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spk08: standing by my name is Aaron and I'll be your conference operator for today at this time I would like to welcome everyone to the Doximity fiscal third 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 and if you would like to ask a question during this time simply press star followed by the number one on your telephone keypad if you would like to withdraw your question please press star one again. Thank you. I would now like to turn the call over to Perry Gold, Vice President of Investor Relations. Please go ahead.
spk03: Thank you, operator. Hello and welcome to Doximity's fiscal 2024 third 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. Starting this quarter, we've published our prepared remarks in conjunction with the press release, and you can find them on the IR website. As a reminder, today's call is being recorded, and a replay will be available on our website. As part of our comments today, we will be making forward-looking statements. These statements are based on management's current views, expectations, and assumptions. and are subject to various risks and uncertainties. Actual results may differ materially, and we disclaim any obligation to update any forward-looking statements or outlook. Please refer to the risk factors in our annual report on Form 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, February 8, 2024. 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. 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 Taney. Jeff?
spk09: Thanks, Barry, and thank you, everyone, for joining our third quarter earnings call. We have three updates today, our financials, product highlights, and a new leadership hire. First, our top lines. I'm pleased to report that we delivered $135 million in revenue for the third quarter of our fiscal 2024, a 6% beat versus the high end of our guidance and 17% growth year on year. Our bottom line was also strong in Q3 with an adjusted EBITDA margin of 54% or $73 million, which was 18% above the high end of our guidance. Looking ahead, we're raising our fiscal 2024 annual revenue guidance midpoint by $8 million or 2%. We're also raising our EBITDA guidance midpoint by 6% to $225 million, or a 47% margin. So that's our Q3 financial highlights. A 6% beat, a 2% raise, and a 54% EBITDA margin. Okay, turning now to our physician network. Our Q3 engagement reached a new high watermark. our unique active users on a quarterly, monthly, weekly, and daily basis were all up double-digit percentages year on year. As with last quarter, our daily users grew the most, underscoring how much our EHR integrated workflow tools continue to gain share and daily use among doctors. On that front, we're thrilled to announce that for the third year in a row, Doximity has been ranked the number one best-in-class telehealth video platform by health system CIOs and their staff, beating out Microsoft Teams, Zoom, and many others. This positive word of mouth allowed us to add several major new hospital clients in Q3. GoLives at these hospital systems contributed to a record 560,000 unique prescribers using our workflow software in Q3. We now count 17 of the top 22 US hospitals as enterprise software clients, and all of them as marketing clients. Alongside our workflow products, our personalized physician newsfeed also hit new highs in Q3, with both record reach and usage. We're proud to be the newsfeed of medicine, the place where doctors go when they have a few minutes to check in on the latest news in their field. Our next phase of growth, we believe, will be AI-fueled. Our HIPAA-compliant GPT product has organically grown to thousands of uses each day, and we love all the ways it's already helping doctors cut the scut and reduce their administrative load. To that end, we're excited to convene our 12th annual DocsTech Summit in San Francisco next month. It'll be 150 of our nation's top digital doctors rolling up their sleeves alongside our engineers, designing software to save time and improve patient care. We also can't wait for our pharmaceutical client summit in early May to unveil our new client portal. We've opened up the portal now to about 10% of our brand partners, and the early reviews have been great. Our portal's AI brainstorm bot is a hit, but it's our real-time engagement reports and seamless prescription sales data that keeps them coming back. As one pharma brand manager put it, This is great. I can tweak it, run it, tweak it again until we get the right content to the right doctors. The portal's transparency and ease of use also gets high marks. Another top client told us, I love that I can see my results anytime, anywhere, without someone else touching it first. To be clear, we don't yet allow clients to actually purchase on the portal. But when we do, we think it could unlock the longer tail of small and mid-sized clients that we're not able to reach today. It'll also make it easier for us to launch new modules that leverage our workflow engagement. As our CFO Anna will share in a moment, our new point of care and other modules grew over 100% year on year last quarter. So we believe we're still in the early innings of monetizing our workflow platform. On that note, I'm pleased to announce the addition of Lisa Greenbaum as our new Chief Commercial Officer. Lisa joins us from Google, where she was Verily's chief commercial officer. Prior to that, she spent 15 years scaling and leading Medscapes go to market as their senior vice president and general manager. Lisa's husband is a pediatrician and longtime Doximity user. So while she's only been here a month, it feels like she's known us for years. The team and I are excited to have her on board. We know our clients will appreciate Lisa's deep relationships and unique insights from being both a successful tech and healthcare executive at market-leading firms. Okay, I'd like to end by thanking my Doximity teammates who continue to work incredibly hard to realize our mission. I personally have never been more excited or more proud about what we're building together. And with that, I'll hand it over to our CFO, Anna Bryson, to discuss our financials and guidance. Anna?
