Earnings Call: Q2 2021

Sep 3, 2020

Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's Second Quarter Fiscal 2021 Earnings Conference Call. As a reminder, this call is being recorded and will be available for replay from the Investor Relations section of the website following the call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. I will now pass the call over to Annie Leshin, Head of Investor Relations. Please go ahead. Thank you, operator. Good afternoon, everyone. Welcome to DocuSign's Q2 fiscal year 2021 earnings conference call. On the call with me today, we have DocuSign's CEO, Dan Springer and CFO, Mike Sheridan. The press release announcing our Q2 results was issued earlier today and is posted on our Investor Relations website. Before we get started, I'd like to let everyone know that we plan to participate virtually in several events in the upcoming weeks. First, the D. A. Davidson 19th Annual Software and Internet Conference on September 9th Citi's 2020 Global Technology Conference on September 10th Deutsche Bank Technology Conference on September 14th and Jefferies Virtual Software Conference on September 15th. As other events come up, we'll make additional announcements. Now let me remind everyone that some of the statements on today's call are forward looking. We believe our assumptions and expectations related to those forward looking statements are reasonable, but they are subject to known and unknown risks and uncertainties that may cause our actual results or performance to be materially different. In particular, our expectations around the impact of the COVID-nineteen pandemic on our business, financial condition and results of operations are subject to change. 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 as to date. And except as required by law, we assume no obligation to update these statements in light of future events or new information. During this call, we will present GAAP and non GAAP financial measures. Non GAAP financial measures exclude stock based compensation expenses, employer payroll tax on employee stock transactions, amortization of acquired intangible assets, amortization of debt discount and issuance costs from our notes, acquisition related expenses and as applicable other special items. In addition, we provide non GAAP weighted average share and information regarding free cash flows and billings. These non GAAP measures are not intended to be considered in isolation from, nor a 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 directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today's press release, which can be found on our website at investor. Docusign.com. I'd now like to turn the call over to Dan. Dan? Thanks, Annie. Good afternoon, everyone. Welcome to our Q2 earnings call for fiscal 2021. I appreciate everyone joining us today and I'd like to cover 4 key areas of the business with you. The evolution of COVID-nineteen and the impact we're seeing on our business, the essential role that eSignature and the Agreement Cloud continued to play in the digital transformation of our customers' businesses around the world. Our recent acquisition to accelerate the opportunity in remote online notary and a few additions to the Board and executive team, including Mike Sheridan's new international leadership role. So let's start with the evolving dynamics of the pandemic. It would be an understatement to say that we're all still experiencing significant changes in the way that we work and live as a result of COVID-nineteen. We're seeing it with our more than 5,000 employees around the world as we don't expect to return to an office environment until June of next year. As a team, we're focused on helping each other adapt to these changing circumstances and to balance the myriad demands on our collective time. We're seeing it with our customers too. I spoke last quarter about how so many of them faced a sudden need to transition to remote work when the pandemic first hit. Today, that need has evolved from an initial crisis response to a business necessity. And because agreements are central to doing business, the need to agree electronically and remotely has never been stronger. This is causing greater adoption of our offerings, something we believe will persist beyond the crisis. Because in our experience, it's very rare to see anyone go back to paper once they've gone digital. The upshot of all this is that DocuSign is becoming an increasingly essential cloud software platform for organizations of all types and sizes, a fact that is well reflected in our Q2 results. Billings grew 61% year over year to $406,000,000 and revenue grew 45 percent to $342,000,000 We added more than 88,000 new customers bringing our total to nearly 3 quarters of a 1000000 worldwide. For perspective, we acquired more new customers in the first half of this year than we did in all of last year. Our operating margins and cash flows reached record levels, while we continue to make key investments to address the heightened demand. As is evident from these numbers, the trends that emerged in the latter half of Q1 have continued throughout Q2. We've seen a sustained rise in demand for our core e signature offering, not only from new customers, but also those expanding across use cases, departments and borders. The interest in transforming other parts of the agreement process is growing too and that in turn creates pipeline for the rest of the Agreement Cloud Suite. Now let me give you some examples of recent customer wins and expansion. One of our largest retail customers runs a network of healthcare clinics within its stores. When COVID-nineteen hit, company accelerated plans to provide telehealth services using DocuSign eSignature to handle consent and other paperwork remotely. This is a great example of COVID accelerated demand that we see as durable. Now telehealth will remain after COVID-nineteen, but the paperless processes that came with it will likely end up getting implemented for in person clinic visits too because the electronic way is more efficient and a better experience than paper and clipboard. Another example is from a large financial institution that's a long time DocuSign customer. The company already used e signature widely, but when COVID-nineteen hit, it accelerated plans for further rollouts and together we helped activate 11 new lines of business. This illustrates a pattern we're seeing where established customers are now bringing e signature to new divisions, departments and regions. This was going to happen at some point, but it's just happening faster now. Finally, I have a few examples from an area of the economy I know you're all interested in, the public sector. To date, we've held a strong competitive position at the local, state and federal levels here in the United States. This quarter, we built on that base with a healthy mix of e signature and multi product agreement cloud deals, including DocuSign CLM and our identity family of products. We helped a major city deploy a digitized workflow to handle applications for housing assistance and we enabled a federal agency to capture applications and distribute relief funds to healthcare providers on the front lines of coronavirus response. So in summary, it was an exceptional quarter for customer growth and expansion. Economic headwinds did cause some to request relief, but that was more than offset by increased demand overall. And while DocuSign faces the same economic uncertainty as everyone else, we remain optimistic about our ability to deliver increasing and durable value no matter where business is conducted. I'd like to move