Doximity - Q1 2025

Transcript

Operator (participant)

Good day, everyone, and welcome to the Doximity fiscal first quarter 2025 earnings call. At this time, I would like to hand things over to Vice President of Investor Relations, Perry Gold. Please go ahead, sir.

Perry Gold (Head of Investor Relations)

Thank you, operator. Hello, and welcome to Doximity's fiscal 2025 first 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 8-K, along with a copy of our prepared remarks, all 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 on Form 10-K, any subsequent Form 10-Qs, and/or 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, August 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 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?

Jeff Tangney (CEO and Co-founder)

Thanks, Perry, and thank you, everyone, for joining our first quarter earnings call. We have three updates today: our financials, network growth, and product highlights. First, our top line. We delivered $127 million in revenue for the first quarter of our fiscal 2025, which represents 17% year-on-year growth and a 5% beat from the high end of our guidance range. Of note, our top 20 clients once again grew the fastest for us, up 21% on a trailing 12-month basis. These clients are the largest, most sophisticated pharmaceutical manufacturers who employ entire teams of analysts to measure their marketing effectiveness. We believe our continued growth with them is proof of our value to the broader marketplace.

Our bottom line was also strong in Q1, with an Adjusted EBITDA margin of 52% or $66 million, which was 18% above the high end of our guidance. Our Adjusted EBITDA grew 42% year-over-year as we continue to run a disciplined and efficient business. In short, we had a better-than-expected Q1, led by our new products and new Client Portal. Our CFO, Anna, will provide more detail on this in a minute. Okay, turning now to our network growth and engagement. We had another record quarter in Q1. Our unique active users on a quarterly, monthly, weekly, and daily basis were all up double-digit percentages year-over-year. And once again, our Daily Active Users grew the most, a sign that we've become the go-to app for hybrid mobile medical work.

In Q1, a record 590,000 unique active prescribers used our generative AI, telehealth, messaging, and scheduling workflow tools to provide better care for their patients. Our newsfeed also set new records. Last quarter, article reads among prescribers reached an all-time high. We're proud to be both the newsfeed of medicine and the mobile medical office app. The practice of medicine is increasingly mobile, and we're honored to power it. Okay, now for updates on our new AI and Client Portal products. As a reminder, we're not AI tourists. For nearly a decade now, we've employed machine learning and AI to power our newsfeed, personalizing articles for each of our more than 2 million members based on their practice, publications, and reading histories. This personalized approach ensures that physicians receive the most relevant information, helping them stay current with the latest medical advancements.

We were also one of the earliest adopters of generative AI, launching our own Doximity GPT product just three months after ChatGPT's debut. Doximity GPT provides a HIPAA-compliant writing assistant for doctors. To date, over 1.5 million letter requests or prompts have been completed on Doximity GPT, demonstrating the significant demand doctors have to cut the scut or streamline administrative writing tasks. Last month, we made the front page of The New York Times in an article titled, "In Constant Battle with Insurers, Doctors Reach for a Cudgel: AI." Now, if you ask me, we're more of a Jedi lightsaber than a cudgel, but I won't quibble. We're just proud to help busy physicians get better care for their patients. In the article, Dr.

Aslan Tariq highlighted how Doximity GPT has halved his time spent on insurer appeal letters while increasing his appeal approval rate from 10% to 90%. The American Medical Association estimates that doctors spend 12 hours each week on prior authorization paperwork, so cutting that time in half is a substantial improvement. Dr. Tariq went on to say that Doximity GPT is, quote, "Finally, a tool I can use to fight back," end quote. As always, we're proud to put physicians first and help them level the technology playing field with insurers. Our commitment to leveraging AI for the benefit of healthcare providers and patients remains unwavering, and we look forward to continuing to innovate in this space. Okay, moving on now to our new Client Portal. Our portal is now available to 30% of our clients, and their feedback so far has been uniformly positive.

In particular, they appreciate three key features: one, daily updates, two, seamless sales data, and three, actionable recommendations. First, clients value our daily in-flight updates on their programs, which allow them to see their best-performing content and optimize accordingly. The transparency, consistency, and fidelity of our daily online reports stands in stark contrast to others, who often redact and cherry-pick the data they provide in their quarterly emailed reports. Second, our seamless inclusion of prescription sales data allows clients to measure ROI, not just annually or quarterly, but by individual headline or video message. This offers new real-time insight into what content resonates best. For instance, does their new clinical trial or copay coupons resonate most with doctors and patients? Third, the portal provides recommendations for easy add-on programs, suggesting new audiences and content orchestration to optimize ROI. This easy access includes pricing and simplifies the entire upsell process.

