Earnings Call: Q3 2019

Dec 6, 2018

Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's 3rd Quarter Fiscal 2019 Earnings Conference Call. As a reminder, this call is being recorded and will be available for replay from the Investor Relations section of the website following the call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. I will now pass the call over to Ann Leshin, Head of Investor Relations. Please go ahead. Thank you, operator, and good afternoon, everyone. Welcome to DocuSign's Q3 fiscal 2019 earnings conference call. On the call today, we have DocuSign's CEO, Dan Springer and CFO, Mike Sheridan. The press release announcing our Q3 results was issued earlier today and is posted on the Relations website. Before we get started, I'd like to let everyone know that we will be hosting a KeyBanc bus tour on December 10 and a BofA bus tour on January 7, both in San Francisco and presenting at the JMP Tech Conference and the Morgan Stanley TMT Conference in late February. As other events are added to the schedule, we'll provide further updates. Now let me remind everyone that the statements made on this call include forward looking statements that are based on beliefs and assumptions we believe to be reasonable as of this date and on information currently available to management, including estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. Forward looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any other results, performance or achievements expressed or implied by the forward looking statements. Further information of these risks and uncertainties is included in our prospectus previously filed with the SEC and additional information available in our July 31, 2018 quarterly report on Form 10 Q 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 or to update the reasons if actual results differ materially from those anticipated in the forward looking statements. I'd now like to turn the call over to Dan. Dan? Thanks, Annie. Good afternoon, everyone, and thanks for joining us today for our earnings call. I'm pleased to say Q3 was another strong quarter for DocuSign. We had strong execution across all segments, geographies and verticals. And the factors that drive our growth engine were in full effect. I'll be talking today about each of those. To start, let me share a quick review of the number, then Mike will give you more detail shortly. We had revenues of $178,000,000 in the 3rd quarter, which drove 37% year over year growth. With our acquisition of SpringCM, we were non GAAP breakeven for the quarter. Our growth continues to come primarily from acquiring new customers and growing usage within our existing customers across their lines of business. At the end of Q3, we had 454,000 paying customers, an increase of 25,000 over the previous quarter. As we have said, this growth is not limited to the U. S. Our international business represented 17% of our overall revenue this quarter, and it continues to be an area of significant focus for us. We've continued to make great progress since becoming a public company earlier this year, and when we look at the factors driving our growth, we see a lot of fuel for further momentum. On today's call, I'd like to provide some additional color on these growth drivers. I'll talk about 3 in particular. 1st, every organization on the planet signs agreements. Big businesses, small businesses, government agencies and not for profit. As a result, our TAM is substantial. We estimate our core e signature businesses TAM at $25,000,000,000 which is largely underpenetrated. This TAM is becoming available as organizations worldwide make the transformation from paper to e signature. It usually starts when a specific department in an organization adopts e signature. Later, it's common for DocuSign to expand to other departments. And over time, we often see greater usage within each department. This is our core land and expand motion and our Q3 results are further evidence that it is working well. In October, at our annual customer event in the UK, we had a chance to illustrate how our expansion motion works in practice. 1 of the world's largest consumer packaged goods companies talked about how they have 100 different uses of DocuSign across their organization, either live, in development, or currently under discussion. This is a customer that started with just a few use cases in a single department and has been expanding since then. It's a great example of a customer eager to pay us more to do more because the return on DocuSign has proven to be so positive. Our second major growth driver is something that builds on top of eSignature. We call it the system of agreement transformation. It's when organizations go from isolated use of eSignature to connecting it with the various other systems necessary to prepare, sign, act on and manage agreements. By connecting and automating the entire agreement process, organizations can do business faster at less cost and with fewer errors. So it's not a surprise that our leading customers are already going there now. In Q3, we had a chance to showcase such a leader at that same UK customer event I mentioned earlier. This customer, one of the world's largest energy companies, was speaking about how they are connecting salesforce.com, DocuSign, SpringCM, and SAP. This illustrates how important connectivity is to a modern system of agreement. If we can make it easy for customers to put the pieces together, everybody wins. That's why we've invested to offer the most pre built integrations of any company in our category, and it's why we feel we're so well positioned for the key aspect of the system of agreement transformation. Now, I just mentioned SpringCM, the company we acquired in September. I'd like to give a quick update on our progress there. You'll recall that SpringCM complements our