Veeva Systems Inc

NYSE:VEEV

Earnings Call Analysis

Firm Raises Subscription Guide by $5M, Earnings Beat

The company had a robust quarter, surpassing forecasts with a total revenue of $590 million and a non-GAAP operating income of $212 million. A successful quarter in the commercial space, characterized by earlier-than-expected deal closures, prompted a $5 million increase in the full-year subscription guidance. The outlook for R&D remained stable, performing as anticipated. Moreover, market conditions met expectations, neither improving nor declining, and this trend is projected to continue into the second half of the year.

Vault CRM Progress and Future Guidance

A highlight from the earnings call is the focus on the Vault CRM, showcasing a significant win for the quarter. As the company moves towards general availability, the expectation is to transition predominantly to Vault CRM, and eventually, it aims to migrate the majority of Veeva CRM and its add-ons revenue towards Vault CRM over the next five years.

Multi-Product Strategy & R&D’s Growth Trajectory

The company's multi-product strategy encompasses expanding deeper into functional areas, offering a suite of solutions that are not just surface-level but comprehensive in areas like clinical, quality, and safety. This depth and autonomous operating model contribute to durable growth and customer satisfaction. Furthermore, R&D is performing as expected with deals following the anticipated linearity and contributing to a stable revenue outlook.

Revenue Growth Projections and Subscription Guide Increase

For this fiscal year, the subscription revenue guidance was increased by approximately $5 million due to earlier deal closures in the commercial space and consistent execution in R&D. Macroeconomic conditions have met the company's expectations without any positive or negative surprises, and this trend is projected to continue in the second half of the year.

Investments in Product Innovation and Migration Costs

Investment in product innovation comes with anticipation of substantial migration effort as customers transition to Vault CRM. The migration costs are estimated to be significantly lower compared to adopting entirely new solutions, benefiting from a comprehensive set of migration tools developed by the company.

Increased Focus on the Link Product Suite

One of the primary drivers of revenue growth is the successful execution of the Link product suite, particularly Link for Key People. While most Link revenue is generated by Link for Key People, the company aims to expand this suite and expects other Link products to mature and significantly contribute to growth over time.

The Stability and Health of the Life Sciences Industry

Despite fluctuations in clinical trial activity and macroeconomic pressures, the life sciences industry maintains overall health and is expected to see an average R&D budget growth of around 3%. The company's business model, being more ELA-centric (Enterprise License Agreements), is expected to yield steady performance, mitigating impacts from market fluctuations.

Outlook on Future Revenue and Growth Potential

The business reiterates its $2.8 billion target for fiscal year 2025 and recognizes a broad opportunity across its portfolio of 35 major products. With less than 20% market penetration across R&D, the expectation is for broad-based growth propelled by a diverse array of products that will drive future revenue as the company continues to execute on its multi-product approach.

Earnings Call Transcript 2024-Q2

[Gunnar Hansen, Investor Relations]

Good afternoon, and welcome to Veeva's Fiscal 2024 Second Quarter Earnings Conference Call for the Quarter Ended July 31, 2023. As a reminder, we posted prepared remarks on Veeva's Investor Relations website just after 1:00 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, Commercial Strategy; and Brent Bowman, our Chief Financial Officer.

During the 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 30, 2023 based on the facts available to us today. If this call is replayed or reviewed 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 also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today's earnings release and in the supplemental investor presentation, both of which are available on our website.

With that, thank you for joining us, and I'll turn the call over to Peter.

[Peter Gassner, Chief Executive Officer]

Thank you, Gunnar, and welcome, everyone, to the call.

We had another strong quarter, delivering results ahead of guidance, including total revenue of $590 million and non-GAAP operating income of $212 million.

In commercial, I'm excited about our first Vault CRM customer win and planned general availability date in April 2024. That's really strong progress by the Veeva team as we deliver the next generation of CRM.

We also saw great activity in clinical, both with our established products and our newer products in clinical operations and clinical data management.

At this point, we'll open up the call to your questions.

[Operator]

Thank you. [Operator Instructions] Your first question comes from the line of Joe Vruwink with Baird. Your line is open.

[Joe Vruwink, Baird]

Great. Hi, everyone. I guess I wanted to start with the news this week on Vault CRM signing its first new customer. Really the question with the go-live later this year that does strike me as a bit earlier of a timetable. I think in the past, there was talk of 2024, maybe ahead of the Summit next year. So, if I'm right on -- maybe this being a bit earlier of a timetable. Just any views on why that might be the case? And then, does that at all influence kind of how you think about launch and strategy progressing from that point onward?

[Paul Shawah, Executive Vice President, Commercial Strategy]

Hey, Joe. Yeah, this is Paul. Thanks for the question. So, yes, we're certainly very excited to announce our first customer win. This is an early adopter. They will go live, that's the plan, in in Q4 of this year. It is a little bit earlier than we had expected. But Vault CRM is progressing really well. The product team has really delivered with excellence over the last year since we announced Vault CRM. So, we're excited with the progress. We're excited where we're headed.

