DOCU
Q3 FY25 Investor
Prepared Remarks
December 5, 2024
Allan Thygesen, CEO
Blake Grayson, CFO
These prepared remarks should only be viewed together with this quarter's earnings webcast and
press release. The webcast includes these prepared remarks and a question and answer session. To
access the webcast of the executive comments and Q&A session, please visit the IR section of our
website at investor.docusign.com. A reconciliation of GAAP to non-GAAP financial measures is
provided in the tables at the end of this document.
1
Docusign Q3'25 Investor Prepared Remarks
Allan Thygesen
CEO
Introduction
In Q3, we delivered powerful new innovation for customers, highlighted by new capabilities for the Docusign Intelligent Agreement Management (IAM) platform. We also continued to drive improved performance and maintained greater efficiency in our core business.
Q3 revenue was $755 million, up 8% year-over-year. Fundamentals across the core business improved, continuing the recent trends. Dollar net retention increased to 100% in Q3, up from its low of 98% in Q4 FY24. Increases in customer usage and utilization combined with our ongoing focus on gross retention drove dollar net retention improvement. We also saw sustained momentum in new customer growth at 11% year-over-year to 1.6 million customers. In addition, we produced strong profitability with 29.6% non-GAAP operating margins, up from 26.8% in Q3 Fiscal 2024, evidence of our commitment to improving efficiency while making the needed investments to re-accelerate growth.
As we move forward, we've set our sights on delivering transformational value for our customers with the Docusign IAM platform. We recognize that it is early days in the multi-year IAM journey, but we believe we have taken strong initial steps on the path towards our aspiration to achieve sustainable long-term double-digit growth. Our Q3 results demonstrate continued progress across our three strategic pillars: accelerating product innovation, strengthening our omnichannel go-to-market capabilities, and increasing operating efficiency.
Docusign Q3'25 Investor Prepared Remarks
2
Product Innovation
Starting with innovation, we enhanced the IAM platform across three fronts: launching several new capabilities, expanding availability to more regions, and enabling department-level deployments for enterprise customers. These releases help customers of all sizes cut into the staggering $2 trillion in global economic valuelost each year to inefficient agreement management.
Within just a few months of closing the Lexion acquisition, we've built Lexion's AI capabilities into the IAM platform, including the ability to surface insights from a more extensive array of agreement types in Docusign Navigator. Navigator is a core capability of the IAM platform, acting as a system of record where customers can import, store, manage, search, and use AI to analyze agreements from multiple sources. In Q3, we further enhanced Navigator by adding third-party document imports from partners, including Box, Dropbox, Google Drive, and Microsoft OneDrive and SharePoint. In addition, we launched an upgraded search experience that includes predictive typeahead functionality, more filters, and the ability to export results.
We also expanded the availability of IAM to more geographies. In early October, IAM with Docusign Maestro-our automated agreement workflow builder-shipped to all regions where Docusign operates, including North America, Latin America, EMEA, and most countries in APAC. Also, just this week, we released new AI features in Navigator across five major markets-Australia, Canada, France, Germany, and the UK. In these countries, we've created AI models that meet local regulatory and compliance requirements.
In November, we began making IAM available for department-level use cases for enterprise customers. This begins the multi-year journey toward delivering enterprise-wide IAM deployments, which will eventually include more sophisticated access controls and compliance management, more complex agreement workflows, and even greater breadth and depth of third-party integrations. This measured rollout allows us to fine-tune our product development and go-to-market execution based on customer feedback.
Part of our evolution into a platform company is supporting a dynamic community of developers, builders, and partners to create new solutions that extend the capabilities of our IAM platform. Just two weeks ago, at Docusign Discover, we showcasedIAM integrations with Microsoft, SAP, and Workday and introduced a suite of developer tools, Docusign for Developers, that our partners will use to build apps powered by the IAM platform. Partners can share their apps in the Docusign App Center.
