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spk16: Good afternoon, my name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Doximity Fiscal Second Quarter 2024 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 that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Perry Gold, Vice President of Investor Relations. Perry, you may begin your conference.
spk06: Thank you, Operator. Hello and welcome to Doximity's Fiscal 2024 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 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 or 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. Our forward-looking statements are based on assumptions that we believe to be reasonable as of today's date, November 9th, 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 8-K. 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?
spk04: Thanks, Barry, and thank you, everyone, for joining our second quarter earnings call. We have three updates today, our financials, network highlights, and new products. First, our top line. I'm pleased to report that we delivered $114 million in revenue for the second quarter of our fiscal 2024, a 4% beat over the high end of our guidance, and 11% growth year on year. Our 20 largest clients, who know and measure us best, continue to be our fastest growing, with a net revenue retention rate of 119%. Our bottom line was also strong in Q2, with an adjusted EBITDA margin of 48%, or $54 million, which was 20% above the high end of our guidance. Looking ahead, we're raising our annual revenue guidance midpoint by $6 million, or 1%. to 11% growth year-on-year. We're also raising our EBITDA guidance midpoint by 6% to $213 million, or a 46% margin. We will remain fiscally prudent, and we are reiterating our long-term model guide of 45 plus percent EBITDA margins. However, given continued macro uncertainties, today we're withdrawing our five-year growth target. This said, we still fully expect to be a billion-dollar company, and 2028 will remain our internal stretch goal to get there. Our CFO Anna will provide more color on this in a minute. Okay, so that's our Q2 financial highlights. A 4% beat, a 1% raise, and 48% EBITDA margins. Okay, turning now to our physician network. In short, we've never been more used or more useful. Our unique active users on a quarterly, monthly, weekly, and daily basis all hit record highs last quarter, and all are up double-digit percentages year on year. Notably, it's our daily users that grew the most, underscoring the integral role we now play in day-to-day patient care. Our newsfeed did particularly well in Q2. It hit both record reach and usage. Our AI algorithms are playing an increasing role in our success as they read over a half a million articles each month to personalize news briefs for each doctor based on their subspecialties, procedures, and interests. We're also now using AI to rewrite medical journal headlines, making them more succinct and readable, leading to higher engagement. With each tap on our newsfeed, our algorithms learn and improve, and our decade-long data moat widens. We're proud to help doctors stay up to date on the research that matters most to them. Our workflow products, scheduling, AI writing tools, and telehealth also hit fresh highs in Q2. with over 550,000 unique active prescribers. And we continue to gain share here post-COVID, signing more top hospitals to our EHR integrated tools. We now count 16 of the top 22 U.S. hospitals as workflow clients, and over 44% of all U.S. physicians on our enterprise platform. Now for our product spotlights. We have two new products in Q2, DocDefender and our pharmaceutical client portal. DocDefender.com is our new free privacy service for doctors. Just as our popular DocDialer product protects doctors' cell phone numbers from off-hour callbacks, DocDefender protects their family's home address or phone numbers from being easily found online. Sadly, OSHA reports that half of US healthcare workers will experience violence in their careers. And a full 35% of physicians we surveyed had already had a patient find their home address or personal information online. DocDefender works by requesting takedowns or removals from the many people finder websites out there. Similar delete me services exist, but they're expensive. We believe doctors who increasingly serve on the front lines of society's toughest problems deserve this basic protection for free. Like many of our best products, the idea for DocDefender came out of our annual 200 Physicians Summit This year, the recent spike in physician shootings weighed heavily on the group, and so we brainstormed a technological way to help. DocDefender was the top vote getter of the weekend. Thousands of doctors have already beta tested DocDefender, and the reviews so far have been great. We're excited to roll it out to all of our physician members this quarter. Okay, now for an update on our new self-serve pharma client portal, where we made incredible progress this last quarter, and now have a strong phase one beta product out and ready for our clients. As we did with our hospital client portal, we began by rolling out to a dozen or so pharma test clients. So far, the feedback has been very positive. Clients like the ability to monitor their programs in real time, to see their IQVIA ROI reports integrated seamlessly, and leverage our AI brainstorm bot to write better headlines. Our plan is to open up this client portal to all of our pharma clients early next year. Then by next summer's upsell season, we'll layer in the ability to relaunch, add targets, and expand existing programs directly from the site. We expect this client portal will not replace, but instead strengthen our white glove service for our top clients. It'll allow our service teams to spend less time emailing about reports and more time on our newer point of care, peer-to-peer, and rep enablement products. It'll also make it easier for us to reach and serve the longer tail, smaller clients. By virtue of our unique reach and usage, we believe we're well-positioned to become Pharma's premier digital HCP partner. And we're proud to now offer client service that's both high-touch and high-tech. In closing, our Q2 saw record physician engagement, better-than-expected sales and profit, and continued innovation with a new privacy product and our client portal. We believe healthcare is still in the early innings of its shift to digital. And with the advent of generative AI, we think tech will transform healthcare more this decade than ever before. We're honored to continue to put physicians first and to be the leading digital platform for doctors. I've personally never been more bullish about our long-term opportunity. And with that, I'll hand it over to our CFO, Anna Bryson, to discuss our financials and guidance. Anna?
