Doximity Inc

NYSE:DOCS

Earnings Call Transcript 2024-Q4

[Operator]

Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to Doximity fiscal 2024 Fourth Quarter Earnings Call. [Operator Instructions]. Thank you. I would now like to turn the call over to Perry Gold, Vice President, Investor Relations. Perry, please go ahead.

[Perry Gold, executive]

Thank you, operator. Hello, and welcome to Doximity Fiscal 2024 Fourth 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, along with a copy of our prepared remarks, all available on our website at investors.doximity.com.

As a reminder, today's call is being recorded, and a replay will be available on our website. As part of our comments today, we will be making forward-looking statements. These statements are based on management's current views, expectations 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, any subsequent Form 10-Qs and our other reports and filings with the SEC that may be filed from time to time, including our upcoming filing on Form 10-K.

Our forward-looking statements are based on assumptions that we believe to be reasonable as of today's date, May 16, 2024. Of note, it is Doximity's policy to neither reiterate nor adjust the financial guidance provided on today's call, unless it is also done through a public disclosure such as a press release or through the filing of a Form 8-K.

Today, we will discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A historical reconciliation to comparable GAAP metrics can be found in today's earnings release.

Finally, during the call, we may offer incremental metrics to provide greater insights into the dynamics of our business. These details may be 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?

[Jeffrey Tangney, executive]

Thanks, Perry, and thank you, everyone, for joining our fourth quarter earnings call. We have 3 updates today, our financials, network growth and client summits. .

First, our top line. We delivered $118 million in revenue for the fourth quarter of our fiscal 2024, beating the high end of our guidance range. For our full fiscal year ended March 31, we had $475 million in revenue and grew 13% year-on-year.

Of note, our top 20 clients once again grew the fastest at 22% in fiscal 2024. These clients include most of the top 20 pharmaceutical companies who know and measure us best. Our bottom line was strong in Q4 with an adjusted EBITDA margin of 48% or $56 million, which was 10% above the high end of our guidance.

Our free cash flow was a bit higher still at $62 million, which was 37% year-on-year growth. For the full fiscal year, our adjusted EBITDA grew 25% and -- from $184 million to $230 million year-on-year. Our adjusted EBITDA margin was 48% for the year, up from 44% the prior year.

To reinvest this growing cash flow, our Board has authorized a new $500 million share buyback program. At the same time, we'll continue to grow our internal R&D investments in AI and commercialization.

Okay. Turning now to our network growth and engagement. In fiscal 2024, we added over 400,000 registered health care professionals to our platform. That's our second biggest growth year ever, rivaled only by our COVID surge in 2021. This recent growth shows how at more and more hospitals nationwide, we're becoming the standard tool for calling patients, checking calendars and looking up colleagues.

We've also extended our reach among Nurse Practitioners, NPs and Physician Assistants, PAs. We're proud that now over 60% of the roughly 550,000 NPs and PAs in the U.S. have joined our network. This is in addition to the 80-plus percent of U.S. physicians on our platform.

Our engagement also hit a new high watermark in Q4. Our unique active users on a quarterly, monthly, weekly and daily basis were all up double-digit percentages year-over-year. Notably, our daily users grew the most, underscoring how much our personalized news feed and EHR integrated workflow tools continue to gain share and daily use among health care providers.

Our news feed continues to be our most used feature. Last quarter, over 900,000 unique prescribers scrolled our feed to keep up on the latest developments in their fields. Our workflow tools also saw record engagement in Q4 with over 580,000 unique active prescribers.

But don't take hard work for it. Just take a look at our reviews. Our app has over 165,000 reviews on the Apple App Store and is one of the highest-rated medical apps at 4.8 stars.

Okay. Turning now to our recent Physician and Pharma Client Summits. In March, we hosted our 12th Annual Physician Tech Summit in San Francisco. It was great to roll up our sleeves for 2 days and test new software alongside 150 of our nation's top digital doctors. AI took center stage as Doximity GPT, our popular HIPAA compliant medical writing assistant, won the top marks of the weekend.

We are all in on AI applications for doctors, and we'll continue to lean into our R&D investment here. To that end, today, we're delighted to announce a new integration with Perplexity the AI answer engine that can respond to questions with the latest publicly available sources and citations.

With this integration, physicians on Doximity can ask about a recent guideline change and see the latest answer along with a quick link to the Medical Society website where the full guideline is posted. unlike other popular AI models, this gives doctors the latest up-to-the-minute information and its sources. Our physicians tell us that this ability to easily double check their sources is a key requirement in making clinical decisions.

Last week, we hosted our Annual Pharma Client Summit in New York. Over 30 marketing leaders from the largest pharmaceutical companies in the world joined us to discuss the latest trends in digital marketing and to take a closer look at our new client portal.

Our clients have always appreciated our white glove service and industry-leading ROI. Now they're also excited about the AI optimizations and time savings, our tech can bring them. As one of our clients put it, they want Doximity's data and AI to tell them how to run their programs, not the other way around.

Last quarter, we completed a whopping 124 ROI studies in our client portal, leveraging our seamless IQVIA sales data integration. That's roughly 3x as many as we did all last year. Our median ROI continues to be greater than 11:1, but the months of back-and-forth data gathering now takes just a few clicks.

Our portal is now available to about 20% of our pharma brand clients, up from 10% last quarter. We continue to make steady progress in this multi-quarter evolution, following the well-tested ad platform design and playbook of other tech companies.

There are 3 basic functions to our client portal: Reporting, purchasing and content creation. The first part, reporting and insights we rolled out last quarter. This quarter, we've introduced purchasing and pricing capabilities. The third phase, content creation and optimization will begin later this year.

It's been nearly 6 months since we began beta testing our portal with clients. We appreciate the advice from many industry experts to stay up market and do it right.

So far, our existing clients love our tech and transparency. They're giving us a seat at their strategy table like never before. And over time, we're excited to unlock and serve a much broader swath of customers with a more automated platform.

