VEEV 21Q1 Earnings and Analysis

First quarter earnings were good and guidance was mostly above expectations. I covered a lot of the details in my “First Impressions” post, but there is new information in this post, as well as tables of numbers that might help you see trends.

Earnings Report Headline Items

Earnings press release:… Seeking Alpha’s conference call transcript:…. (Thanks, Seeking Alpha, although this transcript wasn’t your finest hour.) Unless stated otherwise, all italicized quotations are from the Seeking Alpha transcript.

[Please note: GAAP stands for Generally-Accepted Accounting Principles. U.S.-based companies must report GAAP figures. Some companies also report “adjusted” or “non-GAAP” results. Please also note: A “basis point” is one-hundredth of 1%. Language around comparing percentages can be confusing; if operating margin went from 10% to 11%, is that a 1% increase or a 10% increase? Saying that the operating margin increased 100 basis points, however, is unambiguous.]

Veeva ends its fiscal year on January 31. Therefore, eleven months of, say, FY20 occurred in calendar year 2019.

1Q21 Revenue: $337.1 million This is a record amount, as usual. Guidance had been for $327-328 million. Wall Street expected revenues of $320.0 million, so this is a nice beat.

Revenue in $ millions
          1Q      2Q       3Q       4Q          FY     Comments
2015     66.7    75.7     83.8     87.1     =  313.3

2016     89.9    98.1    106.9    114.3     =  409.2
Y-o-Y    34.8%   29.7%    27.6%    31.2%        30.6%

2017    119.8   131.3    142.8    150.2     =  544.1
Y-o-Y    33.2%   33.9%    33.6%    31.4%        33.0%

2018    157.9   166.6    176.1    184.9     =  685.6
Y-o-Y    31.9%   26.8%    23.4%    23.2%        26.0%

2019    195.5   209.6    224.7    232.3     =  862.2
Y-o-Y    23.8%   25.8%    27.6%    25.6%        25.8%

2020    244.8   266.9    280.9    311.5     = 1104.1    Acq. Crossix + Physician’s World in 4Q20
Y-o-Y    25.1%   27.3%    25.0%    34.1%        28.1%

2021    337.1
Y-o-Y   37.7%

1Q21 Gross Margin: 71.9%: Gross margins have recently been impacted by The Crossix and Physician’s World acquisitions, but we’re seeing a bit of a bounce-back from last quarter.

Revenue in $ millions
        1Q      2Q      3Q      4Q
2015   86.8%   85.4%   83.4%   85.6%
2016   87.5%   90.9%   92.5%   90.7%
2017   91.0%   88.5%   86.1%   83.9%
2018   69.0%   69.7%   69.8%   68.1%
2019   69.2%   71.7%   72.7%   72.2%
2020   73.2%   73.7%   73.9%   69.7%
2021   71.9%

1Q21 GAAP Earnings: $86.6 million ($0.54 per fully-diluted share); non-GAAP Earnings: $105.2 million ($0.66 per fully-diluted share): These are record earnings amounts. Non-GAAP guidance was $0.59-0.60 per share. Wall Street expected $0.58 non-GAAP, so another nice beat.

Earnings per Share (GAAP)
          1Q       2Q       3Q       4Q
2015    $0.05    $0.07    $0.07    $0.09  = $0.28

2016     0.09     0.09     0.07     0.12  =  0.37
Y-o-Y    80.0%    28.6%     0.0%    33.3%    32.1%

2017     0.09     0.09     0.15     0.15  =  0.48
Y-o-Y     0.0%     0.0%   114.3%    25.0%    29.7%

2018     0.24     0.25     0.22     0.22  =  0.93
Y-o-Y   166.7%   177.8%    46.7%    46.7%    93.8%

2019     0.29     0.32     0.41     0.45  =  1.47
Y-o-Y    20.8%    28.0%    86.4%   104.5%    58.1%

2020     0.47     0.50     0.52     0.42  =  1.91
Y-o-Y    62.1%    56.3%    26.8%    -6.7%    29.9%

2021     0.54
Y-o-Y    14.9%

Earnings per Share (non-GAAP)
          1Q       2Q       3Q       4Q
2015    $0.07    $0.09    $0.09    $0.12  = $0.37

2016     0.12     0.13     0.12     0.15  =  0.52
Y-o-Y    80.0%    28.6%     0.0%    33.3%    32.1%

2017     0.15     0.15     0.22     0.22  =  0.74
Y-o-Y    25.0%    15.4%    83.3%    46.7%    42.3%

2018     0.22     0.23     0.25     0.23  =  0.93
Y-o-Y    46.7%    53.3%    13.6%     4.5%    25.7%

2019     0.33     0.39     0.45     0.45  =  1.62
Y-o-Y    50.0%    69.6%    80.0%    95.7%    74.2%

2020     0.50     0.55     0.60     0.54  =  2.19
Y-o-Y    51.5%    41.0%    33.3%    20.0%    35.2%

2021     0.66
Y-o-Y    32.0%

1Q21 Cash Flow From Operations (CFFO): $282.2 million This is a record cash flow result for Veeva, but Veeva’s cash flow is extremely seasonal. Cash flow for all of FY21 is expected to be around $450 million.

