S-1/A 1 d541293ds1a.htm AMENDMENT NO. 7 TO FORM S-1 Amendment No. 7 to Form S-1
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As filed with the Securities and Exchange Commission on October 15, 2013.

Registration No. 333-191085

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

AMENDMENT NO. 7

TO

Form S-1

REGISTRATION STATEMENT

 

Under

The Securities Act of 1933

 

 

 

VEEVA SYSTEMS INC.

 

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   7372   20-8235463
(State or Other Jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
Incorporation or Organization)   Classification Code Number)   Identification Number)

 

Veeva Systems Inc.

4637 Chabot Drive, Suite 210

Pleasanton, California 94588

(925) 452-6500

(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

Timothy S. Cabral

Chief Financial Officer

Veeva Systems Inc.

4637 Chabot Drive, Suite 210

Pleasanton, California 94588

(925) 452-6500

(Name, address, including zip code and telephone number, including area code, of agent for service)

 

 

 

Copies to:

 

Robert V. Gunderson, Jr., Esq.

Brian C. Patterson, Esq.

Richard C. Blake, Esq.

Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
1200 Seaport Blvd.

Redwood City, California 94063
(650) 321-2400

 

Josh Faddis, Esq.

Vice President, General Counsel

and Corporate Secretary

Veeva Systems Inc.

4637 Chabot Drive, Suite 210

Pleasanton, California 94588

(925) 452-6500

 

Gordon K. Davidson, Esq.

Jeffrey R. Vetter, Esq.

James D. Evans, Esq.

Fenwick & West LLP

801 California Street

Mountain View, California 94041

(650) 988-8500

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨

    

Accelerated filer  ¨

Non-accelerated filer  x

 

(Do not check if a smaller reporting company)

  

Smaller reporting company  ¨

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and neither we nor the selling stockholders are soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

 

PROSPECTUS (Subject to Completion)

 

Issued October 15, 2013

 

13,045,000 Shares

 

LOGO

 

CLASS A COMMON STOCK

 

 

 

Veeva Systems Inc. is offering 9,720,000 shares of its Class A common stock and the selling stockholders are offering 3,325,000 shares of Class A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial public offering of our Class A common stock and no public market currently exists for our shares of Class A common stock. We anticipate that the initial public offering price will be between $16.00 and $18.00 per share.

 

 

 

We have two classes of common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except voting and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes and is convertible at any time into one share of Class A common stock. The holders of our outstanding Class B common stock will hold approximately 98.8% of the voting power of our outstanding capital stock following this offering, and our executive officers and directors and their affiliates will hold approximately 74.0% of the voting power of our outstanding capital stock following this offering.

 

 

 

Our Class A common stock has been approved for listing on the New York Stock Exchange under the symbol “VEEV.”

 

 

 

We are an “emerging growth company” as defined under the federal securities laws. Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 13.

 

 

 

PRICE $         A SHARE

 

 

 

      

Price to
Public

    

Underwriting
Discounts and
Commissions

     Proceeds  to
Veeva
    

Proceeds to

Selling

Stockholders

      

Per share

     $      $      $      $     

Total

     $              $              $              $             

 

We have granted the underwriters the right to purchase up to an additional 1,956,750 shares of Class A common stock to cover over-allotments.

 

The Securities and Exchange Commission and state regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The underwriters expect to deliver the shares of Class A common stock to purchasers on            , 2013.

 

 

 

MORGAN STANLEY   DEUTSCHE BANK SECURITIES
PACIFIC CREST SECURITIES   STIFEL      WELLS FARGO SECURITIES     CANACCORD GENUITY   

 

                         , 2013


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LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     13   

Letter from Our Chief Executive Officer

     34   

Special Note Regarding Forward-Looking Statements

     36   

Industry and Market Data

     37   

Use of Proceeds

     38   

Dividend Policy

     38   

Capitalization

     39   

Dilution

     41   

Selected Consolidated Financial Data

     43   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     45   

Business

     75   
 

 

 

 

Neither we, the selling stockholders, nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the selling stockholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

 

Through and including                     , 2013 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

 

For investors outside the United States: Neither we, the selling stockholders, nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our Class A common stock and the distribution of this prospectus outside of the United States.


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PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information appearing in this prospectus, including our consolidated financial statements and related notes, and in “Risk Factors” beginning on page 13, before deciding whether to purchase shares of our Class A common stock. Unless the context otherwise requires, we use the terms “Veeva,” the “company,” “we,” “us” and “our” in this prospectus to refer to Veeva Systems Inc. and its subsidiaries.

 

VEEVA SYSTEMS INC.

 

Veeva is a leading global provider of industry-specific, cloud-based software solutions for the life sciences industry. Our solutions enable pharmaceutical and other life sciences companies to realize the benefits of modern cloud-based architectures and mobile applications for their most critical business functions, without compromising industry-specific functionality or regulatory compliance. Our customer relationship management solutions enable our customers to increase the productivity and compliance of their sales and marketing functions. Our regulated content management and collaboration solutions enable our customers to more efficiently manage a range of highly regulated, content-centric processes across the enterprise. Our customer master solution enables our customers to more effectively manage complex healthcare provider and healthcare organization data. We have built our company’s culture around customer success and believe that our customers consider us a strategic business partner.

 

We founded our company in 2007 on the premise that industry-specific business problems would best be addressed by industry-specific, cloud-based solutions, an approach referred to as Industry Cloud. We believe Industry Cloud solutions are particularly relevant to global, complex and heavily regulated industries, such as the life sciences industry that we serve. Although there are some basic functions within life sciences companies that horizontal cloud-based solutions have been able to address, such as payroll and expense management, the industry has largely continued to rely on legacy, on-premise information technology (IT) systems to meet industry-specific needs in critical business functions such as new drug submissions, quality management, sales and marketing. As a result, prior to Veeva, life sciences companies were largely unable to implement cloud-based solutions for many of their most critical business functions.

 

Our Industry Cloud for life sciences consists of cloud-based solutions that were designed from the ground up to address the specific business and regulatory requirements of this global industry. Veeva CRM, our customer relationship management solution for sales representatives, enables a broad range of industry-specific functions such as drug sample tracking with electronic signature capture, healthcare affiliations management, and the ability to conduct interactive, rich media demonstrations with physicians on a mobile device, with or without an internet connection. Veeva Vault, our regulated content management and collaboration solution, enables the management of complex, content-centric processes, such as the collection, management and organization of thousands of documents during clinical trials and managing the complex versioning, workflows and approvals for promotional materials, in compliance with stringent government regulations. Veeva Network, our recently announced customer master solution that will be generally available in late 2013, enables the creation and maintenance of the healthcare provider and organization master data that drives life sciences companies’ sales and marketing operations.

 

Our solutions utilize multi-tenant architectures, allowing us to rapidly deliver new functionality to all customers simultaneously and enabling our customers to benefit from our innovations and to comply with frequently changing regulations more quickly because all customers are using the same version of our solutions. A multi-tenant architecture is one that allows multiple customers to use the same hardware and software infrastructure while keeping each customer’s data logically separated. In addition, our global employee base, including our professional services team, gives us insights into industry best practices that can be quickly incorporated into our solutions, benefitting all of our customers. We believe this industry-focused approach of continual improvement has the potential to make our Industry Cloud the standard for the life sciences industry. In addition, we believe that the

 

 

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data generated from our deep, industry-specific applications can provide unique insights about the industry that we can incorporate into our solutions, further increasing the value of our Industry Cloud.

 

An element of our strategy has been to build a global enterprise to serve the needs of the life sciences industry worldwide. As of July 31, 2013, we had 593 employees, including approximately 190 employees located outside North America, primarily in Europe, Japan and China. Our solutions are designed to enable compliance with global regulatory requirements and are available in 27 languages. For our fiscal year ended January 31, 2013, international revenues constituted over one-third of our total revenues. We believe our global presence is a significant strategic asset, as our employees maintain strong local relationships with senior customer executives and obtain valuable feedback on both our existing and potential solutions suited to specific geographies.

 

We have achieved rapid customer growth and strong customer retention, which we believe is largely due to our acute focus on customer success. As of January 31, 2011, 2012 and 2013, we served 51, 95 and 134 life sciences customers, respectively. As of August 31, 2013, we served approximately 170 life sciences customers, including 33 of the 50 largest global pharmaceutical companies. Our solutions have been implemented in over 75 countries, ranging from deployments within a single division or geography to major deployments at some of the largest global pharmaceutical companies, including Bayer Healthcare AG, Boehringer Ingelheim GmbH, Eli Lilly and Company, Gilead Sciences, Inc., Merck & Co., Inc. and Novartis International AG, as well as projects at smaller life sciences companies. For an explanation of how we define our current customers, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Results of Operations.”

 

We have experienced significant growth in revenues and profitability in a short period of time. For our fiscal years ended January 31, 2011, 2012 and 2013, our total revenues were $29.1 million, $61.3 million and $129.5 million, respectively, representing year-over-year growth in total revenues of 110% and 111% for our two most recent fiscal years. For the six months ended July 31, 2013, our total revenues were $92.4 million, representing period-over-period growth of 71%. For our fiscal years ended January 31, 2011, 2012 and 2013, our subscription services revenues were $19.6 million, $32.6 million and $73.3 million, respectively, representing year-over-year growth in subscription services revenues of 67% and 125% for our two most recent fiscal years. For the six months ended July 31, 2013, our subscription services revenues were $62.0 million, representing period-over-period growth of 112%. We generate revenues from subscription fees, generally based on the number of users, and from professional services fees, for configuration, implementation and training. We generated net income of $3.9 million, $4.2 million and $18.8 million for our fiscal years ended January 31, 2011, 2012 and 2013, respectively, and $7.4 million and $10.8 million for the six months ended July 31, 2012 and 2013, respectively.

 

Industry Background

 

The Life Sciences Industry is Large and Growing, with Specific and Complex Technology Needs

 

The life sciences industry is one of the largest industries in the world, with over 23,000 life sciences companies of record in 2012. According to MarketLine, in 2012, life sciences companies had combined global revenues of approximately $1.6 trillion, and the industry is expected to grow at a compound annual growth rate of approximately 6% per year through 2016. Life sciences companies face a range of strategic and regulatory opportunities and challenges, requiring substantial investment in IT applications and infrastructure. International Data Corporation (IDC) estimates that life sciences companies spent approximately $44 billion on technology in 2012.

 

The life sciences industry faces a number of regulatory, business and operational pressures that create the need for industry-specific, cloud-based solutions:

 

Stringent Regulatory Requirements. The industry is subject to compliance regimes that are complex, vary widely by regulatory body and geography, and change frequently. Furthermore, the life sciences industry is experiencing increasing levels of scrutiny and regulatory enforcement worldwide, which have led to individual fines exceeding a billion dollars.

 

 

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Global Expansion. Life sciences companies have significantly increased their international operations across many functions including product development, manufacturing, marketing and distribution. This global expansion has increased the need to collaborate across functions and geographies, both internally and with third parties, which can necessitate new IT systems for life sciences companies.

 

Increasing Financial Pressures. Life sciences companies have faced increasing financial pressures in recent years. The largest impact has been from patent expirations for a number of “blockbuster” drugs that had provided companies with strong and predictable revenues and profits. In addition, governments worldwide are changing their healthcare systems in an effort to more closely manage the approval and reimbursement or payment of healthcare products and drug treatments.

 

Distinct Business Function Requirements. Life sciences companies typically have separate business functions, including research and development, manufacturing and commercial, that each must comply with specific and distinct regulatory requirements. Each of these functions has specific IT needs that are frequently addressed by separate technology and business decision makers, IT budgets, purchasing patterns and procurement departments.

 

Existing Legacy IT Systems Do Not Meet the Needs of Today’s Life Sciences Companies

 

Legacy IT systems often do not meet the evolving needs of today’s life sciences companies for a number of reasons, including:

 

Difficult and Expensive to Implement and Maintain. Legacy IT systems have generally been deployed on-premise, requiring substantial investments in infrastructure and resources in order to enhance, upgrade and maintain such systems. These highly customized systems quickly become outdated due to the accelerating changes in a company’s regulatory, business and computing environments, and require significant ongoing professional services to maintain.

 

Lack of Integration. Many legacy IT systems comprise numerous discrete applications that frequently do not integrate well with each other. In order to manage and integrate data across these applications and across broad geographies, many life sciences companies have had to engage in lengthy and expensive custom development and system integration projects.

 

Poor Usability. Many legacy IT systems do not offer intuitive user interfaces and often are incompatible with now commonly used mobile devices. These disadvantages tend to discourage widespread adoption and frequent use of these solutions across the enterprise.

 

Horizontal Cloud-Based Solutions Are Not Well Suited to Meet the Needs of Today’s Life Sciences Companies

 

Horizontal cloud-based solutions fail to meet the complex, industry-specific needs of life sciences companies for a number of reasons, including:

 

Lack of Industry-Specific Functionality. Because horizontal cloud-based solutions typically lack industry-specific functionality, life sciences companies tend to only deploy these solutions for basic business functions, such as payroll and expense management. In more business critical functions, like new drug submissions, quality management, sales and marketing, life sciences companies have specific business and regulatory requirements that make the deployment of horizontal cloud-based solutions extremely challenging without significant customization.

 

Inability to Ensure Compliance. Life sciences companies are subject to regulations that require their technology be validated to function in accordance with very specific process and documentation requirements.

 

 

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Horizontal cloud vendors typically do not have the deep industry and regulatory knowledge required to provide life sciences companies with validated systems to support their compliance with these regulations.

 

Lack of Offline Functionality. Horizontal cloud-based solutions and their underlying architectures were developed to maximize performance using an internet connection. Pharmaceutical sales representatives, however, require the ability to conduct their daily activities, such as displaying rich media product demonstrations to physicians, on a mobile device within a compressed and unpredictable window of time, without needing to rely on the availability of an internet connection.

 

The Opportunity for Industry Cloud in Life Sciences

 

The failure of legacy IT systems and horizontal cloud-based solutions to adequately address the IT needs of today’s life sciences companies creates an opportunity for companies such as ours that are focused on industry-specific, cloud-based solutions, or Industry Cloud solutions. Life sciences companies continue to invest significantly in their IT applications and infrastructure. Of the $44 billion that IDC estimates life sciences companies spent on technology in 2012, $28 billion was on software and services and $16 billion was on infrastructure. According to Gartner, Inc., of the $396 billion that businesses spent worldwide on software in 2012, the largest area of spending was Vertical Specific Software, constituting $110 billion or 28% of total software spending. In addition, the demand for cloud-based solutions continues to grow. According to IDC, the global market for public IT cloud services spending is projected to grow from $40 billion in 2012 to $98 billion in 2016, a compound annual growth rate of over 25%. For the market segments within the life sciences industry that we believe are relevant to our solutions, based on our internal analysis and industry experience, we estimate the total addressable market, including the market segments for sales and marketing automation and related solutions for life sciences sales representatives, regulated content management solutions for life sciences companies, customer master solutions for life sciences companies, and healthcare professional, organization, affiliation and reference data, to be at least $5 billion.

 

Our Industry Cloud Solutions

 

We provide Industry Cloud solutions for the life sciences industry, specifically developed for the critical business and regulatory needs of global life sciences companies, that deliver the benefits of cloud-based architectures.

 

Our Industry Cloud solutions include the following key attributes:

 

Deep, Industry-Specific Functionality. Our solutions have been designed and developed for the specific needs of the global life sciences industry.

 

Multi-Tenant Architectures. Our solutions use multi-tenant architectures and, as a result, all of our customers run the same version of our applications while securely partitioning their own data.

 

Validated Systems. Our solutions are designed, developed and maintained to enable our customers to satisfy system validation requirements mandated by regulatory organizations.

 

Modular and Integrated Solutions. Our solutions are designed to be deployed in a modular fashion and to rapidly integrate and interface with our customers’ existing applications, data and technologies, and in addition, are optimized to work with our other solutions.

 

Mobility and Offline Functionality. Certain capabilities of our Veeva CRM solutions can function offline on common mobile devices so that users have access to rich content presentations, signature capture and other needs when disconnected from the internet.

 

“Best Practices” Updates. Our solutions are regularly updated to capture best-in-class business processes from companies across the global life sciences industry.

 

 

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User-Friendly Interface. The user interface for our cloud-based solutions is designed to be simple, flexible and intuitive. We believe the user-friendly characteristics of our solutions result in greater user adoption, higher utilization and more time spent on productive tasks.

 

Global Focus. Our global focus and presence allows us to incorporate new regulatory frameworks and functional requirements more quickly into our solutions.

 

Our Industry Cloud solutions provide the following key benefits for our customers:

 

Improved Sales and Marketing Productivity. Veeva CRM solutions enable sales representatives to focus more time on revenue-generating activities by enabling representatives to better prioritize, prepare for and follow up on interactions with physicians. Veeva Vault enables customers to improve the coordination between sales and marketing at life sciences companies.

