Good afternoon, and welcome to Veeva's Fiscal 2023 Fourth Quarter and Full-Year Earnings Conference Call for the quarter and year ended January 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 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, March 1, 2023, 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 update in 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.

Thank you, Ato, and welcome everyone to the call. We had a strong finish to the year with results ahead of our guidance for the quarter and year. Thanks to great execution by the Veeva teams across all areas. We're early in the significant industry cloud opportunity, and we are executing well. It was a breakout year for clinical data management, and we saw a great traction in newer areas such as Safety, Link and Compass. Our innovation engine is strong and our strategic partnerships with the industry are increasing. We issued guidance for fiscal '24 and initial guidance for fiscal '25 to provide context for the one-time revenue impacts to 2024 related to TFC. Normalizing for TFC and FX, we expect revenue to grow about 15% in fiscal '24 and at least 15% in fiscal '25. At this point, we'll open the call to your questions.

Thank you sir. [Operator Instructions]. We'll go to Brent Bracelin, Piper Sandler.

Good afternoon, Peter. I really appreciate your kind of long-term thinking here. And so this one is kind of aimed squarely at you here. I would love to get your initial thoughts on how Veeva is thinking about incorporating AI and large language models into the business. Is there an opportunity to lean in here to either lower cost internally around AI? Or are you thinking about new revenue streams via new products that you could build on kind of these AI advances in large language models? Thanks.

Hey, good question about AI. Well, certainly, ChatGPT kind of taken the world's imagination by storm, and it is a significant type of technology. I won't go too long into that, but it's significant. But to answer your questions, Brent, I don't see any opportunity to really lower internal costs, most of what we do is relationship based and the selling and the marketing and innovation base, true innovation base and construction in the product area. So I don't see anything there. As far as for value for our customers, that's something we'll consider over time. We won't rush into it. We have a lot of data in Veeva in the industry cloud overall for the industry. And then we have data -- we have our customers' data for each customer. So there's potential that we can do some things to answer some questions about the industry overall, for and/or help the customer answer some questions about their internal operations. And I do think the large language models are going to be, I think, in the chat type interface. Ask about a question, get a relatively low quality answer that you can kind of move forward from for there. So I think there's a place for it. I don't think it's a revolution, and we'll just see how it goes.

Helpful color. And then one quick follow-up for Brent. Really appreciate the initial kind of milestone for fiscal 2025, here implies a rebound to 19% overall growth. In our forecast, it does suggest that the R&D business could rebound and normalize back to 25%, 30%. Is that the right way to think about the drag in R&D and this year and then kind of a normalization in R&D growth the following year. Is that the right way to think about the impact here with accounting shift?

Yes. So, thanks, Brent. We're really excited about the momentum we're seeing in the R&D business. It's a key obvious growth driver for us as we look out '24, '25 and beyond with particular strength in the clinical space, quality, so really broad-based strength. So, it is really driving that growth that you're seeing as you look out into 2025.

Okay. Thank you.

Next up is Brian Peterson from Raymond James.

Hi, thanks for taking the question. And so, I wanted to hit on your success in EDC with six of the top 20 customers on the full. Maybe talk about what's driving that success, and then I'd love to understand, Brent, maybe how to think about the revenue ramp of those deals? Like how long would those typically get to be fully up to like the fully penetrated ARR?

Yes, I can take those. This is Peter. We're really happy with the success of EDC. I guess sometimes things come in bunches. And three of the top 20 in one quarter, I wouldn't expect that every quarter, because we'll run out of the top 20 very quickly, right? It happens like that. Why is it happening? Why did it happen all in the same quarter? That's a series of coincidences really. But why is it happening overall, and we've been saying this for many years, it's just a better EDC product, more complete, it's true cloud and it comes from Veeva, which we have a clinical operations suite and a clinical data management suite. And that's what customers want. These are long projects. So full revenue on some of these projects, you're looking at sort of three to five years type of thing. Now they're not all the same, and so -- and I'm not saying that some might not be two and some might not be six. But if you look at three to five years, that's kind of a good thing to think about there. So it's a long-term revenue.

Right. [Indiscernible].

