DocuSign, Inc. Price & Performance (DOCU)

Thank you, operator. Afternoon, and welcome to DocuSign's Q4 fiscal twenty twenty five earnings call. Joining me on today's call are DocuSign's CEO, Alan Tiggeson and CFO, Blake Greyson. The press release announcing our fourth quarter fiscal twenty twenty five results was issued earlier today and is posted on our Investor Relations website along with the published version of our prepared remarks. Before we begin, let me remind everyone that some of our statements on today's call are forward looking. We believe our assumptions and expectations related to these forward looking statements are reasonable, but they are subject to known and unknown risks and uncertainties that may cause our actual results or performance to be materially different. In particular, our expectations regarding the pace of product innovation, and factors affecting customer demand are based on our best estimates at this time and are therefore subject to change. Please read and consider the risk factors in our filings with the SEC together with the content of this call. Any forward looking statements are based on our assumptions and expectations to date and except as required by law, assume no obligation to update these statements in light of future events or new information.

During this call, we will present GAAP and non GAAP financial measures. In addition, we provide non GAAP weighted average share counts and 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. We encourage you to consider all measures when analyzing our performance. For information regarding our non GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of these figures, please refer to today's earnings press release, which can be found on our website at investor.docuSign.com. With that, I'd like to turn the call over to Alan. Thank you, Matt, and good afternoon, everyone. Fiscal twenty twenty five was a transformative year for DocuSign, led by the introduction of Intelligent Agreement Management or IAM. Our vision is that DocuSign IIM establishes a new system of record that transforms how organizations create, commit to and manage their agreements, in a full suite AI powered end to end platform. During the year, we also improved the performance of our business building a strong foundation to add greater customer value, Q4 revenue was $776,000,000 up 9% year over year and fiscal twenty twenty five revenue was $3,000,000,000 up 8% year over year.

I'm momentum was strong and fundamentals across the core business continued to improve with GALA net retention increasing to 101% in Q4. In addition, produced strong profitability with 29% non GAAP operating margin [indiscernible] and 30% for fiscal twenty twenty five. Both significant increases from fiscal twenty twenty four.

Reflecting continued progress in our commitment to improving efficiency while prioritizing investment to reaccelerate growth. As we look to fiscal twenty twenty six, we're focused on increasing the value that we deliver to DocuSign customers as the world's leading agreement platform. We will continue to execute across our three strategic pillars, accelerating product innovation, through an ambitious AI led product roadmap involving our three routes to market and leveraging operating efficiency gains to invest in future growth. Let's dive deeper into why the future is bright. Turning first to innovation. Last spring, we introduced I'm at our Momentum Event then rolled the platform out to our sales led small and mid market customer segment The United States, Canada and Australia. At the end of the year, we launched departmental level deployments to enterprise customers, while also opening up I'm availability globally.

The initial launch delivered DocuSign Navigator, our intelligent agreement repository DocuSign Maestro, our automated workflow builder and the DocuSign App Center, where ISV partners deliver third party apps to customers. We followed that launch by releasing DocuSign for developers to support our developer ecosystem. And through the acquisition of Lexion, we integrated additional powerful Agreement AI capabilities. Today, IAM customers are using Agreement AI to streamline document review and editing, extract critical insights, verify parties and build workflows integrated with third party applications. Some I'm customers have reduced their contracting cycles by up to 75%. You can see our full list of recent product releases in our earnings release. Hope you can join us at our April Momentum Customer Conference and Partner Day in New York.

Where we'll share our ambitious fiscal twenty twenty six product roadmap featuring Agreement AI innovative new workflows and expanded ecosystem and powerful new capabilities for enterprise customers. All with the goal of becoming the agreement system of record. Within our omnichannel go to market pillar, I first want to highlight IAM's strong momentum. In Q4, just the second quarter post launch, to our small and mid market customers, I'm represented a high single digit percentage of in quarter deal volume for the direct channel and over 20% of direct new customer deals. Customer demand continues to exceed our expectations indicating strong product market fit in this segment. In fact, I'm has quickly become the fastest growing new product in DocuSign's history. Our sellers are sharing the IAM vision with all customers and approaching the renewal process as a natural opportunity for customers Metro Credit Union is using Maestro to optimize member account maintenance workflows, reducing the time required to process automated payment forms from five minutes to just a few seconds, saving nearly fifty hours of work each month. Metro Credit Union is an enterprise I'm deployment driven by our ecosystem partner Sandbox Banking, [indiscernible] And trusted fintech integration provider our app center.

The HR team at Duncan Family Farms a multi regional agricultural company is building Maestro work flows integrated with our WhatsApp capabilities to onboard multinational workers, and easily set up low friction direct deposit. Work that previously took days, now gets done in minutes. Customer engagement also continues to increase. The typical 4,000 contracts uploaded into Navigator. This highlights the scale of challenge companies face with agreements and demonstrates the value I'm creates by transforming this complexity into actionable insights. User adoption of I'm also continues to rise. Monthly cohort data shows consistent growth in usage particularly for Navigator, as customers deepen their engagement with the platform. Beyond I'm continue to drive improvement across the core business. In Q4, our dollar net retention rate once again improved rising to 101, an increase of more than two percentage points from Q4 of fiscal twenty twenty four and the highest level in six quarters. Dollar net retention continues to benefit from improved gross retention and solid customer usage trends. We also saw sustained momentum in new customer growth at 10% year over year nearly 1,700,000 customers. International and digital growth both continue to outpace the overall business and represent significant accelerated for the second straight quarter a reflection on the improvement in our self-service capability.

