Ryan Daniels: All right. Thank you.
Operator: Our next question comes from the line of Richard Close with Canaccord Genuity. Your line is live.
Richard Close: Thanks for the questions. Congratulations. Anna, I was wondering if you could maybe go into a little bit more detail on your commentary with respect to launch timing and the creation of new content and maybe characterize it, how it compares to last year? I know last year, you had some of these new modules for the first time. But any additional color there would be helpful.
Anna Bryson: Yes, sure, Richard. Happy to take that one. And once again, as mentioned, our Q4 revenue outlook does reflect growth that’s more indicative of program launch timing than underlying sales growth. So I’ll give you a couple of examples. First is on the new module front. So during our upfront, our new modules grew over 100% year-over-year as mentioned. And these are new programs that require new content, so they’re not contractually planned to launch until the spring. We also saw strong growth in newer brands. So another example I’ll give you is one out of the three $10 million-plus brands that I mentioned, is actually a newer brand, and it’s also not contractually planned to launch until the spring. So it’s a lot more about some nuances here with newer brands and neuro modules that is contributing to more spring launches than we might have seen prior.
Richard Close: Okay. And then just any thoughts in terms of whether the new modules are cannibalizing at all legacy modules. I know you said it expands the budget and whatnot. But just any feel on that front would be good.
Nate Gross: Sure. This is Nate. I can take that one. So two comments. First, one of the reasons why we’re excited about these new modules is they do unlock new budgets. Within those new budgets, our products are often offering a digital versus analog approach, something that’s often much more interactive than other solutions on the market and a real potential for high impact efficiency that hasn’t been seen before. So it’s a great entrance to those budgets. These products are also typically multi budget applicable. So we do see interest from our marketing clients in them, too. It’s understandable that they’re exciting to our more classic marketing clients who haven’t had access to products like these before. But one thing that we’re seeing is that our clients are increasingly interested in buying Doximity rather than buying just a module.
And that gives us a great opportunity to increase our role as a trusted partner and leverage some of our omnichannel within Doximity. Multimodal development opportunities as we build out strategies with our partners to really leverage both the new and the old modules in ways that I think are both maximizing the growth opportunity, the healthy reach to our end user, but also are delivering the maximum ROI for the client.
Richard Close: Thank you.
Operator: Our next question is from the line of Stephanie Davis with Barclays. Your line is open.
Stephanie Davis: Hi, guys. Thank you for taking my question. Glad to be back. Anna, you’ve talked in the prepared remarks and in the Q&A about a strong Q selling season, healthy revenue retention expectations for above market growth. So I guess my big question is, how do you bridge the implied step down in the 4Q growth guidance? Is there anything unique beyond timing to call out there? Or is it reflective of finding religion on a more conservative guidance philosophy?
Anna Bryson: Appy to have you back as well, Steph. So a couple of things I’ll say there. What we’re seeing from a step-down perspective is, in Q4, is the result of two factors. So first and foremost, we did see a stronger Q3 than typical due to a more condensed upsell season. And then second, the mix of new products and brands can be different year-to-year as can our customer strategies. So we’re definitely seeing a Q4 that’s very dependent on launch timing. So back to the answer I gave before with Richard, we just have a higher mix of new products and new brands and we’re also making sure that we bake in enough time to get those programs live. So it’s a little bit of both, to answer your question directly.
Stephanie Davis: All right. Super helpful. So maybe a little bit buffer there. And then, Jeff, I know historically, you haven’t laid out a revenue strategy for the DocsGPT product. But it sounds like it’s scaling and it’s really started to echo that evolution of the dialer from that free nice-to-have product into a for-charge product. Could you have any early thoughts on the evolution and maybe when it’s going to be more game time ready as something that you would sell as a stand-alone?
