Doximity (NYSE:DOCS) held its fourth-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Access the full call at https://events.q4inc.com/attendee/481421679
Summary
Doximity reported a record $107 million in free cash flow for Q4, with revenue at $145 million, marking a 5% year-on-year increase.
The company is heavily investing in AI, with nearly half of all US doctors using their workflow tools, and significant growth in AI engagement.
Doximity has launched its AI monetization strategy, targeting pharma clients with AI search capabilities, expecting minimal revenue contribution this year but viewing it as a multi-billion dollar opportunity long-term.
The company welcomed new CFO Matt Sonnefeld and President Dr. Steve Zatz, emphasizing their strong backgrounds and fit for Doximity’s growth strategy.
Revenue guidance for fiscal 2027 is set between $664 to $676 million, anticipating 4% growth at the midpoint, with an adjusted EBITDA margin of 49%.
Full Transcript
Abby (Operator)
Ladies and gentlemen, thank you for standing by. My name is Abby and I’ll be your conference operator. Today. At this time, I would like to welcome everyone to the Doximity fourth quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press Star one again. Thank you. And I would now like to turn the conference over to Perry Gold, Vice President of Investor Relations. You may begin.
Perry Gold (Vice President of Investor Relations)
Thank you, Operator. Hello and welcome to Doximity’s fiscal 2026 fourth quarter earnings call. With me on the call today are Jeff Tangney, co founder and CEO of Doximity, and Matt Sonnefeld, our new CFO. A complete disclosure of our results can be found in our press release issued earlier today as well as in our related Form 8-K, along with a copy of our prepared remarks, all available on our website@investors.doximity.com As a reminder, Today’s call is being recorded and a replay will be available on our website as part of our comments today, we will be making forward looking statements. These statements are based on management’s current views, expectations and assumptions and are subject to various risks and uncertainties. Actual results may differ materially and we disclaim any obligation to update any forward looking statements or outlook. Please refer to the risk factors in our annual report on Form 10K, any subsequent Form 10Qs in our other reports and filings with the SEC that may be filed from time to time, including our upcoming filing on Form 10K. Our forward looking statements are based on assumptions that we believe to be reasonable as of today’s date, May 13, 2023. Of note, it is Doximity’s policy to neither reiterate nor adjust the financial guidance provided on today’s call, unless it is also done through a public disclosure such as a press release or through the filing of a Form 8K. Today we will discuss certain non GAAP metrics that we believe aid in the understanding of our financial results. A historical reconciliation to comparable GAAP metrics can be found in today’s earnings release. Finally, during the call we may offer incremental metrics to provide greater insights into the dynamics of our business. These details may be one time in nature and we may or may not provide updates on those metrics in the future. I would now like to turn the call over to our CEO and Co Founder Jeff Tangney.
Jeff Tangney (Co-Founder and CEO)
Jeff thanks Barry and thanks everyone for joining our fourth quarter earnings call. Today I’ll cover our financials, our AI investment year and a couple of key hires. First, our financials Q4 ended above the high end of our guidance with a record $107 million in free cash flow. Our first ever nine digit free cash flow quarter revenue was $145 million in Q4, up 5% year on year. For the full fiscal year ended March 31, revenue was $645 million, up 13% year on year. On the bottom line, our adjusted EBITDA margin was 45% in Q4 and 55% for the full year. Our full year free cash flow was $317 million, up 19% year on year. Okay, now to our AI strategy, what we’re calling our AI Investment Year. Let me start with the headline. Nearly half of all US doctors now work at hospitals that buy our workflow or scheduling tools and as we become more integrated into their EHRs, we’re increasingly a daily use for them. Our benchmark workflow engagement reached over 800,000 unique quarterly active prescribers in Q4, up roughly 30% year on year, a significant acceleration from the high single digit growth we saw a year ago. Nearly half of all these active prescribers used our AI tools in Q4. We saw record high engagement across our entire platform last quarter as doctors increasingly turned to us to be their AI assistant. In the nine months since we acquired Pathway, our AI search and scribe active users have tripled and last month these users averaged 31 queries each, nearly double January’s usage. In a side by side clinical search evaluation completed by 4,700 physician residents last quarter, respondents chose our AI answers over our nearest competitor by 2 to 1. They prefer our built in drug reference and peer review. Hospitals are choosing us too. As of today, 140 health systems have purchased our clinical AI suite, including seven of the top 20 hospitals. Over 250,000 prescribers now have access to our Clinical AI suite in a single hospital approved HIPAA compliant workflow. The race is on to build the best scribe and search AI for doctors. Our 380 person R&D team is all in to win this and you’ll see a slew of new physician led features and agents from us in the coming months. I’m excited to share two of them today. First we partner with Aledade to provide value based care AI agents for their network of thousands of primary care organizations. They’ll use our scribe and clinical AI suite to save time and money with them. We’re bringing AI assistance not just to big hospitals, but to small town family physicians too. Second, we’ve