DocuSign, Inc.

Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's third quarter fiscal year 2026 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 Matt Sonnefelt, Head of Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon and welcome to DocuSign's Q3 Fiscal 2026 Earnings Call. Joining me on today's call are DocuSign CEO, Alan Teegerson, and CFO, Blake Grayson. The press release announcing our third quarter fiscal 2026 results was issued earlier today and is posted on our Investor Relations website. along with a 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, including any statements regarding future performance. 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 factors affecting customer demand and adoption 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.docuSign.com. I'd now like to turn the call over to Alan.

Thank you, Matt, and good afternoon, everyone. Q3 was a standout quarter for DocuSign. We delivered one of the higher growth quarters over the past two years, driven by continued customer investment in core products and the Intelligent Agreement Management, or IAM, platform. Revenue was $818 million, up 8% year over year, and billings were $829 million, up 10% year over year. Our ongoing commitment to operational efficiency once again delivered strong profitability with a non-GAAP operating margin of 31%. Free cash flow grew 25% year over year to $263 million and a 32% margin, supporting $215 million in share repurchases, our largest quarterly buyback to date. We're executing effectively across our three strategic pillars. meeting growing demand for DocuSign IAM and eSignature with an improving go-to-market motion, maintaining the rapid pace of platform evolution and AI innovation, and driving greater operational efficiency. We remain focused on our long-term goal to deliver sustainable, profitable, double-digit growth. Let's start with our go-to-market motion, which has been instrumental in driving IAM's growth across commercial and enterprise customer segments. By the end of Q3, more than 25,000 paying direct and digital customers had adopted IAM, up from more than 10,000 in April. We remain on pace for IAM to represent a low double-digit percentage of recurring revenue at year end. We're also encouraged by the early strong retention rates in our first IAM renewal cohorts, as well as the continued trend of IAM customers increasing their e-signature usage after moving to the IAM platform. IAM is a system of record that enables customers of all sizes to ingest a vast complex body of agreements into a single repository, build agreement workflows that operate at scale, and take action on high-accuracy insights from agreement data. IAM builds on a track record of enterprise customers working with DocuSign to realize a 75% faster contracting cycle and an 81% improvement in document turnaround time. That value resonates with customers across all segments. One of DocuSign's top 10 customers became our second largest this quarter through a multi-million dollar commitment to IAM. In the commercial space, Perceptix, which provides an AI-powered employee experience platform, generates new documents in 99% less time, while the administrative offices in San Miguel County in Colorado have cut agreement finalization time by 96%. The broader e-signature business also performed well in Q3. Dollar net retention improved by 2 percentage points year-over-year to 102%, continuing to benefit from steady demand and sales-driven executions. eSignature customers continue to increase overall usage with utilization rates at multi-year highs and consistent positive growth in envelope sent. New York Life, the largest mutual life insurance company in the U.S., streamlined critical end-to-end workflows for agents and millions of policyholders by integrating eSignature with Salesforce and now has 65% of all customer agreements signed within just a few hours. DocuSign CLM remains a top choice for enterprise customers with sophisticated workflows, and it will become even more valuable as we integrate CLM with DocuSign Navigator, our intelligent repository, and other IAM features. In Q3, DocuSign was also named a leader in the guard dramatic quadrant for CLM for the sixth year in a row. Also, international revenue shows sustained growth and is now approximately 30% of our overall business for the first time. Our sales efforts continue to support international expansion, and in Q3, we hosted momentum events for customers and partners in Sydney, Singapore, and Tokyo. This year's momentum series drew three times as many attendees in 2024, reflecting growing interest in IAM. Across all segments and geographies, we're deepening our solution selling motion. Greater engagement and stronger customer relationships help deliver the business resilience and consistency we've seen over the last two quarters. Turning to product innovation, we're rapidly adding new features to IAM as DocuSign matures from a single product company into the category-leading platform in agreement management. Earlier this week, we launched Agreement Desk, an internal central workspace to keep teams aligned so agreements are processed faster, and our first AI contract agents now in beta. Agreement management is a $2 trillion global market problem, and over the past 18 months, we've helped tens of thousands of customers begin to solve it. From the beginning, a key part of our IAM platform vision has involved combining a decade of in-house AI experience with leading third-party innovation. We believe IAM excels in several key areas. First, unmatched proprietary data. Models trained on the best data deliver the best, most accurate results to customers. One of DocuSign's biggest differentiators is our enormous library of consented private agreements covering a wide variety of contract types, clauses, customer segments, languages, and verticals. We estimate that by training IAM on this rich body of private data, we can achieve a 15 percentage point improvement in precision and recall compared to our models trained on public contract data. On a 100-point scale, a 15-point jump in accuracy is a game changer, especially when managing business-critical workflows and legal contracts. When customers adopt IAM, their e-signature documents are automatically available in Navigator, and they can include virtually any other agreements as well. To date, we have approximately 150 million opted-in customer agreements ingested into Navigator, including 20 million in October alone, up approximately 140% over the past two quarters. Our average new IAM customer has over 5,000 active contracts. Second, an unrivaled ecosystem. DocuSign has more than 1,000 third-party integrations and enterprise-ready APIs that connect the agreement process directly into the core business systems that customers already use. In Q3, we expanded our ecosystem by adding new AI tools and platforms. At our annual DocuSign Discover Developer Conference in October, we announced that IAM will be available in ChatGPT. and can also connect to Anthropic Quad, Gemini Enterprise, GitHub Copilot, Copilot Studio, and AgentForce, all using the Model Context Protocol or MCP server that's currently in beta. At Discover, we also launched APIs that enable customers to connect Navigator and Maestro to third-party systems and proprietary internal apps. In October at Dreamforce, we received a Salesforce Partner Innovation Award in the tech category for our DocuSign for AgentForce solution, which accelerates deal velocity by surfacing agentic action and AI powered agreement insights inside of AgentForce. The expansion of our ecosystem partnerships and native integrations reinforces our position as the essential agreement layer across the enterprise. And third, trustworthy AI at an enterprise scale. Our largest customers have millions of agreements in Navigator, and our AI models are designed to handle hundreds of millions of agreements efficiently. In addition to scalability, customers tell us that trust is paramount when deploying AI to manage sensitive agreement information. In a recent DocuSign survey, 70% of professionals said they trust a dedicated enterprise contract AI solution over a general purpose model for handling agreements. IAM draws on DocuSign's year-long track record of delivering highly secure solutions for some of the world's most security-conscious companies and meeting stringent standards of compliance, data security, and privacy protection. In Q3, IAM achieved FedRAMP moderate and GovRAMP authorization, and we expanded our identity portfolio by launching clear and risk-based verifications. For two years in a row, Newsweek has named DocuSign the most trustworthy software company in the U.S. In closing, our innovation is turning into outcomes for our commercial enterprise customers. We're realizing IAM's growing value in boosting productivity, saving time and money, and transforming their businesses. We're honored that in Q3, DocuSign's AI innovation garnered recognition on the 2025 Fortune Future 50 list which celebrates companies with the greatest long-term growth prospects, and the Inc. Power Partners Awards for companies that have proven track records supporting entrepreneurs and helping startups grow. I'd like to thank the entire DocDesign team for their commitment to putting our nearly 1.8 million customers first as we drive the evolution of the category-leading Intelligent Agreement Management Platform. IAM momentum continues to build, and we are focused on pursuing the vast opportunity ahead.