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Operator
Good afternoon, ladies and gentlemen. Thank you for joining JocuSign's second quarter fiscal year 24 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I will now pass the call over to Heather Harwood, Head of Investor Relations. Please go ahead.
Heather Harwood
Thank you, Operator. Good afternoon and welcome to DocuSign's Q2 Fiscal Year 2024 Earnings Call. I'm Heather Harwood, DocuSign's Head of Investor Relations. Joining me on today's call are DocuSign's CEO, Alan Teegerson, and our CFO, Blake Grayson. The press release announcing our second quarter fiscal year 2024 results was issued earlier today and is posted on our investor relations website. Now, 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 digital transformation 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, we 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 those figures please refer to today's earnings press release, which can be found on our website at investor.docuscience.com. I'd now like to turn the call over to Alan. Alan?
Heather Harwood
Thanks, Heather, and good afternoon, everyone. We closed out the first half of the year strong by delivering solid second quarter financial results. We continue to drive momentum in our business by making progress against our key initiatives and delivering enhancements to our product portfolio. Exiting the quarter, I feel energized having recently come off our momentum events where we visited eight cities spanning five continents. We met with thousands of partners and customers who were excited to hear about our dual track plans to improve agreement workflows. In the near term, we're focused on the agreement management layer. We're taking something that's quite complex for our customers and making it easier and more delightful. And over time, we're building the intelligence layer that will unlock agreement data. We presented our future vision, publicly shared our product roadmap, and received tremendous validation after showcasing product demonstrations aligned to these two priorities over the quarter. Let me share some highlights from this quarter's financial results. Q2 total revenue came in at $688 million, up 11% versus prior year, and Q2 non-GAAP operating margin came in at 25%. While we are pleased with our results, like many others, we're seeing continued macro pressures tempering expansion rates. However, we remain focused on what we can control, executing against our initiatives to drive innovation and operational efficiency, further setting the foundation for growth while navigating an uncertain environment. Now, I want to highlight our pace of innovation driven by our delivery of new features and products. The progress we're making demonstrates how we're expanding upon our leadership in eSignature. As I said, we're thinking about our roadmap on two horizons. In the short term, we're looking to ship new features and functionality that differentiate DocuSign and streamline agreement workflows, bringing in new customers, and continuing to deliver value to existing customers. To that end, we continue to expand our identity verification portfolio, announcing the global launch of line misdetection for ID verification. Liveness detection technology leverages AI-powered biometric checks to prevent identity spoofing, which results in more accurate verification without the signee being present. ID verification is already helping our customers. Our data shows that it has reduced time to sign by about 60%. Later this year, we expect to expand our functionality with a wallet feature that will enable frequent users to save their profile, driving improved efficiency and convenience. These add-ons will be available for all of our plans, including our standard plan, representing an important differentiator for DocuSign's product offering for all customer types. As I've stated in the past, the value of an agreement is in the data, and every step of the workflow will benefit when it's automated, intelligent, and seamlessly integrated into core business systems. Webforms is delivering on that vision. During the quarter, we shipped and announced more and increasingly sophisticated capabilities to our web forms offering. In July, web forms became available on DocuSign's FedRAMP, a moderate environment which unlocks new possibilities for our federal, state, and local government customers to digitize their forms. We will also soon ship advanced reporting capabilities, enabling users to unlock data from their agreements to uncover actionable insights and drive data-driven decisions. This quarter, we also announced that DocuSign Monitor is now available to our CLM customers. Monitor provides a comprehensive and holistic multi-product view of user activity on one dashboard for both CLM and eSignature, ensuring organizations can quickly and easily detect, investigate, and respond to suspicious activity before incidents occur. For our customers, it's a powerful reassurance. Losing even one high-value agreement can have a significant business impact. We are seeing large marquee organizations across industries, including tech and finance, select DocuSign CLM to transform how they automate their end-to-end agreement processes across their entire enterprise. As an example, we closed one of our largest CLM deals ever this quarter. This customer, which is a leading residential solar company, turned to our CLM solution to help automate over 1,200 of their agreement templates. Leveraging our document generation and workflow management capabilities, CLM helps them automate the agreement process across teams, adding simplicity and security. While CLM today represents a small contribution to our overall business, we saw solid year-on-year growth, which is a reflection of our leading market position. We are encouraged by the wins, and we have just begun to tap into the potential for this market. More broadly, we continue to make meaningful progress towards our vision of smart agreements. Before we discuss our final update, it's worth grounding this portion with a reminder of what's generally true in the market. Individual solutions work, but customers suffer when putting together solutions combining different product categories like CLM, e-signature, workflow management, document storage, and so on. Today, only the largest enterprises with resources and IT sophistication and link these solutions together and only at significant expense. This depresses the overall consumption and size of market. We are on a multi-quarter path to evolve our offerings towards a platform capable of coordinating broader processes at a fraction of current complexity. Our goal is to unlock the market for intelligent