# Doximity, Inc. (DOCS) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Doximity, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1516513/000151651324000035/docs-20240331.htm
Accession: 0001516513-24-000035
Filing date: 2024-05-23
Report date: 2024-03-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/DOCS/
All MD&A years: /company/DOCS/mda/
Previous year: /company/DOCS/mda/fy2023/ (FY 2023)
Next year: /company/DOCS/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and accompanying notes that are included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, as described under the heading “Special Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” or in other parts of this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

A discussion regarding our financial condition and results of operations for the fiscal year ended March 31, 2024 compared to the fiscal year ended March 31, 2023 is presented below. A discussion regarding our financial condition and results of operations for the fiscal year ended March 31, 2023 compared to the fiscal year ended March 31, 2022 can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 and filed with the SEC on May 26, 2023.

Overview

We are the leading digital platform for U.S. medical professionals, as measured by the number of members. Our members include more than 80% of U.S. physicians, spanning all 50 states and every medical specialty.

Our mission is to help every physician be more productive and provide better care for their patients. We are physicians-first, putting technology to work for doctors instead of the other way around. That guiding principle has enabled Doximity to become an essential and trusted professional platform for physicians. Our physician cloud puts modern software in the hands of physicians and other medical professionals, enabling our members to collaborate with colleagues, stay up to date with the latest medical news and research, manage their careers and on-call schedules, streamline documentation and administrative paperwork, and conduct virtual patient visits. Our revenue-generating customers, primarily pharmaceutical manufacturers and healthcare systems, have access to a suite of commercial solutions that benefit from broad physician usage.

At the core of our platform is the largest medical professional network in the nation, which creates proximity within our community of doctors and hundreds of thousands of other medical professionals. Verified members can search and connect with colleagues and specialists, which allows them to better coordinate patient care and streamline referrals. Our newsfeed addresses the ever increasing sub-specialization of medical expertise and volume of medical research by delivering news and information that is relevant to each physician's clinical practice. We also support physicians in their day-to-day practice of medicine with mobile-friendly and easy-to-use productivity tools such as voice and video dialer, secure messaging, digital faxing, and Doximity GPT. Our business model is designed to both respect and support physicians while driving value for our customers through our Marketing, Hiring, and Productivity Solutions. Our revenue-generating customers, primarily pharmaceutical manufacturers and health systems, have access to a suite of commercial solutions that benefit from broad physician usage.

Our business model has delivered high revenue growth at scale with profitability. For the fiscal years ended March 31, 2024, 2023 and 2022, we recognized revenue of $475.4 million, $419.1 million, and $343.5 million, respectively, representing year-over-year growth rates of 13% and 22%, respectively. Our net income was $147.6 million, $112.8 million, and $154.8 million for the fiscal years ended March 31, 2024, 2023, and 2022, respectively. For the fiscal years ended March 31, 2024, 2023 and 2022, we generated adjusted EBITDA of $230.5 million, $184.0 million, and $150.3 million, respectively. We have accomplished this while focusing on our core mission to help every physician be more productive and provide better care for their patients.

Key Business and Financial Metrics

We monitor a number of key business and financial metrics to assess the health and success of our business, including:

Customers with Trailing 12-Month Subscription Revenue Greater than $100,000 and $500,000. The number of customers with trailing 12-month (“TTM”) subscription revenue greater than $100,000 and $500,000 is a key indicator of the scale of our business, and is calculated by counting the number of customers that contributed more than $100,000 and $500,000, respectively, in subscription revenue in the TTM period. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity, and we present our total customer count for historical periods reflecting these adjustments.

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The number of customers with at least $100,000 and $500,000 of revenue has grown steadily in recent years as we have engaged new customers and expanded within existing ones. These cohorts of customers accounted for approximately 90% and 81%, respectively, of our revenue in fiscal 2024.