strength at eSignature with their strength in activities before and after the signature. This has allowed us to provide a fuller system of agreement platform, including new products to sell and further technologies to commercialize. We are already doing this by offering SpringCM's flagship contract lifecycle management products to our mid market and enterprise segments. And for our SMB and lower mid market segments, we intend to release a new product in the first half of calendar twenty nineteen called DocuSign Gen. This is based on SpringCM's technology for document generation. With these, as well as partner offerings that we resell, we believe we have the most comprehensive set of products and services for modernizing customers' systems of agreement. And remember that the $25,000,000,000 TAM is for e signature only. We believe these additional offerings at least double our TAM to cover activities like preparing agreements, acting on them, and managing them. Finally, our 3rd growth driver is our partner ecosystem. It is the largest in our category and it becomes even more important in a world of modern systems of agreement. To illustrate, let me point to a few recent announcements. In Q3, we had our largest ever presence at Dreamforce, Salesforce's annual conference. It's always a great show, and this year, we did more meetings and got more leads than ever before. This included a lot of activity around Salesforce CPQ, which stands for Figure, Price and Quote. It's another Salesforce product where we have an e signature integration. And at Dreamforce, we announced that our new DocuSign Gen product will launch with a Salesforce CPQ integration. So, lots of positive activity there. Another partner announcement we recently made was with Dropbox. They announced Dropbox Extension, a way for partner products to extend what's possible within Dropbox. And as you might guess, you could now send and sign agreements using DocuSign from within Dropbox. It's another example of our philosophy to put DocuSign everywhere where it's done. For a partner like Dropbox, it makes their environment more valuable. And for us, it drives more sales and usage of DocuSign, giving us leverage beyond what our own direct sales efforts can achieve. So, to sum up the growth drivers, number 1, a big TAM from eSignature, which we are landing and expanding into. Number 2, the system of agreement transformation. And number 3, our category leading partner ecosystem. Together, they explain much of our recent success as well as our confidence in DocuSign's future prospects. Now, I'd like to shift to some updates on our organization that we believe will cement our leadership for the next phase of our growth. We announced last quarter that Neil Hudspeth, our Head of Sales and Customer Operations, would be retiring at the end of the fiscal year. As I said in last quarter's call, this was something we have been planning for by investing in the talent we need to grow the business going forward. Of course, the announcement gave us a chance to check our assumptions against the external market for talent as well. Having done that, we are all the more confident in the team we have built and cultivated internally. So I'm pleased to announce that effective February 1, Lauren Alhadeff will become Chief Revenue Officer, reporting directly to me. Lauren is currently our Senior Vice President of North America Sales. That means he's been driving the bulk of the sales numbers we've all been enjoying today. Moreover, Lauren is a pillar of DocuSign, having been here over 10 years through many promotions and much success. So congratulations to Lauren for a well earned opportunity. And for customer operations, Lambert Walsh, our Senior Vice President of Customer Success, will report directly to me as well. Lambert came to DocuSign 2 years ago after 9 years as the Head of Adobe's Global Services and Customer Operations Organization. Before that, he was Head of McAfee's Worldwide Customer Care Group for 7 years. Given the incredible impact Lambert has made since arriving at DocuSign, this was an easy decision for me. So Lambert, thank you and congratulations. We've also promoted Scott Ulrich to Chief Operating Officer. He will be expanding his focus beyond strategy and marketing to take on our field enablement and business development functions as well. Moving now to our Board of Directors, effective January 1, our new Board Chair will be Maggie Wilderatos. Maggie serves on a number of high profile boards, including Costco, Hewlett Packard Enterprise and Lyft. She has been on our Board since March 2018 and before then she was on our advisory Board for several years. In those capacities, Maggie has been hugely impactful for DocuSign. So we are thrilled she has agreed to expand her role. We also have a new Board member to announce. Cynthia Gaylor is Senior Vice President and CFO of Pivotal Software. She was also the Head of Corporate Development for Twitter and was a Managing Director at Morgan Stanley, serving in the Technology Investment Banking Group. Cynthia will be the 4th woman to join our Board and she will serve on the Audit Committee as well. Welcome, Cynthia. So as we've transitioned to a public company Board over the past 6 months, I could not be more pleased with the experience we've assembled across the best of blue chip corporate and SaaS technology companies. So to sum up for today, the growth factors we discussed are in full effect. And as you can see by the numbers, we are executing on the opportunity. We are riding, and in some cases, driving multiple waves of transformation, from partner to e signature to modern systems of agreement. Our market still has a lot of greenfield, especially internationally, and we have an excellent sales scalability opportunity with our partner ecosystem. So, my outlook is very positive. And