Okay. I'd like to end by thanking my Doximity teammates who continue to work incredibly hard to care for those who care for us. With record engagement among health care professionals the long-term value of what we're building together has never been greater. I'm proud to be on this journey with you.

And with that, I'll hand it over to our CFO, Anna Bryson, to discuss our financials and guidance. Anna?

[Anna Bryson, executive]

Thanks, Jeff, and thanks to everyone on the call today. Fourth quarter revenue grew to $118.1 million, up 6% year-over-year and exceeding the high end of our guidance range. Full year revenue grew to $475.4 million, up 13% year-over-year.

Similar to prior quarters, our existing customers continued to lead our growth. We finished the quarter with a net revenue retention rate of 114% on a trailing 12-month basis. For our top 20 customers, net revenue retention was higher at 122%. The -- so our biggest, most sophisticated customers remain our fastest growing.

We ended the quarter with 296 customers contributing at least $100,000 each in subscription-based revenue on a trailing 12-month basis. This is a roughly 1% increase from the 294 customers that we have in this cohort a year ago, and these customers accounted for 90% of our total revenue.

Moving forward, we will be increasing the revenue threshold for our customer count metric. We believe a metric that better represents the health of our business at this scale is the number of customers contributing at least $500,000 each in subscription-based revenue on a trailing 12-month basis. We ended the quarter with 98 $500,000-plus customers. This is a 23% increase from the 80 customers that we had in this cohort a year ago, and these customers accounted for 81% of our total revenue.

Turning to our profitability. Non-GAAP gross margin in the fourth quarter was 91% versus 90% in the prior year period. For the full fiscal year, non-GAAP gross margin was also 91%, the -- versus 90% in fiscal 2023. Adjusted EBITDA for the fourth quarter was $56.4 million, and adjusted EBITDA margin was 48%, the -- compared to $48.9 million and a 44% margin in the prior year period.

For the full fiscal year, adjusted EBITDA was $230.5 million, and adjusted EBITDA margin was 48%, the -- compared to $184 million and a 44% margin in fiscal 2023. We are proud to continue to run a very profitable business with 25% year-over-year growth in our bottom line.

Now turning to our balance sheet, cash flow and an update on our share repurchase program. We generated free cash flow in the fourth quarter of $62.3 million, compared to $45.6 million in the prior year period, an increase of 37% year-over-year. For the full year, we generated free cash flow of $178.3 million, compared to $173.4 million in fiscal 2023, an increase of 3% year-over-year.

As a reminder, we have utilized our NOLs and are now paying cash taxes at a rate of roughly 25%. We ended the year with $763 million of cash, cash equivalents and marketable securities.

During the fourth quarter, we repurchased $21.7 million worth of shares. For the full fiscal year, we repurchased $284 million worth of shares at an average price of $23.19. I -- these share repurchase efforts have decreased our fully diluted shares outstanding by 5.5% since Q4 of last year.

We completed all remaining authorized share buybacks in April and today are announcing a new $500 million share repurchase program that will be open ended. We believe repurchasing our shares is a valuable use of the incremental cash we generate above what's needed to reinvest in the business.

Now moving on to our outlook. For the first fiscal quarter of 2025, we expect revenue in the range of $119.5 million to $120.5 million, representing 11% growth at the midpoint and we expect adjusted EBITDA in the range of $55 million to $56 million, representing a 46% adjusted EBITDA margin.

For the full fiscal year, we expect revenue in the range of $506 million to $518 million, representing 8% growth at the midpoint. And we expect adjusted EBITDA in the range of $238 million to $250 million, representing a 48% adjusted EBITDA margin.

Finally, 1 housekeeping item. In fiscal 2025, we expect stock-based compensation to increase from roughly 10% of revenue to roughly 12% to 13% of revenue as we continue to invest in and grow our team. That said, we expect the dilution impact to be low at less than 1% of shares outstanding prior to any buybacks.

Now I'll provide more color on our outlook. Our annual guidance assumes growth of at least 10% amongst our pharma customers and flattish growth amongst our health system customers. Our Pharma business, which represents over 3/4 of our revenue continues to outperform the roughly 5% to 7% growth rate of the overall HCP digital market. We believe this outperformance is due to our record engagement industry-leading ROI and continued innovation.

Speaking of innovation, we are excited by the long-term potential to unlock even more growth for our Pharma business with our new client portal. However, given this will be our first upsell season with it, we are assuming no material revenue impact in our fiscal 2025 guidance.

With regard to our Health System customers, renewal rates remain strong, but we are seeing less expansion in new business. Hospitals today are focused on a post-COVID return to profitability, which we believe is more of a near-term headwind caused by the pandemic, inflation and labor shortages.

We are, however, encouraged by a recent McKinsey study, which estimates that health systems profits will rebound and grow by an 11% CAGR over the next 4 years after less than 5% growth this past year.

As far as visibility into our fiscal 2025 guidance, we continue to see a trend toward more upfront buying on Doximity. This has led to us beginning each year with a higher percentage of revenue under contract or booked than the prior year.

As of today, we have over 70% of our subscription-based revenue guidance for fiscal 2025 under contract. This compares to over 65% at this point last year and over 60% at this point 2 years ago. To date, we have focused our commercial efforts on the universe of pharma brands with over $100 million in U.S. sales, a strategy aligned with the white glove nature of our business model.

Looking ahead, we're excited by the opportunity our portal will bring to further expand our offering to the long tail of pharma brands. There are roughly 470 brands with less than $100 million in U.S. sales. And today, they represent only about 8% of our total pharma revenue. We think this could be substantially higher in the long term.

The portal also brings an ability to expand our reach to other small- and medium-sized businesses in health care such as medical devices, diagnostics and digital health. We look forward to partnering with more brands and companies as we continue our evolution towards being both high tech and high touch.

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

[Operator]

Thank you. [Operator Instructions]. And it looks like our first question comes from the line of Brian Peterson with Raymond James.

