Q4 2020 Earnings Call
Ladies and gentlemen, thank you Peter Wennink Docusign fourth quarter fiscal 2020 earnings Conference call. As a reminder, this conference is being recorded and will be available for replay for from the Investor Relations section of the website. Following the call at this time all participants are they listen only mode. A question answer session will follow the formal.
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I would now like turn the call over to Atlassian head of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone.
What can be Docusign fourth quarter fiscal 2000, <unk> earnings conference call.
On the call today, we have dockets I see your dad, Springer and CFO, Mike Sheridan.
The press release announcing our fourth quarter results was issued earlier today and its posted on our Investor Relations website.
Now, let me remind everyone that some of our statements on today's call are forward looking we believe our assumptions and expectations related to these forward looking statements are reasonable, but they are subject to known and unknown risks and uncertainties that may cause our actual results or performance to be materially different.
Please reading that are the risk factors in our filings with the FCC the content of this call.
Any forward looking statements are based on our assumptions and expectations to date and except as required by law, we assume no obligation to update these statements in light of future events or new information.
During this call, we will present, GAAP and non-GAAP financial measures.
GAAP financial measures exclude stock based compensation expenses amortization of acquired intangible asset amortization of debt discount and issuance costs from our nose and applicable other special item.
In addition, we provide non-GAAP weighted average share count and information regarding free cash flows and billing.
These non-GAAP measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results.
We encourage you to consider all measures when analyzing our performance.
For information regarding our non-GAAP financial information the most directly comparable GAAP measures and a quantitative reconciliation of those figures. Please refer to todays press release, which can be found on our website and investor Docusign dotcom.
I'd now like to turn the call ever to Dan Dan.
Thanks, Manny good afternoon, everyone and welcome to our fourth quarter fiscal 20 earnings call.
We have a lot to share with you today will cover our performance for the quarter well the entire fiscal year.
Talk in more detail about our recently announced intention to acquire she'll software.
Well look ahead to our focus area for fiscal <unk> 21.
Before we get to that I wanted to take a moment and acknowledge the evolving situation.
19.
These caused by the Corona virus.
Over the past few weeks our team has been meeting daily to monitor the ongoing development.
We've taken several steps to ensure the safety and well being of our employees and their families.
Well as our customers and partners.
Actions. We've taken include transforming our annual North America customer conference momentum.
Into a virtual lifestream to that held last week.
And our decision to move our global work force twin entirely remote environment has in the end of this week.
You'll continue to monitor the situation and as we learn more we'll update our plans accordingly.
Well, that's it let's move onto our business performance over our second here as a public company.
Which is 12 months ago. The we introduced the docusign agreeing to cloud our suite of applications and integrations that help organizations automate the entire agreeing that process that is preparing signing acting on in managing those agreements.
We see agreements increasingly integrated with the cloud software suite like sales service marketing.
HR and finance.
Our belief is that organizations will need an agreement cloud to act as a platform of record for agreements and agreement prophecies.
Which will be connected to the other clubs.
For example, integrating with the HR system for offer letters or CRM system for sales contracts.
As we've said we believe this represents the next big cloud opportunity.
Over the past fiscal year, we have broadened our product and service offerings to cover every stage of the agreed in the process.
And at the five new products, we shipped in fiscal 20.
Especially like to call out Docusign CLM.
[noise] launched in November last year, [laughter] builds on our acquisition of spring season.
And we just came by Gartner as leader in the 2020 magic quadrant for contract lifecycle management.
We're very proud of this recognition.
The positive impact of all this work can be seen in our financial results.
A few of which I want to share with you know.
[noise] for Q4, Docusign revenue grew 38% year over year to $275 million in billings grew by 40% year over year to $367 million.
We were again profitable on a non-GAAP basis, and we continue to generate positive cash flow.
[laughter], our total customer account climbed to approximately 589000 worldwide.
And our dollar net retention rate came in at 170%.
[noise] for the full fiscal year, our revenue grew 39% to $974 million and our billings grew 38% to $1.1 billion.
I'm incredibly proud of the entire Docusign team for this collective effort.
Of course.
We're not going to stop there.
As we continue to define and grow the agreement cloud category.
We know that contract analytics and artificial intelligence will play an increasingly important role.
This technology can rapidly search large collections of agreements by legal concept rather than just by keywords.
It can automatically XTRAC analyzed and compare contractor.
And he can even identified areas of risk and business opportunity for our customers.
So we couldn't be more excited to be acquiring the pioneer in this space seal software.
As many of you know we formed a partnership with seal about two years ago, well, we began reselling its flagship offering.
As docusign intelligent insight.
We also made a strategic 15 million dollar investment in the company in March last year.
Having seen seals technology and people at work with our customers as well as in the broader marketplace.
We wanted to bring them fully aboard into Docusign.
