Doximity, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2022; comparative periods ended September 30, 2021. Figures are unaudited. Doximity operates a digital platform for healthcare professionals and earns most revenue from subscription-based Marketing and Hiring Solutions.
Financial performance
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Revenue | $102.2 million, up 29% year over year | $192.8 million, up 27% |
| Gross profit / margin | $89.0 million / 87%, versus $70.4 million / 89% | $166.5 million / 86%, versus $135.1 million / 89% |
| Operating income | $32.1 million, versus $25.0 million | $53.8 million, versus $49.8 million |
| Net income | $26.3 million, versus $36.1 million | $48.7 million, versus $62.4 million |
| Adjusted EBITDA (non-GAAP) | $46.0 million; 45% margin, versus $32.8 million; 41% | $79.5 million; 41% margin, versus $63.9 million; 42% |
| Operating cash flow / free cash flow (non-GAAP) | Not provided for the quarter | $84.3 million / $80.3 million, versus $52.3 million / $50.4 million |
Subscription revenue was approximately 93% of revenue in both the quarter and six-month period. Quarterly subscription growth included $8.2 million from new customers and $13.1 million from expansion of existing customers. Net income declined despite higher operating income, primarily reflecting the prior-year income tax benefit: 2022 tax expense was $6.7 million for the quarter and $6.8 million for six months, versus benefits of $10.7 million and $12.1 million, respectively, in 2021.
Financial position and material changes
- At September 30, 2022, cash and cash equivalents were $73.7 million and marketable securities were $676.3 million, totaling approximately $750.0 million in liquidity. The company reported no borrowings or debt in the presented balance sheet.
- Current assets were $847.9 million and current liabilities were $118.1 million. Deferred revenue totaled $89.6 million current and $0.2 million non-current.
- Operating cash flow for the six months increased to $84.3 million from $52.3 million. Investing cash outflow was $60.0 million and financing cash outflow was $63.4 million, including the share repurchase program.
- Accumulated unrealized losses on available-for-sale securities were $28.9 million at period-end; the company recorded no credit loss or impairment, stating it did not intend to sell and was more likely than not to hold the securities until recovery or maturity.
- Doximity acquired AMiON on April 1, 2022 for $74.6 million of total fair-value consideration: $53.5 million cash and $21.1 million contingent earn-out fair value. The earn-out may total up to $24.0 million, subject to a minimum guarantee and performance conditions. The acquisition added $49.0 million of goodwill.
- The company repurchased and retired 2.15 million shares for $70.0 million during the six months, completing its May 2022 authorization. On October 28, 2022, the board authorized a further repurchase program of up to $70.0 million over 12 months.
Outlook, commentary and risks
- No quantified revenue or earnings guidance is provided in this filing. Management said it expects gross margin to remain relatively steady in the near term, while quarterly margins may fluctuate; it expects absolute cost of revenue, research and development, sales and marketing, and general and administrative expenses to increase.
- Management stated existing cash and marketable securities should support working capital and capital expenditure needs for at least 12 months. It also cautioned that revenue growth is expected to decline and that historical growth may not indicate future performance.
- Customer metrics: customers with trailing 12-month subscription revenue above $100,000 rose to 291 from 235; net revenue retention fell to 128% from 173%. Both metrics exclude AMiON’s impact.
- Key disclosed risks include customer and marketing-budget concentration, subscription renewal and expansion, increased competition, macroeconomic uncertainty and possible customer spending cuts, member engagement, privacy and cybersecurity, healthcare regulation, and execution and integration risks related to acquisitions. The company also noted that COVID-19-related shifts toward digital marketing and telehealth may not persist.
- Interest-rate sensitivity: a hypothetical 100-basis-point increase would have reduced the market value of cash equivalents and marketable securities by $7.6 million at September 30, 2022. Management said inflation had not materially affected results to date, but higher costs may not be fully offset.
- The company reported no known legal matters expected to have a material effect and no material changes in internal control over financial reporting. It expects to cease being an emerging growth company on March 31, 2023.
Important facts for investors to verify
- Whether falling net revenue retention and slower expected growth are offset by continued new-customer additions and existing-customer expansion.
- How margins and GAAP earnings trend as headcount, stock-based compensation, U.S. News partnership costs, and AMiON amortization increase.
- The duration and recoverability of unrealized investment losses, and sensitivity of the securities portfolio to interest-rate movements.
- AMiON’s contribution to growth and performance against earn-out targets, as well as the integration and goodwill-impairment outlook.
- Capital allocation and share dilution, including the new repurchase authorization, future equity awards, and the dual-class structure that gives Class B shares ten votes per share.