Doximity(DOCS) - 2023 Q1 - Quarterly Report

Part I—Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents Doximity's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, with detailed notes on business and accounting policies Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | | Total assets | $1,050,931 | $991,357 | | Total liabilities | $148,765 | $112,763 | | Total stockholders' equity | $902,166 | $878,594 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Revenue | $90,639 | $72,669 | | Gross profit | $77,562 | $64,683 | | Income from operations | $21,682 | $24,875 | | Net income | $22,383 | $26,322 | | Net income per share (Basic) | $0.12 | $0.12 | | Net income per share (Diluted) | $0.10 | $0.09 | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net income | $22,383 | $26,322 | | Change in unrealized loss on available-for-sale-securities, net of tax | $(2,631) | $(48) | | Comprehensive income | $19,752 | $26,274 | Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity Changes in Stockholders' Equity (in thousands) | Metric | Balance as of March 31, 2022 | Balance as of June 30, 2022 | | :--- | :--- | :--- | | Class A and Class B Common Stock Amount | $192 | $193 | | Additional Paid-In Capital | $702,589 | $715,282 | | Accumulated Other Comprehensive Loss | $(15,294) | $(17,925) | | Retained Earnings | $191,107 | $204,616 | | Total Stockholders' Equity | $878,594 | $902,166 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $44,752 | $33,175 | | Net cash used in investing activities | $(41,500) | $(57,423) | | Net cash provided by (used in) financing activities | $(5,969) | $552,176 | | Net increase (decrease) in cash and cash equivalents | $(2,717) | $527,928 | | Cash and cash equivalents, end of period | $110,092 | $594,321 | Notes to Condensed Consolidated Financial Statements 1. Description of Business - Doximity, Inc. provides an online platform for physicians and healthcare professionals to collaborate, coordinate patient care, access medical news, and manage careers. Its primary customers are pharmaceutical companies and health systems utilizing digital Marketing and Hiring Solutions[36] - In June 2021, the Company completed its Initial Public Offering (IPO), issuing 22,505,750 shares of Class A common stock at $26.00 per share, generating $548.5 million in proceeds after deducting underwriting discounts and deferred offering costs[37] - A 2-for-1 forward stock split was approved on June 8, 2021, affecting all issued and outstanding stock, stock-based instruments, and redeemable convertible preferred stock, with all per-share amounts adjusted retrospectively[39] 2. Summary of Significant Accounting Policies - No material changes to significant accounting policies compared to the Annual Report on Form 10-K for fiscal year ended March 31, 2022[40] - The Company adopted ASU 2019-12 (Income Taxes) and ASU 2021-08 (Business Combinations) on April 1, 2022. The adoption of ASU 2019-12 had no material impact, while ASU 2021-08 was applied prospectively to business combinations, including the AMiON acquisition[49][50] Significant Customer Revenue and Accounts Receivable Concentration | Metric | Revenue Three Months Ended June 30, 2022 | Revenue Three Months Ended June 30, 2021 | Accounts Receivable, Net June 30, 2022 | Accounts Receivable, Net March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Customer A | * | 11% | 16% | 21% | | Marketing Agency | N/A | N/A | 18% | 17% | 3. Revenue Recognition - Revenue is primarily derived from Marketing Solutions (customer-sponsored content, professional database access) and Hiring Solutions (recruiter tools, job postings, messaging)[51][52] Revenue Disaggregation (in thousands) | Revenue Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Subscription | $83,715 | $68,375 | | Other | $6,924 | $4,294 | | Total revenue | $90,639 | $72,669 | - Revenue recognized from deferred revenue as of the beginning of the period was $54.7 million for the three months ended June 30, 2022, up from $49.5 million for the same period in 2021[74] 4. Investments Cash Equivalents and Marketable Securities (in thousands) as of June 30, 2022 | Investment Type | Fair Value | | :--- | :--- | | Money market funds | $98,332 | | Asset-backed securities | $5,836 | | Commercial paper | $5,040 | | Corporate notes and bonds | $120,313 | | Sovereign bonds | $7,351 | | U.S. government and agency securities | $527,622 | | Total cash equivalents and marketable securities | $764,494 | - Unrealized losses on debt securities totaled $24.0 million as of June 30, 2022. The Company does not intend to sell these securities and expects to hold them until maturity or cost basis recovery, thus no impairment was recognized[82] 5. Fair Value Measurements Fair Value Hierarchy of Assets and Liabilities (in thousands) as of June 30, 2022 | Category | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents | $98,332 | $— | $— | $98,332 | | Marketable securities | $526,160 | $140,002 | $— | $666,162 | | Contingent earn-out consideration liability | $— | $— | $21,080 | $21,080 | - The contingent earn-out consideration liability, related to the AMiON acquisition, had a fair value of $21.08 million as of June 30, 2022, with a $0.054 million decrease in fair value during the period. It is classified as a Level 3 measurement[91][92] 6. Property and Equipment, Net Property and Equipment, Net (in thousands) | Category | June 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | | Total property and equipment, net | $11,381 | $8,488 | | Accumulated depreciation and amortization | $(9,282) | $(8,470) | - Depreciation and amortization expense on property and equipment increased to $1.2 million for the three months ended June 30, 2022, from $0.9 million in the prior year, including $1.1 million for internal-use software development costs[94] 7. Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | | Accrued commissions | $4,034 | $6,653 | | Accrued payroll, bonus, and related expenses | $7,043 | $8,015 | | Current portion of contingent earn-out consideration liability | $5,412 | $— | | Total accrued expenses and other current liabilities | $25,253 | $25,270 | 8. Business Combinations - On April 1, 2022, Doximity acquired the assets of the AMiON on-call scheduling and messaging application for $74.6 million, consisting of $53.5 million in cash and $21.1 million in contingent earn-out consideration[99] - The acquisition resulted in $49.025 million in goodwill, representing future benefits from customer relationships and assembled workforce, and acquired intangible assets including customer relationships (9-year life), software technology (18-month life), and trademarks (3-year life)[103][104] - 93,458 restricted stock units (RSUs) were granted to eligible AMiON employees, vesting quarterly over four years, to be accounted for as post-acquisition stock-based compensation expense[101] 9. Intangible Assets and Goodwill Intangible Assets, Net (in thousands) | Category | June 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | | Customer relationships | $37,069 | $9,869 | | Other intangibles | $1,531 | $11 | | Total intangible assets, net | $35,430 | $7,909 | - Amortization expense for intangible assets increased to $1.2 million for the three months ended June 30, 2022, from $0.3 million in the prior year[106] Goodwill (in thousands) | Metric | Three Months Ended June 30, 2022 | | :--- | :--- | | Balance, beginning of period | $18,915 | | Goodwill acquired | $49,025 | | Balance, end of period | $67,940 | 10. Equity - The Company has a dual-class common stock structure with Class A (one vote per share) and Class B (ten votes per share) common stock. As of June 30, 2022, there were 110,339,295 Class A shares and 82,996,626 Class B shares outstanding[112] - A stock repurchase program was authorized on May 12, 2022, for up to $70 million of Class A common stock. During the three months ended June 30, 2022, 273,746 shares were repurchased for $8.9 million, leaving $61.1 million available[113][115] Total Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Cost of revenue | $2,122 | $268 | | Research and development | $2,552 | $970 | | Sales and marketing | $3,074 | $1,028 | | General and administrative | $1,758 | $2,861 | | Total stock-based compensation expense | $9,506 | $5,127 | 11. Net Income Per Share Attributable to Common Stockholders Net Income Per Share Attributable to Common Stockholders (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net income attributable to Class A and Class B common stockholders, basic and diluted | $22,383 | $10,741 | | Weighted-average shares (Basic) | 192,947 | 87,599 | | Weighted-average shares (Diluted) | 214,954 | 114,920 | | Net income per share (Basic) | $0.12 | $0.12 | | Net income per share (Diluted) | $0.10 | $0.09 | 12. Commitments and Contingencies - The Company has an amended partnership agreement with U.S. News & World Report, with remaining annual minimum guarantees ranging from $3.0 million to $6.2 million, totaling $6.6 million for the noncancelable period of 2 years[134] - A web hosting arrangement has a total remaining commitment of $10.4 million, ending December 31, 2024, with an annual commitment of $5.2 million[135] 13. Leases Lease Expense (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Operating lease cost | $489 | $275 | | Variable lease cost | $39 | $35 | | Total lease cost | $528 | $310 | - The weighted-average remaining lease term increased significantly to 7.60 years as of June 30, 2022, from 1.64 years as of March 31, 2022, primarily due to a new 8-year office space lease in Irving, Texas[142][140] Maturities of Lease Liabilities (in thousands) as of June 30, 2022 | Year Ending March 31, | Operating Leases | | :--- | :--- | | Remainder of 2023 | $628 | | 2024 | $1,610 | | 2025 | $1,747 | | 2026 | $1,782 | | 2027 | $1,810 | | Thereafter | $6,518 | | Total future lease payments | $14,095 | | Less: imputed interest | $(2,326) | | Present value of lease liabilities | $11,769 | 14. Income Taxes - The effective tax rate for the three months ended June 30, 2022, was 0.5%, lower than the U.S. federal statutory rate, primarily due to stock-based compensation related tax benefits and federal/state R&D tax credits[146] - Unrecognized tax benefits (UTBs) were $6.6 million as of June 30, 2022, with $4.6 million expected to impact the effective tax rate if realized[147] 15. Segment and Geographic Information - The Company operates as a single operating and reportable segment, with substantially all long-lived assets and revenue derived from the United States[148][149] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Doximity's financial condition and operational results, including an overview of the business, key performance metrics, detailed analysis of revenue and expenses, cash flow, and critical accounting policies Overview - Doximity is the leading digital platform for U.S. medical professionals, with over 80% of physicians across all 50 states as members, providing tools for collaboration, patient care coordination, medical news, and career management[152][153][154] Key Financial Performance (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Revenue | $90,639 | $72,669 | | Net income | $22,383 | $26,322 | | Adjusted EBITDA | $33,534 | $31,155 | - The COVID-19 pandemic has accelerated certain underlying trends, demonstrating the value of the platform, though future impact remains uncertain[156][157] Key Business and Financial Metrics Customers with Trailing 12-Month Subscription Revenue Greater than $100,000 | Metric | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Number of customers | 273 | 224 | Net Revenue Retention Rate | Metric | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Net revenue retention rate | 139% | 167% | Adjusted EBITDA and Free Cash Flow (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Adjusted EBITDA | $33,534 | $31,155 | | Free cash flow | $42,627 | $32,363 | Components of Results of Operations Revenue - Revenue is generated from Marketing Solutions (tailored content, professional database access) and Hiring Solutions (job postings, messaging to medical professionals)[173][177] - Medical recruiting services (temporary and permanent placement) also contribute to revenue, though not significantly to total revenue for the periods presented[178] Cost of Revenue - Cost of revenue primarily includes cloud hosting, personnel-related expenses for customer success, third-party platform access, software services, amortization of internal-use software development costs, and deferred contract costs[180] Gross Profit and Gross Margin - Gross profit and margin are influenced by new customer acquisition, sales to existing customers, investments in operations, cloud hosting costs, customer success team growth, and amortization of internal-use software development costs[181] Operating Expenses Research and Development - R&D expenses are mainly personnel-related for engineering and product teams, third-party services, and IT costs, expected to increase with platform and product growth[184] Sales and Marketing - Sales and marketing expenses include personnel, sales incentives, travel, third-party services, IT, allocated overhead, amortization of intangible assets, and changes in contingent earn-out liability fair value, expected to be the largest expense[185] General and Administrative - G&A expenses cover executive, finance, legal, HR, IT, and facilities personnel, along with fees for legal, accounting, insurance, and compliance costs as a public company[186] Other Income, Net - Other income, net, primarily consists of administrative fees, penalties, and interest income from cash equivalents and marketable securities[187] Provision for (Benefit from) Income Taxes - Income tax provision is based on an estimated annual effective tax rate, adjusted for discrete items, and differs from the U.S. statutory rate due to R&D tax credits, state income taxes, and stock-based compensation benefits[188] Results of Operations Comparison (Three Months Ended June 30, 2022 and 2021) Revenue Revenue Comparison (in thousands, except percentages) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $90,639 | $72,669 | $17,970 | 25% | - The 25% year-over-year revenue increase was primarily driven by a $15.3 million increase in subscription revenue, with $7.4 million from new customers and $7.9 million from existing customer expansion (20% average revenue growth per existing Marketing Solutions customer)[193] Cost of Revenue, Gross Profit and Gross Margin Cost of Revenue, Gross Profit and Gross Margin Comparison (in thousands, except percentages) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cost of revenue | $13,077 | $7,986 | $5,091 | 64% | | Gross profit | $77,562 | $64,683 | $12,879 | 20% | | Gross margin | 86% | 89% | -3% | N/A | - The 64% increase in cost of revenue was due to a $1.8 million increase in personnel-related costs (38% headcount growth) and a $2.1 million increase in U.S. News partnership expenses, including $1.3 million from the U.S. News Warrant[193] Operating Expenses Research and Development Research and Development Expense Comparison (in thousands, except percentages) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $19,022 | $13,241 | $5,781 | 44% | - The 44% increase in R&D expense was driven by a $3.1 million increase in personnel-related costs (21% headcount growth) and a $1.6 million increase in stock-based compensation[195] Sales and Marketing Sales and Marketing Expense Comparison (in thousands, except percentages) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $28,134 | $19,371 | $8,763 | 45% | - The 45% increase in S&M expense was due to a $2.8 million increase in personnel-related costs (22% headcount growth), a $2.0 million increase in stock-based compensation, and a $0.8 million increase in amortization from the AMiON acquisition[197] General and Administrative General and Administrative Expense Comparison (in thousands, except percentages) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | General and administrative | $8,724 | $7,196 | $1,528 | 21% | - The 21% increase in G&A expense was driven by a $1.5 million increase in public company-related expenses (insurance, accounting, legal) and a $0.6 million increase in personnel-related costs, partially offset by a $1.1 million decrease in stock-based compensation[198] Other Income, Net Other Income, Net Comparison (in thousands, except percentages) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Other income, net | $804 | $45 | $759 | 1687% | - The 1687% increase in other income, net, was primarily due to an $0.8 million increase in interest income from increased investment in marketable securities[199] Provision for (Benefit from) Income Taxes Provision for (Benefit from) Income Taxes Comparison (in thousands, except percentages) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Provision for (benefit from) income taxes | $103 | $(1,402) | $1,505 | NM | - The Company recorded an income tax expense of $0.1 million for Q1 2023, compared to an income tax benefit of $1.4 million for Q1 2022, primarily due to decreased tax deductions from stock option activities, partially offset by increased R&D tax credits[201] Cash Flows Liquidity and Capital Resources - As of June 30, 2022, principal liquidity sources were $776.3 million in cash, cash equivalents, and marketable securities[204] - The Company repurchased $8.9 million of Class A common stock during the three months ended June 30, 2022, under a $70 million authorization, with $61.1 million remaining[206] - Existing liquidity is believed sufficient for at least the next 12 months, but future capital requirements depend on revenue growth, sales/marketing expansion, share repurchases, and R&D investments[207][208] Net cash provided by operating activities - Net cash provided by operating activities was $44.8 million for the three months ended June 30, 2022, driven by net income ($22.4 million), non-cash items ($16.6 million), and a net inflow from operating assets and liabilities ($5.8 million)[211] - Non-cash items included $9.5 million in stock-based compensation, $2.8 million in deferred contract costs amortization, and $2.4 million in depreciation and amortization[211] Net cash used in investing activities - Net cash used in investing activities was $41.5 million for the three months ended June 30, 2022, primarily due to $53.5 million for the AMiON acquisition, $8.9 million in marketable securities purchases, and $1.4 million for internal-use software development, partially offset by $14.7 million from marketable securities sales and $8.3 million from maturities[215] Net cash provided by (used in) financing activities - Net cash used in financing activities was $6.0 million for the three months ended June 30, 2022, mainly due to $8.9 million in common stock repurchases, partially offset by $3.0 million from stock option and warrant exercises[217] Off Balance Sheet Arrangements - The Company did not have any off-balance sheet financing arrangements or relationships with unconsolidated entities during the periods presented[219] Critical Accounting Policies and Estimates - Key accounting estimates include revenue recognition, fair values of acquired intangible assets and goodwill, useful lives of long-lived assets, valuation of common stock and stock-based awards, fair value of contingent earn-out consideration, and deferred income taxes[220][221] - Business combinations involve significant judgment in allocating purchase consideration to assets and liabilities, with any excess recorded as goodwill. Contingent earn-out consideration is recorded at fair value and remeasured each period[221][223] Recent Accounting Pronouncements - Refer to Note 2—Summary of Significant Accounting Policies for details on recently adopted and issued accounting pronouncements[226] Jumpstart Our Business Startups Act of 2012 - Doximity is an 'emerging growth company' under the JOBS Act, electing an extended transition period for new or revised accounting standards, which may make its financial statements not comparable to other public companies[227][232] Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk This section discusses Doximity's exposure to market risks, primarily focusing on interest rate fluctuations affecting its investments and the potential impact of inflation on its business - The Company is exposed to interest rate risk due to fluctuations affecting its $110.1 million cash and cash equivalents and $666.2 million marketable securities as of June 30, 2022[229] - A hypothetical 100 basis point increase in interest rates would decrease the market value of cash equivalents and marketable securities by $8.9 million as of June 30, 2022[230] - Inflation has not had a material effect on the business, but