Healthcare software provider Veeva Systems (NASDAQ:VEEV) reported Q2 FY2024 results topping analysts' expectations, with revenue up 10.5% year on year to $590.2 million. The company also expects next quarter's revenue to be around $615 million, slightly below analysts' estimates. Turning to EPS, Veeva Systems made a non-GAAP profit of $1.21 per share, improving from its profit of $1.03 per share in the same quarter last year.
Veeva Systems (VEEV) Q2 FY2024 Highlights:
- Revenue: $590.2 million vs analyst estimates of $582.1 million (1.39% beat)
- EPS (non-GAAP): $1.21 vs analyst estimates of $1.13 (7.3% beat)
- Revenue Guidance for Q3 2024 is $615 million at the midpoint, below analyst estimates of $617.1 million
- The company slightly raised its revenue guidance for the full year, it now stands at $2.37 billion at the midpoint
- Free Cash Flow of $255.4 million, down 49.2% from the previous quarter
- Gross Margin (GAAP): 71.4%, 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.
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).
As you can see below, Veeva Systems's revenue growth has been mediocre over the last two years, growing from $455.6 million in Q2 FY2022 to $590.2 million this quarter.
This quarter, Veeva Systems's quarterly revenue was once again up 10.5% year on year. On top of that, its revenue increased $63.9 million quarter on quarter, a strong improvement from the $37.1 million decrease in Q1 2024. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Veeva Systems is expecting revenue to grow 11.3% year on year to $615 million, slowing down from the 16% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 16.9% over the next 12 months before the earnings results announcement.
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 71.4% in Q2.
That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite improving significantly since the last quarter, Veeva Systems's gross margin is still lower than that 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 $255.4 million in Q2, up 178% year on year.
Veeva Systems has generated $955 million in free cash flow over the last 12 months, an eye-popping 43.6% 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 Q2 Results
Sporting a market capitalization of $30.9 billion, more than $3.87 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.
We were impressed by Veeva Systems's strong gross margin improvement this quarter. We were also happy that its revenue narrowly outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter missed analysts' expectations, although non-GAAP operating profit guidance exceeded expectations. Full year guidance was also slightly raised and is a bit ahead of Wall Street analysts' estimates. Overall, the results were fine with no major surprises good or bad. The stock is up 1.26% after reporting and currently trades at $195 per share.
Is Now The Time?
When considering an investment in Veeva Systems, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter. There are several reasons why we think Veeva Systems is a great business. Its revenue growth has been mediocre, and analysts believe that growth rate will remain steady. But on a positive note, while its gross margins aren't as good as other tech businesses we look at, the good news 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 12.1x indicates that the market is definitely optimistic about its growth prospects. But looking at the tech landscape today, Veeva Systems's qualities stand out and we still like it at this price.Wall Street analysts covering the company had a one year price target of $215.1 per share right before these results, implying that they saw upside in buying Veeva Systems even in the short term.
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