as we approach the end of the calendar year, I want to thank the 3,000 DocuSigners for their incredible contribution. Our recognition this week on Glassdoor as the 17th best place to work amongst 800,000 companies is a testament to your effort. I could not be more proud to call you colleagues. Now, I'd like to hand over to Mike to walk through our financial performance, and I'll be here for Q and A after that. Mike? Thanks, Dan, and good afternoon, everyone. As a reminder, all of our financial results reflect the adoption of the 606 accounting standard for current and historical periods, and our non GAAP financials exclude stock based compensation, amortization of intangibles, amortization of debt discount and acquisition related costs. Additionally, all results include the results of operations of SpringCM since its close on September 4. The Q3 was a busy one for DocuSign. We acquired SpringCM and completed both a secondary and a convertible debt offering. On top of this, we continue to execute well and exceeded our expectations for the quarter. Total revenue rose 37% year over year to $178,000,000 in the 3rd quarter. Excluding SpringCM, DocuSign revenues were up 34% year over year. Total subscription revenue reached 38% year over year growth at $169,000,000 or 95 percent of total revenue, with strong performance across geographies and vertical markets. Billings increased 40% year over year to $198,000,000 and DocuSign's standalone billings grew 38% over last year. We added approximately 25,000 new customers in the 3rd quarter, bringing our total to 454,000 customers worldwide and growing 28% year on year. Of this increase, approximately 4,000 were new commercial and enterprise customers, resulting in a 37% year over year increase to 53,000 direct customers worldwide. We continued to achieve strong upsell in Q3, resulting in a net dollar retention rate of 114%. Strong off selling was also reflected in the number of customers with ACV greater than $300,000 which grew 57% year over year to a total of 285 customers. This was driven predominantly by existing customers continuing to increase their volumes and expand their use cases. International revenue reached $31,000,000 in the 3rd quarter or 17% of total revenue. This growth included a year over year growth rate of over 40% in core DocuSign products, offset in part by the continued sunsetting of some legacy acquired products. The combined year over year international revenue growth was 28%. Non GAAP gross margin for the Q3 of fiscal 2019 increased to 79% from 78% in the Q3 of fiscal 2018. Non GAAP subscription gross margin in the quarter came in at 85% compared with 83% in the Q3 of fiscal 2018. While our gross margins increased year over year, there was a slight decrease from Q2, primarily due to the impact of string centimeters's lower gross margins. We increased our non GAAP operating expenses to $142,000,000 or 80 percent of total revenue in Q3 from $105,000,000 or 80 percent of total revenue for the Q3 of the prior year. Professional fees associated with the acquisition of SpringCM and additional investments to support the integration as well as costs associated with the secondary and convertible offerings contributed to this increase. As a result, our non GAAP operating loss for the 3rd quarter was $1,000,000 or a negative 1% operating margin, compared with a $3,000,000 loss and negative 2% operating margin in Q3 of last year. We ended our quarter with 2,900 employees, a year over year increase of 33%. This increase included approximately 178 employees who joined us from SpringCM. Operating cash flow was positive $4,000,000 this quarter, compared with $12,000,000 in Q3 of last year. Lower operating cash flow during the Q3 was primarily the result of operating losses from SpringCM, costs associated with integration, and the follow on offering. This, combined with additional capital investments for SpringCM, resulted in 3rd quarter free cash flow of negative $4,000,000 compared with positive $7,000,000 in Q3 of last year. Finally, on our balance sheet, we ended the 3rd quarter with $1,100,000,000 in cash compared with $819,000,000 at the end of the previous quarter. This includes $493,000,000 in net proceeds from the convertible debt we issued in September, offset by the $219,000,000 used in the purchase of SpringCM. Turning to our non GAAP guidance for the Q4 and full fiscal year 2019, we estimate total revenue of $192,000,000 to $194,000,000 in Q4 and $693,000,000 to $695,000,000 for fiscal 2019. These amounts include a $4,000,000 to $5,000,000 revenue contribution from SpringCM in Q4 and an $8,000,000 to $9,000,000 revenue contribution from SpringCM for the full year. We estimate billings of $245,000,000 to $255,000,000 in Q4 and $795,000,000 to 805,000,000 for fiscal 2019. We are maintaining our guidance for gross margin at 78% to 81% for both Q4 and the full fiscal year 2019. In terms of operating expenses, we anticipate sales and marketing in the range of 50% to 52% of revenues in Q4 and fiscal 2019, R and D in the range of 16% to 18% for Q4 and fiscal 2019, and G and A in the range of 11% to 13% for Q4 and fiscal 2019. For the Q4, we estimate $3,000,000 to $4,000,000 of other non operating income related to interest income and expense. We expect a tax provision of approximately $750,000 We expect fully diluted weighted average shares outstanding of 185,000,000 to 190,000,000 shares for Q4 and 155,000,000 to 160,000,000 for fiscal 2019. The decrease in weighted average shares outstanding in Q4 relates to our RSU settlement in November, which decreased our fully diluted shares by approximately 5,000,000. With that, we will now open the call for questions. Thank you. At this time, we'll be conducting a question and answer Our first question comes from the line of Justin Furby with William Blair and Company. Please