DOCU Q4 results

[Franklin29]

Q1 guidance was $436 M (47% YoY) and FY '22 guidance was for $1.97 B (35.8%)
Q1 guidance was a little soft imo, only 1.2% sequentially vs. 12.5% in their most recent quarter but FY '22 guidance was reasonable. Basically, it seems to state that they are not going to maintain the huge acceleration of their business that COVID helped provide, but they will be better than pre-covid.

Without listening to the earnings call yet, I think their results were pretty good:

• Subscription revenue was up 59% YoY and 12% sequentially, slight slowdown sequentially, but overall still a solid growth rate compared to historical sequential gains.
• NRR continues to tick up, 123% this quarter vs. 117% last year and 122% last quarter
• Operating Margin is improving a lot with Op Margin this quarter at 17%
• Customers were up 51% and 8.5% sequentially, so slowing down but still solid.
• Enterprise customers also slowing down sequentially, but still accelerating YoY to 67%
• GM had a slight improvement YoY
• FCF margin for the year was up 14.8% vs. 4.5% last year

I think shares are down because people expected more, but their valuation was never one that ever got “out of hand.” I think DocuSign continues to show strong execution, they have great financials and while we all had hoped they would keep up the COVID pace, which clearly they are not with the sequential deceleration across several KPI’s, it’s still not horrible, it’s better than pre-COVID, but not better than peak-COVID. I expect they’ll be a solid 35-low 40s grower the next few years with terrific operating margins.

[bnh91]

Learning,

A pre-pandemic growth rate against the comp of the incredible 2020 they had would be very impressive. This shows me the digital transformation is continuing to provide strong tailwinds. I think if they hit low 40% this year it will be really impressive.

Bnh

[cfee2000]

I find a LOT to like in Docusign’s report…

57% Revenue Growth YoY (their best number YET!)
58% Subscription Growth (their best number YET!)

0.37 EPS (Adjusted) (their best number YET!)

Operating Margins have grown for 6 straight quarters!!

Subscription Gross Margins 85% (Adjusted) (their best number YET!)

Short Term (<1 year) Deferred Revenue at $779.65 (their best number YET! and 14% QoQ)

890,000 Customers (52% YoY growth, their best number YET!) - caveat that I didn’t find their Enterprise customer number, which is arguably more important

Ok, so if you have a gripe, i suppose it’s with one of two things - (1) Guidance (2) Billings

On guidance, Docusign has been pretty consistent around 4% beat on average on top line revenue, even during the pandemic they did a good job, so take that in consideration when you see the full year guide.

On the Q1 guide, note that seasonally this is in line with what they did in Q1 last year, in that the number was slightly down sequentially.

On Billings - I’m fine if the argument here is against billings, but they still hit 46% billings growth YoY compared to 40% YoY a year ago. The FY guide for billings looks to be down to about 32%, so I’m not going to beat around the bush on that one, but it’s worth noting that their historical billings guide has been nowhere near as consistent as their revenue guide, and mostly in the sense that they beat more soundly on billings. The average total revenue beat, to be exact, since Q218 is 4.24%. The average billings beat during that same timespan is 7.24%.

Take that FWIW. I think of billings as more of a “normalization” post-covid than a sign of a perpetual decline. I’m sticking with my Docusign position and will not be losing any sleep over this report. I’ll add if selling picks up.

-Chris
Long DOCU 5%

[cfee2000]

My fault for missing this number for Enterprise/Commercial customers, but its important to augment my post with this info, because this number was 125,000 as shown in their Earnings Slides (vs. 70,000 in Q120) which is 79%!! YoY and 14%!! sequentially. That is SUPER impressive to me, so it only increases my confidence further.

Franklin19 also mentioned the 123% NRR which is one more in the “best YET!” column for Docusign.

