Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's first 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I will now pass the call over to Anne Leschin, Head of Investor Relations. Please go ahead.
Thank you, operator, and good afternoon, everyone. Welcome to DocuSign's first quarter fiscal year 2021 earnings conference call. On the call today, we have DocuSign CEO, Dan Springer, and CFO, Mike Sheridan. The press release announcing our first quarter 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 will be participating in the William Blair 40th Annual Growth Stock Conference on June 10th. As other events come up, we will make additional announcements. Let me remind everyone that some of our statements on today's call are forward-looking. We believe our assumptions and expectations related to these forward-looking statements are reasonable, but they are subject to known and unknown risks and uncertainties that may cause our actual results or performance to be materially different.
In particular, our expectations around the impact of COVID-19 in our business, financial condition, and results of operation 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 to date, and as 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'll present GAAP and non-GAAP financial measures. Non-GAAP financial measures exclude stock-based compensation expenses, amortization of acquired intangible assets, amortization of debt discount and issuance costs from our notes, and as applicable, other special items. In addition, we provide non-GAAP weighted average share counts and information regarding free cash flow and billing.
These non-GAAP measures are not intended to be considered in isolation from, 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 again, can be found at the investor relations website. Now I'd like to turn the call over to Dan. Dan?
Thanks, Anne. Good afternoon, everyone, and welcome to our first quarter fiscal 2021 earnings call. For today's call, I will share updates and context around three primary topics. First, the company's business performance and financial results for the quarter. Second, the ways that COVID-19 has led customers to accelerate their digital transformation initiatives for agreements. Third, our views on the future based on the best data we have today. Before I get to that, though, I want to acknowledge just how much life has changed since our last call. The COVID-19 pandemic has fundamentally shifted the global macroeconomic environment and impacted countless lives around the world.
We've seen all manner of private, public, and non-profit organizations step up to help, and I'd like to take this opportunity to personally thank all the first responders, healthcare workers, medical researchers, and local leaders who have made such a difference to the lives of so many. At DocuSign, we've done what we can to step up, too, both in our initial response to the pandemic and as we all continue to adapt to its evolving impact. For safety reasons, in early March, we transitioned our more than 4,000 employees across 15 countries to a remote work environment. We offered $1,300 in assistance to employees for tools and services to help ease that transition. We offered additional programs and assistance to streamline the process even further. We also mobilized resources to handle a surge in urgent needs from our customers.
In some cases, this meant directly supporting COVID-19 responses by government agencies, healthcare organizations, and those on the front line. In others, it meant helping organizations to keep their business processes running while their workforces transitioned to remote work. I'll give you specific examples later, suffice it to say that over this time, we had a lot coming at us. To make this transition while maintaining the highest levels of platform availability, customer service, and remote onboarding, all while facing unprecedented levels of customer demand, is nothing short of exceptional. I'd like to salute the truly extraordinary efforts of the DocuSign team for their agility and commitment to our customers' success. This collective effort is reflected in our Q1 results. Our billings grew 59% year-over-year to $342 million, and revenue grew 39% to $297 million.
This strong growth was driven by use case expansion across a broad cross-section of our installed base, as well as adoption by new customers. We added more than 10,000 net new direct customers and almost 58,000 self-service customers, bringing our global total of paying customers to nearly 661,000. Our operating margins and cash flow remain strong, even as we made key investments to address this heightened demand. Much of the strong Q1 performance was driven by increased demand for eSignature from organizations that suddenly needed a way to sign and manage agreements from wherever they were. Typically, eSignature is the first step that many customers take on their broader digital transformation journey with us. From a financial point of view, we believe this surge in eSignature adoption bodes well for future Agreement Cloud expansion.
Let me share some examples of how we've helped our customers respond to COVID-19 and keep their agreement processes up and running amid the pandemic. We work closely with a global pharmaceutical company to accelerate its eSignature expansion to hundreds of use cases across 80 different countries. This is a pattern that we saw many times over the quarter. A customer already had a plan to expand, and COVID-19 greatly accelerated it. We engaged a new public sector customer, a department of labor in one of the largest U.S. states, to help transform its previously complex and lengthy process for handling emergency unemployment benefits. Supported by DocuSign eSignature, the department distributed over $500 million in benefits to more than 500,000 residents in less than one week. We enabled hundreds of U.S. national and regional financial institutions to accept applications for Small Business Administration loans more efficiently.
At one of those large banks, we were involved with over half a million loan applications, 75% of which were signed in less than 24 hours. We worked with a regional telecom provider using DocuSign Intelligent Insights, which is our contract analytics tool, to analyze potential pandemic-related risks in thousands of their supplier contracts. We helped a European telemedicine provider issue e-prescriptions and online sick leave certificates by using our video identification capability to confirm the patients' identities. These are just a few examples. You can find many more on our dedicated COVID-19 webpage. Let me speak briefly about where we see things going from here. While no one is 100% sure what the world will look like, it's clear that the ways of doing business are changing.
Remote work is here to stay, core business processes will only become more digital, and agreements will need to be completed from anywhere at any time on almost any device. As a result, for organizations that hadn't already embraced DocuSign for eSignature, or they were only using us for a few select use cases, the pandemic has been a catalyst for the greater digital transformation of their end-to-end agreement processes. We always believed this transformation would happen and that a unifying platform for agreements would be needed. COVID-19, it's just happening faster. That said, even when the COVID-19 situation is behind us, we don't anticipate customers returning to paper or manual-based processes. Once they take their first digital transformation steps with us and they realize the time, cost, and customer experience benefits, they rarely go back.