agreement management for millions of businesses, automating billions of hours of manual work, and improving business outcomes. Today, we're already monetizing AI directly through our CLM Plus product and indirectly through its use in our products, such as Search. Our next step on that journey is with AI Labs. With AI Labs, we are co-innovating with our customers. We provide a sandbox where customers can share a select subset of agreements, try new features we're testing. Our customers get early access to developing technology and we receive early feedback that we will incorporate into our products. By working with our customers in the development phase, we're further reinforcing the trusted position we've earned over the last 20 years. Next, let me provide an update on the progress we're making with our go-to-market capabilities, balancing scale with efficiency. As we evolve how DocuSign goes to market, integrating our digital direct and partner selling motions to leverage an omnichannel approach. I'd like to provide an update on the progress we're making in our self-serve product-led growth channel. The PLG and self-serve capabilities are one of our most important areas of investment. In addition to our continued focus on delivering against our product roadmap, we're improving our customer experience by making DocuSign products much easier to try and buy. With such a diversified customer base, it's critical that we deliver delightful self-service experiences not just for growth, but also for scale and efficiency. We made good traction over the quarter, noting higher traffic conversion rates of new customers on our website. We've also unlocked expansion opportunities for customers directly within their product experience, resulting in relative strength through our digital channel. We expanded relationships within our partner ecosystem, which is an important part of our omnichannel approach to drive reach and scale. In Q2, we launched pay-as-you-go offering for ISV partners. It enables ISVs to embed DocuSign e-signature in their agreement workflows on a consumption basis. Over the course of the next few months, we will have been featured partners in some of the most important technical conferences, most notably at Google Next, Dreamforce, Deutsche Telekom's Digital X, and Microsoft Ignite. One of the key pillars of our omni-channel is strengthening our direct sales productivity. This was the second consecutive quarter of a higher than anticipated rate of on-time renewals, which is a positive sign of increasing go-to-market execution. It's contributed favorably to our billing's outperformance for the quarter, which Blake will touch on in the financial update. In our international business, expansion remains the largest part of our addressable market, and we are making progress. This past quarter, one of Australia's largest banks expanded their relationship with us, Customers since 2020, they use our solutions to streamline both internal and customer-facing business processes in an effort to remove friction, reduce cost, and deliver better experiences. The upside potential in our international business is large. And as I had commented on previously, we met with hundreds of our international customers through DocuSign's momentum events. The excitement about our product roadmap was contagious, and we look forward to growing our presence globally. We are shaping the future of the agreement category and building on our global scale and trusted market position. The future of agreements is not about attaching yourself to a legacy document format. As we continue our product evolution by adding intelligence and unlocking the data trapped in agreements, we're increasing productivity, reducing friction, and saving our customers time. This is a fundamental shift in the agreement space. I'm confident in our competitive advantage as DocuSign is the largest player focused solely on improving the agreement process. Moreover, there's no other company focused on the full end-to-end agreement process for companies of every size, from S&Bs up to the world's largest enterprises. In closing, I want to thank DocuSign's employees worldwide for their collective power in driving our success. I'm proud of the tremendous job the team has done navigating the dynamic environment. I'd now like to welcome Blake Grayson, who, as you know, joined us in mid-June as our CFO. Blake has proven to be a valuable addition to our team, and I look forward to our continued partnership. Let me turn it over to Blake to review our financial performance.
Blake Grayson
Thanks, Alan, for the kind words, and good afternoon, everyone. I'm really excited to join my first earnings call as DocuSign's CFO. Over the last few months, I've gained considerable exposure into the workings of our business and value proposition as we look to transform agreement workflows. First, I'd like to share what led me to join DocuSign. DocuSign is a powerful brand and a scale in our customer base that is rare in the enterprise software space. We deliver high ROI products that enable our customers to complete agreements faster, easier, and more securely. The opportunity for our business is quite large, and while I am optimistic about our future, we still have work to do to achieve our goals, particularly in a demand environment where companies are appropriately scrutinizing their investments. With that, let me turn to our Q2 results. For the second quarter, total revenue increased 11% year-over-year to $688 million, and subscription revenue also grew 11% year-over-year to $669 million. Our international revenue growth outpaced our domestic business with 17% year-over-year growth to reach $180 million in the second quarter, representing 26% of our total revenue. When I think about the market opportunity ahead, I am excited by the greenfield space that exists internationally. It is a largely untapped market and a key pillar of future growth. I look forward to updating you on our progress as we work to increase our footprint globally. Second quarter billings rose 10% year-over-year to $711 million. Similar to last quarter, our Q2 billings outperformance was driven by a higher rate of on-time renewals. It is encouraging to see us maintain the higher level of sales execution we saw in Q1 through the first half of the year. However, given the macro environment and headwinds in some expansion metrics, we continue to expect billings growth deceleration in the back half of the year. which is in line with our previously communicated expectations. We added approximately 37,000 new customers during the quarter, which brings our total customer base to 1.44 million, a 12% increase year over year. This includes the addition of