Q2 2022 DocuSign Inc Earnings Call
Good afternoon, ladies and gentlemen. Thank you for joining DocuSign. Second quarter fiscal year 22 earnings conference. Call reminder. This.
It 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 brief question and answer session will follow the formal presentation. If anyone should require operator systems during the conference, please press star zero on your telephone keypad. I will now pass the call over to Annie leschin head of investor relations, please go ahead.
We have DocuSign CEO Dan Springer and cffo Cynthia Gaylor, the press release announcing our second quarter results with issued earlier today and is posted on our investor relations website before we get started. I'd like everyone to know that we plan to participate virtually in a few upcoming events. These include Wolf's inaugural TMT.
Conference on September 8 City 2021 global technology conference on September 13th.
Hyper Sandler's global technology conference on September 13th and Jeffrey software conference on September 14th. You can find more information about these events in the press releases section on our investor relations website as other events. Come up will make additional announcement.
Aunt. Now, let me remind everyone, that some of our statements on today's call are forward-looking. We believe our assumptions and expectations related to these forward-looking statements are reasonable, but they are subject to known and unknown risks and uncertainties that may cause our actual results or performance to be materially different. In particular, our expectations regarding the effects of the evolving COVID-19.10 down like on our business, including the potential effects of the pedantic on our customers businesses and the pace of digital transformation. Our base.
Our best estimate at this time and are therefore subject to change.
Please read and consider the risk factors in our filings with the SEC together, with the content of this call, and a 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 Damon's in light of future events or new information. During this call. We will present gaap and non gaap Financial measures not got Financial measures include stock based compensation expense, employer, payroll tax on Employee Stock transactions, amortization of acquired intangible assets.
Amortization of debt, Cisco and issuance costs from our notes, acquisition related expenses.
Are value adjustment strategic Investments impairment up at least related assets and as applicable. Other specialized in addition. We provide non-gaap weighted, average, share count and information regarding free cash. Flows in Billings. These non-gaap measures are not intended to be considered in isolation from a substitute for or Superior to our gaap result. We encourage you to consider all measures when analyzing our performance.
It's for information regarding our non-gaap financial information, the most directly comparable, gaap measures and a quantitative reconciliation of those figures. Please refer to today's press release, which can be found again on our website at investor DocuSign.com. Now, I'd like to turn the call over to Dan Dan. Thanks Annie. Good afternoon everyone and Welcome to our second quarter earnings call for fiscal 2022. Today. I'd like to focus my comments on three key areas are strong.
Q2 results how companies are increasingly digitizing their agreement processes and how we're cementing DocuSign as a critical pillar of the anywhere economy jumping straight into our second quarter financials. DocuSign strong performance continued as we delivered a balance of growth and profitability of scale Revenue grew 50% year-over-year to 512 million dollars in Billings grew.
Mint year-over-year to 595 million dollars, our international business continued, its strong growth up 71 percent year over year. We expanded our customer base beyond the 1 million Mark including the addition of 13,000 new direct customers and some very significant clsa wins with large customers.
Finally, we continue to see a strong expansion and upsell motion for a signature and the broader agreement, Cloud Suite driving our dollar net, retention of 124 percent.
Mint overall. I am proud of how our team has continued to stay in front of the evolving COVID-19 business environment. We are helping organizations of all sizes, Leverage, The Power of the agreement Cloud to digitize, the foundation of doing business, the agreement process. Not only to customers see DocuSign is a vital part of their response to COVID-19. Many have also seen a better way of doing business from anywhere.
And we believe that will become their new normal.
One of our customers, Stacey Johansson is the president of DownEast Insurance. Told us that when COVID-19 hit and they had to close their physical doors. DocuSign save them in her words. And I quote, if it weren't for the ability to get an electronic signature. We wouldn't have written half of the new business. We did last year. I having succeeded Beyond Expectations by fully embracing digital tools down east resolve to do business this way from here on.
Another example.
It's one of Canada's largest automotive dealers in response to COVID-19. The company adopted DocuSign e signature and DocuSign payment to support remote Sales and Service. The program was so successful. It spawned a larger initiative to offer digital transactions across their entire dealer Network, as one company executive put, it DocuSign has become part of facilitating, a full, breadth of remote experiences.
These are just a few examples of what we're seeing again, and again, being able to do business and operate from anywhere, is what people now expect. Plus it saves time money and trees.
To cement DocuSign position as of critical pillar of the anywhere economy. We are executing on Three core themes as a business. The first is to stay focused on customer success. We are helping our customers and partners to shift their perspective from reactive to proactive and enacting enterprise-wide programs to automate and digitize, their end-to-end agreement processes. Let me highlight just a couple of examples.
One of our largest US state government customers saw a substantial increase in the thousands of employees accessing their systems remotely. We were able to scale re signature solution to allow the HR and administration teams to handle the increased load. In addition. The agency rolled out. DocuSign clsa to simplify 3 complex workflows resulting in..97 percent of all contracts being completed.
Significantly less time and we're not only helping State agencies. Today DocuSign serves the majority of the cabinet agencies in the US Federal sector in the private sector. One of the world's largest media and entertainment companies has been a long-standing DocuSign user and has digitized over 400 paper-based, workflows with us growing adoption by 100 percent year over year. Now, the company has deployed in multiple use cases.