Docusign Q3'25 Investor Prepared Remarks
3
Product Innovation
Omnichannel Go-To-Market
With Docusign CLM, we continue to invest in innovation for customers with complex agreement management needs. In Q3, we incorporated Lexion's AI-assistedcontract reviewand launched document markup in Microsoft Word documents into CLM, allowing customers to quickly review and edit contracts. We also released a powerful new Docusign Connector for SAP Ariba, which speeds up the source-to-pay agreement process for procurement and expands on our SAP partnership.
For the fifth consecutive year, Docusign CLM has been named a leader in Gartner's Magic Quadrant for CLM. Gartner says Docusign is "in a strong position for both influencing the market and securing a place for consideration on prospective customers' evaluation shortlists." CLM is a powerful application for customers with sophisticated workflows and remains a fast-growing part of our business.
In short, we have reignited Docusign's culture of innovation with a robust product roadmap, faster product releases, and a commitment to supporting a thriving developer ecosystem.
Now let's turn to the second strategic pillar, our omnichannel go-to-market.
In Q3, we accelerated the rollout of Docusign IAM and gained traction with small and mid-sized customers in the United States, Canada, and Australia. Early sales momentum has outpaced our expectations. In Q3, we closed more than 10 times as many IAM deals as we did in Q2, with deal volume increasing every month in the quarter. 80% of our reps eligible to sell IAM in the initial launch markets have closed three or more deals, and nearly 60% have sold six or more.
Equally encouraging is the strong customer engagement with the IAM platform. Time to live is remarkably quick-slightly faster than eSignature. We also see customers increasing their usage of IAM applications, particularly Navigator, each month they are live on the platform. The speed and ease of adoption strengthen our ability to market IAM to hundreds of thousands of customers through our direct sales force. Our customers can seamlessly upgrade to IAM when they renew their contracts, and quickly begin to transform how they manage their agreements.
Docusign Q3'25 Investor Prepared Remarks
4
Omnichannel Go-To-Market
As an example of customer success, KPC Private Funds, which connects wealth management firms with alternative investment opportunities, has slashed its client onboarding time by 70% using Maestro, and anticipates reducing onboarding time by 90%. Royal Neighbors of America, a life insurance company, will use Maestro to accelerate new member application processing and customer service workflows across multiple parts of its business, replacing a manual code-based process with a flexible self-service workflow. Employee engagement platform Catchafireis using Docusign IAM for Sales and its Salesforce integration to streamline contract creation and create an agreement repository.
Another top priority has been evolving our self-serve capability. Self-serve investments led to a year-over-year acceleration in digital revenue growth in Q3 versus Q2. During the quarter, we improved our upsell capabilities making it easier for digital customers to upgrade their plans, leading to larger-than-anticipated revenue expansion. We also made additional add-on products available online, like multi-channel delivery, including SMS and WhatsApp as well as ID verification. We will continue to improve how customers discover, try, use, and buy our products digitally, enabling greater scale and efficiency across our business.
Also, as we begin to deploy IAM at the department level with enterprises, we'll build on the existing use case breadth already deployed by larger customers through our direct and partner channels. Cox Automotive, the parent company of Autotrader and Kelley Blue Book, is executing 55% more contracts per month by deploying Docusign CLM to streamline workflows, simplify negotiations, and automate reviews of standard contract clauses. CLM enables Cox to execute agreements 31% faster, radically accelerating its time to revenue. IKEA Portugalhas reduced new employee onboarding time by managing employee-related contracts digitally instead of on paper. In addition to eSignature, IKEA Portugal has adopted both Docusign ID Verification for EU Qualified and its Identity Wallet, enabling them to easily and efficiently use the EU's most secure form of digital signature, the Qualified Electronic Signature. United Airlineshas accelerated the onboarding process for new hires from weeks to days by using our integration with ServiceNow in its HR organization.
Docusign Q3'25 Investor Prepared Remarks
5
Closing
In closing, we're pleased with our strong execution as we rapidly innovate the IAM platform.