approximately 6,000 direct customers to reach a total direct customer base of 226,000, an 18% year over year increase. We also saw a 6% year over year increase in customers with an annualized contract value exceeding $300,000, with a total of 1,047 customers. Similar to last quarter, the quarter-on-quarter decline in this customer segment was primarily related to customer buying patterns, lower expansion rates, and partial churn. However, as we ship innovative features to deepen our product lineup and differentiate our offerings, more customers are recognizing the value of adopting our features and frictionless functionality. This increases product stickiness, and we are pleased that over 50% of our direct customers have now adopted five or more features, an increase of nearly 10 points year over year. Dollar net retention was 102% for the quarter. We're seeing continued macro pressures resulting in moderated expansion rates. And as we expect customers to continue scrutinizing budgets and optimizing spend, we anticipate the Q3 dollar net retention rate to trend downward. From a vertical perspective, we saw pockets of relative strength within healthcare, insurance, and business services. One of the most significant strengths I've gained insight into is DocuSign's broad and diverse customer base, which enables us to help offset pressures from verticals that are more sensitive to the interest rate environment, such as real estate. Given the large breadth and depth of our install base and the investments we're making in product innovation, We believe that as the macro environment stabilizes or improves, DocuSign will be well positioned to capture expansion opportunities. Non-GAAP gross margin for the second quarter was 82%, in line with the prior year. Second quarter non-GAAP subscription gross margin was 85%, also in line with the prior year. Q2 non-GAAP operating income reached $170 million, up 51% from the prior year. Non-GAAP operating margin of 25% was up nearly 700 basis points compared to 18% last year. As discussed on last quarter's call, we are executing against our investment plan. Our philosophy on vesting is consistent. We'll maintain continued disciplined investment to drive growth in our top line over time. Although we expect to ramp investment in the back half of this year, we still expect to exit the year with operating margins better than they were prior to our restructuring efforts. Q2 non-GAAP EPS was $0.72, an improvement of $0.28 from last year of $0.44. We ended Q2 with 6,748 employees compared to 8,061 the year prior. Second quarter operating cash flow was $211 million, representing a 31% margin and an increase of 75% versus the same quarter a year ago. Free cash flow for the quarter was also up 74% year-over-year, coming in at $184 million, representing a 27% margin. As I am learning more about the business, I am impressed with our ability to consistently generate strong free cash flow. With regards to the balance sheet, we exited Q2 with more than $1.5 billion in cash, cash equivalents, and investments. We currently have approximately $725 million in convertible debt that will be maturing over the next few months. Our strong cash position is a reflection of the operating leverage in our business model that provides a strong level of flexibility. And as we think about utilizing this cash, we will do so thoughtfully, ensuring our capital is strategically deployed. Related to this, we redeployed excess capital during the quarter and repurchased 583,000 shares for approximately $30 million. We also announced today that we are increasing the size of our share repurchase program to $500 million, up from $200 million as we continue to focus on being opportunistic, reducing dilution, and returning excess capital to shareholders as appropriate. In addition to our share repurchase program, during the quarter we used $40 million to pay taxes due on RSU settlements, reducing the dilutive impact of our equity programs. With that, let me turn to our Q3 and fiscal 24 guidance. To reiterate, while we're pleased with our Q2 financial results, we're also cautious in light of an uncertain macro environment and competitive dynamics. For the third quarter and fiscal year 24, we expect total revenue of $687 to $691 million in Q3, or a 6% to 7% year-over-year increase, and $2.725 to $2.737 billion for fiscal 24, or an 8 to 9% year-over-year increase. Of this, we expect subscription revenue of $669 to $673 million in Q3, or a 7 to 8% year-over-year increase, and $2.649 to $2.661 billion for fiscal 24, or an 8 to 9% year-over-year increase. For billings, we expect $668 to $678 million in Q3, or a 1 to 3% growth rate year-over-year, and $2.804 to $2.824 billion for fiscal 24, or growth of 5% to 6% year-over-year. We expect non-GAAP gross margin to be 81% to 82% for both Q3 and fiscal 24. We expect non-GAAP operating margin to reach 22% to 23% for Q3 and 23% to 24% for fiscal 24. We expect non-GAAP fully diluted weighted average shares outstanding of $207 to $212 million for both Q3 and fiscal 24. In closing, I want to thank our team for their warm welcome and their commitment to work with our customers in a challenging environment, and I look forward to connecting with many of you in the near future. We are focused on executing against the key initiatives that we believe will drive future long-term growth and expansion, as well as being mindful of efficiency opportunities that will set us up for profitable, sustainable growth. As Alan mentioned, we are the only company at scale that is solely focused on helping customers improve the agreement process. We look forward to keeping you updated on our progress as we continue to evolve the agreement workflow category and help our customers become more productive and more efficient. That concludes our prepared remarks. Without operator, let's open up the call for questions.
Operator
Thank you. Ladies and gentlemen, at this time, we'll be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, please limit yourself to one question and one follow-up so we may get to everyone's questions. Our first question comes from the line of Mark Murphy with JP Morgan. Please proceed with your question.
Mark Murphy
Great. This is Sona Kolar on for Mark Murphy. Thank you for taking the question and congrats on the healthy execution this quarter. Alan, just double-clicking on the AI front, you discussed a number of the exciting AI product launches you had at the recent Momentum conference. Are there any specific products you would call out in which you see the greatest incremental monetization or upsell potential longer term? whether that's around ID verification, agreement summarization, or some of the other areas, for example?
