Q4 2023 DocuSign Inc Earnings Call
Speaker 1: The the.
Speaker 1: you
Speaker 2: Good afternoon ladies and gentlemen. Thank you for joining DocuSign's fourth quarter and full fiscal year 23 earnings conference call. At this time all participants are on a listen only mode. After the speaker's presentation there will be a question and answer session.
Speaker 2: As a reminder, this call is being recorded and will be available for replay from the investor relations section of the website following this call.
Speaker 2: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker 2: I will now pass the call over to Heather Harwood, Head of Investor Relations. Please go ahead.
Speaker 3: Thank you, operator. Good afternoon and welcome to the DocuSign Q4 and fiscal year 2023 earnings call. I'm Heather Harwood, DocuSign's head of investor relations. Joining me on the call today are DocuSign's CEO , Alan Tegason, and our CFO , Cynthia Galore.
Speaker 3: The press release announcing our fourth quarter and fiscal year 2023 results was issued earlier today and is posted on our investor relations website.
Speaker 3: 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.
Speaker 3: 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.
Speaker 3: Please read and consider the risk factors in our filings with the SEC together with the content of this call. Any forward-looking statements are based on our assumptions and expectations to date, and except as required by law, we assume no obligation to update these statements in light of future events or new information. During this call, we will present GAAP and non-GAAP financial measures.
Speaker 3: In addition, we provide non-GAAP weighted average share counts and information regarding free cash flows and billing. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to, our GAAP results.
Speaker 3: We encourage you to consider all measures when analyzing our performance.
Speaker 3: 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 earnings press release, which can be found on our website at investor.docuSigns.com. I'd now like to turn the call over to Alan. Alan?
Speaker 3: regarding our non-GAAP financial information, the most directly comparable GAAP measures , and a quantitative reconciliation of those figures. Please refer to today's earnings press release, which can be found on our website at investor.document.com. I'd now like to turn the call over to Alan. Alan? Thanks, Hiller, and good afternoon, everyone.
Speaker 4: Our fourth quarter marked my first full quarter as DocuSign's CEO , having led our organization for five months with the opportunity to meet many of our customers, partners, and employees.
Speaker 4: I'm even more optimistic today about the future of DocuSign.
Speaker 4: We had a solid finish to a transitional year.
Speaker 4: Delivering across.
Speaker 4: key financial metrics in Q4 while making tangible progress against our key priorities.
Speaker 4: Q4 total revenue came in at 660 million up 14% versus prior year, finishing the year with 2.5 billion of revenue and 19% year-on-year growth.
Speaker 4: Driven by our continuous focus on profitability and efficiency.
Speaker 4: We reported 24% non-GAAP operating margin for the quarter and 21% for the year.
Speaker 4: While we are pleased with our Q4 results, I also want to acknowledge today's challenging macro environment.
Speaker 4: While we are pleased with our Q4 results, I also want to acknowledge today's challenging macro environment. Customer sentiment continues to be cautious.
Speaker 4: and that is reflected in moderated expansion rates. Before we get further into business updates, I want to acknowledge today's news that Cynthia Gailer has decided to step down from her role as chief financial officer. Cynthia has been with DocuSime for nearly four and a half years, first as a board member and chair of our audit committee and last few years as our CFL. I know many of you know.
Speaker 4: Cynthia well and gotten to know her even better over time as part of the Dr. Stein story.
Speaker 4: I want to thank Cynthia for her unwavering commitment and strategic leadership these last few years. She's been a great partner to me during my first months as CEO , and she's been instrumental to the company and the board as we've navigated a period of dynamic change.
Speaker 4: while laying a strong foundation for sustainable profitable growth at scale.
Speaker 4: I thank her for her support during the transition as we search for a successor.
Speaker 4: Let me turn back to the business. During Q4, we refined and communicated Dr. signed strategy throughout our organization to drive greater alignment on how our teams can deliver more strategic value to our customers.
Speaker 4: Today, we have a clearly defined strategy in place.
Speaker 4: To underscore the key pillars of our strategic vision, we're inspired by customer feedback and our focus is to deliver smarter, easier, and trusted agreements. We're improving the reach and efficiency of our go-to-market by developing a world-class self-serve experience.
Speaker 4: strengthening our direct sales productivity, and amplifying our sales and marketing partnerships.
Speaker 4: We're also strengthening our internal operational efficiency by optimizing and modernizing systems and processes.
Speaker 4: It's important to emphasize that even as the market leader in e-signature,
Speaker 4: We are just at the beginning of capitalizing on the opportunity to redefine and truly reimagine what a smarter agreement looks like.
Speaker 4: Day E-Sign provides an online replica of a static document.
Speaker 4: While that is a huge improvement in convenience and productivity for senders and signers,
Speaker 4: It's hardly the end point.
