Summary
Veeva Systems posted another quarter of fast growth. Total revenue for the first quarter ended April 30, 2020 was $337.1 million, up 37.7% from the prior-year quarter. Gross profit rose 35.1% to $242.2 million. Operating income increased 23.0% to $87.6 million, net income rose 17.9% to $86.6 million, and diluted earnings per share came in at $0.54, up 14.9% from a year ago. Demand held up through a quarter in which the COVID-19 pandemic disrupted how life sciences companies buy and deploy software.
Margins told a different story. Gross margin slipped 1.4 percentage points to 71.9%, and operating margin fell 3.1 percentage points to 26.0%. Management attributes much of the gross margin pressure to the Crossix and Physicians World businesses acquired in November 2019, which carry lower margins than the core products, and expects gross margin to decrease in the fiscal year ending January 31, 2021. Operating expenses grew faster than revenue, driven by headcount across research and development, sales and marketing, and general and administrative functions, plus a step-up in stock-based compensation. The company warns that stock-based compensation will rise in absolute dollars and as a percentage of revenue through the current fiscal year. Strip out stock-based compensation and intangible amortization, and non-GAAP operating income was $129.7 million, up 39%, with non-GAAP fully diluted net income per share of $0.66.
Cash generation remains a strength. Operating cash flow was $282.2 million for the quarter, up 19.4% from a year earlier, helped by the seasonal pattern of annual subscription billings and collections. Management cautions that the first quarter represents a significant portion of the cash flow it expects for the full fiscal year ending January 31, 2021, so later quarters should be substantially weaker. Deferred revenue, current portion, was $470.3 million on April 30, 2020. Capital expenditures, reported as purchases of property and equipment, were $0.27 million, down 122.4% from the prior-year quarter.
Guidance covers both the next quarter and the full fiscal year. For the fiscal second quarter ending July 31, 2020, Veeva guides to total revenues between $339 and $341 million, non-GAAP operating income of $126 million to $128 million, and non-GAAP fully diluted net income per share of $0.63 to $0.64. For the full fiscal year ending January 31, 2021, the company guides to non-GAAP operating income of $500 million to $510 million and non-GAAP fully diluted net income per share of $2.50 to $2.55. It does not offer GAAP targets for those measures, citing the difficulty of predicting items such as stock-based compensation.
COVID-19 cuts both ways. Management says Crossix and Physicians World have already been hurt by the pandemic and expects pressure on sales to pre-commercial life sciences companies, contract research organizations, and medical device and cosmetics companies. Veeva is providing Veeva CRM Engage Meeting free of charge and may not earn meaningful revenue from it this fiscal year, and customers could seek longer payment terms. At the same time, remote engagement has accelerated adoption of Veeva CRM Engage Meeting and Veeva CRM Approved Email. Product momentum included the launch of Veeva Data Cloud, with two early adopters signed, and Development Cloud wins at three top 20 pharmas.
The customer base keeps expanding. Veeva now serves more than 875 customers, including more than 390 Commercial Cloud customers and more than 570 Development Cloud customers, and its subscription services revenue retention rate was 121% for the fiscal year ended January 31, 2020. The 10-Q lists the usual set of risks: an expected decline in the revenue growth rate, pricing pressure and competition, security breaches, difficulty integrating Crossix and Physicians World, loss of a large customer, system outages, and pending or threatened litigation, which already lifted legal fees in the quarter.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $337.1M | $311.5M | +8.2% | $244.8M | +37.7% |
| Gross profit | $242.2M | $217.2M | +11.5% | $179.2M | +35.1% |
| Gross margin | 71.8% | 69.7% | +2.1 pp | 73.2% | -1.4 pp |
| Research & development | $62.2M | $61.2M | +1.7% | $45.0M | +38.4% |
| Sales & marketing | $55.8M | $59.4M | -6.1% | $39.6M | +40.7% |
| General & administrative | $36.7M | $36.2M | +1.2% | $23.5M | +56.1% |
| Total operating expenses | $154.7M | $156.8M | -1.4% | $108.1M | +43.1% |
| Operating income (loss) | $87.6M | $60.4M | +45.0% | $71.2M | +23.0% |
| Operating margin | 26.0% | 19.4% | +6.6 pp | 29.1% | -3.1 pp |
| Net income (loss) | $86.6M | $66.2M | +30.8% | $73.4M | +17.9% |
| Net margin | 25.7% | 21.3% | +4.4 pp | 30.0% | -4.3 pp |
| Diluted EPS | $0.54 | $0.42 | +$0.12 | $0.47 | +$0.07 |
Risks
COVID-19 has had and continues to have a widespread and unpredictable impact; Crossix and Physicians World businesses have been negatively impacted and sales to pre-commercial life sciences companies, contract research organizations, medical device and cosmetics companies are likely to be negatively impacted. Veeva CRM Engage Meeting is being offered free of charge and may not generate meaningful revenue in the current fiscal year.
