Veeva Systems Inc. (VEEV) Q2 2025 Earnings Call Transcript

Veeva Systems Inc. (NYSE:VEEV) Q2 2025 Earnings Conference Call August 28, 2024 5:00 PM ET

Company Participants

Gunnar Hansen – Senior Director, Investor Relations
Peter Gassner – Founder and Chief Executive Officer
Tim Cabral – Interim Chief Financial Officer
Paul Shawah – Executive Vice President, Commercial Strategy

Conference Call Participants

Joe Vruwink – Baird
Saket Kalia – Barclays
Ken Wong – Oppenheimer & Company
Brian Peterson – Raymond James
Rishi Jaluria – RBC Capital Markets
Tyler Radke – Citigroup
Stan Berenshteyn – Wells Fargo Securities
Brent Bracelin – Piper Sandler
Dylan Becker – William Blair
Jack Wallace – Guggenheim Securities
Carolyn Valenti – Goldman Sachs
Craig Hettenbach – Morgan Stanley
Ryan MacDonald – Needham
Jenny Cao – Truist Securities
Charles Rhyee – TD Cowen
David Larsen – BTIG

Operator

Ladies and gentlemen, good afternoon. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Veeva Systems Fiscal 2025 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. I will now turn the call over to Gunnar Hansen, Director of Investor Relations. You may begin.

Gunnar Hansen

Good afternoon and welcome to Veeva’s Fiscal 2025 Second Quarter Earnings Conference Call for the Quarter Ended July 31st, 2024. As a reminder, we posted prepared remarks on Veeva’s investor relations website just after 1 p.m. 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 Shawah, EVP Strategy; and Tim Cabral, our Interim Chief Financial Officer.

During this call, we may make forward-looking statements regarding trends, our strategies, and the anticipated performance of the business, including guidance regarding future financial results. These forward-looking statements will be based on our current views and expectations and are subject to various risks and uncertainties. Our actual results may differ materially. Please refer to the risks listed in our earnings release and the risk factors included in our most recent filing on Form 10-Q.

Forward-looking statements made during the call are being made as of today, August 28, 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. Veeva disclaims any obligation to update or revise any forward-looking statements. We may discuss our guidance on today’s call, but we will not provide any further guidance or updates on our performance during the quarter, unless we do so in a public forum.

On the call, we may discuss certain non-GAAP metrics that we believe aid in 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.

Peter Gassner

Thank you Gunnar and welcome everyone to the call. Q2 was a strong quarter with results above our guidance. Total revenue in the quarter was $676 million with non-GAAP operating income of $280 million.

Thanks to the team, we advanced in all major areas with key product expansions and strategic customer wins. This included an important new release of Veeva Site Connect to streamline clinical trials and the first release of Service Center in the CRM Suite. We have a clear product strategy and are executing well on our vision.

We’ll now open up the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Joe Vruwink with Robert Baird. Please go ahead.

Joe Vruwink

Great, hi everyone. I think it’s interesting, the cadence of core CRM wins was now picked up for two quarters. Of course the last quarter was all Vault. And looking backwards I think you’re actually winning more CRM on a quarterly basis than you did even before the decision was made to migrate CRM to Vault. So clearly it seems customers are comfortable making this commitment. I guess I wanted to ask just other than comfort related to the set of applications because of the Veeva and this is a proven solution.

How much might be the product roadmap and things like service center and marketing automation starting to [register in] (ph) decisions? And then related to that, when you think about the vision, a customer might have around adopting a full suite across the three areas, do you think that ends up being more enticing to an SMB customer or maybe an enterprise customer for Veeva?

Paul Shawah

Hey, Joe. This is Paul. Thanks for the question. You’re right. We had another very strong quarter. We — Vault CRM, became generally available in April. It’s exclusively what we’re selling into the market. In the quarter, we had 14 wins. I think we’re winning virtually every CRM deal. You certainly never know if we’re winning all of them, but it certainly feels like we’re winning all of them. We know we’re not losing any deals to competitors that we’re competing in. So we feel really good about our execution there.

Your question about the broader vision, service center campaign manager, that’s absolutely playing a part in the — it’s a continued part of the overall vision and direction. And I think those early customers, yes, they want something that they know is going to work and deliver for them today. This is often their most important moment as a company. They’re preparing for their launch and actually launching their medicine. But they also want something that they can grow with. And service center and campaign manager, we’re doing that in a very different way, a very simple technology stack, a more efficient way of bringing sales and marketing and medical and service all together on the same platform. So that vision is certainly playing a big component of that.

And then we’re executing well. We’re executing well from a product perspective and from a migration standpoint. So customers are taking notice of that. So yeah, I’m pleased with our progress.

Joe Vruwink

Okay, that’s great to hear. And then I wanted to ask, just since the R&D Summit is coming up, customers here have obviously been studying their path forward with AI this quarter, even made good progress, both with core system wins, but you also mentioned adoption around the newer bulk data APIs. I guess the summit maybe serve as a forum where you would anticipate more clarity coming out just in terms of how customers are approaching R&D, or maybe could this actually be an event where because Veeva can address questions and help educate and obviously customers will speak with one another maybe it provides just more visibility into decisions at your end and your expectations and the fiscal 2026 and the R&D.

Peter Gassner

Yes, Joe I’ll take that one. This is Peter. The visual I always have for our summits is like a boost. You’re on a bicycle and your dad gives you a boost and they push you forward and go faster. It’s like that because our customers talk to our customers and us and they learn and we talk to our customers and we learn and we refine.

So, I don’t — I think that’s the way — that’s the way you need to think about that. Now that relates to all types of things. What order to do the Veeva applications, how best to do that Veeva applications, what new Veeva applications? How to leverage AI with the Veeva data? So nothing special about this R&D Summit, it is just that it will be probably more impactful than it ever has been because we are bigger than we have been.

Operator

Your next question comes from the line of Saket Kalia with Barclays. Please go ahead.

