Summary
Veeva Systems posted fiscal 2023 second quarter revenue of $534.2 million, up 17.3% from the prior-year quarter. Gross profit was $382.55 million, up 14.7%. The top line and gross profit grew, but GAAP profitability moved the other way. Operating income was $101.1 million, down 18.9% year over year. Net income was $90.6 million, down 16.8%. Diluted earnings per share was $0.56, down from the prior-year quarter. Gross margin was 71.6%, down 1.6 percentage points. Operating margin was 18.9%, down 8.4 percentage points. The gap between GAAP and non-GAAP results remained wide. Non-GAAP operating income was $202.0 million, up 5%. Non-GAAP net income was $166.2 million, up 9%. Non-GAAP diluted earnings per share was $1.03. Those non-GAAP figures exclude stock-based compensation and amortization of purchased intangibles, which are large parts of the GAAP expense base.
Cash generation softened in the quarter. Operating cash flow was $93.39 million, down 21.6% from the prior-year quarter. For the first six months, operating cash flow was $574.41 million, down 3.9%. The company said the first quarter is seasonally the strongest for cash inflows and expects cash flows from operating activities to be substantially less in future quarterly periods this fiscal year. Deferred revenue, current portion only, was $684.64 million at July 31, 2022, up 22.5% from the prior-year quarter. Management cautioned that quarterly changes in deferred revenue and unbilled accounts receivable are not accurate indicators of future revenue because of billing timing and multi-year orders with escalating fees.
Operational momentum centered on R&D and commercial products. Veeva released a significant Veeva CRM update aimed at hybrid engagement. Vault Quality reached more than 500 customers using at least one Vault Quality Suite product, including more than 200 Vault Training customers. The quarter included a record 52 Vault Quality customer wins, and Vault LIMS and Vault Validation Management are set to work with early-adopter customers later this year. Veeva Business Consulting had a record revenue quarter. The company also published the Veeva Pulse Field Trends Report, based on more than 130 million quarterly HCP interactions. On the legal front, a federal court dismissed Medidata's trade secret lawsuit against Veeva midway through the jury trial.
Guidance points to continued growth but a tougher expense backdrop. For the fiscal third quarter ending October 31, 2022, Veeva guided non-GAAP operating income between $209 and $211 million and non-GAAP diluted net income per share between $1.07 and $1.08. For the full fiscal year ending January 31, 2023, the company guided non-GAAP operating income of about $820 million and non-GAAP diluted net income per share of approximately $4.17. Veeva does not provide GAAP targets for operating income or EPS because it cannot reasonably predict items such as stock-based compensation and amortization of purchased intangibles.
Risks are stacking up. Management said year-over-year revenue growth in the second half of fiscal 2023 will be hurt by foreign currency fluctuations and macroeconomic factors, including lower funding and spending within parts of the customer base and increased project scrutiny. Operating expenses are expected to increase in absolute dollars, and the company said that could have a negative impact on operating margin. Research and development, sales and marketing, and general and administrative expenses are all expected to grow, and travel and entertainment costs are expected to continue increasing in the second half. The MD&A also flags potential reductions in life sciences sales representatives, which could hurt demand for Veeva CRM and other Commercial Solutions. Other risks include COVID-19 uncertainty, the Russian invasion of Ukraine, competitive factors, customer decisions and priorities, security or performance issues with products, hiring and retention challenges, and ongoing litigation fees. Tax legislation that requires capitalization of research and development expenses has already reduced operating cash flow and could continue to do so if not modified.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $534.2M | $505.1M | +5.8% | $455.6M | +17.3% |
| Gross profit | $382.5M | $365.6M | +4.6% | $333.5M | +14.7% |
| Gross margin | 71.6% | 72.4% | -0.8 pp | 73.2% | -1.6 pp |
| Research & development | $134.0M | $113.5M | +18.1% | $94.9M | +41.2% |
| Sales & marketing | $89.6M | $76.1M | +17.7% | $71.8M | +24.8% |
| General & administrative | $57.8M | $48.3M | +19.7% | $42.2M | +37.1% |
| Total operating expenses | $281.5M | $237.9M | +18.3% | $208.9M | +34.8% |
| Operating income (loss) | $101.1M | $127.7M | -20.8% | $124.6M | -18.9% |
| Operating margin | 18.9% | 25.3% | -6.4 pp | 27.4% | -8.4 pp |
| Net income (loss) | $90.6M | $100.1M | -9.5% | $108.9M | -16.8% |
| Net margin | 17.0% | 19.8% | -2.9 pp | 23.9% | -6.9 pp |
| Diluted EPS | $0.56 | $0.62 | -$0.06 | $0.67 | -$0.11 |
| Customers | 861 | 861 | ±0.0% | 719 | +19.7% |
Risks
MD&A states that Veeva experienced heightened project scrutiny from certain enterprise customers, which negatively impacted results of operations for the quarter ended July 31, 2022, and management expects that scrutiny to continue for the remainder of the fiscal year ending January 31, 2023. The Risk Factors add that the sales cycle for a new customer may span 12 months or longer and can vary substantially by customer.