[Brian Peterson, analyst]

Congrats on a strong quarter. So I wanted to ask on the cohorts. I agree with you that the $500,000, it's probably a better metric as it covers 81% of the revenue. .

But if we look at the, call it, 200 or so customers that are paying more than $100,000 but less than $500,000, how much of the -- or how many of them do you think would be a good fit to spend over $500,000 eventually? Any color on that? .

[Anna Bryson, executive]

Sure. Thanks for the question, Brian. And yes, I think to the point you just made, listen, we're in a phase of growth today that's mostly led by scaling our larger existing customers. I think one of the trends that we've seen over time is that, that cohort of customers -- the cohort of customers are spending more than $500,000 with us continues to represent a growing percentage of our overall business.

So today, it's at about 81% and -- and if we look back last year and the year prior, it was only about 76%. So a big part of our growth has been doing exactly what you just referenced and getting those customers from that, say, $100,000 to $500,000 threshold up to the $500,000 plus threshold.

We've done a ton of analysis on this. We believe that there are a long tail of pharma companies and health systems that we could help continue to graduate into that bucket. But without giving kind of further specifics around the exact number, I think that there is plenty of room for us to grow in this 500,000-plus cohort.

[Brian Peterson, analyst]

Good to hear. And Anna, just on the guidance in terms of seasonality, looking at the June quarter, it's guided up a few sequentially, any delta on what's driving that versus what we saw in June, maybe the past few years?

[Anna Bryson, executive]

Yes, sure, Brian. So as I mentioned last quarter, we did see a higher mix of new products and new brands during our annual buying cycle. That included a $10 million plus brand that was actually a new brand for us and 100% growth year-over-year in our newer modules.

So these programs had contractual launch timing that was more weighted towards spring, which did lead to a softer than typical Q4, but a nice step up into Q1 as those programs are now live, and it's contributing to the strong 11% growth guide that we're seeing in Q1.

[Operator]

And our next question comes from the line of Scott Berg with Needham & Company.

[Scott Berg, analyst]

Jeff, you had given a number of adoption metrics from nonphysicians on the platform in the quarter and the progress that you're making there. I guess the question there is kind of 2 parts.

One, do you think you can get those usage and adoption rates over time to be similar to what you see with physicians today?

And then two, how do you think about your ability to monetize these additional people that are on the platform? Is that opportunity? I guess, does it differ at all from kind of the historical viewpoint of the platform.

[Jeffrey Tangney, executive]

Thanks, Scott. Yes, this is Jeff. I'll reply. Yes, we're probably over 60% of NPs and PAs in the U.S. In terms of our ability to monetize NPs and PAs, frankly, they're substantially similar to physicians, right? They have prescription rights in nearly every state. And in terms of our biggest clients, they're actually, in many ways, topping their target list. So we're excited to be over 60% of NPs and PAs.

Historically, we haven't done as well with them, and I will tell you what it boils down to, they're a little less proud of their resumes, right? We began being this great service to showcase your curriculum vitae and all of your publications and all of your clinical trials. NPs and PAs tend to have less of that, having had fewer years of education.

But they are heavy, heavy users of our Doximity dialer, telehealth service, of our calendaring service, of our messaging service and so as our workflow tools continue to gain adoption, have new hospitals roll us out.

We're now in 17 of the top 20 hospitals that have our enterprise IT platforms in place. We see greater and greater adoption amongst them. And this year, we're going to be focusing more on NPs and PAs specifically. So we haven't announced it in the comments, but we have been putting together what we call NP Navigator to help NPs choose the right schools and training programs for them to go to. This is something that's been a real hit with our physician audience. We get over 90% of graduating physicians to come use our, what we call Residency Navigator.

So we have over 1,000 NPs who provided feedback on their schools and programs and I think it will be a real service to the NP and PA community to be able to make better choices as they decide where they're going to move to in the country to do their training.

So we'll continue to lean into, I think, other nonphysician audiences. And frankly, we are increasingly a network for all of health care, all health care professionals, not just physicians.

[Scott Berg, analyst]

Very helpful. And then in your guidance, you had mentioned revenue from pharma customers is contemplated in your guidance to be up 10-plus percent year-over-year in your non-Pharma and we call it more hospital-based revenues is expected to be about flat year-over-year versus in '25 versus '24.

I guess, as you think about those revenue streams, can you jump start that to maybe show a little bit more modest growth from that segment? Or is there some limitations in the end market across the numerous products you have there that might drive that growth rate for a while?

[Anna Bryson, executive]

Yes. Sure, Scott. So I'll start by saying hospitals have had a tough few years. I mean, it's no secret, right, with the pandemic and inflation. And I think we have to remember that the public health emergency only ended in May of 2023. .

So hospital today really are focused on this return to profitability, and we believe this is much more of a near-term headwind. We have seen less new business and expansion because of that. But the good news is our renewal rates remain really strong, and our enterprise telehealth business continues to perform very well and drive strong engagement.

And then as we kind of think about that market over time, we are really encouraged by the recent trends and forecast by McKinsey for a rebound in health system profitability.

So we do believe that this is much more of a near-term headwind that has caused us by a post-covid return to profitability for health systems, and we believe strongly that this end market can be a good grower for us over the long term.

[Scott Berg, analyst]

Great.

[Operator]

And our next question comes from the line of Jared Haase with William Blair.

[Jared Haase, analyst]

This is Jared Haase on for Ryan Daniels. Maybe I'll just ask a follow-up to kind of put a finer point on that health system commentary.

I'd be curious how you're thinking about any opportunities from a product development perspective, given the sort of margin challenges that, that industry is facing, thinking about solutions to actually help address those issues, right, whether it's through better revenue capture, helping those health systems lower cost or drive operating efficiencies.

Anything like that, that sort of improved informing your product development initiatives to kind of be a solution to their problems.

[Jeffrey Tangney, executive]

Thanks, Jared. This is Jeff. I'll take that. Yes, we remain very invested long term in serving hospitals in the hospital market. .

