A Member of Pat McKeough’s Inner Circle recently asked for his advice on Veeva Systems, a cloud software company that specializes in clinical data services.
Pat likes the company’s dominant position in its niche and its strong balance sheet. It continues to report rising revenues and earnings with high R&D spending keeping it ahead of potential competitors.
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Veeva Systems Inc. (Symbol VEEV on New York; www.veeva.com), is a provider of cloud-based customer relationship management (CRM) software for the life sciences, cosmetics and consumer-products industries.
The San Francisco-based company has more than 1,432 customers, ranging from large pharmaceutical firms to biotech startups.
Veeva’s products include its Veeva Vault Clinical Data Management System (CDMS)—a cloud application to help life sciences companies better manage their clinical data. Cloud apps let users access software through the web and store data files on remote servers. Veeva Vault combines multiple tools in one app so that drug developers can make faster and more informed decisions.
Veeva also offers Veeva Commercial Cloud. This is a product family comprised of software and data solutions built specifically for life sciences companies to more efficiently market and sell their products. Veeva Commercial Cloud includes solutions for the sales, medical affairs, and marketing functions of a life sciences company.
Veeva CRM lets customer-facing employees at pharmaceutical and biotechnology companies—including sales representatives and medical science liaisons—manage and track communications with healthcare professionals. In addition, it offers multichannel customer relationship management applications that extend its core Veeva CRM and Medical CRM products.
Veeva Crossix provides pharmaceutical brands with a leading analytics platform to maximize media investments and efficiently manage their marketing efforts.
Inner Circle: High R&D spending keeps Veeva Systems’ product unique and revenue rising
Between 2020 and 2024 (fiscal years end January 31), the company’s revenue rose steadily. It increased by 114.1%, from $1.10 billion in 2019 to $2.36 billion in fiscal 2024. Earnings rose 127.7%, from $347.4 million in fiscal 2020 ($2.19 a share) to $791.0 million ($4.84) in fiscal 2024.
In the three months ended January 31, 2024, Veeva Systems Inc.'s overall revenue rose 11.9% to $630.6 million from $563.4 million a year earlier. Recurring subscription services accounted for $521.5 million, or approximately 83% of that revenue.
Excluding one-time items, Veeva made $226.3 million, or $1.38 a share. This was an increase of 21.5% from $186.3 million ($1.15 a share) a year earlier.
To stay ahead of the competition with new innovations, the company spends a very high 27% of sales on research. That makes the company much more profitable than it appears.
Standard accounting practice treats research spending as a regular expense, like rent or the electric bill. But successful research—the kind that leads directly to profit-boosting products or service improvements—is more like an investment with tax-deferral benefits. The company writes off the outlays in the current year and is only liable for taxes on the benefits as they appear in future years.
With a high cash balance of $4.0 billion, the company has a strong balance sheet. Veeva has no long-term debt.
Indeed, the company’s outlook is positive. It currently offers over 30 software and data products specifically suited to the life sciences industry. Its comprehensive solutions help both large and small companies move through the R&D process and bring products to commercialization faster.
Veeva continues to add new customers. At the same time, switching platforms would likely be very disruptive for its existing clients. What’s more, there are few competitors providing similar software and technology. And it’s a much-needed technology—a great deal of information in its target markets is still stored and communicated across different platforms (e-mail, web portals, paper, etc.), which is quite inefficient when compared to Veeva’s advanced internet-based software.
Recommendation in Pat’s Inner Circle: Veeva Systems Inc. is a hold.