Speaker 4: Just like creating digital copies of maps or recorded music was the beginning of a reimagination of long established categories.
Speaker 4: Fundamentary altering creation, distribution and use.
Speaker 4: Our goal is to turn flat agreements.
Speaker 4: into structured data that can be used to make intelligent decisions.
Speaker 4: The value of an agreement is in the data. Every step of an agreement can deliver more value when it's automated, intelligent, and seamlessly integrated into core business systems.
Speaker 4: DocuSign is uniquely positioned to redefine the agreement processes across every industry.
Speaker 4: Along these lines, we released several new product enhancements during the fourth quarter, including expanded integrations to better collaborate in Microsoft Teams, Slack, and Zoom.
Speaker 4: And for eSignature, we enabled new AI-assisted document highlighting and signing capabilities in mobile and web for faster time to value.
Speaker 4: In April , we will release web forms, which will help customers deliver a better and simpler experience by moving from legacy contract forms to a modern web and app experience.
Speaker 4: We also plan to accelerate our release cycles in fiscal 2024 with innovative and differentiated solutions that simplify the agreement process.
Speaker 4: while we identify new ways to revolutionize how businesses initiate, negotiate, and manage agreements.
Speaker 4: There is substantial interest in the industry about rapid advances in AI.
Speaker 4: and large language models in particular. We are already leveraging sophisticated AI models for contract analysis and automation of some workflows.
Speaker 4: And we're very excited to harness generative AI, data and pattern identification, as yet another way we can increase productivity, reduce friction and save our customers time.
Speaker 4: As we move forward, movies can be a compelling part of our business, and we're encouraged by the significant interest from some of the very largest players in our industry who recognize our domain leadership and expertise and want to partner with us. Listen to our product-led growth and self-serve initiatives.
Speaker 4: We've made solid progress over the last few months, modernizing our commerce experience to reduce friction, improve user use, and provide customers more flexibility. We've expanded seat capacity available via web and mobile sites. We've expanded currency options available to make the buying process easier in international markets. We've gained traction with these initiatives as we exit the quarter.
Speaker 4: and we will continue to keep you updated on our progress.
Speaker 4: As you saw in an announcement a few weeks ago, I couldn't be more excited to have Robert Chotwani joining our team as President and General Manager of Growth.
Speaker 4: Robert brings a wealth of experience and we look forward to benefiting from his insights and expertise for more than two decades of scaling global technology companies. He joins DocuSign from an organization that's broadly recognized as having a world-class product.
Speaker 4: product-led growth motion. Executing on our product growth strategy is a key priority for the company as it will be a primary driver customer acquisition conversion and expansion.
Speaker 4: I'm thrilled to have Robert leading our efforts in this area.
Speaker 4: Staring to our go-to-market, we're just coming off our global sales kickoff last week, and I can tell you that the sales team is incredibly excited and energized for the year ahead.
Speaker 4: We're focused on delivering across three complementary channels, direct, self-serve, and partners, and to provide world-class customer success in driving customer growth and retention through all three.
Speaker 4: As an example of global growth and multi-product expansion, this past quarter a leading global consulting firm, who has been using eSignature for a decade, expanded and added our CLM Plus rescued private products.
Speaker 4: This is a competitive sales cycle since the customer was already in the process of implementing a competitive CLM solution in a few countries. However, DocuSign 1 preferred vendor status to CLM and the customer has since rolled us out in six countries across two continents and has built integrations with their internal systems.
Speaker 4: and the DocuSign partner, Salesforce and ServiceNow.
Speaker 4: Related to go-to-market, I want to acknowledge the restructuring we recently announced.
Speaker 4: It was a difficult decision, but it was a critically important step for our company to reshape and right size our organization for the opportunity ahead.
Speaker 4: It was not a broad-based restructuring. 95% of the workforce reduction was in our worldwide field organization.
Speaker 4: Our assessment was that DocuSign could capture more efficiency in our overall go-to-market across all segments, and that we could unlock more profitable growth by investing part of savings in product development and innovation.
Speaker 4: Now the direct channel remains absolutely critical to our future. We're re-balancing our approach towards offering a lighter touch experience with more self-serve capabilities that give customers of all sizes choice in how they engage with AppuSign.
Speaker 4: That pivot in turn frees up resources to invest more in our self-service motion and expanded roadmap for agreement workflows, new AI capabilities, accelerating our migration to the cloud, and improving our internal systems. That in turn will create an even stronger and more valuable offering for our customers.
Speaker 4: and for our sales team itself. So, I have some work to do to strengthen our self-serve experience over the next six to 12 months.
Speaker 4: And while we may see some modest near-term disruption, we're confident these are the right steps.
I'm forward to drive innovation and growth for our customers for the long term.
Additionally, a stronger self-serve motion will enable greater expansion opportunities internationally.
