Q3 2021 DocuSign Inc Earnings Call
Good afternoon, ladies and gentlemen, thank you for joining Docusign third quarter fiscal 2021, <unk> earnings Conference call.
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 are in a listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please price.
Stars zero on your telephone keypad.
Now I'll pass this call over time as Anne Leschin head of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to Docusign third quarter fiscal year 21 earnings conference call.
On the call with me today, we have Docusign CEO Dan Springer.
CFO Cynthia galer.
The press release announcing our third quarter results was issued earlier today and is posted on our Investor Relations website.
Before we get started I'd like everyone to note that we plan to participate virtually a few about the upcoming week.
Global T. on T. Virtual conference on December seven in.
Neither virtual growth conference on January 11, and the Goldman Sachs Technology Internet Conference on January 12.
As other events come up and make additional on out.
Now, let me remind everyone that some of our statements on today's call are forward looking.
LIBOR 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.
Reported to be materially different.
In particular, our expectations around the impact of the Cobi Nike has had the effect on our business from.
Natural condition and results of operations are subject to change.
He's read and consider the risk factors in our price to be happy with the content on this call.
Any forward looking statements are based on our assumptions and expectations today 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'll present GAAP and non-GAAP financial measures non-GAAP financial measures exclude stock based compensation expenses.
Your payroll tax on employee stock transactions amortization of acquired intangible assets.
Amortization of debt discount and issuance costs from our net.
Acquisition related expenses.
As a quick couple other special items.
In addition, we provide non-GAAP weighted average share count and information regarding free cash flow and billing Vietnam.
These non-GAAP measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results weaker.
We heard you to consider all measures when analyzing our reported.
For information regarding on non-GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of those figures. Please refer to today's earnings press release, which kinda gotta be found on our website at Investor day occupy dotcom.
I'd now like to turn the call over to down debt.
Thanks, Annie good afternoon, everyone and welcome to our third quarter on quarter earnings call.
It's hard to believe that we're almost at the end of 2020 and just how challenging the year has been for so many people many companies, including Docusign are still working remotely collaborating virtually on balancing multiple demand. However.
However, we've also seen the critical role that innovation can play at a time like this and how technology can help people adapt in the wake up depending on.
A COVID-19 has accelerated the digital transformation of key business on agreement prophecies Docusign has become an increasingly essential cloud software platform.
The last few quarters of heightened demand have offered a glimpse into the long term growth opportunity we have.
I want to share more on that with you today. So I'll focus my comments in three main areas one.
Strength on the Q3's results too.
Why we believe today's agreement cloud customers will grow with us over the long term.
Three the strength of our product development engine partner ecosystem.
So Q3 was another exceptional quarter for US we saw results significantly outperformed this quarter with billings growth of 63% year over year and revenue growth up 53% year over year, leading to record levels of profitability.
Our international business also showed substantial strength with revenue up 77% year over year now representing fully 20% on total revenue.
We landed 73000, new customers, bringing our total to nearly 822000 worldwide.
And our customers expanded their use of docusign at the highest levels we've seen today.
Building on net revenue retention rate of 122%.
These results reflect how the team has executed with excellence amid the ongoing challenges.
They also showcased the continued tailwinds for the expansion of E signature at the from.
First step in the adoption of the agreement cloud.
[noise] overall the response to COVID-19 has caused organizations to accelerate their digital transformation efforts by 234 years or more.
They've seen that remote work can be even more productive line.
Digital agreement processing are fast becoming.
Business as usual.
Let me share more on how our customers are doing that today.
One example is an international ecommerce customer.
To ensure their business prophecies could keep pace with the growth driven by the pandemic day.
They deployed Docusign CLM Arjun.
Argentina, Chile, Colombia, Mexico, UK and the U.S.
By automating contract management from more than 1500 different agreements with vendors and partners.
They are lowering risks.
Hi.
And Eric.
Another example is one of our large U.S. public school districts.
They needed to adapt quickly to help tens of thousands of employees and over 300000 students can teach and learn remotely.
Partnering with Docusign, they completed federal funding forms electronically and launched a virtual back to school program.
And they're now planning hundreds of use cases to support other future needs.
One more example is a large U.S. insurance customer.
Part of the response to COVID-19, the company expanded into several new E signature use cases.
Which drove nearly 100000 additional transactions over just the past seven months.
As I alluded to earlier the ensure believes this will become business as usual from here on it.
Just last point reinforces something that history has taught us a docusign.
When customers go from paper based processes to digital agreement processing they.
They do not go back.
We believe that trend will hold when the pandemic subside and the docusign value will persist no matter, how the future of work on fault.
We're not waiting for the future though.
As we continue to innovate across the entire agreement cloud suite.
In September we launched an important new product called Docusign analyzer.
Imagine receiving a new contract from a vendor and having risks automatically flag like a bad indemnification clock or the absence of a clause you'd normally expect analog.
Analyzer makes this possible.
Thanks to the legal AI technology, we acquired with seal software earlier this year.
It's a fantastic time saver for legal team and their business stakeholders you.
You can also integrate with Docusign CLM.
Helping to automatically route work differently, depending on analyzers output.
Sending a high risk contract to a more senior legal approval for example.
I'm pleased with how quickly we've been able to apply seals technology in this new and exciting way.
Speaking of acquisitions, we talked last quarter about litle technologies, and how that would accelerate our efforts with docusign notary.
We are on track to deliver the beta version of the product before the end of this fiscal year.
This will enable a notary transaction to occur entirely over video with a notary and participants all in different places.
It will also complement our existing capacity to support in person and video conference based notaries nation in the U.S.
And the witnessing approach commonly used in the UK and EMEA.
Our partner ecosystem with another area of strength and growth for Q3.
As a reminder, this ecosystem include I guess fees integrate docusign into their own solutions systems integrators built practices around the agreement cloud and resellers to drive sales reach for us globally.
We continue to see overall traction with our more than 350, I ask the integrations, including those announced in Q3 with slack and with workplace from Facebook.
These follow a familiar pattern for us to make docusign available where ever business gets done.
With our recent momentum we continue to see new partners join our ecosystem at a healthy clip.
