DOCU Analyst Q/A Q3FY21

DOCU Analyst Q/A Q3FY21
12/3/2020 3:30 CT
Dan Springer, CEO
Cynthia Gaylor, CFO

Just got off the earnings call and analyst questions and posting my notes as soon as possible for early preview before this gets posted by SA later this evening.

Dan Springer’s remarks:
• Strength of Q3 Results over the long haul
• Why they will continue to grow over long term, and not just during the Covid/short-term
• Future outlook

An international e-commerce company in Central America is now using DOCU. Could this be Mercado Libre (MELI)?

Believe DOCU will continue to flourish in the world after Covid and that using it will become new norm.

Once people get used to signing electronically using Docusign, they don’t go back to pen and paper.

Docusign analyzer is a new product that uses AI software to verify authenticity of the signature.

DOCU is using resellers to drive growth.

Increased interest in embedding DOCU into front and back office agreements that talk with Salesforce SALE) and other agreements that drives incredible scale and reach.

3rd quarter in a row with this level of growth.

They believe they’re just scratching the surface of their addressable market.

Cane Health of Gateway Health has joined DOCU’s Board of Directors.

For CFO’s remarks, see written prepared remarks on DOCU’s Investor Relations website. This is the first quarter for which Cynthia Gaylor has served as CFO.

Questions/Answers:
Q JP Morgan –How much of revenue growth is from existing customers coming back to buy more and what are they buying?

A All of the above. DOCU is built on a capacity model, so once people have used up their volume level, they renew and often they do an early renewal. Customers are using up their 3 year volume in 1 ½ year, so they’re increasing volume in this way. Customers can purchase seats or by volume. Faster adoption and more use cases than customers initially thought is driving growth.

Q Morgan Stanley –Adoption of the cloud. Beyond e-signatures, what else is driving sales?

A CLM was the additional agreement product that was previously driving sales. Now mid and going to post pandemic, people are wanting to expand to Seal (CL?) software. Larger and more complex installs that got pushed out are now re-accelerating and doing bigger installs. CEO expects to see more of these larger deals in the next few quarters.

Q International vs. US. What are you seeing?

A International will grow faster because it’s a smaller base than in the US. A lot of the execution from previous quarters is manifesting now into $ in new sales. In larger markets with UK, Canada and Germany, DOCU plans to make investments to expand faster.

Q William Blair –Noone is going back to pen and paper. Do you feel that Covid pulled growth forward and how do you see this going forward?

A RE: Signature which has a $25B TAM. It’s actually growing. The agreement product in the cloud is even larger than the Signature platform of $25B. Accelerating growth quickly and they plan to continue to expand at least as quickly as they are at the present time.
CEO said that Q3 was particularly strong because of some large size deals. Keep this in mind in the future, (but remember that they expect larger deal sizes in the future according to the CEO)
Once they have a CLM enhanced with AI, companies have the benefit of knowing a lot more about trends with the different verticals in which DOCU works.

Q RBC- The durability of growth…How should people think around the different verticals that produce difficult to achieve comps? E-signature to CLM, what does that look like into the future.

A Going forward, financial services, government will be strong and yet likely travel and energy will be laggards. On the plus size, CLM, Docusign agreement cloud their other big offering will provide significant additional growth.

Q Ecosystem and where could you take this business and the network effect.

A We’re a software company, however, that said, DOCU can forsee their customers asking them to go into more than just software. It’s not a part of their vision, however, in the future.

Q QVN –The upsell of the broader cloud CLM. What % of your business comes from each area of your business to see how far along the journey you are?

A It’s going to be a while before the non-signature part of their business is worthy of that kind of revenue breakdown. The re-acceleration of signature has been overwhelming. They do however also talk about the broader cloud CLM. The reality of the CLM and Seal focus will be coming in the next few quarters. Just cannot quantify it yet.

Q About to face some very tough comps in Q1 of FY22. Can you provide any guidance for next year?

A They’ll wait until next quarter to guide into FY22. They guide to what they see.

Q Needham & Co.- AS you look back over the last two quarters, are deals changing in terms of the way they’re coming in?

A Signature has been the focus this year, although the cloud agreement software had been growing significantly last year (FY 20). Investing a lot in channel partners to drive revenue growth. They plan to expand their digital sales force.

Q How are you thinking about M&A?

A DOCU is not looking for blockbuster deals to buy lots of revenue. When they do acquisitions, they all have similar characteristics. Someone has a product where they have domain expertise and they can accelerate their ability to build out their product. Other deals won’t likely change in terms of valuations (SLACK acquisition by Salesforce).

Q JFP Group –What is the top priority in R&D: 3 priorities are

A 1. integration of AI capability when they purchased seal to incorporate AI.
2. Notary
3. Macro agreement in the cloud and are they able to fully integrate into their platform.
Q RE: NRR

A Churn has largely been stable. Customers are saying they want to use more Docusign and expand into the agreement cloud

Q RE: OPEX, your OPEX has grown at same rate as last year. How are you thinking about OPEX and ROI

A Trying to invest for top line growth. Areas leaning heaviliy into are S&M, capacity, customer success and innovation.

Q Duetch Bank –Record number of commercial/enterprise adds this year. How do you expect them to expand? Any trends in expand and any variations?

A Not been a lot of variation. Very consistent. Nothing fundimentally different than the way land and expand has happened in the past. Don’t see the average path changing, even though they’re a bigger class, they’ll probably perform in the same way.

Q Oppenheimer –International branding, does DOCU have international awareness like Xerox or Kleenex.

A We’ve got it in the US, and internationally the unaided awareness is not that strong internationally. So many people who buy homes and/or rent apartments use DOCU. IF you’re in Germany and Japan, there’s not as much brand awareness and DOCU is going to invest in these geographic markets to expand this as a part of their marketing plan next year. Nobody else does either. They haven’t lost that opportunity, and they intend to make sure to keep it that way.

Q What’s staus of your new datacenter

A Currently using it for customers who don’t require certain certifications. Working on getting certifications so they can use this datacenter for their large federal agency market.

Q DA Davidson –Thinking about DOCU in the post-pandemic world. Customers are accelerating their digital transformation x 3-4 years. Help us understand future growth.

A For last 3 quarters, they didn’t expect to have this kind of growth. CEO senses that Covid has been an accelerant of their growth. Because their TAM is so big, their ability to grow and their growth rates are based on their ability to scale their team, they can continue to grow at very exciting rates. CEO’s assumption is that the growth in the future won’t be as high as during the pandemic, rather it will be slightly below what has happened during the pandemic.

Q RE: Insite as a partner

A CEO sees it as a significant opportunity. They see this happening with others as well. Trying to decrease services as a % . Want to move growth into the partner ecosystem. Particularly SI’s

Q Evercore ISI- Thinking of all the direct customers you’ve brought in, are you landing higher up in the organization so you can execute business process changes and are you landing high enough to be able to make this happen?

A Enterprise has been landing really well and has driven a lot of their growth. Pushing agreement cloud pitch and signature has been where most customers have been landing

Hope this was helpful. I appreciate this group, and all the collaboration, sharing of knowledge and all I continue to learn. I especially appreciate Saul and his selfless gift of teaching us all to fish (invest). What an impact Saul has had on so many of our lives and the lives of our families. My sincere wishes for happiness, good health and investing success during the holidays, to everyone.

Finally, I recently read Morgan Housel’s new book called The Psychology of Money, where he stated that the truest form of wealth is largely unseen. “The ability to do what you want, when you want, with who you want, for as long as you want, is priceless.”

Sjo

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