[[GREPCENT_TABLE]]
[["","March 31,"],["","2024","","2023","","2022"],["Number of customers with at least $100,000 of revenue","296","","294","","251"],["Number of customers with at least $500,000 of revenue","98","","80","","71"]]
[[/GREPCENT_TABLE]]

Net Revenue Retention Rate. Net revenue retention rate is calculated by taking the TTM subscription-based revenue from our customers that had revenue in the prior TTM period and dividing that by the total subscription-based revenue for the prior TTM period. For the purposes of this calculation, subscription revenue excludes subscriptions for individuals and small practices and other non-recurring items. Our net revenue retention rate compares our subscription revenue from the same set of customers across comparable periods, and reflects customer renewals, expansion, contraction, and churn. Our net revenue retention rate is directly tied to our revenue growth rate and thus fluctuates as that growth rate fluctuates.

[[GREPCENT_TABLE]]
[["","March 31,"],["","2024","","2023","","2022"],["Net revenue retention rate","114","%","","117","%","","157","%"]]
[[/GREPCENT_TABLE]]

Components of Results of Operations

Revenue

Marketing Solutions. Our customers purchase a subscription to Marketing Solutions, either directly or through marketing agencies, for the ability to share tailored content on the Doximity platform via a variety of modules for defined time periods. We generally bill customers a portion of the contract upon contract execution and then bill throughout the remainder of the contract based on various time-based milestones. Generally, we bill in advance of revenue recognition. When revenue is recognized in advance of billings, we record unbilled revenue. Unbilled revenue is recorded on the consolidated balance sheets within prepaid expenses and other current assets. Subscriptions to Marketing Solutions include the following contractual arrangements:

•Subscriptions for specific modules delivered on a monthly basis to a consistent number of targeted Doximity members during the subscription period. Pricing is based on the number and composition of the targeted Doximity members, and on the specific modules purchased.

•Integrated subscriptions for a fixed subscription fee that are not tied to a single module, allowing customers to utilize any combination of modules during the subscription period.

For these subscription-based contractual arrangements, we recognize revenue over time as control of the service is transferred to the customer.

Hiring Solutions. We provide customers access to our platform which enables them to post job openings or deliver a fixed number of monthly messages to our network of medical professionals. Hiring Solutions contracts are noncancelable and customers are billed in annual, quarterly, or monthly installments in advance of the service period, and revenue is recognized ratably over the contractual term.

We also generate revenue from temporary and permanent medical recruiting services which we charge on an hourly-fee, and retainer and placement-fee basis, respectively. For the fiscal years ended March 31, 2024, 2023, and 2022, the revenue from temporary and permanent medical recruiting services was not significant to our total revenue.

Cost of Revenue

Cost of revenue is primarily comprised of expenses related to cloud hosting, personnel-related expenses for our customer success team, costs for third-party platform access, information technology and software-related services and contractors, and other services used in connection with the delivery and support of our platform. Our cost of revenue also includes the amortization of internal-use software development costs, editorial and other content-related expenses, and allocated overhead. Cost of revenue is driven by the growth of our member network and utilization of our productivity tools. We intend to continue to invest additional resources in our cloud infrastructure and our customer support organizations to support the growth of our business.

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Gross Profit and Gross Margin

Gross profit is total revenue less total cost of revenue. Gross margin is gross profit expressed as a percentage of total revenue. Gross profit and gross margin has been and will continue to be affected by a number of factors, including the timing of our acquisition of new customers and sales of additional solutions to existing customers, the timing and extent of our investments in our operations, cloud hosting costs, growth in our customer success team, and the timing of amortization of internal-use software development costs. We expect our gross margin to remain relatively steady over the near term, although our quarterly gross margin is expected to fluctuate from period to period depending on the interplay of these and other factors.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, general and administrative, and restructuring expenses.

Research and Development

Research and development expense is primarily comprised of personnel-related expenses associated with our engineering and product teams who are responsible for building new products and improving existing products. Research and development expense also includes costs for third-party services and contractors, information technology and software-related costs, and allocated overhead. Other than internal-use software development costs that qualify for capitalization, research and development costs are expensed as incurred. We expect research and development expenses will increase on an absolute dollar basis as we continue to grow our platform and product offerings.