We are encouraged by our clients' reactions and upsells to date, and we remain on track with our longer-term portal plan. Our first phase, reporting and insights, is nearly complete. Our second phase, recommendations and pricing, is now available to clients and soon for our agency partners. Our third and final phase, content creation, is currently in beta, with a full rollout expected by the end of this year. Clients love our portal's tech and transparency, and consequently, they're giving us a seat at their strategy table like never before. Okay, I'd like to end by thanking my Doximity teammates who continue to embrace our lean team principles and find more and more efficient ways to serve our physicians and clients. With record engagement and a robust pipeline of new products, I couldn't be more excited about what we're building together.

With that, I'll hand it over to our CFO, Anna Bryson, to discuss our financials and guidance. Anna?

Anna Bryson (CFO)

Thanks, Jeff, and thanks to everyone on the call today. First quarter revenue grew to $126.7 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 114% on a trailing twelve-month basis. For our top 20 customers, net revenue retention was higher at 121%. So our biggest, most sophisticated customers remain our fastest-growing. We ended the quarter with 102 customers, contributing at least $500,000 each in subscription-based revenue on a trailing twelve-month basis.

This is a roughly 16% increase from the 88 customers we had in this cohort a year ago, and these customers accounted for 82% of our total revenue. Turning to our profitability, non-GAAP gross margin in the first quarter was 92% versus 90% in the prior year period. Adjusted EBITDA for the first quarter was $65.9 million, and adjusted EBITDA margin was 52%, compared to $46.6 million and a 43% margin in the prior year period. We are proud to continue to run a very profitable business with strong margin expansion. Now turning to our balance sheet, cash flow, and an update on our share repurchase program.

We generated free cash flow in the first quarter of $39.5 million, compared to $55.6 million in the prior year period, a decrease of 29% year-over-year, driven primarily by the timing of tax payments compared to last year. We ended the quarter with $750 million of cash, cash equivalents, and marketable securities. During the first quarter, we repurchased $48.2 million worth of shares at an average price of $26.03. We believe repurchasing our shares is a valuable use of the incremental cash we generate above what's needed to reinvest in the business. These share repurchase efforts have decreased our fully diluted shares outstanding by 6% since Q1 of last year. As of June 30th, we had $492 million remaining in our existing repurchase program.

Now, moving on to our outlook. For the second fiscal quarter of 2025, we expect revenue in the range of $126.5 million-$127.5 million, representing 12% growth at the midpoint. We expect Adjusted EBITDA in the range of $62.5 million-$63.5 million, representing a 50% Adjusted EBITDA margin. For the full fiscal year, we now expect revenue in the range of $514 million-$523 million, representing 9% growth at the midpoint. We now expect Adjusted EBITDA in the range of $248.5 million-$257.5 million, representing a 49% Adjusted EBITDA margin. Our increased outlook is due to all businesses performing better than expected this past quarter.

Specific to our pharma customers, we saw a strong start to the upsell season, which we believe is due to a couple of factors. First, we've never had a more focused and attractive product portfolio, and our new products continue to resonate with clients.... In Q1, sales for our new point of care and formulary products were each up more than 70% year-over-year. Second, the Client Portal is providing deeper insights into program performance and driving favorable purchasing decisions. With greater visibility, our clients can evaluate their programs in real time and allocate additional spend to maximize their ROI. As we continue to build out our purchasing and content creation capabilities, we believe our portal will unlock further budget over time. We are proud of our Q1 performance and encouraged by the start to our year. We also recognize this remains an uncertain macro environment.

Because of that, we will continue to take a measured approach to the revenue we have yet to book, which is reflected in our outlook for the back half of fiscal 2025. Most importantly, we are focused on delivering industry-leading products and investing in our long-term growth. With record engagement across our platform and our new Client Portal now providing deeper insights to our customers, we're even more confident in our competitive position and our ability to gain market share. With that, I will turn it over to the operator for questions.

Operator (participant)

Thank you. And everyone, if you would like to ask a question, please press star one on your telephone keypad. We do ask that you limit yourself to one question and one follow-up. Our first question comes from Brian Peterson, Raymond James.

Brian Peterson (Financial Advisor)

Thanks for taking the question, and congrats on the quarter. So, given what you've seen so far this year with the strong upsell activity, is there any updated stance on how you're thinking about pharma budget growth for the full year?

Anna Bryson (CFO)

Hey, Brian, thanks for the question. So we still believe that overall budget growth for our pharma customers is at roughly 5%-7% that we've cited before. So we don't necessarily think we've seen a change in budget. But we do think that, as I mentioned in my prepared remarks, because of our strong product portfolio and the additional insights that are being driven by our Client Portal, our customers are now more comfortable deploying their dollars with Doximity earlier on in the upsell cycle. So we believe that's a very strong indication of the value they're receiving from our platform. And I think that speaks to our ability to gain share and our strong competitive position.

Brian Peterson (Financial Advisor)

Good to hear. And maybe one for Jeff. Just, we continue to hear about record engagement on the platform and, and daily average users. You know, any help or maybe diving a little bit deeper on what's driving that? I know that's come up a lot with investors, so I'd really like to double-click on, on what's driving that expansion. Thanks, guys.

