DocuSign - Q4 2023
March 9, 2023
Transcript
Operator (participant)
Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's fourth quarter and full fiscal year 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll 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 this call. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I will now pass the call over to Heather Harwood, Head of Investor Relations. Please go ahead.
Heather Harwood (Head of Investor Relations)
Thank you, operator. Good afternoon. Welcome to the DocuSign Q4 and fiscal year 2023 earnings call. I am Heather Harwood, DocuSign's Head of Investor Relations. Joining me on the call today are DocuSign's CEO, Allan Thygesen, and our CFO, Cynthia Gaylor. The press release announcing our fourth quarter and fiscal year 2023 results was issued earlier today and is posted on our investor relations website. Let me remind everyone that some of our statements on today's call are forward-looking. We believe our assumptions and expectations related to these forward-looking statements are reasonable, but they are subject to known and unknown risks and uncertainties that may cause our actual results or performance to be materially different. In particular, our expectations regarding the pace of digital transformation and factors affecting customer demand are based on our best estimates at this time and are therefore subject to change.
Please read and consider the risk factors in our filings with the SEC together with the content of this call. Any forward-looking statements are based on our assumptions and expectations to date, and except as required by law, we assume no obligation to update these statements in light of future events or new information. During this call, we will present GAAP and non-GAAP financial measures. In addition, we provide non-GAAP weighted average share counts and information regarding free cash flows and billings. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results. We encourage you to consider all measures when analyzing our performance.
For information regarding our non-GAAP financial information, the most directly comparable GAAP measures, and a quantitative reconciliation of those figures, please refer to today's earnings press release, which can be found on our website at investor.DocuSign.com. I'd now like to turn the call over to Allan. Allan?
Allan Thygesen (CEO)
Thanks, Heather. Good afternoon, everyone. Our fourth quarter marked my first full quarter as DocuSign's CEO. Having led our organization for five months with the opportunity to meet many of our customers, partners, and employees, I'm even more optimistic today about the future of DocuSign. We had a solid finish to a transitional year, delivering across key financial metrics in Q4 while making tangible progress against our key priorities. Q4 total revenue came in at $660 million, up 14% versus prior year, finishing the year with $2.5 Billion of revenue and 19% year-on-year growth. Driven by our continued focus on profitability and efficiency, we reported 24% non-GAAP operating margin for the quarter and 21% for the year. While we are pleased with our Q4 results, I also wanna acknowledge today's challenging macroenvironment.
Customer sentiment continues to be cautious. That is reflected in moderated expansion rates. Before we get further into business updates, I wanna acknowledge today's news that Cynthia Gaylor has decided to step down from her role as Chief Financial Officer. Cynthia has been with DocuSign for nearly four and a half years, first as a board member and chair of our audit committee. Last few years as our CFO. I know many of you know Cynthia well and have gotten to know her even better over time as part of the DocuSign story. I wanna thank Cynthia for her unwavering commitment and strategic leadership these last few years.
She's been a great partner to me during my first months as CEO, and she's been instrumental to the company and the board as we've navigated a period of dynamic change while laying a strong foundation for sustainable, profitable growth at scale. I thank her for her support during the transition as we search for a successor. Let me turn back to the business. During Q4, we refined and communicated DocuSign's strategy throughout our organization to drive greater alignment on how our teams can deliver more strategic value to our customers. Today, we have a clearly defined strategy in place. To underscore the key pillars of our strategic vision are inspired by customer feedback. Our focus is to deliver smarter, easier, and trusted agreements.
We're improving the reach and efficiency of our go-to-market by developing a world-class self-serve experience, strengthening our direct sales productivity, and amplifying our sales and marketing partnerships. We're also strengthening our internal operational efficiency by optimizing and modernizing systems and processes. It's important to emphasize that even as the market leader in eSignature, we are just at the beginning of capitalizing on the opportunity to redefine and truly reimagine what a smarter agreement looks like. Today, eSignature provides an online replica of a static document. While that is a huge improvement in convenience and productivity for senders and signers, it's hardly the endpoint. Just like creating digital copies of maps or recorded music was the beginning of a reimagination of long-established categories, fundamentally altering creation, distribution, and use. Our goal is to turn flat agreements into structured data that can be used to make intelligent decisions.
Value of an agreement is in the data. Every step of an agreement can deliver more value when it's automated, intelligent, and seamlessly integrated into core business systems. DocuSign is uniquely positioned to redefine the agreement processes across every industry. Along these lines, we released several new product enhancements during the fourth quarter, including expanded integrations to better collaborate in Microsoft Teams, Slack, and Zoom. For eSignature, we enabled new AI-assisted document highlighting and signing capabilities in mobile and web for faster time to value. In April, we will release Web Forms, which will help customers deliver a better and simpler experience by moving from legacy contract forms to a modern web and app experience.
We also plan to accelerate our release cycles in fiscal 2024 with innovative and differentiated solutions that simplify the agreement process while we identify new ways to revolutionize how businesses initiate, negotiate, and manage agreements. There's substantial interest in the industry about rapid advances in AI and large language models in particular. We are already leveraging sophisticated AI models for contract analysis and automation of some workflows, and we're very excited to harness generative AI data and pattern identification as yet another way we can increase productivity, reduce friction, and save our customers time. As we move forward, we believe this can be a compelling part of our business, and we're encouraged by the significant interest from some of the very largest players in our industry who recognize our domain leadership and expertise and want to partner with us. Moving to our product-led growth and self-serve initiatives.