proceed with your question. Great. Hey, guys. Can you hear me okay? Yes. Great. Maybe just, Dan, just to start, I was hoping you could give a sense for what you're seeing across verticals. I think there's some turnaround real estate. I know that's a pretty small piece of your business today. But just wondering if you could speak on that vertical, some of your other areas. And then I'd love to get an update on what you saw in the federal government space. I know it's early for you. And then I've got a quick follow-up. Thanks. Absolutely. Yes, we tend to see real estate, as you articulated, it's a relatively small percent of our revenue, but it's an important aspect of the total number of customers we have. And most of the individual realtors, as we've discussed in the past, just are very small customers. But if you look at the strength we had with the net 25,000 customer adds, a significant portion of that is in real estate. We've been pleased to see through Q3 a lot of strength in that segment. So, we have not seen any of the things people have talked about from headwinds in that market overall affecting our business at this point in time. In terms of financial services and some of the other larger verticals that we traditionally point to, they've been quite strong and we're generally feeling, as I said, very bullish. That's behind the significant growth numbers that in both revenue and billings that Mike just referred to. From a government standpoint, I think you're absolutely right. We look at the federal government as a huge long term opportunity, but have the understanding that even though we now have that FedRAMP certification, it's going to be a longer sales cycle than some of the commercial customers that I think we tend to see in government. But I would point to the fact that we've had some very good strength in state and local government. We continue to see that being an attractive opportunity for us in the near term, while we go after the longer federal government opportunity that we think will be large in the longer term future. Okay, great. That's helpful. And then I know you kind of bucket the commercial and enterprise business in one sort of revenue line, but I think it's 2 separate go to market, separate selling motions. Can you give a sense for what you're seeing between those 2? I'm curious more on the larger enterprise side because I think that's a newer area for you over the last several years. What that looks like from a demand standpoint? And then just in terms of the decision to hire internally for the Chief Revenue Officer role, should we interpret that as maybe more incremental changes over the next year or so in terms of go to market? Or is that the wrong read? Thanks. So, on the first piece, yes, we don't actually split out commercial enterprise and it's interesting that you make the comment about them being sort of different motions. We think of increasingly of them as very similar motions. And in fact, a lot of the land and expand that we have sort of built goes across both segments. And we're excited actually to take some of the best practices in the commercial business and bring that into our enterprise business as well. That's how we sort of think about them. And I don't have a perspective of some dramatic difference. Commercial is the core of what built DocuSign on the direct side of our business, and I think that will be the case for years to come for sure. So that's perspective. In terms of the internal piece, I want to make sure I clarify your question. If you're thinking, is it more incremental versus more dramatic in terms of changes, we're feeling pretty pumped up about the leadership we have built internally and the momentum and the direction. So, I don't think with our decision to have Lauren take on the Chief Revenue Officer role, it's an indication that we're going to be less dynamic in how we think about changes. But I think it is a statement you hear from us that we're really pleased with the momentum and direction of our business. And we don't see any dramatic changes that I would point to with that appointment. Perfect. Thanks guys. Appreciate it. Nice quarter. Thank you. Our next question comes from the line of Sterling Auty with JPMorgan. Please proceed with your question. Yes, thanks. Hi, guys. I know you've got the pricing plans that are up on the website, but in terms of the commercial and enterprise, can you remind us what the stratification is and where is the typical enterprise customer coming in? In other words, is there an opportunity for further upsell on feature functionality? Hi, Sterling, it's Mike. So, a couple of thoughts on that. I think if you look at one statistic that we provide in terms of accounts that are greater than $300,000 if you look at the makeup of that, the significant majority of those come from upsells that accumulate to larger ACV over time. That said, there are some in there that are first time buyers as well. So, we do have a mix, but the model that we provide, and to Dan's point, I think across commercial and enterprise, is really to drive that upsell and that expansion over time into ever increasing larger ACV. And this quarter is an example of that stat grew 57% year over year. So, we're seeing a lot of momentum around that. Okay. And then the one follow-up is extending that, you gave the example of Spring with the partnership with Salesforce, etcetera. What is the interest level across that broader commercial enterprise group to expand their usage to bring in something like Spring versus I get the question a lot, geez, are they just doing are companies just going to buy the basic e signature and that's it and maybe are not interested in the expanded capabilities? Well, so it's hard to have one simple answer for our 54,000 customers, but let me try to give you some sense of the trends we're seeing