If I just add a little color, that's the clinical -- the EDC, that's -- there's a lot more to the clinical data management suite too, that's very significant over time. Randomization trial, supply management, ePRO, our clinical database and here will be more. So, I think you should think about EDC almost like you thought about eTMF as the start of our clinical operations. So, it's big and significant, but it's the overall clinical data management is even bigger.

No, that's good to hear. And it sounds like there's a lot of good news in clinical. And maybe pivoting to the commercial side, I know this was in the prepared remarks a little bit, but just in terms of the CRM transition to Vault, any early feedback that you can share from customers that you've heard? I'd love to get any perspective on that. Thanks guys.

Yes, I can take that. This is Paul. Yes, so the Vault CRM is going really well pretty much across all dimensions. We have the product development team working hard. I'd say they're ahead of schedule. We're actually going to have a demo. Our first demo at our summit coming up in May. So that's super exciting. I'm excited about that. I know our customers want to see that. There's not a whole lot our customers need to do right now, but we are having conversations with a number of them. And by and large, the feedback is positive. We're just trying to understand what this means for them and what timing looks like and what's entailed. And our job is to make it really easy for them to move. So yes, overall going really well with all CRM.

Thanks Paul.

Next up is Joe Vruwink, Baird.

Great. Hi, everyone. Peter, in the prepared remarks, there was a mention of kind of early momentum in some of the newer areas like safety, which is a hard one to get into, but also something like Link, I think is one of the more successful new products for commercial in some time and then, of course, Compass. When you step back and you think of this pod of newer products, and then you maybe rewind and think about the introducing of like submissions or EPM, the part of kind of your first go after in the clinical areas. Do you think the opportunity ahead is just as compelling and consequential as kind of that mid-2010s timeframe for Veeva?

It's a really thoughtful question. I wouldn't draw the exact parallel, but I think the parallel is similar. The reason why is in R&D, there's multiple very separate entry points. Safety is quite a bit different than clinical, it’s quite a different than regulatory. In the commercial area, sales, medical and marketing, things are more related, and they're more fluid together. So it's not distinct entry points. It's all related buyers. But in terms of yes, a second leg of things really increasing our potential. That's absolutely what's happening. We have our established of the CRM suite and the commercial content actually. And then we have Crossix, which is pretty well established, but has a lot of room to grow. It has some advertising headwinds right now, but it has room to grow. And then we have things that are very, very early Link and especially Compass. Those are broad things and can lead into other add-on type of things. So, I think you're pretty accurate in the way you're saying it. It's the second leg of commercial is things like Link and Compass and business consulting as well.

Okay. That's great. And then maybe, Brent, just a question on reconciling the margin outlook. So, there's some immediate impacts of the TFC T&E is coming back. Is there kind of another category of incremental spend as you think about next year and related to maybe that thought there was a comment in the remarks of just the evolution of Compass and taking your time to get it right and kind of introducing some new things in 2024? Would that maybe be an example of an area that's receiving incremental investment?

Yes. Thanks, Joe. So, if you look at the margin guide, I think you nailed it pretty well. So when you adjust for the termination for convenience, you get to -- that's about 250 basis points of impact. So you get to about 36.5. And then there's about another point coming in to travel and events. We had recently, our first in-person field kickoff event in a number of years. So we're kind of getting back to normal to a normal run rate around getting in front of customers and getting together. And then there is a continued investment for growth. And Compass is one of a number of areas where we're going to continue to invest where we see an opportunity to drive our durable business model.

Okay. Thank you very much.

Thanks Joe.

Our next question is Ken Wong, Oppenheimer.

Great. Thanks for taking my question. This is for, I guess, it could be Peter or Paul -- but back to the CRM, the transition. Just wondering with this demo that you guys are going to have in May, how should we think about what this new CRM looks like? Is it really just sort of a lift and shift of what you've got today on sales force? Or is there going to be a bit of a reimagination to optimize for the evolved AWS back end?

Yes, hey Ken, this is Paul. So yes, good question. The way to think about it is -- it's primarily a lift and shift. So we're moving the apps that the vast majority of our end users touch every single day remain the same. And those apps today point to sales force and in the future will point to Vault. So that's the simple way of thinking about it. And we're -- that's a design decision by us. Now why are we doing it that way? One, because it's a market-leading CRM, the CRM works. And it works really well for our customers, and it's going to make the move much easier for our customers to get there. So that's how we're thinking about it, and that will be -- that will play out just really easy for the end users. Like everything stays the same. One day, it's pointing the sales force, and the next day, it's pointing the Vault. So there's a lot of engineering work to make that happen. So we'll start to showcase some of that starting at our summit and then more and more as we -- as time goes on.