In short, we expect the adoption of our core eSignature offering by new customers and the expansion of use cases by existing ones to continue. This also acts as the on-ramp for the adoption of other Agreement Cloud products, sometimes at the same time, and sometimes as follow-ons. Of course, as Mike will tell you, we are not immune to the broader economic forces at play. Some businesses and industries will continue to contract. Some will continue to expand. Some of our customers may request payment deferral and accommodations, and some will require even more hands-on support and assistance. Even with these dynamics, our view of the business remains optimistic. We're off to a good start in the second quarter as digital transformation remains a high priority.
We feel truly fortunate to have built solutions that can help customers carry on through this time of crisis and to deliver even greater value as we transition to a world where work becomes more digital and more remote. In the meantime, we will continue to do whatever we can, wherever we can, to help our customers succeed. With that, I'd like to hand over to Mike to walk us through the financials in more detail, and I'll talk to you again when we get to the Q&A. Mike?
Thanks, Dan. Good afternoon, everyone. As Dan mentioned, the worldwide shift to remote work has accelerated digital transformations across organizations and has resulted in unprecedented levels of demand for DocuSign products. We believe this accelerated growth in new customers and expansion within our installed base was driven by a sudden prioritization of our products. We also believe that these customers will remain with us because they are realizing the value that our solutions deliver in any working environment. Strong sales led by our eSignature solutions drove a 59% year-over-year increase in first quarter billings to $342 million. This growth also drove a 39% year-over-year increase in total revenue to $297 million in the first quarter. Subscription revenue increased 39% year-over-year to $281 million. We saw similar strength outside the U.S. as total international revenue grew over 46% year-over-year to $55 million. This quarter, we added almost 68,000 new customers.
Of those, approximately 10,000 were direct customers, an increase of 43% year-over-year. This brings our total customer base to nearly 661,000 worldwide, with roughly 89,000 direct customers. These totals include a catch-up adjustment of 4,000 direct customers related to review and reconciliation of prior year customer acquisitions. Strong eSignature expansions and upsells into our existing customer base led to dollar net retention of 119% in the quarter. Customers with ACVs greater than $300,000 grew 46% year-over-year to a total of 473 customers. Total non-GAAP gross margin for the first quarter was 79%, consistent with a year ago. Subscription gross margin was 84%, compared with 86% a year ago. Margins were impacted 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 $210 million, or 71% of total revenue in the quarter, compared with $160 million, or 75% of total revenue in Q1 of last year. To address current demand and prepare for future growth, we pulled forward some of our sales capacity hires and expanded our marketing efforts, leading to higher sales and marketing expenses in the quarter. Additionally, to help ease the transition to remote work after closing our offices in early March, we provided employee stipends for virtual workspaces and other COVID-related expenses. These costs were partially offset by a decrease in travel and entertainment expenses due to the recent pandemic. We generated $23 million in non-GAAP operating profit, or an 8% operating margin in the quarter. This compares with $10 million, or a 5% operating margin, in the first quarter of last year.
Non-GAAP net income was $24 million in the first quarter, compared with $13 million in the first quarter of last year. We ended the quarter with 4,281 employees, an increase of 33% over the first quarter of last year. Operating cash flow in the first quarter increased almost 30% year-over-year to $59 million, compared with $46 million in the same quarter a year ago. CapEx increased during the quarter due to leasehold improvements and expansions to our existing offices, as well as the scaling of our federal data center. Free cash flow came in at $33 million, compared to $30 million a year ago. Now let me turn to guidance. We anticipate that total revenue will range between $316 million and $320 million in Q2, and $1.313 billion-$1.317 billion for fiscal 2021.
Of this total, we expect subscription revenue of $298 million-$302 million in Q2, and $1.243 billion-$1.247 billion for fiscal 2021. For billings, we expect $333 million-$343 million in Q2 and $1.515 billion-$1.535 billion for fiscal 2021. We expect non-GAAP gross margin to be 78%-80% for both Q2 and fiscal 2021. For operating expenses, we expect sales and marketing expense in the range of 48%-50% of revenues for Q2 and 47%-49% for fiscal 2021. We expect R&D expense in the range of 14%-16% for Q2 and 13%-15% for fiscal 2021. We expect G&A expense in the range of 9%-11% for both Q2 and fiscal 2021. For the second quarter, we expect $2 million-$3 million of non-GAAP interest and other non-operating income.
For fiscal 2021, we expect $8 million-$12 million of non-GAAP interest and non-operating income. We expect a tax provision of approximately $2.5 million-$3.5 million for Q2 and $6 million-$10 million for fiscal 2021. Finally, we expect fully diluted weighted average shares outstanding of 200 million-205 million shares for Q2 and fiscal 2021. As a reminder, we closed the Seal acquisition on May 1st, so all of the guidance I just provided includes the anticipated impact of Seal. Since we anticipate that Seal will add less than 1% to our top-line performance, we don't expect it to impact our near-term growth rates. Costs and operating expenses related to the Seal business are also a small part of our total expenses. However, we expect in the near term that they will have a small dilutive effect on our gross and operating margins.
Thanks for joining us today, and now we will open up for Q&A.
At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from Sterling Auty from JPMorgan. Please proceed with your question.
Yeah, thanks. Hi, guys. Glad everybody's safe and healthy. Just wonder if you can give us a sense of vertical industry volumes or maybe percentage of revenue. Is this primarily focused on a few key industries like finance, or are you seeing broad spread increase in adoption?
