Q2 2023 DocuSign Inc Earnings Call

Good afternoon, ladies and gentlemen, thank you for joining <unk> second quarter fiscal 'twenty fiscal year, 2020 'twenty three earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. As a reminder, this call is being recorded and will be available.

For replay from the Investor Relations section of the website Colin Nicol.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

I'll now pass the call over to Heather hardwood head of Investor Relations. Please go ahead.

Thank you operator, good afternoon and welcome to the Doctor You think Q2 2023 earnings call.

Hi, there Harwood jockey fans head of Investor Relations.

Joining me on the call today are Dr. Stein interim CEO , Maggie Wilderotter and our CFO Cynthia Gaylor.

A press release announcing our second quarter results was issued earlier today and is posted on our Investor Relations website.

Now, let me remind everyone that some of our statements on today's call are forward looking.

We believe our assumptions and expectations related to these forward looking statements are reasonable.

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 pace of digital transformation and factors affecting customer demand are based on our best estimates at this time and are therefore subject to change.

Please read and consider the risk factors in our filings with the FCC together with the content that's 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.

In addition, we provide non-GAAP weighted average share count and information regarding free cash flows and billings.

He's not got measures are not intended to be considered in isolation from.

Substitute for or superior to our GAAP results.

We encourage you to consider all measures when analyzing our performance.

For information regarding our non-GAAP financial information the most.

The directly comparable GAAP measures and a quantitative reconciliation of those figures. Please.

If you refer to today's earnings press release, which can be found on our website at investor Dot Dot Dot com.

I'd now like to turn the call over to Maggie Wilderotter Maggie.

Thanks, very much Heather and good afternoon, everyone and thank you for joining us today.

First let me introduce myself I.

I have been on the dock you signed board for over five years and board chair for the last few years.

In addition to my Board service here, a doctor you sign it.

Also said on several other public and private boards.

I've had the privilege to serve on 51 corporate boards in my career 36, public and 15 private.

Starting at age 28, when I first joined our corporate board.

I also have 18 years of C E O operating experience at private and public companies and most recently was CEO of a fortune 500 frontier communications for 12 years.

Retiring five years ago.

I've had the privilege in my career to hire and lead great teams.

Fine clear strategies for success.

Rising results through clarity of the Liberals and accountability.

<unk> also done so with a maniacal focus on serving customers.

Internal and external.

I am taking the same approach in my interim role as CEO of jockeys time.

Since joining as CEO , I prioritize connecting with customers and employees around the globe through frequent town halls office visits virtual connections and in person meetings.

That's broad focus on listening learning and interacting has enabled me to move quickly to set a new agenda for success.

We entered Q3 with a clear set of vital few deliverables are our people initiatives product roadmap and our focus on improving sustainable and profitable growth at scale.

Six of our eight executive leaders joined during Q2 and our season scale players.

They joined Cynthia Gaylor, our CFO that you're going to hear from after me and also Shanxi ire, our CIO on the executive leadership team.

Our new executive leadership team and I have worked together over the past few weeks.

Verify our clear strategic focus and define what is required from all employees per doctor sign to be successful.

Let me start with our strategy.

Kokusai is the leader in providing end to end digital agreements on a fully integrated platform.

This starts with delivering simple.

Two it is integrated and trusted customer and partner experiences that remove friction from all steps in creating using and managing digital agreements.

[noise] support this strategy, we have upgraded talent.

Launched retention initiatives to include a new employee training program that will commence this month teaching our teams how to operate with excellence.

And he saw our new president of product that's already put in place a clear product roadmap mapped out releases starting next month.

Steve shoot our new President of go to market has revamped our selling motion and performance expectations for the small medium business and enterprise segments.

Our marketing team is delivering new collateral messaging and tools for Steve's teams as well as a simplified digital motion for consumers and one time users.

Finally Doctor sign has also added two additional season scale leaders.

I'm pleased that Jennifer Christy as our new Chief Human Resources Officer, and veteran Jim Shaughnessy is our new General counsel.

I am privileged to lead such a terrific group of executives, who have all hit the ground running by working together with a single focus.

That's a company on a path for continuous performance improvement in Q3, and Q4 and beyond.

I'm optimistic about the power of our brand our value proposition for customers and partners and the renewed results orientation being embraced by our employee base.

Finally, the search for our next CEO is a top priority.

All of our independent directors have been actively interviewing great candidates.

And we are close to making a decision.

Terrific candidate pool participating in this process as reinforced the strength of our brand.

And the shared belief that doctor sign has a tremendous future growth opportunity.

I look forward to letting you know who the next CEO will be.

With this preface let me turn to some other Q2 results highlight.

As you have seen in our earnings release Q2 revenue was 622 million, representing a 22% year over year increase.

