Q4 2021 DocuSign Inc Earnings Call
Good afternoon, ladies and gentlemen, thank you for joining darkies signs fourth quarter and full year fiscal 'twenty One earnings conference call.
And 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 are in a 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 will now pass the call over to Annie Lycian head of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone and.
Welcome to doctors and fourth quarter and full year fiscal year 'twenty, One earnings conference call.
On the call today, we have Dr. <unk>, CEO, Dan Springer and CFO Cynthia Gaylor.
The press release announcing our fourth quarter and full year fiscal 'twenty. One results was issued earlier today and is posted on our Investor Relations website.
Before we get started I'd like to remind everyone that on that.
On March 24th we will be hosting our annual customer conference momentum and our inaugural analyst day, both of that will be held virtually the registration and more detail you can visit the investor relations website, and other events cannot and will make additional announcements.
Now, let me remind everyone that some of our statements on today's call and forward looking we believe our.
Our assumptions and expectations related to these forward looking statements are reasonable they are subject to known and unknown risks and uncertainties. It may.
May cause our actual results or performance to be materially different.
In particular, our expectations regarding the effects of the COVID-19 pandemic on our business, including the potential effects of the pandemic subside or based on our best estimate at this time and are therefore subject to change.
Please read and consider the risk factors and our filings and the SEC.
Together with the content on this call any forward looking statements are based on our assumptions and expectations to date and except as required by law, we assume no obligation to update these statements in light of future events or new information.
During this call, we will present, GAAP and non-GAAP financial measures non-GAAP.
GAAP financial measures exclude stock based compensation expenses employer payroll tax on employee stock transactions amortization of acquired intangible assets amortization of debt discount and issuance costs from our notes acquisition related expenses and other applicable other special items.
In addition, we provide non-GAAP weighted average share count and information regarding free cash flow.
These non-GAAP measures are not intended to.
Considered and isolation from or substitute for or superior to our GAAP results. We encourage you to consider all measures when analyzing our performance for information regarding our non-GAAP financial information and the most directly comparable GAAP measures and a quantitative reconciliation of those figures. Please refer to today's press release, which can be found on the website and.
Mr. DOCSIS on Dot Com and now I'd like to turn the call over to Dan Yeah.
Thanks Annie good.
Afternoon, everyone and welcome to our fourth quarter earnings call for fiscal 2021.
Before we get to our results I wanted to acknowledge and it's been almost a year to the day since we shifted our business operation and day to day lives and response to the pandemic.
Over that time, COVID-19 has created huge challenges and disruptions for almost everyone everywhere.
And once we're all still dealing with today.
But and meet those challenges people found ways to keep life and work moving forward.
As a team Dr. Stein was honored to play a role supporting people all over the world as they responded to the pandemic.
We gained new customers, we expanded our relationships with others.
And we saw a surge and adoption of our products is accelerating a trend already underway the digital transformation of agreements.
This transformation not only allows agreements to be prepared signed act on and manage from anywhere.
It also allows us greater speed and efficiency and manual paper based processes.
As a result, we don't believe our new or expanded customers will be going back to paper, even after the pandemic receipts.
We also don't believe life will go back to the way it was before.
Of course, many in person activities will be welcome back.
But when people found better ways during the pandemic. We believe those will continue and flourish, whether it's total or partial work from home virtual.
Virtual visits to medical professionals are getting a document notarized remotely.
Ultimately over the coming years, we think the trend will continue towards the option of doing anything from anywhere.
We called the products and services supporting this trend.
Anywhere economy.
We believe we are a key pillar and its only just beginning.
And you'll hear more from us about this and the coming weeks.
With that we have a lot to share on Q4, and our full fiscal year. So let's cover that and three parts are strong Q4 and record fiscal 'twenty one results.
How we think about our continued evolution and to the agreement cloud company.
And how the agreement cloud delivers value to our customers and partners.
First our results.
Q4 was another strong quarter for us contributing to and milestone year for document and overall, we saw revenue growth of 57% and billings growth of 46% year over year.
And we welcome more than 70000, new customers, bringing the total to nearly 892000 customers worldwide.
And we saw our strongest expansion and upsell rates, yet driving our dollar net retention to a record 123%.
For the year, we exited fiscal 'twenty, one nearly 50% bigger than we were and fiscal 'twenty.
With almost one 5 billion and revenue.
And our customer addition rate was more than double that of fiscal 'twenty.
And you see us ever closer to the 1 million customer Mark.
By any measure that's an astounding year.
As Testament to how people around the world are embracing digital technologies to transform the way they work and live.
It's a reflection of the incredible opportunity that still and it's very early stage.
And it's all made possible by the dedication of the 5600 person strong document and team.
Who have gone above and beyond to help our customers this entire year.
Of course.
This is a journey not a destination.
So as we think about the future and our continued evolution into the agreement cloud company.
And we're increasingly going to do so and the context of three primary goals.
First.
We want <unk> to be the best way to agree to anything anywhere.
We've recently made great additions to our leading esignature product with identity proofing click rap electronic witnessing and soon remote online notary transaction.
We want to extend the benefits of digital signing to all kinds of agreements and all walks of life.
We're seeing this transformation accelerate.