Saket Kalia

Okay, great. Hey, guys. Thanks for taking my questions here, and nice job on the quarter. Peter, maybe just to start with you. Can we just talk a little bit about the latest with Vault CTMS, maybe touch on sort of how some of those ramps are going with some of the Top 20 pharmas that have adopted the tool? And maybe we could touch on sort of how the pipeline looks for continued share gains in that market?

Peter Gassner

Great question. I think, the ramps are going well. The adoption, that’s what we really focus on. When we sell a large Top 20 on the CTMS, they have a fixed ramp schedule, a fixed fee schedule that goes based on time, not based on how fast they actually adopt. So when we arrange that, we always want them to get a full adoption even before they get to their full financial ramp. That’s what we feel is fair and good and it’s a win for the customer and we are in it for the long run anyway. We are not really in it for the short run.

So adoption is good. I would say, value realization is quite good, I think better than expected in a couple of areas. The site experience is good. No negative feedback from the sites in fact, quite positive feedback on the user interface of the sites using our system. And certainly for the sponsors, feedback, very good in terms of building studies faster, less custom programming, less errors.

And then in the data cleaning, significant cost savings in the data cleaning when people are using our CDB product, our clinical database product in conjunction with our EDC. And that’s something where most of our large customers are using those products together. So they are actually able to reduce manual work through the data science capabilities in our CDB product.

They are finding data anomalies with our CDB product automatically, sending that query to the site, the site might be responding and CDB is closing that out automatically rather than human intervention there. So that is going quite well. I think we’ll continue to gain market share. Our pipeline in the Top 20 in enterprises is healthy — very healthy. There is a number of companies talking with us.

You never know exactly when they are going to make a decision because it depends on their business priorities and what else they have going on. They only have so much strategic they can make, the strategic change they can make all at once. I would say the area where we would like to make more progress is in the clinical research organizations. I think there, we will make progress. It is not yet to where we — where we would like it, but I mean, particularly in the large clinical research organizations, but we will get there over time.

I guess my last comment, I think we do have a structural advantage that people sometimes overlook when we have the clinical data management products like EDC and the clinical operations products like CTMS and eTMF. That means that Veeva can take care of that integration. And believe me, no customers really want to do that. That’s difficult work that’s not — that’s not value-add. So things are going well in the EDC area.

Saket Kalia

That’s great. That’s great to hear. Tim, maybe for my follow up for you. Great to see the guide for commercial subscription revenue go up for this year. Can you just maybe touch on sort of the size and growth profile of maybe what we’ve called the non-CRM part of commercial, right, basically those businesses that aren’t tied to Veeva CRM? Does that make sense?

Tim Cabral

Yeah, it does. And as we look at the overall commercial business, the CRM Suite is probably 50% of that in the non-CRM, Saket using your words or the other 50%. While the CRM suite part of the business, as you heard Paul answer the first question on the call is doing quite well. You can imagine that the non-CRM is growing much faster than that core CRM Suite. So very pleased with the performance of our commercial business and the continued progress that we’re making both from an innovation perspective and from a customer success perspective.

Saket Kalia

Very helpful. Thanks guys.

Operator

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

Ken Wong

Great. Fantastic. The first question for you, Tim. I realize demand trends aren’t always linear like we investors like. Can you help us think through kind of what’s going on with the R&D subscription line? You guys trimmed it a quarter ago, you bumped it back up. Like what changed relative to three months ago that gives you guys this renewed confidence?

Tim Cabral

Yeah. Hey, Ken. Look, we are 90 days later in the year. And as you can imagine, we are getting better visibility into the second half pipeline. What we talked about last quarter was some specific larger deals that were moving to the right. And I think today, we continue to build really productive conversations with those customers. We continue to move through the sales cycles with those customers. And today, we just have better visibility than we did 90 days ago, Ken which informed or was a good input to the modest increase in R&D subs revenue for the year.

Ken Wong

Okay. Got it. Perfect. And then, Peter or Paul, just circling back to the Vault CRM wins, 14 customers that’s a fantastic outcome. You also mentioned next release of Vault CRM in Q4 and then kind of the migration timeline. Any reason to think that the next version of Vault CRM is like that will have an impact on deployment timeline. So I guess in short, would a delay of that release somehow fall, when your customers will start to migrate?

Paul Shawah

Yeah. Hey, Ken. Yeah. So first we are excited about the next release, as it gets us to what we’re calling the full functionality and then more. So it will have everything we’ve delivered in Veeva CRM plus some additional functionality that Vault CRM will have — that’s unique to Vault CRM like better content integration, like opportunity management built in. We are going to have a lot of new capabilities in that. Distance between Vault CRM and Veeva CRM will continue to increase over time with that roadmap.

Now that will not have — it should not have any impact on how customers think about their migration timeline. In fact, if anything it will create a little bit of an opportunity for us as customers see all of the innovation happening on Vault CRM, they will want to get to Vault CRM faster. But I don’t — their customers, they go through their own process, right? So they – they are very thoughtful about the timing that they want to go through for their migration. And we want them to do it in a timing that’s appropriate for them and adding innovation to Vault will certainly help with that.

Ken Wong

Got it. Thanks for the insight, guys.

Operator

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

Brian Peterson

Thanks, guys, and congrats on the quarter. I’ll keep it to one. So obviously good to see the Service Center launch. I know it is early days there, but I’m curious, how would you define success in that market as we are thinking about revenue contributions over the next few years, any way to kind of stack rank that contribution versus the other things that you have in the offer? Thanks, guys.

Paul Shawah

Yeah, Brian, thanks for the question there and we are excited about that release. It’s generally available now, something that we announced last year and we executed on really, really well. I’m proud of the product team for delivering that with speed. This is a new product for us, just like we’ve announced Campaign Manager and Patient. We are executing well across all three of those products, Campaign Manager is on track to be available at the end of the year.

