Doximity Inc

NYSE:DOCS

Earnings Call Transcript 2023-Q1

[Operator]

Thank you for standing by, and welcome to Doximity Fiscal 1Q ‘23 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s call is being recorded.

I will now hand today’s call over to Doximity’s Head of Investor Relations, Perry Gold. Please go ahead.

[Perry Gold, Head, IR]

Thank you, operator. Hello, and welcome to Doximity’s fiscal 2023 first quarter earnings call. With me on the call today are Jeff Tangney, Co-Founder and CEO of Doximity; Dr. Nate Gross, Co-Founder and CSO; and Anna Bryson, CFO.

A complete disclosure of our results can be found in our press release issued earlier today as well as in our related Form 8-K, all of which are available on our website at investors.doximity.com.

As a reminder, today’s call is being recorded, and a replay will be available on our website. As part of our comments today, we will be making forward-looking statements. These statements are based on management’s current views, expectations and assumptions and are subject to various risks and uncertainties.

Actual results may differ materially, and we disclaim any obligation to update any forward-looking statements or outlook. Please refer to the risk factors in our annual report on Form 10-K and our other reports and filings with the SEC that may be filed from time to time, including our upcoming filing on Form 10-Q.

Our forward-looking statements are based on assumptions that we believe to be reasonable as of today’s date, August 4, 2022. 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. 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 onetime in nature, and we may or may not provide updates on those metrics in the future. I would now like to turn the call over to our CEO and Co-Founder, Jeff Tangney. Jeff?

[Jeff Tangney, Co-Founder and CEO]

Thanks, Perry, and thank you, everyone, for joining our first quarter fiscal 2023 earnings call.

We have four updates today, our Q1 financials, our guidance revision, our network growth, and the Board transition. Okay. I’ll start with the good news.

Our Q1 financials were strong. We delivered a 2% beat on our revenue guidance to $90.6 million and a 15% beat on our EBITDA guidance. Our free cash flows were nearly half our revenue at $43 million. We completed 25 client ROI studies in the quarter, and our median return remains well above the 10:1 that we reported in our S-1. Our physician engagement also hit new record highs, but more on that in a minute.

Looking ahead to Q2, we’re guiding to 26% year-on-year growth and our first $100 million revenue quarter with a 41% EBITDA margin.

Okay. Now for the not so good news. Our historically stable upsell rate among our pharmaceutical clients, which accounts for 10% to 15% of our annual revenue, has slowed year-to-date. These upsells boost the results of our base subscription programs by adding interactivity, personalization or more audience.

Our formulary upsell module, for example, parses reams of insurer data for each doctor to show them which drugs offer the best co-pays for their particular patients. Doctors appreciate the clarity and personalization of our format. Clients appreciate that thousands of doctors now know that their drug is on formulary. And it only takes a few hundred new patients to pay for the program, so the ROI is very high. Our conference upsell module shows each doctor who signed up to go to a medical conference, a list of who they know who’s also going.

Doctors like our One Click interface to meet up with old friends or coworkers, and clients love that our default meet-up spot is their booth, which they probably spend millions of dollars on. Well, despite being steady sellers in the past, these modules haven’t done as well this year. We’ve realized that as a midyear add-on, they’re more discretionary and vulnerable to budget shifts.

The net result of this upsell slowdown is that today, we are lowering both our annual revenue and EBITDA guidance by 6% to a midpoint of $428 million in fiscal 2023 revenue and $182 million in EBITDA. Our revised guidance equates to 25% year-on-year growth with a 43% EBITDA margin.

A couple of comments as we reset expectations here. First, lowering guidance is not something we take lightly. While Q1 is seasonally our smallest quarter, and there’s still a lot of runway left in the year, we want to be transparent about our current pace. By prime budget season this winter, we hope to remedy this.

I am personally shifting my focus from our EHR integrations to our pharma products and partnerships starting this quarter. Second, we believe this is transitory and that our higher growth rates will return. The iShares U.S. Pharmaceuticals ETF is down about 5% for the year, but our clients and industry revenue and profits remain strong.

When macro belt tightening does hit, like Novartis’ decision this quarter to cut 8,000 people and $1 billion per year in expenses, it’s quickest and easiest for them to simply hit pause on new digital projects. But this digital air pocket is short term in our view. Pharma marketers get weekly reports on their sales and their results. And we believe that over time, they will continue to invest where they see the best ROI for their brands which is with us.

Okay. Next, I’d like to speak to our network growth. And what we’re seeing now that we’ve had a full quarter of new normal in the U.S. that is no major pandemic lockdowns or outbreaks.

