Earnings Call: Q2 2020

Sep 5, 2019

Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's 2nd Quarter Fiscal 2020 Earnings Conference Call. As a reminder, this call is being recorded and will be A question and answer session will follow the formal presentation. I will now pass the call over to Anne Leshin, Head of Investor Relations. Please go ahead. Thank you, operator. Good afternoon, everyone. Welcome to DocuSign's Q2 fiscal 2020 earnings conference call. On the call today, we have DocuSign's CEO, Dan Springer and CFO, Mike Sheridan. A press release announcing our Q2 results was issued earlier today and is posted on our Investor Relations website. Before we get started, I would like to let everyone know that we will be participating in the Deutsche Bank Conference in Las Vegas on September 10. As other events come up, we'll make additional announcements. Now let me remind everyone that the statements made today include forward looking statements that are based on assumptions we believe to be reasonable as of this date and on information currently available to management. Generally, these statements are identified by the use of words such as expect, believe, anticipate and other words that denote future events. Forward looking statements involve known and unknown risks and uncertainties that may cause actual results or performance to be materially different from any other results or performance expressed or implied by such statements. These risks and uncertainties are described in our press release and in risk factors in our annual report, quarterly reports and other filings with the SEC. You should not rely upon forward looking statements as predictions of future events. Except as required by law, we assume no obligation to update these forward looking statements if actual results differ materially from those anticipated in such statements. During this call, we will 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 count and non GAAP information regarding free cash flows and billings. These non GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results, and we encourage you to consider all measures when analyzing our performance. For information on 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. I'd now like to turn the call over to Dan. Dan? Thanks, Annie. Good afternoon, everyone, and thanks for joining our Q2 earnings call. Today, I'm going to cover 3 sections: our high level financial results and how we are driving strong growth an update on our Agreement Cloud vision and how our strength in e signature is the perfect on ramp to expanded relationships with our customers. And finally, how we are rapidly delivering innovative solutions to support the Agreement Cloud vision. I'll then pass it over to Mike for a more detailed rundown of our financials. Together, we believe it will showcase the strength in our existing business and the incredible potential for the future. So let me start with our results and our commitment to growth. As part of our overall strategy, DocuSign has 3 main growth drivers, which you've heard me talk about before. 1, acquire new customers 2, expand usage and use cases within existing customers and finally, 3, introduce innovative solutions to help customers modernize new parts of their systems of agreement. In this quarter, we saw progress on all three fronts. We acquired 29,000 new customers, approximately 4,000 of which are direct, bringing our total number of paying customers to 537,000 worldwide, 64,000 of those are direct. With strong customer demand for our products within the DocuSign Agreement Cloud, we grew our revenues 41% year over year to $236,000,000 and billings 47 percent year over year to $252,000,000 The expansion of e signature volumes and use cases was evident in our net dollar retention rate of 113%. These results reflect solid progress for our Q2 and they support our confidence in and our excitement for the future. Next, I'd like to upgrade you on our agreement cloud vision and our success with new product development there. Earlier this year, we introduced the DocuSign Agreement Cloud. It is the umbrella for our suite of more than a dozen products and over 350 pre built integrations, all to help organizations connect and automate the entire agreement process for preparing, to signing, acting on and managing their agreements. This quarter, we saw particularly strong progress from the CLM product that came via our acquisition of SpringCM. CLM stands for contract lifecycle management, a term we will increasingly use as we transition the SpringCM product name to DocuSign CLM. Of course, we are still doing plenty of deals for our Cority Signature solution by itself and we believe its $25,000,000,000 market opportunity is still largely untapped. Moreover, we view nearly every e signature win as the basis for future expansion to other Agreement Cloud products. We've begun to see multiple examples of how customers are connecting and automating various stages of the agreement process while continuing to expand their e signature use cases. 