veeva systems inc - queen's...
TRANSCRIPT
NOV 2019
Veeva Systems IncNovember 3rd 2019
Disclaimer
The analyses and conclusions of Queen’s Capital contained herein are based on publicly available information. The analyses provided
may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated
operating performance of the companies, access to capital markets and the values of assets and liabilities.
Such statements, estimates, and projections reflect various assumptions by Queen’s Capital concerning anticipated results that are
inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for
illustrative purposes. Actual results may vary materially from the estimates and projected results contained herein.
Queen’s Capital assumes no responsibility or liability for any error, inaccuracy, or omission contained that may be made of such
information by the viewer. No information herein may be replicated without prior consent by the Executive Board of Queen’s Capital.
1
I.
II.
III.
IV.
VI.
VII.
VIII.
IX.
V.
Table of Contents
2
Executive Summary
Company Overview
Industry Overview
Investment Thesis I
Investment Thesis III
Catalysts and Risks
Valuation
Appendix
Pg. 3
Pg. 4
Pg. 6
Pg. 8
Pg. 9
Pg. 10
Pg. 11
Pg. 13
Pg. 18
Investment Thesis II
3
Company
Description
Investment
Highlights
Valuation
Recommendation
• Veeva Systems is a healthcare technology company specializing in Customer
Relationship Management Software (CRM)
• Veeva’s primary customers are Life Sciences companies
• Veeva generated $862 in revenue over the last 12 month growing at over 20% y/y
Queen’s Capital Recommends a Neutral Position
Executive Overview
• Veeva has an attractive operating leverage due to a high fixed cost structure with
the opportunity for margin expansion as they continue to scale
• Veeva’s product benefit from a strong network effect creating valuable barriers to
entry
• Veeva has extensive growth opportunities from new markets and structural shifts in
the healthcare industry provide Veeva with an opportunity for disruption
• Veeva currently trades at premium to its competitors; however, we do believe this
is somewhat justified due to their competitive positioning and future outlook
• Our DCF valuation ascribes an intrinsic value for Veeva of $133.62
• While we believe that Veeva’s is a very attractive business; their current stock price
does not present enough margin of safety to justify a purchase yet. We will
continue to monitor Veeva’s stock price and reconsider if valuation levels change
4
Asia
64%
25%
11%
EuropeNorth America
Five-Year PV Chart
Business Overview
Company Overview
Business Model
Source: Company Filings, Bloomberg
Segmented Revenue
• Veeva is the leading provider of industry cloud
solutions for the global life sciences industry
• Founded in 2007 on the premise that industry-
specific cloud solutions could best solve the
operating challenges and regulatory
requirements of life sciences companies
• Solutions are designed to address
pharmaceutical, biotechnology, and medical
device companies’ most pressing strategic
needs in their commercial and R&D operations
• They are expanding outside of just life sciences
into other regulated industries
Veeva's industry cloud solutions for the life sciences industry are
grouped into two key product areas—Veeva Commercial Cloud
and Veeva Vault
By Business Segment By Geography
Veeva Vault
Veeva
Commercial
Cloud
• A suite of multichannel customer relationship
management (CRM) applications,
a commercial data warehouse, territory
allocation and alignment applications
• A unified suite of cloud-based,
enterprise content and data management
applications, all built on their proprietary Veeva
Vault Platform
• Address requirements for customers’
commercial functions, including medical and
sales and marketing, and key R&D functions
53%47%
