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 condensed consolidated financial statements and accompanying notes that are included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K, filed with the SEC on May 19, 2026. 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 Quarterly Report on Form 10-Q. 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" in Part 1, Item 1A of our Annual Report on Form 10-K or in other parts of this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results that may be expected for the full fiscal year or any other period. The last day of our fiscal year is March 31st. Our fiscal quarters end on June 30th, September 30th, December 31st, and March 31st. Fiscal 2027, our current fiscal year, will end on March 31, 2027.
Overview
We are the leading digital platform for U.S. medical professionals, with over 3 million registered members1 as of March 31, 2026. Our registered members represent more than 85% of U.S. physicians, spanning all 50 states and every medical specialty. As of March 31, 2026, the total number of U.S. physicians was approximately 1 million. We calculate U.S. physicians as all U.S. physicians (MDs/DOs) who are under the age of 76, not retired, hold an active medical license, and have a physician status on the National Provider Identifier (NPI) registry. To be included in our calculation of registered members as a percentage of U.S. physicians, we include those U.S. physicians who meet the above criteria and have registered on Doximity by claiming their pre-populated profile or creating a new profile.
Our mission is to help every physician be more productive and provide better care for their patients. We are physician-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 and their colleagues. We provide our members with AI-powered tools specifically built for medicine, which enables physicians and other healthcare professionals to leverage AI-powered clinical reference and search capabilities, collaborate with colleagues, stay up to date with the latest medical news and research, manage their careers and on-call schedules, and conduct virtual patient visits. Our Clinical AI Suite supports the full day-to-day workflow of a physician, from patient communication to documentation to answering clinical questions.
At the core of our platform is the largest medical professional network in the nation, which creates proximity within our community of doctors and 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 workflow tools such as voice and video dialer, secure messaging, digital faxing, and our Clinical AI Suite, including Ask (formerly DoxGPT) and Scribe. Our business model is designed to both respect and support physicians while driving value for our customers through our Marketing, Hiring, and Workflow 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 three months ended September 30, 2026 and 2025, we recognized revenue of $174.5 million and $168.5 million, respectively, representing a year-over-year growth rate of 4%. For the six months ended September 30, 2026 and 2025, we recognized revenue of $331.2 million and $314.4 million, respectively, representing a year-over-year growth rate of 5%. For the three months ended September 30, 2026 and 2025, our net income was $34.7 million and $62.1 million and our adjusted EBITDA was $88.9 million and $100.8 million, respectively. For the six months ended September 30, 2026 and 2025, our net income was $59.0 million and $115.4 million and our adjusted EBITDA was $163.6 million and $180.6 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.
1 A registered member is a user who has completed the registration flow on Doximity by either claiming a pre-populated profile or creating a new profile.
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 $500,000. The number of customers with trailing 12-month ("TTM") subscription revenue greater than $500,000 is a key indicator of the scale of our business and the value we create for large customers, and is calculated by counting the number of customers that contributed more than $500,000 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.
The number of customers with at least $500,000 of TTM revenue has grown steadily in recent years as we have engaged new customers and expanded within existing ones. This cohort of customers accounted for approximately 82% of our revenue for the TTM ended September 30, 2026.
| September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
Number of customers with at least $500,000 of TTM revenue | 124 | 120 | |||||||||
Net Revenue Retention Rate. 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. 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 is directly tied to our revenue growth rate and thus fluctuates as that growth rate fluctuates.
| September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Net revenue retention rate | 103 | % | 118 | % | |||||||
Quarterly Unique Active Providers using our Workflow Tools. Quarterly unique active providers2 using our Workflow Tools is a measure of our platform's usage and adoption among healthcare providers on our platform. We calculate the number of unique active providers by counting providers who securely log in and use any of the following workflow functions on our technology platform during the quarter: placing phone calls or video calls lasting more than 10 seconds, sending voicemails, or sending secure text messages using our Dialer communications tools; sending or receiving faxes; submitting a prompt on Ask (formerly DoxGPT), our HIPAA-compliant generative AI clinical research tool and writing assistant; conducting research on prescription drugs; reviewing AI responses for our PeerCheck feature; scheduling via our on-call scheduling tool, Amion; or using our HIPAA-compliant ambient note taking tool, Scribe, for a patient visit. Each provider is counted once per quarter, even if they use multiple tools or use them many times.