I am excited about the significant opportunity to deliver value for our customers by
transforming how the world manages agreements. And I'm proud of the way we're
strategically investing in the future while maintaining the improvements we've made to
overall profitability.
When I joined Docusign, we had a vision that our position as the world's leading and most
trusted electronic signature company created a unique opportunity to help customers
address the entire end-to-end agreement process. I want to thank the entire Docusign
team for embracing this challenge and bringing so much energy, enthusiasm, and
customer focus to this mission. Docusign is gaining momentum in our first steps in a
multi-year transformation, and we're optimistic about the long-term future ahead.
Docusign Q3'25 Investor Prepared Remarks
6
Blake Grayson
CFO
Introduction
We delivered another strong quarter in Q3. Our business showed
improvements as we executed against our three strategic pillars: accelerating
product innovation, strengthening our omnichannel go-to-market capabilities,
and increasing operating efficiency. In addition to demonstrating an improving
core business, during our first full quarter since the late Q2 IAM platform
launch, we saw encouraging signs of early traction with growing IAM deal
volumes and customer engagement.
Business Stabilization
Q3 total revenue was $755 million and subscription revenue was $735 million, both up 8% year-over-year. Billings were $752 million, up 9% year-over-year. Early renewals drove approximately one-third of the billings outperformance, with the remainder coming from better retention performance, digital growth, and early IAM contributions. As a reminder, quarter-to-quarter billings can fluctuate due to the timing of deals.
The dollar net retention rate improved to 100% in Q3, up from 99% in Q2 and up 2 points from the historical low of 98% in Q4 Fiscal 2024. This represents substantial progress in our focus on stabilizing the core business, and I'm proud of our team's work to improve customer retention. We believe we have a large remaining opportunity to improve retention as we better align our product and go-to-market motions with customer needs. As we look into Q4, we expect dollar net retention to be flat to up slightly.
Docusign Q3'25 Investor Prepared Remarks
7
Business Stabilization
IAM Progress
Continued year-over-year improvements in usage, utilization, and customer growth further supported positive business trends in Q3. Usage trends, once again, showed modest improvements. The volume of envelopes sent increased year-over-year for the fourth consecutive quarter. Also, consumption, a measure of utilization, continued to improve year-over-year, particularly in verticals like insurance, technology, and healthcare.
We continued to see consistent growth in new customer acquisition. In Q3, total customers grew 11% year-over-year to 1.6 million. This continued momentum in customer growth underscores the importance of investing in multiple routes to market across segments and geographies. Moreover, our customer base's unique breadth and scale create a solid foundation for future adoption of the IAM platform.
The number of large customers spending over $300k annually increased both year-over-year and quarter-over-quarter to 1,075 in Q3. In addition, investments in our self-service motion continue to deliver results, and in Q3, digital revenue growth accelerated from Q2. We continue to invest in PLG programs to improve self-service experiences, such as self-service plan upgrades, which helped drive results during the quarter.
International revenue represented 28% of total revenue and grew 14% year-over-year. Our global expansion strategy is an important component of our long-term vision, and we are optimistic about the continued growth opportunities in our international markets, especially as the IAM platform becomes available outside of North America.
As Allan mentioned, we are seeing early signs that customers appreciate the value and opportunity that the IAM platform presents for their businesses. Many companies struggle to untap the full value of their extensive agreement inventory, and IAM provides the tools and intelligence to unlock the insights and opportunities in those agreements. IAM deal volume grew rapidly from Q2 into Q3 as our Go-To-Market teams have embraced the opportunity, with 80% of eligible reps closing at least 3 IAM deals in Q3. Beginning in November, we launched IAM in some international small and mid-sized customer segments, and are just beginning to embrace departmental opportunities in our enterprise segments as well. It will take time to continue ramping IAM throughout Fiscal Year 2026 and driving adoption in the years to come, but early signals have been promising, and we are just getting started.
Docusign Q3'25 Investor Prepared Remarks
8
Financial and Operating Efficiency
Turning to the financials, our focus on operating efficiency yielded strong results this quarter.