In terms of the timing, it's generally in line with what we talked about. So, we'll look at new -- all new customers after April next year. So that's what the general availability date means. We'll have our first migration starting in 2025, and we'll expect to migrate most of our customers in 2026 through 2028. So that fundamentally doesn't change that much. But yes, you're right, it's a good indicator of the progress we're making.

[Joe Vruwink, Baird]

Okay, that's great. And then, just pertaining to the strength in EDC with the wins this quarter, and then really the highlighting of the broader clinical data management strategy in the prepared remarks. When you step back and look at all of this, would you say really no different than what Veeva has now done several times over its history in terms of product leadership, lighthouse account wins, and then building out the suite? Or just given the size and consequence of this category, would you maybe start highlighting different things in terms of strategy, the consequences going forward about your clinical data, specifically?

[Peter Gassner, Chief Executive Officer]

I'll take that one, the broader clinical overall, which is clinical operations and clinical data management. They kind of -- they go together. A few high-level thoughts. When we start a new product area, we always have plans and we always try to do our best. And sometimes we achieve those internal goals for ourselves and sometimes we fall short. I think in the clinical area, we probably exceeded what we -- so far, what we thought we would set out to do. When we first got into our first pieces of clinical with CTM was really eTMF in 2012 and CTMS in 2016. So, we're a bit ahead. And then, all product areas are important, but clinical is just a very, very big one. So maybe in that way, it's a bit more important than others. A long way of saying we're really happy with our progress, and we've executed well. We've probably got some -- I had some good luck along the way as well, and now we just really have to focus on our customer success, and we'll do just fine.

[Joe Vruwink, Baird]

Great. Thank you very much.

[Operator]

Your next question comes from the line of Ken Wong with Oppenheimer & Company. Your line is open.

[Ken Wong, Oppenheimer & Company]

Great. Fantastic. This first question for Brent. Just wanted to understand the moving pieces on the billing side. Exceptionally strong in Q2, held the line for the full year. Just wondering if maybe some pull forward, some realignments. Like, what drove those moving pieces?

[Brent Bowman, Chief Financial Officer]

Hi, Ken. It's -- yeah, I'll take that one. So, from a full year perspective, we reiterated the full year billings guide. So, we're growing at about 15%. What we've always said when you look at any one quarter, it can be -- it can move a little bit. So, in Q2, we're pleased to see some benefit from some linearity of some deals, so a little bit better deal timing. Those deals, we expected to close within the year, it just happened to close in Q2. So that's not going to impact the full year number, but we'd rather have the business earlier than later. So overall, happy with the execution.

[Ken Wong, Oppenheimer & Company]

Got it. Makes a ton of sense. And then for Peter, just you guys touched on SMB softness. I think that's something you called out a year ago, but it did sound like it was more towards the commercial side when you first called it out. Would you say you've seen any impact or more meaningful impact on clinical, or is it held roughly the same in terms of how that SMB exposure has weighed on the business?

[Peter Gassner, Chief Executive Officer]

Well, I think, we always knew that the macro would affect commercial and SMB, and particularly the smaller SMB, the emerging biotech, because when the funding environment is down, they might not be able to fund their clinical trials, get the money they need to expand. So overall, I would say, it's playing out as we expected, and that's -- I don't know when things would change. Who knows, right? They may change in the future, but you won't know that until they change. Right now, it's a business as we expected.

[Ken Wong, Oppenheimer & Company]

Got it. Okay. Thanks for the color.

[Operator]

Your next question comes from the line of Rishi Jaluria with RBC Capital Markets. Your line is open.

[Richard Poland, RBC Capital Markets]

Hey, thanks for taking my question. This is Richard Poland on for Rishi. So, just one for me. On the China exposure that you called out in some of the prepared remarks, and you said that you kind of factored that into guidance. Just wanted to get a little bit of clarification on what exactly is factored into guidance on that side.

[Paul Shawah, Executive Vice President, Commercial Strategy]

Yeah. Hey, this is Paul. I can answer that. Just a little context. I think it might be helpful on China. This is regard -- in regards to some regulations that have come about over the last couple of years, which impact how data is transferred outside of outside of China, which starts to impact Veeva CRM. Veeva CRM is the predominant CRM that's used for most of the multinationals in the Chinese market. So, what it's doing is it's forcing them to rethink their solution. We have a solution for them in the Chinese market. That's our China SFA product.

In terms of the size and the impact of this, this is not material. It's all factored in, but it's really not a material impact, either this year or next year. So, maybe that's how to think about it.

[Richard Poland, RBC Capital Markets]

All right. Thank you.

[Operator]

Your next question comes from the line of Brian Peterson with Raymond James. Your line is open.

[Brian Peterson, Raymond James]

Hi, gentlemen. Congrats on the strong quarter. So, I wanted to double click on the Vault CRM. It was good to see the win this quarter. I'm curious, you did announce some other wins this quarter. As we progress towards GA, should we expect to hear more of the kind of net new CRM wins be Vault, or would they still kind of go with the Salesforce CRM? Any way to kind of level set expectations there?

