Doximity, Inc. (DOCS) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance with significant growth in the pharma business and AI integration. Despite some policy uncertainty affecting client budgets, the company's strategic focus on AI and integrated offerings, along with a high adjusted EBITDA margin, suggests a positive outlook. The Q&A section supports this with plans for AI product launches and expected growth in fiscal 2027. While there are concerns about budget delays, the overall sentiment is positive, indicating a likely stock price increase.
Key Financial Performance
Revenue $185 million, which was 10% year-on-year growth and a 2% beat from the high end of guidance. Growth driven by existing customers and strong performance in the annual buying season.
Adjusted EBITDA Margin 60% or $111 million, which was 7% above the high end of guidance. Reflects strong operational efficiency.
Net Revenue Retention Rate 112% on a trailing 12-month basis, with top 20 customers achieving 117%. Indicates strong customer retention and growth among major clients.
Non-GAAP Gross Margin 91% versus 93% in the prior year period. Decline attributed to increased AI infrastructure investments due to higher usage.
Free Cash Flow $58.5 million. Reflects strong cash generation capabilities.
Cash, Cash Equivalents, and Marketable Securities $735 million. Indicates a strong liquidity position.
Share Repurchase $196.8 million worth of shares repurchased during the quarter. Demonstrates commitment to returning value to shareholders.
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Operating Highlights
AI-powered tools: Doximity has introduced AI-powered tools like DocsGPT and Doximity Scribe, which are gaining traction among physicians. Over 300,000 unique prescribers used these tools in Q3, with high engagement rates. The tools are designed to provide faster, high-quality clinical answers and include features like deterministic drug references and access to medical journals.
AI in hospitals: Over 100 top health systems have adopted Doximity's AI suite, granting access to 180,000 prescribers. The tools are designed to ensure physician oversight and include a peer review system called PeerCheck.
Market penetration: Doximity now has over 3 million registered members, covering 85% of U.S. physicians and two-thirds of NPs and PAs. Engagement metrics have hit record highs.
AI market entry: Doximity has entered the medical AI market, focusing on tools that prioritize physician trust and oversight. The company has not yet commercialized these tools outside hospitals but plans to do so.
Revenue growth: Q3 revenue reached $185 million, a 10% year-over-year increase, exceeding guidance by 2%. Adjusted EBITDA margin was 60%, or $111 million.
Customer retention: Net revenue retention rate was 112%, with top 20 customers achieving 117%. The number of customers contributing over $500,000 annually grew by 10%.
AI infrastructure investment: Increased AI usage led to higher infrastructure investments, impacting gross margins slightly.
AI strategy: Doximity is focusing on building AI tools that are trusted by physicians, emphasizing transparency and peer-reviewed accuracy. The company plans to commercialize these tools further in 2026.
Policy impact: Recent policy changes caused delays in client budget allocations, impacting Q4 revenue expectations. However, the company expects these funds to be deployed later in the year.
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Risk or Challenges
CFO Medical Leave: The CFO, Anna Bryson, is on medical leave, which could impact financial oversight and decision-making processes in the short term.
AI Infrastructure Costs: Increased investments in AI infrastructure have led to a decline in gross margins from 93% to 91%, which could impact profitability.
Policy Uncertainty: Recent policy changes, including Most Favored Nation agreements signed by 16 of the top 20 pharma companies, have created client uncertainty, delaying deals and impacting upfront annual budgets.
Delayed Deals: Multiple deals that are usually signed by December 31 were delayed into fiscal Q4, leading to a slower start for calendar year 2026.
Lower Upfront Budgets: Some clients deployed a lower percentage of their annual budgets upfront due to incomplete 2026 planning and unreleased funds, impacting revenue expectations.
AI Clinical Harm Risks: A Stanford-Harvard study found that AI can cause clinical harm in up to 22% of real patient cases, highlighting risks associated with overconfidence in AI models.
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Guidance & Outlook
Revenue Expectations for Q4 FY 2026: Revenue is expected to be in the range of $143 million to $144 million, representing 4% growth at the midpoint.
Adjusted EBITDA for Q4 FY 2026: Expected to be in the range of $63.5 million to $64.5 million, representing a 45% adjusted EBITDA margin.
Full Fiscal Year 2026 Revenue Expectations: Revenue is expected to be in the range of $642.5 million to $643.5 million, representing 13% growth at the midpoint.
Full Fiscal Year 2026 Adjusted EBITDA: Expected to be in the range of $355.5 million to $356.5 million, representing a 55% adjusted EBITDA margin.
