Doximity, Inc. (DOCS) Earnings Call Transcript & Summary

All right. Great. Well, welcome, everyone, and glad to -- Jeff told me there was going to be one person in here, and there's a full room. So we're excited to have everyone in. We've got Doximity with us. Maybe I'll just do the quick disclosure for everyone. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So maybe with that, really excited to be here. This is Doximity. Like I mentioned, we got Jeff and Nate with us today. And what we figured we would do, guys, is spend some time, maybe off the bat here, just having you talk a little bit about what Doximity is. I think most people probably know, but this may be a new audience for you. So maybe that's a good place to start.

Sure. Sure. [ Matt ], thanks for having us. And it's been a terrific year here working with Morgan Stanley. Yes, I'm generally surprised and impressed by how many people showed up on the last slot of the last day of this conference. So I hope there's more interest in health care and tech. I guess maybe that's -- we're all getting older and caring more about health care. That's good. That's good. So we, at Doximity, we're building the physician cloud. We're the place that physicians can go, be more productive, so they can provide the best care for their patients. Today, we have over 80% of all U.S. physicians as active members. And they're doing millions of interactions with us each day. They're doing telehealth visits with their patients. They're signing e-signatures and prior-offs that flow back into their electronic health records. They're reading news and alerts on the latest treatments. So we have a very active user base there as I'm sure we'll talk more in a moment. We're proud to count all of the top 20 hospitals and all of the top 20 pharmaceutical companies as our clients, and things have been going well with them. We had a 171% net revenue retention rate over the last 12 months. So we've been able to grow well with them as they adjust to this new normal that we are all entering.

And so, Jeff, I think maybe spend a second. If I think about it, when people first hear you can do e-signature, you can get news alerts, et cetera, some of that sounds like things that we, in the nonphysician world, have had for a long period of time. So maybe just level-set with folks on what does the physician daily workflow look like and how are you guys driving that improvement. And where are you going to take that into the future?

Yes, yes. So I'll begin to say I'm a really lucky guy because my last company, I got lucky betting on iPhones with doctors. And that worked out well for us. A company called Epocrates went public in 2011 because doctors were among the first to start carrying around mobile devices to look up drug information, disease information. And then here at Doximity, we've really been building that hybrid home-office workflow for doctors, right? The ability to do the e-signatures and do the telehealth visits. And of course, during COVID and much past COVID, I think we're going to see physicians move into a more hybrid-style work life. Prior to the pandemic, every physician did virtually every day in their office, live, paperwork, patients, all of the kind of old school way of doing things. But I think coming out of the pandemic, we're going to see a day a week; maybe endocrinologists, it will be 2 days a week; maybe orthopedic surgeons will be 2 days of clinic a week, where they're going to be able to be more remote, work-from-home. And of course, telehealth has opened up the capability for a doctor who wants to live in Manhattan to see patients in Upstate New York and do that all pretty seamlessly. So we've been really fortunate, I think, having this physician cloud at a time when this, I think, new hybrid life for physicians is just taking off.

That's really helpful. And maybe -- you mentioned telehealth, just maybe hit telehealth for 1 second. You all obviously have your own capability. As you mentioned, you facilitate people doing telehealth as well. Maybe just spend a second there.

Yes. So we were an overnight success with telehealth, 10 years in the making, is a line, right? So actually, we launched our product in 2016, our telehealth product. And it allowed physicians to quickly call their patients, get a video call going with them. And frankly, it just worked better because it could ring the patient's phone. It didn't require the patient to have any software downloaded. It was in the early days of WebRTC, which really kind of enabled that to work. So sort of like FaceTime, but it worked on any device type. And then in 2017, we got integrated inside the Epic, which is the market-leading electronic health record. So you can just tap a button inside of Epic. And right now, we're the only link that Epic has to any other app inside their mobile app and a key partner of theirs inside their desktop app as well. And so that was 2017. And again, we were so proud, we were doing 0.5 million patient visits a month prior to the pandemic. And then the pandemic hit, and we did over 0.5 million a day in that early April. And that has just taken off. And we continue to report our quarterly number of active physician NPPA users. And last quarter, we hit a new record. We had 350,000, roughly 1/3 of all U.S. physicians, NPs and PAs, doing telehealth visits with us in the quarter. And we continue to see strong uptick there. We were just voted what they call best-in-class, which no one in this room probably knows, but it's sort of the Oscars for health IT software. It's what all the hospital CIOs watch. We were voted best-in-class for telehealth in our first year in the rankings.

