Fools:
Back in 1Q20, the share price of DOCU dropped significantly based on a (perceived) slow-down in billings. Of course, what Wall St failed to see was that against all other metrics, the company was firing on all cylinders and the billings issue was temporary as the company pivoted towards implementing its new system of agreements platform called: the Docusign Agreement Cloud. Speaking of clouds, the FUD this slowdown caused, created what David Gardner refers to as “a cloud you can see through,” opportunity for investors. In the weeks following the 1QFY20 report, shares dropped as low as $43. Today share price is roughly in the $73 range (as of 12/24/19). Savvy investors who took advantage of the drop have realized a nearly 60% return from the low.
Below are the key metrics I follow for DOCU. While the company continues to perform quite well in all areas, there are two metrics I keep an especially close eye on: Dollar Based Net Retention (DBNR), Docusign’s stated DBNR goal is 112%-119% on a quarterly basis. Anything lower than 112% might suggest that the DocuSign’s land and expand strategy is not as robust as it should be. This quarter Docusign reports an excellent DBNR of 117%. Additionally, over time I want to see year over year revenue growth re-accelerate as the company implements is strategy to implement its Agreements Cloud platform. You’ll note that that y/y revenues for in FY20 have accelerated from FY19. This is good news.
Here are the numbers:
Total Customers:
FY19 Q1 Q2 Q3 Q4
400k 429k 454k 477k
FY20 508k 537k 562k
Customers with annual contract value (ACV) >$300K:
FY19 Q1 Q2 Q3 Q4
215 246 285 310
FY20 324 370 401
*51% year-over-year
Dollar Based Net Retention
FY19: Q1 Q2 Q3 Q4
114% 115% 114% 112%
FY20: 112% 113% 117%
Revenue (rounded):
Q1 Q2 Q3 Q4 Sum
FY16 250
FY17 84 92 97 108 381
FY18 113 125 131 149 518
FY19 156 167 178 200 701
FY20 214 236 250
Revenue Growth (Y/Y):
2017 52%
2018 36%
2019 34%
2020 37% (Q1), 41% (vs.2Q19), 40% (vs 3Q19)
Billings:
Q1 Q2 Q3 Q4
FY19 169 172 198 262
FY20 215 252 269
Gross Margin (Non-GAAP):
FY19 Q1 Q2 Q3 Q4
80% 81% 79% 80%
FY20 79% 78% 79%
Earning per Diluted Shares (non-GAAP):
FY19 Q1 Q2 Q3 Q4
$.01 $.03 $.00 $.06
FY20 $.07 $.01 $.11
Free Cash Flow (mil):
FY19 Q1 Q2 Q3 Q4
8.8 18 (-4.3) 23
FY20 30.4 11.9 (-14.1)
Net Cash from Ops (mil):
FY19 Q1 Q2 Q3 Q4
15 23 4 34
FY20 45.7 26.4 2
Cash & Equivalents (mil):
FY19 Q1 Q2 Q3 Q4
270 819 1B 934M
FY20 937 930.5 912
Highlights from the Conference Call: https://www.fool.com/premium/coverage/earnings/call-transcri…
On Docusign’s Growth
CEO Springer: DocuSign’s growth is driven by three primary factors, increased adoption and use case expansion within our existing customer base. The acquisition of new customers and the development of new solutions, that help companies modernize their systems of agreement. We believe our Q3 results reflect ongoing progress across all of those factors. With strong demand for the DocuSign Agreement Cloud we grew revenue by 40% year-over-year to $250 million and billings by 36% year-over-year to $269 million. We acquired 25,000 new customers, approximately 5,000 of which were direct, bringing our total number of paying customers to 562,000 worldwide, of which roughly 69,000 are direct. We were again profitable on a non-GAAP basis with operating income of nearly $17 million and this is our eighth consecutive quarter of positive non-GAAP EPS.
We also saw a solid uptick in our dollar net retention rate to 117%. These positive results showcase the demand for our agreement cloud suite remains strong as we head into our largest quarter of the year. Next, I’d like to share how we are progressing on the vision and strategy we laid out, when we went public last year and how we continue to execute in Q3. By now, you’re probably familiar with our Agreement Cloud vision, it built on top of our global eSignature leadership and helps companies automate and connect their agreement processes, both before and after the signature takes place.
On Docusign’s TAM
CEO Springer: We first discussed this during our IPO. And at that time, we reinforced the importance of our core eSignature business and clearly articulated the $25 billion opportunity which is still only about 5% penetrated. We also showed how that TAM could potentially double with the expanded opportunity for the rest of the Agreement Cloud. Over the past 18 months we’ve taken several steps to deliver on that vision.
On Docusign Agreement Cloud
CEO Springer: Our own product development team built and delivered several new agreement cloud solutions and we partnered with specialist companies to resell select additional products that expand on our offering. We then brought all this together under the agreement cloud umbrella. Our suite of more than a dozen products now and over 350 prebuilt integration that helps organizations connect and automate their agreement processes. We also collaborate with systems integrators like ATG, Simplus and Spaulding Ridge who are building out Agreement Cloud practices and broadening our ability to drive success for our joint customers.
On negative cash flow this quarter
CFO Sheridan: Free cash flow came in at negative $14 million, compared to negative $4 million in the prior year. As anticipated, the RPost litigation payment together with planned real estate investments, including our office in Dublin and our fit datacenter impacted our cash flow in the quarter.
A 2011 article that provides a little more detail on the RPost patent litigation: https://techcrunch.com/2011/07/19/patent-lawsuit-rpost-adobe…
My take: Another quarter of excellent execution for DOCU. This is a business with solid leadership, a clear eyed purpose and vision, and a significant brand advantage in a largely untapped market. What’s not to like?
Best, Swift…
Long DOCU