it well, you set yourself up for long-term, sustainable growth. That approach is what we are doing in the outside-of-life sciences world. So, that level of investment today, in the early-adopter stage, is right for where we are.
CML: How should investors think about your stock as an investment? Certainly, the shares have been on a tear this year, and your stock is, not unlike that of some other very promising companies, possibly richly valued.
TC: You're right, our sector has done quite well. If you look at the best companies, they deserve the robust valuations out there because they continue to execute extremely well.
Workday, ServiceNow, Salesforce and those types of companies, we fit right in very well, sector-wise. The difference that we create vis-a-vis those companies is our unique combination of strong growth and really strong profitability. We have a proven track record of an operating model that is incredibly efficient.
It's not an operating model that we show on a slide of a long-term model that we might get to in some point in time!
I don't mean to make fun of those, it's just, we believe our combination of growth and profitability enables us to be thought about as a little bit of a different type of company within what is a very healthy and a very strong sector called cloud computing.
And I'd probably add to that, the only other thing that I think I would say is, the story of Veeva that is very unique more widely in the overall software landscape is that it is very rare for a company to have a second act that ultimately would be a multiple of the first act.
Our first act was CRM, and our second was Vault. I know you know Workday very well, it's a phenomenal company, it's a great HCM [human capital management] company, and they are working very hard on a second act to make their financials product as good as HCM, but it's not there yet.
Vault is now 50% of our business. The opportunity for Vault is a multiple of the opportunity for CRM and Commercial Cloud.
This idea of a second act that is even bigger and better than the first act, that's something the investor market hasn't seen before. Your ability to be both innovative and connected to your customer, to see where we can address their most pressing business needs, that's special.
CML: One could argue that Salesforce did something similar with the "Force dot net" platform, that they moved beyond just CRM to an applications platform.
TC: In part, it's comparable. First, they were a sales force automation company, and then they developed the "Services Cloud," and the "Marketing Cloud." They are a bigger enterprise company, and I agree they wanted to be a platform company, and that's done well for them.
I think that I would say that 25% of their market cap, maybe 30%, is indicative of the fact that they are a platform company, that they are not just about [their own] applications.
Amazon's maybe a better company to compare in that respect. AWS was their second act, and one could argue that AWS is actually their crown jewels, if you will.
CML: Thanks, Tim, it's been great speaking with you, again!
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Thanks for reading, friends. Neither Tiernan nor Ophir have a position in Veeva Systems as of the time of this writing.
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