 

More Efficient New Product Development. Veeva Vault applications enable research and development organizations to improve and accelerate collaboration among both internal employees and external partners that is required to manage their drug development processes, resulting in the ability to develop and submit applications for regulatory approval for new drugs more quickly and efficiently.

 

Reduced Total Cost of Ownership. Our solutions include applications, infrastructure, maintenance, monitoring, integration, storage, security, disaster recovery, customer support and upgrades, which reduce customer cost and time spent relative to legacy IT systems.

 

Improved Analytical Insights. We believe our solutions provide our customers with real-time insights into their business performance across a wide number of areas and metrics, enabling them to better manage and coordinate their operations.

 

Frequent Updates. Customers benefit from greater scalability, reliability and performance, as well as faster innovation due to our multi-tenant architecture. We deploy our upgrades rapidly to all of our customers several times per year.

 

Improved Regulatory Compliance. Our solutions enable customers to maintain or improve their global compliance levels across a wide range of regulatory requirements. As a result, we believe our customers can realize significant cost savings and improved regulatory compliance.

 

Our Growth Strategy

 

Key elements of our growth strategy include:

 

Focus on Customer Success. Customer success is at the core of everything we do. We plan to continue our focused commitment to the business success of our customers, including recruiting, hiring and developing employees who are highly focused on delivering customer success.

 

Deepen Existing Customer Relationships Within Commercial Departments of Life Sciences Companies. We intend to increase the number of users within our existing customers and to grow the number of Veeva CRM, Veeva Vault and Veeva Network applications used by commercial departments of life sciences companies.

 

Establish and Expand Our Customer Relationships Within Research and Development Departments of Life Sciences Companies. We intend to increase the adoption of our regulated content management and collaboration solutions by increasing the size of our sales force, enabling us to market our Veeva Vault solutions to an expanded set of customers in research and development departments of life sciences companies.

 

 

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Expand Our Customer Base. We believe there is a substantial opportunity for us to continue to increase the size of our customer base with both large and small life sciences companies globally through the efforts of our growing domestic and international sales forces.

 

Continue to Enhance Existing Offerings and Develop New Industry Cloud Solutions. We have made, and will continue to make, significant investments in research and development to enhance our existing solutions, expand the number of our applications and further develop our solutions.

 

Continue to Expand Internationally. We plan to continue to invest in new geographies where leading life sciences companies operate, including in the areas of salespeople and sales channels, professional services, customer support and services partnerships.

 

Risks Affecting Us

 

Our business is subject to numerous risks described in “Risk Factors” immediately following this prospectus summary and elsewhere in this prospectus. These risks represent challenges to the successful implementation of our strategy and to the growth and future profitability of our business. Some of these risks are:

 

   

We have a limited operating history, which makes it difficult to predict our future operating results, and we may not achieve our expected operating results in the future.

 

   

We expect the future growth rate of our revenues to decline, and as our costs increase, we may not be able to generate sufficient revenues to sustain the level of profitability we have achieved in the past or achieve profitability in the future.

 

   

We have experienced rapid growth in recent periods, and if we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.

 

   

To date, we have derived more than 95% of our subscription services revenues from our Veeva CRM solution, and our Veeva CRM solution has achieved substantial penetration within the U.S.-based sales teams of pharmaceutical and biotechnology companies. If our efforts to further increase the use and adoption of our Veeva CRM solution do not succeed, the growth rate of our revenues may decline.

 

   

If our new solutions, including Veeva Vault, Veeva CRM Approved Email or Veeva Network, are not successfully adopted by new and existing customers, the growth of our revenues and operating results will be adversely affected.

 

   

If our existing customers do not renew their subscriptions or buy additional solutions and user subscriptions from us, or renew at lower fee levels, our business and operating results will suffer.

 

   

The loss of one or more of our key customers, or a failure to renew our subscription agreements with one or more of our key customers, could slow the growth rate of our revenues or cause our revenues to decline.

 

   

Because key and substantial portions of our Veeva CRM solution are built on salesforce.com’s Salesforce Platform, we are dependent upon our agreement with salesforce.com to provide our Veeva CRM solution to our customers.

 

   

All of our revenues are generated by sales to life sciences industry customers, and factors that adversely affect this industry could also adversely affect us.

 

   

If our security measures are breached or unauthorized access to customer data is otherwise obtained, our solutions may be perceived as not being secure, customers may reduce the use of or stop using our solutions and we may incur significant liabilities.

 

 

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Our executive officers and directors and their affiliates, who after this offering will hold approximately 74.0% of the voting power of our outstanding capital stock, will have the ability to control the outcome of matters submitted to our stockholders for approval.

 

For further discussion of these and other risks you should consider before making an investment in our Class A common stock, see “Risk Factors” immediately following this prospectus summary.

 

Corporate Information

 

We were incorporated in the state of Delaware in January 2007 and changed our name to Veeva Systems Inc. from Verticals onDemand, Inc. in April 2009. Our principal executive offices are located at 4637 Chabot Drive, Suite 210, Pleasanton, California 94588. Our telephone number is (925) 452-6500. Our website address is www.veeva.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our Class A common stock.

 

Veeva, the Veeva logo, Veeva CRM, Veeva CLM, Veeva iRep, Veeva CRM Approved Email, Veeva Network, Veeva Vault, Vault eTMF, Vault Investigator Portal, Vault Submissions, Vault QualityDocs, Vault PromoMats, Vault MedComms, Approved Email, Vault, iRep and other trademarks or service marks of Veeva appearing in this prospectus are the property of Veeva. This prospectus contains additional trade names, trademarks and service marks of ours and of other companies. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

 

 

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THE OFFERING

 

Class A common stock offered

By us

9,720,000 shares

By the selling stockholders

3,325,000 shares

Total

13,045,000 shares

 

Class A common stock to be outstanding after this offering

13,045,000 shares

 

Class B common stock to be outstanding after this offering

109,207,440 shares

 

Total Class A and Class B common stock to be outstanding after this offering

122,252,440 shares

 

Over-allotment option of Class A common stock offered by us

1,956,750 shares

 

Use of proceeds

We estimate that our net proceeds from the sale of the Class A common stock that we are offering will be approximately $150.9 million, assuming an initial public offering price of $17.00 per share, the midpoint of the price range on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of shares of Class A common stock by the selling stockholders.

 

 

The principal purposes of this offering are to increase our financial flexibility, facilitate an orderly distribution of shares for the selling stockholders, increase our visibility in the marketplace and create a public market for our Class A common stock. We intend to use the net proceeds to us from this offering for working capital and other general corporate purposes. However, we do not currently have specific planned uses of the proceeds. In addition, we may use a portion of the net proceeds from this offering for acquisitions of or investments in other complementary businesses, technologies or other assets. However, we currently have no agreements or commitments with respect to any specific material acquisitions or investments at this time. See “Use of Proceeds.”

 

 

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Voting rights

Shares of Class A common stock are entitled to one vote per share.

 

 

Shares of Class B common stock are entitled to ten votes per share.

 

 

Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law or our restated certificate of incorporation. Our executive officers and directors and their affiliates, who after this offering will hold approximately 74.0% of the voting power of our outstanding capital stock, will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction. See “Principal and Selling Stockholders” and “Description of Capital Stock.”

 

New York Stock Exchange symbol

“VEEV”

 

The number of shares of Class A and Class B common stock to be outstanding after this offering is based on no shares of our Class A common stock and 112,532,440 shares of our Class B common stock outstanding as of July 31, 2013, and excludes:

 

   

16,547,749 shares of Class B common stock issuable upon the exercise of options outstanding as of July 31, 2013 under our 2012 Equity Incentive Plan, with a weighted-average exercise price of approximately $3.98 per share;

 

   

8,857,794 shares of Class B common stock issuable upon the exercise of options outstanding as of July 31, 2013 under our 2007 Stock Plan, with a weighted-average exercise price of approximately $0.56 per share;

 

   

731,000 shares of Class B common stock issuable upon exercise of options granted under our 2012 Equity Incentive Plan between August 1, 2013 and October 11, 2013 with a weighted-average exercise price of approximately $10.89 per share; and

 

   

6,822,956 shares of our common stock were reserved for future issuance under our equity compensation plans, consisting of 2,822,956 shares of Class B common stock reserved for issuance under our 2012 Equity Incentive Plan as of July 31, 2013, which will become available for issuance as Class A common stock under our 2013 Equity Incentive Plan on the date of this prospectus, and 4,000,000 shares of Class A common stock that will be reserved for issuance under our 2013 Employee Stock Purchase Plan. No shares of either our Class A or Class B common stock were reserved for future issuance under our 2007 Stock Plan as of July 31, 2013. On the date of this prospectus, we will cease granting awards under our 2012 Equity Incentive Plan. Our 2013 Equity Incentive Plan and 2013 Employee Stock Purchase Plan also provide for automatic annual increases in the number of shares reserved thereunder, as more fully described in “Executive Compensation—Equity Plans.”

 

 

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Unless expressly indicated or the context requires otherwise, all information in this prospectus assumes:

 

   

the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 85,000,000 shares of Class B common stock in connection with the closing of this offering;

 

   

no exercise by the underwriters of their right to purchase up to an additional 1,956,750 shares of Class A common stock to cover over-allotments;

 

   

the amendment of our certificate of incorporation in connection with the completion of this offering to redesignate our currently outstanding common stock as “Class B common stock” and to create a new class of Class A common stock to be offered and sold in this offering; and

 

   

the filing of our restated certificate of incorporation and the effectiveness of our amended and restated bylaws in connection with the completion of this offering.

 

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

 

The following tables set forth summary consolidated financial data. The consolidated statements of operations data for our fiscal years ended January 31, 2011, 2012 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the six months ended July 31, 2012 and 2013, and the consolidated balance sheet data as of July 31, 2013 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the financial position and the results of operations for these periods. You should read this summary consolidated financial data in conjunction with the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any future period.

 

    Fiscal Year Ended January 31,     Six Months Ended
July 31,
 
        2011             2012             2013             2012             2013      
    (in thousands, except per share data)  

Consolidated Statements of Operations Data:

         

Revenues:

         

Subscription services

  $ 19,573      $ 32,613      $ 73,280      $ 29,202      $ 62,000   

Professional services and other

    9,556        28,649        56,268        24,762        30,369   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    29,129        61,262        129,548        53,964        92,369   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues(1):

         

Cost of subscription services

    5,236        8,768        18,852        7,749        14,898   

Cost of professional services and other

    7,081        20,288        38,164        16,650        21,954   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

    12,317        29,056        57,016        24,399        36,852   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    16,812        32,206        72,532        29,565        55,517   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses(1):

         

Research and development

    3,637        7,750        14,638        6,341        11,884   

Sales and marketing

    5,571        12,279        19,490        7,988        17,272   

General and administrative

    2,513        5,539        8,371        3,349        8,350   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    11,721        25,568        42,499        17,678        37,506   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    5,091        6,638        30,033        11,887        18,011   

Other income (expense), net

    173        15        (940     (411     (564
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    5,264        6,653        29,093        11,476        17,447   

Provision for income taxes

    1,355        2,423        10,310        4,126        6,604   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 3,909      $ 4,230      $ 18,783      $ 7,350      $ 10,843   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

  $ 428      $ 599      $ 3,480        1,269      $ 2,222   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributable to common stockholders(2):

         

Basic

  $ 0.03     $ 0.03      $ 0.17      $ 0.07      $ 0.09   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ 0.02     $ 0.02      $ 0.11      $ 0.04      $ 0.06   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income per share attributable to common stockholders (unaudited)(3):

         

Basic

      $ 0.17       $ 0.10   
     

 

 

     

 

 

 

Diluted

      $ 0.16       $ 0.09   
     

 

 

     

 

 

 

 

 

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(1)  

Includes stock-based compensation expense as follows:

 

     Fiscal Year Ended January 31,      Six Months Ended
July 31,
 
         2011              2012              2013              2012              2013      
     (in thousands)  

Cost of revenues:

              

Cost of subscription services

   $       $ 1       $ 3       $ 1       $ 9   

Cost of professional services and other

     9         63         120         51         228   

Research and development

     30         106         238         90         466   

Sales and marketing

     43         99         140         63         482   

General and administrative

     87         165         214         104         765   

 

(2)  

Net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, less the weighted average unvested common stock subject to repurchase. See note 12 of the notes to our consolidated financial statements.

(3)  

Pro forma net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding assuming the automatic conversion of all outstanding shares of the convertible preferred stock into shares of common stock as of the issuance date of the convertible preferred stock. See note 12 of the notes to our consolidated financial statements.

 

     As of July 31, 2013  
     Actual      Pro
Forma(1)
     Pro Forma
As Adjusted(2)
 
     (in thousands)  

Consolidated Balance Sheet Data:

        

Cash, cash equivalents and short-term investments

   $ 52,875       $ 52,875       $ 203,813   

Working capital

     35,056         35,056         185,994   

Deferred revenue

     48,260         48,260         48,260   

Total assets

     112,620         112,620         263,558   

Convertible preferred stock

     6,933                   

Additional paid-in capital

     4,694         11,626         162,564   

Total stockholders’ equity

     47,400         47,400         198,338   

 

(1)  

The pro forma column in the consolidated balance sheet data as of July 31, 2013 reflects the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 85,000,000 shares of Class B common stock in connection with this offering.

(2)  

The pro forma as adjusted column in the consolidated balance sheet data as of July 31, 2013 reflects the item described in footnote (1) above, and our sale of 9,720,000 shares of Class A common stock in this offering at an assumed initial public offering price of $17.00 per share, the midpoint of the price range on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share would increase (decrease) each of cash, cash equivalents and short-term investments, working capital, total assets, additional paid-in capital and total stockholders’ equity by $9.0 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions.

 

 

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RISK FACTORS

 

Investing in our Class A common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before deciding whether to purchase shares of our Class A common stock. If any of the following risks actually occurs, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our Class A common stock could decline and you could lose part or all of your investment.

 

Risks Related to Our Business and Industry

 

We have a limited operating history, which makes it difficult to predict our future operating results, and we may not achieve our expected operating results in the future.

 

We were incorporated in 2007 and introduced our first commercially available cloud-based solution, Veeva CRM, that same year. As a result of our limited operating history, our ability to forecast our future operating results, including revenues, cash flows and profitability, is limited and subject to a number of uncertainties. We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in the technology industry, such as the risks and uncertainties described in this prospectus. If our assumptions regarding these risks and uncertainties are incorrect or change due to changes in our markets, or if we do not address these risks successfully, our operating and financial results may differ materially from our expectations and our business may suffer.

 

We expect the future growth rate of our revenues to decline, and as our costs increase, we may not be able to generate sufficient revenues to sustain the level of profitability we have achieved in the past or achieve profitability in the future.

 

In each of our last two fiscal years, our revenues grew more than 100% as compared to revenues from the prior fiscal year. We expect the growth rate of our revenues to decline in future periods. At the same time, we expect our future expenses to increase as we continue to invest in our business. We expect to incur significant future expenditures related to:

 

   

developing new solutions, enhancing our existing solutions and improving the technology infrastructure, scalability, availability, security and support for our solutions;

 

   

expanding and deepening our relationships with our existing customer base, including expenditures related to increasing the adoption of our solutions by the research and development departments of life sciences companies;

 

   

sales and marketing, including expansion of our direct sales organization and global marketing programs;

 

   

expansion of our professional services organization;

 

   

international expansion; and

 

   

general operations, IT systems and administration, including legal and accounting expenses related to being a public company that we did not incur as a private company.

 

Our investments may not result in increased revenues now or in the future. If our efforts to increase revenues and manage our expenses are not successful, or if we incur costs, damages, fines, settlements or judgments as a result of other risks and uncertainties described in this prospectus, our operating results and business would be harmed. As a result, we cannot assure you that we will increase or sustain our historical levels of profitability or that we will achieve profitability in the future.

 

Additionally, our professional services revenues fluctuate as a result of the achievement of milestones in our professional services arrangements and the timing of our customers’ implementation projects. In recent quarterly

 

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periods, our professional services revenues have remained relatively flat or declined as compared to the prior quarterly period, and our professional services revenues may not increase on a quarterly basis in the future.

 

We have experienced rapid growth in recent periods, and if we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.

 

Since we were founded, we have experienced rapid growth and expansion of our operations. For instance, our employee headcount has increased from 257 as of January 31, 2012 to 593 employees as of July 31, 2013, and we plan on hiring additional employees in the future. Our rapid growth has placed, and will continue to place, a significant strain on our administrative and operational infrastructure, facilities and other resources. Our ability to manage our operations and growth will require us to continue to expand our research and development, sales and marketing, professional services and finance and administration teams, as well as our facilities and infrastructure. We will also be required to refine our operational, financial and management controls and reporting systems and procedures. Moreover, if we fail to efficiently manage this expansion, our costs and expenses may increase more than we plan and we may fail to expand our customer base, enhance our existing solutions, develop new solutions, satisfy the requirements of our existing customers, respond to competitive challenges or otherwise execute our business plan. If we are unable to manage our growth, our operating and financial results likely would be harmed.

