DOCU Q3 2020 Earnings Report


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)


        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:…

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:…

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…


Swift, great post.

I really like DOCU having used it several times to sign contracts with clients (it was a service my end client used) as well as signing my tax returns here in the UK with my accountant.

Am I right in thinking they have only one competitor in Adobe with Adobe Sign?

If so, it would be worth (am happy to do it) going through the Adobe earnings and calls to see what contribution to revenue etc. Sign is for Adobe.



Am I right in thinking they have only one competitor in Adobe with Adobe Sign?

No, there are lots of competitors. My broker used HelloSign, 8th on the following list

DocuSign ?ompetitors: Top 12 Electronic Signature Apps…

This year I had to use an online notary and they didn’t rely on a third party, instead it was all in-house.

Here is a DocuSign thread at NPI from over a year ago that might be of interest

I made good money on DOCU from January to April this year but then I lost interest. I have not followed it since.

Denny Schlesinger



Thanks for your comments. As noted, Docusign has competitors to their e-signature product. Although they are the standard that others try to beat, so much so that their band name has become a verb, as in: “please docusign this contract…” However, Docusign is way out front of its competitors when it comes to the Agreement Cloud. They are a first mover and gaining ground on this as evidenced by their improving revenue growth and DMNR rate.

Adobe can’t compete on the Agreement Cloud, nor can the other e-sig competitors, at least not yet. This first mover advantage combined with a strong brand name makes it conceivable that Adobe could throw up their hands in defeat and buy DOCU. Adobe: $160B market cap; Docu: $13B market cap. That’s a wild prediction, not an invest-able idea. :slight_smile:

Best, Swift…