Doximity, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2021, Doximity’s fiscal first quarter of fiscal 2022. The filing compares results with the three months ended June 30, 2020. Amounts below are in millions unless stated otherwise.
Business context
Doximity operates a digital platform for U.S. medical professionals, with subscription-based Marketing and Hiring Solutions as its primary revenue sources. It also provides telehealth tools and medical recruiting services. In June 2021, the company completed its initial public offering (IPO) and converted all outstanding redeemable convertible preferred stock into Class B common stock.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $72.7 | $36.4 | Up 100% |
| Gross profit / gross margin | $64.7 / 89% | $28.5 / 78% | Margin up 11 percentage points |
| Operating income / margin | $24.9 / 34% | $2.1 / 6% | Higher |
| Net income | $26.3 | $1.5 | Higher |
| Adjusted EBITDA / margin | $31.2 / 43% | $3.9 / 11% | Higher |
| Operating cash flow | $33.2 | $8.8 | Higher |
| Free cash flow | $32.4 | $7.6 | Higher |
Subscription revenue was $68.4 million; other revenue, primarily recruiting fees, was $4.3 million. Management attributed subscription growth to new customers and expansion within existing customers, including more Marketing Solutions brands and modules. Existing-customer subscription revenue increased $28.4 million and new-customer subscription revenue contributed $6.6 million.
Operating expenses rose to $39.8 million from $26.4 million. Sales and marketing increased 46%, research and development 32%, and general and administrative 132%. The latter included increased stock-based compensation, including expense triggered by the IPO-related liquidity event. The income tax line was a benefit of $1.4 million, compared with a $0.5 million provision a year earlier, primarily due to tax deductions from stock-option activity associated with the IPO.
Financial position and capital
At June 30, 2021, cash and cash equivalents were $594.3 million and marketable securities were $132.1 million, totaling $726.5 million in cash and marketable securities. Total current assets were $790.6 million and current liabilities were $100.2 million. The balance sheet reports no debt. Management said existing cash and marketable securities should fund working capital and capital expenditures for at least the next 12 months.
The IPO raised $548.5 million after underwriting discounts, commissions, and deferred offering costs, according to the filing. Financing cash flow was $552.2 million, primarily reflecting IPO proceeds and stock-option exercises, partly offset by offering-cost payments and share repurchases. Investing cash flow was negative $57.4 million, primarily because of marketable-security purchases. Deferred revenue was $82.6 million current and $0.3 million non-current.
Changes, outlook, and risks
- Revenue growth and margin expansion were substantial year over year; cost of revenue grew only 1%, while revenue doubled. Management cited scale and renegotiated third-party software pricing as factors in cost performance.
- Management expects gross margin to remain relatively steady in the near term, with quarterly fluctuations possible. It expects research and development, sales and marketing, and general and administrative expenses to increase in absolute dollars; public-company compliance costs are also expected to add expense. The filing provides no specific revenue or earnings guidance.
- Management said COVID-19 had not materially adversely affected results to date and noted that some pandemic-accelerated trends may persist. It cautioned that online marketing demand could shift back toward in-person channels, hiring activity could remain weak, and telehealth demand could decline as pandemic conditions ease.
- Key risks include customer concentration and renewal or spending changes, competition, member retention and engagement, privacy and cybersecurity, healthcare regulation, and the difficulty of sustaining growth and margins. One customer represented 11% of quarterly revenue and 19% of accounts receivable at June 30.
- The company entered an eight-year office lease in Irving, Texas, commencing around June 1, 2022, with $17.9 million of undiscounted payments. It reported no material pending legal proceedings or recorded loss contingencies.
- Class B shares carry ten votes per share versus one vote for Class A; Class B holders held approximately 96.8% of voting power at June 30. The company said it did not expect to pay dividends in the foreseeable future.
Investor verification priorities
- Confirm the sustainability of 100% revenue growth, including the contribution of existing-customer expansion, pandemic-related demand, and customer renewals.
- Assess whether 89% gross margin and 43% Adjusted EBITDA margin can be maintained as the company invests and operating expenses rise; review the non-GAAP reconciliations.
- Track customer concentration, particularly the largest customer’s revenue and receivable exposure, and changes in deferred revenue and retention metrics. Reported net revenue retention was 167%, versus 133% a year earlier.
- Review dilution and governance implications of stock-based compensation, outstanding options, potential share sales after IPO lockups, and the dual-class voting structure.
- Monitor the effect of evolving privacy, cybersecurity, and healthcare regulations, as well as the $17.9 million office lease commitment.