 

To date, we have derived more than 95% of our subscription services revenues from our Veeva CRM solution, and our Veeva CRM solution has achieved substantial penetration within the U.S.-based sales teams of pharmaceutical and biotechnology companies. If our efforts to further increase the use and adoption of our Veeva CRM solution do not succeed, the growth rate of our revenues may decline.

 

To date, we have derived more than 95% of our subscription services revenues from our Veeva CRM solution and have realized substantial sales penetration for our Veeva CRM solution among the U.S.-based sales teams of large pharmaceutical and biotechnology companies in particular. A critical factor for our continued growth is our ability to sell additional Veeva CRM user subscriptions to our existing and new customers. Any factor adversely affecting sales of this solution, including penetration of the U.S. market, could adversely affect the growth rate of our revenues, operating results and business.

 

If our new solutions, including Veeva Vault, Veeva CRM Approved Email or Veeva Network, are not successfully adopted by new and existing customers, the growth rate of our revenues and operating results will be adversely affected.

 

Our continued growth and profitability will depend on our ability to successfully develop and sell new solutions, including Veeva Vault, Veeva CRM Approved Email and Veeva Network. These solutions were recently introduced or announced and it is uncertain whether these solutions will ever result in significant revenues or comprise a significant portion of our total revenues. It may take us significant time and we may incur significant expense to effectively market and sell these solutions, or to develop other new solutions and make enhancements to our existing solutions. If Veeva Vault, Veeva CRM Approved Email, Veeva Network or other solutions that we may develop and introduce in the future do not achieve market acceptance in a timely manner, the growth rate of our revenues and operating results will be adversely affected.

 

If our existing customers do not renew their subscriptions or buy additional solutions and user subscriptions from us, or renew at lower fee levels, our business and operating results will suffer.

 

We expect to continue to derive a significant portion of our revenues from renewal of existing subscription agreements. As a result, maintaining the renewal rate of our subscriptions and selling additional solutions and user subscriptions is critical to our future operating results. Factors that may affect the renewal rate for our solutions and our ability to sell additional solutions and user subscriptions include:

 

   

the price, performance and functionality of our solutions;

 

   

the availability, price, performance and functionality of competing solutions and services;

 

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the effectiveness of our professional services;

 

   

our ability to develop complementary solutions, applications and services;

 

   

the stability, performance and security of our hosting infrastructure and hosting services; and

 

   

the business environment of our customers and, in particular, headcount reductions by our customers.

 

We enter into master subscription agreements with our customers. Orders typically have a one-year term and automatically renew unless notice of cancellation is provided in advance. Our customers have no obligation to renew their subscriptions for our solutions after their orders expire. In addition, our customers may negotiate terms less advantageous to us upon renewal, which may reduce our revenues from these customers. Factors that are not within our control may contribute to a reduction in our subscription services revenues. For instance, our customers may reduce their number of sales representatives, which would result in a corresponding reduction in the number of user subscriptions needed for some of our solutions and thus a lower aggregate renewal fee. Our future operating results also depend, in part, on our ability to sell new solutions, applications and professional services to our existing customers. If our customers fail to renew their agreements, renew their agreements upon less favorable terms or at lower fee levels, or fail to purchase new solutions, applications and professional services from us, our revenues may decline or our future revenues may be constrained.

 

The loss of one or more of our key customers, or a failure to renew our subscription agreements with one or more of our key customers, could slow the growth rate of our revenues or cause our revenues to decline.

 

For our fiscal year ended January 31, 2013, two customers each represented more than 10% of our total revenues. In addition, in our fiscal years ended January 31, 2012 and 2013, our top 10 customers accounted for 61% and 54% of our total revenues, respectively. We rely on our reputation and recommendations from key customers in order to promote our solutions to potential customers. The loss of any of our key customers, or a failure of some of them to renew or expand user subscriptions, could have a significant impact on the growth rate of our revenues, reputation and our ability to obtain new customers. In addition, acquisitions of our customers could lead to cancellation or non-renewal of our agreements with those customers or by the acquiring companies, thereby reducing the number of our existing and potential customers.

 

Because key and substantial portions of our Veeva CRM solution are built on salesforce.com’s Salesforce Platform, we are dependent upon our agreement with salesforce.com to provide our Veeva CRM solution to our customers.

 

Key and substantial portions of our Veeva CRM solution are developed on the Salesforce Platform of salesforce.com, inc., and we rely on our agreement with salesforce.com to continue to use the Salesforce Platform as combined with the proprietary aspects of our Veeva CRM solution.

 

Our agreement with salesforce.com expires in September 2015 and does not provide for an automatic renewal. We cannot assure you that the pricing or other terms in any renewal with salesforce.com would be favorable to us, and if not, our gross margin and other operating results could be adversely affected. If we are unable to renew our agreement with salesforce.com, there would be a wind-down period during which our existing customers would be able to continue using the Salesforce Platform as combined with the proprietary aspects of our Veeva CRM solution, but we would be unable to sell subscriptions to our solutions that are combined with the Salesforce Platform to new customers and would be limited with respect to the number of additional subscriptions to our solutions, as combined with the Salesforce Platform, that we could sell to our existing customers. In addition, salesforce.com has the right to terminate the agreement in certain circumstances, including in the event of a material breach of the agreement by us, that we are acquired by specified companies, or that salesforce.com is subjected to third-party intellectual property infringement claims based on Veeva CRM (except to the extent based on the Salesforce Platform) or our trademarks and we do not remedy such infringement in accordance with the agreement. If salesforce.com terminates our agreement under these circumstances, then salesforce.com may immediately terminate our customers’ access to the Salesforce Platform, which would result in our customers being unable to access our Veeva CRM solution.

 

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An expiration or termination of the agreement would cause us to incur significant time and expense to acquire rights to, or develop, a replacement customer relationship management platform and we may not be successful in these efforts. Even if we were to successfully acquire or develop a replacement customer relationship management platform, some customers may decide not to adopt the replacement platform and may decide to use a different customer relationship management solution. If we were unsuccessful in acquiring or developing a replacement customer relationship management platform or acquired or developed a replacement customer relationship management platform that our customers do not adopt, our business, operating results and brand may be adversely affected.

 

Our agreement with salesforce.com also provides that we can use the Salesforce Platform as combined with our proprietary technology to sell sales automation solutions only to drug makers in the pharmaceutical and biotechnology industries, which does not include the medical devices industry or products for non-drug departments of pharmaceutical and biotechnology companies. Use of the Salesforce Platform to sell to additional industries would require the consent of salesforce.com. While our agreement with salesforce.com provides that salesforce.com will not position, develop, promote, invest in or acquire applications directly competitive to the Veeva CRM solution for sales automation that directly target drug makers in the pharmaceutical and biotechnology markets, our remedy for a breach of this commitment by salesforce.com would be to terminate the agreement, or continue the agreement but be released from certain minimum payment commitments to salesforce.com. Our agreement with salesforce.com also does not restrict a salesforce.com customer’s ability (or the ability of salesforce.com on behalf of a specific salesforce.com customer) to customize or configure the Salesforce Platform in any way. Our inability to freely sell our Veeva CRM solution for sales automation outside of drug makers in the pharmaceutical and biotechnology industries may adversely impact our growth.

 

All of our revenues are generated by sales to life sciences industry customers, and factors that adversely affect this industry could also adversely affect us.

 

All of our sales are to customers in the life sciences industry, in particular the pharmaceutical and biotechnology industries. Demand for our solutions could be affected by factors that adversely affect the life sciences industry. The life sciences industry is highly regulated and competitive, has been adversely affected by the recent economic downturn and has experienced periods of considerable consolidation. Changes in regulations could require us to expend significant resources in order to ensure that our solutions continue to meet the needs our customers. In addition, competition, consolidation and expiration of key patents could lead to a significant reduction in pharmaceutical sales representatives and other personnel that use our solutions. For these reasons and others, selling to life sciences companies can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will successfully complete a sale. Accordingly, our operating results and our ability to efficiently provide our solutions to life sciences companies and to grow or maintain our customer base could be adversely affected as a result of factors that affect the life sciences industry generally.

 

Our quarterly results may fluctuate significantly, which could adversely impact the value of our Class A common stock.

 

Our quarterly results of operations, including our revenues, gross margin, profitability and cash flows, may vary significantly in the future, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, our quarterly results should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control. Fluctuation in quarterly results may adversely impact the value of our Class A common stock. Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed elsewhere in this “Risk Factors” section and those listed below:

 

   

the addition or loss of large customers, including through acquisitions or consolidations of such customers;

 

   

the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;

 

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network outages or security breaches;

 

   

conditions within the life sciences industry;

 

   

general economic, industry and market conditions;

 

   

our ability to attract new customers;

 

   

amount of professional services purchased by our customers;

 

   

customer renewal rates and the timing and terms of customer renewals;

 

   

increases or decreases in the number of users of our solutions or pricing changes;

 

   

changes in our pricing policies or those of our competitors;

 

   

the mix of solutions and services sold during a period;

 

   

variations in the timing of the sales of our solutions;

 

   

the timing and success of introductions of new solutions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or strategic partners; and

 

   

the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies.

 

The markets in which we participate are highly competitive, and if we do not compete effectively, our business and operating results could be adversely affected.

 

The markets for our solutions are highly competitive. Our Veeva CRM solutions primarily compete with products from Oracle Corporation and Cegedim SA. Our Veeva Vault solutions face competition from large global content management platform vendors including EMC Corporation, Microsoft Corporation and OpenText Corporation. We also compete with professional services companies that provide solutions on these platforms, such as Computer Sciences Corporation, and with other life sciences specific providers. In some cases, these competitors are well-established providers of these solutions, which have long-standing relationships with many of our current and potential customers, including large pharmaceutical and emerging biopharmaceutical companies. Oracle, for example, has larger and greater name recognition, a much longer operating history, a larger marketing budget and significantly greater resources than we do. We also face competition from custom-built software developed by third-party vendors and developed in-house by our potential customers.

 

Some customers may be hesitant to adopt cloud-based solutions such as ours and prefer to upgrade the more familiar solutions that are deployed on-premise. Some vendors could offer customer relationship management and regulated content management and collaboration solutions on a standalone basis at a low price or bundled as part of a larger product sale. In order to take advantage of customer demand for cloud-based solutions, legacy vendors are expanding their cloud-based solutions through acquisitions and organic development. Legacy vendors may also seek to partner with other leading cloud providers. In addition, other companies that provide cloud-based solutions in different target or horizontal markets may develop applications or work with companies that operate in our target markets. With the introduction of new technologies and market entrants, we expect competition to intensify in the future.

 

Many of our competitors are able to devote greater resources to the development, promotion and sale of their products and services. Furthermore, third parties with greater available resources and the ability to initiate or withstand substantial price competition could acquire our current or potential competitors. In addition, many of our competitors have established marketing relationships, access to larger customer bases and major distribution agreements with consultants, system integrators and resellers. Our competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their product offerings or resources. If our competitors’ products, services or technologies become more accepted than our solutions, if

 

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they are successful in bringing their products or services to market earlier than ours, or if their products or services are more technologically capable than ours, then our revenues could be adversely affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a failure to maintain or improve our competitive market position, any of which could adversely affect our business.

 

We may not effectively scale and adapt our existing technology to meet the performance and other requirements of our global customers, which could adversely affect our business and operating results.

 

Our future growth depends upon our ability to continue to meet the expanding needs of our global customers as their use of our solutions grows. As these customers gain more experience with our solutions, the number of users of our solutions, the amount of data transferred, processed and stored by us, the number of locations where our solutions are being accessed and the number of processes and systems managed by our solutions on behalf of these customers have in some cases, and may in the future, expand rapidly. As a result, we intend to continue to make significant investments to develop and implement new technologies in our solutions and cloud infrastructure operations. These technologies, which include databases, applications and server optimizations, network and hosting strategies and automation, are often advanced, complex, new and untested. To the extent that we do not effectively scale our solutions and operations to maintain performance as our customers expand their use of our solutions, our business and operating results could be adversely affected.

 

If the market for cloud-based solutions develops more slowly than we expect or declines, our revenues could decrease and our business could be adversely affected.

 

The market for cloud-based solutions is not as mature as the market for on-premise enterprise software in the life sciences industry, and it is uncertain whether cloud-based solutions will achieve and sustain high levels of customer demand and market acceptance in the life sciences industry. Our success will depend to a substantial extent on the widespread adoption of cloud-based solutions in the life sciences industry, and of Veeva CRM and Veeva Vault in particular. Many enterprises, and in particular in the life sciences industry, have invested substantial personnel and financial resources to integrate traditional enterprise software into their businesses, and therefore may be reluctant or unwilling to migrate to cloud-based solutions. It is difficult to predict customer adoption rates and demand for our solutions, the future growth rate and size of the cloud computing market or the entry of competitive solutions. The expansion of cloud-based solutions, particularly in the life sciences industry, depends on a number of factors, including the cost, performance and perceived value associated with cloud-based solutions, as well as the ability of providers of cloud-based solutions to address security, privacy and unique regulatory requirements or concerns. If we or other cloud-based solution providers experience security incidents, loss of customer data, disruptions in delivery or other problems, the market for cloud-based solutions in the life sciences industry, including our solutions, may be adversely affected. If cloud-based solutions do not achieve widespread adoption in the life sciences industry, or there is a reduction in demand for cloud-based solutions caused by a lack of customer acceptance, technological challenges, weakening economic conditions, security or privacy concerns, competing technologies and products, decreases in corporate spending or otherwise, our revenues could decrease and our business could be adversely affected.

 

Our sales cycles can be long and unpredictable, and our sales efforts require considerable investment of time and expense. If our sales cycle lengthens or we invest substantial resources pursuing unsuccessful sales opportunities, our operating results and growth would be harmed.

 

Our sales process entails planning discussions with prospective customers, analyzing their existing solutions and identifying how these potential customers can use and benefit from our solutions. The sales cycle for a new customer, from the time of prospect qualification to the completion of the first sale, may span over twelve months. In particular, we have limited history selling to the research and development departments of life sciences companies, yet many of our new solutions, including certain Veeva Vault solutions, were developed to target the research and development function. As a result, our sales cycle for these solutions may be lengthy and difficult to predict. We spend substantial time, effort and money in our sales efforts without any assurance that our efforts will

 

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result in the sale of our solutions. In addition, our sales cycle can vary substantially from customer to customer because of various factors, including the discretionary nature of potential customers’ purchasing and budget decisions, the announcement or planned introduction of new solutions by us or our competitors and the purchasing approval processes of potential customers. If our sales cycle lengthens or we invest substantial resources pursuing unsuccessful sales opportunities, our operating results and growth would be harmed.

 

The software industry changes rapidly as a result of technological and product developments, which may render our solutions less desirable. If we are unable or unsuccessful in enhancing our solutions in response to technological developments, our revenues and operating results could be adversely affected.

 

The software industry is subject to rapid technological change. The introduction of new technologies in the software industry, including mobile technologies, will continue to have a significant effect on competitive conditions in the life sciences industry. We may not be able to develop and introduce new solutions and enhancements to our existing solutions that respond to technological changes on a timely basis. If we are unable to develop and sell new solutions that provide utility to our customers and provide enhancements and new features for our existing solutions that keep pace with rapid technological and regulatory change, our revenues and operating results could be adversely affected.

 

Defects or disruptions in our solutions could result in diminishing demand for our solutions, a reduction in our revenues and subject us to substantial liability and decrease our revenues.

 

We generally release updates to our solutions three times per year. These updates may contain undetected errors when first introduced or released. We have from time to time found defects in our solutions, and new errors in our existing solutions may be detected in the future. Since our customers use our solutions for important aspects of their business, any errors, defects, disruptions or other performance problems with our solutions could hurt our reputation and may damage our customers’ businesses. If that occurs, our customers may delay or withhold payment to us, cancel their agreements with us, elect not to renew, make service credit claims, warranty claims or other claims against us, and we could lose future sales. The occurrence of any of these events could result in diminishing demand for our solutions, a reduction of our revenues, an increase in our bad debt expense, an increase in collection cycles for accounts receivable, require us to increase our warranty provisions, or incur the expense of litigation or substantial liability.

 

We depend on data centers operated by third parties for both Veeva CRM and Veeva Vault, and any disruption in the operation of these facilities could adversely affect our business and subject us to liability.

 

Veeva CRM is primarily hosted by salesforce.com from data centers located in California, Virginia and Japan. Veeva Vault, and certain portions of Veeva CRM, are hosted by third parties other than salesforce.com from data centers located in California, Virginia and Japan. We do not control the operation of the data centers hosted by salesforce.com for Veeva CRM. While we control and have access to our servers and all of the components of our network that are located in our external data centers for Veeva Vault and certain portions of Veeva CRM, we do not control the operation of these facilities. The owners of our non-salesforce.com data centers have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, or if one of our data center operators is acquired, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so.