Heather Harwood
Yeah, look, I think we think AI will impact practically all of our products at every step of the agreement workflow. So I don't know that there's just one call-out, but maybe to rattle off a couple that I'm most interested in, I certainly think that the broader, should we say, agreement analytics category is poised to be completely revamped with generative AI. We were an early investor in that category, saw that coming together with CLM four or five years ago, and made a couple strategic investments and been a leader in that space, but have been held back by fundamental technology. And I think now with generative AI, we can do a substantially better job, more seamlessly, lighter weight, with less professional services. And so I'm very excited, I think, about how it transformed the CLM category and enables us to deliver more intelligent agreements. I think you mentioned IDV. I agree 100%. Fundamentally, that entire category is AI-enabled. The upload and ingestion of your ID, recognition of it, and then that liveness detection where we're detecting who you are and that you are present and matching that to your ID, that would simply not be possible without today's AI technology. and really just dramatically reshapes the ability to trade off risk and convenience. So I think that's a good one. But I really do think that it works across the entire flow. We use it today. When you use DocuSign eSignature today, we automatically recognize your field. That's the AI working, detecting what's going on in the agreement. So I'd put them in that order, though.
Mark Murphy
Great, thank you. And then a quick follow-up for Blake. Any context that you can provide in terms of how the macro environment might have trended for Q2 relative to Q1? Were there any signs of improvement in underlying demand trends or maybe pockets of relative stability? Thank you.
Blake
Sure. And thanks for the question.
Blake Grayson
I think that from a macro perspective, overall, it seemed pretty similar, I think, from, you know, Q1 into Q2. You've got certain verticals and certain areas that show relative strength, and we talked about those, you know, calling in a couple and prepared remarks. And you have other verticals that are obviously still under some, you know, stress, and so we have to deal with that. I think that on the macro side, the biggest, you know, pressure point that I think we deal with is how CFOs, people in my position, are generally scrutinizing investments across the board. And so, you know, for us, it's trying to work with them and provide the best value that we can. But nothing, I would say, nothing stands out from Q2, I think, from Indic to Q1, but we're still in, obviously, a bit of an uncertain environment.
Operator
Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.
Brent Thill
Hi, this is Love Soda on for Brent Hill. Thank you for taking my question. And welcome to Blake. I want to ask one to Alan. Maybe, Alan, could you talk a little bit about the go-to-market execution? I know you mentioned the focus on product-led growth, but just talk about how it has been with the focus on product-led growth. What has been the approach to attract larger customers customers and has it been more challenging or is it in line with your expectations?
Blake
Yeah. I'd say first we remain
Heather Harwood
primarily dependent on our direct sales channel. That is our primary go-to-market. That will be the case for the foreseeable future. And so the execution that you're seeing in the numbers is a result of that. I'm particularly happy with the customer success and renewal management team who delivered, as we mentioned, another quarter of strong on-time renewals. Also, a huge emphasis all throughout the pre-sales, sales, and post-sales process Blake alluded to, we saw nice progress there. As we look ahead, it'll be critical to continue that transformation of the sales organization given the expanding breadth of our product offering and the need to pitch at an even higher level. But I'm very bullish on the progress that our direct team is making. I'd be remiss if I didn't also mention I think we made a significant adjustment, as you will all recall, in February with a significant structuring effort in the field organization, and yet we are continuing to be able to execute. So that speaks highly, I think, of the management team's effort there. I'd just add beyond the direct sales execution, as I mentioned, it's primary. There are two other points, the digital part, where we are seeing really good progress, and that business is growing a little bit faster, and I'm very pleased with the progress there. And then the third leg of the stool is our partner channel.
Brent Thill
grow that channel so that we can have a really nice omni channel direct self-serve and go to market perfect yeah just had a quick follow-up for Blake just on the net dollar retention Blake just I know you said it would trend down a little bit further from the one or two percent but Any indication as to when we could potentially see some stabilization in that metric?
Blake
Yeah, sure.
Blake Grayson
So just a, you know, a reminder, and it's also for me as I'm learning the business, you know, the DNR, the dollar net retention is only for our direct customers and only for those with a tenure of at least a year. You know, our kind of communications on this figure, it's in line with our previous communications regarding the trends. And, you know, as Kit covered, you know, in the prepared remarks you heard me say, we do expect continued pressure into Q3. It's, you know, in a tough macro environment where companies are scrutinizing investments, it, you know, can lead to smaller expansion opportunities. And this is really why the product development focus for us and the roadmap is so important because that's how we can try to provide chances to impact that trend. And that's exclusive of macro forecast. So, For us to impact that number, that's kind of that longer-term product roadmap that we can drive to essentially be able to provide customers the chance and opportunity to do more with us to provide them better ROIs and better productivity opportunities. And we've got a lot of initiatives underway to try and make progress there. But with regards to trying to call any time further out beyond Q3, we're not prepared to talk about that at this time.
Operator
Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.
