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Veeva Systems's (NYSE:VEEV) Q3 Earnings Results: Revenue In Line With Expectations, Gross Margin Improves


Full Report / December 06, 2023

Healthcare software provider Veeva Systems (NASDAQ:VEEV) reported results in line with analysts' expectations in Q3 FY2024, with revenue up 11.6% year on year to $616.5 million. On the other hand, the company's full-year revenue guidance of $2.35 billion at the midpoint came in slightly below analysts' estimates. It made a non-GAAP profit of $1.34 per share, improving from its profit of $1.13 per share in the same quarter last year.

Veeva Systems (VEEV) Q3 FY2024 Highlights:

  • Revenue: $616.5 million vs analyst estimates of $616.1 million (small beat)
  • EPS (non-GAAP): $1.34 vs analyst estimates of $1.29 (3.7% beat)
  • Revenue Guidance for Q4 2024 is $621 million at the midpoint, very slightly below what analysts were expecting
  • Free Cash Flow of $76.69 million, down 70% from the previous quarter
  • Gross Margin (GAAP): 72.8%, in line with the same quarter last year

Built on top of Salesforce as one of the first vertical-focused cloud platforms, Veeva (NYSE:VEEV) provides data and customer relationship management (CRM) software for organizations in the life sciences industry.

It was built as a cloud software platform that enables the sales reps of pharmaceutical companies to manage interactions with healthcare professionals. The platform took off around the time the iPad was launched as the portable device made it easier for pharmaceutical salespeople to keep track of doctor visits and other clinical information.

Veeva was founded by former Salesforce executive Peter Gassner, who saw the opportunity to develop a CRM solution for the healthcare space. The company has since expanded its offerings to meet growing trends in the healthcare sector. While the CRM product remains the biggest revenue driver, it also offers Veeva Vault, a data and content management software for managing drug development and clinical trials. Today, Veeva is investing in modern cloud-based products like Nitro, which is a data warehouse for the life sciences industry.

Healthcare And Life Sciences Software

The coronavirus pandemic has underscored the importance of high-quality health infrastructure in times of crisis. Coupled with intense competition between drugmakers and the growing volume of data in the health care sector, demand for data management solutions in the healthcare space is expected to remain strong in the years ahead.

Veeva is competing with companies like IQVIA, Dassault Systèmes, OpenText Corporation (NASDAQ: OTEX), and Oracle Corporation (NYSE:ORCL).

Sales Growth

As you can see below, Veeva Systems's revenue growth has been mediocre over the last two years, growing from $476.1 million in Q3 FY2022 to $616.5 million this quarter.

Veeva Systems Total Revenue

This quarter, Veeva Systems's quarterly revenue was once again up 11.6% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $26.28 million in Q3 compared to $63.9 million in Q2 2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter, Veeva Systems is guiding for a 9.3% year-on-year revenue decline to $621 million, a further deceleration from the 16% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 15.6% over the next 12 months before the earnings results announcement.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Veeva Systems's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 72.8% in Q3.

Veeva Systems Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.73 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, Veeva Systems's gross margin is around the average of a typical SaaS businesses. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Veeva Systems's free cash flow came in at $76.69 million in Q3, down 44% year on year.

Veeva Systems Free Cash Flow

Veeva Systems has generated $894.6 million in free cash flow over the last 12 months, an eye-popping 40.5% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Veeva Systems's Q3 Results

Sporting a market capitalization of $28.59 billion, more than $3.94 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that Veeva Systems is attractively positioned to invest in growth.

It was great to see Veeva Systems improve its gross margin this quarter. That stood out as a positive in these results. On the other hand, its revenue guidance for next quarter very sligthly missed analysts' expectations. Overall, this was an ok quarter for Veeva Systems. The stock is flat after reporting and currently trades at $178.01 per share.

Is Now The Time?

Veeva Systems may have had a bad quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

There are several reasons why we think Veeva Systems is a great business. It it is true that its revenue growth has been slower over the last two years, and analysts believe that'll remain steady. The good news, however, is its bountiful generation of free cash flow empowers it to invest in growth initiatives and its very efficient customer acquisition hints at the potential for strong profitability.

Veeva Systems's price to sales ratio based on the next 12 months of 11.0x indicates that the market is optimistic about its growth prospects. Looking at the tech landscape today, Veeva Systems's qualities stand out, and we like the stock at this price.

Wall Street analysts covering the company had a one-year price target of $214.8 per share right before these results, implying that they saw upside in buying Veeva Systems even in the short term.

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