DOXIMITY (DOCS) - new company

Investment Analysis Clubs Saul’s Investing Discussions
1

Today I was having a look at the S-1 for a recent IPO (last week’s), Doximity Inc. (ticker symbol DOCS, often described as the LinkedIn for doctors). The company was mentioned on the board a couple of times, months ago, but I think no one had talked about its current status yet, so here’s some info below.

Also, there was a discussion around it on the Fool recently:
https://www.fool.com/investing/2021/06/28/does-doximity-belo…

S-1 link:
https://sec.report/Document/0001628280-21-011269/

DOXIMITY - THE DIGITAL PLATFORM FOR DOCTORS

Mission: Help physicians be more productive and provide better care for their patients.

* Connected to 80%+ of U.S. Physicians
* 4.8 Star Rating on the Apple App Store
* 63M+ TeleHealth Visits
* 78% Revenue Growth 2021 ($116M to $207M)
* 153% NRR
* 31% Adj EBITDA Margin

From the prospectus:

DOXIMITY, INC. Overview

We are the leading digital platform for U.S. medical professionals, as measured by the number of U.S. physician members, with over 1.8 million medical professional members as of March 31, 2021. Our members include more than 80% of physicians across all 50 states and every medical specialty. Our mission is to help every physician be more productive and provide better care for their patients. We are physicians-first, putting technology to work for doctors instead of the other way around. That guiding principle has enabled Doximity to become an essential and trusted professional platform for physicians.

Our cloud-based platform provides our members with tools specifically built for medical professionals, enabling them to collaborate with their colleagues, securely coordinate patient care, conduct virtual patient visits, stay up-to-date with the latest medical news and research, and manage their careers.

Doximity membership is free for physicians. Our revenue-generating customers, primarily pharmaceutical manufacturers and healthcare systems, have access to a suite of commercial solutions that benefit from broad physician usage. Physicians are the key decision makers in healthcare, directing more than 73% of the approximately $4.0 trillion in total U.S. healthcare spend. Despite their critical role, physicians face challenges caused by fragmented knowledge bases and antiquated technologies. These challenges inhibit physicians’ ability to effectively connect with specialists and colleagues, instantaneously access relevant and up-to-date medical information, and efficiently deliver patient care. Cloud-based software has transformed the ability to network, communicate, and work across most industries, but has been slow to address the specific needs of medical professionals. The impact of antiquated technology is real: according to a survey conducted on behalf of The Physicians Foundation by Merritt Hawkins, 78% of physicians have experienced feelings of professional burnout, with electronic health record design and interoperability identified as one of the factors they find least satisfying about medical practice.

Doximity’s cloud-based platform puts modern software tools in the hands of physicians and other medical professionals. Our members have come to rely on us to help them efficiently manage their work day. At the core of our platform is the largest medical professional network in the nation, which creates proximity within our community of doctors and hundreds of thousands of other medical professionals. Our verified member profiles digitize the traditional curriculum vitae, highlighting clinical expertise and reflecting the unique training, certifications, research, and employment affiliations that differentiate medical professionals. Our members can search and connect with colleagues and specialists, which allows them to better coordinate patient care and streamline referrals. In addition, they can discover career opportunities unique to their clinical skill sets. Our Doximity app enjoyed a 4.8/5 star rating with over 100,000 reviews in the Apple App Store as of March 31, 2021. We support physicians in an era of information overload, by solving signal-to-noise challenges with our news tools.

Our business model is designed to both respect and support physicians while driving value for our customers. We monetize our platform today through our Marketing, Hiring, and Telehealth Solutions. Our Marketing Solutions enable our pharmaceutical and health system customers to get the right content, services, and peer connections to the right medical professionals through a variety of modules. We count 20 out of the top 20 pharmaceutical manufacturers and 20 of the top 20 hospitals and health systems in the U.S. News & World Report Best Hospitals Honor Roll among our customers. Our Hiring Solutions provide digital recruiting capabilities to health systems and medical recruiting firms. Our Hiring Solutions enable our customers to identify, connect with, and hire from our network of both active and passive potential medical professional candidates, who might otherwise be missed through traditional recruiting channels. In early 2020 we launched our enterprise-level Telehealth Solutions for health systems. Our Telehealth Solutions, which include voice and video dialer, are designed to easily connect patients with care providers. We delivered over 63 million telehealth visits in fiscal 2021. As a result, we have seen rapid adoption of our commercial Telehealth Solutions, with subscription agreements signed with over 150 health systems, including 6 of the top 10 hospitals and health systems in the U.S. News & World Report Best Hospitals Honor Roll, as of March 31, 2021.

