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Veeva Systems (NYSE:VEEV)
Q3 2021 Earnings Call
Dec 01, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Veeva Systems fiscal 2021 third-quarter results conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, Ato Garrett, senior director, investor relations. Thank you, and please go ahead.

Ato Garrett -- Senior Director, Investor Relations

Good afternoon, and welcome to Veeva's fiscal 2021 third-quarter earnings call for the quarter ended October 31, 2020. With me on today's call are Peter Gassner, our chief executive officer; Paul Shawah, EVP, strategy; and Brent Bowman, our chief financial officer. During the course of this conference call, we will make forward-looking statements regarding trends, our strategies, and the anticipated performance of the business. These forward-looking statements will be based on management's current views and expectations and are subject to various risks and uncertainties, including those related to the impact of COVID-19 on our business, the life sciences industry, and global economic conditions.

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, which is available on the company's website at www.veeva.com under the Investors section and on the SEC website at www.sec.gov. Forward-looking statements made during the call today are being made as of today, December 1, 2020, 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 will provide guidance on today's call but will not provide any further guidance or updates on our performance during the quarter unless we do so in the public form. The guidance we will provide today is, in part, based on our current assumptions as to the macroeconomic environment in which we will be operating in the future, including the timing and pace of recoveries from any negative effects caused by COVID-19. Such matters that are beyond our control and our assumptions may not be correct and may change rapidly.

On the call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation of the 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. A reconciliation can also be found as an exhibit to the Form 8-K filed with the SEC just before the call. With that, thank you for joining us, and I'll turn it over to Peter.

Peter Gassner -- Chief Executive Officer

Thank you, Ato. Before we get started, I'd like to extend our sympathy to everyone affected by the pandemic and our gratitude to all those working to help in so many ways, including our customers. The industry has produced effective vaccine candidates, rapid diagnostics, and approved treatments, all in a matter of months. We are proud to be working with these amazing companies, and I'm proud of how the Veeva team has stepped up to help.

Now, turning to Q3. We had another quarter of consistent execution and results ahead of guidance. Total revenue was $378 million, up 34% year over year. Subscription revenue also grew 34% year over year, and non-GAAP operating margin was 41%.

We are pleased with our results and how we're expanding customer relationships during a major digital transformation. We've been able to help customers with immediate needs to open up digital channels in commercial and clinical, and we're also helping them define the right digital models for the long term. For example, on the commercial side, we recently announced a strategic partnership with an emerging biopharma to help them define and execute an innovative digital-first commercial model. They will utilize the full Commercial Cloud, including Veeva CRM, Data Cloud, Veeva Link, MyVeeva, and Business Consulting.

That level of trust and confidence in our ability to deliver came through strongly in our Q3 new wins and expansion. We added 19 new CRM customers, our biggest quarterly increase yet. We continue to grow market share and had multiple international expansions in CRM with existing customers. We also progressed well in our newer areas, including Data Cloud, MyVeeva for Doctors, and Veeva Link.

We expect these products will set us up for a long runway of growth in commercial. It's an exciting time in commercial and the time of change. We think our customers can generate meaningful productivity gains over the coming years as they increasingly leverage digital. We're excited to enable that transformation through our technology.

For Veeva Vault, we've seen significant progress in Development Cloud adoption. Customers are increasingly purchasing multiple products at once, including a recently announced top five pharma, who selected Veeva Vault products in clinical operations, quality, and regulatory. This is a major transformation, which they will implement over the next two to three years. We're also seeing more customers expand Vault usage within each area of Development Cloud.

In clinical operations, Vault CTMS had a standout quarter. We now have more than 75 customers, including six of the top 20 that have chosen to standardize on Vault CTMS. This is a remarkable pace of adoption given the product was launched just over three years ago. This rapid uptake is based on the trust we've built in clinical operations with Vault eTMF and the power of having a unified suite for clinical operations.

In the area of clinical, I'm particularly excited about is Veeva Clinical Network, where we're bringing real innovation to the industry to help advance the move to paperless and patient-centric clinical trials. Clinical Network connects sponsors, sites, and patients and has the potential to fundamentally change how the industry conducts trials. We announced our first clinical network application, Veeva Site Connect, to connect sites and sponsors and in Q3 closed our first top 20 customer for Site Connect. In Quality, we had 20 net new customers select Vault QualityDocs, and we now have 12 of the top 20 pharmas that's QualityDocs customers.

Safety also continues to progress well with our early adopters, and we added four new customers. We also started our first Safety.AI project in the quarter. Outside of life sciences, as the pandemic continues to drive changes in consumer goods and cosmetics, companies are looking to us for agile global solutions that can help them quickly adapt. This dynamic drove a major win in Q3 with another large CPG customer.

We also brought together nearly 800 leaders from across consumer goods, cosmetics, and chemicals for an online quality and regulatory summit to share best practices and insights. Overall, we are pleased with our growing reach and momentum in these industries. Now, I'll share some additional thoughts as we look ahead to next year. On the Commercial Cloud side of the business, customers will find new ways to be more efficient by adopting our digital solutions.

We believe this will likely drive field force reductions in the neighborhood of 10% over the coming year. At the same time, we expect to increase market share in CRM and see further adoption of CRM add-on products, such as Engage, Events, and Align. We also expect greater adoption for Veeva Link, and it will be an important early adopter year for Data Cloud and MyVeeva. We expect Vault to continue its strong growth, particularly Development Cloud, with progress across the board in Clinical, Quality, and Regulatory.

It's still early in terms of revenue for CDMS and Safety, but we have very strong early adopter momentum and broad customer interest, which will serve us well in these large markets in the coming years. We're also excited about the future of Clinical Network. And we expect another year of consistent growth outside of life sciences in CPG, chemicals, and cosmetics. And finally, I'd like to update you on our proposed conversion to a public benefit corporation.