Vault SolutionsCommercial Cloud0
3
6
10
13
16
30
64
98
132
166
200
Oct/2018 Feb/2019 Jun/2019 Oct/2019
5
Capitalization Table
Management Team
Management Team & Financials
Company Overview
Major Shareholders
Source: Company Filings, Capital IQ
Key Financials
Share Price $144.37 52 Week
Range
$79.26/
$176.90
Enterprise Value $19,955 Dividend n/a
LTM Revenue $862 EV / LTM
Revenue
23.5x
LTM EBITDA $237 EV / LTM
EBITDA
84.2x
Peter Gassner
Founder & CEO
Tim Schwenger
President & COO
Tim Cabral
CFO
• Co-founded Veeva
in 2007
• Formerly worked
at salesforce.com
and IBM
• Joined Veeva in
Sept 2019
• Previously a senior
MD at Accenture
• Joined Veeva in
2010
• Previously served
as CFO and COO
of Walsh Wireless
ShareholderShares
Held (000s)
% of Total Shares
Outstanding%
Peter Gassner 13,208 8.9%
The Vanguard
Group12,120 8.2%
BlackRock 8,771 5.9%
FMR LLC 6,418 4.3%
Morgan Stanley 6,123 4.1%
Assets
Cash, cash equivelents and investments 1,090.2
Total Assets 1,090.2
Liabilities
Debt -
Total Liabilities -
Shareholders Equity
Additional Paid-in Capital 617.6
Accumulated other comprehensive income 0.9
Retained Earnings 619.2
Total Shareholders Equity 1,237.7
Total Capitalization 2,327.9
6
Major Players
Industry Description
Global Healthcare Industry
Industry Overview
Key Trends
Source: Company Filings, Energias Market Research
Industry Size ($US bn)
• Demographic shifts to an ageing population
and rising income levels will lead to increasing
amounts spent on healthcare each year
• Modernization of the healthcare industry
requires an increasingly interconnected network
and computer systems to handle all information
leading to greater investments in IT systems
• Growing complexity of diseases will
accelerate the need for technology to collect,
store and process the vast amounts of data
currently available
• Life sciences deals with the study of living
organisms including human medical care
research and development
• Life science solutions and analytics aims to
provide cloud solutions for business operations,
development, and sale of life science products
• Healthcare software and service deals with
managing critical processes such as
communication and management of information
Health Information
Technology and Clinical
Research12.7 14.2
16.0 17.9
20.1
22.5
25.2
-
5.0
10.0
15.0
20.0
25.0
30.0
2018 2019 2020 2021 2022 2023 2024
Markets Software as a Service
for Clinical Trials
Enterprise Information
Management Software
7
32.6%
30.4%
22.2%
6.8%
8.0%
Cloud Players
Key Drivers
Global Healthcare Industry
Industry Overview
Market Share
Source: Company Filings, Energias Market Research, Deloitte
Value Chain
Amazon Web
Services:
Provide cloud
service framework
Salesforce:
Provides CRM
building platform
Veeva:Develops research and sales software
Life Science Companies:
Purchase software and
tools from Veeva
• Population aged 60+: An aging population with
increasing life expectancy leading to an
increased need for healthcare services
• Percent of Population with access to
healthcare: The increase in public healthcare
systems and private insurance will provide
greater accessibility to healthcare globally
• Healthcare Spending as a % of GDP:
Increasing proportion of healthcare spend in
developed economies as greater investment is
made into upgrade healthcare systems
Hyperscale Cloud
Providers
Provide compute and
storage resources to operate
software in the cloud
US$ 12.7B
Other
Customer Relationship
Management Software
Provide customizable CRM
platforms as well as pre-built
software solutions
8
Industry Leading Gross Margins
Current Cost Structure
Attractive Operating Leverage
Investment Thesis I
Historical Gross Margins
Source: Company Filing, Capital IQ
Increasing Shift to Fixed Cost
• Veeva’s cost structure is comprised of significant
fixed costs allowing for attractive margin