We've made solid progress over the last few months, modernizing our commerce experience to reduce friction, improve ease of use, and provide customers more flexibility. We've expanded seat capacity available via our web and mobile sites. We've expanded currency options available to make the buying process easier in international markets. Interaction with these initiatives as we exited the quarter. We will continue to keep you updated on our progress. Further, as you saw in an announcement a few weeks ago, I couldn't be more excited to have Robert Chatwani joining our team as President and General Manager of Growth. Robert brings a wealth of experience, and we look forward to benefiting from his insights and expertise for more than two decades of scaling global technology companies. He joins DocuSign from an organization that's broadly recognized as having a world-class product-led growth motion.
Executing on our product-led growth strategy is a key priority for the company as it will be a primary driver of customer acquisition, conversion, and expansion. I'm thrilled to have Robert leading our efforts in this area. Turning to our go-to-market, we're just coming off our global sales kickoff last week. I can tell you that the sales team is incredibly excited and energized for the year ahead. We're focused on delivering across three complementary channels: direct, self-serve, and partners, and to provide world-class customer success in driving customer growth and retention through all three. As an example of global growth and multi-product expansion, this past quarter, a leading global consulting firm who has been using eSignature for a decade expanded and added our CLM+ product.
This is a competitive sales cycle since the customer was already in the process of implementing a competitive CLM solution in a few countries. However, DocuSign won preferred vendor status for CLM, and the customer has since rolled us out in six countries across two continents and has built integrations with their internal systems and the DocuSign partner, Salesforce and ServiceNow. Related to go-to-market, I wanna acknowledge the restructuring we recently announced. It was a difficult decision, but it was a critically important step for our company to reshape and right-size our organization for the opportunity ahead. It was not a broad-based restructuring. 95% of the workforce reduction was in our worldwide field organization.
Our assessment was that DocuSign could capture more efficiency in our overall go-to-market across all segments, that we could unlock more profitable growth by investing part of the savings in product development and innovation. The direct channel remains absolutely critical to our future. We're rebalancing our approach towards offering a lighter touch experience with more self-serve capabilities that give customers of all sizes choice in how they engage with DocuSign. That pivot, in turn, frees up resources to invest more in our self-service motion and expanded roadmap for agreement workflows, new AI capabilities, accelerating our migration to the cloud, and improving our internal systems. That, in turn, will create an even stronger and more valuable offering for our customers and for our sales team to sell.
We still have some work to do to strengthen our self-serve experience over the next six to 12 months, and while we may see some modest near-term disruption, we're confident these are the right steps going forward to drive innovation and growth for our customers for the long term. Additionally, a stronger self-serve motion will enable greater expansion opportunities internationally. Turning to our internal operations and processes, Anwar Akram recently joined as our Chief Operating Officer and will play a crucial role within our organization. Anwar's focus is to bring together and transform our strategy, develop new strategies around pricing and packaging, driving incremental efficiencies internally, and help evolve early-stage ideas into future growth initiatives. Related to these efforts, I noted on the last call that we rolled out product bundles to introduce more features and functionalities to our customers.
I'm pleased to share that these bundle promotions performed better than expected, and we saw good adoption for our new SMB customers in particular. Our experience suggests that customers that adopt a broader set of features renew and expand their commitment with us. You should expect to see more initiatives around pricing and packaging in the future, including bundling and ensuring early adoption of our highest-value features. Finally, I would like to update you on our partner ecosystem, another key pillar of our strategy. We're seeing good progress with a number of our largest software partners. ServiceNow is a good example, highlighted by the launch of the CLM Spoke as part of ServiceNow's automation engine. Our partnership has gained momentum, with several leading organizations utilizing our integration to digitize their agreements. This is directly aligned with our focus on capturing opportunities by integrating more deeply with partner applications.
In closing, this year has been one of incredible change for DocuSign. In Q4, we made meaningful strides towards defining our strategy and rightsizing and optimizing our organization. We believe the foundation has been set and that we're in a better position to navigate the evolving macro environment while investing for opportunities that enable long-term profitable growth. We're optimistic about the year ahead for DocuSign. We're committed to delivering meaningful customer and shareholder value. We look forward to sharing further progress on our initiatives as we redefine how the world comes together and agrees. We will enable smarter, easier, and trusted agreements. Let me once again thank Cynthia and turn the call over to her to walk through the financials. Cynthia?
Cynthia Gaylor (CFO)
Terrific. Thanks, Allan, for the kind words. I'd like to start off by thanking our employees for their brilliance and execution. We closed out the year strong. I'm proud to share that we achieved an impressive milestone for the company, delivering $2.5 billion dollars of revenue for the fiscal year, reflecting 19% growth year-over-year. Our Q4 results were solid, demonstrating the durability in our business model and DocuSign's important position in the broader ecosystem. While we are pleased with our results and execution in Q4, we continue to experience a challenging macro environment with softening demand trends, including moderating expansion rates. We are seeing healthy results as customers recognize that DocuSign offers high ROI applications that are easy to use, efficient, and cost-effective. With that, let me turn to our Q4 and fiscal 23 results.