We have completed our communication process with customers and investors, and the feedback has been largely positive. We also completed the comment process with the SEC and are filing a revised proxy this week. We will hold a special shareholder meeting to vote on the proposed PBC conversion on January 13. In closing, I'd like to say how proud I am of the Veeva team for the exceptional teamwork, flexibility, innovation, and execution throughout the year.

It's that combination of trust, great people, and great products that has put us in a position to really help the industry during this time of change. Now, I'll turn it over to Brent for a financial update.

Brent Bowman -- Chief Financial Officer

Thanks, Peter. Q3 was a quarter of very strong execution. Bookings and services performance were both better than expected, with notable acceleration in Development Cloud applications like CTMS and QMS that are early in the reference selling cycle. This led to outperformance in both subscription and services revenue.

This strong demand in bookings and services also led to a calculated billings total that was $26 million above our guidance for the quarter. Billings also benefited from better-than-expected billing duration for the business closed in Q3. Hiring performance in Q3 was also especially strong. We ended the quarter with 4,304 employees, a net increase of 280 from Q2.

Much of this increase in headcount was within our Vault services teams and in our product teams, especially those product teams working on newer applications like CDMS, Safety, Data Cloud, and MyVeeva. Q3 operating margin benefited from roughly 250 basis points of pandemic-related cost savings from reduced travel and customer events that have moved to virtual, a level similar to the previous quarter. We anticipate a comparable benefit to operating margins in Q4 and into the beginning of next year. Turning to guidance for the fourth quarter.

Total revenue is expected to be $378 million to $380 million, with subscription revenue of roughly $315 million and services revenue of $63 million to $65 million. Note that this implies a sequential drop in services revenue of about $10 million to $12 million from the third quarter. While our services business always has a high degree of variability, there are a couple of reasons for the size of this change. The biggest factor is our normal seasonal pattern resulting from fewer billable days around the holidays and our field kickoff.

Our digital events business also has a similar seasonal pattern with fewer events around the holidays. Non-GAAP operating income for the fourth quarter is expected to be $136 million to $138 million, a non-GAAP operating margin of about 36%. Note that while Q4 is typically a seasonally lower margin quarter, this year, we expect incremental expenses related to additional data supplier contracts as we invest in our Data Cloud product. These expenses will appear in our cost of subscription services revenue line.

We will also continue to aggressively hire as we scale to meet near-term demand and plant seeds for longer-term growth. Q4 non-GAAP EPS is projected to be $0.67 to $0.68 based on a diluted share count of approximately 162.5 million. We anticipate calculated billings of roughly $640 million in Q4. Note that this includes a benefit of about $10 million related to one large customer we expect to switch from quarterly to annual billing term.

Please remember that there are numerous factors that make year-over-year comparisons of this metric highly variable on a quarterly basis. Therefore, we do not believe quarterly billings growth is a good indicator of the underlying momentum of our business, and we do not manage to it internally. Our subscription revenue guidance and calculated billings guidance for the full year are the best indicators of our momentum. All of these Q4 guidance metrics imply the following numbers for the full year: total revenue of $1.446 billion to $1.448 billion, subscription revenue of about $1.172 billion, non-GAAP operating income of $566 million to $568 million, and calculated billings of about $1.550 billion.

We now project non-GAAP EPS for the full year of $2.83 to $2.84 based on a fully diluted share count of approximately 161 million. Note that within subscription revenue, we expect Commercial Cloud to finish the year at about $595 million and Vault to come in at about $577 million. We now expect prospects to contribute $78 million to $80 million within subscription revenue. This is up $2 million from our previous estimate as that business has benefited from the gradual rebound of advertising spend within life sciences companies.

Within the total revenue line, we now expect the combined contribution from both Crossix and Physicians World to represent $97 million to $100 million for the full year. Finally, we are also raising our guidance for the full-year cash flow from operations excluding the excess tax benefit to $500 million, up from $475 million previously, based primarily on billings outperformance in Q3. Before I close, let me give an initial outlook for fiscal 2022. Please note that we are still in the process of finalizing the plan, and we'll provide our formal guidance on the Q4 earnings call.

Currently, our initial outlook for next year is for total revenue of $1.700 billion to $1.720 billion. Within that guide, we expect subscription revenue of roughly $1.390 billion to $1.400 billion. We will provide more specific guidance on the next earnings call, including breakdowns for Commercial Cloud and Vault. Overall, the life science industry remains healthy and continues to invest for the future, which gives us confidence in its early guide for next year.

Based on our early spending plans, we expect non-GAAP operating margins of roughly 37% for the full year. This would represent a compression of about 200 basis points from fiscal '21, which is driven primarily by three things. First, we plan to continue investing in our Data Cloud product through additional data supplier relationships. Second, we're assuming that travel- and event-related expenses will start to return at some point next year.

Lastly, we plan to continue hiring aggressively for customer success and product innovation. With that, let me close by saying that I'm extremely pleased with the results in the quarter, and I'm very excited for the foundation we've laid for next year. The team's outstanding and consistent performance gives me confidence in our ability to achieve our target of $3 billion in total revenue in calendar 2025. Thanks for joining us today, and now I'll turn it over to the operator for questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Bhavan Suri with William Blair. Your line is open.

Bhavan Suri -- William Blair and Company -- Analyst

Hey, guys, thanks for taking my question, and really nice job there. Maybe, Peter, we'll start with you. We've not seen sort of a handful of vaccine candidates come to market and hopefully have them probably disseminated over the next several months. I guess as that's happened, I'd love to know if you are seeing how the appetite from existing potential customers might have shifted or has it shifted to sort of think about transforming the clinical technology as the platform, so sort of the idea that we want to adopt all of the Veeva platform.