 

Problems faced by our third-party data center locations, including those operated by salesforce.com, could adversely affect the experience of our customers. The operators of the data centers could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by the operators of the data centers or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, if our data centers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business. For

 

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example, a rapid expansion of our business could affect the service levels at our data centers or cause such data centers and systems to fail. Any changes in third-party service levels at our data centers or any disruptions or other performance problems with our solutions could adversely affect our reputation and may damage our customers’ stored files or result in lengthy interruptions in our services. Interruptions in our services might reduce our revenues, cause us to issue refunds to customers for prepaid and unused subscriptions, subject us to potential liability or adversely affect our renewal rates.

 

If we fail to manage our technical operations infrastructure, our existing customers may experience service outages and our new customers may experience delays in the deployment of our solutions.

 

We have experienced significant growth in the number of users, transactions and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our solutions. However, the provision of new hosting infrastructure requires adequate lead-time. We have experienced, and may in the future experience, website disruptions, outages and other performance problems. These types of problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays in the deployment of our solutions as we seek to obtain additional capacity, which could adversely affect our reputation and adversely affect our revenues.

 

If our security measures are breached or unauthorized access to customer data is otherwise obtained, our solutions may be perceived as not being secure, customers may reduce the use of or stop using our solutions and we may incur significant liabilities.

 

Our solutions involve the storage and transmission of our customers’ proprietary information, including personal or identifying information regarding their employees and the medical professionals whom their sales personnel contact, and sensitive proprietary data related to the regulatory submission process for new medical treatments. As a result, unauthorized access or security breaches as a result of third-party action, employee error, malfeasance or otherwise could result in the loss of information, litigation, indemnity obligations, damage to our reputation and other liability. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any or all of these issues could adversely affect our ability to attract new customers, cause existing customers to elect to not renew their subscriptions, result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operating results. Our insurance may not be adequate to cover losses associated with such events, and in any case, such insurance may not cover all of the types of costs, expenses and losses we could incur to respond to and remediate a security breach.

 

Privacy laws and regulations are burdensome, may reduce demand for our solutions, and failure to comply may impose significant liabilities.

 

Our customers can use our solutions to collect, use, process and store personal or identifying information regarding their employees and the medical professionals whom their sales personnel contact, and, potentially, personal health information. Federal, state and foreign government bodies and agencies have adopted, are considering adopting, or may adopt laws and regulations regarding the collection, use, processing, storage and disclosure of personal information obtained from consumers and individuals. In the United States, for instance,

 

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the U.S. Department of Health and Human Services promulgated patient privacy rules under the Health Insurance Portability and Accountability Act of 1996, that protect medical records and other personal health information by limiting their use and disclosure, giving individuals the right to access, amend and seek accounting of their own health information and limiting most use and disclosures of health information to the minimum amount reasonably necessary to accomplish the intended purpose. Foreign data privacy regulations, such as the EU’s Data Protection Directive (Directive 95/46/EC), and the country-specific regulations that implement Directive 95/46/EC, also govern the processing of personally identifiable data, and may be stricter than U.S. laws. Our solutions are expected to be capable of use by our customers in compliance with such laws and regulations. The functional and operational requirements and costs of compliance with such laws and regulations may adversely impact our business, and failure to enable our solutions to comply with such laws and regulations could lead to significant fines and penalties imposed by regulators, as well as claims by our customers or third parties. Additionally, all of these domestic and international legislative and regulatory initiatives could adversely affect our customers’ ability or desire to collect, use, process and store personal or health-related information using our solutions, which could reduce demand for our solutions.

 

Our solutions address heavily regulated functions within the life sciences industry, and failure to comply with applicable laws and regulations could lessen the demand for our solutions or subject us to significant claims and losses.

 

Our customers use our solutions for business activities that are subject to a complex regime of global laws and regulations, including 21 CFR Part 11 (the U.S. Food and Drug Administration’s requirements for maintenance of electronic records), EU Annex 11 (the EU requirements for maintenance of electronic records), 21 CFR Part 203 (requirements regarding drug sample tracking as required by the Prescription Drug Marketing Act) and other laws and regulations. Our solutions are expected to be capable of use by our customers in compliance with such laws and regulations. Our efforts to provide solutions that comply with such laws and regulations are time-consuming and costly, and include third-party validation procedures that may delay the release of new versions of our solutions. As these laws and regulations change over time, we may find it difficult to adjust our solutions to comply with such changes. If we are not able to provide solutions that can be used in compliance with applicable laws and regulations, customers may be unwilling to use our solutions and any such non-compliance could result in the termination of our customer agreements or claims arising from such agreements with our customers.

 

Additionally, any failure of our customers to comply with laws and regulations applicable to the functions for which our solutions are used could result in fines, penalties or claims for substantial damages against our customers that may harm our business or reputation. If such failure were allegedly caused by our solutions or services, our customers may make a claim for damages against us, regardless of our responsibility for the failure. We may be subject to lawsuits that, even if unsuccessful, could divert our resources and our management’s attention and adversely affect our business, and our insurance coverage may not be sufficient to cover such claims against us.

 

Because we recognize subscription services revenues over the term of the agreements for our subscriptions, a significant downturn in our business may not be reflected immediately in our operating results, which increases the difficulty of evaluating our future financial performance.

 

We generally recognize revenues ratably over the terms of orders under our subscription agreements, which are typically one year. As a result, a substantial majority of our quarterly subscription services revenues are generated from subscription agreements entered into during prior periods. Consequently, a decline in new subscriptions in any quarter may not affect our results of operations in that quarter, but could reduce our revenues in future quarters. Additionally, the timing of renewals or non-renewals of a subscription agreement during any quarter may only affect our financial performance in future quarters. For example, the non-renewal of a subscription agreement late in a quarter will have minimal impact on revenues for that quarter but will reduce our revenues in future quarters. Accordingly, the effect of significant declines in sales and customer acceptance of our solutions may not be reflected in our short-term results of operations, which would make these reported results less indicative of our future financial results. By contrast, a non-renewal occurring early in a quarter may

 

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have a significant negative impact on revenues for that quarter and we may not be able to offset a decline in revenues due to non-renewal with revenues from new subscription agreements entered into in the same quarter. In addition, we may be unable to adjust our costs in response to reduced revenues.

 

Consolidation among our customers could cause us to lose customers, decrease the available market for our solutions and adversely affect our business.

 

Consolidation in the life sciences industry has accelerated in recent years, and this trend could continue. We may lose customers due to industry consolidation, and we may not be able to expand sales of our solutions and services to new customers to replace lost customers. In addition, new companies or organizations that result from such consolidation may decide that our solutions are no longer needed because of their own internal processes or the use of alternative solutions. As these entities consolidate, competition to provide solutions and services to industry participants will become more intense and the importance of establishing relationships with large industry participants will become greater. These industry participants may try to use their market power to negotiate price reductions for our solutions. Also, if consolidation of larger current customers occurs, the combined company may represent a larger percentage of business for us and, as a result, we are likely to rely more significantly on the combined company’s revenues to continue to achieve growth. Industry consolidation or consolidation among current customers or potential customers could adversely affect our business.

 

Sales to customers outside the United States or with international operations expose us to risks inherent in international sales.

 

In our fiscal year ended January 31, 2013, sales to customers outside North America accounted for approximately 35% of our total revenues. A key element of our growth strategy is to further expand our international operations and worldwide customer base. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic and political risks that are different from those in the United States. We have limited operating experience in some international markets, and we cannot assure you that our expansion efforts into other international markets will be successful. Our experience in the United States and other international markets in which we already have a presence may not be relevant to our ability to expand in other emerging markets. Our international expansion efforts may not be successful in creating further demand for our solutions outside of the United States or in effectively selling our solutions in the international markets we enter. In addition, we face risks in doing business internationally that could adversely affect our business, including:

 

   

the need to localize and adapt our solutions for specific countries, including translation into foreign languages and associated expenses and ensuring that our solutions enable our customers to comply with local life sciences industry laws and regulations;

 

   

data privacy laws which require that customer data be stored and processed in a designated territory;

 

   

difficulties in staffing and managing foreign operations, including employee laws and regulations;

 

   

different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues;

 

   

new and different sources of competition;

 

   

weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United States;

 

   

laws and business practices favoring local competitors;

 

   

compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection, and anti-bribery laws and regulations;

 

   

increased financial accounting and reporting burdens and complexities;

 

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restrictions on the transfer of funds;

 

   

adverse tax consequences, including the potential for required withholding taxes; and

 

   

unstable regional and economic political conditions.

 

Our international agreements often provide for payment denominated in local currencies, and the majority of our local costs are denominated in local currencies. An increasing portion of our international agreements provided for payment denominated in local currencies for our fiscal year ended January 31, 2013 as compared to our fiscal year ended January 31, 2012, and we anticipate that, over time, an increasing portion of our international agreements may provide for payment denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may impact our operating results when translated into U.S. dollars. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations.

 

If we lose the services of our founder and Chief Executive Officer or other members of our senior management team, we may not be able to execute our business strategy.

 

Our success depends in a large part upon the continued service of our senior management team. In particular, our founder and Chief Executive Officer, Peter P. Gassner, is critical to our vision, strategic direction, culture, products and technology. We do not maintain key-man insurance for Mr. Gassner or any other member of our senior management team. We do not have employment agreements with members of our senior management team or other key personnel that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of our founder and Chief Executive Officer or one or more other members of our senior management team could have an adverse effect on our business.

 

An inability to attract and retain highly skilled employees could adversely affect our business.

 

To execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for engineers with high levels of experience in designing and developing software and internet-related services and senior sales executives. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached their legal obligations, resulting in a diversion of our time and resources. In addition, job candidates and existing employees in the San Francisco Bay Area often consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards declines, it may adversely affect our ability to recruit and retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.

 

Our business could be adversely affected if our customers are not satisfied with the professional services provided by us or our partners.

 

Our business depends on our ability to satisfy our customers, both with respect to our solutions and the professional services that are performed in connection with the implementation of our solutions. Professional services may be performed by us, by a third party, or by a combination of the two. If a customer is not satisfied with the quality of work performed by us or a third party or with the solutions delivered or professional services rendered, then we could incur additional costs to address the situation, we may be required to issue credits or refunds for pre-paid amounts related to unused services, the profitability of that work might be impaired and the customer’s dissatisfaction with our services could damage our ability to expand the number of solutions subscribed to by that customer. Moreover, negative publicity related to our customer relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective customers.

 

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We typically provide service level commitments under our customer agreements. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for pre-paid amounts related to unused subscription services or our customers may terminate their contracts, which could adversely affect our revenues.

 

Our customer agreements typically provide service level commitments on a quarterly basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our solutions, we may be contractually obligated to provide these customers with service credits or our customers may terminate their agreements. Our revenues could be significantly affected if we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our customers. Any extended service outages could adversely affect our reputation, revenues and operating results.

 

Any failure to offer high-quality technical support services could adversely affect our relationships with our customers and our operating results.

 

Once our solutions are deployed, our customers depend on our support organization to resolve technical issues relating to our solutions. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for technical support services. Increased customer demand for our services, without corresponding revenues, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on the reputation of our solutions and business and on positive recommendations from our existing customers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell our solutions to existing and prospective customers and our business and operating results.

 

If we fail to develop widespread brand awareness cost-effectively, our business may suffer.

 

We believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our solutions and attracting new customers. Brand promotion activities may not generate customer awareness or increase revenues, and even if they do, any increase in revenues may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses, we may fail to attract or retain customers necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our solutions.

 

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.

 

We have in the past acquired and may in the future seek to acquire or invest in businesses, solutions or technologies that we believe could complement or expand our solutions, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.

 

In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:

 

   

inability to integrate or benefit from acquired technologies or services in a profitable manner;

 

   

unanticipated costs or liabilities associated with the acquisition;

 

   

incurrence of acquisition-related costs;

 

   

difficulty integrating the accounting systems, operations and personnel of the acquired business;

 

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difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;

 

   

difficulty converting the customers of the acquired business onto our solutions and contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company;

 

   

diversion of management’s attention from other business concerns;

 

   

adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;

 

   

the potential loss of key employees;

 

   

use of resources that are needed in other parts of our business; and

 

   

use of substantial portions of our available cash to consummate the acquisition.

 

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.

 

Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial position may suffer.

 

Adverse economic conditions, particularly with respect to the life sciences industry, could adversely impact our business.

 

Our business depends on the overall demand for enterprise software, cloud computing technologies and on the economic health of our existing and prospective customers. In addition, the purchase of our solutions is often discretionary and may involve a significant commitment of capital and other resources. The financial weakness in recent years resulted in a significant deterioration of the economy in the United States and Europe and of the global economy, more limited availability of credit, a reduction in business confidence and activity and other difficulties that may affect the life sciences industry. In addition, the economies of countries in Europe have been experiencing weakness associated with high sovereign debt levels, weakness in the banking sector and uncertainty over the future of the Eurozone. We have existing and prospective customers in Europe. If economic conditions in Europe and other key markets for our solutions continue to remain uncertain or deteriorate further, particularly with respect to the life sciences industry, many of our customers may delay or reduce their IT spending. This could result in reductions in sales of our solutions, longer sales cycles, reductions in subscription duration and value, slower adoption of new technologies and increased price competition. In addition, there has been pressure to reduce government spending in the United States. Automatic tax increases and spending cuts at the federal level went into effect at the beginning of 2013. This might reduce demand for our solutions from companies that receive funding from the U.S. government and could adversely affect the U.S. economy or the life sciences industry, which could further reduce demand for our solutions. Any of these events could have an adverse effect on our business, operating results and financial position. In addition, there can be no assurance that enterprise software spending levels will increase following any recovery.

 

Catastrophic events could disrupt our business and adversely effect our operating results.

 

Our corporate headquarters are located in Pleasanton, California and our third-party hosted data centers are located in California, Virginia and Japan. The west coast of the United States and Japan each contains active earthquake zones. Additionally, we rely on our network and third-party infrastructure and enterprise applications, internal technology systems and our website for our development, marketing, operational support, hosted services and sales activities. In the event of a major earthquake, hurricane or catastrophic event such as fire,

 

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power loss, telecommunications failure, cyber-attack, war or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our solution development, lengthy interruptions in our services, breaches of data security and loss of critical data, all of which could have an adverse effect on our future operating results.

 

Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.

 

Our success and ability to compete depend in part upon our intellectual property. We currently have no issued patents. Instead, we currently rely on copyright, trade secret and trademark laws, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate.

 

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and our business.

 

We may be sued by third parties for alleged infringement of their proprietary rights.

 

There is considerable patent and other intellectual property development activity in our industry. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our solutions. From time to time, third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. For example, on August 6, 2013, Prolifiq Software, Inc. (Prolifiq) filed a patent infringement lawsuit against us in the U.S. District Court for the Northern District of California, and on September 10, 2013, Prolifiq amended its complaint. The amended complaint alleges that our manufacture, use, offer for sale and sale of Veeva CRM Approved Email infringes U.S. Patent Nos. 7,634,556, 7,007,317, 8,296,378, 7,966,374 and 8,171,077 held by Prolifiq. The amended complaint seeks unspecified monetary damages, costs and injunctive relief against us. We intend to vigorously defend this lawsuit. In the future, others may claim that our solutions and underlying technology infringe or violate their intellectual property rights. However, we may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.

 

Our solutions utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could adversely affect our business.

 

Our solutions include software covered by open source licenses. The terms of various open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solutions. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in a certain manner. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer

 

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all or a portion of our solutions, or otherwise be limited in the licensing of our solutions, each of which could reduce or eliminate the value of our solutions and services. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with usage of open source software cannot be eliminated and could adversely affect our business.

 

The forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you our business will grow at similar rates, if at all.

 

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts in this prospectus relating to the expected growth in the global life sciences industry, cloud computing markets and technology market may prove to be inaccurate. Even if these markets experience the forecasted growth described in this prospectus, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

 

Our estimate of the market size for our solutions included in this prospectus may prove to be inaccurate, and even if the market size is accurate, we cannot assure you our business will serve a significant portion of the market.

 

Our estimate of the market size for our solutions included in this prospectus is subject to significant uncertainty and is based on assumptions and estimates, including our internal analysis and industry experience, which may not prove to be accurate. Our ability to serve a significant portion of this estimated market is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, even if our estimate of the market size is accurate, we cannot assure you that our business will serve a significant portion of this estimated market for our solutions.

 

We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.

 

We are an emerging growth company. Under the Jumpstart Our Businesses Act of 2012 (JOBS Act), emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”

 

For as long as we continue to be an emerging growth company, we also intend to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Class A common stock less attractive because we will rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.

 

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million, (ii) the end of the fiscal year in which we have total annual gross revenues of $1 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) five years from the date of this prospectus.

 

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If we are unable to implement and maintain effective internal controls over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be adversely affected.