Where do you think telehealth is going? Maybe one last question on that. I think there's a lot of debate right now. Is it -- are we returning to old normal, is it new normal? What does it look like going forward?

Sure. So we see a lot of specialty-level trends that would probably be boring for this audience. I think a lot of folks think of urgent care and emergency care. I'm actually not so certain that's going to stick. The reality is you're seeing enough cases where the patient's phoning in something that they really should be there live for. If your lips are blue, you should be in an ER, not at home in your recliner, right? But what really works well and where we're seeing the stickiest use case is in chronic care. So our top specialties, which we published, are endocrinology. We have 1/3 of all U.S. endocrinologists using our product, nephrology, rheumatology, oncology, cardiology. So these are the things that are ongoing chronic conditions where patients are having their medications titrated and put together. That actually happens to be great also from our pharma clients' point of view because those are the exact same specialties that they care most about. Because, of course, the drugs for chronic conditions are the biggest dollar drivers. We are seeing an uptick in surgeons. It didn't happen at the beginning of the pandemic, but we're seeing it now. And what it really boils down to is all those follow-up visits just to make sure you're doing okay or that the stitches are still in, much better done in a 10-minute video call than making you drive in for 45 minutes, sitting in the waiting room for 30 minutes and drive back home. So -- and surgeons prefer it because they're done by 3:00 p.m. instead of being there at the office until 5 because of the inefficiencies of the more live visits.

So Nate and Jeff, you both have already mentioned the word or phrased "physician" a lot. I know -- I think one of the first times we met, you both talked about how you have listening sessions with physicians all the time. And true core to the company's DNA is that integration with the physician's brain a little bit, I guess. What do physicians sort of say that they need and in terms of workflow and tools, and where are you going to go with that in the future...

So when you ask that question, you just say Dr. Nate Gross...

Yes. Yes.

Sure. Thanks, [ Matt ]. I'll take that one. So as Jeff alluded to, we're able to bring in the physician perspective, how this helps them get home at 3:00 p.m. And the nuance, so it isn't just a feature set of bullet points when we're describing what we're building and what we do, and it's because we spend a lot of time with our members. We have a physician relations team, a product design team, that are meeting with our members every day. We get that feedback. We actually share it company-wide on our weekly all-company updates each week, what they're saying about us, what new use cases they found for our tools. And then, from there, we're able to both get the feedback that they tell us, but also get analytics-based feedback. So when we roll out a beta test, a new feature, we could roll it out to 1% of our user base. And that would be larger than the physician employee base of any major health care system. And so that sort of information comes in, in actionable ways very quickly. And then when it comes to the big decisions, it culminates at these physician advisory summits that we run, which is really this intensive multi-day design process where we try to whittle down what are the 3 ideas that we're going to build next. And all of our product decisions, all of our business decisions, run through these panels with physicians, usually, again, over the course of a weekend, over a few days. We often joke that the best ideas come on the second day after the second glass of wine because that level of trust that you have with your members really helps. They let you know what's going to move the needle for them and what's not. And so we will, I think, be able to continue to build the features that docs are going to find most useful for their practice. And they're not "one size fits all", of course. What you build for a surgeon is different than what you build for a gastroenterologist. But by doing it in a way that isn't driven by the billing department or by the IT department, which is what you see in most health care software today, and that's one of our big competitive edges as well as just value cores.

We've talked a lot about physicians. How do you guys think about sort of other health care providers that can be in your network on the platform? Who are you trying to add beyond physicians? Who is the platform most valuable to? Where is your focus there?

