This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk11: Hello and welcome to Doximity's Fiscal Q2 2023 Earnings Call. I will now pass the call over to Doximity's Head of Investor Relations, Perry Gold, to kick off the call.
spk12: Thank you, Operator.
spk02: Hello and welcome to Doximity's Fiscal 2023 Second Quarter Earnings Call. With me on the call today are Jeff Tangney, Co-Founder and CEO of Doximity, Dr. Nate Gross, Co-Founder and CSO, and Anna Bryson, CFO. A complete disclosure of our results can be found in our press release issued earlier today, as well as in our related form 8K, all of which are available on our website at 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 make 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 10-K, any subsequent Form 10-Qs, and our other reports and filings with the SEC that may be filed from time to time, including our upcoming filing on Form 10-Q for the quarter. Our forward-looking statements are based on assumptions that we believe to be reasonable as of today's date, November 10, 2022. Of note, it is Doximity's policy to neither reiterate nor adjust the financial guidance provided in today's call unless it is also done through a public disclosure such as a press release or through the filing of a Form 8-K. Today, we'll discuss certain non-GET metrics that we believe aid in the understanding of our financial results. A historical reconciliation to comparable GET 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?
spk14: Thanks, Barry, and thank you, everyone, for joining our second quarter fiscal 2023 earnings call. We have three main topics today, our Q2 results, network growth, and post-pandemic digital outlook. It's a lot to cover, so I'll jump right in. Q2 was a beat-and-reiterate quarter for us. On the top line, we were proud to join the nine figure quarterly revenue club with $102.2 million in revenue. This was a 2% beat versus the high end of our guidance and a reacceleration in our growth to 29% year on year. Our net revenue retention rate or NRR was 128% overall and 136% among our top 20 clients. In other words, Our largest clients are also our fastest growing, which means we believe we still have much headroom to grow. More on this market sizing in a minute. Turning to our bottom line, we delivered an adjusted EBITDA margin of 45% last quarter, or $46 million, which was 12% above the high end of our guidance. We completed our $70 million share buyback in Q2. Over the last six months, this buyback has reduced our shares outstanding by about 1%. Given the $80 million in free cash flow we generated in the first half of this year and our $750 million cash balance, our board has authorized an additional $70 million one-year share buyback program. As before, it won't touch our IPO war chest or affect our strategic investments. Looking ahead to the second half of our fiscal year, we're reiterating our annual guidance of 25% top-line growth with 43% EBITDA margins. At the midpoint of our quarterly guidance, This implies a 9% and 11% revenue growth quarter-on-quarter for the next two quarters. Okay, turning now to our network growth, our usage hit fresh highs in Q2. Our fax and e-signature products saw record use with millions of HIPAA-secure messages. Our physician scheduling tools saw a 57% year-on-year rise in unique Doximity logged-in users as we rebuild our Amion acquisition into our core product. And our telehealth tools were used by a record 370,000 unique physicians, NPs, and PAs last quarter, making over 200,000 calls per workday. All in, our mobile office suite is helping more doctors than ever stay connected on the go. On the EHR partnership front, we are now a validated member of the Oracle Cerner Code Developer Program. So along with Epic, we can now connect with 85% of large hospital EHRs per class research. And we remain the best in class across our hundreds of dialer enterprise clients as we've had 100% renewal rate so far this year. This pair is repeating. We've had zero churn in our enterprise telehealth clients so far this year. For those not using Epic or Cerner, we've added a new scan number feature where the doctor can simply point their phone's camera at the EHR screen. Our AI then scans for the patient's phone number and calls it. It's nearly instantaneous and really a nifty feature. Since any doctor on any EHR can use it, we joke that it's our universal EHR integration, and it gets used thousands of times each workday. It's time-saving, delighter features like scan number that have earned us a perfect five-star review on 88% of our 140,000 app store reviews. And keep in mind that doctors are tough creators. Most physician workflow apps get two to three stars on average. We don't cede or pay for any of these reviews. but we do spend a lot of time listening to our docs. Our design mantra here is physicians first. To that end, we're excited to convene our 11th annual Docs Tech Summit in San Francisco in a few months. It'll be 200 of our nation's top digital docs