We added 44000, new customers during the quarter again, a 22% increase year over year.

Which brings our total global paying customer count to 1.28 million.

We delivered an 18% operating margin in Q2 as well.

The second half of this fiscal year. Our goal is to drive operating expense reductions in order to meet the current operating margin guidance range of 16% to 18% that we had previously communicated to you.

We are reviewing all categories of expenses and will adjust our spending accordingly.

These expected expense reduction initiatives will create capacity for the right investments for our expected scale growth.

For example, our I T and internal systems development teams are focused on key automation and software system upgrades, including our planned ERP system cutover in this quarter.

These enhanced capabilities will enable us to eliminate current manual processes, resulting in lower operational costs in the back half of this fiscal year and it will also improve our customer and partner experiences.

I am excited to share that we closed a number of large enterprise deals during the quarter that include both Microsoft and Goldman Sachs.

In addition, our focus on partner expansion includes a new integration with stripe.

Enable users of both product sets to view darkey sign agreements and striped payments side by side.

Customers can also create new doctor sign agreements directly from stripe dashboards.

This is another strong example of taking friction out of the customer agreement transaction.

Over the past few months with increasing interest rates and inflation on a macroeconomic level.

We also have started to see some softness in certain verticals like real estate and financial services.

But despite these headwinds our business model benefits from a well diversified customer base across industries geographies and segments.

Our products help all of our customers from large to small improve their productivity be more efficient and improve their time to value creation.

In closing I am honored to continue to lead the Darkies sign team until a successor is in place.

During this time, we remain committed to stay focused on our vital few priorities.

Rising profitable growth at scale.

And delivering further enhancements to the digital agreement platform to delight our customers.

Do you have a 50 billion dollar global market opportunity.

With an industry, leading product and market share position.

We will use this position to aggressively expand our capabilities through wise investments focus and continuous improvement in our performance.

Darkies signed cannot be successful without strong shareholder support.

So let me end my remarks here with thanking all of you for your continued support of our company.

We know our results over the previous three quarters did not meet expectations.

We got the message.

That change was needed and I hope you can see that we are fully committed to build upon our current momentum to deliver for all of our stakeholders.

I will now hand, it over to our CFO , Cynthia Gaylor, who will walk you through our Q2 financial results and outlook.

Cynthia.

Thanks, Maggie and good afternoon, everyone. We delivered a solid Q2 and continue to make progress against our top priorities as we drive the business forward.

We landed ahead of our expectations for last quarter on multiple fronts. Importantly, we further expanded our customer installed base during the quarter and continued to execute towards our long term goals successfully balancing growth with improved profitability.

Delivering our customers an unmatched in innovative value proposition will remain our top priority.

Our mission is also uniquely aligned with today's macro backdrop delighting, our customers with high ROI products that are easy to use efficient and both cost saving and cost effective all while helping the environment.

Let me review some key highlights within our Q2 results.

Total revenue increased 22% year over year to $622 million and subscription revenue grew 23% year over year to $605 million.

The strengthening of the U S dollar during the quarter resulted in a couple of point headwind to total revenue growth.

It was not a meaningful factor in the quarter.

Our international revenue grew at 35% year over year to reach $154 million in the second quarter and was 25% of our total revenue.

Second quarter Billings rose, 9% year over year to $648 million with a four quarter rolling average growth of 19%.

Customer growth remains strong as we added approximately 44000, new customers during the quarter, bringing our total install base to 1.28 million customers worldwide at the end of Q2.

22% increase compared to a year ago.

This includes approximately 10000 additional direct customers to reach a total direct customer base of 191000.

29% year over year increase.

We saw a 39% year over year increase in customers with an annualized contract value greater than $300000, reaching a total of 992 customers.

However, while we successfully delivered strong results related to key metrics, we too are seeing more measured buying patterns noted by our peers, coupled with generally longer conversion cycles within some areas of our business.

This is more pronounced in real estate and within those verticals exposed to the lending market.

However, with our diversified customer base, we saw relative strength with strengthening in technology, food and beverage and manufacturing verticals.

It's also notable that S. M. B continues to show signs of durability within our direct business with higher relative growth.

Enhancing our go to market effectiveness also remains a key priority to drive topline growth and ensure solid profitability.

While progress in our go to market activities will take some time to meaningfully resonate in our quarterly results. We have taken a number of tangible steps to drive future success.

Rounding out the leadership team stabilizing the sales force.

Mining sales goals to current expectations and driving accountability throughout the field.

Our team is focused on ensuring that customers understand the many ways darkey signed positions them for success over time.

Furthermore, innovation across our product portfolio continues to drive future growth and remains core to our differentiation in the marketplace.