Got it. Great. Thanks a lot, Paul. And then for Brent, just a quick clarification on '25. I know it's super early, but just the margin goals would suggest kind of in that 35-ish range, I guess, 35.5, give or take. Should we think of that as more of a generic plug similar to what you previously mentioned in the long-term target, so kind of just mirroring that? Or is that a reasonable expectation for how you're envisioning the margin expansion from '24 to -- from '24 to '25?

All right, Ken. So what we said is at least $1 billion in operating income. So we're two years out, and that's above our long-term target of 35% plus. And we're going to continue balancing growing revenue as well as the investments required around that. So it's early. We feel good about how we're executing, and we're going to deliver at least $1 billion of op income.

Got it. All right. Fantastic guys. Thank you.

Yes, thank you.

The next question is Anne Samuel, JPMorgan.

Hi. Thanks so much for taking the question. I was hoping maybe you could walk us through what headwinds and tailwinds you incorporated within the 2024 revenue guidance. And to the top end of your revenue range imply any improvement in the macro backdrop?

Yes, I'll take that. So what we've assumed in our guide for the year is really the continuation of what we started to see in June from a macro perspective. So we haven't assumed any improvement nor worsening in the macro that we continue to see June through the balance of the year, and that's some items like Peter mentioned the advertising spend, a little bit headwind in Crossix. We assume that into our guidance as well as some of the SMB capital conservation that we saw in the back half of the year. So that's what's informed into our guide as you look out to fiscal year '24. I think you had a second question, if you wanted to repeat it.

No, that was really helpful. And then maybe just -- I was hoping you could walk through the cadence of just the pricing adjustments how those will flow through the model? Because I think you said in your prepared remarks, you don't expect much in fiscal 2024. So how much should we expect this year? And how should we think about the cadence going forward?

Yes. So what we -- so we announced effective April 1st going forward that we'll have a price increase of the lower of 4% or CPI. So how to think about that for '24, it's not going to have a material impact on our revenue. If you think about Q4 is our largest renewal quarter. It'll have more of an impact on billings in fiscal year '24. And then it'll be more impactful on revenue in fiscal year '25. But realize it could take a few years for that to fully play through, because we have customers on multi-year arrangements. You have to come up for renewal. So it will take a few years to see the full amount play through.

Helpful. Thank you.

Yes. Thank you.

Will go to Stephanie Davis, SVB Securities.

Hey guys. Thanks for taking my question. I was hoping you could tell us more about the large Crossix wins. Are you seeing a renewed interest in MV digital commercialization tools despite the tough ad environment? When we think about it, will folks be more reactive in adopting these solutions once the market starts to improve. So we could see kind of a fast follower sort of dynamic?

Yes, Stephanie, I believe your question broke up in the beginning. So could I ask you to repeat that?

Yes, sure thing. It's just the large Crossix wins and kind of if this is going to be something we see people prepping for the environment improving an ad? Were they going to add that ahead of it or if they adopt their solutions once the market kind of starts to improve as the reactive [indiscernible]?

Okay. Yes, the enterprise type deals in Crossix, I think that we're working on some more of those. Now it's undetermined when those are going to come in. I don't think those are really correlated too much with the headwinds in advertising. That's more long-term things that people are thinking about. Do they want to standardize and have a common operating model across all their brands and go forward with an enterprise approach or do they want to have the budgets brand by brand. So -- it's just a slow evolution to more of an enterprise buy that's not affected by the ups and downs of advertising.

All right. Understood. And as a follow-up one on the CRM business. You guys called out a number of SMB wins. Can you tell us how and who you're winning against? I mean because we spent so much time, but the transition away from the sales force last quarter. Is that factoring into any of these conversations as you go through it?