I guess the way I would think about the sizing, I won’t go product by product, but just if you kind of combined all of them, Service Center, Campaign Manager and Patient CRM, those are the three new products that we’ve announced since Vault CRM, I would think of those as roughly the same size as core CRM. And that opportunity will certainly play out. Obviously, a customer has to be on Vault CRM to take advantage of those new products, but that opportunity will play out over-time. And as customers move to Vault CRM, it will open up that opportunity for them to take advantage of our new innovation.

Brian Peterson

Great. Thanks, Paul.

Operator

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

Rishi Jaluria

Wonderful. Thanks so much for taking my questions. I’ve got two. First, Peter in your prepared remarks, you talked about some of the early traction you are seeing with the AI partner program. Can you maybe talk about what are some of the use cases you’ve seen so far? And maybe philosophically, as you see some of these use cases get built out and maybe even start to see some early adoption, is there a point in which that may inform your own internal roadmap and you have the flexibility to maybe accelerate some plans in terms of integrating GenAI into the platform? And then I’ve got a quick follow-up.

Peter Gassner

Thanks, Rishi. The types of use cases in commercial often have to do with data science. So things like next best action, dynamic targeting, pre-call planning, things like that. And in R&D, they can be more things like document generation, generating a clinical study report or doing specific medical coding, things like that. So those are the type of use cases.

That’s the thing. When you make an API like the Direct Data API, you don’t know the innovation you are unleashing and that’s the whole point because the data can be consumed so fast and transactionally accurately, use cases that weren’t practical before can become practical. I mean, if I step back way back when the designing the first Salesforce.com API, I knew it was going to unleash a lot of innovation and you just don’t know. It is not predictable and that’s the good thing.

Now in terms of us monitoring that and informing our own roadmap, I guess there may be some of that, but mostly that type of innovation really comes from internally our own thinking with our customers. We don’t want to really disrupt our partners, especially when the partners are having customer success. If there is a major use case that we are very clear that customers need and for some reason, the ecosystem is not delivering customer success, yes maybe we might step in there. But I would guess that what we would do would be more holistic, I guess, in some sense and not specifically something a partner would tackle because we are generally going to have more resources and more ability to sway our own roadmap than a partner would and we want to be respectful to the ecosystem.

Rishi Jaluria

Yeah, got it. Thanks. That’s really helpful. And then just in terms of some of the adjacencies in CRM, you talked about Service Centre, Campaign Manager I know comes out later this year. You’ve had some kind of signs of early traction and early interest. Maybe can you help us understand that number one, with some of the success you are seeing with Service Centre early, is this generally greenfield? Is this displacement? And how should we be thinking about the advantages that these products have even on a standalone basis relative to incumbent vendors? Thank you.

Paul Shawah

Yeah. So the requirement is to of course have Vault CRM and most of the customers that will — that are starting with Vault CRM are net new customers. These are often pre-commercial or maybe they’ve one product in market. They are a smaller company, small or mid-sized company. So we expect those will be some of the first companies to go live with Service Centre. They will be some of our earliest adopters and some of the ones that take advantage over the next one to two years. But Service Centre and Campaign Manager will be equally applicable and create value for the enterprise and large customers also, that will play out over time as we mature the product, but they fundamentally have a distinct advantage right from the beginning, which is that they are built into the CRM.

So everything that happens, happens against a single customer record which means that everybody in the team, it’s about creating customer-centricity. Everybody that touches that customer has the same exact view of the customer. They can share information, they share the same consent, they share the same content, they share the same compliance rules. It eliminates a lot of hand-offs of data and integrations and complexity.

It is a much simpler technology stack and it’s much more valuable in terms of creating collaboration and customer-centricity. So we expect to see it — the uptake of these products start in the SMB, but certainly continue to be available to our larger customers. Now you asked about use standalone, it is very likely that these will be used in conjunction with Vault CRM. It is unlikely that somebody does a standalone implementation of Service Center, for example or Campaign Manager. These will be — you can think of them as significant add-ons to a Vault CRM implementation.

Rishi Jaluria

Wonderful. Thank you.

Operator

Your next question comes from the line of Tyler Radke with Citi. Please go ahead.

Tyler Radke

Yes. Thank you. Peter, it is encouraging to see the beat and raise here and particularly despite some services weakness. I’m wondering if you attribute some of the strength that you saw in new bookings is a function of the environment getting slightly better. I know last quarter, you called out headwinds. I didn’t see anything too much about the macro and certainly some of the results from your publicly traded peers in life sciences would indicate, we are maybe moving off the bottom. So just curious if you’ve seen any project acceleration, anything that makes you more optimistic about the overall environment heading into the second half?

Peter Gassner

Hi, Tyler, this is Peter. I think the macro-environment from what I can see is overall unchanged from 90 days ago. We still have the things going on that we have going on. So the good performance is related to strong execution. We executed very well in the quarter. Also, we had maybe some good luck and no bad luck, right? I think some quarters are like that. But overall, it is strong execution and no change in the macro environment that I can see.

Tyler Radke

Great. That’s helpful. And maybe a follow-up for Tim. Just as I look at the moving pieces in the guide, can you just walk through the services piece? And then as I think about the guide mostly coming from commercial, is it the new CRM wins that you talked about in the quarter? Was that the biggest driver of the commercial raise, or was it other pieces of the portfolio that outperformed on the commercial side? Thank you.

Tim Cabral

Yeah. So on — and Tyler, thanks for the question. On the services side, some of the same dynamics that we talked about in the last quarter, we saw a little bit here, meaning some delays in service projects from a timing perspective. The other thing that we saw which was somewhat a new dynamic. So we don’t know whether or not it will be a trend is, we had a few customers, one quite large who instead of contracting with third-party SIs on our paper, decided that they were going to go directly to the customer — directly to the third-party.

So while that is a reduction in our revenue opportunity, it certainly supports how we think about and what we are optimizing for in the service business, which is really customer success. And as we’ve talked about in the past, you’ll see customers make these marginal decisions and we don’t try to fight against those. This is about customer success and enabling our customers to move on to the best innovation and really realize the customer success and value that our products deliver. So I think those are some things that informed the services piece.