 

As a public company, we will be required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and, beginning with our second annual report following this offering, which will be for our fiscal year ending January 31, 2015, provide a management report on internal controls over financial reporting. The Sarbanes-Oxley Act also requires that our management report on internal controls over financial reporting be attested to by our independent registered public accounting firm, to the extent we are no longer an “emerging growth company,” as defined by the JOBS Act. We do not expect to have our independent registered public accounting firm attest to our management report on internal controls over financial reporting for so long as we are an emerging growth company.

 

If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing the internal controls over financial reporting required to comply with this obligation, which process will be time consuming, costly and complicated. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the Securities and Exchange Commission (SEC), or other regulatory authorities, which could require additional financial and management resources.

 

We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.

 

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and the New York Stock Exchange, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. Our management and other personnel have little experience managing a public company and preparing public filings. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company, as defined by the JOBS Act. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and may need to establish an internal audit function. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs. Additional compensation costs and any future equity awards will increase our compensation expenses, which would increase our general and administrative expense and could adversely affect our profitability. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance on reasonable terms. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

 

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Our international operations subject us to potentially adverse tax consequences.

 

We report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. These jurisdictions include China, England, France, Hungary, Japan and Spain. The international nature and organization of our business activities are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. We believe that our financial statements reflect adequate reserves to cover such a contingency, but there can be no assurances in that regard.

 

Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.

 

We do not collect sales and use, value added and similar taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable or that we are not required to collect such taxes with respect to the jurisdiction. Sales and use, value added and similar tax laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties and interest or future requirements may adversely affect our results of operations.

 

Unanticipated changes in our effective tax rate could harm our future results.

 

We are subject to income taxes in the United States and various foreign jurisdictions, and our domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions. Forecasting our estimated annual effective tax rate is complex and subject to uncertainty, and there may be material differences between our forecasted and actual tax rates. Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, the valuation of deferred tax assets and liabilities and changes in federal, state or international tax laws and accounting principles. In addition, because substantially all of our intellectual property resides in the United States and is licensed through our parent U.S. entity, our effective tax rate may be higher than other companies that maintain and license intellectual property from outside the United States. Increases in our effective tax rate would reduce our profitability or in some cases increase our losses.

 

In addition, we may be subject to income tax audits by many tax jurisdictions throughout the world. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

 

Risks Related to This Offering and Ownership of Our Class A Common Stock

 

The market price of our Class A common stock is likely to be volatile which could subject us to litigation, and you may not be able to resell your shares at or above our initial public offering price.

 

Prior to this offering, there has not been a public market for our Class A common stock. We cannot assure you that an active trading market for our Class A common stock will develop following this offering. You may not be able to sell your shares quickly or at the market price if trading in our Class A common stock is not active. The initial public offering price for the shares was determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market following this offering. In addition, the trading prices of the securities of technology companies in general have been highly volatile. Accordingly, the market price of our Class A common stock is likely to be subject to wide fluctuations

 

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in response to numerous factors, many of which are beyond our control, such as those in this “Risk Factors” section and others including:

 

   

variations in our operating results, including revenues, earnings per share, cash flows from operating activities and other financial metrics and non-financial metrics, and how those results compare to analyst expectations;

 

   

forward-looking statements related to our projections of future operating results, changes in our projections of our future operating results or our failure to meet these projections;

 

   

the net increases in the number of customers, either independently or as compared with published expectations of industry, financial or other analysts that cover us;

 

   

changes in the estimates of our operating results or changes in recommendations by securities analysts that elect to follow our Class A common stock;

 

   

announcements of technological innovations, new solutions or enhancements to services, strategic alliances or significant agreements by us or by our competitors;

 

   

announcements by us or by our competitors of mergers or other strategic acquisitions or rumors of such transactions involving us or our competitors;

 

   

announcements of customer additions and customer cancellations or delays in customer purchases;

 

   

recruitment or departure of key personnel;

 

   

disruptions in our solutions due to computer hardware, software or network problems, security breaches or other man-made or natural disasters;

 

   

the economy as a whole, market conditions in our industry and the industries of our customers;

 

   

trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding Class A common stock;

 

   

overall performance of the equity markets;

 

   

the operating performance of other similar companies;

 

   

changes in legislation relating to our existing or future solutions;

 

   

litigation or other claims against us;

 

   

the size of our market float; and

 

   

any other factors discussed herein.

 

In addition, if the market for technology stocks or the stock market in general experiences uneven investor confidence, the market price of our Class A common stock could decline for reasons unrelated to our business, operating results or financial condition. The market price of our Class A common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these events do not directly affect us. Some companies that have experienced volatility in the trading price of their stock have been the subject of securities class action litigation. If we are the subject of such litigation, it could result in substantial costs and a diversion of our management’s attention and resources.

 

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

 

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may

 

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vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

 

The dual class structure of our common stock will have the effect of concentrating voting control with our executive officers (including our Chief Executive Officer) and directors and their affiliates; this will limit or preclude your ability to influence corporate matters.

 

Our Class B common stock has ten votes per share, and our Class A common stock, which is the stock we are offering in this offering, has one vote per share. Stockholders who hold shares of Class B common stock, including our executive officers and directors and their affiliates, will together hold approximately 98.8% of the voting power of our outstanding capital stock following this offering. Because of the ten-to-one voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively will continue to control a substantial majority of the combined voting power of our common stock following this offering and therefore, assuming no material sales of such shares, will be able to control all matters submitted to our stockholders for approval until ten years from the date of this prospectus, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders. See “Principal and Selling Stockholders” and “Description of Capital Stock.”

 

Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, our executive officers (including our Chief Executive Officer), employees, directors and their affiliates retain a significant portion of their holdings of Class B common stock for an extended period of time, they could, in the future, continue to control a majority of the combined voting power of our Class A common stock and Class B common stock. For a description of the dual class structure, see “Description of Capital Stock.”

 

We do not intend to pay dividends on our capital stock so any returns will be limited to changes in the value of our Class A common stock.

 

We have never declared or paid any cash dividends on our capital stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our capital stock may be prohibited or limited by the terms of any future debt financing arrangement. Any return to stockholders will therefore be limited to the increase, if any, of the price of our Class A common stock.

 

If you purchase our Class A common stock in this offering, you will incur immediate and substantial dilution.

 

The initial public offering price is substantially higher than the pro forma net tangible book value per share of our Class A common stock of $0.31 per share as of July 31, 2013. Investors purchasing Class A common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing Class A common stock in this offering will incur immediate dilution of $15.48 per share, based on the initial public offering price of $17.00 per share, the midpoint of the price range on the cover page of this prospectus.

 

This dilution is due to the substantially lower price paid by our investors who purchased shares prior to this offering as compared to the price offered to the public in this offering, and any previous exercise of stock options granted to our service providers. In addition, as of July 31, 2013, options to purchase 25,405,543 shares of our Class B

 

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common stock with a weighted average exercise price of approximately $2.78 per share were outstanding. The exercise of any of these options would result in additional dilution. As a result of the dilution to investors purchasing shares in this offering, investors may receive less than the purchase price paid in this offering, if anything, in the event of our liquidation.

 

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause the stock price of our Class A common stock to decline.

 

We may issue additional securities following the completion of this offering. In the future, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. We also expect to issue common stock to employees and directors pursuant to our equity incentive plans. If we sell common stock, convertible securities or other equity securities in subsequent transactions, or common stock is issued pursuant to equity incentive plans, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our common stock, including shares of Class A common stock sold in this offering.

 

Sales of a substantial number of shares of our common stock in the public market by our existing stockholders following this offering could cause the price of our Class A common stock to decline.

 

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our Class A common stock.

 

All of our executive officers and directors and the holders of substantially all of our capital stock are subject to lock-up agreements with the underwriters of this offering that restrict the stockholders’ ability to transfer shares of our common stock for at least 180 days from the date of this prospectus. The lock-up agreements limit the number of shares of common stock that may be sold immediately following this offering. Subject to certain limitations, approximately 109,207,440 shares will become eligible for sale upon expiration of the 180-day lock-up period. In addition, shares issued or issuable upon exercise of options vested as of the expiration of the 180-day lock-up period will be eligible for sale at that time. Sales of stock by these stockholders could adversely affect the trading price of our Class A common stock.

 

Certain holders of shares of our common stock are entitled to rights with respect to the registration of their shares under the Securities Act of 1933, as amended (Securities Act), subject to the 180-day lock-up arrangement described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by our affiliates as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could adversely affect the trading price of our Class A common stock.

 

In making your investment decision, you should not rely on information in public media that is published by third parties. You should rely only on statements made in this prospectus in determining whether to purchase our shares.

 

You should carefully evaluate all of the information in this prospectus. We have in the past received, and may continue to receive, a high degree of media coverage, including coverage that is not directly attributable to statements made by our officers and employees. We cannot confirm the accuracy of such coverage. You should rely only on the information contained in this prospectus in determining whether to purchase our shares of Class A common stock.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us,

 

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or if industry analysts cease coverage of us, the trading price for our Class A common stock would be adversely affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.

 

Provisions in our restated certificate of incorporation and amended and restated bylaws and Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the market price of our Class A common stock.

 

Our restated certificate of incorporation and amended and restated bylaws contain provisions that could depress the market price of our Class A common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions among other things:

 

   

establish a classified board of directors so that not all members of our board are elected at one time;

 

   

provide for a dual class common stock structure, which gives our Chief Executive Officer, directors, executive officers, greater than 5% stockholders and their respective affiliates the ability to control the outcome of all matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A and Class B common stock;

 

   

permit the board of directors to establish the number of directors;

 

   

provide that directors may only be removed “for cause” and only with the approval of 66 2/3% of our stockholders;

 

   

require super-majority voting to amend some provisions in our restated certificate of incorporation and amended and restated bylaws;

 

   

authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;

 

   

eliminate the ability of our stockholders to call special meetings of stockholders;

 

   

prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

 

   

provide that the board of directors is expressly authorized to make, alter or repeal our amended and restated bylaws; and

 

   

establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

 

In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company. Section 203 imposes certain restrictions on merger, business combinations and other transactions between us and holders of 15% or more of our common stock.

 

For information regarding these and other provisions, see “Description of Capital Stock.”

 

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LETTER FROM OUR CHIEF EXECUTIVE OFFICER

 

Introduction

 

The time has come for Veeva to be a public company. With that will come increased visibility as more people become involved with Veeva. As we enter this next phase, I’d like to take a moment to share what we’re all about. I hope this will help customers, potential customers, employees, partners and investors understand more about what makes Veeva unique.

 

Industry Cloud For Life Sciences

 

Veeva delivers industry-specific cloud-based solutions—including data, software, and services—to the global life sciences industry. We don’t develop horizontal applications like payroll, accounting, or inventory control that are largely the same across industries.

 

Our vision is to help our customers with their most important industry-specific processes. These strategic offerings address the life sciences industry’s most pressing needs: speeding time-to-market for new products, maximizing revenue and profitability, and remaining in compliance with regulatory requirements. Our vision has always been that our industry-specific applications should come with industry-specific data and that the use of our applications may generate unique data that could help customers make better business decisions.

 

Our vision is to be relevant to the CEOs of the companies we serve by automating their industry-specific processes in the cloud. Some call this approach “industry cloud.” We feel that the industry cloud concept is in its early days. It is an exciting time.

 

Customer Success

 

Customer success is our number one value. Veeva is nothing without its customers.

 

The value of customer success helps us make decisions at all levels of the company. We take it personally, and we try to do right by our customers. We are not perfect. We sometimes make mistakes, but we work hard to remedy them quickly. We live the value of customer success.

 

We feel that if customers are successful they will recommend our products to others in the industry. Customer success is the goal every day. In our view, revenue and profit are after-the-fact financial measurements of customer success.

 

Employee Success

 

Employee success is our number two value. Veeva is nothing without its employees.

 

I hope if someone works at Veeva for many years, they will look back and think “Veeva has been a great place to work.” I hope employees work with people they enjoy, are energized by happy customers, learn a lot, work hard, contribute highly, and advance their careers. By contributing highly, employees should feel good about themselves and be well compensated.

 

To promote employee success, we try to hire people with the right values and skills and put them in roles where they can contribute and grow. We try to promote from within when possible. We try to have only a limited number of corporate rules, so that decisions can be made in smaller groups by people who understand their areas deeply. We will sacrifice some efficiency to give our employees autonomy and ownership.

 

This focus on employee success has contributed to our growth and high employee retention rate.

 

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Long-Term Thinking

 

Nothing of significance was built in the short-term. We are focused on building a lasting company. A company that delivers significant value to its customers, employees, partners and investors. A company in which we can all take pride. We admire organizations like Amazon, Google, IBM and GE that are guided by the long-term. If we have to trade off short-term financial gains for long-term customer success and employee success, we will do that.

 

Looking Forward

 

I am often asked whether Veeva will make products for other industries. We currently have no plans to enter other industries. We think in many ways we are just getting started with our industry cloud for life sciences.

 

However, at some point it is possible that Veeva would build other industry cloud solutions. We know what type of people it takes and how to get it started. But for now, we are focused on increasing the value of our industry cloud for life sciences.

 

Thank you to our customers, employees, partners and investors for our success so far. I look forward to our future together.

 

Sincerely,

 

LOGO

 

Peter Gassner

Chief Executive Officer

Veeva Systems Inc.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. The forward-looking statements are contained principally in “Prospectus Summary,” “Risk Factors,” “Letter from Our Chief Executive Officer,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements include information concerning our possible or assumed future results of operations and expenses, business strategies and plans, market sizing, competitive position, industry environment and potential growth opportunities. Forward-looking statements include all statements that are not historical facts and, in some cases, can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those terms.

 

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those described in “Risk Factors” and elsewhere in this prospectus. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our beliefs and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

 

Any forward-looking statement made by us in this prospectus speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

 

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INDUSTRY AND MARKET DATA

 

We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research, as well as from industry and general publications, in addition to research, surveys and studies conducted by third parties. Internal estimates are derived from publicly-available information released by industry analysts and third-party sources, our internal research and our industry experience, and are based on assumptions made by us based on such data and our knowledge of our industry and market, which we believe to be reasonable. In addition, while we believe the industry, market and competitive position data included in this prospectus is reliable and is based on reasonable assumptions, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

The Gartner Report described herein, (the Gartner Report) represents data, research opinions or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (Gartner). The Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Report are subject to change without notice. Please refer to Section 2.6 of the Gartner Copyright and Quote Policy on gartner.com for additional detail.

 

Certain information in the text of the prospectus is contained in independent industry publications. The source of each of these independent industry publications is provided below:

 

   

Gartner, Total Worldwide Software Market Share by Market, 2010–2012, March 2013.

 

   

IDC, Worldwide and Regional Public IT Cloud Services 2012–2016 Forecast, #236552, Volume 1, August 2012.

 

   

IDC, Worldwide Life Science IT Spending Guide, 2011–2016, #HI237350, Version 1, October 2012.

 

   

MarketLine, Global Health Care Equipment & Supplies, July 2012.

 

   

MarketLine, Global Pharmaceuticals, Biotechnology & Life Sciences, September 2012.

 

   

Public Citizen, Pharmaceutical Industry Criminal and Civil Penalties: An Update, September 27, 2012.

 

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USE OF PROCEEDS

 

We estimate that our net proceeds from the sale of the Class A common stock that we are offering will be approximately $150.9 million, or approximately $181.9 million if the underwriters exercise in full their right to purchase additional shares to cover over-allotments, assuming an initial public offering price of $17.00 per share, the midpoint of the price range on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share would increase (decrease) the net proceeds to us from this offering by $9.0 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions. We will not receive any proceeds from the sale of Class A common stock by the selling stockholders.

 

The principal purposes of this offering are to increase our financial flexibility, facilitate an orderly distribution of shares for the selling stockholders, increase our visibility in the marketplace and create a public market for our Class A common stock. We intend to use the net proceeds to us from this offering for working capital and other general corporate purposes. However, we do not currently have specific planned uses of the proceeds. The amount of proceeds we use for the purposes above, if any, will depend on the level of cash generated from our operations. Additionally, we may choose to expand our current business through acquisitions of or investments in other complementary businesses, technologies or other assets, using cash or our capital stock. However, we currently have no agreements or commitments with respect to any specific material acquisitions or investments at this time.

 

Pending other uses, we intend to invest the proceeds in interest-bearing, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government, or hold as cash. We cannot predict whether the proceeds invested will yield a favorable return. Our management will have broad discretion in the application of the net proceeds we receive from this offering, and investors will be relying on the judgment of our management regarding the application of the net proceeds.

 

DIVIDEND POLICY

 

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

 

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CAPITALIZATION

 

The following table sets forth our cash, cash equivalents and short-term investments and capitalization as of July 31, 2013:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into Class B common stock and (ii) the amendment and restatement of our certificate of incorporation in connection with this offering; and

 

   

on a pro forma as adjusted basis to give effect to (i) the issuance and sale by us of 9,720,000 shares of Class A common stock in this offering, and the receipt of the net proceeds from our sale of these shares at an assumed initial public offering price of the Class A common stock of $17.00 per share, the midpoint of the price range on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the automatic conversion of 3,325,000 shares of our Class B common stock held by the selling stockholders into an equivalent number of shares of our Class A common stock upon their sale by the selling stockholders in this offering.

