VEEVA SYSTEMS INC.
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our consolidated financial
statements and notes thereto appearing elsewhere in this report. In addition to
historical consolidated financial information, the following discussion and
analysis contains forward-looking statements that involve risks, uncertainties,
and assumptions. Our actual results could differ materially from those
anticipated by these forward-looking statements as a result of many factors. We
discuss factors that we
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believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under "Risk Factors" and "Special Note Regarding Forward-Looking Statements."
Overview
Veeva is the leading provider of industry cloud solutions for the global life sciences industry. We were founded in 2007 on the premise that industry-specific cloud solutions could best address the operating challenges and regulatory requirements of life sciences companies. Our offerings span cloud software, data, analytics, professional services, and business consulting and are designed to meet the unique needs of our customers and their most strategic business functions-from research and development to commercialization. Our solutions help life sciences companies develop and bring products to market faster and more efficiently, market and sell more effectively, and maintain compliance with government regulations. In our fiscal year endedJanuary 31, 2022 , we derived approximately 59% and 41% of our subscription services revenues and 56% and 44% of our total revenues from our Commercial Solutions and R&D Solutions, respectively. For the fiscal year endedJanuary 31, 2021 , we derived approximately 63% and 37% of our subscription services revenues and 61% and 39% of our total revenues from our Commercial Solutions and R&D Solutions, respectively. The contribution of subscription services revenues and total revenues associated with our R&D Solutions are expected to continue to increase as a percentage of subscription services revenues and total revenues in the future. We also offer certain of our R&D Solutions to industries outside the life sciences industry primarily inNorth America andEurope . For our fiscal years endedJanuary 31, 2022 , 2021, and 2020, our total revenues were$1,851 million ,$1,465 million , and$1,104 million , respectively, representing year-over-year growth in total revenues of 26% in our fiscal year endedJanuary 31, 2022 , and 33% in our fiscal year endedJanuary 31, 2021 . For our fiscal years endedJanuary 31, 2022 , 2021, and 2020, our subscription services revenues were$1,484 million ,$1,179 million , and$896 million , respectively, representing year-over-year growth in subscription services revenues of 26% in our fiscal year endedJanuary 31, 2022 , and 32% in our fiscal year endedJanuary 31, 2021 . Please note that our total revenues and subscription services revenues for our fiscal year endedJanuary 31, 2020 only included revenue contribution from the acquired Crossix andPhysicians World businesses in the fourth quarter of that fiscal year. We expect the growth rate of our total revenues and subscription services revenues to decline in the future. We generated net income of$427 million ,$380 million , and$301 million for our fiscal years endedJanuary 31, 2022 , 2021, and 2020, respectively. As ofJanuary 31, 2022 , 2021, and 2020, we served 1,205, 993, and 861, customers, respectively. As ofJanuary 31, 2022 , 2021, and 2020, we had 653, 572 and 523 Commercial Solutions customers, respectively, and 860, 664, and 538 R&D Solutions customers, respectively. These customer count totals are net of customer attrition during each period. The combined customer counts for Commercial Solutions and R&D Solutions exceed the total customer count in each year because some customers subscribe to products in both areas. Commercial Solutions consist of our cloud software, data, and analytics products built specifically to more efficiently and effectively commercialize our customers' products. R&D Solutions consist of our clinical, quality, regulatory, and safety products. Many of our applications for R&D are used by smaller, earlier stage, pre-commercial companies, some of which may not reach the commercialization stage. Thus, the potential number of R&D Solutions customers is higher than the potential number of Commercial Solutions customers. Prior to the fiscal quarter endedOctober 31, 2021 , we grouped our revenues into two product areas: Commercial Cloud and Vault. During the fiscal quarter endedOctober 31, 2021 , we changed the product areas under which we group revenues to Commercial Solutions and R&D Solutions to better align with how we manage our business and to reflect the principal functions served by our products. Specifically, revenues attributable to Vault PromoMats and Vault MedComms, applications used for commercial operations, are now reflected in Commercial Solutions. Prior period revenue balances have been adjusted to reflect the current period presentation of our product areas. There were no changes to the aggregate amounts reported within our consolidated statements of comprehensive income. 40Veeva Systems Inc. | Form 10-K
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Our Conversion to PBC
OnFebruary 1, 2021 , we became aDelaware public benefit corporation (PBC), and we amended our certificate of incorporation to include the following public benefit purpose: "to provide products and services that are intended to help make the industries we serve more productive, and to create high-quality employment opportunities in the communities in which we operate." When making decisions, our directors have a fiduciary duty to balance the financial interests of stockholders, the best interests of other stakeholders materially affected by our conduct (including customers, employees, partners, and the communities in which we operate), and the pursuit of our public benefit purpose. For more information on our conversion to a PBC and associated risks, see "Risk Factors."