1 of the world's largest energy companies is currently using eSignature and CLM together for generating, negotiating and signing sales agreements. With their deployment of the Agreement Cloud integrated with their instances of Salesforce, Microsoft SharePoint and SAP, they now can complete agreements that used to take days or weeks in as little as 2 minutes. The efficiency improvements they've seen with the DocuSign Agreement Cloud are saving the company tens of 1,000,000 of dollars and have the potential to save even more. Another customer, a cloud payroll services company, not only expanded on their core signature usage as they brought more internal processes into DocuSign, but they also extended their implementation to include CLM. This is a prototype of the cross sell opportunity, which has us so excited. And yet another customer, a consumer credit reporting agency, previously had a small e signature footprint for one of their sales teams. This quarter, they added a company wide deployment of CLM, which in turn may lead to further e signature opportunities throughout their business. This is a great example of how our land and expand motion can take multiple paths. Next, I'm pleased to report that we began to see some nice progress in the federal vertical. This quarter, we partnered with a prominent government agency for a very significant deal. They are currently deploying CLM as the foundational system for the departments to better track document status, identify delays in their processes and provide better transparency throughout the agency. Also this quarter, we signed a branch of the United States Armed Forces through an ISV partnership. First, they purchased eSignature to help streamline the recruiting process. Now, in an effort to further modernize the recruitment and retention system, they are expanding this use case with the addition of other Agreement Cloud offerings, which are very closely integrated with their Salesforce CRM. This expanding adoption of eSignature and the increasing traction of other products in the Agreement Cloud continues to drive our business. We believe the DocuSign Agreement Cloud defines an entirely new category of cloud software. It complements the marketing, sales, HR, ERP and other cloud categories that already exist, connecting them all into the agreement process. To realize this big vision, we need to create and deliver a number of products that automate and connect the entire agreement process across multiple departments and industry verticals. Most notably this quarter, we added DocuSign Rooms For Mortgage, a solution that helps mortgage lenders accelerate closing time and improve the borrower experience. It provides a secure digital workspace for everyone involved in a mortgage. It's actually flexible enough to support traditional closings via pen and paper as well as drive fully digital closings and hybrid closings as well. Rooms for mortgage is a great example of DocuSign's focus on a particular vertical. In the mortgage industry, it costs 1,000 of dollars for a lender to process mortgage end to end. One of the reasons is that there are so many agreements involved from the applications to the titles and the settlement. These processes today are manual and costly. That's why we think a mortgage specific solution is such a great opportunity for us. We can automate and connect the many steps within the process, making it faster, less expensive and a better customer experience for all parties. So to wrap up, let me summarize. We are seeing strong performance across our core growth drivers of e signature expansion and increasing adoption of other agreement cloud products. We are positioning the DocuSign Agreement Cloud as the next must have cloud that underpins both front office and back office function. And we are seeing the market respond well with the public and private sectors embracing our vision and our technology. Together with our core e signature offering, we believe that this expands our TAM well beyond the original $25,000,000,000 projection. In closing, I wanted to mention one last item. I'm pleased to share that we recently appointed Chum Tse as our new General Counsel to lead and oversee legal affairs and risk management. Chum brings more than 20 years of corporate legal and general counsel experience to her role, including leading 2 technology IPOs. We are very excited to have her on board. Now, I'd like to hand it over to Mike to walk through our financials in greater detail. Mike? Thanks, Dan, and good afternoon, everyone. First, I would like to remind you that our non GAAP financial results exclude stock based compensation, amortization of intangibles, amortization of debt discount and employer payroll tax on employee stock transactions. In addition, this quarter's results include contributions from SpringCM whereas the comparable quarter a year ago excludes SpringCM, which was acquired in Q3 of fiscal 2019. We saw substantial top line growth in the 2nd quarter driven by strong customer demand. Our total revenue rose 41% year over year to 2.30 $6,000,000 with subscription revenues growing 39 percent to $221,000,000 Our North American business was particularly strong this quarter. In addition, international revenues grew 47% year over year to $42,000,000 2nd quarter billings increased 47% year over year to 2 $52,000,000 On a 4 quarter rolling average basis, billings grew growth was 36%. We saw strength in our core e signature solutions as well as good progress in our sales of CLM products to new and existing customers. As Dan mentioned, this quarter we also saw good progress in our sales into federal agencies. In Q2, we completed our 1st federal sale that exceeded $1,000,000 in ACV and this sale included significant components of both e signature and CLM. We added a total of approximately 29,000 new customers this quarter, of which 4,000 were new direct customers. This was an increase of 31% in our commercial and enterprise installed base. This brings our total customer base to 537,000 with 64,000 direct customers worldwide. In addition to strong new customer growth, we also saw strong growth in upsells into our installed base. Our dollar net retention increased to 113% and customers with ACVs greater than $300,000 grew 50% year over year to a total of 