Doximity, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended December 31, 2022, compared with the periods ended December 31, 2021. The quarter is fiscal Q3 2023, not calendar Q3 2022. Financial amounts below are in U.S. dollars; “$m” means millions.
Business context
Doximity operates a professional digital platform for healthcare professionals and sells subscription Marketing and Hiring Solutions, primarily to pharmaceutical companies and health systems. It also provides medical recruiting services. The company describes its network as including more than 80% of U.S. physicians.
Key financial results
| Metric | Three months ended Dec. 31, 2022 | Three months ended Dec. 31, 2021 | Nine months ended Dec. 31, 2022 | Nine months ended Dec. 31, 2021 |
|---|---|---|---|---|
| Revenue | $115.3m | $97.9m | $308.1m | $249.9m |
| Gross profit / margin | $101.7m / 88% | $86.8m / 89% | $268.3m / 87% | $221.9m / 89% |
| Operating income / margin | $38.5m / 33% | $35.8m / 37% | $92.3m / 30% | $85.6m / 34% |
| Net income / margin | $33.5m / 29% | $55.6m / 57% | $82.2m / 27% | $118.1m / 47% |
| Adjusted EBITDA / margin (non-GAAP) | $55.5m / 48% | $47.0m / 48% | $135.0m / 44% | $110.9m / 44% |
| Diluted EPS | $0.16 | $0.26 | $0.38 | $0.53 |
For the quarter, revenue increased 18%; subscription revenue accounted for about 93% of total revenue. Subscription growth reflected both new customers and expansion among existing customers. For the nine-month period, revenue increased 23%, with subscription growth driven more by existing-customer expansion than new customers.
Operating cash flow for the nine months was $133.0m, versus $79.6m a year earlier. Company-defined free cash flow was $127.8m, versus $76.0m. Cash and cash equivalents were $136.5m and marketable securities were $664.5m at December 31, 2022, totaling approximately $801.0m. Current assets were $898.5m and current liabilities were $105.9m. The filing reports no borrowings; liabilities include lease and acquisition earn-out obligations.
Material changes and notable items
- Net income fell year over year despite higher revenue and operating income. The prior-year periods included substantial income-tax benefits—$19.8m for the quarter and $32.0m for nine months—while 2022 had tax expenses of $7.5m and $14.3m, respectively. The filing attributes the change primarily to reduced tax deductions from stock-option activity.
- Gross margin declined by about one to two percentage points, and operating margin also narrowed. Management cites higher personnel and stock-based compensation costs and expenses related to the U.S. News partnership.
- Net revenue retention was 119%, down from 171% a year earlier; Doximity says this metric excludes AMiON. Customers with trailing 12-month subscription revenue above $100,000 increased to 290 from 258.
- Doximity acquired AMiON on April 1, 2022, for acquisition-date consideration of $74.6m, including $53.5m cash and contingent earn-out consideration. The acquisition added $49.0m of goodwill. The earn-out liability was $21.5m at December 31, 2022, including $5.8m classified as current.
- The company completed a $70m share repurchase program by September 30, 2022, retiring about 2.15m shares. A further $70m authorization was approved in October; no shares were repurchased under that program during the December quarter.
- Available-for-sale debt securities had $25.1m of gross unrealized losses at December 31, 2022. The company reported no credit losses or impairment, stating it did not intend, and was not more likely than not required, to sell the securities before recovery or maturity.
Outlook, risks and contingencies
The filing provides no quantified revenue or earnings guidance. Management expects existing cash, cash equivalents and marketable securities to cover working capital and capital expenditure needs for at least the next 12 months. It expects gross margin to remain relatively steady over the near term, while anticipating absolute increases in cost of revenue, research and development, sales and marketing, and public-company costs.
Key risks identified include customer renewal and spending reductions amid economic uncertainty, competition, dependence on member engagement and customer expansion, privacy and cybersecurity exposure, healthcare regulation, and the ability to manage growth and integrate acquisitions. The company says the pandemic has not materially harmed results to date, but future effects remain uncertain. It reported no known legal matters expected to have a material effect and recorded no loss contingencies. Notable commitments include $10.4m remaining on a web-hosting arrangement and a $6.6m U.S. News minimum guarantee for the remaining noncancelable period.
Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the period. Doximity expected to cease being an emerging growth company on March 31, 2023, potentially increasing compliance requirements.
Most important facts for investors to verify
- Whether subscription growth, customer expansion and the 119% net revenue retention rate stabilize or weaken further.
- How much of the year-over-year net-income decline reflects tax comparisons versus ongoing operating costs; track GAAP earnings alongside adjusted EBITDA and stock-based compensation.
- The performance and integration of AMiON, including future earn-out payments, fair-value changes and acquired-asset amortization.
- Cash and securities liquidity, investment-market-value exposure, and use of the new share-repurchase authorization.
- Whether macroeconomic conditions affect customer marketing and hiring budgets, renewals, or concentration-related exposure.