Q2 2021 DocuSign Inc Earnings Call

[music].

I.

Thank you for joining Docusign second quarter fiscal 2021 earnings conference call.

As a reminder, this call is being recorded and will be available for replay from the Investor Relations section of the website following the call.

At this time, all participants R&D listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad I'll now pass the call over to Annie Leschin head of Investor Relations. Please go ahead.

Thank you operator, good afternoon, everyone welcome to Docusign second quarter fiscal year 21 earnings conference call.

On the call with me today, we have dockets I see you feel Springer and see it sound like Sheridan.

The press release announcing our second quarter results was issued earlier today.

Sit on our Investor Relations website.

Before we get started I'd like to whatever we now that we plan to participate virtually several events in the upcoming week.

First the D.A. Davidson 19, Daniel software copper such overnight.

Did you 2020 Global Technology Conference on September 10th.

Okay, Great Technology Conference on September 14.

Jefferies Virtual software conference on September 15, it's other about come up we'll make additional analysis.

Now, let me remind everyone that some of the statement 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.

In particular, our expectations around the impact the cobot 19 pandemic on our business.

Condition and results of operations are subject to change.

Please read and consider the risk factors in our filings with the FCC together with the content this call.

Any forward looking statements are based on our assumptions and expectations, a big and except as required by law, we assume no obligation to update these statements in light of future about or new information.

During this call, we will present, GAAP and non-GAAP financial measures.

Non-GAAP financial measures exclude stock based compensation expenses.

Where payroll tax on employee stock transaction.

Amortization of acquired intangible assets amortization of debt discount and issuance costs from our note.

Acquisition related expenses yeah.

Other special items.

In addition.

Non-GAAP weighted average share counts and information regarding free cash wasn't billing.

Non-GAAP measures are not intended to be considered an isolation from or substitute for or superior to our GAAP results. We encourage you to consider all measures when analyzing our performance.

Information regarding our non-GAAP financial information and that's directly comparable GAAP measures and a quantitative reconciliation of those figures. Please refer to today's press release, which can be found on our website and investor Docusign dotcom.

I'd now like turn color to Dan Yes.

Thanks, Danny Good afternoon, everyone welcome to our second quarter earnings call for fiscal 2021.

Appreciate everyone joining us today I'd like to cover four key areas of the business with you.

The evolution of Cobot 19, and the impact we're seeing on our business.

Yes, central role that E signature and the agreement cloud continued to play in the digital transformation of our customers businesses around the world.

Our recent acquisition to accelerate the opportunity in remote online notary.

Can you additions to the board and executive team, including Mike shared in New International leadership role.

So let's start with the evolving dynamics of the pandemic.

It would be an understatement to say that were all still experiencing significant changes in the way that we work and live as a result result to cover 19.

We're seeing it with our more than 5000 employees around the world as we don't expect to return to an office environment until June of next year.

As a team we're focused on helping each other adapt to these changing circumstances and to balance the myriad demands our collective Todd.

We're seeing it with our customers too.

I spoke last quarter about how so many of them faced a sudden need to transition to remote work when the pandemic first it.

Today that need has evolved from an initial crisis response to a business necessity.

And because agreements are central to doing business the need to agree electronically on remotely has never been stronger.

Causing greater adoption of our offerings something we believe will persist beyond the crisis.

Given our experience, it's very rare to see anyone go back to paper once they've gone digital.

The upshot of all this is a docking kind of becoming an increasingly a central cloud software platform for organizations of all types and sizes.

Back then well reflected in our Q2 results.

Billings grew 61% year over year to $406 million.

Revenue grew 45% to $342 million.

We added more than 88000, new customers, bringing our total to nearly three quarters of a million worldwide.

For perspective, we acquired more new customers in the first half of this year and we did in all of last year.

Our operating margins and cash flows reached record levels, while we continue to make key investment to address heightened demand.

As is evident from these numbers the trends that emerged in the latter half of Q1 have continued throughout Q2.

We've seen a sustained rising demand for our core E signature offer not only from new customers, but also those expanding across use cases department and borders.

The interest in transforming other parts of the agreement process is going to.

And that in turn creates pipeline for the rest of the agreement cloud suite.

Now let me give you some examples of recent customer wins and expansion.

One of our largest retail customers runs a network of health care clinics within its stores when copas 19 hit the company accelerated plans to provide tele health services.

Docusign E signature to handle consent and other paper work remotely.

It is a great example of cobot accelerated demand that we see a durable.

Well the health will remain after coven 19.

But the paperless prophecies that came with it will likely end up getting implemented for in person clinic is it's too because the electronic ways more efficient and a better experience then paper and clipboard.

Another example is from a large financial institution, that's a long time docusign customer the company already use E signature widely but when Kobin 19 hit it accelerated plans for further rollouts and together, we hope to activate 11, new lines of business.

This illustrates a pattern we're seeing more established customers are now, bringing E signature to new divisions departments and regions.

This was going to happen at some point, but just happening faster now.

Finally, I have a few examples from an area of the economy I know you're all interested in public sector.

To date, we held a strong competitive position the local state and federal levels here in the United States.

This quarter, we built on that base with a healthy mix of E signature and Multiproduct agreement cloud deals, including Docusign, CLM and our identity family of products.

We helped a major city deploy a digitized workflow to handle applications for housing system.

And we enable to federal agency to capture applications and distribute relief fund to health care providers on the front line of krona virus or spot.

So in summary, it was an exceptional quarter for customer growth and expansion.

Economic headwinds did cause some to request relief, but that was more than offset by increased demand overall.

