Veeva Systems Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended January 31, 2020; quarterly comparisons refer to the three months ended January 31, 2020 (fiscal Q4). Financial figures are in U.S. dollars.
Business context
Veeva provides cloud software, data and services primarily to life sciences companies, spanning commercial operations and research and development. It also serves regulated industries including consumer goods, chemicals and cosmetics. The company reported 861 customers at year-end. FY2020 results include contributions from Crossix, acquired November 1, 2019, and Physicians World, acquired November 7, 2019.
Key financial metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $1,104.1 million | $862.2 million | +28% |
| Subscription revenue | $896.3 million | $694.5 million | +29% |
| Professional services and other revenue | $207.8 million | $167.7 million | +24% |
| Gross profit / gross margin | $800.7 million / 73% | $616.9 million / 72% | Margin +1 percentage point |
| Operating income / margin | $286.2 million / 25.9% | $222.9 million / 25.8% | Income +28% |
| Net income | $301.1 million | $229.8 million | +31% |
| Diluted EPS | $1.90 | $1.47 | +29% |
| Operating cash flow | $437.4 million | $310.8 million | +41% |
Subscription services were 81% of revenue. Vault subscription revenue grew to $427.7 million from $299.4 million; Commercial Cloud subscription revenue was $468.6 million versus $395.0 million. Subscription revenue retention was 121%, compared with 122% in FY2019. FY2020 stock-based compensation was $115.9 million, up from $76.4 million.
Fiscal Q4: Revenue was $311.5 million, gross profit $217.2 million, operating income $60.4 million and net income $66.2 million. Compared with Q4 FY2019, revenue rose about 34%, while operating income declined about 4% and net income about 7%. Q4 diluted EPS was $0.42 versus $0.45.
Liquidity, cash flow and obligations
At January 31, 2020, cash and cash equivalents were $476.7 million and short-term investments were $610.0 million, totaling approximately $1.1 billion. Working capital was $980.0 million, down from $1.03 billion. The company said existing liquidity and operating cash flows should meet working-capital and capital needs for at least 12 months. The balance sheet reports no borrowings; it includes lease liabilities of approximately $54.8 million.
Investing cash outflow was $516.9 million, mainly reflecting $448.2 million of net acquisition cash outflows and $64.4 million of net purchases of marketable securities. Financing cash inflow was $10.0 million. Salesforce commitments totaled $140.0 million, including $133.5 million due after five years, under minimum purchase requirements extending to September 2025.
Changes, outlook and material risks
- Revenue growth accelerated to 28% from 25% in FY2019; subscription growth increased to 29% from 24%. Vault drove $128.3 million of the year-over-year subscription revenue increase, versus $73.6 million from Commercial Cloud, which includes Crossix.
- Management expects revenue growth to decline over time. It anticipates lower gross margin in FY2021 due partly to acquired businesses, partially offset by Vault growth. Operating expenses and stock-based compensation are expected to rise near term. The filing provides no specific FY2021 revenue or earnings guidance.
- Crossix and Physicians World together involved substantial acquisition spending; Crossix also carried approximately $120 million in employee retention awards to be expensed over service periods. Goodwill rose to $438.5 million from $95.8 million. Acquisition integration, customer retention and valuation assumptions warrant monitoring.
- COVID-19 was identified as an emerging risk: restrictions and remote work could affect sales cycles, customer projects, events and professional services. The company said the financial impact was uncertain and could appear in later periods.
- Competitive and concentration risks include IQVIA competition, restrictions on customers’ use of third-party data in Veeva products, and a significant CRM customer implementing a competing solution for some users. The top 10 customers represented 36% of revenue, down from 39%.
- Veeva is involved in active litigation with IQVIA and Medidata, including trade-secret, antitrust and related claims. Outcomes and potential losses were not estimable with clarity; legal expenses increased, including a $7.0 million year-over-year increase in G&A legal fees.
- Other key exposures include cybersecurity and privacy regulation, reliance on Salesforce and AWS infrastructure, the Salesforce agreement and its minimum purchase commitments, international and foreign-exchange risks, and leadership transition. The CFO succession search was ongoing at filing date.
Most important facts for investors to verify
- Whether Vault growth and subscription retention remain strong, and whether Commercial Cloud/CRM customer renewals and expansion are affected by competition or data-use restrictions.
- The FY2021 impact of acquisitions, retention-related stock compensation, rising costs and the expected gross-margin dilution.
- Subsequent disclosures on COVID-19 effects, customer purchasing behavior and professional-services demand.
- Developments in IQVIA and Medidata litigation, associated costs and any material change in estimated exposure.
- Acquisition integration and performance assumptions supporting the acquired intangible assets and goodwill, alongside cash balances and the remaining Salesforce commitment.