You mentioned one customer who have chosen to do that. But I'd like to just sort of understand sort of even within the existing base and new logos, sort of has there been a shift now that's sort of a sense of light at the end the tunnel? Has there been to some sense that maybe we should start accelerating these initiatives? Are you seeing any of that, or is that too early? Because you sort of said you're not a beneficiary of COVID -- not a large beneficiary of COVID. But coming out of this, it feels like digitization, cloud and the integrated platform would make sense. I would love to see if you're hearing or seeing anything.

Any color from existing and new customers around that?

Peter Gassner -- Chief Executive Officer

Got it. Bhavan, about the vaccine candidates, I think that is overall largely progressing as the life sciences industry would have expected. I think they're now thinking for the major markets that they're in. Mostly, people are going to be vaccinated sometime next year.

And I think if you would have gone back to sort of the May-ish time zone or so, that would have been broadly in line with what the life sciences industry overall would have expected. So there's no surprises there. The major shift, I think, that's happening is the realization that digital is very important on the commercial side and on the clinical side, so that's probably the major beneficiary. Not so much seeing the light at the end of the COVID tunnel.

I think that was anticipated, but I think the life sciences industry right now feels more comfortable with digital and will invest more in digital overall as opposed to the way they would be thinking maybe last March or April. So that will help us as you -- broadly speaking, that will help us, but it's not in a particular quarter. It's not a short-term thing. I think it's a secular shift, more digitization coming.

Bhavan Suri -- William Blair and Company -- Analyst

Yeah, yeah. And then just a follow-up on that. You sort of talked about sort of the setup here, but I think of MyVeeva for Doctors, love to know any early takeaways of MyVeeva for patients coming out. When you have office-level connectivity that really isn't available today and make that full of information better, I'd love to understand what you're hearing from your customers.

And you talked about MyVeeva for patients, sort of the excitement, the interest levels. Any color there would be really helpful. Thank you.

Peter Gassner -- Chief Executive Officer

Yeah. It's really helping our MyVeeva, both MyVeeva for Doctors, MyVeeva for Patients. It's about helping our customers connect more efficiently with their customers. So there is a lot of enthusiasm there, but there's heavy change management as well.

So that's something that'll take some time to work through. So it's a business process change, particularly on the clinical side, lots of technology, and on the commercial side. So I think slow and steady uptake there because that's a major shift. So it's too early to give it any type of a ramp.

Bhavan Suri -- William Blair and Company -- Analyst

Fair enough. Nice job, guys. Thanks for taking my questions.

Peter Gassner -- Chief Executive Officer

Thanks.

Operator

Our next question is from Christopher Merwin with Goldman Sachs. Your line is open.

Christopher Merwin -- Goldman Sachs -- Analyst

Hi, thanks so much for taking my question. I wanted to ask about the growth in CRM customers. I think you had a record increase of 19 new customers. Was that more commercial, kind of smaller commercial ones? Or just curious any other detail you can share about that nice step-up there in customer count.

Thanks.

Paul Shawah -- Executive President, Strategy

Yeah. Christopher, thanks. This is Paul. So yes, we're really pleased.

The 19 that Peter referenced was 19 net new CRM wins, so this is in the core CRM space. And we're seeing that really great strength in our U.S. SMB market. So many of them are pre-commercial companies, companies that are looking to launch.

Others are those that are on a legacy CRM system, and they're choosing Veeva. And I think there's a couple of things that are driving us. One is the industry is looking to become more digital and more efficient, and they trust Veeva as the partner to get them there because we've delivered on that over the last several months and over several years, really. And I think the other thing is just the trust in Veeva as a strategic partner.

So they need to get to digital quicker and relying on Veeva as a partner to get them there. So great momentum in CRM. So specifically, those are kind of net new CRM wins.

Christopher Merwin -- Goldman Sachs -- Analyst

Got it. And maybe just as a quick follow-up to that. I mean, you've seen better and better add-on adoption with those lands. And are those customers landing larger than they have before? Anything you'd call out there?

Paul Shawah -- Executive President, Strategy

We do. In fact, so what is typically happening today, which is different than, let's say, one or two or even three years ago, is companies three or four years ago may have come in looking for a CRM system, and they walked away with CRM and maybe one or two add-ons. What is more common today is they're looking for a broader, more strategic partner and they're buying more products upfront. So certainly, Veeva CRM and then many add-ons at the same time.

Typically, all of the digital add-ons like Approved Email and Engage, they're looking to go more digital much faster. So we are seeing uptick in CRM but also the related add-ons as well.

Christopher Merwin -- Goldman Sachs -- Analyst

OK, great. Thank you.

Operator

Our next question is from Ken Wong with Guggenheim Securities. Your line is open.

Ken Wong -- Guggenheim Securities -- Analyst

Great. Thanks for taking my question, guys. This is building a bit on Chris's question just now. Peter or Paul, can you guys perhaps talk about the competitive landscape in the CRM Commercial Cloud area? Anything you're seeing from customers during the pandemic that you think perhaps might help or hurt your competitive position here?

Paul Shawah -- Executive President, Strategy

Yeah. It's going really well. And as evidenced by some of the numbers, first and foremost, we talked about the record number of net new CRM wins. As a start, I would say the overall dynamics are roughly the same, meaning we continue to win those deals.

We're increasing market share. The one thing that has changed in the competitive landscape over the last quarter is we've had two replacement of IQVIA's new OCE product. So that's the product that they've built on Salesforce.com. It's been out in the marketplace for a couple of years now.

That's a new dynamic for us. That hasn't happened before. And what we're seeing across the market is that companies are trying it. It hasn't met their expectations from a product or from a services standpoint, and they're looking to get to digital.