Well Docusign faces the same economic uncertainty as everyone else, we remain optimistic about our ability to deliver increasing and durable value no matter where business is conduct.

I'd like to move on now to how we're investing in innovation and new agreement cloud product offerings.

Specifically I'd like to talk about our acquisition in July of live Oak technologies, and Austin based startup that was already a close partner of ours.

For agreements that would normally require people to be together in person live oak enables the transaction to be done remotely via video conferencing.

The company's platform includes several other technologies specific to remote agreements to.

Such as video identity verification.

Collaborative form filling.

And integration with Docusign E signature.

And a detailed audit trail.

With this acquisition, we will leverage live oak technology to accelerate the launch of Docusign notary.

Solution for a remote online normalization or sign trees and the node Republic are in different places.

Docusign notary will do for notaries nation, what E signature did for signing.

It will enable a dramatically better experience for everyone involved from wherever they may be.

We believe this is a natural extension of our E signature business.

And once people use remote online normalization, we don't expect them to go back.

In fact, we announced this move the customer response was very clearly how soon can I get it.

And the answer is a documentary is slated for beta release later this year.

The initial version will be for existing customers that already have a notary capability within the organization or we call first party notary.

And we expect to enable third party notaries in the near future.

Now before I close out my remarks, I wanted to share a few enhancements to our board and executive team.

Thrilled to share the Treaster Briggs and James Beer have recently joined our board of directors.

Lisa is assuming the role of audit Committee chair and she brings a wealth of financial experience from Deloitte as well is fantastic and relevant board experience service now and Snowflake.

James has extensive financial experience a CFO added lasagne today previously at American Airlines, Mckesson and Symantec.

All of which will be invaluable as we continue to scale our business.

On the executive team, we've appointed come all hockey as Chief Technology Officer reporting its Tom Casey.

New role Kemal will oversee the development and execution of our overall technology roadmap.

Given his 20 plus year right, Microsoft and his recent experience at trade or interactive. We believe Kemal is the ideal person to build the platform the powers the agreement cloud as it continues to scale.

I'm also excited to now that I'm promoting Mike shared in to the role of President International Docusign.

And the Cynthia Gaylord current board member and Audit Committee chair will be joining as our new CFO.

As you heard me say in almost every call today, our international business is a key growth driver for us.

International growth with over 60% this quarter and its contribution to our overall business is increasing.

Since the beginning of this year, Mike has been spearheading our growth initiatives across EMEA.

Given the strong results of his efforts there we're not broadening its scope to drive growth across all into international markets.

So I couldn't be more pleased for Mike and for Docusign to be doubling down on international.

Of course, we couldn't do that if we didnt have access to a CFO likes India.

She brings more than 25 years, a finance and capital markets experience with an extensive background strategy and operations as well as a deep understanding of enterprise and consumer software.

Most recently she was the CFO of pivotal software prior to which she like corporate development at Twitter and was a managing director and the Morgan Stanley Technology.

I'm looking forward to working closely with Cynthia in an operating capacity as we continue to drive the business forward.

As Mike and I worked through the scope of his new role over the past few months. We also collaborating with Cynthia So she could hit the ground right.

She will continue to partner closely with Mike and myself or the next several months to ensure a strong and seamless transition.

So with that I'd like to welcome Cynthia the team into again congratulate Mike on his new role.

[noise] close this out by saying that the catalyst for further digital transformation remains strong and we firmly believe docusign can continue to deliver value across the entire agreement cycle.

And our strong Q2.

Combined with the momentum were seeing as we enter Q3 gives us confidence in that business.

While the pandemic continues to have an unpredictable effect on the market at large.

It will stay nimble and we'll continue to do everything we can't help our customers partners and employees adapt transform.

And move forward.

Now, let me turn over to Mike for a deeper dive on the financials and some comments on his new role Mike.

Thanks, Dan and good afternoon, everyone before I get into my comments on the corner quarter I'd like to think Dan and the board for interesting be my new role as president of International.

We have a great strength in our international operations today.

It was achieved impressive growth over the last several years I look forward to working with this great team to expand on the success.

I also want to welcome and congratulate since the dealer is our new CFO.

As Dan mentioned.

The opportunity over the last couple of years to work with Cynthia as a board member and during that time, she has become very familiar with Docusign financial operations.

Im confident that Suky will hit the ground running as she joins the team.

Turning to our Q2 results strong sales led by our you signature solutions drove 61% year over year recent billings to $406 million.

This also drove a 45% year over year increase in total revenue to $342 million in the second quarter.

Subscription revenue increased 47% year over year to $324 million.

We saw particular strength outside the U.S. as total international revenue grew over 59% year over year to $67 million.

This quarter, we added over 88000 new customers.

Those over 10000 were direct customers, an increase of 55% year over year.

This brings our total customer days to nearly 749000 worldwide.

Over 99000 direct customers.

Strong E signature expansions and upsell into our existing customer base led to a record dollar met retention rate of 120% in the quarter.

Customers with Dcbs greater than $300000 grew 41% year over year to a total of 520 customers.

Total non-GAAP gross margin for the second quarter was 78%.

This is with a year ago.

Subscription gross margin was 83%.

With 84% to your though.

Margins were impacted by our seal acquisition.

As well as by investments we made in our data center capacity, particularly for hosted services to ensure our ability to meet significantly higher transaction volumes.

Non-GAAP operating expenses totaled $233 million were 68% to total revenue in the quarter compared with 100 or and $85 million were 78% of total revenue in Q2 last year.

We generated $34 million in non-GAAP operating profit or a 10% operating margin in the quarter.