Jeff Tangney (CEO and Co-founder)

Thanks, Brian. Yeah, double-digit % growth, as we said, across monthly, weekly, quarterly, and daily active use, and daily active use grew the most. And that's what I'm most excited about. I think we really are becoming the doctor's mobile medical workflow tool, doing their scheduling, doing their telehealth visits, and so forth. We are seeing more doctors doing work from home days, and we'll have more on this when we come out with our telehealth report, in a month or two. But we are seeing the practice of medicine here post-COVID get into a rhythm where doctors are doing a decent chunk of their work mobily, and that's where we're serving them, and I think getting really strong usage growth.

Yeah, excited about the continued growth, and again, it's been a solid, you know, couple of years now post-COVID, where we've continued to hit record highs.

Operator (participant)

We'll take the next question from Scott Berg, Needham & Company.

Scott Berg (Managing Director and Senior Research Analyst)

Hi, everyone. Really nice quarter. Thanks for taking my questions. I guess I have two. Jeff or Anna, I wanted to ask about the portal. I know, Anna talked about initial trends there that have been really positive and strong and maybe above your expectations, but how do we think about some of those trends? Is it more customers are using it, getting more comfortable on how to use it, maybe making their buying decision quicker? Or are you seeing, I guess, volumes of upsell, you know, maybe just larger than what you're expected? Any color there would be helpful.

Anna Bryson (CFO)

Hey, Scott, thanks for the question. Yeah, I think we're really excited by where we are in the phase of development of the portal. So right now, a lot of our brands are using it to get more real-time insights. So they're able to log in and see how their programs are performing in real time, which allows them to make their upsell decisions in a more informed manner. So one thing I'll call out is that our brands with access to our portal actually grew quite a bit faster than our overall pharma business in Q1. So that cohort of brands were certainly responsible for part of the upside.

Right now, we're still in that insights and reporting phase, and I think over time, we're really excited by what the portal could mean longer term as we get to content creation and actual purchasing capabilities.

Scott Berg (Managing Director and Senior Research Analyst)

Got it. Helpful. And then, one question I've had that's popped up a couple of times lately is really around kind of the variability of your company's growth rates. If you look over the last, you know, 5 or 6 quarters now, there's been some wide swings around revenue growth. Is this kind of that quote, unquote, "pattern," a kind of a lack of pattern that we should, you know, kind of continue to expect? Or will there be some seasonality trends in this kind of newer growth environment that you've been experiencing over the last year that, you know, might show some, you know, relative consistency between, you know, period to period?

Anna Bryson (CFO)

Yeah, Scott, it's a great question, and, you know, as we've said before, the way our customers purchase and launch their programs has, and, you know, likely will continue to evolve over time. So that's where we're seeing this quarterly variations in revenue. You know, it depends on the timing of upsells, what products they're buying. Are they newer products? Are they existing products? How many new brands we have? So there is gonna be some variation in revenue, and that's why we try to focus on our annual performance as opposed to our quarter-over-quarter performance, which is consistent with how our customers think about deploying their dollars. And so that's where we always focus when we consider the health of our business. We think about it annually.

Operator (participant)

We'll take the next question from Stephanie Davis, Barclays.

Just one moment, Stephanie. Stephanie, please go ahead.

Stephanie Davis (Managing Director of Healthcare Technology and Distribution)

No worries. I wanted to dig in a little bit deeper on the comment that you're seeing faster growth at your largest clients, because this isn't the first quarter of that trend. Is this a function of maybe macro falling earlier for the largest clients, or is this gonna be a broader trend where we see a bifurcation in your customer base, and maybe it encourages a portion of the base to the self-service platform and the higher touch hours more to the, the high end?

Jeff Tangney (CEO and Co-founder)

Sure, Stephanie, this is Jeff. I'll take it. Yeah, we're really proud that, you know, among our top 20 clients, we've had consistent, you know, 20%+ year-on-year growth. And we're really proud because those are the clients who actually know and measure us best, right? They're the ones who have the teams of consultants looking at our return on investment, and they know how to optimize their programs best. I think the portal is taking some of the things that those clients do with us and really making it available to a broader swath of clients, even the folks who can't afford to have, you know, 50 consultants working on the program and the optimization. And I'll tell you, I'm particularly excited this last quarter at our ability to start looking at ROI on a headline basis for our clients and these insights.

I mean, little things like, one client learned that if you say the drug is most powerful, that sounds great, but actually doesn't perform as well as saying it's the most efficacious. Because when you say something's powerful to doctors, they tend to think of it as maybe adjunct or second-line therapy after you've tried the first-line therapy. And the ability to see the difference in sales, in ROI, and to see that seamlessly through our portal, was the kind of thing that was really only available to, again, really top-tier brands and pharma companies previously. And now with our portal, I think will be available to a lot more.