There's also been increased interest from outside looking to build out agreement cloud practices.
That attached to their existing Salesforce Oracle at day, P. and work day practices, thereby embedding docusign, even deeper into critical front and back office business processing.
Lastly, our resellers, including the likes of Caris off Ingram micro and insight to name just a few are seeing heightened demand for Docusign Tim.
Hoping to drive sales through that channel.
Great proof point is that sales force as part of its revenue cloud business well now resell Docusign Gen for sales force CPQ plot.
Product that generates agreements for sales.
This creates incredible scale and reach and typically leads to customers looking to docusign from broader agreement automation and CLM initiatives.
So to wrap up my comments today. This is the third quarter in a row that we've had these significant levels of growth.
This acceleration in demand is laying the foundation for future expansion across degree in the cloud.
And while some spent substantial global social and economic challenges undoubtedly Rene.
We believe we're still just scratching the surface of our long term opportunity.
Before handing it over to Cynthia to walk you through our Q3 results in more detail I wanted to share one of the great piece of news Hain Hayes CEO of Gateway Health has joined our board of directors.
I am thrilled to have came providing strategic counsel to docusign into me spin.
Especially given his track record in financial services and health care.
Two of our largest verticals.
So that's it from me Cynthia over to you.
Great. Thanks, Dan and thank you all for joining US today as Dan mentioned, our Q3 execution with strong highlighted by our E signature offerings, which drove the vast majority are performing as customers continue to accelerate their digital initiatives.
Total revenue increased 53% year over year to $383 million, while billings increased 63% year over year to $440 million.
Subscription revenue increased 54% year over year to $367 million.
We saw strength across the business from geographies verticals and customer type new additions renewals and upsells.
International revenue reached $76 million in the third quarter were 20% of total revenue.
Our international business from over 77% year over year, reflecting our continued growth across geography.
This quarter, we nearly tripled our new and direct customer additions compared to Q3 last year with nearly 73000 total new customers.
Which approximately 14000 or direct customers.
This brings our total installed base to nearly 822000 customers worldwide, an increase of 46% over last year.
We ended the quarter with 113000 direct customer 64% increase.
We saw further expansions and upsells from our existing customer day, leading to record dollar net retention of 122% from quarter.
Customers with an annual expense greater than $300000 from 35% year over year totally 542 customers.
Total non-GAAP gross margin and subscription gross margin.
For the third quarter were 79% and 84% respectively.
This debt with a year ago.
Non-GAAP operating expenses total total $253 million, 66% of total revenue in the quarter compared with $180 million or 72% of total revenue from the third quarter of last year.
Non-GAAP operating profit was 45 $49 million were 13% operating margin in the quarter compared to $17 million worth 7% operating margin third quarter last year.
Non-GAAP net income was $46 million in the third quarter compared to $21 million from third quarter last year.
We ended the quarter with 5364 employees, an increase of 44% over the same quarter last year.
We exited the third quarter with nearly $676 million in cash.
Cash equivalents restricted cash and investments.
Operating cash flow in the third quarter with $57 million.
This compared with negative $2 million in the same quarter a year ago.
Free cash flow came in at $38 million for the quarter.
This compared with a negative $14 million a year ago.
We expect our cash flow to continue to vary quarter to quarter due to the seasonality of our billing cycle and expense.
Now on to our guidance.
On this the ongoing macro uncertainty we had seen tremendous demand for our products. This year as businesses have accelerated their digital initiatives and moved quickly to adapt to the new environment.
While we expect a digital first trends continue into the future and dry docking robust yeah on the T. Rowe price at any given quarter may not be sales indefinitely.
That being said docusign value proposition remains strong whether customers began using our product before or after it depends on it yeah. We.
Don't be customers going back to kind of.
For the fourth quarter and the fiscal year, we anticipate total revenue of $404 million to $408 million from Q4, and 1.4 to $6 billion to $1.43 billion for fiscal 2001.
On that we expect subscription revenue of $384 million to $388 million from Q4, and 1.355 to a $1.359 billion [laughter] 20 more.
For billing, we accept we expect $512 million to $522 million from Q4 and $1.7 billion to $1.71 billion.
On one.
We expect non-GAAP gross margins from 78%, 8% for both Q4 and simple 21.
For non-GAAP operating expenses, we expect sales and marketing in the range of 42% to 44% of revenue for Q4, Inc, 44% to 46%.
21.
R&D in the range of 14% to 16% for Q4, and 13% to 15% for fiscal 21.
NGL day in the range of 9% to 11% for Q4 and simple 21.
For Q4, non-GAAP interest and other we expect 1 million of expense to $1 million of income and.
For fiscal 21, we expect three to 5 million non-GAAP interest and other income.
We expect a tax provision of approximately $2 million to $3 million for Q4 and $78 million for fiscal 21.
Finally, we expect fully diluted weighted average shares outstanding.
In five to 210 million for Q4, and 200 to 205 million for fiscal 21.
In closing Q3 had a strong result, and execution across the board and we're off to a solid start in Q4 on.
On a personal note my first quarter. It yes, though has been incredible and I'd like to express my personal gratitude and excited to be working alongside Dan and the entire talking prices Inc.
I feel fortunate to have had a front row seat at the board member over the last few years every day.
GAAP be more.
Humbled by the team's dedication and focus on our customers, our differentiated product portfolio and remarkable execution extra ordinary line.
Today, I, even more energized by the tremendous long term opportunity on Friday.
Thank you again for joining us today, and now I'd like to open up the call for questions.
Operator.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation from will indicate your line is the question queue. You may price start choose from most of your questions from the queue for participants using speaker equipment. It may be necessary for you to pick up here.
Handset before pressing the star keys on moment, while we poll for questions.
Our first question comes from the line of Sterling Auty with JP Morgan You May proceed with your question.
Thanks, and welcome said the answer to your first earnings call.
Just one question from my side and it's the one that I get most from from investors at the moment and that is how much of your revenue growth is being impacted by existing customers that are either coming back to buy more envelopes or perceived pricing, where they hit that level of reasonable volume.
And then they have to really kind of coming in either.