This compares with an operating loss of less than $1 billion in the second quarter last year.

Non-GAAP net income was $35 billion in the second quarter compared with $2 million in the second quarter last year.

We ended the quarter with 5008 employees, an increase of 44% over the second quarter last year.

Turning to cash flow operating cash flow in the second quarter increased nearly 350% year over year to $118 million compared with $26 million in the same quarter a year ago.

Free cash flow came in at $100 million in the quarter compared with $12 million a year ago.

Capex increased during the quarter due to leasehold improvements in Brazil, as well as the completions or of our federal data Center.

Now, let me turn to guidance.

We anticipate total revenue of $350 million to $362 million in Q3.

And 1.384.

$80 billion for fiscal 21.

Of this total we expect subscription revenue of $343 million to $347 million in Q3.

And $1.315 billion to $1.319 billion for fiscal 2001.

For billings, we expect 382 $390 million acute.

And 1.623.

As for.

Q3.

And 45, 47% for fiscal 21.

R&D in the range of 14% to 16% for Q3 and for fiscal 2001.

And finally DNA in the range of 9% to 11% for Q3 and producing 21.

We are non-GAAP interest in other we expect $1 million with expense to $1 million of income.

And for fiscal 2001, we expect $4 million to $6 million of non-GAAP interest and non operating income.

We expect the tax provision of approximately $2 million to $3 million for Q3.

And $7 million to $9 million for fiscal 21.

Finally, we expect fully diluted weighted average shares outstanding up 200 to 205 million shares for Q3 and this was 21.

Thanks for joining us today, and we will now open the call for today.

Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation tonal indicate your line is in the question Q.

You May press star to if you'd like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keith one moment. Please all we pull for questions.

Okay.

[noise]. Your first question comes from line of Sterling Auty with.

JP Morgan. Please proceed with your question.

Yes, Thanks, Hi, guys first Mike Congratulations on the promotion and running international if cynthia's there congratulations on the new role as CFO.

Just on the idea of international Mike maybe you can give us an update on the status of where the go to market the percentage of revenue coming from international and what investments are necessary to drive that business going forward.

Yes, Thanks Sterling a couple of things I would say that if you look at the scale of international today, it's over $200 million in revenue and the team is executing very well I just reported a 59% year over year, increasing revenue. So there is definitely group already being achieved if you think about that scale.

It's similar to what dark you sign was about five years ago, when I joined dock.

So as we've looked at it many of the challenges that we needed to deal with at that stage of the total company are showing themselves in our international region. So much of the work that I'm going to be doing is going to look a lot like the work that we've been working on over the last several years as we scale business.

I think what really makes this work is in my role as CFO.

I work on so many of the very same kinds of issues I developed strong relationships with the executive staff.

Quarters as well as the leaders across.

We have a lot of foundation in terms of what the the nature of the investments are going to be I think we're tracking well I think a lot of what we're seeing is at the structure of our international operations today look like what they were when we formed them.

Slide six years ago, which is direct line reporting into.

Headquarters, which is appropriate but I think what I can bring is a greater focus into that area, where I can work with the executive members as well as the the regional leaders to figure out how they work together across those reporting lines.

To figure out what are the right in region investments and structures that the can drive further.

Right and then one quick follow up in terms of the gross margin, yes, typically subscription gross margin.

Kind of where we are in scale and what we should expect trend wise from that line going forward.

Yes, so the guidance that I provided shows that they're going to review for the period of time through the end of this fiscal year stand those high Seventys to low 80 kind of range. There was one impact in Q2 that related to our acquisition of steel, which had an impact on the margin that was slightly.

As we anticipated the other impact on margins right now is that as I mentioned, we have pretty significant increases in our transaction volumes and so we're continuing to build out our infrastructure datacenter infrastructure and other to ensure that we kind of keep recitatives tracking.

This work is we're considering those greater transaction volumes. So we're absorbing those into the existing margins, but I think you're going to be stable at that level through the end of fiscal year.

Great. Thank you.

Your next question comes from line of Stan Zlotsky with Morgan Stanley. Please proceed with your question.

[laughter] [laughter].

Perfect. Thank you so much and congratulations on a very strong quarter.

From my end.

The thing that I wanted to get into is.

What are you seeing as far as the pull through of the rest of the Docusign suite with into your existing installed base of E signature customers. So things like you know your spring cm CLM product steel and then I have a quick follow up.

Yeah. So I'm, so sorry, I think what we're seeing is sort of what we talked about last quarter continue the dramatic pull from our customers and prospects for E signature with the very high.

Enablement time, very quick ROI and just the need for people to take that first step into the agreement cloud that most people to enter into early in the cloud is to be signature that's been that that's the headline story and if we look at our growth it's been more significant in the traditional aspects of our business than any other part.

And we're very clear when we go to our field, we say that you have to when you talk to customers and you talked to prospects you start off every conversation with Docie signs agreement Cloud company. Let me tell you how we're going to help you prepare sign act on and manage your agreement and if that individual says to you.

I'd like to buy semi signature to get started right now the only appropriate answer is yes, Sir yes, ma'am happy to say semi signature and that's what we're going to continue to do through this period of time, we want to really support what the customers anything but the same type as I mentioned upfront, we're seeing a lot of people, saying the concept of the agreement cloud is really something they're embracing and they're saying we'd love.

To figure out a way to broaden the relationship with Docusign, we believe that things like Docusign, CLM, which is that with the spring cm product that we've turned it into here, we'll continue to be a strong we see a lot of demand. We're building a lot of pipe for it and the customers that we're bringing in right now he was 88000 new customers many of those will be process.