Yes. We're continuing to win. Our win rate really hasn't changed in CRM. We continue to execute really well. And the competitive environment is pretty much the same. It's all of the same players. So the way to think about it is these are generally one of two categories. It's either pre-commercial companies, SMBs that are in either the U.S. market or the European market, or its domestic companies that you may see in Japan as an example. So those are the kinds of companies that we're winning and we're winning against traditional competitors. So it's the -- they may not have anything if they're a pre-commercial company, they may be buying their first CRM system. If it's a domestic and maybe a local competitor or some of the traditional competitors that we've seen.

All right. Helpful as always. Thank you.

The next question is Gabriela Borges, Goldman Sachs.

Hi, this is Kevin on for Gabriela. Thanks for taking the question. From a capital allocation standpoint, Peter, can you talk about doing M&A? How are you thinking about doing M&A and realize you're being patient there and trying to find the right asset, but -- what are you seeing in the private markets from a competitive standpoint? And maybe how does that play into your R&D strategy? Thanks.

Yes, always no change in our M&A strategy. It was quite careful, right? Look for a cultural fit, look for a business fit and something that we can execute on. And those opportunities are rare. I would say we're looking more than we have in the past. But if you compare Veeva to three years ago, we have more effort in the M&A area. So we're scouring the market more. And we've always got a few things in the hopper and they most likely don't come through for a variety of reasons. I still am bullish over the next year or two that we can have something, because I think people are getting a bit more realistic on their valuation and they're realizing that there's not going to be a quick turnaround. So I wish I could give you a schedule of acquisitions, but I can't, but I'm really proud of our acquisition track record, and I think that will continue.

Thanks Peter.

Thanks.

Craig Hettenbach from Morgan Stanley has the next question.

Yes. Just a question on the operating margins in the implied 35.7% in fiscal '25 or at least that much. Can you just talk about the hiring pace and things you're doing this year after what was a very strong fiscal '23? And what environment you're seeing out there as you're looking to hire?

And I can take that one. This is Peter. The environment is good. It's a more favorable hiring environment than it was 12 months ago, I would say. And I expect that favorable hiring environment to continue for multiple reasons. This is a well-run company. I think people like to work at a well-run company. I think our work anywhere helps. And I think there's less froth and speculation in the market. But we'll be -- we'll really be measured in our hiring, and we've always done that. So we look at where we can grow and we can invest. We keep our teams lean. That's an important thing we do, and we always want to run a good profitable business. So I think the way to think about it is sort of business as usual as Veeva. We don't go crazy in the boom times, and we don't cut back drastically in the tough times. We sort of just keep rolling right over those speed bumps.

Got it. And then just a follow-up on the macro backdrop. It was a little choppy at calendar year, some softness in the middle part of the year, and then it stabilized. Just curious on that on kind of the Crossix business and SMB, where it did soften a little bit. It sounds like there hasn't been much change in recent months. But if you can provide any color there in terms of any types of influence you're seeing in the macro today?

Yes. In terms of the macro over the last 90 days, we really haven't seen any change over the last 90 days. Now that's no predictor of who knows what happens 90 days from now, but we don't see any signs -- I don't see any signs of rapid change right now. It seems like we're -- for a while now we're in a point of consistency, which overall, that's good for Veeva, because we're deal in core capabilities to improve efficiency and effectiveness. And when there's less change in the macro, either for the crazy up or the crazy down, that's what helps us a lot. When there's less change in the macro, people look to build these durable -- our customers look to build these durable capabilities.

Thank you.

Thanks.

We'll take our next question from Rishi Jaluria, RBC Capital Markets.

Wonderful. Thanks so much for taking my questions. Peter, let me start by diving a little bit deeper into the generative AI piece and less in terms of how it impacts your engineering and software development efforts. And more I want to think about what is the impact on the actual industry itself. I mean we saw recently, right? There's a pharma company that is putting a drug through clinical trials soon and the entire drug was designed by generative AI. So there clearly seems to be potential disruption coming to the industry from generative AI. Can you maybe talk about what you think that could happen -- what impact that could have on your customers and how you think that will impact your business? And then I've got a follow-up.

Well, pretty early on that. I didn't read that exact press release. I would be surprised if no human touch that drug during its development and its approval. And so I don't think that probably happened. I think there's promising things in the early phase of discovering a drug, and that's not actually really due to the large language models or the generative AI. That's more to machine learning algorithms that are math based. So I guess I don't want to be a skeptic here, but I don't see the real revolution. And that's the thing about revolution. You'll know it when they happen. And so far, we really haven't seen it.

