Veeva Systems Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended April 30, 2020; comparable period is the three months ended April 30, 2019. Amounts are in U.S. dollars. Veeva provides cloud software, data, and related services, primarily to the life sciences industry.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Total revenue | $337.1 million | $244.8 million | +38% |
| Subscription revenue | $270.2 million | $198.1 million | +36% |
| Professional services and other | $66.9 million | $46.6 million | +43% |
| Gross profit / margin | $242.2 million / 72% | $179.2 million / 73% | Margin down 1 point |
| Operating income | $87.6 million | $71.2 million | +23% |
| Net income | $86.6 million | $73.4 million | +18% |
| Diluted EPS | $0.54 | $0.47 | +15% |
| Operating cash flow | $282.2 million | $236.3 million | +19% |
Subscription services represented 80% of revenue. Commercial Cloud and Vault each contributed approximately half of total revenue; Vault subscription revenue was $127.7 million, versus $142.6 million for Commercial Cloud. Revenue growth included contributions from the 2019 Crossix and Physicians World acquisitions.
Cash and cash equivalents were $720.8 million and short-term investments were $660.2 million at April 30, 2020, totaling approximately $1.38 billion. Current assets were $1.68 billion and current liabilities $550.3 million. Total liabilities were $603.6 million; the filing reports lease liabilities but no borrowings. Total lease liabilities were approximately $52.6 million. Deferred revenue was $470.3 million.
Changes and notable items
- Revenue grew $92.4 million year over year. Subscription revenue increased $72.1 million, with approximately $35 million of that increase from Vault and $37 million from Commercial Cloud, including Crossix.
- Gross margin declined from 73% to 72%. Management attributed the decline mainly to acquired businesses, whose products carry lower gross margins than Veeva’s core products.
- Operating expenses rose to $154.7 million from $108.1 million. Stock-based compensation increased to $36.9 million from $20.8 million, reflecting higher headcount and acquisition-related retention awards.
- Net cash from operations benefited from increased sales and collections. Management noted Q1 is seasonally the strongest quarter for cash inflows and expects operating cash flow to be substantially lower in subsequent quarters of FY2021.
- Veeva reported approximately $913 million in remaining subscription performance obligations; it expects to recognize about 79% within the next 12 months.
Outlook, risks, and contingencies
- No specific numerical revenue or earnings guidance for FY2021 is provided in this filing. Management expects gross margin to decline in FY2021 due to acquired businesses, partly offset by growth in higher-margin Vault products. It expects operating expenses and stock-based compensation to rise as it invests in growth.
- COVID-19 effects were uncertain. The company cited potential delays or cancellations of customer purchases and projects, limits on sales and professional services, less favorable payment terms, and negative impacts on Crossix, Physicians World, and certain customer segments. Conversely, remote work and digital engagement increased adoption of some products. Veeva offered Veeva CRM Engage Meeting free of charge and cautioned it might generate no meaningful revenue from it in the current fiscal year.
- Veeva’s ongoing IQVIA disputes include IQVIA’s claims against Veeva and Veeva’s antitrust counterclaims; outcomes and any potential gain or loss could not be estimated. IQVIA sought sanctions in one case. Medidata and Veeva filed cross-motions for summary judgment in a trade-secret dispute; Veeva said it could not estimate any potential loss.
- Veeva had a $119.9 million remaining minimum purchase commitment to Salesforce through September 2025, including $6.8 million due within one year. Its financial instruments also expose it to foreign-exchange and interest-rate risk; a modeled 200-basis-point rate increase would reduce investment portfolio market value by $11 million.
- Key disclosed risks include COVID-19 uncertainty, competition (including IQVIA), customer renewals and concentration, cybersecurity and privacy regulation, dependence on third-party infrastructure and the Salesforce platform, acquisition integration, and litigation.
Most important facts for investors to verify
- Whether subscription growth and customer renewals remain strong, and how much growth reflects acquisitions versus organic demand.
- Whether COVID-19 effects on customers, services demand, collections, and acquired businesses become more significant in later quarters.
- Whether gross-margin pressure and rising operating costs, stock-based compensation, and acquisition-related expenses develop as management expects.
- How operating cash flow compares with Q1’s seasonally strong collections and whether deferred revenue and remaining performance obligations support future growth.
- Developments in the IQVIA and Medidata litigation, as well as the status and economics of the Salesforce commitment and platform dependency.