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Edited Transcript of DOCU.OQ earnings conference call or presentation 4-Jun-20 8:30pm GMT

Q1 2021 DocuSign Inc Earnings Call

SAN FRANCISCO Jul 20, 2020 (Thomson StreetEvents) -- Edited Transcript of DocuSign Inc earnings conference call or presentation Thursday, June 4, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Annie Leschin

DocuSign, Inc. - VP of IR

* Daniel D. Springer

DocuSign, Inc. - President, CEO & Director

* Michael J. Sheridan

DocuSign, Inc. - CFO

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Conference Call Participants

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* Bhavanmit Singh Suri

William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications

* Daniel Harlan Ives

Wedbush Securities Inc., Research Division - MD of Equity Research

* Patrick D. Walravens

JMP Securities LLC, Research Division - MD, Director of Technology Research and Equity Research Analyst

* Rishi Nitya Jaluria

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Robbie David Owens

Piper Sandler & Co., Research Division - MD and Senior Research Analyst

* Sean Michael Kennedy

Goldman Sachs Group, Inc., Research Division - Research Analyst

* Shebly Seyrafi

FBN Securities, Inc., Research Division - MD

* Stan Zlotsky

Morgan Stanley, Research Division - VP

* Sterling Auty

JPMorgan Chase & Co, Research Division - Senior Analyst

* Stewart Kirk Materne

Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst

* Taylor Anne McGinnis

Deutsche Bank AG, Research Division - Research Associate

* Walter Herbert Pritchard

Citigroup Inc., Research Division - MD & U.S. Software Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's First Quarter Fiscal 2021 Earnings Conference Call. 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. (Operator Instructions) I will now pass the call over to Anne Leschin, Head of Investor Relations. Please go ahead.

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Annie Leschin, DocuSign, Inc. - VP of IR [2]

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Thank you, operator, and good afternoon, everyone. Welcome to DocuSign's First Quarter Fiscal Year '21 Earnings Conference Call. On the call today, we have DocuSign's CEO, Dan Springer; and CFO, Mike Sheridan. The press release announcing our first quarter results was issued earlier today and is posted on our Investor Relations website.

Before we get started, I'd like to let everyone know that we will be participating in the William Blair 40th Annual Growth Stock Conference on June 10. As other events come up, we will make additional announcements.

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 around the impact of COVID-19 in our business, financial condition and results of operation are 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 as 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. Non-GAAP financial measures exclude stock-based compensation expenses, amortization of acquired intangible assets, amortization of debt discount and issuance costs from our notes and, as applicable, other special items.

In addition, we provide non-GAAP weighted average share count and information regarding free cash flow and billings. These non-GAAP measures are not intended to be considered in isolation from, or 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 press release, which again can be found at the Investor Relations website.

Now I'd like to turn the call over to Dan. Dan?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [3]

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Thanks, Annie. Good afternoon, everyone, and welcome to our first quarter fiscal year '21 earnings call.

For today's call, I will share updates and context around 3 primary topics: first, the company's business performance and financial results for the quarter; second, the ways that COVID-19 has led customers to accelerate their digital transformation initiatives for agreements; and third, our views on the future, based on the best data we have today.

Before I get to that, though, I want to acknowledge just how much life has changed since our last call. The COVID-19 pandemic has fundamentally shifted the global macroeconomic environment and impacted countless lives around the world. We've seen all manner of private, public and nonprofit organizations step up to help. And I'd like to take this opportunity to personally thank all the first responders, healthcare workers, medical researchers and local leaders who have made such a difference to the lives of so many.

At DocuSign, we've done what we can to step up, too, both in our initial response to the pandemic and as we all continue to adapt to this evolving impact. For safety reasons, in early March, we transitioned our more than 4,000 employees across 15 countries to a remote work environment. We offered $1,300 in assistance to employees for tools and services to help ease that transition. Then we offered additional programs and assistance to streamline the process even further.

We also mobilized resources to handle a surge in urgent needs from our customers. In some cases, this meant directly supporting COVID-19 responses by government agencies, healthcare organizations and those on the front line. In others, it meant helping organizations to keep their business processes running while their workforce has transitioned to remote work. I'll give you specific examples later, but suffice it to say that over this time, we had a lot coming at us.

To make this transition while maintaining the highest levels of platform availability, customer service and remote onboarding, all while facing unprecedented levels of customer demand is nothing short of exceptional. I'd like to salute the truly extraordinary efforts of the DocuSign team for their agility and commitment to our customers' success.

Now this collective effort is reflected in our Q1 results. Our billings grew 59% year-over-year to $342 million, and revenue grew 39% to $297 million. This strong growth was driven by use case expansion across a broad cross-section of our installed base as well as adoption by new customers. We added more than 10,000 net new direct customers and almost 58,000 self-service customers, bringing our global total of paying customers to nearly 661,000. And our operating margins and cash flow remain strong, even as we made key investments to address this heightened demand.

Much of the strong Q1 performance was driven by increased demand for eSignature from organizations that suddenly needed a way to sign and manage agreements from wherever they were. Typically, eSignature is the first step that many customers take on their broader digital transformation journey with us. So from a financial point of view, we believe this surge in eSignature adoption bodes well for future Agreement Cloud expansion.

Now let me share some examples of how we've helped our customers respond to COVID-19 and keep their agreement processes up and running amid the pandemic. We work closely with a global pharmaceutical company to accelerate its eSignature expansion to hundreds of use cases across 80 different countries. This is a pattern that we saw many times over the quarter.

A customer already had a plan to expand and COVID-19 greatly accelerated it. We engaged a new public sector customer, the Department of Labor in one of the largest U.S. states, to help transform its previously complex and lengthy process for handling emergency unemployment benefits. Supported by DocuSign eSignature, the department distributed over $500 million in benefits to more than 500,000 residents in less than 1 week. We enabled hundreds of U.S. national and regional financial institutions to accept applications for small business administration loans more efficiently.

At one of those large banks, we were involved with over 0.5 million loan applications, 75% of which were signed in less than 24 hours. We worked with a regional telecom provider using DocuSign Intelligent Insights, which is our contract analytics tool, to analyze potential pandemic-related risks in thousands of their supplier contracts. Finally, we helped a European telemedicine provider issue e-prescriptions and online sick leave certificates by using our video identification capability to confirm the patient's identity. They're just a few examples. You can find many more on our dedicated COVID-19 web page.