expansion as they continue to scale
• High fixed costs act as a barrier to entry and will
lead to scale advantages for the biggest players
• Structural advantage’s in Veeva’s offering allow
them to earn much higher gross margins then
competitors
• Veeva’s superior margin profile allows for greater
spend more on growth capex and R&D, fueling
their disruption of the industry
5 7
3249
88111
175
226
313
72%
74%
76%
78%
80%
82%
84%
-
50
100
150
200
250
300
350
2011 2012 2013 2014 2015 2016 2017 2018 2019
Adjusted EBITDA (US$ M) Subscription Revenue Gross Margin
• Currently Veeva has a contract with Salesforce
allowing Veeva to use the Salesforce platform
alongside Veeva’s proprietary technology to
deliver their software offerings
• Salesforce charges based on usage leaving a
portion of Veeva’s COGS as variable cost
• Veeva also outsource their computing
requirements to AWS
• Veeva is considering in-sourcing these operations
creating further opportunity for scale advantages
and high return investments
68% 69% 72% 73%
30%35% 35% 34%
14% 16% 14% 11%
-
10%
20%
30%
40%
50%
60%
70%
80%
CY2016 CY2017 CY2018 LTM
Veeva Systems Inc. IQVIA Holdings Inc. Medidata Solutions
9
Average Veeva Products per Customer
Veeva's Network Effect
Network Effect: Broad Range of Products
Investment Thesis II
Network Capabilities - Nitro
Source: Company Filings
The Vault Platform
• Veeva sells a broad suite of products with the
same interface
• Their eTMF solution gives the opportunity
to cross-sell their other products such as
CTMS, EDC, and other clinical applications
• Their platform Crossix has data on more than
90% of Americans and 70% of prescriptions
• Crossix has a trusted partnership with more
than 200 pharma companies
• Developing the first clinical trial network that
will make data easily searchable and increase
patient outcome results
10
New Software Offerings
Long Runway for Whitespace Growth
Investment Thesis III
Customer Popularity
Organic Growth Opportunities in Healthcare
• Core focus is on innovation and product excellence; Veeva has continuously released new products that fit
with customer needs
• The Life Sciences IT Products are growing at 5% per year and are expected to reach $60B by 2020
• Veeva is targeting growth to $3B in revenue by 2025 from doubling revenue in their commercial cloud and
almost quadrupling revenue from their Vault platform
• Veeva has identified that IQVIA had a monopoly on the industry which led to less overall innovation
- The industry needs more innovation and Veeva is delivering with a new clinical data management
system that has its own clinical query language which will increase productivity and improve quality
• There will be modest growth in IT budgets for life sciences companies with some larger pharma companies
detailing more robust growth in their budgets
• Big Pharma embraced cloud services quite late and the early front-runner is Amazon Web Services (AWS)
which Veeva hosts its Nitro platform
11
Catalysts
Catalysts & Risks
Source: Company filings, Barron's
Technology is becoming an increasingly important factor within the life sciences industry
Life Sciences Industry Embracing Tech Heavy Generation of Data in Healthcare Industry
Benefits of Artificial Intelligence Accelerated Adoption
• The life sciences industry had a late start to
adopting cloud computing databases and are
increasing their adoption at an accelerated rate
• Currently, opting to add-in additional modules
to their cloud computing databases
• The buying decision is also becoming more
centralized leading to faster turnaround times
• Greater emphasis on IT spending by life
sciences executives on data management,
analytics, and artificial intelligence
• Increasing amounts of data means that being
able to efficiently access and sort through it
has become more important