I think it's fairly broad. We don't have any one industry that is a significant portion. We have a lot of strong industries, and some of those, like financial services, did particularly well, like the specific example I gave around the SBA loans, Sterling. We also saw a lot of strength in healthcare and life sciences. We also saw the government sector being very strong, as a lot of folks had that phenomenon we described of, they knew at some point they were going to have to do more digital transformation to their business, and COVID-19 has accelerated it. We see that being very broad. Obviously, there's some industries, if you think about particularly hospitality and travel, that we see that have been weakened industries, and some of those, though, to continue running their business, need to run on DocuSign.
We haven't seen some sort of collapse or anything, but we would see less growth in those segments that are hit harder, and that's kind of how we're seeing it across the board.
Great. One quick follow-up. You mentioned investment in capacity. Can you give us a sense of what capacity utilization in the DocuSign platform system is, and perhaps what additional investments might be necessary to keep up with the increasing volume?
Yeah, Sterling, I think when we're talking about capacity, it's a couple things. First of all, in terms of our capacity to manage volumes, we have plenty of headroom. We've always remained well ahead of the curve in ensuring that our capacity is ahead of the volumes that we're seeing. Even when we had spikes with COVID, we have data that demonstrates that we were very safely above any capacity constraints. When we look at capacity that could impact things like our gross margins, expanding our customer support organization is an example, our customer success organization is an example, to deal with issues that come up there. Some of our hosted bandwidth for Canada and for Australia, where we don't have our own proprietary data centers, transaction volumes can have an impact there.
Overall, I think we entered Q2 very comfortable that we had put ourselves in a position to deal with whatever transaction other volumes are gonna materialize.
Great. Thank you.
Our next question is from Bhavan Suri from William Blair. Please proceed with your question.
Hey, guys, thanks for taking my question, and congrats. That was a phenomenal billings number and acceleration in NDR. Congrats on a great quarter. I want to touch on a sort of a more structurally complex question, I guess. When you think about the eSignature product, it's great. When you think about sort of real estate and some of the fairly straightforward concepts, but you're seeing a lot more complex workflow. I guess I'd love to understand, A, when you think about the complex workflows, what do you find are the most exciting ones, the sticking ones, the ones that will continue over time?
Sort of as you think about that, is that driven by you, or is it driven by people who are building really complex workflows like the notary part, not having a notary in person for a mortgage or something like that, by the cottage industry that's developed around DocuSign?
Well, I'll give you a couple thoughts on that. I think the first piece is we get most excited when people build workflows that integrate with our software and leverage APIs. Almost 2/3 of the transactions that occur on our platform are not from someone going into our web or mobile interface and creating a document to be signed or, for that matter, in a CLM framework, a document to be routed around and managed. It's from people who are actually building integrations to their systems, and that can be the pre-built integrations we have with SAP and salesforce.com and Workday, other great SaaS businesses. It can be APIs they've integrated themselves using our developer tools. Those are the ones that we get most excited about because they, as you indicate, are the stickiest.
The second dimension that I would think about is we get really excited about the situations where, as I said, people sort of run their business on DocuSign. If those are back office use cases where they might be managing their financial processes and their PO processes and all of those get integrated through those back-office tools into DocuSign, that's great. Also in the front office situations, particularly, and you mentioned real estate, when you see something like a mortgage product or our digital rooms product, and there's multiple players involved.
Whether or not they're all using API calls, but there's multiple individuals that need to have an agreement routed around to them, and those front office use cases can then sometimes be quite complex, leverage the functionality and the capability we've built, very sticky because the ROI is so high for companies and so important that they have a great customer experience, which is why we get such a high net promoter score, because our customer's customers like using DocuSign with our customers. Those would be the two dimensions I would point to that I think we're most focused on when we talk about building those deeper integrated use cases.
That was very helpful. Thank you. One quick follow-up here. Obviously, there was the PPP program and things like that. You alluded to some of these sort of one-time events, now obviously offset by maybe lower mortgage applications, right, because of the environment. Is there a way to give us some color of how much you feel like part of the business, the growth that billing towards sort of a one-time aspect? Again, offset by a decline with this reg way regular rate business, but just trying to understand sort of what that one-time bump might have been, if you've got any color around that.
Yeah, there definitely will be some examples that are use cases that are more project-oriented or one-time in nature. We see that as the extreme minority. What we really saw was that companies largely had either begun with us, and had not gotten to scale, or were thinking of moving on to DocuSign, but it wasn't as high on the hierarchy list of its other priorities. The recent events pushed us up that priority list and also accelerated some of the scale that our existing customers were experiencing. There was the effect of recent events and the coronavirus that maybe brought some of that demand to us.
As I mentioned in my script, we believe strongly that it will stay with us because the value proposition that we're selling is the same, and what they're realizing from that value proposition is going to apply to a work-from-home environment, but it's also going to extend to whatever our remote working or in-office working looks like in the future.
Awesome. Thank you, guys, and congrats again.
Our next question is from Rob Owens from Piper Sandler. Please proceed with your question.
Yeah, good afternoon, and thanks for taking my question. I was hoping you could expand a little bit around the federal sector. I know you've been building out the data center for a couple quarters, which is cost CapEx. In terms of where it ranks now in terms of verticals and really where this opportunity could go over the next couple of years.
Yeah. Well, absolutely. I think government overall is an important vertical for us, although as I mentioned before, no one vertical is a dramatic portion of our revenue. We don't see government overall in the top couple, but it is an important and growing segment nonetheless. I mentioned some of the examples I gave around government. If you think about the state and local segments in the state example I gave around the sort of the health and human services side and people doing a processing of emergency needs to get unemployment benefits to folks. We saw that as a very strong quarter for us, and we've had a lot of momentum there.