Let me speak briefly about where we see things going from here. While no one is 100% sure what the world will look like, it's clear that the ways of doing business are changing. Remote work is here to stay. Core business processes will only become more digital and agreements will need to be completed from anywhere, at any time, on almost any device. As a result, for organizations that hadn't already embraced DocuSign for eSignature, where they were only using us for a few select use cases, the pandemic has been a catalyst for the greater digital transformation of their end-to-end agreement processes.

We always believed this transformation will happen and that a unifying platform for agreements would be needed. With COVID-19, it's just happening faster. That said, even when the COVID-19 situation is behind us, we don't anticipate customers returning to paper or manual-based processes. Once they take their first digital transformation steps with us and they realize the time, cost and customer experience benefits, they rarely go back.

So in short, we expect the adoption of our core eSignature offering by new customers and the expansion of use cases by existing ones to continue. This also acts as the on-ramp for the adoption of other agreement cloud products, sometimes at the same time and sometimes as follow-ons. Of course, as Mike will tell you, we are not immune to the broader economic forces at play. Some businesses and industries will continue to contract. Some will continue to expand. Some of our customers may request payment deferral and accommodations and some will require even more hands-on support and assistance.

Even with these dynamics, our view of the business remains optimistic. We're off to a good start in the second quarter as digital transformation remains a high priority. We feel truly fortunate to have built solutions that can help customers carry on through this time of crisis, and to deliver even greater value as we transition to a world where work becomes more digital and more remote. In the meantime, we will continue to do whatever we can, wherever we can to help our customers succeed.

With that, I'd like to hand over to Mike to walk us through the financials in more detail, and I'll talk to you again when we get to the Q&A. Mike?

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Michael J. Sheridan, DocuSign, Inc. - CFO [4]

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Thanks, Dan, and good afternoon, everyone. As Dan mentioned, the worldwide shift to remote work has accelerated digital transformations across organizations and has resulted in unprecedented levels of demand for DocuSign products. We believe this accelerated growth in new customers and expansion within our installed base was driven by a sudden prioritization of our products, but we also believe that these customers will remain with us because they are realizing the value that our solutions deliver in any working environment.

Strong sales led by our eSignature solutions drove a 59% year-over-year increase in first quarter billings to $342 million. This growth also drove a 39% year-over-year increase in total revenue to $297 million in the first quarter. Subscription revenue increased 39% year-over-year to $281 million.

We saw similar strength outside the U.S. as total international revenue grew over 46% year-over-year to $55 million. This quarter, we added almost 68,000 new customers. Of those, approximately 10,000 were direct customers, an increase of 43% year-over-year. This brings our total customer base to nearly 661,000 worldwide, with roughly 89,000 direct customers. These totals include a catch-up adjustment of 4,000 direct customers related to review and reconciliation of prior year customer acquisitions. Strong eSignature expansions and upsells into our existing customer base led to dollar net retention of 119% in the quarter.

Customers with ACVs greater than $300,000 grew 46% year-over-year to a total of 473 customers. Total non-GAAP gross margin for the first quarter was 79%, consistent with 1 year ago. Subscription gross margin was 84% compared with 86% 1 year ago. Margins were impacted by investments we made in our data center capacity, particularly for hosted services, to ensure our ability to meet significantly higher transaction volumes. Non-GAAP operating expenses totaled $210 million or 71% of total revenue in the quarter, compared with $160 million or 75% of total revenue in Q1 of last year.

To address current demand and prepare for future growth, we pulled forward some of our sales capacity hires and expanded our marketing efforts, leading to higher sales and marketing expenses in the quarter. Additionally, to help ease the transition to remote work after closing our offices in early March, we've provided employee stipends for virtual workspaces and other COVID-related expenses. These costs were partially offset by a decrease in travel and entertainment expenses due to the recent pandemic.

We generated $23 million in non-GAAP operating profit or an 8% operating margin in the quarter. This compares with $10 million or a 5% operating margin in the first quarter of last year. Non-GAAP net income was $24 million in the first quarter compared with $13 million in the first quarter of last year. We ended the quarter with 4,281 employees, an increase of 33% over the first quarter of last year. Operating cash flow in the first quarter increased almost 30% year-over-year to $59 million compared with $46 million in the same quarter 1 year ago.

CapEx increased during the quarter due to leasehold improvements and expansions to our existing offices as well as the scaling of our federal data center. Free cash flow came in at $33 million compared to $30 million 1 year ago.

Now let me turn to guidance. We anticipate that total revenue will range between $316 million and $320 million in Q2 and $1.313 billion to $1.317 billion for fiscal '21. Of this total, we expect subscription revenue of $298 million to $302 million in Q2, and $1.243 billion to $1.247 billion for fiscal '21. For billings, we expect $333 million to $343 million in Q2, and $1.515 billion to $1.535 billion for fiscal '21. We expect non-GAAP gross margin to be 78% to 80% for both Q2 and fiscal '21.

For operating expenses, we expect sales and marketing expense in the range of 48% to 50% of revenues for Q2 and 47% to 49% for fiscal '21. We expect R&D expense in the range of 14% to 16% for Q2 and 13% to 15% for fiscal '21, and we expect G&A expense in the range of 9% to 11% for both Q2 and fiscal '21. For the second quarter, we expect $2 million to $3 million of non-GAAP interest and other nonoperating income. And for fiscal '21, we expect $8 million to $12 million of non-GAAP, interest and nonoperating income.

We expect a tax provision of approximately $2.5 million to $3.5 million for Q2, and $6 million to $10 million for fiscal '21. Finally, we expect fully diluted weighted average shares outstanding of 200 million to 205 million shares for Q2 and fiscal '21. As a reminder, we closed the Seal acquisition on May 1, so all of the guidance I just provided include the anticipated impact of Seal.

Since we anticipate that Seal will add less than 1% to our top line performance, we don't expect it to impact our near-term growth rates. Costs and operating expenses related to the Seal business are also a small part of our total expenses however, we expect in the near-term that they will have a small dilutive effect on our gross and operating margins.

