Summary of Business and Significant Accounting Policies | Note 1. Summary of Business and Significant Accounting Policies Description of Business Veeva is a leading provider of industry cloud solutions for the global life sciences industry. We were founded in 2007 on the premise that industry-specific cloud solutions could best address the operating challenges and regulatory requirements of life sciences companies. Our products are designed to meet the unique needs of our customers and their most strategic business functions—from research and development (R&D) to commercialization. Our products address a broad range of needs—including multichannel customer relationship management (CRM), content management, master data management, and data regarding healthcare professionals and organizations. Veeva is also offering its regulated content management solutions to a new set of customers in process and discrete manufacturing, consumer packaged goods, and highly regulated services industries. Our fiscal year end is January 31. Principles of Consolidation and Basis of Presentation These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting and include the accounts of our wholly-owned subsidiaries after elimination of intercompany accounts and transactions. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in Veeva’s Annual Report on Form 10-K for the fiscal year ended January 31, 2018, filed on March 29, 2018. Except for the accounting policies for revenue recognition, unbilled accounts receivable, and deferred costs that were updated as a result of adopting ASU 2014-09, “ Revenue from Contracts with Customers The condensed consolidated balance sheet as of January 31, 2018 included herein was derived from the audited financial statements as of that date. These unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, our comprehensive income and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending January 31, 2019 or any other period. Effective February 1, 2018, we adopted the requirements of Topic 606, ASU 2016-18, “ Statement of Cash Flows, Restricted Cash ,” and ASU 2018-02, “ Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ,” as discussed in this note. All amounts and disclosures set forth in this Form 10-Q for previously reported periods have also been updated to comply with the new standards, as indicated by the “as adjusted” tables in this footnote. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that affect the condensed consolidated financial statements and the notes thereto. These estimates are based on information available as of the date of the condensed consolidated financial statements. On a regular basis, management evaluates these estimates and assumptions. Significant items subject to such estimates and assumptions include, but are not limited to: • the standalone selling price for each distinct performance obligation included in customer contracts with multiple performance obligations; • the period of benefit for deferred costs; • the collectibility of our accounts receivable; • the fair value of assets acquired and liabilities assumed for business combinations; • the valuation of short-term investments and the determination of other-than-temporary impairments; • the realizability of deferred income tax assets and liabilities; • the fair value of our stock-based awards; and • the capitalization and estimated useful life of internal-use software development costs. As future events cannot be determined with precision, actual results could differ significantly from those estimates. Revenue Recognition We derive our revenues primarily from subscription services and professional services. Subscription services revenues consist of fees from customers accessing our cloud-based software solutions and subscription or license fees for our data solutions. Professional services and other revenues consist primarily of fees from implementation services, configuration, data services, training and managed services related to our solutions. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. We determine revenue recognition through the following steps: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, we satisfy a performance obligation. Our subscription services agreements are generally non-cancelable during the term, although customers typically have the right to terminate their agreements for cause in the event of material breach. Subscription Services Revenues Subscription services revenues are recognized ratably over the respective non-cancelable subscription term because of the continuous transfer of control to the customer. Our subscription arrangements are considered service contracts, and the customer does not have the right to take possession of the software. Professional Services and Other Revenues The majority of our professional services arrangements are recognized on a time and materials basis. Professional services revenues recognized on a time and materials basis are measured monthly based on time incurred and contractually agreed upon rates. Certain professional services revenues are based on fixed fee