on now to how we're investing in innovation and new Agreement Cloud product offerings. Specifically, I'd like to talk about our acquisition in July of Live Oak Technologies, an Austin based startup that was already a close partner of ours. For agreements that would normally require people to be together in person, Live Oak enables the transaction to be done remotely via video conferencing. The company's platform includes several other technologies specific to remote agreements too, such as video identity verification, collaborative form filling, an integration with DocuSign eSignature and a detailed audit trail. With this acquisition, we will leverage Live Oak's technology to accelerate the launch of DocuSign Notary, a solution for remote online notarization where signaries and the notary public are in different places. DocuSign Notary will do for notarization what e signature did for signing. It will enable a dramatically better experience for everyone involved from wherever they may be. We believe this is a natural extension of our e signature business. And once people use remote online notarization, we don't expect them to go back. In fact, when we announced this move, the customer response was very clearly, how soon can I get it? And the answer is that DocuSign notary is slated for beta release later this year. The initial version will be for existing customers that already have a notary capability within their organization or what we call 1st party notary and we expect to enable 3rd party notary in the near future. Now before I close out my remarks, I wanted to share a few enhancements to our Board and executive team. I'm thrilled to share that Teresa Briggs and James Beer have recently joined our Board of Directors. Teresa is assuming the role of Audit Committee Chair and she brings a wealth of financial experience from Deloitte as well as fantastic and relevant Board experience at ServiceNow and Snowflake. James has extensive financial experience as CFO at Atlassian today, previously at American Airlines, McKesson and Symantec, all of which will be invaluable as we continue to scale our business. On the executive team, we have appointed Kamal Hafi as Chief Technology Officer reporting into Tom Casey. In this new role, Kamal will oversee the development and execution of our overall technology roadmap. Given his 20 plus year run at Microsoft and his recent experience at Trader Interactive, we believe Kamal is the ideal person to build the platform that powers the Agreement Cloud as it continues to scale. I'm also excited to announce that I'm promoting Mike Sheridan to the role of President of International at DocuSign and that Cynthia Gaylor, a current Board Member and Audit Committee Chair will be joining as our new CFO. As you've heard me say in almost every call to date, our international business is a key growth driver for us. International growth was over 60% this quarter and its contribution to our overall business is increasing. Since the beginning of this year, Mike has been spearheading our growth initiatives across EMEA. Given the strong results of his efforts there, we are now broadening his scope to drive growth across all international markets. So I couldn't be more pleased for Mike and for DocuSign to be doubling down on international. Of course, we couldn't do this if we didn't have access to a CFO like Cynthia. She brings more than 25 years of finance and capital markets experience with an extensive background in strategy and operations as well as a deep understanding of enterprise and consumer software. Most recently, she was the CFO of Pivotal Software, prior to which she led corporate development at Twitter and was a Managing Director in the Morgan Stanley Technology Group. I'm looking forward to working closely with Cynthia in an operating capacity as we continue to drive the business forward. As Mike and I worked through the scope of his new role over the past few months, we also collaborated with Cynthia so she could hit the ground running. She will continue to partner closely with Mike and myself over the next several months to ensure a strong and seamless transition. So with that, I'd like to welcome Cynthia to the team and to again congratulate Mike on his new role. I'll close this out by saying that the catalyst for further digital transformation remains strong and we firmly believe DocuSign can continue to deliver value across the entire agreement cycle. And our strong Q2 combined with the momentum we're seeing as we enter Q3 gives us confidence in this business. While the pandemic continues to have an unpredictable effect on the market at large, we will stay nimble and we'll continue to do everything we can to help our customers, partners and employees adapt, transform and move forward. Now, let me turn over to Mike for a deeper dive on the financials and some comments on his new role. Mike? Thanks, Dan, and good afternoon, everyone. Before I get into my comments on the quarter, I'd like to thank Dan and the Board for entrusting me with my new role as President of International. We have a great strength in our international operations today. It has achieved impressive growth over the last several years. I look forward to working with this great team to expand upon this success. I also want to welcome and congratulate Cynthia Gaylor as our new CFO. As Dan mentioned, he and I have had the opportunity over the last couple of years to work with Cynthia as a Board member. And during that time, she has become very familiar with DocuSign's financial operations. I'm confident that Cynthia will hit the ground running as she joins the team. Turning to our Q2 results, strong sales led by our e signature solutions drove a 61% year over year increase in billings to $406,000,000 This also drove a 45% year over year increase in total revenue to $342,000,000 in the 2nd quarter. Subscription revenue increased 47% year over year to $324,000,000 We saw particular strength outside the U. S. As total international revenue grew over 59% year over year to $67,000,000 This quarter, we added over 88,000 new customers. Of those, over 10,000 were direct customers, an increase of 55% year over year. This brings our total customer base to nearly 749,000 worldwide with over 99,000 direct customers. Strong e signature expansions and upsells into our existing customer base led to a record dollar net retention rate of 120 percent in the quarter. Customers with ACVs greater than $300,000 grew 41% year over year to a total of 5 20 customers. Total non GAAP gross margin for the 2nd quarter was 78%, consistent with a year ago. Subscription gross margin was 83% compared with 84% a year ago. Margins were impacted by our Seal acquisition as well as by investments we made in our data center capacity, particularly for hosted services to ensure our ability to meet significantly higher transaction volumes. Non GAAP operating expenses totaled $233,000,000 or 68 percent of total revenue in the quarter, compared with $185,000,000 or 78 percent of total revenue in Q2 last year. We generated $34,000,000 in non GAAP operating profit or a 10% operating margin in the quarter. This compares with an operating loss of less than $1,000,000 in the Q2 last year. Non GAAP net income was $35,000,000 in the 2nd quarter, compared with $2,000,000 in the Q2 of last year. We ended the quarter with 5,008 employees, an increase of 44% over the Q2 of last year. Turning to cash flow, operating cash flow in the 2nd quarter increased nearly 3 50% year over year to $118,000,000 compared with $26,000,000 in the same quarter a year ago. Free cash flow came in at $100,000,000 in the