Listen, as Anna just said, we think their return to profitability will be swift. And they're the great clients, loyal clients, long term for us. So we want to continue to help them.

I don't want to give too much away in terms of our product pipeline and road map. We do spend a lot of time with our hospital clients developing new ideas, new products. And suffice it to say, I think we have some good things cooking there. We just did our hospital advisory board a month ago, which brought, I think, the top hospitals from around the country together with us to brainstorm on these things.

The 1 thing I will highlight is, in regards to recruiting, which remains a big challenge for hospitals keeping talent labor shortages. We have been using GPT to help us personalize their job listings and post for the individual and physician or nurse or NP or PA. And we're seeing that GPT does do better, gets better click rates than just the general posting.

So wouldn't it be nice if every time you got presented with a job opportunity that it was personalized for you in a way that you can quickly flip through and adjust.

So we're excited about what we call it, recruit GPT here internally we're really excited that the click-through rates you've seen here do significantly better, and our clients, of course, are excited about this as well because they get more applications, more candidates and more help filling a lot of those positions that they have opened.

[Jared Haase, analyst]

Okay. Yes, that's great. I appreciate the color there. And then maybe I'll ask a follow-up on the Pharma side and specifically the comments around your optimism of getting into the smaller biopharma segment of the market.

Could you just kind of walk through how you would think about sort of the commercial efforts in the SMB segment of that market? Any differences or nuances as to how you would go after that customer segment versus your traditional larger pharma manufacturer client base?

[Jeffrey Tangney, executive]

Sure. Thanks, Jared. So let me just start by saying I'm incredibly enthusiastic about our portal, especially having just spent time with 30 of our biggest clients last week and just after they see all the different ways we can optimize and measure and provide them these 124 ROI studies with just a few clicks instead of just once a year and a tortuous 3-month data merging process.

They come to us and say, "You know what, can you just tell me what to do," because we really are in a position to help them figure out the right voice, the right channel, the right way to optimize getting word out about their new clinical studies and other things.

I think that's even more true with the smaller mid-tier pharma companies because they don't have legions of consultants and agencies and others to really help them optimize and do all that. And our portal can do a lot of that for them.

Now the thing that we're still missing and building today is the ability for them to actually upload their content, which I think will be an important piece, and it is something that, as I said, will be later this year. So I think we have a small -- small forecast for what this will do this year.

But as I look to future years, I mean, today, as Anna said in her prepared remarks, only 8% of our revenue -- subscription revenue comes from these smaller firms and when you look at other companies, it's usually a much higher percent.

So we're very excited about what we can do there. And I would say that the most excited clients we have -- have been the mid-tier companies because they don't already have all the consultants and others producing these analytics for them. And now with the click of a button, they can see it, make it take it to their CFO, it's somewhat magical for them. And I think we've seen technology do similar things in other tech companies.

[Jared Haase, analyst]

Great.

[Operator]

And our next question comes from the line of Richard Close with Canaccord Genuity.

[Richard Close, analyst]

And congratulations on the report. Anna, I was wondering on the first quarter and the year revenue growth in know you addressed the first quarter in terms of timing of launch launches.

But curious why doesn't the 11% growth carry over into the remaining quarters for the year? If you could just provide some details on what went into the, I guess, the rest of the year?

[Anna Bryson, executive]

Yes. Richard, thanks for the question. So as I said in my prepared remarks, we are entering the year with the strongest backlog we've ever had with over 70% of our subscription-based revenue already under contract.

And we're really happy, as we said before, with how the upfront was in our Pharma business and the fact that we're guiding to this 11% growth in Q1, where we have strong visibility into.

But as we think about the back half of the year, it is more dependent on our upsell season and the next upfront season. And as we've said before, we're just going to be more prudent as we think about guiding to the dollars we don't get that booked given we are still in an environment where we're taking macro uncertainty.

[Richard Close, analyst]

Okay. That's helpful. And then clearly, obviously, there's a lot of opportunity in this provider channel for you to market for Pharma. But I saw a recent survey that indicated maybe some marketing dollars going by pharma into the payer channel, maybe to highlight drugs with payers and get coverage, whatnot.

But I'm curious if you have seen this. Any insight you can provide on any mix changes to the payer channel. If this is an opportunity for you, maybe the breakout of the provider segment somewhat? And then also thoughts on any direct-to-consumer plans that you may have.

[Jeffrey Tangney, executive]

Yes, Richard, this is Jeff. I'll take that. So yes, within pharma companies, you are seeing entire budgets and teams organized around what they call market access or payer solutions because they understand that being on formulary, being a low co-pay, it's always mattered to this industry. It's not a new phenomenon, but it's an area that we're -- I think they're able to get better data and optimize more now.

That plays perfectly into our formulary product, which we've talked about in prior earnings calls, but has been a good growth area for us. Essentially, what we're able to do is personalize a message for each doctor, NP or PA, about the payer mix that they have and tell them that drug A is covered with these 3 plans that 80% of your patients are on.

And so again, we're able to do that on a per doctor, per prescriber basis, and that has had a strong ROI for our clients, and we continue to see good growth there. So we are playing in those payer market access budgets.

More broadly, you're right, we do reach more and more health care professionals, PharmDs, what I call P&T committee members and so yes, we are able to extend beyond just physicians now and our reach and add new audiences, I think, for our market access clients.

With regard to direct-to-consumer, we don't do anything there today and don't have any immediate plans to. But certainly, longer term, longer term, that could be an area where we play more. But again, today, we focus on the needs of prescribers positions, and that's where I think we really stand out as really the leader in the category.

[Operator]

And our next question comes from the line of Glen Santangelo with Jefferies.

[Glen Santangelo, analyst]

Just 2 quick ones for me. Jeff, first, I was hoping that we could unpack a little bit this market growth rate and get your assessment on sort of how that -- the industry growth is evolving.

