Doximity, Inc. (NYSE:DOCS) Q4 2023 Earnings Call Transcript May 16, 2023

Doximity, Inc. reports earnings inline with expectations. Reported EPS is $0.17 EPS, expectations were $0.17.

Operator: Hello, and welcome to Doximity’s Fiscal Q4 2023 Earnings Call. I will now pass the call over to Doximity’s Vice President of Investor Relations, Perry Gold, to kick off the call. Please go ahead.

Perry Gold: Thank you, operator. Hello, and welcome to Doximity’s fiscal 2023 fourth quarter earnings call. With me on the call today are Jeff Tangney, Co-Founder and CEO of Doximity; Dr. Nate Gross, Co-Founder and CSO; and Anna Bryson, CFO. A complete disclosure of our results can be found in the press release issued earlier today as well as in our related Form 8-K, all of which are available on our website at investors.doximity.com. As a reminder, today’s call is being recorded and a replay will be available on our website. As part of our comments today, we will be making forward-looking statements. These statements are based on management’s current views, expectations and assumptions and are subject to various risks and uncertainties.

Actual results may differ materially, and we disclaim any obligation to update any forward-looking statements or outlook. Please refer to the risk factors in our annual report on Form 10-K, any subsequent Form 10-Qs and any other reports and filings with the SEC that may be filed from time-to-time, including our upcoming filing on Form 10-K for the year. Our forward-looking statements are based on assumptions that we believe to be reasonable as of today’s date, May 16th, 2023. Of note, it is Doximity’s policy to neither reiterate nor adjust the financial guidance nor adjust the financial guidance provided on today’s call, unless it is also done through a public disclosure, such as a press release or through the filing of a Form 8-K. Today, we will discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results.

A historical reconciliation to comparable GAAP metrics can be found in today’s earnings release. Finally, during the call, we may offer incremental metrics to provide greater insights into the dynamics of our business. These details may be one-time in nature, and we may or may not provide updates on those metrics in the future. I would now like to turn the call over to our CEO and Co-Founder, Jeff Tangney. Jeff?

Jeffrey Tangney: Thanks Perry and thank you everyone for joining our fourth quarter earnings call. We have three updates today our financials, network growth and two senior hires. First, our topline. I’m pleased to report that we delivered $111 million in revenue for the fourth quarter of our fiscal 2023, beating the high end of our guidance range. For our full fiscal year ended March 31st, we had $419 million in revenue and grew 22% year-on-year. As a reminder, our clients are the best brands in medicine, including all of the top 20 hospitals and all of the top 20 pharmaceutical companies. Our interactive platform allows them to connect efficiently with the right positions about new treatments and patient referrals, each of which can be worth thousands of dollars per patient.

We then measure our clients’ return on investment, or ROI, using third-party claims and prescription data. Our median client ROI is a 10:1 return or better, which guides our pricing and fuels our profitability. Speaking of which, our bottom-line was also strong in Q4 with an adjusted EBITDA margin of 44% or $49 million, which was 6% above the high end of our guidance. Our free cash flow was similarly strong at $46 million. For the full fiscal year, our EBITDA margin was 44% or $184 million. During the year, our cash balance grew to a record $841 million, while we made two new major cash investments. First, we invested $54 million in cash, plus up to $24 million in future earnouts to buy Amion.com, a SaaS physician scheduling company. And second, we bought $86 million of our own stock at an average price of $32.16 per share.

Long-term, we feel good about both of these investments. Our buybacks reduced our shares outstanding by about 1% this year and as we’ve integrated Amion’s 200,000 physician schedules into our productivity suite, it has become a cornerstone of our daily engagement alongside our dialer telephony service. In short, we’re increasingly the way doctors call patients from their EHRs and call colleagues from their own call schedules. Looking ahead, our revenue guidance for next year is $500 million to $506 million, which is 20% growth at our midpoint of $503 million. In terms of visibility, over 65% of our subscription revenue guide is already under contract, which is more than we typically had at this time of year. We’re prepared for another tough upsell year as we expect macro belt tightening to continue.

Our adjusted EBITDA guidance for the year is $219 million at the midpoint, which continues the 44% margins we had last year. In all, despite macro headwinds, we expect to grow both our top and bottom-line by roughly 20% this year. Okay, turning now to our network growth. Our usage hit fresh highs in Q4. Across our entire platform, we achieved a record number of quarterly active users. As pandemic emergency provisions officially ended, we’re proud to emerge with a record number of providers using our physician cloud in Q4 to power their scheduling, fax, e-signature, and telehealth needs. Our telehealth tools alone were used by a record 380,000 unique providers. Our enterprise products help hospital providers streamline workflows and spend more time caring for their patients.