I'll take that one, too. So as Jeff said, we have over 80% of the practicing U.S. physician population already as members. They've come on, they've created a user name and password, verified their identity. They're using us for their clinical workflow. But we also actually already have over 50% of nurse practitioners and PAs in the country on the platform. And that's an interesting group because, for the most part, in most locations, they can prescribe, they can refer. They're really built into those exact same business flywheels that we already have. We're also building out a growing population of pharmacists, which is becoming of increasing interest to a lot of our clients. And thanks to our enterprise telehealth business, we're starting to see a longer tail of other groups. A hospital might tell us, "Hey, I would love it if our respiratory therapists or if our physical therapists were also participating on this telehealth platform." We don't count that in any of the telehealth engagement metrics Jeff shared when he said we had over 350,000 physicians, NPs and PAs use our telehealth tools in the last quarter. We're focused on the group there that really drives all of our business flywheels the most because that's the most valuable to you as investors. But in terms of future expansion, there is some interesting opportunity with different credentials there. Now what's important, of course, is that we keep the experience intimate for physicians. It's their space. It's not like other online social networks or other platforms, where they're going to get bombarded by reps or patients where they would need to communicate in a different way. But thanks to our relevance and algorithm-optimized ways to connect doctors to the people most relevant to their care, we're able to keep it both a far-reaching, but highly intimate experience. And the last thing I'll note is that for the future generation, we already have now over 90% of graduating medical students. So by the time a doctor gets their diploma and actually is a doctor, 90% of that cohort is a member of Doximity.

Because they never want to touch a fax machine.

Physical buttons are pretty intimidating to the young doctors, yes.

To all of us. So we talked a lot about the user base and the platform and the workflow tools. Maybe let's spend a second on sort of the monetization side of it. You are really enabling something pretty amazing for pharma, frankly, when it comes to digitizing the way they reach physicians. You showed amazing sort of progress on that in your last quarter. So maybe you could just spend a second talking about that shift that's going on, some of the similar tailwinds and trends in the physician life on the digital marketing side of things for pharma.

Sure. Yes. So health care is a laggard. Roughly 1/4 of all marketing spend by pharma was spent digitally in 2020. Among the Fortune 500, it's more like 65%. So pharma and hospitals could double their digital spend and still be behind the curve. I guess the other thing I would add is that if you just look at our percent of spend inside just the health care professional budgets of pharma, we're less than 5% today. Pharma prefers to have -- pharma doesn't mind having a preferred partner in an industry. I think we've seen that happen with Veeva, which has a very high market share, 80-plus percent. We've seen it with IQVIA, a similar kind of market share. And it's our goal, I think, to take, from being under 5% today, to being more like where they're at. With a vertical play, you can get there. Probably the most exciting stat from my point of view and the reason why I haven't sold any shares is because if you take our top 5 clients, and these are clients who are all 8-figure-plus, and you look at their net revenue retention, it was 190% over this past year. So they nearly doubled. And what that just shows is that this is the S-shaped adoption curve of a slow or big industry, where you get inside Pfizer, you work with a few brands in your first year. The second year, they measure your ROI or median ROI for pharma, it's 13:1 on their spend. And then it takes a couple more years, they spread to a few more brands. But then it hits the point where there's a Senior Vice President or a Chief Marketing Officer or someone who says, "Why aren't we doing this with all 45 of our brands?" And then it kicks in and it goes to just another gear, where you go from growing from $5 million to $10 million, to going from $15 million to $30 million. And again, I think we've got a lot of clients that are just hitting that precipice right now.

You mentioned that retention of your top 5 and the 190% range, but your overall net retention is like 170%. Where do you sort of -- like where can you go with the -- your overall cohort of clients, do you think?

Again, looking at that top 5, I think we can bring the rest of them there. Again, we're still a small percent of where they're at. And you kind of alluded to this, but pharma is at a, I would say, it's having a seismic shift from a very rep-centric model around everything, right? I mean the CEOs of these companies are all ex-reps. To -- starting to realize that the reps just don't get in anymore. Hospitals are not going to let them back in again. I mean epidemiologically, I'm not certain there's a good argument for letting attractive 30-somethings go from patient room to patient waiting room. It's just not likely to happen again. And so they've had to rethink their model. Now it's interesting, it's actually some of our best clients are the ones that are most sales-led. And that's because we're helping them digitize their rep access and experience as well. So there's a lot of talk around next best engagements and how do we integrate our rep process with more digital processes. And I would say we're right on the leading edge of that, working with Veeva and others. So we're excited, I think that, that whole shift slightly away from reps. And you won't see many folks announce layoffs like Pfizer, Sanofi did. It's an industry that doesn't like to announce layoffs, right? But you'll see attrition. And then you'll see that digital side, the digital-enabled rep, I think, really would be the new commercial model.