Backs for CLM in the future, but we believe that the sales cycle, there will always be a little bit longer they're more complex, usually there's a services component right. So it has to be a statement of work.

Okay, great and done and a lot of times I think we're seeing a CIO and CFO is that our customers today, I say I want to do that but right now I need to get these signature pieces enable let's do that now and if you get later into the year end more settled in and settle down and their company, where I think we'll see increased demand and pull through of those other component.

Perfect that makes a lot of sense and maybe a one BLA for Mike My congratulations on on the promotion.

Lead international.

And just on the on the quarter net revenue retention, obviously very impressive 120% result, how should we think about net revenue retention moving forward versus your.

More traditional 112 to 119 range that's it for me. Thank you.

Thanks, Dan.

We obviously for the last couple of quarters of than at the higher into that range actually this quarter, we exceeded it a little bit I'm not going to updated guidance range fourth we will be up of creating that.

Guidance range, when we provide guidance for fiscal 2002, but with that said.

I think what we've seen in these recent quarters in terms of real strengthening.

Around our dollar net retention and our ability to up sell into our installed base should keep us on the higher happened that range.

Alright, perfect. Thank you so much.

Your next question comes from line of Alex Zukin with RBC. Please proceed with your question.

Hey, guys. Thanks, taking my questions congratulations all around on the quarter the promotions et cetera.

I guess, maybe just to from the first one for Dan Dan or our trends what he talked about trends on kind of a monthly basis.

Linear.

Kind of mid market at the enterprise do you feel like.

Around even engagement or are you.

Kind of momentum and now you're starting to see more of a return to normal adoption market, where is it still or trends still accelerated.

[noise]. So in terms of two things one is we have a sort of a linear already and we do a lot of our forecasting we look at how quarters build across the month and the one thing I would tell you in the last couple of quarters. We've seen some I would call positive trend, where we are having less of a bad.

Back end wait to our quarter.

I would say that you'd expect that of course to be on our web and mobile business, which has to have relatively even linearity right.

Enterprise of course, it had the biggest back waiting in the quarter, but we're seeing it across the board even with the enterprise.

More even though I think some of that is execution on our part I think we're putting a lot of focus on thinking about monthly closes versus just quarterly closes, but I would also tell you that.

I believe in the marketplace, we're just seeing demand being stronger.

And so people are coming to us through all pipe parts of the quarter just trying to get deals done. So we're probably seeing some positivity there, but that's the I don't think there's been a dramatic change and I don't think we see anything the way we're forecasting.

I got PSC, something different selfie share, but I think we're not seeing a lot of a lot of dramatic change just a slight improvement in that and it gives us more predictability as we look through the quarter.

Got it.

And then maybe for Mike.

You are looking at the billings growth. The first half is nothing short of extraordinary I don't think against that he would what kind of speech otherwise around that they've got more the second half or does it look like a pretty different type of growth trajectory. So I guess the not the the obvious question.

Is there any Colin activity you saw around large enterprise deals and kind of this quarter. The first out because I would assume that no you're now getting into your big enterprise renewal conversations in the second half in period and that you actually potentially drive even even more a large deal conversations the BNS benefit even.

More so for net expansion.

Yes, So I would say couple things out to think in Q3, our guidance has billings growth, you're you're willing to be up 40% files. So I do feel like we're off to get started Q3 and it's reflected in the guidance like we've talked about half theres lot of variables Dan alluded to it in his.

Comments that were subject to like everybody else, we're trying to.

To figure out a real time.

We feel very good about second half.

But what we can see we don't we don't guess, we always aspire for the highest level growth, we can accomplish for that thing.

Guidance is reasonably recently reasonably balanced and.

Okay.

Okay.

Perfect. Thank you guys.

Your next question comes from line of Rob Owens with Piper Sandler. Please proceed with your question.

Great. Good afternoon, everybody wanted to drill down a little bit into the the acquisitions and I guess, starting with with steel, obviously, you've announced a big improvements to contract analytics and just want to know how far down. The path. You are at this point, how much raw R&D, you're gonna have to spend moving forward and when when it's going to kind of achieved.

Our vision.

Well I think we talk about seal sarnoff, Robert I think the answer is there was only two parts to this and we're still excited about both one was there's a this third intelligent insights, which is I think core agreement analytics product that we've been partnering with Ceylon when they were a partner before the acquisition. We continue to see that's gonna be something that a lot of our customer.

They're going to want to do and we're very excited about that and then the second piece was about integrating the seal AI technology into our CLM offering. So as you saw when a the Gartner report came out on CLM. We were the only two companies that were in that upper right hand quadrant and we feel we had a fantastic entry would that kind of CLM and yet we also.

Felt internally the place where we had the biggest improvement opportunity Mr really integrate agreement analytics into that CLM product and so that is the second big piece. So on the first one intelligent insights I think were there any surprise was fairly a close the standalone, there's things we needed to do to make it docusign quality, let's let's call that.

A you know in terms of things like security and reliability, and we're still making investments on that front, but I would say, we say that product is pretty much ready for prime time, and our people are now out aggressively selling that into our base in terms of the integration with CLM. That's something that's still you know quarters away, we still have a lot of.

Engineering and R&D work as you referred to it.

To to make that the fulfill that promise, we have far CLM product, where it's going very well I think we're highly confident but we think that will be early next year before I can really put my hand in my heart and tell you that work is complete and the Docusign CLM product has a fully integrated advance agreement analytics functionality, a one that will allow.

Alex to be significantly stronger than other players in the market.