Sales and Marketing

Sales and marketing expense is primarily comprised of personnel-related expenses, sales incentive compensation, advertising costs, travel, and other event expenses. Sales and marketing expense also includes costs for third-party services and contractors, information technology and software-related costs, allocated overhead, amortization of intangible assets, and change in fair value of contingent earn-out consideration liability. We capitalize sales incentive compensation that is considered to be an incremental and recoverable cost of obtaining a contract with a customer. These sales incentive compensation costs are amortized over the period of benefit. We expect sales and marketing expense to increase and to be our largest expense on an absolute basis.

General and Administrative

General and administrative expense is primarily comprised of personnel-related expenses associated with our executive, finance, legal, human resources, information technology, and facilities employees. General and administrative expense includes fees for third-party legal and accounting services, insurance expense, information technology and software-related costs, and allocated overhead. We expect that general and administrative expense will increase on an absolute dollar basis as we incur compliance costs associated with being a publicly-traded company, including legal, audit, and consulting fees.

Restructuring

Restructuring expense primarily consists of severance payments, employee benefits, and stock-based compensation in relation to the modification of equity awards associated with the management-approved plan. One-time employee termination benefits are recognized at the time of communication of the terms of the plan to the employees, unless future service is required, in which case the costs are recognized over the future service period.

Other Income, Net

Other income, net consists primarily of investment income earned on our cash equivalents and marketable securities.

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes consists primarily of income taxes in U.S. federal, state, and local jurisdictions in which we conduct business. We continue to maintain a valuation allowance related to specific net deferred tax assets where it is not more likely than not that the deferred tax assets will be realized, which includes Arizona research and development credits, California alternative minimum tax credits, and capital loss carryforwards. Our effective income tax rate generally differs from the U.S. statutory tax rate of 21.0% primarily due to U.S. federal and state research and development tax credits, stock-based compensation related tax benefits, change in valuation allowance, and state income taxes.

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Results of Operations

The following tables set forth our consolidated results of operations data and such data as a percentage of revenue for the periods presented.

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,"],["","2024","","2023","","2022"],["","(in thousands)"],["Revenue","$","475,422","","","$","419,052","","","$","343,548"],["Cost of revenue(1)","50,669","","","53,490","","","39,787"],["Gross profit","424,753","","","365,562","","","303,761"],["Operating expenses:"],["Research and development(1)","81,983","","","80,186","","","62,350"],["Sales and marketing(1)","133,129","","","123,523","","","92,129"],["General and administrative(1)","37,827","","","36,745","","","35,746"],["Restructuring(1)","7,936","","","\u2014","","","\u2014"],["Total operating expenses","260,875","","","240,454","","","190,225"],["Income from operations","163,878","","","125,108","","","113,536"],["Other income, net","21,324","","","8,048","","","469"],["Income before income taxes","185,202","","","133,156","","","114,005"],["Provision for (benefit from) income taxes","37,620","","","20,338","","","(40,778)"],["Net income","$","147,582","","","$","112,818","","","$","154,783"]]
[[/GREPCENT_TABLE]]

_______________

(1)Costs and expenses include stock-based compensation expense as follows:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,"],["","2024","","2023","","2022"],["","(in thousands)"],["Cost of revenue","$","9,479","","","$","9,634","","","$","4,979"],["Research and development","11,978","","","12,583","","","7,065"],["Sales and marketing","16,857","","","16,939","","","8,108"],["General and administrative","9,116","","","8,678","","","11,290"],["Restructuring","$","3,646","","","$","\u2014","","","$","\u2014"],["Total stock-based compensation expense","$","51,076","","","$","47,834","","","$","31,442"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,"],["","2024","","2023","","2022"],["","(percentages of revenue)"],["Revenue","100","%","","100","%","","100","%"],["Cost of revenue","11","","","13","","","12"],["Gross profit","89","","","87","","","88"],["Operating expenses:"],["Research and development","17","","","19","","","18"],["Sales and marketing","28","","","29","","","27"],["General and administrative","8","","","9","","","10"],["Restructuring","2","","","0","","","0"],["Total operating expenses","55","","","57","","","55"],["Income from operations","34","","","30","","","33"],["Other income, net","5","","","2","","","\u2014"],["Income before income taxes","39","","","32","","","33"],["Provision for (benefit from) income taxes","8","","","5","","","(12)"],["Net income","31","%","","27","%","","45","%"]]
[[/GREPCENT_TABLE]]