Federal had been newer for us and because part of that was getting the FedRAMP certification that was required to serve a lot of folks, and now we're building the dedicated data center as you referred to, which will unlock another set of opportunities for us with different federal agencies. We have also mentioned before, and we see this as well, that even in a COVID-19 situation, we may see that some aspects of the federal government still moves a little bit more slowly than some of the other private sector in terms of adoption of digital technologies. We will be a patient provider to them as a customer. I think from a long-term perspective, we continue to see this as a dramatic growth opportunity.
Great. Second for Mike, your Days Billings Outstanding has been running a little higher, I guess, over the last couple quarters than the three prior. Just curious if this is just deal sizes getting larger, so payment terms are getting extended. Was there anything relative to concessions for customers in the quarter given the pandemic? Thanks.
Rob, I think when we track it internally, and we can offline go through that with you, I think our DBOs have actually been pretty stable. That said, we remain disciplined around not extending payment terms as we get larger and maintain good, healthy deal dynamics around that. Did we get some inbound requests for slower payment? We did, and it was more or less anecdotal, but when it came in, we were responsive to it, especially if you have smaller businesses that were a bit cash-strapped. We tried to be responsive to that. What we wouldn't do is we weren't changing the underlying contract terms, but we were allowing our collections organization to give more latitude and back off when companies needed a little more room. There was some of that in the quarter.
It didn't really change major trends in our cash flows, but I think if we see some of that materialize in the coming quarters, we'll respond in a similar way.
Great. Thank you.
Our next question is from Pat Walravens from JMP. Please proceed with your question.
Oh, great. Thank you. I have one for each of you, if that's okay. Mike, for you first, I'm just wondering how much of the growth, and I know you don't actually give this out, but some context would be great. How much of the revenue growth comes from the self-service channel? Because if I look at that, your number of direct customers went sort of from 6,000 to 10,000 from Q4 to Q1, but the self-service went from 21,000 last quarter to 58. The context there, as I'm sure you've listened to yesterday, is that Zoom's guidance was pretty flat versus having just this massive Q1 because of their concern that those smaller customers that signed up for Zoom might churn off as we open back up. I'd just love to hear your perspective on that.
Yeah. Let me start on the churn perspective. We don't think that our situation is analogous to Zoom volumes and so forth. As I mentioned previously, we believe that, of course, our business, like any, has churn. We think it's going to remain pretty stable because we think that the value propositions, again, we're delivering are sustainable, whether it's a work-from-home environment or not. In terms of contribution from our e-commerce platform and our self-service business, in Q2 it was about 12% or 13%, which remember that the significant majority of our customers come to us through e-commerce, albeit that they represent a relatively small percentage of our revenue. There's two really important dynamics to that. There's some critical verticals that are serviced in there, verticals like real estate.
It's a source for many of our customers when they first engage with us to then graduate and move up to a direct relationship with us. It's also a major driver of brand and awareness for our product. While it's a relatively smaller percentage of our top line, it's a critical element of the overall model.
That's super helpful. Dan, for you, just sort of around why it takes so long to adopt something. You mentioned mortgages. We just refinanced our mortgage, and incredibly, at the end of the process, a very nice notary came to our house with a mask on and gloves and met us in the backyard where we had masks on and gloves and handed us 50 pages that we signed with our own pens. This bank is one of your customers, right? They're using it in some parts, but for whatever reason, they aren't using it for the mortgages. Why not? What's the challenge there? It seems like such an obvious use case. Why isn't everyone using DocuSign for their mortgage signing?
I ask the banks that question every day, Pat. That's, as you'd imagine, something we pose to them as well. I think the reality is there's two things that I would point to that stop adoption, where the consumer proposition is so high, as the example you just said with the need for a remote model for notary. I think they really come into these two buckets. The first one is this perceived regulation, and we see a lot of times companies will say, "Oh, yeah, that's not legal here. It's not allowed." Of course, it probably is but it's just practice, and people have done something for a long time.
We see this with some of the attorneys in the legal profession who do a lot of contracts and agreements, and they'll say, "Oh, yeah, we love DocuSign, but we can't do it for these types of contracts." Oftentimes, they're incorrect. They just don't understand that. The second thing that I think occurs is we have on the consumer side is changing that behavior, and that sort of the organization needs to change, whether it's the company or the end consumer. Change management is not trivial. We see that a lot in back-office situations where an example, if your HR department is onboarding employees, and they're used to doing that by sending offer letters in the mail, filling out I-9s in person when people would show up. One of the things that's great about COVID-19 is we realize people have to onboard employees without doing that.
The offer letters now are going out with DocuSign, and the I-9 can be done remotely. I think it's just one by one, we kind of have to hit each of those barriers that are usually perceived, not real from a legality standpoint. On the notary side, just give you the last comment, that's an area we see as a big growth area for us. We believe we're going to be in the coming quarters talking a lot more about how we want to expand on the capability to meet our customers' needs across a variety of solutions to make notary easier for people. Those are the reality of things that we face as the hurdles to driving that adoption.
Okay, great. Thank you.
Our next question is from Rishi Jaluria from D.A. Davidson. Please proceed with your question.
Hey, guys. Thanks so much for taking my questions, and I hope everyone's staying safe out there. Wanted to start by just drilling down a little bit more on the billings. Obviously, a really impressive billings number and nice acceleration. Wondering if you could give us a little bit more color on what drove that and given the guidance that calls for what looks to be a little bit of a decel in Q2 and then a little bit of an acceleration from that in the back half of the year? Was there any kind of pull forward of billings that you expected in Q2 that got into Q1? Just any kind of color in bridging these together would be helpful, and then I've got a follow-up.