Quarterly unique active providers using our workflow tools increased approximately 34% year-over-year compared to September 30, 2025, reflecting continued provider engagement and adoption of our clinical workflow tools across the physician network, including the growing impact of AI suite usage. This metric may fluctuate on a quarterly basis due to seasonal patterns in provider activity, including weather-related variability in Dialer usage, and greater potential variability from our more nascent AI tools including Ask and Scribe. Accordingly, we evaluate changes in this metric with consideration of these seasonal trends and believe year-over-year comparisons provide a more meaningful indicator of underlying provider engagement.
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
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.
2 Providers are healthcare professionals with clinical / prescribing roles, specifically Physicians (MD/DO), Nurse practitioners (NPs), Certified registered nurse anesthetists (CRNAs), Physician assistants (PAs), Pharmacists, and Medical students.
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, legal fees associated with certain non-ordinary course legal matters including the shareholder class action litigation, 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 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 condensed 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 Quarterly Report on Form 10-Q, limiting their usefulness as comparative measures.
The following table presents a reconciliation of net income to adjusted EBITDA, adjusted EBITDA margin, and net income margin (in thousands, except percentages):
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net income | $ | 34,730 | $ | 62,059 | $ | 59,044 | $ | 115,379 | |||||||||||||||
| Adjusted to exclude the following: | |||||||||||||||||||||||
| Acquisition and other related expenses | - | 1,188 | - | 1,616 | |||||||||||||||||||
| Stock-based compensation | 40,565 | 29,474 | 77,317 | 51,339 | |||||||||||||||||||
| Depreciation and amortization | 4,353 | 3,469 | 8,640 | 6,263 | |||||||||||||||||||
| Provision for income taxes | 15,597 | 10,880 | 31,645 | 21,707 | |||||||||||||||||||
| Change in fair value of contingent earn-out consideration liability | - | 91 | 90 | 259 | |||||||||||||||||||
Legal expenses | 25 | 2,927 | 25 | 2,927 | |||||||||||||||||||
| Other income, net | (6,405) | (9,258) | (13,124) | (18,888) | |||||||||||||||||||
| Adjusted EBITDA | $ | 88,865 | $ | 100,830 | $ | 163,637 | $ | 180,602 | |||||||||||||||
| Revenue | $ | 174,537 | $ | 168,525 | $ | 331,155 | $ | 314,438 | |||||||||||||||
| Net income margin | 20 | % | 37 | % | 18 | % | 37 | % | |||||||||||||||
| Adjusted EBITDA margin | 51 | % | 60 | % | 49 | % | 57 | % | |||||||||||||||
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, purchases of intangible assets, 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):
| Six Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Net cash provided by operating activities | $ | 135,272 | $ | 156,045 | |||||||
| Purchases of property and equipment | (62) | - | |||||||||
| Internal-use software development costs | (4,275) | (4,335) | |||||||||
| Free cash flow | $ | 130,935 | $ | 151,710 | |||||||
| Other cash flow components: | |||||||||||
| Net cash provided by (used in) investing activities | $ | 28,957 | $ | (29,032) | |||||||
| Net cash used in financing activities | $ | (164,793) | $ | (167,378) | |||||||
Components of Results of Operations
Revenue
Marketing Solutions. Our customers purchase a subscription to Marketing Solutions, either directly or through marketing agencies, to share tailored content on the Doximity platform via a variety of modules for defined time periods. We generally bill customers either upon contract execution for a portion of the contract, with the remainder billed based on various time-based milestones, or on a monthly basis beginning in the month services are launched. When revenue is recognized in advance of billings, we record unbilled revenue. Unbilled revenue is recorded on the condensed consolidated balance sheets within prepaid expenses and other current assets. Subscriptions to Marketing Solutions include the following contractual arrangements:
•Integrated and other subscriptions that are not tied to a single module per month but allow customers to utilize a given module or 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.
•Subscriptions for specific modules delivered on a monthly basis to a consistent number of targeted Doximity members during the subscription period.
For these subscription-based contractual arrangements, pricing is based on the number and composition of the targeted Doximity members, and on the specific modules purchased. We recognize revenue over time as control of the service is transferred to the customer.
Hiring and Workflow Solutions. We provide Hiring Solutions 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. We offer Workflow Solutions customers access to telehealth tools, on-call scheduling, and our Clinical AI Suite, including Dialer, Scribe and Ask (formerly DoxGPT), during the subscription period. Hiring and Workflow 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 three and six months ended September 30, 2026 and 2025, the revenue from temporary and permanent medical recruiting services was not significant to our total revenue.