Hi, envelopes or up so yes. So if you can maybe quantify or characterize how much of that benefit and when they do buy what are they buying so are they going to a multi year or just a bigger batch of envelopes that'd be great. Thank you.
Yes, Sterling I think though the way to think about this is that it's a little bit of all of the above first off right and I think about our model, which has a capacity model.
So it's not a like an overage model, where you see in some businesses. So people are buying capacity and oftentimes happens just as you articulated people come back and they say you know we've used up our capacity when we need to renewal renewal or sometime before they get to that point they've used up a that the volume level that they've sort of a contract with us to you and they need to sort of.
True that up early and we'll work with them to do on early renewal and I think with what we're seeing right now more than ever is up because people are putting more and more existing customers of their business processes on with docusign, they're more rapidly getting to a place where they've used up that capacity might have planned it as a three year growth and.
End of the year and a half or two they're not at that new level, so they're coming back to saying, we want to renew and up the volume of some people do buy by seats and she said most people buy buy a message capacity on we're talking about our E signature business, which of course is still the largest part of our business.
But even if someone does buy on a seat basis, we have a reasonable use per seat. So in the end I think the right way to think about the businesses is messaging volume in just the capacity if agreements are putting through the system is what drive that increase in demand, which would then leads them to up the contract with us So that's kinda.
What's happening and I and my sense about it is it's really the faster adoption that's driving this.
It's coming from people, putting more and more of their use cases on the docusign.
Got it thank you.
Our next question comes from the line of Stan Zlotsky with Morgan Stanley You May proceed with your question.
Perfect. Thank you so much wanted to dig in for a second on just the adoption of the broader agreement cloud on what.
Are you guys seeing as far as the ability to up sell the entire agreement cloud beyond just the signatures. So things like you know spring cm seal into your rapidly growing install base and then I have a quick follow up.
Let me give you sense on the Ark, we've had stand over the last year. If you recall when we finished Q4 last year. The message. We had was there was a fairly significant acceleration in particularly CLM, which was the major additional agreements on product. We had at that time and we were quite excited to see that coming into the new year and at the beginning of.
Q1, we saw that that trend continuing after cove. It sorta hit in the true halfway through our first quarter. We saw a fairly significant change we saw customers coming back to us, saying, yeah long term, we want to be agreement cloud companies, but right now we've got some critical use cases that we need to get up for signature and so we.
Oh this dramatic acceleration on the signature side of the business and some slowing of deals and some slowing of those transactions of people who are working with us on the CLM side I think we've seen the same thing throughout the year and the last quarter or so, though we started to see that coming back so things like the seal software things like CLM those on.
Now businesses that are returning to the levels, we would have expected a if it hadn't been for Covance and we think CIO is another business leaders are fundamentally on.
Had a reaction up front, which was I can only work on my critical projects remember they were just like Docusign, having to go to a work from home setting and they weren't in their offices and so on larger and more complex projects that required a systems integrator or at least some sort of statement of work those got pushed out a little bit now people are coming back and saying those are critical to our future.
And so the agreement cloud is right back where we want it to be in terms of top of mind with our customers and I'll. Just give you. A quick example, I had a call. This morning with a very large customer of ours and they said Hey, we're super excited to be now re accelerating our plans to rollout CLM Oh, while they had been dramatically increasing their signature.
For usage over the course of the year. They said now is the time, we're ready to re accelerate with CLM I think that's what we're going to see throughout the next few quarters.
Perfect that makes a lot of sense and maybe on a quick follow up on international.
77% growth very nice acceleration in that segment of the business and Mike now are going to watch it should be at the helm of it what are you guys seeing as far as far as the dynamics and international in the rest of the world versus on the U.S.
Well I think there's a couple of thoughts I have and then thinking China with your perspective on what you are seeing the first piece is remember it's a much smaller number. So if we expect international to grow faster coming off a small base, but we also expect it to go faster because we have more levers there relative to the U.S. business in that we have additional countries that we are now.
Got in and we have countries that we're very early in that we see an opportunity to really accelerate that's I think what you saw on this last this quarter is that a lot of the execution efforts, we've been putting in place over the last several quarters have really come.
Come out very nicely in this quarter and popping up to 20%, what's it's really important milestone for us. So I still see that happen I think you're going to see more of the same you're going to see us I'm doing more in our non focus eight countries, which are the newer ones that will be entering primarily using digital as an opportunity to get there in a really efficient way.
Okay, and then in the existing core eight I think if you see an opportunity for us a.
Two debt you asked and the other seven or.
To really leverage the investments we've made in people and processes investing ahead of that big opportunity for both countries that are you know substantial what was already like you might see in a place like the UK Canada.
Canada or earlier, like Germany, and Japan, we see opportunities for both of those so I think you're going to see a really exciting opportunity to continue growth there.
Perfect. Thank you so much.
Our next question comes from the line of Buck.
The bond sorry, with William Blair You May proceed with your question.
Thank you. Thanks for taking my question on Cynthia good to chat and work with you again.
Pleasure.
I I guess, let me touch on something that maybe Stan and Sterling touched on it in a different fashion I think you made it pretty clear on and we all got it no one's going back dependent paper, but the growth and the person that she has been phenomenal and.
And I guess do you feel like demand was pulled forward and how should we think I know you don't give guidance, but how should we think about next year.
Yes, if we did see this acceleration pull forward verticals that may have been slower to adopt accelerating that how how do you sort of handicap on thinking about that and then I've got a longer term question.
Yeah, Michael did have Cynthia chat, a little bit about sort of the timing, particularly in Q3, and how we saw that play out versus Q4 and going forward and before that let me just give you sort of a high level perspective on the.
The way I would think about it is Tam base. So I would start off and say just spoke about signature for a second when we talk about the sort of $25 billion Tam.
On the same number we've been using since the IPO and we continue to see that as a really good metric for seeing the opportunity. So as fast as we are penetrating against that Tam I think it's growing as fast. So we're still in very early inning and then when we're opening up the rest of the agreement cloud Tam, which is in the order of magnitude of almost doubling that.
And we think to ourselves you know, we're actually not even keeping up with the Tam opportunity, which is a high class problem to have and so my view on it is that we've seen is not so much a pulling forward of demand.