For example, one of our financial services customers and the U S came on board early last year as part of its COVID-19 response strategy.
And they deploy darkey sign across more than 20 use cases, and the past six months alone.
So far and document is powered almost 100000 transactions for their HR procurement customer service and in branch on boarding needs.
These transactions took less than a minute to complete on average and delivering a rapid ROI.
And Dr. Stein win from a crisis response solution last year.
To a business as usual solution today.
Our second goal, we want to digitally transform the entire agreement process pre and post signature.
Over fiscal 'twenty, one we continue to innovate and CRM and to integrate our acquisition of seal software and live Oak technologies.
And you can expect us to drive automation at every stage of the agreement cycle.
All the way from preparing and signing to acting on and managing.
And as an example, one of our Latin American agricultural customers needed to improve the management corporate governance and turnaround time for its key contracts and.
And they needed a solution deployed across more than 30 subsidiaries and a matter of weeks.
With Doctor Si and C L N and esignature together handling the entire agreement process.
This customer reduce the time it took to complete contracts.
From 23 days to just one hour.
Third we want to continue ensuring that dock you sign is embedded in the applications, where work and life happens.
We already integrate with more than 350 apps, including recent integrations with slack or Microsoft teams and workplace from Facebook.
And we have and award winning API for custom integrations, including with our customers' proprietary applications and processes.
One of our global manufacturing customers is a good example of how <unk> can integrate and inter operate with multiple applications within an enterprise.
The customer needed to ensure that NDA and other critical documents could be generated accurately reviewed quickly.
And scent and signed easily.
Today after working with the <unk> 17, the company's integrated <unk>, CRM and E signature with its CRM and.
Productivity software and.
And cloud storage systems to create the exact desire and workflow.
With all the speed accuracy and efficiency benefits that come with it.
So and I bring my remarks to a close it's clear that fiscal 'twenty one was extraordinary on almost every level.
And thrilled as I am about <unk> performance I'm, even more pleased that we're able to help our customers. During these uniquely challenging times.
And as day that I'm excited for the pandemic to start subsiding is of course and understand.
I'm also excited about <unk> and being well positioned for the anywhere economy I mentioned earlier.
And points to the incredible opportunity that's out there for us given that the journey to a modern day agreement process and being prioritized like never before.
The market is still and it's early stages. So we will continue to invest and growth as our first priority as we expand and scale our business.
Lastly, before I hand, the call over to Cynthia a reminder, that we'll be talking more deeply about all of this at our upcoming annual momentum conference and our inaugural analyst day on March 24.
Look forward to seeing you all that.
Virtually.
For now over to Cindy.
Thanks, Dan and good afternoon, everyone in a monumental year Darkey time helps many customers overcome challenges and transform their businesses to adapt to the new and changing environment.
The strong demand for digital workflow accelerated our continued growth at scale and heightened our focus on execution and operations to meet our customers' needs.
We capped off an exceptional year for <unk> with strong results for the fourth quarter and fiscal year, driven by robust new customer growth and expansion primarily for our core esignature offerings for.
And for the fourth quarter total revenue increased 57% year over year to $431 million and subscription revenue grew 59% year over year to $410 million.
For the full year total revenue reached 145 billion and increase of 49% over last year and subscription revenue at 138 billion and increase of 50%.
Our international revenue increased an impressive 83% year over year to $89 million and the fourth quarter kicking up 21% of total revenue.
For the full year international revenue grew over 67% to $287 million, reflecting accelerated expansion across geographies.
For the first time, we reached over half a billion dollars and quarterly billings as Q4 rose, 46% year over year to $535 million.
This resulted in a 56% trailing four quarter average consistent with last quarters average for the full year billings increased $1 7 billion.
Q4 customer additions continued on a robust pace as we added over 70000 new customers.
This brings our total installed base to nearly 892000 customers worldwide.
And increase of 51% over last year and more than double the number of new additions compared with fiscal 'twenty.
To give you a sense of the magnitude of this achievement. We added nearly the same number of customers. This past year as we had in total at the time, we went public 15 years. After the company was founded.
As part of this we added 11000, new direct customers in Q4 for a total of over 50000 and for the year.
After more than doubling the number we added in fiscal 'twenty. We ended the year with nearly 125000 direct customers.
For the third quarter and a row, we exceeded our historic dollar net retention range hitting our highest level yet at 123% for Q4.
Switching gears non-GAAP gross margin for the fourth quarter was 80% compared with 79% a year ago for.
For the full year gross margin was 79% consistent with fiscal 'twenty.
Fourth quarter subscription gross margin was 85% compared with 84% a year ago.
For the full year subscription gross margin was 84% consistent with fiscal 'twenty.
We saw a significant improvement and our operating leverage as non-GAAP operating margin reached a record high of 17% or $75 million.
Compared to 8% were $21 million and the fourth quarter of last year.
For the full year operating margin was 12% on <unk>.
More than seven five percentage point improvement over fiscal 'twenty.
Non-GAAP net income for Q4 was $77 million compared with $22 million and the fourth quarter last year.
For the full year net income was $182 million up from $59 million and fiscal 'twenty.
We ended the quarter with 5630 employees and increase of 44% over last year.