I guess quickly run the live Oak acquisition, how much is that increment your Tam and can you speak to the broader opportunity there.

Yes, yes, a tam is actually a really interesting topic within the notary space. We've taken a couple of looks at it we looked at other reports were basically saying we think this approach is about $1 billion. So if you look at this and you think about in the construct of a 25 billion dollar Tam for signature, it's not a dramatic increase but it's a really nice piece and the bigger side of it for us.

This is so many of our customers have said to us we really would love to have a notary capability and particularly for those larger customers that have what we call first party notary they already have a notary capability in their business. They really are excited to integrate this into their offering we see that lot with the financial institution.

So been pushing us so as much as anything this is like a feature enhancement that we think well have a nice yeah billion Bucks a thought about a increment to go after.

But it's not it's not like sort of a earth shattering change in our business and look at this is a really nice tuck in that our customers are asking for and this could piece for us to go after and then it opens the opportunity to go after the third party notary space. They have 10 people tend to think about that the individual notaries that are driving around for people to do real estate transaction.

And we would love to then really transform that business as well as so many customers come to us and set in the past that would be.

Great opportunity for Docusign to make their lives a little more agreeable.

Great. Thanks very much.

Your next question comes from line of Pat Walravens with JMP Securities. Please proceed with your question.

Okay.

Great. Thank you and I congratulate the Mike I Love the move from a financial rolled to the operating ROE.

Awesome. Okay. My question, you, Dan and I've asked blends as CEO. This question.

Corridor, which is.

How do you make Doc you signed the best place to work.

Hi, everybody is working from home.

If I had the answer to that one I would be a selling it in a lot of different ways that for sure, but I can tell you that.

The good news is because we had built such as such a strong culture and that's why our glass door scores are so high and we do so well on those best places to work surveys and why are you know our own surveys our employee engagement. So high it's because we've built a fantastic culture, where people really believe in our values and fundamentally they're excited to work at a place.

Puts customer success as our top priority even above our financial results.

And people get excited about the pride to after working here none of that has changed well it's harder to have those personal connections to people Ellen we don't have people coming into the office and each day that goes by a bigger percentage of Docusign or said never met personally one of their colleagues will that were about the cross over a thousand docie signers that have joined.

Since we were doing remote.

Office work, so it's going to get a tougher and tougher and I think that real answer is increased communications. We are looking at changing up the mix of communications and some of that things are harder, but I'll tell you something else. Some of the things are better I'll. Just give you. One example, pat so in the past we have a event called discovering docusign well, we would invite people when they join.

Shortly after the join to Seattle, which where the company was founded and updating that with a bunch of other new docusign or so we had different executives come in and talking about the company over a couple of days.

I didn't get to attend that very often just because like schedule and what I need I couldn't always be there in fact I started to be there less and less now that we do that as a remote event on their every time. So every new docusign employee could be a good thing or a bad thing then how you look at it that they get an opportunity to meet Dan Springer.

And we get trading created connection and quite a few of them send emails right afterwards, and we've now built a different kind of connection so its remote but we're figuring out creative ways to find different communication styles and techniques to put us into a place where I think we can continue to make this to play for people to do the work in their lives, but it's an ever and this is.

This is not one that's going to be over quickly forget to continue to be creative to do it. If we want to continue to earn that great relationship we have with our in place.

Thanks, Matt.

Your next question comes from line of Walter Pritchard with Citi. Please proceed with your question.

Hi, a couple of questions on the sales and marketing side. Your your growth in spending there is been a decelerating over the last three quarters and understanding there's theres expenses like TV and so forth that are not part of that how what are you doing to build sales capacity over the next.

Six month, and how do you think about.

Driving sales once we get into the situation, where maybe people hair on fire and covenants is.

At least work through it being more of a normalized situation as oppose to.

The situation we're in right now.

Yes, so a couple things.

I would say on on capacity.

Third we are continuing to expand are actually pretty aggressively as you saw from the the hiring statistics that.

Mentioned.

We're now over 5000 employees year over year grew 44% a substantial amount of that is in our go to market organizations not just on field capacity of course marketing capacity as well and customer success capacity.

And.

We are.

Endeavoring to stay ahead of the trends that we're seeing we're looking at the the demand data very carefully to try to forecast the trends and get ahead of that with capacity across the business in terms of what what will we anticipate bosko, but I don't I don't know that anybody has agreed to answer for that it is our view that as we were.

Work through these difficult time, so there's a greater awareness of the need to digitize the business and we believe that that's going to be steam.

Even after things return to whatever normal looks like in the future. So we do believe that we're entering into a period of a quote unquote new normal it doesn't necessarily mean that the the highs of any particular quarter going to be stay forever, but at the same time, we don't see trends that things are going to return to the way they looked in trended pre cobot. So we're designing the business were.

Designing or marketing activities in our sales activities to stay on top of that's as possible.

Okay. Thank you.

Thank you.

Your next question comes from line of.

Koji Ikeda with Oppenheimer. Please proceed with your question.

Our rushing to us, saying I need to make a quick adjustment to be able to deal with that they haven't got done by now and then I think they miss that window.

We are seeing now is people, saying Wow. This is fantastic, they're more places where I could leverage this in my business and were and we're looking at expansion as we talked about abuse cases within our base to more and more but then as I said before we think they would've gotten there eventually you just accelerated those and we're continuing to see that acceleration of those workflows.

Into docusign, because they they realize how beneficial they are their business.

