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Veeva Systems (NYSE:VEEV) Beats Q3 Sales Targets


Full Report / December 01, 2022
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Healthcare software provider Veeva Systems (NASDAQ:VEEV) reported Q3 FY2023 results that beat analyst expectations, with revenue up 16% year on year to $552.3 million. The company expects that next quarter's revenue would be around $552 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Veeva Systems made a GAAP profit of $108.4 million, improving on its profit of $105.8 million, in the same quarter last year.

Veeva Systems (VEEV) Q3 FY2023 Highlights:

  • Revenue: $552.3 million vs analyst estimates of $546 million (1.15% beat)
  • EPS (non-GAAP): $1.13 vs analyst estimates of $1.07 (5.3% beat)
  • Revenue guidance for Q4 2023 is $552 million at the midpoint, below analyst estimates of $556.9 million
  • Free cash flow of $137 million, up 49.4% from previous quarter
  • Gross Margin (GAAP): 72.1%, in line with 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 two years, growing from quarterly revenue of $377.5 million in Q3 FY2021, to $552.3 million.

Veeva Systems Total Revenue

This quarter, Veeva Systems's quarterly revenue was once again up 16% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $18.1 million in Q3, compared to $29.1 million in Q2 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Veeva Systems is expecting revenue to grow 13.6% year on year to $552 million, slowing down from the 22.3% 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 14.1% 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 72.1% in Q3.

Veeva Systems Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, marketing & sales and the general administrative overhead. This is 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 have followed 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 $137 million in Q3, up 23.8% year on year.

Veeva Systems Free Cash Flow

Veeva Systems has generated $757.6 million in free cash flow over the last twelve months, an impressive 36.4% 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 Q3 Results

With a market capitalization of $29.5 billion, more than $3.02 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

Veeva Systems topped analysts’ revenue expectations this quarter, even if just narrowly. And we were glad to see storng free cash flow.  On the other hand, it was unfortunate to see that the revenue guidance for the next quarter slightly missed analysts' expectations. Overall, this quarter's results were mixed. The company is down 4.01% on the results and currently trades at $184 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. Although we have other favorites, we understand the arguments that Veeva Systems is not a bad business. We would expect growth rates to moderate from here, but its revenue growth has been solid, over the last two years. And on top of that, its bountiful generation of free cash flow empowers it to invest in growth initiatives.

Veeva Systems's price to sales ratio based on the next twelve months of 13.1x indicates that the market is definitely optimistic about its growth prospects. There are things to like about Veeva Systems and there's no doubt it is a bit of a market darling, at least for some. But we are wondering whether there might be better opportunities elsewhere right now.

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