In Q4, we took steps to put in place and more strategic and efficient capital structure, we issued $690 million and new 2024 convertible senior notes and pay down the majority of our existing 2023 convertible notes.
We also put in place and new revolving credit facility, allowing us to borrow 500 up to $500 million with additional capacity up to $750 million and total.
While we are generating sufficient cash from our operations to fund our working capital needs.
We believe this additional financial capacity along with the attractive terms will provide greater flexibility for our growth agenda.
We exited fiscal 'twenty, one with $867 million and cash cash equivalents restricted cash and investments.
Operating cash flow and the fourth quarter was $62 million or 14% margin.
This compares with $46 million or 17% and the same quarter a year ago.
Free cash flow was $44 million or 10% margin in the quarter compared to $16 million or 6% and the prior year.
For the full year operating cash flow more than doubled to $297 million or 20% compared to $116 million.
Our 12% a year ago.
And free cash flow grew to $215 million or 15% compared to $44 million or 4% and fiscal 'twenty.
These amounts include $75 million related to accounting for the extinguishment of the 2023 convertible note.
Excluding this Q4 operating cash flow would have been $137 million or 32% margin and free cash flow would have been $119 million or 28% margin.
For the full year operating cash flow would have been $372 million or 26% margin and free cash flow would have been $290 million or 20% margin.
This underscores the attractiveness of our model and the leverage we are seeing across the business.
Now on to our guidance.
Coming into this fiscal year, we expect to see continued secular tailwind and support at the anywhere economy, we are confident and our long term trajectory and the untapped opportunity ahead that.
That being said, while our subscription based model gives us a certain level of visibility the impact of the pandemic adds an extra layer of complexity, which we are monitoring closely.
With this backdrop our approach to guidance continues to be to guide to what we know and can see and the current environment.
As we begin the new fiscal year, we are guiding to non-GAAP operating margin going forward rather than individual operating expense lines to better align with how we are growing and scaling the business.
For the first quarter and fiscal 'twenty, two we anticipate.
Total revenue of $432 million to $436 million in Q1 or growth of 45% to 47% year over year.
And 196, three to $1 97, 3 billion for fiscal 'twenty, two or growth of 35% to 36% year over year.
Of this we expect subscription revenue of $415 million to $419 million, and Q1 or growth of 48% to 49% year over year.
And 1886 to $1 eight and nine 6 billion for fiscal 'twenty, two or growth of 37% year over year.
For billings, we expect $457 million to $467 million, and Q1 or growth of 34% to 37% year over year and Q2 six to $2 8 billion for fiscal 'twenty, two or growth of 31% to 32% year.
Year over year.
We expect non-GAAP gross margin to be 79%, 81% for both Q1 and fiscal 'twenty two.
We expect non-GAAP operating margin to be 12% to 14% for Q1, and 13% to 15% for fiscal 'twenty two.
We expect to see a de minimis amount of interest and other income, including Undrawn revolver fees related to our credit facility.
For fiscal 'twenty, two we expect a tax provision of approximately $8 million to $10 million.
We expect fully diluted weighted shares average shares outstanding of $205 million to $210 million.
For both Q1 and fiscal 'twenty two.
In summary, we would like to thank the to occupy and team our customers and our partners for their tremendous efforts during this unprecedented year we.
We are excited for this year as we continue to deliver on the large opportunity ahead, we will continue to focus on driving long term durable growth at scale as we help customers thrive and the anywhere economy.
Thanks again for joining US today, we look forward to seeing you and a few weeks at momentum and our analyst day and now we will open up the call for Q&A.
Operator.
Thank you at this time, we'll 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 tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and maybe <unk>.
Sorry to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question comes from the line of Sterling Audi with J P. Morgan. Please proceed with your question.
Yeah. Thanks, Hi, guys just curious in terms of what Youre seeing on the new customers that are coming onboard and the platform.
One day or taking some of the advanced features for the spring <unk> capabilities versus just playing E signature.
Is that civic and you're thinking about vertical geography, what dimension to be most useful for you.
No across the board, so what kind of penetration so what's the take rate for kind of the additional contract management and.
And just kind of contract cloud and the new customers coming on.
Oh, so it's still a relatively small piece if you think about what's happened really throughout the year as we talked about all years.
Covid, we saw a dramatic move with a lot of acceleration and digital transformation to those sort of entry type applications and signature is just a fantastic way for people not to get on not only incredibly high ROI, but.
But to quickly get that transformation, they need and their business and be able to.
B and effectively in the anywhere economy. So I think that has not changed and if you look at things like <unk>, where there is a longer purchase cycle, where people require a statement of work on professional services to implement.
And those definitely were slowed through this year relative to where they were the prior year, our view, though coming out of a fiscal year 'twenty, one, particularly coming out of Q4 here.
As we're seeing that the build the pipeline build again and so we're quite optimistic that we're going to see sort of that reacceleration.
We saw a little over a year ago.
C L and in particular, and then and the sense, we're seeing that it's going to be not so much in our smallest our largest customers.
But it's going to go more quickly in those mid market and commercial businesses, where there tends to be a little bit more fast moving and the largest enterprises, but having a little bit more scale and need for.
Full CRM like solution and then our Smb's cash.
So that's where we see that developing.