spk14: Thanks, Jeff, and thanks to everyone on the call today. Third quarter revenue grew to $135.3 million, up 17% 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 115% on a trailing 12-month basis. For our top 20 customers, net revenue retention was higher at 122%. so our biggest, most sophisticated customers remain our fastest growing. We ended the quarter with 289 customers contributing at least $100,000 each in subscription-based revenue on a trailing 12-month basis. This is a 2% increase from the 282 customers we had in this cohort a year ago, and these customers accounted for 89% of our total revenue. Turning to our profitability, non-GAAP gross margin in the third quarter was 93%, versus 91% in the prior year period. Adjusted EBITDA for the third quarter was 73.3 million, and adjusted EBITDA margin was 54%, compared to 55.5 million and a 48% margin in the prior year period. These represent new highs for non-GAAP growth and adjusted EBITDA margins. This margin strength was driven by our Q3 revenue outperformance, continued optimization of our infrastructure costs and customer support engines, and a strategic application of AI across our R&D and G&A teams. Now turning to our cash flow balance sheet and an update on our share repurchase program. We generated free cash flow in the third quarter of 48.7 million compared to 47.5 million in the prior year period, an increase of 3% year over year. As a reminder, we've utilized our NOLs and are now paying cash taxes at a rate of roughly 25 to 30%. We ended the third quarter with $710 million of cash, cash equivalents, and marketable securities. During the third quarter, we repurchased 3.2 million shares at an average price of $22.08, representing $71.7 million. Fiscal year to date, we have repurchased $216 million worth of shares at an average price of $22.89. These share repurchase efforts have decreased our fully diluted shares outstanding by roughly 6% from the quarter ending March 31st, 2023 to the quarter ending December 31st, 2023. We still have over $60 million of our most recent share repurchase authorization remaining. 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 we'll turn to a recap of our annual buying season. As a reminder, our December quarter represents our largest sales quarter by a significant amount. This is when our pharma customers sign on for next year's programs, committing the majority of their annual marketing budgets. While we sign these contracts in Q3, we will primarily recognize revenue over the next 12 months, depending on the timing of program launches. This upfront season, we saw strong growth with our brand partners. particularly amongst the number of brands spending at least $1 million with us. This cohort grew to 75 brands this selling season, an increase of roughly 30% year over year. Of these $1 million plus brands, we have three brands that spent at least $10 million each, an increase from the one $10 million plus brand we had last year. We also saw strength in our modules that often sit outside of traditional marketing budgets, such as peer-to-peer, point of care, and formulary. These modules combined grew by more than 100% year-over-year during our upfront season. We have benefited from our increased focus on selling newer modules on a package basis, as our customers continue to expand their reach across our entire platform. Now moving on to our outlook. For the fourth fiscal quarter of 2024, we expect revenue in the range of $115.9 to $116.9 million, representing 5% growth at the midpoint. And we expect adjusted EBITDA in the range of 50.5 to 51.5 million, representing a 44% adjusted EBITDA margin. For the full fiscal year, we are raising our revenue guidance to the range of 473.3 to 474.3 million, representing 13% growth at the midpoint. We are raising our adjusted EBITDA guidance to the range of 224.5 to 225.5 million. representing a 47% adjusted EBITDA margin. The increased annual outlook reflects stronger than expected upsells at calendar year end. As mentioned previously, incremental budgets unlocked later than typical this past year. As those dollars became available, we are encouraged that Doximity remained a top choice for our customers, which is evident in the large step up in our Q3 revenue. Looking ahead, we're excited that our upfront selling season saw deeper investment in our newer modules and the addition of several large new brands. In fiscal Q4, we are focused on getting these new programs live, which in many cases will require new content. As a result, our Q4 revenue outlook reflects growth more indicative of program launch timing than underlying sales growth. We expect the overall pharma HCP digital market to grow roughly 5% to 7% in calendar year 2024. Based on our upfront selling season, we are confident our pharma business can once again outpace the market. We are encouraged by the level of investment our customers are making in Doximity and are excited by the opportunity to continue delivering innovative solutions, real-time insights, and industry-leading ROI. With that, I will turn it over to the operator for questions.
spk08: Thank you. And at this time, I would like to remind everyone that in order to ask a question, please press star followed by the number one. on your telephone keypad. We do ask that you limit yourself to one question followed by a single follow-up. Our first question comes from the line of Brian Peterson with Raymond James. Your line is live.
spk06: Thanks for taking the question and congrats on the strong quarter. So, Anna, it was great to hear the strength in the buying season. You know, I'd love to understand how some of the customers are looking at new products like peer-to-peer Is that seen as a new budget category? We'd just love to understand kind of how they're looking at some of these new products.
spk14: Yeah, thanks, Brian, and thanks for the question. So we're really excited by the growth we saw amongst our newer modules. So as I mentioned in prepared remarks, the cohort of new modules that we're selling, which includes peer-to-peer, point-of-care, and formulary, was up over 100% during our buying season. And I think one of the things our clients are really appreciating about the way we're selling these products now is we're working on packaging these new modules together, which actually allows us to increase the scale of the overall program and reach across the different budget lines. The other thing that the packaged product approach does is it allows us to maximize the reach across our platform, which I believe in turn could yield better results for our clients. So we're really excited about what we're doing here and the strength we're seeing amongst these new modules.
spk06: that's great to hear and i know you mentioned kind of the budgets for next year tracking to five to seven percent i know you guys have consistently grown faster than that if you had to think about the levers for share gains relative to budgets what do you think those key swing factors would be thanks guys yeah sure absolutely so yeah as mentioned in the prepared remarks uh we believe the market's going to grow roughly five to seven percent in calendar year 2024
spk14: We've proven over the past several years that we can outperform the market and we don't think this year will be any different. So a couple of things that we're excited by is continuing to invest in these newer modules and sell these newer modules. We're also really excited about the client portal and having the client portal available over the summer to relaunch, to add targets and to expand existing programs directly from the site. That's something that we've been spending a lot of time on internally. And we're really excited about delivering that for our clients for next year.
