Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's second quarter fiscal 2020 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 Annie Leschin, Head of Investor Relations. Please go ahead.
Thank you, operator. Good afternoon, everyone. Welcome to DocuSign's second quarter fiscal 2020 earnings conference call. On the call today, we have DocuSign CEO, Dan Springer, and CFO, Mike Sheridan. The press release announcing our second quarter 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 10th. 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 three sections, our high-level financial results and how we are driving strong growth, an update on our DocuSign Agreement Cloud vision and how our strength in DocuSign eSignature is the perfect on-ramp to expanded relationships with our customers, and finally, how we are rapidly delivering innovative solutions to support the DocuSign Agreement Cloud vision. I'll 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. Let me start with our results and our commitment to growth. As part of our overall strategy, DocuSign has three main growth drivers, which you've heard me talk about before. One, acquire new customers. Two, expand usage and use cases within existing customers.
Finally, three, 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 million, and billings 47% year-over-year to $252 million. The expansion of eSignature volume and use cases was evident in our net dollar retention rate of 113%. These results reflect solid progress for our second quarter, and they support our confidence in and our excitement for the future. Next, I'd like to update 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, 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, the 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 core eSignature solution by itself. We believe its $25 billion market opportunity is still largely untapped. Moreover, we view nearly every eSignature 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 eSignature use cases. One 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 two minutes. The efficiency improvements they've seen with the DocuSign Agreement Cloud are saving the company tens of millions of dollars and have the potential to save even more. Another customer, a cloud payroll services company, not only expanded on their core eSignature 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. Yet another customer, a consumer credit reporting agency, previously had a small eSignature footprint for one of their sales teams. This quarter, they added a company-wide deployment of CLM, which in turn may lead to further eSignature 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 department 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 their 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 times 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 thousands of dollars for a lender to process a 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. To wrap up, let me summarize. We are seeing strong performance across our core growth drivers of eSignature 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 functions. We are seeing the market respond well, with the public and private sectors embracing our vision and our technology. Together with our core eSignature offering, we believe that this expands our TAM well beyond the original $25 billion projection. In closing, I wanted to mention one last item. I'm pleased to share that we recently appointed Trâm Phi as our new general counsel to lead and oversee legal affairs and risk management.
Trâm brings more than 20 years of corporate legal and general counsel experience to her role, including leading two technology IPOs. We are very excited to have her on board. I'd like to hand it over to Mike to walk through our financials in greater detail. Mike?
Thanks, Dan. 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 second quarter, driven by strong customer demand. Our total revenue rose 41% year-over-year to $236 million, with subscription revenues growing 39% to $221 million. Our North American business was particularly strong this quarter. In addition, international revenues grew 47% year-over-year to $42 million. Second quarter billings increased 47% year-over-year to $252 million. On a four-quarter rolling average basis, billings growth was 36%.
We saw strength in our core eSignature 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 first federal sale that exceeded $1 million in ACV, and this sale included significant components of both eSignature 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 second 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 million, or 78% of total revenue, compared with $132 million, or 79% of total revenue, for the second quarter last year. These expenses include approximately $6 million 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 RPost. We do not expect any significant expenses related to these matters in Q3 or going forward. Non-GAAP operating loss was less than $1 million in Q2, which includes the $6 million of RPost expenses. This compares to a $4 million non-GAAP operating income or 3% operating margin in Q2 of fiscal 2019. For the first half of fiscal 2020, our non-GAAP operating profit was $9.7 million, which includes the impact of $9.2 million of RPost legal and settlement expenses. We ended the quarter with 3,489 employees, a year-over-year increase of 35%. We generated $26 million in operating cash flow, compared with $23 million in Q2 of last year.
Free cash flow came in at $12 million, compared to $18 million 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 million of operating cash flow, a 91% increase year-over-year, and we generated $42 million 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 third quarter and fiscal 2020, we estimate first that revenue will range between $237 million-$241 million in Q3, and $947 million-$951 million for fiscal 2020.