Thanks for joining us today. And now we will open up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Sterling Auty from JPMorgan.

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Sterling Auty, JPMorgan Chase & Co, Research Division - Senior Analyst [2]

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Glad everybody is safe and healthy. Just wondering if you can give us a sense of vertical industry volumes or maybe percentage of revenue. Is this primarily focused on a few key industries like finance? Or are you seeing broad spread increase in adoption?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [3]

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I think it's fairly broad. We don't have any one industry that is a significant portion. We have a lot of strong industries, and some of those like financial services did particularly well, like the specific example I gave around the SBA loans, Sterling. We also saw a lot of strength in healthcare and life sciences. We also saw the government sector being very strong as a lot of folks had that phenomenon we described. They knew at some point, they were going to have to do more digital transformation to their business and COVID-19 has accelerated it. So we see that being very broad.

Obviously, there are some industries, if you think about particularly hospitality and travel that we see that have been weakened industries. And some of those, to continue running their business, need to run on DocuSign. So we haven't seen some sort of collapse or anything, but we would see less growth in those segments that are hit harder. And that's kind of how we're seeing it across the board.

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Sterling Auty, JPMorgan Chase & Co, Research Division - Senior Analyst [4]

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Great. And then 1 quick follow-up. You mentioned investment in capacity. Can you give us a sense of what capacity utilization in the DocuSign platform system is? And perhaps what additional investments might be necessary to keep up with the increasing volume?

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Michael J. Sheridan, DocuSign, Inc. - CFO [5]

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Yes, Sterling, I think when we're talking about capacity, it's a couple of things. First of all, in terms of our capacity to manage volumes, we have plenty of headroom. We've always remained well ahead of the curve in ensuring that our capacity is ahead of the volumes that we're seeing. And even when we had spikes with COVID, we have data that demonstrates that we were very safely above any capacity constraints.

When we look at capacity to -- that can impact things like our gross margins, expanding our customer support organization as an example, our customer success organization as an example to deal with issues that come up there. Some of our hosted bandwidth for Canada and for Australia, where we don't have our own proprietary data centers, transaction volumes can have an impact there.

But overall, I think we entered Q2 very comfortable that we had put ourselves in a position to deal with whatever transaction and other volumes are going to materialize.

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Operator [6]

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Our next question is from Bhavan Suri from William Blair.

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Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications [7]

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Congrats. It was a phenomenal billings number and the acceleration in NDRR. So congrats on a great quarter.

I wanted to touch on the sort of a more structurally complex question I guess. When you think about the eSignature product is great and you think about sort of real estate and some of those are fairly straightforward concepts, but you're seeing a lot more complex workflow. I guess I'd love to understand, a, when you think about the complex workflows, what do you find are the most exciting ones, the sticky ones, the ones that will continue over time?

And then sort of as you think about that, is that driven by you? Or is it driven by people who are building really complex workflows like the notary parts, not having a notary in person for a mortgage or something like that? But the cottage industry is developed around DocuSign.

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [8]

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Well, I'll give you a couple of thoughts on that. I think the first piece is we get most excited when people build workflows that integrate with our software and leverage APIs. And almost 2/3 of the transactions that occur on our platform are not from someone going into our web or mobile interface and creating a document to be signed, or for that matter, in a CLM framework, a document to be routed around and managed. It's from people who are actually building integrations to their systems, and that can be the prebuilt integrations we have with SAP and Salesforce.com and Workday, other great SaaS businesses. And it can be APIs, they've integrated themselves using our developer tools. So those are the ones that we get most excited about because, as you indicate, are the stickiest.

And the second dimension that I would think about is we get really excited about the situations where, as I said, people sort of run their business on DocuSign. So if those are back office use cases where they might be managing their financial processes and their PO processes and all of those get integrated through those back office tools into DocuSign, that's great. But also in the front office situations, particularly -- and you mentioned real estate, when you see something like a mortgage product or a digital rooms product, and there's multiple players involved so whether or not they're all using API calls, but there's multiple individuals that need to have an agreement routed around to them and those front office use cases can then sometimes be quite complex, leverage the functionality and the capability we've built, very sticky because the ROI is so high for companies and so important that they have a great customer experience, which is why we get such a high Net Promoter Score for because our customers' customers like using DocuSign with our customers.

So those would be the 2 dimensions I would point to that I think we're most focused on when we talk about building those deeper integrated use cases.

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Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications [9]

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That was very helpful. And then one quick follow-up here. Obviously, there was the PPP program and things like that. You alluded to some of these sort of onetime events. Now obviously offset by maybe lower mortgage applications, right, because of the environment. But is there a way to give us some color of how much you feel like part of the business, the growth that billings was sort of a onetime aspect? And again, offset by a decline, what's the reg rate, regular rate business, but just trying to understand sort of what that onetime bump might have been. If you can give any color around that?

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Michael J. Sheridan, DocuSign, Inc. - CFO [10]

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Yes. There definitely will be some examples that are use cases that are more project-oriented or onetime in nature. We see that as the extreme minority. What we really saw was that companies largely had either begun with us and had not gotten to scale or were thinking of moving on to DocuSign, but it wasn't as high on the hierarchy listed as other priorities. And the recent events pushed us up that priority list and also accelerated some of the scale that our existing customers were experiencing. So there was the effect of recent events in the coronavirus that maybe brought some of that demand to us.

As I mentioned in my script, we believe strongly that it will stay with us because the value proposition that we're selling is the same. And what they're realizing from that value proposition is going to apply to a work-from-home environment, but it's also going to extend to whatever our remote working or in-office working looks like in the future.

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Operator [11]

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Our next question is from Rob Owens from Piper Sandler.

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Robbie David Owens, Piper Sandler & Co., Research Division - MD and Senior Research Analyst [12]

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I was hoping you could expand a little bit around the federal sector. And I know you've been building out the data center for a couple of quarters, which is cost -- cost CapEx, excuse me. But in terms of where it ranks now in terms of verticals and really where this opportunity could go over the next couple of years.