Great and then one just quick follow up you mentioned and talk about the remote notary, what's the timing on when we might see that and the market and where are some of the first use cases that you think you will see the adoption.
Yes, so what we see right now is that we've gone through the beta which we've been really pleased with and we're moving this month to get a.
We have a limited release will be focused on financial services companies.
Use case and remember the first piece, we're coming out with his first party notary, so that which we think is the significantly larger part of the total market first party of when companies have their own effective notary. So theyre actually notarized documents with there and usually consumers with an in house or internal notary and and third party where people are <unk>.
Using sort of a notary is coming to bring two people together and it doesn't work for either of them, which is a smaller part we'll have that by the end of the year out into release.
Okay, Alright, thank you guys.
Okay.
Your next question comes from the line of Stan Watzke with Morgan Stanley. Please proceed with your question.
Perfect. Thank you so much guys and congratulations on a very strong and to the year.
And maybe the first one for me and Cynthia you mentioned.
On the guidance for fiscal 'twenty two.
When you talk about the methodology that you approach to setting guidance for the year.
Is there anything different on how you approached it versus perhaps how you you guys. Initially looked at fiscal 'twenty, one and what are some of the puts and takes that you considered in setting your guidance mainly for billings because that's the metric that investors will care most about and then I have a quick follow up.
Sure Yeah, I mean, our guidance philosophy has been super consistent since the time, we went public.
We guide to what we can see and.
And it's largely data driven and so we used everything from pipeline and demand trends close rates to looking at kind of the net new that we added during the year and looking at kind of the upsell trends and expansion trends within there. So it's quite data driven and we guide to what we can see.
And it's been it's been very consistent from that perspective.
Okay.
Got it so as far as just considering how.
And how the business could trend into fiscal 'twenty, two as we are lapping the pandemic.
It sounds like you know you apply the same type of lens as any any other year as far as you know the conservatism that's baked into those estimates on Lora.
Anything else along those lines.
Sure Yeah, I think I mean, we think the guidance is reasonable and and just given how quickly. The company has grown at scale right. Our business today is 50% bigger than it was a year ago earlier and our fiscal year, we had crossed $1 billion and revenue Mark and now we are quickly coming.
On a 1 billion and a half going at $2 billion.
And so when you think about growth at scale. We are looking at that closely because we're just growing solidly off a much bigger base and so we're watching that closely and the different metrics that we're seeing I think the pandemic.
Certainly adds an additional layer of complexity just given the number of customers. We've had the demand and acceleration of demand we've been seeing and Thats all reflected in the in the guide for the year.
Perfect and then a very quick follow up on Dan the international growth numbers I mean, they continue to really.
Shown outstanding momentum and if I recall correctly, I think it's actually accelerating slightly off the Q3 pace.
What's really driving the international adoption and what's what's out there what are you seeing out there.
Maybe a little bit different than what youre seeing and the U S. That's it from me. Thank you.
Yes, and I think the answer is its very broad based one of the things that was really interesting for us finishing up the year and you don't get to say this very often but same thing happened in Q3 happened in Q4 every single geography.
We're in and outside of the U S and for that matter and the U S exceeded its plan and it's just my experience, that's something it's pretty special and pretty rare to happen and so we don't think there's a particular type of.
And a geography, either the common law civil law or sort of EMEA versus Asia Pac and we're just seeing and across the board and.
My view is what's happening here, it's actually quite interesting. If you think about a year ago. We shared this result, where we sort of laid the growth of Doc you sign in the U S. Over its size when it was same sides, where our international business was and looked at that growth and they are actually quite close and so I think what's happening here is it the U S <unk>.
And this one it was much smaller grew at a higher rate and so now what we're seeing and this happened in the international business. So it's not really surprising to us and it's nothing that's sort of changing and the marketplace. I think we're just realizing it's a very large tam opportunity outside of the U S and we're starting to really.
And really hit that growth curve and the way, we'd like to be hitting it and we're optimistic we're going to continue to see that through the year ahead.
That's perfect. Thank you so much.
Your next question comes from the line of Pat <unk> with JMP Securities. Please proceed with your question.
Oh, great. Thank you.
I have two if I can one free to view.
Dan I mean, I think and the county that I live and you know across the Bay from you I think we're up to 26 or 27% of that people hadn't gotten their first shot. So I'm just wondering if it's February and March and started here is there any change in the demand environment.
Based on.
More of a return to normalcy.
We haven't seen anything and I don't know.
Whether we would be leading or lagging indicator Pat.
So we haven't seen anything in our business that suggests.
And that will change now if you recall, we said this about starting about three quarters ago that our forecast on this is that the people that have come with new customers on new use cases.
<unk> signed that are COVID-19 centric and.
And theyre not going back and people aren't going back to back on that going back to manual processes. So the real question. I think is interesting and your question is will that rate of new people coming to us.
Change with as we start to move into some sort of return to quote unquote normalcy, we havent seen named changed yet and maybe that changes and enough and there's not enough new activity to have driven the change and the demand environment, but at this point, yes, we haven't seen a change yet.
Alright, perfect and then I'm not sure which of you wants to address this but I think it's super interesting is I'm looking back on my model.
And in.
April of 2019 so.
Q1 fiscal 'twenty.