The ecosystem we have created in the medical community benefits from powerful network effects. Medical professional engagement with our platform increases as the breadth and utility of our tools expands, attracting even more members and driving broader and more effective communication and collaboration among healthcare professionals. This also drives greater value for our pharmaceutical and health system customers that seek to interact with specific groups of physicians. In turn, the insights that we gain from increased use of our platform enable us to invest in improving our tools and solutions to meet the changing needs of our members, customers, and the patients that they care for, ultimately creating a win-win-win for all constituents in our ecosystem. Over the past ten years, our member interactions have enabled us to build a vast, interactive data set intelligently combining proprietary information and previously siloed public information. When coupled with our customized algorithms and our team of analysts, engineers, and clinical experts, we believe this gives us unique, unparalleled insight into the specific needs of medical professionals in the United States that would be highly challenging and time consuming for any competitor to replicate.

Our subscription-based business model and strong relationships with both pharmaceutical manufacturers and health systems drive highly visible revenue. We do not generate revenue from membership of medical professionals, other than a de minimis amount generated from member subscriptions for Dialer Pro. We are able to grow revenue from existing customers through an effective land and expand strategy, demonstrated by our 153% net revenue retention rate as of March 31, 2021. Our business model has delivered high revenue growth at scale, while increasing profitability. For the years ended March 31, 2020 and 2021, we recorded revenue of $116.4 million and $206.9 million, respectively, representing a year-over-year growth rate of 78%. Our net income was $29.7 million and $50.2 million for the years ended March 31, 2020 and 2021, respectively. For the years ended March 31, 2020 and 2021, we generated Adjusted EBITDA of $26.6 million and $64.8 million, respectively. We have accomplished this while focusing on our core mission to help every physician be more productive and provide better care for their patients.

Financials (in thousands):


		2019		2020		2021
Revenue		$85.695		$116.388	$206.897
Net Income	$7.833		$29.737		$50.210
Free Cash Flow  $14.116		$21.955		$78.363

Customers	113		141		200
with at least
$100,000 of 
revenue

NRR Rate	136%		130%		153%

Revenue for the year ended March 31, 2021 increased $90.5 million, or 78%, compared to the year ended March 31, 2020. The increase was due to the addition of new customers and expansion from existing customers by adding new brands and upselling additional modules primarily from our Marketing Solutions subscription customers. Subscription revenue from new customers was $13.3 million, while subscription revenue from existing customers grew $62.1 million or 53% for the year ended March 31, 2021. The growth in revenue from existing customers was primarily due to approximately 24% growth in the average number of modules per customer and approximately 26% growth in the average number of brands per customer for our Marketing Solutions customers for the year ended March 31, 2021.

Stock price when I’m writing this: $58.35
Market Cap: $10.398B

My main doubts:

  • There are some doctors here on the board. Have you used DOCS? What are your thoughts?
  • Can a company like this scale internationally? They already claim to have 80% of US doctors on the platform…

I do not own any DOCS stock, but this may very well change this week…

Thanks all! Appreciate your thoughts on this one.

41 Likes
2

I was able to receive shares at the ipo price as a long time user of Doximity. Reading the S1 was interesting. I use the telehealth features which were very useful during the pandemic. The voice dialer still needs some work, facetime is still the easiest. Its all free, wonder if they will start charging for features in the future, as I see them charging already for institutions. The app is the only social media physician platform i use. Im not very active on there but it looks like most of my prior classmates and some of my colleagues are on there. I can see where the pharmaceutical companies would find marketing useful especially with all the closures during the pandemic. The question is how doxy can grow, if they can keep up the numbers. Maybe they will get into EHR, they can buy out a player like practicefusion. I can see a lot of integration with EHRs and collaboration with others. International would be a good play too and they can get involved in research and organizations.