To share. One example from our enterprise business, we recently expanded our relationship with one of Latin America's leading pulp and paper companies.

An existing esignature customer this client expanded its <unk> footprint by purchasing C O M to digitize their force departments agreement process.

T O M. Therefore enabled our clients to automate various stages of the agreement process, including contract drafting and automatic task delegation, which has since saved hours of valuable time and manual work, while mitigating human error.

We initially began a relationship with fewer than 50 C. O M. Users today. This customer has leveled up to 500 users on our platform.

This is one of many examples which underscores our successful strategy of landing and expanding customers, who then grow with us overtime and new use cases with new products or features to address their evolving business needs.

Another example in core Esignature is a long term doctor signed customer and notable clean energy Fintech company, which expanded its use of donkey signed to address an important gap in their esignature experience.

Our team identified this customer's need for increased optimizations in their esignature journey as many of their customers signed via mobile.

We leveraged our unique product and feature expansion to ensure that signers now have the appropriate functionality and security through their mobile device.

This includes our responsive signing and smart sections viewing features with added security through SMS and I'd verification.

Now turning back to our Q2 results, we achieved a 110% dollar net retention for the quarter, which was slightly below the low end of our $1, 12% to 119% historic range.

As we noted last quarter, our customer base continues to expand however at a lower rate relative to the peak expansion rates.

Given these moderating expansion rates, coupled with the macro environment. We're seeing we expect our dollar net retention rate for Q3 to remain below the historic range.

Total non-GAAP gross margin for the quarter was 82% inline with last year, while subscription gross margin was 85% also in line with last year.

Q2, non-GAAP operating profit reached $112 million compared with $100 million last year.

non-GAAP operating margin was 18% compared to 19% last year.

non-GAAP net income for Q2 was $90 million compared with $98 million in the second quarter of last year.

As discussed last quarter, we introduced a non-GAAP tax rate and our non-GAAP net income calculation as we reach consistent non-GAAP profits for the prior three years.

We're using a non-GAAP tax rate of 20% for fiscal 'twenty three.

Q2, non-GAAP EPS is <unk> 44 cents.

Which includes the impact of the 20% non-GAAP tax rate.

We ended the quarter with 8061 employees, a 22% increase compared to last year.

We have seen attrition rates moderate with new leaders now onboard as teams settle in with clearly defined priorities and against the backdrop of a changing macro environment.

We are encouraged by the improvements we're seeing.

We exited Q2 with over $1 $1 billion in cash cash equivalents restricted cash and investments.

Operating cash flow in the second quarter was $121 million or 19% margin.

This compares with $178 million or a 35% margin for the same quarter a year ago.

Free cash flow came in at $105 million or a 17% margin in the quarter compared to $162 million or 32% in the prior year.

We are in the process of implementing a new ERP platform, which will enable improved management of our business as we continue to scale.

Looking ahead, Q3 operating cash flow and free cash flow could be impacted by the timing of collections related to our expecting ERP implementation as well as by onetime lease modification expenses.

Now turning to our share repurchase program announced earlier this year, we repurchased 400000 shares during the second quarter for approximately $25 million.

As of the end of Q2, we had approximately $175 million in remaining buyback capacity, which demonstrates our confidence in the strong fundamentals of our business and in the opportunities which lie ahead.

We remain committed to Opportunistically, returning capital to our shareholders.

Taking a step back we have operating leverage in our business and are evaluating our investments against the vital few priorities, we've identified with an eye towards ensuring sustainable growth at scale.

We are committed to achieving our long term target margins of 20% to 25%.

To that end Maggie has charged our leaders with taking a careful look to ensure our teams are aligned to our vital few priorities and to identify areas, where our business can be further streamlined and optimized.

For example, we are reassessing, our overall expense base, which includes a careful review of our people programs consultants and TNT spend.

Along these lines, we're also taking a measured approach to hiring.

And as we progress towards a more scaled model with improved operating efficiencies investments will continue to be directed toward our systems and tools, specifically your ERP at that foundational business system.

Whether we're evaluating our global real estate portfolio to optimize for team collaboration and our physical footprint is.

Rigor and discipline will ensure we operate from a position of strength and fiscal flexibility.

With that let me now turn to guidance for.

For the third quarter and fiscal year 'twenty three we anticipate total revenue of $624 million to $628 million in Q3 for a growth of 14% to 15% year over year and $2.47 billion to $482 billion for fiscal 'twenty, three or a growth of 17 to 18.

Sent year over year.

Of this we expect subscription revenue of $609 million to $613 million in Q3 or growth of 15% to 16% year over year and two four O $5 billion to $2.417 billion for fiscal 'twenty, three or a growth of 18% to 19% year over year.

For billings, we expect $584 million to $594 million in Q3 or growth of 3% to 5% year over year.