spk18: Thanks, Jeff, and thanks to everyone on the call today. Second quarter revenue grew to $113.6 million, up 11% year-over-year and exceeding the high end of our guidance range. Similar to prior quarters, our existing customers continued to lead our growth. We finished the quarter with a net revenue retention rate of 114%. For our top 20 customers, net revenue retention was higher at 119%. So our biggest, most sophisticated customers are still our fastest growing. We ended the quarter with 290 customers contributing at least $100,000 each in subscription-based revenue on a trailing 12-month basis. This is a 3% increase from the 281 customers that we had in this cohort a year ago. And these customers accounted for 88% of our total revenue. As mentioned, we are seeing the strongest growth come from our largest customers. To give some more color around this, we ended the quarter with 51 customers contributing at least $1 million each in subscription-based revenue on a trailing 12-month basis. This is a 28% increase from the 40 customers we had in this cohort a year ago. Turning to our profitability, non-GAAP gross margin in the second quarter was 91% versus 90% in the prior year period. Adjusted EBITDA for the second quarter was $54.2 million, and adjusted EBITDA margin was 48%, compared to $46 million and a 45% margin in the prior year period. Now turning to our cash flow balance sheet and an update on our share repurchase program. We generated free cash flow in the second quarter of $11.6 million, compared to $37.7 million in the prior year period, a decrease of 69% year over year. The cash outflow in Q2 included roughly $29 million in payments for estimated taxes for the first six months of the year, with roughly $10 million of that related to the capitalization of R&D expenses. Given we have utilized nearly all our NOLs, as you consider modeling the impact of taxes in the future, we estimate that our effective tax rate will be between 20% to 25%, and our cash tax rate will be between 25% to 30%. These rates may vary depending upon deductions from stock-based compensation and the capitalization of R&D. During the second quarter, we repurchased 7.5 million shares at an average price of $22.45, representing $169 million. We ended the second quarter with $730 million of cash, cash equivalents, and marketable securities. As of today, we have completed all outstanding share repurchase programs and our board has authorized an additional $70 million share repurchase plan. Following the share repurchase efforts, our total shares outstanding have decreased by roughly 5% or 8.8 million shares since our August earnings release. We are pleased by the positive impact these efforts have had on shareholder value. Share repurchases have been funded by our free cash flow And as a reminder, our IPO proceeds remain untouched and available to invest in the business and M&A. Now moving on to our outlook. For the third fiscal quarter of 2024, we expect revenue in the range of $127 to $128 million, representing 11% growth at the midpoint. And we expect adjusted EBITDA in the range of $61 to $62 million, representing a 48% adjusted EBITDA margin. For the full fiscal year, we now expect revenue in the range of $460 to $472 million, representing 11% growth at the midpoint. We now expect adjusted EBITDA in the range of $207 to $219 million, representing a 46% adjusted EBITDA margin. The increased outlook reflects an improvement in our close rates over the past 90 days. Incremental budgets have been unlocking, but this has occurred later than typical due to the macro environment. As our customers deploy these dollars, we're encouraged that Doximity remains a top choice. With engagement levels at all-time highs across our platform, we continue to deliver strong returns for our customers, and their desire to increase their program reach is evident in our Q3 revenue step-up. As you consider our implied Q4 guidance, please remember we are providing wider ranges and baking in more variability for the portion of revenue not yet contracted. Now we'll give an update on our long-term financial targets. Given the broader macro backdrop remains relatively unchanged over the last year, we believe next year's market growth rate may look similar to this past year. With this in mind, we believe it prudent to withdraw our 2028 revenue and Rule of 65 targets. We still have strong conviction in our long-term opportunity and ability to outperform the market, but we are aware that we may face cyclical headwinds in end-market budget growth for longer than initially expected. As it pertains to our long-term profitability, we expect our highly efficient vertical sales model to continue to deliver a best-in-class margin profile. Due to this, we are reiterating our long-term operating model guidance of 85% to 90% non-GAAP gross margins and 45% plus adjusted EBITDA margins. As we look ahead, we are excited by the innovation we are bringing to the industry and the value we will continue to deliver for our customers. Our new pharma client portal has the potential to power a new level of personalization and efficiency on our platform, a win-win for our clients and for our members. We believe this is an exciting and natural evolution of our business and will position us for market leadership for years to come. With that, I will turn it over to the operator for questions.
