Doximity S-1 Filing: Healthcare Exit Trends Explained

A Shift in IPO Focus: Doximity's Public Filing

Previously, this analysis frequently centered on initial public offerings. However, the surge in liquidity events for unicorn companies has led to a sustained period of public market debuts. Today continues that trend.

Doximity submitted its initial public offering paperwork earlier today. The company may be unfamiliar to many, as it operates within the specialized field of telehealth.

Despite its relative obscurity, Doximity is a venture-backed entity, having secured over $80 million in funding from investors including Emergence, InterWest Partners, Morgenthaler Ventures, and Threshold, as reported by Crunchbase.

Prolonged Independence Through Profitability

Interestingly, Doximity has not sought additional funding since 2014. In that year, it raised nearly $82 million, achieving a valuation of $355 million, according to PitchBook data.

How did the company sustain itself without further investment for so long? It achieved this by consistently generating substantial cash flow and maintaining profitability. Evidently, communication solutions within the health technology sector can prove highly lucrative.

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Doximity: A Secure Network for Medical Professionals

Doximity functions as a social networking platform designed for physicians, enabling secure communication while adhering to HIPAA regulations, the federal law safeguarding medical privacy.

Initially conceived as a LinkedIn equivalent for the medical community, the network provides doctors with a directory of specialists, a source of healthcare news, a patient communication channel, and a platform for job searching.

In 2017, Doximity reported reaching 70% of all U.S. physicians, encompassing more than 800,000 licensed professionals.

This marks CEO Jeff Tangney’s second venture bringing a health tech company to the public market, following the 2011 IPO of his previous medical software company, Epocrates.

Let's briefly examine the broader health tech exit landscape before delving into Doximity’s IPO filing. We will then analyze how the company avoided further private funding for seven years and assess its potential valuation.

Digital Health Sector Exits

The worldwide digital health market is projected to reach $221 billion by 2026, highlighting the substantial potential this sector offers to venture capital firms. Investors are not solely focused on projections, however; they are observing a growing number of exits within digital health – indicating increased liquidity and encouraging investment.

Data from CB Insights indicates 79 healthcare initial public offerings (IPOs) and mergers & acquisitions (M&A) occurred in the first quarter of 2021. This represents a 60% increase compared to the previous quarter.

Furthermore, another report details 145 acquisitions of digital health firms in 2020, a notable rise from the 113 recorded in 2019.

These statistics demonstrate a robust and expanding exit landscape within the digital health industry.

Recent transactions in the market have been particularly noteworthy. Everlywell, established in 2015, recently expanded its digital health offerings and distribution network through the acquisition of two healthcare businesses.

Just last week, Modern Fertility was acquired by Ro in a majority-equity transaction valued at over $225 million. It’s important to note that even without an IPO, a company less than four years old achieving a valuation of a quarter of a billion dollars is a significant event.

Public Market Activity

Within the public markets, Oscar Health’s IPO marked a significant milestone for the health insurance sector in the previous year. Additionally, both Signify Health and Movano launched their stocks on the market in the current year.

This increased activity suggests a continuing trend of investor confidence and successful exits in the digital health space.

Analyzing Doximity’s Performance

Let's begin by examining Doximity’s growth trajectory and historical profitability. A review of these key indicators will provide valuable insight into the company’s financial health.

Doximity’s fiscal year concludes on March 31st. Consequently, our analysis will focus on yearly results presented through calendar Q1 of each year. Considering this, the company reported total revenues of $85.7 million, $116.4 million, and $206.9 million for the fiscal years ending March 31, 2019, 2020, and 2021, respectively.

These figures demonstrate growth rates of 36% and 78% between those periods.

How does Doximity generate its income? It’s important to note that physicians themselves are not directly billed. Instead, revenue is derived from various stakeholders within the U.S. healthcare ecosystem, as detailed in its SEC filings:

This excerpt offers a glimpse into the factors contributing to the high cost of American healthcare.

Prior to assessing Doximity’s profitability, the company has highlighted two significant points. Firstly, the health technology market exhibited strength even before the onset of COVID-19. Secondly, the pandemic did indeed accelerate revenue growth, validating previous market assessments.

Doximity has also consistently improved its profitability over the past three fiscal years. Net income, calculated according to Generally Accepted Accounting Principles (GAAP), was $595,000, $10.8 million, and $21.6 million for the fiscal years ending March 31, 2019, 2020, and 2021, respectively.

However, adjusting for certain items, such as yearly expenses related to “undistributed earnings attributable to participating securities” and share-based compensation, reveals a higher level of profitability. For instance, the company’s most recent fiscal year yielded an adjusted EBITDA of $64.8 million, exceeding the previous year’s result by more than double.

The company’s robust cash position provides insight into why Doximity hasn’t sought additional capital from private investors recently. As of March 31st of this year, Doximity held $142.5 million in cash, cash equivalents, and marketable securities.

This substantial cash reserve was accumulated through consistent and increasing operating cash flow. Over the last three fiscal years, Doximity’s operating cash flow increased from $15.3 million to $26.2 million, and ultimately to $83 million.

This practice is often referred to as self-funding.

Further metrics from the Doximity filing are also noteworthy. The number of entities generating $100,000 or more in revenue grew from 141 in the year ending March 31, 2020, to 200 in the most recent fiscal year.

Additionally, the net retention rate increased from 130% to 153% over the same period.

Doximity demonstrates exceptional performance across all key metrics. Its initial public offering is expected to positively impact its sector, as investors are likely to be receptive to its recent and improving financial results.

Further details will be available once the initial price range is announced, but it appears highly probable that Doximity will not pursue an IPO at a valuation lower than its final private price.