To give you a little more color, let me share a few customer examples.
[noise], one large international information services company reduced the time they spent on legal reviews by 75%.
And the global financial services company automated the analysis of more than 2.5 million contractual data point.
Ross it's supplier agreements.
And then aviation company was able to review more than 25000 agreements in just a few business days something that could have taken month if done in the traditional manual fashion.
Once this acquisition closes we will continue selling seals flagship contract analytics product.
Well also be able to integrate feels technology across the entire agreeing to class.
Well start with CLM, given the immediate market opportunity for pay I to enhance workflows there.
And overtime, we expect to apply sealed AI technology across a broad range of our existing and new products.
[noise] now these developments will complement and extend our other work in AI some of which we showed a at our momentum conference last week. For example, we Demoed auto tag, It's a new feature any signature.
You just a oxide automatically placed the tax for signatures date and other fields.
Normally this is something that needs to be done manually, but preparing a document for <unk>.
With auto tagging it can happen automatically and immediately and it is a huge wow factor for our users.
We also download a product under development called agreement analyzer.
It uses seals AI to analyze inbound agreements identifying areas of risk and triggering actions based on the content of its various clauses.
So we believe this whole area of AI meets agreements is incredibly exciting.
Well nascent today it represents a key greenfield opportunity for the future.
As well as a deepening of our competitive mode.
We will keep you updated once the seal acquisition closes in our second quarter.
[laughter] the last part of my comments today, I want to look to the future and how we're thinking about scaling our business.
Based on our fiscal 20 results. We're on the cost of joining an elite group a SaaS companies that have crossed the 1 billion dollar revenue threshold [laughter] a major milestones, but also just stepping stone to the exciting future lies that.
Our first billion dollars built largely on our leadership in E signature.
Next billion will continue the E signature expansion.
Also be boosted by substantially broader opportunities for the rest of the green the club.
To make that happen.
And to ensure we operate at the intersection of the worlds business and agreement proxy.
Focused on three key strategic priorities.
Well.
Continue executing on our agreement cloud vision and strategy.
Fiscal 20 customer demand has shown is working well.
[laughter] to live and breathe customer success around the world in everything that we do.
As part of that off continue to leverage our amazing partner network. Both a 350, I guess fee partners and our growing ESI partners that are building agreement cloud practices.
To drive our joint customer success.
Three.
To ensure docusign remains a top place to work. So we can attract retain the talent that can drive our scale to the next level.
To that point I wanted to share that we recently appointed Roger Leo as our new Chief Marketing Officer, and Eric Darwin, It's our head of corporate development, both will be reporting Torsiello Scott Aldrich.
Rob comes to us from Adobe, where he helped to architect the growth strategy companies self service cloud business and oversaw significant international expansion.
Eric joins us from linked in where he led the corporate development team there.
In addition, you may recall that we named Emily He is our Chief Trust and Security Officer in October of last year.
I believe is formally to see so at United Airlines, and we're already benefiting from her considerable experience.
So.
That's it for my section of today's call I'm incredibly proud of the progress we made as a company in fiscal 20.
I'm excited about the agreement clouds prospects to transform agreements and agreement processes around the world infill 21 and beyond.
With that I'd like it handed over to Mike for a deeper look at our Q4 enter fiscal year financials Mike.
Thanks, Dan and good afternoon, everyone as Dan mentioned Dark you sign had a very successful fiscal 20.
In which we saw continued strong growth in our core you signature offerings and increasing interest in upsells, among our customers for broader agreement cloud suite.
For the fourth quarter total revenue reached $275 million and subscription revenue reached $258 million, both representing a 38% increase year over year.
For the full year total revenue increased 39% to $974 million and subscription revenue increased 38% to $918 million.
International revenue continued to grow and 40% year over year to $49 million in the quarter and $171 million for the year.
Fourth quarter Billings rose, 40% your with your two $367 million.
And billings for the full year increased 38% to $1.1 billion.
We added almost 27000, new customers in the quarter, including nearly 6000 direct customers.
This represents a 33% year over year increase in our commercial and enterprise installed base and brings our fiscal 2000 total customers to approximately 589000.
Of which about 75000 or direct customers.
We had another strong quarter of Upsells into our installed base led by our North American business.
This quarter or dollar net retention was 117%.
Customers with Dcbs greater than $300000 grew 41% year over year to a total of 437 customers.
Non-GAAP gross margin for the fourth quarter was 79% compared with 78% a year ago.
For the full year gross margin was also 79% compared with 80% in fiscal 19.
Fourth quarter subscription gross margin was 84% compared with 85% a year ago.
For the full year subscription gross margin was also 84% compared with 86% in fiscal my team.
Non-GAAP operating expenses for the quarter totaled $196 million or 71% total revenue.
Compared with $149 billion or 75% of total revenue.
For the fourth quarter last year.