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [13]

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Yes. Absolutely. And I think government overall is an important vertical for us, although as I mentioned before, it's -- no one vertical is a dramatic portion of our revenue. And we don't see government overall in the top couple, but it is an important and growing segment nonetheless.

I mentioned some of the examples I gave around government, if you think about the state and local segments. In the state example, I gave around sort of the health and human services side and people doing processing of emergency needs to get unemployment benefits to folks. We saw that as a very strong quarter for us, and we've had a lot of momentum there.

Federal had been newer for us. And because part of that was getting the FedRAMP certification, that was required to serve a lot of folks. And now we're building the dedicated data center as you referred to, which will unlock another set of opportunities for us with different federal agencies.

But we also have also mentioned before, and we see this as well, that even in a COVID-19 situation, we may see that some aspects of the federal government still moves a little bit more slowly than some of the other private sector in terms of adoption of digital technologies. So we will be a patient provider to them as a customer. And I think from a long-term perspective, we continue to see this as a dramatic growth opportunity.

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Robbie David Owens, Piper Sandler & Co., Research Division - MD and Senior Research Analyst [14]

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Great. And then second for Mike. Your days billings outstanding has been running a little higher, I guess, over the last couple of quarters than the 3 prior. Just curious if this is just deal sizes getting larger, so payment terms are getting extended. And was there anything relative to concessions for customers in the quarter given the pandemic?

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Michael J. Sheridan, DocuSign, Inc. - CFO [15]

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Yes. So Rob, I think when we track it internally, and we can offline go through that with you, I think our DBOs have actually been pretty stable. That said, we are -- we remain disciplined around not extending payment terms as we get larger and maintain good, healthy deal dynamics around that.

Did we get some inbound requests for slower payment? We did, and it was more or less anecdotal. But when it came in, we were responsive to it, especially if you have smaller businesses that were a bit cash strapped. We try to be responsive to that.

What we wouldn't do is we weren't changing the underlying contract terms, but we are allowing our collections organization to give more latitude and back off when companies needed a little more room.

So there was some of that in the quarter. It didn't really change major trends in our cash flows. But I think if we see some of that materialize in the coming quarters, we'll respond in a similar way.

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Operator [16]

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Our next question is from Pat Walravens from JMP.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Equity Research Analyst [17]

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Great. One for each of you, if that's okay.

Mike, for you first. I'm just wondering how much of the growth -- and I know you don't actually give this out, but some context would be great. How much of the revenue growth comes from the self-service channel? And because if I look at that, I mean, your number of direct customers went sort of from 6,000 to 10,000 from Q4 to Q1, but the self-service went from 21,000 last quarter to 58,000.

And the context there, as I'm sure you listened to yesterday, is that Zoom's guidance was pretty flat versus having just this massive Q1 because of their concern that those smaller customers that signed up for Zoom might churn off as we open back up. So I'd just love to hear your perspective on that.

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Michael J. Sheridan, DocuSign, Inc. - CFO [18]

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Yes. Let me start on the churn perspective. We don't think that our situation is analogous to Zoom volumes and so forth. As I mentioned previously, we believe that, of course, our business, like any, has churned. We think it's going to remain pretty stable because we think that the value propositions, again, we're delivering are sustainable, whether it's a work-from-home environment or not.

In terms of contribution from our e-commerce platform, our self-service business. In Q2, it was about 12% or 13%, which is pretty consistent with what it has been in the past. Remember that the significant majority of our customers come to us through e-commerce, albeit that they represent a relatively small percentage of our revenue. But there's 2 really important dynamics to that.

There's some critical verticals that are serviced in there, verticals like real estate. It's a source for many of our customers when they first engage with us to then graduate and move up to a direct relationship with us. And it's also a major driver of brand and awareness for our products. So while it's a relatively smaller percentage of our top line, it's a critical element of the overall model.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Equity Research Analyst [19]

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Super helpful. And then, Dan, for you, just sort of around why it takes so long to adopt something. So you mentioned mortgages, we just refinanced our mortgage. And incredibly, at the end of the process, a very nice notary came to our house with a mask on and gloves and met us in the backyard where we had masks on and gloves and handed us 50 pages that we signed with our own pens. And this bank is one of your customers, right? And so they're using it in some parts. But for whatever reason, they aren't using it for the mortgages.

So why not -- what's the challenge there? It seems like such an obvious use case, why isn't everyone using DocuSign for their mortgage signings?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [20]

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I ask the banks that question every day, Pat. That's, as you can imagine, something we pose to them as well.

I think the reality is there's 2 things that I would point to that stop adoption where the consumer proposition is so high, as an example, you just said, with the need for a remote model for notary. And I think they really come in, as I said, 2 buckets. The first one is this perceived regulation, and we see a lot of times, companies will say, oh, yes, that's not legal here. It's not allowed. And of course, it probably is, but it's just practice. And people have done something for a long time. We see this in -- with some of the attorneys and the legal profession who use -- do a lot of contracts and agreements, and they'll say, oh, yes, we love DocuSign, but we can't do it for these types of contracts. Oftentimes, they're incorrect. They just don't -- they don't understand that.

And then the second thing that I think occurs is that we have the -- on the consumer side is changing that behavior, and that's sort of the organization needs to change, whether it's the company or the end consumer. And change management is not trivial.

We see that a lot in back-office situations where, as an example, if you're using -- and your HR department is onboarding employees, and they're used to doing that by sending offer letters in the mail, filling out I-9s in-person when people would show up. And one of the things that's great about COVID-19 is we realize people have to onboard employees without doing that. And so the offer letters now are going out with DocuSign and the I-9 can be done remotely. And so I think it's just one by one, we kind of have to hit each of those barriers that are usually perceived, not real from a legality standpoint.

And on the notary side, just to give you the last comment, I mean, that's an area we see as a big growth area for us. And we believe we're going to be, in the coming quarters, talking a lot more about how we want to expand on the capability to meet our customers' needs across a variety of solutions to make notary easier for people. But that's -- I think those are the reality of things that we face as the hurdle to driving that adoption.

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Operator [21]

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Our next question is from Rishi Jaluria from D.A. Davidson.

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Rishi Nitya Jaluria, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [22]

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I hope everyone is staying safe out there. Wanted to start by just drilling down a little bit more on the billings. Obviously, a really impressive billings number and a nice acceleration. Wondering if you could give us a little bit more color on what drove that?