In a word, the new medical normal is hybrid. Our data shows that doctors just like the rest of us, are not just reverting back to their pre-pandemic work schedules. Rather, they’ve evolved a new, more mobile hybrid schedule. Doctors are following up with patients from their offices, in their living rooms, calling them with lab results or prescription renewals and they’re billing for it.

Everyone is happier for this, especially the patients who save hours of drive time and wait room time for what is essentially a 10-minute visit. We completed over 200,000 patient calls per workday last quarter. Our daily trends were surprisingly consistent and slightly upward throughout the quarter. In high-prescribing chronic care specialties like oncology and endocrinology, we’re seeing more and more patient follow-up visits get moved to virtual.

So among our mainstream hospital and clinic clients, the first visit may still be live, but the follow-up visits are increasingly virtual, which brings me to my favorite stat of this call. We hit a new all-time high last week of over 360,000 unique physicians, NPs and PAs who use Doximity Dialer on a rolling quarterly basis.

With hundreds of health systems now under contract, over a third of all U.S. physicians are subscribed to our paid Dialer Enterprise service. And our footprint continues to grow as we just signed our largest nongovernment client yet, one of the largest hospital groups in the United States.

Now, for those of you who don’t know, the idea behind Doximity Dialer is pretty simple. We let doctors call patients from their cell phones while protecting the privacy of their personal number. If the patient answers on a smartphone, which most do, the doctor can then text the patient a link to seamlessly transition to a video call. But while the idea is simple, the technology is pretty tricky to make work across all the phones, browsers, carriers and new FCC rules. Our scale and technology are key advantages here, earning us the wanted number one best-in-class ranking for video conferencing platforms this year.

Our other key advantage is the network effect of each doctor and department personalizing and then sharing their dialer setups, uploading their video backgrounds and logos, routing all their callback numbers, creating branded caller IDs, integrating with their EHRs and so on.

Suffice to say, with over 360,000 active users doing 200,000 calls per workday last quarter, we believe Doximity dialer has replaced the hospital handset to become the new gold standard for medical telephony, and we will continue to lean into its network growth. That all said, our app isn’t just for calling patients. It’s for faxes, schedules and news too.

Our mobile fax service is the closest thing doctors have to a HIPAA-secured DocuSign. It CCs their electronic health record and gets the prior off signed, so the patient can get their meds. Last quarter, we did 30,000 faxes and new signatures per workday, more than double our pre-pandemic levels.

Our Amion scheduling app mobilizes that printed on call sheet at the nurse’s station. So doctors can quickly call the right specialists to ask a question. The acquisition, which we closed in April, is months ahead of our integration plan and 15% of its approximately 200,000 physician scheduled users have already been converted to our new scheduling platform.

Our news feed algorithms analyze nearly 200,000 clinical articles per week to find the most relevant news for each individual doctor based on their subspecialties, procedures, colleagues and years of their personalized reading history.

Our app has over 130,000 reviews and is one of the highest-rated medical apps at 4.8 stars. If you like to read for yourself, just search for Doximity app store. We don’t seed or pay for any of the reviews. They’re all real physicians saying things like this app changed my professional life.

At Doximity, our vision is to be the physician cloud, the go-to app for hybrid mobile medical work. The pandemic forced many docs to shift to the cloud, but this last quarter is new normal has shown us that they’re here to stay. Across all these users, our mobile app, unique weekly active users grew last quarter to 5 times the level we had just four years ago.

We believe the sustained level of day-to-day engagement and utility will stand out this budget season when compared to our more Yahoo! Ask competitors. Now that the pandemic dust is settling, we see an opportunity to be more strategic with our pharmaceutical partners. Yes, reps are able to see about half of U.S. doctors live again, but the frequency of their visits has declined, and the need to prearrange meetings has increased.

We’d like to build new digital workflows that make it easier for both physicians and industry to collaborate. And like everything we’ll do, we’ll build this with a physician’s first mindset. So, we make good use of our busy members’ time.

Today, our pharmaceutical clients spend less than 5% of their medical professional marketing budgets with us. With over 80% of U.S. physicians as members, we aspire to someday be on par with the pharmaceutical sales forces in terms of our access, trust and interactivity with doctors. We believe this industry is in the early innings of a decade-long shift to digital.