They're looking to a partner that can execute and that they can trust. So we've had those two replacements, and I expect that those will -- those are hard. They take time, but I'm expecting we will see more and more of those over time.

Ken Wong -- Guggenheim Securities -- Analyst

Great. Thanks a lot, Paul. And maybe one for you, Brent. You touched on some gross margin headwinds as you guys start to build up the Data Cloud product.

Just wondering if you might be able to help quantify what that hit might be to gross margins. And as we think about our numbers going forward, is that more of a one-time hit? Is that something that will continue to build over time? Any color there would be helpful.

Brent Bowman -- Chief Financial Officer

Yeah. As we look at gross margins going out, so there's a number of investments, so you mentioned the Data Cloud, that is something that we'll be building over time, over a couple of years. And we're not going to break out specifically how much that will be, but that's been factored into our op margin projections for next year or guide, as well as factored into our 2025 guide. So I guess I'd leave you with that from that perspective.

Ken Wong -- Guggenheim Securities -- Analyst

Great. Thanks a lot.

Operator

Our next question is from Brian Peterson with Raymond James. Your line is open.

Brian Peterson -- Raymond James -- Analyst

Hi, everyone. Thanks for taking the question. So I actually wanted to start with the efforts outside of life sciences. You referenced another large CPG win this quarter.

I'm not sure who wants to take this, but I know there's a gradual kind of go-to-market build, focus on early adopters. But has the inbound interest from large customers been quicker than you would have expected? And does that potentially accelerate that timeline on the go-to-market side?

Peter Gassner -- Chief Executive Officer

Hi, Brian. I would say not quicker than I expected. This is a relatively -- it's a very sticky application area that we're in there: quality and manufacturing, regulatory claims management. So it's hard to get in and hard to get out.

So it's not something that they will jump on. So it's steady. It's how we expected it. Pandemic really has not affected us in there other than a temporary thing here in the cosmetics market because that's been a hard-hit segment.

Brian Peterson -- Raymond James -- Analyst

OK. And maybe just a follow-up. And, Peter, I think you made the comment on fiscal year '22 that you were expecting the field sales reps to maybe be down about 10%. I want to make sure I heard that right.

And I'm curious, is that broad-based across the customer base? Or is that -- in some instances, are down more and in some are in line? I guess I'm trying to think about that for fiscal year '22 and then how that's kind of factored into your longer-term targets.

Peter Gassner -- Chief Executive Officer

Yeah. Brian, I'll actually have Paul take that one.

Paul Shawah -- Executive President, Strategy

Yeah. I'll give some commentary on that. First, the overall 10% number, so the way that we think about that is really based on multiple conversations with customers. We're always in very strategic discussions with customers and thinking about what the future of the sales force looks like but also based on Veeva estimates as well.

It's what we believe as we look out at the market, and we help the industry become more efficient and more digital. This move to digital is really, really good for Veeva. So as companies adopt more and more of the products and Veeva Commercial Cloud, including products like Approved Email and Engage, they become more efficient. And we're trying to drive that, and we're embracing that shift, and you'll also see that shift in our innovation.

So as we're trying to accelerate it with new products like MyVeeva for Doctors, helping the industry get to digital faster and more efficiently. So I guess maybe the one bigger point to think about is we're super confident in the targets still for 2025 because we've always contemplated some level of reduction. What we're seeing is that the reduction is happening a little bit at an accelerated pace compared to where we thought it would be because the industry is moving to digital faster.

Brian Peterson -- Raymond James -- Analyst

Good color. Thanks, Paul.

Peter Gassner -- Chief Executive Officer

Sorry. If I just add on there, Brian. The specific one about some customers more than others, not really so much. I would say it doesn't depend on therapeutic areas so much, although the more broad-based general medicines might have a little more reduction.

The specialty areas might have a little less. And then there will be always company-specific factors, but there's no macro trend there why it would affect one customer more than another.

Brian Peterson -- Raymond James -- Analyst

Thank you.

Operator

Our next question is from Stan Zlotsky with Morgan Stanley. Your line is open.

Stan Zlotsky -- Morgan Stanley -- Analyst

Hi, guys. Good afternoon and thank you so much for taking my questions and congratulations on a very strong quarter. Peter, maybe one for you. You mentioned in the prepared remarks that there's potential for global sales headcount in pharma to decline about 10% next year.

When you're talking to your existing customers and thinking about how their spend with Veeva's Commercial Cloud would trend, how are they thinking about the strategic positioning of your product and in order to, frankly, just enable them to sell versus the potential headwind of less seats?

Peter Gassner -- Chief Executive Officer

Yeah. Stan, as they reduce seats, what's happening is the selling motion is becoming more digital and more technology-enabled. So that's a good trend for Veeva because they'll be spending a bit more on technology and data to power that technology and a little bit less on the people. So that's a good trend for us.

So overall, we're happy about the commercial cloud growth for -- we'll certainly grow commercial cloud next year and on into 2025 because of that trend that's in our favor, actually. As Paul mentioned, this is something we knew was going to come. We thought it would come a little more gradually, and the COVID has been kind of a little boost on it.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. Got it. That makes sense. And then on billings duration, I would guess this is for Brent.

You mentioned that you saw a little bit of a benefit in Q3 to billings due to slightly longer duration. Could you dig into that a little bit? And anything to note on FX or anything else one-time that you saw in Q3 billings?

Brent Bowman -- Chief Financial Officer

Yeah. I'll answer your second question first. So regarding FX, very minimal tailwind on FX, so nothing really to note there. And then on the duration, it's really a function of the customer and the specific deal.

And sometimes in Q3, you often see coterminous deals. We saw a few less coterminous, and that created the duration tailwind that I spoke of.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Thank you so much.

Brent Bowman -- Chief Financial Officer

You bet.