5 Likes
3

My biggest doubt is whether the Facebook model can work in a highly regulated industry like medicine. The future growth here is in finding more and more ways to monetize user data to increase ROI for the drug/device companies that pay the bills. But, as we’ve seen with Facebook, that often comes at the expense of user privacy and user interests.

The company and the CEO, of course, say all the right things but I don’t like that the two primary stakeholders in the business are at odds here. The numbers may be great but that’s just one of my rules in evaluating the sustainability of business results.

I’d re-evaluate if the company finds a way to start spreading out its revenue base via subscriptions to doctors, hospitals, and clinics.

2 Likes
4

The company and the CEO, of course, say all the right things but I don’t like that the two primary stakeholders in the business are at odds here.

Yes - but that is the very definition of the problem with healthcare - it is confrontational and conflicting. My revenues are your costs, health prevention means loss of treatment and procedure earnings etc etc. Value based healthcare is emerging as a possible candidate as a common currency but until that is really established then we have to live with this conflict if you want to invest in or even just consume healthcare

The numbers may be great but that’s just one of my rules in evaluating the sustainability of business results.

Agreed - looks good but need to understand sustainability of this - although Linkedin has done an amazing job as has Facebook at continuing to grow revenues

I’d re-evaluate if the company finds a way to start spreading out its revenue base via subscriptions to doctors, hospitals, and clinics.

Also agree - but they have lots of options if their imagination supports this.

Ant

4 Likes
5

Thanks for bringing this to the board, Nervokid. I have a few things to add:

  1. First, just a note for anyone who didn’t catch it: their fiscal year ends March 31.

  2. Doximity acquired “Curative Talent” on April 1, 2020 (the first day of Fiscal 2021) so $14.6 million of their F2021 revenue was inorganic.

  3. Their “Telehealth” and “Hiring” products make up less than 20% of revenue so far. Here’s the relevant passage from the S-1 (https://www.sec.gov/Archives/edgar/data/0001516513/000162828…:slight_smile:

Marketing Solutions contributed greater than 80% of our revenue in fiscal 2021. We offer our Marketing Solutions to both pharmaceutical manufacturers and health systems, either directly or through media agencies on their behalf. Our Marketing Solutions enable these customers to serve our members with tailored content that is highly relevant to their clinical practices. Marketing Solutions customers can execute efficient campaigns by directly reaching specific groups of our members with tailored messaging. We charge for Marketing Solutions based on audience composition and modules purchased.
In the case of pharmaceutical manufacturers, we arrange subscription-based marketing campaigns with individual brands within their portfolios of medications. When we sign up a new pharmaceutical manufacturer as a customer, we typically first sell one module to one brand and then we expand within that manufacturer by selling to additional brands and selling access to additional modules. For example, for one top 20 pharmaceutical customer, we began working with one brand and one module in fiscal 2013 and in fiscal 2021 we worked with 29 brands within their portfolio of medications and an average of 3 modules per brand.
Our health systems customers purchase our modules and then execute campaigns on a service line basis. These customers pay for subscription-based access to our platform which helps them build brand awareness among medical professionals and attract new patients through referrals. We provide our health systems customers with access to Awareness and Interactivity modules as well as the ability to message to medical professionals on our network based on specialty, credential, location, or other custom attributes via our Peer module.

  1. They have been expanding like crazy. You mentioned the 153% NRR and linked to this: Subscription revenue from new customers was $13.3 million, while subscription revenue from existing customers grew $62.1 million or 53% for the year ended March 31, 2021. That’s just how much existing customers GREW. In total, subscription revenue from new customers only made up like 6.5% of total revenue. You also quoted: We count 20 out of the top 20 pharmaceutical manufacturers and 20 of the top 20 hospitals and health systems in the U.S. News & World Report Best Hospitals Honor Roll among our customers. Where do they go from here???

  2. According to page 65 of the S-1 they’ve got about 178m shares outstanding after the IPO. At $55/share, that’s a market cap just under $10b. EV is a bit less because they have over $500m cash and I believe no debt.

