Doximity, Inc. — Fiscal 2024 Third Quarter 10-Q
Reporting period: Three and nine months ended December 31, 2023; year-over-year comparisons are to the periods ended December 31, 2022. Doximity operates a digital platform for healthcare professionals and earns most revenue from subscription Marketing and Hiring Solutions.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Revenue | $135.3 million, up 17% | $357.4 million, up 16% |
| Gross profit / margin | $123.1 million / 91% (88% prior year) | $319.3 million / 89% (87% prior year) |
| Operating income / margin | $58.6 million / 43% (33% prior year) | $122.0 million / 34% (30% prior year) |
| Net income / margin | $48.0 million / 35% (29% prior year) | $107.0 million / 30% (27% prior year) |
| Diluted earnings per share | $0.24 (versus $0.16) | $0.52 (versus $0.38) |
| Adjusted EBITDA and margin | $73.3 million / 54% (versus $55.5 million / 48%) | $174.0 million / 49% (versus $135.0 million / 44%) |
| Operating cash flow | Not separately reported for the quarter in the supplied text | $120.2 million (versus $133.0 million) |
| Free cash flow | Not separately reported for the quarter in the supplied text | $116.0 million (versus $127.8 million) |
Cash and cash equivalents were $123.1 million and marketable securities were $587.1 million at December 31, 2023, totaling $710.2 million. The balance sheet reports no borrowings or other conventional debt; operating lease liabilities totaled $15.1 million. Total liabilities were $136.0 million and stockholders’ equity was $864.6 million.
Changes and business drivers
- Quarterly revenue growth was primarily subscription-driven: subscription revenue increased $22.0 million. Management attributed $6.0 million to new subscription customers and $16.0 million to expansion among existing customers, including a 26% increase in average revenue per existing Marketing Solutions customer.
- For the nine months, subscription revenue increased $50.8 million: $12.5 million from new customers and $38.3 million from existing-customer expansion. Approximately 96% of quarterly revenue and 94% of nine-month revenue came from subscription customers.
- Customers with trailing 12-month subscription revenue above $100,000 increased to 289 from 282. Net revenue retention was 115%, down from 119%.
- Margins improved as revenue grew and cost of revenue fell. Quarterly cost of revenue declined 10%; nine-month cost declined 4%, with management citing lower personnel costs following restructuring and lower third-party expenses.
- Operating cash flow fell year over year, primarily reflecting a $38.6 million decrease in deferred revenue, alongside other working-capital movements. Cash paid for taxes rose to $38.4 million from $2.5 million for the nine-month period.
Outlook, risks, and unusual items
- The filing gives no specific revenue or earnings guidance. Management expects gross margin to remain relatively steady in the near term, while anticipating absolute-dollar increases in cost of revenue, research and development, sales and marketing, and general and administrative expenses.
- Management believes cash and marketable securities are sufficient for working capital and capital expenditures for at least 12 months. Future needs may depend on growth, customer cash receipts, spending, repurchases, and potential acquisitions or investments.
- An August 2023 restructuring reduced the workforce by approximately 10%; actions were substantially completed by December 31. The company recorded $7.9 million of nine-month charges: $4.3 million severance and benefits and $3.6 million accelerated stock compensation.
- Cash used for share repurchases was $263.0 million during the nine months. A new $70 million repurchase authorization began in October 2023; $62.0 million remained available at quarter-end.
- The company warned that tax rules requiring capitalization and amortization of research and development costs could reduce fiscal 2024 operating cash flow by approximately $12.2 million if not changed.
- Interest-rate exposure remains: a hypothetical 100-basis-point rate increase would have reduced the market value of cash equivalents and marketable securities by $2.9 million at December 31, 2023. Management reported no material inflation impact. No material legal loss contingencies or changes to previously disclosed risk factors were reported.
- Management stated disclosure controls were effective at the reasonable-assurance level, with no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether subscription growth and existing-customer expansion can continue, especially as net revenue retention declined to 115%.
- Whether the decrease in deferred revenue and higher tax payments continue to weigh on operating cash flow and free cash flow.
- The sustainability of reported margins and adjusted EBITDA; adjusted EBITDA is a non-GAAP measure and excludes stock compensation, restructuring, and other specified items.
- The capital-allocation impact of substantial repurchases, the remaining authorization, and the company’s cash and securities balance.
- The effects of R&D tax amortization requirements, interest-rate movements, and contingent AMiON earn-out payments on future cash and results.