AI Infrastructure Investment: Higher AI infrastructure investment is expected due to increased usage, impacting Q4 revenue expectations.
Pharma Client Budget Deployment: A higher portion of clients' budgets that wasn't deployed upfront is expected to be available for investment later in the year during the upsell season.
AI Commercialization: AI member engagement tools are expected to be commercialized within 2026, allowing the company to tap into clients' innovation upsell and search budgets.
Policy Headwinds Impact: Recent policy changes, including Most Favored Nation agreements signed by 16 of the top 20 pharma companies, caused client uncertainty and delayed deals, impacting Q4 revenue growth.
Long-Term Growth Outlook: The company expects significantly better growth in the latter part of calendar year 2026 due to delayed client budgets being deployed and strong inbound demand for AI tools.
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Shareholder Return Plan
Share Repurchase Program: During the third quarter, we repurchased $196.8 million worth of shares. We believe repurchasing our shares is a valuable use of the incremental cash we generate above what's needed to reinvest in the business. As of December 31, we had $83 million remaining in our existing repurchase program. In addition, our Board just approved a new $500 million open-ended repurchase authorization.
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Key Q&A
Q:Is the market growth rate for calendar year 2026 still expected to be around 5% to 8%, and how much of an impact did MFN have on this?
A:The market is expected to grow roughly 5% in calendar 2026, as per eMarketer's report. MFN played a significant role in the dynamics, causing delays in bookings and unreleased funds from top-down, impacting the start of the year.
Q:Does the adoption of AI by 100+ health systems change the pace of innovation budgets, and what is the expected ramp for AI-oriented spending?
A:The adoption of AI by 100 health systems, representing 20% of U.S. doctors, is expected to drive continued AI growth. The rollout of AI tools is underway, and the company is well-positioned due to its trusted platform and agreements with hospitals.
Q:How does the company view the competitive dynamics in the AI space and its ability to capture ROI for pharma companies?
A:The company believes its core business is healthy, with record-high user engagement and strong telehealth performance. It has significant moats, including a large number of PeerCheck experts and trusted relationships with hospitals and doctors. Currently, there is no revenue forecasted for AI products, but the company plans to introduce commercial AI products later this year.
Q:What is the recent feedback from top 20 pharma companies regarding policy uncertainty and the potential for midyear upsell opportunities?
A:Some top 20 pharma companies faced issues with unreleased funds due to policy uncertainty, but the intent to deploy funds later in the year is evident. The company expects to access these funds as they are released.
Q:How does the company plan to manage increasing AI infrastructure costs while maintaining its 50% adjusted EBITDA margin floor?
A:The company views the 50% adjusted EBITDA margin as a floor and is willing to invest in AI growth. It plans to introduce commercial AI products later this year, with revenue expected to pick up in fiscal 2027. Over time, unit economics are expected to improve.
Q:What is the company's outlook for fiscal 2027 growth and its response to public market valuation concerns?
A:The company expects to exit calendar year 2026 with double-digit growth, driven by released funds and new AI products. It views AI as a tailwind and remains focused on serving doctors and generating attractive cash flows, despite public market valuation concerns.
Q:What is the monetization opportunity for AI, and how does it fit into the broader advertising portfolio?
A:The company sees a large opportunity in paid search, which accounts for 55% of digital marketing spend in healthcare. It plans to introduce commercial AI products later this year but has not disclosed specific plans.
Q:What is the potential for AI adoption among health systems, and how does the company leverage reference cases?
A:The company has 20% of health systems using its AI tools and sees potential to expand, as 45% of U.S. physicians use its telehealth tools. It emphasizes trust and platform integration as key factors for adoption.
Q:What has been the impact of the Pathway Medical acquisition on the company's AI strategy?
A:The Pathway Medical acquisition has driven strong growth, with 300,000 quarterly active doctors using AI tools. The acquisition brought valuable semantic data sets and drug references, which are critical for accurate AI performance.
Q:Are pharma companies shifting budgets from direct-to-consumer (D2C) marketing to healthcare professional (HCP) marketing?
A:There is potential for a shift from D2C to HCP marketing due to regulatory enforcement, but the company has not yet seen a significant impact.
Q:How are health systems approaching AI adoption, and is it more top-down or bottom-up?
A:AI adoption is a mix of top-down and bottom-up approaches. Hospitals are increasingly enforcing AI usage policies, and the company is well-positioned as a trusted platform.