significant inflationary pressures could harm financial condition if costs cannot be offset[231] Item 4. Controls and Procedures This section details management's evaluation of the company's disclosure controls and procedures, confirming their effectiveness, and notes no material changes to internal control over financial reporting, while also acknowledging the inherent limitations of any control system Evaluation of Disclosure Controls and Procedures - Management, with CEO and CFO participation, evaluated disclosure controls and procedures as effective at the reasonable assurance level as of June 30, 2022[233] Changes in Internal Control over Financial Reporting - No material changes in internal control over financial reporting were identified during the period covered by this report[234] Inherent Limitations on Effectiveness of Controls - Management acknowledges that control systems provide only reasonable, not absolute, assurance, and may not prevent or detect all errors and fraud due to inherent limitations[235] Part II—Other Information Item 1. Legal Proceedings This section refers to Note 12 for a discussion of the company's legal proceedings, indicating that no material matters are currently known that would significantly impact financial results - For a discussion of legal proceedings, refer to Note 12—Commitments and Contingencies[237] Item 1A. Risk Factors This comprehensive section outlines the significant risks and uncertainties that could adversely affect Doximity's business, financial condition, and operating results, covering areas such as business growth, market competition, regulatory compliance, data security, intellectual property, and stock ownership Risk Factors Summary - Key risks include challenges in managing growth, limited operating history, retaining/acquiring members and customers, increasing competition, the impact of the COVID-19 pandemic, maintaining reputation, intellectual property protection, and the dual-class common stock structure[239] Risks Related to Our Business - Failure to effectively manage rapid growth (25% revenue growth in Q1 2023, 930 employees as of June 30, 2022) could harm business, financial condition, and results of operations, potentially leading to declining revenue growth rates and margins[241][242][244][245] - The Company's limited operating history (commercial offerings since fiscal 2012) makes future operating results difficult to forecast and increases investment risk due to uncertainties in growth, cash flows, and profitability[246][247] - Inability to retain existing members or add new ones, or if existing customers do not renew or expand subscriptions, could materially harm revenue and operating results, especially given revenue concentration among a small number of key customers[250][254][258] - The COVID-19 pandemic's impact on the U.S. economy and markets remains uncertain, potentially affecting business practices, shifting marketing budgets, slowing the hiring market, and increasing competition in telehealth solutions[267][268][269][270][272][273] Risks Related to Data Privacy and Security - The Company is subject to stringent and evolving Data Protection Laws (HIPAA, CCPA, CPRA, GDPR) and contractual obligations, with actual or perceived non-compliance potentially leading to fines, liability, reputational harm, and increased operational costs[300][302][303][309][314] - Security breaches, cyber-attacks, employee errors, or system failures could compromise Sensitive Information, leading to data loss, service interruptions, litigation, and significant financial and reputational damage, with elevated risk during remote work periods[316][317][318][324] - Reliance on network and mobile infrastructure (e.g., Amazon Web Services, Google) and third-party platforms (Apple App Store, Google Play) means significant interruptions, undetected errors, or changes in terms could adversely affect business, requiring continuous system upgrades and adaptation to evolving technologies[325][326][327][358][414] Risks Related to Legal and Regulatory Compliance - Non-compliance with communication laws (e.g., TCPA) for telephonic, text, and facsimile communications by members could lead to substantial damages ($500 per violation, trebled for willful violations), civil penalties, and adverse publicity[330][331] - The Company may incur liability for content published on its platform (defamation, misinformation, IP rights), and changes to CDA Section 230 protections could increase legal costs and impact business practices[333][334][335] - Fluctuations in tax obligations and effective tax rates are possible due to changes in tax laws (e.g., Tax Act, CARES Act, Wayfair decision) and accounting principles, potentially limiting the utilization of net operating loss carryforwards (NOLs) due to ownership changes or state-level restrictions[336][337][339][340] Risks Related to Business Operations and Strategy - The Company's success depends on attracting, developing, motivating, and retaining highly qualified personnel, especially senior management. Failure to do so could materially and adversely affect business execution and growth[341][342] - Future litigation could result in significant defense