From a standpoint is that more platform thinking I don't know that I would say I seen that increase and I don't know if I'd say is increase would be to do the coated the natural maturation for a lot of folks with us around the agreement cloud opportunity is as they start hearing US described to future. They say you know what I could see was a more strategic part of my sort of I T infrastructure.

Sure and my business process infrastructure, and so I think that's occurring more and more I think that's more to do with the fact that we're just getting bigger and having larger relationships with companies as we scale you look at that number of customers above $300000 is just sort of one night that keeps growing right substantially and so I think that's driving.

More than a co vid reaction.

But again, it's hard it's hard to sort of.

Separate out each of those components, but that would be my view.

Great. Thanks for taking my questions appreciate it.

Your next question comes from line of Taylor Mcguinness with Deutsche Bank. Please proceed with your question.

Yeah, Hi, thanks, so much for taking my question. Congrats again on a really strong quarter. So net retention rates have been really strong. The last couple quarters, then and I believe so far that's largely been driven by E signature related expansion. So I'm just curious what kind of level you think that retention can hit one thing like springs yammer broader agreement Cod.

It could become larger contributors or maybe anything that you can you share on what those deal expansions have looked like so far when they include those products relative to just E signature.

I feel or yeah, a couple of things one.

If you look at the scale of our E signature business.

Compared to the scale of the CLM and the data analytics or agreements or your agreement with its businesses you signature is dramatically larger so that statistic is going.

It's going to largely succeed or were not succeed based upon our success in any signature or upsells are volume expansions. Most of those things that is not to say that the agreement cloud expansions are not important they are but that is a much longer term trajectory before you'll start to see them have a meaningful movement in it in a broader census.

[music].

Like that so as we talked about those businesses and how they are growing in the comments at the end made.

I think those are all critical but in terms of a near term quarter to quarter impact on something like dollar net retention.

Signature volumes are just going to overwhelming so you won't see of so much.

Like that.

Got it I missed the telephones and then my my last question is I thought in 14 and international growth was really interesting. So just curious if there was any catalyst and the demand environment. There that drove that or if you guys made any changes on on the go to market front or if there's any just if there's anything to call. It in particular.

I think mikes involvement in international Taylor has clearly been the driver in the increased growth there and around the company we couldn't be more excited that he is off to such a good start.

From your sense about the market I think it's mostly mikes execution, but but for your sense about the market I don't think we have seen anything different we have seen different levels of success in different geographies. It was phenomenal for us to be able to say that every single geography that we have a was above plan in the quarter and if it were in a bunch of geography.

So that's pretty impressive I would tell you there some markets I was going to point to one that was particularly strong I would say last ham and our Brazil team crushed it but if I said to the area, where I saw the most improvement because we've been question. It there for a while I'd say was Europe and I think again with tongue out of my cheat I'll say I do think.

Thanks, Mike leadership in Europe has helped us perform a little better there and execute better.

And the reason for so excited for this broader expansion of his role to all of international.

But I also do you think that we saw some some positive demand characteristics across Europe as well. So those would be my observations and Mike. If you have anything different you're seeing the I would add I think a couple of things one is going.

Going back to the capacity question earlier, we have been building international capacity and as we see some of that capacity get through their ramp we're starting to see better productivity. That's contributor I think the pandemic impact as a global impact, we're seeing that and remember our international business in terms of scale isn't as large as the overall, so having a higher per.

Senator on a smaller scale is also.

Awesome. Thanks.

Your next question comes from mine of Irish Sea July area with research analysts proceed with your question.

Hi, This is Irish and jewelry I from D.A. Davidson. Thanks, so much for taking my questions.

Congrats to both Mike and Cynthia on your new rules.

Wanted to start bye bye.

Oh, I talked about the white Oak acquisition.

Maybe just from out from a technology perspective, I know you can do video through that ours are there plans to kind of integrate that with other solutions out there, especially in this environment, what somebody people using tools.

Like you.

To start so that it's very natively integrated like you've been doing what the core docusign be signature product for so long.

And I don't alongside on on a lie about I see on there kind of customer base lot of financial services in real estate so sorry.

Some of your strongest verticals, but do you see other verticals, where there's potential to expand the solution density and I've got a follow up.

Sure yes, okay. So couple of thoughts there first off I think you you hit the nail on the had that this opportunity for this collaboration leveraging things like video conferencing, it's a broad opportunity and we're going to continue to be an open system for sure and in fact, Eric Eric on the CEO of Zoom and I had a conversation about this he is super excited as are we to it.

Spanned our partnership and include there.

Platform. So obviously fantastically successful to sort of leverage that into integration with docusign for these kinds of for these kinds of programs. We believe the live oak guys have built some really nice tools and I mentioned some of those in my prepared remarks, but around really driving that collaboration. So does your example financial services, if you're doing a.

Opening of an account and say you're a large bank you know sort of like a bank of America scale customer of ours and you used to have a lot of people opening accounts in branches and now you're branches are close you need to rapidly adapt and be able to do that in a remote setting then well. We think we're really excited about once you've done that and remotes.

Getting that's a valuable even in a post covered world you can tell your customers you don't have to come into the branch to open an account used that you can if you want like but we also have this remote opportunity and the same working where they're sitting in the branch or sitting in a call center can do that activity for you. We think that's super powerful so we really want to build that out as an internal offering.

And we think notary is just one of the components of it.

But we believe that's going to continue to be a foundation for other people building on top of it as you mentioned.

In terms of other industries financial services is a big one, but we can see just having a big impact in telecom. We see is a lot of opportunity in healthcare life Sciences, where people are going to want to have we talked about tele health little bit on the call in some folks doing that we think leveraging the same technologies to improve that experience for folks is viglund. So.