spk16: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. We ask that you limit yourself to one question and one follow-up. Your first question comes from the line of Brian Peterson from Raymond James. Please go ahead.
spk05: Thanks for taking the question and congrats on the strong quarter. So I'd love to get any color that you guys have heard from customers about calendar year 24 budgets. And I appreciate the comment that you just gave, but what have you heard in terms of any feedback or how they're thinking about budgets for next year?
spk18: Sure, happy to take that one, Brian. So it's still a little bit too soon for us to know exactly what budgets will look like next year. Our best guess is that the calendar year budget's growth rate will look roughly similar to what we saw this past year, so mid to high single-digit growth. And now we do remain confident in our ability, regardless of what the growth rate is, to outperform the market. And as we're in the midst of our annual buying cycle right now, there are many things that both we and our customers are excited about around our new reporting tools, the potential to bring AI to their programs and the returns demonstrated by our new products. So there's a lot of really positive momentum happening in the business right now, but it's just too soon for us to give more color on the market growth rates.
spk05: Understood. And maybe pivoting to the product a little bit, with Doc Defender and I know with Amion, I just don't understand how you guys are thinking about potentially adding monetization to that or how we're thinking about these new products in terms of when that will start to impact the growth rate.
spk04: Thanks, guys. Yeah, thanks, Brian. This is Jeff. I'll take that one. So first, we're so thrilled to have double-digit percent growth across all of our active user categories. And the highest growth with daily users really is, I think, a true north signal for us that we're becoming part of the doctor's daily workflow, treating patients, checking their schedules, using our AI tools to help. We're really proud of that, and that, to me, is really the best stat of the quarter. I think if you look at others in our space, our competition, they're not seeing that. If anything, I think they're seeing year-on-year declines as we move out of the sort of COVID, stay-at-home, heavy digital use. With regard to Doc Defender specifically, we have no monetization in that product today, but similar to our dialer product, we see a lot of opportunities for that, and that's something we'll phase in over time. The good news is it's the sort of product that doctors, once they start monitoring their privacy, they come back and check frequently as there are additional websites and other changes. And it's the kind of thing that's sort of whack-a-mole privacy-wise. It drives a lot of ongoing engagement. Our AMAM product, which you mentioned, continues to grow and do great. Probably less new news on that front, except to cite, as we did in our prepared remarks, We're at 16 of the top 22 health systems now who have an enterprise BAA or business associate agreement with us inside their EHRs, inside their privacy agreements, and powering their workflows.
spk08: Thank you.
spk16: Your next question comes from the line of Richard Close from Canaccord Genuity. Please go ahead.
spk02: Yes, thanks for the questions. You know, as we're preparing for the next budget year, Anna, I'm curious if you could update us on demand for point of care, maybe versus the traditional news feed. Are you seeing any major differences there? You know, maybe point of care growing at the expense of the latter, the news feed?
spk18: Sure, Richard. You know, the first thing I'll say is that we're excited to penetrate deeper into point of care and peer to peer budgets. And as we've had the conversations with our customers during this annual buying cycle, our customers are really excited about how these products can increase the value they're receiving from our platform when coupled with our other product suites. So the programs we've run of peer to peer point of care over the past year have demonstrated very strong returns. We've been able to prove to our customers that the more modules you buy, the higher your returns. So we're looking forward to expanding our customer reach and deepening our penetration here over time.
spk02: Okay. And then with respect to the EBITDA margins, I guess the long-term 45% plus, but is there any reason why you can't keep up the, you know, the current level that you just reported and what's implied? for the third quarter?
spk18: Sure, I'm happy to take that one. We plan to continue to invest in growth and invest in the business. We're doing that today with new products. We have our new client portal that we'll be investing in more and more. We have new business lines we're investing in, and we're continuing to hire. So from our perspective, we're certainly continuing to invest in growth. And so we think 45% plus margin as a long-term target is appropriate given those investments.
spk16: Okay, thank you. Your next question comes from the line of Ryan S. Daniels from William Blair. Please go ahead.
spk22: Yeah, thanks for taking the questions. I'm hoping you could dive a little bit deeper into the beta users on the new pharma client portal. meaning are you seeing quicker conversion on sales or better pricing? I know you've talked about some auction-based pricing based on ROI. So curious what you're seeing initially with those users.