And a scene, a multi-million dollar return on their investment in the DocuSign agreement cloud.
The second theme is giving our customers an agreement Cloud platform. They can grow into. That means offering the most comprehensive set of applications and Integrations available for the agreement process. They can start with the signature and then expand into other areas like contract lifecycle management and into specialized Solutions in verticals like mortgage and Life Sciences with every DocuSign agreement Cloud release. We keep adding to our
And differentiating our platform. Let me know some of our latest highlights.
For your signature. We debuted new ID, verification capabilities that allow both automatic and manual identity review by sender's. It's now also possible for an identity check to be done once and then remain valid until the envelope is complete dramatically. Improving the experience for sender and sign or a like we've improved the embedding and management of our click wrap solution and one of our largest retail customers recently.
They completed more than 1 million transact.
Using DocuSign click, we introduced a new integration and add infor, Splunk bringing the security insights provided by DocuSign monitor into one of the most popular Enterprise monitoring tools.
We continue to grow the number of notarized transactions completed on our platform and today, DocuSign notary supports remote online, notaries 18, US states with more coming in the future turning to clsa two key areas. Stand out for me. The first is our continued build out of by side. Clsa capabilities. We have released obligation management, which is huge, and a connector for our key partner arriba.
This adds the other by side connector shift earlier this year.
The second clsa highlight is our enhancement of AI based search and Reporting capabilities within the offering. We call clsa plus it features. Automatic contract term extraction, and allows for searching of agreements. Not only by keywords, but also, by AI driven Concepts such as renewal dates within the next 90 days. This saves a huge amount of time and annual effort and then
Is the trust and security enhancements. To the DocuSign platform. We continue to bring enhanced security features to our product Suite with Solutions, like DocuSign monitor, which I mentioned earlier. We are also deepening, our trust and security relationship with our customers. For example, we recently held a number of C. So Summit and we are collaborating closely across our customer base and trust and security topics where there's tremendous demand.
Together, these advancements in our products, move us closer to a unified platform of record. Four Agreements, and agreement processes.
Finally, the third theme is our international business. This remains a highlight for us as our teams outside. The US, contributed more Revenue in Q2 than any other quarter today. The key drivers for a Mia, Latin and apj mirror those that we've seen here in the US. And by way of example, one of Europe's fastest growing Enterprise Focus startups. So alone has saw a dramatic increase in the volume of contracts that needed to be.
Did reviewed and processed a workflow that had been largely manual today, but by implementing, DocuSign, clsa the company address these in efficiencies saving the legal team, countless hours, and delivering contracts, 80% faster than before, further expansion is already planned into the procurement and HR teams.
In apj one of our largest financial services customers the Commonwealth Bank of Australia expanded, its number of use cases and saw a substantial increase in transaction volumes. One team saw a 175 percent increase in documents process through DocuSign, and another noted, a 17-day faster, time to revenue. The customers now embarking on an automation project further integrate and streamline the
Up and down street.
These examples indicate we're pleased with how our international business is accelerating driven by the same factors speed, cost efficiency and user experience that have propelled us domestically. Okay, before I hand it over to Cynthia, to walk through the financials. I want to mention another factor that has always been Central to DocuSign. Our environmental impact re signature solution. Alone has replaced billions of pieces of paper, along with significant amounts of the waste water.
Carbon and wood that are required to make and transport that paper. In addition to help fight global warming DocuSign is also committed to achieving carbon neutrality by 2022. As part of this effort. We have launched an ESG portion of our website, and of organized, a multifunctional team to coordinate, our overall sustainability strategies. We will continue to help our customers realize their ESG goals while we work to be a positive example in the running of Our Own.
I'm incredibly pleased with DocuSign performance. In the second quarter. Our team has continued to deliver across the board and is done. So with a real focus on customer and partner success. I look forward to talking to you in the QA shortly for now over to Cynthia.
Thanks and good afternoon, everyone.
Total revenue increased 50% year-over-year to 512 million dollars. Subscriptions Revenue, grew 52 percent year-over-year to 493 million dollars. Thanks to strong customer demand, early renewals and upsells driven by accelerated consumption from our expanding install date.
Our international business, had another outstanding performance with strength across the board, led by Amia.
In total, our International Revenue, grew 71 percent year-over-year to almost a hundred and fourteen million dollars, representing a record, 22 percent of total revenue.
Billings 447 percent year-over-year to 595 million dollars as we continue to see strong early renewals and expansions of existing customers. Total customers cross the 1 million Mark, with more than 65,000, new customers added in the quarter. This fraud are total customer count and Q..2 to 1 million 53,000, worldwide, an increase of 41 percent compared to a year ago.
We added 13,000, direct customers, bringing the total to a hundred and forty eight thousand, an increase of 50% year-over-year. We also saw customers with an annual spend greater than $300,000 grow 37 percent year-over-year to a total of 714 customers.
For the fifth quarter in a row.
Dollar, net retention exceeded. The high end of our historical range coming in at a hundred, and twenty four percent.
Mint total non-gaap gross margin for the second quarter with 82 percent, compared with 78 percent a year ago. While subscriptions, gross margin was 85 percent compared with 83 percent a year ago.