quarter compared with $12,000,000 a year ago. CapEx increased during the quarter due to leasehold improvements in Brazil as well as the completions of our federal data center. Now let me turn to guidance. We anticipate total revenue of $358,000,000 to $362,000,000 in Q3 and $1,384,000,000 to $1,388,000,000 for fiscal 2021. Of this total, we expect subscription revenue of $343,000,000 to $347,000,000 in Q3 and $1,315,000,000 to $1,319,000,000 for fiscal 2021. For billings, we expect $380,000,000 to $390,000,000 in Q3 and $1,623,000,000 dollars to $1,643,000,000 for fiscal 2021. We expect non GAAP gross margin to be 78 percent to 80% for both Q3 and fiscal 2021. For operating expenses, we expect sales and marketing in the range of 46% to 48% of revenues for Q3 and 45% to 47% for fiscal 2021. R and D in the range of 14% to 16% for Q3 and for fiscal 2021. And finally, G and A in the range of 9% to 11% for Q3 and for fiscal 2021. For non GAAP interest in other, we expect $1,000,000 of expense to $1,000,000 of income. And for fiscal 'twenty one, we expect $4,000,000 to $6,000,000 of non GAAP interest and non operating income. We expect a tax provision of approximately $2,000,000 to $3,000,000 for Q3 $7,000,000 to $9,000,000 for fiscal 'twenty one. Finally, we expect fully diluted weighted average shares outstanding of 200,000,000 to 205,000,000 shares for Q3 fiscal 2021. Thanks for joining us today and we will now open the call for Q and A. Thank you. At this time, we'll be conducting a question and answer Your first question comes from the line of Sterling Auty with JPMorgan. Please proceed with your question. Yes, thanks. Hi, guys. First, Mike, congratulations on the promotion and running international. If Cynthia is there, congratulations on the new role as CFO. Just on the idea of international, Mike, maybe you can give us an update on the status of where the go to market, the percentage of revenue coming from international and what investments are necessary to drive that business going forward? Yes. Thanks, Sterling. A couple of things. I would say that if you look at the scale of international today, it's over $200,000,000 in revenue and the team is executing very well. I just reported a 59% year over year increase revenue. So there's definitely growth already being achieved. If you think about that scale, it's similar to what DocuSign was about 5 years ago when I joined DocuSign. At that time, DocuSign was also a very rapidly growing organization. So as we've looked at it, many of the challenges that we needed to deal with at that stage of the total company are showing themselves in our international region. So much of the work that I'm going to be doing is going to look a lot like the work that we've been working on over the last several years as we scale the whole business. I think what really makes this work is in my role as CFO, I've worked on so many of the very same kinds of issues. I've developed strong relationships with the executive staff in headquarters as well as the leaders across the globe. So, we have a lot of foundation. In terms of what the nature of the investments are going to be, I think we're tracking well. I think a lot of what we're seeing is that the structure of our international operations today look like what they were when we formed them 4, 5, 6 years ago, which is direct line reporting into headquarters, which is appropriate. But I think what I can bring is a greater focus into that area where I can work with the executive members as well as the regional leaders to figure out how they work together across those reporting lines to figure out what are the right in region investments and structures that can drive that growth further. Great. And then one quick follow-up in terms of the gross margins, specifically the subscription gross margin, comment on kind of where we are in the scale and what we should expect trend wise from that line going forward? Yes. So the guidance that I provided shows that they're going to for the period of time through the end of this fiscal year stay in high 70s to low 80s kind of range. There was one impact in Q2 that related to our acquisition of Seal, which had an impact on the margin that was slightly dilutive as we anticipated. The other impact on margins right now is that, as I mentioned, we have pretty significant increases in our transaction volumes. And so we're continuing to build out our infrastructure, data center infrastructure and other to ensure that we kind of keep our SLAs tracking as we're consuming those greater transaction volumes. So we're absorbing those into the existing margins, but I think they're going to be stable at that level through the end of the fiscal year. Great. Thank you. Your next question comes from the line of Stan Zlotsky with Morgan Stanley. Please proceed with your question. Perfect. Thank you so much and congratulations on a very strong quarter. From my end, the thing that I wanted to get into is, what are you seeing as far as the pull through of the rest of the DocuSign suite with into your existing installed base of e signature customers? So things like your SpringCM, CLM product, seal? And then I have a quick follow-up. Yes. So Stan, I think what we're seeing is sort of what we talked about last quarter continue. The dramatic pull from our customers and prospects for e signature with a very high enablement time, very quick ROI and just the need for people to take that first step into the Agreement Cloud and that's how most people do enter into Agreement Cloud is SUI Signature. That's been the headline story. And if we look at our growth, it's been more significant in the traditional aspects of our business than any other part. And we're very clear when we go to our field, we say that you have to when you talk to customers and you talk to prospects, you start off every conversation with DocuSign's agreement cloud company. Let me tell you how we're going to help you prepare, sign, act on and manage your agreement. If that individual says to you, yes, I'd like to buy some eSignature to get started right now. The only appropriate answer is yes, sir or yes, ma'am, happy to sell you some e signature. And that's what we're going to continue to do through this period of time. We want to really support what the customers are needing. But at the same time, as I mentioned upfront, we're seeing a lot of people saying the concept of the Agreement Cloud is really something they're embracing and they're saying we'd love to figure out a way to broaden the relationship with DocuSign. We believe that things like DocuSign CLM, which is the with the springCM product that we've turned it into here, will continue to be strong. We see a lot of demand. We're building a lot of pipe for it. And the customers that we're bringing in right now, I think about those 88,000 new customers, many of those will be prospects for CLM in the future. But we believe that the sales cycle there will always be a little bit longer. They're more complex. Usually there's a services component, right? So it has to be a statement of work calculated and done. And a lot of times, I think we're seeing CIOs and CFOs that are customers today are saying, I want to do that. But right now, I need to get these signature pieces enabled. Let's do that now. And as we get later into the year and more settled and settled down in their company is where I think we'll see increased demand and pull through of those other components. Perfect. That makes a lot of sense. And maybe one for Mike. Mike, congratulations on the promotion to lead international. And just on the quarter, net revenue retention, obviously very