added E prescribing to our platform so our doctors can write a prescription in a few taps after a telehealth call or while on the go. We save the doctor time and the patient money by letting the patient choose their preferred pharmacy from their phone. Over 1000 prescribers have participated in our beta so far, with strong uptake in usage. The back end is powered by our partner Photon Health. Okay, now to AI monetization, which is an important part of today’s call. Having grown our AI search footprint so much over the last year, we’re ready to monetize against our clients large paid search budgets. We launched at our annual Pharma Client Summit in New York last week with 40 marketing leaders from the world’s largest pharma companies in attendance. Their response was enthusiastic, particularly around using our AI search surface to reach prescribers in the exact moments they’re researching options, something traditional paid search can’t do. We’ve already closed our first few AI search deals with top 20 pharma manufacturers, but these are early innings in a nascent and regulated market and our financial guidance reflects that. We’ve forecasted minimal AI revenue contribution this fiscal year while allowing for a wider range of AI investments related expenses, meaning higher R&D compute and marketing spend that will weigh on near term margins. We think that’s the right trade. Longer term, we believe AI search alone represents a multi billion dollar new TAM on top of the existing pharma marketing budgets we serve today. To put it plainly, we paid $63 million for Pathway AI last summer and now we’re spending against the opportunity it unlocked. This is our AI investment year. Finally, two management updates as we announced last month, Anna Bryson made the difficult decision to step down as CFO after being on medical leave. We all miss her and wish her the very best. Today we’re pleased to announce Matt Sonnefeldt as our new CSO. Over a 25 year career Matt has led IR finance and strategy at LinkedIn, Atlassian and most recently DocuSign. He began on the buy side at Capital Research, giving him a long term perspective across tech. Matt has advised us externally for over a year so we know him well. He’s a strong operator, a great cultural fit and he joins us in our San Francisco office full time in early June. We’re also pleased to welcome Dr. Steve Zatz as our new President. A Cornell, Yale, and Harvard trained physician, Steve spent 20 years at WebMD and Medscape with the last seven as President and CEO. We’ve admired Steve’s work from the other side of the field for years. He’s advised us over the past five months and it’s been great to have him on our side. He’s based near New York City and brings deep long standing relationships across the industry to close. We’ve long been the largest U.S. physician network and this year we’re becoming the largest physician AI platform. It’s a multi billion dollar opportunity and we have the team, the tools and the trust to win. That’s the company we’re investing to build this year. Thank you to my Doximity teammates who continue to work incredibly hard to care for those who care for us. With that, I’ll hand it over to our VP of Investor Relations, Perry Gold
Perry Gold (Vice President of Investor Relations)
Perry Thanks Jeff and thanks to everyone on the call today. Fourth quarter revenue grew to 145 million, up 5% year over year, exceeding the high end of our guidance range. Full year revenue grew to 645 million, up 13% year over year. Our existing customers continue to lead our growth. We finished the quarter with a net revenue retention rate of 109% on a trAIling 12 month basis. Our top 20 customers remAIned our fastest growing with a net revenue retention rate of 114%. We ended the quarter with 125 customers contributing at least 500,000 each in subscription based revenue on a trAIling 12 month basis. This is a roughly 6% increase from the 118 customers that we had in this cohort a year ago and these customers accounted for 83% of our total revenue. Turning to our profitability, non GAAP gross margin in the fourth quarter was 89% versus 91% in the prior year period driven by AI Compute costs. For the full fiscal year, non GAAP gross margin was 91% versus 92% last year. Adjusted EBITDA for the fourth quarter was 66 million and adjusted EBITDA margin was 45% compared to 70 million and a 50% margin in the prior year period. The primary driver for the change in EBITDA margin versus last year is our increased investment in AI Compute driven by a steep ramp in AI usage which is outgrowing overall workflow engagement. We will continue this investment into fiscal 2023 and are excited about the engagement and commercial potential ahead. For the full fiscal year, adjusted EBITDA was 358 million and adjusted EBITDA margin was 55% compared to 314 million and a 55% margin last year. We are proud to continue to run a highly profitable business with 14% year over year growth in our bottom line now turning to our balance sheet cash flow and an update on our share repurchase program. We generated free cash flow in the fourth quarter of 107 million compared to 97 million in the prior year period, an increase of 11% year over year. For the full fiscal year, we generated free cash flow of 317 million compared to 267 million last year, representing growth of 19% year on year. In addition, free cash flow was 49% of revenue for fiscal 2026. We ended the year with 749 million of cash, cash equivalents and marketable securities. During the fourth quarter, we repurchased $91 million of our shares, bringing the total value of shares bought back in fiscal 2026 to 432 million, a significant step up versus the 116 million repurchased in fiscal 2025. As of March 31, we had 493 million remAIning in our existing repurchase program. Now moving on to our outlook for the first fiscal quarter of 2027, we expect a revenue range of 151 to 152 million, representing 