Billings will range between $260 million to $270 million in Q3, and $1.063 billion to $1.083 billion for fiscal 2020. We are maintaining our guidance for gross margin of 78%-80% for Q3 and the fiscal year. For operating expenses, we expect sales and marketing in the range of 48%-50% of revenues in Q3 and fiscal 2020, R&D in the range of 15%-17% for Q3 and fiscal 2020, and G&A in the range of 10%-12% for Q3 and 11%-13% for fiscal 2020. For the third quarter, we expect $3 million-$4 million of interest in other non-operating income, including interest income and expense associated with our convertible debt. For fiscal 2020, we expect interest and non-operating income of $13 million-$16 million.
We expect a tax provision of approximately $1 million-$2 million for the third quarter and $6 million-$8 million for fiscal 2020. We expect fully diluted weighted average shares outstanding of 185 million-190 million shares for Q3 and 190 million-195 million shares for fiscal 2020. We continue to be on track to spend $60 million-$70 million 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 2020 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&A.
Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 comes from the line of Sterling Auty with JPMorgan. Please proceed with your question.
Yeah, thanks. Hi, guys. 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?
Hi, Sterling. Yeah. I would tell you it's similar to what we said last quarter, that last quarter was the first quarter where we had CLM offerings available to our sales force to sell. We had some deals slip out in a quarter where we didn't have any deals slipping in, since it was the first quarter. 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. Yeah, 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 in the sales teams moving down the learning curve, as they get more experience.
All right, great. One follow-up on the federal opportunity. 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, et cetera?
Yeah. 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 two big pieces we are 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. Two, maybe one for Mike, one for Dan. Maybe I'll ask both at the same time. Mike, $27 million billings outperformance is, I think, your biggest perhaps since the first quarter when you came public. I just want to press a little bit more on where 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? That was the question for Mike.
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. Perhaps you can give an update on, three 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, Karl. Yeah, 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. It's not a perfect growth statistic, and so I always look at it as a four-quarter rolling average, which was 36%, which, for example, last quarter at 27% year-over-year growth isn't terribly telling, and a 47% might not be as telling this quarter either. I think looking at those trailing averages makes sense for that particular statistic. With that said, we had an excellent quarter in 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.
On the sales structure, Karl, I think we felt really good, as I indicated before, that the right answer was to have a split between what we call new cust and installed base, and we had tested that at the end of last year with our SMB business and decided it was successful. I think the best telltale sign of why we're pleased with that result. The core goal there is to make sure we have enough people focused on generating new custs, which are traditionally a harder sales process than the upsell to the installed base. 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 sort of bifurcating the sales force that way is spot on. 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, 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. Just want to understand, A, if we think about this on a rolling four-quarter basis, like you've alluded to, somewhere in that, let's call it mid to upper thirties 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?
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 the last several quarters. I just wanted to confirm that none of the uptick in billings was caused by something on the duration side.
Yeah. Let me answer the second part first. On the duration, that doesn't have an impact on billings. It's stable, number one, but also even on multi-year contracts, we still bill them annually. Even if we did have a change in duration, it wouldn't affect the billings statistic. In terms of how to look at billings as a growth indicator, yeah, I think you summarized it correctly, which is in any particular quarter, you can have that particular statistic affected by timing and other things. 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 intra-quarter movement of deals that closed in one 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. Just a quick follow-up, if I may, going to subscription gross margin. Understand, again, a lot of moving pieces here. If we focus on the two 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 eSignature offering is? B, on the data center side, is that something that then again, the at least weight on overall subscription gross margins can maybe start to go away over time? That's it. Thanks.
I think if you look at our guidance, the 78% is on the low end of the range. 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. The data center usage variance that we had some this quarter, while it cost us a bit more money, it's an indication that we needed that capacity for more usage in our installed base. 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.
I would just add, it's a good bellwether, I think, for the growth, Rishi, that 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 Zlotsky with Morgan Stanley. Please proceed with your question.
Hey, guys. Good afternoon. Thank you for taking the questions, and really nice job in the quarter. From my end, look, 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 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? How are you thinking about these kind of extensions as we get into the really big second half of the year, especially Q4? I have a quick follow-up.
Sure. Stan, I think two things. One 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 with sales. 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. Again, we love it when we get to use one of our system integrator partners. Sometimes we do that work ourselves. Regardless, there ends up to be more effort, and I think an elongated process than we would have in a traditional signature. As Mike said, if you think about that mix over time, you will expect some elongation because of that. Again, we don't think of that as a bad thing.
