2023-10-03 01:31:59 ET
Summary
- Veeva Systems continues to post solid results.
- The company has a lot of irons in the fire for future growth, as well as nearly $4 billion in cash to make an accretive acquisition.
- While VEEV stock is not in the bargain bin, it should still have some upside from here.
Back in late January, I called Veeva Systems ( VEEV ) one of the most attractive SaaS names out there, with an attractive valuation and one of the most recession resistant customer bases out there. Since then the stock is up about 17%, although it has given back some gain more recently. When I revisited the stock in June, I still held on to my bullish belief. Let's catch up on the name.
Company Profile
As a refresher, VEEV offers SaaS solution for the life sciences industry. Its Commercial Solutions is a CRM solution that was originally built on top of Salesforce.com's ( CRM ) platform to help life science companies commercialize their products. However, the company announced it would not renew its agreement with Salesforce when it expires in September 2025 and that it will move customers over to its Veeva Vault Platform.
The company's R&D Solutions products, meanwhile, help life science companies during the development phase of drugs and medical devices. It is built on VEEV's proprietary cloud enterprise content management system called Vault.
Solid Q2 Results
Shares of VEEV posted a nice rally following its Q2 results , with the stock rising over 8% the next session and continuing to march higher the over the next week or so. However, the stock has given back some of its gains since then.
For the quarter ended July, VEEV saw revenue increase 10% to $590.2 million. Subscription revenue climbed 10% higher to $470.6 million. Service revenue rose 13% to $119.6 million. Analysts were looking for revenue of $582.1 million.
The company saw an $18 million revenue impact from the standardization of termination for convenience rights, which is an accounting change that impacts multi-year contracts. Excluding the TFC impact, revenue rose 14%.
Commercial Solutions subscription revenue rose 3% to $243.4 million, while service revenue for the segment rose 7% to $47.3 million. Management said it added 8 new SMB customers in the quarter for its core CRM product.
The company said that it also signed up its first customer for its CRM product powered by its Vault Platform. While Vault CRM will become generally available in April, this early adopter will go live in Q4.
The company also noted that in China the country passed new regulations that require approval for cross-country transfer of personal data. VEEV says it has a solution that will meet these requirements, and that customers may switch to it or evaluate other solutions. About 3% of its revenue comes from China.
R&D Solutions revenue jumped 18% to $227.2 million. Service revenue for the segment also rose 18%, coming in at $72.3 million.
Adjusted EPS came in at $1.21, easily surpassing the analyst consensus of $1.13.
Normalized billings were up 16% year over year to $553 million. This came ahead of company guidance due to deal timing.
The company generated $212 million in adjusted operating cash flow. It ended the quarter with more than $3.9 billion in cash and short-term investments and zero debt.
While the TFC adjustment once again dampened its results, VEEV, nonetheless, once again put up solid results. Its CRM solution has matured and is no longer the growth driver it once was, but R&D Solutions continues to shine, with new products continuing to gain traction.
With nearly $4 billion in cash, it will be interesting to see what VEEV decides to do with it. Right now, it is getting some nice interest income, but it said its main focus will be M&A. Finding a strong third leg of growth, even if it's through acquisition, would be big for the company.
Outlook
Looking ahead, VEEV forecast fiscal Q3 revenue to come in between $614-616 million. That includes a $12 million TFC standardization impact headwind. The analyst consensus at the time was for Q3 revenue of $617.2 million. Subscription revenue is projected to be around $493 million.
Adjusted operating income is projected to be between $223-225 million, while adjusted EPS is projected to be between $1.26-1.27. The analyst consensus at the time was for Q3 EPS of $1.25.
It is looking for normalized billions to be about $436 million for the quarter.
For the full year, VEEV guided for revenue of between $2.365-2.37 billion, an increase of $5 million on the low-end from its previous guidance. The forecast includes a $95 million impact from TFC standardization and $12 million in currency headwinds.
Subscription revenue is projected to be between about $1.895 billion, up $5 million from its prior forecast. Commercial Solution revenue is expected to come in around $985 million, while R&D Solutions revenue is forecast to be approximately $910 million.
VEEV is projecting adjusted operating income to be $820 million, with adjusted EPS of around $4.68. The company previously guided for full-year EPS of $4.59 and the consensus was for EPS of $4.32.