rolling up their sleeves with our engineers to design software to make healthcare better. We can't wait to build the next phase of the clinical cloud. Okay, I'd like to take a few minutes now to discuss the post-pandemic shift to digital marketing. and how this affects our long-term growth rates. As a reminder, our clients include all of the top 20 hospitals and all of the top 20 pharmaceutical companies, a distinction we believe no other digital health company shares. Hospitals have surprisingly been our fastest-growing clients this year. They've accelerated their shift to digital out of necessity. Costman Hall predicts that half of U.S. hospitals will lose money this year, and there's a painful and growing divide between the digital haves and the digital have-nots. We're proud to serve the digitally savvy, and they like our ability to track referrals and show hard ROI. Our median all-time hospital ROI is now 17 to 1, up from the 13 to 1 we cited in our S1. And we just signed a $4 million hospital renewal, our largest ever, and we're not done yet. That said, pharma is the larger market and a very different story. Financially, pharma is doing quite well. Despite the macro headwinds, their sales are up 12% year-to-date. among the S&P 500 pharma, and pharma stocks are only down 9% year-to-date per iShares U.S. pharma ETF. As for pharma digital marketing, a few analysts have predicted a flat year as pharma returns to its pre-pandemic ways. We believe this is overblown. While we hit an air pocket early this year, we've since seen a steady rebound in the market as pharma migrates traditional dollars to digital. A number of credible sources agree with us here. For starters, this August, eMarketer estimated that digital B2B healthcare marketing, our core market, grew 46% in 2020, 30% in 2021, and will grow 17% in 2022. We think this sounds about right. Pharma is known to be recession-resistant, and the latest Standard Media Index report supports this. Their September ad tracker shows that Pharma improbably led all other industries in ad dollar growth. Looking ahead to next year, a Digital Health Coalition study in September of 70 pharma execs found that 74% will be more reliant on digital in 2023, while only 6% said they'd be less reliant. This said, it's not really about digital dogma. It's about ROI. Especially in leaner times, pharma is incredibly measured and disciplined about ROI. Generally, they strive for a three-to-one return on their marketing dollar, and they will continue to invest to that level. Some digital solutions will cut the mustard, and some won't, which leads me to perhaps the best stat of this call. For the third-party studies completed over the last six months, our median pharma ROI has improved to over 15 to 1. That's well above the 10 to 1 we cited last year in our S1. This is for a host of good reasons, including our increased reach and personalization. Our all-time pharma median ROI now stands at 11 to 1. and our logged-in, identity-verified, double-difference methodology remains the industry gold standard for ROI measurement. An 11 to 1 ROI implies that all else equal, if we theoretically did nothing but raise prices, then we would have seven years of 20-plus percent growth ahead of us before our ROI falls to 3 to 1. That's the baseline aperture through which we view our longer-term growth rate, as we've obviously many, many other vectors to grow beyond price. In sum, we are fulfilling our long-term mission of being the digital platform for doctors. During the pandemic, we pulled away from our competition in terms of physician usage and utility. Our mobile medical office suite was always differentiated, but many pre-COVID practices simply didn't use it. Telehealth wasn't reimbursed, and there was little reason to try. Then the lockdowns hit, and doctors scrambled to learn to use our fax, e-signature, and telehealth tools. And so much like the QR code has become a permanent part of our culture, our tools have become a permanent part of medicine. The practice of medicine is mobile now, and we're honored to power it. And with the launch of our point of care and peer-to-peer products, we are just now beginning to realize the benefits of that growth. Our clients are resilient and profitable, and we continue to benefit from multi-year tailwinds in our industry's nascent and overdue shift to digital. Our ROI-driven pricing model aligns us with our clients, making us their digital HCP partner. And as our physician platform continues to set usage records, we're excited by a generational opportunity to create a win-win digital platform to connect physicians across the greater healthcare ecosystem. Okay, I'd like to end by thanking my 953 and growing Doximity teammates who continue to work incredibly hard to realize our mission. The best journeys are rarely a straight line, and I'm proud to be on this one with you.
spk02: And with that, I'll hand the call over to our CFO, Anna Bryson, to discuss our financial performance and guidance. Anna?
