Doximity (DOCS) Q2 2027 Earnings Call Transcript

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DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• Investor Relations - Perry Scott Gold
• Cofounder and Chief Executive Officer - Jeffrey A. Tangney
• Chief Financial Officer - Matthew Sonefeldt

TAKEAWAYS

• Revenue -- $174.5 million, representing 4% year-over-year growth and exceeding the high end of quarterly guidance by 2 percentage points.
• Adjusted EBITDA -- $88.9 million, reflecting a 51% margin which was 9 percentage points above the high end of guidance.
• Active Workflow Prescribers -- Approximately 900,000 users, growing 34% year over year to reach a record high of half of all U.S. prescribers.
• Pharma AI Search Adoption -- 16 of the Top 20 pharmaceutical companies have purchased the product, with three additional companies currently in contracting.
• Health System Expansion -- 190 health system clients now utilize the AI suite, an increase from 165 in the prior quarter, including 10 of the nation's Top 20 hospitals.
• Net Revenue Retention (NRR) -- 106% for Top 20 hospital and pharmaceutical customers and 103% overall, directly following revenue growth trends.
• High-Spending Customers -- 124 customers with over $500,000 in annual spend, representing 82% of revenue and growing 3% year over year.
• Cash and Liquidity -- $713 million in cash, cash equivalents, and marketable securities, with the company remaining debt-free.
• Free Cash Flow -- $91.3 million, generated through normalized collections activity and outpacing adjusted EBITDA for the quarter.
• AI Spend and Infrastructure -- Sixfold year-over-year increase in AI investment, while cost of revenue grew at less than half the rate of prompt volume due to increased compute efficiency.
• Stock-Based Compensation (SBC) -- $41 million or 23% of revenue, primarily driven by a fiscal 2026 grant to the AI-focused research and development team.
• Non-GAAP Gross Margin -- 87.8%, compared to 91.9% in the prior year, reflecting the scaling of AI investment to support clinician engagement.
• Share Repurchases -- $54 million worth of shares repurchased during the second quarter, with approximately $347 million remaining in the existing program as of Sept. 30, 2026.
• AI Search Bookings -- Management reported the AI Search offering is now an eight-figure bookings product since its launch in July 2026.
• AI Accuracy Metrics -- 2.3% error rate identified in a study of 250,000 AI drug dose queries, with 40% of those errors classified as serious or potentially lethal.
• Fiscal Third Quarter Guidance -- Revenue between $195 million to $196 million and adjusted EBITDA between $102.5 million to $103.5 million.
• Full-Year Fiscal 2027 Guidance -- Raised revenue range of $678 million to $683 million and adjusted EBITDA range of $317 million to $325 million.
• Patient Context Feature -- Thousands of physicians adopted the new feature, which reduced average prompt length by 50% to 12 words.
• Fully Diluted Shares -- 188 million shares outstanding, representing a 6% decrease year over year.
• Revenue Growth Outlook -- Management expects slight acceleration in second-half revenue growth on a year-over-year basis compared to the first half.

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RISKS

• Tangney warned that accuracy remains a primary barrier to medical AI adoption, stating, "AI deals in probabilities. Patient care demands precision," after noting that 2.3% of AI drug dose queries contained errors.
• Tangney identified data security as a growing concern for institutional clients, stating, "I think we are entering this new phase here where hospitals I think, will rightfully start to say, okay. What kind of data might we be leaking?"
• Sonefeldt noted that the company faced a difficult year-over-year comparison in the second quarter because it benefited from rapid adoption of its multi-module integrated offering in the prior-year period.
• Tangney indicated that pharmaceutical medical legal reviews (MLR) can delay revenue recognition by many months, similar to previous vertical video product launches.

SUMMARY

Doximity, Inc. (NYSE:DOCS) is shifting its strategic focus toward becoming a comprehensive media and clinical search platform, leveraging its high penetration among U.S. medical professionals to capture a larger share of pharmaceutical marketing budgets. Management reported that the company's AI initiatives are centered on clinical accuracy and safety, highlighted by the deterministic DoseCheck tool and a proprietary partnership with the UpToDate clinical reference standard. The company stated that it is successfully transitioning pharmaceutical clients into keyword-driven search budgets, which historically have been allocated to general search engines. CFO Sonefeldt indicated that Doximity is achieving significant operational leverage by scaling its AI infrastructure more efficiently than its prompt volume growth. Furthermore, the company is deepening its health system integration by offering patient-specific context features directly within electronic health record workflows.

• Doximity is opening API access to its clinical intelligence layer to allow external developers to build productivity tools for clinicians.
• The company reported that 81% of pharmaceutical marketers surveyed independently by Bank of America expressed interest in spending incremental budget with Doximity, an all-time high for the company.
• New York Presbyterian and UCSD Health have integrated Doximity AI directly into their existing clinician workflows to improve access to medical research and patient specific treatment plans.
• Management noted that telehealth activity continues to grow, with call volumes now exceeding the peak levels recorded during the pandemic.
• The company plans to introduce an auction-based or biddable purchasing model for AI Search to facilitate more efficient go-to-market motions for smaller pharmaceutical accounts.
• CEO Tangney noted the importance of physician expertise in the medical layer of AI knowledge, stating, "UpToDate stands alone as the proprietary gold standard reference for point of care."

INDUSTRY GLOSSARY

• AI Search: A keyword-driven marketing and clinical search product allowing pharmaceutical companies to reach physicians at the point of care.
• DoseCheck: A deterministic verifier built by Doximity to ensure medication safety and catch drug dosage errors in AI responses.
• EHR: Electronic Health Record; the digital version of a patient's medical history used by healthcare providers.
• NRR: Net Revenue Retention; a metric measuring the growth or contraction of revenue from existing customers over a specific period.
• Scribe: Doximity's HIPAA-compliant ambient note-taking tool that documents patient visits automatically.
• UpToDate: A proprietary clinical decision support tool from Wolters Kluwer used as a gold standard for medical reference.
• Workflow Tools: Digital features including Dialer, telehealth, and scheduling used by clinicians to manage daily patient care and administrative tasks.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to Doximity's Second Quarter 26 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star-1 to raise your hand. To withdraw your question, press star-1 again. I will now hand the conference over to Perry Scott Gold, Perry, please go ahead.

