DocuSign, Inc.

Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's second quarter fiscal year 25 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 you require operator assistance at any time, please press star zero. I will now pass the call over to Heather Hardwood, Head of Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon and welcome to DocuSign's Q2 Fiscal 2025 Earnings Call. Joining me on today's call are DocuSign's CEO, Alan Teegerson, and CFO, Blake Grayson. The press release announcing our second quarter fiscal 2025 results was issued earlier today and is posted on our investor relations website, as well as a published version of our prepared remarks. Before we begin, let me remind everyone that some of the 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, 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 billing. 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?

Thank you, Heather, and good afternoon, everyone. DocuSign drove another quarter of improved stability and greater efficiency while introducing the new IAM platform that we believe will be the foundation for future growth. During Q2, revenue was $736 million, up 7% year-over-year for the second consecutive quarter. Dollar net retention was consistent versus Q1 at 99%. Continued improvements in customer usage and utilization further supported stability, which Blake will describe in more detail. Non-GAAP operating margins increased to 32%, an all-time high and significant improvement versus Q2 fiscal 24 at 25%. Free cash flow generation remained strong, approaching $200 million, resulting in a 27% yield for the quarter. This efficiency allowed us to opportunistically allocate capital by repurchasing $200 million worth of shares during Q2. Our strong results reflect continued progress across our three strategic pillars, accelerating product innovation, evolving omnichannel go-to-market capabilities, and improving operating efficiency. Let's turn to product innovations. In Q2, we shipped the first version of our Intelligent Agreement Management, or IAM, platform. This is the most important launch in DocuSign's recent history because of the value we believe IAM will create for our customers. IAM addresses the massive $2 trillion in lost economic value each year experienced by organizations for managing agreements. In Q2, I am launched to small and mid-sized commercial customers in the United States, Canada, and Australia. It's very early days, but the initial results and customer feedback are promising. So far, IAM customer win rates are higher, average deal sizes are larger, and time to close with customers is faster. Customer deal count and bookings are increasing month over month, with August being larger than June and July combined. Overall, preliminary IAM adoption momentum is tracking as planned, and we look forward to the continued rollout to additional segments and geographies throughout the rest of the fiscal year. Customer feedback captures the value IAM is already delivering. The customer is focused on strong ease of use and fast time to value. Legal service provider Mass Tort Strategies tells us that with IAM, They anticipate saving thousands annually now that their completed agreements are organized and easily searchable. And Midwestern Healthcare provider, Relia Health, said that they were impressed by how quickly they put IAM to use, and within a few days, they were using DocuSign Navigator as the organization's central agreement repository. We're focused on continuously introducing and enhancing IAM's value to more customers. Before the end of this fiscal year, we will make IAM available for departmental use within large enterprise organizations in multiple languages and additional geographies and for purchase via self-service channels. In 2025, we'll unlock moving from departmental level adoption to organization-wide deployments in large enterprises, add more languages, and introduce more features to escape the agreement trap. Our rollout timeline allows us to use customer feedback to refine our product and go-to-market strategies, ensuring we meet customer needs with a long-term and sustainable approach. Let's turn to the second strategic pillar, our omnichannel go-to-market. In Q2, we drove further stabilization in our core business. Overall customer growth remained consistent at 11% year-over-year for the fourth consecutive quarter while envelope set and contract utilization models improved compared to last year. Digital and international revenue continued to outpace overall growth and remain large long-term opportunities. In addition, we're focused on continuing to upgrade and enable our sales, partner, and self-serve strategies to sell IAM. The direct sales force continued to show improved execution. direct customer growth remained strong with a 12% year-over-year increase. And large value customers with over $300,000 in ACV saw modest acceleration benefiting from the impact of our retention efforts. TLM also continued to outpace overall revenue growth. Lastly, IAM enablement across our sales force was a key priority in Q2. In Q3, The remaining teams in our Salesforce will complete IAM training and certification, including our enterprise-focused teams and teams outside the initial launch markets. Turning to our other routes to market, this quarter we're providing more context on the partner and self-serve channels, where we've increased focus and investment. In the partner channel, we've strengthened our strategic relationship with Microsoft, SAP, and Salesforce. Our Microsoft collaboration now includes dedicated co-selling through the Azure Marketplace and co-pilot integrations, driving increased customer volume. We aim to build similar success with SAP, especially with the newly launched CLM Ariba integration announced at SAP's Sapphire events. Also, we continue to partner deeply with Salesforce, which remains our largest go-to-market partnership with tens of thousands of jointly deployed customers. We'll have more to share about this partnership at their Dreamforce event in a few weeks. Improving our partner and sales channels has led to enterprise customers adopting DocuSign across a growing set of use cases. A prime example is Canva, the leading online design and visual communications platform, which has deeply integrated DocuSign workflows to support its rapid growth. This quarter, the Microsoft integrations and co-selling agreements led to deeper agreements with global banking and insurance customers, as well as with the Fortune 100 retailer. And a leading human capital management provider has integrated e-signature functionality directly into its core product offering, allowing its customers to drive faster onboarding with new employees. We anticipate continued partner-enabled usage evolution as IAM rolls out. Evolving our self-service capability has also been an important priority. Over the last 12 months, we've invested in building this infrastructure. Digital revenue growth has outpaced overall growth, demonstrating continued positive impact from our focus on e-commerce and execution. Our goal is to continuously improve the ability for customers to discover, try, use, and buy our products digitally. further enabling greater scale and efficiency across our business. Today, new and existing customers worldwide can use our digital platform to more easily move from free trials to paid accounts, upgrade their plans, and expand to additional products, such as ID verification and SMS delivery, all without engaging a sales rep. We've introduced improved personalization on DocuSign.com, integrated new payment options in international markets, to improve conversion rates. We expect continued strong e-commerce execution and delivery as we expand our digital growth and prepare for self-service IAM purchasing. We're excited to welcome new Chief Revenue Officer Paula Hanson and Chief Technology Officer Shachnik Nandi, who both hit the ground running after starting in early August. Paula and Shagnik bring large-scale experience selling and building enterprise customer solutions and complete an already strong leadership team. We're excited to continue our transformation journey. IAM represents a massive opportunity to leverage our market leadership and unlock incredible value for our customers as a system of record for agreements.