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Comparison of the Fiscal Years Ended March 31, 2024 and 2023.

Revenue

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands, except percentages)"],["Revenue","$","475,422","","","$","419,052","","","$","56,370","","","13","%"]]
[[/GREPCENT_TABLE]]

Revenue for the fiscal year ended March 31, 2024 increased $56.4 million as compared to the fiscal year ended 2023. The increase was primarily driven by a $60.3 million increase in subscription revenue. Of the increase in subscription revenue, $9.4 million was driven by the addition of new subscription customers1 and $50.9 million was due to the expansion of existing customers. The expansion of existing customers was primarily driven by average revenue per existing Marketing Solutions customer increasing by 19% as a result of adding new and growing existing brands and service lines. Approximately 95% of our revenue for the fiscal year ended March 31, 2024 was derived from subscription customers. The remaining change in revenue was due to a reduction in permanent placement recruiting services.

Cost of revenue, gross profit, and gross margin

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands, except percentages)"],["Cost of revenue","$","50,669","","","$","53,490","","","$","(2,821)","","","(5)","%"],["Gross profit","$","424,753","","","$","365,562","","","$","59,191","","","16","%"],["Gross margin","89","%","","87","%"]]
[[/GREPCENT_TABLE]]

Cost of revenue for the fiscal year ended March 31, 2024 decreased $2.8 million as compared to the fiscal year ended 2023, primarily driven by a decrease in personnel-related costs as a result of a reduction in average headcount due to the Company’s restructuring plan executed in August 2023 and a decrease in other third-party expenses.

The gross margin for the fiscal year ended March 31, 2024 increased due to growth in our revenue as well as a reduction in our costs of revenue as a result of the Company’s restructuring plan executed in August 2023.

Operating Expenses

Research and development

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands, except percentages)"],["Research and development","$","81,983","","","$","80,186","","","$","1,797","","","2","%"]]
[[/GREPCENT_TABLE]]

Research and development expense for the fiscal year ended March 31, 2024 increased $1.8 million as compared to the fiscal year ended 2023, primarily driven by a $1.2 million increase in third-party contractor costs and a $1.0 million increase in hosting and software license costs associated with running operations and ongoing projects and services to continuously improve and optimize our products and services.

Sales and marketing

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands, except percentages)"],["Sales and marketing","$","133,129","","","$","123,523","","","$","9,606","","","8","%"]]
[[/GREPCENT_TABLE]]

Sales and marketing expense for the fiscal year ended March 31, 2024 increased $9.6 million as compared to the fiscal year ended 2023, primarily driven by a $3.9 million increase in market research and trade shows, a $1.6 million increase in personnel-related costs due to merit increases offset by reduction in average headcount as a result of the Company’s restructuring plan executed in August 2023, a $1.4 million increase in software-related costs, and a $0.9 million increase in employee events and travel-related expenses.

1 We define new subscription customers as revenue generating subscription customers in the current fiscal period who did not contribute any revenue for the same period in the prior fiscal year.

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General and administrative

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands, except percentages)"],["General and administrative","$","37,827","","","$","36,745","","","$","1,082","","","3","%"]]
[[/GREPCENT_TABLE]]

General and administrative expense for the fiscal year ended March 31, 2024 increased $1.1 million as compared to the fiscal year ended 2023, primarily driven by a $1.0 million increase in accounting and legal fees.