On the commercial side, the outperformance in Q2 and I’d say, the increase in guide are one and the same. While we are seeing continued momentum and progress on the core CRM piece, Tyler, certainly the outperformance and what informed the increase in guide was really the performance in our commercial content area and our Crossix area. So, those are the two that really drove the larger guide in the past — in this cycle.

Tyler Radke

Thank you for the color. And Tim, hope we can continue to work together in the future. Thanks.

Tim Cabral

Thanks, Tyler.

Operator

Your next question comes from Stan Berenshteyn with Wells Fargo Securities. Please go ahead.

Stan Berenshteyn

All right. Thanks for taking my questions. So in the prepared remarks, you called out a top 20 biopharma win in R&D, I think standardizing on RIM and CTMS. Could you just walk us through how long did it take for this deal to work itself through the pipeline? And maybe just generally, how active is your pipeline with other large pharma potentially looking to standardize multiple Vault product suites? Thanks.

Peter Gassner

Hi, Stan I’ll take that one. I think that opportunity with that customer, I remember working on it roughly six years ago, seven years ago, discussions, information, relationship building, that type of stuff. Then it became more active roughly a year ago with when it really went into, okay, we’re really going to think about some things here and let us share information. So that’s about the time frame of those type of things.

And if you look in the Top 20, there are multiple opportunities. So for example, in safety, very new — very new product suite in quality, many more products in clinical. We have added products in regulatory, some don’t have our products yet. So, there is a number of those that are active and in various stages of activity every time. So you think about Top 20 and five different major opportunities, there’s a total of 100 opportunities you might have in total, right?

So, we certainly have more than 10 things active at any one given time. That’s the way to think about it because there are multiple opportunities in these Top 20s, not just one opportunity.

Stan Berenshteyn

Helpful. Maybe just a quick follow-up on the Crossix strength that you are seeing. Anything to call out related to the election cycle? Is there more reliance by clients on omnichannel marketing that maybe you are benefiting from? I’m just wondering if you are seeing anything incremental just seasonally from the election cycle. Thanks.

Peter Gassner

No, I wouldn’t take seasonal. I think, it is just increasing market leadership. We’ve been delivering a quality product for a while now. And there were some entrants in and out there that — and some of those didn’t pan out, so well in ROI. So I think there is customers coming back to a little bit of quality now. Also, we’re having — we have two businesses in Crossix, one is the measurements and optimization of media campaigns. And the other one is digital audiences, where customers are using our audiences, our consumer audiences for their marketing campaigns. And the audience business is something we’ve put a little more focus on in the last year and those results are paying-off. So it is not anything cyclical, things really weren’t the driver.

Stan Berenshteyn

Awesome. Thank you.

Operator

Your next question comes from Brent Bracelin with Piper Sandler. Please go ahead.

Brent Bracelin

Good afternoon. One question on Top 20 deal activity and follow-up on margins. Peter I get the stronger execution, and a little luck this quarter helping you. But just curious what is driving the Top 20 wins? It looks like you got some in safety, quality, Link Key People, R&D it feels like a bit of a change from last quarter. And just curious if it is vendor consolidation that’s resonating out there. Any sort of additional color you can point to why the deals closed this quarter would be super helpful. And then a quick follow-up for Tim.

Peter Gassner

Brent, I would say, it is just timing. There was no other reason than that just timing, because if you step back, what is Veeva doing? We are really in the development cloud area specifically and we are building a very durable business there. We have a structural advantage where we have all these products in the different areas that fit together and have had high degree of customer success and customers are actually getting lots of ROIs out of these products. And we are really the only company doing that.

So what’s driving customers to come to us is just increased – it is return on investment. They can get more efficient and that’s what they’re trying to do. But there is a limited number of things and changes they can tackle all at once. So that’s why not all the change happens all at the same time. But we are building this long-term franchise is one way to think about it, of these very durable software products that are somewhat difficult for the customer to consume because they have to change their processes, but also they are very sticky. They don’t move them out. So that — that’s what we’re building. We don’t generally lose to competitors. We might lose to inactivity. The customer says, hey I’m not prioritizing this particular area, I’m — I want to prioritize another area with my change, but we are not generally losing to another vendor.

Brent Bracelin

Helpful color there. And then Tim, as a follow-up on margins, I think op margins were the highest we’ve seen in three years. Great to see that back trending above 40%. It looks like the biggest factor there was gross margin improvement. Can you just talk a little bit about what’s driving that? Is it just mix shift? And how should we think about that going forward? Thanks.

Tim Cabral

Yeah. Brent, thanks for the question. And yeah, on the gross margin side, I think it is a combination of mix shift. So both more subscription revenue than services and more non-Veeva CRM revenue with all the other products that we don’t pay the royalty to Salesforce. So both of those mix shifts comes into play, as you think about the improved gross margin. And look, little call out, while services revenue was in-line with guidance, the margin performance was quite good.

So the service team continues to deliver value in a very efficient way. And I think that is probably how you think about our overall company, Brent. I think we deliver a tremendous amount of value to our customers and Peter and the leadership team are highly efficient in doing it and you’re seeing that in the results of our operating margin.

Brent Bracelin

Makes sense. Great to see you. Thanks, guys.

Tim Cabral

Thanks, Brent.

Operator

Your next question comes from Dylan Becker with William Blair. Please go ahead.

Dylan Becker

Hey, guys. Really nice job here. Maybe for Peter, starting with you. You called out Site Connect in the prepared remarks and so wondering if we could get some more context on kind of the extension of the clinical offering. We’ve talked about other channels, ePRO, eCOA recruitment in the past and there is a long runway within the existing tool set. But how should we think about kind of maybe more of the early, early emerging solutions within clinical, if that is the right way of thinking about it.