 

The unaudited pro forma and pro forma as adjusted information below is illustrative only, and cash, cash equivalents and short-term investments, total stockholders’ equity and total capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     As of July 31, 2013  
     Actual      Pro  Forma      Pro Forma
As  Adjusted(1)
 
     (in thousands, except share and per share data)  

Cash, cash equivalents and short-term investments

   $ 52,875       $ 52,875       $ 203,813   
  

 

 

    

 

 

    

 

 

 

Stockholders’ equity:

        

Convertible preferred stock, $0.00001 par value; 86,562,500 shares authorized, 85,000,000 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

   $ 6,933       $       $   

Preferred stock, $0.00001 par value; no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

                       

Common stock, $0.00001 par value; 140,000,000 shares authorized, 27,532,440 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

                       

Class A common stock, $0.00001 par value; no shares authorized, issued and outstanding, actual; 800,000,000 shares authorized, no shares issued and outstanding, pro forma; 800,000,000 shares authorized, 13,045,000 shares issued and outstanding, pro forma as adjusted

                       

Class B common stock, $0.00001 par value; no shares authorized, issued and outstanding, actual; 190,000,000 shares authorized, 112,532,440 shares issued and outstanding, pro forma; 190,000,000 shares authorized, 109,207,440 shares issued and outstanding, pro forma as adjusted

             1         1   

Additional paid-in capital

     4,694         11,626         162,564   

Accumulated other comprehensive income

     3         3         3   

Retained earnings

     35,770         35,770         35,770   
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 47,400       $ 47,400       $ 198,338   
  

 

 

    

 

 

    

 

 

 

 

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(1)  

A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share would increase (decrease) each of cash, cash equivalents and short-term investments, additional paid-in capital and total capitalization by $9.0 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. If the underwriters’ option to purchase additional shares to cover over-allotments is exercised in full, the pro forma as adjusted amount of cash, cash equivalents and short-term investments, additional paid-in capital and total capitalization would increase by approximately $30.9 million, after deducting estimated underwriting discounts and commissions, and we would have 15,001,750 shares of our Class A common stock issued and outstanding, pro forma as adjusted.

 

The table above excludes the following shares:

 

   

16,547,749 shares of Class B common stock issuable upon the exercise of options outstanding as of July 31, 2013 under our 2012 Equity Incentive Plan, with a weighted-average exercise price of approximately $3.98 per share;

 

   

8,857,794 shares of Class B common stock issuable upon the exercise of options outstanding as of July 31, 2013 under our 2007 Stock Plan, with a weighted-average exercise price of approximately $0.56 per share;

 

   

731,000 shares of Class B common stock issuable upon exercise of options granted under our 2012 Equity Incentive Plan between August 1, 2013 and October 11, 2013 with a weighted-average exercise price of approximately $10.89 per share; and

 

   

6,822,956 shares of our common stock were reserved for future issuance under our equity compensation plans, consisting of 2,822,956 shares of Class B common stock reserved for issuance under our 2012 Equity Incentive Plan as of July 31, 2013, which will become available for issuance as Class A common stock under our 2013 Equity Incentive Plan on the date of this prospectus, and 4,000,000 shares of Class A common stock that will be reserved for issuance under our 2013 Employee Stock Purchase Plan. No shares of either our Class A or Class B common stock were reserved for future issuance under our 2007 Stock Plan as of July 31, 2013. On the date of this prospectus, we will cease granting awards under our 2012 Equity Incentive Plan. Our 2013 Equity Incentive Plan and 2013 Employee Stock Purchase Plan also provide for automatic annual increases in the number of shares reserved thereunder, as more fully described in “Executive Compensation—Equity Plans.”

 

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DILUTION

 

If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after this offering.

 

Our pro forma net tangible book value as of July 31, 2013 was $34.3 million, or $0.31 per share of common stock. Our pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of July 31, 2013, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into Class B common stock in connection with this offering.

 

After giving effect to our sale in this offering of 9,720,000 shares of Class A common stock at an assumed initial public offering price of the Class A common stock of $17.00 per share, the midpoint of the price range on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of July 31, 2013 would have been approximately $185.3 million, or $1.52 per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $1.21 per share to our existing stockholders and an immediate dilution of $15.48 per share to investors purchasing shares in this offering.

 

The following table illustrates this per share dilution.

 

Assumed initial offering price per share

      $ 17.00   

Pro forma net tangible book value per share as of July 31, 2013

   $ 0.31      

Increase in pro forma net tangible book value per share attributable to investors purchasing shares in this offering

     1.21      
  

 

 

    

Pro forma as adjusted net tangible book value per share after this offering

        1.52   
     

 

 

 

Dilution in pro forma net tangible book value per share to investors in this offering

      $ 15.48   
     

 

 

 

 

A $1.00 increase (decrease) in the assumed offering price of $17.00 per share would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $0.07, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions payable by us.

 

If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share after giving effect to this offering would be approximately $1.74 per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be approximately $15.26 per share.

 

The following table summarizes, as of July 31, 2013, the differences between the number of outstanding shares of our common stock purchased from us, after giving effect to the conversion of our convertible preferred stock into Class B common stock, the total cash consideration paid and the average price per share paid by our existing stockholders and by our new investors purchasing shares in this offering at the assumed offering price of the Class A common stock of $17.00 per share, the midpoint of the price range on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average
Price
Per  Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

     112,532,440         92.0   $ 8,987,083         5.2   $ 0.08   

New investors

     9,720,000         8.0        165,240,000         94.8        17.00   
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     122,252,440         100   $ 174,227,083        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

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Sales by the selling stockholders in this offering will cause the number of shares held by existing stockholders to be reduced to 109,207,440 shares, or 89.3% of the total number of shares of our common stock outstanding following the completion of this offering, and will increase the number of shares held by new investors to 13,045,000 shares, or 10.7% of the total number of shares outstanding following the completion of this offering.

 

A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share would increase (decrease) total consideration paid by new investors by $9.0 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us.

 

After giving effect to the sale of shares in this offering by us and the selling stockholders, if the underwriters exercise their over-allotment option in full, our existing stockholders would own 87.9% and our new investors would own 12.1% of the total number of shares of our common stock outstanding after this offering.

 

The table above and discussions are based on no shares of our Class A common stock and 112,532,440 shares of our Class B common stock outstanding as of July 31, 2013, and excludes:

 

   

16,547,749 shares of Class B common stock issuable upon the exercise of options outstanding as of July 31, 2013 under our 2012 Equity Incentive Plan, with a weighted-average exercise price of approximately $3.98 per share;

 

   

8,857,749 shares of Class B common stock issuable upon the exercise of options outstanding as of July 31, 2013 under our 2007 Stock Plan, with a weighted-average exercise price of approximately $0.56 per share;

 

   

731,000 shares of Class B common stock issuable upon exercise of options granted under our 2012 Equity Incentive Plan between August 1, 2013 and October 11, 2013 with a weighted-average exercise price of approximately $10.89 per share; and

 

   

6,822,956 shares of our common stock were reserved for future issuance under our equity compensation plans, consisting of 2,822,956 shares of Class B common stock reserved for issuance under our 2012 Equity Incentive Plan as of July 31, 2013, which will become available for issuance as Class A common stock under our 2013 Equity Incentive Plan on the date of this prospectus, and 4,000,000 shares of Class A common stock that will be reserved for issuance under our 2013 Employee Stock Purchase Plan. No shares of either our Class A or Class B common stock were reserved for future issuance under our 2007 Stock Plan as of July 31, 2013. On the date of this prospectus, we will cease granting awards under our 2012 Equity Incentive Plan. Our 2013 Equity Incentive Plan and 2013 Employee Stock Purchase Plan also provide for automatic annual increases in the number of shares reserved thereunder, as more fully described in “Executive Compensation—Equity Plans.”

 

To the extent that any outstanding options or warrants are exercised, new investors will experience further dilution.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

 

The following tables set forth selected consolidated financial data. We derived the selected consolidated statements of operations data for our fiscal years ended January 31, 2011, 2012 and 2013, and the selected consolidated balance sheet data as of January 31, 2012 and 2013, from our audited consolidated financial statements and related notes included elsewhere in this prospectus. We derived the selected consolidated statements of operations data for our fiscal year ended January 31, 2010, and the selected consolidated balance sheet data as of January 31, 2010 and 2011, from our audited consolidated financial statements and related notes which are not included in this prospectus. We derived the consolidated statements of operations data for the six months ended July 31, 2012 and 2013, and the consolidated balance sheet data as of July 31, 2013, from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the financial position and the results of operations for these periods. Our historical results are not necessarily indicative of the results to be expected for any future period.

 

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

    Fiscal Year Ended January 31,     Six Months Ended
July 31,
 
    2010     2011     2012     2013     2012     2013  
   

(in thousands, except per share data)

 

Consolidated Statements of Operations Data:

           

Revenues:

           

Subscription services

  $ 6,838      $ 19,573      $ 32,613      $ 73,280      $ 29,202      $ 62,000   

Professional services and other

    6,391        9,556        28,649        56,268        24,762        30,369   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    13,229        29,129        61,262        129,548        53,964        92,369   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues(1):

           

Cost of subscription services

    1,891        5,236        8,768        18,852        7,749        14,898   

Cost of professional services and other

    4,139        7,081        20,288        38,164        16,650        21,954   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

    6,030        12,317        29,056        57,016        24,399        36,852   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    7,199        16,812        32,206        72,532        29,565        55,517   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses(1):

           

Research and development

    1,771        3,637        7,750        14,638        6,341        11,884   

Sales and marketing

    3,844        5,571        12,279        19,490        7,988        17,272   

General and administrative

    702        2,513        5,539        8,371        3,349        8,350   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    6,317        11,721        25,568        42,499        17,678        37,506   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    882        5,091        6,638        30,033        11,887        18,011   

Other income (expense), net

    94        173        15        (940    
(411

    (564
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    976        5,264        6,653        29,093        11,476        17,447   

Provision for income taxes

    60        1,355        2,423        10,310        4,126        6,604   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 916      $ 3,909      $ 4,230      $ 18,783      $ 7,350      $ 10,843   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

  $ 41      $ 428      $ 599      $ 3,480        1,269      $ 2,222   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributable to common stockholders(2):

           

Basic

  $ 0.00     $ 0.03      $ 0.03      $ 0.17      $ 0.07      $ 0.09   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ 0.00     $ 0.02      $ 0.02      $ 0.11      $ 0.04      $ 0.06   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Fiscal Year Ended January 31,     Six Months Ended
July 31,
 
    2010     2011     2012     2013     2012     2013  
   

(in thousands, except per share data)

 

Weighted-average shares used to compute net income per share attributable to common stockholders(2):

           

Basic

    11,297        13,156        17,655        20,887        19,380        23,440   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    17,255        20,154        24,776        30,599        28,556        35,833   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income per share attributable to common stockholders(3):

           

Basic

        $ 0.17        $ 0.10   
       

 

 

     

 

 

 

Diluted

        $ 0.16        $ 0.09   
       

 

 

     

 

 

 

Pro forma weighted-average shares used to compute pro forma net income per share attributable to common stockholders(3):

           

Basic

          105,887          108,440   
       

 

 

     

 

 

 

Diluted

          115,599          120,833   
       

 

 

     

 

 

 

 

 

(1)  

Includes stock-based compensation expense as follows:

 

                                                                                   
    Fiscal Year
Ended January 31,
    Six Months Ended
July 31,
 
    2010     2011     2012     2013     2012     2013  
    (in thousands)  

Cost of revenues:

           

Cost of subscription services

  $      $      $ 1      $ 3      $ 1      $ 9   

Cost of professional services and other

    6        9        63        120        51        228   

Research and development

    13        30        106        238        90        466   

Sales and marketing

    8        43        99        140        63        482   

General and administrative

    11        87        165        214        104        765   

 

(2)  

Net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, less the weighted average unvested common stock subject to repurchase. See note 12 of the notes to our consolidated financial statements.

(3)  

Pro forma net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding assuming the automatic conversion of all outstanding shares of the convertible preferred stock into shares of common stock as of the issuance date of the convertible preferred stock. See note 12 of the notes to our consolidated financial statements.

 

                                                                                   
    As of January 31,     As of
July 31,
2013
     
    2010     2011     2012     2013        
    (in thousands)      

Consolidated Balance Sheet Data:

           

Cash, cash equivalents and short-term investments

  $ 8,645      $ 13,778      $ 16,880      $   46,166      $ 52,875     

Working capital

    4,762        9,104        13,456        32,601        35,056     

Deferred revenue

    5,011        10,414        17,925        38,785        48,260     

Total assets

    11,541        23,542        41,414        89,820        112,620     

Convertible preferred stock

    6,933        6,933        6,933        6,933        6,933     

Additional paid-in capital

    78        326        1,026        2,101        4,694     

Total stockholders’ equity

    5,016        9,173        14,103        33,966        47,400     

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the “Selected Consolidated Financial Data” and our consolidated financial statements and notes thereto appearing elsewhere in this prospectus. 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 believe could cause or contribute to these differences below and elsewhere in this prospectus, including those set forth under “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

 

Overview

 

Veeva is a leading global provider of industry-specific, cloud-based software solutions for the life sciences industry. Our solutions enable pharmaceutical and other life sciences companies to realize the benefits of modern cloud-based architectures and mobile applications for their most critical business functions, without compromising industry-specific functionality or regulatory compliance. Our customer relationship management solutions enable our customers to increase the productivity and compliance of their sales and marketing functions. Our regulated content management and collaboration solutions enable our customers to more efficiently manage a range of highly regulated, content-centric processes across the enterprise. Our customer master solution, including our proprietary database of healthcare provider and healthcare organization data, enables our customers to more effectively create and maintain accurate customer data.

 

We were founded in 2007 and entered into our first commercial agreement that same year. Our initial commercially available solution was Veeva CRM, our customer relationship management solution for life sciences, which we initially sold to pharmaceutical and biotechnology companies in the United States. Since our founding, we have introduced new modules and applications that are complementary to Veeva CRM, including, most recently: Veeva iRep, our proprietary mobile application for the iPad, which we introduced in 2011; Veeva CLM, our closed-loop marketing solution that enables mobile presentation of multimedia content, which we introduced in 2011; and Veeva CRM Approved Email, our solution that allows life sciences sales representatives to send emails and pre-approved marketing content to physicians in compliance with regulatory requirements, which we introduced in 2013. In 2011, we introduced Veeva Vault, a new solution category addressing regulated content management and collaboration, by releasing an application to manage marketing promotional materials. In September 2012, we expanded our Veeva Vault solutions to include applications addressing the processes and content associated with new drug approval submissions, clinical trial documentation, manufacturing and quality documentation and medical communications content. In May 2013, we announced our newest offering, Veeva Network, a solution that combines healthcare professional, healthcare organization, and other supplemental data with cloud-based customer master software, and data stewardship services to provide life sciences companies with a customer master solution that is fully integrated with Veeva CRM. Veeva Network will be generally available in late 2013. It is currently under limited release to a limited set of early customers.

 

Historically, we have derived more than 95% of our subscription services revenues from our Veeva CRM solutions. To the extent that our more recently introduced solutions, such as Veeva Vault, Veeva CRM Approved Email and Veeva Network, do not achieve significant market acceptance, our business and results of operations may be adversely affected. In particular, our Veeva Vault solutions are offered to segments of the life sciences industry to which we have not previously marketed, including the research and development organizations of life sciences companies as well as emerging biotechnology companies, and we must be successful in marketing to these and other potential new segments. We intend to increase the adoption of our regulated content management and collaboration solutions by increasing the size of our sales force, enabling us to market our Veeva Vault solutions to an expanded set of customers in research and development departments of life sciences companies. However, the timing and effectiveness of any increased sales organization is difficult to predict.

 

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The life sciences industry is global, and we have structured our company to address the global requirements of our customers. Since our founding, we have expanded our geographic reach to include Europe and China in 2010 and Japan in 2011. Regional general managers are responsible for customer success, including the sales and professional services functions, in our three principal regions: North America, Europe and Asia Pacific. In addition to sales and professional services personnel, we hire personnel with local life sciences industry expertise, including business practices and compliance requirements, for each major market we enter. As of July 31, 2013, we had 593 employees globally, including 403 in North America, 107 in Europe and 83 in Asia Pacific. For our fiscal year ended January 31, 2013, revenues from outside North America constituted approximately 35% of our total revenues, as measured by the location of the end users for subscription services and the location of the user for which the services were performed by our professional services organization. The majority of our revenues from international sales are invoiced from and collected by our U.S. entity and recognized as a component of income before taxes in the United States as opposed to a foreign jurisdiction. Our international expansion efforts may not continue to be successful in creating further demand for our solutions outside of the United States or in effectively selling our solutions in the international markets we enter.

