What happened
Shares of Doximity (DOCS 0.97%) fell 29.4% this week, according to data from S&P Global Market Intelligence, after the healthcare-centric online networking specialist's solid fiscal results for the first quarter of 2024, ended June 30, were overshadowed by planned layoffs and disappointing forward guidance.
Doximity stock was down nearly 23% on Wednesday alone, after the company said second-quarter revenue climbed 20% year over year, to $108.5 million. That translated to GAAP net income of $28.4 million, or $0.13 per share, and adjusted (non-GAAP) net income of $40.6 million, or $0.19 per share. Analysts, on average, were looking for lower adjusted net income of $0.15 per share on revenue of $107 million.
So what
Doximity seemed to be enjoying some operating leverage as it scales as well, seeing adjusted EBITDA climb 39% year over year, to $46.6 million. Adjusted EBITDA margin was 42.9%, expanding from 37% in the same year-ago period. The company also generated healthy cash flows during the quarter, with operating cash flow rising 28% to $57.2 million, and free cash flow growing 31% to $55.6 million.
"We're pleased to report another quarter of record engagement across our entire platform, with over 525,000 unique providers using our workflow tools in Q1," stated Doximity co-founder and CEO Jeff Tangney. "Looking ahead, we are focused on streamlining our client workflows, so we can fully capitalize on our long-term potential."
Now what
Despite Doximity's quarterly beat, however, the company simultaneously announced plans to lay off roughly 100 employees, or 10% of its workforce, "to simplify its operations and better align its resources with its priorities." The move will result in restructuring charges of $8 million to $10 million, with the majority incurred in the current second quarter of fiscal 2024.
In addition, Doximity lowered its full fiscal-year revenue outlook to between $452 million and $468 million, down from its previous guidance in May for a range of $500 million to $506 million, and called for fiscal 2024 adjusted EBITDA to be between $193 million and $209 million, compared with between $216 million and $222 million previously.
During the subsequent conference call with analysts, Doximity CFO Anna Bryson explained:
After a record annual buying cycle, our major upsells have materially underperformed, and we expect this to continue in the near term. As we have mentioned before, midyear budget started locking for our customers in June. We initially estimated we would see a similar percentage of mid-year upsells as last year, which was about half of our historical rate. However, we have seen a further decline this year. Given these mid-year upsells convert to revenue very quickly, this decline has led to a sizable impact starting in Q2.
This doesn't mean Doximity is a broken business. But as Bryson also elaborated, it's rather a consequence of "a slower digital marketing growth rate and a shift toward more self-service automated solutions." To that end, Doximity's new self-service platform and automation features should help eventually reaccelerate growth. But in the meantime, it's no surprise to see the stock falling hard right now.