For the full year operating expenses were $720 million.
Or 74% of revenue.
Compared with $544 million were 78% of revenue in fiscal my team.
Non-GAAP operating profit for Q4 was $21 million or an 8% operating margin compared with $7 million were 4% operating margin last year.
For the full year operating margin was 5% up from 2% in fiscal 19.
As we continue to make progress on improving our operating leverage.
Non-GAAP net income for Q4 was $22 million compared with $10 million last year.
For the full year net income was $59 million up from $18 million in fiscal 19.
We ended the year with 3909 employees a year over year increase of 29%.
Operating cash flow increased 33% year over year to $46 million in the fourth quarter compared to $34 million in the same quarter a year ago.
[noise] free cash flow was $16 million in the quarter compared to $23 million in the prior year [noise].
This decrease relates to our capital investments to complete the build out of our Dublin office in Q4 and continued work on our dedicated federal data Center, which we expect to complete in the first half of fiscal 21.
For the full year operating cash flow increased 52% year over year to $116 million compared to $76 million a year ago, well free cash flow was $44 million compared to $46 million in fiscal 19.
[noise] turning to our guidance.
As you know, we recently announced our intent to acquire steel software.
We expect this acquisition to close in fiscal Q2.
The guidance ranges I'm about to discuss do not include contributions from seal.
Other than top line contributions, we expect to generate from our existing partnership with field.
We will update our guidance to include contributions from seal after the acquisition closes.
Seal is significantly smaller than talk you sign so the impact of including steel will not be significant to our top or bottom line.
In terms of topline guidance, we expect subscription revenue up $266 million to $270 million in Q1.
And $1.21 billion.
$1.214 billion for fiscal 21.
We expect total revenue of $280 million to $284 million in Q1.
And 1.272 billion to $1.276 billion for fiscal 2001.
I have separately guided subscription and total revenues because we anticipate different growth rates in these components of revenue.
Specifically, we believe that we will be successful and engaging system integrators to take on more of our professional services engagements in fiscal 21.
We have more projects that involve multiple products from our agreement cloud.
This positive development will reduce the year over year growth rate in our professional service and other revenue.
For the remainder of our guidance, we anticipate billings of $279 million to $289 million in Q1.
And 1.43 billion to $1.45 billion.
Fiscal 21.
We expect non-GAAP gross margin to be 70% to 80% for both Q1 and fiscal 21.
For operating expenses, we expect sales and marketing in the range of 47% to 49% of revenues in Q1 in fiscal 21.
R&D in the range of 13% to 15% of revenue for Q1 and fiscal 21.
And finally GE in a in the range of 9% to 11% of revenue for Q1 and fiscal 21.
For the first quarter, we expect $2 million to $3 million of non-GAAP interest and other non operating income.
And for fiscal 2001, we expect non-GAAP interest and other and non operating income.
$8 million to $12 million.
We expect a tax provision of approximately $1.5 billion to $2.5 billion for Q1.
And $6 million to $10 million for fiscal 21.
Finally, we expect fully diluted weighted average shares outstanding of 195 to 200 million shares for Q1 in fiscal 21.
Overall fiscal 20 was another outstanding year for Docusign.
As we continue to broaden our agreement cloud we're excited at the interest we are seeing from our customers and partners as we begin fiscal 21.
Thanks for joining us today and now we will open up the call for Q1 day.
Thank you we will now be conducting a question and answer session. If you would like to ask your question. Please press star one on your telephone keypad a confirmation total indicate your line is it. The question Q you May press star to if he would like travel if your question from the Q for participants using speaker equipment, it may be necessary to pick up.
You had said before pressing the star keys.
Our first question comes from Sterling Auty with JP Morgan. Please go ahead.
Yes, Thanks, sorry, guys Wonder maybe you can give us a little color as to what industries, maybe you're seeing increased strength as we're seeing a lot more remote.
Working remote sales engagements, maybe some areas that maybe you're seeing some weakness and especially you know what's happening in the real estate market, given what we're seeing but refinance volumes.
Yeah. So I think the answer at our strength is a lot in our traditional places financial services. In particular has continued to be strong for us.
We see telecom with good strength as well.
For your real estate question, we haven't seen anything different I know lower interest rates might start to change activity there, but at this point in time, we haven't seen anything and keep in mind. When we talk about real estate, it's often much more focused our volume on the transactions of buying and selling homes versus refi.
Dancing, so I wouldn't think.
Dramatically different interest rate environment from refinancing would change it I suppose it could spur additional new purchases.
In sales and that would have some lift but in general we haven't seen any noticeable change at this point.
Alright, Great and then one follow up on the acquisition on seal.
What portion of your existing installed base would you think are just the natural targets for up sell the solution that perhaps not already adopted.