[Paul Shawah, Executive Vice President, Commercial Strategy]

Yeah, it's a good question. And it will be customer specific. So, we'll think very deeply and work very closely with our customers. We're obviously very transparent about our direction. For some companies, Veeva CRM is the right thing to do, and that's what we will sell to them and work with them. But I do think it's a fair way to think about it as we get closer to that April date. And certainly after that April date, it'll start to become more Vault CRM and eventually all and exclusively Vault CRM for new -- so, that's for new customers.

[Brian Peterson, Raymond James]

Great. Thank you.

[Operator]

Your next question comes from the line of Dylan Becker with William Blair. Your line is open.

[Dylan Becker, William Blair]

Hey, gentlemen. I appreciate you taking the question here. Maybe for Peter too, you emphasized the multi-product kind of strategy effort. It seems like as you guys are going wider, you're also going deeper functionally. I think you called out a number of new solutions that that have the potential to be larger markets than kind of what some of your respective offerings currently have. I guess, how do you think about that in context to the durability of kind of the growth equation and what Veeva can look like over time as you go deeper from a functional perspective?

[Peter Gassner, Chief Executive Officer]

Thanks, Dylan. Yeah, it's really good way you said it. One of our special things is this multi-product company approach, our operating model that allows us to do that. So, excellence in an area like clinical or quality or safety, but because we have a lot of autonomy in those areas, we can go deep in those areas and provide the full suite of things, not just the surface level. So, if we look actually in clinical, there's not been a company that has attempted to do the full broad suite of clinical applications such as Veeva is trying. Nobody has attempted that before, let alone succeeded at it. So, it is absolutely our strategy to go in each area with autonomy, deep in each area with excellent applications, the main ones that people need, and then have things aligned across areas on a common set of values, how we operate as a company, how we strive for product excellence, how we do controls, and so that we see if we have some customer success issues and catch that.

One of the reasons why we're durable is we're optimizing for the whole, and customers appreciate that. They know when we sell them, let's say, our RTSM solution, we care deeply about that success, not only for the reputation of our RTSM business, but for the reputation of the overall Veeva, which is much more than the RTSM business. So, in other words, we have more to lose if we have an unhappy customer in an area. So, we will work harder to protect that, which is what the customers want. And that's the beauty of our operating model.

[Dylan Becker, William Blair]

Got it. That's super helpful. And then maybe just kind of piggybacking off of that too. I think the R&D Summit coming up here in a handful of weeks to support all of these kind of maturing product offerings, 2,000 attendees. I guess, is it -- maybe for Peter or Paul, highlight kind of the importance of what that event can mean as you build out that customer and product excellence into not only the existing platform set, but obviously some of these newer initiatives you guys are going after? Thank you.

[Peter Gassner, Chief Executive Officer]

Yeah. Customer summit in Boston for R&D in U.S. coming up here in a couple of weeks. And we'll have about 2,000 people. It's absolutely one of our key reference selling events. Now reference selling goes on all the time across the globe every day, people talking to other people. "Hey, what about those Veeva products? What do you think about that? Are you having a good experience? Not a good experience? I'm thinking about using it. What do you think?" That's reference selling. But it happens really in a hurry in the customer summit, because there's 2,000 people and they're there. Their time is focused, and they have fortuitous run-ins with each other in the hallways, unplanned pollination, that's a little bit difficult to get without a physical event. And I think, you saw that, not just with Veeva, but with other companies. During the COVID crisis, there was initially a massive spread of information, everybody getting on zoom. But then after a while, you noticed the information didn't spread as much because there weren't these spontaneous interactions happening. So, you're right to say it's our massive cross-selling event.

[Dylan Becker, William Blair]

Great. Thank you, guys. Appreciate it.

[Operator]

Your next question comes from the line of Ryan MacDonald with Needham & Company. Your line is open.

[Ryan MacDonald, Needham & Company]

Hi, thanks for taking my questions, and congrats on a nice quarter. Peter, maybe first for you. Great to see the continued success with Compass patient and starting to get more wins there. Can you just talk about how you're sort of driving that success in an environment that seems to be quite tough in terms of data investment right now given the [tight] (ph) budgets?

[Peter Gassner, Chief Executive Officer]

Yeah. For Compass, I'm very excited about that. Now in terms of the wins, those wins are going to happen. When -- there are a lot of companies wanting to buy a lot of data products, and sometimes they buy multiple data products. They might buy some data from Company A and some data from Company B and Company C, that's going to happen. So, the wins itself, they don't excite me that much, that's relatively easy to happen.

What excites me is our product vision and the product team needs put together and the goal we're setting out. We're setting out to have a unique, highly-integrated, highly-excellent suite of data products from Compass to Link to OpenData, and to be the leader in life sciences data. Nobody else has set out to do that over the last -- as far as I know, over the last 20 years, because [IQVIA is unquestioned] (ph) leader. So, we're setting out to do that.

And then, we have this product team in architecture that's really clean. It's making a clean new way thing. It's sort of like there's a client server and we're coming out with cloud. We're coming out with something fundamentally cleaner. And the real thing is getting the enthusiasm from the early customers, hearing not so much what they're saying, but why they're saying it. So the early intuition here is that it could be something great if we execute well.