Okay. To close, we have a Board transition. Dr. Gil Kliman, a mentor of mine, an early investor, is retiring from our Board of Directors and joining our advisory Board. In fact, Gil came up with the names for both Epocrates and Doximity. His wit and wisdom will be missed. Gil will be replaced on our Board of Directors by Phoebe Yang, who brings a wealth of healthcare tech experience in the roles as General Manager of Amazon Web Services Health business, a Chief Strategy Officer at Ascension and leader of a White House task force on Health IT. She served on the CommonSpirit Health and Providence Health Boards in addition to being an appointee in two presidential administrations. Fierce Healthcare voted her one of healthcare’s top 10 women of influence, and we’re delighted to have Phoebe join our Board.

And with that, I’ll hand it over to Anna to discuss our financials and revised guidance. Anna?

[Anna Bryson, CFO]

Thanks, Jeff, and thanks to everyone on the call today.

As we continue to grow our network footprint, we are excited to have delivered another strong quarter of ROI for our customers. I’ll begin with our Q1 financial results and then move on to our revised guidance.

First quarter revenue grew 25% year-over-year to $90.6 million, exceeding the high end of our guidance range. Similar to prior quarters, our existing customers continued to lead our growth.

Our net revenue retention rate was 139% in Q1 on a trailing 12-month basis. Additionally, our largest customers are still growing the fastest with a 145% net revenue retention rate for our top 20. We ended the quarter with 273 customers contributing at least $100,000 each in subscription-based revenue on a trailing 12-month basis. This is a 22% increase from the 224 customers we had in this cohort a year ago. This cohort of customers accounted for 87% of our total revenue.

Turning to our profitability. Non-GAAP gross margin in the first quarter was 88% versus 89% in the prior year period.

Adjusted EBITDA for the first quarter was $33.5 million, and adjusted EBITDA margin was 37% compared to $31.2 million and a 43% margin in the prior year period. When considering the year-over-year change in margin, as a reminder, our Q1 of last year was atypically high given revenue growth of 100% year-over-year in that quarter.

Historically, Q1 has always been our lightest quarter from a margin perspective, given annual raises, front-loaded hiring and team meetings, and we are seeing a return to that normal cadence in our financials.

Now turning to our balance sheet, cash flow and an update on our share repurchase program. We ended the quarter with $776.3 million of cash, cash equivalents and marketable securities. We generated free cash flow in the first quarter of $42.6 million compared to $32.4 million in the prior year period, an increase of 31% year-over-year.

Through June 30th, we repurchased $8.9 million worth of common stock at an average price of $32.40.

Now, moving on to our outlook. For the second fiscal quarter of 2023, we expect revenue in the range of $99.5 million to $100.5 million, representing 26% growth at the midpoint. And we expect adjusted EBITDA in the range of $40 million to $41 million, representing a 41% adjusted EBITDA margin. For the full fiscal year, we are revising our revenue guidance to $424 million to $432 million, representing 25% growth at the midpoint.

In addition, we are revising our adjusted EBITDA guidance to a range of $178 million to $186 million, representing a 43% adjusted EBITDA margin. While our pharma customers are exhibiting financial strengths and remain recession-resilient, the uncertain economic climate has prompted some slowdowns in decision-making. As a reminder, our pharma customers typically engage in an annual upfront buying cycle at calendar year end when they purchase the majority of their next year’s marketing programs.

Then throughout the course of the year, our customers add on to these subscriptions via additional modules or increased audience sizes. During the annual buying cycle for calendar year 2022, our customers purchased Doximity subscriptions at record scale. This included signing not only our first but our first four $5 million plus brand programs.

With the evolving market landscape, which has impacted discretionary marketing spend, our customers are adding on to these large-scale programs at a slower pace than we initially expected at this point in the fiscal year. To help quantify this adjustment, as we mentioned on our last earnings call, we began the fiscal year with approximately 60% of our initial subscription-based guidance under contract.

We then typically expect another 35% to come from renewals and upsells and 5% to come from truly new customers. Our renewal and new business rates remain strong but the upsell component, which was north of 10% of our initial subscription-based guidance and highly dependent on midyear program expansions is tracking below our original plan. When we first gave guidance roughly 90 days ago, we underestimated our pharma clients’ reaction to the uncertain macro environment and the impact it could have on our midyear add-ons.

Looking ahead, we believe these are near-term challenges. And the high ROI we deliver becomes even more attractive in an efficiency-focused environment. Initial conversations leading into this year’s annual buying cycle echo this sentiment. Doximity provides our customers with a critical vehicle for physician engagement and we are uniquely positioned to drive strong returns as a marketing partner for the long term.