So on that front, we're pleased to also announce here that we are digging deeper on our prescription sales data, and we're gonna be making an investment this year, going from having monthly data available for our clients to optimize, to having weekly data, which we think will make it easier for clients to log in each week and look at how they're doing, again, the ROI of their programs and see this on a more ongoing basis. Last quick note here. ROI, I know, is something that gets batted around a lot by a lot of players in this industry.

The reality is that most folks only look at it once a year, and sometimes those reports, when they're only delivered once a year, can be cherry-picked and put into a less incredible light when you look at how they've been cherry-picked and put together. I think our portal has really brought a new standard here, where we are providing daily data to our clients in a way that, you know, we can't just cherry-pick the results. They're looking at it on an ongoing basis.

At one of our client's requests, we did go through an audit with the Alliance for Audited Media this past quarter, which we passed with flying colors to go through, and again, just provide greater credibility, greater trust around the data they're getting from us, because they're getting it from a website and not from an email, and they're getting it on an ongoing basis.

Stephanie Davis (Managing Director of Healthcare Technology and Distribution)

Maybe on that kind of point of adding new things into the portal, Anna, you mentioned that you are also getting some learnings from the portal and changing some of your reporting or adding new metrics that clients are asking for via inbound. Is there any update on that, and, and kind of what we've seen Doximity's solutions set grow from, from portal learnings?

Anna Bryson (CFO)

Hey, Steph. Sorry, could you repeat it? It cut out a little bit.

Stephanie Davis (Managing Director of Healthcare Technology and Distribution)

No worries. It sounds like-

Anna Bryson (CFO)

Sorry. Sorry about that.

Stephanie Davis (Managing Director of Healthcare Technology and Distribution)

Today. Remember how you mentioned that you were getting some learnings from the portal, like you found that there were a lot of inbounds of clients asking for different data points or, you know, different ways they could optimize their ad spend? Could you give us an update on that and just tell us, like, what's gotten better or what you've done to refine your approach on the portal?

Jeff Tangney (CEO and Co-founder)

Yeah, Steph, this is Jeff. I'll take that. I've been working a lot on the portal and clients and going back and forth. You know, the truth is, there's a ton of added insight again that we can have. I mean, we look at, you know, when doctors are watching a video, where are they dropping off in the video, literally second by second, as they go through the video. And that was the kind of insight that our clients were never able to have before, and now can really understand which points are resonating best with doctors, where they're most interested, where they aren't. We've also leveraged AI to go through and look at what we call the words that click, the words that really do resonate with doctors.

Some doctors, we've found to have better personalized headlines because they prefer that you use the, you know, explicit medical jargon, versus talking about the guidelines, versus talking about, you know, what patients are reading. So, you know, again, we've been able to, I think, really personalize the experience here in working hand in hand with our clients. So I would say that the feedback loops here have just become very tight, and it's exciting, again, to bring, I think, some of this more consumer split testing technology to the healthcare professional space.

Operator (participant)

We will take the next question from Jared Haase, William Blair.

Jared Haase (Equity Research Associate)

Yeah. Good evening, this is Jared Haase. I'm for Ryan Daniels. Thanks for taking our questions. Maybe just one on the guidance. Anna, I appreciate your comments around sort of taking a measured approach to revenue that's not yet booked. Can you just unpack that a little bit more in terms of, you know, as you said today, what's under contract or what you have line of sight into relative to the full year? And then also maybe if you could quantify at all how the upsell season has gone, relative to what your expectations were in the prior outlook?

Anna Bryson (CFO)

Yeah, thanks for the question, Jared. I'll start on the visibility piece. So, you know, as a reminder, we have definitely seen a trend towards better visibility in our business as our customers are doing more upfront buying. So we entered this fiscal year with a higher percentage of revenue under contract than we've ever had, at over 70% as of our May earnings call. Now, we're not gonna give an update on the specific number every quarter, but what I will say is our visibility trend is continuing in a positive direction. So that means that as we sit here today, we have a higher percentage of the remainder of the year booked than we did at this point last year.

And then as far as kind of the second piece of your question around upsells, yeah, we're definitely really encouraged to have had the strongest start to our pharma upsell season in the past three years, so we certainly outperformed our expectations. You can see that in the beats that we had in Q1, and the fact that for Q2, we're guiding to a higher growth rate at 12% growth, versus the 11% growth that we saw last Q2. So we definitely are excited about the momentum, that we're seeing in our business. But kind of back to those prepared remarks, there is still a lot of runway left in the year, and we once again, you know, don't wanna get ahead of our skis here.

We recognize there's still continued macro uncertainty, so we are going to be continuing to take that prudent approach to the dollars we don't have yet booked as it pertains to guidance.