Well I think you have to look at two pieces you have to look at what we've been dealing with agreement analyzer talking about some of the traditional seal software pieces and that's going to have a heavier focused towards our enterprise and our larger commercial customers, but as I mentioned on the call. We really think there's an opportunity to take the AI technology here.
And spread that across our entire offering.
And we would be really excited to make that available to more and more smaller customers as well and particularly this idea taking the product those.
Coding seal now, which allows people to analyze in coming agreements that I referred to.
That I think is going to be an opportunity that would be used for small businesses. Although apt enterprises. So we think it's going to be broadly based different aspects of it are going to be appropriate for different customer segments.
Thanks, guys.
Thank you. Our next question comes from Kirk Materne with Evercore. Please go ahead.
Oh, yes, thanks, very much and congrats on a really nice ended the year.
Two quick ones, Mike sorry, if I missed this in your prepared commentary, but you only thought about the guide for billings in one Q did you take anything into consideration around Kobe just in terms of deal slippage I know this is really fluid and the golf Digest and real time by just kind of curious if you.
Thought about sort of pipeline coverage of all that differently or anything like that and then Dan I know you had to do momentum virtually that's here, but I was also just kind of curious servier with your conversation maybe around it but the GE has size and how that's going and maybe if that could be a new sort of opportunity for you. This year. Thanks.
Yes, so starting with a with guide for Q1 and really for the fiscal year.
All of our guidance has been developed in the same methodologies that weve used in the past of course, we're watching very closely any developments with co bid. We do look at our pipeline, we do look it or our ability to generate.
Opportunities, we look at or close rates, we looked at all of that information and to date, we have not yet seen any material changes in our trends of course, we have more visibility in the near term than we have as the year unfolds and I think role going to be learning that together, but we're comfortable that with all the information that we've had we've.
We've incorporated it into the guidance that other to summarize.
And your question around GSI, that's sort of point to three things. The first one is think about the guidance that Mike gave he referred to the fact that we believe there's so much demand coming from the systems integrators to do these projects with is that we've actually changed our expectation on the amount of professional services growth we would have.
To you did mention momentum and while we did make it a virtual that I'll point out that we still had some of our most important customers and partners participate in it including Accenture who came in presented.
Our and our virtual cat and three last point I just take you back to what we said from the beginning at the agreement cloud builds out with more component. It just becomes a richer and richer opportunity for the systems integrators to build an agreement cloud practice. So we see all three of those things contributed to some really exciting opportunity with.
Hi.
Yes.
Our next question comes or Walter Pritchard with Citi. Please go ahead.
Hi, This is actually met wells on for Walter here.
And Dan I was just curious if you could you rank order the drivers of growth fiscal 21, maybe just between expansion on low customer growth on that.
And on top of that just your expectations for growth.
Snow versus domestic.
[noise]. So I think we think it this is pretty broad.
Based but if I thought about your question around the first piece was a separation from the base to net new from a revenue standpoint, as you know because it's a SaaS model in any given period dramatically more of the revenue is going to come from the base because we have the.
Installed base phenomena that mikes walked you all through an Pat.
But from a standpoint of the strength there if you take a look at dollar net retention rate. We're pleased to see a couple of quarters in a row, how that up at the higher end of our range 117%.
Continue to see a lot of strength with our expansion motion. The same time, we did mentioned that we started putting more focusing splitting out groups that were focused on land versus explainer expand our hunter versus farmer.
And we're quite pleased with the success, we're seeing on the dedicated Hunter.
Part of that models I don't I would say had to put one just because of the volume of course will put it to the base and the growth of the base.
And then the last thing I'd just add to that is because we are now starting to really produce more agreement cloud products on top of our incredible leadership position any signature.
I think that gives us even more.
Sort of gas in the tank to grow with our existing based customers.
Thanks, that's helpful. I just had one.
God.
As you say and I think we see strength across the board geographically.
We mentioned in the past that North America, because it's so it's the driver of our business because it's a lion share we continue to see great strength there on top of the opportunities we see in international markets.
That's helpful and I have a question related to co bid.
Noted that most of your your workforce is entirely remote I'm just curious when implementing docusign software in a customer how much of that work can be done remote or over the web versus actually I'm happy to go on site.
Yeah, I mean, so the vast majority of our implementations are done remote.
And of course, if you think about the perfect example, that it's our web and mobile customers, where they never actually have to speak not not only the they don't have to have us in person they don't need to speak to us.
To to on board.
We do find with some of our larger enterprise customers that they get more value when some of the installation is done on their premises.
But we have not had the opportunity in the past to consider doing that completely remotely and it may be in the new way of business over the next.
Next period of time here that will do more of it I can tell you. This is we've moved out to the model having all of our employees remote I've been so please tell all of our business continuity programs work and we have not missed a beat in terms of maintaining the productivity of our team. So I'm hopeful we'll be able to have that same positive impact as we work with.
Yes, if we need to do those installation projects remotely as well.