To that end, today, we announced a new integration with MEDITECH, the third most widely used electronic health record, or EHR, in the United States. Our workforce tools now integrate with all of the top three EHRs, namely Epic, Cerner and MEDITECH, who collectively comprise 85% of the hospital market by beds per class research. Alongside our EHR partners, we’re excited to continue digitizing the many paper-based and legacy workloads that physicians face today. As a product-led software company, we will continue to invest and grow our business, while always keeping physicians first. By connecting doctors in their daily work from finding which cardiologist is on call to viewing their profile to calling or messaging them, we believe we become the physician cloud, a workflow and communications hub whose usage is more analogous to a Bloomberg than a LinkedIn. Speaking of communications, our new DocsGPT.com AI medical writing site has proven a hit in helping doctors draft and seamlessly fax, yes, fax, ensures the many varied approval others needed to get care for their patients.

There’s an old phrase in medical training, If it’s Not Documented, it’s Not Done. Well, we’re glad to help doctors reduce the nearly half of their day per for an AMA time tracking study that they spend on paperwork. As a department chief from a top five hospital put it to us in an e-mail, DocsGPT is “pretty bad ass.”. DocsGPT has grown steadily via word of mouth to now serve thousands and thousands of clinician prompts each week. Doctors are sharing their most useful prompts with one another and grading responses on utility and clinical accuracy. This continuous feedback is helping us prioritize our roadmap and identify where AI can help doctors most. Okay, turning now to our new hire updates. Today, we are thrilled to announce two new additions to our senior leadership team, Craig Overpeck and Ben Greenberg.

Craig joins us as the Senior Vice President of Commercial Operations and brings a wealth of industry knowledge and experience. Craig served as the US COO at M3, the Japanese physician network for over a decade. During that time, M3 grew its revenue from around $50 million to $700 million. Ben also brings decades of industry experience and joins us as Senior Vice President of Commercial Products. Ben spent more than 11 years at WebMD/Medscape, where he served as the VP of Product and Headed their mobile products. You’ll have an opportunity to hear directly from both Craig and Ben at our upcoming Investor Day on June 6th, which will broadcast live from the New York Stock Exchange. Speaking of which, we are excited to host our inaugural Investor Day next month.

It’s been nearly two years since our IPO and we’re excited to demo our latest products, hear from a panel of physician technology experts, and discuss our longer term model. We’ll have lunch and live demos after our presentation for those who can attend live at the New York Stock Exchange. We look forward to seeing many of you in person in just a few short weeks. Okay, I’d like to end by thanking our nearly 1,000 Doximity team members who continue to work incredibly hard to realize our mission to make doctors more productive. With consecutive quarters of record provider engagement across our entire platform, I personally have never been more excited about what we’re building, and I’m proud to be on this journey with you all. And with that, I’ll hand it over to our CFO, Anna Bryson, to discuss our financials and guidance.

Anna?

Anna Bryson: Thanks Jeff and thanks to everyone on the call today. We are proud to have achieved another year as a Rule of 60-plus company in fiscal 2023. Fourth quarter revenue grew to $111 million, up 18% year-over-year and exceeding the high end of our guidance range. Of note, our subscription revenue, which comprises 93% of our total revenue, saw growth reaccelerate to 20% in Q4, up from 18% in Q3. While the macro environment remains uncertain, we are encouraged to see this positive momentum in our core marketing business. Full year revenue grew to $419.1 million, a 22% increase year-over-year. Similar to prior years, our existing customers continued to lead our growth. We finished the year with a net revenue retention rate of 117%.

For our top 20 customers, net revenue retention was higher at 124%. We ended the year with 294 customers contributing at least $100,000 each in subscription-based revenue. This is a 16% increase from the 254 customers we had in this cohort a year ago and these customers accounted for 87% of our total revenue for the year. Additionally, our customers with the largest budgets continued to scale up quickly on our platform. We ended the year with 11 customers contributing more than $10 million each in revenue. This is up significantly from the two eight-figure customers we had just two years ago. These 11 customers are all top 20 pharmaceutical manufacturers and purchase across an average of over 15 brands each. As a reminder, no customer represents 10% or more of our revenue and no individual brand represents 2% or more of our revenue.