 

Our solutions are accessed through an internet connection and a web browser, or using our proprietary applications for mobile devices, such as the iPad. We offer our solutions as a subscription-based service, typically for a one-year initial term, with subscription fees generally based upon the solutions selected and the number of users. Our customers generally pay annually or quarterly in advance for the use of our solutions, and our agreements typically automatically renew unless notice of cancellation is provided in advance. Revenues derived from subscription fees are recognized ratably over the term of the agreement, while revenues from professional services are generally recognized as the services are performed. We market our solutions and services primarily through our global direct sales force.

 

As of January 31, 2011, 2012 and 2013, we served 51, 95 and 134 life sciences customers, respectively. As of August 31, 2013, we served approximately 170 total life sciences customers, including 33 of the 50 largest global pharmaceutical companies. Within our customer base, deployments range from implementations within a single division or geography to global or enterprise-wide deployments. Our rapid growth to date has been a function of both new customers and sales of additional user subscriptions and of additional solutions to our current customers.

 

We have invested in our professional services organization in order to promote customer success and effective deployments. As new customers have adopted our solutions and existing customers have deployed our solutions in more divisions and geographies, we have experienced strong demand for our professional services. Revenues from professional services tend to be concentrated at the beginning of a customer deployment. Given this model and continued new customer adoption and existing customer expansion, professional services revenues have represented a material percent of our total revenues. For example, professional services and other revenues were 43% and 33% of total revenues in our fiscal year ended January 31, 2013 and the six months ended July 31, 2013, respectively. Over time, the proportion of subscription services revenues for a particular customer has tended to increase relative to professional services revenues.

 

We believe that our focus on a single industry provides a number of benefits to our operating model. First, our sales and marketing resources can be deployed more efficiently than at companies offering products and services to a broad range of industries, because our potential customer base is concentrated within the life sciences industry. Similarly, our research and development efforts can be more targeted and more relevant because we do not have to balance the product demands of one industry against another. Finally, we believe the benefits of customer success and resulting positive customer references are amplified for companies with an industry-specific focus. We believe these factors have contributed to our rapid growth and early profitability.

 

For our fiscal years ended January 31, 2011, 2012 and 2013 our total revenues were $29.1 million, $61.3 million and $129.5 million, respectively, representing year-over-year growth of 110% and 111% for our two most recent fiscal years. For the six months ended July 31, 2013, our total revenues were $92.4 million,

 

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representing period-over-period growth of 71%. For our fiscal years ended January 31, 2011, 2012 and 2013, our subscription services revenues were $19.6 million, $32.6 million and $73.3 million, respectively, representing year-over-year growth in subscription services revenues of 67% and 125% for our two most recent fiscal years. For the six months ended July 31, 2013, our subscription services revenues were $62.0 million, representing period-over-period growth of 112%. We generated net income of $3.9 million, $4.2 million and $18.8 million for our fiscal years ended January 31, 2011, 2012 and 2013, respectively, and $7.4 million and $10.8 million for the six months ended July 31, 2012 and 2013, respectively. Our net income margins for our fiscal year ended January 31, 2013 reflect higher than anticipated revenues without corresponding increases in our operating expenses and are not necessarily indicative of future net income margins. To date, we have funded our business primarily with cash flows from operations, and we plan to continue to invest in the development of our solutions, infrastructure and sales and marketing to drive long-term growth and customer success.

 

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 Industry Cloud for life sciences. We expect to invest in research and development to expand existing and build new solutions, sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies, professional services to ensure the success of our customers’ implementations of our solutions, and other operational and administrative functions to support our expected growth and our transition to a public company. We anticipate that our headcount will increase as a result of these investments. We expect our total operating expenses will increase over time, and, in some cases, have short-term negative impacts on our net income margin.

 

Adoption of Our Solutions by Existing and New Customers. Most of our customers initially deploy our solutions to a limited number of 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 with and renewals of subscriptions to our solutions, deployment of our solutions to additional users and the purchase of subscriptions to additional solutions. Our growth is also dependent on the adoption of our solutions by new customers. In particular, our Veeva Vault solutions are offered to segments of the life sciences industry to which we have not previously marketed, including the research and development organizations of life sciences companies as well as emerging biotechnology companies, and we must be successful in marketing to these and other potential new segments.

 

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 ended January 31, 2011, 2012 and 2013, our subscription services revenue retention rate was 192%, 159% and 187%, respectively.

 

Mix of Subscription and Professional Services Revenues. We believe our investments in professional services have driven customer success and facilitated the further adoption of our solutions by our customers. During the initial period of deployment by a customer, we generally provide a greater amount of configuration, implementation and training than later in the deployment. At the same time, many of our customers have historically purchased subscriptions for only a limited set of their total potential users during their initial deployments. As a result of these factors, the proportion of total revenues for a customer associated with professional services is relatively high during the initial deployment period. Over time, as the need for professional services associated with user deployments decreases and the number of users often increases, we

 

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expect the mix of total revenues to shift more toward subscription services revenues. Our historical mix of revenues reflects a time of strong customer adoption when customers were in earlier stages of their deployments. As a result, we expect the proportion of our total revenues from subscription services to increase over time.

 

Fiscal Year

 

Our fiscal year ends on January 31. References to fiscal 2013, for example, refer to our fiscal year ended January 31, 2013.

 

Components of Results of Operations

 

Revenues

 

We derive our revenues primarily from subscription fees and professional services fees. Subscription services revenues consist of fees from customers accessing our Industry Cloud solutions. Professional services revenues consist primarily of fees from implementation services, configuration, training and managed services. For our fiscal year ended January 31, 2013, subscription services revenues constituted 57% of total revenues and professional services and other revenues constituted 43% of total revenues. To date, we have derived more than 95% of our subscription services revenues from our Veeva CRM solution.

 

We enter into master subscription agreements with our customers and count each distinct master subscription agreement that has not terminated or expired as a distinct customer for purposes of determining our total number of current customers. 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 a separate master subscription agreement. 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. With respect to the legacy customers of Advantage Management Solutions, Inc. (AdvantageMS), which we acquired on June 20, 2013, we count each agreement with an entity that was not previously a Veeva customer and that has a known and recurring payment obligation as a distinct customer for purposes of determining our total number of current customers.

 

New subscription orders typically have a one-year term and automatically renew unless notice of cancellation is provided in advance. Because of this structure, all of the subscription fees associated with a particular customer may not be subject to renewal at the same time. If a customer adds users or solutions to an existing order, such additional orders will be coterminous with the initial order, and as a result, orders for additional users or solutions will commonly have a term of less than one year. Subscription orders are generally billed at the subscription commencement date, with annual or quarterly payment terms. Because the term of orders for additional users or solutions is commonly less than one year and payment terms may be quarterly, the annualized value of the orders we enter into with our customers will not be completely reflected in deferred revenue at any single point in time. Accordingly, we do not believe that change in deferred revenue is an accurate indicator of future revenues for a given period of time.

 

Subscription services revenues are recognized ratably over the order term beginning when the solution has been provisioned to the customer. Our subscription services agreements are generally non-cancelable, although customers typically have the right to terminate their agreements for cause in the event of material breach. Subscription services revenues are affected primarily by the number of customers, the number of users at each customer that use our solutions and the number of solutions subscribed to by each customer.

 

Prior to the three months ended January 31, 2013, we entered into separate professional services agreements with our customers that were separate and distinct from our master subscription agreements. Starting in the three months ended January 31, 2013, we combined our master subscription agreement and professional services

 

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agreement into a single agreement. Our professional services engagements are primarily billed on a time and materials basis and revenues are typically recognized as the services are rendered. Professional services revenues are affected primarily by our customers’ demands for implementation services, configuration, training and managed services in connection with our Industry Cloud solutions.

 

Cost of Revenues

 

Cost of subscription services revenues primarily consists of fees paid to salesforce.com, inc. for our use of the Salesforce Platform as combined with the proprietary aspects of our Veeva CRM solution, which includes hosting infrastructure and data center operations provided by salesforce.com, other third-party expenses related to data center capacity, hosting our subscription services and providing support, the costs of data center capacity, operating lease expense associated with computer equipment and software and allocated overhead and amortization expense associated with capitalized internal-use software related to our subscription services. Cost of subscription services revenues for some of our Veeva CRM solutions and for our Veeva Vault solutions do not include fees to salesforce.com because the Salesforce Platform is not used in those solutions. We intend to continue to invest additional resources in our subscription services. For example, we may open additional data centers, expand our current data centers in the future and continue to make investments in the availability and security of our solutions. The timing of when we incur these additional expenses will affect our cost of revenues in absolute dollars in the affected periods.

 

Cost of professional services and other revenues consists primarily of employee-related costs associated with these services, including salaries, benefits and stock-based compensation expense, the cost of subcontractors, travel costs and allocated overhead. 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 subcontractors.

 

Operating Expenses

 

Research and Development. Research and development expenses consist primarily of employee-related expenses. We continue to focus our research and development efforts on adding new features and applications, 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, customer-focused events and travel-related expenses. Sales commissions and other incremental costs to acquire contracts are expensed as incurred.

 

General and Administrative. General and administrative expenses consist of employee-related expenses for finance and accounting, legal, human resources and management information systems personnel, legal costs, professional fees and other corporate expenses.

 

Other Income (Expense), Net

 

Other income (expense), net consists primarily of transaction gains or losses on foreign currency.

 

Provision for Income Taxes

 

Provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions. See note 9 of the notes to our consolidated financial statements.

 

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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,     Six Months Ended
July 31,
 
     2011      2012      2013     2012     2013  
     (in thousands)  

Consolidated Statements of Operations Data:

            

Revenues:

            

Subscription services

   $ 19,573       $ 32,613       $ 73,280      $ 29,202      $ 62,000   

Professional services and other

     9,556         28,649         56,268        24,762        30,369   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     29,129         61,262         129,548        53,964        92,369   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Cost of revenues(1):

            

Cost of subscription services

     5,236         8,768         18,852        7,749        14,898   

Cost of professional services and other

     7,081         20,288         38,164        16,650        21,954   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total cost of revenues

     12,317         29,056         57,016        24,399        36,852   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     16,812         32,206         72,532        29,565        55,517   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating expenses(1):

            

Research and development

     3,637         7,750         14,638        6,341        11,884   

Sales and marketing

     5,571         12,279         19,490        7,988        17,272   

General and administrative

     2,513         5,539         8,371        3,349        8,350   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     11,721         25,568         42,499        17,678        37,506   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     5,091         6,638         30,033        11,887        18,011   

Other income (expense), net

     173         15         (940     (411     (564
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     5,264         6,653         29,093        11,476        17,447   

Provision for income taxes

     1,355         2,423         10,310        4,126        6,604   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   $ 3,909       $ 4,230       $ 18,783      $ 7,350      $ 10,843   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)  

Includes stock-based compensation expense as follows:

 

                                                                
     Years Ended January 31,     Six Months Ended
July 31,
 
     2011     2012     2013     2012     2013  
     (in thousands)  

Cost of revenues:

          

Cost of subscription services

   $         $ 1         $ 3       $ 1         $ 9   

Cost of professional services and other

     9        63        120        51        228   

Research and development

     30        106        238        90        466   

Sales and marketing

     43        99        140        63        482   

General and administrative

               87                  165                214                  104                765   

 

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     Fiscal Year Ended January 31,     Six Months
Ended July 31,
 
           2011                 2012                 2013                 2012                 2013        
     (as a percentage of total revenues)  

Consolidated Statements of Operations Data:

          

Revenues:

          

Subscription services

     67.2     53.2     56.6     54.1     67.1

Professional services and other

     32.8        46.8        43.4        45.9        32.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100.0        100.0        100.0        100.0        100.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

          

Cost of subscription services

     18.0        14.3        14.5        14.4        16.1   

Cost of professional services and other

     24.3        33.1        29.5        30.9        23.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     42.3        47.4        44.0        45.3        39.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     57.7        52.6        56.0        54.7        60.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Research and development

     12.5        12.7        11.3        11.8        12.9   

Sales and marketing

     19.1        20.0        15.0        14.7        18.7   

General and administrative

     8.6        9.0        6.5        6.2        9.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     40.2        41.7        32.8        32.7        40.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     17.5        10.9        23.2        22.0        19.4   

Other income (expense), net

     0.6               (0.7     (0.8     (0.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     18.1        10.9        22.5        21.2        18.8   

Provision for income taxes

     4.7        4.0        8.0        7.6        7.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     13.4     6.9     14.5     13.6     11.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Fiscal Year Ended January 31,     Six Months
Ended July 31,
 
           2011           2012     2013     2012     2013  
     (in thousands)  

Revenues by Geography Data:

          

Revenues by geography:

          

North America

   $ 27,217      $ 48,088      $ 84,546      $ 37,168      $ 55,535   

Europe

     1,904        10,433        29,036        12,179        22,470   

Asia Pacific

     8        2,741        15,966        4,617        14,364   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 29,129      $ 61,262      $ 129,548      $ 53,964      $ 92,369   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Fiscal Year Ended January 31,     Six Months
Ended July 31,
 
           2011           2012     2013     2012     2013  
     (as a percentage of total revenues)  

Revenues by geography:

          

North America

     93     78     65     69     60

Europe

     7        17        23        23        24   

Asia Pacific

            5        12        8        16   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Six Months Ended July 31, 2012 and 2013

 

Revenues

 

     Six Months
Ended July 31,
    % Change  
     2012     2013    
     (dollars in thousands)        

Revenues:

      

Subscription services

   $ 29,202      $ 62,000        112

Professional services and other

     24,762        30,369        23   
  

 

 

   

 

 

   

Total revenues

   $ 53,964      $ 92,369        71   
  

 

 

   

 

 

   

Percentage of revenues:

      

Subscription services

     54     67  

Professional services and other

     46        33     
  

 

 

   

 

 

   

Total revenues

     100     100  
  

 

 

   

 

 

   

 

Total revenues increased $38.4 million, of which $32.8 million was from subscription services revenues. Eight percent of the increase in subscription services revenues was attributable to orders from existing customers that were placed on or prior to July 31, 2012 and the renewal of such orders through July 31, 2013. Ninety-two percent of the increase in subscription services revenues was attributable to new orders placed after July 31, 2012 to deploy our solutions to additional users within our existing customer base and to new users at new customers. Subscription services revenues from North America, as measured by the location of the end users, made up 63% of subscription services revenues in the six months ended July 31, 2013, as compared to 77% in the prior year period. This shift in geographic revenue mix was primarily due to the more rapid rate of revenue growth from deployments in both Europe and Asia as compared to North America.

 

Professional services and other revenues increased $5.6 million. Seventeen percent of the increase in professional services and other revenues was attributable to existing customers that signed agreements with us on or prior to July 31, 2012, and 83% of the increase in professional services and other revenues was attributable to customers that signed agreements with us after July 31, 2012. Professional services revenues from North America, as measured by the location of the user for which the services were performed, made up 54% of professional services revenues in the six months ended July 31, 2013, as compared to 60% in the prior year period. This shift in geographic revenue mix was primarily due to the more rapid rate of revenue growth from deployments in Asia as compared to North America.

 

Subscription services revenues were 67% of total revenues for the six months ended July 31, 2013, compared to 54% of total revenues for the prior year period, reflecting the growth in our subscription services revenues base and the near completion of several large deployments by large customers in the prior year period resulting in a decline of professional services revenues with these specific implementations. The completion of these large deployments also led to a decrease in the growth rate of our professional services revenues as compared to the six months ended July 31, 2012. We expect the proportion of subscription services revenues compared to professional services revenues to increase over time.

 

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Cost of Revenues and Gross Profit Percentage

 

     Six Months
Ended July 31,
    % Change  
     2012     2013    
     (dollars in thousands)        

Cost of revenues:

      

Cost of subscription services

   $ 7,749      $ 14,898        92

Cost of professional services and other

     16,650        21,954        32   
  

 

 

   

 

 

   

Total cost of revenues

   $ 24,399      $ 36,852        51   
  

 

 

   

 

 

   

Gross profit percentage:

      

Subscription services

     73     76  

Professional services and other

     33        28     

Total gross profit percentage

     55     60  

Gross profit

   $ 29,565      $ 55,517        88

Headcount (at period end)

     154        233        51

 

Cost of revenues increased $12.5 million, of which $7.1 million was related to cost of subscription services. The increase in cost of subscription services was primarily due to an increase of users of our subscription services, which drove an increase of $6.3 million in salesforce.com fees and a $0.4 million increase in third-party server costs. We expect cost of subscription services revenues to increase in absolute dollars in the near term.

 

Cost of professional services and other revenues increased $5.3 million, primarily due to a $4.1 million increase in employee compensation-related costs resulting from a 48% increase in the headcount of our professional services team and a $0.5 million increase in travel related to professional services projects at our customer locations. We expect cost of professional services and other revenues to increase in absolute dollars in the near term.