Restructuring

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands, except percentages)"],["Restructuring","$","7,936","","","$","\u2014","","","$","7,936","","","NM"]]
[[/GREPCENT_TABLE]]

In August 2023, the Company initiated a restructuring plan to better align the Company’s resources with its priorities and reduced its workforce by 10%. The $7.9 million in restructuring charges incurred during the fiscal year ended March 31, 2024 consisted of $4.3 million of severance payments and employee benefits and $3.6 million of stock-based compensation expense for the accelerated vesting of equity awards.

Other income, net

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands, except percentages)"],["Other income, net","$","21,324","","","$","8,048","","","$","13,276","","","165","%"]]
[[/GREPCENT_TABLE]]

Other income, net for the fiscal year ended March 31, 2024 increased $13.3 million as compared to the fiscal year ended 2023, primarily driven by increases in interest income due to higher yields earned on our cash equivalents and marketable securities portfolio and a higher average portfolio balance.

Provision for income taxes

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,","","Change"],["","2024","","2023","","$","","%"],["","(in thousands, except percentages)"],["Provision for income taxes","$","37,620","","","$","20,338","","","$","17,282","","","85","%"]]
[[/GREPCENT_TABLE]]

Income tax expense for the fiscal year ended March 31, 2024 increased $17.3 million as compared to the fiscal year ended 2023, primarily driven by higher income before taxes and decreased tax deductions from stock award activities, offset by transferable federal tax credits and the release of a valuation allowance associated with California research and development tax credits that are expected to be utilized.

___________________

NM: Percentage not meaningful.

Liquidity and Capital Resources

Since inception, we have financed operations primarily through proceeds received from sales of equity securities and payments received from our customers. As of March 31, 2024, our principal sources of liquidity were cash and cash equivalents and marketable securities of $762.9 million. Our marketable securities consist of U.S. government and agency securities, corporate notes and bonds, commercial paper, asset-backed securities, and sovereign bonds.

In June 2021, we completed our IPO, in which we issued and sold 22,505,750 shares of our Class A common stock at $26.00 per share, including 3,495,000 shares issued upon the exercise of the underwriters’ option to purchase additional shares. We received proceeds of $548.5 million after deducting underwriting discounts and commissions as well as deferred offering costs.

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The Company’s board of directors authorized various programs to repurchase up to $340 million of the Company’s Class A common stock. Under these programs, the Company repurchased and retired 13,790,535 shares of Class A common stock. All of these programs were completed as of October 2023.

On October 26, 2023, the Company’s board of directors authorized a program to repurchase up to $70 million of the Company’s Class A common stock over a period of 12 months. The repurchases are subject to general business and market conditions and other investment opportunities and may be executed through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. Immediately upon the repurchase of any shares of Class A common stock, such shares shall be retired by the Company and shall automatically return to the status of authorized but unissued shares of Class A common stock. As of March 31, 2024, the Company repurchased and retired 1,119,014 shares of Class A common stock for an aggregate purchase price of $29.7 million. As of March 31, 2024, $40.3 million remained available and authorized for repurchase.

Effective January 1, 2023, the Company’s share repurchases in excess of allowable share issuances are subject to a 1% excise tax as a result of the Inflation Reduction Act of 2022. During the fiscal year ended March 31, 2024, the Company incurred excise taxes of $1.5 million, all of which remained unpaid as of March 31, 2024. The Company did not incur any excise taxes during the prior year.

We believe that our existing cash and cash equivalents and marketable securities will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.

Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, timing of share repurchases, and the timing and extent of spending to support research and development efforts. Further, we may in the future enter into arrangements to acquire or invest in businesses and technologies. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations could be adversely affected.

We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

For further details regarding our cash requirements from noncancelable operating lease obligations and other contractual commitments, see Note 15—Commitments and Contingencies and Note 16—Leases included in Part II, Item 8 of this Annual Report on Form 10-K.

