Source: Veeva.
Shareholders of Veeva Systems (VEEV -1.47%) -- the upstart cloud company focused on the specific needs of pharmaceutical companies -- got what they've become accustomed to on Thursday night: a solid, albeit narrow, beat on revenue and earnings, while providing guidance that is right about in line with what everyone expects.
The headline numbers played out like this:
|
|
Expected |
Actual/Updated |
|---|---|---|
|
Q2 Revenue |
$95.9 M |
$98.1 M |
|
Q2 EPS |
$0.11 |
$0.13 |
|
FY Revenue |
$397 M |
$396.5 M |
|
FY EPS |
$0.46 |
$0.475 |
Source: E*Trade and company SEC filings. Updated estimates represent the midpoint of management forecast.
On the surface, this only confirms what we already know about the company: It is being spearheaded by founder/CEO Peter Gassner, who had extensive experience in the industry through his time with salesforce.com; Gassner is continuing to leverage the inside knowledge he has to win over more and more clients -- building a sticky moat around the company; he is somehow managing to do this while still turning a modest profit.
Peek under the headlines, though, and there were a couple of storylines long-term investors need to be aware of.
CRM is still strong and sticky
Veeva's bread and butter is its Veeva CRM business, which focuses on sales and marketing of the company's cloud-based software solutions. That business continues to do well, and management expects subscription revenue from CRM to grow by at least 20% over the next few quarters.
The system is usually the gateway product that gets pharmaceutical companies to enter the larger Veeva universe. Over time, those companies start using more and more of Veeva's CRM offerings, making switching costs that much higher, and the company much stickier.
One recent initiative that drives this home is the company's approved email program. Two top 20 pharmaceutical companies began using the offering during the last quarter. And Gassner thinks this is just the beginning:
Subscription revenue for this add-on has nearly tripled year-over-year and we now have our first customer approaching seven figures in annual contract value... We believe approved email will ultimately be utilized by the majority of our CRM users.
The stickiness of the core CRM business cannot be understated, and the revenue from it will largely help fund future initiatives.
Speaking of initiatives: the Vault
Veeva's newer offering for pharmaceutical companies doesn't focus on customer relationship management, but instead on navigating the arduous process of getting drugs through the clinical approval process. Veeva Vault is an electronic trial master file (eTMF) that allows pharmaceutical companies to aggregate all of the data needed in one streamlined process.
This newer offering has been gaining significant traction over the past year: Already, six of the top 20 pharmaceutical companies are using some form of Veeva Vault for their own trial needs. Gassner said, "Vault is on the path to becoming the standard for enterprise content management and life sciences."
It's hard to argue with that when the company has been able to win over that many big customers in such a short time since Vault was taken to market. That being said, there's still a long runway for growth. Management believes that Vault's current annualized run rate of $75 million represents just 4% penetration of a total addressable market of $2 billion.
Management expects subscription revenues from non-CRM products (presumably, most through Vault) to grow by over 100% throughout the rest of the fiscal year.
In the end, there's a lot for shareholders to like. The company has a solid core business (CRM) that is continuing to draw customers in and make the service sticky. And it has a brand-new offering (Vault) that could eventually replace hundreds of aging legacy systems badly in need of upgrading.
While the stock current price tag of 53 times trailing earnings and 43 times trailing free cash flow certainly isn't cheap, it's hard to deny the momentum Gassner has going with Veeva.