IQVIA is the principal competitor for Veeva Commercial Cloud; a significant Veeva CRM customer recently launched a project to implement IQVIA's competitive software for portions of its CRM users, and the scope may expand causing further revenue losses. Active litigation with IQVIA and Medidata adds cost and management distraction.
IQVIA will not consent to customers uploading its healthcare professional or organization data to Veeva Network Customer Master and has restricted uploads to Veeva Nitro, Veeva Andi, Veeva MedComms, and certain other applications, harming sales and adoption. A significant Veeva CRM customer's IQVIA competitive project was reportedly due in part to these restrictions.
Veeva CRM and portions of multichannel CRM are built on salesforce.com's Salesforce1 Platform; the agreement expires September 1, 2025 and requires minimum order commitments of $500 million, with a remaining purchase commitment of $120 million as of April 30, 2020 due by September 1, 2025. Failure to meet it requires true-up payments that would negatively impact margins, cash flows and cash balance.
Nearly all revenues are from life sciences customers; consolidation, drug pricing regulation, patent expirations, changes in sales and marketing practices, and COVID-19 could reduce sales representatives that use Veeva solutions. If large life sciences companies merge, it could reduce per unit pricing or demand.
Crossix processes third-party health and consumer data; compliance with GDPR, CCPA, potential CPRA, HIPAA de-identification standards, NAI code, state laws, and data localization requirements is burdensome. Non-compliance could lead to significant liabilities and reduced demand for data products or solutions.
Top 10 customers accounted for 36% of total revenues in fiscal year ended January 31, 2020, and loss or non-renewal of key customers could slow revenue growth or cause revenue to decline. Life sciences industry consolidation can reduce user subscriptions or increase pricing pressure.
Sales cycle for a new customer may span 12 months or longer; for newer solutions it may be lengthy and difficult to predict, and the COVID-19 pandemic could lengthen it. If sales cycles lengthen or resources are spent on unsuccessful opportunities, operating results and growth would be harmed.
Veeva acquired Crossix and Physicians World in November 2019 and has limited experience integrating acquisitions; Crossix and Physicians World have been negatively impacted by COVID-19, and their lower gross margins contributed to total gross margin decreasing to 71.9% in FY2021 Q1 from 73.2% in FY2020 Q1. Integration failures or customer and key employee losses could hurt the business.
Risk of cyber-attack may be elevated during COVID-19; Veeva stores sensitive customer data including health information, and Crossix processes third-party health data. A breach could cause service interruption, litigation, indemnity obligations, reputation damage, and customer loss.
Competition for highly skilled sales, marketing, and engineering employees is intense, and if the perceived value of equity awards declines, recruiting and retention may be adversely affected. Recent senior leadership transitions, including the CFO retirement and President and COO changes, may cause disruption or uncertainty.
Gross margin decreased to 71.9% in FY2021 Q1 from 73.2% in FY2020 Q1, and operating margin decreased to 26.0% from 29.1%. MD&A expects total gross margin to decrease in fiscal 2021 due to dilutive acquired businesses and expects operating expenses and stock-based compensation to increase.
Growth depends on newer solutions including planned Data Cloud and MyVeeva, and Veeva has limited experience selling outside life sciences. If these newer solutions do not gain traction, the growth rate of revenues and operating results will be adversely affected.
SaaS KPIs
All quarters →Total Customers
Non-GAAP Operating Margin
Non-GAAP Gross Margin
Summary, forecast, risks and KPIs are extracted from VEEVA SYSTEMS INC's SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.