spk08: Thanks for your question. Our next question comes from the line of Scott Berg with Needham and Company. Your line is live.
spk22: Hi, this is Ryan McDonald on for Scott Berg. Thanks for taking my questions. Again, congrats on a nice quarter. Annie, you mentioned the summer portal or the portal is on track, it sounds like, to be available by the summer selling season. Can you just talk about, you know, now with 10% of customers sort of live and using it, sort of what you need to see in terms of progression on the usage to be comfortable in opening up the purchasing for the portal by the summer season? Thanks.
spk09: Hey, Ryan, this is Jeff. I'll take that question since I've been working a lot on the portal. Yeah, we're really pleased that we've grown the aperture. We've added quite a few new clients. onto our portal, and the reactions have been uniformly positive. They appreciate the transparency. They appreciate the real-time data. You know, at the end of the day, our clients spend a lot of money with us and with others, and I think we're leading the pack in terms of our ability to show them real-time return on investment and, you know, data that they need to power their business to optimize their programs. The decision to focus on reporting first was really our own internal decision. We could have started with pricing and upsells, but we really thought it best to take a step back and really try to use the portal as a way to improve our physician experience to make the content that they see more personalized and better. And the AI tool, as I mentioned in the prepared remarks, has been a real hit. We're helping our clients personalize, do better headlines. We're helping them do video content, which is really fun. the ability to take one of their detail aids and turn that into a short video more easily, we think will be a big unlock for us in the coming years. But the long story short, it's really our decision to not focus on the pricing, the upsell motion first. It's really just us beating our features in a way that rolls us out to clients. I'll end by just saying, while we're very excited about the portal, we also appreciate the feedback that a lot of Wall Street and others have given us about the right way to do this sort of transition is over multiple quarters and even years. And that is our timeline for getting this done. But we're at a strong 10% today. And I think give us a year or two, we'll migrate the full business.
spk22: Super helpful color, Jeff. Thanks. Then for a follow-up, speaking on the budget environment, now that the company's a couple quarters into, say, this lower market growth rate, How should we think about sales and marketing spend going forward? I think for the year, spend will be roughly flat over fiscal 23 levels, suggesting maybe higher costs of customer acquisition against the new growth rate. Are there any opportunities to drive additional efficiencies here, or should we expect a similar level of spend as required to prepare for what we hope is a better growth environment into fiscal 26? Thanks.
spk14: Sure, I can take that one, Ryan. So we've been continuing to invest in our sales teams and particularly investing in the part of our R&D team that's focused on commercial. As we think ahead over the next few years, I think one of the things that we're really excited by, and Jeff just alluded to this, is how the client portal can help unlock the ability of us to capture more SMB. And if we think about it in terms of sales and marketing spend needed for that, it should be a pretty high incremental leverage association for us there. So I think when we think about sales and marketing spend as a percent of revenue, it should likely be pretty consistent just due to the fact we'll keep hiring the sales team, but also not go higher because we think the client portal can be an unlock for us without needing to add too many more heads there.
spk22: Great. Thanks for taking my questions.
spk08: Our next question comes from the line of Ryan Daniels with Belair. Your line is live.
spk04: Yeah, thank you for taking the questions. I'll add my congratulations on the strong performance. Jeff, maybe one for you. You've talked a lot about AI, and I know in the past you've referenced how you're using it to really personalize news feeds. And I'm curious what that's done specifically for engagement, if that's something you can track. I know you're seeing record engagement really across all your metrics. And number one, can you provide a little bit of color on that? And number two, is that providing an ROI lift to customers on the programs given how active these users are?
spk09: This is Jeff. Thanks, Ryan. Great question. Yeah, so our AI products really span all of what we do. So within our news feed, I think our news feed gets more and more relevant using machine learning, using AI, and that certainly has led to better program results for our clients, which is terrific. AI has also led to more usage. So doctors come in to write an insurance appeal letter or a service animal letter in our DocsGPT product, which, as I mentioned in the prepared remarks, continues to grow nicely and organically. And so we see a lot of future engagement and use there. But what's nice is those sessions can also be monetized over time and It does lead to breaks in the day. We're seeing a lot of midday use for doctors between telehealth calls, checking their news feed, staying up to date on what's the latest in medicine, again, which accrues directly to our clients. I'll just end by saying we're excited to get together with our top digital doctors, 150 of them here in San Francisco this month, because what we've got queued on new products here I think is just very exciting. And while we're not going to speak specifically Specifically to our roadmap here, we've had some alpha tests that have gone very, very well. And suffice it to say, the average doctor spends two hours doing administrative work for every one hour they spend seeing patients, which is an incredible problem in this country. And we're helping them take that two hours and really shrink it down. There's a lot of mediocre writing that has to be done in healthcare. And what AI is really good at is mediocre writing. It's really good at helping you get the administrative work done to fight with the insurance companies or others more quickly. So we're super excited that that will drive a whole other wave of engagement for us, just like COVID did with our telehealth, that will, again, accrue to our clients in terms of increased newsfeed and workflow platform usage.