Turning to our internal operations and processes, Anurag Akram recently joined as our Chief Operating Officer and will play a crucial role within our organization. Anurag's focus is to bring together and transform our strategy.
develop new strategies around pricing and packaging, driving incremental efficiencies internally, and help evolve early-stage ideas into future growth initiatives. Related to these efforts, I noted on the last call that we rolled out product bundles to introduce more features and functionalities to our customers. joints.
I'm pleased to share that these bundle promotions performed better than expected, and we saw good adoption for our new S&P customers in particular.
Our experience suggests that customers that adopt a broader set of features renew and expand their commitment with us. You should expect to see more initiatives around pricing and packaging in the future, including bundling and ensuring early adoption of our highest value features.
Finally, I would like to update you on our partner ecosystem.
Finally, I would like to update you on our partner ecosystem, another key pillar of our strategy.
We're seeing good progress with a number of our largest software partners.
ServiceNow is a good example, highlighted by the launch of the CLM Spoke as part of ServiceNow's automation engine. Our partnership has gained momentum with several leading organizations utilizing our integration.
highlighted by the launch of the CLM Spoke as part of ServiceNow's automation engine. Our partnership has gained momentum with several leading organizations utilizing our integration to digitize their agreements.
This is directly aligned with our focus on capturing opportunities by integrating more deeply with partner applications.
So in closing, this year has been one of incredible change for DocuSign. And in Q4, we made meaningful strides towards defining our strategy, right-sizing, and optimizing our organization.
We believe the foundation has been set and that we are in a better position to navigate the evolving macro environment while investing for opportunities that enable long-term, profitable growth. We are optimistic about the year ahead for DocuSign and we are committed to delivering meaningful customer and shareholder value.
We look forward to sharing further progress on our initiatives as we redefine how the world comes together and agrees.
You will enable smarter, easier, and trusted agreements. With that, let me once again thank Cynthia and turn the call over to her to walk through the financials. Cynthia? Terrific. Thanks Alan for the kind words.
smarter, easier, and trusted agreements. With that, let me once again thank Cynthia and turn the call over to her to walk through the financials. Cynthia? Perfect. Thanks Alan for the kind words. I'd like to start off by thanking our employees.
and execution.
We closed out the year strong and I'm proud to share that we achieved an impressive milestone for the company, delivering $2.5 billion of revenue for the fiscal year, reflecting 19% growth year on year. Our Q4 results were solid, demonstrating the durability in our business model and DocuSign's important position in the broader ecosystem. While we are pleased with our results and execution in Q4, we hope that we have a great
We continue to experience a challenging macro environment with softening demand trends, including moderating expansion rates.
However, we are seeing healthy results as customers recognize that DocuSign offers high ROI applications that are easy to use, efficient, and cost effective. With that, let me turn to our Q4 and fiscal 23 results.
For the fourth quarter, total revenue increased 14% year over year to $660 million and subscription revenue grew 14% year over year to $644 million.
Total revenue for the year reached $2.5 billion, a 19% increase over last year, and subscription revenue was $2.4 billion, a 20% year-over-year increase.
Our international revenue grew 19% year-over-year to reach $165 million in the fourth quarter.
For the full year, international revenue grew 29% to $260 million, representing 25% of total revenue for both periods. Fourth quarter billings rose 10% year-over-year to $739 million. For the full year, billings increased 13% to $2.7 billion. We added approximately 30,000 new customers during the quarter, bringing our total install base to $1.36 million at the end of the year, a 16% increase year-over-year.
This includes the addition of approximately 9,000 direct customers to reach a total direct customer base of 211,000.
a 24% year-over-year increase. We also saw a 27% year-over-year increase in customers with an annualized contract value greater than $300,000.
reaching a total of 1,080 customers. Dollar net retention was 107% for the quarter. The headwinds we've highlighted over the last couple of quarters continued to persist, and as a result, we are seeing muted growth in our expansion rates. We expect this to continue into Q1, and as a result would expect the Dollar net retention in Q1.
percent consistent with last year.
For the full year, subscription gross margin was also 85% flat versus prior years.
Q4 non-GAAP operating income reached $155 million compared with $104 million last year.
For the full year, non-GAAP net income was $419 million, up from $411 million in fiscal 22, a growth rate of 2% year over year. As noted on our Q1 call last year, we introduced a non-GAAP tax rate on our non-GAAP net income calculation for fiscal 23 as we reached consistent non-GAAP profits for the prior three years. We are using a non-GAAP tax rate of 20% for fiscal 2023 and fiscal 24.
Operating cash flow in the quarter grew 56% year over year to $137 million, representing a 21% margin. This compares with $88 million, a 15% margin in the same quarter a year ago. Pre-cash flow for the quarter with $113 million, a 17% margin, compared to $70 million, a 12% margin in the year prior, a 61% increase year over year. As we mentioned on our last call, we went live with a new ERP in Q3, which delayed some of our cash collections last quarter. As a result, we saw strong cash collections this quarter.
in addition to lower restructuring cash payments on a relative basis.