370 customers worldwide. Non GAAP gross margin for the 2nd quarter was 78% compared to 81% in the same quarter last year. Subscription gross margin in the quarter was 84% compared with 87% a year ago. These margin impacts relate primarily to the addition of SpringCM as well as higher capacity needs of our outsourced data centers in developing regions where we do not have our own proprietary data centers. Total non GAAP operating expenses for the quarter were $185,000,000 or 78 percent of total revenue, compared with $132,000,000 or 79 percent of total revenue for the Q2 last year. These expenses include approximately $6,000,000 related to the RPost litigation, which settled in the beginning of Q3. The significant majority of these RPost expenses are legal fees with a smaller amount related to the settlement. This settlement resolved all outstanding disputes with ARP post, so we do not expect any significant expenses related to these matters in Q3 or going forward. Non GAAP operating loss was less than $1,000,000 in Q2, which includes the $6,000,000 of our post expenses. This compares to a $4,000,000 non GAAP operating income or 3% operating margin in Q2 of fiscal 2019. For the first half of fiscal twenty twenty, our non GAAP operating profit was $9,700,000 which includes the impact of $9,200,000 of our post legal and settlement expenses. We ended the quarter with 3,489 employees, a year over year increase of 35%. We generated $26,000,000 in operating cash flow compared with $23,000,000 in Q3 Q2 of last year. Free cash flow came in at $12,000,000 compared to 18,000,000 dollars in the prior year. As we discussed previously, we saw particularly strong collections in Q1 of amounts that would typically be collected in Q2. For the first half of this year, we generated $72,000,000 of operating cash flow, a 91% increase year over year and we generated $42,000,000 of free cash flow, a 56% increase year over year. In Q3 and the second half, we will continue to invest in the data center and real estate projects we have discussed previously, which will reduce second half cash flows below recent trends. Turning to our guidance for the Q3 and fiscal 2020. We estimate first that revenue will range between $237,000,000 to $241,000,000 in Q3 and $947,000,000 to $951,000,000 for fiscal 2020. And billings will range between $260,000,000 to $270,000,000 in Q3 and $1,063,000,000,000 to $1,083,000,000 for fiscal 2020. We are maintaining our guidance for gross margin of 78% to 80% for Q3 and the fiscal year. For operating expenses, we expect sales and marketing in the range of 48% to 50% of revenues in Q3 and fiscal 2020. R and D in the range of 15% to 17% for Q3 and fiscal 2020 and G and A in the range of 10% to to 12% for Q3 and 11% to 13% for fiscal 2020. For the 3rd quarter, we expect 3 $1,000,000 of interest and other non operating income, including interest income and expense associated with our convertible debt. And for fiscal 2020, we expect interest and non operating income of $13,000,000 to $16,000,000 We expect a tax provision of approximately $1,000,000 to $2,000,000 for the 3rd quarter and $6,000,000 to $8,000,000 for fiscal 2020. We expect fully diluted weighted average shares outstanding of 185,000,000 to 190,000,000 shares for Q3 and 190,000,000 to 195,000,000 shares for fiscal 2020. We continue to be on track to spend $60,000,000 to $70,000,000 in capital investments in fiscal 2020. We expect the majority of our second half spending to occur in Q3 as we ramp up the build out of our Dublin office and the dedicated federal data center. In summary, we are very pleased with the progress we have made in the first half of fiscal twenty twenty towards our strategic and financial goals and we believe we are well positioned to continue our strong execution in the second half of the fiscal year. With that, I'd like to now open it for Q and A. Thank you. At this time, we'll be conducting a question and answer Our first question comes from the line of Sterling Auty with JPMorgan. Please proceed with your question. Yes, thanks. Hi, guys. So last quarter, you talked about the potential for elongating sales cycles as customers were evaluating CLM in a broader part of the product portfolio. Are we to take given the strength in the results, the guidance and some of the examples that those deals have closed and perhaps you're kind of settling into what you think is the new norm around sales cycle timing? Hey, Sterling. Yes, I would tell you it's similar to what we said last quarter that last quarter was the Q1 where we had CLM offerings available to our sales force to sell. So we had some deals slip out in the quarter where we didn't have any deals slipping in since it was the Q1. I think if you look at Q2 as we expected some of those Q1 deals moved into Q2 and there were some Q2 deals that moved to Q3 much like we expected. So yes, I think that going forward, we would expect that to normalize. I would say also that while the more complicated multi product deals will continue to have longer sales cycles, I think we made good progress and the sales team is moving down the learning curve as they get more experienced. All right, great. And then one follow-up on the federal opportunity. Are you in terms of your go to market, should we expect that most of the opportunities are going to go through either some sort of prime contractor or other partner? Or how much of the opportunity can you actually now take direct based on where you are with certifications, etcetera? Yes, I think we're going to see a combination, Sterling. I think the phenomenon is that there are certain sort of master contractors who have very large overall relationships, and