And given the guidance that calls for what looks to be a little bit of a decel in Q2 and then a little bit of an acceleration from that in the back half of the year, was there any kind of pull forward of billings that you expected in Q2 that got into Q1? Just any kind of color in bridging these together would be helpful. And then I've got a follow-up.

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Michael J. Sheridan, DocuSign, Inc. - CFO [23]

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Yes. So a couple of things. One of the exciting parts of Q1 was we had a lot of things contributing to that growth. We had, as you heard, large growth in direct new customers. We had 10,000 in the quarter. We also had really strong expansion inside the installed base. Our dollar net retention hit the high end of our range to 119%. So we really saw strength across all those primary growth areas.

I think if you look at the cadence between quarters, I've always talked about look at the billings statistic as a rolling 4-quarter average as opposed to a particular data point. I think if you look at last year's Q1, as you recall, it was a little bit lower. If you look at last year's Q2, it was pretty strong. So you'll see some of that dynamic impact the percentage. Overall, again, if you look at it on an average basis over the course of the year, I think the growth is pretty correlated to the underlying growers in the business.

So those were what are really contributing to it. Obviously, in Q1, the suddenness of people having to change their work habits is a single data point that we wouldn't want to draw a trend line through that single data point too aggressively. But we are entering Q2, continuing to see good start. So we're incorporating all of that into the guidance that I gave you.

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Rishi Nitya Jaluria, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [24]

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Great. That's helpful. And then kind of a little bit of a follow-up. It seems like, among other trends that you're benefiting from, one of them would be not just work from home, but the longer-lasting one of companies kind of having travel bans and more contract agreements and negotiations being done virtually. And that's probably longer-lasting than kind of work from home.

So I wanted to get a sense, a, is that something that you're seeing as a big driver and more so on the broader agreement cloud versus solely eSignature?

And then, b, is that something that you're seeing as being a little bit more temporary in nature and maybe some of that benefit starts to dissipate as the travel bans go away? Or is this a major process change that you're viewing as more irreversible, so you're seeing it as maybe more sticky and long lasting?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [25]

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Yes. It's interesting. I actually think we think about work from home and the travel restriction in a very similar way. I think we believe that there's quite a lot of change that's going to occur. We see it, by the way, in our own company as we start thinking about coming back into the office and how we want to safely bring our employees back. As I mentioned at the beginning of the call, all 4,000-plus of our employees are working from home now. And we think that things have changed sort of forever. And we talk about this amongst our executive staff when we meet now that we're rethinking how we think about travel and we're rethinking about which jobs we believe need to be in an office or always in an office.

So I think we're going to see that the need for people to do their agreements, as you said, not just the signatures, but the overall agreement processes from remote setting is going to be real and increased. But as we like to think about it is that might be the impetus for people to, for the first time, say, this is the way I need to manage my business today because I don't have the ability to do manual paper-based processes in offices.

But then when they see the cost savings, the time savings and the better experience, I think they're going to look at it and say, I want all of my business processes to run this way. And even if some of the work from home and some of the travel mitigate those, so those restrictions mitigate, which I do believe they will, I don't think we'll be completely back to the old normal. But I think it will be somewhat that the need to have those digital services are going to be just as strong and they will maintain that usage. So that's kind of how we see that developing.

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Operator [26]

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Our next question is from Stan Zlotsky from Morgan Stanley.

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Stan Zlotsky, Morgan Stanley, Research Division - VP [27]

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Congratulations on a very strong quarter. A couple of questions from my end. First one on the -- just what you saw in the quarter, and maybe help us to bifurcate that between strength within the core eSignatures versus strength within the SpringCM CLM solution and the broader Agreement Cloud? And then -- and how are you thinking about that moving forward through the rest of the year? And then I have a quick follow-up.

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [28]

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Well, so I think one of the things that we saw was the dramatic portion of the acceleration that we wouldn't have seen pre-COVID-19 was signature-centric. And that's for a couple of reasons.

One, the ROI on eSignature is so incredibly high. So people have always found that when they have that opportunity to find solutions that, that can meet, it's a great answer for folks. And so I think we saw a lot of people say, this is a great opportunity to be smart about the way I run my business.

The second thing is when you think about your overall agreement cloud work, eSignature tends to be the entry point. One of the reasons we built such a signature business of scale before we broadened into the other Agreement Cloud is just the starting point for most people. And in fact, if you think about the broader CLM capability, if you don't have digital agreements or digital signatures on them, it's hard to think about a digital solution for managing your contracts and agreements. So you really go the other way first. So we think that's absolutely what happened.

And then the second phenomenon is that because we saw the need for remote work and for people to be able to get these transactions, both internal ones as well as external ones with customers, managed when people are working from home, there was, again, an urgency to get a lot of those eSignature projects up and running. And CLM, interestingly enough, tends to be a longer sales cycle. It's a -- usually, a statement of work is involved, some sort of systems integration or professional services involved. And I think we're seeing across the software world, the slightly more complex projects that are a little larger in initial scope, less land and expand and more one bigger entry point are the ones that are going to face a little pushback and delays. And so from a standpoint of the time to close those deals, those times would extend a little bit. So that's why we saw eSignature being particularly strong in the quarter.

When we look out over the next several quarters, we see that phenomenon will dissipate over time, some of the deals that might elongate from a Q1 into a Q2 and then some into a Q3, you continue to see some of those pushing forward into those later quarters, which will give us tailwinds there. But most importantly is all these new eSignature wins, if you think about those 10,000 direct customers that came in, a significant portion of those came in with eSignature. And in the quarters ahead, they're going to be our most fertile opportunity to cross-sell and expand their overall Agreement Cloud solution.

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Stan Zlotsky, Morgan Stanley, Research Division - VP [29]

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Okay. Perfect. That makes sense. And you started the call with really outlining the momentum that you're seeing across your business across different industries, and government is one of the ones that you mentioned. How are you thinking about the federal vertical as you get into the back half of the year with the federal purchasing and the federal fiscal year coming up. Is that an opportunity to perhaps close more business than you initially expected as you entered the year? That's it for me.