We think it's an opportunity to have larger footprints. Second piece to get to the opportunity that we can improve our performance aspect is really around sales enablement. I think the phenomenon for us is when it was very early, first couple quarters of new products, we just 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 occurs in the second half. We feel we really are accelerating those investments to enable our team to not just be successful with the traditional eSignature offerings, but also with the broader system of agreement offerings we're delivering through the DocuSign Agreement Cloud.
Got it. Perfect. Follow-up, as you sell these larger Agreement Cloud contracts into customers, just maybe anecdotally, but 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? 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.
Stan, on the first piece, I think the number of observations we have are still limited. 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 as one of the other components of the Agreement Cloud that we have been most focused on, can be significantly larger than what they would do from an eSignature standpoint. We also have lots of customers that are gonna be eSignature 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. If you think about it that way, there's gonna 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.
In terms of the $ 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 a customer. The range that we've seen historically is of 112%-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 Ives with Wedbush Securities. Please proceed with your question.
Thanks, Dan. Great quarter. Can you maybe 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. Yeah, 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, have very strong quarter in the U.S., and those guys are doing their darndest to make it harder for the international team to "take share" if you will, of our overall business. Traditionally, we've talked about this a lot, it's 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. 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. You see that in France and Germany. We see that in Brazil.
We'll see that, I think, over time in Japan more as well. We had some pockets that were quite encouraging for us that we're gonna continue to achieve what we said from an international growth standpoint. Again, I think it's broadly across the board, that we see those opportunities across both common and civil law countries.
Gaia], in terms of the product strategy, could you maybe talk about your view of organically building onto 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. 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 to having an open platform. I don't think you're gonna see anyone who's more motivated than we are to continue to build out both our API capability as well as the pre-built integrations, and we have just over 350 of them now. Again, strong commitment to keep it open. 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 core eSignature capability.
That's why we started, if you remember the history, looking for folks who are interested in a prepare product because they said it'd be great if that could be integrated, the DocuSign Gen capability right into DocuSign. Going forward, as we make the choice versus sort of the build and the buy and the partner, I think the answer is all of the above. I think we're gonna 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 as strong within DocuSign. We could build it ourselves, but we just think it makes sense to get there faster through acquisition. That's how we look at things today.
If 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. 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. That 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. One, can you add some more color on the strength of your pipeline in the government and CLM business? Do you expect them to kind of accelerate through the year, or do you see any kind of lumpiness in those businesses? Maybe you can even add some color on the eSignature pipeline.
Sure. 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. 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. 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 it as if they're sort of like a floodgates opened up, and once we have our first large deal, all of the rest of the government agencies are going to come running. At the same time, I think it's a very strong proof point that the government agencies will eventually come to DocuSign. 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. 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 the dollar, the budget question among customers? Maybe some color around the recent deals that you've closed, kind of 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 actually signing a deal?
Absolutely. Well, I think in CLM, it's actually not too different than it was several years ago with eSignature. 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. We came along and said, "Here's what the budget opportunity is. Let's replace that labor-intensive and manual process that has postage and other physical costs and FedEx costs in it with our solution." We really transferred budget that came from sort of the offline to the online, and we see the exact same phenomenon in 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. We really substitute their old spend with the new spend. I think we're seeing the exact same phenomenon, 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.
Oh, great. Thank you, and congratulations. 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. 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?
Yeah. 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 eSignature competitive set there. It's the exact same thing when we look at the overall Agreement Cloud. We look very closely at what other people are doing. At the same time, even though we have that maniacal focus on potential competitive threats, we have been fortunate to have a very strong leadership position in the marketplace. Not only did we build the core eSignature market, but we have maintained a dramatic market share lead.
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 focused 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. 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. Yeah, we just don't see them having a significant part of our business an impact on our business from those competitive threats. I don't know exactly what the IR departments in those other companies say.
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. 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.
Pat, just as clarification to make sure you don't get the wrong takeaway, as Mike said, we're building that separate IL data center for federal, but we are serving government, including federal customers today. Not all government business requires a dedicated government infrastructure. We are, in fact, serving them today, but it unlocks additional use cases and opportunities for people that have higher security requirements.
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Thanks for taking my question. When I size one half billings growth, there's 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. Q3, this coming quarter, will be the first quarter where CLM will be in both quarters. 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. 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 SpringCM 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. 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 look forward to seeing you all on the road in the weeks ahead. Thanks for joining us.
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