Our strong Revenue growth again, outpace spending this quarter. Non-gaap operating margin was Nineteen percent or nearly a hundred million dollars compared with ten percent or thirty four million dollars in the second quarter of last year.
Investing for top-line growth. For me is a high priority for us. In the second half of the year, including increasing sales capacity and marketing program, innovating our products and scaling our back office systems and processes.
We see the tight Talent Market as an opportunity to uplevel and develop our people internally while adding complementary skills, as we drive. The next stage of growth non-gaap, net income for Q2 was 98 million dollars compared with 35 million dollars. In the second quarter of last year. We ended the quarter with 6550, one employees, an increase of 31 percent over last year.
Our clients are our cash flow, remain robust, and Q2 operating. Cash Flow came in at a hundred and seventy eight million dollars. Or thirty five percent margin, do to continue top-line outperformance. This Compares with a hundred and eighty million dollars or 35% in the same quarter a year ago.
Free cash, flow reached a hundred and sixty-two million dollars, or thirty two percent margin in the quarter compared to a hundred million or 29 percent in the prior year.
We exited Q2 with 887 million dollars in cash cash, equivalents restricted, cash and Investments. Now, let me turn to guidance clearly the last year and a half has been exceptional in your lie every way. For DocuSign, in the last six quarters. We have scaled our business nearly to fold more than doubled. Our operating profit ability, nearly doubled. Our customer accounts and reach our highest dollar net. Retention levels yet.
Anyway, you look at it. This is impressive growth at scale.
Halfway through fiscal 2022. We have seen customers were doing earlier in the year as they've used more envelopes and their purchases catch up with consumption levels. While we do not expect to maintain the peak levels of growth seen at the height of the pain. Demek. Our value proposition is strong regardless of whether people go back to the office. We don't see them going back to pen and paper.
Turning to the numbers for the third quarter and fiscal year 2002. We anticipate total revenue of 526.532 million dollars in Q3 or growth of 37 percent to 39 percent year-over-year and 2.0.782 2.08 eight billion dollars for fiscal 22, for growth of 43 to 44 percent year over year.
of this, we expect subscriptions Revenue a
Five to five hundred and eleven million dollars in Q3 or growth of 38 to 39 percent year-over-year. And one point 995.22.000 five billion dollars for fiscal 22 or growth of 44 to 45 percent year over year.
We're for doings. We expect 585 to 597 million dollars in Q3 for growth of 33 to 36 percent year over year and 2.40 nine to two point four to nine billion dollars for fiscal 22 or growth of 40 percent to 41 percent year over year.
We expect non-gaap gross margin to be 79 to 81 percent for both Q3 and typical 22. We expect non-gaap operating margin to be 17 to 19 percent for Q19 to 18% for fiscal 22.
We expect to see a de minimis amount of interest in other income. And we expect a tax provision of approximately six to nine million dollars for physical 22.
We expect fully diluted weighted, average shares outstanding of 205 to 210 million for both Q3 and physical 22.
In closing, we ended the first half of the year in a strong financial position. We are focused on Investing For future growth. Scaling, our business and cementing DocuSign as a critical pillar of the anywhere economy. We would like to thank our customers and especially our DocuSign team for their partnership and hard work and helping us deliver another successful quarter. We look forward to continuing to execute in the second half of the year. Thanks again, for joining us today. We will now open
The call for QA operator.
Thank you. Will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question accused. You may press star two. If you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset, before pressing the store for you. One moment, please while we pull for question.
Thank you. Our first question comes from Pavan SRI with William. Blair. Please proceed with your question. Thank you. Can you guys hear me? Okay.
Yep, hear you fine great. Congrats, and especially that ndr number. That was fantastic. It's rare to see a company at scale, improving and er are usually transact. So rather than that. I have one question. It's really a big fundamental question. It's not it's not about a quarter of a year, but it's not data. We've talked about a lot as you think about the long term, we've talked about. How do you leverage the mass amounts of
You talk about seal. We talked about Ramon ordering options things, but I love for you to talk about again. Not a quarter or even 12 months, 24, 36, even three to five years. Are you going to monetize that data? How does that Data Drive? Stickiness? But also monetization of that, but I'd love to just talk through that process. Thank you. Yeah, it's a really interesting topic. And when we think a lot about, let me break it into two pieces. What I think we will do and what I think we won't do.
Particularly night time frame. You just describe. What we are going to do, is let
In the existing data and the reporting and analytics tools. We have as well as the increasing focus on artificial intelligence to go deeper to leverage that data to help our customers run their business better. And I gave an example in the prepared remarks about how folks have been able to learn more about their business and be able to search against their agreements that they've done in the past to understand how they could quickly. Find information to again, help, improve the performance, what they do. We think we have a huge investment.
Investment opportunity there, which we're going to aggressively invest in Seal software was a great example of an acquisition. We did to enhance in this case. Artificial intelligence engineering skill set. But I think you're going to see us doing a lot more in the data science world, to make our products more able to help customers run their business better. The second thing is we can mind that information to help us drive more customer success. So we can take a look at how people are using our products, how they're not using our products, which use cases. They're not availing themselves.