Peter Gassner

Dylan, I’ll take specifically Site Connect because it’s a key product for Veeva and very innovative. Site Connect is used by the sites, clinical research sites around the world. And with our new evolution of Site Connect, our new release here, it is easy for all sites to consume it, can use it, doesn’t require any specialist software on their side. We’ve added a bunch of functionality. So I think the sites are going to really like that. And the sites in some ways, they are the customers of the sponsors, right? So the sponsors have to care about the site’s efficiency.

Now also for Site Connect, it drives efficiency for the sponsor as well in terms of document exchange and all the different use cases, safety letter distribution, all these use cases. So Site Connect is interesting that it has a network effect — a network effect. It actually helps the sites a lot and it helps the sponsors a lot with their efficiency. So that network effect will start kicking in. And I think it will at times drag along other clinical products from Veeva as well. So that’s about Site Connect.

You had another follow-up question. And I don’t recall it.

Dylan Becker

No, that was — it was, yeah just around kind of other early-stage solutions in clinicals. But I think, yeah, the Site Connect piece covers it. It was more around ePRO, eCOA, all the other areas of recruitment, RTSM some of the other areas we talked about in clinical.

Peter Gassner

Yeah, they are just earlier on in their cycle, very excited about RTSM. I think we have really a world-leading solution there, especially as we integrate it with our clinical operations suite. I think, over the next five years, we have plans that we can really change the game in RTSM, be the clear leader and encourage customers, especially large customers to just choose Veeva as the enterprise standard to drive efficiency and use it on every trial. That’s how confident we are in RTSM.

And ePRO is early, ePRO, eCOA is early and there are a lot of specific use case depending on therapeutic area there. So that is something we have — our first set of customers and some of them are mid-sized companies and enterprise license agreements with mid-sized companies. We just have to move around — move our product forward, improve our product and our processes. And I think, we will be fine with ePRO and eCOA over time. That one will just pick time.

Dylan Becker

Okay, great. Thanks, Peter.

Peter Gassner

Thank you.

Operator

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

Jack Wallace

Hey. Thanks for taking my questions, and congrats on a strong quarter and [good] (ph) outlook. Peter and Paul, wanted to just ask about the — how the migration conversations are coming along. And look, you have got a competitor that’s made some noise about a takeaway, but it sounds like you are winning pretty much every new Vault deal that’s out there. I guess one, how are the conversations progressing with your largest customers and those timelines? And two, are you hearing any noise from your other competitors around any AI-based functionality that they’re thinking is going to be a way to pick-off a couple of customers. Thank you.

Paul Shawah

Yeah. Hey, Jack, I’ll start with the migration. So the migration conversations continue — continue to progress very well. And that’s I would really say across the enterprise and SMB. We are having those discussions pretty broad-based across our customer base. And every customer will certainly make a decision on their own timeline as to kind of when they move and when they commit to moving a Vault CRM, but the discussions are going well. And yeah, I’d say, I would expect additional Top 20 commitments to play out over the next 12 months. So I think we are executing extremely well.

We’re not doing anything to — unnatural to force a decision timeline. We want customers to make the decision when they are ready when it is right for them. But as I said, I just expect some additional commitments over the next 12 months. So that’s kind of how migrations are going and you see that we are executing well on that. We’re on track to have some of our first migrations with some small customers by the end of this year in Q4, but also some of the larger migrations happening starting next year.

I think your second question was about competition, what’s happening in the competitive space, a little bit related to AI. I think this is an opportunity maybe to take a step back a little bit around what’s happening from a competitive landscape standpoint. I think you brought up a competitive takeaway. We did hear about that. But it is clear that the primary competitor for us is Salesforce, right? We used to compete with IQVIA, IQVIA their product OCE hasn’t performed well in the marketplace. They sold off and licensed the rights back to Salesforce. So we don’t see them as a competitor anymore. It turns out Salesforce is going to build-on top of that product.

So, IQVIA, I did hear them, mention a competitive takeaway. You have to ask them specifically about what that is. We are not aware of what they’re referring to there. So I do see Salesforce as the primary competitor. They do talk a lot about AI. They talk a lot about how they’re going to have their first release of a product towards the end of next year.

Obviously, this is a different motion for them, right? This is doing something that’s very deep in industry-specific. So it remains to be seen what will actually happen there. But of course, AI is a big part of that selling pitch. And — in terms of kind of our position, I think about our competitive position as continuing to improve. You see that in the results. But I do think we have a structural advantage. Peter talked about that in the clinical space. I think we also have that structural advantage in the commercial and in the CRM space really for a number of reasons.

First is the execution. We have a product that’s available in the marketplace. We have 15 customers live on it. We have our top 20 pharma customer that will be live from a migration by the end of next year in over 50 countries. That’s really, really hard to do. It’s not clear that anybody can deliver on that.

Salesforce could deliver on that in two or three or even four years. Even if they are able to get there at all, we know that IQVIA wasn’t able to deliver on that. So having a product available and executing on that consistently, that’s a big advantage. Certainly, our customer relationships, we’ve been selling and working with these customers and delivering for the last five or 10 or 15 years with some of these customers.

And then, of course our vision, we are building a commercial cloud, an industry cloud, and that is very different than what anybody else in the market is doing. So I gave you a long answer, but I wanted to give you some context on the competitive position is playing out and this is why we are so focused on execution. We have the right product strategy. We are going to continue to focus on execution. And I think based on that, we’ll create a durable business and with growth opportunity with some of the new products that we talked about earlier in areas of service and marketing and patient.

Jack Wallace

Thank you, Paul. Really appreciate it. And then if I could add a quick one on Compass. It is been eight months since the launch of Prescriber and National. Just wondering how conversations with clients at a high level are progressing and if any of your larger customers have deemed the data to be compensation grade. And if not yet at this point, what a timeline would look like for that determination? Thank you.