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [30]

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Yes. I think we're pretty bullish. As we talked about earlier on the call, I think we're very bullish about the government vertical. And to your specific question around timing of the year, remember, because our core business and eSignature is still the significant biggest part of what we bring to the government, is more of a land-and-expand model. We don't have the same phenomenon that you might see in some other software companies, where it's all about getting that end of year contract done, where there's a big sales cycle that maybe goes for a couple of years and they're trying to get a big splash at the end of the year. We tend to see it happening more evenly across the year.

So sometimes there's a budget cycle opportunity for us around something like a CLM deal, and we saw that. Remember last year, where we had the VA discussion where we had sort of a very large deal. But most of our government work and I'm specifically talking about federal here, really does occur in the land-and-expand model with lots of small expansions that we build over time.

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Operator [31]

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Our next question is from Kirk Materne from Evercore.

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Stewart Kirk Materne, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [32]

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Maybe just to start, Dan, and following up on the earlier question on the CLM side. You mentioned that, obviously, eSignature is the landing spot for most of your customers that come in. How long does sort of that [new] relationship have to gestate before you can start talking to them in a bigger way about CLM or some of the more sort of maybe more complicated services around the Agreement Cloud? Meaning if this cohort comes in -- this cohort, obviously, in a big way, is it 6, 9 months? I'm sure it differs on companies in terms of their sophistication.

But I'm just -- do you have any general thoughts on how that's trended at least over the last year in terms of when you'd start to see that upsell opportunity?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [33]

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Yes. So it's really interesting. Kirk, at the time of our IPO, one of the things we talked about when we had less broad of an Agreement Cloud set of offerings, but we had the phenomenon of the land-and-expand, and we shared some customer stories where we had some customers that started off very small with us and over a series of 6 years had grown into very large businesses, but there wasn't sort of necessarily an inflection point. It was a lot of small additional adds. Now in a signature-only world, that's what I would expect.

As you think about the broader Agreement Cloud, to your question, we are likely going to have scenarios where we do get a signature land, we continue to add additional use cases and expansion of eSignature, but also make a very large Agreement Cloud splash with the customer. And I think that can happen in that sort of 3, 4 quarters time period where they had a chance to implement signature, get that early success and win and the organization gets excited about DocuSign, and we come back to really start working on the Agreement Cloud.

Keep in mind that some of those other components do have a longer sales cycle and implementation. So even if within 1 or 2 quarters of a land with eSignature, someone expressed a lot of interest to a broader, let's say, a CLM solution, it would probably be several quarters from then before we got the sale done, got the statement of work in place, and you see that showing up as DocuSign revenue. So I don't think you should think about it as a quick hit. We should think about that as a nice, elongated revenue growth path for us to go into. That's sort of how I would generally think about the opportunity for us to do that expansion.

And the only other thing I would just add, though, is that when I look at our opportunity around the Agreement Cloud, the clear obvious thing to point to, as Mike talked about, with over -- well over 600,000 customers, the majority of those are signature-only, that's really the cross-sell opportunity. So it's not like we're thinking about the CLM sale opportunity and saying, well, we can't go talk to someone for CLM, other than the people that joined last quarter with Signature, we've got years of Signature customers that have sort of a pent-up opportunity for us to bring the Agreement Cloud, and that's where we're really focused today.

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Stewart Kirk Materne, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [34]

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That's really helpful and thanks for the color on that.

The other question I had was, obviously, with 10,000 new direct customers this quarter, it's a really nice job by your sales team being able to process that many deals, frankly. Were a lot of those sort of incremental deals that came in? Were they in the pipeline that kind of maybe came earlier? Were there a lot out of kind of left field that is just a really quick sales process? Can you just give us some color on that, maybe not a direct number, but when you think about how you're able to kind of accomplish that?

It seems -- obviously, again, kudos to your sales team. I was just kind of curious how many of those might have already been early stage relationships that accelerated versus customers that had -- you had never even talked to before that jumped on?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [35]

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Yes. Let me give you a couple of thoughts, and Mike have -- might have some additional perspectives as well. But the answer, as is the case with a lot of things at DocuSign, it's all of the above. We're such an unusual company in that we serve from the smallest customers up to the absolute largest customers across all verticals, across the variety of geographies. We sell in over 150 countries. So we are very broad.

And that's exactly what happened here. We had a good solid pipeline of business that had nothing to do, right, with COVID-19 that would have set us up for a solid quarter in Q1. And a lot of those deals then processed as we would expect to have happened, our sales team executed across those.

We also had, to the nature of your question, some additional much faster timeline deals where people came to us and said, I really need to get going with DocuSign. I've always known that, but I just haven't gotten around to doing it. So some of those were people who had conversations going on with us and those accelerated, and some that whole cycle was done within the quarter, where someone called us and said, you need to help me get up to speed quickly.

Some of the healthcare opportunities were big. If you think about the situation where you're trying to -- you're now trying to do COVID-19 testing, and you've never been an organization that did that kind of testing before, and now you say, I've got to figure out a way to get people's information and get them to fill out forms. Oh, but I don't want to touch them. I don't want to touch anything they've touched. I obviously need a digital solution for doing that. And we had sales cycles that happened in that in a matter of days, where people came to us, explained that business need that they had or that healthcare need that they had, and we were able to get up and running that use case. So it really was quite a range across each of those pieces.

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Michael J. Sheridan, DocuSign, Inc. - CFO [36]

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Yes. The one other piece to that question that you brought up that I think is important is, if you imagine back in March, when we very suddenly had to close our offices and send 4,000 people home, at that very same time, we had a dramatic increase in our demand. And we had to process that.

We talked about transactions earlier on our infrastructure. You mentioned the sales teams. There's the rev ops team that has to process that increased quantity from locations that they're not used to working. All of those things together, it really tested our environment. And one of the things that came out of Q1, very happy about is it was a very resilient environment, even with some of the pressures put upon us to have to change how we were doing our business.

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Operator [37]

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Our next question is from Walter Pritchard from Citi.