For the full year, operating cash flow was $507 million representing a 20% margin compared to $506 million, a 24% margin a year ago.
Free cash flow declined 4% year over year to $429 million, a 17% margin compared to $445 million, a 21% margin in fiscal 2022.
We exited Q4 with more than $1.2 billion in cash, cash equivalents, restricted cash, and investments.
With that, let me turn to our Q1 and fiscal 24 guidance.
As a reminder, on our Q3 earnings call, we provided a preliminary outlook for Fiscal 24. We are pleased to narrow the preliminary range we provided, incorporating our Q4 landing and the dynamics of the current environment into our guidance.
We anticipate the macro environment will remain challenging as we move through the year, and as Alan mentioned, we may also see modest near-term disruption as we realign our salesforce and shift to more of a self-serve motion.
For the first quarter and fiscal year 24, we anticipate total revenue of $639 to $643 million in Q1 or growth of 9% year over year.
and $2.695 to $2.707 billion for fiscal 24 or growth of 7 to 8 percent year-over-year.
Of this, we expect subscription revenue of $625 to $629 million in Q1, or growth of 10 to 11% year-over-year, and 2.633 to 2.645 billion dollars for fiscal 24, or growth of 8% year-over-year.
For Billings, we expect $615 to $625 million dollars in Q1, or flat to 2% growth year over year and $2.705 to $2.725 billion dollars for fiscal 24 or growth of 2% year over year. We expect non-GAAP gross margin to be 81%.
to 82% for both Q1 and the fiscal year.
We expect non-GAAP operating margin to reach 21% to 22% for Q1 and 21 to 23% for fiscal 24. We expect non-GAAP fully diluted weighted average shares outstanding of $207 to $212 million for both Q1 and fiscal 24. Fiscal 23 was a year of transition and we are pleased with our execution and the progress we are making as we navigate a challenging macro environment. We remain committed to delivering sustainable growth.
profitability at scale and we will continue to be disciplined with our investments across strategic priorities. We are focused on delivering long-term value to our customers, partners, employees, and shareholders.
Looking ahead, we are encouraged by the steps we are taking and look forward to updating you on our progress as we move forward. The journey to $2.5 billion has been hard work and a testament to the compelling value proposition DocuSign brings to our customers. Together, we have played an important role in how the world agrees.
I look forward to the future. And finally, I'll be here a little while longer, as Alan said, so no goodbyes for now. And with that, we will open up the call for questions.
Operator?
Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
You may press star two if you'd like to remove your question from the queue. We ask that you please limit to one question.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Brad Sills with Bank of America. Please proceed with your question.
Oh, great. Thank you. Cynthia, congratulations on your next move. It's been a pleasure working with you. I wanted to ask one on the moderating expansion activity that you saw during the quarter. Was it a certain cohort or customer where you saw that? Was it across the board? Was it in that enterprise cohort or just the broader base? Just any color on that?
and the macro environment has softened, the rate at which customers are expanding is slowing. So that growth rate in expansion is slowing. And so I would say there wasn't a big change in Q4 relative to the couple quarters before, but it is a continuing trend that's putting some pressure on the top line.
On the cohorts, we actually do do a lot of analysis on the cohorts. And I would say, you know, some of the cohorts are probably expanding at a slower rate, and some are moderating the rate at which they're expanding. But I'd say overall, it's having the same impact. And part of it is, as we've talked about in past quarters, is a little bit of the law of large numbers. As that book of business gets bigger, you need more and more expansion dollars to move it. And so customers are still expanding, but when you look at the top line, we start seeing theesters being a bit newer and bigger, and the
Send kind of a wake turbulence through the sales organ when you when you feel like you kind of resume full strength
And I had a quick follow-up for Cynthia, just as it relates to the billings growth, D-SOL from 13% to 2%. Can you just give us a sense of kind of what you're factoring into that? Thanks.
I'll go first. Thanks, Brent. I think on the sales force, I'd say I think we are in a significantly more stable situation than six, let alone 12 months ago. Trician rates have slowed. We've got, I think, a pretty full team in place. Steve's done a very nice job with that. There's more better execution, better predictability. Part of what gave us the confidence to take the restructuring action was, in fact, that and that we could...
see what our sales capacity was and we felt we had a little bit of excess capacity there as well as a keen understanding of where we could de-invest and free up resources to invest elsewhere. So, we're being cautious in saying there could be a little bit of disruption as is a threat.
some of the, particularly the very low end, some of the business that might previously have had a little bit of human touch, we'll try to do that more strictly through a self-serve motion. But I think that that should play out in a relatively, you know, very quick order over one to two quarters. But I think the Salesforce is actually in the best place. It's been for a while.