spk04: Yeah, Ron, Jeff Tangney here. Yeah, I'll take that. So I've been joining quite a few of these calls with our clients. It's fun. We just had a director at a top five pharma company this week tell us it was his favorite meeting of the week to go through our client portal together. And that's because it's just a lot of insights that we can provide. It's real-time data, which he's excited about. And the integration of the IQVIA results allows him a, again, real-time look at the incremental sales and ROI that we're delivering, which at the end of the day is the bottom line for senior marketers inside pharma. So all that's gone super well. I do want to be upfront that our phase one, the product that we have out in beta today, really is just providing these reports is not by providing the ability for clients to purchase additional waves or programs, but they've already asked about that. And so I think it will be a natural extension of that in our phase two, which in our prepared remarks, we said we will have fully out for our next summer upsell season to make it really easy for them to take this video that so many docs like and deploy that to a broader audience or to a different audience or to take actually one of the more fun pieces of the demo has been our GPT brainstorm bot where we can show physicians who've already seen all of your articles and messages have really engaged in your product in your market, but then brainstorm additional things that may relate to their practice given that they see a lot of patients with comorbidities or whatnot and how they put that together. And of course, the brainstorm bot just comes up with ideas, but it's been fun. I'd say my favorite is it's very good at creating wraps, so rhyming answers to insurance companies on why they won't do an insurance approval for that drug reimbursement. So anyway, we've had some fun with it, but I would say today we are not doing purchasing on the portal. That's something that we will roll out with caution. in a way that, again, stays with our high-touch model but also bringing high-tech to it.
spk22: Sure, sure. That's great. And then I appreciate all that color. And then as my follow-up, interesting comments in the prepared comments from you, Jeff, around daily users. I think you said that grew the most, and your news feed is reaching record usage. I'm curious if you've made changes to the platform that's driving that or if it's just the – kind of halo effect of all the solutions you now have for these providers, kind of driving them to the platform more frequently. A good data point, so I just want a little more color there. Thanks.
spk04: Yeah, great question, Ryan. I think the short answer is AI. We really are able to use AI more in our news feed. Yes, we have seen record growth in our daily active users, and our overall news has led the way there. So I think We are the newsfeed of medicine for all intents and purposes. We're the place that when doctors have a few minutes, they'll open us up and go get up to date on what's new for their practice. And not just at a cardiology level, but at a procedure level, given their type of practice and the 10 years of data that we have on the things that they are most interested in. So I do think AI really has been helping our teams there a lot, and we continue to lean in there.
spk16: Your next question comes from the line of Scott Berg from Needham and Company. Please go ahead.
spk03: Hi, everyone. Thanks for taking my questions. Jeff, I want to just kind of follow up on the new speed item. Given your kind of record usage levels, and you'll assume they remain at this kind of level going forward, how should we think about the impact on the kind of return on investment? some of the results your customers have had. But I would imagine that there's probably some natural correlation that would make your customers even happier.
spk04: Yes, Scott. I'm not certain I heard all of what you had to say there, but the short answer is you're right. With increased engagement on our news products, we are seeing terrific returns on our ROI and ROAS, return on ad spend studies. And in fact, this past quarter, we had a higher than our median, which we had announced at being 10 to 1. So we're seeing continued increases in our return on investment for our customers.
spk03: Great. And then from a follow-up, Anna, your self-service portal, does that reduce your sales and marketing spend over the long term as customers use that more? I didn't know if, you know, correlations with sales commissions, et cetera, maybe impacted there. And I guess where I'm kind of going with it, I didn't know if with that change in the business here going forward, if that actually can drive some upside to your long-term adjusted EBITDA margins, if that does kind of drive down sales and marketing, which wasn't probably in the model.
spk18: Sure, Scott. So for our new pharma client portal, we aim to be high-touch and high-tech. So we absolutely will continue having our white glove service and also continue to meet our customers where they are and allow them to have real-time reporting and more real-time access to buying on our platform. Theoretically, over time, we will continue to focus on efficiency as a business. And yes, that could make our sales and marketing as a percent of revenue decrease, but we're also going to continue to invest in the platform. So we could see some increased net there from an R&D perspective. I want to get ahead of our skis there as far as increased margin. I think 45% plus margin is something that we are very proud to be guiding to, but we are going to be remaining this high touch and high tech business as we launch this client portal.
spk08: Got it. Very helpful. Thank you.
spk16: Your next question comes from the line of Elizabeth Anderson from Evercore ISI. Please go ahead.
spk15: Hi, this is Samir Patel on for Elizabeth Anderson. Congrats on the quarter, guys. Anna, you mentioned that you left the 4Q guide a bit wider for business that wasn't yet contracted. Could you give us some color on how much of the full year guide is booked to date?
spk18: Sure, happy to talk about that. So as we sit here today, we're really just have renewals left to book. So we've kind of gotten through that mid-year and year-end upsell cycle for the most part. You can see in our results and our stuff up in Q3 that that actually ended very positively for us. So we did see some strong growth over the past 90 days here. As we look ahead to Q4, most of that stemming from renewals, as I mentioned in my prepared remarks, We are taking a more prudent approach here to how we guide on that portion of our revenue not yet booked, just given the continued macro uncertainty. But we feel really good about where that number is for now.
