Q2 2025 Earnings Summary
- DocuSign's new IAM platform is showing promising early results, with significantly larger deal sizes, faster closes, and higher win rates; in August, IAM bookings were more than double the size of June and July combined, indicating accelerating momentum.
- The company achieved record non-GAAP operating margins over 30%, reflecting significant improvements in operational efficiency over the past two years while balancing investments in growth areas like IAM.
- Dollar Net Retention rate stabilized at 99%, and DocuSign aims to return to double-digit growth by leveraging up-sell opportunities within its extensive customer base of 1.6 million companies, including 85% of the Fortune 500.
- Reliance on the unproven IAM platform for future growth: DocuSign's leadership acknowledged that the main growth lever is the new IAM platform, which is still in the very early stages of rollout. CEO Allan Thygesen stated, "It's super early. We just launched to the commercial segment in North America and Australia. Obviously, a subset of our business." This heavy reliance on an unproven product introduces uncertainty about the company's ability to achieve sustained growth.
- Anticipated decline in operating margins due to increased investment: CFO Blake Grayson indicated that while the company achieved a record non-GAAP operating margin of over 30%, margins are expected to decline slightly in the second half of the year as they invest in supporting the IAM rollout to additional regions and customer segments. This suggests that current high margins may not be sustainable as the company prioritizes growth over efficiency.
- Stagnant Dollar Net Retention Rate with limited short-term improvement expected: The Dollar Net Retention (DNR) rate remained at 99% in Q2 and is expected to stay consistent through the remainder of fiscal year 2025. When asked about the potential for DNR expansion, CFO Blake Grayson mentioned that while there's optimism for long-term improvement, especially with IAM, there are no immediate catalysts for DNR increase, indicating potential challenges in driving upsells and expansions with existing customers.
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Growth Confidence via IAM
Q: What gives confidence in sustaining growth?
A: The company has fully stabilized the business, with key operating metrics trending positively. In the short term, international expansion and CLM will aid growth, but long term, IAM is the main lever. Early indicators for IAM are encouraging, showing larger deal sizes, faster closes, higher win rates, and August bookings more than doubling those in June and July. Though it's early days, they're hopeful IAM will contribute meaningfully next year and beyond. -
Margin Outlook and IAM Investment
Q: Can margins remain high while investing in growth?
A: Operating margins reached over 30% after normalizing one-time items, a significant improvement driven by focus on productivity and efficiency. While there's room for further gains, the priority is balancing productivity with investing in IAM growth. The company aims to support IAM's expansion into new regions and customer segments, which may slightly reduce margins in the short term. -
Net Retention Rate Stability
Q: Will net retention rates improve from here?
A: Dollar net retention stabilized at 99% in Q2 and is expected to remain consistent through the year. The impact of pandemic-era contracts is mostly flushed out, with only a low single-digit share remaining by the end of FY '25. Opportunities to improve net retention lie in enhancing core business renewals and leveraging IAM for expansion over the longer term. -
Early Feedback on IAM vs. CLM
Q: Why is IAM growing faster than CLM?
A: Customers are thrilled with IAM's ability to collect agreements and provide instant insights, highlighting ease of deployment and rapid time to value. Even mid-sized and smaller companies have thousands of agreements, indicating widespread pain points that IAM addresses. Unlike CLM, which focused on large enterprises requiring custom development, IAM offers broader reach and faster adoption across industries and functions. -
Sales Leadership Transition
Q: What led to the sales leadership change?
A: The company is undergoing a transformation from selling a singular, horizontal product to offering a richer, platform-oriented solution. Bringing in Paula as a leader aims to drive this transformation effectively. Their strategy of focusing on direct channel, partners, and self-serve remains unchanged. -
Revenue and Billings Guidance
Q: Why did revenue guidance increase more than billings?
A: The Q2 revenue beat was due to bookings occurring earlier than expected, particularly from larger deals and higher usage. Some customers renewed ahead of schedule, and this timing influenced the revenue raise. It's not indicative of seasonal changes or business shifts. -
IAM Pricing Model Shift
Q: How has IAM's pricing model evolved?
A: Historically, the eSign business used envelope-based billing. For IAM, the company is moving to a seat-based pricing model for different user types, with additional charges for storage capacity and value-added features like advanced AI. They're exploring ways to align pricing closely with the value delivered to customers. -
Impact of AI Regulation
Q: Does AI regulation affect your plans?
A: Current proposed regulations, such as those in California and the EU, do not meaningfully impact the company's plans. While acknowledging concerns about AI misuse, they believe it's early to regulate AI that's not well-defined but will adhere to laws in all markets where they operate. -
Partnering with ISVs for IAM
Q: How important are co-selling partnerships with ISVs?
A: Co-selling with large ISVs like Microsoft and SAP is a meaningful lever, especially in large enterprises. Such partnerships are crucial as the company scales IAM, enabling access to customers through resellers and system integrators. There's significant opportunity to collaborate with SIs like Deloitte, E&Y, and Capgemini. -
Lexion Acquisition Integration
Q: How vital is Lexion to IAM, and when is integration expected?
A: The Lexion acquisition is crucial for IAM's functionality. The company closed the deal at the end of May and is already shipping significant features enabled by Lexion within four months. Integration is happening swiftly, exceeding expectations, and there's more to come.