It's really helpful color that's it for me thanks.
Next question comes from Alex do get with RBC. Please go ahead.
Hey, guys cigarette. Thanks for taking my question I guess, maybe one down for you with respect to momentum how much of a pipeline generating or closing event is that for you and just I guess anecdotally what kind of a delayed do you expect to two pipeline generation, we're close sale closing.
Just given the it when the event when virtual and then just a quick follow up.
Mike You mentioned no change to the guidance methodology, but I guess given.
Current events I mean, what gives you the confidence to not change the guidance methodology at the current point.
Okay.
Kalgold I'll go first so momentum the super important event for us, but it's a toll totality of our marketing efforts at the very small piece.
One other thing Thats interesting about the event and moving to virtual we were thrilled with the results I'll just give you a couple high level metrics can be a perspective on it normally we would expect for the San Francisco event, maybe one 2000 people will be here and it would be great. When we moved to virtual we basically had five times that number of people part.
Dissipates, we had a big increase.
And we also saw that there were some higher absolute number of leads generated than last years in person of it out there is a mix difference because we had some more small businesses I can't say you know all opportunities are equal size, but we found that this is a fantastic way for us to reach our customers and as we start thinking about our plans for next year, we were actually rethinking how.
We're going to do our mix of in person versus virtual.
Yes, so there's nothing that came out of momentum this year for me thinking that was going to be a slowing or an elongation.
Of our of our business.
Yeah and in terms of the guidance.
I think our basic philosophy remains the same which is we're going to guide what we know.
Clearly the more.
Current information better visibility, we will have for example around Q1 and as I mentioned before we have done a lot of we're looking at our pricing trends. We've done a lot of work looking at our demand Gen trends.
Our close rates tracking trends, we have all of that information to inform us on the closer periods and right now were roughly halfway through Q1. So that's that's useful information as you look out into future quarters. I think again, we're in the same position as everybody else I don't have information to second guess the plan that we put the.
The other to execute against and we're putting all of our resources against that execution and his dad's as Dan said operationally, we have not really missed a beat to Dave in terms of our ability to execute and be productive if something develops that gives us more clarity about something different than that.
Future quarters, we of course will update it but to do so now with information available to US we felt would be would be premature and frankly would be more light guesswork than guidance.
Understood maybe just as a quick follow up on hiring what are you seeing right now with respect to your hiring trends as you move.
More remote in that department and is there any.
You know kind of I would say risk around just the volumes.
Reps you need to hire engineers any the higher as it moves fully remote.
Yes, we have not made any changes in our expectations or plans for hiring and I can tell you earlier. This week, we had one day, where we on boarded 31, new Docie signers remotely. So we have actually fit figured out our team has just done a fantastic job and I really appreciate you bring it up in building these capabilities into virtual.
Approaches.
And the Best example that probably should have managed it up front was mentioned upfront was what we did when we moved our momentum conference from what was going to be a multi day event into a couple of our streamed followed up by a lot of.
Online classes and our team has just mobilized team Docusign has said we are going to make these things work in a virtual environment I'm confident we're going to be able to continue to do that.
Forward and scale the business this year with our hiring.
Perfect. Thank you guys.
Next question comes of Karl Keirstead with Deutsche Bank. Please go ahead.
Thank you Mike a question on margins I think everybody on the call can agree that docusign should have.
Pretty good operating leverage over time.
But evidently that's that's really not going to kick in in fiscal 21, given your guidance for 6% operating margin. So I had to three questions on this a short ones.
First of all what are the investment priorities for dock you signed in fiscal 2001 that might be.
Weighing a little bit on those operating margins secondly is there any change to the path to get to 20 plus percent operating margins that you talked about at the time of the IPO and then third when you do close seal is there a prospect that we get a bit of it down leg in that 6%.
Hi, Thank you.
Yes, thanks, Karl So a couple of things one my guidance is a range, where I didn't actually got a percentage for operating margin I think within that range, depending upon the a the investment profile that we choose for growth during the fiscal year, we could be at the higher mid or lower end to that so I wouldn't want to.
Called out a single percentage I don't think <unk>.
The guidance ranges would would support that.
The highest level what I would tell you is that if you look at or performance, we continue to see ourselves as being in a high growth period of time, we're going to continue to invest in that we have been demonstrating including in fiscal 20 continued progress.
In leverage and I expect to continue that in fiscal 2001. The key is what is the balance.
We want to adopt and could we grow that bottom line faster, we could it would probably sub optimized some of the investments that we could make to continue to drive growth. What are those investments I would pull out seal is one of them.
When we do roll seal into our numbers I don't think as I had mentioned is going to have a dramatic impact on our top or bottom line, but it's a smaller business that is investing a lot in R&D in sold will have some impact on that but the exchange of some bottomline dilution for the opportunity of growth at that provides to its long term those are the kinds of decisions.