We do think this will be broad based but you're absolutely right financial services strength of theirs I would argue a focus of theirs and the strength of ours is the place we're probably going to see the most initial focus on our joint efforts.

Great Thats really helpful. And then just kind of a a little bit about financial question, but we've seen contract lengths kind of ticked down a little bit which is I think can be expected in this environment.

Just mechanically how should we be thinking about the potential headwinds that might have on future cash flow. Thanks.

Hi, Yes, a couple of things I don't fit on the cash flow piece of it even on multiyear contracts, we build those annually.

So we wouldn't anticipate that it would really have an impact on trends around cash flow.

In terms of the contract length right, if it ticked down slightly to 17 months last quarter I think with 18 months.

And so what we're seeing in.

In our bookings as we do have some waiting coming in on on small to mid Thats, having some impact there were also seeing some larger enterprises everybody's navigating through the current economic situation.

Being a little more conservative in terms of the length of contracts that they are signing up to their not massive changes that those are kind of the two things that are affecting that.

Hi, wonderful thank you guys.

Your next question comes from the line of Kirk Materne with Evercore ISI. Please proceed with your question.

Hi, Thanks, and congrats on a quarter and on the new roles for Mike and Cynthia Danna what else. Good question. Obviously, you guys have signed up a tremendous amount of new customers. This year.

And when you think about those customers renewing hopefully in a year from now or maybe even sooner is there a cadence when if they didn't want to discuss or the broader agreement cloud that they start thinking about it meaning when you think about 12 months from now and you have all these new customers. You just signed up is there I'm just kind of curious historically, what you've seen.

In terms of the cadence whether it's been six 912 18 months and I guess when you go back into those accounts is it the same person or is your account manager you really need to navigate the organization to maybe sell little bit higher when you start talking about the agreement glad I'm just kind of curious about how that maybe plays out your mind over the next year or too. Thanks.

Yeah. So it's a good question and as you might imagine the first answer is it depends right. It depends a lot on the size of the customer and the vertical for sure, but I'll try to give you. Some again higher level called an average is to give us some perspective about it in general or you know customers come in and they sign up.

There's some process before adoption happens is one of the reason you've heard my talk a lot about our investments in customer success. The faster we get people to adopt they quickly get that strong ROI people get from Docusign and then they start looking for more opportunities to grow.

And so what we tend to find is on the smaller customers, they're they're there within a month adopted going quickly and something larger enterprise customers might be several months because they have like a program manager that gets involved there's a lot of process that occurs and so is that that's probably the biggest determinant of why there's variability in that time and then once people start adopting a and drive.

In the success of those first use cases, the next biggest determinant on the timing is how much. They bought so some people had that initial land that was quite small and was conservative then we for they get to the ended the year, they're coming back in their buying more if they implement that first project effectively as most do.

Some people have said you know we want to be aspiration on our first by they might be in a situation. They might also do a multiyear contract in its an enterprise player.

But they might do a three year by and they won't be talking to us for two years right. There's a lot of variable depending on how much they bought and how aspirationally. They were in those initial volumes and that's a very signature centric answer let me switch gears and talk a little but the rest of the agreement clout. So again, if you're a you know a SMB they came to us on the web we're not trying to sell you a broader agreement Cod story.

This point, we have some additional enhancements that we have to sit here in the Salesforce ecosystem. As an example, we have a prepare product for salesforce, which is great, but we're not generally coming back to those people in saying, let's talk you about CLL because it's a you know mom and pop business as you start getting to the larger customers.

If they did land with signature and particularly what's happened with told that as I talked about earlier. So many of the Lance have been signature centric, we now will be coming back to them six nine months in saying, let's talk about expansion on signature, except our land and expand model, but lets also start reminding you one of the reasons you went with Docusign was you were excited.

About that longer term vision of agreement cloud and see that starting to play so I think across that year it'll be weighted towards the end of the year, but you'll see us in that 912 months from today with the wins, we're bringing in looking for expansion opportunity for signature for all of them and signature plus agreement cloud expanse.

And for the mid market and larger customers.

It's very helpful. If I guess just one other follow up obviously incredible growth. This year here a much bigger company, you're growing cash collateral saturate does that change any of the way you think about M&A or or somebody thinks you might have had five years from now maybe pulling goes forward in terms of your either you know it sounds like Mike going International.

Like your speeding that process up is there anything I guess my balance sheet perspective that really changes just given that the kind of correct is that and frankly that the higher free cash like you're not generate.

No nothing for me that's in a significant way you know what is when we started doing acquisitions.

Two years ago, as when we announced a springs, Yemen sort of the newer docusign or at least within my time here coming up on four years, we're saying hey, guys. We're not going to become some massive acquisition machine, we want to do a smart deals that we can digest effectively we want to have a very high batting average on successful deals. We've now done our third deal.

So to be honest I would've thought we might have been a little bit of a wait before the third deal. The deal was not very large for bringing in you know the notary capability with live oak.

But I feel good about the deal sizes were doing it's true with our balance sheet, we could probably open ourselves up to much larger deals economically, but we don't really think about it economically we think about it from a customer success standpoint, what are our customers want and fulfilling our vision of the agreement class one of the thing is tricky is.

When you talk about all the companies in the broadly define agreement club there are other docie signs there are other very large players. So I don't think there's a sort of a population of big deals that we would see at this point in time is being in that agreement club vision is it possible overtime, you know will continue to grow and expand and become more you know.

Expansionary then agreement cloud and then therefore look at you know maybe more significance ideals I wouldn't rule that out but as I look into was visible I feel really good about the strategy have right now the deals were doing I think our high quality there on strategy for us and I think if we look out into the possible future deals they'll probably be more more.