impressive, 120% result. How should we think about net revenue retention moving forward versus your more traditional $112,000,000 to $119,000,000 range? That's it for me. Thank you. Yes. Thanks, Dan. Yes, we obviously for the last couple of quarters have been at the higher end of that range actually this quarter. We exceeded it a little bit. I'm not going to update a guidance range for it. We will be upgrading that guidance range when we provide guidance for fiscal 2022. But with that said, I think what we've seen in these recent quarters in terms of real strengthening around our dollar net retention and our ability to upsell into our installed base should keep us on the higher half of that range. All right, perfect. Thank you so much. Your next question comes from the line of Alex Zukin with RBC. Please proceed with your question. Hey, guys. Thanks for taking my questions. Congratulations all around on the quarter, the promotions, etcetera. I guess maybe just 2 for me. First one for Dan. Dan, are trends can you tell us about trends on kind of a monthly basis and linearity on kind of the mid market and the enterprise? Do you feel like around even engagement, are we kind of momentum and now you're starting to see more of a return to normal adoption? Or is it still are trends still accelerating? So in terms of 2 things. 1 is we have a sort of a linearity and we do a lot of our forecast and we look at how quarters build across the month. And the one thing I would tell you in the last couple of quarters, we've seen some, I would call positive trend where we are having less of a back end weight to our quarter. I would say that you'd expect that of course to be on our web and mobile business, which tends to have relatively even linearity, right, Whereas enterprise, of course, it had the biggest back weighting in the quarter, but we're seeing it across the board even with the enterprise, more evenness. I think some of that is execution on our part. I think we're putting a lot of focus on thinking about monthly closes versus just quarterly closes. But I would also tell you that I believe in the marketplace, we're just seeing demand being stronger. And so people are coming to us through all parts of the quarter just trying to get deals done. So we're probably seeing some positivity there. But that's the I don't think there's been a dramatic change and I don't think we see anything in the way we're forecasting Michael, if you see something different, feel free to share it. But I think we're not seeing a lot of dramatic change, just a slight improvement in that and it gives us more predictability as we look through the quarter. Got it. And then maybe for Mike, look, the billings growth in the first half is nothing short of extraordinary. I don't think anybody would kind of speak otherwise around that. The guidance for the second half does look like a pretty different kind of growth trajectory. So I guess the obvious question is, is there any pull in activity that you saw around large enterprise deals in kind of this quarter, the first half? Because I would assume that you're now getting into your big enterprise renewal conversations in the second half end period and that should actually potentially drive even more large deal conversations and via net benefit even more so for net expansion? Yes. So I would say a couple things, Alex. I think in Q3, our guidance has billings growth year over year well into the 40 percentiles. So I do feel like we're off to a good start in Q3 and it's reflected in the guidance like we've talked about in the past. There's a lot of variables Dan alluded to it in his comments that we're subject to like everybody else. We're trying to figure them out real time. We feel very good about the second half. We guide what we can see. We don't guess. We always aspire for the highest level of growth we can accomplish, but I think the guidance is reasonably balanced and positive. Perfect. Thank you, guys. Your next question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question. Great. Good afternoon, everybody. I want to drill down a little bit into the acquisitions. And I guess starting with Siel, obviously, you've announced some big improvements to contract analytics. And just want to know how far down the path you are at this point? How much raw R and D you're going to have to spend moving forward? And when it's going to kind of achieve your vision? Well, I think when we talk about Seals, starting off, Rob, I think the answer is there was always 2 parts to this and we're still excited about both. One was there sort of intelligent insights, which is the core agreement analytics product that we've been partnering with CLN when they were a partner before the acquisition. We continue to see that that's going to be something that a lot of our customers are going to want to do and we're very excited about that. And then the second piece was integrating the Seal AI technology into our CLM offering. So as you saw when the Gartner report came out on CLM, we were the only 2 companies that were in that upper right hand quadrant and we feel we had a fantastic entry with DocuSign CLM. And yet we also felt internally the place where we had the biggest improvement opportunity was to really integrate agreement analytics into that CLM product. And so that is the second big piece. So on the first one, intelligent insights, I think we're there. I think it was a product that was fairly close to standalone. There's some things we needed to do to make it DocuSign quality, let's call it that, in terms of things like security and reliability and we're still making investments on that front. But I would say we'd say that that product is pretty much ready for prime time and our people are now out aggressively selling that into our base. In terms of the integration with CLM, that's something that's still quarters away. We still have a lot of engineering and R and D work as you referred to it to make that fulfill that promise we have for our CLM product. It's going very well. I think we're highly confident, but we think that will be early next year before I can really put my hand on my heart and tell you that work is complete and the DocuSign CLM product has a fully integrated advanced agreement analytics functionality, one that will allow us to be significantly stronger than other players in the market. And I guess quickly around the Live Oak acquisition, how much does that increment your TAM? Can you just speak to the broader opportunity there? Yes. So TAM is actually a really interesting topic within the notary space. We've taken a couple of looks at it. We've looked at other reports. We're basically saying we think this approach is about $1,000,000,000 So if you look at this and you think about it in the construct of a $25,000,000,000 TAM for Signature, it's not a dramatic increase, but it's a really nice piece. And the bigger side of it for us is so many of our customers have said to us, we really would love to have a notary capability and particularly for those larger customers that have what we call 1st party notary, they already have a notary capability in their business. They really are excited to integrate this into their offering. We see that a lot with the financial institutions who have been pushing us. So as much as anything, this is like a feature enhancement that we think, well, it has a nice $1,000,000,000 that's not a bad increment to go after. But it's not like earth shattering change in our business. We look at this as a really nice tuck in that our customers are asking for and this good piece for us to go after. And then it opens the