What we're going to continue to bake in terms of the long term operating model of a 20% 25%.
Leverage I think that we continue to track towards that again I think fiscal 20, both in terms of the growth in our cash flow and our bottom line is good evidence that we are tracking towards that and we're going to continue to endeavor to define that right balance I think were.
Pretty much on target with it but so that everybody is clear we do continue to believe right now the right priority for US is to continue to drive growth with responsible leverage.
Got it and then maybe Mike as a follow up on on operating cash flow I don't think your stocks really getting valued at least near term on cash flow, but it's still important to model correctly. So if if operating margins will be up modestly given the investment priorities you mentioned, a 100 bips or so and in fiscal 2008, you did operating cash flow.
Margins of 12% is that a reasonable starting point models fiscal 21 operating cash flow margins up a similar hundred bips to 13% is that a is that a decent starting point.
Well, we don't guide the cash flow Karl specifically, but I do think that if you look at the historical relationship of RPL margins with our operating cash flow I think thats the best proxy to usage as you build your model.
Got it okay. That's very helpful. In congrats on the terrific billings guidance.
Thanks.
Hi, Mike one open.
Next question comes the Rishi with D.A. Davidson. Please go ahead.
Hi, guys. This is actually Hana Rudolph on service you today. Thank you for taking my question.
So I know you said you haven't seen material changes and trends so far from coal bed, but could you talk about the impact to the business. Andrew adoption, you expect to see from Cobiz related travel ban something if no. One is traveling to close deals and make it more business. It on the docusign to negotiate deals and then so any color you could provide on that will be great.
Yeah, and I think a from a standpoint, a visibility to that I don't think does anything we've seen that would be at change and as Mike said, we either but the guidance that we provided we took all the latest information we could have and brought that brought that to bear and then to the second part of your question around how we think about the longer term impact.
We think that.
There's a digital transformation phenomenon, that's going to occur.
Whether episodes like this tragedy around credit biased make some companies.
Mildly accelerate that I suppose it's possible, we think the long term trend that's important and companies are realizing there's a better way to do business getting rid of the paper based processes, which are hard on themselves hard on their customers and hard on the environment. We don't think that trend is going to be dramatically moved one way or another by this pandemic.
So we have that's not leaving us at this point change our perspective on timing and I would add to your specific question around travel I think one.
Thanks, remember about our go to market.
Structure, we have everything from E commerce.
Through large enterprise and in between his commercial and our commercial motion is largely inside sales. So we do have traveled it's in the enterprise side of things many of our customers. There are working with us because they're going through the same thing of figuring out how to work together to resume and other techniques like that.
But do remember that a lot of our go to market is through inside sales revolvers as well.
Alright, great. That's super helpful and there can you talk about how we should be thinking about subscription gross margins across the course of there.
Yes, I think I put a guidance a total gross margins and I think that the subscription trend should be similar to what we've seen in prior years incurred and most recently fiscal 2000.
Okay. Thank you.
Next question comes from Pat Walravens with JMP Securities. Please go ahead.
Okay, great. Thank you.
And first of all linear let me say I applaud your guys is.
Options in terms of making the conference virtual and having won work from home keeping one thing I know you made that decision early when it was it's harder to make than it is now.
So I guess yeah. My first question is and we kind of hit this a little bit but would you expect the usage of Docusign start going up basically this week as.
Everyone starting to work remote link.
So we don't expect to have any dramatic change.
Sort of sort of in the usage.
We think the use cases that people have will be dramatically unchanged. We think there will be pleased that they have docusign is that.
That option, but at this point, we're not expecting.
Any dramatic change in usage, the only thing I would mention is remember that from a financial standpoint.
A short term change in usage, probably wouldn't also have a dramatic impact because we don't really should have an overage model people buy capacity you know as Mike has walked through everyone in the path and so if there were some fluctuations we probably wouldn't see that have a big impact on our short term financials anyway.
Okay, and so people use more than the capacity they license.
What happens next.
When they get to their next cycle I mean, if it's dramatic than we might have a chat with them about how do they have the appropriate level, but usually would just wait until they got to their renewal cycle. We would say looks like your business needs of ground Thats fantastic. We we consider it great because the high ROI. They consider at great too and then we increase when it up sell motion there.
Cassidy going forward.
Okay, Great and then.
Mike maybe this is for you, but so the federal datacenters going to meet and if I guess the next.
Three months or so why is that important.
Well I think first off I'd want to make sure that everybody knows that we are in production today.
We're we have work to do to complete it but we do it's actually in production with.
Active customers today.
It's important for the long term I think two to build out that vertical at our approach to it has been starting a couple of years ago getting the right certifications in place to qualify as to sell through the most a number of.
Federal agencies through our fed ramp efforts.
