Q3 2023 Doximity Inc Earnings Call

Speaker 1: of 2023. 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 8K.

Speaker 2: Today, we will discuss certain non-GAT metrics that we believe in the understanding of our financial results. A historical reconciliation to comparable GAT 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 one time 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 Taney. Jeff? Thanks, Barry, and thanks everyone for joining our third quarter of fiscal 2023 earnings call.

Speaker 3: We have three updates today. Our financials are network growth and new products. I'll start with the good news. Our Q3 financials were strong. We delivered a 3% beat on the high end of our revenue guidance at $115 million at a 14% beat on the high end of our adjusted EVA dog items.

Speaker 4: Our JustinEva.Margant's hit a record high 48% and a free cash flow grew 85% year on year.

Speaker 5: We completed 31 client ROI studies in the quarter, and our median return remains well above the 11 to 1 median we reported last quarter.

Speaker 6: Our physician engagement also hit new record highs, but more on that in a minute.

Speaker 7: Overall, it was a strong Q3.

Speaker 8: Okay, enough of the not so good news.

Speaker 9: Our new peer-to-peer and point-of-care modules, which are our first paid products to offer vertical video, hit unexpected content approval delays.

Speaker 10: or the main modes from the pharma industry is the complexity of medical legal review or MR. It's a mode we're adapted navigating. Last quarter, our writers and account teams manage thousands of MR, approvals and new content launches, including over 100 video assets of all types.

Speaker 11: To us, vertical video was just another aspect ratio.

Speaker 12: But to many of our clients, it felt like a completely new medium, one which raised unique new questions.

Speaker 13: This required us to go back to MLR square 1, often for the first time in a decade, and represent to their independent promotional review boards.

Speaker 14: While a surprise to us, these content re-reviews won't well. After a few live meetings in a couple months of testing, they found a vertical video to be, quote, endemic, quote, or medical in their tone.

Speaker 15: But the net result of these delays is that we expect about a 2% miss from the midpoint of our annual guidance.

Speaker 16: finishing the year at 22% annual growth versus the 23 to 26% we had projected.

Speaker 17: A few comments as we reset expectations here.

Speaker 18: First, this revenue is delayed, but it isn't lost.

Speaker 19: It's still under contract.

Speaker 20: Second, the silver lining here is that clients bought more new product than we expected. In the short run, this amplifies their revenue delays, but in the long run, it bodes well for our ability to innovate and grow.

Speaker 21: Glass but not least, this mist is not something we take lightly.

Speaker 22: We'll be sure to keep innovating, but also to bake an ample time for new product approvals.

Speaker 23: Okay, while our implementation slowed a bit, we closed a record high selling season last quarter, led by our new products and existing clients.

Speaker 24: As a reminder, our clients include all of the top 20 pharma companies and all of the top 20 hospital systems.

Speaker 25: who tend to renew our annual contracts in December .

Speaker 26: We signed the first of these clients 11 years ago.

Speaker 27: Interestingly, our largest and longest-hidden clients tend to be our fastest growing. In Q3, our net revenue retention rate was 127 percent among our top 20 clients. Each of them has worked with us eight years on average.

Speaker 28: You can see our land and expand growth at a brand level as well. Last quarter, we doubled our number of $5 million brand clients to 8. We even signed our first ever $10 million brand with a top 10 pharma company that we've worked with now for over a decade.

Speaker 29: As a highly analytical and respected industry leader, we believe this client is a bell leather of things to come.

Speaker 30: At the market level, we focus on the 415 pharma mega brands.

Speaker 31: those with over $100 million in US sales. And we now work with slightly more than half of them.

Speaker 32: We estimate we're gaining share, but we're still less than 5% of US medical professional marketing budgets.

The upshot of this strong renewal season is that we project a minimum of $500 million in revenue, or roughly 20% growth year-on-year.

as the backstop for our fiscal 2024 guidance.

Of note, given macro uncertainties, we're being more conservative with our assumptions here than in years past.

Turning to our bottom line, we expect our fiscal 2024 adjusted EBITDA margins to be the same or better than this year's 43%.