in the marketplace. We've seen a system of agreement really capture the enthusiasm of our customer base, and I would say that's across commercial and enterprise. And people realize that e signature is just the first piece that they want to go with. We continue to think from a land standpoint that there will be a lot of folks that start with e signature, but already we're seeing RFPs getting written with a system of agreement as the construct for the RFP. And obviously, we think we're incredibly well positioned for those deals. So, I don't think we see that there's a lack of enthusiasm and appetite within our customer base for buying into the broader system of agreement. And again, the only exception, I'd say, there on the land side, it probably will continue for some numbers of quarters to come to be customers that start with Signature and then move into the broader group. And then the one specific data point, as you were talking about from a customer and partner standpoint, we do see the Prepare or the DocuSign Gen product that I alluded to earlier as being the piece that will be most easy for customers to understand how quickly that connects with their e signature and is that first step on their journey to a broader system of agreement, we think that's the place where it will go first and some of the post sign components will probably follow. Got it. Thank you. Our next question comes from the line of Stan Zlotsky with Morgan Stanley. Please proceed with your question. Perfect. Thank you so much for taking my question. So actually, I wanted to follow on follow-up to what Sterling was digging into with the customers over $300,000 We saw a very nice acceleration year on year. And I mean, if you look at it on a quarter on quarter basis, right, the account bumped up 39 logos, which is very impressive. Maybe you could dig into what are the dynamics that you're seeing around these enterprise signings of these new logos? How much of the increase we're seeing? How much of it is just organic growth, as you mentioned, within existing customers versus just very large lands with new customers? Yes. So, Dan, as Mike alluded, the majority of those customers that are there got there from a land and expand motion as opposed to starting off over $300,000 And if you take a look at the mix of those, the $39,000,000 incremental you're describing, same thing is true. The majority of those were expansion opportunities, and we expect that to be the case going forward. It's not that we're not excited when we see an enterprise opportunity to start that big, but one of the things that's really important in the SaaS world is driving customer success. And you've heard us talk about this in the past. And sometimes, if you start off with too big of an initial chunk, you don't have that clarity to how you quickly get implemented and get those early wins and success. So, in some ways, I actually prefer that core land and expand piece where we start with a manageable piece of use cases, get them done quickly, get that sort of early win mentality within the organization and then look to expand into the much larger footprint. And with system of agreement, I actually think you're going to see the same thing. There may be some situations where someone says, I want to buy the whole system of agreement upfront and start with a larger initial entry point. But I think it's just as likely to see people say, I want to start with eSignature and then build on 2 dimensions. 1 is additional use cases for Signature, but also adding in the overall system of agreement functionality, expanding on 2 different vectors, so getting to that 300,000 faster, but not necessarily starting at a higher point. Got it. And then maybe just a clarification for Mike. Was there anything one time in the quarter on the billing side, mainly the organic piece that hit? Was there maybe a very large renewal that hit in the quarter? Or was it just strength across the board within that organic billings number? That's it for me. Thank you. Yeah. No, Dan, definitely driven by strength of quarterly performance. As we've talked about, we guide billings, but it is a statistic that can be a bit more variable than others like revenue. But no, what you saw in the quarter was driven by strength. And Mike and I went on a lot of sales calls our selfish this quarter. We really drove a lot of that personally. The rest of the company isn't giving us full credit, but I really attribute it to our involvement in the sales side of things. Perfect. Thank you. Our next question comes from the line of Alex Zukin with Piper Jaffray. Please proceed with your question. Hey, guys. Thanks for taking my question. So maybe on just that last point, that strength that you saw in the quarter, particularly that drove some of this acceleration, is there an increased confidence in the sustainability of that type of growth, at least in that those 300,000 plus accounts that we should now think about in the pipeline? And then can you maybe talk to how you think about the guidance for the Q4? Was there anything one time in nature in the year ago period that we should keep in mind from a seasonality perspective? And I've got a quick follow-up. Yes. I would say on the statistic of customers exceeding $300,000 of ACV, I would make 2 comments. 