Jared Haase (Equity Research Associate)

Okay, that's great. Appreciate that. And then also great to hear just kind of the broad-based upside that's driving the outperformance here. I think there were a couple of examples, Anna, that you shared on the pharma side. So I wanted to double-click on the health system expectations. Are you seeing any incremental improvement relative to what you shared last quarter in terms of your full year guidance?

Anna Bryson (CFO)

Yeah, sure. You know, like I said, that we did see outperformance across all of our businesses. I would say health systems, we've seen a marginal improvement over the last 90 days. The majority of our outperformance did come within our pharma business, but we are seeing more stability in the health system space. So we're definitely excited. I'm gonna go back to that McKinsey report that we cited last quarter that forecasting improving profits there amongst our health system customers. So we do think that we will kind of continue to see some improvement there over time.

Operator (participant)

From Canaccord Genuity, Richard Close has the next question.

John Pinney (VP of Equity Research)

Hi, this is John Pinney for Richard Close. Thanks for the question, and congrats on the quarter. So obviously strong, strong margin performance here. I just wanted to ask, how sustainable is this, and how much of this is driven to the portal? Just any insight there would be, would be helpful. Thanks.

Anna Bryson (CFO)

Sure. Yeah, happy to take that one. So, you know, in addition to the revenue flow-through, we do definitely continue to drive operational efficiencies in our business. We are leaning into AI internally to enhance our productivity. That's definitely helped us to gain some further leverage. If we look at Q1 specifically, you know, there is also kind of a timing component here of hiring that we do expect to pick up slightly in Q2. So it's evident in our expense guidance going forward as we focus on continuing to invest in the business and build out the commercial R&D team, continue to make incremental sales hires. You know, as Jeff mentioned earlier, buying more data, so going from buying monthly prescription claims data to buying weekly prescription claims data.

So we are certainly investing in the business, but, you know, we feel really good about the fact that we're guiding to 49% EBITDA margins this year.

John Pinney (VP of Equity Research)

Great, thanks. One follow-up. I guess, like, looking out, like, when you using the portal to go more down-market, do you have any, like, plans or any differences of what the, what the go-to-market would be as going for, going for those smaller brands?

Jeff Tangney (CEO and Co-founder)

Yeah, John, this is Jeff. So we haven't done much of that yet. Again, to date, we've rolled it out to existing clients, and again, the feedback has been uniformly positive. But yeah, you're absolutely right. I think down the road, certainly it will make it easier for folks to come on board. Again, we've had high minimums as a company, to come and purchase with us, and we think it'll make it easier for folks to come in and try us out. The real key unlock there for us will come later this year when we let people start creating their own content.

Right now, the only way to create content on Doximity is to call one of us and talk to one of our team members, and the portal is in beta on that today, as we said in prepared remarks, and we're really excited about where that can go later this year. There's a lot of exciting stuff going on with AI in this whole space. Specifically, you can just put in the URL of your product's website, and we can probably create a pretty decent 20-second video using some of the imagery and copy from that website. So the ability to, again, create engaging content, summarize things, and do that in a self-serve fashion is not something the portal does yet, but something we're excited about it doing later this year.

Operator (participant)

We'll take the next question from Allen Lutz, Bank of America.

Allen Lutz (Equity Research Analyst)

Good afternoon, and thanks for taking the questions. You mentioned that subscriptions... Or I guess just doing the math, subscriptions are growing, call it 8-10 percentage points above the 5%-7% market growth. Is there any way that you can rank order the major drivers of your outsized growth versus the market? I guess the big buckets that I'm thinking of are new products, your normal share gains, maybe contributions from Client Portal in the most recent quarter, and price. Just trying to understand, what are the drivers here that are driving the outsized growth, and have they changed over the past several quarters? Thanks.

Nate Gross (Co-founder and CSO)

... Hey, Allen, this is Nate. I can start talking through that. So, when we think about our growth drivers, at the front end, we have new modules, which sometimes tap into new budgets. We have both cross-selling within our manufacturer partners and health system partners, but also expanding to new brands. And then we have audience members, both on the engagement side, as well as how our partners look to reach expanded audiences, which could be everything from therapies that are reaching larger groups due to their therapeutic impacts to look-alike audiences that are more intelligent to surround sound to reinforce and help education at each part of a journey.

I think, one thing I'll call out is that the growth lever that we always put last on the list, and still is last on the list, is pricing. That's something that we do steadily, but is fourth or so on that list by design, because we see it as a long-term growth driver opportunity. And, you know, we believe in keeping these trusted partnerships with our clients today. Now, the portal will afford us the technology and the models to get more sophisticated around pricing and increasingly give us an advantage, particularly with the highest demand users and at different times of the year, as we link that to real ROI.

However, you know, we're pleased that it hasn't been a necessity in our growth, and that our products and our engagement and our relationships with our partners have been the levers that drive our growth today.