[Ryan MacDonald, Needham & Company]

Maybe just a quick follow-up on that. I mean, from the customers you've won so far, do you get the sense that they're sort of committed and bought into the broader product strategy with the additional datasets coming out where you can start to have, take that multi-product adoption to sort of consolidate more on Veeva? Thanks.

[Peter Gassner, Chief Executive Officer]

No, I wouldn't say the customer is rightly so or committed yet. I do think they see the potential. This might be really good. This could be very differentiated. There's potential here, and I should keep my eyes on it. But I would -- no one committed because we haven't released these major products, which are Compass Prescriber and Compass National. So, we have to deliver those. Customers have to start working with them or to delivering them with quality month after month after month after month. That's how people really get enthused about it.

[Operator]

Your next question comes from the line of Tyler Radke with Citi. Your line is open.

[Tyler Radke, Citi]

Yeah, thanks for taking the question. So, if I look at the full year guidance, obviously a lot of the metrics stayed pretty unchanged. It did look like you slightly took up the commercial guidance. But in the quarter, it seemed like R&D, at least, outperformed consensus. So, I know it's not big changes, but could you just talk to the modest changes you're expecting for the full year outlook? And I guess to the extent macro is impacting the business, are you seeing it more in R&D versus commercial? Thank you.

[Brent Bowman, Chief Financial Officer]

Yeah. So -- hey, Tyler. So, what we did is we increased our full year subscription guide by about $5 million. So that was driven in the commercial space. So what we saw in the commercial space is we saw some favorable linearity with some deals closed a little bit earlier. So that's what you're seeing kind of flow through to the full year. R&D, it basically played out exactly as expected. So, we're executing well there, and the linearity of the deals are as expected. So that's kind of what you see from a subscription perspective.

The macro, again, no [serial] (ph) surprises. When we set out the year, we said it was going to be a continuation of what we have been seeing, so not better, not worse. And we saw that in the first half, and we expect that in the second half as well.

[Tyler Radke, Citi]

Got it. And maybe another follow-up for you, Brent. As I think about the billings guidance and your expectations for normalized billings versus calculated billings, I think last quarter, you were expecting more of a headwind on the normalized billings about a $8 million headwind. This quarter, it seemed like it maybe turned out to be a tailwind, if I'm reading those signs correctly. Could you just talk through kind of what you saw in the quarter from a normalized billings perspective that differed relative to your original guidance, and I guess if there's any changes for the full year? Thank you.

[Brent Bowman, Chief Financial Officer]

Yeah. So, from a normalized billings, so just to make sure we're level set, so what we're doing there is for our renewal business, we normalize for changes in frequency. That's when the customer goes from annual to quarterly or vice versa, and also for things like co-terms. So, for that renewal business, that's what we're focused on is taking that noise out of the equation. So, looking at normalize is the best way to look at the number.

Now there's always going to be movements between calculating that because what a customer may co-term or change that, so those term -- billing term changes is what you're seeing there. But that doesn't impact the normalized number. That's just an adjustment to calculate it. So, I wouldn't be so worried about that $8 million versus $3 million. I'd look at the full year. The full year, we're going at 15% and we feel good about it.

[Tyler Radke, Citi]

Great. Thank you.

[Brent Bowman, Chief Financial Officer]

Sure.

[Operator]

Your next question comes from the line of Brent Bracelin with Piper Sandler. Your line is open.

[Brent Bracelin, Piper Sandler]

Thank you. Good afternoon. Maybe first for Peter. I wanted to double click into the clinical data management space. I mean you talked about some pretty strong momentum with ePRO and RTSM. I think you framed that as an opportunity bigger than EDC. What are the catalysts that you think can drive broader adoption of ePRO and RTSM? Are we in an environment where this is still largely a push, or are we starting to see kind of customer pull?

[Peter Gassner, Chief Executive Officer]

Good questions. RTSM and ePRO, first, I would say, there are areas where -- these are two areas where life sciences is going to be cautious. The randomization and trial supply management, that's very, very critical. If that's done incorrectly, you could have patient safety problems. You could wipe out a significant part of the investment in your whole trial. So they're going to be cautious. The companies are going to try some trials first and see how it goes, rightly so.

And in the ePRO area that patient reported outcomes, that's patient-facing things. So again, they're going to be extra sensitive on that. So, I think the way it will play out is, people experimenting at first trial at a time, and if they like it, they'll try a little more. And if they like it -- what we see may happen over the coming years play out is they might look for an enterprise standard, for example, an enterprise standard for randomization and trial supply management, and they really haven't done that before because of way the market dynamics have been.

They can would pick randomization and trial supply management on a trial-by-trial basis and have multiple vendors almost as if they were using a contract research organization. Our innovation and the way we're doing it, we're set up for scale such that a company might say, "You know, hey, I'm going with Veeva with all my trial for randomization and trial supply management." And in ePRO over time, that may also play out as well, where they could use is not selecting on a trial by trial who has the best ePRO for this or for that. We would like to, over time, earn the right to have an enterprise agreement. That's one for the ePRO.