Q:What are the signposts for projecting business acceleration and market growth through the year?
A:Digital marketing, with its high ROI, is expected to perform well in an efficiency-driven environment. The company has seen record usage of its client portal and ROI studies, indicating strong client engagement.
Q:How is the company addressing talent retention and recruitment in the competitive AI space?
A:The company focuses on retaining mission-driven talent and offers stock grants to key employees. It emphasizes its purpose-driven culture and the impact of its products on healthcare.
Q:What is the company's strategy for integrating workflow tools with the broader healthcare technology ecosystem?
A:The company integrates its tools, such as telehealth and Scribe, with health systems and electronic health records. It emphasizes ease of use and unique relationships with telcos to enhance its offerings.
Q:How are providers using the company's medical AI features, and what is the workflow?
A:Providers use AI features integrated into telehealth visits and news feeds. The AI tools assist with clinical questions, SOAP notes, and evidence-based searches, providing a seamless platform experience.
Q:Are there changes in the cadence of budgetary decisions by large pharma customers?
A:The recent delays in budgetary decisions are considered an anomaly due to policy uncertainty. The company expects a return to normal seasonality in the future.
Q:What is the demand for multi-module integrated offerings?
A:Docdynamic accounted for 45% of bookings in the third quarter, indicating strong demand for integrated offerings.
Q:What is the impact of the company's study on AI usage by doctors?
A:The study showed that the company's AI outperformed competitors, with twice the adoption rate. This has likely contributed to the rapid growth in AI usage among doctors.
Q:Review of Unclear Management Responses
A:Management avoided providing specific growth rates for January bookings, only stating it was the best since going public. They also did not disclose detailed plans for AI monetization or the exact impact of regulatory changes on budget shifts from D2C to HCP marketing.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI PDF
AI committee
AI drug
AI glow
AI harm
AI mistake
AI platform
AI prescribers
AI researcher
AI strength
AI summary
AI system
AI year
ASCO user
Audit Committee
CFO Veeva
CFO financials
CFO leave
CIOs team
Cabral CFO
Cabral financials
Cabral veteran
Chair member
Committee Chair
DocsGPT
Doctors
access
expert
fax AI
head
member Cabral
network stats
peer check
reference
tool doctor
tool hospital
trial
DOCS Transcript
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The earnings call summary indicates a generally positive outlook. The financial performance shows growth in revenue and EBITDA margins, driven by a strong pharma business and AI investments. However, there is some uncertainty in market conditions affecting client budgets. The Q&A section reveals management's confidence in product differentiation and market expansion strategies, despite competitive pressures. The company's strategic investments in AI and marketing, along with optimistic revenue and EBITDA guidance, suggest a positive sentiment. Despite some uncertainties, the overall tone is optimistic, leading to a positive prediction for stock price movement.
Doximity, Inc. (DOCS) Q3 2026 Earnings Call Transcript
Positive2-5
The earnings call summary indicates strong financial performance with significant growth in the pharma business and AI integration. Despite some policy uncertainty affecting client budgets, the company's strategic focus on AI and integrated offerings, along with a high adjusted EBITDA margin, suggests a positive outlook. The Q&A section supports this with plans for AI product launches and expected growth in fiscal 2027. While there are concerns about budget delays, the overall sentiment is positive, indicating a likely stock price increase.
Doximity, Inc. (DOCS) Q2 2026 Earnings Call Transcript
Positive11-6
The earnings call reveals strong financial performance with a 56% EBITDA margin and 15% revenue growth guidance. Product development is promising with AI investments and Pathway acquisition. Market strategy is robust, focusing on AI and health systems. Expenses are controlled with margins expected to remain stable. Shareholder return is not explicitly mentioned, but positive cash flow is anticipated. Q&A insights show optimism in AI and integrated programs, despite some uncertainties in policy impacts. Overall, the sentiment is positive, likely leading to a stock price increase of 2% to 8%.
Doximity, Inc. (DOCS) Q1 2026 Earnings Call Transcript
Positive8-7
Doximity's earnings call summary and Q&A section indicate strong financial performance, with revenue and EBITDA exceeding guidance, and promising AI investments. Despite cautious guidance due to policy uncertainty, the company's robust client engagement, strategic AI integration, and successful product portfolio suggest a positive outlook. The Pathway acquisition's minimal cost impact and high engagement metrics further support this view. Overall, the company's strategic initiatives and market growth potential outweigh any uncertainties, leading to a positive sentiment.
DOCS Report
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