spk08: Thanks, Jeff, and thanks to everyone on the call today. I'll begin with our Q2 financial results and then move on to our outlook. Second quarter revenue grew 29% year-over-year to $102.2 million, exceeding the high end of our guidance range. Similar to prior quarters, our existing customers continued to lead our growth. Our net revenue retention rate was 128% in Q2 on a trailing 12-month basis. Additionally, our largest customers are still growing the fastest with a 136% net revenue retention rate for our top 20. We ended the quarter with 291 customers contributing at least $100,000 each in subscription-based revenue on a trailing 12-month basis. This is a 24% increase from the 235 customers we had in this cohort a year ago. This cohort of customers accounted for 87% of our total revenue. Turning to our profitability, non-GAAP gross margin in the second quarter was 90%, flat versus the prior year period. Adjusted EBITDA for the second quarter was $46 million, and adjusted EBITDA margin was 45%. compared to $32.8 million and a 41% margin in the prior year period. While we continue to strategically invest in R&D and sales and marketing, with these non-GAAP costs growing 19% and 26% year-over-year respectively, we are encouraged by our ability to generate efficiencies in G&A, shrinking costs here by roughly 1% year-over-year. Now, turning to our balance sheet and cash flow. We ended the quarter with $750 million of cash, cash equivalents, and marketable securities. We generated free cash flow in the second quarter of $37.7 million compared to $18.1 million in the prior year period, an increase of 109% year over year as we continue to run a very profitable, high-cash generating business. Now moving on to our outlook. For the third fiscal quarter of 2023, We expect revenue in the range of $110.7 to $111.7 million, representing 14% growth at the midpoint. And we expect adjusted EBITDA in the range of $47.7 to $48.7 million, representing a 43% adjusted EBITDA margin. For the full fiscal year, we are reiterating our revenue guidance of $424 to $432 million, representing 25% growth at the midpoint. In addition, we are reiterating our adjusted EBITDA guidance of $178 to $186 million, representing a 43% adjusted EBITDA margin. As you consider our Q3 revenue growth guidance, please recall two factors we've discussed previously. First, we saw material revenue outperformance in Q3 of last fiscal year, as many of our clients were instituting layoffs adjusting their go-to-market strategies, and quickly reallocating their dollars to digital. As mentioned on prior calls, we did not expect a budget reallocation of this magnitude to repeat. The second factor impacting our Q3 growth rate is the cumulative effect of the mid-year upsell slowdown that we discussed last quarter. That said, demand has returned in recent months, and we are encouraged by the traction we're seeing in the midst of our clients' annual buying cycle. We see digital budgets among our clients growing, and it's clear to us that they view their high ROI generating marketing programs on Doximity as core to their overall marketing strategy. As Jeff mentioned, our all-time pharma median ROI has increased to 11 to 1 across 29 therapeutic areas, and our all-time health systems median ROI now stands at 17 to 1, These studies show that our clients continue to drive higher returns and greater value through our platform. We are also excited by the opportunity to provide even further value and unlock additional budget categories with our new point of care module set to launch on January 1st. As it pertains to getting these annual programs live, this year we have focused heavily for the first time on content planning in tandem with deal negotiations. Our deep relationships with existing brands, combined with our large library of approved content, allows for this optimization to occur. As a result, we expect smoother revenue recognition for Doximity and more January start dates. The strength of our pipeline and this operational gain is reflected in our implied Q4 guidance range. I'd like to close by reemphasizing the long-term growth potential that we believe we have at Doximity. We are in the early innings of a large and growing market opportunity aided by a secular shift to digital. As of today, we still remain less than 5% penetrated into our clients' U.S. medical professional marketing budgets, and we believe we are uniquely advantaged to gain market share as these budgets continue to shift to digital over the next decade. With our leading network and high ROI, we have a significant opportunity to not only grow within our existing budgets, but also unlock new budgets over time. With that, I will turn it over to the operator for questions.
spk11: I will now open the line for questions. We have 30 minutes for Q&A. Our first question comes from the line of Ryan Daniels with William Blair.
spk05: Yeah, guys, thanks so much for the question. Congrats on the strong results. Jeff, hoping you could go a little bit more detail into the value you're creating in the provider market. I think a lot of investors still think of you as a pharma-only company, although obviously very strong solutions for the acute care and broader provider market. So can you talk a little bit more about what you're offering there and why you've seen such great traction of late? Thanks.
spk14: Thanks, Ryan. Yeah, this is Jeff. Good question. Yeah, so I'm proud, as we mentioned in the prepared remarks, that we have renewed 100%, every single one of our hundreds of dialer enterprise clients so far this year, which is obviously creating a lot of value in the end provider market, saving doctors a lot of time and making the money, right, as they now can do their visits on the go from everywhere, become their mobile office. I'd also share that, you know, hospitals, as we mentioned in the prepared remarks, have been our fastest growing clients so far this year. And the growth rate there has been tremendous. And again, we find that a bit surprising given the overall financial hardships that the hospital industry is currently facing. But what's interesting is, you know, adversity breeds innovation, right? In an efficiency-focused environment, I think the shift to higher ROI becomes more important. And so in a weird way, I think some of the adversity has helped clients move more quickly onto our platform. And again, as far as end user value goes, again, I would encourage folks to go read our app store reviews. We don't cede or pay for any of them. I mean, you can see that they've never been higher so far this year. Our average five-star rate has been 89%, which is as high as it's ever been. And again, to get doctors who usually are pretty tough on the software they use, have 89% of them saying that we're a five-star app for them is something we're just incredibly proud of. So I hope that answers your question.
