Doximity, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended June 30, 2022, compared with the three months ended June 30, 2021. Doximity operates a digital platform for healthcare professionals and sells subscription-based Marketing and Hiring Solutions, primarily to pharmaceutical companies and health systems. Financial statements are unaudited.
Key financial results
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $90.6 million | $72.7 million | +25% |
| Gross profit / margin | $77.6 million / 86% | $64.7 million / 89% | Margin down 3 percentage points |
| Operating income / margin | $21.7 million / 24% | $24.9 million / 34% | Income down 13%; margin down 10 points |
| Net income / margin | $22.4 million / 25% | $26.3 million / 36% | Income down 15%; margin down 11 points |
| Adjusted EBITDA / margin | $33.5 million / 37% | $31.2 million / 43% | EBITDA up 8%; margin down 6 points |
| Diluted earnings per share | $0.10 | $0.09 | Up $0.01 |
| Operating cash flow | $44.8 million | $33.2 million | Up $11.6 million |
| Free cash flow | $42.6 million | $32.4 million | Up $10.3 million |
Revenue growth reflected a $15.3 million increase in subscription revenue: $7.4 million from new subscription customers and $7.9 million from existing-customer expansion. Average revenue per existing Marketing Solutions customer increased 20%. Subscription revenue was approximately 92% of total revenue.
Cost of revenue rose 64%, faster than revenue, reflecting higher personnel costs and expenses related to the U.S. News partnership. Operating expenses rose 40% overall, led by higher research and development and sales and marketing costs, including increased headcount, stock-based compensation, and limited resumption of in-person events. Stock-based compensation totaled $9.5 million, versus $5.1 million a year earlier.
Balance sheet, liquidity, and capital allocation
- Cash and cash equivalents were $110.1 million and marketable securities were $666.2 million at June 30, 2022, totaling approximately $776.3 million. Management expects available cash and securities to fund working capital and capital needs for at least 12 months.
- The filing reports no debt. Total liabilities were $148.8 million, including deferred revenue and lease liabilities.
- Operating cash flow was $44.8 million. Investing cash outflow was $41.5 million, including $53.5 million paid for AMiON, partly offset by marketable-security sales and maturities. Financing cash outflow was $6.0 million, primarily due to share repurchases.
- Available-for-sale securities had $24.0 million of unrealized losses at quarter-end, reflected in other comprehensive loss. The company reported no credit losses or impairment, stating it did not intend to sell the securities and expected to hold them until maturity or recovery of cost basis.
- A $70 million repurchase program was authorized in May 2022. The company repurchased 273,746 shares for $8.9 million during the quarter; $61.1 million remained authorized at June 30.
Material developments and outlook
- AMiON acquisition: Completed April 1, 2022, to expand Doximity’s physician cloud platform. Consideration was $74.6 million: $53.5 million cash and $21.1 million estimated contingent earn-out fair value. The earn-out can reach $24.0 million and is tied partly to operational performance over four years. The acquisition added $49.0 million of goodwill and $27.2 million of customer-relationship intangibles; its results were not material to the quarter.
- Business metrics: Customers with trailing 12-month subscription revenue above $100,000 increased to 273 from 224. Net revenue retention declined to 139% from 167%. The large-customer cohort represented approximately 87% of trailing 12-month revenue.
- Outlook: No quantified revenue or earnings guidance is provided in the supplied filing text. Management expects gross margin to remain relatively steady over the near term, with quarterly variability, and expects research and development, sales and marketing, and general and administrative expenses to rise in absolute dollars. The filing cautions that historical growth is not necessarily indicative of future performance and says the revenue growth rate is expected to decline.
- Risks and contingencies: Management cites economic uncertainty that could lead customers to reduce or delay spending, competition, customer and member retention, and uncertainty around the lasting effects of COVID-19. Data privacy, cybersecurity, healthcare regulation, and the ability to integrate acquisitions are also significant risks. No legal matters were identified as likely to have a material effect, and no loss contingencies were recorded. The company has contractual commitments, including a $10.4 million remaining web-hosting commitment and $6.6 million of minimum guarantees under its U.S. News agreement for the remaining noncancelable period.
- Governance and controls: Class B shares carry ten votes per share; Class B holders had approximately 88% of total voting power. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the lower net revenue retention rate—139% versus 167%—and any customer budget reductions affect subscription growth and renewals.
- How much of future growth, expenses, and cash flow is attributable to AMiON, and whether its earn-out performance conditions will be met.
- Whether margin pressure persists, particularly from headcount growth, stock-based compensation, and the U.S. News partnership.
- The duration and potential recovery of unrealized losses on marketable securities, and the sensitivity of their fair value to interest rates.
- Actual execution and remaining capacity under the $70 million repurchase program, alongside acquisition and other capital needs.
- Customer concentration and exposure to pharmaceutical marketing budgets, macroeconomic conditions, privacy and cybersecurity obligations, and the dual-class voting structure.