spk04: Perfect. That's a very helpful color. And then as a follow-up, Just wanted to ask about the client service portal. And I know it's only rolled out to 10% and you're not allowing purchases on it yet, but it seems like a great opportunity to kind of show real-time ROI and maybe have more touch points during the year than you've had in the past in kind of emphasizing your value to clients. So I'm curious if you've been able to look at those clients using it and if they are actually purchasing more from you, again, not on that platform, but just purchasing more, doing more, bundled solutions with you because of the value they're seeing real time with your services? Thanks.
spk09: The short answer is the end is pretty small, but we have seen some of the clients who have been early adopters of the portal become high growth clients for us even in December and now January. So I do think that they are leaning in. They see it as Doximity. grabbing the mantle, being an industry leader here in bringing this transparency and optimization to what they do. And it's had a lot of warm, warm reviews. I'd say the only criticism we've had on it so far is that they fear that we'll lock them out of it if they don't renew right away or don't spend more. They're asking us how much it'll cost just to get access to it, which is a good problem to have.
spk04: All right. Thank you.
spk08: Our next question comes from the line of Richard Close with Canaccord Genuity. Your line is live.
spk18: Thanks for the questions. Congratulations. Hannah, I was wondering if you could maybe go into a little bit more detail on your commentary with respect to launch timing and the creation of new content, and maybe characterize it you know, how it compares to last year. I know last year you had some of these new modules for the first time, but any additional color there would be helpful.
spk14: Yeah, sure, Richard. Happy to take that one. And once again, as mentioned, our Q4 revenue outlook does reflect growth that's more indicative of program launch timing than underlying sales growth. So I'll give you a couple examples. First is on the new module front. So during our upfront, our new modules grew over 100% year over year, as mentioned. And these are new programs that require new content. So they're not contractually planned to launch until the spring. We also saw strong growth in newer brands. So another example I'll give you is one out of the three $10 million plus brands that I mentioned. is actually a newer brand and it's also not contractually planned to launch until the spring. So it's a lot more about some nuances here with newer brands and newer modules that is contributing to more spring launches than we might have seen prior.
spk18: Okay, and then just any thoughts in terms of, you know, whether the new modules are cannibalizing at all legacy modules? I know you said it expands the budget and whatnot, but just any feel on that front would be good.
spk19: Sure. This is Nate. I can take that one. So two comments. First, one of the reasons why we're excited about these new modules is they do unlock new budgets. Within those new budgets, our products are often offering a digital versus analog approach, something that's often much more interactive than other solutions on the market and a real potential for high-impact efficiency that hasn't been seen before. So it's a great entrance to those budgets. These products are also typically multi-budget applicable, so we do see interest from our marketing clients in them too. It's understandable. that they're exciting to our more classic marketing clients who haven't had access to products like these before. But one thing that we're seeing is that our clients are increasingly interested in buying Doximity rather than buying just a module. And that gives us a great opportunity to increase our role as a trusted partner and leverage some of our omni-channel within Doximity, multimodal development opportunities as we build out strategies with our partners to really leverage both the new and the old modules in ways that I think are both maximizing the growth opportunity and the healthy reach to our end user, but also are delivering the maximum ROI to the client. Okay, thank you.
spk08: Our next question is from the line of Stephanie Davis with Barclays. Your line is live.
spk17: Hey, guys. Thank you for taking my question. Glad to be back. Anna, you've talked in the repair remarks and in the Q&A about a strong Q selling season, healthy revenue retention, expectations for above market growth. So I guess my big question is, how do you bridge the implied step down in the 4Q growth guidance? Is there anything unique beyond timing to call out there, or is it reflective of finding religion and a more conservative guidance philosophy?
spk14: Happy to have you back as well, Steph. So, a couple things I'll say there. You know, what we're seeing from a step-down perspective in Q4 is the result of two factors. So, first and foremost, we did see a stronger Q3 than typical due to a more condensed upsell season. And then second, the mix of new products and brands can be different year to year, as can our customer strategies. So we're definitely seeing a Q4 that's very dependent on launch timing. So back to the answer I gave before with Richard, we just have a higher mix of new products and new brands. And we're also making sure that we bake in enough time to get those programs live. So it's a little bit of both to answer your question directly.
spk17: All right. Super helpful. So maybe a little bit buffer there. And then Jeff. I know historically you haven't laid out a revenue strategy for the docs GPT product, but it sounds like it's scaling and it's really starting to echo that evolution of the dialer from that free, nice to have product into a four charge product. So do you have any early thoughts on the evolution and maybe when it's going to be more game time ready as something that you would sell as a standalone?
spk09: Thanks, Jeff. Good to have you back. Yeah, you're right in a sense that I'm an engagement first, then monetization sort of person. And that's been our approach as well with a product that is really all about monetization, which is helping our clients purchase from us. We're the best product in the market. When our clients sat down at the end of the year to sit down and do their annual reviews of all the programs and all the partners that they work with, again, they're telling us that we win in terms of ROI. We win in terms of our service. We, I think, clearly outgrew the rest of the market here this last quarter. But we're not the easiest to buy from. So we're the best product, but not the easiest to buy. And really, we want to fix that. And we want to fix that before this summer, which is, I think, the season where that dynamic is most important for us. Now, to be clear, again, two-thirds of the year still already happened, you know, in the upfront season. But our goal here is this summer that we're going to have built the engagement to be able to add the monetization.
spk17: Awesome. Thank you both.