My thoughts

  • I wonder how much of the huge expansion was influenced by the pandemic. Did pharmaceutical companies (and perhaps health systems too) ramp up their spending on Doximity because traditional methods were offline (e.g., reps couldn’t see doctors in person)? If so, will that continue to explode? Or will there be more of a return to the old “normal?”

  • They could have some optionality, but how will that play out? Will Telehealth and Hiring and any other green shoots really move the needle in the long run? Or will this remain more of a conventional social media model where the users are the product and Doximity’s customers are there to advertise?

  • As mentioned in #4 above, they’ve expanded like crazy – can the new customers they’ve added (which spent just over $13 million in F2021) expand anything close to how their “old customers” have expanded? And can those “old customers” keep expanding like crazy, or was this a one-time thing? On the other hand, continued sequential growth is encouraging, including the two most recent quarters! Revenue was ~59m in the Dec Q and ~67m in the Mar Q…so maybe they can keep expanding! (see page 83 of the S-1 for quarterly revenue)

  • What will guidance look like when they report F2022 Q1 (ending today Jun 30 2021)?

Again, thanks for bringing it to the board! I have plenty of open questions, but I’ll be watching when they report Q1!

Bear

30 Likes
6

Thanks Bear, some great insights there.

Re: your point 4 - yes, exactly, they have 80% of the US doctors, the 20 top pharma manufacturers and the 20 top hospitals and health systems in the US, so I’d definitely like to see some plans for international expansion now. By all means branch out and add other sources of revenue as suggested by other users in the posts above, but also please Go and do the same thing you did in the US across the world, seems like a logical step especially when viewing the company through a social network lens.

Was thinking about the pandemic influence as well when I stumbled upon DOCS, they were already growing (and profitable) at least 2 years before Covid hit, that seemed reassuring.

Btw, the first time I saw their name was a few days ago on some tweets from muji from hhhypergrowth (who seemed bullish).

I’ve opened a small position yesterday.

Thanks,
Luis

1 Like
7

Hi all,

I think they are executing very well - just wanted go add something about international expansion: bear in mind the US healthcare system is quite unique. A very large number of countries (for instance pretty much all of EUROPE) do not work like that, and so their current model of advertising will not function (hospitals are often public or semi public). On top of this there are already some very smart app for télé health existing abroad (like doctolib) which I think have more potential regionally.

Their current model will work for places like Singapore and many Asian countries but that is about it. In my opinion their main way to keep growing will be new verticals :slight_smile:

4 Likes
8

Bear:
2. Doximity acquired “Curative Talent” on April 1, 2020 (the first day of Fiscal 2021) so $14.6 million of their F2021 revenue was inorganic.

According to the PR below, https://press.doximity.com/articles/doximity-acquires-thmed, Curative acquisition was closed on Jun 16, 2020. So the QoQ growth in FQ2 and YoY growth for FQ2-4 will be inflated.

I really have no idea how much DOCS can grow in the FQ1 and full year FY2022, probably improve slightly from Pre-COVID’s 36% to 40s%? If they can grow 50%+, IMO can definitely worth to take a small size position.

Zoro

1 Like
9

Honestly I thought about buying into the IPO when I got the email from doximity too but utimately decided not to. Some of my coworkers did and it seems the initial investment has paid off (I think the price almost doubled immediately?) but most everyone sold off immediately as well. The only the doximity services I’ve seen anyone use is the caller (which allows you to call patients from your cell phone but display a caller id of your choice - say your office or hospital) is free. I think our hospital group considered buying the institutional package but wasn’t sure what the benefit was.

It def has potential but I wasn’t really able to tell what their growth strategy was or how they aim to create/increase revenue. Of course they could start charging for the free services but there are very few people who would pay for the dailer app separately. I also has to be something that can be easily mimicked by another company and either undercut or offered as a free service. I always took it as a them offering their best service for free to draw you into the Doximity system but honestly the system itself lacks stickiness to me. There’s nothing drawing my into the social media aspect (even if it is for medical professionals) and I assume ad revenue is where they expect most of their dollars to come from. Most of my social media is not for professional purposes (friends, funny content) and those who do use social media professionally (for marketing, education, or organizational purposes) tend to use FB, IG, or twitter to have the broadest reach with patients, students, residents, and other professionals. As far as professional networks go they also have heavy competition from the likes of Linkedin and as far as content or medical information there are plenty of more useful sites like UpToDate that we did purchase as an institution. I mean I could be wrong but I just don’t see them as a hugely successful social media platform at this time if their only angle is being medically focused.