For the fourth quarter, total revenue increased 14% year-over-year to $660 million, and subscription revenue grew 14% year-over-year to $644 million. Total revenue for the year reached $2.5 billion, a 19% increase over last year, and subscription revenue was $2.4 billion, a 20% year-over-year increase. Our international revenue grew 19% year-over-year to reach $165 million in the fourth quarter. For the full year, international revenue grew 29% to $260 million, representing 25% of total revenue for both periods. Fourth quarter billings rose 10% year-over-year to $739 million. For the full year, billings increased 13% to $2.7 billion.
We added approximately 30,000 new customers during the quarter, bringing our total install base to 1.36 million at the end of the year, a 16% increase year-over-year. This includes the addition of approximately 9,000 direct customers to reach a total direct customer base of 211,000, a 24% year-over-year increase. We also saw a 27% year-over-year increase in customers with an annualized contract value greater than $300,000, reaching a total of 1,080 customers. Dollar Net Retention was 107% for the quarter. The headwinds we've highlighted over the last couple of quarters continue to persist, and as a result, we are seeing muted growth in our expansion rates.
We expect this to continue into Q1, and as a result, would expect the dollar net retention in Q1 to trend lower. Non-GAAP gross margin for the fourth quarter was 83%, compared with 81% a year ago. For the full year, gross margin was 82%, in line with last quarter. Fourth quarter subscription gross margin was 85%, consistent with last year. For the full year, subscription gross margin was also 85%, flat versus prior years. Q4 non-GAAP operating income reached $155 million, compared with $104 million last year. Non-GAAP operating margin was 24%, compared to 18% last year. For the full year, non-GAAP operating income rose 23% to $517 million, and operating margin was 21% versus 20% in fiscal 2022.
In Q4, we saw lower expenses for employee-related costs related to the workforce reduction announced in September, which contributed to the strong operating margin in the quarter. Non-GAAP net income for Q4 was $133 million, compared with $100 million in the fourth quarter of last year. For the full year, non-GAAP net income was $419 million, up from $411 million in fiscal 2022, a growth rate of 2% year-over-year. As noted on our Q1 call last year, we introduced a non-GAAP tax rate on our non-GAAP net income calculation for fiscal 2023 as we reached consistent non-GAAP profits for the prior three years. We are using a non-GAAP tax rate of 20% for fiscal 2023 and fiscal 2024.
Q4 non-GAAP EPS was $0.65, while full year non-GAAP EPS was $2.03. Let me take this opportunity to share a bit more context regarding the recent restructuring. As Allan mentioned, this was a difficult decision and one not made lightly, but it was an important decision aligned with our strategy to reshape the company and free up resources to invest in critical areas across our innovation and product development efforts. As we outlined in the filing last month, we expect to incur related restructuring charges ranging from $25 million-$35 million, with the majority of the expenses and related cash to be incurred in Q1 of this year, with the restructuring substantially completed by the end of the second quarter.
We ended Q4 with 7,336 employees, compared to 7,461 last year. Operating cash flow in the quarter grew 56% year-over-year to $137 million, representing a 21% margin. This compares with $88 million, a 15% margin in the same quarter a year ago. Free cash flow for the quarter was $113 million, a 17% margin compared to $70 million, a 12% margin in the year prior, a 61% increase year-over-year. As we mentioned on our last call, we went live with a new ERP in Q3, which delayed some of our cash collections last quarter. As a result, we saw strong cash collections this quarter, in addition to lower restructuring cash payments on a relative basis.
For the full year, operating cash flow was $507 million, representing a 20% margin compared to $506 million, a 24% margin a year ago. Free cash flow declined 4% year-over-year to $429 million, a 17% margin compared to $445 million, a 21% margin in fiscal 2022. We exited Q4 with more than $1.2 billion in cash equivalents, restricted cash and investments. Let me turn to our Q1 and fiscal 2024 guidance. As a reminder, on our Q3 earnings call, we provided a preliminary outlook for fiscal 2024. We are pleased to narrow the preliminary range we provided, incorporating our Q4 landing and the dynamics of the current environment into our guidance.
We anticipate the macro environment will remain challenging as we move through the year. As Allan mentioned, we may also see modest near term disruption as we realign our sales force and shift to more of a self-serve motion. For the first quarter and fiscal year 2024, we anticipate total revenue of $639 million-$643 million in Q1, or growth of 9% year-over-year, and $2.695 billion-$2.707 billion for fiscal 2024, or growth of 7%-8% year-over-year.
Of this, we expect subscription revenue of $625 million-$629 million in Q1, or growth of 10%-11% year-over-year, and $2.633 billion-$2.645 billion for fiscal 2024, or growth of 8% year-over-year. For billings, we expect $615 million-$625 million in Q1 or flat to 2% growth year-over-year, and $2.705 billion-$2.725 billion for fiscal 2024 or growth of 2% year-over-year. We expect non-GAAP gross margin to be 81%-82% for both Q1 and the fiscal year.
We expect non-GAAP operating margin to reach 21%-22% for Q1 and 21%-23% for fiscal 2024. We expect non-GAAP fully diluted weighted average shares outstanding of 207 million-212 million for both Q1 and fiscal 2024. Fiscal 2023 was a year of transition and we are pleased with our execution and the progress we are making as we navigate a challenging macro environment. We remain committed to delivering sustainable growth and profitability at scale. We will continue to be disciplined with our investments across strategic priorities. We are focused on delivering long term value to our customers, partners, employees and shareholders. Looking ahead, we are encouraged by the steps we are taking and look forward to updating you on our progress as we move forward.
