Q3 2025 Earnings Summary
- Steady Customer Growth and Expansion Opportunities: DocuSign continues to add new customers at a steady growth rate of 10-11% for several quarters, reaching 1.6 million monthly paying customers, an unusually high number for an enterprise software company. There is significant headroom for growth, particularly in the SMB space in the U.S. and even more internationally in Europe, South America, and Asia. With 85% of the Fortune 500 already as customers, DocuSign plans to leverage its massive installed base to offer more value and drive growth.
- Improving Retention and Operational Execution: The company's dollar net retention rate has improved to 100%, up from its low of 98% in Q4 of fiscal 2024, indicating better retention of existing customers. This improvement is driven by a focus on operational execution, data accumulation, and proactive engagement in renewal opportunities, including enhancing customer success coverage through lower-cost hubs in Brazil and Egypt. DocuSign believes there is still room for further improvement in retention, providing potential for additional revenue growth from existing customers.
- Strong Financial Performance and Focus on Efficiency: DocuSign's operating margin in the third quarter was up nearly 300 basis points from a year ago, and more than double from two years ago. The company is raising its operating margin guidance for Q4 and is focused on supporting growth opportunities while maintaining efficiency gains. Additionally, revenue and billings are starting to reaccelerate, with the core business being the predominant driver. Better-than-expected bookings of their new Intelligent Agreement Management (IAM) platform, even at an early stage, provide optimism for future growth contributions.
- Slowing Revenue and Billings Growth with Challenging Comparisons: DocuSign's revenue growth is decelerating, with Q3 revenue increasing only 8% year-over-year , and Q4 revenue guidance of $758-$762 million, representing a 7% year-over-year increase at the midpoint. Billings growth is expected to slow to 5% year-over-year in Q4, partly due to tough comparisons from a strong Q4 in fiscal 2024 when billings grew by 13%.
- Dependence on Early Renewals for Billings Performance: A significant portion of Q3 billings outperformance was due to early renewals, accounting for approximately one-third of the outperformance. Reliance on early renewals may not be sustainable and indicates potential weakness in underlying demand.
- Uncertainty Around IAM Platform's Future Contribution: The Intelligent Agreement Management (IAM) platform is in early stages and may take time to significantly contribute to growth. The company mentioned that IAM's contribution was the smallest among the growth drivers, and most of the growth is still coming from the core business. There is uncertainty regarding how quickly IAM will ramp up and impact revenue.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2025 | no prior guidance | $758M to $762M | no prior guidance |
Subscription Revenue | Q4 2025 | no prior guidance | $741M to $745M | no prior guidance |
Billings | Q4 2025 | no prior guidance | $870M to $880M | no prior guidance |
Non-GAAP Gross Margin | Q4 2025 | no prior guidance | 81.0% to 82.0% | no prior guidance |
Non-GAAP Operating Margin | Q4 2025 | no prior guidance | 27.5% to 28.5% | no prior guidance |
Non-GAAP Fully Diluted Weighted Average Shares Outstanding | Q4 2025 | no prior guidance | 209M to 214M | no prior guidance |
Revenue | FY 2025 | $2.940B to $2.952B | $2.959B to $2.963B | raised |
Subscription Revenue | FY 2025 | $2.864B to $2.876B | $2.885B to $2.889B | raised |
Billings | FY 2025 | $2.990B to $3.030B | $3.056B to $3.066B | raised |
Non-GAAP Gross Margin | FY 2025 | 81.0% to 82.0% | 81.9% to 82.1% | raised |
Non-GAAP Operating Margin | FY 2025 | 29.0% to 29.5% | 29.5% to 29.7% | raised |
Non-GAAP Fully Diluted Weighted Average Shares Outstanding | FY 2025 | 206M to 211M | 210M to 212M | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
IAM platform | Q1/Q2: Introduced and expanded in commercial segment with strong early adoption. | Q3: Showed 10x sequential deal volume growth; expanding to enterprise departments globally. | Bullish momentum continues, driven by strong adoption and multi-year expansion opportunity. |
Dollar net retention rate | Q1/Q2: Moved from 98% to 99%, stabilizing amid pandemic-era renewals. | Q3: Improved to 100%, driven by better retention and proactive renewal strategies. | Positive trend, with slight further improvement expected. |
Customer growth and expansion | Q1/Q2: ~11% YoY customer growth; strong SMB/enterprise mix; ~85% Fortune 500 penetration. | Q3: Total customers up 11% to 1.6M; enterprise deals expanding with dept-level IAM rollouts. | Steady growth, particularly in enterprise departmental workflows. |
International growth | Q1/Q2: ~28% of total revenue; growing at double overall rate; expansions in EMEA, LATAM, APAC. | Q3: 28% of revenue; 14% YoY growth; IAM launched in multiple international regions with localized AI. | Consistently strong contribution, with further upside for IAM adoption. |