Yeah. A couple of things. One of the exciting parts of Q1 was we had a lot of things contributing to that growth. We had, as you heard, large growth in direct new customers. We had 10,000 in the quarter. We also had a really strong expansion inside the installed base. Our Dollar Net Retention hit the high end of our range to 119%. We really saw strength across all those primary growth areas. I think if you look at the cadence between quarters, I've always talked about look at the billing statistic as a rolling four-quarter average as opposed to a particular data point. I think if you look at last year's Q1, as you recall, it was a little bit lower. If you look at last year's Q2, it was pretty strong. You'll see some of that dynamic impact the percentage.
Overall, again, if you look at it on an average basis over the course of the year, I think the growth is pretty correlated to the underlying growers in the business. Those are what were really contributing to it. Obviously, in Q1 the suddenness of people having to change their work habits is a single data point that we wouldn't want to draw a trend line through that single data point too aggressively. We are entering Q2, continuing to see a good start, so we're incorporating all of that into the guidance that I gave you.
Great. That's helpful. Then kind of a little bit of a follow-up. It seems like among other trends that you're benefiting from, one of them would be not just work from home, but the longer-lasting one of companies kind of having travel bans and more contract agreements and negotiations being done virtually, and that's probably longer lasting than kind of work from home. Wanted to get a sense, A, is that something that you're seeing as a big driver and more so on the broader Agreement Cloud versus solely eSignature? Then B, is that something that you're seeing as being a little bit more temporary in nature and maybe some of that benefit starts to dissipate as the travel bans go away? Is this a major process change that you're viewing as more irreversible, so you're seeing it as maybe more sticky and long-lasting? Thanks.
Yeah, it is interesting. I actually think we think about work from home and the travel restriction in a very similar way. I think we believe that there's quite a lot of change that's going to occur. We see it, by the way, in our own company, as we start thinking about coming back into the office and how we want to safely bring our employees back. As I mentioned at the beginning of the call, all 4,000 + of our employees are working from home now. We think that things have changed sort of forever. We talk about this amongst our executive staff when we meet now, that we're rethinking how we think about travel, and we're rethinking about which jobs we believe need to be in an office or always in an office.
I think we're going to see that the need for people to do their agreements, as you said, not just the signatures, but the overall agreement processes from remote settings, is going to be real and increased.
As we like to think about it is, that might be the impetus for people to, for the first time, say, "This is the way I need to manage my business today because I don't have the ability to do manual paper-based processes in offices." When they see the cost savings, the time savings, and the better experience, I think they're going to look at it and say, "I want all of my business processes to run this way." Even if some of the work from home and some of the travel mitigates, those restrictions mitigate, which I do believe they will, I don't think it'll be completely back to the old normal, but I think it'll be somewhat. That the need to have those digital services are going to be just as strong, and they will maintain that usage.
That's kind of how we see that developing.
Wow, great. That's really helpful. Thank you so much.
All right, next question is from Stan Zlotsky from Morgan Stanley. Please proceed with your question.
Perfect. Thank you so much. Congratulations on a very strong quarter. A couple of questions from my end. First one on just what you saw in the quarter. Maybe help us to bifurcate that between strength within the core eSignatures versus strength within the SpringCM CLM solution and the broader Agreement Cloud. How are you thinking about that moving forward through the rest of the year? I have a quick follow-up.
I think one of the things that we saw was the dramatic portion of the acceleration that we wouldn't have seen pre-COVID-19 was signature-centric, and that's for a couple of reasons. One, the ROI on eSignature is so incredibly high. People have always found that when they have that opportunity to find solutions that can meet, it's a great answer for folks. I think we saw a lot of people say, "This is a great opportunity for me to be smart about the way I run my business." The second thing is when you think about your overall Agreement Cloud work, eSignature tends to be the entry point. One of the reasons we built such a signature business of scale before we broadened into the other Agreement Clouds, it's just the starting point for most people.
In fact, if you think about the broader CLM capability, if you don't have digital agreements with digital signatures on them, it's hard to think about a digital solution for managing your contracts and agreements. You rarely go the other way first. We think that's absolutely what happened. Then the second phenomenon is that because we saw the need for remote work and for people to be able to get these transactions, both internal ones as well as external ones with customers, managed when people were working from home, there was, again, an urgency to get a lot of those eSignature projects up and running. CLM, interestingly enough, tends to be a longer sales cycle. Usually a statement of work is involved, some sort of systems integration or professional services involved.
I think we're seeing across the software world, the slightly more complex projects that are a little larger in initial scope, less land and expand and more one bigger entry point, are the ones that are going to face a little pushback and delays. From a standpoint of the time to close those deals, those times would extend a little bit. That's why we saw eSignature being particularly strong in the quarter. When we look out over the next several quarters, we see that phenomenon will dissipate over time. Some of the deals that might elongate from a Q1 into a Q2, and then some into a Q3, you continue to see some of those pushing forward into those later quarters, which will give us tailwinds there. Most importantly is all these new eSignature wins.
If you think about those 10,000 direct customers that came in, a significant portion of those came in with eSignature, and in the quarters ahead, they're going to be our most fertile opportunity to cross-sell and expand their overall Agreement Cloud solution.
Okay, perfect. That makes sense. You started the call with really outlining the momentum that you're seeing across your business, across different industries, and government is one of the ones that you mentioned. How are you thinking about the federal vertical as you get into the back half of the year with the federal purchasing, the federal fiscal year coming up? Is that an opportunity to perhaps close more business than you initially expected as you entered the year? That's it for me. Thank you.