The potential of telehealth also has a lot of people and companies competing for this space and I honestly don’t know enough to comment on their potential in this field. I would say that as a surgeon, the vast majority of my patients (>95%) decline the option for telehealth visits, even routine postop checks - even during covid peaks. Some of it has to do with my the age patient population and their technologic literacy and a lot of it has to do with the field I’m in. Most people want to see their surgeon and be reassured that they are competent and have some humanity left in them. They also only have to see me twice (preop and postop) usually so its not a huge burden. I have to believe telehealth for patients will play a much bigger role in primary care, derm, radiology, path etc and especially for assisting/btwn care between practitioners (IE we wont be restricted to working/helping those within our hospital walls or geographic region). I have no clue what doximity plans to role out in these areas.

I’d love to hear if anyone has any more insight or projected growth for this company. At the very least I don’t think it qualifies as hypergrowth potential at the moment (I could be wrong)

9 Likes
10

Ok looking at the numbers again I take back what I said. They qualify as hypergrowth. I think I was a bit clouded as I couldn’t conceptually see how they keep gaining advertising dollars when everyone I know has the service or app (ie 80% of us physicians) but (aside from the caller) spends no time on it. That being said there must be a younger or older generation of docs that finds value in it.

1 Like
11

Remember that they grew revenue with 37% in 2019 pre-COVID, so technically it only got hypergrowth status due to the COVID-19 boost, as more ads from pharmacy companies moved online to platforms such as Doximity instead of offline advertising and in-person visits to hospitals/doctors. The question remains if they can continue hypergrowth. Also the lack of information on DAU/MAU in the prospectus may indicate rather low engagement rates from the users.

12

Bert Hochfeld published an article about Doximity on Seeking Alpha yesterday:

https://seekingalpha.com/article/4440933-doximity-ipo-valuat…

He’s bullish.

«Given the results shown in the S-1, the valuation of this company is quite reasonable. While the EV/S ratio is about average for my estimate of the company’s mid-high 40% 3 year growth cohort, this company is far more profitable than average. Indeed, as mentioned earlier Doximity with a free cash flow margin of 40% in the most recent reported period, ranks 2nd amongst the company’s that I review for that metric.»

«with the kind of management team that I see here, the results that have been obtained thus far, in terms of both growth and profitability, and the overall likely growth of the market for the kinds of solutions this company offers, I think this is one of the better bets amongst the crop of recent IPO’s.»

  • Luis (long DOCS, 2.8% of portfolio)
5 Likes
13

The social network for medical professionals reported on their Fiscal 2022 Q1 on August 10, and the stock price is rising in the AH. It was also their first quarterly report as a public company, as they IPO’d in June.

Given that guidance is flat for next quarter and seems flat throughout the year, sandbagging or not I’m taking the short term gains and closing my ~2% position, looking for more ambitious prospects.

Fiscal 2022 Q1 Financial Highlights:

* Revenue $72.7M, growth 100% yoy
* Non-GAAP net income $30.6M vs $2.5M last year, margin 42%
* Adj EBITDA $31.2M vs $3.9M, 696% yoy, Adj EBITDA margins 43% vs 11% yoy
* Operating Cash Flow $33.2M vs $8.8M yoy
* Free Cash Flow $32.4M vs $7.6M yoy
* Cash Position: $726.5M of unrestricted cash, cash equivalents and marketable securities after raising $548.5 million in net proceeds from the company’s IPO that closed on June 28th.

Guidance for Q2 ending Sept 30 2021
Revenue between $73.0 million and $74.0 million.
Adjusted EBITDA between $26.4 million and $27.4 million.

Guidance for Fiscal year ending March 31, 2022:
Revenue between $296.5 million and $299.5 million.
Adjusted EBITDA between $106.0 million and $109.0 million.

Also, Up to 3.9 million shares could be sold on August 13 to 17, 2021 by eligible Doximity employees pursuant to the lockup agreements signed in connection with the IPO.

7 Likes