For a description of our revenue accounting policies, see Note 2-Summary of Significant Accounting Policies included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2026 and filed with the SEC on May 19, 2026.
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, software costs, including generative AI platform usage and inference costs, amortization of acquired intangibles, 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 workflow tools. We intend to continue to invest additional resources in our cloud infrastructure, AI initiatives, and our customer support organizations to support the growth of our business.
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, AI and related efforts, the timing of internal-use software development costs amortization, and amortization of acquired intangibles.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing, and general and administrative 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 information technology, software-related costs, including generative AI platform usage and inference costs, contractors, third-party services, and allocated overhead. Other than internal-use software development costs that qualify for capitalization, research and development costs are expensed as incurred.
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 information technology, software-related costs, contractors, third-party services, allocated overhead, intangible assets amortization, 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.
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, information technology, software-related costs, and allocated overhead.
Other Income, Net
Other income, net consists primarily of interest income earned on our cash equivalents and marketable securities.
Provision for Income Taxes
Provision for 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 and capital loss carryforwards. We calculate income taxes in interim periods by applying an estimated annual effective tax rate to income before income taxes and by calculating the tax effect of discrete items recognized during the period. Our effective income tax rate generally differs from the U.S. statutory tax rate of 21.0% primarily due to excess tax deficiencies from equity awards, which are subject to limitations for certain executive officers under IRC section 162(m), and federal and state research and development tax credits.
Results of Operations
The following tables set forth our condensed consolidated results of operations data and such data as a percentage of revenue for the periods presented.
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | $ | 174,537 | $ | 168,525 | $ | 331,155 | $ | 314,438 | |||||||||||||||
Cost of revenue(1) | 25,346 | 16,425 | 49,038 | 32,218 | |||||||||||||||||||
| Gross profit | 149,191 | 152,100 | 282,117 | 282,220 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
Research and development(1) | 41,961 | 30,202 | 80,439 | 57,001 | |||||||||||||||||||
Sales and marketing(1) | 46,892 | 39,168 | 91,941 | 75,533 | |||||||||||||||||||
General and administrative(1) | 16,416 | 19,049 | 32,172 | 31,488 | |||||||||||||||||||
| Total operating expenses | 105,269 | 88,419 | 204,552 | 164,022 | |||||||||||||||||||
| Income from operations | 43,922 | 63,681 | 77,565 | 118,198 | |||||||||||||||||||
| Other income, net | 6,405 | 9,258 | 13,124 | 18,888 | |||||||||||||||||||
| Income before income taxes | 50,327 | 72,939 | 90,689 | 137,086 | |||||||||||||||||||
| Provision for income taxes | 15,597 | 10,880 | 31,645 | 21,707 | |||||||||||||||||||
| Net income | $ | 34,730 | $ | 62,059 | $ | 59,044 | $ | 115,379 | |||||||||||||||
_______________
(1)Cost of revenue and operating expenses include stock-based compensation expense as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | $ | 3,036 | $ | 2,844 | $ | 6,228 | $ | 5,824 | |||||||||||||||
| Research and development | 16,028 | 9,862 | 31,587 | 16,511 | |||||||||||||||||||
| Sales and marketing | 12,696 | 10,508 | 25,121 | 18,218 | |||||||||||||||||||
| General and administrative | 8,805 | 6,260 | 14,381 | 10,786 | |||||||||||||||||||
| Total stock-based compensation expense | $ | 40,565 | $ | 29,474 | $ | 77,317 | $ | 51,339 | |||||||||||||||
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (percentages of revenue) | |||||||||||||||||||||||
| Revenue | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
| Cost of revenue | 15 | 10 | 15 | 10 | |||||||||||||||||||
| Gross profit | 85 | 90 | 85 | 90 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 24 | 18 | 24 | 18 | |||||||||||||||||||
| Sales and marketing | 27 | 23 | 28 | 24 | |||||||||||||||||||
| General and administrative | 9 | 11 | 10 | 10 | |||||||||||||||||||
| Total operating expenses | 60 | 52 | 62 | 52 | |||||||||||||||||||
| Income from operations | 25 | 38 | 23 | 38 | |||||||||||||||||||
| Other income, net | 4 | 5 | 4 | 6 | |||||||||||||||||||
| Income before income taxes | 29 | 43 | 27 | 44 | |||||||||||||||||||
| Provision for income taxes | 9 | 6 | 9 | 7 | |||||||||||||||||||
| Net income | 20 | % | 37 | % | 18 | % | 37 | % | |||||||||||||||
Comparison of the three and six months ended September 30, 2026 and 2025.
