Doximity (DOCS) Earnings Call: AI, Buybacks and Growth

Doximity, Inc. ((DOCS)) has held its Q3 earnings call. Read on for the main highlights of the call.

Doximity Leans Into AI and Buybacks Amid Slower Near-Term Growth

Doximity’s latest earnings call painted a picture of a company in strong operational health, balancing robust profitability and cash generation with heavy investment in artificial intelligence and an assertive capital return strategy. Management emphasized record user engagement, rapid AI adoption and a powerful balance sheet, even as they flagged near-term revenue headwinds from pharma budget timing and higher AI infrastructure costs that are pressuring margins and tempering guidance. Overall, the tone was confident: current investment and policy-related noise are seen as temporary, while the long-term AI and platform opportunity remains the central story.

Revenue Growth and Guidance Beat

Doximity posted third-quarter revenue of $185.1 million, up 10% year over year and roughly 2% above the high end of its own guidance. This outperformance underscores continued demand from healthcare and life sciences clients for the company’s digital platform despite a mixed macro backdrop. The beat is particularly notable given the budget uncertainty among pharma customers, suggesting Doximity is still gaining share and deepening relationships even as industry spending patterns become more cautious.

Strong Profitability and Cash Generation

Profitability remained a standout. Adjusted EBITDA came in at $111.4 million, representing a hefty 60% margin, only slightly below last year’s 61% despite stepped-up AI spending. Free cash flow was $58.5 million in the quarter, supporting a cash and marketable securities balance of $735 million. For investors, this combination of growth, high margins, and strong cash generation offers a substantial buffer to fund strategic investments in AI and product development while still leaving room for shareholder returns.

Aggressive Share Repurchase Activity

Management is clearly signaling confidence in the company’s long-term prospects through aggressive buybacks. Doximity repurchased $196.8 million of its own shares in the quarter and had $83 million remaining under its prior authorization. The board has now approved a new $500 million open-ended repurchase program, a significant commitment relative to the company’s size. This capital return strategy effectively puts a floor under the stock, while allowing management to capitalize on any valuation disconnect the market may assign given near-term revenue volatility.

High Customer Retention and Large Customer Expansion

Customer metrics point to a sticky and expanding franchise. Trailing twelve-month net revenue retention stood at 112% overall and an even stronger 117% among the top 20 customers, reflecting both low churn and meaningful upsell. The number of customers generating at least $500,000 in trailing 12-month subscription revenue rose to 126 from 115 a year ago, and this cohort now accounts for 84% of total revenue. These figures highlight Doximity’s success in scaling within large accounts, which should provide a resilient base of recurring revenue even as new bookings face timing issues.

Platform Scale and Engagement Milestones

Doximity’s platform continues to deepen its reach within the U.S. clinician community. The company has surpassed 3 million registered members, covering more than 85% of U.S. physicians and roughly two-thirds of nurse practitioners and physician assistants. Engagement is rising across the board, with quarterly, monthly, weekly and daily unique active users all hitting record highs. Workflow users – clinicians using Doximity tools embedded in their daily practice – saw the largest sequential gain in company history, signaling that the platform is becoming increasingly ingrained in clinicians’ day-to-day routines.

Rapid AI Adoption and Clinical Differentiation

Artificial intelligence is quickly becoming the centerpiece of Doximity’s growth narrative. Over 300,000 unique prescribers used the company’s AI products in the third quarter, and in January, active prescribers queried Docs GPT about four times a week on average. In a head-to-head comparison involving roughly 1,300 high-prescribing physicians, Docs GPT was preferred at more than twice the rate of the nearest competitor, underscoring a perceived clinical edge. More than 100 leading health systems have purchased Doximity’s AI suite, covering access for over 180,000 prescribers, creating an installed base that could be monetized more fully over time.

Clinical Trust and Intellectual Property Advantages

Doximity is investing heavily in the credibility of its AI tools, which could prove a key competitive moat. The company has built a peer-check network of over 10,000 U.S. physicians who help validate and refine AI-generated clinical content. It also holds a licensing agreement with ASCO and provides full PDF access to more than 2,000 medical journals, ensuring its models are trained on authoritative sources. Management highlighted a proprietary deterministic drug reference engine that it claims improves the quality and reliability of drug-related recommendations, reinforcing the platform’s clinical trustworthiness.