Net dollar retention was 112% and it's gone up seven quarters and a row.
What is tried and bad I mean, that's not all the pandemic right why why has it gone up.
And quarters and ROE.
We're looking at each other and I'll start and then net net.
Cynthia are finished with the good stuff, but I think the real answer is we made a significant investment and customer success is really the shortage of and we've always been a customer success company and.
And starting about a year before that so about three years ago I think we realize we could do more and.
Not just our customer success organization and the CSM that I think or so thousand although they are fantastic and they are a huge part of it but I think culturally we really have just sort of flow.
And all of our employees to say, we need to be a customer success company.
And it's great because it's wonderful for the SaaS economics as you articulated but two it's great because it makes employees proud to work here and it makes them proud to be and accompany that says of course, we're going to make money on business, but we want to be part of something bigger than that and we want to be proud about that and so I really think that that investment is now yielding.
These results.
Yeah, and I would just add if you have to remember that our customers and start out small and and they grow over time and so when you think about the number of customers that we've added over the past couple of years and this year and particular, they start out small they expand and as they use the product and as Dan said, we've invested a lot and customer success to help them.
Become successful on the platform and so thats certainly driving on that number as the denominator gets bigger the numerator is also getting bigger.
As customers use the product more.
Great. Thank you.
Your next question comes from the line of Karl Keirstead with UBS. Please proceed with your question.
Thank you Dan and Cynthia just on the <unk> billings performance it came pretty close to the pin relative to the prior quarters, where a doctor you sign it put up pretty strong double digit beats against the high and I'm. Just wondering if anything has helped a little different and the fourth quarter and maybe there was some timing or other factors. Thank you.
Yes.
Yes, so we talked about this a little bit on the Q3 call. So Q3 was exceptionally strong.
Based on timing of deals and some early renewals that came in and Q3 and so Q4 was.
Strong growth as well at 46%, albeit it wasn't as strong as Q3 growth and so.
And so there was nothing unusual in the quarter I would just remind you that on billings. They can they can fluctuate more.
And just given the nature of that metric and the timing of deals and so we continue to encourage folks to look at that four quarter average that smoothed out.
And the changes quarter to quarter and.
It take that lens and.
Prior to Q4, it was really right in line with the last couple of quarters and that trailing average and got it. Okay. That's helpful. Cynthia and then maybe a follow up for you I know typically when you start the fiscal year.
You give your operating margin guidance, but.
Maybe not the cash flow guidance, but as you pointed out the adjusted free cash flow margins in fiscal 'twenty, one where 20% relative to your operating margins of 12%.
As we model free cash in fiscal 'twenty to use something similar to that correlation or might there be something unusual and fiscal 'twenty two such that it will look a little bit different.
Yes, So we don't guide on cash flow, but I think when you look at kind of the Q4 and for the year the cash flow and we gave all of those numbers and the release.
The convertible.
Note.
And that we.
We took down and in Q4 on.
On an adjusted basis, the cash flow was actually quite compelling.
Even without the adjustment.
We're showing just a lot of leverage in the model similar to the operating margin right. Now we will continue to invest and growth. So I wouldn't anticipate anything in fiscal 'twenty two out of out of the ordinary.
And we'll continue to to demonstrate that leverage, but if we can invest for growth.
We will and that's one of the reasons, we did the financing and in January was really to give us operating flexibility got it.
Thank you very much.
Your next question comes from line of above on Siri with William Blair. Please proceed with your question.
Hey, everyone. This is actually Jake on for Bob and congrats on the great quarter. So just touching again on the capital allocation strategy moving in and this year.
How can we be thinking about that in terms of similar tuck in acquisitions to what we've seen in the past and then just as a follow up would love to hear about how youre thinking about the competitive landscape given the recent acquisitions from box and Dropbox and this space.
Yeah, absolutely I don't think we see any dramatic change to our thinking on.
And on M&A strategy.
I think we love to build stuff ourselves, we have a fantastic product development team here and the vast vast majority of all the product that we have and stuff that we've built internally, but from time to time and Youll see it would be a good example of this from last year, we look out and we see while some folks are really ahead of where we are not just on some <unk>.
Product development, and this case and artificial intelligence and advanced analytics, but also they just have some domain expertise and it would take us a long time to build that so we've seen some really nice tuck in acquisitions that are relatively small compared to our revenue or our compared to our market valuation, but we think meaningful and accelerating.
And that agreement cloud strategy that we have I think we're probably thinking about things the same the same way.
It's possible we could go a year and not do any deals we didn't see anything that we needed and we can also do as we did last year a couple of deals.
Or more it's fantastic to have Cynthia and the CTO CFO now with all of her banking experience prior to becoming a CFO that I suppose gives us.
More perspective on different things, we might look at.
And that way, but but just at the highest level I think it's sort of the same that we did last year is probably what you should expect going forward because we're not doing anything fundamentally differently I would say that we are looking at doing a few more investments and again sales. A wonderful example of a company we invested in and got closer to them. So we felt we were really setting ourselves up for a high.
The successful integration and acquisition there and I think you may see us do more of that and the future and increase the number of small investments, we're making and companies, we see and the broadly defined agreement cloud space and.