spk05: Yeah, that was great, and maybe one quick follow-up. Obviously, some big biosimilars coming to market next year. I'm hoping you could speak to your opportunity there, especially as you've launched the telehealth solution into the pharmacist market, and there's some interchangeable biosimilars where they may be able to be influenced as well. So curious what your thoughts are there. Thanks so much.
spk14: Yeah, so are you talking about the GLP-1 specifically or just more broadly?
spk05: Well, Humira in particular, but more broadly, just your opportunity with biosimilars.
spk14: Yeah. So I'll say a few things. Yes. I mean, right now, innovation in the pharmaceutical industry has just never been so good. The pipeline going in the FDA is just very strong. And I have to say, as an American, I'm very proud of the fact that here we are three years in and Other parts of the world, China, have not been able to produce an mRNA vaccine on their own yet. Again, I think it's just a strong sign of what kind of technological innovation we have. We do have some very big drug launches and some new products hitting the market this next year. Pharmacists will be a growing piece of that. I can share that pharmacists as a percent growth within our client base has been one of the strongest of both the digital marketing on the dollar side and on the user growth side. So we've focused more on that. I don't think we have any numbers exactly to share on that front yet, but we do very well there among pharmacists. Secondly, I'd share that within telehealth, our strongest specialty is endocrinology, which of course is right at the center of diabetes care, which is where a lot of this innovation is happening. So that's just a great thing for us. We've had over 30% of all U.S. endocrinologists do a telehealth visit with us just in the last quarter, again, which is an excellent footprint through which to provide better care to patients and to help these patients with their coupon copay programs and other things. So we're really excited about some of this innovation, and as it relates particularly to the diabetes space, I think we are just in a very strong position.
spk12: Great. Thank you so much. Next question comes from the line of Ryan Peterson with Raymond James.
spk11: Mr. Peterson, your line is open.
spk13: Sorry guys, a little bamboozled by the mute button there. But hey, so I wanted to follow up on some of the comments you made on budgets for next year. I appreciate the color that flat is probably too draconian, but if we think about maybe a tough macro and look at prior cycles, is there any way to think about a range of outcomes there in terms of just the overall budgets and maybe any other qualitative factors that we should be paying attention to as we think about what budgets could look like in calendar year 23? Great.
spk14: This is Jeff. I'll take that one, Brian. Thanks. Yeah, good question. So, listen, to boil it down, we expect that our market, digital healthcare, professional marketing in healthcare, will grow in the teens next year. But keep in mind, as you look back over the past few years, we've grown significantly faster than the market has grown. If you recall the eMarketer forecast we presented, they said the market grew 46% and 30% in 2021, and we grew 65% and 79%. in those same two years. So significantly faster than the market. And frankly, we think the market has tried a lot of things during the pandemic that didn't work, you know, a lot during the early phases where companies were just doing anything they could to throw up a website that, you know, in the end didn't work that well or garner that much traffic or attention. So again, we think they'll shift those dollars over to our proven ROI and our platform.
spk13: Thanks, Jeff. Maybe as a follow-up, I know you mentioned the point-of-care module. As we think about new modules coming onto the platform, is there any way to think about the revenue ramp of that, any color you can give there? Thanks, guys.
spk14: I don't think it'll be a significant percent of our revenue ramp in the next quarter or two. I think with any new product, it takes a little while for things to get going. That said, longer term, we're very excited about our point-of-care product. Now, keep in mind, Our doctors each month wait a year, we say, about 500,000 minutes that they spend waiting inside our workflow apps. And that's just because some things take a little bit of time. So it takes a minute or two to get a fax receipt confirmation from Aetna. Or it takes a minute and a half or so for a patient to click on that consent form before they start a call. And so earlier this year, we started offering these while you wait widgets that were really a hit among doctors, kind of helping them stay up to date on the latest journal headlines, which is what a lot of them chose to see, or calming videos or their stocks. So these widgets allow doctors to personalize, and most of them have. What they could see on the side of the screen is they're waiting for that one minute for the fax reply or the patient consent. So our point of care offering, I think, is a great opportunity here for our sponsors. We're not going to have more than one in 10 of those 500,000 minutes be sponsored. But I can tell you that the industry reaction so far to it has been really positive because it's truly in between seeing patients with doctors, which I can tell you clients are just very enthusiastic to have that moment. I'm not certain there is a comparable moment in the real halls of medicine that doctors have a quiet moment by themselves waiting between patient visits. So we think the ROI potential here is pretty strong and can't wait to see that get launched.