spk15: Got it. Appreciate that. And then one quick question. Just looking at your 3Q guide, looks like you kind of mentioned it. You're guiding to EBITDA margin of around 48%. I guess my question first is, Should we see another step down in OPEX on a dollar basis in 3Q? And then related to that, I guess, what is keeping the year-over-year margin relatively flat given the recent restructuring?
spk18: Sure. So Q3 is our largest sales quarter. You know clients are deploying about 65 to 70% of their annual budgets in Q3, so it in the end becomes our largest bonus and commissions quarter as well. So you typically will see a step up in OPEX between Q2 and Q3 and we expect that to be similar this year. You know, as I mentioned before, we're also continuing to invest in our business and our new client portal. And even with this investment that we're seeing, we're guiding to record margins in Q3. So this over 48% margin is a record margin for us in Q3. And we feel really good about where EBIT does.
spk15: Got it. Appreciate it. Thank you.
spk16: Your next question comes from the line of Jessica Tassin from Piper Sandler. Please go ahead.
spk12: Hi, guys. Thanks for taking the question and congrats on the really exceptional results. I wanted to ask just about the robust growth and productivity suite users. Can you help us understand if outside of point-of-care, are you guys monetizing those users with things like education embedded in scheduling, or are the point-of-care tools just driving more utilization of the newsfeed?
spk04: Yeah, Jess, this is Jeff. So I'll speak to that. short answer is within our workflow suite we do have links into our newsfeed and as we discussed with our point of care products we also have moments where people are having to wait for a reply for someone paging another doctor and that's a perfect moment to have an educational piece about a product or about a market so I'd say we are monetizing across our full suite so hopefully that answers your question I'll just share that you know we did just do our annual pharma client event in New York. Had a record turnout, 130 clients came. And I'd say it was great because they got to hear from some of our physicians at this event and really just hearing how doctors are using us in their workflow every day has been a real differentiator for us in the market.
spk12: That's really helpful. My follow-up is just of the subscription growth that came from existing customers year-to-date, I think it was about $19 million based on the queue. Can you just break this down a little bit? So is Doximity playing a bigger role in content creation or targeting, or is this primarily just kind of more campaigns, more modules, more impressions? Thanks, and congrats again.
spk18: Sure. Happy to take that one, Jess. So as I mentioned before, We had a strong end to our mid-year, year-end upsell cycle, and so we've seen some strong growth here for the past 90 days. A lot of that comes from increases that we've seen from our largest customers. So as you heard me mention on the call, and one stat we think is really indicative of the health of our business is the increase we've seen in the number of million-dollar customers, which is up 28% year over year. So now we have $51 million-plus customers. These are customers that are adding brands, they're adding modules, they're adding audience members. And we believe that growth that we're seeing amongst our largest customer cohort is indicative of the value of our platform, irrespective of the near-term macro headwinds.
spk12: Thanks again.
spk16: Your next question comes from the line of Eric Percher from Nefron Research. Please go ahead.
spk11: Thank you. A question on the long-term guidance, and I think I understand that it's primarily the duration of cyclical headwind, not a change to the total opportunity. Does that change your perspective on how you allocate R&D or R&D priorities over the next 12 to 24 months? And obviously, this plays into the change in R&D focus from physician to client. How does all of that layer in?
spk04: Yeah, Richard, this is Jeff. I'll take that. I think you're right. I mean, at a macro level, this is really just a more caution, longer viewpoint on our end. And, you know, as I mentioned in our prepared remarks, we fully, fully expect to be a billion-dollar company. And getting there by 2028 will remain an internal stretch goal for us. Sorry, Eric. And I just want to repeat that we'll continue to aggressively invest in the business. I think there's a lot of new TAM to go after in peer-to-peer, rep enablement, point of care. We'll continue to take share in our core markets with hospitals and with pharmaceutical companies. So we think we're in a great position, and we're still leaning in and investing in R&D. So these macro, you know, more caution longer amongst our clients, we view as an opportunity for us to, I think, to continue to step up in the market relative to others.
spk11: And then a follow-up, just given the strong EBITDA result on the cash flow, I heard the commentary on tax, but I wanted to make sure I understand relative to the increase in prepaid expenses and accounts payable, has there been a change in your outlook for cash flow conversion over the course of the year?
spk18: So historically, we've seen free cash flow roughly near EBITDA on a trailing four to six quarter basis. And so that has not changed. But what has changed is that we are through our NOLs and we are impacted by the newer tax rules around R&D capitalization. So what has changed is what our cash tax rate is. So now we're expecting free cash flow to be below EBITDA by the magnitude of whatever that cash tax rate may be.
spk11: Okay, thank you.
spk16: Your next question comes from the line of Scott Schoenhass from KeyBank. Please go ahead.
spk07: Hi, team. Thanks for taking my question. So, Anna, you mentioned you're having a lot of success with million-dollar customers, and you clearly see, you know, revenue per $100,000 customer, see nice sequential growth. Can you just provide any color into next year on what's built into these sort of initial assumptions on that cohort, and if the programmatic or self-service that you, you know, kind of tweaked and invested in, we should, you know, built into those assumptions next year is a higher mid-year upsell. Thanks.