And two $550 billion to $2.570 billion for fiscal 'twenty, three or growth of eight 9% year over year.

We expect non-GAAP gross margin to be 79% to 81% for both Q3 and fiscal 'twenty three.

We expect non-GAAP operating margin at 16% to 18% for Q3 and fiscal 'twenty three.

We expect to see a de minimis amount of interest and other income and as noted last quarter. The fiscal year of 2023 non-GAAP tax rate remains at 20%.

We expect our non-GAAP fully diluted weighted average shares outstanding of $205 million to $210 million for both Q3 and fiscal 'twenty three.

In closing, we delivered a solid Q2 amid a time of transition and despite continued macro headwinds.

Our focus as a leadership team remains steadfast in serving our customers employees and investors as we continue to innovate build and positioned occupied for the unmatched opportunity, which the future holds.

This quarter has further demonstrated that digital transformation continues to be our customers' priority and that dock you signed enables the world to nimbly adapt to today's dynamic environment.

Once customers move from pen and paper they don't go back.

We will maintain our disciplined and focused investment approach across our top priorities as we further operationalize the business at scale.

We are committed to achieving our long term operating margin targets, while driving sustainable growth with profitability as we navigate the current environment.

The progress we've made thus far is gaining traction driven by our team's commitment to delivering value for our customers and results for our stakeholders.

Thanks again for joining us today with that operator, we can now open up the call for questions.

At this time, we'll be conducting a question and answer session.

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One moment, please while we poll for questions.

And our first question comes from the line of Josh Baer with Morgan Stanley . Please proceed with your question.

Great. Thanks for the question and congrats on the outperformance in the quarter wanted to dig in on.

Some of the categories of expenses that you're reviewing to make capacity for for those needed in investments.

It seems very broad based sort of listing people and programs and real estate was hoping you could dig into some of the specific areas of spend that will contribute the most to our operating efficiency.

Hi, This is Maggie I just wanted to to say that we are in the process right now as a leadership team of identifying what goes underneath each of those broad categories that Cynthia mentioned.

So I don't have a list in front of me that I can say all of this we're going to do this this this and this but I will reinforce that there are no expense categories and the company that will not be reviewed for where we can get efficiencies and effectiveness for the business.

Okay got it that makes sense and then Maggie wanted to ask on the new messaging from a marketing perspective, if you could.

Sort of expand on some of those changes from from that marketing message and that's it for me. Thanks.

Yes, I think one of the things that I'm, most excited about and so as the team is to look at are the.

The creation of a digital agreement platform versus a focus on a cloud environment. When we think about cloud cloud is a repository for a lot of different things that don't necessarily integrate or talk to each other.

And what we want is the end to end digital agreement to be fully integrated.

With each of the different capabilities of that agreement as well as with E signature.

For example document generation, along with forms or identity or notary for monitor should all be integrated with esignature and that also includes our C. L. M product sets too. So I think when you think about what we've been doing the Allegheny.

Of course to this new way of thinking about the agreement.

It's an environment, where customers don't have to go anywhere else for pieces of the agreement platform. They can get it all from Doctor site and having that end to end approach to what we're doing.

Is something that we're very excited about and the customers we've talked to about and are excited about it as well.

Yeah, and I might just elaborate on that a little bit more I think it's really about amplifying the key messages that make darkey signed special and really serve our customers. So when you think about our innovation and differentiation right. We are positioned with customers across the agreement the agreement platform, but making sure we really saw.

Which together all the different pieces of the functionality to make it really frictionless for the customer. We also in today's environment with some of the macro headwinds, making sure that customers really understand the value proposition right. We have a very high NPS score with customers in terms of delighting delighting them.

To us it reduces friction with their customers, which is why they love using donkeys sign so I think really helping customers understand just the efficiency and effectiveness in the belt tightening environment that we're in and our marketing team is really focused on amplifying that because we have very much a land and expand model, where we start small.

We serve some of the smallest customers around the globe in some of the largest but many of them regardless of their size. They start small with us and land and expand and so the value is really there, but I think also just really sharpening our focus in our marketing around that so customers understand that out of the gate is one of those key areas.

Great. Thank you very much.

Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.

Hey, Thanks for taking the question I wanted to ask you about what youre seeing with customer renewals. There's been some chatter about you know some some down sells just given you know economic activity is under pressure and customers are optimizing investments I guess two questions related to that.

Do you feel like you've you've process most of Kennedy's renewals at a at a normalized rate and secondly.

How much of that if you ought to the extent you are seeing.

Some some compression on the renewals is related to Mac.

Macro factors versus.

You know potentially competitive or or other factors. Thank you.

Yeah, I'll I'll take that one thank you for the question so.