Because, if I remember correctly, I think last year, you sort of characterized the market as mid- to high single. This year, you all have been pretty consistent saying 5% to 7% growth. And sort of based on the guidance that Anna gave it, it still seems like you're taking some share in the Pharma segment, and I'm not really sure how I should think about the Health Systems segment.

So any color there? And then maybe just as my quick follow-up, Anna I was hoping just to follow up on a recent question about the 70% visibility app. Obviously, there's 30% to go, and I'm kind of curious how you think about that from a renewal versus upsell perspective just so we can maybe assess how confident you may be in that full year guide? .

[Jeffrey Tangney, executive]

Great. Glenn, this is Jeff. I'll take your first question here first. So yes, we have said that we think the market is growing 5% to 7% this year.

I mean, if you look -- zoom way back from me. If you just look at the Internet Advertising Bureau and U.S. digital advertising through 2022, we basically had 20 years of 20% growth.

Now there are more a few years that weren't that high of growth, right? Digital marketing does go through macroeconomic cycles. But that over the past 20 years, 20% growth.

If you look at our own growth, pre-COVID, it really was a mid-teens growth. That was the pharma shift to digital, which is still hugely under-indexed. I mean it's still less than 40% that is digital today when, again, the Fortune 500 is more like 70%, 75% digital.

So we think pharma still has a long way to go in this shift to digital. It's bed up during COVID, and now it's been slowing down a bit as people, of course, are back to the more traditional methods.

And after a couple of years of pretty heavy growth, we're at this 5% to 7% growth. We do ultimately think it will return back to this mean, this baseline of mid-teens. But again, we're not seeing it yet this year. So I hope that answers your market growth question. Anna?

[Anna Bryson, executive]

Yes, Glenn, just a quick 1 on the follow-up there about the remaining 30% that we don't yet have booked. So our assumptions are that mid-year upsells and new business remains fairly muted. So pretty similar to what we saw last year. And then as far as what we're thinking about for annual buying cycle, we're also assuming it performs pretty similarly to prior years. So if we kind of think about the breakdown of that 30%, certainly more weighted towards renewals. .

[Operator]

And our next question comes from the line of Elizabeth Anderson with Evercore ISI.

[Elizabeth Anderson, analyst]

I was wondering -- I apologize if I missed it. Did you -- how much of pharma and hospitals grow in fiscal '24? Just want to make sure I understand the trajectory there.

[Anna Bryson, executive]

Elizabeth. So it's something we've actually broken out before, and it's not something that we necessarily plan on breaking out in the future.

I think we wanted to give a little bit more color this next year, just given the recent dislocation growth. So I think what I can say is last year, we didn't really see the same dislocation in growth. So that's kind of why we wanted to give more directional color for this year..

[Elizabeth Anderson, analyst]

Got it. That's helpful. And could you talk a little bit about your expectations for the gross margin? Obviously, you had some nice performance there in the quarter, but it would be helpful just to understand sort of the puts and takes as you sort of roll out the new offerings.

[Anna Bryson, executive]

Yes. Thanks, Elizabeth. We do continue to optimize our infrastructure costs and customer support engines. And we're certainly seeing that reflected in our 91% non-GAAP gross margins.

We want to take a step back and think about our long-term forecast here, we are forecasting about 85% to 90% for our long-term non-GAAP gross margin. So we're happy to be above that. And I would say we don't expect to see a material change from where we are today in the near term.

[Operator]

And our next question comes from the line of Michael Cherny with Leerink Partners.

[Daniel Christopher Clark, analyst]

This is Dan Clark on for Mike. To start just on the health system guidance. Has the changed health care outage come up at all in any of your conversations with health system customers? Like is that factored into the guide at all?

[Nate Gross, executive]

This is Nate. So no, we don't really have much exposure. I think a little to no impact to change health care news. Reimbursement dynamics are not something that our engagement is particularly exposed to, we have tremendous empathy for physicians trying to run their practices and certainly hope this is an impetus for improvement in industry infrastructure, I'd say.

But in general, our workflow products are designed to be useful as long as care is being delivered and doctors to their credit, were delivering care even while not being reimbursed in the timeline manner for it.

[Daniel Christopher Clark, analyst]

Got it. And then just a question on pricing assumptions for fiscal '25. Should we expect kind of a similar rate of increase to fiscal '24?

[Nate Gross, executive]

Sure. This is Nate again. So on pricing, when we look at our growth drivers, we typically talked about 4. We have new modules, which sometimes also, of course, tap new budgets. We have cross-selling into, say, new brands and new departments. We have expansion of audience members and then we have pricing.

And I mentioned pricing for because it's something we do steadily every year, but it's fourth on the list by design. It's a long-term driver opportunity that we see. And I think the portal affords us the technology really in the models that can be more sophisticated here to increasingly give us an advantage with high demand users, different times of years and find a win-win for our partners.

Moreover, I think it's the discussion around marketing increasingly moves to ROI and decisions become ROI linked, our ability to more rapidly deploy ROI studies through the portal also is a positive tailwind for what we can do with smart pricing.

[Operator]

And our next question comes from the line of Anne Samuel with JPMorgan.

[Anne McCormick, analyst]

I was hoping maybe you could talk about how you're thinking about balancing both growth and profitability, particularly with growth slowing a little bit here.

Historically, you've said that you don't expect much operating margin expansion. But this year, you obviously saw some very significant leverage. Should we be thinking about this rate in the high 40s as the new normal? Or is that 45% rate that you had kind of talked about longer term still the targeted rate.

[Jeffrey Tangney, executive]

This is Jeff. I'll take this, and Anna may have some comments to add. So you're right. Our guide for the year is a 48% EBITDA margin. So we are guiding above $45 million.

Listen, we're going to be spending more in R&D this year than ever before. We're really excited to lean into AI, especially for doctors. Our Perplexity partnership, we just announced, I think, is going to be really key to help doctors really get medical answers faster and have the right citations that they need to know that it comes from credible sources, with the verbatims there for them to go access it.