Jeffrey Tangney: Thanks, Steph and good to have you back. Yes, you’re right in a sense that I’m an engagement first then monetization sort of person. And that’s been our approach as well with a product that is really all about monetization, which is helping our clients purchase from us. We’re the best product in the market. When our clients sat down at the end of the year to sit down and do their annual reviews of all the programs and all the partners that they work with, again, they’re telling us that we win in terms of ROI. We win in terms of our service. We, I think, clearly outgrew the rest of the market here this last quarter, but we’re not the easiest to buy from. So we’re the best product but not the easiest to buy. And really, we want to fix that.
And we want to fix that before this summer, which is, I think, the season where that dynamic is most important for us. Now to be clear, again, two-thirds of the year still already happens in the upfront season. But our goal here is this summer that we’re going to have built the engagement to be able to add the monetization.
Stephanie Davis: Awesome. Thank you both.
Operator: Our next question is from the line of Elizabeth Anderson with Evercore ISI. Your line is live.
Elizabeth Anderson: Hi guys, thanks so much for the question. You had a really nice step-up in the gross margin. I was wondering if you could talk a little bit more about that? I think you mentioned customer support, sort of strategic AI. How do you think about the sustainability of that? And obviously, the launching of new modules or something like that? How to think about that on a go-forward rate mix?
Anna Bryson: Sure, happy to take that one, Elizabeth. So you’re absolutely right. We did see a record non-GAAP gross margin this last quarter at 93%. I’ll start by saying a large factor of that was due to the material revenue outperformance that we saw, but on the other side, we are absolutely continuing to optimize our infrastructure costs and our customer support engines. We’re also really leaning into AI to up-level the productivity of our existing team. So I think that as we think about gross margin over time, due to the revenue outperformance we saw in Q3, we don’t think we’ll necessarily stay at this 93% level, but we feel pretty good about gross margins at 90% plus.
Elizabeth Anderson: Got it. And just in terms of the 4Q guidance. In terms of the EBITDA, in particular, how do we think about the cadence of some of the OpEx spending on there? Because obviously, if you step up the gross margins a little bit, I guess, versus our prior expectations. You have to assume there’s sort of like a step-up in sort of maybe R&D or maybe also sales and marketing to get back into your EBITDA range. So I just wanted to understand if there’s anything impacting the fourth quarter in particular that we should take into account.
Anna Bryson: Sure. On the expense side, you’ll see that we’re forecasting quarter-over-quarter growth. That’s actually very consistent with prior years. So I’ll remind you that Q4 is our second largest sales quarter. So we do see pretty significant commissions in Q4. It’s also the new year. So we have new things that go into effect, like 409k match, benefits, et cetera. So the step-up that we’re seeing between Q3 and Q4 expenses is very consistent with what we’ve seen in prior years.
Elizabeth Anderson: Got it, thanks so much.
Operator: Our next question is from the line of Allen Lutz with BofA. Your line is live.
Allen Lutz: Good afternoon, and thanks for taking the questions. One for Jeff or Anna, can you talk a little bit about the budget flush dynamic in the quarter. Is pharma accelerating spend? Was it all delayed spend that was unlocked in the fourth quarter? And do you think that the industry growth also inflected in the fourth quarter? Or did Doximity take incremental market share there?
Anna Bryson: Sure, Allen. Happy to take that one as well. Listen, like we said last quarter, like many other industries in this environment, we definitely saw some elongated sales cycles this past year. So those incremental dollars that we might typically start seeing added to our platform in a normal year in the kind of May, June time frame are really didn’t start coming until August of this year. So we just have that much more condensed upsell season. I think the strength, though that we saw at the end of the year is just a really strong indication of our competitive position in the market. And that when those dollars do become available, Doximity remains one of the top choices because of our industry-leading ROI. So we’re really pleased with how we were able to end the year.
Allen Lutz: Great. And then, Anna, you mentioned — I want to clarify, you mentioned, I think, a new launch of a $10 million customer is occurring in the spring. Is that a first-time Doximity brand that’s launching for $10 million worth of spend? And then is it normal for a new brand to launch with so much spend as a first-time launch? Thanks.