And do you notice, Jeff, that new brands that are coming to market in the last 2 years are more digitally sort of native than brands that are maybe 5 or 10 years old? Are you seeing that shift for real time?

That's a great point, [ Matt ]. I mean because they had to do all digital in the last couple of years, they've realized they had very successful launches. And the ROIs are great. And in the past, they always used to say, "Oh, well, but the ROI wouldn't be as high if we didn't have all those reps delivering all those launches." Actually, no. I mean they showed that, really, it's the power of information and collegiality, both of which we bring, that can do that. So yes, it's been a nice forcing function, I think, to get the industry to see what happens when you don't have any access -- rep access.

And just one last question on the sort of life sciences side of it, I guess, I would say. We talked about pharma. Are there other life sciences avenues that you're looking at or advertising folks -- or engagement folks?

I will say this. I was a skeptic about the marketing benefits of an IPO. I mean to me, I don't know, in our little industry, it didn't seem to be worth that much. But we've had so much over the transom for medical device companies, from digital therapeutic companies that's come in, that now we're standing up new sales forces to go after them. And actually, their products are pretty interesting and their ROIs are also measurable and quite good. So I think there's a whole another TAM here beyond what we've done the last 10 years in expanding to both medical devices and digital therapeutics.

And maybe we could now just pivot and spend a second on the health system side of things because that's another customer base for you all. What do you do for health systems today? Where are you going to go with health systems in the future?

I'll take that one. I appreciate you mentioned it because, a lot of times, health systems get overlooked. But they're a substantial, fast-growing portion of our business today. And just like we, actually, we work with all of the top 20 pharma, we work with all of the top 20 hospitals as well. And what we do there is a variety of different businesses that, at its core and at its foundation, we help them with referrals. We help improve their brand, which leads to new referrals out in the market. And again, just like with pharma, we're often replacing old analog processes. It's the same thing with hospitals. Oftentimes, the competition there is a billboard on the side of the freeway, which you've probably all seen before, driving up the 101 here. And so hospitals have that same land-and-expand motion. When we succeed in pharma, we often prove our value, prove our ROI at one brand and then run that ROI study, expand to the next brand. We can do the same thing with hospitals. We're able to use claims data to see whether or not new patients ended up coming into that department. And the land-and-expand motion that occurs afterwards can be both service line to service line instead of brand to brand. So maybe we prove our value with cardiology and then we expand to vascular surgery. But also, between different departments of the hospital as well. So maybe we've had initial inroads with marketing leads. And then after proving some ROI, we've expanded to Chief Marketing Officers looking for more hospital-wide deployments. From there, we may assist with physician recruiting and credentialing and helping, instead of the Mahogany C suite, now you're helping the basement of the hospital, both with permanent and temporary recruiting needs. And we saw temporary go up, of course, during the pandemic. We're also getting in deeper with the schedulers and logistics-oriented roles at the hospital because we most recently acquired a company called Amion, which helps with the, "When is my call scheduled? When am I on-call next?" But also, "Who is the neurosurgeon on-call right now at Stanford?" We're getting in deeper with Chief Information Officers because we power their most-used telehealth product. There's also additional nonbudget-owning stakeholders, such as Chief Quality Officers. We, on a recent call, announced a new partnership with Press Ganey for those surveys that are very important to health care quality scores to be run through our telehealth tools. Or graduate medical education, we do a lot with essentially a Glassdoor for residency programs. Department chairs, we are the now-exclusive voting booth nomination center for the U.S. News' Best Hospital rankings, if you've seen those. But the base of all of this pyramid, despite those being, I would say, reinforcing stakeholders at a hospital, the most reinforcing stakeholder is the physician. When we're able to come in and say, hey, this is health care software that the user actually wants, it's not being billing department-led, it's being end population-, physician population-demanded, that's our most effective expansion tool.