Peter Gassner

Yeah. Good progress with Compass. And mostly in the patient area in terms of sales and new brands that we are adding in the Prescriber and National projected products, there is more education going on, a little bit of sales activity here and there, but there is a lot of education getting ready. We don’t have anybody using it for compensation yet. I do expect that will happen next year. It is important to remember that for Compass, particularly Prescriber and National we are taking a new approach, a fundamentally different data approach.

We are projecting not only retail data, but specialty data to not only retail prescriptions, but things complex therapies that are delivered through specialty pharmacy. So we are projecting for about 4,000 brands. That’s something totally new and people will have to get used to that before they use it for compensation. For compensation, that’s also generally people look at that on an annual basis in general on the average, right? They are not going to switch that mid-year.

So, we’ll see how things play out with Prescriber and National. And I’m very bullish over the long-term, but boy, that’s a — not quite Mount Everest, but it is a big — it’s a big hill to climb. It’s going to take time.

Jack Wallace

Got it. Thank you so much. Congrats again.

Peter Gassner

Thank you.

Operator

Your next question comes from the line of Callie Valenti with Goldman Sachs. Please go ahead.

Carolyn Valenti

Hi. Thanks for taking my question, and congrats on the quarter. Just a higher level one for me to start with. When you look at your addressable market today, just curious like what product suite do you see the most opportunity to continue developing functionality in over time? Is that kind of more of the R&D side of the business versus the commercial and any kind of specific products you would call out?

Peter Gassner

Callie, I would say all — both R&D commercial have room to grow in multiple areas. Both of them have products that are quite new, very new, such as Campaign Manager, Service Center. And then over on Compass, we just talked on Compass Prescriber. In the safety suite, we got ePRO. If you look at our TAM overall, how we laid it out our [$20 billion] (ph) TAM, about 35% — the biggest areas are commercial and clinical at about sort of 35% each, right, commercial and clinical. Then we have quality, which is another big area. We have LIMS coming out there. We have batch release and then after that, it’s regulatory and safety. I would say, that is how to think about it. I wouldn’t say there’s one dominant area, the two biggest areas, clinical and commercial and they both have a mix of new and established products.

Carolyn Valenti

Yeah, that makes sense. Thank you. And then just as a quick follow-up, just wanted to ask you, as science continues to evolve a kind of a rapid clip, how do you think about your solutions, particularly some of the trial facing ones evolving with that and just kind of some of the flexibility that you’ve built into those solutions to deal with that? Thank you.

Peter Gassner

Yeah. If you look at what we do, you mentioned the science, this is where the real biology where we’re understanding more about how the human body operates, how we can treat unmet needs and there is a lot of needs that are unmet right now and science is really advancing. Now with what Veeva does, we are generally not involved at that level of the science. We design our solutions to handle all different types of clinical trials to manufacture all different types of drugs to do the sales and marketing on all different types of products.

So, we are generally not specifically affected by the science because we build that flexibility in. Now evolution in science is good for Veeva overall because that helps the life sciences industry grow, more medicines for more patients, more value therefore more need for automation.

Carolyn Valenti

Great. Thank you.

Operator

Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Please go ahead.

Craig Hettenbach

Thank you. I wanted to touch on capital allocation as your cash balance continues to build-up. Any update on the strategy there and opportunity to put that to work?

Tim Cabral

Yeah, Craig. Thanks for the question. This is Tim. No update to that. What you’ve heard us talk about in the past is focused primarily on dry powder for potential M&A. So no change in what you’ve heard us talk about in the past.

Craig Hettenbach

Okay. And then as my follow-up, just touching on headcount up 1% year-over-year, I’m sure some of that is just some of the services weakness in terms of response to that. But just more broadly, how are you thinking about headcount and kind of going into next year?

Tim Cabral

Yeah, Craig as we look forward, as you heard both Peter and Paul talk about in this call today, we do have a large opportunity in front of us and we continue to look for the right level of investment, which will include adding to the team. I think what you’ve seen over the last year is while we have been adding, we’ve also been trying to drive and gain more efficiency. And I think you called it out in terms of services, probably an area where we’ve seen the largest amount of efficiency.

And I mentioned that in the gross margin performance of that business earlier, you are seeing that outcome. So look, I think there is an opportunity — a big opportunity in front of us and we’ll invest against it. But at the same time, we are also very thoughtful on how efficient we want to be as a team, how appropriately lean as an organization we want to be.

Craig Hettenbach

That’s helpful. Thanks.

Tim Cabral

Sure.

Operator

Your next question comes from Ryan MacDonald with Needham & Company. Please go ahead.

Ryan MacDonald

Hi. Thanks for taking my questions, and congrats on a great quarter. Peter, I wanted to talk about safety a bit. Obviously, it’s continuing to have nice success there. But as it was mentioned in the prepared remarks, it is a complicated segment with customers resistant to change. Just curious, as you’re continuing to have safety conversations with those prospective customers, is there some grade unlock that we should kind of look for to sort of help drive this modernization into the cloud and safety versus on-prem in that segment of the market?

And as you think about the next 12 months to 24 months, is there a catalyst in your view to that sort of unlocks that opportunity or maybe hastens the wave of innovation there?

Peter Gassner

I do expect there will be a catalyst. The thing about catalysts, we can’t predict when or what. But I do think there will be a catalyst. We have a clear product strategy, safety suite in the cloud, that really have a lot of innovation and have some customers live and happy for a period of time.

There are two legacy providers mainly. There may be some smaller ones, but there is mainly two legacy providers. We don’t know, what those legacy providers do. We don’t know, if one of them has issues here or there, and that starts getting around and they start having issues and it becomes not tenable. Okay, that would hasten the move to Veeva because Veeva’s kind of stable, we’re not moving. That solution is going to be good.

Another accelerant, I’d say, is — as our EDC product gets more traction and we have customers start cooking our EDC product to our safety product, there is significant savings there, significant savings. People can be repurposed to do other things when that connection is done. So that would be — that would get noticed.