And the partner channel's contribution to the business continued to increase in Q4 and fiscal twenty twenty five, leveraging gains we've made with technology partners like Microsoft, SAP and Salesforce, as well as growing interest from independent software vendors and global system integrators. We continue to generate growth opportunities in our core business. Avis Budget Group, a leading global car rental company is using DocuSign to accelerate agreement generation, enhance collaboration, improve productivity and more effectively manage its supply chain. Our Gartner recognized DocuSign CLM product remains a market leader and top choice for customers with sophisticated enterprise workflows. Cognizant Technology Solutions, one of the world's leading professional services companies for creating digital solutions, is deploying CLM across its organization to streamline agreement processes, improve efficiency, mitigate risks and create AI driven workflows. In our direct sales channel, we have strong I'm momentum with small and medium sized customers. This segment represents a large opportunity for growth and it's where we expect the majority of near term sales and adoption. This year, our direct sales team will have greater ability to sell I'm across more SKUs and solutions, while also focusing on more consultative solution selling, resulting in greater upsell opportunities.

In parallel, we'll continue to evolve both product and go to market, for enterprise customers. In fiscal twenty twenty six, we will continue to focus on departmental level use case adoption within enterprises. Also a strong partner channel will continue to support and contribute to growth with enterprise customers. We're excited by the several early I'm enterprise customer wins after the initial Q4 launch. We'll also in our self-service channel to make it easier for customers of any size to discover, buy and manage our products digitally.

In April, our larger direct customers will be able to add more capacity and renew their contracts via self serve, And soon after, we'll unlock the ability for new and existing customers to buy I'm Standard and Professional plans directly from DocuSign.com in The United States, Canada, France, Germany, The U. K. And Australia. Driving greater efficiencies and effectiveness across our sales and marketing efforts remains a large focus this year. In fiscal twenty twenty five, we made substantial improvements in our operating efficiency pillar.

Our full year operating margin increased by four points and by nearly 10 points over the past two years. We've also become significantly more cash flow generative over the past two years, producing over $900,000,000 in free cash flow, and deploying nearly 75% of it back to shareholders in share repurchases.

In fiscal twenty twenty six, our priority is to retain the profitability gains we've made during the past two years while making the necessary investments to accelerate growth. Beyond fiscal twenty twenty six, as growth increases, we believe we will create further profitability and margin gains while driving towards our most important long term financial goal of reaccelerating to sustainable double digit top line growth. Blake will provide more detail about our fiscal twenty twenty six outlook, in his remarks. In closing, DocuSign made incredible progress in fiscal twenty twenty five and we're encouraged by customer enthusiasm about the IAM platform. With I'm we're building an AI powered end to end system of record that operates at scale and enables organizations of all sizes to manage their agreements and create value from their agreement data. I want to thank the entire team for their commitment and hard work in increasing the pigs and scale of innovation at DocuSign.

We The past year, marked a turning point for DocuSign and we're well positioned to pursue the significant opportunity that lies ahead. Now I'll turn it over to Blake, to discuss our financial results.

Thanks, Alan, and good afternoon, everyone.

In fiscal twenty twenty five, we focused on stabilizing and improving our core business while building a foundation for future growth through our three strategic pillars: accelerating product innovation, strengthening our omni channel go to market capabilities and increasing our operating efficiency. Q4 results delivered substantial progress towards these initiatives. The core business once again improved with both a rising dollar net retention rate and continued growth in customer usage, while IAM maintained strong early performance in both product delivery and customer adoption.

We also continue to drive significant gains in profitability from an efficiency focus across the company. [indiscernible] Q4 total revenue was $776,000,000 and subscription revenue was $758,000,000 both up 9% year over year, slightly higher than our full year fiscal twenty twenty five growth rates of 8%. Q4 billings were $923,000,000 up 11% year over year and full year fiscal twenty twenty five billings were up 7% year over year. Outperformance in Q4 billings relative to our forecast was driven primarily by three factors. First, approximately half of the beat was driven by higher early renewals including those influenced by increasing consumption trends where customers add extra capacity before their existing contract expires. That dynamic also drove some of the Q4 revenue outperformance versus our forecast. The remaining half of the billings beat higher IAM billings as well as more deals shifting to annual billing terms. While we invoiced the vast majority of contracts upfront and annually, we saw the rate increase slightly in Q4, which impacts current quarter billings. As it relates to early renewals, we are making a concerted effort fiscal year twenty twenty six to focus our go to market cycles more deeply on those with expansion opportunities and drive higher on time renewals for those without expansion.

The dollar net retention rate improved to 101% in Q4 up from 100% in Q3 and from the historical low of 98 Improvements in gross retention continued to be the primary driver of overall DNR improvement. Over the past eighteen months, we've put a growing focus on improving our engagement with customers, through better business operations, sales compensation design, and an improved solution selling motion. We are proud of the progress we have made this year in DNR and we recognize that we have remaining opportunities for improvement. Also dollar net retention benefited from consistent year over year growth in both envelope scent and consumption. Customer consumption, a measure of contract utilization increased year over year in Q4 in nearly every industry vertical and customer segment. We expect dollar net retention to be flat in Q1 of twenty twenty six and then moderately improve throughout the year. Based on both incremental improvements in gross retention as well as the growing contribution from IAM upsell opportunities. In Q4, total customers grew 10% year over year approaching 1,700,000. Our continued momentum in customer growth highlights the value of investing in diverse routes to market and geographies. Additionally, we continue to believe that the breadth and scale of our customer base provide a strong foundation for the continued growth of the I'm platform.

The number of large customers spending over $300,000 annually increased both year over year and quarter over quarter to eleven thirty one in Q4. This was our strongest quarter for large customer growth in two years. In addition, investments in our self-service motion continued to digital revenue growth accelerated for the second consecutive quarter on the back of initiatives to make it easier for customers to self-service account upgrades, and grow their business with DocuSign. In fiscal year twenty twenty six, self-service and PLG programs will remain an investment focus area to reduce friction and improve the customer experience across all customer sizes and segments including those that historically were sales led. We continue to make gains in self-service motions, it provides us with an opportunity in fiscal twenty twenty six to reinvest in higher value sales motions and IAM platform development. Progress in self-service allows us to continue evolving our go to market motion, create additional sales capacity, and provide increased future operating leverage.