Tyler Radke
Yes, thanks for taking my question. I wanted to just get your perspective, Blake, and congrats on the role here on the international opportunity. You highlight that as a big opportunity that you saw coming on board, but how are you thinking about the size of that business potentially over time and You know, any thoughts on potential investments that you can make to better go after that? Thank you.
Blake Grayson
Sure. You know, I think from just my history, you know, one of the experiences that I, you know, bring and just the perspective is the international business. And, you know, in a previous role at Amazon, I led finance for the international group there. And the TAM outside of North America is huge, and yet it only, you know, flexed 25%, 26%. our total revenue so I think the opportunity for us you know over the long term there there's no reason why that shouldn't grow as a percent of the total I think that you heard Alan talk about you know the expansion opportunities we just opened an office in Munich in Germany and so we are making investments there we are seeing those green shoots of opportunity so you know it's a process for us right and when we when we talk about product development we talk about product development globally it's not like a North America only kind of endeavor. And so when we do that and we keep a focus on the global nature of this business, I'm cautiously optimistic that we have an opportunity to really expand our footprint there.
Heather Harwood
Yeah. Maybe I can add a little bit more color there. So on, on, um, on the product side, uh, let's take Germany as an example. We, uh, We've launched the ID verification for EU qualified last quarter. We're a qualified trust provider in the EU. That puts us in a very unique and strong market position, and the German market is particularly sensitive to those regulatory issues. One of the things we're launching and that we previewed at Momentum, which is our conference, is a wallet capability where essentially once you've logged in once with this ID system, you can auto-log in in the future, further reducing the friction impact added by having more security. And that's been the traditional risk trade-off that companies have faced. So we're, I think, very optimistic about our position in the German market. And as Blake mentioned, we just opened an office there, and I'm going there again next Sunday. In Japan, we're at an even earlier stage of market development. And just at the end of August, we launched a fully localized CLM, which I believe is the first or Western-style CLM introduced in Japan, and there's a lot of interest and appetite for that. I was in Tokyo a few weeks ago. We're very bullish on the opportunity in the Japanese market as well. So beyond the markets where we can invest at that level, we will use our self-serve and partner channels to ensure that we're available essentially everywhere where agreements are signed.
Tyler Radke
Great. Thanks for the color. And follow-up question just on underlying growth. And certainly there's some interesting slides in the presentation. But I look at four-quarter trailing, billing score, sorry, rolling four-quarter billings growth. It seems like billings growth over the last four quarters has been stabilizing. In the low double digits, you saw subscription growth only decel about one point this quarter. Do you feel like the business is kind of stabilizing here. How should we just think about the normalized growth environment as you kind of process the puts and takes on the quarter? Thank you.
Blake Grayson
Sure. And I'll take a stab and Alan will jump in, I'm sure, if he wants to add any color. So, yeah, generally, you know, really pleased with how Q2 performed. But, you know, like you heard in the prepared remarks, we still have work, you know, to do ahead of us. You know, we did double-digit billings and revenue growth, you know, year over year in Q2. Customers are adopting, you know, five or more features. Direct customers are adopting five or more features at an increasing pace, you know, year over year. Our total customer count, you know, grew double digits year over year. International grew well. And we also produced really strong free cash flow, you know, for the quarter. We generated $187 million of free cash flow off of a pretty large foundational base of customers. And Obviously, we need to work on retention rates and drive growth, but a decent quarter for us. I think with regard to the future, there are puts and takes every quarter with that billings number, and I appreciate that you're using the four-quarter trailing number. I think that's a good way to look at it. Over Q1 and Q2, we have that strength in on-time renewals, right? And it's forecasted to continue, but there is pressure as we've you know, previously mentioned around lower expansion rates and some macro uncertainty. And so that billings number can be a little, you know, a little volatile. I would say that the full year guide that we just announced for billings is actually a bit stronger than it was after our last quarter. So for me, as I think about the business and what I'm most focused on is how do we, you know, turn the chapter to a new period of growth, we have to be focused on the long term on, you know, continuous product innovation that can drive that future expansion. And that takes some time. But again, this is a, we have a very large kind of core fundamental base book of business. That's the free cash flow generator. But, you know, for us going forward, we're excited to deliver on a product roadmap that we believe over the long term can deliver growth opportunities.
Heather Harwood
I think that's well said, Blake. I would just add, I think this is a, transformational year for DocuSign when we're making the investments to, you know, enable the next phase of growth. We're happy that we're able to sustain the business nicely, but we're not satisfied with that and we are, you know, planning and executing towards, you know, further acceleration in the years to come.
Operator
Our next question comes from the line of Jake Roberge with William Blair. Please proceed with your question.
Jake Roberge
Hey, thanks for saving questions. Has the macro started to impact the top of funnel at all, or most of the headwinds still related to just that expansion motion? And then how is linearity of demand throughout the quarter? Have there been any noticeable changes on the macro front, especially as we've gone through July and August?
Blake
Sure, and I'll take a stab. Let me try to address your last question first.