• Study data will be aggregated across sources
to provide a long-term view on patient health
• Looking to streamline processes and provide
more accurate results to patients
• Innovation is being driven by multiple
stakeholders in the industry
• The life sciences industry is using artificial
intelligence to complete advance research of
new products
• AI and machine learning integrates data and
can lead to shorter drug development times
• Algorithms can help speed up the process for
companies to comply with strict compliance
standards
12
Risks
Catalysts & Risks
Source: Company Filings
Small Number
of Key
Customers
Long and
Unpredictable
Sales Cycles
Growing
Competition
Reliance on
Third-party
Providers
• In 2019, Veeva's top 10 customers
accounted for 39% of their total revenues.
• The loss of just one key customer will
cause major loss in revenue
Potential Risks
O3
C1 O2 O1
• Third party providers include
salesforce.com and Amazon Web
Services
• Reliance for computing infrastructure,
secure network connectivity, and other
technology-related services needed to
deliver Veeva’s cloud solutions
• Some of Veeva's competitors have longer
operating histories, significantly
greater resources, stronger brand and
business recognition, larger intellectual
property portfolios, and agreements with a
broader set of partners
• Veeva's sales cycles can be long and
unpredictable, and their sales efforts
require considerable investment of time
and expense
• The sales cycle for a new customer, from
the time of prospect qualification to the
completion of the first sale, may span over
12 months or longer
Highly
Likely
Not
Likely
Low
Impact
High
Impact
Competitor Risk
Operational Risk
Growing Competition (C1)
Reliance on Third-party Providers (O3)
Long and Unpredictable Sales Cycles (O2)
Small Number of Key Customers (O1)
13
Comparable Companies Analysis
Valuation
Source: Capital IQ, Company Filings
Price Market Cap Enterprise Val. EV / Sales EV / EBIT P / E
($ / share) ($ mm) ($ mm) LTM 2019E 2020E LTM 2019E 2020E LTM 2019E 2020E
SAP SE $126.14 $154,963.5 $166,557.4 6.2x 6.1x 5.6x 25.7x 20.5x 19.4x 34.4x 28.2x 24.8x
salesforce.com Inc $159.74 $140,092.0 $140,482.0 9.5x 8.3x 6.7x nmf nmf nmf nmf 57.6x 48.1x
Intuit Inc $256.48 $66,703.7 $64,399.7 9.5x 8.6x 7.8x 34.7x 25.3x 22.5x 41.8x 33.5x 29.8x
IQVIA Holdings Inc $146.74 $28,473.1 $39,904.1 3.7x 3.6x 3.4x 39.4x 48.1x 42.9x 67.3x 22.4x 20.3x
Workday Inc $165.33 $37,695.2 $37,311.3 11.5x 10.4x 8.4x n.a. 83.2x 58.5x n.a. 89.7x 65.8x
Open Text Corp $41.13 $11,121.5 $12,975.3 4.5x 4.4x 4.3x 21.1x 12.5x 12.0x 33.2x 14.2x 13.7x
Medidata Solutions Inc $92.22 $5,760.0 $5,639.0 8.2x 7.6x 6.7x nmf 40.0x 33.0x nmf 48.0x 42.7x
Mean 7.6x 7.0x 6.1x 30.2x 38.3x 31.4x 44.2x 41.9x 35.0x
Median 8.2x 7.6x 6.7x 30.2x 32.7x 27.7x 38.1x 33.5x 29.8x
Veeva Systems Inc $144.37 $21,364.6 $19,954.7 20.6x 18.7x 15.6x 73.6x 49.1x 44.1x 74.2x 63.2x 54.0x
14
Terminal Multiple Method
Cumulative PV of Free Cash Flow 5,000
% of Enterprise Value 22.8%
Terminal Value
Terminal Year EBITDA 1,687
EBITDA Multiple 20.0x
Terminal Value 33,737
PV of Terminal Value 16,972
% of Enterprise Value 77.2%
Enterprise Value 21,971
Less: Net Debt 1,699
Equity Value 23,670
Fully Diluted Shares Outstanding 158
Implied Share Price $149.44
Implied Margin of Safety 3.5%
Discounted Cash Flows
Valuation
Forecast
(US$ millions) 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E
EBIAT 309 394 508 640 791 935 1,106 1,217 1,339 1,407
Add: Depreciation & Amortization 15 17 19 20 23 24 26 29 31 32
Less: CapEx (8) (7) (9) (11) (8) (9) (10) (11) (4) (4)
Less: Change in Net Working Capital (87) (67) (114) (64) (117) (137) (135) (104) (114) (63)
Unlevered Free Cash Flows 229 337 403 585 689 813 987 1,131 1,252 1,372
Discount Period 1 2 3 4 5 6 7 8 9 10
Mid-Year Discount Period 1 2 3 4 5 6 7 8 9 10