The Continuing Impact of the COVID-19 Pandemic
The worldwide outbreak of COVID-19 has had and continues to have a widespread and unpredictable worldwide impact on our business operations, the life sciences industry, healthcare systems, financial markets, and the global economy. While the impact of COVID-19 on our operational and financial performance has not been materially negative to date, the future impact is uncertain and will depend on future developments, including the duration and spread of the outbreak, government responses to the pandemic, the rate of vaccinations, the impact on our customers, the impact on our employees, the extent of further adverse impacts to the economy, and the scale and pace of economic recovery and resumption of normal business activities, including the rollout of COVID-19 vaccines, the lifting of restrictions on movement, and the results of outbreaks and variants, all of which cannot be predicted with certainty. In response to the COVID-19 outbreak, we shifted most of our customer, employee, and industry events to virtual-only experiences. We have also adopted a "Work Anywhere" policy, which generally gives employees the flexibility to work in an office or at home on any given day, with certain job-specific restrictions. Many of our customers continue to have travel restrictions and remote work measures, which may limit our ability to sell or provide professional services to them in the future. We continue to monitor and evaluate the impact of COVID-19 on our business, including when larger in-person events should resume. We expect to resume large in-person customer, employee, and industry events during the fiscal year endingJanuary 31, 2023 but our plans could be disrupted. Certain of our businesses were negatively impacted by COVID-19 in the past, and certain of our businesses may be negatively impacted by COVID-19 in the future. We may also experience requests from customers for lengthened payment terms or less favorable billing terms that could adversely impact our financial performance. Such requests to date have not been significant but may increase in the future. Due to our subscription-based business model, the effect of COVID-19, and any impact to our sales efforts, may not be fully reflected in our results of operations until future periods, if at all. At the same time, COVID-19 has necessitated the adoption of digital communication channels and remote working technology within the life sciences industry at a rapid pace. This transition has accelerated the use and adoption of certain of our applications, including Veeva CRM Engage Meeting and Veeva CRM Approved Email, and that may continue in the future with respect to these and other of our Commercial Solutions and R&D Solutions that enable remote interactions. Certain impacts of the COVID-19 pandemic and resulting changes in business practice may be enduring over the long term and may result in significant changes in business practice within the technology industry, the life sciences industry, and the world economy generally. For example, the extent to which remote work will remain common practice or become increasingly prevalent after the COVID-19 pandemic ends is not certain and may have significant impacts on hiring practices, management practices, expense structures and investments, and other aspects of our business and the businesses of our customers. Similarly, the extent to which virtual meetings and interactions continue to be used or preferred in lieu of in-person interactions may significantly change business practices for us and our customers, and, in turn, may impact demand for our products and services. For example, if our customers reduce sales representatives in response to an increasing preference for virtual meetings with doctors, demand for our core CRM application may decline. In the quarter endedOctober 31, 2020 , we disclosed that we expected life sciences companies to reduce the number of sales representatives that they employ by roughly 10%. We currently expect most of these reductions to take place during our fiscal year endingJanuary 31, 2023 , with some reductions still occurring in our fiscal year endingJanuary 31, 2024 . Such reductions could negatively impact sales of our solutions, including Veeva CRM and certain of our other Commercial Solutions, but we cannot be certain such reductions will happen or of the timing or magnitude of such reductions. At the same time, demand for our products that enable virtual interactions with doctors and clinical trial participants may increase. We cannot accurately predict how such changes may impactVeeva's results over the long term.Veeva Systems Inc. | Form 10-K 41
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Key Factors Affecting Our Performance
Investment in Growth. We have invested and intend to continue to invest aggressively in expanding the breadth and depth of our product portfolio, including through acquisitions. We expect to continue to invest in research and development to expand existing solutions and build new solutions; in sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies and industries; in professional services and business consulting to help ensure customer success; and in other operational and administrative functions to support our expected growth. We expect that our headcount will increase as a result of these investments. We also expect our total operating expenses will continue to increase over time, which could have a negative impact on our operating margin. Adoption of Our Solutions by Existing and New Customers. Most of our customers initially deploy our solutions to a limited number of end users within a division or geography and may only initially deploy a limited set of our available solutions. Our future growth is dependent upon our existing customers' continued success and their renewals of subscriptions to our solutions, expanded deployment of our solutions within their organizations, and their purchase of subscriptions to additional solutions. Our growth is also dependent on the adoption of our solutions by new customers. Subscription Services Revenue Retention Rate. A key factor to our success is the renewal and expansion of our existing subscription agreements with our customers. We calculate our annual subscription services revenue retention rate for a particular fiscal year by dividing (i) annualized subscription revenue as of the last day of that fiscal year from those customers that were also customers as of the last day of the prior fiscal year by (ii) the annualized subscription revenue from all customers as of the last day of the prior fiscal year. Annualized subscription revenue is calculated by multiplying the daily subscription revenue recognized on the last day of the fiscal year by 365. This calculation includes the impact on our revenues from customer non-renewals, deployments of additional users or decreases in users, deployments of additional solutions or discontinued use of solutions by our customers, and price changes for our solutions. Historically, the impact of price changes on our subscription services revenue retention rate has been minimal. For our fiscal years endedJanuary 31, 2022 , 2021, and 2020, our subscription services revenue retention rate was 119%, 124%, and 121%, respectively.
