01—Abstract
Summary
Summary of the 10-Q filed June 2, 2023. Cited figures are marked; the original filing is the authoritative source.
Veeva Systems Inc. reported results for the three months ended April 30, 2023 in its Form 10-Q.
Total revenues were $526.3 milliona, up from $505.1 million a year earlier, with subscription services revenue of $414.5 million and professional services and other revenue of $111.8 million. Operating income fell to $61.5 million from $127.7 million, as research and development expenses rose to $147.0 million from $113.5 million and total operating expenses reached $298.1 million. Net income increased to $131.5 million, or $0.81 diluted per share, from $100.1 million, $0.62 per share a year earlier.
The increase was aided by a $39.7 millionb income tax benefit tied to excess tax benefits from equity compensation, primarily from the Chief Executive Officer's stock option exercises, and by other income of $30.2 million, mostly interest income. The filing reports net income of $147.9 million on a non-GAAP basis, versus $159.8 million a year earlier. The balance sheet remained strong, with cash, cash equivalents and short-term investments totaling $3.6 billion as of April 30, 2023, and total stockholders' equity of $3.94 billion.
Net cash provided by operating activities was $505.9 millionc. Management expects operating cash flow to be substantially lower in the remaining quarters of fiscal 2024 and to be reduced by about $90 million for the year due to tax payments under the Tax Cuts and Jobs Act. The company also expects revenue growth to decline in fiscal 2024, reflecting a February 1, 2023 contracting change that added termination-for-convenience rights to multi-year subscription agreements, and it expects operating margin to decrease as operating expenses rise.
The filing also highlights significant risks. Veeva is pursuing litigation against IQVIA and Medidata, and it plans to migrate its CRM applications from the Salesforce platform to its own Veeva Vault platform, with the Salesforce agreement not renewed after September 1, 2025. Class B common stock, which carries ten votes per share, is set to convert automatically on October 15, 2023, and the dual-class structure gives the CEO and Class B holders majority voting control until then.
02—Key points
Key Highlights
- Total revenues were $526.3 million, up 4% from $505.1 million; subscription services revenue rose 3% to $414.5 million.
- Operating income declined to $61.5 million from $127.7 million, as research and development expenses rose 30% to $147.0 million.
- Net income was $131.5 million, or $0.81 diluted EPS, versus $100.1 million, or $0.62, a year earlier; the period included a $39.7 million income tax benefit.
- Non-GAAP net income was $147.9 million, compared with $159.8 million a year earlier.
- Cash, cash equivalents and short-term investments totaled $3.6 billion as of April 30, 2023, and net cash from operations was $505.9 million.
- Management expects total revenue and subscription growth to decline in fiscal 2024 due to the termination-for-convenience contracting change, and expects operating margin to decrease.
- Class B common stock will automatically convert to Class A on October 15, 2023, and until then holders of Class B stock control a majority of voting power.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, Veeva Systems kept $0.25.
- Revenue$526.3M100.0%
- Cost of revenue−$166.7M31.7%
- Gross profit$359.7M68.3%
- Operating costs−$298.1M56.6%
- Operating income$61.5M11.7%
- Interest, other & tax$70.0M13.3%
- Net income$131.5M25.0%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed June 2, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $526.33M$505.10M | +4.2% |
| Cost of Revenue | $166.66M$139.51M | +19.5% |
| Gross Profit | $359.66M$365.59M | −1.6% |
| R&D Expenses | $146.96M$113.47M | +29.5% |
| Operating Expenses | $298.13M$237.91M | +25.3% |
| Operating Income | $61.53M$127.67M | −51.8% |
| Net Income | $131.52M$100.11M | +31.4% |
| EPS (Basic) | $0.82$0.65 | +26.2% |
| EPS (Diluted) | $0.81$0.62 | +30.6% |
| Shares Outstanding (Basic) | 159.85M154.51M | +3.5% |
| Shares Outstanding (Diluted) | 162.52M161.93M | +0.4% |
05—Questions
Frequently Asked Questions
Why did net income rise while operating income fell?
Operating income fell to $61.5 million from $127.7 million because operating expenses grew faster than revenue. Net income increased to $131.5 million mainly because of a $39.7 million income tax benefit, which reflected excess tax benefits from equity compensation, primarily tied to the CEO's stock option exercises, and $30.2 million of other income, mostly interest income.
What is the outlook for fiscal 2024?
The filing says revenue and subscription services growth rates are expected to decline in fiscal 2024 because of the February 1, 2023 termination-for-convenience contracting change for multi-year orders. Operating expenses and stock-based compensation are expected to increase, operating margin is expected to decrease, and cash flow from operations is expected to be reduced by about $90 million due to tax payments under the Tax Cuts and Jobs Act.
What are the main litigation risks?
Veeva is involved in several matters, including litigation with IQVIA over trade secrets and antitrust claims, a Medidata appeal, and a Mednet lawsuit. The company says it cannot reasonably estimate potential losses and believes the claims against it lack merit. Partial contingency fee arrangements with law firms in the IQVIA matters could create success-fee liabilities, but none had been accrued.
What happens to the dual-class share structure?
Class B common stock carries ten votes per share and will automatically convert into Class A common stock on October 15, 2023, or earlier if the holders of a majority of Class B shares elect conversion. Until then, Class B holders collectively control a majority of voting power, and CEO Peter Gassner holds about 44.7% of voting power as of April 30, 2023.
How strong is the company's balance sheet and liquidity?
As of April 30, 2023, Veeva had $3.6 billion in cash, cash equivalents and short-term investments, of which $42 million was held outside the United States. Total assets were $5.02 billion, total liabilities $1.08 billion, and stockholders' equity $3.94 billion. Management believes existing resources will be sufficient to meet working capital and capital expenditure needs for at least the next 12 months.
06—Continue