Operating income fell 18.9% to $101.09 million and operating margin declined 8.4 percentage points to 18.9% for the quarter ended July 31, 2022, while gross margin declined 1.6 percentage points to 71.6%. Research and development expense rose 41% and general and administrative expense rose 37% in the quarter on headcount and compensation increases, and management states it expects total operating expenses to continue to increase and to slightly increase as a percentage of revenue.
IQVIA will not consent to customers uploading its healthcare professional or healthcare organization data into Veeva Network Customer Master, has restricted uploads to Veeva Nitro and Veeva Andi, and has stated publicly it will deny all customer requests for use of new IQVIA data types including real world data, real world evidence, and genomics. The filing says these restrictions have harmed and may continue to harm sales and customer adoption.
The Risk Factors state that in 2022 there has been a reduction in funding for early-stage life sciences companies, which may result in reduced sales and adversely affect financial results for the remainder of the fiscal year ending January 31, 2023. MD&A attributes expected pressure on year-over-year growth to macroeconomic factors, including lower funding and spending levels within segments of the customer base.
Veeva has been defending trade secret misappropriation assertions from IQVIA since January 2017 and other competitors such as Medidata have asserted similar claims. General and administrative expense rose 37% for the quarter ended July 31, 2022, including a $6 million increase in fees for third-party legal counsel, and management expects general and administrative expense to keep growing partly from fees associated with ongoing litigation.
Top 10 customers accounted for 31% of total revenues in the fiscal year ended January 31, 2022, and nearly all revenues are generated from life sciences customers. The filing warns of increasing purchasing scrutiny at the renewal of large customer subscription orders and of the possibility that consolidation among life sciences customers reduces user subscriptions or pricing.
Veeva increased salaries for the majority of employees by 5% effective September 1, 2021, and compensation increases in the annual review in the quarter ended April 30, 2022 were higher than in previous years, with full quarter impact in the quarter ended July 31, 2022. The filing cites a general labor market shortage, intense competition for skilled employees, and a six to nine month ramp for sales professionals.
The filing flags limited experience selling Veeva Compass for longitudinal patient data and MyVeeva for Patients for remote clinical trial interactions, and states that if newer solutions do not gain traction or achieve timely market acceptance, the growth rate of revenues and operating results will be adversely affected. Management also expects data costs related to the Veeva Compass offering to increase.
Key portions of Veeva CRM and certain multichannel CRM applications are built on Salesforce's platform, and the agreement with Salesforce limits the markets to which Veeva CRM may be sold, while Vault and certain Commercial Solutions rely on Amazon Web Services. The filing notes past significant outages at these providers and that Veeva cannot easily switch computing infrastructure providers.
The risk factors highlight the recently enacted Inflation Reduction Act, including provisions designed to limit the prices paid by Medicare for various prescription drugs, as a change that could lead life sciences customers to reduce the number of sales representatives that use Veeva products. Veeva also continues to expect life sciences companies to reduce sales representatives by roughly 10%, with most reductions by the end of the fiscal year ending January 31, 2023 and some into the following year.
Veeva became a Delaware public benefit corporation on February 1, 2021, requiring directors to balance stockholder financial interests with other stakeholders and the public benefit purpose, which may allow decisions that do not maximize short-term stockholder value. The dual-class structure, which concentrates voting control with the founder and Class B holders, remains in effect until its expiration on October 15, 2023.
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 Q2 FY2023 (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.