Components of Results of Operations
Revenues
We derive our revenues primarily from subscription services fees and professional services fees. Subscription services revenues consist of fees from customers accessing our cloud-based software solutions and fees for our data solutions. Professional services and other revenues consist primarily of fees from implementation services, configuration, data services, training, and managed services related to our solutions and services related to ourVeeva Business Consulting offering. For the fiscal year endedJanuary 31, 2022 , subscription services revenues constituted 80% of total revenues and professional services and other revenues constituted 20% of total revenues. We generally enter into master subscription agreements with our customers and count each distinct master subscription agreement that has not been terminated or expired and that has orders for which we have recognized revenue in the quarter as a distinct customer for purposes of determining our total number of current customers as of the end of that quarter. We generally enter into a single master subscription agreement with each customer, although in some instances, affiliated legal entities within the same corporate family may enter into separate master subscription agreements. Conversely, affiliated legal entities that maintain distinct master service agreements may choose to consolidate their orders under a single master service agreement, and, in that circumstance, our customer count would decrease. Divisions, subsidiaries, and operating units of our customers often place distinct orders for our subscription services under the same master subscription agreement, and we do not count such distinct orders as new customers for purposes of determining our total customer count. For purposes of determining customers of Veeva Crossix that do not contract under a master subscription agreement, we count each entity that has a statement of work or services agreement and a recurring known payment obligation as a distinct customer if such entity is not otherwise a customer of ours. For Veeva Crossix, we do not count as distinct customers agencies contracting with us on behalf of brands within life sciences companies. New subscription orders for our core Veeva CRM application generally have a one-year term. If a customer adds end users or additional Commercial Solutions to an existing order for our core Veeva CRM application, such additional orders will generally be coterminous with the anniversary date of the core Veeva CRM order, and as a 42Veeva Systems Inc. | Form 10-K
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result, orders for additional end users or additional Commercial Solutions will commonly have an initial term of less than one year.
Particularly with respect to our R&D Solutions, we have entered into a number of orders with multi-year terms. The fees associated with such orders are typically not based on the number of end-users and typically escalate over the term of such orders at a pre-agreed rate to account for, among other factors, implementation and adoption timing and planned increased usage by the customer. There are timing differences between billings and revenue recognition with respect to certain of our multi-year orders with escalating fees which will result in fluctuations in deferred revenue and unbilled accounts receivable balances. For instance, when the amounts we are entitled to invoice in any period pursuant to multi-year orders with escalating fees are less than the revenue recognized in accordance with relevant accounting standards, we will accrue an unbilled accounts receivable balance (a contract asset) related to such orders. In the same scenario, the net deferred revenue we would record in connection with such orders will be less because we will be recognizing more revenue earlier in the term of such multi-year orders. Our subscription orders are generally billed at the beginning of the subscription period in annual or quarterly increments, which means the annualized value of such orders may not be completely reflected in deferred revenue at any single point in time. Also, particularly with respect to orders for our Commercial Solutions, because the term of orders for additional end users or applications is commonly less than one year, the annualized value of such orders may not be completely reflected in deferred revenue at any single point in time. We have also agreed from time to time, and may agree in the future, to allow customers to change the renewal dates of their orders to, for example, align more closely with a customer's annual budget process or to align with the renewal dates of other orders placed by other entities within the same corporate control group, or to change payment terms from annual to quarterly, or vice versa. Such changes typically result in an order of less than one year as necessary to align all orders to the desired renewal date and, thus, may result in a lesser increase to deferred revenue than if the adjustment had not occurred. Additionally, changes in renewal dates may change the fiscal quarter in which deferred revenue associated with a particular order is booked. Accordingly, we do not believe that changes on a quarterly basis in deferred revenue, unbilled accounts receivable, or calculated billings, a metric commonly cited by financial analysts, are accurate indicators of future revenues for any given period of time. We define the term calculated billings for any period to mean revenue for the period plus the change in deferred revenue from the immediately preceding period minus the change in unbilled accounts receivable (contract asset) from the immediately preceding period. Subscription services revenues are recognized ratably over the respective non-cancelable subscription term because of the continuous transfer of control to the customer. Our subscription services agreements are generally non-cancelable during the term, although customers typically have the right to terminate their agreements for cause in the event of material breach. Our agreements typically provide that orders will automatically renew unless notice of non-renewal is provided in advance. Subscription services revenues are affected primarily by the number of customers, the scope of the subscription purchased by each customer (for example, the number of end users or other subscription usage metric) and the number of solutions subscribed to by each customer. We utilize our own personnel to perform our professional services and business consulting engagements with customers. In certain cases, we may utilize third-party subcontractors to perform professional services engagements. The majority of our professional services arrangements are billed on a time and materials basis and revenues are recognized over time based on time incurred and contractually agreed upon rates. Certain professional services and business consulting arrangements are billed on a fixed fee basis and revenues are typically recognized over time as the services are delivered based on time incurred. Data services and training revenues are generally recognized as the services are performed. Professional services revenues are affected primarily by our customers' demands for implementation services, configuration, data services, training, speakers bureau logistics, and managed services in connection with our solutions. Our business consulting revenues are affected primarily by our customers' demands for services related to a particular customer success initiative, strategic analysis, or business process change, and not a cloud software implementation.
