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Veeva Systems's (NYSE:VEEV) Q2 Earnings Results: Revenue In Line With Expectations But Stock Drops On Weak Guidance


Full Report / August 31, 2022
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Healthcare software provider Veeva Systems (NASDAQ:VEEV) reported results in line with analyst expectations in Q2 FY2023 quarter, with revenue up 17.2% year on year to $534.2 million. However, guidance for the next quarter was less impressive, coming in at $546 million at the midpoint, being 2.24% below analyst estimates. Veeva Systems made a GAAP profit of $90.6 million, down on its profit of $108.8 million, in the same quarter last year.

Veeva Systems (VEEV) Q2 FY2023 Highlights:

  • Revenue: $534.2 million vs analyst estimates of $530.7 million (small beat)
  • EPS (non-GAAP): $1.03 vs analyst estimates of $1.01 (1.94% beat)
  • Revenue guidance for Q3 2023 is $546 million at the midpoint, below analyst estimates of $558.5 million
  • The company dropped revenue guidance for the full year, from $2.17 billion to $2.14 billion at the midpoint, a 1.26% decrease
  • Free cash flow of $91.7 million, down 80.8% from previous quarter
  • Gross Margin (GAAP): 71.6%, down from 73.2% 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.

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 strong over the last year, growing from quarterly revenue of $455.5 million, to $534.2 million.

Veeva Systems Total Revenue

This quarter, Veeva Systems's quarterly revenue was once again up 17.2% year on year. We can see that the company increased revenue by $29.1 million quarter on quarter. That's a solid improvement on the $19.6 million increase in Q1 2023, so shareholders should appreciate the re-acceleration of growth.

Guidance for the next quarter indicates Veeva Systems is expecting revenue to grow 14.6% year on year to $546 million, slowing down from the 26.1% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 17.5% over the next twelve months.

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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 71.6% in Q2.

Veeva Systems Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop this is still around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Veeva Systems's free cash flow came in at $91.7 million in Q2, down 22.9% year on year.

Veeva Systems Free Cash Flow

Veeva Systems has generated $733.5 million in free cash flow over the last twelve months, an impressive 36.6% of revenues. This robust FCF margin is a result of Veeva Systems asset lite business model, scale advantages, and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from Veeva Systems's Q2 Results

Sporting a market capitalization of $31.3 billion, more than $2.91 billion in cash and with positive free cash flow over the last twelve months, we're confident that Veeva Systems has the resources it needs to pursue a high growth business strategy.

It was unfortunate to see that Veeva's revenue guidance for the full year missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Veeva Systems. The company is down 8.29% on the results and currently trades at $182.9 per share.

Is Now The Time?

When considering Veeva Systems, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think Veeva Systems is a solid business. Its revenue growth has been solid. On top of that, 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 twelve months is 13.7x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely things to like about Veeva Systems and there's no doubt it is a bit of a market darling, at least for some. But when considering the company against the backdrop of the tech stock landscape, it seems that there is a lot of optimism already priced in and we are wondering whether there might be better opportunities elsewhere right now.

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