Perry Scott Gold: Thank you, operator. Hello, and welcome to Doximity's fiscal 27 second quarter earnings call. With me on the call today are Jeffrey A. Tangney, cofounder and CEO of Doximity and Matthew Sonefeldt, 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, assumptions and are subject to various risks and uncertainties.

Actual results may differ materially, and we may 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 any other reports and filings with the SEC that may be filed from time to time Including our upcoming filing on Form 10-Q. Our forward looking statements are based on assumptions that we believe to be reasonable as of today's date November 5, 2026.

Of note, it is Doximity's policy to neither reiterate nor adjust the financial guidance provided on today's call unless it is also done through a public disclosure such as a press release or through the filing of a Form 8-K. Today, we will discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A historical reconciliation to comparable GAAP metrics can be found in today's earnings release. Finally, during the call, we may offer incremental metrics to provide greater insights into the dynamics of our business. These details may be 1-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 cofounder, Jeffrey A. Tangney. Jeffrey?

Jeffrey A. Tangney: Thanks, Perry, and thanks everyone for joining our second quarter earnings call. Today, I will cover 3 things, our financials, AI accuracy, and engagement. First, our financials. Revenue was $175 million in Q2, up 4% year-on-year and 2 percentage points above the high end of our guidance. Even with over 6x growth year-on-year in our AI spend, our Q2 adjusted EBITDA margin was 51%, or $89 million and 9 percentage points above the high end of our guidance. So while this remains our AI investment year, we continue to have strong margins. Okay. Now to AI accuracy. it is by far the No. 1 concern doctors have about AI. AI deals in probabilities. Patient care demands precision.

All of us have had the experience of hitting refresh on an AI answer and getting a different response. Thankfully, accuracy is where we continue to lead the way. For starters, we launched DoseCheck, a deterministic verifier for medication safety. In a study of over 250 thousand AI drug dose queries across all major models, we found an error rate of 2.3%. what is more, 40% of these errors are serious or even lethal. So from 1 million AI drug queries, 9 thousand patients could get hurt. that is too many. Our dose check catches these errors using our built in drug dataset. it is painstaking work, and we are proud to do it.

Second, we are excited to add UpToDate to our AI Answers. Every clinical AI model has read the National Library of Medicine which has all of the journals and guidelines, but Walters Kluwer's UpToDate stands alone as the proprietary gold standard reference for point of care. Their 7.6 thousand-physician authors provide unique advice about what to do when there is not an RCT. Or randomized controlled trial to answer the question. We think this real world medical layer is really important. And now it is 1 tap away inside of Doximity. Independent tests keep confirming our lead in accuracy and safety.

In September, we joined other vertical AI leaders like Harvey and Law, and Sierra in customer service to create industry specific benchmarks. When AI provider Fireworks created the results, Doximity ranked 1st among 16 leading models echoing our NOHARM study results in July. Physician input is critical to getting AI and medicine right. This quarter, we convened our medical AI summit, 150 physicians, chiefs and chairs from our nation's best hospitals, joined by 2 former U.S. surgeons general, doctor Vivek Murthy and doctor Regina Benjamin. To work through how we build clinical AI responsibly, together. As a physician's first company, this unique semiannual event is our North Star. And guides our road map. Finally, our engagement and client growth.

Quarterly active workflow prescribers, which includes our AI users, grew 34% year-on-year to record highs. Accelerating from last quarter. So for the first time, approximately half of all of the 1.8 million U.S. prescribers used us last quarter as part of their workflow. Our health system client footprint continued to grow as well, up to over 190 our AI suite from 165 last quarter including 10 of the nation's Top 20 hospitals. New York Presbyterian now provides access to Doximity AI directly from its EHR, giving New York Presbyterian Columbia and Weill Cornell Medicine clinicians convenient access to AI powered tools and the latest medical research within their existing workflows.

Over the past 5 years working with New York Presbyterian firsthand why they are consistently ranked among the nation's best hospitals we are excited to grow our AI toolset. With them. UCSD Health, the No. 1-ranked hospital in San Diego, is another AI client and 1 of the first hospitals to adopt our new patient context feature. Directly from a patient's chart, our AI can read that patient's notes, labs, imaging, conditions, and coverage to give patient specific answers and guideline based treatment plans. it is the difference between a doctor asking a general medical question and asking about the patient in front of them.

Our patient context feature is now available for thousands of them, and they are writing prompts half as long, 12 words, versus our 24-word average, because they no longer have to retype chart details into a search bar. Our AI already has the labs, notes, and problem list so it can find the pertinent clinical details deep in their record. To fit more workflows, we are opening API access to our clinical intelligence layer. If you are building time saving tools for clinicians, we would love to work with you. Just email us at bd@Doximity.com. Last, on the pharma side, our AI search commercial offering has been well received.

16 of the Top 20 pharma companies have already purchased with 3 more in contracting. And more than 100 clients attended our pharma AI showcase last month, our biggest turnout. Ever. To sum up, with dose check and UpToDate, we lead on AI accuracy and trust. With 190 health system AI clients and patient context, we lead on distribution and integration. And with AI search, now available to our pharma clients, we are growing into a much larger market. As always, I would like to end by thanking my Doximity teammates who continue to work incredibly hard to care for those who care for us.

With that, I will hand it over to our CFO, Matthew Sonefeldt, to walk us through our financials and guidance. Matthew?

Matthew Sonefeldt: Thanks, Jeffrey. Q2 was another strong quarter for Doximity. With AI usage driving accelerated adoption of our broader workflow suite, This validates our decision to expand AI investment in FY 27. Also improved AI cost efficiency during the quarter, which helped drive higher than expected profitability. Turning to our top line, Q2 revenue of $175 million outperformed our guidance with 4% year-over-year growth. This growth comes against a difficult year-over-year comparison versus Q2 26 when we benefited from rapid adoption of our multi module integrated offering. Revenue upside in Q2 was driven by solid performance across our product portfolio as well as growing interest in our AI search product.