The journey to $2.5 billion has been hard work and a testament to the compelling value proposition DocuSign brings to our customers. Together, we have played an important role in how the world agrees. Finally, I'll be here a little while longer, as Allan said, so no goodbyes for now. With that, we will open up the call for questions. Operator?
Operator (participant)
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. We ask that you please limit to one question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Brad Sills with Bank of America. Please proceed with your question.
Brad Sills (Managing Director and Senior Research Analyst)
Great. Thank you. Cynthia, congratulations on your next move. It's been a pleasure working with you. I wanted to ask one on the moderating expansion activity that you saw during the quarter. Was it a certain cohort or customer where you saw that? Was it across the board? Was it in that, you know, enterprise cohort or just the broader base? Just any color on that and, you know, any segments that you might have seen that occur. Thank you.
Cynthia Gaylor (CFO)
Thanks, Brad. Yeah. I think on the expansion rates, I think it's a continuing trend that we've been talking about from over the last few quarters, which is, you know, as the book of business has grown and the macro environment has softened, the rate at which customers are expanding is slowing. That growth rate in expansion is slowing. I would say there wasn't a big change in Q4 relative to the couple quarters before, but it is a continuing trend that's putting some pressure on the top line. On the cohorts, we actually do a lot of analysis on the cohorts. I would say, you know, some of the cohorts are probably expanding at a slower rate, and some are moderating the rate at which they're expanding.
I'd say overall, it's having the same impact. Part of it is, as we've talked about in past quarters, is a little bit of the law of large numbers. As that book of business gets bigger, you need more and more expansion dollars to move it. Customers are still expanding, but when you look at the top line, that's probably the biggest factor kind of impacting the compression of some of those growth rates.
Brad Sills (Managing Director and Senior Research Analyst)
Understood. Thanks, Cynthia.
Operator (participant)
Our next question is from Brent Thill with Jefferies. Please proceed with your question.
Brent Thill (Managing Director and Senior Equity Research Analyst)
Thanks. Allan, just on the sales overhaul, can you just talk to, you know, how long you expect this to send kind of a wake turbulence through the sales org, and when you feel like you kind of resume full strength? I had a quick follow-up for Cynthia, just as it relates to the billings growth decelerate from 13% to 2%, can you just give us a sense of kinda what you're factoring into that? Thanks.
Allan Thygesen (CEO)
I'll go first. Thanks, Brent. I think on the Salesforce, I'd say I think we are in a significantly more stable situation than, you know, six, let alone 12 months ago. Attrition rates have slowed. We've got a, I think, a pretty full team in place. Steve's done a very nice job with that. There's more better execution, better predictability. Part of what gave us the confidence to take the restructuring action was, in fact, that, and that we could see what our sales capacity was, and we felt we had a little bit of excess capacity there, as well as a keen understanding of where we could, you know, de-invest and free up resources to invest elsewhere.
Look, we're being cautious in saying, you know, there could be a little bit of disruption as some of the particularly at the very, very low end, some of the business that might previously have had a little bit of human touch. We'll try to do that more strictly through a self-serve motion. I think that should play out in a relatively, you know, very quick order over one to two quarters. I think the sales force is actually in the best place it's been for a while. Just had our global kickoff last week and I think I'm representing them saying that they're incredibly energized by the roadmap and, you know, they all have slightly larger territories now too.
It's a very positive feel, I think, throughout the sales team.
Cynthia Gaylor (CFO)
I'll take the billings question, but before I do that, I realize I misspoke on international revenue. Just to clarify, international revenue grew 29% to $620 million. I think I said $260. A clarification there. On the billings question, you know, I think it's related to a couple things. One is, you know, as we talked about last quarter, we're expecting a slower start to the year. You know, I think when you look at the macro environment, you know, it certainly hasn't gotten better and you could, you know, probably sense it's maybe gotten a little bit worse. You know, on top of that, you know, we have, you know, made some changes to the field, which we think could cause some disruption.
I think that's, you know, certainly playing into both the revenue and the billing side we're giving to the year. I'd also say, you know, we always guide to what we, what we can see. I think we can see Q1, you know, better than we can see the rest of the year. You know, given the 1% guide in Q1, you know, we would expect that to kind of improve as we move through the year and some of the investments we made may start to take hold. I think those are some of the dynamics.
Brent Thill (Managing Director and Senior Equity Research Analyst)
Thank you.
Operator (participant)
Our next question is from Jackson Ader with SVB. Please proceed with your question.
Jackson Ader (Managing Director)
Great. Thanks for my questions, guys. First one on the macro environment. Like, how does the macro environment actually impact you? Like, is it number of employees at your customers are coming down, and so they don't need as many envelopes? I'd be surprised if it were the DocuSign line item is, like, getting a bunch of scrutiny in IT budgets or something. I Just given the ROI and the traditionally very quick payback, I would think that e-signature would be a place where people are actually, like, more willing to invest in a tough macro environment. How do I square that?
Allan Thygesen (CEO)
Yeah. Thanks for the question. The first thing I would say is the overall macro environment just affects businesses of all sizes and their ability and willingness to spend on all kinds of software, including ours. I don't think we're particularly more macro sensitive or less than others. In terms of the industry mix in the economy, you know, we do have a little bit of overexposure, if you will, to, you know, real estate and a few other sectors that, you know, have been a little tougher. On the other hand, we are quite diversified and have some real strength in sectors like health and manufacturing, telecommunications. That's balancing out. In terms of the value prop, I agree with your statement. I think there's a very quick payback.