Blake Grayson
I think on the linearity It's generally in line with our historical trends. Monthly results can be volatile in this business, you know, just due to our sales cycle. What I would say is that, you know, the linearity trends, you know, if you will, they're already reflected in our guide. So nothing material to call out from a linearity perspective. I think on the macro component for us, The expansion, I think, is the biggest part. And, you know, as I referred to before, we have a very large base of business, you know, over 1.4 million customer accounts. And so that, I think, is on the expansion side is what is probably the more impactful component, and you can see that in the DMR rate.
Heather Harwood
Yeah. I think I spot on that. I would simply add that, you know, the relative strength in our digital business is I think reflects that the S&P segment is doing well, and that is new customer acquisition. I think it reinforces the themes that Blake was talking about.
Blake
Helpful.
Jake Roberge
And then, Alan, you made quite a bit of organizational changes over the past year with two RIFs, a new CFO, head of sales, and president. Do you feel like the structural changes are behind us at this point? And then when do you think those changes start bearing more fruit for DocuSign just as a broader org, just given those changes likely take a few quarters, if not years, to play out?
Blake
So you're absolutely correct.
Heather Harwood
We've made a substantial effort over the last 15 to 18 months to attract a world-class leadership team that has deep experience, but is also hungry for the excitement and the challenge of DocuSign's next chapter. I'm really happy with who we've been able to attract. I think it speaks to the opportunity and to DocuSign's brand and the quality of the company, the kinds of folks that we've been able to attract, and not just after I arrived, but also prior. I do think we have a relatively full team now, both directly reporting to me and, in fact, in the next couple of layers. I don't have any open positions, you know, in the top two layers for me, and that's not been the case for a long time. So I think we're really making good progress also in filling in some of the key leadership roles at the next level. So I feel that the organization is now – more ready and poised to fully capitalize on the opportunity ahead of us. In terms of how that plays into, that is the enabler for and the requirement for both the product roadmap, the GTM transformation, and then the growth in the outer years.
Blake
So if we didn't do that first, we couldn't make progress on the other things.
Operator
Our next question comes from the line of Brad Sills with Bank of America. Please proceed with your question.
Brad Sills
Oh, great. Thank you so much. And I wanted to ask a question around the international strength you're seeing. Any countries you'd call out there, and as you've been investing in international, are there any regions that we should expect to see, you know, perhaps, you know, some incremental traction from here?
Blake
You know, I'll just comment, you know,
Blake Grayson
Regionally, I wouldn't say there's necessarily one standout versus the rest, but I just think we have general strength outside of North America, which I actually appreciate because it just goes to the kind of notion about the product and the value offering that we have. And so how do we expand that, you know, larger going further? And I think also that as far as like new plans and new regions, you know, we'll take that on a case-by-case basis. I think it's the one nice thing for us, I think, in this business is the marginal cost to expand is not terribly large, right, with us. And so for us, it's opening a sales office, you know, and the kind of thing. And you want to have the, you know, the situation laid out appropriately in order to have the right leadership and scale and things like that. But I don't have anything, you know, about individual countries to reference other than the anecdotes that Alan already provided around Asia, you know, and Europe. But in general, I'd say
Heather Harwood
I think all the international regions, Europe, APAC, LATAM, all grew at double digits.
Blake Grayson
Yeah, it was strong across the board is what I would say for us. Internationally, we were pleased with our international progress, regardless of the region.
Brad Sills
Great to hear. And then just in regard to the restructuring effort and the direct sales organization, do you feel like, Alan, I think your comments are that you feel like you've got the right team in place, but Are the efforts to restructure the existing organization, is that largely in the past? Do you feel like you're kind of set up now such that you're kind of in a place where the organization in place from here can execute? Thank you.
Heather Harwood
We don't have any plans for any major restructurings of our sales organizations. I mean, obviously, you're always tuning things, and I think we're continuing to evolve that, but nothing major, and nothing that could be on the scale or considered like a rift or anything like that.
Operator
Our next question comes from the line of Carl Kierstad with UBS. Please proceed with your question.
Carl Kierstad
Okay, great. Thanks. Maybe a couple for Blake. Blake, if you don't mind unpacking the 3Q Billings Guide, it obviously implies down $33 million. I know we had that phenomenon two years ago, but it's typically up sequentially. Is this a function of the greater on-time renewals? Anything else that you might flag around that? Thank you.
Blake Grayson
Sure, yeah. The guide reflects continued the trends that we're seeing in the on-time renewals, which are, you know, the function of the, you know, on-time renewals for us is that every customer situation is different, right? Deals can renew on time. They can be renewed early or they can be pushed out. So every quarter has puts and takes on that. You know, the first half of the year has been strong due to sales execution. There are deals that may normally have slipped out to Q3 and they got closed in Q2 and And so, you know, that's a positive. But, you know, renewals, obviously, while super important for us and really drive that foundational free cash flow generation, it's more of a timing thing than it is on a growth side. And I think, you know, the positive to note for us on the on-time renewals is that, you know, we're not relying on discounts or incentives to drive that improvement in that on-time renewal. It's better sales execution. And so the teams work really hard just to stay on top of those things when they come up. for renewals, because an on-time renewal is just a deal that renews on schedule. And so that's super strong. And, you know, with regards to the guide, as far as other pressures, you know, that's just the macro pressures we discussed earlier with, you know, the DNR, like essentially the net retention components and that, and now the pressures that we're seeing there.