And then potentially have those as acquisition opportunities and the second part of your question around the competitive landscape, we don't think theres been any change.
We always say very aggressively and we think about competition, we fundamentally think about paper and we think about paper and manual processes.
So early into this game in terms of where the Tam is the vast vast majority of all of our growth.
And it's coming from Newfield expansion and from time to time people want to upgrade.
Particularly and signature, we'll see that where where someone will want to move.
From a less advanced.
<unk>.
Smaller feature set.
<unk>, but again the bulk of US is building this new market. So I don't see that changing we always of course take careful looks.
When someone buys someone that's in one of our spaces.
Box is a partner of ours and we continue to want to partner with them. We are very open model.
And this won't change our approach to that relationship at all.
That's great. Thanks for answering my questions. Congrats again on the great year.
Thank you.
Your next question comes from the line of Kirk My Attorney with Evercore ISI. Please proceed with your question.
Thanks, very much Dan you, obviously have a huge cohort of new customers coming up for renewal over the next day a couple of quarters, what's the conversation like the year. After you sign someone up meaning is that really a point of leverage where conversation might go from a departmental conversation to enterprise wide conversation.
And then or is that the time that you start being able to sort of introduce some newer functionality of products and just kind of curious about how you and the sales organization talk about sort of.
The next step with a lot of these customers that came on this year because it would seem to be and opportunity to just sort of go beyond maybe the pandemic related.
Yes sort of decisions they had to make many meeting these can be really nice expansion deals for you all over the next two to three quarters.
Yes, I think that's exactly how we look at it I would tell you the answer to your question on the high level of course, it depends right. There's a client there's quite a range.
Absolutely have some customers that before they make it to a year realize they are exceeding the capacity that they purchased from us and we do early renewals even before the year, that's a small percentage of them.
And one year Mark is a great opportunity to take stock with our customers and say, what's your sort of utilization of the capacity you have to date with signature and again the vast vast majority of people start with us with signature.
And then is there opportunity as you said to get additional departments.
Sometimes it's phenomenon and it's just more use cases and the same department.
And they brought in some back office use cases, and the HR department, but they have more than they could use separate from going to finance or go into the front office and then of course, one thing that we're kind of really excited about what the agreement cloud is starting to have those successful customers start the conversation about the broader product portfolio and.
And so I think we have all of the above I do believe we're going to see two phenomenon at a high level. This year, one a lot of people that.
Kind of came to us last year and have been successful and adopting theyre also going to need to take a little bit of a breather because they've been growing so fast and this remote setting other coming back on board and they put a put off a lot of other projects and so we have heard CIO say that they've got a backlog now of things they need to get done because the pandemic made it very very difficult for them to get and certain <unk>.
<unk> done and at the same time I think we're going to see a lot of people, who are saying Wow I'm really glad I got started with the digital transformation and I want more of it and so theyre going to want to accelerate even the expectations. They may have had for.
And for that pace of change so when you when you put all of that mixed together.
It's fairly complex, but it leaves us feeling we're going to have a considerable cross and upsell opportunity this year and the end.
Those incremental customers and a significant customer new ads.
Since you talked about earlier.
From last year over the course of this year, particularly the second half of this year when a lot of those renewals come up should be a great cross sell opportunity.
And if I could sneak just a really quick second one and what's sort of your thought process on your partner relationships with some of the bigger GSI is now that we're hopefully getting back to a more sort of normalized world is this a year, where you think you can make sort of a bigger step forward and having those partners build bigger practices on you and especially around sort of the broader <unk>.
And that cloud or is that yes, and maybe even a counter 'twenty two event. Thanks.
Yeah, so I'll be as candid as I can so we're enthusiastic but we're also.
And I'm very cognizant of the fact that those are relationships to work at scale to take time to develop historically as we've shared the <unk>.
Really large GSI has sort of looked at us and said, we aspire to someday be able to do more of a document and because we love the brand with other products, but there wasn't as much of an economic opportunity and particularly with signature only.
And quite frankly, they came back and said your software is too easy to use.
And it doesn't create enough economic opportunity for us and we totally got it.
And now they're starting to look as you said the broader agreement cloud and Theres a lot of enthusiasm building there, but if you said this year and we think about our sort of Si strategy. This year fiscal year 'twenty two I believe the bulk of the success, we will get will be and with the regional <unk> this year, but really starting to make traction with the GSI.
And probably next year is the year, where I would be disappointed if we werent really hitting the ground running with the GSI because they all want to be Doctor signed partners. We just got to get that model right. So it can be significant enough for them for their business model.
Great Thanks, and congrats on the quarter.
Thank you.
Your next question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question.
Great. Thank you for taking my question and just want to drill down a little bit more on.
On the international screens and some things you didn't really ask the question to make sure I didn't ask the question.
Just in terms of.
Any changes relative to go to market sales growth.
As you look at a lot of the major geographies.
And in terms of the maturity to growth relative to the U S and what you see.
Your competitors that you run into regions and just for Dunkin'.
And then some.
And really overall opportunity is and interesting.
Yes.
Yeah, well, Rob let me I'll try and channel Mike for your best I can.
And I guess I guess I should use a much deeper voice, if I'm going to channel, Mike, but but but the construct I would say is.
And the work that we talked about the last couple of quarters.
