Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DocuSign Inc (DOCU, Financial) reported Q2 revenue of $736 million, up 7% year-over-year for the second consecutive quarter.
- Non-GAAP operating margins increased to 32%, an all-time high, with significant improvement from 25% in Q2 fiscal '24.
- Free cash flow generation remained strong, approaching $200 million, resulting in a 27% yield for the quarter.
- The new Intelligent Agreement Management (IAM) platform has shown promising early results with higher customer win rates, larger deal sizes, and faster time to close.
- International revenue represented 28% of total revenue and grew at approximately double the rate of overall revenue, indicating strong global expansion.
Negative Points
- Billings growth was only 2% year-over-year, impacted by last year's strong on-time renewal performance and timing impacts of various customer contracts.
- Dollar net retention rate remained flat at 99%, indicating no improvement in customer retention or expansion.
- The company expects operating margins to decline slightly in the second half of the year due to investments in IAM launch and rollout.
- Headcount increased quarter-over-quarter, reflecting a measured approach to hiring, but still showing a 2% decrease year-over-year.
- The guidance for Q3 and fiscal year 2025 indicates only a 6-7% year-over-year increase in revenue, suggesting modest growth expectations.
Q & A Highlights
Q: Allan, you raised your full-year guide to 7% growth but guiding billings from 3.5%. What are the main reasons giving you confidence in sustaining that growth?
A: Allan Thygesen (CEO): We are proud of the progress made, stabilizing the current business with improved operating metrics. Growth will come from international and CLM in the short term, and IAM in the long term. Early indicators for IAM are encouraging, with larger deal sizes, faster closes, and higher win rates.
Q: Blake, you mentioned the record margin at 32%. What is your ceiling over the next year or two in terms of where you think you can go versus continuing to invest?
A: Blake Grayson (CFO): We have made significant improvements in operating margins, focusing on productivity and efficiency. While there is room for further improvements, our main focus is on balancing productivity with growth, especially with the IAM launch.
Q: Can you expand on the early feedback from customers for IAM and why it has been able to sell quicker than CLM?
A: Allan Thygesen (CEO): Customers appreciate the ease of use and fast time to value of IAM. Even smaller customers have thousands of agreements, indicating widespread pain points. IAM's broader reach and simpler deployment compared to CLM, which is more complex and enterprise-focused, contribute to its quicker adoption.
Q: What led to the sales transition during the quarter, and has Paula identified any changes since joining?
A: Allan Thygesen (CEO): We are in a transformation phase, moving from a singular product to a richer, more solution-oriented platform. Paula Hansen is expected to accelerate and execute our existing strategy, focusing on direct sales, partners, and self-serve channels.
Q: The revenue guide for the full year was raised, while the billings beat and raise was smaller. Were there any term changes that caused this?
A: Blake Grayson (CFO): The Q2 revenue beat was due to the timing of bookings, particularly larger deals renewing earlier than expected. The full-year raise reflects this dynamic, not a change in business seasonality.
Q: Can you provide more detail on the IAM investments causing margins to come down in the second half?
A: Blake Grayson (CFO): The IAM investments are to support its launch in more geographies and customer segments. Despite this, our Q3 operating margins are still significantly above year-on-year.
Q: How should we think about the pricing model for IAM?
A: Allan Thygesen (CEO): IAM uses seat-based pricing for different user types, with adders for document storage and advanced features. We are exploring other ways to match pricing to value delivered.
Q: Can you talk about rolling out IAM to more customer segments and international regions?
A: Allan Thygesen (CEO): We launched IAM to the commercial segment and will soon offer a self-service version. Enterprise deployments will start with departmental rollouts. Geographically, IAM will be available in the UK, Germany, and France later this fall, with broader availability worldwide by year-end.
Q: How important is the Lexion acquisition to the new IAM platform, and when do you expect it to be integrated?
A: Allan Thygesen (CEO): The Lexion acquisition is crucial for IAM. We will ship two significant features enabled by Lexion this month, just four months after closing the deal. The integration is progressing well, and we are thrilled with the team's contributions.
Q: Do you feel like NRR rates have stabilized and can start improving from here?
A: Blake Grayson (CFO): Dollar net retention has stabilized and is expected to remain consistent through the year. Long-term improvements will come from better renewals in our core business and expansion opportunities with IAM.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