I also just simply don’t think we’re all the sudden going to start trending towards going “back to paper” to handle our signatures and systems of agreement just because COVID is going away, especially with how infuriating it is to sign and manage documents by hand when you can do it digitally in a fraction of the time with no fear of losing or misplacing your paper copy, so forgive me for not being scared away by still-very-good-but-conservative guidance

-Chris

[knyc]

cfee2000: “I also just simply don’t think we’re all the sudden going to start trending towards going “back to paper” to handle our signatures and systems of agreement just because COVID is going away, especially with how infuriating it is to sign and manage documents by hand when you can do it digitally in a fraction of the time with no fear of losing or misplacing your paper copy,…”

And let’s not forget that companies working remotely vs. in the office once lock downs lift, is not going to be all or nothing. Many firms are going to allow a more flexible schedule and aiming for say ~40% of their workforce working remotely on any given day. In such an environment, Docusign’s technology is as critical as when 100% are working from home.

Kevin

[stocknovice]

I’m with Chris. I liked the quarter and can’t say it wasn’t expected given the rest of their year. DOCU really did have a phenomenal 2020. Here’s what I noted last quarter updated for today:

• Revenue Growth: 39%, 45%, 54%, 57% (FY $1.45B; +49% YoY)

• Subscription Revenue: 39%, 47%, 54%, 59% (FY $1.38B; +50% and 95% of total)

• Billings: 59% 61%, 64%, 46% (FY $1.7B, +56%)

• International Revenue: 46%, 59%, 77%, 83% (FY $287M; +67% and 21% of total)

• Contract Liabilities – Current: 43%, 55%, 62%, 54% ($780M)

• Total Customer Growth: 31%, 40%, 46%, 51% (892,000 !!!)

• Total Customers Added: 72K, 88K, 73K, 70K

• Enterprise Customer Growth: 48%, 55%, 64%, 67% (125,000 !!!)

• Enterprise Customers Added: 14K, 10K, 14K, 12K

• Operating Expenses as a % of Revenue: 71%, 68%, 66%, 63%

• Net Retention Rate: 119%, 120%, 122%, 123% (new record and 4th straight acceleration)

• Gross Profit: 37%, 45%, 54%, 60% (FY $1.15B; +50%)

• Subscription Gross Profit: 36%, 44%, 53%, 61% (FY $1.16B; +49%)

• Operating Margin: 8%, 10%, 13%, 17% (FY $181M; 12%)

• Net Margin: 8%, 10%, 12%, 18% (FY $182M; 13%)

• EPS: $.12, $.17, $.22, $.37 (FY $.90; +190%)

I also feel similarly about the guides. This management has always been conservative and already told us growth would be better than pre-COVID but not as good as 2020. An initial 36% guide is right in line with that statement and means we are probably looking at something at least low-40% by the end of the year with very strong profits.

CEO Dan Springer Springer said:

“DocuSign went from a crisis response solution last year to a business-as-usual solution today…We don’t believe our new or expanded customers will be going back to paper, even after the pandemic recedes…We call the products and services supporting this trend the ‘anywhere economy.’ We believe we’re a key pillar, and it’s only just beginning. You’ll hear more from us about this in the coming weeks.”

I plan on sticking around at my current allocation at least until I hear what he has to say.

[LearningInvest0r]

There was an error in my numbers - indeed they guide for 1.97b revs and last year revs were 1.45b. Strangely, in Press Release they said that revenues were 1.5b https://investor.docusign.com/investors/press-releases/press…

So, guide for next year is 36-37% - as many folks pointed out. It’s virtually guaranteed that they will be growing in 40s. That’s actually in line with what Dan said several times in previous conferences - Docusign is expected to grow faster than pre-Covid but slower than during the pandemics. So, 40s is exactly in the middle. Not shabby for 1.5-2b topline. Other metrics are pretty good as well.

Another question for each of us - what role this solid 40s grower will have in each of our portfolios… That’s for each board member to decide. I personally re-allocated most of my former Docu position into other names with more conviction and higher growth rates, but I’m not claiming that this has been correct decision, I just have more confidence in other names like Crowdstrike, Cloudflare and others.

[PaulWBryant]

This management has always been conservative and already told us growth would be better than pre-COVID but not as good as 2020.

