Doximity, Inc. (DOCS) Earnings

Management highlights

### AI Product and Competitive Positioning - Doximity Ask, the company's clinical AI product, led U.S. models in the first large-scale independent Stanford/Harvard No Harm study of 24 clinical AI models across 1,100 real-world patient cases, posting a 4.8% clinical error rate versus 13.6% for Anthropic's top model, with the lowest error rate and highest safety ratings. - Outperformance is attributed to two key differentiators: a unique 100% expert-verified built-in drug reference model for accurate dose and interaction data, and a team of over 12,000 physician peer-check editors that continuously review and refine AI outputs, which is a major selling point for liable hospital AI steering committees. - Quarterly active workflow prescribers grew over 30% year-over-year to record highs, with nearly half using Doximity's AI tools in Q1. AI prompt volume rose 25% quarter-over-quarter, and AI scribe note-taking users grew 10x year-over-year in July. Doximity is now top 3 in both the clinical AI search and scribe markets. - The company has 165 signed health system AI clients, including 8 of the U.S. News top honor roll hospitals, with recent wins at Northwestern, Penn Medicine, and University of Michigan. ### Commercial AI Progress - AI Search launched in late April 2026, with the first cohort of over two dozen pharma customer programs onboarded; no AI search revenue was recognized in Q1, with the majority of contracted revenue expected to be recognized in Q3 FY27. Initial launch contracts used conservative 3-4 month terms with inventory caps to protect user experience, with a shift to larger, longer contracts coming for the annual upfront cycle. - AI Search is opening new C-level client conversations that are driving incremental growth across Doximity's broader pharma portfolio, including accretive bundling opportunities with core legacy marketing offerings. SMB pharma segment growth exceeded 100% in Q1, accelerated by AI Search opportunities and independent agency partnerships, diversifying the company's revenue base. ### Financial Operational Highlights - The company ended Q1 with $688 million in cash, cash equivalents, and marketable securities, with no debt, and repurchased $92 million in shares during the quarter, leaving approximately $400 million remaining in the existing repurchase authorization. Fully diluted shares outstanding declined 5% year-over-year to 191 million.

Guidance

- Q2 FY27 revenue is guided to a range of $170 to $171 million, representing 1% year-over-year growth at the midpoint, impacted by a tough comparison to last year's 23% Q2 growth and only modest expected AI search revenue in the quarter. - Full year FY27 revenue guidance was revised upward by $6 million to a range of $671 to $681 million, representing 5% year-over-year growth at the midpoint. The raise reflects Q1 outperformance, a more stable pharma budget environment, higher customer interaction velocity, and the growing nascent commercial AI pipeline. - Q2 FY27 adjusted EBITDA is guided to a range of $80.5 to $81.5 million, representing a 48% adjusted EBITDA margin at the midpoint. - Full year FY27 adjusted EBITDA guidance is a revised range of $309 to $329 million, representing a 47% adjusted EBITDA margin at the midpoint. Approximately 90% of incremental AI investment will go toward supporting higher clinician demand for the clinical AI suite, with full year gross margins expected to trend in the mid-to-high 80% range. - Stronger year-over-year growth is expected in Q3 FY27 as AI search revenue ramps and the year-over-year comparison normalizes.

Segment performance

Doximity reports total Q1 FY27 revenue of $157 million, growing 7% year-over-year, with solid performance across both pharma and hospital customer segments. The company has 127 pharma and hospital customers that generate over $500,000 in trailing 12-month annual subscription revenue, which grew 7% year-over-year and contributed 83% of total revenue, consistent with prior quarters. The top 20 customers delivered net revenue retention (NRR) of 112%, with overall company NRR of 107% on a trailing 12-month basis. Adjusted EBITDA for the quarter was $75 million, representing a 48% margin. Non-GAAP gross margin was 88% in Q1, down from 91% year-over-year due to higher AI compute spend to support unexpected clinician AI usage. Free cash flow was $40 million, with a decrease from prior year attributed to normal collection timing fluctuations that are expected to normalize over the rest of the fiscal year.

Risks & headwinds

- Enterprise health system customers face growing liability risk from inaccurate clinical AI outputs and protected health information (PHI) leakage to unauthorized third-party AI platforms, as highlighted by recent high-profile injury lawsuits against generalist AI providers, which creates market pressure for regulated enterprise-approved solutions but also raises ongoing compliance and reputational risk for all clinical AI vendors. - The overall pharma spending environment remains tight, and AI innovation budget allocation is still emerging and unpredictable year-over-year, creating uncertainty around near-term AI commercial ramp timelines and revenue contributions. - Early AI search growth depends on successfully shifting from short-term initial pilot contracts to larger, longer enterprise contracts in the upcoming upfront cycle, and slower than expected contract conversion would impact full year and future revenue growth. - Higher than expected AI compute and investment costs could pressure near-term margins if AI search revenue ramp lags current internal projections.

Analyst Q&A

• Q: What competitive impact does the No Harm study result have, and how does it affect physician trust and enterprise adoption? /

  A: Doximity's top result in the independent, secret-shopper study validates its focus on physician-led quality checks and embedded drug reference, which is highly valued by hospital AI steering committees that are liable for AI outputs. The study is accelerating a market shift from unregulated individual AI adoption to enterprise-level approved solutions, similar to the shift seen in coding assistant AI. Doximity is already well-positioned as a privacy-compliant, HIPAA-aligned platform that can contain PHI, with 165 signed health system clients and recent wins at leading academic medical centers.

• Q: What is the current unit economic profile of AI Search, and what operating leverage can be expected as it ramps? /

  A: Currently, AI Search generates more than 10x revenue per search than it costs Doximity to operate, with unit economics in line with or better than the company's overall gross margins. Over 90% of current AI investment directly supports growing clinician usage rather than internal overhead, and AI costs are expected to decline over time as models become more efficient. AI Search has also unlocked access to C-level pharma conversations that Doximity did not have previously, up-leveling the entire business and creating strong long-term margin opportunity.

• Q: How does Doximity position its full AI product ecosystem beyond AI Search, particularly with the Scribe offering? /

  A: AI Scribe is Doximity's fastest-growing product in terms of new physician adoption, and acts as the connective glue for the company's end-to-end physician digital assistant vision. It integrates seamlessly with Doximity's existing telehealth, dialer, and Doximity Ask clinical decision support tools, creating a unified workflow for clinicians that leverages Doximity's existing enterprise health system relationships and security compliance. Doximity is the only clinical AI vendor that is top 3 in both AI scribe note-taking and clinical decision support, a unique competitive position.

• Q: Is the shorter initial contract term for early AI Search a Doximity policy or market preference, and how is it changing for the upfront cycle? /

  A: Shorter terms and conservative inventory caps were a deliberate Doximity strategy to protect clinician user experience and iterate on the product and go-to-market for this new offering, with strong market reception to this measured approach. For the upcoming upfront cycle, the company is shifting to larger, longer-term contracts, loosening inventory caps as it gains confidence in user experience, and expanding into new therapeutic categories based on customer feedback. The initial pilot has generated strong internal sales demand, with hundreds of sales team requests to price new categories and deal structures, creating much higher business velocity than Doximity has seen in recent quarters.