So renewals and kind of our book of business is a very important part of the business and as you know we've doubled the size of the business in a very short period of time going from $1 billion in revenue to over 2 billion. So that that renewal piece of the book of business is very important in terms of continuing to to <unk>.

Scale it but also it provides a lot of predictability to our business model, because we have a large customer base.

Using the product we know once people get on the platform, they're not going back to pet a pen and paper and because of the land and expand we really have a lot of operating leverage in that model and that being said and we talked about this a little bit the last few quarters, we are seeing smaller expansions right. So.

During the peak of the pandemic the expansions, we had customers who bought conservatively because they didn't know how long the pandemic would would last and then they had to expand them because it lasted longer than they thought but also once they started using the product they were using it in many many use cases I think as we got to scale them to the place we.

Now, we're seeing smaller upsells and expansions as customers continue to consume what they bought and the timing of those renewables also impacts kind of those expansion rates and you see that a little bit in our dollar net retention metric and that's kind of related to that expansion and renewal base, but we still see a very strong.

Base of renewals expansions within the renewal base.

And of course, our dollar net retention also reflects any downsides renewals or downsides churn, but those are it's more of a backward looking metric in a forward looking metric. So tried to be comprehensive in that answer I'm hopefully that was helpful.

The only thing I would add to that Tyler is you know over the last quarter. We we have not really had the leadership and the customer success organization, because we had a fair amount of turnover and when we think about customer success a doctor sign those are those are all.

Our teams that won't work with existing customers to expand into use cases in other areas of the business and so we're really excited we have a brand new chief.

Customer officer, Who's got great operating experience at scale.

Who has joined the company. It just started this week.

And one of the priorities we're doing on a go forward basis, it's really getting that muscle it back into the upgrade land and expand motion.

That we've we've enjoyed in the past that have really helped us take a small deal that gets done with a customer and expanded throughout an organization. So youre going to see a lot more focus on that in the second half of the year.

So that's that's helpful.

I guess would it be fair to say that you think the worst for me.

Attrition perspective in terms of employee attrition is is behind you and consequently, how should we think about that layering on incremental sales capacity and customer support capacity.

To drive expansion rates over time in other words when would you expect that net retention rate to resume towards the historical levels. Thank you.

Well I can say that at this point, we are definitely stabilized the attrition again by bringing in great scale leaders in having everybody focused on their people is our number one priority in our vital few deliverables, we want to make sure. Our people are well taken care of that they have the tools and.

<unk> to do their jobs.

That they understand what's expected of them from an accountability perspective, and we're going to measure that success and reward that success.

And I and I truly do believe too that we filled in a lot of the blanks.

These last several months of key management positions that were left open, especially in the sales and go to market, which was necessary for us to fill in order to get the coverage back out with the customer base that we need it. So I'm cautiously optimistic I also think that there has been some tightening.

In terms of job availability, especially in the United States and over in certain areas of Europe .

That has also enabled us to have a little bit more stability with the current workforce that we have.

Thank you.

Our next question comes from the line of Richie Deloria with RBC. Please proceed with your question.

Oh wonderful. Thanks, so much for taking my question, maybe I just wanted to start out with I mean, you talked a lot about some of the cost cutting measures and being really disciplined.

Well, obviously I applaud the focusing on you know not not wasting money youre not a super high cash burner and it feels like a higher priority might be sales execution, finding new use cases, expanding internationally. So why why spend so much management time and attention right now identifying areas for cost savings scrutinizing cost savings after that.

Router upgrade you know migrating your ERP system as well when realistically it feels like from my perspective, it should be on sales execution in them and that kind of stuff and then maybe identified cost savings later, maybe some color there would be helpful. And then I have a follow up.

Yes, Rishi thanks for the question Cynthia here. So a couple of things I think you know, we've we've always talked about prioritizing growth and we will invest for growth and so I think part of our initiative right now is making sure that you know the spend across the company as productive spend and that we're free.

Up resources for growth and so part of that is we scaled really quickly in a very short period of time and there were a lot of things, we didnt operationalized efficiently. So I think part of the exercise, it's partly expense, but it's also streamlining processes managing complexity at scale those types of things went well.

We look at the go to market specifically there is a focus on the vital few which which begins and ends with selling software and making our customers successful. You know there is a stabilization of the team there are providing accountability within the field and importantly, aligning goals with the current outlook at the company. So that is very much front and center because.

At the end of the day, we're a subscription software company, we're growing at scale, we want to continue to grow at scale and we've had some speed bumps right coming out of the pandemic. So that the cost piece of it is really to free up investment to focus on topline growth, but its not top line growth at any cost were also very focused on profitability and as you noted.

We have strong cash flow, we have a strong balance sheet and so we would expect that to continue and it's something we're monitoring very closely.