Revenue
| Three Months Ended September 30, | Change | Six Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 174,537 | $ | 168,525 | $ | 6,012 | 4 | % | $ | 331,155 | $ | 314,438 | $ | 16,717 | 5 | % | |||||||||||||||||||||||||||||||
Revenue for the three months ended September 30, 2026 increased $6.0 million as compared to the same period in 2025. The increase was primarily driven by a $3.1 million increase in subscription revenue, which was mainly driven by the addition of new subscription customers. Approximately 93% of our revenue for the three months ended September 30, 2026 was derived from subscription customers. The majority of the remainder of the increase was driven by an increase in our temporary staffing and permanent placement revenue.
Revenue for the six months ended September 30, 2026 increased $16.7 million as compared to the same period in 2025. The increase was primarily driven by a $11.6 million increase in subscription revenue. Of the increase in subscription revenue, $10.5 million was driven by the addition of new subscription customers3 and $1.1 million was due to the expansion of existing customers. Approximately 93% of our revenue for the six months ended September 30, 2026 was derived from subscription customers. The majority of the remainder of the increase was driven by an increase in our temporary staffing and permanent placement revenue.
Cost of revenue, gross profit and gross margin
| Three Months Ended September 30, | Change | Six Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | 25,346 | $ | 16,425 | $ | 8,921 | 54 | % | $ | 49,038 | $ | 32,218 | $ | 16,820 | 52 | % | |||||||||||||||||||||||||||||||
| Gross profit | $ | 149,191 | $ | 152,100 | $ | (2,909) | (2) | % | $ | 282,117 | $ | 282,220 | $ | (103) | - | % | |||||||||||||||||||||||||||||||
| Gross margin | 85 | % | 90 | % | 85 | % | 90 | % | |||||||||||||||||||||||||||||||||||||||
Cost of revenue for the three months ended September 30, 2026 increased $8.9 million as compared to the same period in 2025. The increase was primarily driven by a $5.5 million increase in hosting and software costs and a $1.5 million increase related to amortization of an acquired intangible and internally-developed software. Both increases were incurred to support our AI initiatives. The remaining increases were due to personnel and other costs to support revenue growth.
Cost of revenue for the six months ended September 30, 2026 increased $16.8 million as compared to the same period in 2025. The increase was primarily driven by a $10.4 million increase in hosting and software costs and a $3.0 million increase related to amortization of an acquired intangible and internally-developed software. Both increases were incurred to support our AI initiatives. The remaining increases were due to personnel and other costs to support revenue growth.
Gross margin for the three and six months ended September 30, 2026 decreased 5 percentage points as compared to the same period in 2025, primarily due to the increased cost of revenue incurred to support our AI initiatives.
3 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.
Operating Expenses
Research and development
| Three Months Ended September 30, | Change | Six Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | $ | 41,961 | $ | 30,202 | $ | 11,759 | 39 | % | $ | 80,439 | $ | 57,001 | $ | 23,438 | 41 | % | |||||||||||||||||||||||||||||||
Research and development expense for the three months ended September 30, 2026 increased $11.8 million as compared to the same period in 2025. The increase was primarily driven by a $6.2 million increase in stock-based compensation as a result of new service-based as well as performance-based awards granted to new hires and existing employees, a $3.8 million increase in personnel costs due to merit increases and increases in average headcount, and a $1.8 million increase in hosting and software costs.
Research and development expense for the six months ended September 30, 2026 increased $23.4 million as compared to the same period in 2025. The increase was primarily driven by a $15.1 million increase in stock-based compensation as a result of new service-based as well as performance-based awards granted to new hires and existing employees, a $5.4 million increase in personnel costs due to merit increases and increases in average headcount, and a $2.9 million increase in hosting and software costs.