In that ballpark of size because that's just the size of where companies are in the agreement cloud landscape and the like if you have any different views, but I feel good about where we are right now that Doug.

Yes.

Your next question comes from the lives of Kash Rangan with Bank of America Merrill Lynch. Please proceed with your question.

Thank you very much congratulations on a super <unk> quarter.

You ramped up your op margins, you've ramped up your free cash flows.

Sales productivity is at least from what I can tell all time high I'm curious to see if you could expand upon the thinks that helped sales productivity in the quarter, whether you measure to the lends a billing so revenue and how sustainable are these trends and find it hasn't changed your view of the long term operating model to the upside.

Let me talk a little bit about the sales productivity side and like you can talk about if you're willing to change our long term operating model on the call for Cat I'm not sure about let's see I hear a outgoing time is that CFO at least Cynthia gift.

My perspective is that I think the success we've had a in terms of sales productivity is to do really clear. It's been the secondary goal. The primary goal has been growth and we told you we want to continue to invest to achieve the apex that growth now at the scale. We've achieved as we feel we see opportunity for productivity improvement.

I'll tell you it's not our focus our focus is still on meeting this significant demand opportunity, but just with that scale. It's sort of just comes to us. So my view is that we haven't done anything dramatically different Lee there there's been a little bit of a focus that I've been pushing onto that team to say, let's think about overlays and think about complexity.

As we grow this business make sure we don't get so much complexity in the business that we lose our ability to simply execute up and so I think that focus there on on sort of simplification is probably having a a nice little positive impact and then scale is the other aspect that's driving the productivity there in terms of that impact on.

The long term all my starting point would be we kind of forecast that this was going to happen I think it's playing out pretty much consistently with the long term.

Model in the path that Mike had built but I'll give him the option to comment on that if he sees a definitely yes, no. It's just as a reminder, along from operating margin.

Shows 20% to 25%.

Over roughly four year timeframe and I think we're still tracking two to two that target with during that period of time as we've always said it be made a period, where we anticipate an opportunity for high growth, we're going to continue to invest and all those drivers.

Your next question comes from line of Michael touring with Wells Fargo. Please proceed with your question.

Hey, Thanks, and good afternoon, certainly an impressive quarter. So congrats for the team Tamara and as well maybe another one on the execution side was hoping you could maybe compare and contrast, the first after the year given the bigger surge in demand you're seeing we all saw a big shifts and having to pivot over to remote work on the fly last quarter or whatever.

Things you are able to improve internally here in Q2 as we settle into this new way a working that made the execution, even better given the acceleration you're delivering here on on some of the key metrics. Thank you.

And I get my point of view is I think we're continue to execute well I think it's harder quite frankly do and everything in a remote environment I think it taxing on our people it's harder work for us for all of US and to be you know blunt about I think mostly likely get back into a situation where we are mostly.

Able to be in the office I think though the world's changed a little bit we'll probably have in the longer run highly productive system, where some people are increasing their a little bit of time out of the office because we've we've we've shown that we can still be productive in that environment, but from an efficiency standpoint, I think we'd actually being now even more efficient if we could be back.

Back in the office and have some of those collaboration benefit from a standpoint to translate to the financial results again I don't think there's anything that's played out in these financials that I would say well accelerated efficiency because of.

Remote work I suppose the only thing I would point to a sort of an obvious is that we don't have the TNT expense.

And that has been somewhat of an improvement, but we've actually spent some of those savings on other things both funding growth as well as a supporting our employees.

In terms of things like helping them with the dockets on cares program, helping them set up and home office in a way that allow them to be productive at home.

So, but I don't have anything else about it that would seem different to me from that standpoint, I don't know if you do Mike.

It is that we are learning as we go see things for example, like attrition rates that we plan and budget for we were outperforming those were attrition is much better than what was planned it because I think people really like working for Docusign deal I think in the current environment people aren't is mobile as they would be during the norm, we're seeing things.

Like our spending related to a paid time off people are taking as much paid time off because of course are working from home and that just doesn't make much sense, there's not a lot of travel so the endpoint, there's a lot of ins and outs.

We're seeing in the model. So I think as we plan for fiscal 2002, we're obviously entering that these right now you're right. There is a lot of learning going on that's going to allow us I think too.

To hit the Mark in terms of how we should think about spending for the coming here.

Your next question comes from line of Shebly Seyrafi with FBN Securities. Please proceed with your question [noise].

Yes. Thank you very much. So this this is a quite an impressive report against a more difficult.

Comparison.

You accelerated your growth.

And in the acceleration was broad based was indirect it was in web international and so my question is.

How much of this acceleration was due to coated.

And how much was due to other factors like you've mentioned increased demand seen in Europe.

Yes, I would I would see chablis of course, we're looking as carefully as we can into the numbers to try to glean that out I am comfortable saying following.

We came into the year with the fiscal plan.

And with or without cobot, our performance is exceeding that plan across the globe.

Obviously once you put the pandemic effective work from home effect on top of that it's generating as much higher growth numbers, but but we were exceeding our plan results pre and post.

Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr., Dan Springer for closing remarks.

Thank you very much and I really appreciate you all being here today, it's been a fantastic quarter and we will look forward to seeing you are most likely seen you to video.

In the coming months until we see you next quarter and just spend one last comment like to thank Mike again for his incredible leadership over five years of Stewarding. The financial ship here I can't tell you how excited I am to look forward as we build the international business together.

Thank you all.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

[music].