Summary
Veeva Systems reported FY2023 third-quarter results for the period ended October 31, 2022. Total revenue reached $552.35 million, up 16.0% from the prior-year quarter. Subscription services represented 80% of total revenues for the nine months ended October 31, 2022. Over that same nine-month period, Commercial Solutions and R&D Solutions accounted for 53% and 47% of total revenues, respectively, while subscription services revenue split 55% Commercial and 45% R&D. Management expects total revenues and subscription revenues to keep growing for the remainder of the fiscal year ending January 31, 2023, but warns that year-over-year growth will be hurt by foreign currency fluctuations and macroeconomic factors. Those factors include lower funding and spending levels within parts of the customer base and increased project and budget scrutiny.
Profitability presented a mixed picture. Gross profit was $398.44 million, up 15.0%. Gross margin was 72.1%, down 0.7 percentage points. Operating income declined 8.5% to $121.40 million, and operating margin fell to 22.0%, down 5.9 percentage points. Net income rose 2.4% to $108.46 million. Diluted EPS was $0.67, up $0.02 or 3.1%. The operating margin decline came from higher costs and expenses across research and development, sales and marketing, and general and administrative functions. On a non-GAAP basis, operating income was $219.50 million, net income was $183.24 million, and diluted EPS was $1.13. Stock-based compensation and amortization of purchased intangibles are excluded from those non-GAAP figures.
Cash flow and deferred revenue metrics improved. Operating cash flow was $142.66 million for the quarter, up 26.3% from the prior-year quarter. For the nine months ended October 31, 2022, operating cash flow was $717.07 million, up 0.9%. Deferred revenue, current portion, was $510.10 million, up 22.1% from the prior-year quarter. Management noted that the first nine months of the fiscal year typically produce a significant portion of annual operating cash flow, so it expects operating cash flow to be substantially less in the fourth quarter of the fiscal year ending January 31, 2023.
Guidance points to several moving parts. Starting February 1, 2023, Veeva plans to add a termination for convenience right to master subscription agreements that govern multi-year orders. That change may alter revenue recognition timing and reduce revenue during the fiscal year ending January 31, 2024 for multi-year orders that currently lack such rights. The company is also adding an annual inflation adjustment for new or renewal orders after April 1, 2023, set at the lower of 4% or the Consumer Price Index. Cost of subscription services is expected to rise with increased usage and data costs. Cost of professional services is expected to increase as Veeva adds personnel. Research and development, sales and marketing, and general and administrative expenses are all expected to grow in absolute dollars. Other income, net, is expected to increase with rising interest rates. The CEO's planned option exercise between December 5, 2022 and March 8, 2023 will significantly reduce the effective tax rate for the period in which it occurs.
Risks remain varied. The company still sees uncertainty from COVID-19, including possible long-term changes in how life sciences companies deploy sales representatives. Veeva previously disclosed an expectation that life sciences companies would reduce sales representatives by roughly 10%, with the majority of those reductions expected by the end of the fiscal year ending January 31, 2023 and reductions still occurring in the fiscal year ending January 31, 2024. That could hurt demand for Veeva CRM and other Commercial Solutions. The Russian invasion of Ukraine has not had a direct material impact to date, but the company has no offices or employees in Russia and limited revenue from Russian entities. Foreign currency volatility across the Euro, Japanese Yen, Canadian Dollar, British Pound Sterling, Hungarian Forint, Chinese Yuan, and Brazilian Real remains a risk. The tax law requiring capitalization and amortization of research and development expenses reduced operating cash flow for the nine months ended October 31, 2022, and Congress may or may not defer that requirement.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $552.4M | $534.2M | +3.4% | $476.1M | +16.0% |
| Gross profit | $398.4M | $382.5M | +4.2% | $346.5M | +15.0% |
| Gross margin | 72.1% | 71.6% | +0.5 pp | 72.8% | -0.7 pp |
| Research & development | $130.3M | $134.0M | -2.8% | $98.6M | +32.1% |
| Sales & marketing | $93.9M | $89.6M | +4.8% | $72.4M | +29.7% |
| General & administrative | $52.9M | $57.8M | -8.6% | $42.8M | +23.6% |
| Total operating expenses | $277.0M | $281.5M | -1.6% | $213.8M | +29.6% |
| Operating income (loss) | $121.4M | $101.1M | +20.1% | $132.7M | -8.5% |
| Operating margin | 22.0% | 18.9% | +3.1 pp | 27.9% | -5.9 pp |
| Net income (loss) | $108.5M | $90.6M | +19.7% | $105.9M | +2.4% |
| Net margin | 19.6% | 17.0% | +2.7 pp | 22.2% | -2.6 pp |
| Diluted EPS | $0.67 | $0.56 | +$0.11 | $0.65 | +$0.02 |
| Customers | 861 | 861 | ±0.0% | 719 | +19.7% |
Risks
MD&A states total revenue and subscription revenue growth are expected to decline compared to the prior fiscal year and to be negatively impacted by macroeconomic factors, including lower funding and spending levels within segments of the customer base and increased project scrutiny. Foreign currency exchange fluctuations negatively affected revenues as expressed in U.S. dollars for the first three quarters of FY2023 and are expected to negatively affect FY2023 revenues.