they will look even if we're doing sort of the selling directly to the agency, we'll get pulled into those larger master agreements, which we're perfectly happy to do. As we mentioned on the call of the sort of the 2 big pieces we're excited about this quarter. One of them was more direct and one of them was through a sort of a bundle of a master contractor. I think there's going to be a mix. At this point, it would be early for us to try to give you a flavor of what that mix would look like other than to say, I think we'll see both flavors. Got it. Thank you, guys. Your next question comes from the line of Karl Keirstead with Deutsche Bank. Please proceed with your question. Thank you. 2, maybe one for Mike, one for Dan. Maybe I'll ask both at the same time. So Mike, dollars 27,000,000 billings outperformance is I think your biggest perhaps since the Q1 when you came public. So I just want to press a little bit more on that outperformance came from. And maybe you could answer it in the context of whether it was core eSignature really outperformed or the CLM stuff really took off or perhaps and this is maybe what Sterling was getting at. Was there an unusual catch up in the 2Q quarter where some of the deals that slipped out of Q1 all closed in 2Q, So this outperformance was unusual. So that was the question for Mike. And then for Dan, last earnings call, you talked a little bit about this new sales structure, at least in North America, where you split it between new logos and installed base. And perhaps you can give an update on 3 months later, whether that process is now fine tuned and whether you're looking to make any other sales structure changes? Thanks so much. Thanks, Carly. I'll take the billings question first. I guess at the highest level, I would reiterate what I talked about in prior quarters, which is billings as we all know, is a statistic that is affected by timing differences of timing of orders booked and everything else. And so it's not a perfect growth 47% might not be as telling this quarter. Terribly telling and a 47% might not be as telling this quarter either. I think looking at those averages makes sense for that particular statistic. With that said, we had an excellent quarter and the things that we're talking about strong North American performance, good growth in CLM, the Fed coming online for us. Those all contributed to the good growth statistics we saw both in billings and revenue. And on the sales structure, Carl, I think we felt really good as I indicated before that the right answer was to have a split between what we call new flow and installed base and we had tested that at the end of last year with our SMB business and decided it was successful. And I think the best telltale sign of why we're pleased with that result is the core goal there is to make sure we have enough people focused on generating new codes, which traditionally a harder sales process than the upsell to the installed base. And the fact that you saw the 4,000 new direct customers coming on board, that's a great indication to me that it was a very strong quarter and that our efforts in bifurcating the sales force that way is spot on. So we're really pleased with that approach. Okay, great. Thank you both. Our next question comes from the line of Rishi Jaluria with D. A. Davidson. Please proceed with your question. Hey, guys. Thank you so much for taking my questions. First, I just wanted to go back to billings. I don't mean to harp on it, but that's clearly going to be the bit of the headline after what happened last quarter and where we are at this quarter until they understand all the moving pieces. But I just want to understand, A, if we kind of think about this on a rolling 4 quarter basis, like you've alluded to, is somewhere in that, let's call it, mid to upper 30s type of growth rate. Is that the right way to think about what the underlying growth of the business is right now, right, versus looking at the 27% or 47% isolation? And then alongside that, it looks like there wasn't a duration impact, right, with average contract lengths, both on dollar weighted and by contract, pretty consistent with where they've been in the last several quarters. But I just wanted to confirm that none of the uptick or in billings was caused by something on the duration side? Yes. So let me answer the second part first. On the duration that doesn't have an impact on billings, it's stable number 1. But also even in multi year contracts, we still bill them annually. So even if we did have a change in duration, it wouldn't affect the billings statistic. And in terms of how to look at billings as a growth indicator, yes, I think you summarized it correctly, which is in any particular quarter, you can have that particular statistic affected by timing and other things. And so, we do look at it on a rolling basis. And in quarters where it's a bit lower, we don't want that over interpreted in a quarter like this. We don't want the 47% over interpreted either. I think in fairness looking at that blend which takes away some of the noise of inter quarter movement of deals that closed in 1 week versus another. Those kinds of things, the rolling average, I think helps to give you a better indication of where the core growth is going. Got it. That's helpful. And then just a quick follow-up, if I may. Going to subscription gross margin, I understand a lot of moving pieces here. If we kind of focus on the 2 of the data center side and then SpringCM, Maybe just help us understand going forward, A, can we expect to see some optimization of the SpringCM or I guess DocuSign CLM gross margins to come back in line with where the