And then the second, we're a big fan of what's called bring your own device, meaning that the patient would use their own web browser or their own iPhone, their own Android and put their own app on it rather than the pharmaceutical company provisioning a specific iPad application. So, we've done a lot of things to make that happen and make that work really well, which, by the way, of course, you couldn't do 10 years ago when ePRO started, but you couldn't do that.

So, we're taking a new approach. We think it's better -- that will take time for it to work its way through the system and the company's sponsors and CROs to get comfortable with that. So, we're taking an innovative approach and we hope to have innovative results.

[Brent Bracelin, Piper Sandler]

Got it. Very clear. And if you become the standard, obviously, a lot to gain there. My last question for Brent here. If I just look at net cash, it's on pace to eclipse $4 billion for the first time in the second half of the year. You're now looking at generating $1 billion in cash flow annually here. What are the plans for that excess cash position? Is there an opportunity to maybe accelerate your product plan that's ambitious with more tuck-ins? How do you think about that $4 billion in the second half, going to $5 billion end of next year, and what the appropriate uses for that cash would be? Thanks.

[Brent Bowman, Chief Financial Officer]

Yes, sure. So, Brent, yes, so you're right, we run a profitable business, and we're generating a good amount of cash, and we're at about $3.9 billion. But we're focused on M&A. M&A is a use of cash. If we see the right acquisition, that's what we're going to do. But as always, in Veeva fashion, we're going to be disciplined about it in our strategy, in our approach. And we have done a few deals in the past, and we've been successful in those deals. So that's really our focus, Brent, right now is to really invest for growth and M&A is a big part of that.

[Brent Bracelin, Piper Sandler]

Thank you.

[Operator]

Your next question comes from the line of Jack Wallace with Guggenheim Securities. Your line is open.

[Jack Wallace, Guggenheim Securities]

Hey, thanks for taking my questions. Brent, first one for you, diving into the rest of your billings guide. Am I right by inferring here that it looks like there's a little bit of a mix shift towards more subscription billings versus services and the read there would be from the services guide to the lower half of the prior range? And then within that, is that -- if that is the case, is that related to some of the larger deals that you're either signed this year or anticipate to sing later in the year that may need less of Veeva resources during implementation?

[Brent Bowman, Chief Financial Officer]

Yes, there's a few moving pieces there. Like if you take a big step back on in the area here, services, was down a little bit. So that will have a small impact, a small impact on billings. But what you saw happen in Q2 was some favorability, right? So, the visibility we have to the business is still the same visibility. It's just we closed some deals a little bit earlier. And that takes some of the pressure of that half when you look at the growth rate. So, we're very happy with the visibility we have and the growth rates we see in that business, which is -- in that metric, which is 15%.

[Jack Wallace, Guggenheim Securities]

Excellent, thanks. And then Peter and Paul, your question about the kind of competitive landscape in commercial. What have we seen since last quarter in terms of activity from Salesforce and essentially even IQVIA in and around the public migration taking place?

[Paul Shawah, Executive Vice President, Commercial Strategy]

Yes, I can talk about that. So, we haven't -- as it relates to Salesforce, really business as usual. They've been a good partner. They continue to support our existing customers. I expect they're going to continue to do that through the end of our agreement. So that's business as usual as far as that goes.

In terms of them in the competitive landscape, I can't comment on their direction, their plans. What I can tell you is this is really hard building a pharma CRM. It's a really deep life sciences specific application. It's complex. It's different and different parts of the globe. Brazil is different than Japan is different than Italy. So, it's really a -- it's a different beast from what Salesforce is accustomed to doing. And then there's the full commercial cloud. So we have CRM. We have full commercial cloud. There's software, there's data. They all interoperate and work together, and nobody else really has that. So, as far as my perspective on Salesforce, I don't see this as an attractive market for them. You asked about IQVIA also, nothing has really changed there. We haven't seen any difference. We still win most of the deals. We won eight SMBs in the quarter.

Maybe one thing to think about as you kind of think about the longer term here, also one data point to put things into perspective. Veeva CRM and our add-ons is roughly 25% of our total revenue. And we expect to move the vast majority of that over to Vault CRM over, let's say, the next five years. So just a way to frame kind of what that looks like, yes, there's the competitive landscape and that may change, but that's how we're thinking about it. We expect to move the vast majority over and focus on our boards, and that's the next generation CRM.

[Jack Wallace, Guggenheim Securities]

Got it. That's helpful. Thanks. And then just a quick last one here. What should we be anticipating in terms of the migration costs maybe on the back end side versus also the implementation side?

[Paul Shawah, Executive Vice President, Commercial Strategy]

I'm sorry, can you repeat -- you're talking about the migration path? Can you just repeat the question, just to understand?

[Jack Wallace, Guggenheim Securities]

The cost for migrating customers, just incremental to the existing expense base.