So we're very excited to have that and the beta feedback on it has been excellent. Our Doximity GPT has also been a hit. I tell you, we have 1 hospital that just purchased the product from us, and they're actually requiring all of their staff, everyone on their staff to go and do at least 1 Doximity GPT query and usage.

Because they understand that it's a productivity driver and that you just need to come and try it to understand it. And so we think it's great that they're helping drive the adoption of our product out there in the marketplace. We think we'll see more and more of that as hospitals focus on efficiency.

But the truth is there's only so much you can spend as an AI application layer company. Big tech is doing all the heavy lifting really for free for us. And that's great for us. We think there's a lot to be done, making it HIPAA compliant, making it curated for the medical sources that doctors trust because, of course, there's a lot of the Internet you should ignore when answering medical questions.

So we'll continue to lean into growth there. But again, the reality is we really get constructive about it. We're just at a very efficient place in terms of being able to reinvest this large team. We've got the distribution. We've got the technology. So we're guiding to another 48% EBITDA margin.

[Anne McCormick, analyst]

That's great. Thank you for the color. And then maybe just 1 more. Anna you talked about increased visibility over the past 2 years. I was hoping maybe you could just touch on what's been driving more of that upfront buying? Is that something that you're pushing your customers for? Or is that a new dynamic that they're coming to you with? .

[Anna Bryson, executive]

Yes. I think really, it boils down to the fact that we've just become a key line item for pharma in recent years. And as we've continued to scale within our customers, and continue to prove high ROI and continue to innovate on our modules.

We have our customers continuing to come back and buy at larger scales and willing to actually spend more dollars upfront with us, which is a phenomenon that we're really happy about. So it not only gives us better visibility, it also allows us to optimize their programs more.

So it's definitely something that we're really pleased with, and I think it just goes back to the fact that we continue to have record engagement and industry-leading ROIs to our customers are willing to commit those extra dollars upfront.

[Operator]

And our next question comes from the line of Stan Berenshteyn with Wells Fargo Securities.

[Stanislav Berenshteyn, analyst]

I think in the prior quarter, you indicated traction and bundling newer modules. Can you give us an update on the uptake of those bundled solutions? And also what's client interest in purchasing bundles versus going and buying on a bespoke basis?

[Jeffrey Tangney, executive]

Yes, Sam, this is Jeff. I'll take that. Yes, so we are bundling our products together. Again, we see that the more different products a client uses with us, the higher their ROI. It's actually a synergistic effect. And this is similar to what others see with multimodal approaches to reaching folks.

And our ability to actually dynamically then weight that so that some doctors care more about formulary coverage because their patients can't afford large co-pays. We can bundle that message, whereas others might prefer to watch a video of a molecule and a study result. And again, that does better.

So I think you'll continue to see us work with our clients to have these sort of multi-tactic approaches. They do lead to significantly better results, statistically significant better results and so you'll see more of that from us.

[Stanislav Berenshteyn, analyst]

Maybe as a quick follow-up. It sounds like you're moving maybe more down market into this midsized biopharma space. I mean, that channel has been, I guess, somewhat priced out of your platform. You have a premium price platform. Will the move down market require some kind of more competitive price offerings for those clients?

[Jeffrey Tangney, executive]

Yes, this is Jeff again. Yes, the short answer to truth is our stated minimum for anyone who sends us an e-mail over the transom is that it's a minimum $0.25 million or $200,000 spend to work with us and that's just because of the activation energy required on our end to set up a dedicated account manager and work with them on their content and upload it into our system and produce the reports and do the follow-up meetings and so on and so on.

Again, this is not something that we are putting numbers in this year's forecast around. I do think in future years, we will automate some of those functions so that we can go and service a $100,000 client and do it efficiently in a way that leverages a lot of the tools that are probably already familiar with using from other companies.

[Operator]

And our next question comes from the line of Stephanie Davis with Barclays.

[Stephanie Davis, analyst]

Jeff, let's pull on that last thread. So what learnings have you had in the all of this beta self-service platform? How has engagement been? And how do you tweak the offering based on what was initially given versus what the feedback was?

And given you've now rolled it out to an extra 10% of your client base, and I'm going to get the initial 10% of clients were probably larger clients.

What are you paying the closest attention to in terms of potential feedback you could be getting since this is more so going to be a product for the lower end clients?

[Jeffrey Tangney, executive]

Great question, Stephanie. It's been a lot of fun for me working on this for rollout. Clients just love the transparency, the use of really good-looking technology to make their jobs a little easier.

I will say that the reporting, I think we got pretty good, really the first shot out of the gate. They were impressed by our ability to understand right time of day for their target audience, understand the words that click. This is words that they should be putting into their messages and headlines given those doctors affinity.

And again, the ability for us to do this for their cohorts of 3,300 targets and to make that very personalized. Again, they love the reports and the insight it's given.

And just those reports alone have led to a halo effect with those clients where again, even though we didn't have the ability for them to come and purchase anything on the platform, they were calling us up more and actually purchasing more through our traditional e-mail back and forth of contracts.

And so -- so I think we've had a halo effect from our reporting already, and that's gone well. I'd say in the bigger accounts, when it comes to talking about ROI or what they prefer to announce a script lift, I think it's been a real unlock for us to realize that we need to also speak with their [ BI NA ] teams.

Basically, their analytics teams in-house or the consultants that they hire to walk them through the process and the math and to let them actually bring in the data on their own, download it so that they can audit our data.

And again, once that's been done by 1 of these large accounts, I think it just becomes it becomes natural that this is the marketing science approach to looking at how we do marketing, and these are the results in the ROI.

But it does take that time to go and again, walk each client through the process, show them the numbers, let them audit the numbers. And this is why we can't just go from 10% of our clients to 80% overnight. We need to go. And again, many of them we have 5, 10 years' worth of history and data with, we want to have that all there for them to go and learn from and optimize.

As I look ahead, I'm really pleased with the reaction they had last week to having pricing data in the platform. I think that, that really is where they spend a lot of their days in meeting with their partners, and they do think about, again, their ROI and the insights.