1, like any statistic, over time, there will always be some level of variability depending upon the timing of closing deals and that sort of thing. I think, in general, though, when you look at the size of our customer base, with time, we're getting more and more customers that are moving up towards that threshold. So, I think that's going to help contribute to a bit more sustainability over time. And I'm sorry, the second part? The Q4 piece, I don't think there's anything sustained. No, there's really nothing one time oriented. I mean, as everybody knows, we had a strong second half last year. And, obviously, we're coming off of a strong Q3. So, I think our guidance reflects that. Great. And then just as a follow-up, can you talk about you talked a little bit about the cases where the system of agreement vision is now being written into the RFP or into the expand motion? And particularly in the context of SpringCM, how do you see that impacting the upsell motion from a deal size perspective? And how should we think about the dollar based net expansion metric? Given some of the upsell activity that you're seeing, is that a metric we should expect to trend up over time, sustain at kind of the current teens level? How should we think about that? Yes. So, two perspectives. On the trend piece you asked about, I think it's another form of expansion. So, I think it increases our TAM substantially. I don't have enough history at this point to tell you whether that rate to get to that larger TAM will be dramatically accelerated, I. E. That, that would lead to a much higher net retention rate sort of per period. And I just don't think we have enough history yet. We've just been in the last sort of 6 months since we've really started the initial message development around system of agreement. And Then from an additional product standpoint around Spring, I mean, we're really it's really as we get to our new year, February 1 is where we're going to be focused on the DocuSign side is really selling that aggressively. We're integrating the company thoughtfully, but we haven't really started an aggressive sort of cross sell opportunity. My sense is, in that 112%, 113% to 118%, 119%, is still the right way to think about our net retention rate for the foreseeable future. And if we come back and see that that's really accelerating with those 2 vectors of growth in full swing, we'll give you that guidance. But at this point, I'd say I'd probably stay in that same core range. But think about the fact that the long term, the TAM is getting bigger, so we've got more to grow into over time. That would be my view. I don't mind if you have a different perspective, Mike. Great. Thank you guys. Our next question comes from the line of Karl Keirstead with Deutsche Bank. Please proceed with your question. Thank you. Maybe 2 for Mike. First of all, congrats on that billings number. That's terrific. The 2 for Mike. I heard you mentioned that you would expect the spring revenue contribution in 4Q to be $4,000,000 to $5,000,000 Maybe you mentioned it and I missed it, but did you touch on what you would expect billings contribution to be? And should we assume for now that it will be similar? And then I've got a follow-up. Yes. No, we don't, last quarter or this quarter, break it out for billings. We just wanted to give you sort of this one time visibility into the spring contribution billings, as we talked about, can be a bit more variable. But it should generally track with revenue, and I think you have some visibility into the actuals that I mentioned for Q3. So, looking at that should give you a good sense as to if you need to break that out for Q4, how to do so. Got it. Okay, thanks. And then, Mike, all the numbers were solid, maybe with the exception of free cash flow, which I think disappointed and unusual given the strong billings growth you put up this quarter last. If you were to strip out the one time pressures you flagged, the spring contribution of free cash flow, integration costs, follow on offering costs, Just roughly, would you get to free cash flow margins in the proximity of the 5% to 6% level from 3Q? I'm just wondering what normalized cash flow might have looked like. Thanks a lot. Sure. Yes, I don't know that I could give you a percentage. The other thing I think when you talk about free cash flow to consider is that things like with 170 employees trading out all of their laptops, you have some one time capital investments as well that relate to it. So, I think all told, when we look at our core business, we were very satisfied with how free cash flow has developed, and we don't see any changes in those trends going forward. Okay. Thanks a lot, Mike. Our next question comes from the line of Walter Pritchard with Citi. Please proceed with your question. Hi, thanks. Couple of questions. Just on levels of investment going forward, I guess my takeaway was on following up on Karl's question. Of the pressures on cash flow sounded a bit one time this quarter, you guided for next quarter. Can you just talk about levels of investment given what happened, where you were in the quarter and some of the priorities you have here as we look forward, especially into next year and how you're thinking about margins developing? Yes. We're going to obviously guide next quarter our fiscal 2020 outlook. I think that the impact, for example, on gross margins of bringing spring on for the first time really doesn't allow us the opportunity to integrate it and leverage those investments to move those margins in a direction more consistent with our model. I think in the coming fiscal quarters, we have the opportunity to do that, both in terms of leveraging the cost of revenue investments and the OpEx investments. I don't think that as we sit here today, we're anticipating next fiscal year the requirements or requirements for huge capital investment or other types of investments to get Spring integrated into the business. There are obviously going to be ongoing integration costs. It's always part of an acquisition, but we don't think it's going to be a dramatic change to the model you've seen. Great. Thanks, Mike. And then just follow-up on the sales side. I'm wondering relative to different types of reps and segments of the business that you're targeting, where are you seeing the most incremental productivity in terms of sales reps you're bringing