Allen Lutz (Equity Research Analyst)

Great. Thanks, Nate.

Operator (participant)

We'll take the next question from Elizabeth Anderson at Evercore ISI.

Elizabeth Anderson (Senior Managing Director)

Hi, guys. Thanks so much for the question, and congrats on a nice quarter. Maybe piggybacking off of some of the earlier questions, where you're talking about sort of the new product contribution ramp, how do we think about that versus the outperformance or the sort of the cadence we should expect on the gross margins going forward? Because obviously, with that contribution, we in the current quarter or the quarter you just reported, you had some nice gross margin expansion, and we typically think of those things as sort of, you know, new products as reducing those margins, at least in the short term. Thanks.

Anna Bryson (CFO)

Yeah. Thanks, Elizabeth. You know, the great thing about our new products is they are very high incremental margin products. And some of the enhancements that we've made have actually made it easier for these new products to launch using existing video content. So that in itself is helping with leverage there. So that actually allows these new products to work well, not only during the upfront, but also during the upsell. So they've definitely helped to contribute to some of our margin expansion. But I will note that, you know, Q1 was certainly a strong revenue outperformance quarter as well. And as we're gonna look ahead, there is a natural ramp to the year, typically, that we see with hiring and some of the new investments that we're gonna continue to make.

So I wouldn't expect that margin that we saw in Q1 to continue, and you could see that in our guidance. But these new products are definitely potential for margin expansion as they continue to grow over time.

Elizabeth Anderson (Senior Managing Director)

Got it. And maybe just a follow-up. In terms of that content creation, obviously, that's—that, that's a very interesting advancement in sort of the offerings you have there. But how do we think about that versus some of the MLR reviews that clients require for either the content or the audience expansion recommendations? Any comments there you could give would be helpful. Thank you.

Jeff Tangney (CEO and Co-founder)

Yeah, this is Jeff, Elizabeth. That's a great question. Actually, I think having the portal be the place where they can more easily output their content into the MLR process will actually make that more streamlined than all of the email ping-pong that we do with them today. So we're excited that I think it'll be an MLR accelerant for us to be able to have a more portal-based approach to this. But I think Anna's other comment, I wanna repeat, and that is, we really have, I think, worked out some of the kinks of these new products in the last year, specifically with regard to being able to use the same video content that's been approved for one product for another product, and that has allowed the margins to be very high.

It has required us making some technical changes on our side, but I think we've harmonized our formats in a way that our clients have really appreciated. And we've also, you know, gone through and gotten the pioneer's battle scars of getting the first MLR reviews on some of these products. We now have enough of the top 20 who've reviewed it, that it gets easier and easier with each subsequent review, again, for our new products.

Operator (participant)

Your next question comes from Jessica Tassan, Piper Sandler.

Jessica Tassan (Equity Research Analyst)

Hi, guys. Thanks for taking the question, and congrats on the really nice quarter. So I just... I wanted to ask 2 things. First off, are your top 20 customers using the portal today? And I apologize if I missed that. And then just, can you walk us through the spending patterns there? It was impressive to hear that they're growing twice as fast. So just, is it causing their programs to run faster or accelerate? Are customers paying higher prices, or are they just deploying, like, multiple programs concurrently? How what's driving the 2x growth? Thanks.

Jeff Tangney (CEO and Co-founder)

Thanks, Jess. Yeah, this is Jeff. Yeah, we have rolled out the portal to most of our top clients. But to be clear, you know, there are some top clients who won't use the portal. You know, there's gonna be 10%-20%, we expect, who will continue to prefer to, you know, have a meeting, to give us a call, to work with us directly. But then, on our end, we'll be using the portal again to make our internal processes, I think, more efficient. It hasn't had an impact on that, you know, 21% growth in top 20 clients in terms of pricing. So to be clear, we haven't really been pricing-

... you know, the programs that are already live and in market with our top 20 clients using this portal yet. Those are programs that were sold probably several quarters ago. But I do think it'll make that whole process more streamlined, and again, make it easier to go and add additional audiences, test different message types, and to see your ROI again on a more molecular level, which we think over times enhances our ability to continue to gain share. Because the more we can treat this like performance marketing, where I'm seeing my ROI each week, the more that they'll come to spend with us.

Operator (participant)

Got it. Thank you. And we'll go to our next question from Michael Cherny, Leerink Partners.

Michael Cherny (Senior Managing Director of Healthcare Technology and Distribution Equity Research Analyst)

Afternoon, and thank you for taking the question. I just have one quick one, I think. Just trying to understand, I know, Anna, especially, you've talked about how you're seeing different buying patterns, seeing customers buy differently. If I look at your guidance for 2Q versus the 1Q outperformance, it does seem like a little bit less of a seasonal step up than versus what you'd normally expect. Can you maybe just dive a little bit into the formulation of the 2Q guidance? Was there anything that you'd consider quasi pull forward 1Q, or is this just a better understanding and a different pattern for how you expect to see the engagement that you've talked about in the past?

