Doximity, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2021, corresponding to fiscal 2022 Q2 and first half. Comparisons are to the same periods in 2020. Amounts are in U.S. dollars; financial statement figures are in thousands unless stated otherwise.
Business context
Doximity operates a professional digital platform for physicians and other healthcare professionals. Its principal revenue comes from subscription-based Marketing Solutions and Hiring Solutions sold mainly to pharmaceutical companies and health systems; it also earns recruiting-services revenue. The company reported more than 80% of U.S. physicians as members. It completed its IPO in June 2021, raising approximately $548.5 million net of underwriting discounts and deferred offering costs.
Financial performance
| Metric | Three months ended Sept. 30, 2021 | Three months ended Sept. 30, 2020 | Six months ended Sept. 30, 2021 | Six months ended Sept. 30, 2020 |
|---|---|---|---|---|
| Revenue | $79.4 million | $45.1 million | $152.0 million | $81.5 million |
| Gross margin | 89% | 83% | 89% | 81% |
| Operating income | $25.0 million | $10.4 million | $49.8 million | $12.5 million |
| Net income | $36.1 million | $10.0 million | $62.4 million | $11.5 million |
| Adjusted EBITDA (non-GAAP) | $32.8 million | $12.6 million | $63.9 million | $16.5 million |
| Operating cash flow | — | $52.3 million | $21.5 million | |
| Free cash flow (non-GAAP) | — | $50.4 million | $18.8 million |
- Quarterly revenue grew 76% year over year; first-half revenue grew 87%. Subscription revenue was approximately 93% of quarterly revenue and 94% of first-half revenue.
- Management attributed subscription growth mainly to expansion within existing customers, including more brands, service lines, and modules, as well as new customers. Net revenue retention was 173%, up from 139%; customers with trailing 12-month subscription revenue above $100,000 increased to 235 from 154.
- Operating expenses increased, but more slowly than revenue. For the quarter, R&D rose 57%, sales and marketing 50%, and general and administrative 175% year over year. Higher personnel and stock-based compensation, sales commissions, deferred commission amortization, and public-company costs were key drivers.
- Net income included a $10.7 million income tax benefit for the quarter and a $12.1 million benefit for the six months, primarily from tax deductions related to stock-option activity following the IPO. This materially boosted reported net income and margins.
Financial position and liquidity
- At September 30, 2021, cash and cash equivalents were $79.5 million and marketable securities were $663.1 million, or $742.7 million combined. Total current assets were $829.6 million and current liabilities were $95.6 million.
- Total liabilities were $96.7 million, principally deferred revenue and operating lease liabilities. The filing does not report borrowings or outstanding debt.
- First-half operating cash flow was $52.3 million; free cash flow, as defined by the company, was $50.4 million after property and equipment purchases and capitalized software costs. Investing cash outflow of $591.4 million primarily reflected purchases of marketable securities, partly offset by sales and maturities; financing cash inflow of $552.2 million mainly reflected the IPO.
- The company said existing cash, cash equivalents, and marketable securities should fund working capital and capital expenditures for at least the next 12 months.
Material changes, outlook and risks
- Following the IPO, all redeemable convertible preferred shares converted into Class B common stock. The company has a dual-class structure: Class B shares carry ten votes per share versus one vote for Class A. Class B holders held approximately 96.2% of voting power at September 30, 2021.
- Management provided no specific numerical revenue or earnings guidance in this filing. It expects absolute spending on R&D, sales and marketing, and general and administrative functions to increase; it expects gross margin to remain relatively steady near term, with quarterly fluctuations possible. It cautioned that historical growth may not continue and revenue growth may decline.
- Management said COVID-19 had not materially adversely affected results to date, but warned that pandemic-driven shifts toward digital marketing and telehealth could reverse as conditions change. Hiring Solutions could also be affected by weaker physician hiring or travel demand.
- Key risks include customer retention and concentration, competition, member engagement, privacy and cybersecurity, healthcare regulation, rapid growth and hiring, and reliance on third-party technology and platforms. One customer represented 10% of first-half revenue; a customer represented 25% of accounts receivable at September 30.
- After quarter-end, Doximity amended and extended its U.S. News partnership for six years, with either party able to terminate after three years. The initial noncancelable three-year period includes $9.1 million of minimum guarantees. A related warrant was reduced from 1.2 million to 516,000 Class A shares; the company estimated its fair value at approximately $35 million, to be expensed over its vesting term.
- The company entered an eight-year Irving, Texas office lease beginning around June 2022, with $17.9 million in undiscounted payments. It reported no material pending legal proceedings or recorded loss contingencies.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring operations versus the IPO-related tax benefit, and how stock-based compensation affects future expenses and dilution.
- Whether subscription growth, the 173% net revenue retention rate, and customer expansion remain sustainable, including the effects of customer concentration and renewals.
- The eventual operating and expense impact of the U.S. News agreement, warrant compensation, new office lease, and public-company costs.
- Whether COVID-19-related digital marketing and telehealth demand persists, and how competition, privacy obligations, and healthcare regulation affect growth and margins.
- The scale and voting implications of the dual-class share structure and changes in share counts after the IPO and subsequent equity awards.