Summary
Veeva Systems posted fiscal 2021 second quarter results for the period ended July 31, 2020. Total revenue was $353.7 million, up 32.5% from the prior-year quarter. Gross profit was $256.5 million, up 30.4%. Operating income was $90.1 million, up 22.0%, and net income was $93.6 million, up 18.1%. Diluted EPS was $0.58, up 16.0%. Gross margin was 72.5%, down 1.2 percentage points from the prior-year quarter, and operating margin was 25.5%, down 2.2 percentage points. The margin decline reflects product mix and added costs from acquisitions, while the top line grew at a faster pace.
Year-to-date figures show similar momentum. Revenue for the six months ended July 31, 2020 was $690.8 million, up 35.0% from the prior-year period. Gross profit was $498.7 million, up 32.7%. Operating income was $177.6 million, up 22.5%, and net income was $180.1 million, up 18.0%. Diluted EPS for the six months was $1.12, up 16.7%. Year-to-date gross margin was 72.2%, down 1.3 percentage points, and operating margin was 25.7%, down 2.6 percentage points. Operating cash flow was $387.5 million for the six months, up 15.1%. For the quarter alone, operating cash flow was $105.3 million, up 4.8%. Deferred revenue was $421.2 million at July 31, 2020, up 28.0% from the prior-year quarter, though that balance covers only the current portion.
Operational highlights centered on clinical and quality applications. Veeva Vault CTMS was selected as a global standard by another top 20 pharma and its first top 7 CRO. Vault CDMS had a strategic win for complex oncology trials with a new top 20 pharma. More than 300 customers use Vault eTMF, 70 use Vault CTMS, and over 100 clinical trials have started on Vault CDMS. Vault Quality had record sales in the quarter; two top 20 pharma customers standardized on Vault QMS, another top 20 added Vault QualityDocs enterprise-wide, and more than 120 customers use Vault QMS and QualityDocs. MyVeeva for Doctors, a website and mobile app for healthcare professionals, is targeted for release at the end of the year for the U.S. market.
Non-GAAP measures exclude stock-based compensation and amortization of purchased intangibles. Second quarter non-GAAP operating income was $144.4 million, up 39% from the prior-year quarter, and non-GAAP net income was $116.4 million, up 33%. Non-GAAP diluted net income per share was $0.72, compared with $0.55 one year ago. Guidance points to continued growth. For the fiscal third quarter ending October 31, 2020, Veeva guided non-GAAP operating income between $138 and $140 million and non-GAAP fully diluted net income per share between $0.66 and $0.68. For the full fiscal year ending January 31, 2021, it guided non-GAAP operating income between $540 and $545 million and non-GAAP fully diluted net income per share between $2.64 and $2.67. The company also issued total revenue guidance for both periods. It did not provide GAAP targets for operating income or diluted net income per share, because it cannot reasonably predict certain items such as stock-based compensation expense.
COVID-19 remains the main risk. Veeva shifted most customer, employee, and industry events to virtual-only for the remainder of fiscal year ending January 31, 2021, imposed employee travel restrictions, and kept many U.S. offices closed. Crossix and Physicians World have been negatively impacted by the pandemic, and sales to pre-commercial life sciences companies, contract research organizations, medical device and cosmetics companies have also been hurt. Veeva is allowing free use of Veeva CRM Engage Meeting through December 31, 2020. Customers may delay or cancel purchasing decisions, renew at lower levels, or request less favorable billing terms. The subscription model can push the effect of these issues into future periods. Management also expects total revenue and subscription services revenue growth rates to decline in the future and expects gross margin to decrease in fiscal year ending January 31, 2021 because of acquired businesses. Other risks include security breaches, intense competition, loss of large customers, system disruptions, integration challenges from Crossix and Physicians World, and legal proceedings.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $353.7M | $337.1M | +4.9% | $266.9M | +32.5% |
| Gross profit | $256.5M | $242.2M | +5.9% | $196.7M | +30.4% |
| Gross margin | 72.5% | 71.8% | +0.7 pp | 73.7% | -1.2 pp |
| Research & development | $70.1M | $62.2M | +12.6% | $51.1M | +37.0% |
| Sales & marketing | $59.2M | $55.8M | +6.1% | $45.8M | +29.1% |
| General & administrative | $37.2M | $36.7M | +1.4% | $25.9M | +43.8% |
| Total operating expenses | $166.4M | $154.7M | +7.6% | $122.8M | +35.5% |
| Operating income (loss) | $90.1M | $87.6M | +2.9% | $73.9M | +22.0% |
| Operating margin | 25.5% | 26.0% | -0.5 pp | 27.7% | -2.2 pp |
| Net income (loss) | $93.6M | $86.6M | +8.1% | $79.2M | +18.1% |
| Net margin | 26.4% | 25.7% | +0.8 pp | 29.7% | -3.2 pp |
| Diluted EPS | $0.58 | $0.54 | +$0.04 | $0.50 | +$0.08 |
| Customers | 625 | — | — | — | — |
Risks
The COVID-19 pandemic has negatively impacted the Crossix and Physicians World businesses and sales to pre-commercial life sciences companies, contract research organizations, medical device and cosmetics companies. Veeva is allowing free use of Veeva CRM Engage Meeting through December 31, 2020 and may not receive meaningful revenue thereafter if customers discontinue use.