With regards to our adjusted EBITDA outlook, we are encouraged that we are able to maintain our original adjusted EBITDA margin target of 43%, despite lower-than-expected revenue. The strength of our operating model affords us the ability to continue to strategically invest in growth without sacrificing much leverage.

In sum, while we are disappointed by the need to update our guidance, our opportunity for long-term growth remains significant. Doximity is differentiated by the breadth and depth of our platform, and we believe our customers will continue to lean into our strong ROI offerings as they expand their digital footprints and further optimize their marketing strategies.

With that, I will turn it over to the operator for questions.

[Operator]

Thank you. [Operator Instructions] Your first question is from the line of Ryan Daniels with William Blair.

[Ryan Daniels, William Blair]

Just in regards to some of the weakness on the upsell modules, can you speak a little bit to the ROI specifically of those? And I’m curious if it’s lower than some of the other areas, again, if they were just as high, I would think that pharma would still be focusing on that even if there’s uncertainty in the macro environment?

[Jeff Tangney, Co-Founder and CEO]

Thank you, Ryan. Good to hear from me. This is Jeff. It is more difficult to measure the ROI of some of these add-on modules. So, take the conference module we spoke to, for example. A conference happens once or twice a year and to see the share lift isn’t as easy to measure as over a 6- or 12-month program as we typically do. So, it is a little more difficult to measure the ROI. That said, we have measured it with a number of our programs, and we do have excellent ROI there. As we shared in the script, letting a doctor know that your product is covered by formulary makes a big deal. And obviously, it’s much more personalized, a message that can resonate for their particular patients.

So bottom line, we think overall, with our overall usage of our mobile app, up 5 times to hundreds of thousands of doctors a week, we’re going to continue to show high ROI for our clients. But as I said, it was a bit of a surprise to us that the steady upsell rate we had had on some of these modules was a little more difficult this past quarter.

As we look back on it, we looked at our clients and our industry revenue forecast and we thought they would be largely unaffected by the macro pressures. And I think what we’ve learned here is we’re not immune from those macro pressures, but we are fully waxed in the sense that it’s a 6% hit for us.

And what we’re seeing is there is this macro belt tightening psychology that happens even if the client’s actual financials aren’t changing that much. And so the most discretionary marketing spend, which really are these add-ons that we do throughout the year has been hit more than we expected.

[Ryan Daniels, William Blair]

Okay. I appreciate that. And I realize it’s not a huge reduction in the numbers but will be a focus. So, I’m curious if you can change intra-year your internal sales focus. I know you mentioned specifically you’ll be more focused on selling efforts, but can you switch towards more of the core programs or even more novel program initiatives that might be more discretionary to try to make up some of that ground, or is it just too late in the year to do that? Thanks.

[Jeff Tangney, Co-Founder and CEO]

Thanks, Ryan. Good question. Well, I’m certainly shifting my focus here, as I mentioned in the script. And as I get out and talk to folks, I do think we have an opportunity here to expand what we do.

Probably the brightest spot I see is within our telehealth, within our dialer product, which -- the core product focus on that has been 100% physicians first. It’s about serving our doctors. And that has grown up to 360,000 unique users doing 200,000 calls per workday last quarter. So we’re really becoming that gold standard for medical telephony. But this last quarter, we did start testing monetizing within our telehealth product within dialer. And actually, it went quite well.

I think we’ve got a real winner here for our budget season. So, we’re going to get out and start talking to clients about that now. And the good news is we already have some models in place with our up-to-date patient education modules really shown that providing clinical information, both during and after a tele visit’s a win-win for the doctor and for industry. So, I see some real opportunities for us here to meaningfully grow beyond these add-on modules even within the year.

[Operator]

Your next question is from the line of Scott Berg with Needham.

[Scott Berg, Needham]

I got a couple of items. I guess, let’s start off with the midyear programs, certainly understand the commentary, Jeff. But how do we think about how the midyear programs affect how your customers make those beginning of year purchases for the following year? Are the middle of the year purchases kind of like a step-up effect where that’s where they usually start the purchasing for the next year before adding more or just the addition of the midyear programs during the middle of the year, not really influenced how they might think about the beginning of the year purchases, say, for next year?

[Jeff Tangney, Co-Founder and CEO]

Thanks, Scott. Jeff here. I’ll take this one, too. So first, I’ll say, our clients have long memories. And summertime bargains can come back to haunt you in the prime winter season. So, our approach with regard to pricing is to steadily increase price each quarter to provide consistency for our long-term partners. So I can tell you that this last quarter, we raised our prices 11% on average.