Allocated Overhead
We accumulate certain costs such as building depreciation, office rent, utilities, and other facilities costs and allocate them across the various departments based on headcount. We refer to these costs as "allocated overhead."
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Cost of Revenues
Cost of subscription services revenues for all of our solutions consists of expenses related to our computing infrastructure provided by third parties, including salesforce.com andAmazon Web Services , personnel related costs associated with hosting our subscription services and providing support, including our data stewards, data acquisition and third-party contractor costs related to the development of our data products, expenses associated with computer equipment and software, and allocated overhead. We intend to continue to invest additional resources in our subscription services to enhance our product offerings and increase our delivery capacity. We may add or expand computing infrastructure capacity in the future, migrate to new computing infrastructure service providers, make additional investments in the availability and security of our solutions, and make continued investments in data sources. Cost of professional services and other revenues consists primarily of employee-related expenses associated with providing these services. The cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscription services due to the direct labor costs and costs of third-party subcontractors.
Operating Expenses
Research and Development. Research and development expenses consist primarily of employee-related expenses, third-party consulting fees, hosted infrastructure costs, and allocated overhead. We continue to focus our research and development efforts on adding new features and applications and increasing the functionality and enhancing the ease of use of our cloud-based applications. Sales and Marketing. Sales and marketing expenses consist primarily of employee-related expenses, sales commissions, marketing program costs, amortization expense associated with purchased intangibles related to our customer contracts, customer relationships and brand development, travel-related expenses and allocated overhead. Marketing program costs include advertising, customer events, corporate communications, brand awareness, and product marketing activities. Sales commissions are costs of obtaining customer contracts, which are capitalized and then amortized over a period of benefit that we have determined to be one to three years.
General and Administrative. General and administrative expenses consist of employee-related expenses for our executive, finance and accounting, legal, employee success, management information systems personnel, and other administrative employees. In addition, general and administrative expenses include fees related to third-party legal counsel, fees related to third-party accounting, tax and audit services, other corporate expenses, and allocated overhead.
Other Income, Net
Other income, net, consists primarily of transaction gains or losses on foreign currency, net of hedging costs, interest income, and amortization of premiums paid on investments. Provision for Income Taxes Provision for income taxes consists of federal and state income taxes inthe United States and income taxes in certain foreign jurisdictions. See note 9 of the notes to our consolidated financial statements.
New Accounting Pronouncements Adopted in Fiscal 2022
Refer to note 1 of the notes to our consolidated financial statements for a full description of the recent accounting pronouncements adopted during the fiscal year endedJanuary 31, 2022 . 44 Veeva Systems Inc. | Form 10-K
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Recent Accounting Pronouncements
Reference Rate Reform
InMarch 2020 , theFinancial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides accounting relief from the future impact of the cessation of the London Interbank Offered Rate ("LIBOR") by, among other things, providing optional expedients to treat contract modifications resulting from such reference rate reform as a continuation of the existing contract and for hedging relationships to not be de-designated resulting from such changes provided certain criteria are met. The guidance is effective beginning onMarch 12, 2020 , and the amendments apply prospectively throughDecember 31, 2022 . We are currently in the process of incorporating fallback language in negotiated contracts and incorporating non-LIBOR reference rate and/or fallback language in new contracts to prepare for these changes. We do not expect the adoption of ASU 2020-04 to have a material impact on our consolidated financial statements.