As Alan mentioned, are seeing encouraging signs of strong initial customer demand for the IAM platform. In Q4, a high single digit percent representing a low single digit percentage share of our total subscription recurring revenue book of business. We expect this I'm contribution to grow this fiscal year and anticipate it representing a low double digit share of our total subscription recurring revenue book of business by Q4 of fiscal twenty twenty six. International revenue in Q4 represented 28% of total revenue and grew 12% year over year. With improved stability and the launch of IAM in North America, we are seeing a changing dynamic across geographies. The domestic U. S. Business has started to reaccelerate while the international business, which is still growing faster on a relative basis, encountered growth headwinds in fiscal twenty twenty five. The Q4 launch of IAM outside of North America where we will refocus our attention on upsell opportunities within our installed base, combined with a stronger partner channel creates a significant long term international growth opportunity that we remain excited about in fiscal twenty twenty six and beyond. Beyond. Although it is still early for I'm internationally, Q4 I'm deal volume in Europe and Latin America combined were up six times from Q3.

Turning to the financials, our focus on operating efficiency initiatives drove strong results this quarter and in fiscal twenty twenty five. Non GAAP gross margin for Q4 was 82.3% as benefits of higher revenue during the quarter mostly offset the impact of For fiscal twenty twenty five, non GAAP gross margin was 82.2%, also down slightly on a year over year basis. As discussed last quarter, gross margins have been impacted due to the ongoing cloud infrastructure migration, resulting in additional expenses associated with this transition. We expect a larger gross margin impact in fiscal twenty twenty six as we complete the bulk of that migration in fiscal twenty twenty six before easing in fiscal year twenty twenty seven and beyond.

Non GAAP operating income for Q4 was $224,000,000 up 25% year over year resulting in a 28.8% operating margin. Q4 operating margin was up 3.8 percentage points versus last year and significantly improved over the 23.6% Non GAAP operating income for fiscal twenty twenty five was $886,000,000 also up 25% year over year resulting into a 29.8% operating margin versus 25.8% in fiscal twenty twenty four and twenty point five percent in fiscal of twenty twenty three. [indiscernible] We have made significant improvements in profitability over the last two years and will continue to prioritize efficiency while making critical investments in areas like R and D. We ended Q4 with 6,838 employees, versus 6,840 at the end of fiscal year twenty twenty four. Essentially flat year over year including our acquisition of LexiMon. We remain deliberate in our hiring approach to align with key initiatives and are mindful hiring locations based on cost and skills required. In Q4, we delivered $280,000,000 of free cash flow a 36% margin. Our free cash flow margin improved by approximately one percentage points from the prior driven by increased collections efficiency and higher in quarter billings. For fiscal twenty twenty five, we delivered $920,000,000 of free cash flow, a 31% margin and more than double the annual free cash flow we generated two years ago.

Our free cash flow margin for the year trended slightly higher versus non GAAP operating margins, a trend we expect to continue for fiscal twenty twenty six, driven mostly by the strength in our forecasted billings growth. Our balance sheet remains strong. Closing the quarter with $1,100,000,000 in cash, cash equivalents and investments, we have no debt on the balance sheet. This financial stability, combined with consistent free cash flow generation enables us to invest in the business while also opportunistically returning capital to shareholders. In Q4, we repurchased $162,000,000 of stock through share buybacks. For fiscal twenty twenty five, we repurchased a total of $684,000,000 of stock using approximately 75% of our annual free cash flow generation. This rate is closer to 100% for the year when including the cash utilized to cover taxes on RSU vesting. We have $6.00 $8,000,000 remaining under our current repurchase authorization and we expect to continue to opportunistically repurchase shares part of our capital allocation strategy. Regarding the cost of our equity programs, our Q4 stock compensation expense as a percentage of revenue was 19.3% Non GAAP diluted EPS for Q4 was $0.86 a $0.1 per share improvement from $0.76 last year. GAAP diluted EPS for Q4 was $0.39 versus $0.13 last year.

For full year 2025, non GAAP diluted EPS was $3.55 versus $2.98 in fiscal twenty twenty four. And GAAP diluted EPS was $5.08 versus $0.36 last year.

As a reminder, GAAP earnings in fiscal twenty twenty five were positively impacted by the tax valuation allowance release that occurred in Q2 of twenty twenty five and it's explained in more detail in our filings. Diluted weighted shares outstanding for Q4 was $214,500,000 slightly higher than expected primarily due to the impact of a higher share price on unvested awards. Which are accounted for under the treasury stock method. Basic shares outstanding for Q4 decreased by $2,200,000 year over year to $203,300,000 total shares reflecting the anti dilutive impact of our buyback program.

With that, let me turn to guidance. For Q1 twenty twenty six, we expect total revenue between $745,000,000 and $749,000,000 in Q1, or a 5% year over year increase at the midpoint. And we expect full year fiscal twenty twenty six revenue between $3,129,000,000 and $3,141,000,000 also a 5% year over year increase at the midpoint. The guided growth rates include an approximate 0.7 percentage point of headwind to both Q1 and full year fiscal twenty twenty six revenue from the impact of four We expect subscription revenue of $729,000,000 to $733,000,000 in Q1 or a 6% year over year increase at the midpoint. And $3,062,000,000 to $3,074,000,000 for fiscal twenty twenty six, or a 6% year over year increase at the midpoint. For billings, we expect $741,000,000 to $751,000,000 in Q1 or a 5% year over year growth rate at the midpoint and we expect full year fiscal twenty twenty six billings between 3,300,000,000.0 to $3,354,000,000 or a 7% year over year growth rate at the midpoint. The guided growth rates include an approximate one percentage point of headwind to both Q1 and full year fiscal twenty twenty six billings from the impact of forecasted foreign currency rates across our international business.