And there may be some type of breakthrough that could happen over time, too. Remember, this safety is on the Vault platform. So it has the complete flexibility of the Vault platform, including the direct data API. So what type of AI things can be done on top of that AI, that direct data API, type of AI things? That will be different than can be — what can be done on the legacy, and that might cause some type of a tipping point.

I believe our strategy for safety is quite good because we know what we’re doing, and we are moving along. There are two legacy providers that won’t be able to move along at some point in the — we have a structural advantage. I just don’t know when that’s going to start happening.

Ryan MacDonald

Helpful color there, Peter. Thanks. Maybe as a follow-up question, just wanted to touch on Vault Basics just real quick. I know it’s a small — sort of smaller segment of the business in terms of your exposure. But obviously, it is been one that if we look over the last 12 months has been more volatile in the earlier-stage biotech. Just curious if you think about some of the early success here or maybe momentum that Vault Basics gives you at the lower end of that market can turn that earlier stage segment into more of a growth engine over the next couple of years for Veeva. Thanks.

Peter Gassner

Yes. I love Vault Basics, let’s just get that out there. I love it for many, many reasons. One is we’re only starting about a year ago. And man, we really did some major innovation there. We already have 12 customers live or more customers than that signed up. So that just shows the speed of Veeva. Even at our size, we can move and put great people on it, and they’ve done great things. It is also interesting that about 80% of the opportunity there would be opportunity that was not available to Veeva, just not available before because they didn’t have the wherewithal to go on to the full Development Cloud.

So they were — would stay on paper and spreadsheets and collaboration software and shared drives and things like that. So we’re getting to more of the market. Now that market is — maybe you would consider that not huge. I think it is $100 million or more that’s in that range. But that’s – it is good revenue and it’s customer success for those customers.

But the other thing that it’s doing is it is really teaching Veeva how to simplify, how to get more done in a more efficient way, how to help the industry standardize. And that’s going to help our enterprise and even G17 business over time. So Vault Basics has been a home run for the customers who are starting to use it. And it’s a great feeling for Veeva that we can change like that, and it’s going to really help our enterprise business over time not because those enterprise customers are going to use Vault Basics, but the process improvements and the simplification and the standardization that it’s going to drive that truly going to pay dividends. We will build — we will bring Vault Basics to more applications over time, including to the commercial areas. We’ll do it in a slightly different way in commercial, but the concept of Vault Basics are very applicable.

Ryan MacDonald

Makes sense. Appreciate the color. Congrats again.

Peter Gassner

Thank you.

Operator

Your next question comes from the line of Kirk Materne with Evercore ISI. Please go ahead.

Unidentified Analyst

Hi guys. This is Bill on for Kirk. And thanks for taking my questions. Looking at Vault Direct Data API, how seamless is it for customers to turn it on and start using it? Is it something that needs an implementation? Or is it something that can happen kind of right away?

Peter Gassner

I’ll take that one, Bill. This is Peter. That is something that’s purchased by the customer. So that is something that is not free for the customer to use. They purchase it. The fee is not large. It covers our compute cost, that type of thing. So they have to really decide that they want it. After that, no, there’s no implementation. You turn it on, and it’s on. And that’s that. Now to use it, a customer would have to learn how to use it, beat the documentation, figure out, hey this is a little bit different type of API. What do I want to use it for? How can I use it? But there is no implementation. You turn it on, it’s on.

Unidentified Analyst

Okay, great. Thanks for taking my question.

Operator

Your next question comes from the line of Jailendra Singh with Truist Securities. Please go ahead.

Jenny Cao

Hi, this is Jenny Cao on for Jailendra Singh, Truist Securities. Just a question on professional service. So first, congrats on a nice quarter, but it seems the professional services part of Veeva solutions continued to be a weak spot in the report this quarter.

Is that still because customers kind of see professional services as discretionary and are still continuing to delay services? And then for the part where customers are contracting directly with third-party vendors, is that driven by some initiatives to bid costs or be more efficient? What do you think is driving that?

Tim Cabral

Yes. Jenny, this is Tim. I’ll take that question, and thanks for it. So first, I would characterize professional services not as a weakness, but it is certainly a strength of Veeva. It is one that as I mentioned earlier, we are optimizing for customer success, which I think our services team is delivering that customer success, as they help our customers deploy and adopt some of these very, very important applications. So I think that’s first and foremost.

Secondly, as you look at some of the dynamics that we’re seeing, I think it’s a fact that — or it’s a function of, again how we think about the services business, and it will be lumpy. There are — across our product portfolio, the attach rates are different for different products. And as you stated and as I stated earlier, customers have the optionality to make decisions that are — that may be unique to them or best for them. And what we try to do is partner with our customers to make sure that they feel very confident.

What I would not say is that this is a function of services generally not being important. While our share of the pie might be reduced a little bit in some of these examples that I gave, Jenny, it is not a fact that services or professional services are unimportant to our customers to really get the maximum value out of our solutions.

Jenny Cao

Thanks for that color Tim. And just a follow-up. I remember since November last year, Veeva was seeing some elongated deal cycles and deal timing. Since then, have you seen any of the delayed decision-making come back in the last 10 months? Like for the deals that weren’t substituted by their own internal solutions, like what has been a typical time frame for that to come back if you have seen any? And thanks for taking my questions.

Tim Cabral

Yes, Jenny, this is Tim again. I think as you think about the conversation that we had 10 months ago, the macroeconomic headwinds were just starting to somewhat come into play. And I think that was informed in our conversation 10 months ago. As you heard Peter talk about earlier, there are still macroeconomic headwinds that are out there. But I think what we’ve done a nice job of and working with our customers is executing somewhat through that.

So while, yes some deal cycles get elongated, we are very close to these customers and continue to keep them on the radar screen in terms of closing those deals at the appropriate time for them. So I think it is a function of the macroeconomic headwinds, but we’re executing through that.

Operator

Your next question comes from the line of Charles Rhyee with TD Cowen. Please go ahead.

