Veeva's Vault application continues to show strong demand. Image source: Veeva Systems.

Veeva Systems (NYSE:VEEV), a cloud player focused specifically on meeting the needs of pharmaceutical companies, reported earnings this week that shows the company continues to capture a bigger slice of a very lucrative pie. While shares actually traded down on the market's open Thursday, there's a lot for investors to like.

First, just the numbers
Veeva's revenue and earnings numbers came in ahead of expectations, but it was a call for tepid growth in earnings for the year ahead that likely played a role in the stock's muted response.


Q4 Rev

Q4 Adjusted EPS

FY 17 Revenue Guidance

FY 17 EPS Guidance


$114 M


$510.5 M







Guidance is the midpoint for given range. Growth is year over year and assumes such targets are hit for FY 2017. Data source: SEC filings.

The midpoint of management's revenue guidance for the year ahead was ahead of analyst estimates of $508 million, but EPS of $0.55 assumes just 8% growth in earnings and falls short of the consensus $0.58 that was expected.

On that front, the shortfall will come primarily from reinvestment in the company's business, especially Veeva Vault's offerings of Quality and Regulatory cloud services.

For the first time, management offered a detailed customer-level breakdown of the four different core offerings. In total, Veeva had 400 customers at the end of the fiscal year, a 45% increase from the same time last year.

OpenData and Network are still in their infancy, and while promising, I'm going to focus on CRM and Vault, as those are the two key offerings for the company right now.

CRM continues to perform exceptionally well
As I highlighted in my earnings preview for Veeva, the company's customer relationship management (CRM) service was its first and thus far most successful offering. It is because of the free cash flow and business relationships established through CRM that Veeva is able to focus on more offerings for the future (more on that below).

For the fiscal year, revenue from CRM grew 20% -- well within what I considered to be indicative of a "successful" year for the division. Management said that CRM subscription revenue was expected to grow by 15% in the coming fiscal year, with most of that additional revenue coming from incremental add-ons that management is offering to make its service stickier. Most notably, the number of CRM customers using the Approved Email function jumped to 30% last quarter, a significant jump from the 14% it showed at the end of the third quarter.

Vault is on fire
When management first conceived of Vault -- a product that focuses on the regulatory and data-gathering needs of pharmaceutical companies -- they believed that customers would be most interested in a clinical solution. That solution was the company's electronic trial master file (eTMF).

Though not completely an afterthought, management also developed a Quality and Regulatory offering via Vault as well. CEO and co-founder Peter Gassner highlighted that all three are showing strength that exceeds even management's lofty expectations: "In terms of market potential, we believe Clinical, Regulatory, and Quality are roughly similar in market size for the products we currently have available. These are very big, broad markets for Vault on the R&D side."

Gassner also provided a breakdown for customer count in each category.

Management took an especially large part of the conference call to delve into the details of the company's recent agreement to provide Bristol Myers Squibb with two Vault products. Bristol had previously been a CRM customer only, but because of the long-standing relationship between the two companies, and the quality of Veeva's business, Bristol took a big step in solidifying Veeva as a long-term provider of services.

In total, revenue from Vault grew by over 100% in fiscal 2016, and management doesn't see that momentum slowing too much in the year ahead. Non-CRM revenue (which includes Vault, OpenData,m and Network) is expected to grow by over 100% in the coming year.

The big picture
While Wall Street worries about the lack of booming profitability right now, there were a few key comments during the company's question-and-answer session that I think are worth noting. They underscore just how big Veeva's opportunity is, and just how much room the company has to grow.

First, Gassner's team once again said that Vault has only achieved about 5% penetration in the life-sciences industry, leaving much room for growth. More importantly, company president Matt Wallach talked about how vast the opportunities for cross-selling are:

[Of the 212 CRM customers], 40% of those companies have bought Vault. So 60% of those companies don't have any Vault. And if you look at the ... 219 Vault customers, only 40% of those customers also have CRM. And so just within the 2 large products that we have, we can cross-sell 60% more to both sides.

At today's prices, Vault now trades for 46 times expected earnings and about 59 times trailing free cash flow. Those are lofty valuations, but so is the potential for Veeva.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.