Positive AI search demand signals include pharma company customers purchasing on average more than 2 programs each, and a doubling of available conditions driven by customer interest. We believe customer engagement with AI search continues to drive broader momentum across our entire pharma portfolio. In terms of customer metrics, our top 20 hospital and pharma customers produced net revenue retention, or NRR, of 106%, with overall NRR at 103%. Customers with greater than $500 thousand in annual spend represented 82% of revenue and grew 3% year over year, to a hundred and 24. As a reminder, these are trailing 12-month metrics. Turning to profitability, Adjusted EBITDA in Q2 27 was $89 million and represented a 51% margin.

Outperformance was split evenly between the flow through of higher than expected revenue and better than anticipated AI efficiency. Non GAAP gross margin was 88% versus 92% last quarter, As we shared last quarter, the majority of the increase in cost of revenue reflects scaling our AI investment to support rapidly growing engagement. As a reminder, over 90% of our incremental AI cost is for clinician usage. Even with significant engagement increases, we realized AI cost leverage. Efficiency drivers include prebuying more capacity at favorable economics, greater multimodal usage, and continued performance gains in our proprietary harness. We are encouraged by improving AI unit economics even as we increase the accuracy and value we deliver to clinicians.

On a GAAP basis, stock based compensation, or SBC, was $41 million in the quarter or 23% of revenue. This is consistent with the low 20% SBC guidance provided last quarter, As a reminder, this year's SBC increase is primarily related to the FY 2026 grant made to our AI focused R&D team. Excluding the grant, SBC would have been approximately 19% of revenue in Q2. We expect the impact of the AI grant to ease in FY 2028. Our GAAP effective tax rate was approximately 31% in Q2 compared to 15% in the prior year, driven by the tax treatment of equity compensation. Our non-GAAP effective tax rate remained at 21%.

In Q2, GAAP diluted EPS was $0.18 per share, and non-GAAP diluted EPS was $0.36 per share. Fully diluted shares declined by 13 million, down 6% year-over-year to 188 million shares outstanding. Our balance sheet and cash flow generation remains strong. We ended Q2 27 with $713 million in cash, cash equivalents and marketable securities, and we remain debt free. We generated $91 million of free cash flow. Outpacing adjusted EBITDA and up from $40 million in Q1, As expected from last quarter, collections activity normalized. During the quarter, we repurchased $54 million of shares, We believe share repurchases remain an attractive opportunistic use of capital.

As of September 30, we had approximately $347 million remaining in our existing repurchase program. Let's turn to our outlook. For revenue in Q3, we expect a range of $190 million to $196 million representing 6% year-over-year growth at the midpoint. For FY 2027, we have raised our revenue guidance range to $678 million to $683 million also representing 6% growth at the midpoint. I expect slight acceleration in second half revenue growth versus first half. On a year over year basis. For FY 2027, we are increasing the guidance midpoint by $4.5 million This reflects the flow through of our Q2 outperformance plus a modest incremental raise driven by growing visibility into the commercial AI pipeline.

AI search is now an 8-figure bookings product and we started recognizing revenue from the product when the first program launched in July. As a reminder, Q3 is our upfront season. This is when most pharma clients commit the majority of their marketing budgets for next year's programs, and what are called upfront contracts. It is the largest bookings quarter of the year and most contracts are signed by the end of December. We then typically recognize those commitments as revenue over the following 12 months, depending on the timing of program launches. 1 key difference this year is the availability of our new AI search product.

To date, we have seen early broad based adoption with 16 of the Top 20 pharma companies having purchased programs, and 3 more are in our pipeline. We will provide an update about the upfront and AI search progress in our February call. In Q4, we expect year-over-year revenue growth to be similar to the Q3 guided growth rate. As with prior years, we have lower visibility into Q4 until we finish the upfront. In addition, new products like AI search have a steeper ramp the first calendar quarter of a new year, as we help new customers through the medical legal review process. As a result, we expect a gradual ramp in AI search revenue throughout calendar 27.

For adjusted EBITDA, in Q3, we expect a range $102.5 million to $103.5 million representing a 53% adjusted EBITDA margin at the midpoint. For FY 2027, we now expect a revised range of $317 million to $325 million representing a 47% adjusted EBITDA margin at the midpoint. This outlook incorporates the continued investment required to support the stronger than expected AI engagement we have seen this year. In the second half of FY 27, we will continue to invest in growing clinician AI usage and expanding our moats. Key initiatives include increased safety and accuracy through programs like dose check, greater clinical content through partners like UpToDate, and growing distribution leadership with US health systems.

In closing, our long term approach remains unchanged. We will continue to deliver 1 platform for AI clinical decision support documentation, and patient communication. Improving efficiency in our AI investments allows us to continue playing offense in the midst of this generational technology shift. And help our clinicians be more productive so they can provide better care for their patients. Lastly, as a reminder, you can find our modeling considerations appendix in our prepared remarks, where you can see more detailed financial commentary. And with that, I will turn it over to the operator for questions.

Operator: We will now begin the question and answer session. Limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press star-1 to raise your hand. To withdraw your question, press star-1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Peterson with Raymond James. Brian, please go ahead.

Brian Peterson: Hi, gentlemen. Thanks for taking the question. So, Jeffrey, I was encouraged by your comments on AI search, the 8-figure bookings, 16 of the Top 20 with more on the way. Maybe you could talk about how that kind of built over the course of this year versus your expectations? And is there anything qualitative that you could share about what they could do for your positioning into 2027?

Jeffrey A. Tangney: Yeah. Thanks, Brian. This is Jeffrey. I will say, qualitatively, search is exciting. To our clients and to us. We have had more what they call top to top meetings with pharma companies chief marketing officers, CEOs in the Top 20 and they are going really well. it is an exciting time. We are getting real insight into the real problems that real patients and real doctors have without having to fly around and do lots of focus groups and rep rides and things that frankly are not as efficient. So we are excited about that. We think we are entering a whole new market here which is historically been paid search.

And I will give a hat tip to Bank of America. They did a survey of 35 pharma marketers completely independent survey. We had yeah, nothing to do with it. And they asked if you had more incremental budgets more to spend on marketing, who would you spend more with? And we hit an all time high with 81% of the respondents saying they would spend more with us. And I think that is because of the traction we are seeing with our 190 health system partners and AI search growth, But interestingly, the group that fell the most there was paid search or Google. Which fell to only 6% of the respondents saying that they would spend incrementally there.