I think we're seeing that. That's also a key part of DocuSign's competitive value proposition vis-à-vis other competitors. People tend to respond, you know, they're more likely to respond to an agreement, they're faster to respond, and they have a better positive experience. Overall, I think the macro environment, it pre-presents some clouds for IT budgets of companies of all sizes. We're seeing maybe a little bit more vertical exposure than the average company, but are generally pretty balanced. I think our value prop remains quite strong.
Jackson Ader (Managing Director)
Okay. All right, great. A very quick follow-up. The, how much of the, like, 2nd kind of round of restructuring was factored into the preliminary margin guidance for the year that was given, Cynthia on last quarter's call?
Cynthia Gaylor (CFO)
Thanks, thanks for the question. To be clear, in the outlook we provided, the most recent restructuring was not factored into that call. We were evaluating scenarios for, you know, this fiscal year as part of our annual plan and areas that we wanted to invest in across the strategic priorities. That wasn't contemplated specifically at the time or baked into the outlook we provided. That being said, I think as we went through the process of the annual plan, it was clear that we needed more room for investment across the key priorities. As Allan articulated, the plan is to invest, you know, in R&D in particular and innovation and kind of shift some of the investment into that initiative as well as PLG self-serve.
You know, we were able to come a little bit above the outlook we provided. If you remember in Q3 on margin, we said, you know, at the low end of our long-term target range, which is 20%-22%, the long-term target range, just as a reminder, is 20%-25%, and our guide for the year is 21%-23%. We are gonna be reinvesting, but we also, you know, increased the margin by a little bit.
Jackson Ader (Managing Director)
Got it. All right, great. Thank you very much.
Operator (participant)
Our next question is from Tyler Radke with Citi. Please proceed with your question.
Tyler Radke (Managing Director and Senior Equity Research Analyst – Software)
Yes, thanks for taking the question. Just going back to the sales reorg and kind of the strategy moving forward and the move to a self-serve model. I was just wondering if you could elaborate on that and just kinda what your vision is for the company, and where do you kinda make the threshold for, you know, when a sale becomes self-service? You know, is it at a certain deal size or maybe, you know, do you only have salespeople by, you know, industry or specialization like CLM? If you could elaborate on that. Just a quick follow-up for Cynthia. Just given that we've seen a cumulative RIF of close to 20% of the workforce, I guess why wouldn't margins be higher for next year?
You know, you did about 24% EBIT margin on a non-GAAP basis here in Q4. You know, I think that was without a lot of the benefits you're seeing from the cost savings. I guess why wouldn't we see higher margins than that next year, given 20% lower headcount? Thank you.
Allan Thygesen (CEO)
Yeah. I'll take the first one. Just about go-to-market, historically, DocuSign has been very heavily focused on a direct sales motion for customers of all sizes. We will retain direct sales as our principal go-to-market channel, and it's a huge strength for the company and certainly wanna continue to improve there. We feel we wanna complement it in two areas. One is with the self-serve motion, and that's not just for little customers, that's for customers of all sizes. We just think that all customers appreciate an opportunity to self-serve for certain types of activities at all stages of their journey with us. I'll come back to that in a second. Third, we are really focused on maturing our partner go-to-market, where we can use distributors and resellers.
In some international markets, we can partner with ISVs to be directly embedded in their applications. We have significant activity there but can meaningfully improve. Let me quickly return to the self-serve piece in particular. I wanna make sure that it's clear, we wanna stop treating digital and direct sales as separate channels over time. We essentially wanna offer all customers the opportunity to self-serve if and when they wish. I expect many customers will avail themselves of that. As a corollary, I want our sales teams to see the self-serve options as a positive complement to their activities.
I think that's what we did at Google, I think that's what Robert did at Atlassian, I think that's what a lot of companies that have, sort of, are natively digital in their motion do, and think we have a tremendous amount of opportunity there. That's our overall go-to-market plan. Cynthia, you wanna take the second half?
Cynthia Gaylor (CFO)
Sure. Yeah. I totally understand the question. I would say Q4, the 24% margin, you know, was higher than probably what our steady rate is for a couple of reasons. One is, you know, we had just gone through the fall restructuring, that really dropped to margin. In addition, Hiring in Q4 was slower than we had anticipated in the quarter. As we kind of look into this year, you know, we see the opportunity in front of us, and we wanna invest into the key pillars of the strategic priorities that Allan talked about, right? In the product, in innovation, in PLG self-serve.
We're really putting that money from the second restructuring back into the business to really level set, you know, against those key areas.
Operator (participant)
Our next question comes from George Iwanyc with Oppenheimer. Please proceed with your question.
George Iwanyc (Executive Director)
Thank you for taking my question. Allan, maybe digging into the product bundling traction you're seeing, can you give us some color on, you know, the adoption rates with SMBs and maybe put that in perspective of, you know, what you're also seeing from competitors?
Allan Thygesen (CEO)
Yeah. First of all, on a segment basis, and I think Cindy alluded to this, we have, first of all, a very balanced customer portfolio. We have a significant SMB and mid-market business and a big emphasis on growing our enterprise business. I'd say, on balance, I don't know that there's a huge difference in momentum between those sectors. I know some companies are reporting particular challenges in SMB. I don't think we're seeing that. In fact, we had some nice momentum on new accounts in particular, so I was pleased to see that. I think in terms of our... That was the segment piece. What was the other part of your question? Your question?