Anna Bryson (CFO)

Yeah, thanks for the question, Mike. Yeah, as mentioned earlier when, when Scott asked, you know, the way our customers purchase and launch their programs has and likely will continue to evolve. So we do see some variations in the shape of the year. As far as what we're seeing between Q1 and Q2, we definitely had a lot of larger programs starting in the spring, and we also saw more upsells this Q1 than we did last year, so that contributed to that really strong 17% year-over-year revenue growth. I'll say that while the quarter-over-quarter step up between Q1 and Q2 isn't quite as high as last year, one of the things I would wanna point to is that the growth rate for Q2 is acceleration over last year.

So last year's Q2, we only saw about 11% growth, and right now we're guiding to 12% growth, which we think is, once again, just an indication of the momentum in our business right now.

Michael Cherny (Senior Managing Director of Healthcare Technology and Distribution Equity Research Analyst)

That's helpful. Thanks, nice job.

Operator (participant)

Craig Hettenbach from Morgan Stanley has the next question.

Craig Hettenbach (Executive Director)

Yes, thank you. Just circling back to the comments on the macro, when looking at guidance is nearly 15% year-over-year growth expected in the first half of the year, implied guide is 5% in the second half. So can you just talk about how much you think that reflects conservatism in the approach, or anything else you're hearing from customers or year-over-year dynamics and comps to consider first half to second half?

Anna Bryson (CFO)

Yeah, thanks for the question, Craig, and I'll piggyback a little bit on the answer I was giving with Mike. You know, we definitely see some quarterly variations in our revenue, and so we really try to focus on our annual revenue growth, which we're guiding to at 9%. And as we said before, we believe our pharma business will certainly grow faster than that. As we think about the rest of the year, we are absolutely excited by where we sit today and what we're seeing from an upsell perspective, but it is just too soon for us to kind of push that through the rest of the year, as we do have continued macro uncertainty.

And then the other thing I'll point to is, as it pertains to our Q4 revenue growth, we're certainly excited by the potential for another strong annual buying cycle, but it is too soon for us to know what the mix of new brands might look like, or if new products continue to ramp the way they've been ramping. It is possible we could see higher growth there, and we definitely wanna make sure that we're baking in plenty of time for those to launch.

Craig Hettenbach (Executive Director)

Got it. Thank you.

Operator (participant)

The next question comes from Jailendra Singh, Truist Securities.

Speaker 17

This is Jenny on for Jailendra. Just a question on the self-serve portal. Can you remind us whether the self-serve portal is a complimentary product, or will you, your pharma companies be paying for this? And so on that, how are you thinking about the growth versus cost saving opportunities for Doximity?

Jeff Tangney (CEO and Co-founder)

This is Jeff. Thanks, Jenny. Yes, it is a complimentary product. Certain features of it are only available to large clients. So, you know, there is, you know, an incentive to be a larger client to get access to more of the insights and more of the data. But it's not something that we are gonna charge an explicit fee for. We're not in a software licensing business model or mode, so there, there's no incremental fees there. And it is more efficient for us, obviously, to have clients uploading their content and looking at their reports, as opposed to, you know, having to write them an email with all that information.

Speaker 17

Got it. And then just during your last annual buying season, you saw a higher mix of products and new brands that required more time to launch, so with an expected launch of Q1. How much has that contributed to a stronger Q1 versus more upfront buying from pharma, that as you said, allocate less dollars to mid-year purchases? And thanks for taking my questions.

Anna Bryson (CFO)

Yeah, thanks for the question. That certainly was a part of the outperformance that we saw in Q1. These larger programs starting in spring definitely contributed to the strong growth that we're seeing there. But I will also note that it was our best upsell season so far over the last three years. So while I would say that the larger contributor to the upside is the program starting in spring, these upsells were certainly ahead of our expectations, and we're really encouraged that we have seen that reaccelerating growth there so far.

Operator (participant)

... Next up, we'll take a question from Stan Berenshteyn, Wells Fargo Securities.

Stanley Berenshteyn (Senior Equity Research Analyst of Healthcare Technology)

Hi, thanks for taking my questions. Regarding the portal, so the portal is pushing campaign creation somewhat away from you and onto the client. I'm curious, who on the client side is using the portal? What kind of training is needed to use the portal? And will you need to build out a support group if the portal usage expands, in order for you to ensure that client engagement with the portal remains active? Thanks.

Jeff Tangney (CEO and Co-founder)

Stan, yeah, this is Jeff. I'll answer that. You know, it's a very good question. The short answer is that today they're not doing content creation on the portal. We're still doing it, so it's still done in-house. But it's still more seamless for them to be able to log in at 10 P.M. at night and see, you know, their daily reports and how they're doing, than having to, again, to email us and have us email them back, saves a lot of time. On an ongoing basis, as we mentioned in the prepared remarks, we do see ourselves working with agencies here as well, which actually I think is a big part of the larger go-to-market motion.