I think we're pretty bullish. As we talked about earlier on the call, I think we're very bullish about the government vertical. To your specific question around timing of the year, remember, because our core business, and eSignature is still the significant biggest part of what we bring to the government, is more of a land and expand model. We don't have the same phenomenon that you might see in some of the software companies, where it's all about getting that end-of-year contract done, where there's a big sales cycle that maybe goes for a couple of years, and they're trying to get a big splash at the end of the year. We tend to see it happening more evenly across the year. Sometimes there's a budget cycle opportunity for us around something like a CLM deal.
We saw that, remember, last year, where we had the VA discussion, where we had sort of a very large deal. Most of our government work, and specifically talking about federal here, really does occur in the land and expand model with lots of small expansions as we build over time.
Perfect. Thank you. Congrats on a great quarter.
Thank you.
Our next question is from Kirk Materne from Evercore. Please proceed with your question.
Thanks very much. Maybe just to start, Dan, in following up on the earlier question on the CLM side, you mentioned that obviously eSignature is the landing spot for most of your customers that come in. How long does that relationship have to gestate before you can start talking to them in a bigger way about CLM or some of the more, I guess, maybe more complicated services around the Agreement Cloud? Meaning, if this cohort comes in this quarter, obviously in a big way, is it six, nine months? I'm sure it differs on companies in terms of their sophistication, but do you have any general thoughts on how that's trended, at least over the last year, in terms of when you start to see that upsell opportunity?
It's really interesting, and Kirk, at the time of our IPO, one of the things we talked about when we had less broad of an Agreement Cloud set of offerings, but we had the phenomenon of the land and expand, and we shared some customer stories where we had some customers that started off very small with us, and over a series of six years, had grown into very large businesses. There wasn't necessarily an inflection point. It was a lot of small additional adds. In a signature-only world, that's what I would expect. As you think about the broader Agreement Cloud, to your question, we are likely gonna have scenarios where we do get a signature land. We continue to add additional use cases and expansion of eSignature, but also make a very large Agreement Cloud splash with the customer.
I think that can happen in that three, four quarters time period, where they've had a chance to implement eSignature, get that early success and win, and the organization gets excited about DocuSign, and we come back to really start working on the Agreement Cloud. Keep in mind that some of those other components do have a longer sales cycle and implementation. Even if within one or two quarters of a land with eSignature, someone expressed a lot of interest to a broader, let's say, a CLM solution, it would probably be several quarters from then before we got the sale done, got the statement of work in place, and you see that showing up as DocuSign revenue. I don't think you should think about it as a quick hit. We should think about that as a nice elongated, revenue growth path for us to go into.
That's sort of how I would generally think about the opportunity for us to do that expansion. The only other thing I would just add, though, is that when I look at our opportunity around the Agreement Cloud, the clear obvious thing to point to, as Mike talked about, with well over 600,000 customers, the majority of those are Signature only. That's really the cross-sell opportunity. It's not like we're thinking about the CLM sale opportunity and saying, "Well, we can't go talk to someone for CLM other than the people that joined last quarter at Signature." We've got years of Signature customers that have sort of a pent-up opportunity for us to bring the Agreement Cloud, and that's where we're really focused today.
That's really helpful, and thanks for the color on that. The other question I had was, obviously with 10,000 new direct customers this quarter, it's a really nice job by your sales team being able to process that many deals, frankly. Were a lot of those sort of incremental deals that came in, were they in the pipeline that kind of maybe came earlier? Were there a lot out of left field that it was just a really quick sales process? Can you just give us some color on that? Maybe not the direct number, but when you think about how you're able to accomplish that, it seems, obviously, again, kudos to your sales team. I was just kind of curious how many of those might have already been early-stage relationships that accelerated versus customers that you had never even talked to before that jumped on.
Let me give you a couple of thoughts, Mike might have some additional perspectives as well. The answer, as is the case with a lot of things at DocuSign, it's all of the above. We're such an unusual company in that we serve from the smallest customers up to the absolute largest customers across all verticals, across the variety of geographies. We sell in over 150 countries. We are very broad, and that's exactly what happened here. We had a good, solid pipeline of business that had nothing to do, right, with COVID-19, that would've set us up for a solid quarter in Q1. A lot of those deals then processed as we would expect to have happen, and our sales team executed across those.
We also had, to the nature of your question, some additional, much faster timeline deals where people came to us and said, "I really need to get going with DocuSign. I've always known that, but I just haven't gotten around to doing it." Some of those were people that had conversations going on with us, and those accelerated, and some, that whole cycle was done within the quarter, where someone called us and said, "You need to help me get up to speed quickly." Some of the healthcare opportunities were big. If you think about the situation where you're now trying to do COVID-19 testing, and you've never been an organization that did that kind of testing before, and now you say, "I got to figure out a way to get people information and get them to fill out forms, oh, but I don't want to touch them.
I don't want to touch anything they've touched. I obviously need a digital solution for doing that. We had sales cycles that happened in a matter of days, where people came to us, explained that business need that they had, or that healthcare need that they had, and we were able to get up and running that use case. There really was quite a range across each of those pieces.
The one other piece to that question that you brought up that I think is important is, if you imagine back in March when we very suddenly had to close our offices and send 4,000 people home, at that very same time, we had a dramatic increase in our demand, and we had to process that. We talked about transactions earlier on our infrastructure. You mentioned the sales teams. There's the rev ops team that has to process that increased quantity from a location that they're not used to working. All of those things together, it really tested our environment, and one of the things that I came out of Q1 very happy about is it was a very resilient environment, even with some of the pressures put upon us to have to change how we were doing our business.