arrangements and revenues are recognized as services are rendered. Data services and training revenues are generally recognized as the services are performed. Contracts with Multiple Performance Obligations Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately when they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including other groupings such as customer type and geography. Unbilled Accounts Receivable Unbilled accounts receivable is a contract asset related to the delivery of our subscription services and professional services for which the related billings will occur in a future period. Unbilled accounts receivable consists of (i) revenue recognized for professional services performed but not yet billed and (ii) revenue recognized from non-cancelable, multi-year orders in which fees increase annually but for which we are not contractually able to invoice until a future period. Deferred Costs Deferred costs include sales commissions associated with obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit that we have determined to be three years. We determined the period of benefit by taking into consideration our customer contracts, our technology and other factors. Amortization expense is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations. Deferred Revenue Deferred revenue includes amounts billed to customers for which the revenue recognition criteria have not been met. Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from our subscription services and, to a lesser extent, professional services and other revenues described above. Deferred revenue is recognized as we satisfy our performance obligations. We generally invoice our customers in annual or quarterly installments for subscription services. Accordingly, the deferred revenue balance does not generally represent the total contract value of a subscription arrangement. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent, which is included in other long-term liabilities on the condensed consolidated balance sheet. Certain Risks and Concentrations of Credit Risk Our revenues are derived from subscription services, professional services and other services delivered primarily to the life sciences industry. We operate in markets that are highly competitive and rapidly changing. Significant technological changes, shifting customer needs, the emergence of competitive products or services with new capabilities and other factors could negatively impact our operating results. Our financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents, short-term investments and trade accounts receivable. Our cash equivalents and short-term investments are held by established financial institutions. We have established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. Deposits in these financial institutions may significantly exceed federally insured limits. We do not require collateral from our customers and generally require payment within 30 to 60 days of billing. We periodically evaluate the collectibility of our accounts receivable and provide an allowance for doubtful accounts as necessary, based on historical experience. Historically, losses related to lack of collectibility have not been material. The following customers individually exceeded 10% of total accounts receivable as of the dates shown: July 31, January 31, 2018 2018 Customer 1 * 18% Customer 2 * 13% * Does not exceed 10%. No single customer represented over 10% of total revenues in the condensed consolidated statements of comprehensive income for the three and six months ended July 31, 2018 and 2017. New Accounting Pronouncements Adopted in Fiscal 2019 Income Taxes In March 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-05, “ Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 Stranded Tax Effects in Accumulated Other Comprehensive Income In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-02, " Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. We early adopted this standard effective February 1, 2018. The impact on our condensed consolidated financial statements was immaterial. Restricted Cash In November 2016, the FASB issued ASU 2016-18, “ Statement of Cash, Restricted Cash Financial Instruments In January 2016, the FASB issued ASU 2016-01, “Financial Instruments ASU 2016-01, among other things, requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. Revenue Recognition In May 2014, the FASB issued Topic 606. This guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 supersedes the existing revenue recognition guidance in “Revenue Recognition (Topic 605)”. We have adopted the requirements of the new standard as of February 1, 2018, utilizing the full retrospective transition method. Adoption of the new standard resulted in changes to our accounting policies for revenue recognition, unbilled accounts receivable, and deferred costs as detailed above in our description of Revenue Recognition. We applied a practical expedient provided by the new standard and are not disclosing the amount of consideration allocated to the remaining performance obligations for all reporting periods