VEEV reiterated its fiscal 2025 guidance forecast of at least $2.8 billion in revenue and at least $1.0 billion in adjusted operating income.
VEEV slightly adjusted its guidance upwards, with that coming from the Commercial Solution segment. While the company has said that there is some softness in small biotechs due to the macro environment and their funding clinical trials, overall it has a very resilient customer base. Meanwhile, its winning some nice deals in areas such as EDC, which should help see revenue ramp over time. And with these ramping deals, down the road the TFC adjustments will move from a headwind to more of a tailwind.
Citi Global Tech Conference
Last month, VEEV EVP of Strategy Paul Shawah was at a Citi investment conference talking about the company. Some topics he covered were the macro environment, noting that the company has seen an impact from the decline in small biotech funding, as well as the impact it has had on its Crossix marketing business. However, VEEV sees Crossix being a big opportunity over the long run.
Shawah also discussed generative AI. VEEV has announced a CRM Bot, and it wants its data and applications to be AI-enabled. However, the SVP noted that the company does not want to overstate its AI abilities to its customers. He said accuracy is the most important thing in the life sciences industry.
Shawah also focused on two big product areas of potential growth in Link and Compass. At the conference , he said:
So Link and Compass are significant and very large businesses for us, in some cases, larger than some of our established software products that we have. So these are big market opportunities and growing opportunities. Link is a good example where we haven't fully sized the opportunity because it continues to expand. You can think about it as a platform where we started with one product, and now we have many products and there will be likely more products that we expand on that same Link platform. So it's a growing and expanding opportunity that we're still very early days. And the way to think about it is, I've mentioned earlier, it's a platform for real-time intelligence. We have technology, but also humans, people that source this real-time data about things like scientific experts and thought leaders in the life sciences industry, who are they, what are they talking about? What events are they speaking at, did they go to ASCO, the big oncology events? What are they presenting on, what clinical trials are they participating in? So we have this really deep and rich visibility, and that's all because of the Link platform. And then we're pointing that platform at other entities like key accounts, so who are the health care systems and the decision-makers in those health systems. That's an example of another data set. And we're continuing to do that at many different data sets, and that's how we've started with a single product, and now we have many products, and you can see that opportunity expanding. So and then Compass, just to double-click a little bit more into that. That's also a very significant opportunity. Link is global, our Compass product is focused on the U.S. market. And our first data product there is around patient data, longitudinal patient data, which are the things like what are the procedures and the diagnoses and the prescriptions that all happen around the patient. It's really critical information for a life sciences company to segment their customers, decide who they target. And then ultimately, the data sets we provide will help with things like incentive compensation. So these are mission-critical data sets that most every company buys. And now they have a very viable alternative in the market with Veeva."
Right now, it looks like VEEV has some nice irons in the fire when it comes to growth opportunities. With its core CRM product now mature, VEEV is expanding into other areas, are solutions like Link and Compass could go along way to be future growth drivers for the company. One thing VEEV has done a good job of it having been able to expand beyond its original bread and butter CRM product.
Valuation
VEEV currently trades at 12x fiscal year 2024 (ending in January) revenue of $2.37 billion (EV/S), while its EBITDA multiple is 33x based on the consensus of $856.7 million.
For fiscal-year 2025, it trades at 10x revenue estimates of $2.82 billion and under 27x the adjusted EBITDA consensus of $1.06 billion.
VEEV has historically traded at a high P/S ratio, with a P/S ratio of over 19x for four of the past five years. You'd have to go back to 2016 to see a ratio under 10x.
Conclusion
With solid growth, a sticky solution, and a largely recession resistant customer base, VEEV continues to be well positioned to be a solid performer. The company has a lot of emerging growth opportunities, and with nearly $4 billion in cash, it will be interesting to see if it can find an acquisition to propel growth even more.
The stock's valuation remains the biggest sticking point, as at 10x next fiscal year's revenue it is not cheap, although top SaaS names can command multiples of over 12x, and the company has often commanded a P/S ratio of over 12x in the past as well.
Right now, I'd prefer to be a buyer of VEEV on a bit of a price dip, but it's not to the point where I'd lower my rating quite yet. As such, I will continue to rate the stock a "Buy."
For further details see:
Veeva Systems: A Lot Of Growth Opportunities Remain