That's really helpful. Thanks very much.
Our next question is from Walter Pritchard from Citi. Please proceed with your question.
Hey, thanks. Two questions. Just the first one on the new business versus expansion. Is it safe to say you were seeing smaller new contracts as people just try to get up and running, and that leaves more of an expansion opportunity on those? Do you see the reverse as people sort of understood that this is the way things were headed? Just curious how to factor in what you saw this quarter in terms of calibrating our expectations around expansion the next few quarters.
Hi, Walter. A couple of things. I think one of the great strengths that we've talked a lot about with DocuSign is we sell to the very smallest businesses in our self-service e-commerce world. We sell to the Fortune 10, and we have strength selling into the mids and the majors and the small businesses direct through commercial. If we looked at the broad growth that we had over the course of the quarter, we talked a little bit before about there will be some anecdotal things around PPP or other project-based use cases. If you look beyond that at the overall growth, Dan sort of touched upon how it spread across verticals. It spread across those segments as well. It really did, and it was a nice combination of new direct as well as expansion of scale within the installed base.
It was broad. Within there's going to be some pockets. Travel and entertainment might be one pocket that wasn't as strong. You might look at healthcare life sciences, that showed a bit of more strength in the common quarter. When I went back and looked at the complexion of the growth, it was nice and broad based.
Yeah. Then to your deal size, very specific question. When Mike and I do a review, which we just did two days ago, where we look at our pricing and we look at what's different quarter- to- quarter in terms of how people are buying from us and what the nature of those deals look like, there wasn't anything in this quarter that would suggest larger deal sizes on average, even within the segments that Mike was just walking you through. I don't think there was anything notable.
I think the other thing to keep in mind is that when we talk about our land to expand opportunity, it's so significant that it's hard for me to imagine, Walter, that there could be some dramatic change in that initial land that would change the kind of upsell or long-term expansion opportunity, because it's such a big multiple of our typical initial land. I wouldn't expect anything different than our typical great growth opportunity from that going forward.
Okay, got it. Just curious how you're thinking about sales cycles, if they permanently change or obviously, there's been a lot of awareness created in the market for your brand and so forth. Curious if you've adjusted at all in terms of your forecasting this year, maybe longer term, the sort of sales cycles more in the enterprise, the larger customer segment.
I don't think we see anything that we would call a significant change from that standpoint. I think the phenomena in Q1 that we alluded to earlier was that there was some increase in sales cycles for some deals because of the urgency of those use cases. I think that will probably revert to the mean over time. Then to your point about does the DocuSign sell get easier as we become more prominent around the brand, I suppose there could be something there incrementally. I don't have anything I could point to yet to tell you we have observed something, and I can clearly tell you we're not changing at this point our expectations or our plans for our cycles.
Again, by segment, as Mike said, it's different for each segment, but we don't have anything at this point that we would point to and say within a segment, we think the sales cycles would be different going forward.
Okay, great. Thank you.
Our next question is from Daniel Ives from Wedbush Securities. Please proceed with your question.
Yeah, thanks. Can you hit on international in terms of the opportunities there, obviously a lot of strength this quarter, and maybe some of the different dynamics when you're thinking international versus domestic in terms of what you're seeing?
Yeah. Hi, Daniel. A couple of things. As I mentioned in my script, international grew 46% year-over-year. We continue to see a really strong contribution from that part of our business. I think as we've talked in the past, some of those markets, large markets like a Germany, a France and so forth that are civil law countries, are at a bit of an earlier stage than what we've seen domestically. Each quarter, we're continuing to see improvements in those major markets. I also mentioned before that some of the infrastructure we have around how we structure data centers and so forth, we build into those markets as they expand. Markets like Australia and like Canada, that may be a bit earlier, we're going to leverage infrastructure like Azure to address those.
Overall, we look at those markets, it's a significant part of our TAM. We are seeing evidence that the needs of customers in those regions are the same as the needs that we're servicing in the U.S., and that continues to drive a huge opportunity for us that we're investing aggressively in.
Great. Just on eSignature, are you finding that you're in an enterprise within the department, and maybe two departments, and now just going enterprise-wide? Maybe you could just drill into that trend relative to this COVID environment in terms of the acceleration, specifically on the eSignature, going from departments enterprise-wide.
Yeah. I don't think we've seen anything, particularly from COVID, that would accelerate that move where we work with one or two divisions, and now we get more of an enterprise solution, other than the same macro piece we talked about, which is as companies are increasingly seeing the need to drive digital transformation, and that's accelerating, it probably at that same rate would accelerate those expansions from divisional projects to broader enterprise-wide solutions. I think at this point, we'd say that phenomenon is occurring. It's always been a big growth opportunity for us, and I think it's the same big growth opportunity for us going forward. I don't think a COVID acceleration of digital transformation is going to change that phenomenon or that rate at which we see that going, other than just making everything go a little bit faster.
Great, thanks.
Our next question is from Shebly Seyrafi from FBN Securities. Please proceed with your question.
Yes. Thank you very much. Your sub-gross margins, looks like they declined by about two points year-to-year. I think in your script you said that you had increased hosting costs. Can you talk about the recovery in sub-gross margins you see going forward?