Operator

Our next question is from Rishi Jaluria with D.A. Davidson. Your line is open.

Rishi Jaluria -- D.A. Davidson -- Analyst

Hey, guys, thanks for taking my questions, and nice to see continued strong execution. I wanted to start maybe with talking about CRM Engage. I know at the virtual analyst day recently, you gave us some really impressive numbers on Engage meetings growth this year. I think you said 891% growth on Engage meetings started when you gave that number.

Just how should we be thinking about that -- how should we think about traction with the Engage business next year, especially as the Engage meetings free period end December 31? And kind of putting that in context as well with the commentary around the 10% reduction in the field sales force that you expect next year. And then I've got a follow-up.

Paul Shawah -- Executive President, Strategy

All right. Let me take that one first. So the Engage trend continues to go really well. Companies are continuing to adopt.

They're continuing to learn how to use it, right? This is a change. There's a lot of change management involved in becoming more digital. So our customers are getting better. We're helping them.

We're providing not only the software and the technology but also the domain expertise and the business guidance around doing Engage and using it really efficiently. Our customers are seeing value. We're well into that and into the discussions around renewals. Those are happening.

As you know, the free period ends at the end of the year. We expect the majority of companies that started with free Engage are going to continue in the next year because it's working. The product is working in the marketplace, and they trust us as a strategic partner. So most companies will continue with that.

Your question was also about next year. I do expect that most companies will continue, but they won't get to full deployment this year. They'll reach a significant amount of their users. But I think most companies, you'll see also expansion opportunity next year and even into the year to follow as well.

Rishi Jaluria -- D.A. Davidson -- Analyst

OK. Got it. That's helpful. And then just on the preliminary outlook for next year, I guess a little surprised on seeing the subscription revenue target because that's closer to 19% growth.

And I know historically, there's been kind of the discussion of sustaining a 20%-plus subscription growth rate for the foreseeable future. Just want to maybe get a sense for what assumptions are baked into the outlook on the subscription front, right, I mean, especially talking about the fact that you're on target to do 24% organic subscription growth this year, ex Crossix and Physicians World. I'm talking about 19% growth next year. Maybe help us understand that and any moving pieces that might be baked into that.

Brent Bowman -- Chief Financial Officer

Sure. Happy to. So first, very pleased by the strong demand and their ability for us to drive customer success. So this guide for next year lines us up very well for us to hit our 2025 targets.

Not going to get into any splits regarding what's under the hood on that. As typical, that will come in our Q4 call, so I'm not going to give you any color around that. But we are very positive and feel good about the growth we're seeing in the Vault space, as well as the continued growth in the commercial space.

Rishi Jaluria -- D.A. Davidson -- Analyst

All right, great. Thank you, guys.

Operator

Our next question is from Sandy Draper with Truist Securities. Your line is open.

Sandy Draper -- Truist Securities -- Analyst

Thanks so much. A lot of my questions have been asked and answered. So maybe just one on the data acquisition and the cost there. When you're looking at finding new data sources in connections, are you trying to go to customers or data sources that others aren't in the sense that you're going to try to get exclusive rights to data? Is this data sources that other people are also getting units to add it? Or are you able to sort of get it through data connectivity or system connectivity and find it in a way that others can? I'm just trying to understand the approach to building that data set and how to think about -- I know you're not going to specifically carve out costs, but how to think about cost versus what you're paying versus what maybe a competitor might pay.

Thanks.

Peter Gassner -- Chief Executive Officer

I'll take that one. I will keep that a little bit close to the best, our data acquisition, data production strategy. So that's a bit of proprietary things that we're doing that's very unique to Data Cloud, and that's one of the reasons why we really think we found a jewel in the Crossix data platform because the way it ingests, the way it matches the patient data is quite unique. But I will give you some broad brush.

We hope to come in, yes, data costs less than our competitors, and. We hope to have more data sources, so multiple triangulations of each different data transaction in the healthcare system. Because when you think about it, when there's interaction between a patient and a doctor and a payer, multiple people have copies of that information. Because of our technology, we're able to piece that together so we get multiple views on it and at a lower cost because we're not dependent on any one particular view.

So we're very happy about that. And then if we step back, what is actually going on with Data Cloud? It's a real difference in how we're making the state of the data products. It's as different as moving from client server to cloud software. So we're focusing on the longitudinal patient data, the real picture of the patient as they flow through healthcare events, and the same longitudinal view from the prescriber's point of view, too.

So I would say it's not going to be too valid to compare us, Veeva, to the entrenched way of doing things because we're going to do a fundamentally different thing.

Sandy Draper -- Truist Securities -- Analyst

Got it. That's really helpful. And I guess that maybe will lead me to my follow-up, Peter. So it sounds like once you have to build the data set, but there may be an education process because the entrenched way of doing things is, by definition, entrenched.

And so you're going to have to get behavioral change and get people to change things that they've been doing for years and years and years. So I guess the first step is build a data set to a point, and then it's really educating the market about why you think you're going to have something better. Is that a reasonable way to think about it?

Peter Gassner -- Chief Executive Officer

Absolutely. It'll follow the classic early adopter cycle that you find when you're doing true innovation because you'll have to find those people that want to be early on the product maturity life cycle but also open to a way of doing things fundamentally different. Now, oftentimes, that'll happen with small biotechs. We're really, really looking for that edge.

You'll find that the larger companies may be more conservative and maybe rightly so, they have a larger boat to steer. So it'll be gradual. I do want to connect the dots, too, between Data Cloud and our CRM wins. As Paul mentioned, customers looking for a product and a customer they can trust, which is true.

But also especially these small biotechs, they're now seeing that vision of Data Cloud. Well, maybe I can get the complete commercial package together, data, insights, analytics, technology, all from Veeva. So I think the Data Cloud business will have a positive effect on our CRM business over time, and it's already even showing today.