All in all, we're projecting a Rule of 60 plus year in fiscal 2024.

Okay, turning now to our network growth.

Our quarterly active users among physicians, NPs, PAs, and medical students

hit an all-time high last quarter across our entire platform.

This growth was led by our telehealth tool.

which were used by a record 375,000 unique providers last quarter.

And we're thrilled to announce that for the second year in a row, Doximity was ranked the number one best in class.

Telehealth Video Platform.

feeding out Microsoft Teams, Zoom, and many others.

Based on class interviews with hundreds of hospital IT clients, we earn the top marks for product, culture, loyalty, operations, relationships, and business.

and value.

value. Last quarter we signed several new health systems.

totaling over 43,000 new physician users.

In some, over 35% of all US physicians now have a doximity-dialar enterprise integration via their health system.

We also hit record highs across our entire workflow.

We led by new physician usage records for scheduling, hit the secure digital facts.

and e-signature tools.

With all time high network usage in Q3, we're proud to help more physicians be more productive than ever before.

Okay, the close will highlight a couple projects coming out of our R&D labs.

First, we're excited to collaborate with scheduling automation leader, Calendly.

Each year, doctors attend millions of events to stay up to date on the latest treatments, and we know from the 200,000 position on call schedules that we power today, that doctors need help keeping track of it all. By integrating Cal and Lee scheduling software into our platform.

Doctors will be able to easily schedule appointments with colleagues and industry.

without having to navigate multiple platforms or waste all that time on back and forth scheduling emails.

In our pilot test, doctors like using an online tool to arrange meetups with the scientific medical industry, as in prompt to meetings, can disrupt their clinical workflows and aren't efficient for either party.

While this is clearly early stage and zero revenue this year, we're excited about the very large market.

opportunity. This could have marked.

Okay, our second-lapse project is using chat GPT, the Bud-V AI Writing Assistant.

we all can't stop talking about. It began over the holidays when our engineers created a beta site called Docs. The site lets doctors and their staff play around with their chat GPT API and share some of their favorite prompts.

After the usual mirth and humor like Dr. Seuss rhyming treatment instructions for kids, a key use case doubled up.

Doctors still handle a lot of actual paperwork and much of it is still sent by fax machines.

So we integrated our free online fax directly with G

for doctors to share news.

It's early use has been promising.

An oncologist from Ohio called Docs GPT, quote, a game changer, unquote, after it drafted an appeal letter for a cancer patient with a heart condition.

The insurer got the facts and approved within the hour, allowing the patient to receive a non-generic medication with fewer cardiac side effects.

Meanwhile, a department chief from the top five hospital emailed us to say that Dr. G.P.T. was, quote, pretty bad-ass, end quote, for helping him fax through his backlog of peer credentialing letters.

Obviously, Doc GPT is just a small test project, but more broadly, we're enthused about AI's

Obviously, Doc GPT is just a small test project, but more broadly, we're enthused about AI's potential to streamline workflows across all of our physicists.

cloud. Imagine an auto-filled reply to a pharmacy-fax form or a three-line summary of any journal article.

With AI, we don't think this future is far off, and we plan to be at the forefront.

As always, we'll roll up our sleeves with our physician advisors to build the best products.

Speaking of which, we are excited to convene our 11th annual Docs Tech Summit in San Francisco next month. We can't wait to brainstorm and beta test with 200 of our nation's top digital doctors to build the next phase of the clinical cloud.

Okay, I'd like to end by thanking my nearly 1000 and growing Doximity teammates who continue to work incredibly hard to realize our mission.

And with that, I'll hand the call over to our CFO to discuss our financial performance and our guidance. Anna? Follow your shoes Drift Shoot

Thanks, Jeff, and thanks to everyone on the call today.

I'll begin with our Q3 financial results and then move on to our outlook for Q4, as well as an early preview for fiscal 2024.

Shared quarter revenue grew 18% year over year to $115.3 million.

According revenue grew 18% year-over-year to 115.3 million, exceeding the high end of our guidance range.