opportunity to go after the 3rd party notary space. People tend to think about that the individual notaries that are driving around for people to do real estate transactions. And we would love to then really transform that business as well as so many customers have come to us and said in the past that would be a great opportunity for DocuSign to make their lives a little more agreeable. Great. Thank you very much. Next question comes from the line of Pat Walravens with JMP Securities. Please proceed with your question. Great. Thank you. And congratulations, Mike. I love the move from the financial role to the operating role. That's awesome. So here's my question for you, Dan, and I've asked a bunch of CEOs this question this quarter, which is, how do you make DocuSign the best place to work when everybody is working from home? If I had the answer to that one, I would be selling it in a lot of different ways that for sure. But I can tell you this, the good news is because we had built such a strong culture and that's why our Glassdoor scores are so high and we do so well on those best places to work surveys and why in our own surveys our employee engagement is so high. It's because we built a fantastic culture where people really believe in our values and fundamentally they're excited to work at a place that puts customer success as our top priority even above our financial results and people get excited about the pride they have for working here. None of that has changed. While it's harder to have those personal connections to people, when we don't have people coming into the office and each day that goes by a bigger percentage of DocuSigners have never met personally one of their colleagues. We're about to cross over 1,000 DocuSigners that have joined since we were doing remote office work. So it's going to get tougher and tougher. And I think the real answer is increased communications. We are looking at changing up the mix of communications and some of the things are harder, but I'll tell you something else. Some of the things are better. I'll just give you one example, Pat. So in the past, we had an event called Discovering DocuSign, where we would invite people when they join, shortly after they join to Seattle, which is where the company was founded and we met with a bunch of other new DocuSigners. And we had different executives come in and talk to them about the company over a couple of days. I didn't get to attend that very often just because by schedule and what I need, I couldn't always be there. In fact, I started to be there less and less. Now that we do that as a remote event, I'm there every time. So every new DocuSign employee could be a good thing or a bad thing, depending on how you look at it, Pat, because they get an opportunity to meet Dan Springer. And we get creative connection. And quite a few of them send me emails right afterwards and we've now built a different kind of connection. So it's remote, but we're figuring out creative ways to find different communication styles and techniques to put us into a place where I think we can continue to make this a place for people to do the work of their lives. But it's an ever this is not one that's going to be over quickly. We're going to have to continue to be creative to do it if we want to continue to earn that great relationship we have with our employees. Thanks, Dan. Your next question comes from the line of Walter Pritchard with Citi. Please proceed with your question. Hi. A couple of questions on the sales and marketing side. Your growth in spending there has been decelerating over the last three quarters and understanding there's expenses like T and E and so forth that are not part of that. How what are you doing to build sales capacity over the next 6 months? And how do you think about driving sales once we get into the situation where maybe people's hair aren't on fire and COVID is at least we've worked through it being more of a normalized situation as opposed to the situation we're in right now? Yes. So a couple of things. Well, I would say on capacity, we are continuing to expand our capacity pretty aggressively. As you saw from the hiring statistics that I had mentioned, we're now over 5,000 employees year over year growth of 44%. A substantial amount of that is in our go to market organizations, not just on sales capacity, of course, marketing capacity as well and customer success capacity. And so we are endeavoring to stay ahead of the trends that we're seeing. We're looking at the demand data very carefully to try to forecast the trends and get ahead of that with capacity across the business. In terms of what will we anticipate post COVID, I don't know that anybody has a there is a greater awareness of the there is a greater awareness of the need to digitize the business and we believe that that's going to be sustained even after things return to whatever normal looks like in the future. So we do believe that we're entering into a period of a new normal. It doesn't necessarily mean that the highs of any particular quarter are going to be sustained forever. But at the same time, we don't see trends that things are going to return to the way they looked and trended pre COVID. So we're designing the business. We're designing our marketing activities and our sales activities to stay on top of that as best as possible. Okay. Thank you. Your next question comes from the line of Koji Ikeda with Oppenheimer. Please proceed with your question. Hey, thanks for taking my quarter. Nice quarter, guys. Congrats to Mike on your new role and congrats to Cynthia on your new role too. Just one question for me. On the sales process, just thinking that now most of the role has been operating in this new pandemic environment for a while. Have your sales conversations changed significantly? Are you seeing customers taking a step back now and looking at how to optimize workflows more strategically, which could result in more platform type conversations for you or maybe even broader adoption across the organization, the starting point for implementing Jockey Sign On? Yes. Cody, it's a really interesting question. One thing that's always hard in answering your question around sort of more tonic shifts like that is what's behind it. Is it maturation of our business? Is it related to COVID, etcetera? My view is from a COVID standpoint, it was the nature of your question is we went through a period of time where people just got very And we have certain use cases that we can't run our business, we can't figure them out. And we have certain use cases that we can't run our business, we can't figure them out. So it was not about naval gazing and deep thought about their processes. It's about getting some of these primarily e signature workflows in place. And while I think there's still some of that for sure, that has definitely calmed down. And I think the number of people that are rushing to us saying, I need to make a quick adjustment to be able to deal with if they haven't got it done by now, and they missed that window. What we are seeing now is people saying, wow, this is fantastic. There are more places where I could leverage this in my business and we're looking at expansion as we talked about of use cases within our base to more and more places that as I said before, we only think they would have gotten there eventually. It just accelerated those and we're continuing to see that acceleration of those workflows into DocuSign because they realize how beneficial they are to their business. From a standpoint of that more platform thinking, I don't know that I would say I've seen that increase