Well, that takes us from just being in what they call their AOR camp, their agency of record where they do all their creative, to also being inside their media buying camp, where they think about where they spend their money.

And the reality is today, they're very strand pray. It's a pretty -- pretty wide dispersion when it comes to doing HCP marketing across, usually a few hundred different partners or platforms. And we think that with what we're doing, we really should be a much higher percentage of that like other mainstay Internet companies are, and so we can continue to do that.

So anyway, I hope that, that helps answer your question, but I'm very excited to help them now with that pricing and optimizations.

[Stephanie Davis, analyst]

No, that's super helpful. When I think about -- I guess, Anna, maybe this is a good one for you and try to include in the conversation.

I look at your metrics and the NRR and the large client metric. It looks like your top customers are really becoming a bigger part of the go-forward growth algorithm.

So Anna, if you were going to start baking in some of these self-service portal lift from the smaller clients, is that a function of time? Is that a function of crystallizing a purchasing motion on the portal? Like what do you need to get there?

[Anna Bryson, executive]

Sure, Steph. Thanks for the question. So yes, I'll just say right now, we're really focused on kind of the 3 phases of rollout of the portal.

So right now, we're just really focused on doing it right and getting our customers acclimated with the portal. As far as what it kind of takes to get that next lift and the kind of the SMB customers that we had talked about, is probably going to be a fiscal '26 and beyond type measure.

But I'd say that if we think about that universe of brands that I mentioned in my prepared remarks, those brands that have less than $100 million in U.S. sales as just 1 piece of that SMB pie that the portal can help us a lot further. That cohort makes up only about 8% of our form of revenue today, right?

So if you look at other digital marketing companies with more accessible platforms, the platform is more similar to the portal, that number can be multiple higher.

So we really do believe that this can lead our next evolution in growth. However, it's just going to take some time for us to get our customers on to the portal, and we really want to make sure that we're doing it right.

[Stephanie Davis, analyst]

Awesome. Looking forward to seeing what the self-service portal does.

[Operator]

And our next question comes from the line of Jack Wallace with Guggenheim Securities.

[Jack Wallace, analyst]

Just wanted to further the conversation around the self-service portal and the tiering of data back and forth and the attribution the script lift driven by your platform? And thinking through this as we -- the portal matures and the relationships and the data sharing between you and your customers improves.

As you're able to approve more attribution to have more kind of wood behind the arrow improving the ROI, should we be thinking about this as a -- an argument for increased price as the ROI is increasingly believable and thinking more specifically around the upsell functionality within the portal with whether it's the time of day or any kind of strategic lift where you could say, look, this is a much higher priced upsell where we have a high degree of confidence that this is going to be as impactful of a program as you could run based off of all of our historical data. Is that where this is going?

Or is this more of a kind of insulating your existing wallet share with your advertising partners and it's -- you think of more of [ milk ] building, not necessarily [ pan ] building

[Jeffrey Tangney, executive]

Thanks, Jack. Jeff here. Great question. The short answer is yes. I think the ability to have attribution on a frequent basis as opposed to just once a year in November is a big unlock for us in really 2 ways.

First, they will come to us more with their upsells, and we'll be able to take those smaller upsells on a more frequent basis. Again, today, they think of calling us when they have $1 million to spend, we want them to also call us or click us when they have $100,000 of spend. And that does happen a lot throughout the year.

So I think our most immediate impact will be around the upsell, but the longer-term impact is around pricing. And you're right, there's this element of competitive dynamics. There's this bid auction sort of approach that, again, has worked well for a number of other Internet companies.

And today, I think we are not as optimized as we could be on that front. I think our clients appreciate our ROI. I think that we, long term, see them working more with us at prices that -- that have still a very high ROI for them but are also higher for us.

[Jack Wallace, analyst]

Got it. That's helpful. And then accounting question here, the deferred revenue was down 6% in the quarter. second quarter, it's been down year-over-year. But thinking about the guidance for the first quarter, roughly 11% at the midpoint.

Clearly, there's a disconnect on the guide versus the deferred revenue trend. And remind us the timing factors that could play into the disconnect to those growth rates as well as if there's any change in revenue mix you're thinking about upfront sales software subscriptions versus you say, less than full year ad buys that could be impacting the deferred revenue balance relative to the next quarter's revenue guide?

[Anna Bryson, executive]

Yes. Thanks for the question, Jack. So I'll start by saying that, well, changes in deferred revenue may be an informative metric for software companies that build primarily upfront. There's a couple of reasons why it is not a good metric for us to assess the underlying growth of our business.

So firstly, we bill our customers based on milestones and those milestones vary from contract to contract and year-to-year. So I mentioned this actually in the last May's earnings call, but our customers have been requesting less upfront billings and for billing to be more in line with how the program runs, which is actually much more standard in the industry.

So it's what our customers are used to, right? And this year, we saw that trend continue. So I'll give you just 1 example. In January, our largest customer moved to monthly billing that perfectly mirrors revenue recognition for their 12-month programs, which means essentially that our largest customer will now never show up in our ending deferred revenue balance and revenue recognition will come entirely from billings added during that same quarter.

So just given some of these changing billing dynamics year-to-year and the expectation that we have that the timing of billings will continue to change, we believe deferred revenue is not a good leading indicator of our business as you're just not looking at an apples-to-apples comparison year-over-year.

This is why we do try to give a better leading indicator of our business by sharing the percent of subscription-based revenue that we have under contract to start the year, which is a metric that can help assess the growth in what is our true backlog.

The only other note I will make just for a housekeeping item. We do appreciate that it is nuanced in the way which we bill our customers. So we have put up a rev rec and billing FAQ on the presentation page of the investor website.

So hopefully, that can help answer any further questions on this and share a couple of examples.

[Jack Wallace, analyst]

Just a quick follow-up to that then is the change in billing terms in let's say deferring billing based off of milestones, is that color the conservatism or the the higher percentage of the guide that is in backlog today.

