Veeva Systems Inc. VEEV reported second-quarter fiscal 2019 adjusted earnings of 39 cents per share, which surpassed the Zacks Consensus Estimate by 14.7%. The bottom line also increased a whopping 62.5% on a year-over-year basis.

Total revenues came in at $209.6 million, outpacing the Zacks Consensus Estimate of $203.7 million. On a year-over-year basis, the top line climbed 24.9%.

In a year’s time, this Zacks Rank #3 (Hold) company outperformed its industry as well. The stock has rallied 38.6%, edging past the industry’s rise of 36.3%. The current level is also higher than the S&P 500 index’s return of 17.6%.

Veeva Systems Inc. Price, Consensus and EPS Surprise

Veeva Systems Inc. Price, Consensus and EPS Surprise | Veeva Systems Inc. Quote

Segmental Details

Fiscal second-quarter subscription service revenues summed $169.6 million, up 25.1% year over year. Subscription gross margin was 83.6%, which expanded 220 basis points (bps).

Per management, strong momentum in bookings continued across all areas of Vault, which was 42% of subscription revenues compared with 36% a year ago.

Professional service revenues rose almost 24.1% to $40 million compared with the figure registered in the year-ago quarter. The segment’s gross margin in the quarter under review was 31.5%, which contracted 190 bps.

According to Veeva Systems, this improvement in revenues can be attributed to continued strong demand within Veeva Vault R&D (research and development). Management also remains optimistic about the segment’s impressive performance in the fiscal third quarter.

Margin Details

In the reported quarter, adjusted gross profit increased 27.5% to $154.4 million. Adjusted gross margin was 73.7%, which expanded 150 bps.

Adjusted operating income totaled $74.3 million, up 39% year over year. Notably, adjusted operating margin in the second quarter was 35.5%, which expanded 360 bps as well. Per management, the expansion was driven by outperformance of the top line.

However, adjusted operating expenses rose 18.5% year over year to $80.1 million. R&D expenses too shot up 16.7% year over year to $33.2 million.

Guidance

For third-quarter fiscal 2019, Veeva Systems expects total revenues to be between $215 million and $216 million. The Zacks Consensus Estimate is pegged at $210.8 million, below the guided range.

Adjusted earnings per share are expected to be 38 cents. The Zacks Consensus Estimate is pinned at 35 cents per share, below the projected figure.

For fiscal 2019, revenues are expected to be between $840 million and $843 million. The Zacks Consensus Estimate for the same stands at $829.4 million.

Adjusted earnings per share for fiscal 2019 are anticipated between $1.47 and $1.48. The Zacks Consensus Estimate for earnings is pegged at $1.37.

Our Take

Veeva Systems ended the fiscal second quarter on a solid note, with both earnings and revenues beating the consensus mark. Solid show by the Subscription business segment buoys optimism. Furthermore, the company continues benefiting from its flagship Vault platform. Veeva’s new CRM Sunrise UI and Nitro look promising as well.

In Europe, Veeva Systems had its first top 20 biopharmaceutical win for Veeva Vault QualityDocs. Moreover, the company remains confident about its growth in new markets with products like EDC, Safety, Nitro and Vault, moving ahead. A significant expansion in the company’s margins is also indicative of its brighter prospects.

On the flip side, high expenses on the operational side are worrisome. Also, intense competition and a saturating life sciences market remain potent threats. Volatility in foreign currency exchange rate is an added concern.

Earnings of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which also reported solid earnings this season, are Illumina, Inc ILMN, Integer Holdings Corporation ITGR and Intuitive Surgical, Inc ISRG.

While Illumina and Integer Holdings sport a Zacks Rank #1 (Strong Buy), Intuitive Surgical has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Illumina reported adjusted earnings of $1.43 per share, beating the consensus mark of $1.11.

Integer Holdings posted adjusted earnings of $1.06 per share in the second quarter of 2018, which exceeded the Zacks Consensus Estimate of 90 cents.

Intuitive Surgical reported adjusted earnings of $2.76 per share in the second quarter of 2018, which outpaced the Zacks Consensus Estimate of $2.48 and improved 38% year over year.

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