4% growth at the midpoint and we expect adjusted EBITDA in the range of 68.5 to 69.5 million, representing a 46% adjusted EBITDA margin. For the full fiscal year. We expect revenue in the range of 664 to 676 million, representing 4% growth at the midpoint and we expect adjusted EBITDA in the range of 323 to 335 million, representing a 49% adjusted EBITDA margin. Additionally, we expect stock based comp to increase to the low 20s as a percent of revenue in fiscal 2023 and then trend back down starting in 2028. This is primarily the result of our pathway acquisition as well as performance based grants issued in fiscal 2026 for our growing AI team. That sAId, we expect dilution from these new awards to be more than offset by our share repurchases and this year. Now I’ll provide more color on our outlook. We are witnessing a continuation of the trend discussed on our last call. With short term demand in the HCP Digital Pharma ad market soft and visibility still limited. This market environment is the result of policy uncertAInty remAIning elevated and increased macro risk. Taken together, we expect overall market growth to be modest this year, likely at or below 5%, consistent with broader industry trends. Many brands still made meaningful upfront investments, but with more modest growth and shorter planning horizons than typical. As a result, we currently have 65% of our subscription based revenue guidance booked at this point, in line with our three year average. However, with more moderate growth incorporated into our guide than prior years, we’re encouraged to see second half budget activity beginning to materialize from several brands that were initially more cautious during the upfront. That sAId, shorter term spend commitments remAIn the norm across supplemental buys at a number of other brands. Within this environment, the dynamic we’re seeing is relatively consistent. There isn’t much incremental budget avAIlable today and when dollars do free up, brand managers are typically looking for one of two things innovative new offerings or low cost engagement options. In many ways, this feels very similar to what we experienced during the early days of HCP focused programmatic advertising three years ago. We believe we are now well positioned to meet the demand for innovation with the recent launch of our commercial AI search offering, which is already generating strong early interest and allows us to tap into innovation focused budgets. We began selling the product in late April and while we do not expect meaningful contribution in the first half of the fiscal year, we do anticipate a more notable ramp as we move into our fiscal back half. We were deliberate in how we built our AI monetization to be aligned with our physician first commitment. This focused approach has consistently proven to be a long term winner. Importantly, comparing our business to three years ago, our revenue and engagement are both up more than 50%. As a result, we believe we remAIn well positioned to outgrow the market over time. Stepping Back despite the near term market pressure, our underlying fundamentals remAIn strong, engagement is at record levels, product velocity remAIns high and we continue to strengthen our AI differentiation through peer check, our integrated platform approach and our expanding health system distribution footprint. From a profitability standpoint, we remAIn committed to mAIntAIning adjusted EBITDA margins in the high 40s or better in fiscal 2023, even as we continue to invest in AI compute and peer check and increase our brand marketing spend. As Jeff mentioned, workflow active provider growth accelerated to approximately 30% year over year with AI engagement growing even faster, reinforcing that our tools are becoming increasingly embedded in everyday clinical care. We believe we are well positioned to capture a significant share of this emerging growth factor while continuing to deliver strong profitability. As always, we remAIn focused on the long term by investing to expand our platform’s clinical care capabilities and delivering strong and measurable ROI for our customers. We believe we’re still early in a multi year shift towards AI driven healthcare workflows and we’re excited about the opportunity ahead. With that, I will turn it over to the operator for questions.
OPERATOR
Thank you and we’ll now begin the question and answer session. If you’ve dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press Star one a second time. If you’re called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question and one follow up. Again, it is Star one to join the queue and our first question comes from the line of Bryan Peterson with Raymond James. Your line is open.
Bryan Peterson (Equity Analyst)
Thanks for taking the question guys. So Jeff, I wanted to start on the AI search launch and it’s great to see a large customer win. Given that you’ve seen a few innovation cycles in pharma over the years. I’m just curious how should we be thinking about the appetite for customers to invest in AI solutions? And as we’re thinking about a maybe two to three year roadmap, any sense for how big these AI products could be over that time frame?
Jeff Tangney (Co-Founder and CEO)
Thanks Brian. This is Jeff. Yes. Having just come back from New York last week where we were with 40 of these top pharmaceutical marketing executives, I was surprised honestly by the degree to which they are really all leaned in on AI. In fact a number of the top 20 pharma reported to us that they have minimum budget percentages, 10, 20% of their budgets that you know, from a top down perspective are part of their compensation plan that they should be spending on AI. So we are happy to offer them an AI product now that we’ve spent the first year post pathway acquisition here focusing on physicians first, which we always do and building …
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