Sales and marketing
| Three Months Ended September 30, | Change | Six Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | $ | 46,892 | $ | 39,168 | $ | 7,724 | 20 | % | $ | 91,941 | $ | 75,533 | $ | 16,408 | 22 | % | |||||||||||||||||||||||||||||||
Sales and marketing expense for the three months ended September 30, 2026 increased $7.7 million as compared to the same period in 2025, primarily driven by a $2.8 million increase in personnel costs driven by merit increases and incentive compensation, a $2.2 million increase in stock-based compensation as a result of new service-based as well as performance-based awards granted to new hires and existing employees, a $1.5 million increase in marketing activities, and a $1 million increase to deferred contract cost amortization.
Sales and marketing expense for the six months ended September 30, 2026 increased $16.4 million as compared to the same period in 2025, primarily driven by a $6.9 million increase in stock-based compensation as a result of new service-based as well as performance-based awards granted to new hires and existing employees, $5.3 million increase in personnel costs driven by merit increases and incentive compensation, a $3.3 million increase in marketing activities, and a $1.3 million increase to deferred contract cost amortization.
General and administrative
| Three Months Ended September 30, | Change | Six Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | $ | 16,416 | $ | 19,049 | $ | (2,633) | (14) | % | $ | 32,172 | $ | 31,488 | $ | 684 | 2 | % | |||||||||||||||||||||||||||||||
General and administrative expense for the three months ended September 30, 2026 decreased $2.6 million as compared to the same period in 2025, primarily driven by a $4.7 million decrease in accounting and legal expenses, which was partially offset by a $2.5 million increase in stock-based compensation as a result of new service-based, performance-based, and market-based awards granted to new hires and existing employees.
General and administrative expense for the six months ended September 30, 2026 increased $0.7 million as compared to the same period in 2025, primarily driven by a $3.6 million increase in stock-based compensation as a result of new service-based, performance-based, and market-based awards granted to new hires and existing employees. These increases were partially offset by a $2.5 million decrease in accounting and legal expenses.
Other income, net
| Three Months Ended September 30, | Change | Six Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other income, net | $ | 6,405 | $ | 9,258 | $ | (2,853) | (31) | % | $ | 13,124 | $ | 18,888 | $ | (5,764) | (31) | % | |||||||||||||||||||||||||||||||
Other income, net for the three and six months ended September 30, 2026 decreased $2.9 million and $5.8 million, respectively, as compared to the same periods in 2025, primarily driven by a decrease in interest income due to lower yields earned on our cash equivalents and marketable securities portfolio and by a lower average portfolio balance.
Provision for income taxes
| Three Months Ended September 30, | Change | Six Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | $ | 15,597 | $ | 10,880 | $ | 4,717 | 43 | % | $ | 31,645 | $ | 21,707 | $ | 9,938 | 46 | % | |||||||||||||||||||||||||||||||
Income tax expense for the three and six months ended September 30, 2026 increased $4.7 million and $9.9 million, respectively, as compared to the same periods in 2025. These increases were primarily driven by reduced tax deductions from stock award activities and lower research and development tax credits, partially offset by lower income before taxes.
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 September 30, 2026, our principal sources of liquidity were cash and cash equivalents and marketable securities of $713.2 million. Our marketable securities consist of U.S. government and agency securities, corporate notes and bonds, commercial paper, asset-backed securities, and certificates of deposit.
On May 1, 2024, the Company's board of directors authorized a program to repurchase up to $500 million of the Company's Class A common stock with no expiration date. The Company repurchased and retired 11,591,950 shares of Class A common stock under this program, which was completed in the fourth quarter of fiscal year 2026.
On February 3, 2026, the Company's board of directors authorized a program to repurchase up to $500 million of the Company's Class A common stock with no expiration date. As of September 30, 2026, the Company repurchased and retired 7,267,795 shares of Class A common stock under this program for an aggregate purchase price of $153.3 million and $346.7 million remained available and authorized for repurchase.
All 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.
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. The Company's accrued excise taxes were $1.0 million and $2.3 million as of September 30, 2026 and March 31, 2026, respectively.
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.
As of September 30, 2026, our material cash requirements include noncancelable operating lease obligations and other contractual commitments.
Contractual Commitments
The Company has contractual commitments that relate mainly to third-party cloud infrastructure, subscription and other commercial agreements, which are used to facilitate the Company's operations. Future minimum payments under the Company's contractual commitments as of September 30, 2026 are presented in the table below:
| Amount | |||||
| (in thousands) | |||||
| Fiscal Year Ending March 31, | |||||
| Remainder of 2027 | $ | 17,857 | |||
| 2028 | 13,456 | ||||
| 2029 | 11,019 | ||||
| 2030 | 7,530 | ||||
| Total contractual commitments | $ | 49,862 | |||
Refer to Note 13-Leases included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on the noncancelable operating lease obligations, which are excluded from the contractual commitments table above.