 

The increase in gross profit as a percentage of total revenues for the six months ended July 31, 2013 compared to the prior period reflects an increase in the proportion of subscription services revenues, which have higher gross margins than professional services revenues.

 

Operating Expenses

 

Research and Development

 

     Six Months
Ended July 31,
    % Change  
     2012     2013    
     (dollars in thousands)        

Research and development

   $ 6,341      $ 11,884        87

Percentage of total revenues

     12     13  

Headcount (at period end)

     89        160        80

 

Research and development expenses increased $5.5 million, primarily due to an increase of $4.3 million in employee compensation-related costs resulting from a 80% increase in headcount. We expect research and development expenses to increase in absolute dollars in the near term, primarily due to higher headcount to support our research and development efforts.

 

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Sales and Marketing

 

     Six Months
Ended July 31,
    % Change  
     2012     2013    
     (dollars in thousands)        

Sales and marketing

   $ 7,988      $ 17,272        116

Percentage of total revenues

     15     19  

Headcount (at period end)

     64        133        108

 

Sales and marketing expenses increased $9.3 million, primarily due to increases of $6.9 million in employee compensation-related costs resulting from a 108% increase in headcount and increased sales commissions and a $0.6 million increase in travel-related costs. We expect sales and marketing expenses to increase in absolute dollars in the near term, primarily driven by increases in headcount to support our sales and marketing efforts and additional sales-related expenses, such as travel.

 

General and Administrative

 

                                            
     Six Months
Ended July 31,
    % Change  
         2012             2013        
     (dollars in thousands)        

General and administrative

   $ 3,349      $ 8,350        149

Percentage of total revenues

     6     9  

Headcount (at period end)

     19        67        253

 

General and administrative expenses increased $5.0 million, primarily due to increases of $3.2 million in employee compensation-related costs resulting from a 253% increase in headcount, and $1.1 million in third-party professional services costs. We expect general and administrative expenses to increase in absolute dollars in the near term, primarily due to higher headcount and additional expenses, such as professional services, including legal and accounting fees, as we transition to being a public company.

 

Other Income (Expense), Net

 

                                            
     Six Months
Ended July 31,
     
         2012             2013        
     (in thousands)    

Other income (expense), net

   $ (411   $ (564 )     

 

Other expenses increased $0.2 million, primarily due to fluctuations in foreign exchange rates for our foreign currency denominated transactions, particularly transactions denominated in the Euro and the Japanese Yen.

 

Provision for Income Taxes

 

                                            
     Six Months
Ended July 31,
    % Change  
         2012             2013        
     (dollars in thousands)        

Income before income taxes

   $ 11,476      $ 17,447        52

Provision for income taxes

     4,126        6,604        60   

Effective tax rate

     36     38  

 

Provision for income taxes increased by $2.5 million, primarily due to an increase in income before taxes for the period.

 

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Fiscal 2011, 2012 and 2013

 

Revenues

 

     Fiscal Year Ended January 31,        
     2011     2012     2013     2011 to 2012
% Change
    2012 to 2013
% Change
 
     (dollars in thousands)              

Revenues:

          

Subscription services

   $ 19,573      $ 32,613      $ 73,280        67     125

Professional services and other

     9,556        28,649        56,268        200        96   
  

 

 

   

 

 

   

 

 

     

Total revenues

   $   29,129      $   61,262      $ 129,548        110        111   
  

 

 

   

 

 

   

 

 

     

Percentage of revenues:

          

Subscription services

     67     53     57    

Professional services and other

     33        47        43       
  

 

 

   

 

 

   

 

 

     

Total revenues

     100     100     100    
  

 

 

   

 

 

   

 

 

     

 

Fiscal 2013 compared to Fiscal 2012. Total revenues increased $68.3 million, of which $40.7 million was from subscription services revenues. Thirty-seven percent of the increase in subscription services revenues was attributable to orders from existing customers that were placed on or prior to January 31, 2012 and the renewal of such orders through January 31, 2013. Sixty-three percent of the increase in subscription services revenues was attributable to new orders placed after January 31, 2012 to deploy our solutions to additional users within our existing customer base and to new users at new customers. Subscription services revenues from North America, as measured by the location of the end users, made up 72% of subscription services revenues in fiscal 2013 and 89% of subscription services revenues in fiscal 2012. This shift in geographic revenue mix was primarily due to the more rapid rate of revenue growth from deployments in both Europe and Asia as compared to North America.

 

Professional services and other revenues increased $27.6 million. Seventy-eight percent of the increase in professional services and other revenues was attributable to existing customers that signed agreements with us on or prior to January 31, 2012, and 22% of the increase in professional services and other revenues was attributable to customers that signed agreements with us after January 31, 2012. Professional services revenues from North America, as measured by the location of the user for which the services were performed, made up 56% of professional services revenues in fiscal 2013 and 66% of professional services revenues in fiscal 2012. This shift in geographic revenue mix was primarily due to the more rapid rate of revenue growth from deployments in both Europe and Asia as compared to North America.

 

Subscription services revenues were 57% of total revenues for fiscal 2013, compared to 53% of total revenues for fiscal 2012, reflecting the growth in our subscription services revenues and the near completion of significant deployments by certain large customers in the prior year period resulting in a decline of professional services revenues from these specific implementations. The near completion of these large deployments also led to a decrease in the growth rate of our professional services revenues as compared to fiscal 2012.

 

Fiscal 2012 compared to Fiscal 2011. Total revenues increased $32.1 million, of which $13.0 million was from subscription services revenues. Eleven percent of the increase in subscription services revenues was attributable to orders from existing customers that were placed on or prior to January 31, 2011 and the renewal of such orders through January 31, 2012. Eighty-nine percent of the increase in subscription services revenues was attributable to new orders placed after January 31, 2011 to deploy our solutions to additional users within our existing customer base and to new users at new customers. Subscription services revenues from North America, as measured by the location of the end users, made up 89% of subscription services revenues in fiscal 2012, and 98% of subscription services revenues in fiscal 2011. This shift in geographic revenue mix was primarily due to the more rapid rate of revenue growth from deployments in both Europe and Asia as compared to North America.

 

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Professional services and other revenues increased $19.1 million. Fifty-one percent of the increase in professional services and other revenues was attributable to existing customers that signed agreements with us on or prior to January 31, 2011, and 49% of the increase in professional services and other revenues was attributable to customers that signed agreements with us after January 31, 2011. Professional services revenues from North America, as measured by the location of the user for which the services were performed, made up 66% of professional services revenues in fiscal 2012, and 84% of subscription services revenues in fiscal 2011. This shift in geographic revenue mix was primarily due to the more rapid rate of revenue growth from deployments in both Europe and Asia as compared to North America.

 

Subscription services revenues were 53% of total revenues for fiscal 2012, compared to 67% of total revenues for fiscal 2011, reflecting significant implementations by certain large customers during fiscal 2012 that generated significant professional services revenues.

 

Cost of Revenues and Gross Profit Percentage

 

     Fiscal Year Ended January 31,        
     2011     2012     2013     2011 to 2012
% Change
    2012 to 2013
% Change
 
     (dollars in thousands)              

Cost of revenues:

          

Cost of subscription services

   $ 5,236      $ 8,768      $ 18,852        67     115

Cost of professional services and other

     7,081        20,288        38,164        187        88   
  

 

 

   

 

 

   

 

 

     

Total cost of revenues

   $ 12,317      $ 29,056      $ 57,016        136        96   
  

 

 

   

 

 

   

 

 

     

Gross profit percentage:

          

Subscription services

     73     73     74    

Professional services and other

     26        29        32       

Total gross profit percentage

     58     53     56    

Gross profit

   $ 16,812      $ 32,206      $ 72,532        92     125

Headcount (at period end)

     47        112        188        138     68

 

Fiscal 2013 compared to Fiscal 2012. Cost of revenues increased $28.0 million, of which $10.1 million was related to cost of subscription services. The increase in cost of subscription services was primarily due to an increase of users of our subscription services, which drove an increase of $8.8 million in fees paid to salesforce.com, and a $0.8 million increase in employee compensation costs related to increased headcount of customer support employees and a $0.3 million increase in third-party server costs.

 

Cost of professional services and other revenues increased $17.9 million, primarily due to a $10.2 million increase in employee compensation-related costs resulting from a 62% increase in the headcount of our professional services team, an increase of $4.6 million in third-party consulting services and a $1.5 million increase in travel related to professional services projects at our customer locations.

 

Fiscal 2012 compared to Fiscal 2011. Cost of revenues increased $16.7 million, of which $3.5 million was related to cost of subscription services. The increase in cost of subscription services was primarily due to a $2.6 million increase of fees paid to salesforce.com, based on the increase in number of subscription users, and a $0.6 million increase in third-party server costs for hosting our subscription services.

 

Cost of professional services and other revenues increased $13.2 million, primarily due to an increase of $6.8 million in employee compensation-related costs resulting from a 155% increase in the headcount of our professional services team, an increase of $4.0 million in third-party consulting services and a $1.5 million increase in travel related to professional services project at our customer locations.

 

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Operating Expenses

 

Research and Development

 

     Fiscal Year Ended January 31,              
     2011     2012     2013     2011 to 2012
% Change
    2012 to 2013
% Change
 
     (dollars in thousands)              

Research and development

   $ 3,637      $ 7,750      $ 14,638        113     89

Percentage of total revenues

     13     13     11    

Headcount (at period end)

     43        72        118        67     64

 

Fiscal 2013 compared to Fiscal 2012. Research and development expenses increased $6.9 million, primarily due to an increase of $5.2 million in employee compensation-related costs resulting from a 64% increase in headcount, $0.5 million in third-party consulting services related to the development of our solutions, and $0.4 million in rent expense for office space.

 

Fiscal 2012 compared to Fiscal 2011. Research and development expenses increased $4.1 million, primarily due to an increase of $3.9 million in employee compensation-related costs due to a 67% increase in headcount and $0.2 million in third-party consulting services related to the development of our solutions.

 

Sales and Marketing

 

     Fiscal Year Ended January 31,        
        2011        2012     2013     2011 to 2012
% Change
    2012 to 2013
% Change
 
     (dollars in thousands)              

Sales and marketing

   $ 5,571      $ 12,279      $ 19,490        120     59

Percentage of total revenues

     19     20     15    

Headcount (at period end)

     25        55        87        120     58

 

Fiscal 2013 compared to Fiscal 2012. Sales and marketing expenses increased $7.2 million, primarily due to an increase of $6.4 million in employee compensation-related costs resulting from a 58% increase in headcount and increased sales commissions, and a $0.3 million increase in travel-related costs.

 

Fiscal 2012 compared to Fiscal 2011. Sales and marketing expenses increased $6.7 million, primarily due to increases of $5.2 million in employee compensation-related costs resulting from a 120% increase in headcount and a $0.5 million increase in travel-related costs.

 

General and Administrative

 

     Fiscal Year Ended January 31,        
     2011     2012     2013     2011 to 2012
% Change
    2012 to 2013
% Change
 
     (dollars in thousands)              

General and administrative

   $ 2,513      $ 5,539      $ 8,371        120     51

Percentage of total revenues

     9     9     7    

Headcount (at period end)

     12        18        44        50     144

 

Fiscal 2013 compared to Fiscal 2012. General and administrative expenses increased $2.8 million, primarily due to an increase of $1.7 million in employee compensation-related costs resulting from a 144% increase in headcount, $0.4 million in third-party professional services costs and $0.2 million in franchise taxes and licenses. The effect of the 144% increase in general and administrative headcount from fiscal 2012 to fiscal 2013 was not fully reflected in the 51% increase in general and administrative expenses from fiscal 2012 to fiscal 2013 because much of the increase in headcount occurred at the end of fiscal 2013.

 

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Fiscal 2012 compared to Fiscal 2011. General and administrative expenses increased $3.0 million, primarily due to increases of $1.0 million in employee compensation-related costs resulting from a 50% increase in headcount and $0.2 million in franchise taxes and licenses.

 

Other Income (Expense), Net

 

     Fiscal Year Ended January 31,        
       2011          2012          2013       2011 to 2012
% Change
    2012 to 2013
% Change
 
     (in thousands)              

Other income (expense), net

   $ 173       $ 15       $ (940     (91 )%      NM   

 

Fiscal 2013 compared to Fiscal 2012. Other expenses increased $1.0 million, primarily due to fluctuations in foreign exchange rates for our foreign currency denominated transactions, particularly transactions denominated in the Euro and the Japanese Yen.

 

Fiscal 2012 compared to Fiscal 2011. Other income decreased $0.2 million, primarily due to fluctuations in foreign exchange rates for our foreign currency denominated transactions, particularly transactions denominated in the Euro and the Japanese Yen.

 

Provision for Income Taxes

 

     Fiscal Year Ended January 31,        
     2011     2012     2013     2011 to 2012
% Change
    2012 to 2013
% Change
 
     (dollars in thousands)              

Income before income taxes

   $ 5,264      $ 6,653      $ 29,093        26     337

Provision for income taxes

     1,355        2,423        10,310        79        326   

Effective tax rate

     26     36     35    

 

Fiscal 2013 compared to Fiscal 2012. Provision for income taxes increased $7.9 million, primarily due to an increase in income before taxes for the year.

 

Fiscal 2012 compared to Fiscal 2011. Provision for income taxes expenses increased $1.1 million, primarily due to an increase in income before taxes for the year. We utilized our net operating loss carryforwards during fiscal 2011, resulting in a lower effective tax rate compared to fiscal 2012.

 

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Quarterly Results of Operations

 

The following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the six quarters in the period ended July 31, 2013. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which includes only normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods in accordance with generally accepted accounting principles in the United States (GAAP). This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for a full year or any future period.

 

                                                                             
     Three Months Ended  
     Apr. 30,
2012
     Jul. 31,
2012
    Oct. 31,
2012
     Jan. 31,
2013
    Apr. 30,
2013
    Jul. 31,
2013
 
     (in thousands)  

Consolidated Statements of Operations Data:

              

Revenues:

              

Subscription services

   $ 13,430       $ 15,772      $ 19,969       $ 24,109      $ 27,937      $ 34,063   

Professional services and other

     11,079         13,683        15,827         15,679        14,851        15,518   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     24,509         29,455        35,796         39,788        42,788        49,581   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cost of revenues(1):

              

Cost of subscription services

     3,649         4,100        5,160         5,943        6,950     

 

7,948

  

Cost of professional services and other

     7,700         8,950        10,696         10,818        10,759        11,195   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total cost of revenues

     11,349         13,050        15,856         16,761        17,709        19,143   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     13,160         16,405        19,940         23,027        25,079        30,438   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating expenses(1):

              

Research and development

     3,055         3,286        3,605         4,692        5,527        6,357   

Sales and marketing

     3,798         4,190        5,316         6,186        7,662        9,610   

General and administrative

     1,542         1,807        2,235         2,787        3,717        4,633   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     8,395         9,283        11,156         13,665        16,906        20,600   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     4,765         7,122        8,784         9,362        8,173     

 

9,838

  

Other income (expense), net

     10         (421     74         (603     (499     (65
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     4,775         6,701        8,858         8,759        7,674        9,773   

Provision for income taxes

     1,672         2,454        3,109         3,075        2,829        3,775   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   $ 3,103       $ 4,247      $ 5,749       $ 5,684      $ 4,845      $ 5,998   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)  

Includes stock-based compensation expense as follows:

 

                                                                             
     Three Months Ended  
     Apr. 30,
2012
     Jul. 31,
2012
     Oct. 31,
2012
     Jan. 31,
2013
     Apr. 30,
2013
     Jul. 31,
2013
 
     (in thousands)  

Cost of revenues:

                 

Cost of subscription services

   $       $ 1       $ 1       $ 1       $ 3       $ 6   

Cost of professional services and other

     21         30         30         39         93         135   

Research and development

     39         51         65         83         195         271   

Sales and marketing

     31         32         34         43         183         299   

General and administrative

     57         47         51         59         261         504   

 

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     Three Months Ended  
     Apr. 30,
2012
    Jul. 31,
2012
    Oct. 31,
2012
    Jan. 31,
2013
    Apr. 30,
2013
    Jul. 31,
2013
 
     (as a percentage of total revenues)  

Consolidated Statements of Operations Data:

            

Revenues:

            

Subscription services

     54.8     53.5     55.8     60.6     65.3     68.7

Professional services and other

     45.2        46.5        44.2        39.4        34.7        31.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100.0        100.0        100.0        100.0        100.0        100.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

            

Cost of subscription services

     14.9        13.9        14.4        14.9        16.3        16.0   

Cost of professional services and other

     31.4        30.4        29.9        27.2        25.1        22.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     46.3        44.3        44.3        42.1        41.4        38.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     53.7        55.7        55.7        57.9        58.6        61.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Research and development

     12.5        11.2        10.1        11.8        12.9        12.8   

Sales and marketing

     15.4        14.2        14.8        15.6        17.9        19.4   

General and administrative

     6.3        6.2        6.2        7.0        8.7        9.4