Some more to prior quarters, our existing customers continue to lead our growth.

Our net revenue retention rate was 119% in Q3 on a trailing 12-month basis.

Additionally, our largest customers are still growing the fastest, with a 127% net revenue retention rate for our top 20.

We ended the quarter with 290 cups of water.

contributing at least $100,000 each in subscription-based revenue on a trailing 12-month basis.

This is a 12% increase from the 258 customers we had in this cohort a year ago.

This cohort of customers accounted for 87% of our total revenue.

Other reminder, our fiscal third quarter represents our largest sales quarter by a significant amount.

Turning to our profitability, non-gap growth margin in the third quarter was 91%, flat versus the prior year period. Adjusted EBITDA for the third quarter was 55.5 million, and adjusted EBITDA margin was 48.2%, a new record, compared to 47 million, and a 48% margin in the prior year period. Now turning to our balance sheet and cash flow. We ended the quarter with 801 million of cash, cash equivalent, and marketable securities.

We generated free cash flow in the third quarter of $47.5 million, compared to $25.6 million in the prior year period.

an increase of 85% year over year as we continue to run a very profitable high-cash generating business.

Now moving on to our oven.

For the fourth fiscal quarter of 2023, we expect revenue in the range of 109.6 to 110.6 million, representing 18% growth at the midpoint. And we expect adjusted evidaw in the range of 45.2 to 46.2 million, representing a 42% adjusted evidaw margin. For the fourth fiscal year, we are revising our revenue guidance to 417.7 to 418.7 million, representing 22% growth at the midpoint. We are revising our adjusted evidaw guidance to 180.2.

to 181.2 million, representing a 43% adjusted EBITDA margin. As Jeff mentioned, our revised fiscal 2023 outlook is primarily the result of new product launch delays.

Simply put, car content approval has taken more time due to the novel formats of our new point of care and peer-to-peer offering.

These delays are having a larger impact on our near-term revenue due to a higher midst of new products sold in Q3 than initially thought.

We do expect to have this content approved and ready to go live in the coming month.

And the early demand we've seen from customers makes us even more confident in the potential of these products to drive future growth.

While the delays are disappointing, we'd like to be clear that the absolute dollar value of our Q3 sales came and slightly above our internal forecast as of our November earnings

The issue is the pace of revenue recognition.

As we look ahead to next year, we are providing a preliminary outlook for fiscal 2024 of greater than 500 billion in revenue and at least 43% adjusted EBITOM margins.

For this outlook, we are assuming a similar percentage of mid-year upsells to what we saw in fiscal 2023, which was about half of our historical upsell rate.

When we hope to outperform here, we are not assuming this in our outlook due to continued macro uncertainty.

As of today, we have a higher percentage of this $500 million backstop under contract. Then we did of the 418.2 million midpoint at this same time last year.

I'd like to close by reiterating that while our full-caster growth won't be quite as high as we'd expected for the full fiscal year 2023, the momentum in our business remains strong. After achieving our first $5 million plus brand only last year.

We have reached a new milestone with our first $10 million brand just a year later.

This speaks to the market fit of our innovative new product.

and the robust ROI our customers are receiving from our platform.

Additionally, we continue to run a highly profitable business.

And we're encouraged by the fact that we're still projecting fiscal 2023 adjusted EBITDA to come in near the midpoint of our prior range.

Looking ahead, we'd like to reiterate or commence.

to be a long-term rule of 60-plus company through a combination of growth and profitability.

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

Thank you.

We'll now open the line for questions and please press star one if you would like to join the queue

We have 30 minutes for Q&A.

Our first question comes from Brian Peterson with Raymond James. Your line is open.

All right, thanks for taking the question. So I wanted to clarify on the March 4th guidance, maybe what changed. It sounds like some of the newer products were a little bit more delayed versus what you guys expected. But was that just related to some new products like point of care that we're coming out? Or I know there were some plans for some of the new programs to get those out earlier.

And given what's happened, is there any kind of updated view on how we should be thinking about the seasonality of the business going forward?