Alright got it that's really helpful. And then just as they think about the.

The guidance right Youre talking about mid single digit billings and in the near term I got turnarounds take time, so maybe help US understand you know looking beyond this year and I'm not asking for guidance for next year, but what sort of underlying growth rates would you be pleased with are happy with and what are kind of the steps to get from that mid single digit level.

If we're looking at billings and the best leading indicator.

Healthier kind of more robust growth rate. Thanks.

Yeah. Thanks, <unk>. So so I think we were really pleased to be able to raise the full year guide here in for.

<unk> for the year at this point in the year and maintain our margin and so that's really based on the progress that we've made to date and what we're seeing in the business. You know that being said you know there is still macro headwinds that you know that are really on a global basis.

And our visibility into the business is still not what we would like it to be so that's reflected in the guide, but again, we were really pleased to be able to raise the guide for the full year at this point I think when we look into next year. There's a couple of things that were.

You know that where were looking at one is we are encouraged by by the progress I think part of it is next year's growth will be a function of several factors.

It is stabilizing the business and the go to market motion some of the things that Maggie was talking about and positioning ourselves for further growth headed into two fiscal 'twenty four part of that is based on where we land for the year part of it will be you know the the ease and the reps that we brought on board they need time to ramp and it's a multi quarter process.

So that's in process.

And that will be a key factor heading into fiscal 'twenty four.

And then as well you know the macro environment will be will be important there. So I think when we look into next year, there's kind of the importance of where we land. There is the importance of how we set up the capacity model across the field going into next year and really operationalize on some of the things that got ahead of us during the peaks.

The pandemic and operationalize those at scale.

Yeah. The only thing I would add Rishi. This is Maggie is we are also investing in shifting investments into the product roadmap and the product portfolio.

Not only to get the entire digital agreement platform integrated but to add enhancements that improve our customer and partner experiences and simplify that.

And we're also looking at the modernization of our product architecture. So we can make changes more quickly and continue to bring out new enhancements with different types of use cases as an example.

And we really do believe by driving a portfolio that can really expand into companies and a very specific way, where you have use cases for purchasing versus use cases for human resources et cetera, we can establish a better alignment with our customer.

So in terms of what they're trying to do with digital transformation. So I really do believe that with the ramp that we're doing with our sales force, especially with a lot of the new people that we've hired in addition to bringing in people still into the sales organization that are seasoned scale.

Sales executives.

That combination will definitely set us up that by the end of the year, we'll have a better flywheel of anticipated growth that we'll see next year year over year.

Alright wonderful thank you so much.

Yeah.

Our next question comes from the line of Brad Sills with Bank of America. Please proceed with your question.

Oh, great. Thanks for taking my questions.

You alluded to a little bit.

Previous question, but I'm curious now that you're you know several quarters into this effort to pivot back to expansion deals. It sounds like you're seeing some progress already are there any use cases or areas, where you're seeing some early signs of improvement I know, it's still a work in progress.

But any any areas that you've seen some progress so far and are there others that we should expect could improve from here.

Yeah. So we continue to see progress and expansion.

Across the business in my in my prepared remarks.

Two customers. We also have seen some long term customers you know even in the financial.

Services segment, which has seen more headwinds in various pockets, but we had a large money manager this last quarter, who conservatively bought during the pandemic they've been a long term Doc you signed customer, but theyre experiencing faster digitization and they further extending their esignature footprint with us during the second quarter so not.

Only you know do they see heightened demand across their internal business lines, but they have a very trusted relationship with us with their customers in terms of our branded products for their end customers. So they're really using darkey scientist strengthen their own relationships with their end customers and I think that would be a really great example of.

Strong expansion rates long term customer you know land and expand a very notable global money manager doing a lot with us in that core esignature piece I think there is.

In this on C. L. M. We've also seen quite a bit you may have seen we announced the the slack integration.

C. L. M earlier, this week, which again, it's really about embedding Doc you sign in workflows that already exist.

And it's a key innovative differentiator for us in terms of the AI and analyze analytics around those types of products within workflows that companies are using so I think that's another really big opportunity as we continue on the product roadmap and to innovate where customers you know, we'll see a lot of value.

And we will see further room for expansion.

Great to hear thanks, Cynthia and then one more if I may just on the guidance here for billings. It assumes it looks like a 9% sequential decline.

You don't typically see that decline in billings quarter on quarter. In Q3, you did last year, but that was also a quarter in which you were experiencing some of these expansion.

Deal softness so just curious it sounds like an execution improving here a bit.

Some of these changes that you've put forth are having effect the macro is moving away a little bit from you about what's assumed in the guidance you know for Q3 and billings. Thank you.