We just had our global kickoff last week and I think I'm representing them saying that they're incredibly energized by the roadmap and they all have slightly larger territories now too. It's a very positive field throughout the sales team.
And I'll take the Billings question, but before I do that, I realize I misspoke on international revenue. So just to clarify, international revenue from 29% to 620 million, I think I said 260, so, just clarification there.
On the on the Billings question, you know, I think it's related to a couple things One is you know as we talked about last quarter, we're expecting a slower start to the year You know, I think when you look at the macro environment, you know, it certainly hasn't gotten better and you could you know Probably since this maybe gotten a little bit worse
And on top of that, we have made some changes to the fields which we think could cause some disruption. So I think that's certainly playing into both the revenue and the billing side we're giving to the year. I'd also say we always guide to what we can see. I think we can see Q1 better than we can see the rest of the year.
But given the 1% guide in Q1, we would expect that to kind of improve as we move through the year and some of the investments may start to take hold. So I think those are some of the dynamics kind of in. Thank you. Our next question is from Jackson Ater with SBB. Please proceed with your question.
customers are coming down and so they don't need as many envelopes. I'd be surprised if it were.
the DocuSign line item is like getting a bunch of scrutiny and IT budgets or something, but I just given the ROI and the traditionally very quick payback I would I would think that e-signature would be a place where people are actually like more willing to invest in a tough macro environment. So how do I square that?
Yeah, thanks for the question. The first thing I would say is the overall macro environment affects...
I agree with your statement. I think there is a very quick payback. I think we're seeing that. So customers, and that's also a key part of DocuSign's competitive value proposition vis-a-vis other competitors. People tend to respond fast. They're more likely to respond to an agreement. They're faster to respond. And they have a better positive experience. So.
Overall, I think the macro environment presents some clouds for IT budgets of companies of all sizes. We're seeing maybe a little bit more vertical exposure than the average company, but are generally pretty balanced. And I think our value prop remains quite strong. Okay. All right, great. And then a very quick follow-up. Good luck. Thank you.
To be clear, in the outlook we provided, the most recent restructuring was not factored into the climate? Run-
We were evaluating scenarios for this fiscal year as part of our annual plan in areas that we want to invest in across the strategic priorities, but that wasn't contemplated specifically at the time or based into the outlook we provided.
That being said, I think as we went through the process of the annual it was clear that we needed more room for investment across the key priorities and as Alan articulated the plan is to invest in R&D in particular and innovation and kind of shift some of the investments.
into that initiative as well as PLG self-serve. So, we were able to come a little bit above the outlook we provided. If you remember in Q3 on margin, we said at the low end of our long-term target range, which is 20 to 22 percent, the long-term target range, just as a reminder, is 20 to 25 percent, and our guide for the year is 21 to 23 percent.
So we are going to be reinvesting, but we also increase the margin by a little bit.
Got it. All right, great. Thank you very much. Our next question is from Tyler Ratke with Citi. Please proceed with your question.
Thanks for taking the question. Just going back to the sales reorg and the strategy moving forward and the move to self-serve model, I was just wondering if you could elaborate on that and just what your vision is for the company. Where do you make the threshold for...
when a sale becomes self-service? Is it at a certain deal size? Or maybe do you only have sales people by industry or specialization like CLM? If you could elaborate on that and then just a quick follow-up for Cynthia.
Just given that we've seen a cumulative risk of close to 20% of the workforce, why wouldn't margins be higher for next year? You did about 24% EBIT margin on a non-GAAP basis here in Q4, and I think that was without a lot of the benefits you're seeing from the cost savings. Why wouldn't we see higher margins than that?
next year given 20% lower headcount. Thank you. I'll take the first one. So, since we're going to market, historically DocuSign has been very heavily focused on a direct sales motion for customers of all sizes.
And we will retain direct sales as our principal go-to-market channel, and it's a huge strength for the company, and we certainly want to continue to improve there. But we feel we want to complement it in two areas. One is with the self-serve motion, and that's not just for little customers, that's for customers of all sizes.
I think that all customers appreciate an opportunity to self-serve for certain types of activities at all stages of their journey with us. And that – I'll come back to that in a second. And then third, we are really focused on maturing our partner go-to-market where we can use distributors and resellers in some international markets. We can partner with ISVs to be directly embedded in their applications. And that's what we have.
significant activity there, but can meaningfully improve. Let me quickly return to the self-serve piece in particular. I want to make sure that it's clear. We want to stop treating digital and direct sales as separate channels over time. We essentially want to offer all customers the opportunity to self-serve if and when they wish. And I expect many customers will avail themselves of that. And then as a corollary, I want our sales teams to see the self-serve options as a positive complement to their activities.