spk18: Sure. You know, like we've said before, especially in this environment, we believe that our top customers will continue to lead our growth. So that cohort of million-dollar-plus customers, It's been evident as you look at our NRR of our top 20 of 119% plus. So we have had strong success there. As we go forward, it's just too soon for us to comment on what we think fiscal 25 or beyond will look like. We are really encouraged by the recent momentum we've seen in the business. But at the end of the day, we are still facing cyclical headwinds and market budget growth. So while we remain committed to outperforming the market, we just aren't yet sure exactly what that growth rate is going to look like.
spk08: Okay, great.
spk16: Your next question comes from the line of Stan Berenstein from Wells Fargo Securities. Please go ahead.
spk09: Hi, thanks for taking my questions. Maybe first, can you give us an update on the ROI for ad campaigns for both pharma and health systems?
spk04: Yeah, it was higher this last quarter than it had been previously, and we've said previously our median was a 10 to 1 return, Stan.
spk09: Got it. Thanks. And maybe one quick one here. Just in terms of preliminary guidance, I know you just mentioned, you know, macro headwinds are pressuring budgets. Is that, you know, showing up as impacts on volumes, or is there a price component that's showing up as well?
spk18: Sure. You know, once again, too soon for us to comment on, next year and what that's looking like. We're in the middle of our annual buying cycle with our customers. From a pricing perspective, in this environment, we are baking in lower assumptions than typical for price increases. One thing we are excited about, especially with the client portal, is we believe the real-time ROI reporting and analytics that are provided in that portal will ultimately allow us to continue to raise prices nicely. But in this environment with the macro headwinds, we're just not leaning too aggressively into pricing right now.
spk08: Got it. Thanks so much.
spk16: Your next question comes from the line of Craig Hettenbach from Morgan Stanley. Please go ahead.
spk14: Yes, thank you. And nice to see the really strong EBITDA performance. Jeff, if we think about the prior target of 20% CAGR, you know, in the intermediate term, is there a range that you think is kind of appropriate or where you see the market over a more intermediate term basis?
spk04: Yeah. Hi, Craig. Good to hear from you. Yeah, really just too soon. Again, this is more caution longer, I think, is what we're seeing in the end marketplace from our clients. And Again, our ROI remains strong. Our engagement remains very strong. One thing I haven't mentioned that we mentioned in the last call was about 90% of our R&D was physician-focused. And I think we've had a lot of success in this last quarter. We've got a lot of our R&D team that are very excited now to work on client problems. And so we're seeing that mix shift. And I think our clients are really pleased with the high-tech motion we're offering. But again, I think too soon to comment on that mid-term growth rate.
spk14: Got it. And then just a quick follow-up on the video products. How do you think about that into next year as it layers into the business and any kind of signposts to watch for in terms of adoption in the marketplace?
spk04: Well, I'll tell you, Craig, one of the cool things about bringing in all this IQvia data and now being able to run these more real-time ROI analyses is we are able to start to look at what content types really generate incremental N-R-X lists, they call it sales, for our clients. And that's a window we've never had before, because before we've always done these year-long look-backs and haven't had the kind of real-time data to look at it all. And the short answer is, video's hot. Video does very well at communicating messages, engaging doctors, and ultimately changing behavior. And that's great news for us, because with our point-of-care telehealth product, we have a lot of video inventory. We're excited to lean more into that whole go-to-market notion this year.
spk17: Great. Thank you.
spk16: Your next question comes from the line of Jalindra Singh from Truist Securities. Please go ahead.
spk01: Thank you, and thanks for taking my questions, and congrats on a strong quarter. My first question, I mean, last quarter you guys called out some market share losses to cheaper banner ads kind of platform. Just wondering if any of those trends moderate or reverse this quarter, and what have been the drivers? I believe you have talked about that. Some of that could have been because of lack of an automated online purchase platform. I'm just curious how trends were three months later.
spk04: Yeah, thanks, Jalendra. Yeah, so per our 1% guidance raise, we're obviously pleased with the sales momentum we've seen since then. Our close rates were up in Q2, as Anna has already mentioned. I'll go back to that 130-client day-long event we had in New York recently. We did get a lot of good feedback from there. With regard to some of these new competitors, I will say the third-party reports they're running are finding issues with their quality and their ROI. I think that has moderated some of that competitive threat. The joke is that IP address targeting often reaches the doctor's daughter, not the doctor. And that is raising a lot of questions about whether there's real ROI here.