Cash Flows

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,"],["","2024","","2023","","2022"],["","(in thousands)"],["Net cash provided by operating activities","$","184,096","","","$","179,602","","","$","126,575"],["Net cash provided by (used in) investing activities","$","31,186","","","$","(59,923)","","","$","(640,574)"],["Net cash provided by (used in) financing activities","$","(276,524)","","","$","(74,461)","","","$","560,415"]]
[[/GREPCENT_TABLE]]

Net cash provided by operating activities

Cash provided by operating activities was $184.1 million for the fiscal year ended March 31, 2024. This consisted of net income of $147.6 million, adjusted for non-cash items of $61.0 million and a net outflow from operating assets and liabilities of $24.5 million. Non-cash items primarily consisted of stock-based compensation expense of $51.1 million, depreciation and amortization expense of $10.3 million, amortization of deferred contract costs of $8.9 million, non-cash lease expense of $2.1 million, partially offset by deferred income taxes of $8.6 million and accretion of discount on marketable securities of $5.2 million. The net outflow from operating assets and liabilities was driven by a $20.5 million increase in prepaid expenses and other assets primarily due to the prepayment of taxes, an $8.6 million increase in deferred contract costs due to increased sales activity, a decrease of $6.1 million in deferred revenue due to the timing of customer billings and program launches. The outflows were partially offset by an $8.3 million increase in accounts payable, accrued expenses, and other liabilities which was primarily due to the timing of transferable tax credit payments and a $4.0 million decrease in accounts receivable due to the timing of billings and collections. During the fiscal years ended March 31, 2024 and 2023, the Company made $51.3 million and $5.2 million, respectively, in payments for taxes. The increase in cash paid for income taxes was partially related to the Tax Cuts and Jobs Act of 2017, which eliminated the option to deduct research and development expenditures and required taxpayers to capitalize and amortize them over five or fifteen years. Although Congress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be so deferred, repealed or

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otherwise modified. The requirement may also reduce our cash flows from operating activities in future periods, the amounts and specific periods of which we are unable to estimate at this time.

Cash provided by operating activities was $179.6 million for the fiscal year ended March 31, 2023. This consisted of net income of $112.8 million, adjusted for non-cash items of $87.8 million and a net outflow from operating assets and liabilities of $21.0 million. Non-cash items primarily consisted of stock-based compensation expense of $47.8 million, deferred income taxes of $13.2 million, depreciation and amortization expense of $10.3 million, amortization of deferred contract costs of $8.8 million, and amortization of the premium on marketable securities of $3.1 million. The net outflow from operating assets and liabilities was driven by a $26.2 million increase in accounts receivable due to the growth of our business and the timing of collections, an $8.5 million increase in deferred contract costs due to increased sales activity, and a $3.4 million increase in prepaid expenses and other assets. These outflows were partially offset by an increase of $17.5 million in deferred revenue due to the timing of customer billings and program launches.

Net cash provided by (used in) investing activities

Cash provided by investing activities was $31.2 million for the fiscal year ended March 31, 2024, which primarily consisted of proceeds from the maturities of marketable securities of $435.2 million and proceeds from the sale of marketable securities of $74.7 million. These inflows were partially offset by $472.9 million of marketable securities purchases and $5.7 million for internal-use software development costs.

Cash used in investing activities was $59.9 million for the fiscal year ended March 31, 2023, which primarily consisted of $190.6 million of marketable securities purchases, $53.5 million paid for the acquisition of AMiON, $4.5 million for internal-use software development costs, and $1.7 million for purchases of property and equipment. These payments were partially offset by proceeds from the sale of marketable securities of $107.2 million and proceeds from the maturities of marketable securities of $83.1 million.

Net cash provided by (used in) financing activities

Cash used in financing activities was $276.5 million for the fiscal year ended March 31, 2024, which primarily consisted of common stock repurchases of $280.7 million, $6.8 million of taxes paid related to the net share settlement of equity awards, and $5.4 million of payments for contingent consideration related to the AMiON acquisition. These payments were partially offset by $12.9 million of proceeds from the exercise of stock options and common stock warrants and $3.4 million of proceeds from the issuance of common stock related to the employee stock purchase plan.