Therefore, now won't happen in the future, but that we're looking at the the long game on all of that market opportunity to penetrate we're just executing at a higher rate today and so we've accelerated that growth not because we're sort of robbing from the future, but we're just getting closer towards that $25 billion Tam opportunity and with our.
Revenue you know being a you know under a couple of billion and that's having such a dramatic market share leader being such a big portion on the total market. It gives you a sense I think we can continue to grow at very attractive rates well into the future.
Yeah, and I would just I would just add to that I mean, Q3 was really strong and we saw broad based demand across the customer base, whether it was a new customers or in the expansions in upsells and so as you know as Dan said when you think about that hand ended on market penetration were really just scratching the surface and the kind of new customer growth that we're seeing really creates this.
On Daishin for kind of future expansions in upsells kind of across the platform on which we're pretty excited about that being said I do want to point out Q3 was exceptionally strong and we did see early renewals and expansions and timing of deals that made some of the metrics in Q3, particularly strong on a relative basis year on year.
And so just on how they consider kind of as you look to the future.
Got you got you know that's really helpful. I guess, maybe stepping back a little bit you know you touched on the yen Daniel and I've talked about as you know over the years, just about sort of the broader opportunity you explain sort of see on sort of some of the the ability to read contract.
Think about the amount of data you have do you think that gets to a point, where you start doing sort of even deeper contract analysis. The point of you know Hey, you got a contract for ex number seats, you may not realize it but you actually exceeded it or you haven't met its you know actually drilling into some of the numerical data on the contract and then sort of Ida flagging. Its you know and that's just one example.
But love turns on how deep you think the I ultimately gets on the use cases, because that obviously ends up being a whole analytics tab on a contract on but we're on including today.
Yeah, It's a great way to think about it I think the way we have traditionally thought about the first phase of day I was things like the analyzer product I described earlier, which said this now give a legal and business teams the ability to very quickly and efficiently understand where there are sort of an outlier clauses or things they should pay particular attention to but I actually think the more exciting part about AI.
Is where you're going with your question just once we have through a CLM that's enhanced with our AI capabilities now companies have the ability to really learn about their business and make intelligent insights about their business based on that body of contracts that they have one of my favorite examples we see certain institutions sang.
I want to understand my risk better by understanding whether or not I have a whole bunch of contracts that are relevant to a particular.
Sort of.
Cost of something as an example, we see this with.
Companies in the chemicals industry is that say oil prices are hugely important to my business across a variety of contracts have had a way to look across all of them and be thoughtful about what the puts and takes on that so I can understand the risk an implication to my business by moving that commodity price. So that's where I think the really exciting. Please comes on I think your.
Right I don't think weve sort of looked at that in our existing Tam because I don't think anyone has really built that market to help people do that analysis across all their agreements.
And so I think it is a part of our exciting future.
Great No. That's helpful. Thanks, guys congrats.
Our next question comes from the line of Alex Alex Zukin with RBC. You May proceed with your question.
Hey, thanks.
Ill Echo my congratulations on Dan for you as well I've got to kind of two big picture questions.
Yeah, if you think about I mean going back to Scott Sterling's question around on.
And he can give on you know the biggest.
The biggest question people have is around the durability of growth and you've done a great job I think talking about some of the longer duration tailwinds to your business. How should we think you know around the puts and takes of certain verticals that may have surprisingly strong capacity increases this year that maybe are difficult comps for next year or.
The opposite verticals that are come back that you expect it's actually sustain sort of that capacity growth or is it as simple as you know we're starting to see all the time on passing from from signature to see a lab that you see sustaining growth next year and I've got a quick follow up.
Yeah, and I think it's a it's a really interesting question when we look at it from a vertical standpoint first as we mentioned before some of our strongest verticals and that would include financial services, both banking and insurance that we could include healthcare life Sciences increasingly government is on you know we've had a lot of enthusiasm about this year as well they've actually performed incredibly.
Well in this time period for us some of the verticals that weren't as big for US that you would expect to have been hurt of course, where we saw that with some small businesses. We definitely saw it would travel hospitality, where people had to sort of put on hold or virtually everything as they really need to retrench.
So when you think about it going forward I don't expect there to be a significant rotation out of our strong industry and the verticals that again, when we talk about financial services, we talk about health care life Sciences, I think they're going to be very strong for us next year as well.
From its strength, we saw this year I think we expect to continue into the year as well whether there will be some bounce back a you know with some of the things like travel and hospitality that were hurt a mix from energy businesses as well I think the answer is probably but I don't know what that cycle time is I don't know whether you know on the first quarter second quarter or maybe its a.
Couple of quarters post vaccine I'm not sure how that plays out exactly but I don't think that will be a significant a driver as the second piece you talked about and sort of Cynthia just alluded to this on her comment, but you talk about we've been adding such a significant number of new customers on the direct side of our business 14000, a this quarter. It was 10000 in each of Q.
One in Q2, those are primarily people coming in with the signature only because they needed to get those use cases up and running to that a really important.
Priority for their business in this really challenging time on those.
Those are companies that we are going to aggressively working on a year from now to come back and say we want to talk to you in your renewal discussions around what additional use cases, we have for signature, but also let's take a little more about the Docusign agreement cloud and how that's going to transform your business in a way you might not even a thought about when you became a signature customer. So that's the place right now.
We will see a bigger opportunity to really maintain the substantial growth debt Cynthia.
Cynthia described.
Perfect and then on an even bigger picture question from Mike. If you think about other platforms software platforms and taken offerings pandemic leg resume as an example of one of the things. We're most excited about there is this notion of becoming a central powering a marketplace and I look at your business, where you have.
A lot of network effects is there a weighted also create or we'll see the marketplace for services, where you know you start powering and and even to some extent monetizing and adding value to both sides.
Of the transaction.
No. It's a super Super interesting as you said Big picture question. So when everyone gets newly introduced to Docusign I'll put myself in that category four years ago. One of the exciting things is thinking about all the possible places you can take this business and some because of the power of the data that was referred to earlier, but also the network effect that you are.