Sandy Draper -- Truist Securities -- Analyst

Great. That's really helpful commentary, Peter. I appreciate it.

Peter Gassner -- Chief Executive Officer

Thank you.

Operator

Our next question is from Saket Kalia with Barclays. Your line is open.

Saket Kalia -- Barclays -- Analyst

OK, great. Hey, thanks for taking my questions here, guys. Maybe first for you, Peter. I think the uptake on CTMS is great to see in Vault Clinical.

I think it was something like 75 customers in just three years of availability. And I'm curious, how would you compare this ramp in CTMS to CDMS? And perhaps how each ramp could be different in terms of adoption and perhaps bookings contribution? Does that make sense?

Peter Gassner -- Chief Executive Officer

Yeah. So I was trying to get myself off to you. Let's see. They are quite different applications.

One thing is CTMS built, they were started roughly at the same time, CTMS, in terms of the applications themselves at Veeva. CTMS, maybe a year or a little more year or so before CDMS. CTMS was built on the base of the clinical operations suite that we had from Vault eTMF. So that gave it a head start.

And overall, CDMS is, I would guess, a harder or a deeper application to build. So CTMS got mature faster than CDMS. Also, customers, when they go to CTMS, they go all in. That's the nature of it.

You don't really run to CTMSs. When you go for CDMS, that's a little more dangerous, I guess, for the customer, a little more scary because it directly connects to the clinical research side. So they'll be a little more hesitant there. They have to build their studies.

They'll start with a few trial studies. So they'll be a little more cautious. So it's a more cautious market, CDMS. Also, we've had to build Veeva's reputation in the clinical data management area.

That's what we've done over the last few years. In the clinical operations area, where CTMS is, we have been building our reputation there for about six or seven years. So it was well established. So that's why CTMS goes faster than CDMS.

But make no mistake, one of the best indicators of future CDMS success is the success of CTMS because CTMS is the heart of Clinical. That's what's going on. It's the heart of Clinical where your master data is. It's the connectivity.

So I feel every time we win in CTMS, that increases our likelihood for winning in CDMS.

Saket Kalia -- Barclays -- Analyst

That's very helpful. Maybe for my follow-up for you, Paul. Maybe just to go back to our prior question just on Engage. I think the question was asked for next year.

I kind of want to think about it more longer-term. Can you just give some broad brushes on how to size the subscription opportunity with Engage, open-ended, whether that's the total number of users or pricing or anything that you can help us sort of size how big of an opportunity Engage could be once that free trial ends?

Paul Shawah -- Executive President, Strategy

Yeah. It's a good one. And I think, as I pointed out earlier, just with a little bit more context, I expect most of that growth to happen this year but also next year and even the year or two after. So Engage will continue to drive our customers and help our customers get to digital.

From our business standpoint, maybe the way to think about it is, we've always given the guidance that our add-ons, like Engage and like Approved Email, are in the ballpark of 15% to 20% of CRM. So maybe that's one way to give you a really rough estimate. We don't really break it out specifically by users, particularly as a lot of our customers are also thinking about this as more of an enterprise capability as well. So the concept of even getting down to a user level is even less important because it's like one of those capabilities.

When you think about doing digital, you go all-in on digital. So that's kind of a 15% to 20% in that range of overall CRM. And again, we'll get there over time.

Saket Kalia -- Barclays -- Analyst

Very helpful, guys. Thanks.

Operator

Next question is from Joe Vruwink with Baird. Your line is open.

Joe Vruwink -- Baird -- Analyst

Great. Hi, everyone. I wanted to go back to the Safety.AI project that kicked off this quarter. I was hoping you can maybe speak to the broader opportunity to add AI and workflow automation across some of the other Vault suites.

And is it just a case that the pain points associated with case intake is so acute that Safety is kind of the logical and biggest opportunity for this type of AI application? Or if this starts to take off, are there some other adjacencies within Vault where it's also applicable ultimately?

Peter Gassner -- Chief Executive Officer

I'll take that one, Joe. If you look at AI in general and how it relates to Vault, one of the ways you could think about that, how we're doing that in our framework, is setting up AI as a series of bots that can handle a task that is a well-formed task so that a human doesn't have to handle it. You mentioned Safety.AI. Where that plays is, yes, the intake of a case, so some words come in, either through an email or some other form.

Those words have to be read and understand. Well, what is actually going on here? What product is this case about? How do I code the complaint that it's about? Have I seen a duplicate before? So that's a pretty high-volume thing, and that's where we can apply Safety.AI on it. You'll see other areas in Vault. Another area you'll see next year is classifying documents that come into an inbox as it relates to a clinical trial.

That's another relatively high-volume area that needs to be done, and that's something where a bot can handle it. You'll see that in the Quality suite over time as well in terms of product complaints, which is different than a Safety event. That is, I didn't enjoy this product. This product had a bad color, etc.

The product packaging was off, etc. That's a complaint. So it's things like that, where you'll see that automation over time.

Joe Vruwink -- Baird -- Analyst

OK. That's great. And I wanted to make sure I'm just totally clear on the outlook for Engage. Paul, when you talk about most of the growth kind of happening this year, is that just insight on the potential new users that you already have visibility on? And kind of the contribution of those new users from a financial standpoint will therefore slow in next fiscal year, fiscal 2022? Is that the right sequencing?

Paul Shawah -- Executive President, Strategy

Yeah. So I was referencing companies that have turned on free Engage and will continue to renew, and that will end up being the larger contribution. When you look at the overall size of the Engage market, the bump that we'll see this year will be larger than the bump that we see next year and even perhaps the year beyond that as well because many of our customers have turned on free Engage, and we expect the majority of them to continue with the renewal. So we'll see a significant increase this year.