[Technical Difficulty] price points does come back to end the year. Now, I’m not certain all of our competition is doing that, given everything that’s happening in the cookie and retargeting world with Google granting another 12 months of retries, so they’ve got 17 months left of third-party cookies. And of course, most doctors use Apple, and that’s been changed since early this year. But we really do take a very long-term partnership focused view with these top 20 pharmaceutical companies and other clients.

And I think we look at the midyear as the time to execute well on the programs we’re doing with them, so we can build to that next year’s bigger program based on the ROI we’ve delivered.

[Scott Berg, Needham]

Got it. Helpful, Jeff. And then, from a follow-up perspective, probably for Anna. As we think about kind of leverage and pushes and pulls in the model, with slowing revenue growth rate, should we assume that over time here, we should see some incremental leverage in adjusted EBITDA margins, or this kind of low to mid-40s range is the peak? Thank you.

[Anna Bryson, CFO]

Sure. It’s a great question, Scott. So yes, this near-term belt tightening of our customers really hasn’t impacted the way we think about our investments as a business for long-term growth, like we really strongly believe in the opportunity ahead of us. And we’re going to continue to strategically invest specifically in the areas of R&D and sales and marketing.

Now, that said, like most other companies, in an environment like this, there’s definitely some areas where we’re sharpening our pencils, such as G&A, for example. And that’s definitely helping us maintain our original 43% initial margin guide. And our long-term operating model of 40%-plus adjusted EBITDA margins still remains entirely intact.

[Operator]

Your next question is from the line of Richard Close from Canaccord.

[Richard Close, Canaccord]

I’m curious on the 60% under contract that you referenced in the last call and then again here. Are customers able to cancel business that they signed up for at the beginning of the year, so, let’s say, economic environment further deteriorates? Are they able to cut that out at all as you progress through this year?

[Anna Bryson, CFO]

Sure. Richard, I’ll take that one. So yes, we do see a small amount of cancellations each year. We’re very focused on customer success. So, we are flexible with our clients, typically to the tune of a very low single-digit percent of our sales. And that has not changed recently.

So, I want to be very clear that there have been no material changes in our cancellation rates. Our customers’ programs for the year remain intact. And what really has changed is just that they’re not adding on to those programs at the same rate that we’ve historically seen. And that’s really the key reason that’s led us to adjust our fiscal year guidance. So, there’s no change in our cancellation rates.

[Richard Close, Canaccord]

Okay. That’s great. And just to be clear, on the guidance change, is it just these two offerings that you guys are referencing tonight, or is there anything else in there that has changed significantly or somewhat?

[Anna Bryson, CFO]

Yes, sure. I’ll take that one as well, Richard. It’s mostly the add-on modules that Jeff referenced, but the other piece is audience members. So last year, we saw a lot of expansion at this point in audience members. That’s another way that our customers typically will add on to their programs midyear. And we’re just not seeing that at the same pace this year that we expected.

[Operator]

Your next question is from the line of Brian Peterson with Raymond James.

[Brian Peterson, Raymond James]

Either Jeff or Anna, in the pace of the move to digital, I guess, we’ve seen some changes over the last few years. But how certain are some of your customers on the pace of that, right? Because I guess we could see some cyclical adjustments here and the pace changes. But is there still a broader move towards digital over the next 2 to 3 years? And what is the customer conversations done, like maybe over the last few quarters to maybe update that for us? Thanks.

[Anna Bryson, CFO]

Sure. I’ll take that one, Brian. Yes, listen, our customers are still absolutely committed to continuing to lean into digital. What we’ve witnessed over the past few years is our customers might have been spending about 17% of their pre-pandemic budgets digitally. Now, it’s closer to 25% to 30%, and we see that going to 50% in the next 5 to 10 years.

This near-term air pocket has not changed the strategic direction of how our clients think about digital. They’ve had two years to witness really strong ROI. And back to the point I made in my prepared remarks, we think in an environment where our customers are sharpening their pencils and becoming more efficiency focused the high ROI channels such as Doximity and such as digital will be what wins in the long term. So, we believe digital will continue to gain share here, and this has not changed that.

[Operator]

Your next question is from the line of Stephanie Davis with SVB Securities.

[Stephanie Davis, SVB Securities]

Anna, first one is for you. The new 2023 range implies a relatively stable growth rate throughout the year. So, first off, does that imply we’re kind of at the bottom for any reopened headwinds to pharma brand manager attention? And secondly, as we look to 2024 and beyond, should we think of this mid-20s rate at a stable run rate, or is this more of a jump in plan?