Great word to end on. I think maybe some of the last 5 or 6 minutes on sort of growth in the future. You actually mentioned the Amion deal recently. Maybe you guys could talk a little bit about why you did that deal, what was interesting about it, and how you think about that sort of mix of inorganic, organic growth going forward?

Yes. So when we started this thing a decade ago, it was kind of this LinkedIn idea, right, physicians' profiles, the news feed. And actually, that went and continues to go very, very well. But we are expanding really our vision there to be more of a workflow workhorse for our doctors because we do these annual summits like what we did with 50 doctors last week in Napa. And we just hear all the pain points. So now I would say our vision is we want to be more of a Bloomberg. It's an imperfect analogy, but with hundreds of thousands of telehealth visits a day, tens of thousands of e-signatures and 200,000 doctors checking their schedules on Amion, and we hope to land-and-expand Amion and grow that as well. And now, with Amion, we'll be able to not just let the doctor see who the cardiologist on-call is, but I can click on that cardiologist, see their photo, see their background, "Oh, we both trained in Mount Sinai together," I think -- and send a secure message, I think it fits actually into that overall day-to-day workflow. We have over 50 API partners. These are different companies who use our Log-in with Doximity button. That's how we first got introduced to Amion. And I can tell you, they have a very high DAU, very high daily use, because doctors do need to check their schedules. And that also gives us a pipeline of 49 other companies that we can look at and get an understanding, a proprietary view, on what doctors really see value in using with a log-in. So we're going to keep leaning into that strategy of helping doctors do their jobs more efficiently so they can have more time to care about their patients. Because somewhat sadly, most of health care IT is about billing. It's about that electronic health record, adding another report because Aetna requires it and then Aetna requiring you to prove that you have a blood relative with the same problem. And it is -- it's almost a cyber war of billing adjudication, okay? And that's where most of the great minds in the health tech industry are really spending all of their time. And we just love helping doctors go from 18 clicks down to 2, or letting them do that from their phone while they're on the ride home instead of having to go log-in to some Citrix terminal somewhere to get into their EHR at a desktop. So doctors are excited to have us doing that for them. And honestly, there's so much more scutwork that we can help them with, that we think that's a big area for us to be more of a Bloomberg for physicians for health care.

Maybe 2 last quick questions. So on the sort of -- one more last question on the growth side. You all have enviable EBITDA margins. You've had great top line growth. How do you think about that trade-off? Are there things you could be doing to drive even more growth, grab more of this market? How do you think about that?

Yes. So last quarter, we had 67% revenue growth, 38% EBITDA. Our guidance for this next year is 40% EBITDA, 33% top line growth. I have a few GMs who report to me. And basically, they are each compensated on their R-60, we call it, because we want to be a Rule of 60 or higher. That's our long-term sort of promised mission as a company. And with 40% EBITDA guidance, I'm starting to wonder if we should maybe pick a higher number for them. But they each care about both profit and growth. Now we have some that are in investment mode that are growing gangbusters, but maybe their profit is low to 0. We have others that are growing a little bit less, but then I say, okay, time to get the profit level up. So we try to keep that balance in place. I think -- there are companies I've watched -- I sold my last company to Athena. And I watched management there just chase growth at all costs. And that can really lead to just sort of bad, bad behavior and a loss of discipline. So we really want to keep that balance. And again, I think it shows in our 40% EBITDA guidance for next year.

One last question, Jeff. You talked about sort of becoming the Bloomberg of health care, I guess, to a degree. Maybe just spend the last second here on where are we at overall in the Doximity journey. And where are you all going over the next 5 years or longer?

Over 80% of U.S. physicians today as active members, over 90% of graduating medical school students. We don't get them all in every day, but we would like to. And I think with things like this scheduling product and then a few others that we are eyeing, I think we can get to, if not every day, then every week, with those kind of numbers. And we just -- we're excited to help doctors save time, provide better care for patients.

Awesome. Well, with that, I appreciate you both coming in and spending time with us. And we'll wish you luck in 2022.

Awesome. Thanks, [ Matt ].

Thanks. Thanks, everybody.