Yes, sure, Ryan. Anna here. I'll start with your first question and then go on to your second one there. So as far as where we're seeing the delays, it is contained to just our new products. So only peer-to-peer and point of care. I know you heard us last quarter talk a lot about the operational efficiencies we were working on to increase the pace of launches for our core new-

would increase revenue conversion from Q3 deals by several percentage points. However, as you heard here in our prepared remarks, given we sold a greater mix of new products than expected and we faced delays getting these new products live, this counterbalanced the increase in revenue conversion from our operational efficiencies.

and we ended up not seeing a material change in our overall revenue conversion rates from Q3 deals, which is the primary reason for the revised guidance you're seeing here.

As far as the seasonality, the seasonality question, which I'll hit on as well to give me a big one there, I'll hit on the seasonality piece too. I think the way our customers have purchased and launched their program has fundamentally changed over the last several years. We've certainly seen quarterly cadences that have been difficult to draw patterns from.

As we move forward and we're getting a better handle on what post-pandemic bind looks like for our customers at this increased scale that we're at now We are actually starting to see a pattern emerge where we do see a step down around annual launches But it's now occurring in our fiscal Q4 instead of our Q1 as we get more official launches and our customers are getting stricter on running programs from calendar your start to calendar your

add-ons to our programs.

Awesome. Thanks, Anne. A lot of detail there. And maybe one – or Jeff or Anne, I don't know if you want to take this, but it sounds like the newer products had a pretty strong start. Can you talk about where that fits into budgets? Is that kind of net new? Does that maybe displace other categories in any updated perspective?

I have some of your customers are thinking about overall budgets for next year. Yeah, Brian , this is Jeff. I'll speak to that. It does come from a slightly new-tam, new budgets, point-of-care budgets. And as Anna said, the mix there came in much stronger than we had thought, which is great. Actually, we're getting...

very large organizations to buy into our innovative products in the first quarter as it's available. And as Anna said, more than 100% of our miss really was those new products. So with those new products at all launch, we would have hit our forecast. But for the reasons we described in the prepared remarks.

And they got a little bit spooked, I think, by vertical video. They're used to viewing us sort of like a medical journal. And vertical video is a little different. So it did take us back to having to do more of a base review, which was fine. And it has gone fine. I would add that most of the clients that we have had to go back and do that new product review with have now approved it.

and it's going ahead to launch. So revenue is delayed but not lost. Great, thanks, Chef.

The next question is from Scott Berg with Needham & Company. Your line is open. Hi everyone, thanks for taking my questions and your thoughts on the core bookings. I'm here. Thanks.

I guess I got a couple of them here. Wanted to start off with commentary on the mid-year upsells. At least you're forecasting next year to be in line with what you were selling this year. I guess how should we think about the variance opportunities with that? And don't know how that maybe fits relatively well. You saw looking some R&Q-3.

that that can rebound. I think in this current macro environment, we're not going to assume that. I think what we saw last year was pretty atypical, right? We're coming out of a pandemic and right into a macro downturn. And we saw our customers do some precautionary belt tightening. And we think as we move forward, our customers have done a better job of planning for next year. So we certainly are hopeful that we'll see more mid-year upsell.

but we don't think it's the prudent thing to do to include that in our guidance right now. Sure, got it helpful. And then from a follow-up perspective, I thought the, at least the initial commentary on any sort of chat GPT functionality to be interesting. I guess as you look at that product and I'm sure it's very, very early.

Is this something that you can ultimately monetize directly through some sort of subscription payments, etc. or is this really a piece of functionality that should be viewed as to drive higher levels of engagement by the positions on the platform?

Yes, this is Jeff. Honestly, I'll make a joke here. We probably spent more time worrying about the liability of that product than the monetization of it so far. But that said, we think there's a lot of ways that down the road, we could monetize here, ultimately helping doctors save time. And of course, they're in our products, they're coming back.

in our newsfeed and other ways. So we've shown that we can, I think, monetize position time pretty well, but we just need to provide things that are useful to them. And for positions 76% of healthcare documents in our US system today are still sent via facts and snail mail.

