Business context and reporting period
Veeva Systems Inc. provides cloud software, data and services for the life sciences industry, including CRM, regulated content management, customer master data and professional services. This 10-K reports fiscal 2015, the year ended January 31, 2015; quarterly figures below compare the three months ended January 31, 2015 with the same quarter of fiscal 2014.
Financial performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Revenue | $313.2 million | $210.2 million | +49% |
| Subscription revenue | $233.1 million | $146.6 million | +59% |
| Professional services and other revenue | $80.2 million | $63.5 million | +26% |
| Gross profit / margin | $197.6 million / 63.0% | $127.5 million / 60.7% | Margin +2.3 pts |
| Operating income / margin | $70.0 million / 20.6% | $39.3 million / 18.7% | Margin +1.9 pts |
| Net income / diluted EPS | $40.4 million / $0.28 | $23.6 million / $0.15 | |
| Operating cash flow | $67.6 million | $41.8 million |
For the fourth quarter, revenue was $87.0 million versus $62.8 million a year earlier; net income was $13.3 million versus $6.2 million, and diluted EPS was $0.09 versus $0.04. FY2015 subscription services gross margin was 76%, compared with 75%; professional services gross margin was 24%, compared with 27%.
At January 31, 2015, cash and cash equivalents were $129.3 million and short-term investments were $268.6 million, totaling $397.9 million. Working capital was $366.3 million. Total liabilities were $138.1 million, including $113.0 million of deferred revenue; the filing reports no funded debt. Investing cash outflow was $272.0 million, largely reflecting $245.1 million of net purchases of investments and $26.5 million of property and equipment, including the headquarters purchase. Financing cash inflow was $71.3 million.
Material changes versus the prior comparable period
- Revenue growth slowed from 62% in FY2014 to 49% in FY2015; management says it expects revenue growth rates to decline further.
- Subscription revenue increased as a share of revenue, from 69.8% to 74.4%, supporting higher overall gross margin. Subscription revenue retention was 138%, down from 166% in FY2014 and 187% in FY2013.
- CRM and complementary multichannel CRM products generated approximately 89% of subscription revenue. Non-CRM solutions exceeded 15% of total revenue; the company served 276 customers, up from 198.
- Operating expenses rose 45% to $127.6 million, including a 56% increase in R&D expense. Stock-based compensation increased to $14.3 million from $7.0 million.
- Cash and investments totaled $397.9 million versus $288.1 million a year earlier, while cash and cash equivalents alone declined to $129.3 million from $262.5 million, primarily as funds shifted into short-term investments and property purchases.
Outlook, risks and unusual items
- Management expects continued investment in product development, sales, international expansion, professional services and infrastructure. It expects expenses to rise and cautions that operating margin may decline slightly in the near term; no specific revenue or earnings guidance is provided in this 10-K.
- The Salesforce.com agreement is a major commitment and dependency: Veeva must place at least $500 million of orders through September 1, 2025. At year-end, disclosed remaining minimum payments were $462.8 million, predominantly due after five years; failure to meet thresholds could require true-up payments.
- Key risks include dependence on CRM and Salesforce.com, customer renewals and expansion, competition, security or service interruptions, regulatory and privacy compliance, international and currency exposure, and the ability to grow newer Vault, Network and OpenKey offerings. The top 10 customers generated 54% of revenue, although no single customer exceeded 10% in FY2015.
- FY2015 other expense was $2.8 million, including $3.9 million of foreign-currency losses, partly offset by $3.5 million of interest income. The effective tax rate rose to 39.9%; a retroactive research-credit extension generated a $1.4 million fourth-quarter tax benefit.
- The company purchased its new Pleasanton headquarters for $24.0 million and expects to occupy it in summer 2015. A Qforma-related key opinion leader business acquisition closed March 31, 2015 for $10.0 million, after year-end. Veeva settled the Prolifiq litigation in November 2014 for a license to certain patents; the filing does not provide a clear settlement payment amount.
- Auditors reported effective internal control over financial reporting. The company had no material legal proceeding reported as pending and no cash dividend policy for the foreseeable future.
Important facts for investors to verify
- Whether retention and customer expansion remain strong as CRM penetration increases and revenue growth decelerates.
- Growth, margins and customer adoption of Vault, Network and OpenKey, including contribution from the post-year-end acquisition.
- Salesforce.com usage against minimum order thresholds, related fees and the effect on margins and cash flows.
- Cash conversion, receivables collection and the composition, maturities and risk profile of the investment portfolio.
- Whether higher operating expenses, stock-based compensation, foreign-exchange losses and tax rates affect future profitability.