So I think that is proof that with AI search, are entering search budgets is about $14 billion a year in The United States according to eMarketer just for pharma. So $14 billion a year spent on paid search That is a much larger market than we have been in historically, and we are excited to enter it. So as I think of the build over the course of this year, think we will continue to see a big upfront there.

But starting early next year or late this year, with a couple pilot clients, we will also offer a binnable or auction based purchasing there, which does make things a lot easier for our clients and for us And, again, brings us into a. An exciting whole new world that is more like paid search and less like endemic marketing.

Brian Peterson: Appreciate the color. And maybe just a follow-up I wanted to hit on some of the AI compute things that you mentioned in terms of efficiency measures. In terms of multimodal usage or some of performance gains from your harness. Could you guys unpack that a bit? I know it is been a key topic of conversation with investors. Thanks, guys.

Jeffrey A. Tangney: Sure. Matthew can speak to this a bit as well. I just spoke at the fireworks conference a couple of days ago. there is a lot going on in AI inference right now. And most of it is good for companies like us in that there are just more options and the platforms are getting more flexible to be able to handle, again, the security and medical needs that we have. We have a great team here. I will say I continue to be very pleased with the pathway acquisition and the new hires We have kept almost all of our AI team, so no turnover.

So from our end, we are really excited about, again, all the new software tools that are allowing us to do our job better at helping doctors make better decisions at the point of care.

Matthew Sonefeldt: Yeah. And I think you just pile on a little bit. I think, honestly, the most important AI investment metric we have is just accelerated engagement. Right? Speaks to us kind of rapidly engaging with clinicians through ASK, through Scribe, through what is now the most accurate--the most accurate clinical AI product in the market. So I think that is a good place for us to be. The accelerating the edge is the proof point. I think we are also getting better at learning how to develop with the infrastructure. And so all the things that we talked about in the prepared remarks, their performance on our proprietary harness, more multimodal deployments, buying more capacity in computer up front.

All of those things help. Like, maybe my favorite financial metric from the quarter was our cost of revenue grew less than half of our overall prompt volume. In Q2. And in Q1, those 2 things were pretty similar. Right? Our cost of revenue grew at a much higher rate at a similar rate as volume. So I think we have shown that we can be efficient as we deliver great results. Look forward to keeping that up.

Operator: Your next question comes from the line of Michael Cherny with Leerink Partners. Michael, please go ahead.

Michael Cherny: Great. Thanks so much. Maybe just 1, Jeffrey, here, if I can. I would love to get a little bit more detail on the UpToDate partnership. First time we have heard from you since that was announced, Walter's Kluwer, well regarded partner in the market. But how did you settle on that being the right partner at this point in time as you build out your AI capabilities? And as you think about what your other opportunities were, what else was the range of outcomes that landed here and landed at this being the right and the best partner at this point in time in particular? Thank you.

Jeffrey A. Tangney: Thanks, Michael. Yes. We are excited. Super excited to work with UpToDate, and, you know, they are picky. They are the No. 1 player in the market, the most used, most trusted, I think Evercore ran a survey on this a little earlier this year. I mean, they are far and away, head and shoulders above anyone else. They are I like to joke, IQVIA like market share when it comes to being the clinical decision support point of care tool for doctors, most used, most trusted by far. And like I said, they are choosy, so they have chosen to, work with Nuance, Microsoft, and us. And frankly, not many others.

And I think what we are bringing Greg and his team is a lot of AI savvy when it comes to being able to pull in broader faster moving evidence segments, what would they bring us and uniquely in the market, just keep in mind, you know, everyone has access to, all of the journals that are paid for largely by government grants and you know, are all in the National Library of Medicine, Everyone has access to all that, all the frontier models. But very, very few. I mean, none of the frontier models have access to UpToDate. So we are excited about that.

We are just getting out in market with it now. it is been just a couple of weeks. Since our announcement, but the client reaction to it has been very positive. And I would just say the partnership and the people also has been very synergistic. it is you know, UpToDate is a mission driven company, similar values, to us and our team. And, it seems to be a just a strong synergy of you know, our AI evidence tools and their unique expert opinion and physician expertise in that medical layer of knowledge that frankly is not in a randomly controlled trial or published area.

A final point of note, we have significant customer overlap They have 2.5 thousand health systems as clients. We have, you know, 190. So we see a lot of overlap between our client base and that also creates additional synergies for us. So, anyway, very excited about UpToDate, and you will see more from us with them over the coming quarters. We are just getting started.

Operator: Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Craig, please go ahead.

Craig Hettenbach: Thank you. Jeffrey, on the point of around half of all prescribers now using the workflow tool, can you just touch on what is driving the acceleration there? And then what type of signal may that provide for growth in the coming quarters?

Jeffrey A. Tangney: Thanks, Craig. Yeah. that is a real milestone for us as a company. Over half of all US prescribers and there are about 1.8 million U.S. prescribers, over 900 thousand U.S. prescribers, and that is MD, DO, NP, or PAs. So folks who can legally write prescriptions in The US. They have over half of them in the last quarter use our workflow tools is a big milestone. We have never been that big before. And, as we said, that is up 34% year-on-year. So it is a good question. what is the biggest drivers? The 2 biggest areas there are telehealth and scheduling.

So telehealth continues to grow in this country. it is very popular, especially in disease categories like diabetes and you know, let's face it, doctors are finding it is more efficient and patients of course appreciate the no commute of being able to see your doctor virtually during the day. We are seeing a lot of doctors now have a half day or a full day a week that is just dedicated to work from home telehealth, and we think that is better for doctors and their overall work life balance and sanity. it is better for patients. We are really proud to help power it.

And, again, we have never done as many telehealth calls as we did this last quarter where, again, seeing continued growth there kind of quietly. You know, during COVID, we talked about telehealth a lot and that it sort of receded, but we are well above the, call volumes, that we were doing during COVID now, and so we are just seeing continued growth here. In 2023, 2024, 2025, 2026. Scheduling also is a growth area for us. Doctors, of course, need to have their you know, schedule all their shifts We make it easy to call each other, secure message them. So that is a continued growth area for us. Those are the 2 I would point to.