When they have incomplete segments of agreements because certain parts of the company might not being. As responsive as others and help them really pinpoint and run their business better and help them figure out ways to grow more with DocuSign because of that. So that's probably the give you a couple of flavors. I think we're excited about one of the things. A lot of people ask about is would we be able to figure out a way to leverage? All the agreement across our different customers to offer different kinds of services to people? We're super sensitive about that at this point in time.
We are a B2B software company. Our job is to serve our customers, taking their data. For some other purpose is not on our roadmap. In any way. I agree that there's sort of a lucrative sounding opportunity there. But at this point when we talk to our customers, they say we'd like to use our data ourselves. Thank you very much. And like you to make the good living you do off, helping us be successful with our business, not sort of extract that information to use in another way. I would tell you the one exception to that.
When you think about the way, we train our models, particularly around things like artificial intelligence, the fact that we have lots of customers, you know, over a million customers. Now, we had a 13,000 new direct customers alone. In this last quarter. We're going to get more and more people using our models that is going to allow us to do better learning on those models, which will, of course, be a benefit of course, across all of our customer set. But to the specific data, we're not going to take our customers data and use it for other purposes.
Now, I think it's helpful.
Monetization I think is interesting in and not again today. But over time how should we think about? Where DocuSign ends up? Benefiting from a revenue and earnings perspective from that? Yeah. Well, I think there's a couple things and going off again that first, what we are going to do the first bucket. I talked about me, give you a couple examples of how we see in that play out. But but to be clear, the bulk of it is not about a monetizing. That data blocks are back to those customers, but just allowing them to be more effective and we just have a really strong point of view here that if we drive.
I've customer success and they and we increase the quality of the ROI. They get, it's only good for our business. It just drives further adoption of the Core Business. We have. So our thinking isn't about a new sort of set of service offering is about enhancing what we already do with the agreement Cloud. So people will want to put more with us. Now, one of the benefits that allows us to expand our footprint. Very, I think related to your question, is one, someone realizes that they should have all of their agreements in our repository and a service clsa Lucien.
And yet adopted already signature is an example and say we really want to consolidate and get all that information into one repository. And we believe that is the way we win with data by showing people that when they integrate across their agreement cloud with DocuSign, that the information we can extract across their agreements and help them across their business. Understand how to operate it more effectively, and more efficiently. That's where the payout comes to them and then in turn to come to us because they grow with us, so, that's really the core of how we think about it as opposed to
DocuSign, that means they're going to go out to all the other parts of the company that
A new set of offerings where we might leverage that data to effectively sell back to them.
I appreciate it. Congrats. And thank you for the Candor. I really appreciate that. Very nice job. Thank you.
Thank you. Our next question comes from Sterling auty with JP Morgan. Please proceed with your question. Yeah, thanks. Hi, guys. I just have one question as well. And it's really regarding when it's Cynthia's comments, about not having sustainable growth at the peak levels of the pandemic, which no one expects. But this week in particular, we've seen a number of high growth companies highlighted by Zoom starting to show that post pandemic deceleration and my question is how should investors
Think about the pace of moderation in your growth as we move forward, especially in light of the high growth that you're showing on the international front.
Aunt, sure, thanks for the, thanks for the question, Sterling. So I think you know, we've been talking about it, the last several quarters, right? That we wouldn't expect our growth to maintain at the peak levels that we saw kind of during the height of the pain demek. Now, that's not to say that we still won't have very strong growth and solid growth. You know, we had a very strong first half of the year and we're guiding a strong second half. So I think you know, one of the beauties of our model is it is a subscription-based model. And so these things tend to be gradual.
But we did see, you know, Peak levels of growth at scale during the height of the pandemic and we would expect that to continue. So it's very consistent. I don't think there's anything really different in kind of what we're seeing now versus what we were seeing before and saying before in terms of our growth rates.
Understood. Thank you.
Thank you. Our next question, comes from, Brad Stills, with Bank of America. Please proceed with your question. Oh, great. Thanks guys and congratulations on a real nice quarter. I wanted to ask on the agreement Cloud. Obviously, you've seen some early traction there. Congratulations on that. I know there's a lot of hard work on the product side and you use cited. Some of the deliverables there. My question is where our customers starting here. Is it, is it typically with insights or analyzer. They're already running e signature or, you know,
Is this clsa typically start with with the as that repository for terms and conditions and then they go into analyzer. What is the typical path look like for kind of the entry in the agreement Cloud? Thank you. Yeah, absolutely. Right. So the first answer sort of implied in your question, but let me make sure I'm absolutely clear about is the tip of the spear for us. Is he signature? Right? So the vast vast vast, majority of our customers start with signature and it's for the simple reason that until you figured out a way to digitize your agreements and capture them.
In an online fashion, it's really hard to.
The remaining aspects of the of the agreement Cloud, right? You don't have digital agreement. So clearly signature is where people start. What we're seeing is the second move tends to be to clsa and it's a constructive. Once they start thinking about that, repository, that you referred to in your question. That's where we really see the opportunity for them to start thinking about a full feature agreement, Cloud that they want to build out across their own system of agreement. So clsa where we see the next move, and that's where we see ourselves. As you heard me mentioning on prepared remarks.