I think that's what we did at Google. I think that's what Robert did at Atlassian. I think that's what a lot of companies that are natively digital in their motion do, and we have a tremendous amount of opportunity there. So that's our overall go-to-market plan. Cynthia, you want to take the second half? Sure. Yeah, so I totally understand the question. I would take you for the twi-
hiring in Q4 was slower than we had anticipated in the quarter. So as we kind of look into this year, you know, we see the opportunity in front of us and we want to invest into the key pillars of the strategic priorities that Alan talked about, right, in the product and innovation.
and then in PLG self-serve. And so we're really putting that money from the second restructuring back into the business to really level set against those key areas.
and so we're really putting that money from the second restructuring back into the business to really level set against those key areas.
Our next question comes from George Wanick with Oppenheimer. Please proceed with your question. Thank you for taking my question. Alan, maybe digging into the product bundling fraction you're seeing, can you give us some color on the adoption rates with SMBs and maybe put that in perspective of what you're also seeing from competitors?
Yeah, so first of all, on a segment basis, and I think Cyndi alluded to this, we have first of all a very balanced customer portfolio. So we have a significant SMB in mid-market business and a big emphasis on growing our enterprise business. And I'd say on balance, I don't know that there's a huge difference in momentum between those sectors. I know some companies are reporting particular challenges in SMB. I don't think we're seeing that. In fact, we had a...
some nice momentum on new accounts in particular, so I was pleased to see that. I think in terms of that was the segment piece. What was the other part of your question?
I just see what you're saying from a competitive, like competitive perspective. Well, okay, there's no question that over the last three to five years the market's gotten more competitive. I don't know that we're seeing a material change in how competitive it is here in the last few quarters.
I think we continue to be the market leader. We don't spend as much time worrying about what other people are doing. I think we want to really redefine the category and set the direction for the industry. And I think we're well on our way to doing that. And that's where we're focused from a competitive standpoint, if you will.
In terms of the tactics, we are looking on pricing and packaging and how can we be as agile as possible by segment, by country. There might be a few countries where we've gotten a little too far off the market, and so we're looking at that very carefully. I mentioned some bundling opportunities during my prepared remarks. So we think there's a lot of opportunities there. There's some enterprise license agreements. Some of our largest customers we really want to...
the ubiquitous e-signature solution for in every instance where they want to deploy that. And so we're in the process of both building out the product to enable that for embedding as well as direct sales and in structuring our license agreements so that that is as attractive as possible for our large clients.
One thing I would just add on the SMB, we did see some relative strength there across our business and we ran some experiments in Q4, particularly around the bundles or around increasing number of seats. So we did see kind of a higher volume of SMB deals at lower price points, so higher volume, lower price, which we thought especially like...
questions and congrats on the Stirling finish to the year.
I guess, Alan, I wanted to focus on product strategy going forward because product seems to be a big theme of where you want to invest in going forward. But leveraging off your web forms, comments, how should we think about your product roadmap maybe over this next, I don't know, 12 to 24 months.
Is it going to be more of a little small add-on solutions, like what Web Forms is likely to bring, at least from what my assumptions are of that product? Or is there an opportunity to see some product that's maybe a little bit more transformational, something that could give your sales and maybe bookings or billings more of an uplift going forward? Yeah.
Actually, I think that form has a little bit more potential than that. We're very optimistic because I think it really, it epitomizes the transformation of agreements, sort of a static representation of a traditional form to completely new customer experiences.
And the other thing it does, of course, is it makes it much easier to capture all the metadata around the agreements, which is really where we're heading in the longer term. If you think about what we want to do is we want to decompose agreements into dynamic objects that can be filled both with data from the customer side and from the signer side.
And WebForms is the first step of that process. There's a lot more coming in the remainder of the year along those lines. So we're quite bullish on the cumulative impact of all of those launches, but obviously version 1.0 will have some gaps.
In terms of the transformational piece, I think I touched a little on the AI piece. We have a lot of opportunity there. And so we will be making some announcements on that later this spring as the beginning of a new product in that area. And over time, I think the work that we're doing now to address our current joke in this talk would just Last week, you know, last week hangout, I think the goal is to encourage customers to take advantage of the operating quarter right before building a solution. So Thank you very much, every day, No one does so hard and sound disclosure is very important. I wanted to express that praise to all users and family not only from everyone else at the Fed and from our Kronecker community,
completely revamp how we leverage AI is very exciting. So you think about the application of AI in the agreement space. A lot of the excitement right now around ChatGPT and the competitors are around basically text generation and that has an obvious analogy to the agreement space of drafting contracts and we do think that's very exciting.
and that there's value to be captured there. And we will absolutely pursue that. But if you look at where companies actually find value from agreements, it would be more in the extraction of data and value out of the agreements, as well as the search and analytics on that.