The third, of course, is AI, which we have already been talking about a lot. But the reality is that is a whole new category of usage and growth for us. And I am particularly excited about the thousands of doctors we have now using the full patient context. So doctors do not want to go type the full patient history into a search bar. They want a suite, not a search bar, and that is what we offer them.

We offer them a suite, not a search bar, That suite allows them to do the telehealth visit, to have notes taken on that visit, what we call Scribe, and then to ask questions about that visit with the patient context again, that is the most efficient way to get the best care in this country. And we are seeing that with that full patient context, there are already cases of tough diagnoses that probably would have taken a lot longer. Right? Specialist visits and, lots of follow ups. And AI is really very good at you know, finding that rare pheochromocytoma on page 89 and triangulating that into, you know, a patient that has a 1-in-100 thousand disease.

So it is just so fulfilling for me that the my eyes get wide and you know, frankly, it is right to the core of our mission. To help doctors, again, provide better care That patient context in that suite and that AI growth, which is over half of our workflow users, are the 3 big growth areas. Telehealth, scheduling, and AI search.

Matthew Sonefeldt: And, Craig, I think you asked a little bit as well about how that leads into a monetization opportunity. You know, I think I draw upon some of my experience in consumer web, in particular at LinkedIn. And I think in those models and in the same business model that we have, your engagement growth leads your monetization opportunity. I like that we are building our engagement growth the right way, based on workflow, based on the value that we are adding for our clinician users. And I would be remiss if I did not point out that a year ago, our workflow active user growth was in the single-digits. Today, it is 34%. So it is accelerated dramatically.

I think that just gives us a pretty incredible opportunity over the next couple of years to grow our business as well. So we are really excited about that.

Craig Hettenbach: that is helpful context. Thanks. And then just as a follow-up, Matthew, nice to see the upside to margins in the quarter in the guide. You pointed some things in terms of efficiencies. As you kind of play this out, like, is there anything else you would point to in terms of perhaps building confidence of operating leverage in the business?

Matthew Sonefeldt: Yeah. I mean, I think we talked a little bit about this in the last quarter earnings call. Where the this is a matter of time sequencing. Right? In order to drive that network engagement, the value for our users, That happens before you drive the monetization. That follows it. And there is nothing about any of the AI investments and the early monetization we are seeing with AI search that would suggest that our margin profile would be dramatically different. Potentially, it could even be better over time, although it is not necessarily what we are overoptimizing for.

But I think more than anything else, we are really in encouraged about the incremental margins that we will see in the business. As we really start to scale AI search in FY 28 and beyond. Nothing gives us pause there, and revenue is gonna be the ultimate thing that gives us the most leverage. I think some of the efficiency on the cost side, just gives us more encouragement in that direction. In this past quarter. Got it. Thanks.

Operator: Your next question comes from the line of Ryan Daniels with William Blair. Ryan, please go ahead.

Ryan Daniels: Yeah. Thanks for all the color, and thanks for taking the question. Jeffrey, 1 for you. And you talked a little bit about this, but I want to dive a little bit deeper into it. With 16 of the Top 20 pharma clients buying AI search solutions, Are you able to tell us that is at all cannibalizing any of your other sales with them? Or is it really all proving to be incremental at this point?

Jeffrey A. Tangney: Yeah. it is a good question, Ryan. I would say it is mostly incremental. Of course, it is impossible to know that exact exactly. But I think if we will know that exactly when we offer it as a biddable solution where they are purchasing it usually out of a separate team that is more of a search team. Because it is more of a keyword driven approach to marketing. And that typically is a separate marketing team within our clients. So it is it is mostly incremental.

I cannot promise you it is 100% incremental, but I will say going back to that survey of pharma marketers that was done, you know, we are proud to be at an all-time high, 81% incremental spend, and I think that is mostly that paid search bucket that we are now entering $14 billion a year spent on Google, by pharma per year, and it is interesting in that same survey that Google is at an all-time low at 6%. So again, mostly incremental and the excitement to be able to really be in those highly relevant contextual places is something that we are excited about.

Matthew Sonefeldt: Ryan, the only other thing I will add, there was some of the language in the prepared remarks that you will see around Q2. We saw positive growth in Q2 across all of our major product categories. And that is really encouraging. And while I think the doc I am sorry. While the AI search pipeline is continuing to grow. Know, it is still it is still early days and pretty nascent. Most of what we are kind of seeing in the upfront cycle so far, again, early in the cycle, is demand for our core products. Whether it is in the news feed, or it is, you know, video around Tyler, and telehealth. I think we.

We are in a good place with a solid foundation to build AI search on top of. So I think that is encouraging for us too as we go throughout the year.

Ryan Daniels: Yeah. Super helpful color. And then Jeffrey, as my follow-up, it seems like we are seeing a lot of tighter governance among health systems, especially bigger ones, academics, about how doctors use AI. So early on, maybe just download a free tool. But now they are getting a lot more concerned about liability and patient care. And I am I am curious how that plays into your advantage given the outcomes you have been able to present, you talked about earlier, plus the massive channel distribution you have with your dialer asset into those enterprise accounts. Thanks.

Jeffrey A. Tangney: Yeah. Thanks, Ryan. Yeah. I think on last quarter's call, you know, we had made some comments about, you know, AI accountability. that is that is the next age or next phase. For our health system clients, which we did grow from 165 to 190 So, you know, 25 new clients in the last quarter. And we are gonna keep growing there. We have over 300 clients overall on our telehealth and other products. And we have, you know, privacy agreements in place with all of them, but we do not have the AI review with all of them. But those 300 enterprise clients that we have are nearly half of all US physicians.

So we cover all the largest health systems And, that is where we really see this AI growth in TAM. 1 specific case that came out this last week was John Hopkins They had 3 thousand patients that they had to send an email out to. Which is not fun for anyone to do. Telling them that an employee had uploaded some of their data to a unapproved AI.

So when we see things like that happen and we have seen a bunch of other health systems, you know, put in IP level block I think we are just gonna see more of that happen because the reality is people should be concerned about the security of their patient data being put into put into AI that may leak out in various places. So I think we are moving beyond the Wild West phase of AI and health systems. We are proud to you know, announce NYP this quarter as a new a new AI logo. We are proud to announce UCSD. Both Top 20 hospitals as a new logo But I do think you are right.