A percentage of those agencies require the private datacenter not all of them, but a percentage of them. So when I was talking before about investing in growth.
The investments that we're making today aren't necessarily targeted at just the fiscal 21, increasing our growth into longer term view of positioning ourselves.
As the strongest providers such as that market does a gain more traction we're not encountering unnecessary.
Slowdowns in our in our sales process. So both of those efforts have been designed to really.
The fed an important vertical for us over time and and yeah. It's good to be coming close to the completion of the data centers. It's also good to have them and in production.
Stage.
Right and then last one and this is hard I know, but you know all this digital transformation spending has been in a really strong economic environment do you think that level of urgency around digital transformation diminishes in a recession.
I don't because I think for most of our customers at least half of the focus is around efficiency and people see the incredibly high ROI I can't speak for all digital transformation programs of course, because I think about the ones that are docusign centric.
People are laser focused on the ROI they get from getting rid of those manual processes. The wasted labor getting would have things like the transportation costs is shipping et cetera.
That's a big focus I don't think in a recession you would see people pull back on that I would say that anytime if you had a significant recession you expect people to kind of shoot first ask questions later and that could lead to some delays.
But in general we think the dozens case, just get stronger when people need to find those efficiencies.
Okay, great. Thank you very much.
Next question is from stance blocky with Morgan Stanley. Please go ahead.
Perfect. Thank you so much guys and congratulations on very strong quarter.
Very very quick.
Questions from my end.
CLM product.
Certainly feels like you're getting a significantly more consistent performance from you see it sales teams all round CLM and it would it be correct you characterize them as one of the one of the bigger drivers.
Upsells that you're seeing benefit.
Net revenue retention rate in North America.
So let me answer that in two pieces. The first pieces to your question, Yes, I mentioned.
Super Big excitement around the Gartner classification.
Mike had mentioned last period that we were exceeding our expectations.
In in CLM in terms of our internal goals. So I think those are both strong endorsements.
Your question, but when you ask the question specifically to our overall economics I would just remind you that signature is still significantly the largest contributor to our business. So if you thought about our overall upsell to our business.
And would not actually be as big as the opportunity for signature is not going CLM not amazing and we're not killing it out there because it's just a law of large numbers issue.
So so again that would you go I only modifier, but but conceptually I think were with the 100% on everything else just don't don't lose sight of the the scale of that a signature business.
Right that makes sense and maybe just piggybacking on.
Earlier question around federal.
How are you guys thinking about the federal opportunity into fiscal 21 or should we be thinking that's more of a physical 22 type of opportunity from a from a revenue perspective and billings others. Thank you. Yeah. I think we continue to see the strength. We had we had some big wins and 20 and I think our aspiration.
And as we're gonna have more big wins in 21, I know, we've tried to be tempered in saying you have to understand and working with the federal government as a customer why they can be great customer a pace, sometimes is not what we would see in some of our other verticals. So where were you know where eyes wide open that but I think we look at.
This year's they'd be another strong year for us and as Mike said, one of our big enthusiasms around completing the federal datacenter you know the I'll floor internally call it.
Is to unlock even more opportunity with both use cases and agencies that we'll see that.
Docusign is very federal friendly as supplier.
Perfect. Thank you.
Next question comes from Boulevard, sorry, with William Blair. Please go ahead.
Hi, This is a camille milpark on for planned sorry, congratulations on a solid results. So you estimate in the past year systems of agreement Tam is around 50 billion with E signature at 25 billion can you provide details on your product roadmap and as you look out over the long term what does the timeline to expand into all four phases into.
Repairing signing acting in managing what milestones should we be looking for.
So and get a couple of thoughts on that first off when we talk about our Tam we did sort of really thoughtful analysis, a type of our IPO, which we have continued to update around the signature Tam and we feel very solid about that at 25 billion dollar opportunity. When we talk about the rest of the agreement as being the cloud we've talked about a rough does.
With that I, just want to make sure you understand the level of analysis on that core business for the clear leader and we have so much history. It's very very strong for the rest of the agreement cloud, it's less a precise of an estimate and that's why we tend to use the term of an approximate doubling and within the categories of the agreement cloud.
Just dan's question a minute ago, yes, CLM, which is heavily in the manage phase is an area that we're probably most excited about.
We have good progress already but we just see tremendous growth opportunity in the prepare phase, which has a components can relate to CLM, but also has like our gen and negotiate products.
We're off to a great start.
In those products, which we launched at Dreamforce last year.
I would tell you I think the dollar opportunity there is smaller because it is gonna be.
A business, it's focused on our smaller and now and Smbs and smaller commercial customers. So it may not have the that same portion of the of the Tam There and then we've always talked about how the act phase and how important and integrated that is with things like npis that but it's been a part of our business for years, albeit small.
Color and we see that can continuing to grow and increasingly becoming a bigger piece of the overall, we have a cloud. So just in closing I'd say, we're in all of this space is today.