and I don't know if I'd say this increase would be due to COVID. The natural maturation for a lot of folks with us around the Agreement Cloud opportunity is they start hearing us describe the future. They say, you know what, I could see you as a more strategic part of my sort of IT infrastructure and my business process infrastructure. And so I think that's occurring more and more, but I think that's more to do with the fact that we're just getting bigger and having larger relationships with companies as we scale. You look at that number of customers above $300,000 it's just sort of one metric. That keeps growing, right, substantially. And so I think that's driving it more than a COVID reaction. But again, it's hard to sort of separate out each of those components, but that would be my view. Great. Thanks for taking my question. Appreciate it. Your next question comes from the line of Taylor McGinnis with Deutsche Bank. Please proceed with your question. Yes. Hi. Thanks so much for taking my question and congrats again on a really strong quarter. So net retention rates have been really strong the last couple of quarters and I believe so far that's largely been driven by e signature related expansion. So I'm just curious what kind of levels you think net retention could hit once things like SpringCM or the broader agreement cloud start to become larger contributors? Or maybe anything that you can just share on what those deal expansions have looked like so far, when they include those products relative to just e signature? Hi, Taylor. Yes, a couple of things. One, if you look at the scale of our e signature business compared to the scale of the CLM and the data analytics or agreements, sorry, agreement analytics businesses, e signature is dramatically larger. So that statistic is going to largely succeed or not succeed based upon our success in e signature, our upsells, our volume expansions and all of those things. That is not to say that the agreement cloud expansions are not important. They are, but that is a much longer term trajectory before you'll start to see them have a meaningful movement in a broader statistic like that. So as we talk about those businesses and how they're growing in the comments that Dan made, I think those are all critical. But in terms of a near term quarter to quarter impact on something like dollar net retention, e signature volumes are just going to overwhelm it, so you won't see it so much move statistic like that. Got it. That makes a ton of sense. And then my last question is, I thought the inflection in international growth was really interesting. So just curious if there was any catalyst in the demand environment there that drove that or if you guys made any changes on the go to market front or if there was anything to call it in particular? I think Mike's involvement in international Taylor has clearly been the driver and the increased growth there. And around the company, we couldn't be more excited that he's off to such a good start. From your sense about the market, and I think it's mostly Mike's execution, but for your sense about the market, I don't think we have seen anything different. We have seen different levels of success in different geographies. It was phenomenal for us to be able to say that every single geography that we have was above plant in the quarter. And we're in a bunch of geographies, so that's pretty impressive. I would tell you there's some markets I was going to point to one that was particularly strong, I would say, LatAm and our Brazil team crushed it. But if I said to the area where I saw the most improvement, because we've been crushing it there for a while, I'd say it was Europe. And I think, again, with a tongue out of my cheek, I'll say, I do think Mike's leadership in Europe has helped us perform a little better there and execute better. And it's a big reason we're so excited for this broader expansion of his role to all of international. But I also do think that we saw some positive demand characteristics across Europe as well. So those would be my observations. And Mike, I don't know if you have anything different you're seeing. Yes. I would add, I think a couple of things. One is going back to the capacity question earlier, we have been building international capacity. And as we see some of that capacity get through their ramp, we're starting to see better productivity. That's a contributor. I think the pandemic impact is a global impact. We're seeing that. And remember, our international business in terms of scale isn't as large as the overall. So having a higher percentage on a smaller scale is also a factor. Awesome. Thanks. Your next question comes from the line of Rishi Jaluria with Research Analyst. Proceed with your question. Hi, this is Rishi Jaluria from D. A. Davidson. Thanks so much for taking my questions. And congrats to both Mike and Cynthia on your new roles. Wanted to start by talking about the Life Oak acquisition. Maybe just from a technology perspective, I know you can do video through that. Are there plans to kind of integrate that with other solutions out there, especially in this environment with so many people using tools like Zoom to start so that it's very natively integrated like you've been doing with the core DocuSign, the signature product for so long? And then alongside on Live Oak, I see on their kind of customer base a lot of financial services and real estate, so some of your strongest verticals. But do you see other verticals where there's potential to expand the solutions into? And then I've got a follow-up. Sure. Yes. So a couple of thoughts there. First off, I think you hit the nail on the head that this opportunity for this collaboration, leveraging things like video conferencing, it's a broad opportunity and we're going to continue to be an open system for sure. And in fact, Eric, Eric Yuan, the CEO of Zoom and I had a conversation about this. He is super excited as are we to expand our partnership and include their platform. It's obviously fantastically successful to sort of leverage that into integration with DocuSign for these kinds of programs. We believe the Live Oak guys have built some really nice tools and I mentioned some of those in my prepared remarks, but around really driving that collaboration. So use your example of financial services, if you're doing an opening of an account and say you're a large bank, sort of like a Bank America scale customer of ours and you used to have a lot of people opening accounts in your branches and now your branches are closed, you need to rapidly adapt and be able to do that in a remote setting. But then what we think we're really excited about, once you've done that in the remote setting, that's a valuable even in a post COVID world, you can tell your customers, you don't have to cut the branch to open that account. You can if you would like, but we also have this remote opportunity and the same worker whether sitting in the branch or sitting in a call center can do that activity for you. We think that's super powerful. So we really want to build that out as an internal offering, and we think notary is just one of the components of it. But we believe that's going to continue to be a foundation for other people building on top of it, as you mentioned. In terms of other industries, yes, financial services is a big one, but we can see this having a big impact in telecom. We see there's a lot of opportunity in Healthcare Life Sciences, where people are going to want to have we talked about telehealth a little bit on the call and some folks doing that. We think leveraging those same