[Anna Bryson, CFO]

Sure. I’ll start with your second question first, actually, and then go back to your first. But short answer on your first is, yes, we certainly feel very comfortable with this new range now and what the step-ups look like quarter-over-quarter from a revenue perspective. But as we look ahead to fiscal 2024 and beyond, while we’re not giving guidance there yet, we believe there’s a lot of reasons for us to be optimistic here. Now as Jeff called out, our network engagement and footprint remains as strong as ever. And in that same vein, our ROI remains as strong as ever. And as I just mentioned with Brian’s question, and an efficiency-focused environment, once we get past this temporary wait-and-see period, we believe our customers will make their decisions based on ROI.

And then, the final point I’ll make that I want to kind of circle back to and something we’ve talked about before is we have a significant amount of white space ahead of us. We mentioned on our last earnings call that we work with just over half of the growing -- the growing number of mega brands. So just over half of the number of mega brands, which is a pie that’s growing. And we believe our offerings are really incredibly attractive to continue signing those new brands over time. So, we’re very bullish on the long-term growth potential of our business. And so, while we’re not updating the guidance for fiscal ‘24 and beyond in specific numbers, I can just say we’re very optimistic about that.

[Stephanie Davis, SVB Securities]

For a follow-up, I’d actually like to dig a little bit more into the number of brands questions. How much of your growth is from existing brands or neighboring brands of pharma companies you already work with versus how much of it is really reliant on new brand launches throughout the year, just a general range for that as we think about the forward year growth?

[Anna Bryson, CFO]

Sure. The majority of our growth is coming from our existing brands and continuing to grow within those brands by improving ROI, upselling additional modules in their annual buying cycle time frame and growing there. Now the cross-sell motion is a significant part of our growth. But we’re not dependent on that pie growing necessarily over time, given the fact that we have this 50% plus white space in that, I think there’s north of 400 mega brands. We already have 50% plus of that that we’ve signed, and then we have another, say, 180 brands that we can go after there.

So, our growth isn’t necessarily dependent on that, is more dependent on those existing brands, but we view those new brands as additional -- really it’s upside for us.

[Stephanie Davis, SVB Securities]

Got it. So sometimes the drug approvals but not as much as we may think.

[Anna Bryson, CFO]

Correct.

[Operator]

Your next question is from the line of Sandy Draper for Guggenheim.

[Sandy Draper, Guggenheim]

First, just maybe a follow-up on that, make sure I hurt it right. Anna, so when we think about the pacing of revenue and seasonality, obviously, back in 2020, lots of stuff was turn off because of COVID. We had the typical more strong fourth quarter, December quarter. Are you still -- even though there’s not as much upsell, still expecting the December quarter to be the strongest revenue quarter and then a step down, or I wasn’t clear about the messaging there? Thanks.

[Anna Bryson, CFO]

Yes. Sure. Sandy, that’s a great question. So, I’ll just start by saying what we saw in our business last year, we believe was an anomaly. There’s a significant acceleration in demand, and we saw a large amount of mid-year and year-end add-ons.

As we’re seeing less upsell activity than expected this year, and our customers are focusing more kind of on their core annual buying cycle, we believe we’ll see Q3 that is not as large of a step-up as we did last year. And in Q4, that is a little more in line with what we have seen in pre-pandemic years, such as fiscal 2019 and fiscal ‘20, so we’ll likely see a slight step up as we kick off our large annual programs there just due to the fact that Q3 won’t be that big boost that we saw last year because last year was such an anomaly for us.

[Sandy Draper, Guggenheim]

Okay, great. That’s really helpful. That clears it up. And then my follow-up question. Around the scheduling product, I wasn’t clear, is that -- and I apologize if I’ve missed something. Is that -- ability for salespeople to schedule time with doctors, is that currently in the market, something you’re talking about? And I know you probably don’t want to give an exact launch date, but this is not -- what’s the expected timing? And how would you think about pricing that? Would that be priced on like every time we can schedule a pharma rep to get in, we get paid or basically a license? I’m just trying to understand how that model would work. Thanks.

[Jeff Tangney, Co-Founder and CEO]

Thanks, Sandy. This is Jeff. I’ll speak to the scheduling part. So, the scheduling that we provide today is actually doctor to doctor. So, it’s their actual shift schedule who’s on call, they call it, for each hospital. So, each hospital, we’ll need to have a cardiologist on call at all times, obstetrician and oncologist, so on and so on.

