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Veeva Systems (NYSE:VEEV) Q3 Sales Beat Estimates But Quarterly Guidance Underwhelms


Full Report / December 01, 2021
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Healthcare software provider Veeva Systems (NASDAQ:VEEV) reported strong growth in the Q3 FY2022 earnings announcement, with revenue up 26.1% year on year to $476.1 million. On the other hand, guidance for the next quarter slightly missed analyst expectations with revenues guided to $479 million at the midpoint, or 0.14% below analyst estimates. Veeva Systems made a GAAP profit of $105.8 million, improving on its profit of $96.9 million, in the same quarter last year.

Veeva Systems (VEEV) Q3 FY2022 Highlights:

  • Revenue: $476.1 million vs analyst estimates of $466 million (2.16% beat)
  • EPS (non-GAAP): $0.97 vs analyst estimates of $0.88 (10.6% beat)
  • Revenue guidance for Q4 2022 is $479 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow of $112.9 million, roughly flat from previous quarter
  • Gross Margin (GAAP): 72.7%, 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 year, growing from quarterly revenue of $377.5 million, to $476.1 million.

Veeva Systems Total Revenue

This quarter, Veeva Systems's quarterly revenue was once again up a very solid 26.1% year on year. Quarter on quarter the revenue increased by $20.5 million in Q3, which was in line with Q2 2022. This steady quarter-on-quarter growth shows the company is able to maintain its steady growth trajectory.

Analysts covering the company are expecting the revenues to grow 18.8% over the next twelve months, although estimates are likely to change post earnings.

Customer Growth

You can see below that Veeva Systems reported NaN customers at the end of the quarter, That is slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Veeva Systems Customers

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 72.7% 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 average of what we typically see in SaaS businesses, but it is good to see that the gross margin is staying stable which indicates that Veeva Systems is doing a good job controlling costs and is not under a pressure from competition to lower prices.

Key Takeaways from Veeva Systems's Q3 Results

With a market capitalization of $43.3 billion, more than $2.35 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.

It was good to see Veeva Systems outperform Wall St’s revenue expectations this quarter. And we were also glad to see good revenue growth. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But the market was likely expecting more and the company is down 2.8% on the results and currently trades at $264.5 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 good business. We would expect growth rates to moderate from here, but its revenue growth has been strong, over the last two years. 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.

The market is certainly expecting long term growth from Veeva Systems given its price to sales ratio based on the next twelve months is 21.2x. There is definitely a lot of things to like about Veeva Systems and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

The Wall St analysts covering the company had a one year price target of $341.5 per share right before these results, implying that they saw upside in buying Veeva Systems even in the short term.

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