spk12: Great to hear. Thanks, Jeff. Yep.
spk11: Question comes from the line of Scott Burke with Natum.
spk10: Hey, thank you. This is Matt Shea on for Scott Burke. Appreciate you guys taking the question and congrats on a solid quarter. Wanted to touch on renewals. Appreciate the commentary on the hospital renewal. That sounded like a great win there. But our understanding is Q3 is a big renewal quarter for you guys. You know, keeping in mind it's still early, wondering what you guys are seeing so far in terms of renewal trends, and are you still seeing this as a fruitful time to drive upsells and cross-sells, even kind of given what's going on with budgets?
spk08: Sure, I'll take that one. Thanks for the question. The short answer is our implied Q4 guidance, I think, gives you a really good idea of the strength of our current discussions that we're having right now with our customers around renewals. You know, as Jeff mentioned, we've had some nice early wins, right? Such as our largest ever deal in health system history. And we're seeing our pharma customers leaning heavily, not only to our core modules, but also they're excited about our new offerings. And I think one of the good things about this year is that we've begun having discussions with our clients earlier than ever. And what that's resulted in for us is a pipeline with bigger dollar deals than we've seen before. So as far as it comes to our opportunity to cross sell and upsell in this renewal cycle, we feel incredibly optimistic and positive on what we're going to see there. And then the final point I'll make on this is I think we're also excited about the operational efficiencies that we're working on with our clients. around this content planning in tandem with deal negotiations, which we are actually finding that that's aiding our annual planning because we're able to have more strategic discussions with our clients. And our clients are incredibly receptive to this because they want to be on channel in January. So all signs here point to a very strong renewal cycle for us.
spk10: Got it. That's super helpful. And then maybe as a follow-up, I know at the beginning of the year, you guys called out mid-tier pharma as a focus. You also had some kind of newer initiatives such as leaning into the med tech and market. I'm curious what kind of traction you guys are seeing in both mid tier pharma and the med tech and market and just kind of what if you're still seeing like a higher digital mix with some of say those mid tier pharma companies. Thanks.
spk14: Thanks, Matt. Yeah, this is Jeff. I'll answer that. In short, our medical device and mid-tier initiatives go really well. They're smaller companies, obviously, but growing fast. I'll keep coming back to the case study we shared, I think, two calls ago with Biohaven. Looking back, Biohaven was actually our number 11 client over the three years prior to their big drug launch, NERTEC, 2019 to 2021. Which of course means that as this tiny pre-revenue company, they were spending more with us than top 20 pharma because they were our number 11 overall client. And so they really bet big on us and won. And I think they say the future is here today. It's just not evenly distributed. I think some of the things their CEO, Vlad, who is a doctor and really gets it in his digital first launch, that playbook is something that just the rest of the industry is learning from as we continue to work with Vlad and team, but also continue to see that mid-tier is really the best place for innovation for us. So anyway, I hope that answers your question. I will say in terms of overall dollar spend when you cut the TAM data, the reality is that these small companies get acquired by the bigger ones. So the bigger ones tend to be most of the market. But again, in terms of innovation and growth rates, we're really excited about how we've done with medical devices and with mid-tier.
spk12: Awesome. Thanks. Congrats again.
spk11: Your next question comes from the line of Richard Close with the Canaccord Genuity.
spk09: Great. Thanks for the questions and congratulations. Good to hear on the renewal process and larger deals. I'm curious, Jeff and Anna, if you can sort of provide details. Do you guys have discussions with your clients in terms of as you're going into the next year and talking about their budgets, getting a feel from them, you know, what kind of like maybe inner year, you know, potential upsells or, you know, that they're thinking about spot buys and stuff like that. The stuff that essentially you took out of the guidance this year, is there a way to have those discussions earlier and get higher visibility?
spk14: Hey, Richard. This is Jeff. I'll take the first part. I'll let Anna reply on the upsells here in a moment. I will say it's this whole annual dance with us, with our largest clients. We grew 31% this past year over year, and our NRR is 128%. So obviously, most of our growth comes from existing clients. And so these renewal discussions are important for us. And usually, they typically started in September. So this year, they started in June as clients were coming to us and bringing us into their strategy reviews. And that's where we do decide, essentially, on the modules and the reach and the budgets. And so then they roll out purchase orders. We start doing content approvals, which is really, I'd say, the major changes here. We were doing it sporadically before, but now we are, as a company, we are doing the presumptive close or the assumptive close. We are assuming that we will work with you again next year because we've worked with you the last three years, as opposed to trying to use that as a lever around contracting. I think it's just better, I think, for us to make the small investment in our physician writer's time to start working on next year's content even before we have everything inked and dry. But we do the purchase orders from these folks. We're getting the content approvals now. And again, it goes very well. We're having our best, largest dollar renewal season ever here as we go through. But as Anna mentioned, this is the kind of thing that I think we've really become the digital healthcare partner, digital HCP partner of our clients. And again, it's just a presumed roll forward process. So with that, let me turn to Anna on the upsells specifically.