Business Combinations
InOctober 2021 , the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. Under current GAAP, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. The new standard is effective for our fiscal year beginning onFebruary 1, 2023 , with early adoption permitted. We are currently evaluating the accounting, transition, and disclosure requirements of this standard.Veeva Systems Inc. | Form 10-K 45
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Results of Operations
The following tables set forth selected consolidated statements of operations
data and such data as a percentage of total revenues for each of the periods
indicated:
Fiscal year ended
January 31,
2022 2021
(in thousands)Consolidated Statements of Comprehensive Income Data: Revenues: Subscription services
$ 1,483,976 $ 1,179,486 Professional services and other 366,801 285,583 Total revenues 1,850,777 1,465,069 Cost of revenues(1): Cost of subscription services 224,911 184,589 Cost of professional services and other 278,767 224,339 Total cost of revenues 503,678 408,928 Gross profit 1,347,099 1,056,141 Operating expenses(1): Research and development 382,035 294,220 Sales and marketing 288,061 235,014 General and administrative 171,507 149,113 Total operating expenses 841,603 678,347 Operating income 505,496 377,794 Other income, net 6,815 16,199 Income before income taxes 512,311 393,993 Provision for income taxes 84,921 13,995 Net income$ 427,390 $ 379,998 (1) Includes stock-based compensation as follows: Cost of revenues: Cost of subscription services$ 4,795 $ 4,840 Cost of professional services and other 36,293 27,698 Research and development 83,837 63,541 Sales and marketing 56,830 40,574 General and administrative 52,881 48,348 Total stock-based compensation$ 234,636
Fiscal Year Ended
The following is a discussion of our results of operations for the year endedJanuary 31, 2022 compared to the year endedJanuary 31, 2021 . For a discussion of our results of operations for the year endedJanuary 31, 2021 compared to the year endedJanuary 31, 2020 , please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedJanuary 31, 2021 , which is hereby incorporated by reference. 46Veeva Systems Inc. | Form 10-K
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Revenues
Fiscal year ended
January 31,
2022 2021 % Change
(dollars in thousands)
Revenues:
Subscription services$ 1,483,976 $ 1,179,486 26% Professional services and other 366,801 285,583 28% Total revenues$ 1,850,777 $ 1,465,069 26% Percentage of revenues: Subscription services 80 % 81 % Professional services and other 20 19 Total revenues 100 % 100 % Total revenues for the fiscal year endedJanuary 31, 2022 increased$386 million , of which$304 million was from growth in subscription services revenues. The increase in subscription services revenues consisted of$173 million of subscription services revenue attributable to R&D Solutions and$132 million of subscription services revenue attributable to Commercial Solutions. The geographic mix of subscription services revenues was 57% fromNorth America , 27% fromEurope , and 16% from other locations, primarilyAsia Pacific , for the fiscal year endedJanuary 31, 2022 , as compared to subscription services revenues of 56% fromNorth America , 27% fromEurope , and 17% from other locations, primarilyAsia Pacific , for the fiscal year endedJanuary 31, 2021 . Professional services and other revenues for the fiscal year endedJanuary 31, 2022 increased$81 million . The increase was primarily due to new customers requesting implementation and deployment related professional services and existing customers requesting professional services related to expanding deployments or the deployment of newly purchased solutions. The increased demand for professional services and the resulting increase in professional services revenues was weighted heavily towards implementation and deployments of our R&D Solutions. Demand for ourVeeva Business Consulting services also contributed to the growth for the period. The geographic mix of professional services and other revenues was 61% fromNorth America , 30% fromEurope , and 9% from other locations, primarilyAsia Pacific , for the fiscal year endedJanuary 31, 2022 as compared to 62% fromNorth America , 30% fromEurope , and 8% from other locations, primarilyAsia Pacific , for the fiscal year endedJanuary 31, 2021 . Over time, we expect the proportion of our total revenues from professional services to decrease. Costs and Expenses Fiscal year ended January 31, 2022 2021 % Change (dollars in thousands) Cost of revenues: Cost of subscription services$ 224,911 $ 184,589 22% Cost of professional services and other 278,767 224,339 24% Total cost of revenues$ 503,678 $ 408,928 23% Gross margin percentage: Subscription services 85 % 84 % Professional services and other 24 % 21 % Total gross margin percentage 73 % 72 % Gross profit$ 1,347,099 $ 1,056,141 28% Cost of revenues for the fiscal year endedJanuary 31, 2022 increased$95 million , of which$40 million was related to cost of subscription services. The increase in cost of subscription services was primarily due to an increase of$14 million in other computing infrastructure costs, the vast majority of which was for computing infrastructure provided byAmazon Web Services , and an increase of$7 million in data acquisition costs related to the Veeva Data Cloud product offering. Additionally, there was an increase of$6 million in costs of third-party contractors related to the development of our data products and an increase of$5 million in fees paid to salesforce.com, driven by an increase in the number of end users of our Veeva CRM solutions, and an increase of$5 million employee Veeva Systems Inc. | Form 10-K 47
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compensation-related costs. We expect cost of subscription services to increase in absolute dollars in the near term due to increased usage of our subscription services and increased data costs related to our Veeva Data Cloud offering. Cost of professional services and other for the fiscal year endedJanuary 31, 2022 increased$54 million , primarily due to an increase of$50 million in employee compensation-related costs (which includes an increase of$9 million in stock-based compensation and the impact of a 5% increase in salaries that we implemented for the majority of our employees onSeptember 1, 2021 in response to unusual inflationary pressure and the demand environment for skilled employees). We expect cost of professional services and other to increase in absolute dollars in the near term as we add personnel to our global professional services organization and as a result of compensation increases in response to labor market conditions and inflationary pressure. Gross margin for the fiscal years endedJanuary 31, 2022 and 2021 was 73% and 72%, respectively. The slight increase compared to the prior period is due primarily to a more favorable mix of products and services, including increased revenue from R&D Solutions products and services that have a higher gross margin profile.