And you can also apply AI to that. And that's an area where I think we are uniquely positioned to deliver a very compelling value. And we got a number of large customers who are very excited to work with us on that type of next generation AI activity. I don't think that's going to hit in the next couple of quarters, but in terms of the longer term roadmap.
Our next question is from Rishi Jalloria with RBC Capital Markets. Please proceed with your question.
Wonderful. Thanks so much for taking my questions. Two here. First, I wanted to start with kind of re-embracing more of your roots around self-service and PLG. I think the strategy makes a ton of sense and should absolutely help your self-sufficiency as well.
From a product standpoint, is there anything that you need to do to make, you know, kind of that self-service PLG motion more intuitive or easier, especially, you know, outside of your mobile customers, right? If we think about even even the mid-market customers.
there should be a lot more self-serve capabilities, just anything that you need to invest in or expand from a product perspective. And then I've got to follow up. Yeah. So first of all, I think when people first hear self-serve, they think, don't you already have a website? Can't people order on your website? And of course, yes, we do. And yes, they can.
But what I'm talking about is a significantly more transformational effort where customers can discover, try, embrace, and really deploy products without ever engaging with a DocuSign employee. And we can then engage with them as that potential is demonstrated and expressed and we can apply our Sales Forces really.
more efficiently so it becomes a huge multiplier for efficiency in our sales teams and that's the model that companies like Alaskan have pioneered over time and very excited to apply that at DocuSign. In terms of how that applies across segments, it's certainly true that you can imagine an SMB customer...
basically remaining a purely digital customer and we would love that, but as customers grow in scope and potential complexity then the application of those sales resources become becomes both more profitable for us and more necessary for the customer and so I do expect a heavier sales component as we as you move up market.
Mid-market has always been a core strength for us, and it remains a really important segment. A lot of our products, you start there, and you sort of grow out from there. So I think that will remain a critical segment for DocuSign and very relevant for the expanded self-serve motion that I just described. All right, wonderful. That's really helpful. And then on the international front, we'll be right back.
Now I recall last quarter there was kind of a talk of working closer with partners, especially in Japan which is as you know, very unique geography especially when it comes to enterprise software. Just wondering if you could give an update specifically on your efforts in Japan and kind of building out the partner ecosystem, especially because at least it feels like your product is viewed as significantly better than the competition, and there's great branding out in Japan. But a lot of the...
you know, kind of manual processes that need to be modernized, I feel a little bit behind. So, I'd love to kind of think, you know, hear how you're thinking about the Japan opportunity and partners there. Thanks. Yeah. We are, you know, in active discussions internally, exactly how we want to pursue Japan. I'd say Germany is another market where I don't think we have fully lived up to our potential. And I agree with you. We're in a great starting position. You know, our initial forays into both of those markets were really...
both of those countries during the course of fiscal 24. But right now, it's sort of in the planning and positioning exactly how we're going to pursue that. But those are definitely strategic priorities within our broader international strategy.
during the course of fiscal 24. But right now it's sort of in the planning and decisioning exactly how we're going to pursue that. But those are definitely strategic priorities within our broader international strategy. All right, perfect. Thank you.
Our next question is from Michael Turin with Wells Fargo. Please proceed with your question. Great. I appreciate you taking the question. You can appreciate the fact that you're already operating within the stated target range on margin, but I think some of the questions are just digging out a little bit more. It seems like you could potentially push even harder given... Let me check my Sniper or G
the product led growth background, the core efficient base of the business. So why not do that with a little bit more emphasis here and what informs the decision around balancing, reinvesting into the product versus making sure the cuts you're making are the right size where you don't have to potentially go back again and make another tough decision? Thank you. Yeah.
I'd say first of all we feel like we have tuned the organization pretty well at this point and reallocated resources to where we'd see the highest investment. I agree with you. I think we were not sufficiently efficient from a sales and marketing perspective. I hope to make us more efficient over time. Until I see that I don't want to be, as Cynthia says, we...
accelerate top line and improve efficiency over time.
Thank you. I would say maybe one other point on the investment piece. We feel we have a very significant opportunity and we have been, I think, a little under invested in innovation over the last couple of years. We had the market leading product and it remains an incredible value proposition.
coming out in Q1 and there'll be a lot more over the next three quarters and that will position us to growth in future years. Our next question is from Josh Baer with Morgan Stanley . Please proceed with your question.
Great, thanks for the question. Alan, I think you labeled 2022 well and characterizing it as a year of change. So if 2022 is the year of change, what's 2023 the year of? Is it execution, stabilization, innovation, self-serve? Like what word would you use to frame 2023?
