01—Abstract
Summary
Summary of the 10-K filed March 30, 2018. Cited figures are marked; the original filing is the authoritative source.
Veeva Systems Inc. reported fiscal year ended January 31, 2018 total revenues of $685.6 milliona, up 26% from $544.0 million in fiscal 2017, with subscription services revenues of $554.4 million (up 28%) making up 81% of the total.
Net income rose to $142.0 millionb from $68.8 million, though the effective tax rate fell to 10.5% largely due to $45.8 million of excess tax benefits from stock-based compensation under newly adopted ASU 2016-09. Operating income was $150.8 million, a 22.0% operating margin, and gross margin was 69.2%. Management expects revenue growth rates to decline in future periods and expects operating expenses to keep rising as it invests in R&D, sales and marketing, and professional services.
The company serves 625 customers as of January 31, 2018, up from 517, and its Veeva Vault customer count rose to 449 from 334. Veeva Commercial Cloud, led by Veeva CRM, still produced about 61% of total revenues, and the top 10 customers accounted for 42% of revenues. Cash, cash equivalents and short-term investments totaled $762.0 millionc, and the company has no debt disclosed in this filing.
Its largest commitment is a minimum order obligation of $500 milliond to salesforce.com through September 1, 2025, of which $285.8 million remained outstanding at year end. Key risks include dependence on a few large customers, intense competition from IQVIA, Oracle and others, and pending litigation with IQVIA and Medidata over trade secrets and non-compete claims.
Class B shares carry ten votes each, giving insiders about 67.9% of the voting power until October 2023. The company also adopts Topic 606 for fiscal 2019 with full retrospective transition, which will change how revenue and commissions are recognized.
02—Key points
Key Highlights
- Total revenues of $685.6 million, up 26% year over year; subscription services revenues of $554.4 million, up 28%, representing 81% of total revenues.
- Net income of $142.0 million versus $68.8 million in fiscal 2017, aided by a 10.5% effective tax rate that reflects $45.8 million of excess tax benefits from equity compensation.
- Operating income of $150.8 million (22.0% of revenues) and gross margin of 69.2%, compared with 19.8% operating margin and 68.1% gross margin in fiscal 2017.
- Subscription services revenue retention rate of 121% for fiscal 2018, down from 127% in fiscal 2017.
- Customer count rose to 625 from 517, with Veeva Vault customers at 449 and Veeva Commercial Cloud customers at 311.
- Cash, cash equivalents and short-term investments of $762.0 million at January 31, 2018.
- Management expects revenue growth to slow in future periods; Class B shares hold about 67.9% of voting power, and IQVIA and Medidata litigation remains pending.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Veeva Systems kept $0.22.
- Revenue$690.6M100.0%
- Cost of revenue−$211.4M30.6%
- Gross profit$479.1M69.4%
- Operating costs−$321.2M46.5%
- Operating income$157.9M22.9%
- Interest, other & tax−$6.8M1.0%
- Net income$151.2M21.9%
Where FY2018 revenue went
$690.6M- Cost of revenue: $211.4M, 31% of revenue
- Other operating costs: $189.2M, 27% of revenue
- Net income: $151.2M, 22% of revenue
- R&D: $132.0M, 19% of revenue
- Interest, other & tax: $6.8M, 1.0% of revenue
Kept 22% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed March 30, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $690.56M$550.54M | +25.4% |
| Cost of Revenue | $211.44M$173.68M | +21.7% |
| Gross Profit | $479.14M$376.86M | +27.1% |
| R&D Expenses | $132.02M$96.74M | +36.5% |
| Operating Expenses | $321.21M$256.17M | +25.4% |
| Operating Income | $157.93M$120.69M | +30.9% |
| Net Income | $151.18M$77.57M | +94.9% |
| EPS (Basic) | $1.08$0.57 | +89.5% |
| EPS (Diluted) | $0.98$0.53 | +84.9% |
| Shares Outstanding (Basic) | 140.31M135.70M | +3.4% |
| Shares Outstanding (Diluted) | 153.68M147.58M | +4.1% |
05—Questions
Frequently Asked Questions
How did Veeva's revenue and profitability change in fiscal 2018?
Total revenues grew 26% to $685.6 million, and net income more than doubled to $142.0 million from $68.8 million. Operating income increased to $150.8 million from $108.0 million. Net income was lifted considerably by a lower tax provision of $16.7 million, which benefited from the adoption of ASU 2016-09.
Is Veeva's revenue concentrated among a few customers?
Partly. The top 10 customers accounted for 42% of total revenues in fiscal 2018, down from 45% in fiscal 2017 and 50% in fiscal 2016. No single customer exceeded 10% of total revenues in any of the three years.
What are the main legal risks disclosed?
Veeva is defending an IQVIA lawsuit alleging trade secret theft and false advertising, and has filed antitrust counterclaims seeking more than $200 million in damages. It is also defending a Medidata lawsuit alleging inducement of employees to breach non-compete and confidentiality agreements. The company states it cannot reasonably estimate potential losses.
What financial commitments does Veeva have to salesforce.com?
Veeva must meet minimum order commitments of $500 million over the agreement term ending September 1, 2025, with true-up payments if targets are missed. As of January 31, 2018, it remained obligated to pay at least $285.8 million under this agreement.
How is control of the company structured?
Class B common stock carries ten votes per share and Class A carries one. As of January 31, 2018, Class B holders, including executive officers, directors and their affiliates, held about 67.9% of voting power, and that control is expected to last until October 15, 2023 absent a change.
06—Continue