Carl Kierstad
Yep. Okay. Makes sense. And one more, Blake, your predecessor, it was never a formal guidance, obviously, around operating cash flow, but the kind of the soft color was that it might land for this fiscal year, quote, a couple of points below operating margins. Is that still roughly your framework as to where cash flow margins might shake out this year?
Blake Grayson
Yeah, you know, I'm not in a place where I want to kind of guide to a specific cash flow margin, so to speak. I think for me, what I'm looking for in the business is a long-term vision you know, cash generation company that drives profitable and sustainable growth. I think that, you know, the fact that we've delivered 100 and I think 211 million of, you know, cash flow operations, 184 million of free cash flow, those were pretty healthy yields. And you'll see those fluctuate, you know, in the quarter based on timing and such. But it's a cash generation generating business and model that, you know, as a CFO, I'm selfishly super excited about.
Operator
Our next question comes from the line of Josh Baer with Morgan Stanley. Please proceed with your question.
Josh Baer
Great. Thank you for the question. I had one more just to clarify on the topic of on-time renewals. So that was part of what drove billings upside this quarter, but now you're saying that the guidance now reflects sort of the same level of on-time renewals. So is that right, that there's kind of been a change in how you're incorporating the idea of on-time renewals into guidance? And now if things stay the same in Q3, you wouldn't see upside to billings?
Blake Grayson
Right. So I'll try to clarify this a bit more. I'm learning this as we go. The thing with on-time renewals is that essentially doing an on-time renewal that maybe in the prior year was pushed out affects your ability to continue that momentum. So it's a timing situation. And so with that strength in the first half, even though you have execution that continues, you kind of run out of room a little bit on it. So it's really more of a timing situation than a growth opportunity. So that's why you see that in the guidance. And again, that was in the previously communicated guidance last quarter, we actually increased the full year guide for this year. So it's all been in there in the guidance, but it's just that nuance of how on time flows through.
Josh Baer
Okay, got it. And then one more just on sort of the big picture agreement process and workflows. I was just wondering, are there certain departments or workflows where DocuSign should own that full agreement process? versus others where maybe like the basic DocuSign e-signature is integrated into like in HR onboarding or some other departmental or workflow. You know, how to think about the two different possibilities there. Thank you.
Blake
Yeah.
Heather Harwood
I would say people use DocuSign for all kinds of workflows. But if I was going to pick areas where we've where we had a particularly strong early start. From a vertical perspective, obviously, in the finance and real estate area, that was very strong. It then, I'd say, moved on to all forms of B2B sales were very enabled by DocuSign, and we see that a lot. And now we're seeing quite a few HR applications, as you alluded to. So we have strong partnerships there. We've worked at SuccessFactors and a lot of deployments in that, and in procurement. You know, particularly these days, enterprises are very focused on procurement management and automating that process and making it more efficient and more transparent. We see more adoption there as well. So, as an example, a lot of our strength in the pharma space comes from procurement use cases. We have a fantastic relationship, pick a different one, with NVIDIA, who uses DocuSign both for e-signature and for CLM, and it's really focused on their supply chain efforts. So I really – at this point, it's very broad across all the major enterprise workflows and many, many industries, practically all industries. But we started in different – we had some industries that were kick-starters for the e-signature movement, if you will.
Blake
But at this point, it's pretty broad. Does that help? Our next question.
Operator
Our next question comes from the line of Jackson Hatter with Moffitt Nathanson. Please proceed with your question. Great. Thanks for taking our questions, guys.
Blake
First one on the product set or the feature set, it's much broader and deeper than it was even just a couple of years ago. And I understand given the macro environment, it's probably hard to pass or to expect to get all the value you've been putting in the product back from your customers. But I'm curious, how are you making sure that once the macro headwinds subside, that you don't put $10 of value into the product and only get five back, right? Just to make up numbers.
Blake
Yeah, it's certainly a fair push.
Heather Harwood
What I would say, what we've done here over the last nine months or so is really pick up the pace of, of innovation and product release, adding heft to our core products. I think the big transformation of DocuSign into this broader agreement platform and the intelligence layer is still ahead of us. We previewed some of that at both the vision and some early releases at Momentum. If you haven't already watched the Momentum keynote, it's available on our website, and it gives a really good overview of where we're heading. So just as an example of things that I think are to come that make this really a more at-scale, holistic platform, things like orchestration, where we are enabling customers to dynamically assemble workflows related to agreements, components of every part of the DocuSign suite, and every one of our interfaces to third-party ISV applications, I think is going to be incredibly powerful in re-architecting how agreements get done. That's an example. that we will begin to roll out in Q4. And that is you being able to do that semantically across your entire agreement base. So to use an example, let's imagine that you're looking for force majeure in your contracts. Today, that would be a large team of lawyers spending months going through all your agreements. We can deliver that and have the AI dynamically interpret all the synonyms and ways in which that might be expressed and give you all the agreements that are relevant to that query. That's really transformational capability that we do not provide today. So I just want to say that to date, many of these releases have been complementary to the product that we've been shipping for a while. And they're great, and I think it's giving us you know, even more of a market leadership position. But the broader repositioning of DocuSign as the enabler or creator of this agreement workflow and agreement intelligence model is still to come. And we will begin, I think, delivering against that later this year and then all throughout next year. And so I think we have so much runway ahead of us from a product perspective. Cool.