I think we are entering this new phase here where hospitals I think, will rightfully start to say, okay. What kind of data might we be leaking? And what sites, frankly, do we need to block They have done that for years and years. it is not a new thing for them. I think they have just been catching up on how much that AI leakage might be happening. Yep. Okay. Super insightful. Thank you.

Operator: Your next question comes from the line of Elizabeth Anderson with Evercore ISI. Elizabeth, please go ahead.

Elizabeth Anderson: Hi, guys. Good afternoon. Thanks so much for the question. Obviously, talked about the 16 of the top 20 customers or pharma customers in terms of 3 in the pipeline. Can you talk to us about the smaller customers? Are they also kind of in the same you know, are they a little bit more red thinned or they are just smaller? And sort of how do we think about the typical ramp of some of these buying? Are they kind of trying it out first and then sort of with future expansion plans in 2027, if that goes well? Are they jumping right in?

Just a little bit more color on how you see, those 2 segments progressing over the next few quarters to year would be very helpful.

Jeffrey A. Tangney: Great. Liz, this is Jeffrey. I will take a first crack with a hand to Matthew here. Scott answer is, we know that the medical legal review processes of the top 20 pharma are intensive, and we wanted to start there. So we started at the top. If you will, at the most difficult, place. And that is been going well. It does take time. Obviously, we have to go through and understand you know, suppression keywords and keywords and where things appear And, you know, there is lot of testing and all that, but it is all it is all part of the process.

And, again, we proudly work with you know, this would be 19 of the Top 20 pharma with the 3 we have in contracting. In terms of smaller accounts, actually, things move faster there, but generally speaking, we have not we have not focused as much on selling to that audience because we think they are gonna be the perfect clients for our new auction or biddable tool. And that will be, you know, less a more efficient go to market motion for those smaller accounts We started with our more strategic bigger accounts, which is what we typically do. Again, our best new products go to our best or biggest clients first.

Matthew Sonefeldt: But, Matthew, Yeah. I actually do not know if I have that much more to add. I think probably 1 of the things that signals well is 1 of the data points from the prepared remarks, which is that based on customer demand, we have made available kind of more than double we started with in terms of available conditions. And that really just speaks to I think, in a broad set of places that pharma customers are interested in conditions, drug areas, different types of treatments, you. You will see that there is just a lot of interest here. And Jeff's point, AI search is gonna become a lot more accessible as we move into f y 2028.

So we are excited. We are encouraged. I think the demand is there, as we just continue to ramp it up.

Elizabeth Anderson: Yep. That makes a ton of sense. Thanks for all the additional color.

Operator: Next question comes from the line of Ryan MacDonaldDonald. With Needham and Company. Ryan, please go ahead.

Ryan MacDonald: Hi, thanks for taking my questions. Congrats on the quarter. Jeffrey, as we think about the example you provided with New York Presbyterian now providing access to the AI solution directly through the EHR, Once that occurs within your health system clients, what impact do you see or what kind of uplift do you see on usage And then how important has that sort of uplift or that EHR integration been as you have been going to market with the AI search products?

Jeffrey A. Tangney: Great, Ryan. Yeah, thanks. I will say that with our patient context doctors or clients, we have seen roughly a doubling in the amount of usage even though they are able to type less themselves because they have more patient context coming in, there is a big time savings there and again, I think that is really the future is know, your doctor will be sitting there with you in a visit and know, the AI will be there with him or her, and it will have again, your history there so that nothing gets missed. And that is really a very exciting future.

With regard to just, you know, turning on within an EHR, we have done that in lots of places. I gotta be honest. The truth is just putting a button inside an EHR does not. In and of its get immediate usage. You actually have to do a bit of training and webinars Maybe this is a sad statement on electronic health records, but you know, a lot of doctors are trained not to click a button if they have not been trained on it.

And there is there is just a lot of that sort of heptid behavior around trying out new features or new things inside some of these systems, which have lots of cul de sacs and strange behaviors. So, we are good at that. Again, we been working with them for years usually as a partner on telehealth and scheduling, and it is actually been fun for our team to have, you know, our monthly Zoom call be about a whole new series of features and products. And I think we have got many months of good Zoom calls there with our clients to help them see all the things they can do with it.

But the short answer is patient context does lead to an immediate lift but just being inside an EHR, less than you might think.

Ryan MacDonald: that is helpful color. Appreciate that. And maybe just as a follow-up, as you think about sort of expanding that top down penetration within the health systems, how valuable do you think the UpToDate partnership can be? And is there any sort of go to market sort of relationship there where they can help bring you into obviously, that very large customer base that they have. Thanks.

Jeffrey A. Tangney: Thanks, Ryan. You are absolutely right. UpToDate is, you know, virtually everywhere in The US health system, and as I said, our teams have been getting along great. We think that, again, they are just a very high integrity, you know, real boom for the overall health system. So we are proud to work with them, and we hope and expect to keep expanding our relationship. I do not have anything to announce today on go to market with them, but that is some of the things that have been discussed.

But let's just say that I think it is the beginning of what we think will be a very strategic, very. it is a long term partnership, multiyear, We are excited to keep growing with them. Awesome. Thank you.

Operator: Your next question comes from the line of Scott Schoenhaus with KeyBanc. Scott, please go ahead.

Scott Schoenhaus: Hey, guys. Thanks for taking my just wanted to follow-up on Elizabeth's question Just wanted to make sure I understood, how long does a typical medical legal review process take? And how should we think about that ramp in AI search revenues after you clear that process? Is it very back half weighted in calendar 27?

Jeffrey A. Tangney: This is Jeffrey. I will chime in first. I mean, for new products, MLR review can be many months, and we learned this candidly the hard way back with our vertical video product. As you may recall, a few years ago, And, you know, we had a lot of signed contracts but we did not have the revenue coming in for a many-month gap because video, honestly, is difficult for lawyers to review well. And there is, you know, lots of tools and processes that need to be put in place to be able to comment on frame 68 or, you know, 25 seconds in.

I think we are being appropriately cautious here in our time frames, and we are assuming that it will also take many months. To get live with these contracts. So that does lead to, again, I think, again, cautiously optimistic approach, to the rest of this fiscal year.