And so that schedule is 24/7 and those doctors need to be on call for that night or weekend. And again, our app makes it easy for them to host all those schedules in one place instead of having it printed out at some nurse station, which is how it’s mostly done today. And that app has 200,000 physician schedules on it. So, it’s a very high use thing.

Now that said, I do want to turn it over to Nate here to talk a bit though about the rep scheduling part because I think a lot’s changed in the industry. And Nate as a physician is very close to this. So, Dr. Nate?

[Dr. Nate Gross, Co-Founder and CSO]

Thanks, Jeff. And great to hear from you, Sandy. So, let me refer back to a prior earnings call where we discussed how only 10% of U.S. physicians want to return to the pre-pandemic methods of marketing as measured by an Accenture study. Doors were already being closed to reps long before the pandemic. Actually, back in 2008, roughly a quarter or so of all U.S. oncologists were what the industry terms a no-see doctor. And today, that’s grown to nearly 4 out of 5 oncologists as no-see. And across physicians, closer to the half to 3 out of 5 range are no-see per ZS Associates. And those trends are largely irreversible.

There’s this new generational shift of airborne illness risk discomfort in shared medical spaces. It’s a world now where only one parent is able to go into a visit with a pediatric patient. So, you can imagine that a rep in a suit who isn’t there for clinical care isn’t allowed to hang out in the waiting room anymore. So overall, access is going down as a decade-long trend and frequency of rep visits is also going down now from, for example, every month to every quarter, and that includes virtual visits like phone calls.

So, the future of this interaction, these aren’t office-centric anymore. Interactions are on the doctor’s preference of timing and modality and technology is needed, that we see a future for that could help the industry adapt.

[Operator]

Your next question is from the line of Jessica Tassan with Piper Sandler.

[Jessica Tassan, Piper Sandler]

So, I just wanted to go back to a prior response. I think, Jeff, you mentioned network activity being as strong as ever, but I think there was a reference also to just audience expansion observed during the course of last fiscal year and not necessarily repeated this year. Can you just elaborate a little bit on what that...

[Jeff Tangney, Co-Founder and CEO]

Sure, Jessica. This is Jeff. Yes. So listen, our engagement has never been higher, as I said, hundreds of thousands of doctors every week in our app, 5 times what it was four years ago. The audience expansion, I think, is more from the client side. And so, we did, Anna used the word, I think, pull forward back two quarters ago on an earnings call. We just saw a lot of upsells and add-ons where clients were deciding that they wanted to add more doctors to their programs because they were going so well. So, we’re not expecting as much of that this year, but we did see a lot of it last year, and that’s what led to, I think, the slightly different seasonality last year that we’re not expecting again this year?

[Jessica Tassan, Piper Sandler]

Okay, understood. And so, does that have anything to do with just kind of the level or the number of doctors seeing a particular advertisement or piece of copy relative to last year, just there being more eyeballs available to you all, or -- yes, how should we think about just the audience in terms of doctors? Would be helpful.

[Jeff Tangney, Co-Founder and CEO]

I mean, our audience has gone up. So that’s not the reason at all. No. It’s really -- pharma companies had end of year sweep budgets, they want to do more. So, we had the audience back then. We have even more audience today. It wasn’t a matter of our audience is being constrained now. Our audience is bigger today than it’s ever been. As I just shared, we had a record high number of telehealth users, dialer users just this last quarter. So, that’s not the issue.

[Jessica Tassan, Piper Sandler]

Okay. That’s helpful. And then just at the midpoint of revised guidance, can you help us understand how much of that revenue is booked today or as of the end of 1Q?

[Anna Bryson, CFO]

Sure, Jeff. I’ll do the bridge on that one. So, as of now, we’ve got roughly 3/4 of our updated subscription-based guidance that is booked. So it’s launched or contracted. And it’s actually pretty similar to what we’ve in pre-pandemic years at this point. And then if we’re breaking down that remaining one quarter, we’re expecting the majority of that to come from our annual renewal cycle, which occurs in our fiscal Q3.

And then, we’re expecting less than 10% to come from new business and upsells that will mostly occur this quarter. So, once again, the upsells have always been slightly more discretionary for us, but our tried and true annual programs that are deeply ingrained in our customers’ marketing strategies and really deliver incredible results for them, seem to be very, very positive as far as we kick off this annual renewal cycle.

[Operator]

Your next question is from the line of Allen Lutz with Bank of America.