Where we see a lot of traction right now. And one of the things to keep in mind is last year, when we had the surge, any signature demand. That Cynthia was just referring to at that peak of COVID-19. We had our customers, really pushing us to go signature signature, signature course. That was natural for us because that's that's what brought us to The Stance, right? But we said we had to sort of slow down some of our focus on the other parts of the agreement. Cloud, just to meet customer demand because we are at our core customer success company and the DocuSign employees. Rallied and me.
That surge in demand. Now this year, we're starting to see the opportunity to go back to where we were really two years ago and say now let's focus on clsa as that next big opportunity to really expand people into the agreement cloud. And we think that will be the foundation for most companies in how they really build out, the rest of the agreement, Cloud Beyond signature. That's great. Dan. Thanks so much and maybe just to follow up on that. What we, what is the effort involved to go for me signature to clsa? What is the implementation cycle look like? Given that this is a repository.
Tori. There's data that resides in here, you know, is there an SI partner community that you've developed here to help with that work? Or is it more seamless? Maybe it's just not, not that complicated to go from you signature to seal them. Thank you so much. Well, as you guess, we're working hard to make it as seamless as possible. But let me be absolutely clear that the construct of someone becoming a nice signature customer is very different than becoming a clsa customer. And we've done a fantastic job and our core signature product to
An amazingly easy-to-use service and one of the things that's indicative of that. If you look at the fact that we have, you know, over 900,000 customers that have come to us through the web. They never have to talk to anyone. DocuSign, if they didn't want to, we're wonderful people to talk to. I hope you understand. But they don't have to, they can sign up online and start using our award-winning software. So, when you get to clsa, you absolutely are going to probably have a statement of work. We'd love it. When we get to use one of our SI Partners. We do have a fantastic, Professional Services team.
Mmmmm, but that goal of that organization is sort of train the trainers. And over time. We really want to see that SI ecosystem really Blossom to the point that it's a smaller and smaller part of what we do. Now, less than five percent of our revenue is Services. That's not like, it's something that's become a big part of our business, but we really feel the right way to be as ubiquitous as we can, is to build a strong Network there. And then we believe, for the vast majority of customers. They will leverage whether it's our Pro serve, or if they have a really strong, it team internally and they
of available resources, which is fairly unusual that they have, that they can do it themselves, but the hope for
Outcome is, it'll be the SI Network, and we're really excited about the progress. We've been building a super strong ecosystem there and the focus for us in the years. To come great to hear. Thanks, Dan.
Thank you. Our next question comes from, Scott Berg with Needham. Please, proceed with your questions.
Hey guys, this is John. Godean infor Scott Berg. I appreciate taking my question. Are you guys doing anything different as far as trends go over this past quarter? As far as the mix of growth coming from higher consumption levels of existing, use cases versus, you know, adding additional use cases or moving across the different departments. So in terms of we're doing anything different, you know, we're going to be of course, responsive to our customers. And so what we do,
Have a fantastic customer success organization. That's out there suggesting to our customers where they're like a most likely next applications might be and what use cases might make most sense for them. The answer is again, we respond to the needs of their business from a customer standpoint. I think we're seeing growth across both. We are seeing a lot of people expanding the volumes. I gave some examples in my opening remarks of customers. Who said we have a use case, it's working well with DocuSign, and we want to do more of that.
Commonwealth bank's, a good, a good example of that. But we also have seen fantastic examples of people expanding the number of use cases. Remember our land and expand model is really based upon the fact that we get in, we deliver fantastic Roi to one group in a company, for initial use case that we land with, and then expand across not only more use cases, but also more departments and, and other divisions within that company. And so, I would say, from the standpoint data is nothing different. That I've noticed in the last year.
In Prior years, in terms of that, Nick's I think it's a very peak of COVID-19. We probably saw an increase in more use cases, that sort of expansion of more things. People were doing over volumes. They just realized were critical parts of their business. They needed to address in the anywhere economy. They hadn't done today. I think we're probably back to that, that normal mix of what's increase in the volumes of existing, use cases and what's increasing new use cases.
Great. Thank you guys.
Thank you. Our next question comes from Karl. Keirstead with UBS. Please, proceed with your question. Thank you. And congrats, and Life numbers. Cynthia. I'd love. If you could talk a little bit about your margin outlook for the second half, despite raising your total revenue guide by 50 million. You left your operating margin Target of 16 to 18 intact, and that were to would require step down in the fourth quarter. So maybe you could talk a little bit about what assumptions are driving. Your second half. Margin Outlook. Thank you.
Yeah, thank you for. Thank you for the question. So, in terms of a margin, you know, we've been performing kind of at the low end of our long term Target margin. And as we said last quarter, we're really looking to make sure we're investing for growth just given the the large Market opportunity. We have and the traction we're seeing. And so we'll continue to do that, you know, particularly Building Sales capacity in our marketing programs, and in our product development team.
And we'll continue to do that through the back half of the year.
Also, remember, you know, as we look into next year, you know, we do look to hire in Q4 and for folks to start in Q4 that will build capacity going into next year and so cute for, you know, tends to have more extensive built into it and some of the other quarters. So that's driving those assumptions. I'd also just remind you from a margin perspective, some of the top line out performance. We've seen in the first half.