Blake
Okay, great. And then quick follow-up. Blake, what should, like, what's the plan or what should we expect for stock-based comp? I'm surprised to see it up year over year, just given the trend in headcount.
Blake Grayson
Sure. So, stock-based comp is a percentage of revenue. In Q2, it's about 22%. That's held relatively steady, you know, for us. We review that number with our outside compensation consultants. We're slightly higher than our average peer group. The driver on the year-over-year increase has a lot to do with the new leadership folks that we've brought on to the team. And so you'll see, you know, me being one of those people. And you'll see that. And so it is something we're definitely paying attention to and mindful of. But that's the big, like, gap when you're asking about between headcount and cost.
Blake
And so, you know, that'll take time, obviously, but we'll work through that.
Operator
Our next question comes from the line of Alex Zukin with Wolf Research. Please proceed with your question.
Blake
Hey, guys. Thanks for taking the question. Congrats on a solid quarter. I guess two for me. The first one, I want to go back to the question around net retention because I actually think it's really, really important. To some extent, how much of the net retention dynamic is under your control, meaning how much of it is it macro pressure versus competition and consolidation or share loss effectively? And I ask that because to some extent you've already released a number of really interesting new products that are in market, you know, CLM plus CLM, the identity product that you talked about. So is there any way to kind of just give us some confidence around like what level to the question earlier it shouldn't dip below or like when, how many quarters after the cohorts that you're comping, you know, kind of normalize that we should start seeing it at least be stable?
Blake
Sure.
Blake Grayson
It's awfully challenging for me to try to look into that crystal ball, you know, and tell you I'm the cohort side. What I would say is I think you've nailed it in your question that it's a combination, right? We have a combination of macro kind of effects that essentially as customers scrutinize their investments and they're trying to save every dollar they can, what do they do? But then it's also combined with that we have it under our control that if we can execute and provide products that customers want, and over time, you know, we expand, it gives us that opportunity for expansion. So I think that it's a double, you know, kind of a component that affects that rate. And so part of it's under our control, and then part of it also is the macro environment. But at the end of the day, I feel like if we can execute on that product roadmap, over time, you know, kind of destiny is in our hands. But Alan, maybe you have more to add. No, I agree. I'm upset with that.
Heather Harwood
Look, we've... We said, you know, that it was going to be a few quarters of downward trend, and then we will see how we do with the product releases. But we certainly want to get it to a healthier level, and it's our expectation that we will be able to do that. So that's as much we can say at this point.
Blake
Okay, that makes sense. And I guess the other question is, again, it feels like a bit of a tale of kind of two cities, right, to some extent. you've got the double-digit growth both in billings and in CRPO and subscription revenue. But then to the question Carl asked, your guidance implies billings in the very low single-digit range in the second half. It implies that even subscription revenue growth kind of goes down into the 6% range exiting the year. And I appreciate the conservatism. We do love it. But if you think about the business itself, and that's why that NRR question comes back, you know, the street has you accelerating in Q1, right, and to some extent accelerating next year. So just help us level set, like, that exit rate that you're looking at for Q4, you know, what would be the factors that you would be expecting, you know, to kind of have to see for it to kind of get better from there?
Blake Grayson
Right. So, again, I mean, our full-year guide is in line or better than it was in the previous quarter. So, we're staying in line or better in that guidance. I think that, like we've talked about and referenced a couple times on the call, that the strength in the on-time renewals is what has driven that outperformance in the first half of the year. And so, and then the pressure, like you noted on DNR and expansion rates and macro uncertainty creates volatility for us. And frankly, over the long term, and I'm not putting a timeline on that, but it's how do we really reaccelerate growth and particularly around the product innovation that we have in front of us. And so as a company, I would tell you that 70-plus percent of our time as a leadership team is on how do we evolve this product roadmap in a way that customers like, appreciate, and provides us the opportunities for expansion. And so that's what we're solely focused on, and we believe that if we can deliver on that roadmap, that the results will show themselves. I agree with that.
Heather Harwood
And I would just say, in my mind, the best thing that happened this quarter, yes, I'm proud of the solid execution to the team. But the fact that we were able to present our vision and roadmap to customers and partners and that they validated, enthusiastically validated that everywhere I went was incredibly gratifying and tells us I think we're on the right path. So I think we're very bullish on the long-term future for DocuSign, and I think that bullishness just became more pronounced as a result of the sharing of the roadmap and the feedback that we got. That is our goal is to deliver against that, and I think if we do that, all will be very – all will be well. Maybe to close, thank you, everyone, for joining us today. We're pleased with the results and feedback, and we're driving transformation here at DocSign. We want to balance our product investments with operational efficiency and drive shareholder value.
Blake
Thank you for joining us.
Operator
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
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