Okay. Totally fair. I appreciate that. And I wanted to think about the impact from a number of drugs coming off patent this year and maybe next 18, 24 months? Obviously, the big one with AbbVie's Humira -- how are you thinking about the potential puts and takes on that? Is that going to have an impact on the number of pharma reps and maybe lead to further cuts, which has an impact on the CRM business? And maybe conversely, given the patent close coming off, can that be a tailwind for R&D as some of the big companies try to iterate on drugs faster and get new drugs, blockbuster drugs out to market. Thanks.

Yes, I can take that. This is normal course of business for the industry. As you look out over the next five years compared with the last five years, the amount of revenue that's at risk over the next five years as a percentage of the overall industry revenue is actually slightly less than the last five. So it's kind of an interesting patent thing. It happens. This is normal course of business for the industry. Now what tends to replace the revenue from those drugs that lose their patent expiration is new medicines. So you brought up the AbbVie example. There's -- and this is in the public domain and there's expectations that new medicines from AbbVie will be just as large, if not larger, than Humira was in the marketplace. So that's very common, right? The industry invest a lot in R&D, they innovate and new medicines replaced the revenue from previous medicines, which to your point earlier, means more clinical trials, it means more launches, more drug approvals, and then ultimately, it means sales reps continue to sell and launch these new medicines. So it's kind of this virtuous cycle in the industry, I expect that to continue, if not get stronger because of the amount of investment the industry is making.

All right, great. Really helpful. Thank you so much.

Up next is Saket Kalia, Barclays.

Okay. Great. Hey, thanks for taking my questions here. Paul, maybe for you, just a little bit off that last line of questioning. I was wondering if you could talk about what you're hearing from customers on just overall pharma sales reps plans -- pharma sales rep plans for this year, calendar '23. I think it was said in the prepared remarks that Veeva actually saw CRM -- Veeva CRM sees flat year-over-year. How do you think about that for next year?

Yes, so this calendar year, I expect it to be roughly flat also. But I'll take a little bit of a step back and just to paint the overall picture for you and for others that may not have been following us closely. So we've always talked about roughly a 10% reduction through the last fiscal year, we've seen the majority of that play out. This year, we expect we'll see some additional reductions play out. But I think it's going to stabilize, the market is going to hit and operate at this new steady state. And I think will actually end up slightly less than the 10% that we predicted. So we're seeing signs that the market is stabilizing. But I think this year, we'll have some gains in CRM in the CRM suite, but we'll also see a slight reduction in the market, so you can think of it as relatively flat.

Got it. That's very helpful. Brent, maybe for my follow-up for you. For TFC, I think going back to the Analyst Day, we're expecting about a $60 million impact. I think that's a little bit higher now as we look at the '24 guide. Can you just talk about some of the mechanics there? What changed and also just remind us whether the TFC is going to have any impact on billings or cash flow?

Yes, hi Saket. Yes, so in the Q3 time frame, we quoted a $60 million termination convenience impact and that was from existing deals in place at that time. You fast forward, we had a very successful Q4 quarter. We closed three large CMS deals. And with that, we added another $15 million of revenue pull forward. So that's $60 million to $75 million. And then in addition to that, there's about $20 million of anticipated deals that we expect to close in fiscal year '24 that would have pulled forward revenue. So when you add the 75 and the 20, you get to 95, and I think that's very prudent to consider when you're looking at the growth rates year-on-year. So that's how to think about it.

Got it. And just to clarify, no real impact to billings or cash flow. This is really an accounting point for rev rec, correct?

Yes. And really -- yes, to follow up. So there's no impact in the total revenue value of these contracts. It is purely timing. And to your point, there is no impact to billings and no impact to OCF.

Very helpful, thanks guys.

We will take a question next from Dylan Becker, William Blair.

Hey guys. Congratulations in the quarter. Appreciate you for taking the questions. Maybe following up on the TFC piece and understand kind of some of the near-term accounting dynamics. But how are you guys thinking about that incremental multiyear kind of willingness and adoption maybe for Peter as validation of kind of that long-term strategy you guys have kind of called out and maybe as for Brent as well as kind of giving you some of that initial confidence and outlook as we think about giving guidance for fiscal 2025?