Half certainly shows kind of just operating leverage in our business model, right? But we are looking to invest for growth over the long term and that's what built into the Assumption in the second half, in terms of the the margin got it. Okay, and then maybe follow up again for you Cynthia, you mentioned that you had another quarter of good early renewal and expansions when you look into the guidance, you provided for the second half. What do you, what do you embedding in terms of a continuation of those early renewal? And
Pension trends that you saw in q1 and Q2. Are you expecting that to moderate in the second half?
I would say that has continued to moderate and was baked into the the guidance, you know, as we came into Q2 and similar assumptions, are baked into the guidance as we move to the second half of the year, but we wouldn't expect to have those Peak levels that we were talking about last quarter in the quarter before.
But we always will have, you know, some early renewals, which are a good thing because it shows customers are using the products and consuming at higher levels, but would expect those Peak levels. So our expectation on that is consistent with the guide and and it's baked in, you know, how we're looking at our consumption Trends and then the revenue trends that fall out of that. Got it. That's very clear. Thanks and congrats again.
Thank you. Our next question comes from.
Great. Thanks for taking my question. Was hoping to drill down a little bit on the international front in the success that you're seeing things about a year ago where you announced a new president of international. And obviously we've seen acceleration over the last year. So maybe help us understand where you're seeing success and what the second act is going to look like over the next year. Thanks. So I think we've been pleased across the board with International. I don't think you've put up sort of, you know, numbers in the 70s for growth.
With unless you're having pretty good success across the board. I would say our strongest performance in the quarter was in a Mia, which is our largest geography outside of North America, and but it was moved again, strong across the board apj latinum perform well for us. And I think going forward, it's more of the same. I think, we know we've talked a lot about this constant that we had to focus 8 in terms of the core countries where we operate.
In and itom.
We want to continue to focus on those eight and I think over the next year or so. You're going to see us expanding on that a little bit. We may end up getting to a place where it's more like nine or ten countries where we see that we have a sort of a presence not just online. We sell to over a hundred eighty countries. If you look at our online business, but where we really have dedicated people with with, you know, feet on the ground. So I think that's the way I think about it at the core..8 will be big Europe. I think is going to continue to be super exciting opportunity for us, but we are
Our we're investing aggressively in branding internationally. We don't have the same well-known reputation outside of the us as we do have in the US. And we are putting Cynthia referred to the idea of building sales capacity and a significant portion of that will also go into the international markets and we are super bullish that we have a big opportunity. Keep in mind when you look at that growth, this quarter, we hit a record and it's still only 22 percent of our revenue is coming out of our home.
Country. And so that is a low number for what the opportunity is. So we have a lot of growth ahead internationally.
Thanks, Dan.
Reminder, we asked participants to limit themselves to one question.
Our next question is from Pat Walravens with JMP. Please proceed with your question.
Oh great. Thank you. Let me add my congratulations. And I'm assuming that reminder was for me. So, alright, so hey.
Colleagues out there. We absolutely consider them as separate and important part of the focus state. So go ahead with your question. Okay. So I think, you know, the largest economies that are not on. That list would be China India, Italy, and Middle East Africa, so love to hear your thoughts on any of those. Yeah. So I think the answer with China is obviously it's incredibly complex. So I'll knock that one off first. I think the perspective is we see a huge opportunity obviously with the second largest economy in the world and the largest
Population, probably for at least another 10 years before India catches up, but it's also really complex and fraught with a lot of risk as you know, well, so we do not have a near-term, sort of expansion there. I'll tell you a lot of our customers are asking us to figure out more options. What we do people can sign in China, of course, but to really deal with the complexity that market, we something we need to do but I would not put that on a very, big short term. Peace. India is an area where we have.
A little bit of work already and I think we see that as a one of the significant.
Unity's for a future in the next year or two future, big investment and growth. You talked about Italy. We actually have Italy and Spain about the same perspective in terms of in Europe and think about the opportunities for for larger countries, there. We think that's going to be an area over the next year. Or so. Will you will see us do more expansion looking for ways to put your feet on the street there and I think that can be attractive. The Netherlands is another area that
I would add to that and you can talk about the rest of North America. But Mexico is a place where we've actually recently started to hire people already. So when you get all three of the North American countries into that mix the Middle East with the last one, I believe you mentioned, you know, we serve the Middle East out of, you know, our Dublin hub for a Mia. I don't think we have seen as much sort of demand from both the commercial group that sells out of Dublin and the online.
Sort of business. We do to suggest that the Middle East would be as fast as some of those other countries, but I obviously, it's going to be an area that that will be a growth area for us, but it would probably come later than sort of the Italy, Spain Netherlands countries I mentioned there.
Great. Thank you.
Thank you.
Thank you. Our next question comes from Kirk materne with ever core. Is I please proceed with your question. Okay. Thanks very much and congrats on the quarter. Cynthia's. What are you? This talk about net retention rate as we start to laugh, sort of the peak demand periods from last year. Just talked about how you feel about the ability to kind of stay up at these rates. And I was also wondering if the rest of the agreement Cloud, whether it's serum analytics is starting to influence that at all.