[Paul Shawah, Executive Vice President, Commercial Strategy]

Got it. Yes, costs for migrating, so the way to think about it is the cost -- there's a lot of variables that are going to go into what that cost looks like. And one big one will be the approach that customers take from a very lift and shift to something that may be more optimizing around business process. The way I would think about it is we're building a lot of the tools to make that migration a whole lot easier. So the cost of just moving a Vault CRM, I estimate could be 20% of the total cost of trying to do something new, and build some new offering. So, we have a significant advantage because our customers are going to get everything we've delivered in Veeva CRM, in Vault CRM on day one. That's what happens with our existing customers, plus they'll get more on top of that. So it's a much more efficient way and it's a much better way. Ultimately, we'll deliver a better application.

[Jack Wallace, Guggenheim Securities]

Thank you so much. Appreciate it.

[Operator]

Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is open.

[Craig Hettenbach, Morgan Stanley]

Yes, thank you. In R&D, can you touch on the ramping nature of some of the larger wins in EDC? And how do you think about that in terms of layering on to the growth rate?

[Peter Gassner, Chief Executive Officer]

Brent, do you want to take that one?

[Brent Bowman, Chief Financial Officer]

Yes, I'm happy to -- yes, I'm happy to take that one. So, if you think about these large EDC deals, these are not single-year deals. These are these multi-year arrangements, which could be three, four, five years. So think about them in the first year, it's not going to be a significant amount. And as you get into years three, four, and five, it will become much more material. Revenue will follow that billings path as well. So those two will be aligned as you look forward. That's kind of a way to think about it.

[Craig Hettenbach, Morgan Stanley]

Okay. And then just switching gears back to some of the questions on the data business in commercial. Can you touch on just how you're thinking about just from a timeline perspective when you could see some inflection in that business?

[Peter Gassner, Chief Executive Officer]

I'll take that one. Real inflection, I do think will be -- first, it's going to be customer success wise and product excellence. And that, I think, we'll have a pretty good view about 12 months from now, really. Now that is going to lead the financial significance by a long way. So it will be multiple years from now before -- Compass is not going to be a [$60 million] (ph) business, even a [$50 million] (ph) business. It's not going to be that anytime soon, anytime in the next few years. So that's how long of a path these things are.

The leading indicator will be the customer success and the customers and that would start probably with a very small biotechs who can -- who would say, "Hey, I run my business, and I don't use any IQVIA data products. That's -- I just use the Veeva data products. That's -- and I'm happy with that. And I'm able to see things that I couldn't see before." That's when you know you have something. So that -- those are the things that we're really looking for every day trying to optimize for, trying to listen for, trying to make changes, so we can arrive at that next year.

[Craig Hettenbach, Morgan Stanley]

Got it. Thank you.

[Operator]

Your next question comes from the line of Jailendra Singh with Truist Securities. Your line is open.

[Jailendra Singh, Truist Securities]

Thank you, and congrats on a strong quarter. First, I want to better understand the margin trends in the quarter, which came in nicely ahead of your quarterly guidance when you adjust for TFC and FX impact. Just trying to understand what drove the upside there? And it looks like you're only raising the EBIT guide for the full year to reflect outperformance in the quarter. So, how are you thinking about those cost trends in the second half?

[Brent Bowman, Chief Financial Officer]

Yes, thank you. So, we're really happy with the performance in Q2. And you're right, we did flow through that outperformance in op income about $10 million to the full year. So, we increased our full year number by 10%. So, growing at 38% in the quarter, and that's really about just great focused execution across everyone at Veeva, all functions. So really good execution. And so, we're real pleased with that. And if you look at our full year guide, we're guiding to about 37%. Remember, there's a little bit of seasonality in Q4. But other than that, it's just purely about execution, and we're going to continue to focus on investing in areas that make sense that can accelerate our value to our customers.

[Jailendra Singh, Truist Securities]

Okay. And then following up on the question on macro front, asked earlier with respect to the funding environment, putting pressure on smaller biotech companies. I understand your fiscal '24 guidance does not assume any change there. But what are you assuming in your fiscal '25 outlook? Are you assuming any improvement in trends there?

And then my broader question on macro is that I completely understand that Veeva products are core to pharma R&D, but some of your peers and competitors have been talking about shrinking R&D budgets for pharma and cut down on discretionary spending. What gives you comfort that these trends will not start spilling over to your focus area? Just trying to understand the comfort there.

[Brent Bowman, Chief Financial Officer]

Yes. Let me take the first one. So in our guidance, we've assumed that the macro environment will continue. So, we don't expect it to get better nor do we expect it to get worse. Fiscal year '25 is long ways out, but that's our base assumption as you think about our guide.

[Paul Shawah, Executive Vice President, Commercial Strategy]

I'll take the second part of that. The life sciences industry is a healthy industry. There's always going to be some level of ups and downs in a quarter -- quarter-to-quarter as it relates to clinical trial activity. But as we look out over the next couple of years, we're seeing growth in R&D budgets on average around 3% growth in R&D spend. So it's a healthy industry, you'll certainly see a little bit of kind of ups and downs. And as far as that impact on our business, I don't expect that to be material, given where that focus is on the smaller segment of our business, and we're a little bit more ELA centric.

[Jailendra Singh, Truist Securities]

Thank you.