A significant Veeva CRM customer recently launched a project to implement IQVIA's competitive software offering for portions of its CRM users, and the scope of that deployment may expand causing further Veeva CRM revenue losses. IQVIA also restricts customers from uploading its data to Veeva Network Customer Master, Veeva Nitro, Veeva Andi, Veeva MedComms and certain other applications, which has negatively affected sales and adoption.
Top 10 customers accounted for 36% of total revenues in fiscal year ended January 31, 2020, down from 42% and 39% in fiscal years ended January 31, 2018 and 2019. Loss of one or more key customers or failure to renew or expand user subscriptions could slow revenue growth, and renewal scrutiny may cause reductions in user subscriptions or pricing pressure.
Data protection and privacy regulations are increasingly complex, including CCPA effective and enforceable July 1, 2020, GDPR, Brazil's LGPD, and the July 16, 2020 invalidation of the EU-U.S. Privacy Shield. Crossix's NAI membership and state laws on de-identified data plus data localization laws in Russia, China and France may require additional investment and create liability.
Nearly all revenues are generated from life sciences customers, and consolidation, regulatory changes including drug pricing, bankruptcy of early-stage customers, and changes in market conditions such as virtual interactions could reduce demand. If customers reduce sales representatives in response to virtual meetings, demand for core CRM may decline.
Sensitive data includes personal health information, clinical trial and patient data, and Crossix processes third-party health data. Veeva believes cyber-attack risk is elevated during the COVID-19 outbreak due to an increase in attacks on U.S. businesses, and a breach could cause liability, service credits, reputational damage and customer loss.
Veeva CRM and certain multichannel CRM applications rely on salesforce.com's Salesforce1 Platform under an agreement expiring September 1, 2025. Salesforce.com can terminate in specified circumstances, and the agreement limits sales of Veeva CRM to drug makers in pharmaceutical and biotechnology industries, excluding medical devices.
Competition for sales and marketing personnel and experienced engineers is intense, and declines in the perceived value of equity awards or changes in compensation structure could hurt recruiting and retention. Recent senior management changes include the appointment of Brent Bowman as CFO effective September 1, 2020, the 2019 retirement of President Matthew J. Wallach, and Tom Schwenger joining as President and COO.
The sales cycle for a new customer may span 12 months or longer, and Veeva has limited history selling newer solutions and solutions outside life sciences. The sales cycle may lengthen due to COVID-19 and cause harm if Veeva invests substantial resources in unsuccessful opportunities.
Future growth depends on newer solutions such as Data Cloud, MyVeeva for Clinical Trials and MyVeeva for Doctors, for which Veeva has limited selling experience. If these solutions do not gain market acceptance, the growth rate of revenues and operating results will be adversely affected.
Gross margin was 72.5% in FY2021 Q2, down 1.2 pp from the prior-year quarter, and operating margin was 25.5%, down 2.2 pp. MD&A expects gross margin to decrease in the fiscal year ending January 31, 2021 due to the dilutive impact from acquired businesses, which may be partially offset by Vault growth.
Veeva acquired Crossix and Physicians World in November 2019 and may not successfully integrate personnel, operations and technologies or retain key customers and employees. The legacy Crossix and Physicians World businesses have been more negatively impacted by COVID-19 than other Veeva product lines, and impairment charges could adversely affect results.
Customers outside North America accounted for approximately 43% of total revenues in the fiscal quarter ended July 31, 2020. Risks include a U.S. executive order issued August 6, 2020 that could prohibit certain transactions with WeChat, with which certain Veeva CRM applications interact, plus data localization, export controls and Brexit-related data transfer uncertainty.
Veeva is subject to income taxes in many jurisdictions, and its effective tax rate could be adversely affected by changes in earnings mix, tax laws and audits. California Assembly Bill No. 85 temporarily suspends California net operating losses and limits business incentive tax credits, and OECD digital services taxes add further uncertainty.
Veeva has been defending against trade secret misappropriation assertions by Medidata and IQVIA since January 2017, and expects others to claim its solutions infringe their intellectual property. Litigation can require substantial damages, ongoing royalties, prevent offering services, or force customer indemnification.
Veeva solutions address heavily regulated life sciences functions including electronic records and signatures under 21 CFR Part 11, drug sample tracking, system validations, HIPAA, and Sunshine Act reporting. Failure to keep solutions compliant or customer non-compliance could reduce demand and expose Veeva to claims.
SaaS KPIs
All quarters →Total Customers
Non-GAAP Operating Margin
Summary, forecast, risks and KPIs are extracted from VEEVA SYSTEMS INC's SEC filings for Q2 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.