Operating Expenses and Operating Margin
Operating expenses include research and development, sales and marketing, and
general and administrative expenses. As we continue to invest in our growth
through hiring, we expect operating expenses and stock-based compensation to
increase in absolute dollars and to slightly increase as a percentage of revenue
in the future.
Research and Development
Fiscal year ended January 31,
2022 2021 % Change
(dollars in thousands)
Research and development $ 382,035 $ 294,220 30%
Percentage of total revenues 21 % 20 %
Research and development expenses for the fiscal year ended January 31, 2022
increased $88 million , primarily due to an increase of $83 million in employee
compensation-related costs (which includes an increase of $20 million in
stock-based compensation). The increase in employee compensation-related costs
is primarily driven by the increase in headcount during the period, as well as
the 5% increase in salaries discussed above. The expansion of our headcount in
research and development is to support development work for the products that we
offer or may offer in the future.
We expect research and development expenses to increase in absolute dollars and
as a percentage of revenue in the future, primarily due to higher headcount and
compensation increases for the reasons discussed above as we continue to invest
in our product offerings.
Sales and Marketing
Fiscal year ended January 31,
2022 2021 % Change
(dollars in thousands)
Sales and marketing $ 288,061 $ 235,014 23%
Percentage of total revenues 16 % 16 %
Sales and marketing expenses for the fiscal year ended January 31, 2022
increased $53 million , due to an increase in employee compensation-related costs
(which includes an increase of $16 million in stock-based compensation). The
increase in employee compensation-related costs is primarily driven by the
increase in headcount during the period, as well as the 5% increase in salaries
discussed above.
We expect sales and marketing expenses to grow in absolute dollars in the
future, primarily due to employee-related expenses as we increase our headcount
to support our sales and marketing efforts associated with our product
offerings, the impact of changes to our sales compensation plans, our continued
expansion of our sales
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capacity across all our solutions, and as a result of compensation increases for the reasons discussed above. Additionally, we expect travel and entertainment costs to start to increase in the fiscal year endingJanuary 31, 2023 .
General and Administrative
Fiscal year ended January 31,
2022 2021 % Change
(dollars in thousands)
General and administrative $ 171,507 $ 149,113 15%
Percentage of total revenues 9 % 10 %
General and administrative expenses for the fiscal year ended January 31, 2022
increased $22 million , primarily due to an increase of $13 million in employee
compensation-related costs (which includes an increase of $5 million in
stock-based compensation). The increase in employee compensation-related costs
is primarily driven by the increase in headcount during the period, as well as
the 5% increase in salaries discussed above. Additionally, there was an increase
of $5 million in professional services that primarily consisted of fees
associated with on-going litigation.
We expect general and administrative expenses to continue to grow in absolute
dollars in the future, primarily due to higher headcount, compensation increases
for the reasons discussed above, investments in information technology
infrastructure, and third-party fees, including fees associated with on-going
litigation.
Other Income, Net
Fiscal year ended January 31,
2022 2021 % Change
(dollars in thousands)
Other income, net $ 6,815 $ 16,199 (58)%
Other income, net, for the fiscal year ended January 31, 2022 decreased
$9 million , primarily due to a decrease in interest income, net, of $3 million ,
reflecting the lower interest rates on short-term investments, increases in
amortization on investments of $3 million , and increases of foreign currency
loss of $3 million .
We continue to experience foreign currency fluctuations primarily due to the
impact resulting from the periodic re-measurement of our foreign currency
balances that are denominated in currencies other than the functional currency
of the entities in which they are recorded. Our results of operations are
subject to fluctuations due to changes in foreign currency exchange rates,
particularly changes in the Euro, Japanese Yen, Canadian Dollar, British Pound
Sterling, Hungarian Forint, and Chinese Yuan. We may continue to experience
favorable or adverse foreign currency impacts due to volatility in these
currencies.
Provision for Income Taxes
Fiscal year ended January 31,
2022 2021 % Change
(dollars in thousands)
Income before income taxes $ 512,311 $ 393,993 30%
Provision for income taxes $ 84,921 $ 13,995 507%
Effective tax rate 16.6 % 3.6 %
The provision for income taxes differs from the tax computed at the U.S. federal
statutory income tax rate due primarily to state taxes, tax credits, equity
compensation, and foreign income subject to taxation in the United States .
Future tax rates could be affected by changes in tax laws and regulations or by
rulings in tax related litigation, as may be applicable. We will continue to
identify and analyze other applicable changes in tax laws in the United States
and abroad.
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For the fiscal years endedJanuary 31, 2022 and 2021, our effective tax rates were 16.6% and 3.6%, respectively. During the fiscal year endedJanuary 31, 2022 as compared to the prior year period, our effective tax rate increased primarily due to a reduction in excess tax benefits related to equity compensation and an increase in valuation allowance within certain jurisdictions. We recognized such tax benefits in our provision for income taxes of$56 million and$81 million for the fiscal years endedJanuary 31, 2022 and 2021, respectively.