Our fiscal twenty twenty six guidance represents the first year we anticipate accelerated annual billings growth since fiscal year twenty twenty one as we build up demonstrated momentum in IAM and continued improvements in retention. As shown in recent quarters and years, billings are impacted by the timing of customer renewals. Which can create meaningful variability from period to period. We included the following three considerations in our top line guidance. First, in Q1, we expect an approximate one percentage point headwind year over year to revenue Second, as mentioned above, the impact of foreign currency rates will have an approximate 0.7 percentage point headwind for revenue in Q1 and the full year of fiscal twenty twenty six. For billings, expect an approximate one percentage point headwind in Q1 and the full year fiscal twenty twenty six.

Third, for the full year fiscal twenty twenty six, we expect a billing specific headwind of approximately one percentage point to account for reduced early renewal volume as a result of go to market design changes to reflect a growing focus on I'm upsell. Including the introduction of an I'm transition SKU that can help offer I'm features to customers through upsells without the need to renew existing contracts. We expect non GAAP gross margin to be 80.5% to 81.5% for both Q1 and fiscal twenty twenty six. We expect non GAAP operating margin to reach 27% to 28% for Q1 and 27.8% to 28.8% for fiscal twenty twenty six. We included the following two considerations in our profitability guidance. For Q1 and the full year fiscal twenty twenty six, we expect an approximate one percentage point gross margin headwind due to the ongoing cloud data center migration efforts. As discussed previously, we expect a larger gross margin impact in fiscal twenty twenty six but before easing in fiscal twenty twenty seven and beyond. Also for the full year fiscal twenty twenty six, we expect an approximate 1.5 percentage point operating margin headwind due to both the one percentage point gross margin impact from cloud migration as discussed above as well as the hard comp against the previously discussed Q2 twenty twenty five one time release of a litigation reserve and the fiscal twenty twenty six shift of some roles to cash compensation versus equity.

This overall approach to profitability reflects our intent to maintain similar levels of operating margins realized in fiscal twenty twenty five excluding the unique gross margin and operating expense headwinds noted above.

This also allows us to prioritize I'm investments to drive longer term growth. When we combine these with forecasted accelerating billings growth in fiscal year 2026, we're excited about our longer term opportunity to improve operating leverage. We expect non GAAP fully diluted weighted average shares outstanding of $210,000,000 to $215,000,000 for both Q1 and fiscal twenty twenty six. In closing, in Q4, we made continued progress towards strengthening the I'm platform vision and improving the performance of our core business with solid revenue and billings growth. We also maintained our focus on operating efficiency and produced strong non GAAP operating profit and free cash flow.

Stepping back, fiscal twenty twenty five was a transformative year for DocuSign. We built a strong foundation created by nearly 1,700,000 customer relationships improving business fundamentals and accelerated product innovation. We are excited to continue developing the I'm platform to create greater value for our customers across verticals, geographies and company sizes. We remain in the early stages of bringing our agreement management vision to life and through consistent execution, we believe we can transform DocuSign for customers, employees and our shareholders. That concludes our prepared remarks. With that operator, let's open up the call for questions.

Our first question is from Jake Reuburg with William Blair. Please proceed.

Yes. Thanks for taking the questions and congrats on the really strong results in Q4. Alan, you've obviously had a pretty successful start selling IEM into F and D and Commercial segment over the last few quarters. As you've started to move the product farther up market, curious how the early reception has been with those customers and if there have been any new learnings for IAM in the enterprise space?

Yes.

Yes. Just as a reminder for everyone, we launched two S and B and mid market customers in U. S, Canada and [indiscernible] In early June, and then to broader globally and to enterprise deployments at the December. So we just have a couple of months of data. But I would say the early signs both on the enterprise international front are very encouraging. As you start with international, we're seeing very similar patterns in sales productivity and customer acceptance. In the S and P EBIT market segments and the new geographies we're targeting. Enterprise side, obviously, the sales cycle is longer, but we've already closed a number of enterprise deals in I think the value prop is even stronger. I think it goes up more than proportionally with company size. Because the cost of complexity just increases as companies get larger. And so we're seeing that interest. And of course, it's reflected if you draw a line back to CLM. So CLM has historically been an enterprise first category and I'm in many ways sort of a super set in replatforming of that. So it's not surprising that there's a lot of appetite And of course, with I'm we can provide that value to a much broader set of users inside the companies, not just to the people who historically have handled contracts full time, but frontline sellers, frontline buyers, frontline recruiters and so on.

And there's a lot of appeal to that. So we're very bullish on the enterprise opportunity. We have still have some maturing to do both on the product and go to market side to be able to fully exploit that. But that's kind of part of the booster rocket for the business and why we're think we have multiple years of expansion ahead.

Okay. That's helpful. And then Blake, can you help us better understand the revenue growth guide in the context of the nice billings acceleration you've seen over the past few quarters the 11% billings growth you saw in Q4. But just be helpful to understand when we should start seeing that billings acceleration flow through to revenue growth on that pathway back to the double digit growth levels? Thanks.

Sure.

And so what I would do is let me just start with subscription evidence because obviously that's the vast majority of our revenue. So the first thing I would do when you look at these things on a year over year basis make sure to adjust for FX. We called out in the press release and the prepared remarks if you're reviewing that year over year. So So our subscription revenue guide is about 5.8%. I think at the midpoint So if you reflect the 0.7% headwind, from FX, so that includes its normalized call it FX around 6.5%, which I think might make a bit more sense when you're looking at the flow through. The dynamic of revenue is that it just it lags billings, right? It takes six to seven quarters because our average duration, our weighted average duration is still around nineteen months to recognize that revenue. So we billings growth decelerates as it has been over the past couple of years, revenue decelerates as well, but it's on a lag basis. So it just takes time to shift. And so in fiscal twenty twenty six, we're still rolling off the revenue tail from earlier contracts on deceleration.

So in FY 'twenty four, billings grew over 9%. In FY 'twenty five, it grew under 7%. And so FY 'twenty six is unique though in that it it's the first full year we're really expecting to accelerate our billings and that's particularly so when you think about excluding the impacts from FX, And that has a lot to do with the expected ramp we have in I'm and you can imagine with the ramp that occurs a bit more into the second half of the year. And so really excited like if we can reaccelerate billings in FY 2026 and continue that I think we've got the opportunity to really accelerate revenue then in the longer term as well.

