Doximity (DOCS) Q2 2027 earnings review
Doximity's sales beat its plan, but AI costs cut profit
Doximity, the online network for U.S. doctors, beat its quarterly targets, but heavy spending on artificial intelligence cut deeply into profit. Revenue rose 4%, while accounting profit fell by nearly half as computing costs, research spending, and employee stock pay climbed. Chief executive Jeff Tangney said over 190 health systems have bought its AI tools, yet the updated full-year plan points to about 6% sales growth in the second half by our math.
| Revenue | $174.5M +3.6% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $0.36 -20% from a year ago |
| Adjusted EBITDA margin | 50.9% 59.8% a year ago |
| Full-year revenue outlook | Raised $4.5M middle of the range: 5.5% growth |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because the third-quarter outlook still shows mid-single-digit sales growth even as the first AI search contracts begin recording revenue. Management raised the full-year sales plan by little more than this quarter's beat, and by our math the profit plan implies fourth-quarter adjusted EBITDA margin drops to 35%. On the bright side, cash collected upfront from customers for future services stopped falling from a year ago.
The question now is whether doctors' use of Doximity's AI tools brings new drugmaker ad budgets or simply shifts money away from its older products. If it brings new spending, sales growth will climb back toward double digits during next year's upfront buying season; if it only shifts existing budgets, growth will stay near 5% with lower profit margins. Third-quarter results and annual upfront booking commentary will tell.
🐂 Bull Case
Hospital AI Suite Reaches 190 Health Systems
Doximity sells workplace software and clinical artificial intelligence tools to hospitals while making most of its money from drugmakers advertising to doctors. Co-founder and chief executive Jeff Tangney said: "More than 190 health systems have now purchased our AI suite, and with UpToDate and DoseCheck, we’re extending our lead in distribution and trust."
The medical network added at least 25 hospital customers this quarter, up from 165 in the first quarter and 100 three quarters ago. Adding UpToDate, a clinical reference database, and DoseCheck, a drug dosing tool, gives doctors more reasons to log in daily. Because drugmakers pay to reach active doctors, wider hospital adoption builds the audience for future ad sales.
What to watch: the quarterly growth rate of unique active healthcare providers in the upcoming quarterly filing. A reading near last quarter's 32% growth would show these hospital deals are bringing more daily users onto the platform.
Deferred Revenue Stabilized Against a Hard Comparison
Deferred revenue — cash customers have paid for services not yet delivered — had been shrinking, raising concern that drugmakers were signing shorter contracts. This quarter, total deferred revenue held steady from a year ago at $100.3 million, after falling about 7% in each of the prior two quarters.
Reported sales grew 3.6% to $174.5 million, topping the company's own plan by $4.0 million at the middle of the range. That result came against a 23% growth comparison from a year ago, when customer upgrades pulled sales forward. Because the unearned cash balance stopped falling during the toughest comparison of the year, upfront customer commitments may be stabilizing.
What to watch: net revenue retention — the yearly sales kept from existing customers — in the quarterly filing. A drop smaller than 3 percentage points from last quarter's 107% would show existing customer spending is holding up.
🐻 Bear Case
Third-Quarter Outlook Shows Modest AI Revenue Lift
Doximity has launched sponsored clinical search, allowing drugmakers to place messages inside doctors' artificial intelligence queries. Management previously said the third quarter would be the first period to record most of the revenue from its initial wave of more than two dozen contracted search programs.
- Third-quarter revenue outlook: $195 million to $196 million, or 5.6% growth from a year ago at the middle of the range
- Implied fourth-quarter revenue: $153.8 million by our math, or 5.8% growth from a year ago
- Full-year revenue outlook: raised by $4.5 million at the middle of the range, just $0.5 million more than the second-quarter beat
Even against easier comparisons from a year ago — 10% growth in the third quarter and 5% in the fourth — the plan points to under 6% growth in both periods. That means the initial artificial intelligence search contracts are either small or are replacing money drugmakers already spent on Doximity's older newsfeed products.
What to watch: any disclosure in the prepared remarks quantifying calendar 2027 annual upfront bookings for clinical AI search. Without separate dollar figures, overall revenue growth must rise above 6% to prove AI search is adding new spending.
AI Spending Cut Margins and Lifted Stock Pay
"We delivered another quarter of record engagement while investing heavily in AI and maintaining a 51% adjusted EBITDA margin," chief executive Jeff Tangney said. Adjusted EBITDA excludes stock-based compensation and other items, and that 50.9% margin still fell 8.9 percentage points from 59.8% a year ago.