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Walter Herbert Pritchard, Citigroup Inc., Research Division - MD & U.S. Software Analyst [38]

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Two questions. Just the first one on the new business versus expansion. Is it safe to say you were seeing smaller new contracts as people just try to get up and running, and that leaves more of an expansion opportunity on those? Or did you see the reverse as people sort of understood that this is the way things were headed. Just curious how to factor in what you saw this quarter in terms of calibrating our expectations around expansion in the next few quarters?

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Michael J. Sheridan, DocuSign, Inc. - CFO [39]

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Yes. Walter. Yes, so a couple of things. I think one of the great strengths that we've talked a lot about with DocuSign is we sell to the very smallest businesses in our self-service e-commerce world, we sell to the Fortune 10 and we have strength selling into the mids and the majors and the small businesses direct through commercial.

So if we looked at the broad growth that we had over the course of the quarter, we talked a little bit before about there will be some anecdotal things around PPP or other project-based use cases. But if you look beyond that at the overall growth, Dan sort of touched upon how it's spread across verticals, it's spread across those segments as well. It really did. And it was a nice combination of new direct as well as expansion of scale within -- in the installed base.

So it was broad. Within there, there's going to be some pockets. Travel and entertainment might be one pocket that wasn't as strong. You might look at healthcare, life sciences that showed a bit more strength than a common quarter. But when I went back and looked at the complexion of the growth, it was nice and broad-based.

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [40]

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And then to your deal size, a very specific question, when Mike and I do a review, which we just did 2 days ago, where we look at our pricing and we look at what's different in terms of quarter-to-quarter in terms of how people are buying from us and what the nature of those deals look like, there wasn't anything in this quarter that would suggest larger deal sizes on average even within the segments that Mike was just walking you through. So I don't think there was anything notable.

I think the other thing to keep in mind is that when we talk about our land to expand opportunity, it's so significant that it's hard for me to imagine, Walter, that there could be some dramatic change in that initial land that would change the kind of upsell or long-term expansion opportunity because it's such a big multiple of our typical initial land. So I wouldn't expect anything different than our typical great growth opportunity from that going forward.

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Walter Herbert Pritchard, Citigroup Inc., Research Division - MD & U.S. Software Analyst [41]

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Okay. Got it. And then just curious how you're thinking about sales cycles if they permanently change? Or obviously, there's been a lot of awareness created in the market for your brand and so forth. Curious if you -- if adjust at all in terms of your forecasting this year, maybe longer term, the sort of sales cycles more in the enterprise, in the larger customer segment?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [42]

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I don't think we see anything that we would call a significant change from that standpoint. I think the phenomenon in Q1 that we alluded to earlier was that there was some increase in sales cycles for some deals because of the urgency of those use cases. I think that will probably revert to the mean over time.

And then to your point about does the DocuSign sell get easier as we become more prominent around the brand, I suppose there could be something there incrementally. I don't have anything I could point to yet to tell you we have observed something. And I can clearly tell you, we're not changing at this point our expectations or our plans for our cycles by segment. As Mike said, it's different for each segment. But we don't have anything at this point that we would point to and say, within a segment, we think the sales cycles would be different going forward.

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Operator [43]

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Our next question is from Daniel Ives from Wedbush Securities.

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Daniel Harlan Ives, Wedbush Securities Inc., Research Division - MD of Equity Research [44]

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Yes. So can you hit on international in terms of the opportunities there? Obviously, a lot of strength this quarter. And maybe some of the different dynamics when you're thinking international versus domestic in terms of what you're seeing?

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Michael J. Sheridan, DocuSign, Inc. - CFO [45]

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Daniel. So a couple of things. As I mentioned in my script, international grew 46% year-over-year. So we continue to see a really strong contribution from that part of our business. I think as we talked in the past, some of those markets, large markets like Germany or France and so forth that are civil law countries are at a bit of an earlier stage than what we've seen domestically. But each quarter, we're continuing to see improvements in those major markets.

And I also mentioned before that some of the infrastructure we have around how we structure data centers and so forth, we built into those markets as they expand. So markets like Australia and like Canada that may be a bit earlier, we're going to leverage infrastructure like Azure to address those.

But overall, we look at those markets as a significant part of our TAM. We are seeing evidence that the needs of customers in those regions are the same as the needs that we're servicing in the U.S., and that continues to drive a huge opportunity for us that we're investing aggressively in.

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Daniel Harlan Ives, Wedbush Securities Inc., Research Division - MD of Equity Research [46]

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Great. And just on eSignature, are you finding that you're in enterprise within the department and maybe 2 departments, and now just going enterprise-wide. Is that -- I mean maybe you could just drill into that trend relative to this COVID environment in terms of the acceleration, specifically on eSignature going from departments to enterprise-wide?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [47]

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Yes. I don't think we've seen anything particularly from COVID that would accelerate that move where we work with 1 or 2 divisions, and now we get more of an enterprise solution, other than the same macro piece we talked about, which is as companies are increasingly seeing the need to drive digital transformation, that's accelerating. Probably at that same rate, would accelerate those expansions from divisional projects to broader enterprise-wide solutions. But I think at this point, we'd say that phenomenon is occurring. It's always been a big growth opportunity for us. And I think it's the same big growth opportunity for us going forward. But I don't think COVID acceleration of digital transformation is going to change that phenomenon or that rate at which we see that going, other than just making everything go a little bit faster.

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Operator [48]

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Our next question is from Shebly Seyrafi from FBN Securities.

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Shebly Seyrafi, FBN Securities, Inc., Research Division - MD [49]

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So your sub gross margins, it looks like they declined by about 2 points year-to-year. I think in your script, you said that you had increased hosting costs. Can you talk about the recovery in sub gross margins you see going forward?

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Michael J. Sheridan, DocuSign, Inc. - CFO [50]

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Yes. So probably the biggest contributor to that is the addition of CLM to the business and some of the costs associated with that business that aren't as leveraged as our scaled eSignature business. If you look at our term target model, it stayed the same at 78% to 82%, and I think that what will allow us to remain in that range and increase in that range overall, both in terms of subscriptions and professional services, is really just going to be continued scale.

So if you look at Seal, as another example, Seal, as I mentioned in my comments, is going to have a near-term small dilutive effect on gross margins as well, just because their top line contribution won't match the infrastructure we're bringing over as part of that acquisition. But those are near term, and they're fairly minor. And I remain guiding that 78% to 82% for gross margins for our long-term model.