Cash Flows
| Six Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 135,272 | $ | 156,045 | |||||||
| Net cash provided by (used in) investing activities | $ | 28,957 | $ | (29,032) | |||||||
| Net cash used in financing activities | $ | (164,793) | $ | (167,378) | |||||||
Net cash provided by operating activities
Cash provided by operating activities was $135.3 million for the six months ended September 30, 2026. This consisted of net income of $59.0 million, adjusted for non-cash items of $94.0 million and a net outflow from operating assets and liabilities of $17.8 million. Non-cash items primarily consisted of stock-based compensation expense of $77.3 million, depreciation and amortization expense of $8.6 million, amortization of deferred contract costs of $8.2 million, and non-cash lease expense of $0.8 million, partially offset by the accretion of discount on marketable securities of $0.9 million. The net outflow from operating assets and liabilities was driven by a $22.0 million increase in accounts receivable due to the timing of billings and collections, a $6.2 million decrease in deferred revenue due to the timing of customer billings and program launches, a $5.2 million increase in deferred contract costs, and a $1.0 million decrease in operating lease liabilities. The outflows were partially offset by a $14.4 million decrease in prepaid expenses and other assets primarily due to prepaid taxes and a $2.3 million increase in accounts payable, accrued expenses, and other liabilities due to timing of payments.
Cash provided by operating activities was $156.0 million for the six months ended September 30, 2025. This consisted of net income of $115.4 million, adjusted for non-cash items of $60.5 million and a net outflow from operating assets and liabilities of $19.8 million. Non-cash items primarily consisted of stock-based compensation expense of $51.3 million, depreciation and amortization expense of $6.3 million, amortization of deferred contract costs of $6.8 million, and non-cash lease expense of $0.9 million, partially offset by the accretion of discount on marketable securities of $4.7 million. The net outflow from operating assets and liabilities was driven by a $14.3 million decrease in deferred revenue due to the timing of customer billings and program launches, a $4.5 million increase in deferred contract costs, a $2.3 million decrease in accounts payable, accrued expenses, and other liabilities, a $1.1 million decrease in operating lease liabilities, and a $1.0 million increase in accounts receivable due to the timing of billings and collections. The outflows were partially offset by a $3.5 million decrease in prepaid expenses and other assets primarily due to prepaid taxes.
Net cash provided by (used in) investing activities
Cash provided by investing activities was $29.0 million for the six months ended September 30, 2026, which primarily consisted of proceeds from the maturities of marketable securities of $212.5 million and the sales of marketable securities of $4.0 million, partially offset by $183.2 million of marketable securities purchases and $4.3 million for internal-use software development costs.
Cash used in investing activities was $29.0 million for the six months ended September 30, 2025, which primarily consisted of $268.2 million of marketable securities purchases, $26.5 million cash paid for acquisition, and $4.3 million for internal-use software development costs, partially offset by proceeds from the maturities of marketable securities of $270.0 million.
Net cash used in financing activities
Cash used in financing activities was $164.8 million for the six months ended September 30, 2026, which primarily consisted of common stock repurchases of $145.8 million, $16.9 million of taxes paid related to the net share settlement of equity awards, $5.0 million of payments for contingent consideration related to the AMiON acquisition, and a $2.3 million payment of excise taxes. These payments were partially offset by $4.0 million of proceeds from the exercise of stock options and common stock warrants and $1.3 million of proceeds from the issuance of common stock in connection with the employee stock purchase plan.
Cash used in financing activities was $167.4 million for the six months ended September 30, 2025, which primarily consisted of common stock repurchases of $144.2 million, $24.5 million of taxes paid related to the net share settlement of equity awards, and $5.2 million of payments for contingent consideration related to the AMiON acquisition. These payments were partially offset by $4.8 million of proceeds from the exercise of stock options and common stock warrants and $1.8 million of proceeds from the issuance of common stock in connection with the employee stock purchase plan.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q 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 condensed 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 differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
There have been no material changes to our critical accounting policies and estimates during the three and six months ended September 30, 2026 as compared to those described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026 and filed with the SEC on May 19, 2026.
Recent Accounting Pronouncements
Refer to Note 2-Summary of Significant Accounting Policies included in Part I, Item 1 of this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.