2Q21 and FY21 Guidance
2Q21 Revenue: $339-341 million (27.4% year-over-year growth at the midpoint); Wall Street expected $333.4 million.
2Q21 Non-GAAP Operating Income: $126-128 million (22.5% year-over-year growth at the midpoint).
2Q21 Non-GAAP Fully-diluted Net Income per share: $0.63-0.64 (15.5% year-over-year growth at the midpoint); Wall Street expected $0.60.

FY21 Revenue: $1380-1395 million (25.7% year-over-year growth at the midpoint); Wall Street expected $1388 million.
FY21 Non-GAAP Operating Income: $500-510 million (45.4% year-over-year growth at the midpoint).
FY21 Non-GAAP Fully-diluted Net Income per share: $2.50-2.55 (15.3% year-over-year growth at the midpoint); Wall Street expected $2.47.

VEEV earnings day share price: $216.29 +5.92% (vs. S&P 500 +0.48%) Veeva was down about 3% in the “after-hours” market. That didn’t make sense to me, but I hadn’t looked at the conference call transcript, so I assumed the answer must lie there. I think the “regular trading day” market got it right.

1000 Days of Ratios Analysis
This is an analysis that I invented, although it draws heavily from the work of Tom Engle (TMF1000) and VTDave. Rather than trying to buy at a historically low price, they focus on buying at low ratios. For example, if after an earnings report, the stock was up 5% but earnings were up 10%, you’re buying at a better PE ratio after earnings. I collect 1000 days of trading history in a spreadsheet. The round number makes calculations easier. I also like that the ~4-year period often includes a recession. The choice of 1000 days is also a tip-of-the-hat to TMF1000. For each trading day, I calculate the value for a handful of financial metrics based on what numbers the market knew that day. Then I sort the spreadsheet, in turn, on each of the calculated ratios to see where current data falls in the sorted list. When the current value falls in the best 25% of results, I feel as if I am probably seeing a good price. When looking at a company I want to own, I’d rather buy at a good price than wait for a great price that never appears.

The ratios I analyze are Enterprise Value to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), Price to Earnings, Price to Adjusted Earnings, Price to Sales, Price to Gross Profits, Price to Free Cash Flow, and Price to EBITDA. For different companies and/or industries, certain of these ratios are going to be more important than others, so I calculate the coefficient of variation to identify which ratios are sending a strong signal for the company I’m analyzing.

Although I like the theoretical underpinnings of this approach, there are some warnings I want to offer. First, all the data is backward looking, and the market, of course, is forward looking. Second, this analysis works best with companies that are in a steady state, churning out the same kinds of products and/or services year after year. Conversely, it works least well with businesses undergoing a transformation, be that entering an adjacent market, experiencing a binary regulatory approval event, or making a major acquisition. Nevertheless, I wanted to present the analysis and you can choose to take it or leave it. I would urge that – at best – it should be one of many inputs into your decision making.

For Veeva, only one metric really sends a strong signal right now and that is price to adjusted earnings. If I were in full-blown “coverage” mode for Veeva, I’d probably try to add a metric like “calculated billings” to see if that helps. That said, management claims it can jump around on a quarterly basis and suggests that only annual guidance for calculated billing be used for modeling, so I’m not optimistic that adding that metric would be worth the effort.

[Please note: “Current” is based on the May 29 closing price ($216.29)]
Current Adj. PE Ratio: 93.14x (worst 3% – range is 55.22x to 98.13x)
25% P/Adj.EPS cut-off ratio is 66.99x. TTM adjusted EPS is $2.35. P/Adj.EPS-based target is $157.42.
[As always, please do your own due diligence.]

Veeva appears to be VERY fully-valued at present. I find it impressive that in the past ~4 years, VEEV has NEVER traded at an adjusted PE below 55x and only trades below 67x roughly one day in four. Wow! When I summarize my 1000 Days Analysis, I’ll often share information from the Value Line Investment Survey indicating the approximate value for their eponymous “value line”, which represents their estimate of fair value. I think it is good to have a completely independent perspective. But they’re not offering an estimate for Veeva. My guess is that they are probably waiting for ten years’ worth of trading data.