[Allen Lutz, Bank of America]

Jeff, you mentioned that certain upsells are being viewed more as discretionary. But I guess, are you also seeing that maybe there was a bit of over-indexing to Doximity in 2020 and 2021 where you were taking just a ton of share, and maybe that this is just a reset year? Is that something that you’re seeing at all?

[Jeff Tangney, Co-Founder and CEO]

Well, I’ll say a couple of things, Allen. First of all, yes, we did grow 78%, 66% the last two years. So, those are tough comps, no doubt about it. I would say one bright spot that we’ve seen from this past quarter that we haven’t mentioned yet was our hospital referral marketing business, which grew faster than it ever did. And it’s interesting, the decision-makers in that business, it’s a much smaller business, but the decision makers on it are the doctors themselves, like the chairs of neurosurgery, who want more neurosurgical referrals. And they see firsthand how Doximity has grown during the pandemic, and they’re moving their marketing dollars to us.

And we believe that over time, where the doctors go, pharma will follow. And I do think that there’s this interesting disconnect that’s happened because pharma is usually very in tune with its customers. They do all sorts of focus groups and industry meet-ups and everything else, but it just hasn’t happened really for a couple of years.

So again, we think that the bellwether here is more of this share of neurosurgery client who really knows again how we’ve really leapfrogged ahead in terms of our day-to-day usage during the pandemic.

[Allen Lutz, Bank of America]

Great. And then, the dialer number was really strong. I know it’s early since your last update, but is there any update to what type of revenue that could contribute over time? Thanks.

[Jeff Tangney, Co-Founder and CEO]

Well, I’m not going to put a numbering out for it right now. But again, it’s -- we have not been focused on monetization with this product. We’ve been focused on growth, and we’ve grown quite well, 360,000 unique users making 200,000 calls per workday last quarter.

And our integrations with the EHRs get better, the product just gets better and better, helping doctors with their caller IDs. So, it appears as Dr. Smith, when they call their patients, so they get higher pickup rates. There’s just a lot we’re doing here that is just, I think, super important. And frankly, a little bit maybe boring or backwards-looking technology-wise, but you got to be backwards compatible in medicine to do well, and that’s why we invest so much time in fax technology so they can fax the pharmacies and so forth.

So, bottom line, we see a really big opportunity with these 200,000 calls we’re doing per day. And I think as we’ve tested this past quarter, I think there’s a lot of opportunity there to really grow our future revenue.

[Operator]

Your next question is from the line of Ricky Goldwasser from Morgan Stanley.

[Unidentified Analyst]

Just a question on the campaigns. I know last year, you guys kind of accelerated at least the pace of campaigns, and that was a nice tailwind. Anything in the marketplace today in terms of the timing and how quickly customers are looking to kind of ramp?

[Anna Bryson, CFO]

Hey Craig. Yes, that’s a great question. So we have talked a lot about launches in the past. And we’ve continued to get more efficient on our launches. Actually, when we last spoke in May at our last earnings call, we talked a little bit about April being a slower month for us from a launch perspective as our clients were really getting together live with each other for the first time in two years. But since then, launches have picked up really well for us in May and June, and that reacceleration of launches was actually the main reason behind our top line beat for the quarter. So, we’ve invested heavily in customer success and our customer success team continues to operate with very high efficiency.

And then, on top of that, our clients are also exhibiting a strong desire to get these ROI-generating programs live. So, our launches remain totally on track. It’s not slightly ahead of our initial pace.

[Unidentified Analyst]

That’s helpful color. If I could ask just a quick follow-up for Jeff. Last quarter, you talked about kind of the opportunity set in midsized companies and Biohaven was an example. Just looking for what type of traction you’re seeing there and the opportunity set more broadly for those type of customers.

[Jeff Tangney, Co-Founder and CEO]

Thanks, Craig. Yes, things continue to go well with Biohaven specifically. In fact, we’re live in market now with our peer-to-peer product with them. That’s going really well. So, excited to continue to work with them. And mid-tier in general did do better for us this past quarter. Again, I think they maybe have fewer macro changes that they’re relating to, but in general, did a little better for us than our top 20. But as I said, the real bright spot this past quarter is actually our hospital marketers who again I think are a little closer to what the new normal is with doctors.

[Operator]

Thank you. I will now hand today’s call back over to CEO of Doximity, Jeff Tangney.

[Jeff Tangney, Co-Founder and CEO]

Okay. Well, I’d like to just end again by thanking our physician members, our clients and the entire Doximity team. And thank you, everyone, for joining. Bye now.

[Operator]

This concludes today’s call. Thank you for joining. You may now disconnect your lines.