spk01: Okay, that's helpful. And then my follow-up, one of the insurance companies, Aetna, they recently announced making some changes around reimbursement for some of the virtual care and audio coverage reimbursement. And as always is the case that generally other insurance also follow the trend. I was curious, what feedback have you got from your providers since that announcement? and how should we think about the provider usage of Doximity platform? Clearly, you have a lot of tools of providers, but dialer app is one of the critical tools you guys have for your provider clients. Just curious, what's the feedback from them?
spk19: Hey, Jalindra. This is Nate. That's a great question. I think if you are looking at some of the recent moves in the payer space, that's dictated more by the business realities of those payers and It's less so at this point a broader trend in medicine. I think we're seeing there's still a lot of legislative patient and doctor support for telehealth as sort of a new normal for certain types of care delivery. I think all parties who use it like it in the right circumstance. And so we believe telehealth is here to stay. And I think our numbers on the engagement side of our platform reflect that. That said, every year, not just in telehealth, physicians face decreases and cuts to their compensation and to what they can bill for and how much they can bill for. And they are increasingly asked to see more patients and see more patients efficiently. And so while not every patient and not every type of care is going to be a perfect fit for telehealth, It's going to be up to the technology community and those working with doctors to come up with solutions that can make it as seamless and easy and lightweight as possible. Because when the economy and when physicians are this strapped, that's the only way we're going to be able to deliver a product that works for everyone. So we're thrilled that our engagement is at an all-time high. And if you look at what Jeff said, DAU, daily active use, which is really those workflow tools of which telehealth is our crown jewel. led the charge and grew the most in the last quarter.
spk01: Great. Thanks a lot.
spk16: Your next question comes from the line of Jack Wallace from Guggenheim Partners. Please go ahead.
spk10: Thanks for taking my questions and congrats on the quarter. Anna, in your comments, you mentioned that there is a little extra budget on lock as part of the reason for the guide. I realize it's a small cohort, but is there any part of that that's related to the self-service portal? And it sounds like the hope might be that that would be the case going forward, but is there any extra unlocks tied to the self-service portal in the guide? Thank you.
spk18: Sure jack happy to take that question the short answer is not yet I think we're really excited about the unlock that that could bring for next year, potentially, but really what what we've seen over the past 90 days is. You know, like many other industries we've just seen elongated sales cycles in this environment, so those incremental dollars that we typically start seeing being added to our platform in June. didn't really start coming in until August of this year. But since August, I think that's where we're really encouraged by the strong growth we've seen here over the past 90 days as our customers are adding on to their high ROI programs. So a lot of this has really been budget-driven, but for next year, we're very excited by what self-serve can bring, but it's just too soon to put numbers behind it.
spk10: Thank you. That's helpful. And then for the recently launched products or products maybe some of those in the planning. Are you noticing any changes in your customers' appetites for supporting those launches? Any slower or faster, just given the current environment?
spk08: Yeah, this is Jeff.
spk04: I'll take that. The short answer is there's a lot of interest in innovation and what we're doing, but I'd say also in this more cautionary macro environment, there's a flight to quality around you know higher or programs that have had proven results and again from our end that's great because this is the time of year when our clients sit down they look back on the year they look at all the numbers they do the math they do the roi and we're one of their their key if not their absolute key digital hcp partner so um i wouldn't say that there's this strong drive towards experimentation in this market like maybe there was in 2021 And I would argue that's actually good news for us because in 2021 that meant there was a lot of digital dollars thrown at new websites and other things that frankly just didn't work that well.
spk08: Got you. Thank you.
spk16: Your next question comes from the line of Alan Lutz from Bank of America. Please go ahead.
spk13: Thanks for taking the questions. I guess this is one for Jeff or Anna. The point of care offering was sort of introduced intra-year this year. So I'm curious, as you think about, because most of your business is on this annual, part of the annual budget cycle, do you expect to see a step up in point of care revenue in your fiscal 4Q calendar 1Q? And then related to that, is there any way to frame how much point of care revenue is embedded in that 4Q guide? Thanks.
spk04: Sure, this is Jeff. I'll take that. Alan and Anna may add some color. The short answer is our point of care is doing really well, fundamentally because it's a video product. So as I mentioned earlier, that ability to have engaging video that's 20, 30 seconds long, our watch rates when doctors are just sitting there waiting for the patient to join a call, which is a lot of minutes every month, is a really great time to reach doctors and to get that engagement. That said, it's typically playing out that it's selling together with our broader programs, and our client portal will actually reinforce this and, again, bring all of this data and all the results back together into one place. So, you know, candidly, it's a little difficult to point to our success and point of care discreetly from our news feed because they're both doing super well, and they're typically, again, being sold as a bundle. So with regard to our guidance, I guess I defer to Anna, but I just say overall video engagement, which is what our point of care product is, has been a real hit.
spk18: Yeah, and as far as what we have embedded in our Q4 guidance, I would say not much from that perspective because we're thinking about launch timelines. We're sensitive to the time it takes to get these products created and live. And so from our perspective, we're not counting on big ramp there at all in Q4.