Thanks Stocknovice for this (and also cfee2000 for your posts on the quarter). I want to reiterate the above statement and focus on billings, which is less predictable than revenue and may be confusing some (a lot of) people. I was not put off by the 46% growth this quarter – anyone who thought it would be 60%+ forever wasn’t paying attention. But this was 46% against their best quarter ever as of one year ago. Look at the trend.

Billings   Q1     Q2     Q3     Q4    FullYear
F2020     215    252    269    367      1104
F2021     342    406    440    535      1723

That’s incredible! Billings were up 21% sequentially! It just didn’t look as amazing because last year in Q4 they were up 36% sequentially. Docusign guided for 32% billings growth in Fiscal 2022. A year ago, they guided for 31% billings growth. And yes, it turned out to grow 56%. I don’t think that will happen again, but the point is: billings guidance is actually higher than pre-pandemic levels. Management’s numbers back up their story. I don’t know if the actual number will come in at 40%, 45%, even maybe close to 50%. But we know it will be a lot higher than 32%, and that should put a solid floor on the situation, with plenty of room for upside.

Unless billings beats like it did this year, Revenue growth rate will outpace billings. Revenue growth will benefit for several quarters from the 60%+ billings growth they’ve experienced recently.

Customer growth and enterprise customer growth was steady…I expect it to tick back down, but it’s holding up better than I expected! NRR increased too!

Then there’s the 37 cents EPS they just produced! 90 cents for the year vs 31 last year. Yes, EPS grew 190% this year. And EPS growth to keep outpacing revenue growth. They guided for a 15% operating margin in the coming year! It was 12% this year. $$$

There really wasn’t anything to dislike about this quarter. I really think the market is missing something here. Simple comparison: DOCU’s current numbers (and the future numbers I expect) absolutely crush Okta on both top and bottom lines, and yet the multiple Docusign gets is almost always lower. I am planning to keep a large position, as I feel this super-solid business is still underappreciated.

Bear

[cfee2000]

“I personally re-allocated most of my former Docu position into other names with more conviction and higher growth rates, but I’m not claiming that this has been correct decision, I just have more confidence in other names like Crowdstrike, Cloudflare and others.”

LearningInvest0r - You mentioned higher growth rates and Cloudflare as one of those companies.

Here’s Cloudflare’s YoY top line revenue growth rates the past 8 quarters:

+--------+--------+--------+--------+--------+--------+--------+--------+
| Q119   | Q219   | Q319   | Q419   | Q120   | Q220   | Q320   | Q420   |
+--------+--------+--------+--------+--------+--------+--------+--------+
| 47.61% | 48.90% | 47.67% | 51.17% | 47.90% | 47.91% | 54.45% | 50.06% |
+--------+--------+--------+--------+--------+--------+--------+--------+

They guided to $131 Million in revenue at the top end of the range for Q1, which would be 43.5% YoY. Their FY2021 guide at the top end is $593 Million. Let’s just pretend to chart that out over 4 quarters with some reasonable numbers for argument sake. If we used $131M, $140M, $152M, and $170M for Q1, Q2, Q3, and Q4 respectively (which adds up to 593), then the YoY growth rates would look like this:

+--------+--------+--------+--------+
| Q121   | Q221   | Q321   | Q421   |
+--------+--------+--------+--------+
| 43.48% | 40.39% | 33.10% | 35.03% |
+--------+--------+--------+--------+

Cloudflare’s beats on revenue are pretty similar to Docusign’s, so I certainly don’t expect the above to be their actual results, and these are 2 different businesses with many other considerations to invest beyond these growth numbers shown (eg. Cloudflare’s RPO numbers are great, for example), but I guess my point is that I don’t think you can objectively follow the results and say that Docusign’s numbers on growth are inferior to Cloudflare’s. In fact, I would argue the opposite.

-Chris

[LearningInvest0r]

Chris, I agree that growth rates of Cloudflare and Docusign are similar at the moment. The difference is that

1. Cloudflare has been a pretty steady 50% grower in the past, while Docusign’s growth was more volatile and it was rather 30% grower pre-pandemics.