technologies to improve that experience for folks is a big one. So we do think this will be broad based, but you're absolutely right. Financial Services, strength of theirs, I would argue a focus of theirs and a strength of ours is the place we're probably going to see the most initial focus on our joint efforts. Great. That's really helpful. And then just kind of a little bit of a financial question, but we've seen contract lengths kind of tick down a little bit, which is I think can be expected in this environment. Just mechanically, how should we be thinking about the potential headwinds that might have on future cash flow? Thanks. Yes, a couple of things. I don't on the cash flow piece of it, even on multi year contracts, we build those annually. So we wouldn't anticipate that it would really have an impact on trends around cash flow. In terms of the contract length, you're right, it did tick down slightly to the 17 months last quarter, I think it was 18 months. And so what we're seeing in our bookings is we do have some weighting coming in on small to mid, that's having some impact. And we're also seeing some larger enterprises as everybody is navigating through the current economic situation, being a little more conservative in terms of the length of contracts that they're signing up to. They're not massive changes, but those are kind of the two things that are affecting that statistic. All right. Wonderful. Thank you, guys. Your next question comes from the line of Kirk Materne with Evercore ISI. Please proceed with your question. Thanks and congrats on the quarter and on the new roles for Mike and Cynthia. Dan, I want to ask you a question. Obviously, you guys have signed up a tremendous amount of new customers this year. And when you think about those customers renewing, hopefully in a year from now or maybe even sooner, is there a cadence when if they didn't want to discuss sort of the broader agreement cloud that they start thinking about it? Meaning, when you think about 12 months from now and you have all these new customers you just signed up, is there I'm just kind of curious historically what you've seen in terms of the cadence, whether it's been 6, 9, 12, 18 months? And I guess when you go back into those accounts, is it the same person or is your account manager you really need to navigate the organization to maybe sell a little bit higher when you start talking about the agreement cloud. I'm just kind of curious about how that maybe plays out in your mind over the next year or 2. Thanks. Yes. So it's a good question. And as you might imagine, the first answer is it depends, right? It depends a lot on the size of the customer and the vertical for sure. But I'll try to give you some, again, higher level, we'll call them averages to give you some perspective about it. In general, customers come in and they sign up and there's some process before adoption happens. It's one of the reasons you've heard Mike talk a lot about our investments in customer success. The faster we get people to adopt, they quickly get that strong ROI people get from DocuSign and then they start looking for more opportunities to grow. And so what we tend to find is on the smaller customers, they're there within a month, we're adopting going quickly. And some of the larger enterprise customers, it might be several months because they have like a program manager that gets involved, right. There's a lot of process that occurs. And so that's probably the biggest determinant of why there's variability in that time. And then once people start adopting and driving the success of those first use cases, the next biggest determinant on the timing is how much they bought. So some people had the initial land that was quite small and was conservative. Then before they get to the end of the year, they're coming back and they're buying more they've implemented that first project effectively as most do. If some people have said, we want to be aspirational in our first buy, they might be in a situation, they might also do a multi year contract if it's an enterprise player, but they might do a 3 year buy and they won't be talking to us for 2 years, right? So there's a lot of variability depending on how much they bought and how aspirational they were in those initial volumes. And that's a very signature centric answer. Let me switch gears and talk a little about the rest of the Agreement Cloud. So again, if you're a SMB that came to us on the web, we're not trying to sell you a broader Agreement Cloud story at this point. We have some additional enhancements that we have, especially if you're in the Salesforce ecosystem. As an example, we have a Prepare product for Salesforce, which is great. But we're not generally coming back to those people and saying, let's talk to you about CLM because it's a mom and pop business. But as you start getting to the larger customers, if they did land with Signature and particularly what's happened with COVID, as I talked about earlier, so many of these lands have been Signature centric. We now will be coming back to them 6, 9 months in saying let's talk about expansion on Signature, except our land and expand model, but let's also start reminding you one of the reasons you went with DocuSign was you were excited about that longer term vision of Agreement Cloud and see that starting to play. So I think across that year, it will be weighted towards the end of the year, but you'll see us in that 9 months, 12 months from today with the wins we're bringing in, looking for expansion opportunity for Signature for all of them and Signature plus Agreement Cloud expansion for the mid market and larger customers. That's very helpful. And then if I guess just one other follow-up, obviously incredible growth this year, You're a much bigger company. You're growing cash flow at a faster rate. Does that change any of the way you think about M and A or some of the things you might have had 5 years from now, maybe pulling those forward in terms of either it sounds like Mike going international, it sounds like you're speeding that process up. Or is there anything I guess from a balance sheet perspective that really changes just given the kind of growth you've had and frankly the higher free cash flow that you're now generating? Yes. Nothing for me that's in a significant way. One of the things we started doing acquisitions 2 years ago is when we announced SpringCM and sort of the newer DocuSign or at least within my time here coming up on 4 years was saying, hey guys, we're not going to become some massive acquisition machine. We want to do a smart deals that we can digest effectively and we want to have a very high batting average on successful deals. We've now done our 3rd deal. To be honest, I would have thought we might have been a little bit of a wait before the 3rd deal. The deal was not very large for bringing in the notary capability with Live Oak. But I feel good about the deal sizes we're doing. It's true with our balance sheet. We could probably open ourselves up to much larger deals economically, but we don't really think about it economically. We think about it from a customer success standpoint, what do our customers want and fulfilling our vision of the Agreement Cloud. One of the things that's tricky is, when you're talking about all the companies in the broadly defined Agreement Cloud, there aren't other DocuSigns, there aren't other very large players. So I don't think there's a sort of a population of big deals that we would see at this point in time is being in that Agreement Cloud vision. Is it possible over time, continue to grow and expand