DOCS Q1 Earnings Miss on Higher AI Costs, Revenues Beat, FY27 View Up

The year-over-year decline in earnings primarily reflected higher AI-related investments and operating expenses, which pressured profitability despite revenue growth.

DOCS’ Q1 Revenues in Detail

Doximity registered revenues of $156.6 million in the fiscal first quarter, up 7.3% year over year. The figure surpassed the Zacks Consensus Estimate by 3.2%.

Revenue growth was supported by solid performance across pharma and hospital customers. The company’s net revenue retention rate was 107%, while 127 customers generated more than $500,000 in trailing 12-month subscription revenues, up 7% year over year. These large customers accounted for 83% of total revenues.

Shares of the company surged 73.5% during yesterday’s after-hours trading. Year to date, the stock has declined 53.3% compared with the industry’s fall of 6.4%. However, the broader S&P 500 Index has increased 12.5% in the same time frame.

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Doximity's AI Investment Pressures Q1 Margins

In the quarter under review, Doximity’s adjusted gross profit rose 3% year over year to $137.1 million. However, the adjusted gross margin contracted 370 basis points (bps) to 87.5%.

Sales and marketing expenses increased 23.9% year over year to $45.0 million, while research and development expenses rose 43.6% to $38.5 million. General and administrative expenses increased 26.7% year over year to $15.8 million. Total operating expenses of $99.3 million rose 31.3% year over year.

Management said higher-than-expected clinician AI usage drove additional compute spending, while merit increases, internal AI usage and brand marketing lifted operating costs.

The adjusted operating profit totaled $72.4 million, reflecting a 7.1% decline from the prior-year quarter. The adjusted operating margin in the fiscal first quarter contracted 720 bps to 46.2%.

DOCS' Financial Position

Doximity exited first-quarter fiscal 2027 with cash and cash equivalents of $273.6 million compared with $219.2 million at the end of fiscal 2026, with no debt on its balance sheet. The company repurchased $91.6 million of common stock during the quarter, with $400.9 million remaining under its authorized repurchase program at June 30, 2026.

Net cash provided by operating activities at the end of first-quarter fiscal 2027 was $42 million compared with $62.1 million a year ago. Free cash flow declined 34.1% year over year to $39.6 million.

Management attributed the weaker cash generation partly to normal collection timing, including a $33.3 million increase in accounts receivable.

Doximity’s Q2 & FY27 Outlook

Doximity has initiated its financial outlook for the fiscal second quarter and raised the full-year guidance for fiscal 2027.

For the second quarter of fiscal 2027, Doximity expects revenues of $170 million to $171 million. The Zacks Consensus Estimate for revenues is pegged at $168 million.

For fiscal 2027, the company raised its revenue guidance to $671 million-$681 million from $664 million-$676 million. The Zacks Consensus Estimate for revenues is pegged at $670.2 million.

Management cited a more stable pharma budget environment, higher customer interaction velocity and a growing AI commercial pipeline as supporting the stronger outlook.

Doximity’s AI Adoption and Commercial Momentum

Doximity exited the first quarter of fiscal 2027 with mixed results, wherein earnings missed while revenues surpassed the Zacks Consensus Estimate. Top-line growth was supported by solid pharma and hospital demand and accelerating AI adoption. However, increased AI investments weighed on margins during the quarter.

Workflow engagement remained strong, with quarterly active prescribers growing more than 30% year over year to record levels. Nearly half of these prescribers used the company’s AI tools, while AI prompt volumes increased more than 25% sequentially. Doximity Ask also emerged as the top-performing U.S.-based clinical AI model in the independent NOHARM benchmark, supported by a built-in drug reference and more than 12,000 physician PeerCheck editors.

Doximity expanded its enterprise AI footprint to 165 signed health-system clients, including eight top Honor Roll hospitals, with recent wins including Northwestern, Penn Medicine and the University of Michigan. Scribe adoption continued to accelerate, with users increasing 10-fold in July.

On the commercial front, AI Search, launched in late April, increased pharma customer engagement. The company onboarded its initial cohort across more than two dozen programs and is building a pipeline for the remainder of fiscal 2027 and beyond. Management expects most AI Search revenues contracted to date to be recognized in the fiscal third quarter. New AI Search contracts also contributed to the company’s raised full-year revenue outlook.

Going forward, Doximity intends to increase investments in its clinical AI suite to capitalize on rising physician usage and commercial demand. Management remains focused on expanding AI Search monetization, strengthening health-system adoption and leveraging its broad physician network to drive long-term growth across pharma and workflow solutions.

DOCS’ Zacks Rank & Key Picks

Doximity currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader medical space are West Pharmaceutical WST, The Cooper Companies COO and Cardinal Health CAH, each carrying a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

West Pharmaceutical reported second-quarter 2026 adjusted earnings per share (EPS) of $2.37, which beat the Zacks Consensus Estimate by 13.9%. Revenues of $872.3 million surpassed the Zacks Consensus Estimate by 4.2%.

West Pharmaceutical has an estimated long-term earnings growth rate of 16%. WST’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 17.40%.

The Cooper Companies reported a second-quarter fiscal 2026 adjusted EPS of $1.21, which beat the Zacks Consensus Estimate by 10.00%. Revenues of $1.08 billion beat the Zacks Consensus Estimate by 2.6%.

The Cooper Companies has an estimated long-term earnings growth rate of 8.3%. COO’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 5.80%.

Cardinal Health reported a third-quarter fiscal 2026 adjusted EPS of $3.17, which beat the Zacks Consensus Estimate by 13.2%. Revenues of $60.94 billion missed the Zacks Consensus Estimate by 2.3%.

Cardinal Health has an estimated long-term earnings growth rate of 17%. CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 10.27%.

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