Sort of describing in what could be a marketplace environment. So let me be really clear. We're a software company, we sell software to companies that use it to run their business if their customers their customers data. We don't really think about that as information that's ours to sort of play with so that said, we do believe there are probably interest.
On opportunities, where our customers over time could get comfortable with us that hey, we want to monetize some on what's happened here in a different way, but I don't want to give you the sense that that's like a like a priority for US today, we look at the core business, we have and we look again at a very large Tam we need to execute for the next several years to achieve our goals of getting.
On to 5 billion on revenue and then after that we're going to be talking about 10 billion in revenue that's all going to be very achievable on based on our current business model. So it's not that you know we're not interesting people here with interesting ideas about the expansion opportunities you're describing I just want to be clear that's not part of the core business today, we are software company.
We serve our customers when they buy software from us that will be I believe the primary thing we do for the years to come.
Awesome, great to hear Daniel will hold you to that $10 billion target. Thanks forgot anything on any day now.
[laughter].
Our next question comes from the line of Karl Keirstead with you, but yes. You May proceed with your question Oh. Thank you maybe one for Dan One first Cynthia Dan if I could go back to the question of the up sell of the broader agreement cloud or CLM sweep you gave some good color, but I'm wondering if you could quantify it a little bit.
For instance is there any way that you could quantify what portion of new HCV might be from this versus E signature or the portion of your largest 100 customers that you've successfully upsold the broader agreement cloud into anything that might to more specifically, let us know how far along.
On that journey, you are as as exciting as it is.
Yeah, Yeah, it's still pretty early on that journey, we're in a position right now where if you look at our financials, it's going to be a while before I believe the non signature part of our business will be meaningful enough to sort of warrant that kind of breakout and on when we've done acquisitions like what we did with spring.
On the CLM side on what we do we feel we sort of shared what kind of the revenue was in those businesses and if you recall, they're very very small relative to a business. That's a you know passed $1 billion last year and before long, we'll be hitting $2 billion. So those are just really really small at this point in time, Inc. The challenges initially.
I thought it would be sooner when we'd be having that conversation, but the reality is if this re acceleration of signature. That's occurred this year I think we start off would be really clear, we sort of every conversation with a customer today, saying, we want to talk about the docs on agreement. That's every new customer as well as each customer we come into talk about renewal, but.
Also this year more than ever when we finished that sort of explanation on articulation of the power of that agreement cloud vision. Most of them. This year have said, that's fantastic and I look forward to doing that but I need some signature today as I tell our sales people. There's only one answer to that question, which is yes, ma'am, we yes, Sir we've got signature for you today.
So I think you're going to see that that is going to be a the reality of of the next I would say several quarters. We're still seeing this demand has just so strong on signature and it's almost hard for the the the folks that are on CLM focused or steel focus.
To to get attention to keep up with that rate. So on Cindy you can give a perspective on your thoughts on when we.
Be in a position to talk about that further but I. Just don't think we can really quantify it yet because its still so small.
Got it Okay and maybe this next question is to Cynthia on something that you're probably going to Dodge it I understand but.
One of the issues with Docusign shares is that you're you're about to face some very tough comps starting in Q.
Q1 next year. So I'm sure you don't want to give guide on this call but is there any any framework you can provide should we think about sort of a return to pre cove. It you know sequential growth rates as a starting point to model next year is there any framework you could provide before maybe giving more formalized guidance I presume on the next call.
Yeah, that's right and thank you for the question, but we'll we'll be giving guidance or on.
Next year on on our Q4 call I think what you've observed though is we will have tough compares on going into next year and even even in Q4, our Q4 last year was very strong.
You know in any with a significant quarter on.
On its on its own site I would expect going into next year, we'll be looking at kind of the the guidance and we'll be looking across the metric and as you know we guide to what we see and so we'll have that conversation next quarter. When we chat with you all yeah I get it. Thank you both.
Our net.
Comes from the line on Scott Berg with Needham and company you May proceed with your question.
Oh this is Alex on for Scott. Thanks for taking my question as you look back over the last two quarters to either the composition of the initial purchase or the channel that the customers are coming to change meaningfully on a deal has been coming in similarly to what preprint then accompany the trends were and or was there just a larger quantity of them but from that.
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Yes, well I can tell you, but other than the deals that we have coming in have had a higher focus on signature in the last few quarters as I mentioned before we saw that that was growing for the rest of the agreement cloud are going up through Q4 of last year and into the beginning of Q on this year and then signal.
Sure.
As just spending on close it.
For all the good reasons, we've we've already talked about and so I would say there's been an increase in that mix.
In that direction, but.
But I would say the rest of the game, if that's sort of been holding its own. It just hasn't been growing its share the way it had been growing substantially again off a very very small base, but.
But from a growing its its position there and then from the standpoint of the channels.
Moving to investing a lot in the digital channel.
This is the direct sales channel its.
It's still about 15% of our revenue persist in almost 90% of our customers.
I think that we've seen real strength, there and I think we're going to continue to see strength and we're going to you're going to see us talking in the future about the investments we want to make to move even more and more of our customers new acquisitions to come through the digital business, which we think is going to be a super cost effective way for us to scale our growth.
Yeah, and the one thing I would just add to that is if you do look at the customer growth average, whether it's the total or on the direct versus digital you can really see the strength kind of across the board and down on customer base. So.
Really it kind of broad based demand that we're seeing across customers and company.
Great. Thank you and then just one more from me given sales force acquisition. This week that seems to have a broader implication to valuation SAS based on how are you thinking about M&A valuations on given you're willing appetite for M&A in the past.
Yeah, I mean, I think we've been very specific about what we've tried to do with our M&A strategy, which is to say we're not looking.
From a strategy standpoint for sort of blockbuster deals in terms of lets go by lots of revenue per se, we've been trying to stick to our strategy that we think our customers want us to drive was the Docusign agreement cloud. So when we do acquisitions and if you think about the three deals we've done.
Well bill since I've been here.
You will see they all have very similar characteristics, which is someone has a product probably not super mature business, but a product that we look at and say we need to have that functionality in our agreement cloud suite and we could build it on our own but we think that they have some domain expertise, we think they built a little bit of a business there. Thanks.