2. I personally expect Cloudflare’s growth to accelerate and at least be in 50s. If it dips I’ll revisit the thesis. And Docusign’s growth will be in 40s - decelerating from 50s - as expected and guided by Springer.

3. Cloudflare’s products look to me as having more potential for long-term extraordinary/hyper growth. Docusign has e-signature + hopefully expanding CML and “e-notary” business.

For these reasons - objectively - I’ve got higher subjective confidence in Cloudflare’s future compared to Docusign.

I could be well wrong here as many of the folks sound very bullish on Docusign.

[draj]

• Total Customer Growth: 31%, 40%, 46%, 51% (892,000 !!!)

• Total Customers Added: 72K, 88K, 73K, 70K

• Enterprise Customer Growth: 48%, 55%, 64%, 67% (125,000 !!!)

• Enterprise Customers Added: 14K, 10K, 14K, 12K

Just an observation. There seems to be some inconsistency here. Customers added is relatively flat while customer growth is increasing. If the number added is flat the percentage increase should be falling. Clearly I’m missing something???

draj

[cfee2000]

LearningInvest0r - I think your point on #3 is understandable as it’s subjective, as is #2. As for #1, to say a 30% grower I guess is technically accurate, but on the top line revenue it was high 30’s and Q219 was 41%.

Here’s Docusign’s last 8 quarters of growth rates (to compare to Cloudflare’s that I showed previously)

+--------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
|                                | Q119   | Q219   | Q319   | Q419   | Q120   | Q220   | Q320   | Q420   |
+--------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Rev Growth (YoY)(Total)        | 37.36% | 41.08% | 39.85% | 37.66% | 38.79% | 45.25% | 53.47% | 56.75% |
+--------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Rev Growth (YoY)(Subscription) | 35.96% | 39.31% | 40.55% | 37.58% | 39.40% | 46.56% | 53.97% | 58.93% |
+--------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Growth (YoY)(Billings)         | 27.29% | 46.57% | 36.06% | 39.82% | 59.12% | 60.74% | 63.47% | 45.79% |
+--------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+

Plus their customer growth looks like this…

+------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
|                                    | Q119    | Q219    | Q319    | Q419    | Q120    | Q220    | Q320    | Q420    |
+------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Customers (Total)                  | 500,000 | 535,000 | 560,000 | 585,000 | 660,000 | 750,000 | 820,000 | 892,000 |
+------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Customers (Enterprise/Commercial)  | 60,000  | 60,000  | 65,000  | 70,000  | 85,000  | 95,000  | 110,000 | 125,000 |
+------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Customer Growth (YoY)(Total)       | 25%     | 26%     | 24%     | 23%     | 32%     | 40%     | 46%     | 52%     |
+------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Customer Growth (YoY)(Enterprise)  | 50%     | 33%     | 30%     | 27%     | 42%     | 58%     | 69%     | 79%     |
+------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+

Docusign is also operating from a MUCH larger revenue base (3-4 times) than Cloudflare and still has these competitive growth rates.

Again, not saying I don’t like Cloudflare or that it doesn’t deserve the board’s attention, but I think your characterization of Docusign’s numbers are a bit misleading, so I’m just throwing them up here to let you and others decide how to evaluate and compare them.

And who knows. They could completely miss their numbers this year and be overestimating, but that just isn’t the DNA that we’ve seen from the company thus far.

-Chris

[stocknovice]

Just an observation. There seems to be some inconsistency here. Customers added is relatively flat while customer growth is increasing. If the number added is flat the percentage increase should be falling. Clearly I’m missing something???

• Total Customer Growth: 31%, 40%, 46%, 51% (892,000 !!!)

• Total Customers Added (FY21): 72K, 88K, 73K, 70K

• Total Customers Added (FY20): 29K, 21K, 25K, 27K

• Enterprise Customer Growth: 48%, 55%, 64%, 67% (125,000 !!!)