WACC 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%
Discount Factor 0.96 0.90 0.83 0.78 0.72 0.67 0.62 0.58 0.54 0.50
PV of Unlevered Free Cash Flows 221 302 337 454 498 546 617 657 677 690
Gordon Growth Method Terminal Multiple Method
PV of Forcast Period 5,000
% of Enterprise Value 24.0%
Terminal Value
Terminal Year UFCF 1,372
Perpetuity Growth Rate 3.0%
Terminal Value 31,394
PV of Terminal Value 15,793
% of Enterprise Value 76.0%
Enterprise Value 20,793
Less: Net Debt 1,699
Equity Value 22,492
Fully Diluted Shares Outstanding 158
Implied Share Price $142.00
Implied Margin of Safety (1.6%)
15
Discounted Cash Flows
Valuation
Terminal Growth Share Price Sensitivity ($) Exit Multiple Share Price Sensitivity ($)
WACC WACC
$142 6.5% 7.0% 7.5% 8.0% 8.5% $149 6.5% 7.0% 7.5% 8.0% 8.5%
0.0x 152.00 136.07 123.08 112.30 103.23 19.0x 155.33 149.58 144.08 138.84 133.84
0.0x 166.08 146.89 131.60 119.13 108.78 19.5x 158.26 152.38 146.76 141.41 136.30
0.0x 184.19 160.43 142.00 127.31 115.33 20.0x 161.19 155.18 149.44 143.97 138.75
0.0x 208.34 177.83 155.01 137.31 123.20 20.5x 164.12 157.98 152.12 146.53 141.20
0.0x 242.14 201.03 171.73 149.82 132.82 21.0x 167.04 160.78 154.80 149.10 143.66
Terminal Growth Total Return Sensitivity (%) Exit Multiple Total Return Sensitivity (%)
WACC WACC
(1.6%) 6.5% 7.0% 7.5% 8.0% 8.5% $0 6.5% 7.0% 7.5% 8.0% 8.5%
2.0% 5.3% (5.8%) (14.7%) (22.2%) (28.5%) 19.0x 7.6% 3.6% (0.2%) (3.8%) (7.3%)
2.5% 15.0% 1.7% (8.8%) (17.5%) (24.7%) 19.5x 9.6% 5.5% 1.7% (2.1%) (5.6%)
3.0% 27.6% 11.1% (1.6%) (11.8%) (20.1%) 20.0x 11.6% 7.5% 3.5% (0.3%) (3.9%)
3.5% 44.3% 23.2% 7.4% (4.9%) (14.7%) 20.5x 13.7% 9.4% 5.4% 1.5% (2.2%)
4.0% 67.7% 39.2% 19.0% 3.8% (8.0%) 21.0x 15.7% 11.4% 7.2% 3.3% (0.5%)Term
inal
Gro
wth
Exit
Mu
ltip
leE
xit
Mu
ltip
le
Term
inal
Gro
wth
16
$74.66
$74.86
$70.32
$75.10
$131.60
$141.41
$83.93
$89.62
$89.83
$98.42
$155.01
$157.98
$30 $50 $70 $90 $110 $130 $150 $170
2020E P / E
2019E P / E
2020E EV / EBIT
2019E EV / EBIT
DCF - Gordon Growth
DCF - Terminal Multiple
Valuation Weighting
Summary
Valuation
Analyst Ratings
Football Field
Company Rating Target Price
JMP Securities Outperform $172.00
Stephens Overweight $185.00
Evercore In Line $170.00
JP Morgan Neutral $183.00
Canaccord
GenuityHold $155.00
Implied Share
Price
$133.62
Metric Weighting Contribution
2020E EV / Sales 0.0% $0.00
2019E EV / Sales 0.0% $0.00
2020E P / E 5.0% $3.96
2019E P / E 5.0% $4.11
2020E EV / EBIT 5.0% $4.00
2019E EV / EBIT 5.0% $4.34
DCF - Gordon Growth 40.0% $57.32
DCF - Terminal Multiple 40.0% $59.88
100.0% $133.62
Current
Share Price
$144.37
Position –
Queen’s Capital
17
Connor Winters Sheyenne Chapman Grace Dong Benjamin Kostiuk
Senior Portfolio Manager Portfolio Manager Analyst First-Year Representative
Thank You
18
DCF Financials
Appendix I
Historical Forecast
(US$ millions) FY2017 FY2018 FY2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E
Revenue 551 691 862 1,104 1,395 1,737 2,119 2,543 3,000 3,450 3,795 4,175 4,384
% Growth 34.5% 25.4% 24.9% 28.0% 26.4% 24.5% 22.0% 20.0% 18.0% 15.0% 10.0% 10.0% 5.0%
Operating expenses, excld. D&A (416) (518) (625) (745) (914) (1,121) (1,346) (1,590) (1,876) (2,123) (2,335) (2,568) (2,697)
EBITDA 135 172 237 358 481 616 773 953 1,125 1,328 1,460 1,607 1,687
D&A (14) (14) (14) (15) (17) (19) (20) (23) (24) (26) (29) (31) (32)
EBIT 121 158 223 343 464 598 752 930 1,100 1,301 1,432 1,575 1,655
Income tax expense (45) (15) (9) (34) (70) (90) (113) (140) (165) (195) (215) (236) (248)
EBIAT 76 143 214 309 394 508 640 791 935 1,106 1,217 1,339 1,407
Add: D&A 15 17 19 20 23 24 26 29 31 32
Less: CapEx (8) (7) (9) (11) (8) (9) (10) (11) (4) (4)
Less: Change in Net Working Capital (87) (67) (114) (64) (117) (137) (135) (104) (114) (63)
Unlevered Free Cash Flows 229 337 403 585 689 813 987 1,131 1,252 1,372