The sales cycle for a new customer can span 12 months or longer, and MD&A notes heightened project scrutiny from certain enterprise customers since the quarter ended July 31, 2022, which is expected to continue for the remainder of FY2023. Longer sales cycles or unsuccessful sales pursuits would harm operating results and growth.
Veeva announced plans to migrate multichannel CRM applications from the Salesforce Platform to its own Veeva Vault Platform and does not intend to renew its Salesforce agreement. Contract restrictions limit sales of Salesforce Platform applications from September 1, 2025 to September 1, 2030, and all existing CRM customers must migrate by September 1, 2030; failure or delay could cause customer loss and business disruptions.
IQVIA will not consent to customers uploading its healthcare professional or healthcare organization data to Veeva Network Customer Master, has restricted uploads to Veeva Nitro and Veeva Andi, and has stated it will deny new IQVIA data types in Veeva applications. Risk Factors say these restrictions have negatively affected sales and customer adoption and may continue to harm the business.
Top 10 customers accounted for 31% of total revenues in FY ended January 31, 2022, 36% in FY ended January 31, 2021, and 36% in FY ended January 31, 2020. Loss of a key customer, non-renewal, or increased renewal purchasing scrutiny could slow revenue growth, especially for the largest customers.
Nearly all revenues are generated from life sciences customers. The Inflation Reduction Act drug pricing reforms, life sciences industry consolidation, and a 2022 reduction in funding for early-stage life sciences companies may reduce sales and adversely affect financial results for the remainder of FY ending January 31, 2023.
A security breach or unauthorized access to customer data could harm Veeva's reputation and subject it to liabilities, particularly because Veeva Crossix processes third-party health and non-health data for U.S. patients. The risk of cyber-attack may be elevated as a result of Russia's invasion of Ukraine.
Veeva expects life sciences companies to reduce sales representatives by roughly 10%, with the majority of reductions expected by the end of FY ending January 31, 2023 and reductions still occurring in FY ending January 31, 2024. These reductions could negatively impact Veeva CRM and other Commercial Solutions.
Competition for skilled employees is intense, and Veeva increased salaries for the majority of employees by 5% effective September 1, 2021, with annual compensation increases in the fiscal quarter ended April 30, 2022 higher than previous years and full quarter impact starting in the fiscal quarter ended July 31, 2022. These compensation changes have increased expenses, and operating margin for FY2023 Q3 was down 5.9 percentage points versus the prior-year quarter.
Increasingly complex data protection and privacy regulations, including GDPR, CCPA, CPRA, HIPAA, and China's PIPL, could require additional investment, reduce demand, or impose significant liabilities if Veeva or its customers fail to comply. Crossix processes de-identified health data subject to evolving state de-identification laws.
Veeva is in active litigation with IQVIA and Medidata, including IQVIA's trade secret misappropriation assertions since January 2017. General and administrative expenses for the nine months ended October 31, 2022 increased $33 million, partly due to $11 million in fees for third-party legal counsel and third-party consultants, and litigation could require substantial damages or ongoing royalties.
As a Delaware public benefit corporation, Veeva's board must balance stockholder financial interests with stakeholder interests and its public benefit purpose, with limited legal precedent and possible legal uncertainty. This may allow decisions that do not maximize short-term stockholder value, including in a change of control transaction.
SaaS KPIs
All quarters →Total Customers
Commercial Solutions customers
R&D Solutions customers
Summary, forecast, risks and KPIs are extracted from VEEVA SYSTEMS INC's SEC filings for Q3 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.