Fine and manage are the ones that we said, we think have the biggest growth opportunities as a share of that going forward.
That's great color. Thank you.
And just a quick follow up.
When you first acquired spring C.M.I. It initially extending your sales cycle slightly which drove some temporary deceleration in the business how much risk is there that you would see similar impact from steel software and how will your sell your sales or go to market process change once seal softwares close thank you.
I think it's very little in very little the big difference when we bought spring we didnt have an existing commercial replace a relationship in place where we were selling their products, we've been selling seal for over a year and a half and I think that motion is now very well understood by our field force I don't expect that to be very.
Different once we close the deal and integrate them obviously in the period between now and close we have to operate the businesses independently, but once we do close as Mike said, we're talking that in our second quarter I believe it will be relatively seamless integration from that standpoint, because of our experience in already.
Selling their products.
That's helpful. Thanks again.
Once again, if he would like to ask a question. Please press star one on your telephone keypad. Our next question comes from Daddy's with Wedbush Securities. Please go ahead.
Yeah, Thanks, and yes, great quarter, obviously in a volatile environment.
Then just can you maybe just from a high level did talk you compare a year ago six months ago, just how things are changing in terms of your conversations with customers in terms of being more strategic obviously deals are getting larger and maybe you can just give some examples of that is just strategically how.
How do you have dark you signed within companies is changing which from your perspective.
Yeah, I think in the six month timeframe I don't think has been dramatic change.
I do think theres.
This recent announcement, we see a lot of very positive responses, if you've gotten from customers I was actually just in Europe, a couple of weeks ago and somewhat Ironically, just before we announced the deal I had two large customers say at least level you guys are doing jointly with seal you guys should really by them.
An upside as excited that we had to make that happen you know I certainly upon my return, but I think the macro change. That's different is just that people are saying we used to think of you is fantastic provider.
E signature.
Process, which was a fantastic driver a success and their business and how they're looking at us and saying the agreement cloud is something bigger and broader and we can impact more strategic partner companies. That's why we really believe this is the next big cloud opportunity.
So I think that's what the change has been I think it's been fairly consistent we've added the additional functionality.
Brought that vision to the market.
So I am excited about that momentum and expected to continue going forward as we execute against bringing the additional product functionality to our customers.
Got it and you just given the environment, especially maybe on strategic M&A on some smaller private companies like ours, and obviously a lot of customers you're going to drive potential acquisitions for you're right in terms just different areas of the products. We do you expect to be more aggressive on.
What I would use more tuck in M&A, you, especially as you use this opportunity to I'd just further build out the sweet.
[noise] was a couple of things that I think give us the potential to do that we're still going to try to make the right.
One off each individual business decision, but we brought in Eric Darwin as I mentioned.
We used to lead the the linked in corporate development team, we obviously wouldn't abroad in such a senior leader. If we Didnt think there was a broad opportunity for us overtime in M&A and we didn't do that until after we had the successful execution of the spring deal because we wanted to make sure that we were moving at a you know a cautious phase as we started building out a.
80 within Docusign, So Mike and I have been very clear that we're not going to acquire for the sake of acquiring we're only going acquire when we see great deals, but also drive our very clear strategy for the dockside agreeing the cloud.
But but obviously we wouldn't have made the Paul with Eric We Didnt see that second thing is we really feel we were successful in the integration of spring and having that now.
Done and under our belt I think that gives us more confidence.
Do more deals he'll obviously, if there's an excellent but I would stop short of thing I think we're going to become some sort of an acquisition machine I think where a company that wants to do really thoughtful deals have meaningful impact for our customers in building out their agreement cloud solution. So.
I wouldn't.
Expect at this point a dramatic increase in velocity at your specific tuck in point.
Yes, it's multiple pieces behind that what's happening in the macro environment I think some of the.
Noise, we've been hearing around sort of the VC community.
Not continuing to support tech companies I think thats dramatically exaggerated. So we don't think theres going to be some sort of shopping spree.
Kind of phenomenon for us or for other companies coming forward I think you see community is going to continue to do a good job of supporting the company's they've invested in and they've raised a lot of money a lot of.
Dry powder to do that so.
So I would I would think you should expect more of the same for us with maybe some slight acceleration as we continue to build our confident we can do these fantastic deals bring tremendous companies into Docusign as I said.
Really provide more and more value for our.
Customers in their agreeing the cloud solution.
Yes, Thanks again for all the insight and transparency in a tough time for investors appreciate it.
Oh, no further questions that relates to the Florida, which management for closing comments.
Yeah, well, thank you all for joining us.
Particularly in the light the macro environment, we hope you all stay healthy and safe and we look forward to seeing you. When we can next deal out to see all thank you so much.
This concludes today's conference you may disconnect your lines at this time it. Thank you for your participation.