spk08: Our next question is from the line of Elizabeth Anderson with Evercore ISI. Your line is live.
spk13: Hi, guys, thanks so much for the question. Um, I you had a really nice step up in the gross margin. I was wondering if you could talk a little bit more about that. I think you mentioned, you know, customer support sort of strategic AI, how do you think about the sustainability of that? And, you know, obviously, x, you know, the launching of new modules or something like that, how how to think about that on a go forward, right? Thanks.
spk14: Sure. Happy to take that one, Elizabeth. So you're absolutely right. We did see a record non-GAAP gross margin this last quarter at 93%. I'll start by saying a large factor of that was due to the material revenue outperformance that we saw. But on the other side, we are absolutely continuing to optimize our infrastructure costs and our customer support engines. We're also really leaning into AI to up-level the productivity of our existing team. So I think that as we think about gross margin over time, Due to the revenue outperformance we saw in Q3, we don't think we'll necessarily stay at this 93% level, but we feel pretty good about gross margins at 90% plus.
spk13: Got it. And just in terms of the 4Q guidance, in terms of the EBITDA in particular, how do we think about the cadence of some of the OPEC spending on there? Because obviously, you know, if you step up the gross margins a little bit, I guess, versus our prior expectations, you have to assume there's sort of like a step up in sort of maybe R&D or maybe also sales and marketing to get back into your EBITDA range. I just wanted to understand if there's anything impacting the fourth quarter in particular that we should take into account.
spk14: Sure. On the expense side, you'll see that we're forecasting quarter-over-quarter growth. That's actually very consistent with prior years. So I'll remind you that Q4 is our second-largest sales quarter, so we do see pretty significant commissions in Q4. It's also the new year, so we have new things that go into effect, like 409 match, benefits, et cetera. So the step-up that we're seeing between Q3 and Q4 expenses is very consistent with what we've seen in prior years. Got it. Thanks so much.
spk08: Our next question is from the line of Alan Lutz with B of A. Your line is live.
spk05: Good afternoon, and thanks for taking the questions. One for Jeff or Anna. Can you talk a little bit about the budget flush dynamic in the quarter? Is pharma accelerating spend? Was it all delayed spend that was unlocked in the fourth quarter? And do you think that the industry growth also inflected in the fourth quarter or did Doximity take incremental market share there?
spk14: Daryl, I'm happy to take that one as well. You know, listen, like we said last quarter, like many other industries in this environment, we definitely saw some elongated sales cycles this past year. So those incremental dollars that we might typically start seeing added to our platform in a normal year in the kind of May, June timeframe, I really didn't start coming in until August of this year. So we just have that much more condensed upsell season. I think the strength, though, that we saw at the end of the year is just a really strong indication of our competitive position in the market and that when those dollars do become available, Doximity remains one of the top choices because of our industry-leading ROI. So we're really pleased with how we were able to end the year.
spk05: Great. And then, Anna, you mentioned, I want to clarify, you mentioned, I think, a new launch of a $10 million customer is occurring in the spring. Is that a first-time Doximity brand that's launching for $10 million worth of spend? And then, you know, is it normal for a new brand to launch with so much spend as a first-time launch? Thanks. Sure.
spk14: I'll start by saying this brand is a brand with one of our top five customers. So it's a customer that has worked at Doximity for a very long time and has realized the value of Doximity. Is it normal? I would say no, we haven't seen it in the past. I wouldn't say it's typical, but one of the things that we're really excited by as newer brands launch is that they're launching with a digital first strategy in many categories. And what that means is that they're able to invest more in digital upfront because they don't have Salesforce or other investments that they've made prior. So we're really encouraged by what we saw with this brand. And we're hopeful that we can see more new brands start at higher spend levels.
spk05: Great. Thank you.
spk08: Our next question is from the line of Glenn Santangelo with Jefferies. Your line is live.
spk11: All right. Yeah. Good evening. Thanks for taking my questions. I just had a couple of quick questions regarding fiscal 25 at this point. And I heard, I read your comments, obviously, that you believe the market's sort of growing five to seven and you can grow faster than that. But, you know, if I go back to last quarter, I think you said you characterized the market in 23 as mid to high percentage single digits. And ultimately you suggested that 24 is You expected it to grow at the same level. Are you signaling any change in the HCP marketing business at all, or is the market moving at all?
spk14: Happy to take that one, Glenn. You know, I'll say the market growth rate that we're seeing is pretty in line with our expectations 90 days ago, as we're still in an uncertain macro and we're still facing some cyclical headwinds in market budget growth. I'll say what has changed in the last 90 days is our upfront did come in ahead of expectations, in particular amongst these larger brands and newer modules. So we feel incrementally better about our ability to continue to gain share, but we are cognizant that there is still some macro uncertainty, and that's affecting pharma budgets.
spk11: Anna, maybe if I could just take that one step further. I mean, you talked about the selling season and what happened in the fiscal third quarter. how much visibility do you have on fiscal 25 at this point? I mean, can you comment at all? And maybe the last part of that question is, you know, when you think about fiscal 24, how much is the year benefiting from new product launches that maybe will, you know, you get the full 12-month benefit from next year? So any sort of color you can give us around that would be great. Thanks very much.