Near-Term Revenue Headwind and Q4 Soft Patch

Despite strong Q3 results, Doximity signaled a short-term slowdown. Fiscal fourth-quarter revenue is guided to $143–$144 million, implying roughly 4% year-over-year growth at the midpoint, a notable deceleration. Full-year revenue guidance was narrowed to $642.5–$643.5 million, about 13% growth at the midpoint, with Q4 softness essentially offsetting the Q3 beat. Management tied this more cautious near-term view largely to the timing of customer spending rather than underlying demand erosion.

Gross Margin Pressure from AI Infrastructure

Investments in AI are beginning to show up in the cost structure. Non-GAAP gross margin declined to 91% from 93% a year ago, roughly 200 basis points of compression, driven primarily by increased AI infrastructure costs associated with higher usage. While margins remain exceptionally high by software standards, this shift signals that Doximity is front-loading the cost of building out a robust AI platform. Investors will be watching closely to see when these investments start to be offset by higher-margin AI-driven revenues.

Higher Costs Ahead of AI Monetization

The company is leaning in on AI spending before it fully monetizes the technology. Management noted that AI has driven incremental infrastructure and development costs, as well as investment in the peer-check program, without yet meaningfully contributing to revenue. Outside of hospital deployments, AI offerings have not been commercialized broadly, and importantly, no AI-driven revenue uplift is included in current financial guidance. This gap between cost and monetization creates short-term margin pressure but positions Doximity to capture a larger share of future digital workflows in healthcare.

Industry Policy Uncertainty Weighing on Upfront Sales

Policy-related uncertainty in the pharmaceutical industry is affecting how customers allocate budgets. Management highlighted that policy dynamics, including MFN-related issues and other late-year regulatory noise, led many pharma clients to commit a smaller percentage of their annual budgets upfront and delay certain deals into the fiscal fourth quarter. This behavior has slowed the start to calendar 2026 bookings and created timing pressure on near-term revenue recognition. While these delays are not necessarily lost revenue, they contribute to the more muted Q4 growth outlook.

Slight EBITDA Margin Compression Amid Investment

The quarter also featured modest margin compression as growth investments picked up. Adjusted EBITDA margin was 60% versus 61% in the prior year, a minor decline given the scale-up in AI-related spending. Management framed this as a deliberate trade-off: accepting a modest hit to near-term profitability to build capabilities that could underpin growth and competitive advantage over the long term. With EBITDA dollars still rising and margins far above most peers, Doximity retains ample room to invest while maintaining attractive returns.

Unrealized Benefits from Potential Budget Shifts

Management also addressed a potential upside that has yet to materialize: a shift of pharma spending from direct-to-consumer advertising to budgets targeting healthcare professionals. While regulatory scrutiny on consumer-facing campaigns has raised expectations that more dollars could flow toward physician-focused digital platforms like Doximity, the company has not yet seen a measurable benefit from this trend in the latest upfront season. Any future reallocation could offer incremental revenue tailwinds beyond the company’s current baseline assumptions.

Forward-Looking Guidance and Outlook

For fiscal Q4 2026, Doximity guided revenue to $143.0–$144.0 million, implying about 4% year-over-year growth at the midpoint, and adjusted EBITDA of $63.5–$64.5 million, or roughly a 45% margin. For the full fiscal year, management now expects revenue of $642.5–$643.5 million, about 13% growth at the midpoint, and adjusted EBITDA of $355.5–$356.5 million, equating to a 55% margin. The company reiterated its commitment to maintaining at least a 50% adjusted EBITDA margin over time. Leadership emphasized that this guidance remains conservative, in part because it assumes ongoing AI infrastructure investment, reflects delayed pharma budget timing, and does not factor in any incremental revenue from broader AI monetization. They also framed the broader market backdrop as one of mid-single-digit growth in digital healthcare and pharma advertising in calendar 2026, with an expectation of exiting the year at a double-digit growth rate.

In sum, Doximity’s earnings call showcased a business with strong fundamentals, substantial cash resources, and a rapidly scaling AI platform, offset by temporary revenue headwinds and intentional margin investment. While investors may need to navigate a softer near-term growth profile and some gross margin pressure, management’s confidence, aggressive share buybacks, and deepening engagement with clinicians and health systems suggest a long-term trajectory that remains firmly upward. For those focused on the intersection of healthcare, technology, and digital advertising, Doximity continues to present a compelling, if evolving, growth story.