George Iwanyc (Executive Director)
Just what you're seeing from a competitive sort of perspective.
Allan Thygesen (CEO)
Yeah. On competition. Well, okay. I'd say there's no question that over the last three to five years, the market's gotten more competitive. I don't know that we're seeing a material change in how competitive it is here in the last few quarters. I think we continue to be the market leader. We don't, you know, spend as much time worrying about what other people are doing. I think we wanna really redefine the category and set the direction for the industry, and I think we're well on our way to doing that. That's where we're focused from a competitive standpoint, if you will.
In terms of the tactics, we are looking on pricing and packaging and at, you know, how can we be as agile as possible by segment, by country. There might be a few countries where we've gotten a little too far off the market, we're looking at that very carefully. I mentioned some bundling opportunities during my prepared remarks. We think there's a lot of opportunities there. There's some enterprise license agreements. Some of our largest customers, we really wanna be the ubiquitous eSignature solution for in every instance there where they want to deploy that.
So we're in the process of both building out the product to enable that for embedding as well as direct sales and in structuring our license agreements so that that is as attractive as possible for our largest clients.
Cynthia Gaylor (CFO)
One thing I would just add on the SMB, you know, we did see some relative strength there relative, you know, across our business. You know, we ran some experiments in Q4, you know, particularly around the bundles or around increasing number of seats. We did see kind of a higher volume of SMB deals at lower price points, so higher volume, lower price, which we thought, especially like in NewCo, was a positive sign, as Allan mentioned. Just a little bit more color there.
George Iwanyc (Executive Director)
Thank you.
Operator (participant)
Our next question is from Scott Berg with Needham & Company. Please proceed with your question.
Scott Berg (Managing Director and Senior Research Analyst)
Hi, everyone. Thanks for taking my questions, and congrats on the strong finish to the year. I guess, Allan, I wanted to focus on product strategy going forward 'cause product seems to be a big theme of where you wanna invest in going forward. Leveraging off your Web Forms comments, how should we think about your product roadmap maybe over this next, I don't know, 12-24 months? Is it gonna be more of a little small add-on solutions like what Web Forms is likely to bring, at least from what my assumptions are of that product? Is there an opportunity to see some product that's maybe a little bit more transformational, something that could give your sales and maybe bookings or billings more of an uplift going forward? Thanks.
Allan Thygesen (CEO)
Yeah. Actually, I think Web Forms has a little bit more potential than that. We're very optimistic 'cause it, I think it really, it epitomizes the transformation of agreement from sort of a static representation of a traditional form to completely new customer experiences. The other thing it does, of course, is it makes it much easier to capture all the metadata around the agreements, which is really where we're heading in the longer term. If you think about what we wanna do is we wanna decompose agreements into, you know, dynamic objects that can be filled both with data from the customer side and from the signer side. Web Forms is the first step of that process. There's a lot more coming in the remainder of the year along those lines.
We're quite bullish on the cumulative impact of all of those launches, but obviously version 1.0 will have some gaps. In terms of the transformational piece, I think I touched a little on the AI piece. I... We have a lot of opportunity there, and so we have some, we will be making some announcements on that later this spring, as the beginning of a new product in that area. Over time, I think the work that we're doing now to completely revamp how we leverage AI is very exciting.
If you think about the application of AI in the agreement space. A lot of the excitement right now around ChatGPT and the competitors are around basically text generation, and that has an obvious analogy to the agreement space of drafting contracts. We do think that's very exciting and that there's value to be captured there, and we will absolutely pursue that. If you look at where companies actually find value from agreements, it would be more in the extraction of data and value out of the agreements, as well as the search and analytics on that. You can also apply AI to that, and that's an area where I think we are uniquely positioned to deliver very compelling value.
We got a number of large customers who are very excited to work with us on that type of next-generation AI activity. I don't think that's not gonna hit in the next couple of quarters, but in terms of the longer-term roadmap and delivering on our vision, it's incredibly exciting and could really provide some transformational growth.
Operator (participant)
Our next question is from Rishi Jaluria with RBC Capital Markets. Please proceed with your question.
Rishi Jaluria (Managing Director and Software Equity Research Analyst)
Oh, wonderful. Thanks so much for taking my questions. two here. First, I wanted to start with kind of re-embracing more of your roots around self-service and PLG. You know, I think the strategy makes a ton of sense and should absolutely help your sales efficiency as well. From a product standpoint, is there anything that you need to do to make, you know, kind of that self-service PLG motion more intuitive or easier, especially, you know, outside of your mobile customers, right? If we think about even the mid-market customers, there should be a lot more self-service capabilities. Just anything that you need to invest in or expand from a product perspective, then I've got a follow-up.
Allan Thygesen (CEO)
Yeah. So first of all, I think, look at when people first hear self-serve, they think of, you know, "Well, don't you already have a website, and can't people order on your website?" Of course, yes, we do, and yes, they can. What I'm talking about is a significantly more transformational effort where customers can discover, try, embrace, and really deploy products without ever engaging with a DocuSign employee. We can then engage with them as that potential is demonstrated and expressed, and we can apply our sales forces really more efficiently, so it becomes a huge multiplier for efficiency in our sales teams. That's the model that companies like Atlassian have pioneered over time, and very excited to apply that at DocuSign.