spk14: Sure, Glenn. It's a little bit too soon for us to start giving further color in fiscal 25. We'll definitely give you the full update on that next quarter. What I can say to your original question is that we have seen a trend over the past several years where we do enter a given fiscal year with a higher percentage of revenue under contract. And we think that's a strong indication of the value the customers find on our platform and their willingness to commit more upfront. And as we look ahead to fiscal 25, that's a trend that we believe will continue. But that's about all I can say on fiscal 25 today.
spk08: Thanks for your question. Once again, ladies and gentlemen, if you would like to ask a question, it's star followed by the number one on your touchtone keypad. We do request that you ask and limit yourself to one question followed by a single follow-up. Our next question is from the line of Jack Wallace with Guggenheim Securities. Your line is live.
spk07: Thanks for taking my questions. I want to ask the market growth question in a slightly different way as it pertains strictly to Doximity. How did the upsell season this year compare to last year? And then if you were to get a similar amount of budget release later in the year as you did in what's called calendar 23, where does that kind of shake you out for a kind of a growth rate?
spk15: Hey, Jack.
spk14: So, I'll start by saying that what we saw this past calendar year was definitely a little bit different than the prior calendar year. It was more condensed at year end. There was a little bit less budget, I would say, to go around. And that certainly affected us. That's due to macro uncertainty and continued, as I said, cyclical headwinds and end market budget growth. What we're really excited about this next year for the upsell season is the ease of use that our client portal can bring. And so the ability to quickly relaunch, add targets, make buying on Doximity easier, even if budgets remain constrained, we think that that could be an unlock for us.
spk07: Thanks. That's helpful. And then the modular products, particularly those that are cross-budget, what kind of TAM or, this feels incremental, what kind of TAM should we be thinking about this represents over the next few years? And if you're thinking about this being an extra layer on top of pharma spend, what kind of, again, I'm not asking you for a five-year target, but Is this a couple of points of growth? Is this just a couple of incremental? How should we think about the opportunity?
spk15: Hey, Jack.
spk19: This is Nate. I can take that one. So we see a bunch of different benefit areas with the portal. I think the first one is going to be faster launches and better alignment with some of the stakeholders in the process, like some of the agencies that are involved in the process. I think that's going to be across things like list matching, analytics, making sure that the content can be AI supported. I think there are also advantages in pricing and price discovery that come along with us towards our benefit. Easier price increases in addition to discovery. upsells are certainly one that we're already starting to see some excitement around, whether that's relaunching or adding targets, adding modules, expanding existing programs. And then really new sales, both with new clients who we haven't really been able to work with in the past because their budgets haven't been quite of the size and capacity to be a entirely different categories of TAM in med devices and digital health and other markets that really haven't been a core part of our go-to-market motion today who are comfortable with these sorts of tools in the markets that they spend in and I think would see good ROI from our existing products.
spk08: Our next question is from the line of Jessica Tassin with Piper Sandler. Your line is live.
spk12: Hi, thanks for taking my question. I was hoping you guys could provide some color on just how pharma is thinking about the media allocation in an election year. I'm curious if dollars shift to kind of more civilian social media channels and TV, or if dollars actually shift to Doximity as TV becomes more expensive. I'm just hoping for any perspective about whether pharma's posturing is different at all in an election year.
spk09: Hi, Jess. This is Jeff. You know, we're certainly no experts on this, but I would say that there hasn't been much change that we've noticed yet. Healthcare hasn't made it that high on the ticket yet. And, you know, this is a year where we have just a lot of innovation, a lot of new products that are pretty exciting, pretty large. So, you know, we're proud to have, you know, three $10 million new brands and our first ever launch brand at $10 million. So, so far, so good. You know, so far, I think the approach here, especially since we focus on physicians and not on broader consumer, which might see, I think, more election-oriented pressure. We haven't seen a lot there yet.
spk12: Got it. That's helpful. And then, maybe for Anna, I just, on the sequential step down in 4Q24, I wanted to better understand that. So, specifically, excluding the new products, would the sequential growth rate in 4Q24 look more like 4Q23? Kind of down mid-single digits. And then as we think about the launches, given that you have one season of experience with Point of Care, should we just expect the full magnitude of those sales to come online by the fiscal 1Q of next year? And thanks again.
spk14: Sure, Jax. So what I'll say about seasonality is the way our customers purchase and launch their programs, has evolved over the past several years. And as a result, we've definitely seen some quarterly variations in revenue. So in any given year, there can be seasonality depending on the market dynamics, the economic conditions, or even our customer strategy, which is something we're seeing this year. But we really focus on measuring the success of our business on an annualized basis, which is consistent with how our customers think about their budgets, and it's consistent with how our sales team thinks about their goals. So we're much more focused on that annual number. And as far as commentary on next quarter, we will give you that update next quarter.
spk15: Hi, your line is live. Go ahead.
spk08: This is a question from Vikran Kasabalotha with Bard.
spk16: Your line is live. Oh, hey, great. Thanks for taking the questions. Hey, my first one is on revenue growth. I guess when you talk about outperforming the market of 5% to 7% in 2024, Do you expect the magnitude of outperformance to be similar to what you saw last year, or is there any reason to think that your share gains will be particularly better or worse than what you experienced in 2023? And then as a follow-up to that, you talked about some of the budgets unlocking later than you initially expected last year. Do you think the cadence of purchasing decisions and behavior is going to be similar again in 2024, or do you think it's going to revert closer to the historical seasonality? And I'll leave it there. Thanks.