Turning to our profitability. Non-GAAP gross margin in the fourth quarter was 90%, flat versus the prior year period. For the full fiscal year, non-GAAP gross margin was also 90% and flat with fiscal 2022. Adjusted EBITDA for the fourth quarter was $48.9 million and adjusted EBITDA margin was 44% compared to $39.4 million and a 42% margin in the prior year period. For the full fiscal year, adjusted EBITDA was $184 million, growing 22% year-over-year. Full year adjusted EBITDA margin was 44% and flat with fiscal 2022. Now, turning to our balance sheet, cash flow, and an update on our share repurchase program. We ended the fiscal year with $841 million of cash, cash equivalents, and marketable securities. In Q4, we repurchased $16 million worth of shares at an average price of $30.59.

For the full fiscal year, we repurchased $86 million worth of shares at an average price of $32.16. We generated free cash flow in the fourth quarter of $45.6 million compared to $44.9 million in the prior year period. For the full fiscal year, we generated free cash flow of $173.4 million compared to $120.9 million in fiscal 2022, an increase of 43% year-over-year. Now, moving on to our outlook. For the first fiscal quarter of 2024, we expect revenue in the range of $106.5 million to $107.5 million, representing 18% growth at the midpoint and we expect adjusted EBITDA in the range of $39 million to $40 million, representing a 37% adjusted EBITDA margin. For the full fiscal year, we expect revenue in the range of $500 million to $506 million, representing 20% growth at the midpoint.

And we expect adjusted EBITDA in the range of $216 million to $222 million, representing a 44% adjusted EBITDA margin. As of today, we have over 65% of our annual subscription-based revenue guidance under contract. We expect another 30% to come from renewals and upsells and the remaining 5% to come from new customers. To break down the renewal and upsell component further, given the continued macro uncertainty, we are modeling a similar percentage of mid-year upsell to last year, which is about half of our historical rate. Over the last few years, there have been many shifts in our customers’ buying and launching behavior. A rapid move to digital, the macro downturn, and the launch of new products has led to some changing dynamics in our quarterly revenue curve.

As we move into fiscal 2024, we are currently assuming our customers’ buying and launching behavior will roughly mirror fiscal 2023, leading to a similar quarterly revenue cadence to what we saw last year. We’d also like to give an update on the delays we faced with getting regulatory approvals for our new vertical video products. We are happy to report that we have now received approvals from all but one client. A few of these programs have gone live and the remainder will launch over the next quarter or two based on our client strategies. While these programs have not run for very long, the preliminary engagement and ROI data is incredibly encouraging, and we believe our new point-of-care and peer-to-peer offerings will be large contributors to our growth over the next several years.

Finally, we are excited to host our inaugural Investor Day on June 6th, where we will do a deeper dive on our product and discuss our longer term financial targets. With that, I will turn it over to the operator for questions.

Q&A Session

Operator: We will now open the lines for questions. We have 30 minutes for Q&A. Our first question comes from the line of Brian Peterson with Raymond James. Please go ahead.

Operator: The next question comes from the line of Scott Berg with Needham. Please go ahead.

Operator: The next question comes from the line of Richard Close with Canaccord Genuity. Please go ahead.

Operator: The next question comes from the line of Sandy Draper with Guggenheim Securities. Please go ahead.

Operator: The next question comes from the line of Ryan Daniels with William Blair. Please go ahead.

Operator: The next question comes from the line of Stan Berenshteyn with Wells Fargo Securities, LLC. Please go ahead.

Operator: The next question comes from the line of Stephanie Davis with SVB Securities. Please go ahead.

Operator: The next question comes from the line of Jessica Tassan with Piper Sandler. Please go ahead.

Operator: The next question comes from Elizabeth Anderson with Evercore ISI. Please go ahead.

Operator: The next question comes from the line of David Larsen with BTIG. Please go ahead.

Operator: The Q&A portion of the call has now concluded. I will now pass the call back to Doximity’s CEO, Jeff Tangney for closing remarks.

Jeffrey Tangney: Thank you. I’d like to end by thanking our record number of physician members, our clients, and, of course, our entire team. We hope to see many of you live at the New York Stock Exchange in a few weeks. Thank you for joining. Bye now.

Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect your lines.