Veeva Systems (VEEV) Beats On Earnings In Q3, Updates View

Veeva Systems Inc. (NYSE:VEEV) reported third-quarter fiscal 2018 adjusted earnings of 25 cents per share. Earnings beat the Zacks Consensus Estimate of 22 cents and improved from the year-ago figure of 22 cents. Solid performance in the Vault platform drove the bottom line.

Total revenues were $176.1 million, up from $142.8 million in the year-ago quarter, reflecting an increase of 23.3% year over year. The figure was well ahead of the Zacks Consensus Estimate of $172 million. Veeva System’s strong growth in subscription revenue segment drove the top line.

Segmental Details

Subscription service revenues were $141.9 million, up 24.9% from $113.6 million in the year-ago quarter. In the third quarter, the subscription gross margin was 81.5%, reflecting expansion of roughly 150 basis points from the year-ago quarter on the back of faster growth of Vault products and Commercial Cloud offerings outside core CRM.

For the full-year, Veeva Systems remains on track for a 50% subscription revenue growth for Vault and 15% subscription revenue growth for Commercial Cloud. In fact, management at Veeva Systems expects subscription revenue growth of at least 20% through 2020.

Veeva Systems Inc. Price, Consensus and EPS Surprise

Veeva Systems Inc. Price, Consensus and EPS Surprise | Veeva Systems Inc. Quote

Professional service revenues increased almost 17.1% to $34.2 million. In the third quarter, services gross margin was 32%, down from 38% a year ago.

Quarter Highlights

Veeva Systems added a large number of Vault customers in the third quarter. Also, the number of customers using multiple Vault applications rose approximately 50% year over year on growth across all Vault application areas. Vault represented almost 40% of total revenue in the third quarter, up from 33% reported in the year-ago quarter.

Also, Veeva Systems released its advanced Veeva Commercial Cloud offering, Veeva CRM Engage Webinar, at the Veeva Commercial Summit Europe. According to the company, the product is a purpose-built application for life sciences to manage online events without the typical compliance risk. Veeva also released Veeva Vault PromoMats Brand Portal — a new digital asset management capability that helps brand managers create portals, organize and showcase content within Veeva Vault PromoMats.

Veeva Systems plans to enter the drug safety and pharmacovigilance market. Vault Safety will make Vault Development Cloud a comprehensive suite of unified cloud applications with Vault Clinical, Vault Quality, and Vault RIM. This will help life sciences companies simplify drug development. Vault Safety is expected release in 2019.

Margin Details

Gross margin at Veeva Systems expanded 54 basis points (bps) to 69.8% in the reported quarter. Adjusted operating income in the reported quarter reflects an increase of 23.2% from the year-ago quarter.

Adjusted operating margin contracted 2 bps to 23.7% from the year-ago figure.Research and development expenses increased 36.1% to $34 million. Sales and marketing expenses rose 12.2% to $31.9 million and general and administrative expenses increased 31.8% to $15.3 million.

Balance Sheet

Veeva Systems ended the reported quarter with nearly $58.1 million in cash and short-term investments versus $724.7 million at the end of the sequential quarter.

Guidance

For fiscal 2018 ending Jan 31, 2018, total revenues are anticipated in the band of $679.7-680.7 million, higher than the earlier band of $672-$674 million.

The company reiterated the adjusted operating income projection at $200 million to $202 million and adjusted earnings between 86 cents and 87 cents. The Zacks Consensus Estimate for 2017 revenues is pegged at $674.6 million. The Zacks Consensus Estimate for 2017 earnings is pegged at 87 cents.

For fourth-quarter fiscal 2017 ending Jan 31, 2018, Veeva Systems expects total revenues in the range of $179-$180 million. Meanwhile, adjusted operating income is expected between $50 million and $51 million. Adjusted earnings are estimated between 21 cents and 22 cents.

Our Take

Veeva Systems exited the third quarter on a solid note with revenues and earnings beating the Zacks Consensus Estimate. Also, the company witnessed year-over-year growth on both the fronts. We are encouraged by the company’s consistent efforts in product innovation and launches through R&D. We are also upbeat about Veeva Systems’ product launches and its industry-focused approach. Growing global demand for cloud-based and vault applications also boost opportunities for the company. Moreover, the latest launches are encouraging as they are likely to fortify the company’s position and enhance its prospects.

However, the contraction in adjusted operating margin is discouraging. Also, the company faces stiff competition across most of its product lines.

Zacks Rank & Key Picks

Currently, Veeva Systems has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical sector are PetMed Express, Inc. (NASDAQ:PETS) , Luminex Corporation (NASDAQ:LMNX) and Myriad Genetics, Inc. (NASDAQ:MYGN) . Notably, PetMed and Myriad Genetics sport a Zacks Rank #1 (Strong Buy) while Luminex carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported earnings per share of 43 cents in the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2%.

Luminex reported adjusted earnings per share of 19 cents in the third quarter of 2017, up 216.7% year over year. Revenues increased almost 4.1% year over year to $74.1 million.

Myriad Genetics reported adjusted earnings per share of 26 cents in the first quarter of fiscal 2018, up 13% year over year. Total revenues rose 7.2% year over year to $190.2 million in the first quarter.

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