core e signature offering is? And then, B, on the data center side, is that something that again, at least weight on overall subscription gross margins can maybe start to go away over time? That's it. Thanks. Yes. So I think if you look at our guidance, the 78% is on the low end of the range. So I think that would tell you that I do believe there's opportunities for us to continue to optimize and leverage our investments. The SpringCM model did have a lower margin profile. I think as we continue to expand our success with CLM, we will get better leverage out of some of that infrastructure. And yes, the data center usage variance that we had some this quarter, While it costs us a bit more money, it's an indication that we needed that capacity for more usage in our installed base. So it might have a little bit of an unfavorable impact on cost, but it's a pretty positive indicator in terms of what our customers are doing with the product. And I would just add a good bellwether I think for the growth when we see that progress as Mike described, it's a good leading indicator that we're seeing that growth strength going forward. Okay, perfect. That's super helpful. Thank you, guys. Your next question comes from the line of Stan Latsky with Morgan Stanley. Please proceed with your question. Hey, guys. Good afternoon and thank you for taking the questions and really nice job in the quarter. From my end, looking at the dynamic that we saw in Q1 where you had extended selling cycles into existing, it's not something that software investors typically see. Usually, we see it extensions of sales cycles into new customers. What are the adjustments that you've been making behind the scenes to get that under control on your sales or within your sales organization and get those cycles back in line? And how are those how are you thinking about these kind of extensions as we get into the really big second half of the year, especially Q4? And then I have a quick follow-up. Sure. So Stan, I think 2 things. 1 is, as Mike indicated earlier in the commentary, there's definitely a phenomenon that not all products have that same cycle time. And we do see that and do expect that CLM will have a longer cycle time of sales. And one of the major drivers behind that is there's more of an implementation plan. So you actually have to have a bigger statement of work. And again, we love it when we get to use one of our system integrator partners. Sometimes we do that work ourselves. But regardless, there ends up to be more effort and I think elongated process than we would have in a traditionally signature. So as Mike said, think about that mix over time, you will expect some elongation because of that. We don't again, we don't think that's a bad thing. We think it's an opportunity to have larger footprints at our customers. But the second piece to get to the opportunity that we can improve our performance aspect is really around sales enablement. And I think the phenomenon for us is when it was very early 1st couple of quarters of new products, we didn't have the scale of enablement we needed to have. As we look into the second half, I think you're spot on that that's the big opportunity for us because we have so much of our business that also with the broader system of agreement offerings we're delivering through the DocuSign Agreement Cloud. Got it. Perfect. And then a follow-up. As you sell these larger agreement cloud contracts into customers, Just maybe anecdotally, how much bigger are these contracts that you sell into these customers or at least what you've seen thus far as the proof points? And Mike, maybe for you, what does that do to your net revenue retention as we move through the rest of this year and perhaps into next year? That's it for me. Thank you. So, Stan, on the first piece, I think the number of observations we have are still limited. So I don't know that we can yet give you a sense of here's how we think they'll play out. I can tell you this from the observations we've had. With some customer situations where the CLM opportunity, just one of the other components of the Agreement Cloud that we've been most focused on, can be significantly larger than what they would do from an e signature standpoint. But we also have lots of customers that are going to be e signature customers that CLM as an example might not be appropriate for their business where we think virtually every company on the planet will eventually be using us for eSignature. So if you think about it that way, there's going to be a lot of difference in them. In general, I would say the CLM opportunities can be bigger, but it's too early to tell right now sort of what that average would look like. Yes. And in terms of the dollar net retention, obviously, having more products available to the sales force to bring to the installed base is a good thing when it comes to both mitigating churn, but also expanding the footprint that we have inside of customers. So the range that we've seen historically is of 112% to 119%, I think is still a valid range, but I think that it can certainly be helpful in moving us up into that range as we continue to get success in the installed base. Okay, perfect. Thank you so much. Your next question comes from the line of Dan Esz with Wedbush Securities. Please proceed with your question. Thanks and great quarter. So can you talk about international in terms of what you're seeing there? Just changes, obviously, it seems like ramping growth. Maybe you can just talk about the international trajectory and maybe what you saw this quarter? Sure. Overall, Dan, as you've heard us talk about, we believe that we have an opportunity for our