Our next question is from Brad Silves with Bank of America. Please proceed. Great. Thank you so much. I did want to ask a question on the current macro environment. Given that you've got a front row seat here with the transaction based pricing.

What's your observation in terms of just activity in core e signature and expansion deals a lot of moving parts right now with macro policy changes. So wanted to get your thoughts on that real time. Thank you. [indiscernible] So we're not seeing material changes in trend in terms of envelope volume, for example, as we looked at our February numbers, they were as expected on the trend line. So nothing has flowed through us yet. And I will stress, we are incredibly diversified across sectors and across company sizes and even somewhat on geography basis. And so so to the extent that there are individual industries that are exposed, we would be less likely to to see that in a strong way.

So so far, no material impact, but obviously to the extent that the global macro economy meaningfully accelerates or decelerates at some point that will flow through to us. But some of these more secular things or individual countries don't have as much effect.

Understood. Thank you for that. And then one more if I may just on with the move towards more of a solution sale here, work flow and end to end solution it would seem that that's a more involved sales cycle than your traditional sales cycle. So if you could just give us an understanding please on kind of preparedness and the direct sales channel for selling that type of deal, Obviously, you're expecting real healthy results and ramp through this year. So it would suggest that you are prepared in the channel. But just give us an idea for that effort and where you're at with that? Thank you.

Sure. I think it's a great question. Yes. So as I mentioned earlier, we lost to the S and P at mid market. Segment. Those tend to be shorter sales cycles relatively speaking. But still, we're selling something a little bit more more complex and broader. And we've been thrilled with [indiscernible] the time to close the win rates. Obviously, the average deal size is larger. And we're able to sell it very successfully. So think and then we've seen very rapid install. We were able to turn on new clients in less than a month, I think seventeen, eighteen days is the average right now. Which is pretty incredible for the best offer, particularly given some of what we're doing here. So I think that's very encouraging. As we look ahead to enterprise deployments, we are expecting that this is a more complicated sale to more stakeholders and more senior stakeholders And so we are making some changes that Drew already implemented. In our go to market to try to prepare for that. We're not counting on a lot from the enterprise segment this year. As I mentioned in my prepared remarks, most of the growth contribution in I'm coming from the S and P mid market segment in fiscal twenty twenty six.

But obviously, the enterprise segment is huge for us in the long run. And so to prepare for that, we we moved a significant number of accounts to a predominantly self serve model here at the beginning of this fiscal year. And that has then freed up ability to rejigger the portfolios and sales so that everybody has smaller portfolios and ability to go deeper and with individual clients. And that's been incredibly well received the sales team and I think is the first step in getting ready. Then there's quite a bit of enablement. So we just had our global sales kickoff and hope bunch of training leading up to that. So we're investing very heavily in UPS skilling our teams to be ready for that broader conversation. We've also made some changes to our incentive plans around rewarding more new growth as well as rewarding I'm more specifically. And there's all kinds of other initiatives you would expect to align to this. Another area that we're investing in this year is deepening our work with partners for enterprise customers. And so our work with the big SIs, for example. Is a key focus there to settle. That's a key element of post sales and the post sale process.

So we are we think we have some work to do to fully capitalize on the already seeing, I think, very good demand. And of course, we are as a reminder, we have a lot of customers across all customer segments We're 95% or more of the Fortune 500 and equivalent many of our overseas markets. So we already have a foot in the door. We're already a proven vendor. We're already well regarded. And so that gives us a great starting point from which to sell this broader solution. But I'm not naive. I think we have work to do to become a full enterprise company and we're investing in that both on the product and the go to market side to be able to capitalize on the opportunity we have.

Very exciting. Thanks, Alan.

Our next question is from Kurt Materne with Evercore ISI. Please proceed.

Thanks for Michelle. Another one on I'm Alan, can you just try to dimensionalize the opportunity for I'm at accounts when you get in there? Meaning, is this something that can lift the average spend with you all from about that. I think you mentioned the enterprise could obviously be larger given the complexity. But how should we think about the opportunity in terms of customer penetration and then sort of the potential uplift for you all?

Yes. I mean, we're not getting into the specific uplift, but suffice it to say, it's very meaningful. We don't even let reps sell I'm right now unless there's an uplift. And just because we believe we're delivering a tremendous amount of value and we want to compensated for that. And we're not seeing that as a huge friction point. In fact, we're doing very, very well with that. So in terms of how we enter, [indiscernible] I'd say that there are multiple functional areas that can be drivers. Sales. We've always had a strong relationship with sales organizations, whether B2B or B2C customer onboarding. And that continues and I'm very strong for that. Procurement, tends to be another very important functional area HR can be another area of opportunity. But really, it cuts across the enterprise. The larger the company, the more likely as we enter one of the functions. But in the smaller companies, it's often single ubiquitous solution day one. All the agreements get ingested. And of course, we have often most or all of their agreements if they're an existing eSign customers. So that just allows us to deliver value really day one. So I think we feel it's a very significant expansion opportunity with customers of all sizes.

And as you mentioned, we'll just have to see just how big it get with big enterprise clients. But this is a an acute pain point if you go to a really large company. This is tens of millions of dollars. So we're excited to pursue that. That sounds good. And then maybe a quick follow-up for Blake. I think you mentioned you're expecting net retention or net dollar retention to be flat this year. I guess is there anything going on from it seems like you made really progress on gross. Are you sort of hitting a limit on the ability to keep moving that higher? I guess, can you just talk a little bit about the the puts and takes of that? Thanks.

Sure. The commentary in the prepared remarks the flat dollar net retention, that was specific to Q1. We actually do expect moderate gradual improvement throughout the year. So I think and the reason we believe that's an opportunity for us is both there's still gross retention improvements that we can continue to make. We made a lot so far. The team has been hats off to the team there across DocuSign to be able to improve retention rates. We still have more opportunity remaining, so that's part of it. And then the other part obviously comes with expansion opportunities that we believe that in particular I'm provides us for, but also within our eSign business as well. And so with those two components, we believe that there's moderate improvement opportunity for us to see throughout the year. Past Q1, which we're forecasting as being flat.