In terms of how that applies across segments, well, it's certainly true that you can imagine an SMB customer, basically remaining a purely digital customer and we would love that. As customers grow in scope and potential and complexity, then the application of those sales resources becomes both more profitable for us and more necessary for the customer. I do expect a heavier sales component as you move up market. Mid-market has always been a core strength for us, and it remains a really important segment. A lot of our products, you start there, and you sort of grow out from there. I think that will remain a critical segment for DocuSign and very relevant for the self-serve expanded self-serve motion that I just described.
Rishi Jaluria (Managing Director and Software Equity Research Analyst)
All right. Wonderful. That's really helpful. On the international front, I recall last quarter, there was kind of a talk of working closer with partners, especially in Japan, right? Which is, as you know, very unique geography, especially when it comes to enterprise software. Just wondering if you can give an update specifically on your efforts in Japan and kind of building out the partner ecosystem, especially because at least it feels like your product is viewed as significantly better than the competition and there's great branding out in Japan. A lot of the, you know, kind of manual processes that need to be modernized, they feel a little bit behind. I'd love to kind of think, you know-
Allan Thygesen (CEO)
Yeah.
Rishi Jaluria (Managing Director and Software Equity Research Analyst)
-hear how you're thinking about the Japan opportunity and partners there? Thanks.
Allan Thygesen (CEO)
Yeah. We are, you know, in active discussions internally exactly how we wanna pursue Japan. I'd say Germany is another market where I don't think we have fully lived up to our potential. I agree with you. We're in a great starting position. You know, our initial forays into both of those markets were, you know, really mostly just a direct sales motion. We didn't put, I think, quite enough resources behind it and all the other functions, including product and our administrative functions. As you noted in, you know, markets like Japan, you know, the road is littered with US companies that have tried to go it alone in Japan. We're certainly gonna be leveraging partners there. Stay tuned.
I think we'll have more to report on both of those countries during the course of fiscal 2024. Right now it's sort of in the planning and decisioning exactly how we're gonna pursue that. Those are definitely strategic priorities within our broader international strategy.
Rishi Jaluria (Managing Director and Software Equity Research Analyst)
All right. Perfect. Thank you.
Operator (participant)
Our next question is from Michael Turrin with Wells Fargo. Please proceed with your question.
Michael Turrin (Managing Director and Senior Software Equity Research Analyst)
Hey, great. appreciate you taking the question. can appreciate the fact that you're already operating within the stated target range on margin, but I think some of the questions are just digging out a little bit more that it seems like you could potentially push even harder given the product-led growth background, the core efficient base of the business. Why not do that with a little bit more emphasis here? What informs the decision around balancing reinvesting into the product versus making sure the cuts you're making are the right size where you don't have to potentially go back again and make another tough decision? Thank you.
Allan Thygesen (CEO)
Yeah. I'd say first of all, we feel like we have tuned the organization pretty well at this point and reallocated resources to where we'd see the highest investment. Look, I agree with you. I think we were not sufficiently efficient from a sales and marketing perspective. I hope to make us more efficient over time. You know, until I see that, I don't wanna, we don't wanna be. As Cynthia says, we wanna project what we see. You can assume there'll be a lot of emphasis on getting increasingly efficient even beyond what we have. I'm not ready to make any that part of our forecast at this time.
That would certainly be the hope and expectation that we can accelerate top line and improve efficiency over time.
Michael Turrin (Managing Director and Senior Software Equity Research Analyst)
Thank you.
Allan Thygesen (CEO)
I'd say maybe one other point on the investment piece. We feel we have a very significant opportunity. You know, we have been, I think a little underinvested in innovation over the last couple years. We had the, and have the market-leading product. It remains a, you know, incredible value proposition. I'm excited to reinvigorate that and get us to capitalize on the larger opportunity that I outlined earlier on this call. I think the whole team feels, you know, we already got some stuff coming out in Q1, and there'll be a lot more over the next three quarters, and that will position us to for growth in future years.
Operator (participant)
Our next question is from Josh Baer with Morgan Stanley. Please proceed with your question.
Josh Baer (Executive Director and Software Equity Research Analyst)
Great. Thanks for the question. Allan, I think you labeled 2022 well in characterizing it as a year of change. If '22 is the year of change, what's 2023 the year of? Is it execution, stabilization, innovation, self-serve? Like, what word would you use to frame 2023?
Allan Thygesen (CEO)
I think change and transition for calendar 2022, fiscal 2023. For this year, I think it's about setting the foundations for growth, and we're really leaning into that. I think we have a fantastic opportunity to capitalize on this, you know, very large TAM that we believe we're pointed at. We're the market leader in eSignature and CLM. We are the best positioned to capitalize on that opportunity, and we just need to go execute. That's the job this year. It's not quite, you know, as much of a turnaround transitional year as last year. It's much more of a foundation and preparation for growth building year.
Josh Baer (Executive Director and Software Equity Research Analyst)
That's great. One other one. Just thinking about direct versus self-serve versus partner channels, what's the mix of business today, where do you want that to go in, you know, three years?
Allan Thygesen (CEO)
Yeah. I mean, I think we've reported in the past that 13% of our business is digital. A lot of that is sort of shaped by the fact that there's only a small number of products and options that you can buy on our website. We've been pushing actively even relatively small customers to have to order from a sales rep, which I will admit I was slightly shocked to learn when I joined. You know, our goal is to dramatically grow the all the pieces of the business.