international growth overall to outpace our U. S. Growth, although, had very strong quarter in the U. S. And that those guys are doing their darn just to make it harder for the international team to take share, if you will, of our overall business. I think traditionally, we've talked about this a lot as a consistent message, which is the folks that were in the common law countries were the places that we got most of our initial traction, and that's places like the U. K. And Canada and Australia. And I think we continue to see good strength there. In particular, we've now started to see some acceleration in some of the civil law countries. So you see that in sort of France, Germany. We see that in Brazil. And we'll see that, I think, over time in Japan more as well. So we had some pockets that were quite encouraging for us that we're going to continue to achieve what we said from an international growth standpoint. And again, think it's broadly across the board that we see those opportunities across both common and civil. Got you. And in terms of the product strategy, could you maybe talk about your view of organically building on to the footprint versus maybe some acquisitions in terms of what you could see in the market? Just talk about maybe the puts and takes there and how you're thinking about it. Thanks. Absolutely. And so if you think about what we've laid out with the overall DocuSign agreement cloud opportunity, we've been very clear that we want to provide for our customers the best possible solutions and we have a very strong commitment having an open platform. And I don't think you're going to see anyone who's more motivated than we are to continue to build out both our API capability as well as the prebuilt integrations. And we have just over 3 50 of them now. So again, strong commitment to keep it open. At the same time, part of the reason we got to the construct of the Agreement Cloud is that our customers were telling us we want to have more integrated strongly with the Clorii Signature capability. And that's why we started, if you remember the history, looking for folks who are interested in a Prepare product, they said it'd be great if that could be integrated to DocGen capability right into DocuSign. Going forward, we make the choice versus sort of the build or the buy and the partner. I think the answer is all of the above. I think we're going to continue to look for opportunities as we did with Spring, where we saw there was a significant amount of customer demand. And we felt that there was a skill set, sort of a capability that we didn't have that domain expertise that's strong within DocuSign. So we could build it ourselves, but we just think it makes sense to get there faster through acquisition. And that's how we look at things today. We see the ability that's very close to what we already have, those intrinsic capabilities, we'll probably continue to build and innovate internally. And when we see someone that's just far ahead of us with that expertise and that domain knowledge, then we'll look for the acquisitions. And that's really, I think, is going to be the pivot on how we buy versus partner versus build ourselves. Awesome. Thanks. Your next question comes from the line of Kash Rangan with Bank of America Merrill Lynch. Please proceed with your question. Hi, thanks for taking my question. This is Shankar on behalf of Kash. I have two questions. 1, can you add some more color on the strength of your pipeline in the government and ECLM business? Do you expect them to kind of accelerate through the year? Or do you see any kind of lumpiness in those businesses? And maybe you can even add some color on the e signature pipeline? Sure. So to your perspective on the pipe and specifically around government, look, we've been very clear from the beginning that we are hugely excited about what we think is quite frankly a massive opportunity for us in Public Sector. And at the same time, I think we've also tried to be very cautious about understanding that the cycle to sort of realize that opportunity is not going to be the same as we've had in our traditional commercial business. And so I think the best way for us to look at it right now is when we look at Q2, we're very pleased with these significant deals that we talked about on the call. And we believe there will be more deals like them. I don't think I would characterize the same time, I think it's a very strong proof point that the government agencies will eventually come to DocuSign. So that goes back to as we try to think about the TAM, a significant portion of what we always thought was the big opportunity, not only for a signature, but for the broader Agreement Cloud offering was on the federal and continued state and local success as we've had in the past. That's how we sort of think about it. It's a really big proof point on the size of the opportunity, but we're not yet making a call that it's going to lead to some acceleration in our business in the near term. Got it. Got it. Now one of the things that I took away from the conversations in your conference in June was that the CLM business, while it adds a lot of value to customers, it was kind of hard to find the budget for CLM. It was a new kind of a venture for a lot of the customers. Can you maybe address how you're addressing that the dollar, the budget question among customers? And maybe some color around the recent deals that you have closed kind of the how the sales cycle started and how did you get the customer to kind of move from I don't know what it is to like actually signing a deal? Absolutely. Well, I think in CLM, it's actually not too different than it was