Okay. Perfect. Thanks for clarifying. Congrats on the quarter.

Thanks.

Our next question is from Brent Thill with Jefferies. Please proceed.

Alan, just on the sales changes you're making, can you just maybe put that in context? Is this more of a tweak? Is this maybe biggest overall you've had in your go to market in the last couple of years? How would you just characterize what you're doing to the sales team this year? And a quick follow-up for for Blake.

Yes.

I think it's neither. I think it's somewhere in the middle. I think look, I don't want to underplay it. This is a is a big thing for us to graduate up to becoming big time enterprise company. And I'm well aware of what that takes and this is the beginning of that journey. At the same time, I think you're well aware we've made some pretty substantial changes over the last couple of years and have come through that, I think, pretty well. And those involved layoffs and other things. And this time we were able to move people around and make changes that are much more manageable. And I think the organization has already digested that. It was just I was just at the global sales kickoff last week with everyone and it was fantastic to see just how lean in the team was, how they had already accepted all the territories and quotas and new comp models and and we're just excited to get going. And of course, it doesn't hurt that we been pretty successful over the last six to eight months and everybody knows that. So there's a lot of excitement. So I'm we want to be purposeful and thoughtful about how we roll these changes.

I just want to give a quick shout out to Paula Hansen, who as you probably all know joined us in early August of last year. Really led all this work and has just been a fantastic addition to the senior team in every way and has the full organization behind her. And I think it Okay. And for Blake and I'm, what is the kind of the average uplift you're seeing in ASPs when you when I'm just going in? I know it's across the board, but is there is there a rough range you put on it that you're seeing so far?

There's not Brett. I get asked this question frequently and one of the reasons why like Alan said, we are seeing larger deal sizes. We've actually set up publicly a number of times.

We are the vast, vast majority of our I'm deals to date have been kind of that SMB mid market. Those segments. And so until we get much further kind of up the chain around trying to give out expansion rates, I'm a little worried about things don't apply necessarily across all these customer segments. We'll have to see. But suffice it to say that our billings guide of accelerated billings for us next year reflects the expansion opportunities frankly that we get along with retention gains, which is still top of mind, but we're not breaking out the expansion rates in specific terms today.

Great. Thanks.

Our next question is from Patrick Walravens with Citizens. Please proceed.

Yes. This is Austin Cole on for Pat Walravens. I appreciate you guys taking the questions here and congrats on some nice results. Wanted to dig into the customers over 300,000 ACV had a nice uptick this quarter. I was wondering if there's any kind of more detail on what drove that number and what you're seeing those larger customers?

I mean, I'll take a stab I would say most of that increase is from customers on our core, right? Like I'm there's a contribution there in I'm, but it's not the majority of it at all. And you can imagine it's because we just launched. Into the larger customer segment. And so I think it just goes to seeing these trends of higher usage higher trends getting customers to that are already installed to lift up and expand with us. I'm really excited by it. I think there's volatility in that number on a quarter to quarter basis. But it's really predominantly out of the core. And so it's what our enterprise and kind of larger customer segment go to market teams are working on. And been really excited to see that progress.

Yes, if I could just I'll just add to that to say that I think in particular, we're really pleased with the continuing recovery and progress in our North America business, where of course, the bulk of our business is you know. And I think it's a testament to the continued improvement there. And I think we're sort of more fully out of the shadows of the COVID stuff. And everybody wants better agreement processes and everybody is economic activity has been fairly decent across a broad range of sectors. And so we are well poised to capitalize on that.

Great. And then there was actually some commentary about Dropbox is talking about kind of deemphasizing their sign business and just was wondering if you guys have seen or anticipate any kind of competitive opportunity there?

No, we I mean, there are lots of companies that offer basic science solutions and people come in and out. I think we've held our own very well. We continue to be the market leading player. And I don't focus on individual companies, specifically. Really the competitive environment, I think, in Eastline is pretty stable at this point. And if anything, I think we're probably making a little bit of progress. So I'm pleased with how we've been able to stabilize that.

Great. Thank you.

Our next question is from Mark Murphy with JPMorgan. Please proceed.

Thanks. This is Sona Cola on for Mark Murphy. Congrats on the results. Alan, I noticed this disclosure of essentially 100% penetration of the top 20 or 25 Fortune 500 companies across FinServ, healthcare and technology. Which is no doubt quite impressive. As you consider the growth levers going forward, do you think about the balance between net new customer wins versus sort of increasing the ARPU ARPU of your existing large installed base, particularly with I'm? [indiscernible] falls, I think, fairly from the question that, as you might imagine, we're very focused on growing ARPU with existing customers. We don't want to leave any stone unturned on the new customer acquisition front As you can tell, we keep growing that and those are the future customers that grow in 300 ks or more. And we want to make sure we continue to win there at an appropriate rate. But our primary focus and the focus of our sales teams increasingly DocuSign our marketing teams is on upsell to the existing base in particular of I'm Thank you. And then as a quick follow-up last quarter you seemed to convey a marginal improvement in the environment for Enterprise Technology. Think sort of towards the end of twenty twenty four.

Fast forwarding to today amidst all this uncertainty around tariffs, trade wars, doge, etcetera. Has that view shifted at all? And are customers a bit more cautious perhaps to lean into some of that software spending plans?

Yes, we haven't seen that yet. So as I mentioned, I think we see our envelope volumes through the month of February. Nothing changes. So there's nothing on the activity front. Certainly possible that sentiment could evolve to where that affects technology spend. And I think we are I think we're in a good place. Relatively speaking to some other categories and that it's pretty fundamental to how companies operate you use electronic signing. And I'm has a fantastic and highly economic value proposition. And so but obviously, if the global economy really takes the tone for the worse, if sentiment takes the turn significantly for the worst, then that will affect us as it will affect everybody.