Non-GAAP Financial Measures
In our public disclosures, we have provided non-GAAP measures, which we define as financial information that has not been prepared in accordance with generally accepted accounting principles inthe United States , or GAAP. In addition to our GAAP measures, we use these non-GAAP financial measures internally for budgeting and resource allocation purposes and in analyzing our financial results. For the reasons set forth below, we believe that excluding the following items provides information that is helpful in understanding our operating results, evaluating our future prospects, comparing our financial results across accounting periods, and comparing our financial results to our peers, many of which provide similar non-GAAP financial measures. •Stock-based compensation expenses. We exclude stock-based compensation expenses primarily because they are non-cash expenses that we exclude from our internal management reporting processes. We also find it useful to exclude these expenses when we assess the appropriate level of various operating expenses and resource allocations when budgeting, planning, and forecasting future periods. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, we believe excluding stock-based compensation expenses allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies. •Amortization of purchased intangibles. We incur amortization expense for purchased intangible assets in connection with acquisitions of certain businesses and technologies. Amortization of intangible assets is a non-cash expense and is inconsistent in amount and frequency because it is significantly affected by the timing, size of acquisitions, and the inherent subjective nature of purchase price allocations. Because these costs have already been incurred and cannot be recovered, and are non-cash expenses, we exclude these expenses for internal management reporting processes. We also find it useful to exclude these charges when assessing the appropriate level of various operating expenses and resource allocations when budgeting, planning, and forecasting future periods. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. •Income tax effects on the difference between GAAP and non-GAAP costs and expenses. The income tax effects that are excluded relate to the imputed tax impact on the difference between GAAP and non-GAAP costs and expenses due to stock-based compensation and purchased intangibles for GAAP and non-GAAP measures.
Limitations on the Use of Non-GAAP Financial Measures
There are limitations to using non-GAAP financial measures because non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures provided by other companies.
The non-GAAP financial measures are limited in value because they exclude certain items that may have a material impact upon our reported financial results. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which items are adjusted to calculate our non-GAAP financial measures. We compensate for these limitations by analyzing current and future results on a GAAP basis as well as a non-GAAP basis and also by providing GAAP measures in our public disclosures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure to evaluate our business, and to view our non-GAAP financial measures in conjunction with the most directly comparable GAAP financial measures. 50Veeva Systems Inc. | Form 10-K
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The following table reconciles the specific items excluded from GAAP metrics in the calculation of non-GAAP metrics for the periods shown below:
Fiscal year ended
January 31,
2022 2021
(in thousands)
Operating income on a GAAP basis $ 505,496 $ 377,794
Stock-based compensation expense 234,636 185,001
Amortization of purchased intangibles 18,520 20,007
Operating income on a non-GAAP basis $ 758,652 $ 582,802
Net income on a GAAP basis $ 427,390 $ 379,998
Stock-based compensation expense 234,636 185,001
Amortization of purchased intangibles 18,520 20,007
Income tax effect on non-GAAP adjustments(1) (75,827) (111,795)
Net income on a non-GAAP basis $ 604,719 $ 473,211
Diluted net income per share on a GAAP basis $ 2.63 $ 2.36
Stock-based compensation expense 1.45 1.15
Amortization of purchased intangibles 0.11 0.12
Income tax effect on non-GAAP adjustments(1) (0.46) (0.69)
Diluted net income per share on a non-GAAP basis Liquidity and Capital Resources
Fiscal year ended January 31,
2022 2021 2020
(in thousands)
Net cash provided by operating activities $ 764,463 $ 551,246 $ 437,375
Net cash used in investing activities (346,152) (333,634) (516,910)
Net cash (used in) provided by financing activities (4,140) 33,818 10,010
Effect of exchange rate changes on cash and cash
equivalents (4,657) 484 (2,856)
Net change in cash and cash equivalents $
409,514
Our principal sources of liquidity continue to be comprised of our existing
cash, cash equivalents, and short-term investments, as well as cash flows
generated from our operations. As of
Our primary use of cash is payment of our operating costs, which consist primarily of employee-related expenses, such as compensation and benefits, as well as general operating expenses for marketing, facilities, and overhead costs. Long-term cash requirements for items other than normal operating expenses could include the following: the acquisition of businesses, software products, or technologies complementary to our business; and capital expenditures, including the purchase and implementation of internal-use software applications. Our non-U.S. cash and cash equivalents have been earmarked for indefinite reinvestment in our operations outsidethe United States , except in certain designated jurisdictions that have an immaterial impact to our financial statements. As ofJanuary 31, 2022 , we have not recorded any taxes, such as withholding taxes, associated with the foreign earnings that are indefinitely reinvested outside ofthe United States . We believe ourU.S. sources of cash and liquidity are sufficient to meet our business needs inthe United States and do not expect that we will need to repatriate additional funds we have designated as indefinitely reinvested outsidethe United States . Under currently enacted tax laws, should our plans change and we were to choose to repatriate some or all of the funds we have designated as indefinitely reinvested outsidethe United States , such amounts may be subject to certain jurisdictional taxes.Veeva Systems Inc. | Form
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We have financed our operations primarily through cash generated from operations. We believe our existing cash, cash equivalents, and short-term investments generated from operations will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months. Our future capital requirements will depend on many factors including our revenue growth rate, subscription renewal activity, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the ongoing investments in technology infrastructure, the introduction of new and enhanced solutions, and the continuing market acceptance of our solutions. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, and intellectual property rights. We may be required to seek additional equity or debt financing for those arrangements or for other reasons. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition would be adversely affected. The following is a discussion of our cash flows for the year endedJanuary 31, 2022 compared to the year endedJanuary 31, 2021 . For a discussion of our cash flows for the year endedJanuary 31, 2021 compared to the year endedJanuary 31, 2020 , please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedJanuary 31, 2021 , which is hereby incorporated by reference.