To give you some wiggle room there. is that really more of a function of the kind of larger trend in purchasing patterns being more front-loaded in nature?

[Anna Bryson, executive]

Sure, Jack. So billings actually have nothing to do with the way we sign our contract. So billings are just invoicing, has nothing to do with the fact that we have more under contract to start a year.

When we say we have over 70% of our subscription-based revenue under contract, we mean books. So we have signed those programs. So it's completely separate from Billy's.

[Operator]

[Operator Instructions]. Our next question comes from the line of Jailendra Singh with Truist Securities.

[Jailendra Singh, analyst]

I want to ask about the long-term growth prospects for the business model. You guys [ bridged ] , of course, the 20% CAGR outlook you gave. I mean you withdraw that guidance a few quarters back.

But clearly, this quarter, you're reporting some strong metrics around engagement and backlog. I understand Health System market remains uncertain.

So my question is what are the goal post or industry market trends you need to see, which will bridge the gap between 6% to 9% guidance for fiscal '25 and 20% CAGR you guys envisioned at your Investor Day last year?

Or asked another way, do you still believe this business is in long term can grow something range of 20%? And has your confidence increased in recent quarters.

[Jeffrey Tangney, executive]

Jailendra, this is Jeff. Good to hear from you. Yes, I think as we discussed earlier, pre-Covid we were mid-teens. That's what we saw the market doing. This year, we're seeing, again, the health care professional, digital marketing TAM being more 5% to 7%.

We do think it will revert back to that pre-COVID mean over time. And then, of course, there are adjacent markets that we are eyeing and getting into that I think could add even more growth to that.

But this year, again, we see a 5% to 7% growth market, and we're giving an 8% growth guide.

[Operator]

And our next question comes from the line of Jessica Tassan with Piper Sandler.

[Jessica Tassan, analyst]

Congrats on the quarter end guide. I wanted to just understand a little bit more about how the budget flush or the midyear upsell process work. .

Can you just help us understand, do customers come to you with an ROI target upfront? Are existing contracts with kind of stable pricing extended through the end of the calendar year. Any color on how that process works?

And then just any insight into who will have access to the portal -- who will have access to the portal and with what capabilities during this year's midyear upsell or budget flush season?

[Jeffrey Tangney, executive]

Thanks, Jessica. This is Jeff. It's funny to mention it. We had clients last week at our advisory board who were saying that they would like to give us ROI targets. And then we tell them how much it costs, which was the first time I think we've had that discussion because we again made it so easy for them inside the portal go and refresh their spend, which is interesting.

It's having them honestly behave and think a little more like performance marketers as opposed to brand marketers, which is where they've always traditionally been.

In terms of the midyear upsell dynamics, it really comes down to June, July. That's when a lot of these budgets unlock what it boils down to a lot of companies will do a big sales team meeting and then they'll have a certain amount of budget left over, and that's what gets -- what's spent usually in a few days' time as they've got to get it done quickly.

And yes, we do intend to make our portal available to as many of our clients as possible to be able to come spend with us like that.

But again, even just showing them the portal and having them see how easy it is in our end, I think, has a halo effect that will help us out as they pick up the phone and call us on this.

So short answer to your question is it is just 20% of our brands that have access to it today. It does take time to walk them through it and get all their data loaded. But we're excited for future years and what that can do for our upsell midyear cycle.

[Operator]

And our next question comes from the line of Scott Schoenhaus with KeyBanc.

[Scott Schoenhaus, analyst]

Anna, I just wanted to unpack sort of what's driving the low end of the guidance range versus the high end 6% to 9%? Is it more in the Health Care end markets? Is it more on the Pharma side? Is it more in the mid-year upsell? Can you just kind of unpack the low end versus the high end?

[Anna Bryson, executive]

Sure. I'll kind of break it down by saying that on the Pharma side, like I said, prepared remarks, we feel really good about the fact that the pharma business is going to grow north of 10%. So we feel really strong about how we're thinking about the guidance there.

I think the bigger variability when we think about the range would probably be more on the health system side. I think we are being appropriately conservative. And I do think there's certainly a chance that Health Systems could rebound later this year, especially with some of the data points that we've seen recently.

However, we just aren't certain yet as far as how that end market is going to look. So I would say that's probably the bigger piece.

As I said earlier, I think it was Glenn's question, but we are still assuming a pretty muted midyear upsell cycle. So I wouldn't say that's necessarily as much of a swing factor on the downside, but it could be on the upside.

[Operator]

And our final question today comes from the line of Craig Hettenbach with Morgan Stanley.

[Craig Hettenbach, analyst]

Jeff, you mentioned the Pharma Summit last week. Can you just touch on any customer feedback on the recent hire of Lisa Greenbaum as Chief Commercial Officer. And any initiatives she's maybe looking to drive with customers?

[Jeffrey Tangney, executive]

Yes. Thanks, Greg. I'm glad you asked. Lisa has been great. So she's been here since January, so about 5 months, but I'll say it feels like 5 years already. because he just knows our industry so well.

So she worked for 5 years most recently at Google and before that, spent 15 years at Medscape. So she not only understands our market and industry dynamics, but also knows a lot of our clients personally and a lot of our team personally, which is terrific.

She's really leading the charge in having a more tech-enabled go-to-market for us. And she's, I think also really leaned in. She thinks we have a whole exciting new company, if you will, in our telehealth platform and our point-of-care products.

So some of the new modules. I know she's have been really leaning into. So excited to have Lisa on the team, and my hope is we'll have her on our next quarter call to tell you a bit more in person.

[Operator]

And thanks to all with your questions today. At this point, I would like to turn the call back over to Jeff Tangney for closing remarks. Jeff?

[Scott Berg, analyst]

Thank you. I'd like to thank the entire Doximity team for their hard work in serving more doctors every day than ever before, and I'd like to thank everyone for joining. Thanks so much. .

[Operator]

And ladies and gentlemen, that does conclude today's call. Again, thank you all for joining, and you may now disconnect.