spk08: Got it. Thank you very much.
spk16: Your next question comes from the line of Glenn Santangelo from Jeffries. Please go ahead.
spk20: Thanks for taking my question. Hey, Jeff, I just want to follow up on some of the comments that you made regarding the macroeconomic climate. You said that your clients seemingly are less willing to drive towards experimentation. I'm trying to get a sense for maybe, I mean, it seems like it's benefiting you in this environment. And so I'm trying to get a sense for maybe overall market growth. I think, you know, Anna following up on your remarks, she said that you all feel comfortable that you'll be able to grow faster than the market. And I'm trying to get a sense for, you know, in this year, how fast is the market growing? Clearly, we're not seeing digital outperform, you know, the overall marketing budgets by as much as they were during the pandemic, but I'm sure it's still growing faster. And I'm just trying to get a sense you know, in the current environment with the competitive landscape of programmatic DTC, DTP? Like, where is the market growth today, you think, in your mind? Sorry, there's a lot to that question. So however you want to handle it.
spk04: Great, Glenn. This is Jeff. I'll take a first crack. So, you know, first I'll say pre-COVID, pharma healthcare spent, by our estimates and IDC and others, about 17% of their marketing budgets digitally, you know, on digital programs, which was way under the Fortune 500 or general industry norm at that time. I think during COVID, there was some catch-up. It grew faster. Our current guesstimate is that it's probably half of the 75% that the Fortune 500 does. So, you know, in the mid-30s in terms of what percent is spent digitally. But, you know, there is a bit of a reversion to the mean as we come out of post-COVID here. And Again, I'd say overall, the general approach to all things these days is just more caution at the macro level, given that our clients could invest that money at low risk at high rates these days as well, instead of investing it in our marketing. Again, over time, that'll shake out, and when we're delivering a 10 to 1 return for our clients, we'll see more come our way. But you'll see probably less of that experimentation, those new websites that were tried out during COVID that, you know, that didn't have any return. So, I don't know. Anna?
spk18: Yeah, so specifically to your question, Glenn, around market growth, what we said on our August call is that we believe the market this year grew maybe mid to high single digits. And as far as our expectations for next year, just given the continued macro headwinds, we think next year will look roughly similar to this past year. We do think this is more of a near-term phenomenon. To Jeff's point, we are contending with a post-COVID reset and then a macro downturn. I do think over time there will be a reversion to the mean upwards, but just for where we are right now in this macro climate, we're assuming the growth rate remains similar to what we saw this last year.
spk13: Okay, thank you.
spk16: Your next question comes from the line of David Larson from BTIG. Please go ahead.
spk21: Hi, congratulations on the good quarter. I've been hearing the 10 to 1 return for a long time, but I think what I've heard that's new this quarter is a tighter integration with IQVIA, the ability for the clients to actually run the data themselves and look at that, I think, through their client portal. Is that correct, and can you maybe just provide a little more color around it? Did I hear that correctly, that they can see the real-time ROI in a self-service way? Is that new?
spk04: David, that's right. That is new. And again, this is out in beta right now. It's something that we expect to make available to all of our pharma clients early next year. But I think it's a big unlock. You're absolutely right. It's something that we've seen in our hospital business has been a big difference maker. In our hospital business, we've been doing this now for a year or two where we've been able to provide our clients these quarterly refreshes of their referral data and show them what their ROI was. And it's interesting. The first time you do it, it's a 45-minute call with a lot of statistical questions. The second time you do it, it's a half-hour call. And then the third time, it's just an email. And it's a reminder to our clients of the value we provide them. Right now, historically, what we've done for our clients is more of a once a year look back, which obviously isn't as frequent and isn't as top of mind. So I do think it will be a big unlock for us to make this data just more available and more transparent to our clients.
spk21: Yeah, I think there's enormous value in that. They can see the ROI right away, so why not invest more, especially in a tough economy? And then did I also hear you say something about insurance approvals for certain drugs. Do you have a solution in that area or not?
spk04: We're working on it, David. So we did announce that we have our DocsGPT product that was launched back in February of this year. We announced last quarter that we had our first health system clients for it. So these are top hospital systems paying to get their doctors and their back office staff access to tools that help them write insurer appeal letters. And of course, pharma would love to make that better and easier as well. And they have whole content libraries that we can feed in that provide better insurance appeal letters to make sure that patients get the medications they need.
spk21: Okay. Thanks very much. Appreciate it. Congrats on a good quarter.
spk04: Thanks.
spk16: We have no further questions in our queue at this time. I will turn the call back to Jeff for closing remarks.
spk04: Great. I'd like to end by just thanking the entire Doximity team for their hard work this quarter and serving more doctors every day than ever before. Thank you, everyone, for joining.
spk16: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
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