Charles Rhyee

Yeah, thanks for taking my question. Well, first, I wanted to ask about Crossix. The second quarter now you had a solid performance here. And we’ve heard peers in the commercial space talk about seeing delayed projects also starting to convert. Are you seeing a thawing in the discretionary spend across biopharma companies that you think that can accelerate demand for some of your other offerings as well?

Peter Gassner

Charles, this is Peter. I can’t call it a thawing really. No, I think sometimes what happens is when you have a little bit of pent-up demand, sometimes that just causes — that puts things off for later. So I think you may be seeing that. I wouldn’t call it a thawing. I just think maybe they had a little bit of pent-up, and things got pent-up enough. So there’s been no – there is no material, for example macro news to the negative in the last 90 days.

When you have macro news to the negative that creates a thawing, when you don’t have any things that are extra to the negative, things start flowing again. But I wouldn’t call it a thawing. A thawing might — you might think there is a thaw of ice, and then there is a flood coming. It is not like that. It is just flowing a little bit better now.

Charles Rhyee

Got it. That’s helpful. And then maybe a follow-up for Tim. In the billings guidance for the third quarter here, it kind of implies about 5% year-over-year in the third quarter, steps back up in the fourth quarter. If I look at the last few years, billings growth year-over-year has been a little bit more constant. Anything to call out here? I know earlier Peter, in your prepared comments, you talked about timing issues. Just maybe any comments there would be helpful. Thank you.

Tim Cabral

Sure, Charles. I think that guide and the shape of that guide for the back half of the year is a combination of two things. One, Q3 was a little bit of a stronger quarter last year, so a little bit of a harder compare. But also, I think where you’ve heard us normalize and you can see that in the deck that we supply as a supplement to our press release, Charles, we are seeing some billing term changes. Most of it is being driven by movement of renewal dates. That also will have an impact to that normalized billing.

Charles Rhyee

Got it.

Operator

Your next question comes from the line of David Larsen with BTIG. Please go ahead.

David Larsen

Hi. Congratulations on the strong quarter. Can you talk a little bit about the competitive environment, especially on the clinical side? It sounds like you’ve made a lot of advancements on the clinical side over the years. So is your portfolio suite at least comparable to like Phase Forward and metadata and e-Research technologies? Do you have all of those modules that those competitors have now? And if not, when would you expect to have it? Thank you.

Peter Gassner

This is Peter. I’ll take that one. In terms of the broadness of our offering, I believe we have the broadest offering that anybody has had before, especially when you look at — we’re able to talk to the largest of companies and the smaller ones. So we have a clinical — full clinical operations suite and a full clinical data management suite. That’s — for example, that is not something that — you mentioned Phase Forward or [Metadata] (ph), that’s really not something that they’ve had before. So that’s kind of how I see it.

And how did we get that way? I think it is just through disciplined execution. If you look back, our first clinical product was, I believe, in the 2012 time frame with eTMF. So we worked hard on that, got a few customers, got them live, didn’t move on until they were really live, really happy, products started to get a bit more mature then we announced hey, we’re going to build CTMS and then EDC. And we stayed there for a while and really focused on those products, made them good.

Now we started talking about EDC and Site Connect and study training. So it’s been a systematic approach to build out the whole suite. And it takes that because if you want to be a great multiproduct company, it means all of your products need to be great, not just one or two of them. So you got to concentrate and it’s hard, and that’s — we’ve taken a kind of a — I would say a methodical structure approach to that because we’re building this durable long-term business that should last for generations. That wasn’t really what you set out to do if you are making a clinical application just in a certain area, right? That’s not what you’re setting out to do. So our frame of reference and what we’re trying to accomplish is just different.

David Larsen

Okay. Great. And then, Peter, from your perspective, how important is it to have the commercial and the clinical side all on one single sort of Vault database? Some people I’ve talked to in the channel say on the biopharma side, you really have two different kind of companies in a way. You got the commercial sales side, and then you got the research side. So having everything on Vault maybe doesn’t really matter. My view is different. I think it matters a lot. Can you maybe just talk a little bit about that from your perspective, Peter?

Peter Gassner

Yes. It’s certainly new. It’s not something that the industry is used to. When Veeva started many years ago, each functional area had different platforms. It wasn’t even Salesforce.com in the CRM area. We brought that platform into the commercial area. The regulatory had their own thing and quality, et cetera, each function. Now what we are seeing is, okay, the R&D side, that’s a lot of Vault, and we’re bringing Vault on the commercial side. I think the advantages of that may not be apparent to customers because it is not something they experienced before.

I do think they are tremendously significant, yes. There is efficiencies in IT, that’s one thing, security, vendor management, capabilities, learning, efficiencies in the system integrator network, all those types of things. But the bigger thing is it can help the customers connect commercial to clinical better. That is a CEO-level initiative at many of these companies. I think the — having a common platform and a common data architecture will help tremendously. But that is a kind of thing that you would have to see it and experience it to believe it.

That’s the vision we have. I don’t expect our large companies to buy in on that vision until it becomes a reality. I’d say that, that’s first going to be experienced by smaller customers, bio-techs that use Veeva in the R&D side and the clinical side. And then they go to commercialize their first product, and they see wow that was smooth, and that was connected because that’s all on Vault. That’s where it will first happen. Now that’s our vision. The main thing is you got to execute. Everybody can have a fine plan, but do you execute on with quality, and that’s what really we’re focused on. We want to help the industry. And the way to do that is through the execution, which is not easy. It takes focus.

David Larsen

Great. Thanks very much.

Operator

And that concludes our question-and-answer session. I will now turn the conference back over to Peter Gassner for closing remarks.

Peter Gassner

Thank you, everyone for joining the call today, and thank you to our customers for your continued partnership and the Veeva team for your outstanding work in the quarter. I look forward to speaking with you again at our Investor Day on November 7. Thank you.

Operator

And this concludes today’s conference call. Thank you for your participation, and you may now disconnect.