And so you just think of all of those letters that need to be sent back and forth between insurers and providers. And we'd really love to help them out with that. It's really had a lot of...

warm accolades in a pretty short period of time.

Great, that's all I have. Thanks for taking my questions.

The next question is from Sandy Draper with Guggenheim. Your line is open.

Great, thanks so much. So I guess maybe a follow up on the about the cadence. So if I just look at the...

The difference between where guidance was last quarter in this is about about a ten million dollar push When when we think about I think as Jeff mentioned, you know that revenues book not lost just timing

I want to make sure that you're not implying that there's a $10 million sequential increase in the June quarter and then you build from there, but that you'll probably see that build more smoothly. So I just want to make sure I'm clear on that first.

That's correct, Sandy. We are not saying that we'll start seeing a $10 million step up right away in our Q1. While we are through most of the approvals, so we do actually have the approvals that we need from most of our customers to get these programs live, we're still working on them. We think they'll go live in the coming months, and so you'll see it more of a smoother cadence there.

But that does contribute to the slight step up that we're going to see between Q1, but it will be more of a smooth cadence throughout the year, so it won't all be hitting in our Q1.

Okay, great, that's helpful. And then on the expense side, you're thinking about...

The different lines are there any when I think about just the three bucks to fail the marketing R&D and GNA eat would you call out any notable changes from Grow three from on a relative base is how those are gonna be trending out over the when we're looking out Next year to maintain the

43% margins or when I think about relatively how those grew relative to the top line, say in 5 in 23 and in 22, the trajectories the same or as you heard the CFO thinking about where we're maybe spending more but we're going to pull back here. Are there any things we should be thinking about?

Sure, no significant changes to what we saw this last year. We're going to continue to invest in R&D and sales and marketing. I think our investment in R&D has shown to be successful. You know, Jeff mentioned that we saw record QA use this last quarter as we're continuing to invest in our R&D team, continuing to invest in our product and continue to invest in growth there.

Additionally, we're continuing to invest in sales and marketing. We saw that come to fruition with our most successful new product launch to date. We are tightening our belt here and sharpening our pencils on G&A, as I mentioned last quarter, so that will be an area we'll continue to be pretty prudent about how we think about investments, but certainly continue to invest in sales and marketing and R&D.

Great, thanks so much. The next question is from Stan Barinstein with Wells Fargo Securities. Your line is open.

Hi, thanks for taking the questions. The last quarter you called out earlier start dates for contracts that are benefiting the fiscal fourth quarter. So if we think about kind of like an applesauce comparison with the prior year fourth quarter, how should we think about the contract start dates contributing?

to your revised items for this fiscal for care.

Sure, Sam, I'll take that one. So as I mentioned earlier with Brian's question, we did see some success in getting our core products launched in January . Now it will unfortunately was counterbalanced by the new product delays. So when you actually look at our holistic revenue conversion rates from Q3 programs and you're not going to be able to see some success in the new product. So I'll take that one. So if you're not going to be able to see some success in the new product, we're not going to be able to see some success in the new product.

continue to get more and more of our customers live in January . But this year, unfortunately, the new product delays made it less impactful.

You got it. And then there's something to see that the beating of the third quarter, particularly since it seems you've got any new client growth sequentially in 3Q, with that part of expectations or something materialized where a client growth kind of stalled out this clover.

No, not necessarily. We do see some quarterly fluctuations in the number of 100K customers. A lot of that just has to do to the timing of launches and when programs run. That's why we try to focus more on the annual growth, which continues to be strong. One thing that we've talked about before historically is as we think more on a three to five year horizon.

We do believe that over time we'll start to see more growth come from the average revenue per 100 cake customer than the total number of 100 cake customers. So we're continuing to lean in there and upsell our customers.

Got it. Thanks so much. The next question is from Richard Close with Ken Accord, Genuity. Your line is open.

Yeah, thanks for the questions. Had a couple here. I was wondering maybe if you could provide any metrics on the higher visibility this year versus last year for us. And we'll start there and I'll ask a follow up.