Matthew Sonefeldt: I will add a couple of points. I think 1 is that I think you see that assumption on that gradual ramp especially kind of from a calendar year 2027 standpoint in our guidance. Right? Our growth rate in Q4 very similar to our growth rate in Q3. And part of that is because we know that, especially for customers that are buying AI search for the first time, like, there will be that ramp up that just described in terms of the MLR process. I would say, you know, in terms of some of our early upfront activity, a lot of the AI search contracts kind of assume that too. Right?

It will be a ramp up throughout the next calendar year. So that is a dynamic that we are seeing as well. Do not think any of that is surprising. Based on what Jeffrey described about some of our past product cycles. But that is kind of what the assumptions are that we are making for our business.

Scott Schoenhaus: Perfect. Thanks, Matthew. And just as a follow-up, so that 6% growth rate for 3Q and then for 4Q, in which we start into the next calendar year, typically, people read that as a reflection of your view of what maybe the market can grow at or what you can grow at. How should we view that in context of, what you are viewing the market growth at? As you have outlined 6% growth into the calendar new year. Thanks.

Matthew Sonefeldt: Yeah. I think it reflects the beginnings of reacceleration in our business. Right? I provided the comment that our second half. Our fiscal second half outlook has slight acceleration versus our first half. I think that is where you see the beginnings of optimism for us as we look into next year. The same time, you know, it is early. We are not through our upfront cycle yet. And so I think we wanna be thoughtful, you know, especially as we think about kind of fiscal Q4 and calendar Q1. See how the upfront lands. Also know that of the AI search demand in particular will ramp throughout the year.

But I think we are we are pretty encouraged and optimistic as we sit here today in November for future growth.

Jeffrey A. Tangney: And, Scott, I will just add on the market itself. I think some cautious optimism that hopefully next year is better than this year. This year was perfect storm of a lot of different things ongoing the market's way. And so I think there is some reasons to be a little more optimistic for next year.

Scott Schoenhaus: Thanks, guys.

Operator: Next question comes from the line of Richard Close. With Canaccord Genuity. Richard, please go ahead.

Richard Close: Yeah. Thanks. Congratulations on the report in the AI progress. So Jeff or Matthew, just given the comments, that AI may be additive and a different buyer. I am curious, do you have separate sales force going after this? Or is it the same account teams as the other products? And then with respect to the upfront contracts that you are working on now. Is AI bundled in or is that you know, completely separate since it is a different budget? Possibly?

Jeffrey A. Tangney: Hey, Richard. This is Jeffrey. Right now, we have an overlay, we call it, but basically a team approach where we have some new experts we have in the AI search who join our sales team, in you know, meeting with some of these search budget holders. And right now, the contracting, I mean, we typically have these master service agreements, and then we have these statements of work they are called Sometimes they are together on the same statement of work. Usually, I think it is a separate statement of work.

But, again, this is the advantage of being a reference client, someone who is already, you know, vertically working with all of the top 20 pharma, it is been relatively low overhead for us to add on this search.ai business. To existing clients.

Richard Close: Okay. Thank you.

Operator: Your next question comes from the line of Jessica Tassan with Piper Sandler. Jessica, please go ahead.

Jessica Tassan: Hi, guys. Thank you very much for the question. And congrats on New York Presby and the 25-plus new AI hospital wins. So as you guys have started to deploy AI search, including patient context in these enterprise contracts and commercialize the AI search offering via pharma bookings, Can you just you help us understand how you are monetizing this product? Basically, what the 8-digit bookings consist of? Are those enterprise subscriptions or pharma bookings or both? You know, what I am trying to get at is just in these enterprise contracts, is AI search exclusively monetized via subscription revenue? So extensively for those 190 clients? You know, it might hit at day 1.

And then as pharma revenue kind of exclusively generated from independent physicians or physician practices using Doximity? Any color there on just how exactly these AI products are being monetized would be super helpful.

Matthew Sonefeldt: Hey, Jessica. This is Matthew. You for the question. it is a good 1. I would say the primary way we are monetizing and when we talk about 8-figure bookings, it is primarily with our pharma customers and telling AI search as an advertising product. We do sell AI as a separate enterprise agreement to health systems customers. We charge a nominal amount as part of our broader workflow suite. And so I think as we think about this going forward, we the primary monetization engine being on the pharma side of our business. Specifically through the ad products that we sell. Okay.

Jessica Tassan: that is great. that is that is extremely helpful. And then just any early thoughts on ROI for the pharma educational content displayed in AI search relative to Doximity's core business? I think, Matthew, you mentioned most of the early upfront bookings are core Doximity. So does that kind of parity ROI? Just interested in any early thoughts on ROI for the educational content in AI search. Thanks again, guys.

Matthew Sonefeldt: Hey, Jessica. I think the answer is it is it is just too early. A lot of these programs just launched in the last few months. That being said, this is the most contextually relevant product we have. And so I think the working thesis is give us a few more months. We will have more kind of results in But this should be just as, I would say, ROI strong as the other products, if not better. Then I think it is just also making all of our product portfolio better. there is AI signal now in other products. You know, when you buy AI search, you are not just buying media. You are buying, you know, insights.

You are buying targeting the other parts of the platform, And so everything gets better. Everything gets a better education at the right time to the right docs. So I think the long and short of is it is a little too early right now, but the thought is it will be just as good, if not better.

Operator: Your next question comes from the line of Alexei Gogolev with JPMorgan. Please go ahead, Alexei.

Alexei Gogolev: Hi. This is Destiny Jackson on for Alexei Gogolev. I wanted to touch on NRR. Saw that it moved down for overall to 103%, and to 106 for Top 20. Can you touch on what is driving that trend down and what are the levers to reaccelerate expansion?

Matthew Sonefeldt: Hi, Destiny. Thanks for the question. The I would say those metrics tend to follow our revenue growth. And I think we see that as being at a trough level. Like we said, we are we are expecting the beginnings of re reacceleration in the second half. Usually, those metrics follow the rate of revenue growth. The also, I would say you know, as we move forward and something I kind of am thinking about know, as a newer person in my seat, like, I think these metrics may not be the right set of metrics to measure our growth going forward.