Was really the success that we needed and Europe was around coordination and grown very quickly and we realized we wanted to put additional leadership to support the international growth because we werent coordinators wells, we could across our own organization. So that our marketing team working with our sales teams our sales teams working with our success and professional services teams.
And we had real opportunity and we've been pleased with that result, and we want to continue to have that focus and investment there wasn't anything I'd say fundamentally broken with the business, but we did have some opportunity for better coordination and.
And I think that has helped us, but I think in the and as you heard US talk about earlier at the beginning of the call what's happened and the international is coming into its own and it's hitting at scale just like we had the scale growth and our domestic business.
Several years before.
From a standpoint on the types of investments I do think we will continually look at additional markets, where we could have a bigger presence in those markets because of our web and mobile business, we sell well over 100 countries.
But we have these eight focused countries that we've put most of our effort against and we continue to think that's the right strategy because there's just a lot more growth in those markets, but over the course of this year I would not be surprised to see us come forward and say another country or even to that we're going to sort of add to that list of the focus eight and <unk>.
Start to go deeper and and the last piece I'd say, we are really investing aggressively in our digital strategy, which of course is global in nature and I think it can be a significant part of growing our international business because that reach can get up to close to 200 countries and.
And we want to be leveraging that investment aggressively as part of international.
Alright, thank you.
Your next question comes from the line of Richie Deloria with D. A Davidson. Please proceed with your question.
Hey, Dan and Cynthia and thanks, so much for taking my question and it's nice to see the business momentum continuing.
Two questions first just following up on the conversation on international.
You really ramped up international hiring where where are you ramping up your head count the motions and on sales coverage is it on leadership products side or other areas and maybe alongside that Dan you talked about your kind of eight focused countries as I look at the slide you laid out on your slide deck on.
And on international traction.
It seems like there's a huge opportunity and in Asia, and really Japan is the only country that you had.
Good amount of success, there, but it seems like there's a really big opportunity, but what needs to happen to get real success in that Asia ex Japan region and any lessons that you can take from the I think surprising at least to me success, you've had and Brazil into those territories and then I've got a follow up.
Sure Yeah in terms of the investment by category sales and customer success and the core field is what we are building and we're not we have product people and in Europe, and Paris, but but the bulk of what we're building is a core field and then the support organizations like marketing like finance like.
Legal that are going to really.
Port those teams and their growth, but the but the core of it is sales and customer success and then in terms of your question, specifically about Asia and Asia Pacific. So I think two things one we have historically thinking of the Asia Pacific market as all other and then Japan, we're actually starting to look at it now as a J pack mindset.
And we're increasingly looking at bringing leadership and to cover across those two businesses and you know a lot.
Software companies have very distinct Jack.
Japanese businesses and there's a lot of good reasons for that and the nature of how that economy works, but we think we have opportunity to be more successful broadly and southeast Asia.
We leveraged the strength, we have in Japan, and the strength, we have had traditionally and Aam's Ed.
<unk>.
So that's probably the best answer for what we're trying to do to address that we do have a small presence in Singapore, which we think can be and important launching pad.
For other markets in southeast Asia, but at this point, we don't have plans to open additional offices in Asia, we really want to try to leverage what we've got and Sydney and Melbourne.
Tokyo and Singapore.
Alright got it that's helpful. And then just as a follow up I wanted to ask on the CLO side as you continue to gain traction there.
And get more and more customer alliance.
You find yourself getting into more competitive situation against some other pure play <unk> like I said this or even SAP.
Our rebar or how would you characterize what youre seeing as you get more traction there. Thanks.
Well I think for us the competitive situations question earlier about competition is quite different and esignature than it is and anything else right we have such a.
Dramatic market share lead and quite frankly product capability lead and esignature.
There's just the competition and I said, it's paper and its not that there aren't other strong companies that are and the market, but just by the sheer size advantage that we have and.
And you've heard us talk about before we spend more money on <unk>.
R&D, then we think those folks have and revenue.
So from that standpoint, it's a very different dynamic and we are one of the leaders and CLO, but there are other credible companies in the space and so we do see a different competitive dynamics, you mentioned SAP and Ariva Interestingly S&P is much more of a partner really than our competitor and increasingly and we're actually investing significantly and our integrate.
<unk> <unk> to.
To ensure that our CLI and products.
We will be industry, leading on the.
The buy side as well as they are on the sell side today.
But in general I think your point is spot on.
And it is a different competitive dynamic and we're one of the leaders, but not the dramatic leader that we arent signature.
Alright, and wonderful thank you and I'm looking forward to the conference.
Your next question comes from the line of Michael <unk> with Wells Fargo Securities. Please proceed with your question.
Hey, there thanks and good afternoon.
Going back to the retention number referenced that continues to tick up.
How should we think about the progression from here are those 120 plus percent level something.
And you could sustain given the seedlings you've laid with the signature.
This year and just expansion opportunities with the agreement cloud you've laid out and it sounds like are starting to gain some momentum or is there some counterbalanced, which should also be mindful of and and penciling those numbers out going forward.
Yes.
Yes, so on the on that I think the new codes are really seeding.
Our opportunity and Upsells and expansion when we think just kind of about the market opportunity and where that that number could go however, given the scale that we're at.