spk14: Sure, Vikram. Once again, I'll say it's too soon for us to comment on fiscal 2025. So I'm not going to go too in-depth there. But what I will say is that we're really excited about the scale of buying we saw on our platform during the upfront season. We absolutely believe we could continue to outperform the market. To what magnitude, we will give you an update on that next quarter. But we're really encouraged to have At 75 brands at this point spending over a million dollars with us, which is an increase of 30% year over year, I think that just speaks to the interest customers have with Doximity and the value they're receiving from our platform. And so we're really excited about the growth we're seeing, but we'll give further details on how big that is next quarter.
spk08: Our next question is from the line of Scott Schoenhaus with KeyBank. Your line is live.
spk02: Hi, Gene. Thanks for taking my question. I guess first on mid-year upsells this past year, is there a way to quantify, even if it's in a range, how much market share you lost during this past year's mid-year upsell because you didn't have the self-service portal? And then a follow-up would be, you know, if you think about increasing your current client from 10% onwards throughout the mid-year upsells, that are using the portal, does that give you more visibility into revenue? Thanks.
spk09: Hi. Yeah, this is Jeff. I'll take it. We don't have an exact estimate of market share through the midyear cycle. There's just not many data sources that break it out that granularly. So, unfortunately, I don't have an exact answer for you on number of points of share there. With regard to overall visibility, I mean, I think we, as Anna said, will begin this next year with more visibility, a greater percent under contract than we ever have before. And I think that's, again, a good sign long-term that our clients choose to partner with us over the longer term and are willing to commit and spend more upfront with us. Again, we're not giving longer-term guidance here. Again, we're just being more cautioned longer. And this speaks to, I think, our change here in terms of just more conservatism in understanding that we are in a very uncertain market for a lot of reasons that are exogenous to us.
spk08: Our next question is from the line of Craig Hettenbach with Morgan Stanley. Your line is live.
spk01: Yes, thanks. I had a question on the video modules. At the analyst day, you had kind of framed it as potentially getting to like 15% of the mix, you know, five years out. I know you don't have long-term targets now, but is that a way to still think about it in terms of contribution over time and how you see these modules ramping?
spk15: Sure, Craig.
spk14: So, we're not going to give an update necessarily on the long-term target there, but We're really encouraged by the way they've ramped, growing over 100% year over year, and really the second year we're selling them. One of the things I'll say about on a go-forward basis is as we continue to focus on a packaged approach to selling modules, it's unlikely that we'll be breaking them out in quite as much detail because this packaged approach is really, as Nate mentioned, the client buying doximity as a whole. So we're thinking about it that way as opposed to on an individualized a la carte module basis.
spk01: Understood. Thanks. And then just as a follow-up on capital allocation, you know, you use very strong cash flow and a good balance sheet to buy back stock. Just curious what the opportunity set is out there for potential tuck-in deals. Is that something you would still evaluate in terms of adding capabilities to the platform?
spk19: Hey, Craig. This is Nate. Yeah, so we have great active exposure to opportunities in the market right now. We're going to be opportunistic. But, you know, I think, as you know, our culture going back 14 years now is as disciplined and value sensitive and really internal R&D forward as ever. So we're lucky to be able to make all these decisions with a high quality bar and a focus on platform fit, which we've done with acquisitions like, say, Amion, but not really forced into inorganic revenue growth. So we're going to be real thoughtful about that use of cash. I think the market's become more interesting in many ways lately. But it's always going to be with a mind toward building our flywheel to address our market opportunities and serve the doctors.
spk08: Our next question is from the line of Stan Berenstein with Wells Fargo Securities. Your line is live.
spk21: Hi. Thanks for taking my questions. Maybe a couple on the newer modules. So first, if we just think about the year-on-year growth in the quarter, about 20 million incremental, how much of that was driven by the new module sales?
spk14: Once again, we're selling our new modules on more of a package basis, so we do not intend on giving that breakout. As I mentioned, new modules grew nicely, but we also saw really nice growth amongst some of our larger brands and continued growth in that $10 million plus cohort, but we aren't going to give any further detail on new modules specifically there.
spk21: Okay, that's fair. I guess then in the prepared remarks, you indicated modules kind of fall outside of the traditional marketing budgets. And I guess if it's not the traditional marketer considerations, what considerations are driving the decisions to purchase these new modules and just packaging these modules in kind of like this bundled solution now push them into a traditional budget consideration? Thanks.
spk09: Hi, Stan. This is Jeff. I'll take that. So the short answer is we are pulling from new budget lines with these new modules. So it's peer-to-peer, med affairs, dinners, you know, a lot of traditional things that pharma have done that are thankfully becoming more digital because not as many doctors are going to give up a whole evening to go to a four-hour or three-hour dinner anymore. So we are pulling from some of those other budgets outside our core marketing budgets The other thing I'll just say in regard to the new modules is so far they've been primarily sold to our top 20 clients, our biggest, best clients, the ones who've been working with us the longest. And if you're following along on the net revenue retention rates, the NRRs, you can see that we did increase slightly this last quarter on these, which I think is a strong sign that we're doing a great job of landing and expanding, especially the expanding. And we're just pleased that we have yet to, I think, really hit a glass ceiling inside any of these you know mega top five top ten pharmaceutical companies or other large players um and we think there's a real opportunity to again land more with the portal increase that long tail that smb play where we do have a lower market share today because you know we do have a high minimum to work with us that is above what many folks will do and frankly we don't have as strong a sales motion to go meet with all of those medical device and digital health and other companies that Nate had mentioned.