I'm not sure it's gonna be as meaningful a year from now to talk about what's digital versus what's direct, because in a lot of cases, our customer may order some things digitally and may talk to their sales rep about other things. The whole thing becomes a little bit less clear. From a partner perspective, I don't think we've externally reported on our partner mix. In terms of partner touched, it's a meaningful minority of our business. In terms of directly partner sold, that's a little smaller. I think both of those need to grow meaningfully. We don't have, I alluded to this in my comments, just as one example. There's a big opportunity to embed our market-leading signature and agreement workflow products directly into third-party products.
We do some of that today, but we're not set up well to serve developers today. We've got a couple quarters of work to do to really provide a world-class set of componentized tools that allow developers to pick and choose from all the things we have to create the most compelling agreement experiences inside of their products. That's gonna be a really important growth driver, but I'm not prepared at this time to comment on the exact magnitude.
Josh Baer (Executive Director and Software Equity Research Analyst)
Great. Thank you.
Operator (participant)
Our next question is from Kirk Materne with Evercore ISI. Please proceed with your question.
Kirk Materne (Senior Managing Director)
Yeah. Thanks very much. Allan, I was wondering if you can just talk about sort of the industry strategy or the vertical strategy, you know, both in terms of what you're doing with the sales organization, meaning are you gonna turn some of that sort of industry focus over to partners? Is there a way to build more sort of industry functionality into the product so it's just product-led in that respect? I was just kinda curious if you could talk about the strategy.
Allan Thygesen (CEO)
Yeah.
Kirk Materne (Senior Managing Director)
On that basis. Thanks.
Allan Thygesen (CEO)
Yeah. It's a great question. I would say we're at the earlier phases of our verticalization strategy. We've long had a special suite of tools for the real estate industry. I think they are best in class, and we'll continue to tweak and improve on that. More recently, we've done some, I think, really nice work, for example, in the healthcare space, where, you know, we've added some compliance with a variety of federal regulations that enables our products to be used for healthcare applications, and that's driven some really nice growth. I think we have opportunities, and this is an active part of our product planning, to basically have our products sufficiently componentized that we can easily create custom workflows that are tailored to individual industries.
I mean, obvious example, if you have something for mortgages, it's not that different from a loan application. It's not that different from an automotive, car purchase. Those are all sectors that we already have business in and where I think we have opportunities to create deeper, vertical agreements. Another e-example is government. We have big opportunities in the government space as well. I'd say we've got some work to do to really fully capitalize on the verticalization opportunity that you alluded to, which I totally agree with.
Kirk Materne (Senior Managing Director)
Thank you.
Operator (participant)
Our last question is from Jake Roberge with William Blair. Please proceed with your question.
Jake Roberge (Equity Research Analyst)
Hey, thanks for taking my questions and congrats on the results. Allan, you've talked a lot about the reoptimization of those R&D resources. Is that more about going deeper into some of your less mature products that have big opportunities like CLM? Or is it about building the self-serve and more frictionless eSignature capabilities that you've talked a lot about? Which of those opportunities do you see being larger as we move forward?
Allan Thygesen (CEO)
It's really across all those. We are absolutely directing investment dollars towards accelerating our product-led growth motion, that absolutely. In addition to that, we direct additional investment dollars into, you know, accelerating our agreement workflow roadmap into the CLM space and into our cloud migration. I think many of you are aware that we're in the process of migrating our suite to Microsoft Azure. A very strong relationship with Microsoft, and this is a really important year for that migration to move some of the core workloads and some of the core compute and storage there. You know, we felt that was deserving of more investment because once we get there, we get more scalability, we can do more of the verticalization that was referred to.
We can do, we can better meet, local requirements in international markets. It's just, for a variety of reasons, a really important migration. It won't be completed this year, but it, we will, you know, really get going in a material way here in fiscal 2024. Those are all areas for incremental product investment, beyond the, self-serve PLG side.
Jake Roberge (Equity Research Analyst)
Okay, great. That's helpful. Just wanted to double-click on the product bundles performing better than expected during the quarter. Can you provide some specific examples of those bundles and which products really stood out in terms of customer adoption?
Allan Thygesen (CEO)
Yeah. I mean, very quickly, we, I'd say the most successful one, and I alluded to this earlier, was what we call our NewCo bundles, so new customer acquisition, where we bundled, you know, our core eSignature product with a couple of key options, SMS and single sign-on, and we had some a baseline services offering to accelerate onboarding. That was a really nice bundle. Our highest value features that we feel are most highly correlated with, both customer satisfaction and renewal, and getting people off to a good start, it really is helpful for renewal as well. I think that was, that was the most successful, worked really well, and we need to do more of that.
Jake Roberge (Equity Research Analyst)
Great. Thanks for taking my question.
Allan Thygesen (CEO)
Okay, just quick. Let's just wrap up here. Thank you all for joining and for your support as we continue to evolve our business. In closing, while this past year was challenging, the changes we're making are vital to driving our long-term growth and success. I think we delivered a solid finish to the year, and we are prioritizing our investment focus on the areas which we believe will drive increased value for our customers, employees, and shareholders. I'm really excited about the steps we've taken to accelerate innovation, improve and diversify our go-to market and support our vision of smarter, easier, and trusted agreements. I look forward to sharing more with all of you as the year progresses. Thank you.
Operator (participant)
This concludes today's conference. You may disconnect your lines at this time, and we thank you for.