Non-GAAP gross margin for Q3 was 82.5%, slightly lower than the prior year's 83.0% due to the impacts of additional cloud migration costs. As previously mentioned, gross margins have been impacted this year due to the ongoing cloud infrastructure migration resulting in some additional expenses associated with this transition. We expect a slightly larger gross margin impact in Fiscal Year 2026 as we complete the bulk of that migration next year before easing in Fiscal Year 2027 and beyond.
Non-GAAP operating income for Q3 was $223 million, up 19% year-over-year, resulting in a 29.6% operating margin. Q3 operating margin was up nearly 300 basis points vs. last year and significantly improved over the 22.8% operating margin from two years ago. As mentioned during last quarter's earnings call, Q3 operating margins declined vs. Q2 Fiscal 2025 due to both the approximately 150 basis point margin benefit from one-time items highlighted last quarter, and slightly from our investments to support the IAM launch and rollout.
We are pleased with the overall improvement in profitability vs. last year, and will continue to balance overall efficiency while making critical investments in areas like R&D.
We ended Q3 with 6,705 employees vs. 6,945 last year, down approximately 3%, reflecting our disciplined approach to resource allocation. We continue to take a measured approach to hiring to support our strategic initiatives, including R&D, PLG, and the Lexion acquisition. While headcount has increased since Q1 Fiscal 2025, we are thoughtful about how and where we add talent.
Q3 was another strong quarter for cash flow. We delivered $211 million of free cash flow, a 28% margin. Our free cash flow yield improved from Q2, which was better than expected, driven by increased collections efficiency and higher in-quarter billings. For the full fiscal year, we expect that our free cash flow margin will approximately match our full-year non-GAAP operating margin.
Our balance sheet remains strong, closing the quarter with $1.1 billion 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 returning capital to shareholders opportunistically.
Docusign Q3'25 Investor Prepared Remarks
9
Financial and Operating Efficiency
Guidance
In Q3, we repurchased $173 million of stock through share buybacks, effectively redeploying the bulk of our quarterly free cash flow generation back to shareholders. We have $770 million remaining under our current repurchase authorization, and we expect to continue to opportunistically repurchase shares as part of our capital allocation strategy. During the quarter, we also used $51 million in cash to pay taxes due on RSU settlements, reducing the dilutive impact of our equity programs.
Regarding the cost of our equity programs, our Q3 stock compensation expense as a percentage of revenue dropped approximately 250 basis points from the prior year. We expect to continue to reduce our stock compensation expense as a percentage of revenue in Fiscal Year 2026, partly as we shift some roles to predominantly cash compensation vs. equity.
Non-GAAP diluted EPS for Q3 was $0.90, an $0.11 per share improvement from $0.79 last year. GAAP diluted EPS was $0.30 vs. $0.19 last year.
With that, let me turn to guidance.
For the fourth quarter and fiscal year 2025 we expect total revenue of $758 million to $762 million in Q4 or a 7% year-over-year increase at the midpoint, and $2.959 billion to $2.963 billion for Fiscal 2025 or a 7% year-over-year increase at the midpoint.
Of this, we expect subscription revenue of $741 million to $745 million in Q4 or a 7% year-over-year increase at the midpoint, and $2.885 billion to $2.889 billion for Fiscal 2025 or a 7% year-over-year increase at the midpoint.
For billings, we expect $870 million to $880 million in Q4 or a 5% growth rate year-over-year at the midpoint and $3.056 billion to $3.066 billion for Fiscal 2025 or growth of 5% year-over-year at the midpoint. As a reminder, we had a strong Q4 of Fiscal 2024 with 13% year-over-year billings growth partially driven by early renewal strength that creates a hard year-over-year comparison.
We expect non-GAAP gross margin to be 81.0% to 82.0% for Q4 and 81.9% to 82.1% for Fiscal 2025.
Docusign Q3'25 Investor Prepared Remarks
10
Disclaimer
DocuSign Inc. published this content on December 05, 2024, and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on December 06, 2024 at 04:36:08.867.