Revenue and billings trends | Q1/Q2: 6–7% YoY revenue growth; billings variances from early renewals timing. | Q3: $755M revenue (+8% YoY), $752M billings (+9%), ~⅓ of outperformance from early renewals. | Slightly stronger than prior quarters, aided by early renewals and IAM traction. |
Operating margin & efficiency | Q1/Q2: Gradual improvement (28–32% non-GAAP); focus on cost discipline and headcount optimization. | Q3: 29.6% non-GAAP margin, up ~300 bps YoY; disciplined spending despite product investments. | Continued margin gains, balancing efficiency with R&D. |
Early renewals impact on billings | Q1/Q2: Noted pull-forward effects boosting billings modestly. | Q3: ~⅓ of billings upside from early renewals; described as timing-driven rather than structural. | Ongoing factor, providing near-term boosts but expected to moderate. |
Execution risk for go-to-market | Q1: Emphasis on consultative sales for IAM, acknowledging unique challenges. | Q3: Risk remains in enterprise rollouts, but new leadership focuses on ELA and platform attach. | Manageable risk with phased enterprise deployments and refined sales approach. |
G&A expenses | Q1: Lower on an absolute dollar basis YoY due to timing; expected steady pace. | Q3: No specific mention this quarter. | No new discussion; presumably stable. |
Enterprise license agreements | Q2: Small part of business; potential for unlimited consumption model. | Q3: Cited as part of evolving enterprise engagement model, especially with IAM attachments. | Growing importance in large deals, still early stages. |
Free cash flow generation | Q1/Q2: Strong FCF margins (~27–33%), aided by collections and renewal timing. | Q3: $211M FCF (~28% margin), with share buybacks funded from FCF. | Healthy cash flow, enabling flexibility for investments and buybacks. |
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Revenue and Billings Growth
Q: What's driving revenue and billings reacceleration; core or IAM?
A: The reacceleration is predominantly driven by the core business, due to better retention and accelerating growth in digital upgrades and usage. While IAM bookings exceeded expectations, they were the smallest contributor as IAM is still in early stages. -
Margin Outlook
Q: How should we think about margins heading into next year?
A: Operating margin improved by nearly 300 basis points year-over-year in Q3. While we're raising margin guidance for Q4, there are temporary pressures in FY '26 from cloud transition costs and compensation adjustments. Long-term leverage will come from accelerating growth without costs scaling at the same rate as revenue. -
Macro Environment
Q: What's the macro outlook over the next 9 months?
A: We see marginal improvement in the enterprise technology environment, with economies in major markets looking reasonably positive. We're not projecting material changes but remain cautious. -
Early Renewals Impact
Q: How are early renewals affecting billings guidance?
A: Early renewals contributed to Q3 billings performance, accounting for about one-third of the growth. This trend is expected to continue, and while we don't disclose exact figures, early renewals are embedded in our Q4 guidance. -
Improving Retention Rates
Q: What's driving improvements in gross retention?
A: Enhanced operational execution, including proactive engagement on renewals and expanding customer success coverage, is improving retention. Our dollar net retention rate is increasing, and we see further room for improvement. -
IAM Adoption
Q: Can you provide guidance on IAM growth?
A: IAM is showing strong early traction with a 10x sequential increase in adoption. It's selling faster than CLM due to broader applicability and out-of-the-box value for mid-sized companies. However, it's still early, and we'll provide more guidance in our March call. -
Competitive Dynamics
Q: Any changes in competitive dynamics affecting retention?
A: The competitive environment remains stable. As we expand our offerings with IAM, we're differentiating more, which should aid retention and competitiveness. -
Go-to-Market Strategy
Q: How is Paula Hansen impacting go-to-market focus?
A: Paula is focusing on expanding into the enterprise segment over the next year, building capabilities for end-to-end deployments. She's leading efforts across the entire go-to-market cycle, including sales, marketing, and partnerships. -
eSignature Penetration and Growth
Q: What's the status of eSignature penetration and growth?
A: We maintain a steady 10–11% growth rate in net customer count. There's still headroom in the U.S., especially among SMBs, and even more opportunity internationally. With 1.6 million monthly paying customers, we have a significant advantage to leverage. -
Capital Allocation and Buybacks
Q: Any changes in capital allocation or buyback plans?
A: There's no change to our strategy. We're generating strong free cash flow, providing flexibility to allocate capital toward stock buybacks, M&A, or business investments.