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Shebly Seyrafi, FBN Securities, Inc., Research Division - MD [51]

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Okay. One more. Your dollar net retention rate is now 119%, which is at the high end of your targeted 112% to 119%. So what do you see going forward in that rate?

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Michael J. Sheridan, DocuSign, Inc. - CFO [52]

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Yes. So at this point, I'm really not changing the range. I don't foresee us being anywhere near the lower side of that range. I think if we remain in that range, we are continuing to drive a healthy outcome in the business. If we see something more sustainable over time, we'll always reconsider it and look at that. But for now, we're keeping the range the same.

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Operator [53]

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Our next question is from Taylor McGinnis from Deutsche Bank.

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Taylor Anne McGinnis, Deutsche Bank AG, Research Division - Research Associate [54]

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Congrats on the quarter. The billings growth rate, of course, is super strong. But I would just be curious if you feel the level of usage you saw on the DocuSign platform in the quarter is fully reflected in that number? And by that, I mean, maybe you could talk about the process of true-ups and overages and what happens when a customer needs more envelopes. Because before, the second half billings guidance implied low 30s and now it implies mid-30s. So I'm just wondering if some of the usage that we potentially saw in the quarter is embedded into renewals as well?

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Michael J. Sheridan, DocuSign, Inc. - CFO [55]

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So Taylor, a couple of things. First, one thing that we don't do much of, very little of is we're not a model that has a lot of billings for overages. We look at opportunities where customers have exceeded their capacity of their subscription is the time to go back and upsell them in an early renewal. So the volume of transactions aren't necessarily going to correlate to near-term billings trends.

What you'll see over time, however, is as customers we talked about a lot adopt their capacity and it becomes part of their business, then that drives that dollar net retention, that upsell opportunity and that expansion opportunity in the future. But in the near term, if you're looking at how much of Q1 billings was affected by our -- going back to customers and billing them for overages, it's very, very small.

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Taylor Anne McGinnis, Deutsche Bank AG, Research Division - Research Associate [56]

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Got it. And then maybe just a second question. Could you maybe talk about the Conga and Apttus merger in the CLM space? I'd be curious if you feel that, that has -- that, that could have any impact to the competitive landscape or your efforts in selling SpringCM?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [57]

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Yes. I mean, we don't have a strong point of view that it's significant in any big way for us. We look at all the players in this space, and we think we're really proud of what we've built. We believe we've built the software particularly in CLM that will win. And we're particularly pleased, if you had a chance to see the recent Gartner report that had us at the top of their assessment, we're obviously very pleased being in that upper quadrant.

But we think that there's going to be a lot of activity like this. And we think that, that ever-changing landscape is definitely something we look at closely, but there's nothing about that particular combination that we saw is having any significant impact on our business or our go-to-market. And we didn't -- when Congo was for sale, we didn't look at that as an asset that we thought really brought something special to DocuSign. And I guess people at Apttus see something there. And hopefully, they'll be able to get what they were hoping to get out of it.

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Operator [58]

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And our next question is from Sean Kennedy from Goldman Sachs.

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Sean Michael Kennedy, Goldman Sachs Group, Inc., Research Division - Research Analyst [59]

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Great job on the quarter, guys. I was wondering what areas of your business were most challenged in a post pandemic environment, although it doesn't seem like many, that could potentially recover over the next few quarters? And I'm thinking of some challenged sectors in travel and hospitality and also home buying?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [60]

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Yes. I mean I think it's interesting. If you think about from a vertical standpoint, I actually think your real estate example is a great one, where we've seen -- we've actually done a lot to accommodate. It's an industry that we've been close to as a big part of the initial success of this company. And so we've created programs with the National Association of Realtors to give sort of 90-day free trials to realtors who are smaller users that might not be able to afford DocuSign if they don't have enough transaction volume. Now we think over time, as those folks get to love DocuSign product and their business recovers, there'd be opportunity to upgrade them to paid products. And so there could be a good sort of bounce to our business from that.

In things like travel and hospitality or some of the other industries that are hit harder, one of the big challenges is when are they going to see that bounce back in their business. I think when that happens, we'll probably see some more increased growth opportunity for us in those verticals. But I don't think it's so much of like a pent-up demand. I think it's just more in that case, a model of they're not doing business transactions. So if you're a travel agent, as an example, and you use DocuSign for some of your packages, you're not sending travel packages right now. So you're -- when you come to us, you don't need to renew it as high of a volume. When that recovers, we do believe they'll go back to their old volumes and then hopefully, over time, continue to grow with us as their business grows. That's how I think about some of those opportunities.

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Sean Michael Kennedy, Goldman Sachs Group, Inc., Research Division - Research Analyst [61]

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Great. And then just a quick one on CLM. I was wondering what the customer mix is like compared to eSignature, and it doesn't seem much higher towards larger companies since it deals with more complex work processes. And how does that affect the cross-sell opportunity?

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [62]

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Yes. I think it's a great question. I think what you'll find is that to some extent, even small companies have effectively a CLM-like need, right, to manage all of their contracts. But if you're a very small company and you have a small number of contracts in terms of the number of contracts you have or the different contracts that you have and then a small volume of those contracts, you tend to say, I don't need a complex CLM system. So we see that skewing more to our upper mid-market in the commercial segment and then into the enterprise. And I think we think that's the case that we'll have for years to come.

It's the very small customers they want -- they might want like our Gen product, which is a subsegment, what you'd find in CLM, and Gen in the Negotiate functionality, which we released at Dreamforce last year, the end of last year. That's what we see being sold more into the smaller customers as opposed to the fuller CLM product.

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Operator [63]

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We have reached the end of the question-and-answer session, and I will now turn the call over to management for closing remarks.

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Daniel D. Springer, DocuSign, Inc. - President, CEO & Director [64]

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Thank you guys all for joining us. We'd like to say we look forward to seeing you out on the road. I guess we'll like seeing you virtually out on the road over the next quarter. We've got a lot of opportunity set up to see you all, and we'll see you again next quarter. Thank you so much.

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Operator [65]

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This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.