Doximity Fiscal 2Q27 Earnings Call - DOXIMITY INC

Explicit Guidance:

• Q3 FY27 Revenue: $195–$196 million (6% YoY growth midpoint).
• FY27 Revenue: Raised to $678–$683 million (6% YoY growth midpoint); midpoint increased by $4.5 million from prior guidance.
• FY27 Adjusted EBITDA: Raised to $317–$325 million (47% margin midpoint), incorporating continued investment in AI engagement.
• Q3 FY27 Adjusted EBITDA: $102.5–$103.5 million (53% margin midpoint).
• FY27 H2 Growth: Expected to slightly accelerate YoY revenue growth compared to the first half.
• Q4 FY27 Revenue: Year-over-year growth expected to match Q3 guided rate (~6%); visibility remains lower until the "upfront" season concludes in December.
• AI Search Revenue Ramp: Expected to ramp gradually throughout calendar 2027 (FY28), with early recognition starting July and revenue recognized over 12 months post-contract.
• Share Count: Fully diluted shares were 188 million (down 6% YoY); share repurchases to continue as an opportunistic use of capital with $347 million remaining as of Sept 30, 2026.
• SBC Expectation: FY28 impact of FY26 AI-focused R&D grant expected to ease; FY27 SBC remains consistent with low-20% guidance.

Business-Segment Outlook:

• AI Search (Pharma): Entered as an eight-figure bookings product; 16 of top 20 pharma clients purchased, 3 in contracting; expected to drive significant FY28 growth and monetization via advertising/ads, distinct from core workflow subscriptions.
• Health Systems: AI suite clients grew to 190 (from 165), including 10 of top 20 hospitals; focus on integrating "patient context" features and EHR access (e.g., NY Presbyterian, UCSD) to drive usage and retention.
• AI Accuracy & Content: Lead maintained via "DoseCheck" (deterministic verifier) and UpToDate partnership (proprietary gold standard reference); 150 physicians convened for Medical AI Summit to guide roadmap.
• Workflow Engagement: Quarterly active workflow prescribers grew 34% YoY to record highs; ~50% of 1.8M US prescribers used Doximity last quarter, with acceleration driven by telehealth, scheduling, and AI adoption.
• AI Efficiency: Cost of revenue grew at <50% rate of prompt volume in Q2 vs. 1:1 in Q1; expect continued improvement in unit economics via multi-model usage, pre-bought capacity, and proprietary harness performance gains.
• Product Expansion: Opening API access to clinical intelligence layer for third-party time-saving tools; launching biddable/auction-based purchasing model for AI Search starting late FY27/early FY28.

Market and Competitive Outlook:

• Pharma Marketing Shift: Entering $14B/year US pharma paid search market (previously dominated by Google); 81% of 35 surveyed pharma marketers indicated intent to increase spend on Doximity vs. 6% for Google.
• Competitive Moat: Differentiated by "patient context" (integrating labs, imaging, notes) and safety guarantees (DoseCheck); moving beyond "Wild West" AI phase into compliance-governed enterprise adoption.
• Market Trends: Telehealth call volumes at all-time highs (exceeding COVID levels); patient context usage roughly doubling utilization for doctors integrating the tool.
• Pricing Strategy: Moving from purely endemic marketing to keyword-driven search budgets; smaller pharma accounts expected to transition to biddable auction models for efficiency in FY28.

Macro / Industry Outlook:

• Pharma Environment: Described as "more stable" and "comfortable" entering FY27 compared to FY26's "perfect storm" of policy uncertainty, tariffs, and price negotiations; biopharma pipeline improving.
• Healthcare Governance: Anticipated shift toward tighter governance among health systems regarding AI liability and data leakage, favoring vetted partners like Doximity over unapproved AI tools.
• Economic/Capital: Company remains debt-free with strong balance sheet ($713M cash/equivalents); free cash flow generation ($91M in Q2) outpacing adjusted EBITDA, supporting continued investment and buybacks.
• FX/Tariffs: Mentioned as part of past headwinds; current outlook assumes stabilized environment without specific new regulatory impacts anticipated in immediate guidance.

Strategic Initiatives:

• UpToDate Partnership: Deep integration of proprietary clinical reference (7,600 physician authors) into AI answers; expected to expand distribution to UpToDate's 2,500 health system client base.
• Capacity & Infrastructure: Pre-buying compute capacity at favorable economics; expanding multi-model usage to reduce costs; hiring/retaining AI-focused R&D team to drive safety/accuracy.
• Monetization Expansion: AI Search transitioning to a separate advertising product for pharma; enterprise AI monetization via nominal fees within broader workflow suites for health systems.
• Go-to-Market: Utilizing overlay sales teams for AI Search; focusing initially on top 20 pharma for strategic pilots, moving to smaller accounts via auction model in FY28.
• EHR Integration: Expanding direct EHR access (e.g., NY Presbyterian) to embed AI into clinical workflows, though noting usage uplift requires training beyond mere integration.

Risks and Headwinds to Outlook:

• Revenue Recognition Lag: AI Search revenue will ramp gradually due to lengthy medical/legal review (MLR) processes for new contracts; impact expected to be front-loaded in FY28 rather than FY27.
• Visibility Constraints: Q4 FY27 guidance constrained by lack of visibility into "upfront" contracting results until December.
• Regulatory/Compliance: Risk of health systems implementing IP-level blocks on unapproved AI; potential for liability concerns if AI errors occur (though DoseCheck aims to mitigate).
• Investment Costs: Continued heavy investment in AI engagement and safety programs (DoseCheck, UpToDate) will keep margins below historical highs (FY27 EBITDA margin ~47% vs. >50% in Q2).
• Customer Concentration: Top 20 customers represent significant revenue; NRR at 103% (overall) and 106% (top 20) represents a trough, though expected to re-accelerate.
• Competitive Dynamics: Reliance on Google/Paid Search dominance shifting; need to prove ROI against entrenched competitors in search and media.

Management Tone on the Future:

• Confidence Level: "Cautiously optimistic" regarding FY27 re-acceleration and stable macro environment for FY28; confident in AI unit economics and margin sustainability.
• Strategic Focus: Described as "playing offense" in a "generational technology shift" while maintaining discipline on efficiency; no intent to lower margins significantly below 50% long-term despite heavy investment.
• Trends: Positive feedback on AI accuracy leadership; excitement over market entry into $14B search budget; strong adoption of patient context features seen as a core competitive advantage.
• Hedges: Explicitly stated that Q4 and early FY28 revenue is subject to the speed of MLR processes and upfront cycle outcomes; NRR metrics expected to evolve as business shifts toward smaller, faster-growth segments.

Miscellaneous:

• AI Safety Metrics: Study of 250k+ drug dose queries showed 2.3% error rate without DoseCheck, with 40% being serious/lethal; DoseCheck catches these errors.
• Customer Metrics: Customers >$500k annual spend grew 3% YoY to 124; 82% of revenue from these customers.
• Tax Rate: Non-GAAP effective tax rate at 21% (GAAP at 31% due to equity comp treatment); expected to normalize.
• Capital Allocation: $54M repurchased in Q2; remaining capacity $347M; buybacks viewed as attractive opportunistic use of capital.