spk08: Yeah, sure. I'm happy to put some more numbers behind your question here, Richard. So as far as how we think about a given fiscal year, the majority of the year, so like roughly 80% or so of our year comes from this core annual renewal cycle that we have just before the fiscal year starts. And about three quarters of the way through that next fiscal year. And so we're consistently seeing really strong growth there. So that 80% piece is an area where there's very little risk. And if anything, there's typically some upside. As far as that mid-year upsell piece and year-end upsell piece that you were referencing, in a typical year, that really just represents north of 10% of our revenue. So it's really not a significant portion of our revenue. Now, last year, we came in above historical norms there as that shift to digital reached a tipping point. This year, we're coming in a little below historical norms as our clients did some precautionary belt tightening early this summer. But I just want to reemphasize that the majority of our year in a given fiscal year is coming from these core renewals.
spk09: That's great. And Jeff, you talked, you threw the hypothetical out there on price increases and still provide a great ROI. I'm curious if you could talk a little bit about price increases, you know, what you've experienced historically and maybe now during the renewal season.
spk14: Thanks, Richard. Yeah, last quarter we put out there that we had grown 11% in one measure of our pricing year on year. Boy, I learned that I shouldn't really do that because it leads to lots of client questions and other things. So we don't disclose the way we calculate and put together our pricing on this. I'll just say that, again, this first half of the year, having a greater than 15 to 1 return on investment That's really how we align ourselves with our clients' interests and how we lean into making sure that it's not a noisy platform for doctors. So I would say that the way, the lens through which we view pricing is all ROI based. And the good news is even with whatever price increases and revenue growth we've had, our ROIs have never been higher.
spk12: That's great. Thanks.
spk11: Our next question comes from the line of Sandy Draper with Guggenheim.
spk04: Thanks very much. And also congrats on a good quarter. Probably two questions for you, Anna. I guess the first is, when I look at the EBITDA outperformance, I can obviously see strong gross margins, strong costs. Was there, relative to what you guided to or expecting, was there, was it something changed in the gross profit equation faster than you thought? You just didn't have to spend as much, just trying to get a sense for where the delta was relative to where you thought it was going to come in?
spk08: Sure. Thanks, Dan. It's a great question. So naturally, first and foremost, I'll just say part of the EBITDA beat is the revenue beats flow through. But as far as how we're thinking about our OpEx and where we were able to see some efficiencies, G&A spend came in a little bit lower than expected. As I called out in my prepared remarks, we saw expenses actually decrease for G&A 1% year over year. So we've been able to really find efficiencies in an environment like this, which I think we're really proud of. We're focusing a ton on automation there. And that would really be the lever where we saw quite a big beat from an EBITDA perspective. And then the other thing I'll note, our vertical sales model also continues to be highly efficient, and we expect that to continue to be the case going forward.
spk04: Okay, great. That's really helpful. Thanks. And then the follow-up, you alluded to sort of the implied fourth quarter guide. And if I just sort of take a midpoint and a third and sort of you've got a swing of, say, 120 to 128, is that really just what you negotiate in terms of new deals, what the timing of those deals size? And just trying to think about what gets you to low end, the high end, and then I didn't quite And these are doing offline. The comments here, there's sort of a new process you're going through in terms of doing this. Maybe that is the conservative end of that is that it doesn't go as well as you think. The upper end is this new process really changes the velocity of sales closings.
spk08: Sure. I'll say two things on that one. So first with reference to the wide range, as you know, and as we've mentioned, we're in the midst of our annual buying season and wall demand has returned and we're having very positive conversations with our clients. we're still cognizant of the current macro environment. So we're being prudent as we think about the range of outcomes here. As far as what could move the needle, to your point, when it comes to these efficiencies that we're talking about from an operational efficiency perspective, since you just said you didn't fully get it, let me make sure I take a step back and just kind of explain what we're doing there, because I know I only hit on it briefly in the prepared remarks. But the way it works is the vast majority of our sales in Q3 will be with brands we've already worked with before. And what we're trying to do here is we're trying to optimize our assembly line by having these content strategy discussions and approvals occur in tandem with these deal negotiations in Q3. Historically, the way it used to work is we would wait until the deal was signed to kick off these discussions. which meant that many annual programs for us might not launch until February or March. And this is where we're looking to improve. Our customers want to be on channel for the full year. And so they're very receptive to this new strategy. And they're working closely with us to ensure that we can actually launch in January. And so this in turn creates a smoother revenue recognition for Doximity and could result in some upside there.