And the rate that we've been growing we're watching that number quite closely so our historic range for dollar net retention has been kind of and the 112 to $1 19 range and the last.
The last bunch of quarters, we've been above that range and so I think the way to think about that is we likely.
Would continue at the high end of the historical range or at least at the high end of the historical range and we will continue to monitor that that metric quite closely but we're feeling good.
And about 123% that we posted for Q4, but then also just the amount of on net new customers that we've added and how they've been expanding over the course of the last year.
That's helpful. Just maybe a quick follow on Cynthia on hiring you had a big step up on head count mid year at least from a sequential perspective. It looks like the pace of adds is starting to moderate can you just expand on how you're thinking about capacity from here and there is.
And your commentary around staying and growth investment mode, but happy with some of the initial seeds with with margin expansion already on the guide it looks like maybe that's the case, but anything you can add as helpful.
Yes for sure and that's exactly how we're thinking about it we are investing for growth and if you think about the last four quarters in the first half of last year.
On our customer demand outstripped, the capacity and the field right and so as we move through the year, We then and ask.
<unk> hiring to really meet that customer demand and to set us up to continue to grow and hot off a higher base coming into this year and so we will continue to make investments across the go to market.
And sales and success as Dan had mentioned and then also and R&D and continuing to innovate around the product portfolio, particularly across the agreement cloud and so we will continue to make those investments.
You will see.
And continue to move towards our operating margin targets like just given how nascent the opportunity and how big the opportunity is and our market position will continue to have that in that.
Aggressively for growth.
And one other piece that I would I wouldn't look at it as a reduction in the capacity building and the second half if you factor and.
The acquisitions that we did in the middle of the year. So if you look at the number of employees that we brought on with the seal and the LIFO technologies that sort of inflated a little bit and the middle of the year. So if you smoothed that out I think you'll hear what Cynthia saying is very consistent that we are continuing to invest and growth first.
And the performance of the business is such that we threw more to the bottom line than we expected it's not a problem, but it's no way and indication that we're moving back from our focus on growth first.
A good problem to have thanks, congrats on the impressive you just closed.
Thank you.
Your next question comes from the line of Tyler Radke with Citigroup. Please proceed with your question.
Hi, Thanks for taking my question I wanted to ask you just how youre thinking about maybe some other newer verticals.
Particularly around federal or some other verticals that maybe you didn't see as much success and in FY 'twenty one.
And how youre thinking about those in terms of being a driver here this year.
Yeah, So we think about our business and.
And verticals for sure and then we also have our <unk> business, right, which is which is quite substantial but and the verticals.
The overall government vertical was incredibly strong for us and fiscal year 'twenty, one, but it was very strong at state and local and it wasn't as strong and federal.
And I don't know that I have I mean, we could sort of hypothesize on what a pandemic does for certain types of governments or others, but I.
I think that there were so many kind of like health and human services aspects and the state and local where they deliver those.
Types of services.
There are populations that really needed to happen in a quick way and I think the federal agencies, just had less of that and less of that urgency. So from that standpoint, and we look forward to this year and we think about federal I think we think it's a lot of opportunity and there is a lot of almost pent up demand.
Now on by the federal government.
Fantastic, but the pace.
Change there is sometimes not rapid so we wouldn't be surprised if that some other things take longer than we think but we do see a pipe building of significant opportunities to add that to the good success, we had in state and local this last year.
Okay, well said, thank you and and just a follow up.
Maybe just if you could kind of share with us what youre thinking about in terms of return to you.
Obviously not back to full normal pre COVID-19 spending levels, but just kind of what youre modeling and in terms of high level assumptions there.
Can you talk about our spending are you talking about customer spending correct, yes, just spending on on you now.
Either travel and entertainment office spending and just kind of curious how youre thinking about that through the back half of the year.
So we've sort of told our employees to give you some indication of that that they would not be required to return to <unk> offices and.
Till October 4th.
And now we've previously said June and had pushed out it could push out again, obviously, but that's our perspective that we wouldn't be back and any significant way before then and so did you want to talk a little bit how we've modeled the expenses from that standpoint, and how that might change just try and give some perspective on it.
The bottom line and say we've talked about continued increase.
And in our profitability and our operating income, but not at the torrid rate that it improved in fiscal year 'twenty, one because we do want to focus on growth investing yes of course of course until I think towards the second half of the year. We are starting to bake in kind of more a return to office.
Our own expense line, but I would say, it's moderated right because it will it will kind of ramp and they're slowly I would say last year that probably wasn't the biggest impact on our margin. It was really the outperformance and the customer demand and so we.
Invested and other places when kind of some of the travel on went away, including and employees and it's an and.
And for your benefit types of.
Program.
In a nutshell, we're baking it in towards the second half of the year, but it is kind of a slow ramp up and it's included in the guidance.
Okay. Thank you.
Okay.
Ladies and gentlemen, we apologize, but we are out of time for questions and I would like to turn the call back to Mr. Dan Springer for closing remarks.
Thank you so much and thank you all for joining us and as I said at the beginning of the call. We really hope you will all be able to join us for our inaugural analyst day, and we'll look forward to seeing you there. Thank you.
This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
Okay.
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