So to be clear, today, you know, we really don't work with agencies that much, and I think it's a real opportunity for us, I think, to work with them more. So, we're doing a little bit mini roadshow with some agencies, later this quarter, and excited that they've been excited to work with us more because they've seen, these types of portals be great for their business, as well. So we're excited to align with agencies more and work with this. I think clients, at the end of the day, if you're on a big brand, if you're on a, you know, billion-dollar brand, you know, you're gonna be looking at your return on investment, but you're probably not gonna be, you know, in the day-to-day of, you know, changing, the headlines and split tests.

That'll be done at a lower level, either by your team or your agency. But again, that will require some training on our end, and I think it'll be really high-leverage work for us, to open up our ecosystem a little bit, and not do everything ourselves.

Stanley Berenshteyn (Senior Equity Research Analyst of Healthcare Technology)

Thanks. Maybe a quick follow-up on medical recruitment, and can you just comment on the performance in the quarter from the segment?

Anna Bryson (CFO)

Yeah, thanks for the question, Stan. We did see a strong quarter-over-quarter growth there in our Curative business, so that's the one part of our business that is broken out in our 10-Q as other revenue. One of the things we've been focusing on there is leaning more into AI for recruiting, and that's already kind of proven to be beneficial. So I'd say we're excited about where that could go longer term. But, you know, there is still the macro considerations amongst our health system clients there.

Operator (participant)

We'll take the next question from Jenny Shen, BTIG.

Jenny Shen (Equity Research Associate)

Hi, this is Jenny, on for Dave Larsen. Congrats on the quarter. I just wanted to ask more about pharma digital advertising budgets. We've seen some reports, and we've talked to some brand managers at some large pharma companies, who say that they expect to cut digital ad spend by as much as 10%-20% in the year. I'm wondering if you're seeing that at all in your conversations. It sounds like you're not. Some of the brand managers told us that they're actually looking to move some dollars away from digital ads over to traditional sales reps, because they think they can get more value out of in-person, face-to-face meetings. Are you seeing any of that trend, and just any discussions with your pharma customers? Thanks.

Jeff Tangney (CEO and Co-founder)

Hi, Jenny, this is Jeff. I'll take that. So, you know, keep in mind, we target to work with about 877 different pharma brands in the US that are, you know, millions of dollars in sales. There are 440 pharma brands that are over $100 million in US sales. Those are what we call our mega brand clients. And, you know, within those 440, there are some brands that are in the launch phase and some that are in a more mature phase, and some that are nearing the end of patent life. And so doing a channel check with any two of them, or five of them, or even 20 of them, there's a lot of selection bias, I think, in who you might hear from.

'Cause some brands, you know, are nearing that end of life, where they are, you know, moving more towards a less clinical argument and more of a personalized sale based on price, and so on and so on. I would just say that in general, across the entire industry, we see a continued shift to digital. Certainly not at the pace that it was during COVID, but it still is the most efficient, highest ROI, most effective way to market products. And the number of physicians that see reps has never been lower. So the number of what they call no-see doctors continues to grow. It did go through, I think, a bit of a blip in 2022, where, you know, some doctors started seeing reps live again after, you know, two years off during COVID, or three years off.

But again, now that's turned back, and I think doctors are protective of their time. They need to see more patients. They don't have time to see, reps like they used to. So the, the general thesis, a shift to digital, we think will continue. Again, if you talk to a handful of brand managers, you may hear a different story, but you have to keep in mind that these are all products at different stages in their life cycles. You know, 5 does not represent, a good enough sample of 440 mega brands.

Jenny Shen (Equity Research Associate)

Got it. Thanks. If I could ask a quick question about competition, just who else you're seeing in the space in those discussions with customers? I'm guessing that a lot of pharma companies use multiple platforms, so you can all coexist together. Just any thoughts on competition?

Jeff Tangney (CEO and Co-founder)

Yeah, we're gaining share, again, against our competition. We don't talk about our competition specifically. So, I don't know, we're not gonna comment on, on any particular names here on this call. But, you know, suffice to say, we feel proud of our position. I don't think anyone else is growing at double-digit percentages in terms of the daily active users or has the sort of footprint that we do, but again, we're not gonna name specific competitors.

Operator (participant)

Everyone, at this time, that does conclude the question and answer session. I would like to hand things back to Mr. Jeff Tangney, CEO, for any additional or closing remarks.

Jeff Tangney (CEO and Co-founder)

We just wanna thank everyone for joining the call. We appreciate the time and the questions, and look forward to continuing to deliver for you all as shareholders over the coming years. Thank you.

Operator (participant)

Once again, everyone, that does conclude today's conference.