I've got a market fit that we're getting on product market fit that we're comfortable with and we think it will accelerate our ability to build out those products and services for our customers I think we'll probably be looking at doing the same thing. So in terms of the valuation question I'm certain that the issue we already have today when we acquire a company that they look at us and they go we love you to buy it at the time.
On multiple to Docusign has I don't think that's going to change that all start with that position and and politely I'll, probably remind them that we've achieved some things on our businesses. They probably haven't yet in terms of scale growth and profitability and therefore, we might not.
I have not yet come close to giving some on the same multiple that we have on but I don't think other deals.
Like slack, there will fundamentally change the perspective of valuation.
And just my view on it is you know they paid a slight premium to the peak.
A multiple that.
On slide CAD.
And.
You know that to me is sort of more of a more of the same as opposed to sort of an earth shattering or multiple but I think it is obviously clear that from for entrepreneurs out there with SaaS businesses.
It probably makes on smile.
Thank you. Thank you.
Our next question comes from the line of Patrick Walravens with JMP Group you May proceed with your question.
Oh, great. Thank you and congratulations so Dan what is the what's the top priority today for your development organization like where are you concentrate your R&D dollars. What do you want the solution to do in the future that it can't do today.
So I put it in three buckets and I'll do them in priority order for you Oh since you're asking about top but it's kind of hard not to think about them. All three Pat from me. The first one is this sort of integration of the AI capability that we had a we purchased with seal a and analyze.
There is a first example, that's fantastic, but theres a ton more when we take that AI capability, we bring it into our overall product suite.
We had a huge focus on integrating that team and integrating that technology. We think it's going to be as we talked about on earlier questions hugely important part of building. This significant opportunity that we have second pieces notary I think we look at this node or in a lot of people think of it as a a smaller thing we think it can actually be really significant there's third party notary that's going.
First party notary that we're attacking first but we think that opportunity. There is a very specific thing that we're aggressively going after and we think about that as being part of our siding business as opposed to really a separate component.
But clearly its an additional growth opportunity for us on the science side and then the third piece for me is it really is about this macro opportunity of the agreement cloud and making sure. We're stitching together all of the pieces that you know one thing when we buy these other companies sometimes theyre small they don't have our center on kind of uptime capability. They don't have.
As the quality of service that we have and they're not integrated completely usually partners that we sort of joint sold before we have a pie, but we haven't really fully integrated them into one platform. So I think getting that platform the place where we want it to be would be the third of those important development priority.
That's helpful. All right great. Thank you.
Yeah.
Our next question comes from the line of Walter.
With Citi You May proceed with your question.
Hi, Thank you first question for Cynthia just on NR are I mean, I think we've seen a lot of times when companies add a lot of customers like this the number start getting bigger the DNR comes down on you've actually seen it go the opposite direction I'm. Just wondering if you can help us understand sort of the puts and takes over the next couple of quarters on on NR ours, we're looking at that number trends.
Yeah.
Yeah, So I think.
As I said I think we hit a record net retention number this quarter at a 122.
On the second time, we've been out 120 or or greater and I think that was really driven.
Hi day expansions in our sales that we talk cross the board as Dan said led mainly by E signature, but also kind of building the dock I play opportunity on so I would say our churn has largely been stable on in regards to that that the expansions are really driven by the sales.
Sales that we saw on Q3.
Yeah, I think to your question about the implication going forward.
I think the first application is just what you said is that our customers are saying they want to do more docusign and they want to use us in different ways on I think we continue to see that both within the signature business and as simple was describing but also customer saying they want to expand into the rest of the agreement club, which also gives us another way to turbocharge that number at the same time I think as we go forward or not.
At this point changing our historic range that we've talked about since the time of the IPO of saying that's going to be kind of in that you know a team to 100 1200 13 on the low end and if you get up to 119 or so on the high end, but let us get through this year get through Q4 and see if we then maybe want to reassess that because there are some.
Puts and takes there are some adjustments, we do think about the potential for churn when or how does on the floor of the Pandemics got Alaska and there's a lot of enthusiasm about a vaccine, but I don't think that's going to err on.
The next quarter or two I have a significant impact on the economy and we do worry about small businesses. So I think we just want to just give us another quarter on I think we would take a hard look at that and assess whether the success, we've had with lead us to increasing our expectation for that range going forward and I agree with you it's somewhat unusual to see an accelerating rate there.
But I think were somewhat unusual as the company again that we have such a strong market leadership position and such a large tam, but I think it is conceivable that we could continue to see that kind of acceleration.
Got it and then actually another question on few Cynthia on Opex I mean, I think we've seen a lot of companies have in this environment actually see the opex growth significantly tempered by co bid last teeny and so forth. Your opex is actually grown in line with what it grew last year and I'm just wondering on.
Where are you sort of.
The GAAP to accelerate the Opex I assume you saw the same.
On the TV and so forth and then how are you just thinking about opex moving forward and return on on the investment that you're making.
Yeah, It's a great. It's a great question you know I think what we're trying to invest on for top line growth right and sometimes when you had outperformance on the top line, it's hard to on it.
Hard to reinvest that from quarter.
At the same rate, we thought the points of margin improvement year on year on year. The areas that we're really kind of leaning heavily on into on.
You know to to grow the top line is around on sales and marketing on particularly capacity customer success, and then product innovation and all the areas that Dan talked about on one of the earlier questions. But you know, we'll make will make dollar trade off to grow top line on you know before we improved margin.
On that I think the outperformance that we're seeing is driving it and you know to pretty impressive levels year on year.
Great. Thank you.
Our next question comes from the line of Taylor Mcginnis with Deutsche Bank. You May proceed with your question.
Yeah, Hi, congrats on the quarter and thanks for taking my question. So you've had a record number of enterprise and commercial customer adds the last three quarters. So just as we look on heading into next year on the on can you maybe talk about any expectations you have for how you expect those customers to ramp up over time I'm curious if you've seen any changes in trends.
Or trends on the size of lands today, and how those customers expect to expand usage and maybe similar to one of the previous questions. What does that say about the durability of the net retention levels, we've seen recently.