presented before the date of the initial application. The impact of adoption included the deferral of costs to obtain customer contracts, which is comprised of commissions on our subscription services arrangements. Revenue for the majority of our subscription services customer contracts will continue to be recognized over time because of the continuous transfer of control to the customer; however, there is some impact to revenue primarily driven by (i) accounting for non-cancelable multi-year contracts, (ii) the removal of the current limitation on contingent revenue, which may result in revenue being recognized earlier for certain contracts, and (iii) allocation of revenue from subscription services to professional services. We adjusted our condensed consolidated financial statements from amounts previously reported to reflect the adoption of Topic 606, ASU 2016-18, or ASU 2018-02. Select impacted condensed consolidated balance sheet line items, which reflect the adoption of the new standards are as follows (in thousands): January 31, 2018 As Reported Adjustments As adjusted Assets Accounts receivable (1) $ 233,731 (9,063 ) a $ 224,668 Unbilled accounts receivable (1) — 13,348 a 13,348 Deferred costs, net — 30,306 a 30,306 Deferred income taxes, non-current 3,490 (1,268 ) a 2,222 Liabilities Deferred revenue $ 275,446 $ (8,507 ) a $ 266,939 Deferred income taxes, non-current 3,828 7,121 a 10,949 Stockholders’ equity: Accumulated other comprehensive income $ 1,404 $ 196 b $ 1,600 Retained earnings 354,850 34,515 a, b 389,365 (1) Unbilled accounts receivable was previously included in Accounts receivable before the adoption of Topic 606. a Adjusted to reflect the adoption of ASU 2014-09, “ ” b Adjusted to reflect the adoption of ASU 2018-02, “ Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income .” Select unaudited condensed consolidated statement of comprehensive income line items, which reflect the adoption of the new standards are as follows (in thousands): Three months ended July 31, 2017 As Reported Adjustments As adjusted Revenues: Subscription services $ 134,340 $ 1,210 a $ 135,550 Operating expenses: Sales and marketing 32,017 53 a 32,070 Operating income 36,898 1,169 a 38,067 Provision for income taxes 1,912 411 a 2,323 Net income $ 37,844 $ 758 a $ 38,602 Net income per share attributable to Class A and Class B common stockholders: Basic $ 0.27 $ 0.01 a $ 0.28 Diluted $ 0.25 $ — a $ 0.25 Six months ended July 31, 2017 As Reported Adjustments As adjusted Revenues: Subscription services $ 261,617 $ 3,064 a $ 264,681 Operating expenses: Sales and marketing 61,827 384 a 62,211 Operating income 74,237 2,693 a 76,930 Provision for income taxes 3,819 962 a 4,781 Net income $ 73,867 $ 1,731 a $ 75,598 Net income per share attributable to Class A and Class B common stockholders: Basic $ 0.53 $ 0.01 a $ 0.54 Diluted $ 0.48 $ 0.01 a $ 0.49 a Adjusted to reflect the adoption of ASU 2014-09, “ ” Select unaudited condensed consolidated statement of cash flows line items, which reflect the adoption of the new standards are as follows (in thousands): Three months ended July 31, 2017 As Reported Adjustments As adjusted Cash flows from operating activities Net income $ 37,844 $ 758 a $ 38,602 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred costs — 4,087 a 4,087 Changes in operating assets and liabilities: Accounts receivable 16,169 176 a 16,345 Unbilled accounts receivable — 7,453 a 7,453 Deferred costs — (4,046 ) a (4,046 ) Deferred revenue (15,410 ) (8,840 ) a (24,250 ) Net cash provided by operating activities 57,607 (1 ) a 57,606 Change in restricted cash and deposits (201 ) 201 b — Net cash (used in) provided by investing activities (20,499 ) 201 b (20,298 ) Net change in cash, cash equivalents and restricted cash 43,566 200 b 43,766 Cash, cash equivalents and restricted cash at the beginning of period 365,660 1,002 b 366,662 Cash, cash equivalents and restricted cash at the end of period $ 409,226 $ 1,202 b $ 410,428 Six months ended July 31, 2017 As Reported Adjustments As adjusted Cash flows from operating activities Net income $ 73,867 $ 1,731 a $ 75,598 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred costs — 8,135 a 8,135 Changes in operating assets and liabilities: Accounts receivable 85,869 1,280 a 87,149 Unbilled accounts receivable — (479 ) a (479 ) Deferred costs — (7,763 ) a (7,763 ) Deferred revenue 9,027 (3,866 ) a 5,161 Net cash provided by operating activities 199,768 (1 ) a 199,767 Change in restricted cash and deposits (202 ) 202 b — Net cash (used in) provided by investing activities (22,804 ) 202 b (22,602 ) Net change in cash, cash equivalents and restricted cash 191,620 201 b 191,821 Cash, cash equivalents and restricted cash at the beginning of period 217,606 1,001 b 218,607 Cash, cash equivalents and restricted cash at the end of period $ 409,226 $ 1,202 b $ 410,428 a Adjusted to reflect the adoption of ASU 2014-09, “ ” b Adjusted to reflect the adoption of ASU 2016-18, “ Statement of Cash Flows, Restricted Cash .” Future periods may or may not have the same impact as those set forth above. |