On a standard accounting basis, operating margin dropped 12.6 percentage points to 25.2%, and net income fell 44% to $34.7 million. Three cost lines drove the decline: cost of revenue (the cost of running the platform and AI computing) rose 4.8 percentage points of revenue to 14.5%, research and development rose 6.1 points to 24.0%, and sales and marketing rose 3.6 points to 26.9%.
Stock-based compensation jumped 38% to $40.6 million, reaching 23.2% of revenue, up from 17.5% a year ago. Moreover, Doximity beat its second-quarter adjusted EBITDA plan by $7.9 million at the middle of the range but raised the full-year outlook by only $2.0 million. By our math, that implies a 35.3% adjusted EBITDA margin in the fourth quarter.
What to watch: cost of revenue and stock-based compensation as a share of sales in the third quarter. A further rise would show that free doctor tools and engineering pay are permanently lowering the company's profit ceiling.
Risks this quarter didn't answer
The earnings release defined Doximity's key customer and usage metrics but did not print the numbers for this quarter, leaving four standing questions open until the quarterly filing and prepared remarks arrive.
- Net revenue retention rate: defined in the release, but the percentage is not yet readable until the quarterly filing; it fell from 118% to 107% over the prior four quarters.
- Large customer count ($500,000+ in trailing 12-month sales) and unique active providers: defined in the release without current figures; the filing will show whether large drugmaker accounts grew.
- Commercial AI search traction: the release gave no contract values, program counts, or pricing for the new AI search product.
- OpenEvidence lawsuit: the release contained no update on the stayed legal dispute involving Doximity's chief technology officer; the legal footnote in the quarterly filing will carry any change.
💲 Other KPIs
Uncollected customer bills rose 28.5% from a year ago and 14.7% from March, far outpacing the 3.6% rise in revenue. While collections during the quarter generated $11.4 million in cash, total receivables over the first six months absorbed $22.0 million of operating cash flow.
Free cash flow — operating cash after capital spending and software development — dipped 0.3% from a year ago, representing 52.3% of revenue. Cash generation held up much better than accounting net income because the $40.6 million stock-based compensation charge is a non-cash expense.
The diluted share count fell 6.4% from a year ago, continuing a steady drop from 200.7 million shares a year ago and 191.2 million last quarter. Doximity spent $54.2 million buying back its own stock this quarter and $145.8 million across the first half, more than offsetting new employee stock grants.
🔮 Guidance
New. The plan calls for 5.6% growth from a year ago at the middle of the range, up from 3.6% growth in the second quarter. That pickup is helped by an easier comparison, as revenue grew 10% in the year-ago third quarter versus 23% in the second. Doximity has beaten the middle of its quarterly revenue plan by an average of 2.4% over the last four quarters; if the pattern holds, third-quarter revenue would reach about $200.2 million.
New. The outlook points to a 52.7% margin at the middle of the range, up from 50.9% in the second quarter during the seasonally largest sales period, but down 7.5% in dollar terms from $111.4 million a year ago.
Raised. Management lifted the middle of the full-year range by $4.5 million, to 5.5% growth for the year. It is the second raise this fiscal year, following a $6.0 million increase in the first quarter. Because second-quarter sales beat the plan by $4.0 million at the middle of the range, the update adds just $0.5 million to the second half, leaving implied fourth-quarter revenue at $153.8 million, or 5.8% growth by our math.
Raised. The middle of the range rose by $2.0 million to $321.0 million, a 47.2% margin and a 10.3% drop from last year. In the prior quarter, Doximity cut this target by $10.0 million. Passing through only $2.0 million of the second quarter's $7.9 million beat leaves $54.4 million for the fourth quarter by our math, down 17.4% from a year ago.
❓ Key Questions
How much third-quarter revenue comes from AI search?
Management previously expected most of its initial contracted AI search programs to record revenue in the third quarter. With the third-quarter plan calling for 5.6% growth, investors need to know how many dollars AI search is contributing and whether it replaces existing newsfeed budgets.
What explains the implied fourth-quarter margin drop to 35%?
By our math, the full-year outlook and third-quarter plan leave $54.4 million of adjusted EBITDA for the fourth quarter, a 35.3% margin versus 50.9% this quarter. Did management leave a wide cushion, or is a large wave of AI computing and marketing spending planned?
Where did net revenue retention and active providers land?
The earnings release described net revenue retention, customers spending over $500,000, and quarterly active providers as key metrics, but omitted the numbers. Disclosing whether retention fell below 105% as last year's 23% growth quarter rolled off will clarify core demand.
Why did accounts receivable grow 28% on 4% sales growth?
Net accounts receivable climbed to $166.1 million from $129.3 million a year ago while revenue grew 3.6%. Management should explain whether drugmakers are taking longer to pay or if billing milestones have shifted toward the end of the quarter.