spk08: Thanks. Our next question. Thank you. Our next question is from the line of David Larson with BTIG. Your line is live.
spk10: Hi, congrats on the good quarter. With regard to the patient portal and the real-time ROI analysis, can you maybe talk a little bit more about that? Like how many of your million plus or 10 million plus brands are actually using that. It seems like it's very important. And then with the IQVIA data, IQVIA obviously has a very sophisticated advanced CRM platform where they can actually identify, okay, which doctors would benefit from the products, who the patients are, where they are. I mean, are you somehow linked in with IQVIA to basically, you know, line up meetings and sell the brand products. So thanks very much.
spk09: Thanks, David. This is Jeff. Yeah, so I'll say I'm very excited about the ROI portion of the portal. So a few things. First, it's not a patient portal. There's no patient-level data in it. But we do license in prescription-level data that is at a physician level from the companies that are leaders in the space that you've mentioned. And that's a big unlock for our clients because they would usually wait months to be able to have some custom project to put that data together and to try to optimize their marketing and understanding where they're doing well and where they're not doing as well. And that's one of the quotes I called out in my prepared remarks, that it's really exciting to be able to look at this on a week-to-week month-to-month basis. And of course, we could add a whole new level of insight to it because we know what words are being used with which physicians and what subcategories or subsegments may make more sense. So really helping getting the most relevant message to the right doctors. For example, what payers or formularies they may deal with. So anyway, for all these reasons, we think that the level of insight that our portal is providing to our clients is something that is market-leading and will, again, be another reason for them to spend more with us.
spk10: Okay. And then since you mentioned the formulary, that's obviously another very, very important area because the doctors want to know where they're going to get paid, especially with many of these high-cost drugs. You could be talking tens or even hundreds of thousands of dollars for certain medications. So can you maybe just talk a little bit more about where that formulary product stands now? What does it do? And then going forward, what would your vision be for that? In an ideal world, would you be able to say, okay, this drug is on formulary, this one isn't, use that one? Just any thoughts here would be very helpful.
spk09: Well, thanks, David. Yeah, you're hitting my hot button here because the formulary product is done very well. And I think it's an area where we have invested over the past year in making it more turnkey, easier for our clients to work with us. We've essentially gone out and licensed in the two leading data sets here so we know which plans are covered by which doctors and which brands are covered by which plans so that we can serve up for an individual physician that their patient doesn't have a high copay on this medication. And, of course, that's great news for our clients, great news for the doctors, great news for the patients who need that medication. And we're able to do that, again, on a personalized level, doctor by doctor. And it used to be when we tried to sell this originally that the clients, the pharma companies, would have to give us all the data, that they would have to tell us which plans that they had coverage on and not. And that ended up slowing things down. It took longer to launch and wasn't as turnkey for them. So I do think this is an example of us using technology, doing some smart licensing to be able to deliver a more personalized, more effective message more quickly for our clients. And it's the type of thing that the portal will do more of.
spk08: Thank you. And we have a final question today from the line of Eric Percher with Nefron Research. Your line is live.
spk20: Thank you. Jeff and Nate, we'd like to ask you to connect the dots a bit on the approach to the portal from early in the year to the phased approach we're hearing today. And specifically for the larger core clients, not the Taylor MedTech, how does the How have your thoughts evolved on the sales relationship and how it changes as the portal comes into play?
spk09: Thanks, Eric. Welcome to the call. I don't think our plan here has changed much from when we spoke about it last August, where our plan is to continue to be both high-tech and high-touch. We work with very large organizations who do expect, I think, a certain level of white glove consulting strategic services, and I think it's great that we'll be able to continue to do that, but for the more, I'd say, mundane things like the refresh of last week's reports, they don't need to schedule a separate video call and email us five times and so forth. I'd say we've evolved very little here, but we've built quite a lot. And what we've built is the ability, again, for our clients to see all this. We've got it rolled out to 10% of them now. The early reviews, again, have been very strong. So we're excited to get this out to more of them this year. But again, we're doing it carefully because at the end of the day, if a client wants to do all this the way they've been doing it the last five years, we'll continue to do that. We want to make sure that we, again, have a high tech and a high touch relationship.
spk20: Has there been any change to what you thought you were missing back then or the missed sales relative to how you're approaching that today?
spk09: That's a good question. Probably my best analogy, sadly, was that one of our clients compared us to being like an airline that I had to call to make every sort of booking and change with, right, as opposed to someone that has a website or a brokerage that doesn't have a website where I can see how my programs are doing or how my holdings portfolio is doing day to day. So, again, I think we've really addressed that by providing them that place that they can go look whenever they want. And again, that gives a lot of comfort around the quality of the ROI of the data and the ability to go optimize when they have time as opposed to on fixed schedules.
spk08: Thanks for your question. And that will do it for today's question and answer session. I would like to turn the call back over to Jeff Tangny for any closing comments.
spk09: I want to thank the entire Doximity team for all their hard work in serving more doctors every day than we ever have before. And I want to thank everyone for all their questions and for joining. Thanks so much.
spk08: Thank you. And ladies and gentlemen, this will conclude today's conference call. You may now disconnect. Have a great rest of your day.
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