[noise] Yeah interesting you know there has not been a lot of variation on that front. So the sizes of land on.
The pricing of the deals that we've been doing they've been amazingly consistent even though the volume as you point out.
Has been more substantial on there.
There has been a small amount of mix shift.
Talk about the direct business.
Being very strong for us but.
But we've also seen those web upgrades that we talked about where we call that positive churn right where someone comes to us on the digital business. They get they start growing with us as we create a direct relationship with them.
With a sales person being involved.
And so that's been accelerating and taking a bigger part of our business sort of pulling them out of the digital business. If you will so there's nothing I point to to have it sort of seems to me fundamentally different that would give us any reason to expect that the journey that customers would take in terms of their growth coming from that land and expand a would be different.
And then to get to the second part of your question about what that implication for the retention rate would be.
It maybe it's a.
On a math piece that over my head that on that are that I'm missing, but I would expect it probably then to not have a significant impact.
On the retention rate if there was nothing different in the in the nature of those lands. So, but my guess would be but I have to give a little more thought I guess would be that we wouldn't see any change in that path that a customer that average path customers were taking with us for this new crop of of new customers that are coming in even though they are bigger class.
I think they we think they would probably perform the same way previous classes that as well.
Great. Thanks.
Our next question comes from the line of Koji Ikeda with Oppenheimer. You May proceed with your question.
Hey, Thanks, and congrats on a great quarter I wanted to ask you a question on Docusign branding and really specifically internationally known from our lands on the U.S. It sure seems like Docusign has a great chance of becoming the net.
Brand to become a verb like Xerox is a new person demo I mean, maybe it already has on <unk>.
Well, what about internationally does docusign already have that sort of market awareness and positioning internationally or is that all day.
Yes, it's great question in fact forced or did a couple of years ago put out a report, saying we already had become a a brand and that same way you talked about like clean ex.
Or Xerox. So Koji you know they were step ahead, where we already got that he's done in the U.S. as you as you indicated.
We just actually recently just study a couple of months ago, and Rob really are a CMO looked at our brand in a variety of different markets and what we found is that the aided awareness was was quite strong, but the unaided awareness was not as strong as it might be including not as in the U.S.
And the fundamental difference is that in the U.S. recall that we took this very significant position within the real estate space and so many people in buying homes or leasing apartments, a GAAP familiar with using docusign such to the point that if I go someplace and say work at Docusign. The vast vast majority of the people give what we called Duck you love.
Story, and they come back and say Oh, My Gosh I know is traveling on vacation was able to buy a home or I started a new job and I was able to sign that when I was traveling and all those wonderful stories, you and I've talked about that that happens with our brand.
If you are in different markets overseas, particularly some of the markets, where we have had a sort of less growth I'd put sort of the the Germany's in Japan as an example.
Yeah, we don't have that same brand awareness is starting to happen and we're going to be looking in the coming year to invest in different ways to build that greater brand awareness because the real estate market won't be the same it's just very different in the U.S. and live in most other countries you won't give us that same vehicle to do it we're looking at focusing on our digital business and using.
Digital advertising, which of course is customer acquisition oriented, but we'll also have a component of brand building for us. So thats can be a big part of our marketing plan in the coming year and I'll look forward to at some point during the year given an opportunity to share with you all what we're seeing in terms of the success of those investments, but the last thing I would tell you is even though we in somebody's country.
I do not have the same sort of leadership position of our brand nobody else does either when we get to these other markets. It's not there's no other docusign of with that same sort of friends in another country. So we haven't lost that opportunity to take that global leadership position in each of the key international markets, where we want to be and that we intend to do.
Just that.
Got it got it Super helpful and just one follow up question on the government opportunity you guys on talking about your aisle or government data center could you. Please remind us if that does that certified now and.
If it is how do we think about the sort of by data center and your fed Rep certification I mean could 2021 be an inflection year from the government opportunity I mean, what sort of go to market investments are you, making for that that government vertical opportunity. Thanks for taking my questions.
Yeah, the Io for is actually built.
And its operational and we've actually put volume through it others additional an organization called DISA more than you probably ever want to know in the federal government has a final certification requirement that.
We expect shortly.
But were already working with agencies on that functionality capability. We're excited about it same way we were when we got fed ramp certification, we continue to put ourselves in a position with the with the federal government and by the way. It does trickle down a lot of states really look at that as being important even if they don't when I say requires a certification it gives them comfort so we see that in local and state.
Great governments as well and.
And we think we think we feel really good about that positioning as it sort of pre eminent provide.
Provider in the agreement space to the agencies so from.
From a standpoint, when you said 21 I assume you meant calendar 21, non physical 21, and we actually think fiscal 20 on this this past year has actually been I don't if I caught inflection point, but incredibly strong for us in government and so many agencies and now have a requirement to do things, particularly around E signature line.
A company like Docusign. So we expect that to continue to be a strength I think we're looking at different ways that we can invest in sort of the marketing or.
To be more effective.
On getting the breadth of our message out to all the different particularly federal agencies.
And I think well I think we've done good sales execution I would say that we have an opportunity do a better job on sort of marketing and business development aspect at sort of the top side of that funnel with the various government agencies and so we will look at that in fiscal 2002.
Calendar 21 to accelerate that and do even more.
Got it thank you for taking my questions appreciate it.
Thank you good.
[noise]. Please limit yourself to one question on next question comes from the line of Rishi Jaluria D.A. Davidson you May proceed with your question.
Hi, guys. Thanks for taking my question on that and nice to see continued acceleration on the Bulls net I just wanted to go back to the ongoing theme of on the questions, which is thinking about docusign in the post pandemic World Dan look I understand we're not going back on paper way of doing things, but you also talked about how customers are accelerating their digital channel.
Based on by by three to four years.
As you think about that post pandemic world and given all the income.
That expense from resin everything Youre seeing does that pace of acceleration maybe slowed down now that there's less urgency with remote work or is there enough opportunity in the land that you've gotten what the core digital signals from a product that you can keep up that sort of acceleration with cross sell and getting people on the sale on maybe help us understand how you think about that thanks yeah.
Yeah. So let me tell you what I know and what I don't know what I know is what Cynthia just reported to you, which we had something I can say for the last three quarters, the highest rate of billings growth we've ever had in our history.