Well, I'll take the first part of that. Certainly, the Vote of confidence from the customers in the EDC area, in the clinical data management area, which is one of the more critical and one of the most complex things and the long multiyear rollout. Yes, we take that as a vote of confidence and we're really humbled by that, and we know we got to execute really well. So that's where we feel like in clinical data management, we've got a sort of a tiger by the tail, and we got to pay attention and make sure we deliver on that. So yes, very excited about that. And how that flows through to the financials, that's for Brent?

Yes. And when you asked about how we look at the forecast, we do our forecast at a pretty granular level. We work with the business and think about it at a product level, at a market level, area level as well. And these ramping deals play into that as well. So when we combine all of those, that informs our guide, and we feel good about looking out at 2025 at least $2.8 billion in revenue.

Got it. Super helpful. Maybe switching over to another area as called out on the Compass side of the equation, and kind of prioritizing dedicated sales teams. Is there anything to call out in the go-to-market piece, any kind of sales that needs to change there? And then maybe how that evolves and maybe benefits from the broader rollout of the sales and subscriber piece in fiscal 2024 as well.

I can take that one. In general, we have structured our sales team in terms of the commercial sales team and the R&D and quality sales team. And so they have a lot of products that they represent, and that helps our customers, helps Veeva be a strategic partner, and that's what our customers want. Sometimes when a product is different enough or new enough or something is different about it, we'll have a specialized sales team and we made that decision for Compass. It's a very specific product, and it's going to be a big product. It has a kind of an entrenched competitor. So no change in our philosophy. We always have that philosophy every year, we sort of make those decisions, whether we need a specialized sales team. So -- that's a decision we made some number of months ago and feel real comfortable with it.

Got it. Super helpful. Thanks guys.

And we'll go back to Charles Rhyee, Cowen.

Yes, thanks for taking the question. I wanted to follow-up on Crossix a little bit more. Peter, I think you said that the macro doesn't really affect the selling cycle for Crossix, it's really a decision whether someone wants to go enterprise or state -- brand by brand. But you have called out a little bit of weakness in this category. What is the client saying in terms of maybe not moving forward? I know you signed a top 20 pharma here in this -- or you announced this quarter, but for others where people are not willing to move forward yet, what is sort of their talking points as to why they're not interested or maybe not yet looking to do it?

Well, I think when overall, the media spend goes down then that has a negative effect on Veeva because, let's say, a brand is going to be TV advertising and then it feels like why that I really want to measure that with Crossix versus if they decide to. I'm not going to do TV advertising, we're going to conserve that budget, okay, then they might -- they wouldn't spend with Crossix to measure that. So that's where it has impacts on these. When customers are buying more ala carte, which is the bulk of our business still in Crossix. They're buying brand by brand, module by module when their spend goes down, they would conserve on their spend with Crossix. And also, when there's more confusion about where their budgets are going to be, then they tend to be a little less bullish on spending.

So then in that case, maybe not directly, but indirectly, it is still tied to the macro, maybe not so much the -- like an R&D budget kind of, but it's really just sort of a general economic macro environment is started.

Yes, I guess to the general economic environment or more specifically to the advertising environment inside of life sciences. Now that again impacts more of the ala carte type of things we do, which is the bulk of our business in the Crossix, the year-to-year ala carte. And our goal is to move people more to these multiyear agreements where it's more of an enterprise agreement. It's not exactly an all you can eat, but sort of like that, but smooth out the spend and simplify things for ourselves and for our customers.

Appreciate that. And Brent, just a quick follow-up. I kind of missed it. I think someone asked earlier about the cadence for the impact of TFC, obviously, a bigger piece maybe in the first quarter, but as we model it through the rest of the year, how should we think about the rest of it falling through to more in the second quarter or even?

Yes. So yes, $52 million is what we called out on the $95 million as an impact in Q1. And then the balance of that will continue in a diminishing way through the balance of the year. So Q3 will be less than Q2, and Q4 is expected to be less than Q3.

Okay, great. Thank you.

Up next is Ryan MacDonald, Needham & Company.