My guess is not yet. But I was watching you just comment on that as well. Thanks. Sure. Yeah, we coming off the high of a hundred, twenty five percent last quarter. So we would expect kind of going into the back half of the year today, you know, at or above our historical ranges and so nothing's really changed their, you know, the great thing about that that metric is it does demonstrate.
You know, our dedication to customer success and making customers successful with our products and as they continue to expand their footprint, you know, with DocuSign kind of a cross product, but I would also agree with your statement that, you know, the, the Nani signature product are contributing a little bit to that number, but aren't the main driver. It's really, you know, as Dan said signature is the, the tip of the spear for us and that includes that, that that metric as well.
Thank you.
Thank you. Our next question comes from Tyler. Radke with Citigroup. Please. Proceed with your question.
- thanks for taking my question. I wanted to ask you about the the new customer additions, you know, clearly that that number is remain pretty healthy this year. Despite, you know, the big numbers that you put up last year. I think it was still, you know, multiples of kind of the pre-pandemic number of customers. You're putting up, you know, I guess if you could just help us understand, you know are the use cases that
You know, you're Landing these customers a lot different than what you saw.
Last year, I guess in some ways investors might kind of ask, you know, why would a customer not have signed up for DocuSign last year and in are signing up now or they're kind of new regulatory hurdles that they've been able to get over, just doing any color? You could provide on, on just kind of the impetus for new customer strength now compared to last year. Thank you. Yeah. For sure. I don't think there's any significant difference in the use case.
As we're seeing, people start out with particularly by vertical within a vertical, I think it's people are starting in the same. Use cases, to answer the sort of the conundrum, which people ask us all the time of who hasn't, you know, started with DocuSign already. When you look at those new customer accounts, this give you two thoughts to think about it. One is Tam. And one is the number of company. They're obviously highly correlated numbers, but if you think about the signature Tam at, you know, 25 billion and growing and you think about the rest of the agreement Cloud, you know, it's coming close to doubling.
That damn, and you look at the fact that if you take a look at Cynthia's guidance, we're going to do a little over two billion dollars of Revenue and we are by far the dramatic, you know, market share leader. A clue with over half the market. The answer is, this is a under penetrated base. So, if you think about the fact that we've got a little over a million customers, we got pretty excited to say, we passed the million customers, but let me just in the United States alone. There's like 25 million businesses. So, if you think about a global number, you know,
many multiples of that. So the reality is we are lightly penetrating. This is very early innings in the game and it's true that if you work in financial services, like everyone, all of you on this call, you can't imagine a company not using DocuSign, but there are tons of verticals that are are just we're not even scratching the surface and we strongly believe that every company can and should use DocuSign by the time we get to them. And so the answer is we're going to be adding a lot of new customers every quarter for years to come.
Thank you.
Thank you. Our next question comes from Alex zukin. With Wolfe research. Please proceed with your question.
Ian, thanks for taking a question. So Dan, maybe just for you. I want to go back to Sterling's question because I think it's an important one II. Think we're all trying to understand the magnitude of deceleration. And if we take a look at the metrics, I just want to hear from you. Maybe a little bit of more color about the pipeline about retention rates, particularly in the SMB category. And if we look at the guidance, the guidance for Billings does look incrementally more conservative than you had in the past few quarters. So I just want to understand is that cautiousness a sign?
You know, something that you're seeing in the business or, or how would you kind of qualify? Yeah, absolutely. I'll let Cynthia talk about the guidance. Her domain and expertise but I'll just give you my view. I think it's a pretty strong guide. If you look at the Historical rates of the company has grown, we feel pretty good about it. Considering that, you know, the last time we were giving guidance before the pandemic, our company was half the size. So we've doubled and we're still looking at what I think are really strong guidewire.
Particularly on Revenue but as well on Billings, I'll let Cynthia give you her view on that. In terms of your question about what happened in the marketplace. I mean, we feel good. We feel like we're seeing a lot of demand. We're happy with the new customer adds or happy with the revenue growth. You know, again, if you asked me a couple years ago, how I'd feel about five five numbers in front of our growth rates and revenue. I'd feel pretty good. So, I don't think there's a perspective we have that the business has some, you know, significant Slowdown.
I do think what, Cynthia said, and I would reiterate that the peak of
To try to create, you know, growth of look like that long run. I think it would be very, very difficult to be able to deliver that, but I do think we're going to continue to have strong growth rates. I'll let simply talk specifically to the guide, but from a standpoint of in the marketplace. We're not seeing any differences in churn rates, you know, in any meaningful way. We're not seeing customers, very rarely leave us if we don't do the right job of customer success and adoption we might have people where we have some dollar term, but if you look at the hundred and twenty four percent on the
Net retention, whatever, whatever sort of gaps are having there were more than making up with, you know dramatically. So with the upsells and the growth. So I think our success teams are doing a fantastic job at driving fantastic growth in the base. And then again the new additions, I think they speak for themselves or continuing to to add a large number of new customers each quarter. So I would not take the look at this these Financial results and say that it's indicative of any sort of significant slowing in the business.
I think the numbers are strong so silly. I don't have anything to add on the guidance specifically. Dialysis question. Sure. That was a very comprehensive answer. You just at the edges. I would say on the you know on the on the back half of the year. I mean our guidance philosophy, you know has been consistent since the company went public and we guide to what we can see. And as Dan said, we had a very strong first half and were raising guidance in the second half, you know, off of considerable scale.