And over time, more and more of our customers, those same companies will expand their usage of Engage, but also net new companies will happen as well. The companies that haven't turned on Engage yet, for whatever reason, will start to turn it on over time.

Brent Bowman -- Chief Financial Officer

And maybe, Joe, if I might be able to add, that will manifest itself as a bump in billings this fiscal year, and then you will see that revenue contribution in fiscal year '22, just to be clear.

Joe Vruwink -- Baird -- Analyst

OK, great. Thank you.

Operator

Our next question is from Ryan MacDonald with Needham. Your line is open.

Ryan MacDonald -- Needham and Company -- Analyst

Hi. Ryan MacDonald on for Scott Berg. At the analyst day, Brent, I believe you had slides showing modules per-customer trends by year with penetration increasing from 2.41 in fiscal '20 to 2.52 recently. As the company looks at subscription growth expectations moving forward, but you're expanding your penetration by less than a quarter of modules annually, how should we think about the view of the cross-sell cadence to be over the near term to drive a 20%-plus subscription growth? Is it just model penetration need to increase or decrease to achieve these growth rates?

Brent Bowman -- Chief Financial Officer

I think you should expect to see a consistent cadence of additional upsell within our install base with the balance of new business as well. So I don't think the motion from that perspective, you should expect to change for us to be able to hit the targets that we've established.

Ryan MacDonald -- Needham and Company -- Analyst

Excellent. And then as a follow-up, it's great to see that Crossix is starting to come in above initial expectations for this year and sort of recovering a bit. But if we look at the expectations for Physicians World, it seems like those have remained, I think, relatively consistent. As we are now starting to get visibility into a vaccine, how are you starting to think about the recovery for that Physicians World business and perhaps some assumptions that you're looking at going into calendar year '21? Thanks.

Peter Gassner -- Chief Executive Officer

I'll take that one. In terms of Physicians World, that'll recover sort of with, I think, with the vaccine where people feel comfortable, broadly speaking, in the face of events. So we're looking toward some time toward the end of next year. I think that would be a reasonable expectation for the Physicians World business.

Now, having said that, we are starting to get early momentum and starting to lead a bit in the innovation we're doing around digital events. So there's a potential that in the long term as we look at maybe not next year but the following year, I believe we're going to be gaining market share there and adding more value with both digital and face-to-face events and other services around that. So I'm pretty bullish on the Physicians World business. It'll have another nine months of a little lagging effect right now.

Ryan MacDonald -- Needham and Company -- Analyst

Excellent. Thanks again.

Operator

Our next question is from Brad Sills with Bank of America Merrill Lynch. Your line is open.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great. Hey, guys. Thanks for taking my question. I wanted to ask about clinical top 50.

It's been a market segment that you've seen some real progress in recently. Can you remind us kind of where we are in the replacement cycle for that particular segment? You've got a number of wins there already in the top 20 category. Should we expect more of those types of wins? Or are you looking at the next tier down, where you could see more progress? You've been on this very steady kind of reference selling approach there. It seems like you've got the references now, and so perhaps we could see a tipping point of replacement.

So any color you can provide on kind of where we are in that cycle. Thank you.

Peter Gassner -- Chief Executive Officer

Yes. These are important systems to the clinical operations and then the clinical data management. And when we talk clinical, there's those two areas: clinical operations, clinical data management. And in clinical data and management, we are very, very early.

Yes, we have a handful of customers very, very early, so it's basically mostly greenfield. There's legacy players out there that we have to replace, and that'll happen over the next literally five and 10 years. It's a long road. In clinical operations, we have our eTMF, which has pretty good market share.

That was our first application. But out of those top 50, I don't have the exact number of how many use our eTMF, but there's still a decent amount to go that we have to get. Then there's more in CTMS. And there's payments, which is the new modules or relatively new module.

There's Study Startup. But the big thing in clinical is the Clinical Network. That's a whole new leg of applications, and that applies to the top 50 and also all the other clinical applications. So we are very early days in clinical.

We only really have one roughly materially penetrated application, and that's eTMF, and it still has a way to go. So it's early days.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks, Peter. And then you mentioned expectation for kind of consistent growth outside life sciences. It sounds like pretty balanced across CPG, chemicals, cosmetics.

Is that just a function of kind of awareness needs to build in that category in order for you to see more acceleration there? Is it just go-to-market resources? Is it product? Maybe we just don't need to expect that business to really ramp and because there's so much opportunity within life sciences. But I guess any color on kind of what's driving that more kind of balanced, steady growth in that business?

Peter Gassner -- Chief Executive Officer

First of all, we're happy with that growth, the numbers we gave at the analyst day. So it's growing pretty nicely when you look at it, call it, $200 million or so in that neighborhood by 2025. Now, what happens there is that's a slow and steady growing industry there. You've got a lot of capital cost.

It's not one that's prone to jump very quickly, and it has a natural adoption life cycle. Companies have investments in previous technologies. They need to see those through, ride those off. And it tends to be a very cautious and capital-efficient industry.

So that's what's going on there. Now, it's not due to -- we need more feet on the street or something like that or product immaturity. It's that reference selling cycle. You only have so many early adopters, middle majority, and then you have late adopters.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks so much, Peter.

Peter Gassner -- Chief Executive Officer

Thank you.

Operator

Our next question is from Stephanie Davis with SVB Leerink. Your line is open.

Stephanie Davis -- SVB Leerink -- Analyst

Thank you for taking my questions and congrats on the quarter. Just a quick question given some of the start-ups we're seeing in the space. Just there's a growing number of drug development facing IT start-ups. What are your IT and M&A priorities in these adjacent markets with that in mind? And do you mean lower balance for assets that you could or would acquire, either on scale or product maturity, as many of them are relatively new?