Cash used in financing activities was $74.5 million for the fiscal year ended March 31, 2023, which primarily consisted of common stock repurchases of $85.3 million and $3.8 million of taxes paid related to the net share settlement of equity awards. These payments were partially offset by $9.9 million of proceeds from the exercise of stock options and common stock warrants and $4.8 million of proceeds from the issuance of common stock related to the employee stock purchase plan.

Non-GAAP Financial Measures

We use adjusted EBITDA and free cash flow to measure our performance, identify trends, formulate financial projections, and make strategic decisions.

Adjusted EBITDA

We define adjusted EBITDA as net income before interest, income taxes, depreciation, and amortization, and as further adjusted for acquisition and other related expenses, stock-based compensation expense, restructuring expense, change in fair value of contingent earn-out consideration liability, and other income, net. Net income margin represents net income as a percentage of revenue and adjusted EBITDA margin represents adjusted EBITDA as a percentage of revenue.

Adjusted EBITDA is a key measure we use to assess our financial performance and is also used for internal planning and forecasting purposes. We believe adjusted EBITDA is helpful to investors, analysts, and other interested parties because it can assist in providing a more consistent and comparable overview of our operations across our historical financial periods.

Adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures and are presented for supplemental informational purposes only and should not be considered as alternatives or substitutes to the financial information presented in accordance with GAAP. These measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statements of operations that are necessary to run our business. Other companies, including other companies in our industry, may not use these measures or may calculate these measures differently than as presented in this Annual Report on Form 10-K, limiting their usefulness as comparative measures.

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The following table presents a reconciliation of net income to adjusted EBITDA, adjusted EBITDA margin, and net income margin (in thousands, except percentages):

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,"],["","2024","","2023","","2022"],["Net income","$","147,582","","","$","112,818","","","$","154,783"],["Adjusted to exclude the following:"],["Acquisition and other related expenses","\u2014","","","30","","","254"],["Stock-based compensation","47,430","","","47,834","","","31,442"],["Depreciation and amortization","10,265","","","10,283","","","5,040"],["Provision for (benefit from) income taxes","37,620","","","20,338","","","(40,778)"],["Restructuring expense","7,936","","","\u2014","","","\u2014"],["Change in fair value of contingent earn-out consideration liability","951","","","728","","","\u2014"],["Other income, net","(21,324)","","","(8,048)","","","(469)"],["Adjusted EBITDA","$","230,460","","","$","183,983","","","$","150,272"],["Revenue","$","475,422","","","$","419,052","","","$","343,548"],["Net income margin","31","%","","27","%","","45","%"],["Adjusted EBITDA margin","48","%","","44","%","","44","%"]]
[[/GREPCENT_TABLE]]

Free Cash Flow

Free cash flow is a key performance measure that our management uses to assess our overall performance. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening our financial position.

We calculate free cash flow as cash flow from operating activities less purchases of property and equipment and internal-use software development costs.

Although we believe free cash flow is a useful indicator of business performance, free cash flow is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. Free cash flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities. Some of the limitations of free cash flow are that it may not properly reflect future contractual commitments that have not been realized in the current period. Our free cash flow may not be comparable to similarly titled measures of other companies because they may not calculate free cash flow in the same manner as we calculate the measure, limiting its usefulness as a comparative measure.