spk12: Okay, got it. That's really clear now. Appreciate that. Thanks, Anna.
spk11: Question comes from the line of Cindy Motes with the Goldman Sachs.
spk01: Oh, great. Thanks for taking my question, and also congrats on a very good quarter. I actually have two questions, but I just want to follow up quickly on what you just said about the smoothing, because your G&A was really good. So why is it going to pop up maybe again, or some of the expenses in the December quarter? I guess I understand... you know, the smoothing and everything like you're talking about. But I guess if I had to look at it here, I just want to understand, because your cost control was pretty good. So where do you expect it maybe to go up? Because your guidance would indicate that the actually adjusted EBITDA margin that you expect to see now, the December quarter is a little lower. And then we're going to see, you know, And I guess last year, I mean, that wasn't the case, you know, and so I understand part of it is this smoothing, but I'm trying to understand if you think maybe certain costs are going to come up in the December quarter. And then I just have a big picture follow up. Thanks. Sure.
spk08: The short answer there is that's an output of our revenue growth combined with two key factors. So December is our largest sales quarters we were just talking about. And then that's also naturally our largest commissions quarter. So commissions do spike for us in Q3. So that is one of the big reasons. The other thing is that we didn't see last year, we didn't see the year before while we were in the midst of the pandemic, is we are seeing a return to some year-end in-person activities. So as our sales reps are having these conversations with clients, in many cases, they're having them live. They're out there meeting clients, taking them to dinner, traveling, and we're actually finding that that in-person is, we've been quite a bit of benefits for us because of that connection. But that naturally also will increase costs a little bit there in our Q3. But I do want to make sure I emphasize, Cindy, that 43% adjusted EBITDA margin is still amongst one of our highest adjusted EBITDA margin quarters to date. So I think we're really happy with where that is.
spk01: Okay, great. And then just as a follow-up, I guess on the revenue line, I mean, you guys are saying, you know, demand is returned. Do you feel like in general you're taking share here or is it kind of like the digital tide is, you know, rising most boats and then, you know, longer term as you look at this, you know, I mean, do you, I guess one of the questions we get a lot is just, do you see the revenue growth, you know, still staying up at these levels, you know, like in the range of 25%. I know you said with pricing alone, it could be like 20% for multiple years, but Do you still see that? And then also with the EBITDA, would you think that, you know, it would continue in the 40s? Thanks.
spk14: Hey, Cindy, Jeff here. I'll take the first part. Yeah, as we mentioned, we think the market will continue to grow in the teens and will grow significantly faster in the market as we have these past couple of years, right? The market grew, you know, 40 and 30 percent. We grew, you know, 70 and 60 percent. So obviously we're taking share from others, candidly, as we should, because a lot of the digital initiatives that were brand new and tried during COVID-19 It didn't work that well as our high ROI platform. Anna?
spk08: Yeah, from a perspective of brevity growth, EBITDA, I think what we've said before is that we aim to be a rule of 60 company on a long-term basis through a combination of that growth and profitability. And we are certainly so confident that this is achievable as we look ahead in the next three to five years. I'll hit on a couple reasons why. So first and foremost, as it pertains to our top line, you know, our network, our engagement, our ROI, and our relationships with our customers continue to grow. And we have the significant room for growth amongst our existing customers as we continue to sign up new brands, upsell additional modules. You know, it's still the case that when we look at that $100 billion brand universe, we only work with just over half of those brands, and that universe is growing. And then we also have room for growth into new budget categories. And we're innovating on our module, just like we're demonstrating with that point of care module. And I think what's unique about our ability to innovate there is it's also very high incremental margin innovation. So our vertical sales model allows us to create a new module, and then utilize our existing Salesforce and our existing CF team to go sell that module. So we're able to get really high incremental margins from that. So those points combined are why I think we're very confident that we can be a rule of 60 company for the long term.
spk01: Great. It looks like your other revenue is up decently too in the quarter, just when I back it out, like around $13 million. Is that about right?
spk08: I think our other revenue is about just over 6, about 6.8, 6.9 million. Okay, thanks. And you can see that in our 10Q that we just released in the subscription versus other component. But it is up nicely. It's at about 30%.
spk12: Okay, thanks a lot.
spk11: Question comes from the line of Stephanie Davis with SBB Lead Rank.