Sure, I'm really happy to take that one. So I think my best proof point for you is going back to the prepared remarks where I said, as we sit here today, we have a higher percentage of the $500 billion pre-liminary guidance under contract.

then we did at this point last year for the final $418.2 million midpoint for fiscal 2020-23. So we're going into the year with more backlogs, which leads to higher visibility. And we're also going to be here with pretty low assumptions from our perspective from mid-year upsell. We are assuming no improvement there, versus what we saw last year.

You had scheduling in there. I was wondering if you could provide any metrics in terms of...

You know, the uptake in scheduling, considering, I guess it's been about a year now that you've had that.

Yeah, no thanks, Richard. I'd love to talk about our scheduling product, Am I on? It's been doing really well. So I'll speak to the client side of it. This past quarter we went out and started offering an enterprise, unlimited enterprise offering so that you wouldn't buy it just department by department in an hospital, but the whole health system could use it for a flat rate.

And it was really popular. We got three quarters of our top 20 clients with Mion to go purchase that. And that's going to increase, we believe, our overall rollout, get more doctors, more departments, using us as a more centralized scheduling system. The only thing I'd share there is just like we all check our calendars every day, doctors do too.

Most of our doctors who are using the service, and again there are 200,000 physicians who have schedules on, am I on, are using it every day. Final point I'll make there is it's not just some sort of bolt on for us. We've fully rebuilt the product. It's integrated inside the Doximity platform.

And we have now migrated about half of those doctors into the fully logged in Doximony platform where they can also directly make phone calls and message each other so really making it part of our full larger suite.

of those doctors into the fully logged in Doximity platform where they can also directly make phone calls and message each other so really making it part of our our full larger suite. Okay thank you.

The next question is from Ryan Daniels with Blair. Your line is open. Thank you for taking the questions. Let me start with one for you. This one relates to the EBITDA guidance. Obviously, you're really strong out performance in this quarter and just a modest down tick to the full year. I think about 70 bits. Thanks.

which means Q4 is going to come in lower than you anticipated. So is there any color you can offer on why this quarter was so much stronger than you anticipated, and then why the Q4 performance will be below prior anticipated levels? Was there any pull forward or nuances there?

Sure, Ryan. I think the majority of that difference from an EBITDA perspective has to do with the difference from a revenue perspective. That said, we do continue to be diligent with how we think about our investments, and we are also seeing continued improvement in our vertical sales model from an efficiency perspective.

So when we think about Q3, for example, as we mentioned earlier, we did have a higher mix of new products and our new products, the new modules, have very high incremental margins. So that can help contribute to the EBITDAB beat that we saw in Q3 and as far as it pertains to Q4, it really is just a puncture revenue.

Okay, that's helpful. Then, Jeff, one for you just to go back to the comment on the peer-to-peer and point-of-care video content approval delays.

Are those now at a point where they've been approved and you actually have a firm launch date or is that still in the works where there could be some delta and push forward again? So you've got the approval. Do you actually have a launch date? Is my question. Thanks.

Yeah, that's a good question, Ryan. As we said in the prepared remarks, most have been approved. I would say that not all of those are live yet, so some have hard scheduled dates and will get live soon. So it's really a continuum. The short answer is I think in the coming months, we say in the next few months, we expect to get these all out there.

The next question is from Elizabeth Anderson with Evercore. Your line is open.

Hi guys, thanks so much for the question. In the corner, and you noticed, you guys didn't really do any share repo, which is a little bit of a departure from other quarters this year. I was just wondering if you had any updated dots on the pacing given the authorization that you guys put forward a couple of months ago.

Sure, I was about to, not much I can really say there to be honest. I mean, from our perspective, we have done a set of unforgettable plan from a shared buyback perspective. So for us, just as simple as it didn't hit our price target since quarter, but we're continuing our commitment to doing that on a go for basis. And it's.

It's still live, it just hasn't triggered it. Got it. Thank you so much. The next question is from Jessica Tessanne with Bipersander. Your line is open.