Thank you and congrats again.

Our next question is from Josh Baer Morgan Stanley. Please proceed.

Hey, guys. This is Chris Quintero on for Josh here. Thanks for taking the questions. Maybe one on IAM. As you make that move more into the enterprise guess like how much of a priority is IAM with those more senior stakeholders that you're having conversations with? What are those early conversations sounding like?

Yes. I think we're this is a very it's ironic. It's a very acutely felt pain point, but I don't know that everybody's realized that there was a a solution to the problem. So I think everybody has almost become accustomed to agreements being brittle and broken and delayed and causing inefficiencies throughout the enterprise. And so it's it's incredibly eye opening when we can show them solutions that address that problem because that immediately leads to well, we can solve that. That is a game changer. And so I find I meet with C suite executives in many of our Fortune 500 clients here and abroad And I mean, it's exceptionally rare that I have C suite meeting where the I'm proposition doesn't resonate incredibly strongly. So I feel like it's more on us to execute, mature the product to where it can be deployed every use case in their company and meet all the various checks that you have to go through and for us to mature our go to market process to really fully deliver on that. But in terms of the core value proposition, it's it resonates incredibly strongly and perhaps even better in large companies than smaller companies.

Got it. That's super helpful. And then really great to see customer consumption increase year over year, but just curious what you're seeing maybe the pricing front on eSignature. Has that remained stable or is that also improving? I'll take it on Blake. Sure. I mean our pricing has been quite stable. Over time. It's something where we recognize that we are a premium product, but that's for a reason with the trust, the brand, the security, the features, the functionality that we bring. And I think we're set up well for that, but no changes in pricing that I would call out over the trending period.

Excellent. Thanks so much.

Our next question is from Rife Jaluria with RBC. Please proceed.

Wonderful. Thanks so much for taking my questions. Nice to see continued momentum in the business. Apologize if I missed this during our prepared remarks or earlier, but when you gave your color around I'm contribution to subscription revenue for the year, just how should we be thinking about exactly how that's being defined, especially given you've had revenue from CLM. Is that CLM revenue separate? Is some of that being recategorized into I'm? Can you just help us understand the puts and takes around that definition? And then I have a quick follow-up.

Sure. So when we talk about the I'm as a percentage of our subscription recurring revenue book of business, that does not include CLM. And it essentially represents like book of business is for us we're defining as like essentially the monthly recurring revenue at the end of that period. And that's relative to our total subscription revenue book in the first. So it's I think it's pretty simple and to just show that the momentum that I think we're launching out of here in Q4 with regards to our outlook for Q4 of twenty twenty six.

Yes, I would just add. So beyond the numbers, we're continuing to sell CLM to enterprise clients very successfully. It's an industry leading product, Gartner, Magic Prodig, the last four years, all that. And And it has some functionality for advanced workflows and AI that that goes well beyond what we we've built into the baseline I'm platform. And this year, you'll start to see a lot of the platform capabilities from I'm become available to CLM customers. So things like Navigator and Maestro as well as other things will announce some momentum. That should come. We will be available to CLM customers And so I think that vision of CLM as an integral component built on top of high ammunity comes to fruition this year. And so I don't view the two as in conflict or cannibalizing more than it's a supercharger for our CLM vision and allows us to expand access to agreements to a much broader user set within large companies.

All right, got it. Thanks. That's really helpful. And then just going to the international business, you talked about you're seeing maybe that decelerate while domestic is accelerating, talked about the plans to reaccelerate growth with IAM. Just help me understand, when I think about international, you're very under penetrated, right? I mean in Europe and Japan, let alone some of the emerging markets and it feels like there's probably more TAM that's very greenfield in those. So why is it then that the core e signature in international geographies is slowing down on its own? And what steps can you take to accelerate just core e signature outside of The U. S? Thanks. [indiscernible] Look, I think international is obviously still growing faster than our domestic business, but there definitely was a deceleration in second half of last year.

I think it's a combination of factors. One is that we've historically been quite customer acquisition focused. And as we discussed earlier on this call, our pivot really needs to be towards more up sell and cross sell and use case deployment. With existing customers. And that motion has been stronger in North America than, for example, in Europe and so we have we've pivoted that and I think we're going to make significant progress on that. So I'd say that's more of an execution issue on our side. Then on the product side, we just launched I'm in international markets December 1. With the localized product. And so we have a great opportunity there to for that as a as a further boost to our international momentum. And we saw some really nice early results in those first few months. And then lastly, I'd say as a third lever is the evolution of the partner channel. This is early days, but historically DocuSign has been a very direct first in first, second and third channel company. And even in markets where frankly we had very limited direct capabilities. And so we try to get a lot crisper on top 10 markets or roughly that's where we're going to have a direct first bottle and then other [indiscernible] experiments in individual countries and that I think can be a really nice growth lever for us as well.

I don't think we've had quite the right distribution mix, if you will, to pursue international. But we are absolutely convinced that international should be a major growth driver for the company. We're investing in in product and back office and all that stuff to be able to support that. And I travel internationally very heavily. I think it was Europe six times last year. And so we are absolutely pushing to deepen that penetration because agree with you that there's no question we are less penetrated let's say, particularly outside of the major English speaking markets. And in some markets like German and Japan, it's really quite early. And we have a lot of headroom All right. Wonderful. Thank you guys.

Our next question is from Michael Turrin with Wells Fargo Securities. Please proceed.

Great. Thanks. Appreciate you sneaking me on. I was hoping we'd be further away from macro questions by now.

But it's never the case. So the question is yours been on public sector impacts and if there's anything to consider. I don't think this is an outsized portion of DocuSign's business.

In any way, shape or form. But can you just speak to public sector and whether that's potential opportunity or something you're taking a more cautious stance at all in the coming year? Based on any initial signals you might be seeing there?