Over the last 12 to 18 months. So, you know, we're feeling we're feeling good about the business and we're feeling good about the growth rates in the guidance. But we do guys, what we see, not what we, you know, we don't speculate beyond that.
Letter sir. Thank you guys. Maybe just a quick follow-up. Is it possible to get the rpost trip on the to the we can kind of have a gauge of the bookings?
Yeah.
The queue, but we don't use rpost even the duration of our contract and the way that's calculated, you know, we don't think that is a indicative number, but it's when you see it, it will be quite strong and the growth rate you're on, you're on. That metric is also quite strong.
Thank you guys.
Thank you. Our next question comes from Rishi. Jaluria with RBC. Please proceed with your questions.
Fins. All right. What? Wonderful, thanks so much. Really nice to see continued momentum here. Just one question. I wanted to ask maybe about what you're seeing in terms of, you know, Services because it looking at your guidance. You're expecting a bit of an acceleration on the Professional Services line in the back half of the Year. Well, it's if we've seen in the first half, you know, anything in particular, is it due to just more clsa and that requiring?
You know, a little bit more services. I know your services mixer.
I remain very, very low. It's always been and I expect it's going to be that way, but you are expecting this little bit of uptake. So maybe walk us through the assumptions embedded in what you're expecting on the Professional Services line. Thanks. Let me tell you this. In terms of thinking about Services, as you think about the comments earlier, we would love to have less and less of the services that are provided.
Add to our customers on our p&l provided by our team. We are a partner first company. We want to invest in building out an SI Network that does the vast vast vast, majority of all the services work, you know for our customers one is we think that's what they do and what we do is build fantastic software. So we like the idea of that the specialization that we had. So if you do see from time to time any positive blips in Services relative to our overall,
Where it's probably going to be indicative of what you what you mention which is if our mix moved more to other parts of the agreement cloud, like clsa where there is going to be more services is going to be more statements of work, required for implementation. That would be the thing that would drive more services for us. But again, our hope is that over time we continue to take any of that incremental service opportunity and move that into the SI partner Network that we built so that we create a fantastic opportunity.
Tease them to reinvest into the DocuSign agreement. Cloud is a core platform that they want to sell.
All right. Wonderful. Thank you so much.
Much. Thank you. Our next question, comes from Michael turrin with Wells, Fargo security. Please proceed with your question. Is there anything you can provide just remind us how much visibility you have into those underlying Dynamics as they're playing through in your customer base and does that renewal conversation in serve opportunity at all to just engage more broadly. I'm assuming it does across the agreement cloud and if so, are you changing gear?
You change gearing just as part of the investment spent to just help take advantage of that conversation. Thank you.
Yeah, I think it's a great question. And I think, you know, when we're thinking about through the customers and kind of the expansion economics. If you will, you know, what we've seen is customers, you know, sometimes use more than what they purchased. And so, you know, we don't charge them, overages per se, but we look for it as an opportunity to re-engage with the customer, you know, talk to them about, you know, how they're using the products, and how they could be using the more, but we do use that as a
Time to have them, renew, or expand what they're doing with us. And so it's both on the e-signature side, as well as the broader agreement Cloud, but you, you characterized it quite well in terms of the dynamic that we're seeing and you know, as we talked about a couple quarters ago, we did see, you know, through the pandemic, a heightened sense of early renewals and you know, we're not expecting to see those types of peak levels.
But we do have visibility into customer.
And how they're using the product, how they're consuming it through the life cycle of their their contract. So that is something that we track but also, you know, sometimes customers will develop new use cases and, you know, we use it as an opportunity to re-engage with them on what else we can be doing with them. But also making sure that their contract terms match their consumption level.
Great. Thank you.
Thank you. Our last question comes from Shelby's de Rossi with fbn security, please. Thank you very much. You're going to have in the second half, especially in Q4 and to be clear. Are you implicitly guiding for the non-gaap operating margin to decline in Q4 computer because of this increased Investments?
So I think in implicitly, you know, we give a range of guidance on the operating margin, right? And you know, part of that is dependent on where the revenue comes in where the Top Line comes in and part of it is dependent on the Investments that we're making. And so, I think the takeaway there is we are looking to invest for growth and, you know, particularly in our sales and marketing teams to help Drive top-line growth and then in our product development,
You know, as we continue to innovate around the product and maintain our leading position in the in the market with customers. And so I think those are the two main areas. I'd also know given how, how the company has grown at scale. We also have a lot of back office ketchup that we're doing with systems and processes and things like that. So we're continuing to make investment kind of in the back office to make sure, you know, we can serve our customers at this at this.
Scale. So those are the areas of investment. But as I said, we did this year. Our top-line outperformance has exceeded our ability to spending quarter. And so we're looking for that to catch up by the time, we get to the end of the year because our intention is to invest for growth versus optimized for maximum operating margin. Thanks.
Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments. Well, thank you much all for joining us. We look forward to seeing you. I'll be it unfortunately virtually in the next coming months and then talking to you after Q3. Thanks so much for joining us.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.