I will take the customer count 1 as an example. it is very focused on our largest customers that we have landed, had in place for a long time. It misses our small and medium growth segment, which has been 1 of the faster growing segments for several quarters now within our pharma business. So I think we will see and evolve the right metrics for our next chapter of growth. But it is not something I am particularly worried about as know, we consider the opportunities that are sitting in front of us over the next several quarters.

Jeffrey A. Tangney: Destiny, I would just add on the reacceleration point. Think there is 3 things you can look at. 1 of them is just AI search, new incremental. We are getting deeper better breadth at all of our customers, even the existing ones in particular. The core, the other products have higher value because of the search signal. there is more excitement around just the whole portfolio than we have seen in a while. And then, you know, my earlier comment, cautious optimism in the market itself will be a little bit better, at least a little bit better next year than this year.

So I think all 3 of those could contribute to, you know, improving NRR as you go forward.

Alexei Gogolev: Thank you. And then as a follow-up, the customer count for the customer is over 500 thousand. That came down for Q2 Can we touch on what drove that deceleration?

Matthew Sonefeldt: And, Destiny, I am gonna have you repeat the question again. It just sounded a little garbled on our end. Perry. It was on the customer account for 500K. Customers. Came down this quarter, so I just wanted any color there. Oh, alright. So Q2 is actually usually 1 of the weaker quarters for that metric just from an expand standpoint. We just see less kind of incremental upsell activity. that is basically what I would point to if you look at past quarters and past q twos and past years, you see a kind of similar pattern of relative seasonal weakness. that is the primary explanation for that.

Alexei Gogolev: Thank you.

Operator: Your next question comes from the line of Allen Lutz with Bank of America. Allen, please go ahead.

Allen Lutz: Good afternoon, and thanks for taking the question. First, Jeffrey, thanks for the shout out on the survey. Really appreciate that. Can you talk a little bit about the evolution of the competitive land here in AI search? You are you are looking at really 2 very different markets in your traditional pharma customer and then the health system customer. Would love to get a sense of how the competitive landscape in each is evolving over time. Thank you.

Jeffrey A. Tangney: Thanks, Alan, and I appreciate you, listening to the shout out. I would say I am reluctant reluctantly come to like your survey because it is you know, 35 pharmaceutical marketers, which is good coverage. Given the top 20 is most of the market. And, you do a good job of, you know, adding in all the various companies or partners that they work with. You know, your chart there pointed it out, I think, pretty clearly. We are at the highest level there of interest in incremental dollars we have ever had. Paid search or Google is at the lowest level it is ever been. And some of the new search players there have also dipped.

As I think know, again, there are ups and downs in the market, and some folks are you know, pleased with their partnerships and some are not. So I guess my short answer to your question is that I think you are pointing us to the fact that these really are 2 different markets. 1 is search and 1 is media. And the good news is we are really expanding as of a year ago, we were, you know, a pure media company. Now we are a media and a search company. And as Perry pointed out a few moments ago, there is a lot of synergy between the 2.

Because the reality is Google, knowing that you search x here, means that they are better able to target you on YouTube there. And those 2 things go together very well, and that is what we see with our business our telehealth, which, again, is at all time highs, are scheduling our other workflow tools in addition to AI search. Appreciate that color.

Allen Lutz: And then 1 for Matthew. The margins in the quarter were really strong. And you talked a little bit in the Q&A around some of the operating levers you could see in the business. Would love to get a sense of are there opportunities to invest where it would be high ROI investment And how do you think about investing more in things like AI search versus maintaining these margins north of 50%? Thank you.

Matthew Sonefeldt: Yeah. And I think you see us making that concerted investment in our EBITDA margin for the full year. I think we have what we feel like is the right firepower to be able to make some of these incremental investments. We literally look at things that we can do differently on a week in and week out basis. Especially right now and given it such a dynamic time, And that is led us to kind of, I think, continue to iterate on the infrastructure that we are using, begin to make investments, like, in the auction biddable product that Jeffrey was describing earlier, kind of play offense through some of these partnerships. We will continue to do that.

I think what you also see is that we have a really great business model as a company. It generates really incredible incremental margins. Especially when we outperform from a revenue standpoint. And we have a really great team. Who excels at executing. And I think you saw that this quarter again. I will share the metric I shared earlier in the Q&A, which is this quarter, our cost of revenue, which is highly AI focused right now, grew at half of the rate of our prompt volume in our AI products. Whereas last quarter, those things were 1-to-1. So we saw from that measure kind of a 50% efficiency on our incremental spend.

And that is just a huge, huge kudos and credit to our team who continues to innovate on AI infrastructure. So we will continue to play offense. Very much so, but I am also pretty confident in our ability to generate great incremental margins as we are doing it.

Allen Lutz: Great. Thank you.

Operator: Your last question comes from the line of Ryan Halstead with RBC Capital Markets. Ryan, please go ahead.

Ryan Halsted: Thanks for squeezing me in and taking my question. Any perspectives you can offer on just the general health of HCP marketing budgets going into the upfront season? Yeah. Just seeing a lot of biopharma activity lots of new drug approvals. Just curious if how you are seeing HCP marketing budgets so far.

Matthew Sonefeldt: I can take a first crack at it. This is my first go around in this seat, here at Doximity and kind of thinking through the upfront. And, you know, as I go through it and I compare it to a lot of the team's experience last year, think it feels like a more stable environment. I would not say it is world beating or having a massive growth uplift. I think there are some dynamics in terms of pharma approval pipelines that are improving. And whereas last year, there was a lot of policy uncertainty and friction. I think that is stabilizing. Although I would not say you know, it is kind of up into the right.

And so I think it feels like a more stable a more comfortable environment to do business in. But not necessarily 1 that is dramatically reaccelerating from a macro standpoint.

Jeffrey A. Tangney: Yeah. This is Jeffrey. I will just add, you know, you look at the iShares Pharma ETF, it is up about 40% year-on-year. And you think about where we were a year ago compared to today, again, there were a lot of negotiations around price and tariffs and there is just a lot of lot of things in the mix that I think we look at this year as a more stable environment. For us to grow and you know, do our jobs.

Operator: There are no further questions at this time. I will now turn the call back to CEO, Jeffrey A. Tangney, for closing remarks.

Jeffrey A. Tangney: I would like to end by thanking the entire Doximity team for their hard work serving more doctors every day than ever before. So thank you everyone for joining.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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