[Operator]

Your next question comes from the line of Stan Berenshteyn with Wells Fargo Securities. Your line is open.

[Stan Berenshteyn, Wells Fargo Securities]

Hi, thanks for taking my questions. In the prepared remarks, you called out Veeva Link as contributing to commercial subscription growth in the quarter. Brent, could you maybe give us an update on the ARR under Link? And then, Peter or Paul, can you share with us what are some of the newer products under Link? Thanks.

[Brent Bowman, Chief Financial Officer]

Yeah. So, I'm not going to get into specific ARR values, but just -- what's important is Link is a big opportunity for us. We're executing well. Our first application Link for Key People is getting really good traction, and you're seeing that as a driver to our revenue growth. So, it's one of the -- that is one of the primary drivers you saw in Q2 and for the balance of the year from a commercial revenue growth perspective.

[Peter Gassner, Chief Executive Officer]

This is Peter. I'm sorry. I'll talk about the -- sorry for the audio there. I had a little issue. This is Peter. I'll talk about Link overall. We started out with Link for Key People. And when we were building that, we were also building the Link platform, so that we could expand it to different solution areas and you're seeing that. You started seeing that last year. So, Link for Key Accounts, for [Multiple Countries] (ph), Link for Scientific Awareness, for Medical Insights, Link Workflow. And then over into the clinical area, we've announced Link TrialBase and Link SiteBase. So, we've really announced a broad, broad set of products.

Now each of those products, they're going to take a long time to mature, as Brent said. The bulk of our Link revenue, I don't have the exact number, but let's say probably more than 90% right now, is in the Link for Key People. We think it can be a broad, broad set of solutions that can add significant value. But we'll have to see. We'll have to see, can we make excellent applications and make customers happy. We're very mature in Link Key People. A lot more customers to sell into. The product is very mature, by far the market-leading product. We have to see if we can get there with our other Link products.

[Stan Berenshteyn, Wells Fargo Securities]

Got it. And then maybe just a quick one on Crossix. Obviously, that's a choppier business quarter-to-quarter, but can you share with us any trends you're seeing as it relates to pharma marketing activities and demand? Thanks.

[Peter Gassner, Chief Executive Officer]

Marketing, no broad level trends that we haven't seen before, just increased scrutiny. Marketing is a spend, and I would say there's increased scrutiny, especially more than it was a couple years ago. But it continues to go well for us at Crossix. And it's going to have its ups and down quarter-to-quarter. But as companies, they want to reach their customers, in the U.S., specifically in two ways: face to face and through digital. And they're always going to use both methods and digital marketing is a big part of it. Crossix is the leading measurement solution. So, I think you have a good long-term business there. Our focus is to integrate Crossix more tightly with CRM, so that it becomes more towards enterprise license agreements and it became -- comes a little bit less of a standalone measurement tool.

[Stan Berenshteyn, Wells Fargo Securities]

Great. Thanks so much.

[Operator]

Your next question comes from the line of Saket Kalia with Barclays. Your line is open.

[Saket Kalia, Barclays]

Okay. Great. Hey, guys. Thanks for taking my questions here. Apologies in advance if these questions have been asked, but I'm going to try it anyway. Peter, maybe first for you. Great to see the growth in the EDC customer base. I think we said we added eight, right, in the quarter. Maybe the question for you is, are there any commonalities that you're seeing across some of those wins? Whether it's coming from one or two specific competitors or maybe a common reasoning that you're seeing those customers choose to switch Any observations that that you would make just as you look at a bigger EDC customer base now?

[Peter Gassner, Chief Executive Officer]

Yeah, there are some commonalities. I would say, the bulk of them are either coming from Medidata, which is the leading by volume in industry solution, or they're coming from a series of small competitors that are targeted for the SMB. As it relates to Medidata, I would say, they're like the EDC solutions from Veeva, but they also like the integration with our clinical operations suite. In the [EAC] (ph) solution, why they like our solution better at times -- sometimes is, and that'll be the primary driver, it -- specific, what I call, meat and potatoes things.

For example, when you do a study amendment, you change the design of the study many times with competitive solutions, you have to unload the data, reload the data. The site can't -- the clinical research site can't operate during time. With Veeva, because there's a newer architecture, that doesn't happen. We also are able to -- through the use of our tooling, our customers can build their studies, can define their studies dramatically faster. It might do four weeks instead of eight weeks. And then, the way that Veeva system works has less custom programming. There's custom programming needed in these other solutions that is expensive, but also [indiscernible] specialized skill. You don't need that. You can define that and leave it. So these very specific things.

And then as to why they would use Veeva instead of maybe smaller SMB solutions, I think, again, they would like to get solutions from one partner that fits together. And that's what we do. A good example of that is we have a great clinical trial management system and we have a great EDC system. You don't have to use both. If you use both, they're better together. Our ePRO system and our RTSM system, they work fine if you don't have our EDC. They don't require our EDC at all. Their best stand alone, and nobody else has done that before, right? Nobody else that has an EAC product. But if you have all of our products, the integration is even better, and it's just easier to get these solutions from -- an integrated solution from one company.