and become more expansionary than the Agreement Cloud and then therefore look at maybe more significant sized deals. I wouldn't rule that out, but as I look into what's visible, I feel really good about the strategy we have right now. The deals we're doing, I think, are high quality. They're on strategy for us. And I think if we look out into the the next question Your next question comes from the line of Kash Rangan with Bank of America Merrill Lynch. Please proceed with your question. Thank you very much. Congratulations on a superb quarter. You ramped up your op margins, you ramped up your free cash flows, your sales productivity is at least from what I can tell all time high. I'm curious to see if you can expand upon the things that helped sales productivity in the quarter, whether you measure through the lens of billings or revenue and how sustainable are these trends and find it as a change your view of the long term operating model to the upside? Let me talk a little bit about the sales productivity side and then Mike you can talk about if you're willing to change our long term operating model on the call for cash, I'm not sure, but we'll see your outgoing time as CFO, Lee Cynthia Giff. My perspective is that I think the success we've had in terms of sales productivity is to be really clear, it's been the secondary goal. The primary goal has been growth and we told you we want to continue to invest to achieve the apex of that growth. Now at the scale we've achieved, we feel we see opportunity for productivity improvement. But I'll tell you, it's not our focus. Our focus is still on meeting this significant demand opportunity. But just with that scale, it sort of just comes to us. So my view is that we haven't done anything dramatically differently there. There's been a little bit of a focus that I've been pushing on to that team say, let's think about overlays, let's think about complexity. As we grow this business, let's make sure we don't get so much complexity in the business that we lose our ability to simply execute. And so I think that focus there on sort of simplification is probably having a nice little positive impact and then scale is the other aspect that's driving the productivity there. In terms of that impact on the long term model, my starting point would be, we kind of forecasted this was going to happen. I think it's playing out pretty much consistently with the long term model in the path that Mike had built. But I'll give him the option to comment on that if he sees it differently. Yes. No, as a reminder, our long term operating margin model shows 20% to 25% over a roughly 4 year timeframe. And I think we're still tracking to that target with during that period of time as we've always said it being a period where we anticipate an opportunity for high growth and we're going to continue to invest in all those drivers. Your next question comes from the line of Michael Turrin with Wells Fargo. Please proceed with your question. Hey, thanks and good afternoon. Certainly an impressive quarter, so congrats to the team from our end as well. Maybe another one on the execution side. I was hoping you could maybe compare and contrast the first half of the year given the bigger surge in demand you're seeing. We all saw a big shift in having to pivot over to remote work on the fly last quarter. Were there things you're able to improve internally here in Q2 as we settle into this new way of working that made the execution even better given the acceleration you're delivering here on some of the key metrics? Thank you. My point of view is, I think we're continuing to execute well. I think it's harder quite frankly doing everything in a remote environment. And I think it's taxing on our people. It's harder work for all of us. And to be blunt about it, I think we mostly like to get back into a situation where we are mostly able to be in the office. I think the world's changed a little bit. We probably have in the longer run highly productive system where some people are increasing their a little bit of time out of the office because we've shown that we can still be productive in that environment. But from an efficiency standpoint, I think we'd actually be now even more efficient if we could be back in the office and have some of those collaboration benefits. From a standpoint of translate to the financial results, again, I don't think there's anything that's played out in these financials that I would say accelerated efficiency because of remote work. I suppose the only thing I would point to is sort of an obvious is that we don't have the T and E expense, and that has been somewhat of improvement, But we've actually spent some of those savings on other things both funding growth as well as supporting our employees in terms of things like helping them with the DocuSign Cares program, helping them set up in a home office in a way that allows them to be productive at home. So but I don't have anything else about it that would seem different to me from that standpoint. I don't know if you knew Mike or The only other thing I would mention is, we are learning as we go. We see things, for example, like attrition rates that we plan and budget for. We were outperforming those where attrition is much better than what was planned, A, because I think people really like working for DocuSign, and B, I think in the current environment, people aren't as mobile as they would be during the norm. We are seeing things like our spending related to paid time off. People aren't taking as much paid time off because of course they are working from home and that just doesn't make a lot of sense. There's not a lot of places to travel. So, to Dan's point, there's a lot of ins and outs that we're seeing in the model. So, I think as we plan for fiscal '22 and we're obviously entering that phase right now, you're right, there is a lot of learning going on that's going to allow us I think to hit the mark in terms of how we should think about spending for the coming year. Your next question comes from the line of Shebly Seyrafi with FDM Securities. Please proceed with your question. Yes. So thank you very much. So this is quite an impressive report against a more difficult comparison. You accelerated your growth and the acceleration was broad based. It was indirect, it was in web, it was international. And so my question is, how much of this acceleration was due to COVID? And how much was due to other factors like you've mentioned increased demand seen in Europe? Yes. I would say, Shibley, of course, we're looking as carefully as we can into the numbers to try to glean that out. I am comfortable saying the following. We came into the year with a fiscal plan, and with or without COVID, our performance is exceeding that plan across the globe. Obviously, once you put the pandemic effect and the work from home effect on top of that, it's generating these much higher growth numbers. But we were exceeding our planned results pre and post. Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to Mr. Dan Springer for closing remarks. Thank you very much. And I really appreciate you all being here today. It's been a fantastic quarter and we will look forward to seeing you or most likely seeing you through video in the coming months until we see you next quarter. And just then one last comment, I'd like to thank Mike again for his incredible leadership over 5 years of stewarding the financial ship here. I can't tell you how excited I am to look forward as we build the international business together. Thanks, Jeff. Thank you all. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.