Main Analysis
Many times when I cover a company, the next section in my earnings analysis would focus on each reporting segment for the company. Veeva only reports one segment, so I’ll break things down by major product lines. Perhaps I missed subtleties because I am new to the company, but a lot of what I heard with CRM and Vault was about winning business at a new Top 20 Pharmaceutical company, or having an existing customer for one product expand into an adjacent product. Don’t get me wrong… I’m glad that’s happening. But I can infer those things from the overall growth numbers, so I don’t feel compelled to repeat all that stuff – my word count is always “over the top” anyway, and I have to cut corners somewhere! What I thought would be quite useful, though, is to show historic (and current) growth rates for the two main broad product classes. Even for the more mature CRM product, current growth rates ain’t bad, although some “growth” was acquired with Crossix.

Veeva CRM
Subscription Revenue History:

Revenue in $ millions
        1Q    2Q     3Q     4Q        FY     Comments
2017                                  308

2018                                  357
Y-o-Y                                15.9%

2019                                  395
Y-o-Y                                10.6%

2020    106   112    115    135   =   469 (may not total due to rounding error)
Y-o-Y                                18.7%

2021    142
Y-o-Y  34.0%

Veeva Vault
Subscription Revenue History:

Revenue in $ millions
        1Q    2Q     3Q     4Q        FY     Comments
2017                                  133

2018                                  203
Y-o-Y                                52.6%

2019                                  299
Y-o-Y                                47.3%

2020     92   105    112    119   =   428 (may not total due to rounding error)
Y-o-Y                                43.1%

2021    128
Y-o-Y  39.1%

Veeva Data Cloud
This is a straight copy-and-paste from Veeva’s earnings press release: “The company announced Veeva Data Cloud to bring much needed innovation and choice to the life sciences data market. The longitudinal patient and prescriber data offering will be focused on the specialty distribution channel initially in the U.S. with other countries and use cases to follow in the coming years. Veeva has already signed its first two early adopters for pilots, a top 20 pharma and an emerging biotech.” From the earnings conference call transcript: “We had a major announcement for commercial in March with Veeva Data Cloud planned for the U.S. by year-end. Veeva Data Cloud will bring a better solution for patient data to the industry. This is a large, underserved area and ripe for disruption. … Veeva Data Cloud is powered by the Crossix data platform, which gives us a distinct advantage. It’s a world-class technology platform built for the development and delivery of large scale patient data and analytics, all in a privacy safe way. Customer feedback on Data Cloud has been very positive. … Over time, we will expand Data Cloud to more data offerings and countries. The Crossix data platform could be as important an asset to Veeva as the Vault platform. But just as we saw with Vault, it will take us many years to become the market leader. We’re starting in a focused way around patient data for the U.S. market. We’ll concentrate on early adopter success and product excellence and grow from there.” During the question and answer session, Veeva revealed that these two early adopters will both be using the Data Cloud to track “patient journeys” and ensure that they’re targeting the right doctors, given the patient populations they’re trying to reach. At least at first, they don’t seem to be going after “the competition” head-on; as Chief Executive Officer (CEO) Peter Gassner described it, the two early adopters are “… not replacing anything.

Other Random Musings
Where’s the Remote?
Heh. Veeva’s got the remote, and in some cases it’s selling it and in others it’s giving it away for free! Veeva Engage supports remote meetings between physicians and pharmaceutical sales reps and is part of their CRM suite. Through September, they’re allowing it to be used by customers without charge. Veeva also added a feature to Engage allowing compliant fulfillment of drug samples requested online.

Another newly-added feature supporting remote work allows those who monitor clinical trials to review and verify source documents remotely.

Finally, the Crossix Data Platform is now capturing a set of telehealth metrics to help customers better understand changing trends in patient and physician engagement patterns.

MyVeeva will be a tool for patients in clinical trials. It is meant to help them manage medications and doctors’ appointments and even enable remote doctor visits. While it might be handy for patients, I think the real motivation behind the tool is that it could eliminate a lot of the paper involved in clinical trials. It is scheduled to be released in Q4 and will be free for clinical research sites.

CFO Search is Complete
Veeva has found their next CFO (Chief Financial Officer), who will start in early June. Current CFO Tim Cabral has said all along that he will stay on to ensure a smooth transition. During this earnings conference call, though, he suggested that the next earnings conference call in August is expected to be his last.

Concluding Thoughts
This appears to have been another solid growth quarter for Veeva. Yes, some of the growth was acquired, but organic growth seems reasonable too. Veeva’s subscription business is holding up well during the pandemic. The healthcare industry that Veeva serves is likewise holding up well. Some areas are hurt by the drop-off in elective procedures, but others are as busy as ever as emergency projects arise in response to the pandemic. Despite the disruption associated with the pandemic, Veeva’s growth seems steady.

I hope this was useful for you. If you have any questions or comments, please post them.

Fool on!
Thanks and best wishes,
TMFDatabaseBob (long: VEEV)
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Please note: I am not a member of any newsletter team. My opinions are my own and do not necessarily reflect those of the TMF advisers. I am not an investment professional, merely an investor.