spk07: Hey, guys. Congrats on a solid quarter, and thank you for taking my questions. I've got two questions, one for Jeff, one for Anna. Jeff, you're up first. I am seeing so many ads for Rogovi and Ozempic, and I'm hoping that's a function of a higher level of consumer ad spend from pharma and not just whatever it is that they've targeted me as. But I was wondering how these competitive consumer-facing drug releases like semaglutide affect the ad spend that you see from pharma companies. Is there any opportunity there?
spk14: Well, thanks, Stephanie. You know, I love that you call out who has to answer each question. It makes our lives easier here around the phone. And, yeah, maybe it's a sign you're spending a lot of time in Hollywood if you're getting targeted. I don't know.
spk07: Or too much time in my chair, right?
spk14: Yeah, one or the other. I will say I think Manjaro versus Wigovian or Zempik is probably one of the biggest drug marketing battles, you know, of this decade. And believe it or not, I've seen this movie before at Hippocrates when Cialis was launching against Viagra. And since patients will ask about it, docs need to know, and our newsfeed is a place that doctors learn the latest. So I think it's ultimately good for us to see such innovation and so much interest in a new therapy. And I'll just add, as I mentioned I think earlier, that our coverage of the diabetes space endocrinology is terrific. There are most active telehealth users. So I do think, again, as there's more activity there, we'll benefit. In terms of, you know, do those DTC dollars, the dollars that they're spending towards, you know, targeting a banner ads to you, do they spill over to us? I mean, they're certainly correlated, right? I think, again, the larger the budget, the more the marketing war, the more they'll spend on both HCPs and on DTC. Yeah, typically they're separate budgets within pharma, but I'll say that That whole category is going to be a real battle these next couple of years. And again, I think it will be good for doctors to have a place to discuss it, and it will be good for our business that there is such a battle.
spk07: Helpful. Thank you, Jeff. Anna, I was hoping we could dig one step deeper into that core growth versus upsells question you had earlier. Can you talk a little bit about your contracted minimums and how much of your remaining revenues to book are already in the bag as a function of your contractual minimums versus pricing and upsells and everything else?
spk08: Sure, happy to. So I think we've said this publicly before. As you all know, our contractual minimums for our pharma clients are north of six figures. And as we think about our annual renewal cycle and that kind of 80% or so that comes from those core renewals, The majority of that is brands coming back and buying the same module or buying an additional module. So starting with one and maybe expanding to two. Or a customer that we've worked with for a while might have a new brand that we can now add into our portfolio of brands that we work with. So it's cross-selling to those additional brands. So the two core components of where we see growth in that renewal cycle is adding additional brands and then upselling these additional modules. And then as far as kind of the third and fourth component, the third would actually be adding audience members. So we do see quite a bit of expansion each year. A brand might have run a program with us for a set amount of audience members, got really high ROI on that program, and now they want to add more audience members the next year. So that would be the third component of our growth here in that annual renewal cycle. And then I think the fourth and final component that is in this exact order would be pricing. But pricing makes up the least of our growth versus that tier of four I just mentioned. All right.
spk12: Awesome. Thank you.
spk11: Your next question comes from the line of staying with Wells Fargo Security.
spk03: Hi. Thanks for taking my questions. A quick one here. We've been hearing some pressure on marketing budgets. maybe more on the consumer-focused side than on the provider, but if we maybe look at your performance from the perspective of your clients, do you have a sense if you're on the receiving end of clients reallocating their budgets away from lower ROI platforms?
spk12: Sure. Hey, Stan. This is Nate.
spk06: So, great question. And there haven't been too many changes within the competitive front. In digital, as you know, there are high barriers to entry. Our physician network effect has never been stronger. But with the pandemic, we did see an acceleration of the digital shift to things like websites that doctors aren't going to visit, digitization of brochures, experimentation that wasn't as high OI. And that creates an opportunity for us really an opportunity to migrate to higher roi solutions within digital now that pharma has had a chance to see the results of what ran during the pandemic um moreover some of the changes that we're seeing with digital privacy regulation is a net positive for us as our physicians first approach means that we draw a hard line on protecting our physicians privacy zero percent of our revenue is or ever was based on cookie technologies we don't do banners and so i think we're advantaged over many in the digital space who
spk12: lean heavily among those technologies. Right. Thank you.
spk11: The Q&A portion of the call has now concluded. I will now pass the call back to Doximity CEO Jeff Tangney for closing remarks.
spk14: Well, I want to thank everyone for joining us this evening and appreciate the good questions. Look forward to seeing you all again next quarter. Thanks much.
spk11: This concludes today's conference. You may now disconnect.
Disclaimer