Yeah I think thank you for the question. So as you know billings you know theres puts and takes and delays in timing of deals you know billings can fluctuate quarter to quarter around timing of deals.

Start dates when an expansion or add on happens relative to the timing of the overall contract a customer may have early renewals also impacts that.

Q2.

Certainly a little bit stronger than we were anticipating them and so I would say you know Q2 is probably stronger.

And some of those factors like timing of deals and start dates and similarly, I think Q3, and just seasonally is not as strong a quarter for us. So I think that's embedded but again, we were really pleased to be able to raise the full year guide.

Guide range across that metric.

But recognize that Q2 to Q3 and that dynamic we have seen the last few years in Q3 tends to not be as strong. The only other thing I would note is we did continue to see softness in linearity within Q2, and so as we exited Q2 and entered into Q3 and so that certainly is embedded in the <unk>.

Guy just given some of the softness related to the macro and then as our field teams ramp.

That's very helpful. Thank you Cynthia.

Yeah.

Our next question comes from the line of Kirk <unk> with Evercore ISI. Please proceed with your question.

Yes. Thanks.

Two one for Cynthia winter for Maggie Cynthia just on the real estate and banking side, perhaps the areas, where you're seeing some more pressure, which makes sense given the macro environment do you feel like you have better visibility into to the companies that perhaps either over provisioned or during.

During COVID-19. So that you used to have a better sense of where they're at in terms of usage patterns today versus maybe six months ago. When you were sort of just lapping them. It was it was more uncertain I was trying to get a sense on just sort of your visibility into that particular part of the business and then a man.

Steve obviously started.

You know four or five months ago, I was just kind of curious.

What he's been doing from a sort of a sales organization perspective to try to help get greater cross selling going in terms of selling the full agreement platform. I think it's something that you sort of got you know people got sidetrack, because theres so much demand for esignature and Covid. So I was kind of curious if there's anything you're doing in particular around.

Selling the Fuller suite from a sales perspective thanks.

Sure sure. So so I think on the consumption patterns and cohorts, we do a very detailed analysis on the cohorts and how they're expanding how they're consuming with our our new success officer I think.

Be even more focused on some of those metrics at scale I would say, we're still in a period, where we don't have you know a priest.

Precise visibility.

Cross you know across the cohorts in a way that we would like you know part of that is scale, but part of that is you know during the pandemic, which has really been in the last.

Eight to 10 quarters different cohorts have expanded at different rates and also within different verticals. So the one thing I'll leave you with there is part of the beauty of our model is the diversification of those cohorts and verticals and so verticals that maybe were quite strong during the pandemic, we're still seeing expansion.

But it would be more in pockets right. So it's just the things that are more susceptible to the lending environment may not be as strong now, whereas things related to you know like my my money manager example might be showing more strength, similarly sectors, like food and beverage or technology or even travel and entertainment.

During you know those segments.

Has been a growing on a on a relative basis relative to some of the other ones that were stronger. So I think part of that is just the diversification of our customer base and then we will continue to look at kind of the cohorts that the cohorts don't show perfect information I'd say they show directional because even within those cohorts you have pockets of different verticals.

<unk> or size of companies you know that may be having a different different impacts depending on what's going on within their sector.

Hi, Kurt This is Maggie with regard to your question on Yeah, Steve shoot in the sales organization and their cross selling and motions.

You know I will say this you know Steve has been rebuilding that organization and part of that rebuild is to really come up with a list of areas of opportunity for us to expand not just and in the enterprise space, which is has a long sales cycle today. So one of the things that we're doing.

<unk> differently in enterprise and what we've done before.

I have you know after running a fortune 500 for many years I have a very large network at the top of the house for Big Enterprise customers.

And I'm opening doors at the CEO level of those companies, which also allows us to get in front of the top leaders of the company I E. The executive team reporting also to the CEO with the C. E O is held.

And that is and ability for us to accelerate going in and looking at an enterprise agreement. That's end to end from multiple departments at the same time.

It's just a land and expand in one certain department and we give that visibility to those leaders.

And would be able to get agreements that that have more use cases, when we get started because we also find with our customers. The more use cases, they have the less likely they are to to leave you know doctor sign or to take business away from us and it really makes them very.

Sticky so the other part of that is partnering with our product portfolio folks and with and he thought and her team on making sure that we're coming up with the right capabilities product for these customers and a P is for our partner portfolio, because I know a lot of cases with enterprise we have.

Have you know size and Isps are that that have to go in and and really help integrate what we're doing with other capabilities that they already have in place at the enterprise level, we've been doing some one off of that or in the past, which also slows down our implementations, but by B.

Able to get some standardization and how we can expand into enterprise in a faster way has been part of the work that Steve its been doing also with and he over the last couple of months and just the last thing I will say is we are also taking friction out of the digital motion.