Probably the biggest contributor to that is the addition of CLM to the business and some of the costs associated with that business that aren't as leveraged as our scale eSignature business. If you look at our long-term target model, it stayed the same at 78%-82%. I think that what will allow us to remain in that range and increase in that range overall, both in terms of subscriptions and professional services, is really just going to be continued scale. If you look at Seal is another example. Seal, as I mentioned in my comments, is going to have a near-term small dilutive effect on gross margins as well, just because their top-line contribution won't match the infrastructure we're bringing over as part of that acquisition.
Those are near-term, and they're fairly minor, and I remain guiding that 78%-82% for gross margins for our long-term model.
Okay. One more. Your dollar net retention rate is now 119%, which is at the high end of your targeted 112%-119%. What do you see going forward in that rate?
Yeah. At this point, I'm really not changing the range. I don't foresee us being anywhere near the lower side of that range. I think if we remain in that range, we continue to drive a healthy outcome in the business. If we see something more sustainable over time, we'll always reconsider it and look at that, but for now, we're keeping the range the same.
Okay. Thank you.
Our next question is from Taylor McGinnis from Deutsche Bank. Please proceed with your question.
Hi, congrats on the quarter, and thanks for taking my question. The billings growth rate, of course, was super strong, but I would just be curious if you feel the level of usage you saw on the DocuSign platform in the quarter is fully reflected in that number. By that I mean maybe you could talk about the process of true-ups and overages and what happens when a customer needs more envelopes. Before, the second half billings guidance implied low 30s, and now it implies mid-30s, so I'm just wondering if some of the usage that we potentially saw in the quarter is embedded into renewals as well.
Taylor, a couple things. First, one thing that we don't do much of, very little of, is we're not a model that has a lot of billings for overages. We look at opportunities where customers have exceeded their capacity of their subscription is the time to go back and upsell them in an early renewal. The volume of transactions aren't necessarily going to correlate to near-term billings trends. What you'll see over time, however, is as customers, we've talked about a lot, adopt their capacity and it becomes part of their business, then that drives that dollar net retention, that upsell opportunity, and that expansion opportunity in the future. In the near term, if you're looking at how much of Q1 billings was affected by our going back to customers and billing them for overages, it's very, very small.
Got it. Maybe just a second question. Could you maybe talk about the Conga and Apttus merger in the CLM space? I'd be curious if you feel that could have any impact to the competitive landscape or your efforts in selling SpringCM.
We don't have a strong point of view that it's significant in any big way for us. We look at all the players in the space, we think we're really proud of what we've built and believe we've built the software, particularly in CLM, that will win. We're particularly pleased, if you had a chance to see the recent Gartner report that had us at the top of their assessment. We're obviously very pleased being in that upper quadrant. We think that there's going to be a lot of activity like this. We think that the ever-changing landscape is definitely something we look at closely. There's nothing about that particular combination that we saw as having any significant impact on our business or our go-to-market.
When Conga was for sale, we didn't look at that as an asset that we thought really brought something special to DocuSign. I guess the people at Apttus see something there, and hopefully they'll be able to get what they were hoping to get out of it.
Great. Thanks.
Our next question is from Sean Kennedy from Goldman Sachs. Please proceed with your question.
Good afternoon, and great job on the quarter, guys. I was wondering what areas of your business were most challenged in the post-pandemic environment, although it doesn't seem like many, that could potentially recover over the next few quarters. I'm thinking of some challenged sectors, like travel and hospitality and also home buying.
I think it's interesting. If you think about it from a vertical standpoint, I actually think your real estate example is a great one, where we've actually done a lot to accommodate. It's an industry that we've been close to. It was a big part of the initial success of this company. We've created programs with the National Association of Realtors to give 90-day free trials to realtors who are smaller users and might not be able to afford DocuSign if they don't have enough transaction volume. We think over time, as those folks get to love DocuSign product and their business recovers, there'd be opportunity to upgrade them to paid products. There could be a good bounce to our business from that.
In things like travel and hospitality or some of the other industries that are hit harder, one of the big challenges is when are they gonna see that bounce back in their business? I think when that happens, we'll probably see some more increased growth opportunity for us in those verticals. I don't think it's so much of a pent-up demand. I think it's just more, in that case, a model of they're not doing business transactions. If you're a travel agent, as an example, and you use DocuSign for some of your packages, you're not sending travel packages right now, so when you come to us, you don't need to renew it as high of a volume. When that recovers, we do believe they'll go back to their old volumes, and then hopefully over time, continue to grow with us as their business grows.
That's how I think about some of those opportunities.
Great. Then just a quick one on CLM. I was wondering what the customer mix is like compared to eSignature, and does it skew much higher towards larger companies since it deals with more complex work processes? How does that affect the cross-sell opportunity?
I think it's a great question. I think what you find is that to some extent, even small companies have effectively a CLM-like need to manage all of their contracts. If you're a very small company and you have a small number of contracts in terms of the number of contracts you have, or the different contracts that you have, and then a small volume of those contracts, you tend to say, "I don't need a complex CLM system." We see that skewing more to our upper mid-market in the commercial segment and then into the enterprise. I think we think that's the case that we'll have for years to come.
At the very small customers, they might want our Gen product, which is a sub-segment, what you'd find in CLM, and Gen in the Negotiate functionality, which we released at Dreamforce the end of last year. That's what we see being sold more into the smaller customers as opposed to the fuller CLM products.
Great. Thank you. Good luck for the rest of the year.
Thanks.
We have reached the end of the question-and-answer session, and I will now turn the call over to management for closing remarks.
Thank you guys all for joining us. We'd like to say we look forward to seeing you out on the road. I guess we look forward to seeing you virtually out on the road over the next quarter. We got a lot of opportunities set up to see you all, and we'll see you again next quarter. Thank you so much.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.