Thanks so much for taking the question. I was hoping you could discuss some of the behavior you're seeing for branded drugs facing biosimilar competition. What are kind of the trends in physician education for the brand versus biosimilar? Are you seeing educational budgets for disease categories, increased decrease, or stay about flat overall where there are biosimilar launches?

challenging some major brands. Hey Jessica, this is Nate. I'm happy to chime in here. So the industry has always had

arcs of prominence for major therapies. And industry competition in general, it's a good thing for society. Drive competition, it drives innovation. As new products, competing products are launched, that creates a need for education at the caregiver level.

And what's interesting about biologics and biosimilators and the nuances between them at a molecular level, at a current state of research level, a patient cohort level, a payer adoption, coverage, and policy level, that's a lot to parse and keep up with. And that complexity is only going to continue to accelerate as medicine becomes increasingly personalized. So.

It really takes a precision education and really an individualized digital platform like ours to be able to address the needs in that sort of evolving complex market. And we think we're well positioned to help the field there, even as the amount of spend on different budgets shifts.

Got it. That makes sense. And then I just have a quick follow up to Ryan's question. How would you describe the visibility into the revised FY23 guidance at this point? And thanks.

Sure, at this point when it comes to the revised fiscal 23 guidance, I mean, we've got what, two months left in in the year, we have a ton of visibility there. We're very, very comfortable with those numbers.

So at this point, when it comes to the revised fiscal 23 guidance, we've got two months left in the year. We have a ton of visibility there. We're very, very comfortable with those numbers. Got it. Thank you so much.

The next question is from Stephanie Davis with SBB Securities, your line is open.

Hey folks, thank you for taking my question.

Anna, building on your visibility comments, can you walk us through how you've looked at contracting and get visibility and maybe give us a bit more of a bridge around the go-get-renewals and already contracted pieces of the revenue for next year? And then Jeff, I'd actually like a history lesson from your time at Hippocrates.

Were there any insights on contracting for visibility there given similar tough macro backdrops that you've seen in the past?

Sure, stuff. I'll start out and then pass it over to Jeff for your second part of the question. So continue to elaborate on the visibility. We're not going to give the exact figures around 60, 65, 70, whatever percentages we've given in the past. But I think a good way to think about it is we are starting the year with more revenue under contract than the prior years.

We are less dependent on mid-gerup cells than prior years.

And that means we're more dependent on our core annual renewal cycle, which continues to perform really well for us. Our core annual renewal cycle this year was incredibly strong, demand is incredibly strong, we saw larger brand sizes, longer term programs than we've ever seen before. So we're really encouraged by that and that's something that's really never been.

2008-2009 crises and other crises in the past. In general, pharmaceuticals and healthcare is recession-resistant. I joke we're not immune to broader macroeconomic ills, but we are fully vaxxed. And I think that comes up and shows that we're still an organic rule of 60-plus companies this year.

giving guidance here for 20% top line growth. Again, in a very tough macro and 43% evidom margins, based on our record, 48% evidom margin last quarter. So I think we're seeing folks pull back a little bit. I think in some ways, a more efficiency driven environment is good for us.

It clears out some of those digital pet projects that sort of accumulated during the height of lockdown. The new websites that got a few million here and there never got any use. So the fact that clients see that they spend $1 with us and get $11 back.

I mean over time they just keep moving more and more of that budget over to us, which is why I'm so proud that this new $10 million client we have, brand we have is with one of our oldest clients, someone we've worked with for a decade. So the more you know us, the more you want to work with us. We think that's great. All right, last point I just add on is we talked a lot about pharma on this call, our hospital business.

this time around. It's surprisingly, I shouldn't say surprising, it's been very strong and I know last quarter we had shared that we were so excited we had our first you know four million dollar brand there, first four million dollar account and now we've upped that now it's our first five million dollar account. So we continue to see strong growth in our hospital.

business as well as they move more digital. I'll give a follow up there because it sounds like you want to talk hospital a little bit.

Is that a function of more the type labor market and trying to get more seat fills within the hospital? Is it?