Yeah, I think change and transition for calendar 22, fiscal 23. For this year, I think it's about setting the foundations for growth. And we are, we're really leaning into that. I think we have a fantastic opportunity to cap lines on this.
very large TAM that we believe we're pointed at. We're the market leader in e-signature and in CLM. We are the best position to capitalize on that opportunity and we just need to go execute. So that's the job this year. It's not quite as much of a turnaround transitional year as last year. It's much more of a foundation.
preparation for growth building here. That's great. And then one other one, just thinking about direct or self-serve versus partner channels, what's the mix of business today where do you want that to go?
for growth building year. That's great. And then one other one, just thinking about direct or self-serve versus partner channels, what's the mix of business today and where do you want that to go in three years?
Yeah, I mean, I think we've reported in the past that 13% of our business is digital. But a lot of that is shaped by the fact that there's only a small number of products and options that you can buy on our website. So we've been pushing actively, even relatively small customers, to have to order from a sales rep.
which I will admit I was slightly shocked to learn when I joined. So, our goal is to dramatically grow all the pieces of the business. And I'm not sure it's going to be as meaningful a year from now to talk about what's digital versus what's direct because
In a lot of cases, a customer may order some things digitally and may talk to their sales rep about other things. And so then the whole thing becomes a little bit less clear. From a partner perspective, I don't think we've externally reported on our partner mix. It's a partner touched. It's a meaningful minority of our business. In terms of directly partners sold, that's a little smaller. I think both of those need to grow meaningfully.
We don't have, I alluded to this in my comments, just as one example, there's a big opportunity to embed our market-leading signature and agreement workflow products directly into third-party products. We do some of that today, but we're not set up well to serve developers today. So we've got a couple of quarters of work to do to really provide a world-class set of componentized tools that allow developers to pick and choose from all the things we have.
to create the most compelling agreement experiences inside of their products. That's going to be a really important growth driver, but I'm not prepared at this time to be calling on the exact magnitude. Great. Thank you. Our next question is from Kirk Mattern with Evercore ISI. Please proceed with your question. Yeah, thanks very much. Alan, I was wondering if you could just talk about sort of the industry strategy or the-
are the earlier phases of our verticalization strategy. We've long had a special suite of tools for the real estate industry. I think they are best in class, and we'll continue to tweak and improve on that. More recently, we've done some, I think, really nice work, for example, in the health care space, where we've added some
some compliance with a variety of federal regulations that enables our products to be used for healthcare applications, and that's driven some really nice growth. I think we have opportunities, and this is an active part of our product planning, to basically have our...
our products sufficiently componentized that we can easily create custom workflows that are tailored to individual industries. So, I mean, obvious example, if you have something for mortgages, it's not that different from a loan application, it's not that different from an automotive car purchase, and those are all sectors that we already have business in and where I think we have opportunities to create.
deeper vertical agreements. Another example is governments, and so we have big opportunities in the government space as well. But I'd say we're, we're, we've got, we've got some work to do to really fully capitalize on the verticalization opportunity that you alluded to, which I totally agree with. Thank you.
Our last question is from Jake Robert with William Blair. Please proceed with your question. Hey thanks for taking my questions and asking my results. Alan you've talked a lot about the reoptimization of those R&D resources. Is that more about going deeper into some of your less mature products that have big opportunities like CLM?
or is it about building the self-serve and more frictionless e-signature capabilities that you've talked a lot about? And which of those opportunities do you see being larger as we move forward? It's really across all those. So we are...
absolutely directing investment dollars towards accelerating our product-like growth motion and so that absolutely but in addition to that we directed additional investment dollars into you know accelerating our agreement workflow roadmap into the CLM space and into our CLIVE migration I think many of you are aware that
that we're in the process of migrating our suite to Microsoft Azure. Very strong relationship with Microsoft and this is a really important year for that migration to move some of the core workloads and some of the core compute and storage there. And so we felt that was deserving of more investment because once we get there we get.
But we will really get going in a material way here in fiscal 24. So those are all areas for incremental product investment beyond the self-serve PLG side. OK, great. That's helpful. And then just wanted to double click on the product bundles performing better than expected during the quarter.
can you provide some specific examples of those bundles and which products really stood out in terms of customer adoption? Yeah, I mean, very quickly, I'd say the most successful one, and I alluded to this earlier, was what we call a new co-fundal, so new customer acquisition, where we bundled
our core signature product with a couple key options, SMS and single sign-on and we had a baseline services offering to accelerate onboarding and that was a really nice bundle. Some of our highest value features that we feel are most highly correlated with.
both customer satisfaction and renewal, and getting people off to a good start, it really is helpful for renewal as well. So, again, that was the most successful, worked really well, and we need to do more of that. Great, thanks for taking my question. Okay, just quick.
Let's just wrap up here. Thank you all for joining and for your support as we continue to evolve our business. In closing, while this past year was challenging, the changes we're making are vital to driving our long-term growth and success. I think we delivered a solid finish to the year and we're prioritizing our investment focus on the areas which we believe will drive our business.
I look forward to sharing more with all of you as the year progresses. Thank you.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Please disconnect your lines at this time. Thank you.