onboard? Well, when you think about the sales productivity, one of the reasons we accelerated our investment in sales and marketing, which is sort of the hiring that we pulled forward this year is to ensure that we'll have the right productivity as we go into the new year to continue to drive attractive growth rates. But, I would say that the productivity enhancements we're getting are really driven by 2 factors. One is, as we get more scale, we're just getting better at our sort of onboarding and enablement process for reps. The second thing, as we get bigger, we're allowed to get more specialized, right, with that scale. And so, we have the ability to have people by vertical industry and by size of customers that we go after, to have bigger populations in each of those, and therefore, get more efficient and more effective at sort of onboarding them into that level of productivity. So that's where I'd say we're seeing the most of the benefit. I don't say that it's better in one particular size or one particular vertical. Just getting a little bit better across the board on all of them, which has us excited to continue to make those growth investments. Great. Thank you. Our next question comes from the line of Pat Walravens with JMP Securities. Please proceed with your question. Great. Thank you and congratulations guys. Hey Dan, can we talk a little bit about competition? And I'll just throw out a couple of not, how is it different? And then lastly, it seems like there's a lot of sort of low end vendors in the electronic signature space. What's happening with them? Yes. So, on the specific ones you asked about, so from an Adobe standpoint, we continue to think they're a great company, but they're not being as effective in this aspect of the business as they are, where they're wonderfully successful in other segments. We do primarily still see Adobe take a bundling or discounting approach when they compete with us. And as Mike has walked through in the past, when we've looked at competitive wins, we see them as being significant and competitive losses as being very, very rare. Nothing has changed from the previous information we've shared there. From your API vector, 60% of all of our transactions are now completed because they launched through an API call as opposed to someone logging into a web and mobile environment. We continue to see great strength there and our focus on the developer community is, if anything, even more dramatic than it has been in the past. And we're not seeing sort of a phenomenon of other players being stronger in that dimension. Keep in mind, when you move past Adobe, the next sets of players are very, very small relative to our business. So, someone would have to be doing something quite dramatic for us probably to sort of take notice of them making a successful inroad on that side. There's no one we've seen particularly strong on that front. Similar answer to your low end question, on a cumulative standpoint, if we think about our web and mobile business, sort of the non direct selling side, that business is performing incredibly well for us. So, it may be that there's some really small players that an individual is, in terms of their tiny scale, growing well. I haven't actually had one brought to my attention, in the last couple of quarters as interesting. And the only other piece you left out is the legacy players. And we talked in the past about the idea there's some sort of on prem players, particularly in some other countries outside of the U. S. And sometimes they'll have strength in a particular vertical. But for us, our view is not really an if question, it's just a when, those people will convert to the cloud and convert to DocuSign. So, we continue to be appropriately aware and paying attention to competitive threat, but not really seeing anything through this last quarter that was noteworthy. Okay, great. Thank you for that. Our next question comes from the line of Shankar Subramanian from Bank of America Merrill Lynch. Please proceed with your question. Hi, thank you. This is Shankar for Kash. On the partner side of the equation, could you help us understand how much of a tailwind was, say, Salesforce or Dropbox was for net new customer at this quarter? And how do you see that kind of help the next year in terms of net new customer adds? Absolutely. Yes, when we think about our partners, I'd sort of split out the construct that we work with partners in a couple of different ways. Most important that I would point to is on that sort of customer account side you're talking for, we tend to see that from folks in the mid market, the kind of commercial segment and moving down into SMB, the small size of commercial for us. And we see sales force as an example being hugely important, significant amount of growth that we see there and we believe we'll continue to do that. It's primarily driven by the great integrations we've built like DocuSign for Salesforce. I mentioned we've now built that capability to go into the CPQ as well as the core SFA product that they have there. And I think the sort of momentum we see with Dropbox, we look at that in that same possibility of those much smaller customers providing a large volume. But I don't want to sort of leave out the power we get in larger partnership opportunities like our SAP partnership, where we're working with some of the largest companies in the world and co selling with SAP creates a huge growth opportunity. It's not as big in the customer count side that you specifically asked about, Shankar, but hugely important when we look at the revenue growth opportunity for us in the bookings and billings opportunity, where we see that with some very large customers that we go to market with folks like SAP on. On. Got it. Got it. Thank you. And then on the M and A front, obviously, you just called SpringCM