Hi, thanks for taking my questions. Peter, maybe first for you. It's great to hear the continued success, albeit at the early stages for the likes of Compass and Link. But I'd be curious to get your thoughts on what you're seeing in terms of sales cycles right now, sort of other competitors in the space talking about elongation and having issues there. Just curious if you're seeing any of that or -- and if you are, does this sort of benefit you in a way as it enables you to continue to mature the product offerings in the marketplace while maybe end market customers are digesting what they have. Thanks.

I don't -- I think our macro environment has stabilized. I don't see any change in the deal scrutiny right now. Is it maybe a little bit more than it was a year-ago, maybe, but it's not appreciably so. So if we look at last year on the macro environment, probably percentage-wise, the larger impact was in the SMB area. When the funding goes down, companies have to conserve cash, they might merge, they might get acquired, they might get a -- go out of business. They have uncertainty so they wouldn't make decisions there. I think that has also stabilized. The funding environment is a bit more stable now. It hasn't gotten better, but it's stabilized. So I really am not seeing this impact of elongated sales cycles at this time. Now having said that, I always think for the past 15 years, I thought our sales cycles are long, and that's just got the nature of the business.

Thanks for color on that. I appreciate it. And maybe a follow-up for Brent. Obviously, with the expectation of sales and prescriber data coming into plan being generally available later this year, as that data set builds and as you build sort of the book of business for those data sets, will you see any gross margin pressure initially with the inclusion of those data sets while you're sort of in the early stages of monetizing it? Thanks.

Yes, I can take that one. No, we don't see extra gross margin there from those products. We're always looking for data that we can add into the Crossix platform, but that data is really shared, patient data is the root of it. And then we do -- we transpose it, we do projections to get to the prescriber. So we'll add data incrementally, but I don't -- there won't be any large change when we get to the subscriber product.

Thanks for taking the questions.

Thank you.

Next up is Joe Goodwin, JMP.

Great. Thank you for taking my questions. Great to see that quality, the quality, small quality suite is still moving forward well. I guess can you just elaborate on the Vault LIMS product that you're all working on and it's important to your position in the quality market?

Right, you got about 30 minutes because I love that product. Here we go. All right. LIMS is interesting. It is for testing materials, largely pharmaceutical companies, biotech make materials in batches. They're not making units or making batches, batches of things that then would be packaged. And serious things that are either injected or intravenous into the human body. So the quality of them is super important for obvious reasons. LIMS is Laboratory Information Management System, what we call QC or quality control LIMS. That's where you keep the specifications of how you should test this medicine along the way of its life cycle. During its multi-day, could be week's process of making this medicine in the batch, what test should be done, and there's a whole variety of tests, some as simple as what's the color in the PH to some very sophisticated tests. Those specifications have to be designed and approved in the system and then data is entered in either through APIs or through manual. And that's the quality control process. That's a big part of the quality control process that then is used to see, hey, can we release this medicine in this market to be ingested or injected into humans. Very important area and we're going to build it inside of our quality Vault, which means it will become unified with our QMS system, our QualityDocs system and our training system. Nobody has ever done anything like that before. And I think it's going to be a real transformation in the quality control processes in life sciences, which will allow people to release their medicines faster, which is a real -- keeps the company much more agile. So this is very much top of mind in the supply chain area of our customer supply chain and manufacturing. It's a big product. It'll be one of our biggest ticket items in the quality suite. It's definitely not an add-on product to QMS or something like that.

Got it. Thank you.

Our next question is Stan Berenshteyn, Wells Fargo Securities.

Hi, thanks for taking my questions. On CRM migration, so when customers begin migrations, do you anticipate that in the year in which these migrations take place, that there may perhaps be some impact on new product uptake from those clients until perhaps the migrations are completed?

Yes, so I would think of it as maybe three timeframes, before the migration, during the migration and after the migration, Certainly, before the migration, the way we're planning this, the way we've designed this is that new capabilities, new products that they do, we're going to migrate those automatically for customers. So we want customers to continue to innovate, and we'll move that innovation over within the Vault automatically. So that's before then during, it can be a small to a larger project, depending on the size of the company or their complexity. That may be a little bit of a distraction during that period of time. And then certainly after is an opportunity for even more innovation. So that's kind of generally how I would think about it. It's going to be -- it will be a project just like any other kind of project.

Got it. And then maybe a quick question on R&D solutions. So it looks like this year, you added close to $220 million in revenue within R&D. Can you just share with us what percent of that amount came from top 20 pharma? And what percent came from pre-revenue biotech? Thanks.

