01—Abstract
Summary
Summary of the 10-Q filed September 1, 2023. Cited figures are marked; the original filing is the authoritative source.
Veeva Systems Inc.'s Form 10-Q for the quarter ended July 31, 2023 reports total revenues of $590.2 milliona for the three months, up from $534.2 million, and $1,116.6 million for the six months, up from $1,039.3 million.
Subscription services revenues were $470.6 millionb for the quarter, and net income was $111.6 million, or $0.68 per diluted share, compared with $90.6 million, or $0.56, a year earlier. Operating income for the quarter was $104.0 million, roughly flat against $101.1 million, as operating expenses grew faster than gross profit, while other income, net rose to $38.8 million from $8.4 million on higher interest income. Net cash provided by operating activities was $771.0 million for the six months, and cash, cash equivalents and short-term investments totaled $3.9 billion at quarter end.
The filing states that the addition of termination-for-convenience rights to multi-year master subscription agreements, effective February 1, 2023, will reduce revenue for the fiscal year ending January 31, 2024, and that subscription revenue growth is expected to decline in that year before accelerating in fiscal 2025. Management expects operating expenses, stock-based compensation and operating margin to increase or decrease accordingly in fiscal 2024, and expects cash flows from operations to be reduced by approximately $90 millionc due to R&D capitalization tax rules. The company also disclosed plans to migrate its CRM applications from the Salesforce platform to its Veeva Vault platform, with the Salesforce agreement not being renewed when its current term expires on September 1, 2025.
The filing describes ongoing litigation with IQVIA (trade secret, antitrust and counterclaims, with counterclaims seeking monetary damages exceeding $200 milliond) and Medidata (appeal pending), and a Mednet case with trial set for early 2024. Management states it is unable to make a meaningful estimate of potential losses in the IQVIA and Medidata matters. Class B common stock is scheduled to automatically convert to Class A on October 15, 2023.
02—Key points
Key Highlights
- Total revenues were $590.2 million for the quarter ended July 31, 2023, up from $534.2 million a year earlier; six-month revenues were $1,116.6 million, up from $1,039.3 million.
- Net income was $111.6 million ($0.68 diluted EPS) for the quarter versus $90.6 million ($0.56 diluted EPS) in the prior-year quarter.
- Operating income was $104.0 million for the quarter versus $101.1 million, while other income, net rose to $38.8 million from $8.4 million on higher interest income.
- Net cash provided by operating activities was $771.0 million for the six months ended July 31, 2023, compared with $574.4 million a year earlier.
- Cash, cash equivalents and short-term investments totaled $3.9 billion as of July 31, 2023.
- Termination-for-convenience rights added to multi-year subscription agreements from February 1, 2023 are expected to reduce revenue and revenue growth for fiscal 2024, with growth expected to accelerate in fiscal 2025.
- Company plans to migrate its CRM applications from Salesforce to Veeva Vault, and does not intend to renew its Salesforce agreement when the current term expires on September 1, 2025.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Veeva Systems kept $0.19.
- Revenue$590.2M100.0%
- Cost of revenue−$169.0M28.6%
- Gross profit$421.2M71.4%
- Operating costs−$317.2M53.7%
- Operating income$104.0M17.6%
- Interest, other & tax$7.6M1.3%
- Net income$111.6M18.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed September 1, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $590.23M$534.22M | +10.5% |
| Cost of Revenue | $169.02M$151.67M | +11.4% |
| Gross Profit | $421.21M$382.55M | +10.1% |
| R&D Expenses | $157.23M$134.01M | +17.3% |
| Operating Expenses | $317.16M$281.46M | +12.7% |
| Operating Income | $104.05M$101.09M | +2.9% |
| Net Income | $111.63M$90.60M | +23.2% |
| EPS (Basic) | $0.70$0.58 | +20.7% |
| EPS (Diluted) | $0.68$0.56 | +21.4% |
| Shares Outstanding (Basic) | 160.40M154.95M | +3.5% |
| Shares Outstanding (Diluted) | 163.28M162.13M | +0.7% |
05—Questions
Frequently Asked Questions
How did Veeva's revenue and profitability perform in the quarter ended July 31, 2023?
Total revenues rose to $590.2 million from $534.2 million, and subscription services revenues rose to $470.6 million from $428.6 million. Gross profit was $421.2 million versus $382.5 million, and net income was $111.6 million versus $90.6 million. Operating income was roughly flat at $104.0 million versus $101.1 million as operating expenses increased to $317.2 million from $281.5 million.
What does the termination-for-convenience change mean for future revenue?
Since February 1, 2023, master subscription agreements governing multi-year orders generally include a customer termination-for-convenience right. The filing states this changes the timing of revenue recognition and will reduce revenue for the fiscal year ending January 31, 2024, with revenue recognized in fiscal 2025 generally consistent with amounts invoiced for the order term.
What guidance did management give for fiscal 2024?
Management expects total and subscription revenue growth to decline in fiscal 2024 versus fiscal 2023, and expects operating expenses, stock-based compensation and cost of subscription services to increase. It expects operating margin to decrease, other income, net to continue increasing on higher interest rates, and cash flows from operating activities to be reduced by approximately $90 million due to R&D expenditure capitalization under the Tax Cuts and Jobs Act.
What are the key legal matters disclosed?
The IQVIA litigation involves IQVIA's trade secret claims and Veeva's antitrust counterclaims seeking monetary damages exceeding $200 million, with expert discovery expected to be completed by the end of October 2023. The Medidata matter is on appeal in the Second Circuit, and the Mednet case is in discovery with a trial set for early 2024. Management is unable to make a meaningful estimate of potential losses in these matters.
What changes to the ownership and governance structure are expected?
All outstanding Class B common stock will automatically convert into Class A common stock on October 15, 2023, after which each share will carry one vote. As of July 31, 2023, Class B holders controlled approximately 49.8% of the voting power, with founder and CEO Peter Gassner holding approximately 44.6%.
06—Continue