and you are still doing some investments there. But as you look at your platform and see where other what are the features you need to add to make it more sticky going forward, What would that be? And when you look at the R and D spend, and given your plan of hiring, acquiring as well as investing internally, what are the investments that you're focused on internally versus acquiring that IP from outside? Yes. So, I think as we have always said, like many software companies, we will look at both buying, building as well as partnering. And we talked a bit today about how we think the partnerships we've built in that broader ecosystem, leveraging our strength in APIs and prebuilt integrations is going to be also a key part of this overall system of agreement product solution that we want to bring to the market. In the trade off versus build versus buy, specifically you asked about, yes, we want to properly digest Spring. We want to make this a fantastic integration, to sort of prove to ourselves and the market that we will deliver incredible value for our customers when we do buy. But for sure, the dominant aspect of our overall product development and delivery to the marketplace will come from build, and that's why we're very focused on that R and D spend and ensuring that we've got a fantastic pipeline of new product development internally. In terms of your specific question on which portions which way, I would say everything building off of sign, you should expect us or the vast, vast majority of everything off sign will come from an internal build. Increasingly in the prepare phase, I think you'll see us building. We took some from Spring and some from our own to build the DocuSign Gen product we talked about. And the places where you might see us more focused on buying would be when you get to the later post sign phases like the manage phase, where that would be, I'd say, more different from the infrastructure and functionality and applications we've built to date. So, we don't have some definitive split, but that's how I would sort of direct you to think about the difference of where we would build versus buy it. Perfect. Thank you, guys. Awesome color. Thank you. Our next question comes from the line of Daniel Adams with Wedbush Securities. Please proceed with your question. Hey, guys. Great quarter again. So I had a question just on international. I mean, could you just talk about the trajectory there and just how we should think about international growth, call it, over the next, say, 2 to 4 quarters? Yes. As we mentioned earlier, when we look at our overall growth opportunity, we are very focused on international. Remember, of our direct business, just over 80% of it is in North America. And if you start thinking about traditional software companies as they scale and get bigger and bigger, that opportunity to have the outside North America be significantly larger than it is for us today is one that we are laser focused on. Now, we have taken an approach, which we completely feel positive about, which is, say, let's not try to be everywhere at once with our direct business. It's true we have customers in over 150 countries that have bought DocuSign, but the majority of those countries are ones that come through our web and mobile business. We're focused on 6 markets outside North America. That's the UK and Ireland as 1, France, Germany, Japan, Australia, ANZ really, but Australia focused, and then Brazil. And we want to continue as we go into the new year with that focus. Once we feel we've really nailed those countries and gotten significant scale in each of them, we'll start to look for additional focused countries to go after. That's how we're thinking about that from a geographic focus and attention. And in terms of the success there, our bookings growth for our core DocuSign product is growing substantially faster internationally than it is in North America, off smaller base, obviously, as you'd expect. And our expectation is that's going to continue to be the case for years to come. If you add anything to the like effect, we'll just add. No, I appreciate it. Great. And just a quick follow-up. So, how do you feel about like organically building things versus just tuck ins? Obviously, you guys are in position of strength. Just maybe reiterate sort of how you're thinking about things going into 2019? Well, I think going back to the sort of the build versus buy discussion with Shankar, I think we believe that tuck in type work is something that we would probably focus on small incremental components with our core development team because the integration of the overall platform is so important. But from time to time, if we uncover a company that may be subscale that has developed some really fantastic functionality, and for whatever reason, probably more likely it's the expertise and actually the customers and the business they've built, we absolutely could be excited. And you may recall, over a year ago, we bought a company called Imperia. And Aperio was a company that was really about machine learning functionality and capability. We didn't even have a clear expectation how we might bring that to our customers at the time. We just knew it was capability that we wanted to build. Now today, after we sort of tucked in Furio, we're realizing that machine learning, which was their expertise, is a big opportunity in our managed phase of the system of agreement. So, I can definitely see us do tuck ins around that sort of aqua hire or talent acquisition capability as being a portion of what we do. Great. Thanks. 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. We really appreciate you guys taking the time and we look forward to seeing you out on the road and talking to you again at the end of Q4. Thank you so much. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.