Peter Gassner -- Chief Executive Officer

Thanks, Stephanie. In terms of M&A, that's something we always keep our eye on, so we're always looking. In general, if we can find something that is in market that we would like to go into, you can find a seed of innovation or providers with a boost, a boost of either technology or knowledge, we would do that; or where we can find something that's applied to a certain area and we feel like we can acquire that asset, those people that fit with our culture and then give them a bigger catalyst to play on so that they can accomplish more. The best example I have there is with the Crossix.

Crossix needs full marketing analytics that have a tremendous data platform behind it. When we combine Crossix with Veeva, then we can take on the full life sciences data play, which is 10 times larger than the marketing analytics market there. So there's not a specific area that we're looking at or that I can talk about now, but we're always looking and keeping our eye on it.

Stephanie Davis -- SVB Leerink -- Analyst

All right. Understood. And then following up with some of the earlier questions about your data product. How real is the trend toward the real-world evidence? And when could we see maybe some offerings that are a little bit more weighed out within your solution?

Peter Gassner -- Chief Executive Officer

Yes. In terms of real-world evidence, that's a real thing. You have your sort of nonreal-world or traditional data that might be used for sales compensation, targeting, and planning, that type of thing. And then you have a real-world evidence, which can be used in the commercial side but also in the R&D side.

So that is real. Our focus is not in the real-world evidence. First, it's in the commercial data, so we've got to get that right. Now, that asset we have and that Crossix data platform, absolutely, is that going to be relevant for real-world data in the future, and we would do it in a very integrative way.

But first thing is first, and that's the longitudinal patient data. So we'll get that going, and then we'll expand from there.

Stephanie Davis -- SVB Leerink -- Analyst

Would you be more likely to sell off that data for now or keep it to yourself and look at them innovation and development a little bit later?

Peter Gassner -- Chief Executive Officer

Oh, yes, we would not sell any raw data rights. We have for a long time building that Crossix data platform, and we'll continue to bill it and then build it. We use that for our internal use in our consulting groups. They do use that, but then we'll use it to make products for customers.

But it's not a type of thing where we would OEM or anything like that.

Stephanie Davis -- SVB Leerink -- Analyst

All right. Understood. Thank you, guys.

Operator

Our last question is from Sterling Auty with J.P. Morgan. Your line is open.

Sterling Auty -- J.P. Morgan -- Analyst

Yes, thanks. Hi, guys. So super high-level question to start. With the outcome of the presidential election, assuming it holds as is and the potential for the runoffs in Georgia, is there anything that you're keeping an eye on from a regulatory or a legislative action that you think would have direct impact one way or other, either on the business or to your customers that could impact your business in the next year or two?

Paul Shawah -- Executive President, Strategy

Yes. Hey, Sterling, thanks for your question. I mean, we're certainly keeping an eye on what's happening with the election and also what happens around legislation and policy as are our customers. But the reality is the industry is a big industry.

It's a global industry. These kinds of things, elections happen all the time, legislation changes, policy changes all the time. And it tends to be balanced out by a lot of the innovation that happens in the industry, innovating in new medicines and really everybody focused on driving patient outcomes and doing the right thing for patients. So that's a long way to say that some of these changes, they tend to be awash with the innovation.

We haven't seen any impact yet on our customers, and we don't really expect any impact of some of those changes in the political landscape over the near term, either.

Sterling Auty -- J.P. Morgan -- Analyst

All right. Excellent. And then one follow-up question. There's a couple of questions around CTMS.

And I'm just kind of curious, has anything changed in the competitive landscape in terms of you had that one legacy stronghold with Oracle, Siebel, CTMS. Medidata had an offering, but you kind of came in and I think were doing a better job winning. Has anything changed in terms of any other vendors that you're seeing more active in that space? Or any change to kind of win rates or displacements?

Peter Gassner -- Chief Executive Officer

Sterling, no new entrants that we're aware of. No change to the competitive dynamics. We're really replacing the client server there. I guess the only change is customers are seeing that we have success in CTMS at scale at the large enterprise.

So that's sort of de-risked it for people. And I think many customers are thinking when would I go to the CTMS, when does it make sense to -- because at this point, I think we have the best alternative to the market and a proven solution.

Sterling Auty -- J.P. Morgan -- Analyst

Got it. Thank you, guys.

Peter Gassner -- Chief Executive Officer

Thanks, Sterling.

Operator

And this does conclude the Q&A session. I'll now turn the call back over to Peter for any closing remarks.

Peter Gassner -- Chief Executive Officer

Thank you all for joining us today. I'd also like to extend a special thanks to Rick Lund for all his years of service and contribution at Veeva. This is Rick's last earnings call with us, and we wish him well in his next role as a CFO. And I wish you all a happy holiday season, and we look forward to talking with you next year.

Thank you.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Ato Garrett -- Senior Director, Investor Relations

Peter Gassner -- Chief Executive Officer

Brent Bowman -- Chief Financial Officer

Bhavan Suri -- William Blair and Company -- Analyst

Christopher Merwin -- Goldman Sachs -- Analyst

Paul Shawah -- Executive President, Strategy

Ken Wong -- Guggenheim Securities -- Analyst

Brian Peterson -- Raymond James -- Analyst

Stan Zlotsky -- Morgan Stanley -- Analyst

Rishi Jaluria -- D.A. Davidson -- Analyst

Sandy Draper -- Truist Securities -- Analyst

Saket Kalia -- Barclays -- Analyst

Joe Vruwink -- Baird -- Analyst

Ryan MacDonald -- Needham and Company -- Analyst

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Stephanie Davis -- SVB Leerink -- Analyst

Sterling Auty -- J.P. Morgan -- Analyst

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