Cash Flows from Operating Activities
Our largest source of operating cash inflows is cash collections from our customers for subscription services. We also generate significant cash flows from our professional services arrangements. The first quarter of our fiscal year is seasonally the strongest quarter for cash inflows due to the timing of our annual subscription billings and related collections. Our primary uses of cash from operating activities are for employee-related expenditures, expenses related to our computing infrastructure (including salesforce.com and Amazon Web Services), building infrastructure costs (including leases for office space), fees for third-party legal counsel and accounting services, and data acquisition costs. Note that our net income reflects the impact of excess tax benefits related to equity compensation. Net cash provided by operating activities was$764 million for the fiscal year endedJanuary 31, 2022 compared to$551 million provided by operating activities for the fiscal year endedJanuary 31, 2021 . The$213 million increase in operating cash flow was primarily due to increased sales and the related cash collections. These increases were partially offset by larger operating expenses due to increases in headcount. Our future cash flows from operating activities may be materially impacted as a result of the Tax Cuts and Jobs Act of 2017. The Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five or fifteen years. AlthoughCongress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be so deferred, repealed or otherwise modified. If the requirement is not modified, it will materially reduce our cash flows beginning in fiscal 2023.
Cash Flows from Investing Activities
The cash flows from investing activities primarily relate to cash used for the purchase of marketable securities, net of maturities. We also use cash to invest in capital assets to support our growth. Net cash used in investing activities was$346 million for the fiscal year endedJanuary 31, 2022 compared to$334 million used in investing activities for the fiscal year endedJanuary 31, 2021 . The$13 million increase in cash used in investing activities was primarily due to business acquisitions and an increase in investment in long-term assets of$8 million and$5 million , respectively.
Cash Flows from Financing Activities
The cash flows from financing activities relate primarily to stock option exercises offset by taxes paid on behalf of employees related to the net share settlement of RSUs. InJune 2021 , we began funding withholding taxes due on employee RSU awards by net share settlement, rather than our previous approach of requiring employees to either 52Veeva Systems Inc. | Form 10-K
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sell shares of our Class A common stock or pay the withholding taxes in cash to cover taxes due upon vesting of such awards.
Net cash used in financing activities was$4 million for the fiscal year endedJanuary 31, 2022 compared to$34 million provided by financing activities for the fiscal year endedJanuary 31, 2021 . The$38 million decrease is primarily related to$55 million of cash used to pay employee taxes related to the net share settlement of RSUs, partially offset by an increase of$52 million in proceeds from employee stock option exercises due to increased stock option activity during the period.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States (GAAP). In the preparation of these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
We believe that of our significant accounting policies, which are described in
note 1 of the notes to the consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
Revenue Recognition
We derive our revenues primarily from subscription services and professional services. Some of our contracts with customers contain multiple performance obligations. The transaction price is allocated to the distinct performance obligations on a relative standalone selling price basis. Significant judgment is sometimes required in developing an estimate of the standalone selling price for each distinct performance obligation based on our overall pricing objectives, market conditions, and other factors, including other groupings such as customer type and geography. The standalone selling prices of our distinct performance obligations are reviewed on a periodic basis or when there are significant changes in facts and circumstances. Our pricing objectives, market conditions or other factors may change in the future resulting in changes to standalone selling prices that could impact the timing or amount of revenue recognition.
Business Combinations and Valuation of Acquired Intangible Assets
We allocate the purchase price of acquired companies to tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions with respect to the valuation of intangible assets. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to future expected cash flows, future revenue growth, margins, customer retention rates, technology life, royalty rates, expected use of acquired assets, and discount rates. These factors are also considered in determining the useful life of the acquired intangible assets. These estimates are based in part on historical experience, market conditions and information obtained from management of the acquired companies and are inherently uncertain.Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recorded.Veeva Systems Inc. | Form
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