Telemedicine, is it something else that's really hitting on all cylinders?

Yeah, it's really the marketing side of it and I think hospitals are realizing that it's not about the billboards and sports stadiums. It's about finding patients digitally and having good relations with physicians in the community who refer in. So I think we're very strong at doing that and to our team's credit, I think we've done a really nice job.

of penciling the math for them. Actually looking at claims data to see how many new referrals they get from the programs we run so that they can go back to their management and say, look, we ran this program and here's the ROI we should do more. Awesome. Thank you guys.

The next question is from Glenn San Tangelo with Jeffries. Your line is open.

Thanks for taking my question. Hey, Jeff, I just want to come back to this disability thing, right? Because we get so many questions on it. If you look over the last four quarters, three of them you've been surprised on the number of different things and each one of them kind of sounds like it makes sense. But...

You know, we're getting a lot of questions about, are they guiding conservatively or do they really have the level of visibility they think they have? And just kind of coming back and it's your comments on the visibility for next year. I went back to this same transcript last year and you said, both of you guys said that you had 60% visibility.

sort of heading into the next year and that was fiscal 23. Is that like a reasonable benchmark to start when we think about, you know, this 500 million? We're just trying to get a sense for how much of this may already be booked. And maybe you don't want to share that number, but maybe you can comment if that 60% last year was even accurate.

Sure, thanks, Lynn. Yeah, as Anna has shared, it's above that 60% as we plan into this next year. So we're ahead as a percentage of where we were last year. But I do take your comments to heart here. I think this new product shift was something that we should have seen coming. And from our end.

We, I think, got into an easy rhythm with our clients where everything would have sort of on a fast track approval. And we assume that our new products would be as well. And then our new products sold much, much better than we thought. Again, this is the best product launch we've had by manyfold this last year. Again, it's great that our clients are innovating with this. But those delays.

We're not something that I think we have put in enough buffer for.

We take your feedback very seriously. We do not take this lightly, but I can tell you, it's not like folks are canceling contracts or other things. It's really just that the revenue has been a bit delayed.

All right, and maybe if I could just sort of follow up. I also want to talk about margins, right? And if I look at this this year, basically you're going to have three quarters with kind of flat to down margins and obviously the September quarter had nice margin expansion. Now you're sort of forecasting 20% revenue growth with your gross margin level and those.

The margins are basically flat year over year in terms of what you're forecasting I mean, I heard you about the incremental investments in a couple of areas But you know Jeff is there anything going on with the competitive landscape anything sort of happening here with? pricing that that may be worth sort of talking about or

I don't know if there's any sort of comments you can make because I'm trying to assess your rule of 60 comments. And, you know, I think we were all sort of conditioned to believe, and I don't know what you're implying if that's 40 and 20, or if it can be 45 and 15. But, you know, we're just trying to think because your margins have fluctuated, you know, you had 48%, one quarter, 37% in the fiscal first quarter, and so I'm just trying to

the first to say it, like this was a tough year from a visibility perspective. We were coming out of a pandemic into a macro downturn, coming off of the two years where we were growing at a 70% plus kegger. So it definitely was a harder year from a visibility perspective and we'll be the first to admit that and I think going forward.

as we're looking ahead and as we're hoping to give some more color on the guidance for next year, I think we're going in eyes wide open and we're thinking more about what could potentially happen if backward deteriorates further, et cetera. So I just wanted to kind of clarify that and hit that on the head. From an EBITDA perspective, we do see quarterly fluctuations. It typically

keep investing there. So we fix 43% plus margins in this environment and 20% growth is really strong. So we're really pleased to be able to be a company that's organic. We're with 60 plus. And you see no erosion on the pricing side?

No, we're not seeing the rosy on the pricing side. I mean, the way we think about pricing is we think about it through a value one. That's how our customers are thinking about pricing. So, given our ROI, it actually continues to get more affordable to our customers. Because our ROI continues to increase as far as how we think about long-term pricing. I mean, we aim typically first.

Thank you everyone for joining the call. We look forward to talking again next quarter. Thanks everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.