And you didn't think that would happen this quarter after last quarter and it did given the comparing Q4 do you see the guide I don't think we would say we expect that to happen again by any means next quarter, but the growth has been very strong and its been consistent so the tricky part to your question is in the post pandemic.
I have no idea when that's coming.
And are any more than than today. There are other people on this call.
My sense is that it has been an accelerant to our business. So there would be some a lack of that accelerant occurring.
Occurring in a in a post pandemic world but.
But at the same time I think the second part of your question, which is really important is we're also hitting our stride with the capabilities. We have in the rest of the agreement cloud. We've also built a lot of sales capacity right as we've seen this opportunity and because the Tam is so big I think the biggest determinant of our ability to grow is our ability to on board quality people that can.
Consent built the software that we need and then represent and sell that software into the marketplace. So we can then work with our customer success team to drive adoption. So if we can continue to scale our team effectively I think we can continue to grow at very exciting right. So.
So I think that's kind of how I look at it right now and I do think it's going to be a little while before we realize what the new normal will be.
What we said the last couple of quarters, but I still think is what we say today is that at some point.
The a so the enormity of day the tailwind that is there will be less enormous but it may be substantial that people have said digital transformation is what I need that and they flipped a bit and we will continue to see strong growth from that but but my assumption on the.
Not really having any detailed ability to guess the future is that that growth will be at a higher rate than we were pre coded happening, but probably not at the same growth rate that we've seen the last few quarters.
Where its been amazingly items. So I think it will be very strong growth and probably a higher than a year.
You'd seen previously and so when we look at our revenue growth I.
I think you'll see next next quarter when when Cynthia pulls together guidance I think what you will see is an exciting growth future for us.
And probably from a billing standpoint slightly below the incredible numbers, we put up the last few quarters.
Yes very helpful. Thank you I would just add to that is just keep in mind, when we get there and it will be a considerable scale from where we were this time last year right and so the growth numbers that we're posting index on considerably bigger absolute numbers and so it's just something to be mindful of EPS and over.
Got it thanks, Dennis a day.
Our next question comes on the line of Michael Jordan with Wells Fargo Securities. You May proceed with your question.
Hey, there thanks, and good afternoon I'm just one from me we've spoken with members of your ecosystem, who seem particularly excited about the docusign insight technology and opportunity for automation. There just wondering if there's more you can tell us around that value proposition or no insight maybe fits with from the overall agreement cloud vision. Thank you.
So you're saying they are the insight.
As a.
Our interest field technology being used no not inside out partner the docusign inside a technology, which what day enter it feel in for the contract analysis, Yeah, absolutely sorry, yes, I got confused on the partner side, Yes. So I would say that we think it's a significant part.
Part and one of the things essentially when you think about our partners and it happened before we did the CLM acquisition Spring C. M where people previously had said yeah, we love Docusign customers Love Docusign, but your software is pretty good it's pretty easy to implement and it's not really an opportunity for us to make enough money you.
Sort of implementing it then with spring we saw people say, hey, you're getting into a broader based software tool that requires you know a significant esso W to be installed in there's real opportunity and we saw the ESI community sort of work with us on more aggressively to become partners and we see that happening even more so because of insight and I think people realize there is a lot.
A lot of opportunity to deliver fantastic value for our end joint customers, if they're providing services. There. So on one of these you've heard US talk about is we're actually trying to decrease even though it's a small we're talking about 4% of our revenue being services decreasing that as a percentage going forward not because we're going to reduce the services, we do but we're just going to move so much more.
More of the growth into the partner ecosystem. So that's kind of how we look at that we think it's going to be a significant piece, we see a lot of excitement about about partners and particularly on size that want to leverage insight into the work they do with our joint customers.
Helpful. Thank you.
Our next question comes from the line card maturity with Evercore ISI you May proceed with your question.
Oh, Thanks, and thanks for squeezing me on that.
Dan I was just curious when you think about all the new direct customers that you've landed over the last couple of quarters I realize they don't have necessarily the time to talk about the full yes or agreement cloud right now with you put or are they at the right level in the organization to have that question that conversation say a year from now on meaning you are you landing higher up.
And your customer organizations, so that when they are ready to coming back around and have that discussion there at the level that you know the kind of business process changes required are really that could that could help change their entire business. You know that they have the authority frankly to to start to have those conversations because you're obviously getting into CLM. It you know it opens up so.
On many interesting sort of avenues from a business process perspective. So just yeah. He served on the Somme is you know are you landing high enough opted to sort of start those conversations. Thanks, yeah. That's it really thoughtful question. So first off the danger is I look at my day to set up the customers I've spoken with it will be you can look at those we've got 34000.
<unk>, a new direct customers in the first nine month I didn't talk to many of them myself, but but I would tell you from a trend standpoint, I haven't seen something we feel is fundamentally different. So I don't think we're landing higher or landing lower from for that matter. I think you know we are enterprise business has done really well so maybe it might even be a little mix shift from that scam.
Point to to growth there.
In more senior relationships, but I can tell you that that we do not have field personnel that do not start now every conversation with the agreement.
I mentioned earlier that just we don't we don't let someone go out and even if we get an RFP in or someone calls up and just says give me signature right now youre going to listen to a docusign agreement cloud pitch I mean, it's going to talk to you about your going to prepare sign act on and manage your agreements with Docusign and that wouldn't have been true a year ago, we wouldn't have that the field unable to do that.
So absolutely doing that.
So my guess is if anything there is probably a slight slight move towards people who are coming in on whether within a more senior or not but they're coming in with a mindset that this is an agreement cloud company and this is where they should be going with us and that's why I sort of see is probably the the trend moving in the future.
Okay, Thanks, and congrats on the results.
Thank you.
Ladies and gentlemen, we have breach our time on net for this question and answer session I would like to turn on this call back over to management for closing remarks.
Thank you so much operator, hey, thank you guys for joining us as Danny said, we're going to be up on the road some opportunities to see you. All were obviously incredibly excited about the business from the performance we have and we'll look forward to seeing you all in the near future Cheers.
Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.
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