several years ago with e signature. As the pioneer in that space, there was no one that had an e signature specific budget. But if you were a human resources team, you were spending money on, as an example, sending out offer letters and having people manage that manual process. And we came along and said, here is what the budget opportunity is. Let's replace that labor intensive and manual process that has postage and other physical costs, FedEx costs in it with our solution. So we really transferred budget that came from sort of the offline to the online. And we see the exact same phenomenon when we're talking to people at CLM. It's true that a lot of people didn't have a historic budget for CLM if they're coming in entering the space now, but they had a way that they managed all those contracts. And a lot of it is manual processes, and that's the opportunity we come in and show a fantastic ROI by telling them that the money and time their people are spending today on those processes can be dramatically more efficient and provide a better customer experience. So we really substitute their old spend with the new spend. I think we're seeing the exact same phenomena as I said in CLM as we saw develop with eSignature. Got it. Thank you. Congrats on the results. Thank you. Thanks. Your next question comes from the line of Pat Walravens with JMP Securities. Please proceed with your question. Great. Thank you and congratulations. So Dan, I think one thing that makes investors nervous about DocuSign is when they spend too much time talking to the IR people at your competitors. And so I think it would be helpful if you talked a little bit about how your approach to the market is different than Adobe or Dropbox? Yes. I mean, Joe, so Pat, my sense is, as you know, when we talk about the competitive dynamics, on the one hand, we are laser focused on what we see other people doing in the market space. And you're talking mostly about Signature competitive set there, but it's exact same thing when we look at the overall Agreement Cloud. We look very closely what other people are doing. And at the same time, even though we have that maniacal focus on potential competitive threat, we have been fortunate to have a very strong leadership position in the marketplace. Not only did we build the Cory Signature market, but we have maintained a dramatic market share lead. And so we really believe that our biggest focus is less about being overly concerned about specific actions or tactics that other people are doing and rather focus on going after this giant TAM that's ahead of us, where we have so much of a high ROI opportunity to provide to our customers. So again, when we talk about what products we're going to build, we actually talk to our customers and say, what's the functionality and capability you need to have a broader relationship with DocuSign, which is why we got into the Agreement Cloud vision that we talked about in the past. So yes, we just don't see them having a significant part of our business impact on our business from those competitive threats. So I don't know exactly what the IR departments in those other companies say. But from our standpoint, we are laser focused on the customer side, and really not putting too much focus on what the other folks are saying. All right, great. And then a quick one. Is the federal data center done? No, it's not done yet, but we're going to complete it this fiscal year. There's more work to be done in Q3. Okay, great. Thank you. And Pat, just a clarification to make sure we throw out takeaway. As Mike said, we're building that separate IO data center for federal, but we are serving government, including federal customers today. Not all government business requires a dedicated government infrastructure. So, we are in fact serving them today, but it unlocks additional use cases and opportunities for people that have higher security requirements. Your next question comes from the line of Matthew Wells with Citi. Please proceed with your question. Thanks for taking my question. When I size 1 half billings growth, there is an acceleration year over year, while net expansion rates in the first half have actually trended down. I'm curious if you could just unpack what's driving this. Are you seeing larger initial deals in the commercial and enterprise space? I think one piece of it is going to be that in the first half of this year, we had SpringCM and we had CLM as part of our business. In the first half of last year, we did not. And so Q3, this coming quarter will be the Q1 where CLM will be in both quarters. So I think that's one factor. I think on the dollar net retention, it has fluctuated a little bit, but it's remained relatively in the same place. So I think some of what you're seeing this year as we've been talking about it starting to see greater contribution just not in the former spring business, but actually seeing CLM getting sold by our sales force into our accounts is helping. Seeing the expansion internationally is helping. Things like starting to have success in Fed, all those things are contributing to that year over year improvement. Thanks. And are you able to size the revenue and billings contribution from SpringCM in the quarter? No, we don't break it out separately, but with and without it was a very strong growth quarter. Got it. That's helpful. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to management for closing remarks. Well, I want to thank you all for joining us. We're pleased with the progress in the quarter and we forward to seeing you all on the road in the weeks ahead. Thanks for joining. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.