Yes, we're not going to break out that level of detail. But if you think about where our installed base and we get a large portion of our revenue from the enterprise and our top accounts. But -- so that's largely contributing. But we do have a good cross-section of customers that buy across the whole R&D solution set. So we're pleased with the success and how we're executing there.

Great, thanks so much.

We'll go to Jack Wallace, Guggenheim Securities.

Hey, thanks for taking my questions and starting to advance for the boring accounting questions. here we go.

So this one for Peter, you're saying then, right? This is for Peter, the boring accounting question.

Exactly. So I want to just get a better understanding of the mechanics of the TFC impact. And I appreciate we had a couple of bigger deals that signed in 4Q and some anticipated it sounds like they're going to sign the rest of the deal. So the fundamentals are strong, but that means we're going to have less of an impact in the early years of those contracts on the revenue line. I think I get that part. The part I'm a little bit unsure about is the $52 million impact in the first quarter. So using simple math on subscription line, the $460 million from 4Q less the $52 million less the $8 million from FX, gets you to $405 million after you add, let's say, $5 million sequential. Now that $52 million of TFC, why doesn't that get annualized into a $208 million headwind for the year. If I'm thinking about that resetting the revenue base lower again, without the benefit of being able to recognize unbilled AR intra-year?

I mean the way to think about it is, so post-TFC world, you think about for the year, fiscal year '24, how much revenue would have been above billings? You think about it from that perspective, simply in that year. So there's the amount that relates to existing deals, and then there is the amount related to the $20 million, the deals we would have closed. So that you're normalizing back to that rule where billings and revenue need to be aligned. When you aggregate that all up for the full-year, it's $95 million. And the amount that impacts Q1 is $52 million, largely the unbilled AR portion. But that's at the highest, most simple way. That's how I think about it.

Got it. And just to clarify, the unbilled AR portion, that would be a -- I guess what you're saying, a onetime impact, to the 1Q, your revenue number that then say Q2 steps back by that amount or maybe something less than that?

Yes, and it's simply a direct reduction to revenue at close to op -- operating income in Q1. I think -- but the important piece here is the total value of these deals is not diminished or impaired. It's over -- you're just taking that revenue and opt income over the remaining life of those individual orders, which could be an additional one year, an additional two year, three and four years and so on.

Got you and then just the last follow-up on that is with the headwind diminishing over the course of the year, is that related to the midstream deals that are operating, say, above the multiyear ACV?

It's those deals, the remaining deals before renewal, where there's still an amount of revenue above billings. That's what -- that's the remaining residual, the 95 minus 52, and that amount is diminishing over Q2 through Q4.

Okay, thank you.

You bet.

Next up is Natalie Hao [ph], Bank of America.

Okay, thanks for taking my question. You touched on R&D earlier and throughout this call, and I wanted to ask a little bit more on clinical. So you mentioned that you're only 5% penetrated in clinical data and 30% in operations. Does clinical represent an opportunity more for new customers or rather, does it target the existing base? And for my second question, still on R&D. You mentioned some strength in Development Cloud. What products coming in fiscal year '24 will help sustain the R&D growth rate that we can look forward to? Thank you.

Okay. I'll take that one. This is Peter. In the clinical, a lot of that is going to be from existing customers, but that's for example, some of our most established products are in clinical, eTMF, and we have a lot of eTMF customers. To those customers, we can sell other clinical operations product, eTMF, study training and we can start to sell clinical data management. So they are existing customers, but we'll be getting into new departments in the way, I would think about it. In terms of brand-new customers, brand new, those are usually come in the small SMB companies that aren't commercial yet. They're just clinical. They're running their first couple of trials. They may or may not have our quality suite. And then in terms of where the revenue is coming from in Development Cloud, the real growth areas are for us, clinical area, both clinical operations and clinical data management, and also quality. Quality has a long runway to grow and a deep pipeline there. Regulatory and safety, those are contributing pretty well, but the two biggest ones are -- the biggest one is clinical and the second biggest is quality.

Awesome, thank you.

Thank you.

And that was our final question. I'd like to hand the call back to Mr. Peter Gassner for any additional or closing remarks.

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.

And everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.