Veeva Systems Inc.VEEV reported adjusted earnings of 8 cents per share in the third quarter of fiscal 2016, missing the Zacks Consensus Estimate by a couple of cents. However, earnings improved 14.3% on a year-over-year basis. The upside was driven by robust revenue growth and margin expansion.
Total revenue surged 27.6% on a year-over-year basis to $106.9 million, well ahead of the Zacks Consensus Estimate of $103 million.
Subscription revenues soared 33% year over year to $81.7 million, driven by growth across product lines. Professional services revenues increased 12.5% to $25.2 million, primarily owing to strong adoption of the Vault product.
On a geographical basis, 56% of the total revenue was generated from North America. Meanwhile, third-quarter billings totaled $99.5 million.
Adjusted gross margin expanded 190 basis points (bps) to 66.3%, primarily attributable to significant growth in subscription gross margin (up 100 bps) and favorable product mix. The subscription gross margin strength was driven by robust performances from the Vault Network and CRM add-on products.
Adjusted operating expenses, as a percentage of revenues, increased 620 bps on a year-over-year basis to 46.2%. This was primarily due to higher sales & marketing (up 180 bps), research & development (up 370 bps), and general and administrative expenses (up 80 bps).
Sales & marketing growth was on account of a higher number of personnel hired during the quarter. Meanwhile, the company continues to invest in new product developments that were responsible for the spike in research & development expenses in the quarter.
Adjusted operating margin contracted 430 bps to 23.5%, due to higher expenses associated with the acquisition of Zinc Ahead in September.
Veeva expects total revenue in the range of $109-111 million for the fourth quarter of fiscal 2016. Non-GAAP operating income is expected between $25.5 million and $26.5 million. Non-GAAP earnings are likely to be roughly 11 cents per share.
For fiscal 2016, total revenue is now expected in the band of $404-$406 million, up from $395-$398 million guided earlier. Veeva forecasts subscription revenue growth of about 20% from multi-channel CRM products and more than 100% from non-CRM products for the entire fiscal.
Meanwhile, fiscal 2016 non-GAAP operating income is projected in the $108.7-$109.7 million range, down from $111-$113 million guided earlier. Earnings are anticipated between 46 cents and 47 cents, compared with the previous outlook of 47-48 cents.
Veeva forecasts billings growth of roughly 23%-25% in the fourth quarter and approximately 19% (up from the earlier guided 13%) for fiscal 2016.
Veeva's CRM platform continues to experience healthy growth and the non-CRM products are also starting to contribute to the overall business. We believe Veeva Vault - the cloud-based content management solution - holds substantial long-term prospects.
We expect the takeover of Zinc Ahead to help Veeva meet the increasing demand for compliance management, which in turn, will boost top-line growth. The acquisition has brought two of the most comprehensive content management solutions under one roof - Zinc MAPS and Vault PromoMats.
However, foreign exchange volatility will remain an overhang on the stock in the near term.
Zacks Rank & Stocks to Consider
Veeva currently has a Zacks Rank #3 (Hold). Some top-ranked stocks in the medical sector are Masimo MASI , Natus Medical BABY and Nxstage Medical NXTM . Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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