• Enterprise Customers Added (FY21): 14K, 10K, 14K, 12K

• Enterprise Customers Added (FY20): 4K, 4K, 5K, 6K

Likely just a quirk in the YoY math because the raw adds were so big. I added the FY20 numbers for context. The point is DOCU added a massive number of customers this year. In fact, management stated the add rate more than doubled this year and almost equalled the entire number of customers DOCU acquired in its first 15 years of operation.

As we’ve noted with ZM and DDOG, COVID has skewed some YoY numbers and a look at QoQ numbers probably helps. In this case, I don’t happen to have them handy but don’t think it lessens the point DOCU’s increased customer base presents a huge cross and upsell opportunity as those customers come up for renewal in 2021. I doubt we will see a rush of customers leaving the service, especially since hybrid working is likely to be the new reality for both vendors and clients going forward.

[RafesUserName]

I love this company but this is bad. We are heading to <5% QoQ growth!

This thread takes two very different and conflicting sides to this.

1. The past up today, which is full of ever accelerating metrics across the board and a damn fine-looking quarter. Beautiful
2. Guidance for $432M-$436M revenue next quarter which points to a lower YoY growth rate of ~46%.

Does anyone else see the obvious change here? An amazing recent past and guiding down at the same time?

Here is the bigger problem. If they come in at the high end of guidance then the QoQ growth is just 1.2%. We all know they will beat this or we have a whole other set of issues. Up thread it was mentioned that they tend to beat by around 4%, so I’ll give them 5%, which also gets them up over 50% YoY, but the QoQ is still real bad:

       *Guide+4%*	**Jan-21**	Oct-20	Jul-20	Apr-20	Jan-20	Oct-19	Jul-19	Apr-19	Jan-19
Revenue	*451*	**430.9**	382.9	342.2	297	274	249.5	235.6	214	199.7
YoY	*51.9%*	**57.3%**	53.5%	45.2%	38.8%	37.2%	39.9%	41.0%	37.3%	34.20%
QoQ	 *4.7%*	**12.5%**	11.9%	15.2%	 8.4%	 9.8%	 5.9%	10.1%	 7.2%	11.9%

This is historically the worst EVER QoQ! (I went back in to 2018). Maybe I made another copy and paste error?..It sure seems right.

Is anyone able to justify this?

[CrazyCzech]

look at their past guidances and you will see that their guides have nothing to do with how they actually perform. that’s generally the case for all companies discussed in this forum.

[stocknovice]

Rafe -

A valid point and something I’m weighing. However, I have a different estimate than you. I’m carrying $460M. Your $451M wouldn’t be a 4% beat, it would only be 3.4%. While that might be more in line with management’s pre-COVID guides, it seems a tick low to me given the recent past.

Here’s the history of guides/beats I have. Please let me know if my numbers are off somewhere:

	Est	Act	+/-	%	Seq	%
1Q19		$155.81			$6.93	5.6%
2Q19	$160.00	$167.04	$7.04	4.4%	$11.24	7.2%
3Q19	$175.00	$178.39	$3.38	1.9%	$11.34	6.8%
4Q19	$194.00	$199.73	$5.73	3.0%	$21.35	12.0%
1Q20	$210.00	$213.96	$3.96	1.9%	$14.23	7.1%
2Q20	$222.00	$235.61	$13.61	6.1%	$21.65	10.1%
3Q20	$241.00	$249.50	$8.50	3.5%	$13.89	5.9%
4Q20	$267.00	$274.90	$7.89	3.0%	$25.39	10.2%
1Q21	$284.00	$297.02	$13.02	4.6%	$22.12	8.0%
2Q21	$320.00	$342.21	$22.21	6.9%	$45.19	15.2%
3Q21	$362.00	$382.92	$20.92	5.8%	$40.71	11.9%
4Q21	$408.00	$430.90	$22.90	5.6%	$47.98	12.5%
1Q22	$436.00	$460.00	$24.00	5.5%	$29.10	6.8%

I have no argument with your QoQ pressure observation because every company that benefitted from COVID is going to face it this year. However, a beat in line with the past few quarters would put QoQ growth at 6.8% and more in line with pre-COVID, which I wouldn’t necessarily view as a negative if everything else appeared on track. As it currently stands, DOCU is a name I would consider trimming if I wanted cash for something else. If they only do $451M in Q1, I’d most likely sell outright unless the Q2 guide was an absolute monster.