We have a lot of customers millions of customers that come to our website every month.

In order to sign a document and create a document and these are usually one off but if you can get more take rate of the folks that that visit to do that and completion. There's a lot of money that we can that we can add to the bottom line by doing that in a more friction frictionless way and then it's.

Cynthia mentioned, we did have pretty strong small and medium business growth that's been a heartbeat for our company for many many years.

And we're going to continue to keep our heads down on what makes sense for the use cases for that set of customers as well.

Thank you.

Our next question comes from the line of Karl Keirstead with UBS. Please proceed with your question.

Maybe I've got two questions Cynthia a few on billings. One is did the large deals you flagged Microsoft and Goldman Sachs did that have any material impact from other two to billings or or the second half outlook.

So I I'd first I'll say, we were very pleased with those deals, but I would say no. We have a very diversified business of one or two deals you know don't really put us over the edge one way or the other so I would say I would say no, but I would say more generally the timing of deals the timing of renewals.

Early renewals or late renewals and start dates can impact billings, but I would I would not say that those two deals impacted the rate one way or the other got it okay.

Karl just want to add to that is for example, like the Goldman Sachs deal was just done in the last week or so so that they're not implemented yet either in some cases got it. Okay. I just wanted to check. Thank you and then maybe Cynthia just on the fourth quarter billings. If I look at your <unk> Guide look your full year guide back into implied for <unk>.

It's.

$709 million. So that's that's the 120 million sequential increase.

<unk>, that's your strongest ever and much stronger than the prior four accused is there anything you would help us understand point to about four Q, maybe you've got a better renewal base or are you counting on something that might get us comfortable with that outlook. Thanks. So much.

Yeah, It's a great question and thank you. So Q4 is seasonally our strongest quarter and we expect this year to be no different I think some of the actions that we've been talking about across the go to market.

We're expecting to see result from the progress that we're making as we move into Q4 again, we stabilized the team there were making progress with the leaders we brought in quite a few new leaders in enterprise commercial SMB customers.

Customer success, and so we would expect as we move through the year that will continue to see progress as those teams ramp. In addition to Q4 seasonally being a strong quarter for us Okay that makes sense. Thank you both.

Our next question comes from the line of Alex Zukin with Wolfe Research. Please proceed with your question.

Hey, there this is Alan for coffee on trucks and thanks for taking the question.

Just a quick one for me I wanted to if you look at the ARPA for new bookings this quarter and how that compared to last year would it be the same higher or lower and can you further tieless to the level of discounting being done right now by Doc you signed as well as competitors along with any kind of commentary you think's important to flag in the competitive environment right now.

Yeah I think thank you for the question too. So I would say, we don't look at ARP, who in in the way you're describing it but what I can tell you is we do have this land and expand model where customers start out small and expand over time and we have seen kind of those expansions come in so that may be I triangulate.

On the the metrics that that you're looking at I think when we look at the you know the competitive environment and pricing and how we think about pricing and packaging. We're always looking to stay competitive in the market, but we also don't race to the bottom right and so our goal is to really serve customers create value in it.

And then monetize around what customers need and the products and the innovation we have them.

For our customers and really reducing the friction there. So I would say we haven't seen material changes in the competitive landscape or you know our pricing from that from that perspective, although our goal is we will compete on the low end and we compete on the high end given all the differentiation. So it depends on what you know what customer.

Need are the features functionality and then how we cross sell and upsell products as customers expand I'd also just note I think our net our NPS score is quite high and continues to be quite high and so we really think of that as a metric that is around delighting our customers the ease of.

Use of what we do even given some of the underbelly of the complexity of the product I think is really a testament to that high ROI and what what customers get from using Darkey sign and we think that's a big differentiator in the marketplace.

Alan Hi, This is Maggie just I'm just trying to put an exclamation point to what Cynthia has just said.

With Adobe for example, we don't see any real change in that dynamic.

We do see at times its lower end use cases are the most vulnerable for us. So we are actually in the in the process right now of putting a differentiated use case and use case pricing based upon high end premium use cases, and then sort of medium and lower end use cases, and we also think by doing.

That it helps streamline for our customers to do business with us and get the benefits that they're looking for from that price value.

Thank you.

And we have reached the end of the question and answer session I'll now turn the call back over to Maggie Wilderotter with for closing remarks.

Thank you again, operator for facilitating for us and thank you all for joining and for your continued support of Doctor sign.

I think you can rest assured that the leadership team here and the company will continue to keep our heads down and focused on delivering our enhancements in profitability for the company as well as expanding end and delighting our customers on a day to day basis are we also look forward to providing you with continued updates on our <unk>.

So thank you again for joining us today.

Goodbye.

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

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