Yes, I think it's mostly upside for us. We don't have a big federal business today. It's really pretty modest. We do quite a bit of business with state and local governments in The U. S. And perhaps a lot of our very successful deployments that we think we can replicate our success from there as well as with large enterprises with the federal government. And so we're investing and actually just brought on some senior leaders to lead our more concerted push into that area. And of course, our value prop, I think, resonates well at a time when efficiency and better better customer service should we will for government service recipients and taxpayers is important. So, we're we don't have a lot to lose and I think a big upside opportunity and so we're leaning into that.

Great.

Just if I may, just to one for Blake on just seasonality. I think you mentioned early renewal impacted Q4 revenue at least touch as well. And I think just looking at the Q1 guide, it looks potentially especially conservative, but just walk us through one more time any seasonal components we should be contemplating and looking at Q4 to Q1 and then tying that into the fiscal year guidance? Thank you.

Sure. So if you're looking at Q4 to Q1, subscription revenue, we normally have a seasonal drop, right? But you are right that if you look at our guide, it's a larger normal seasonal guide. And so there are a couple of extra things that you have to take into account that are affecting that. The first is the leap year impact.

That's a point us when you're looking at Q1, not for full year. And then obviously that revenue acceleration that we had in Q4, that was relatively unique for us from some larger customer contracts that essentially had pretty early renewals based on consumption trends. And so exciting to have, but that's was pretty unique. And then also we just got a we have a bit of a hard comp on a seasonal basis against the digital usage. We started seeing digital usage kind of increase a fair amount beginning in fiscal year 'twenty five. And so that Q4 'twenty four to Q1 'twenty five had that had that bump there. So those are the I would say the biggest three components that drive that quarter on quarter change, which is a little bit more magnified than you would have seen last year.

Thank you.

Our next question is from Alex Zukarzakar with Zukin with Wolfe Research. Please proceed.

Hey, guys. Just two quick ones for me. First, congrats on a one of the strongest quarters or one of the most difficult seeming periods.

But maybe just IAM, really like the disclosure of that going from a low single digit book of business to low double digit book of business next year. That implies like a 5x to 6x increase. So aside from the visibility that you've seen the better expected contribution this year and good execution, What are you seeing in conversations that gives you that confidence of the momentum continuing?

I mean, for me honestly, just with the data that you see coming in and the deal volume that we have, and how our go to market teams have embraced this as an opportunity to help customers add back. I think that is far and away what drives essentially that accelerating business growth. I mean, obviously, gross retention improvements mean a ton right, because of our book of business and like our focus on that is still a number one priority for us. But I think that is the just that ramp that we've seen and how these go to market and product teams and everybody frankly across DocuSign has really bought into the concept of the extra value we're providing to customers across this platform and we're seeing it, although it is obviously still very early days, we have a lot of room left to go and execute against. That's what is driving that. Kind of excitement for us in that accelerated billings guide that you're seeing from us.

Yes. I would just add that one way to think about our business is we have different cohorts that have been locked with I'm at different times, right? And we have the North America and Australia mid market and SMB segment that we launched in June. And so we kind of know what that looks like now eight months in. And those results are very positive. And then we got a couple of early months of data from trying to replicate that with other customer segments. And geographies and it's showing similar patterns. And so that is part of what gives us that confidence in being able to roll forward without even relying on big success in the enterprise, which of course would provide. Xdrop side and something that we hope to get in future years.

Makes sense. And then maybe I'll just ask the inverse of my Michael's question, which is if you look at Doge and the push to digitize paperwork, are there any conversations that actually could be positive for you guys over the coming year? That maybe could be a tailwind from that particular vertical for Well, we're bullish on opportunity with the federal government. And as mentioned, we've hired two new senior leaders to lead those efforts. They're already jumping in and it's exciting to see.

We're putting some product resources on it and we're going to have a very robust offering And so I think we have and frankly with our products that we already have available today, we could add a lot of value to a lot of those processes. [indiscernible] taxpayers or service recipients. And so we're having some of those early conversations that it's way too early to say with us going to contribute anything. It is not in our forecast. But if we get something, that would be great.

Awesome.

Thank you, guys. [indiscernible] Our final question is from Will Power with Robert W. Baird. Please proceed. Okay, great. Thanks for squeezing me in. You all had a lot of success for a few quarters with early renewal activity just due to consumption trends and expansion improvements. I guess I just wonder, as you look at the renewal cohorts, they're coming up this year, why would we expect some of that to continue? Just be great to kind of get kind of your flavor on what you're looking at in this coming year versus what you've seen here recently on the renewal front?

Sure. I'll take a stab. I think we talked about this actually as one of the headwinds for us in the full year guide the considerations you'll see the prepared remarks. I think you're point is accurate, which is early renewals are great. If they're customer driven, if you're doing a healthy renewal, that's great. What it also though does is we have a certain amount of capacity available for us, right, with a given quarter. And so what we're trying to do in the go to market team and Paolo's world is really make sure we're prioritizing resources in the quarters that provide the best opportunities for expansion.

And so if we're doing a flat on time renewal, the only reason to bring that in early might be from a certain customer situation. The customer is asking for it, we should absolutely make that consideration.

But giving our go to market teams the most capacity available to focus on expansion opportunities, And so you can have early renewals with expansion. And so that's good. But how do we balance that out? And so you could see that the past couple of quarters, we have talked about a little bit of an early on time tailwind us coming in. And what we're trying to do is just balance that out a little bit for us. And we think that gives us essentially more resources to put towards the expansion opportunities And obviously, our number one job right now is to try to spin this flywheel and expand this business and accelerate growth. And we think that gives us the best opportunity to do that.

Okay, great. Thank you.

We have reached the end of our question and answer session. I would like to turn the conference back over to Alan for closing remarks.

Thank you, operator. Thank you to all who joined today's call.

In closing, I'm really proud of DocuSign's progress as we improve the performance of our business and increase the pace and scale of innovation delivered to our customers through the I'm platform. Thank you to the team for your commitment as we continue to transform DocuSign into our owners as we pursue the significant opportunity that lies ahead. Thank you all.

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.