The following table presents a reconciliation of our free cash flow to the most comparable GAAP measure, net cash provided by operating activities, for each of the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended March 31,"],["","2024","","2023","","2022"],["Net cash provided by operating activities","$","184,096","","","$","179,602","","","$","126,575"],["Purchases of property and equipment","(147)","","","(1,701)","","","(1,912)"],["Internal-use software development costs","(5,654)","","","(4,483)","","","(3,785)"],["Free cash flow","$","178,295","","","$","173,418","","","$","120,878"],["Other cash flow components:"],["Net cash provided by (used in) investing activities","$","31,186","","","$","(59,923)","","","$","(640,574)"],["Net cash provided by (used in) financing activities","$","(276,524)","","","$","(74,461)","","","$","560,415"]]
[[/GREPCENT_TABLE]]

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of our financial statements also requires us to make estimates and assumptions that affect the amounts stated in the consolidated financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are

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differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

We believe that of our significant accounting policies, which are described in Note 2—Summary of Significant Accounting Policies included in Part II, Item 8 of this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, we believe the below policies are the most critical to aid in fully understanding and evaluating our consolidated financial statements.

Revenue Recognition

Marketing Solutions customers may purchase a subscription for a specific module to be used over a defined period of time. These customers may purchase more than one module with either the same or different subscription periods. Each module targets a consistent number of Doximity members per month for the duration of the subscription period. The Company treats each subscription to a specific module as a distinct performance obligation because each module is capable of being distinct as the customer can benefit from the subscription to each module on their own and each subscription can be sold standalone. The subscription to each module is treated as a series of distinct performance obligations because it is distinct and substantially the same, satisfied over time, and has the same measure of progress. The total transaction price is allocated to the individual module subscriptions, which represent separate performance obligations, based on the relative standalone selling price. We commence revenue recognition when the first content for the specific module is launched on the platform for the initial monthly period and revenue is recognized over time as each subsequent content period is delivered.

Marketing Solutions customers may also purchase integrated subscriptions for a fixed subscription fee that are not tied to a single module but allow customers to utilize any combination of modules during the subscription period subject to limits on the total number of modules launched in a given period of time, active at any given time, and members targeted. These represent stand-ready obligations in that the delivery of the underlying sponsored content is within the control of the customer and the extent of use in any given period does not diminish the remaining services. For these integrated campaign subscriptions, we record revenue ratably over the subscription period commencing with the beginning of the subscription term.

Stock-Based Compensation

Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense in the consolidated statements of operations over the requisite service period, which is generally the vesting period of the respective award.

Determining the grant-date fair value of stock options, warrants, and purchase rights under the employee stock purchase plan, or ESPP, requires judgment. We estimate the fair value of restricted stock units, or RSUs, at our stock price on the grant date. We use the Black-Scholes option-pricing model to determine the fair value of stock options, warrants, and the ESPP. The determination of the grant-date fair value using the Black-Scholes model is affected by the fair value of our common stock and assumptions regarding a number of other complex and subjective variables. These assumptions include the expected term of the award, the expected stock price volatility over the expected term of the award, the risk-free interest rate for the expected term of the award, and expected dividends.

Business Combinations

The results of businesses acquired in business combinations are included in our consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. The purchase price allocation process requires management to make significant judgment and estimates, including the selection of valuation methodologies, estimates of future expected cash flows, future revenue growth, margins, customer retention rates, technology life, royalty rates, expected use of acquired assets, and discount rates. These factors are also considered in determining the useful life of the acquired intangible assets. These estimates are based in part on historical experience, market conditions and information obtained from management of the acquired companies and are inherently uncertain. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in business combinations.

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Contingent earn-out consideration payable in cash arising from business combinations is recorded at fair value as a liability on the acquisition date and remeasured at each reporting date. Changes in fair value are recorded in sales and marketing expenses in the consolidated statements of operations. Determining the fair value of the contingent earn-out consideration each period requires management to make assumptions and judgments. These estimates involve inherent uncertainties, and if different assumptions had been used, the fair value of contingent consideration could have been materially different from the amounts recorded. The significant inputs used in the fair value measurement of the contingent earn-out consideration liability are the discount rate and the timing and amounts of the future payments, which are based upon estimates of future achievement of the performance metrics.

Transaction-related costs are expensed as incurred and are included in general and administrative expenses in the consolidated statements of operations.

Recent Accounting Pronouncements

Refer to Note 2—Summary of Significant Accounting Policies included in Part II, Item 8 of this Annual Report on Form 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.