costs, judgments, or settlements not fully covered by insurance, diverting management attention and harming financial condition[343] - Volatility in capital markets may limit access to new capital through equity or debt financing, potentially hindering business growth, acquisitions, or infrastructure improvements, and diluting existing stockholders[344][345] - Acquisitions (e.g., AMiON) and strategic alliances carry risks such as integration problems, unanticipated costs, diversion of management, and potential loss of key employees, which could materially affect business and financial results[346][347][349] Risks Related to Intellectual Property - Inability to prevent third parties from copying or aggregating intellectual property and data (e.g., through scraping) could degrade the brand, negatively impact website performance, and harm the business, with legal measures potentially insufficient[389][390] - Third-party intellectual property infringement claims, whether merited or not, can be costly to defend, divert management resources, and potentially lead to significant damages, injunctions, or the need for expensive licenses[391][393][394] - Failure to maintain, protect, or enforce intellectual property rights (patents, trademarks, trade secrets) could harm the business and competitive position, as protection is expensive, uncertain, and varies by jurisdiction[398][399][400][406][407] - Reliance on open source software and third-party licensed software carries risks, including potential requirements to release proprietary source code, errors/vulnerabilities, and the inability to maintain or obtain licenses on reasonable terms, which could limit functionality or increase costs[409][410][411][412] Risks Related to the Healthcare Industry - The healthcare regulatory framework is uncertain and evolving, with new rules (e.g., CURES Act, information blocking) potentially increasing compliance costs, creating competition, or impacting telehealth reimbursement post-pandemic[417][419][421][422] - Consolidation in the healthcare industry could lead to customers negotiating fee reductions, reducing demand for services, or developing competing solutions, materially affecting Doximity's business[423][424] - Failure to comply with federal and state healthcare laws (e.g., fee splitting, anti-kickback, false claims) could result in significant administrative, civil, and criminal penalties, adversely affecting demand for services and potentially invalidating contracts[425][426][428][429] Risks Related to Ownership of Our Class A Common Stock - The market price of Class A common stock may be volatile due to numerous factors beyond control, including financial performance, analyst coverage, economic conditions, and broader market fluctuations, potentially leading to substantial losses for investors[438][439][440] - The dual-class common stock structure concentrates approximately 88% of voting control with executive officers and directors, limiting other stockholders' ability to influence corporate matters and potentially discouraging acquisition proposals[441][442] - Future sales and issuances of Class A common stock or rights to purchase, including through equity incentive plans, could dilute existing stockholders' ownership and cause the stock price to decline, especially if substantial amounts are sold in a short period[443][444][445][446] - Delaware law and provisions in the company's organizational documents could make mergers, tender offers, or proxy contests more difficult, limit attempts to replace management, and potentially affect the market price of Class A common stock[452][453][456] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's unregistered sales of equity securities, specifically common stock warrant exercises, and provides information on its Class A common stock repurchase program and the use of proceeds from its initial public offering Unregistered Sales of Equity Securities - On May 19, 2022, 125,000 shares of Class A common stock were issued upon the exercise of a warrant to U.S. News & World Report, L.P. at an exercise price of $0.72 per share, for an aggregate consideration of $90,000[466] Share Repurchases - The board authorized a $70 million Class A common stock repurchase program on May 12, 2022. During June 2022, 273,746 shares were repurchased at an average price of $32.40, with $61.1 million remaining available[469][470] Use of Proceeds - The IPO, closed on June 28, 2021, generated $548.5 million in proceeds after deducting underwriting discounts and deferred offering costs. There has been no material change in the planned use of these proceeds[472] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reported period - No defaults upon senior securities were reported[473] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - No mine safety disclosures were reported[474] Item 5. Other Information This section states that there is no other information to report - No other information was reported[475] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including organizational documents, warrants, incentive plans, and certifications Signatures This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report's submission