This is a good conversation, but the key is figuring out the right estimate number and going from there. Again, let me know if you see an error in my math.

[RafesUserName]

Your $451M wouldn’t be a 4% beat

Did I do that wrong? (it is a small difference but just curious). Their guidance of $436M (high end) is 46.8% YoY. I added revenue until that number went up ~5% to get to 51.9%. That took me from 1.2% QoQ to 4.7%.

But let’s take your 6.8%. That makes for 30% YoY growth if they stay there. If I graciously give them a progression that makes this a seasonal low and then improve, say: 6.8%, 9%, 10%, 11% that gets us to 42% YoY after these 4 quarters…for that to be the number we HOPE for…? I’m not sure that is good enough. Here is what it would look like. Best case: A slow YoY deceleration while the QoQ recovers just to hope for 42%?:

	Q4'22	Q3'22	Q2'22	Q1'22	CURRENT
Revenue	612	551	501	460	430.9
YoY	42.0%	43.9%	46.4%	54.9%	57.3%
QoQ	11.1%	10.0% 	 8.9%	 6.8%	12.5%

So asking, “Would I buy this today if I didn’t already own it?” My answer is an easy “no”. I would buy all of my watch list first.

[Retirementdough]

Cloudflare Q4 revenue was 126m Docusigns Q4 revenue was 431m. They have the same revenue percent growth but they differ in the amount of revenue by 3x. Give me 50% growth on 3x revenue please.

[stocknovice]

Did I do that wrong? (it is a small difference but just curious). Their guidance of $436M (high end) is 46.8% YoY. I added revenue until that number went up ~5% to get to 51.9%. That took me from 1.2% QoQ to 4.7%.

Nope. You weren’t wrong.

We were just referencing two different things, and I misunderstood your baseline. You added 5% to the guided growth rate, so if I have it right your math is the guided 46.8% + ~5% = 51.9% growth. 51.9% growth off last year’s $297 is your $451M, so that’s correct.

I was using their historical beats by dollar amount. Eyeing it up I thought a 5.5% beat was in line with recent quarters, so my math is the guided $436 + (.055 * $436) = $460M. That’s the difference. $460M would be 54.9% Q1 growth and 6.8% QoQ. That sequential growth is more in line with pre-COVID, but of course DOCU would have to show it hold that general QoQ rate beyond Q1 now that it is twice as large. That’s where the huge customer growth and record NRR hopefully lend support.

At this point I consider something low-40’s for the year (you said 42%) as more of a reasonable expectation than best case. I’d view >45% as best case right now, though that could obviously change quickly if sequential growth slows. 42% would put DOCU on par with say OKTA in organic growth at TWICE the run rate and MUCH higher profitability.

DOCU is not CRWD or DDOG, but it’s still good enough to be one of my 10 best ideas (for now). To your point, there are definitely a couple watch listers making some noise. LSPD and NARI are my main contenders, which is the same as you I believe.

Thanks for clarifying the math.

[PaulWBryant]

If I graciously give them a progression that makes this a seasonal low and then improve, say: 6.8%, 9%, 10%, 11% that gets us to 42% YoY after these 4 quarters…for that to be the number we HOPE for…? I’m not sure that is good enough.

Rafe,

In general I think you’re extrapolating all of this from the sequential growth (guide + your guess for a beat) in Q1, which is the Q most affected by seasonality, and IMHO that’s probably unwise. Of course, I’m biased with my 11.1% DOCU position.

DOCU guided for 36% growth for the full year. DDOG and NET each guided for 38%. Seems all are pretty close (esp considering the multiple is lowest on DOCU). Why is that alarm bell time for DOCU and not the others?

Bear