So that's what we're seeing. People want a broad clinical partner where all of the applications are excellent, and that's what they can find in Veeva.

[Saket Kalia, Barclays]

Got it. That makes a lot of sense. Brent, maybe for my follow-up for you, and, again, apologies if this has already been asked. But some competitors during the quarter talked about maybe some lower clinical trial volume just kind of industry wide, and that potentially impacting their revenue. Maybe just to level set for all of us, can you just remind us how much of Veeva's business, if any at all, is dependent on sort of near-term in-quarter clinical trial volume that we could sort of get a sense for Veeva's exposure to that potential trend?

[Brent Bowman, Chief Financial Officer]

Hi, Saket. So, minimal -- a very small amount is going to be variable based on near-term trial volumes. If you think about our six top 20 EDC wins, those are typically multi-year predefined ramping deals. So, they're going to -- they're not going to move with the ebb and flow of a near-term trial volume. So, I would say that has a minimal impact in kind of how we go to market and contract with our customers.

[Saket Kalia, Barclays]

Very helpful. Thanks, guys.

[Operator]

Your next question comes from the line of Brad Sills with Bank of America Securities. Your line is open.

[Unidentified Analyst]

Hey, this is Carly on for Brad. I know we talked about just the fiscal year guidance, I guess the implied Q3 guidance kind of assuming current macro to continue. I just want to dig in a little deeper into, I guess, specific cohort or product wise. I know you guys pointed out smaller biotech customers impacting the R&D business. But just wondering, going forward, looking at the second half, what segments do you expect to be impacted more than the other, perhaps and maybe some that are going to recover sooner than the other, which will offset some of that weaker macro. Yes, I just want to like learn -- dig into a little deeper into nuances here.

[Brent Bowman, Chief Financial Officer]

Yes. So, starting from the top, the macro, again, we expect it to be a continuation of what we saw in the first half and the back half. If you look at our full year guide and you look at R&D, we're growing that business at about 28% adjusted for termination for convenience. So that's a very healthy business, growing nicely, and we continue to execute, and we see the strength to be broad-based across clinical, quality, and safety in the rest of the businesses in regulatory. So broad-based strength there. The macro was going to impact both commercial and R&D, but nothing more than what we've been seeing. So, we're happy with the execution we have broadly across the portfolio.

[Unidentified Analyst]

Got it. And then just a follow-up for me, if I may. You definitely have broad solutions stack, 35 products. Just looking beyond the macro here, perhaps fiscal year '25, you reiterate $2.8 billion target. So just wondering, in your broad product suite, are there any ramping more meaningfully in the pipeline that might contribute more to the growth going forward?

[Brent Bowman, Chief Financial Officer]

Yes. So, we reiterated the $2.8 billion. We're not going to get into specific splits of the product portfolio. But as Peter has indicated in his prepared remarks, we're less than 20% penetrated broadly and across R&D. So the beauty of being a multi-product company and have 35-plus major products is you have broad-based strength, and that's what we're seeing. We see a broad opportunity and it's up to us to execute to that.

[Unidentified Analyst]

Got it. Okay, thank you.

[Operator]

Your next question comes from the line of Charles Rhyee with TD Cowen -- TD Cowen, sorry. Your line is open.

[Unidentified Analyst]

Hi. This is Lucas on for Charles. Most of our questions have been asked. So, I guess a longer-term question around Vault CRM. As we understand it, bringing the CRM product on to your own platform, give you guys the ability to develop some add-ons or added functionality that your customers may be currently going to other vendors for. So two questions, I guess. Would like to hear what sort of functionality this may entail, maybe that's asking too far down the roadmap, but would be curious to hear how you guys are thinking about this opportunity. And then two, is the timeline for when you guys may look to add such functionality?

[Paul Shawah, Executive Vice President, Commercial Strategy]

Yes. Hey, Lucas, this is Paul. So the way I would think about it, first and foremost, the decision was mainly about having complete control over the platform, the application, so we can deliver on customer success. That's the highest level. We want to make sure that we can do what we need to do to deliver the very best application and the best customer experience. That's the decision at the highest level. Now beyond that, that means we may be able to unlock new functionality, and we've announced some of that already.

I'm not going to introduce new announcements or new things that we may do in the future. But one really interesting one that's been really well received by our customers is this idea of how do we help the industry become more service-centric, enabling some of these new therapies, new complex medicines, complex therapies, it's important for doctors to be able to get information inbound from life sciences. And service center will allow them to do that. So that's just one example.

I would expect -- our model is we continue to innovate. So I would expect that over time, we'll do new things on Vault CRM that we haven't done before. But that's standard Veeva operating model.

[Unidentified Analyst]

Okay. Appreciate it. That was it. Thank you.

[Operator]

There are no further questions at this time. I will turn the call back to Peter for closing remarks.

[Peter Gassner, Chief Executive Officer]

Thank you, everyone, for joining the call today, and thank you to our customers for your continued partnership and to the Veeva team for your outstanding work in the quarter. Thank you.

[Operator]

This concludes today's conference call. Thank you for joining. You may now disconnect your lines.