Earnings Call Transcript - DOCU Q1 2022

Operator, Operator

Good afternoon, everyone. Thank you for being part of DocuSign's First Quarter Fiscal 2022 Earnings Conference Call. This call is being recorded and will be accessible for replay from the Investor Relations section of our website after the call. We will have a short question-and-answer session following the main presentation. I will now turn it over to Annie Leschin, Head of Investor Relations. Please proceed.

Annie Leschin, Head of Investor Relations

Thank you, operator. Good afternoon, everyone. Welcome to DocuSign’s first quarter fiscal 2022 earnings conference call. On the call today, we have DocuSign’s CEO, Dan Springer; and CFO, Cynthia Gaylor. The press release announcing our first quarter results was issued earlier today and is posted on our Investor Relations website, along with our quarterly slides. We are planning to post prepared remarks on this site beginning next quarter. Before we get started, I’d like to remind everyone that we plan to participate virtually in a few upcoming events. These include Evercore’s TMT Conference on June 7, Bank of America’s 2021 Global Tech Conference on June 9, and Baird’s 2021 Global Consumer, Tech & Services Conference on June 10. As other events come up, we’ll make additional announcements. Now, let me remind everyone that some of our statements on today’s call are forward-looking. We believe our assumptions and expectations related to these forward-looking statements are reasonable, but they are subject to known and unknown risks and uncertainties that may cause our actual results or performance to be materially different. In particular, our expectations regarding the effects of the COVID-19 pandemic on our business, including the potential effects of the pandemic subsiding, are based on our best estimates at this time and are therefore subject to change. Please read the risk factors in our filings with the SEC together with the content of this call. Any forward-looking statements are based on our assumptions and expectations to date, and except as required by law, we assume no obligation to update these statements in light of future events or new information. During this call, we’ll present GAAP and non-GAAP financial measures. Non-GAAP financial measures exclude stock-based compensation, employer payroll tax on employee stock transactions, amortization of acquired intangible assets, amortization of debt discount and issuance costs from our notes, acquisition-related expenses, and as applicable, other special items. In addition, we provide non-GAAP-weighted average share count and information regarding free cash flows and billings. These non-GAAP measures are not intended to be considered in isolation from or a substitute for, or superior to our GAAP results. We encourage you to consider all measures when analyzing our performance. For information regarding our non-GAAP financial information, the most directly comparable GAAP measures, and a quantitative reconciliation of those figures, please refer to today’s earnings press release, which can be found on the website at investor.docusign.com. Now, I’d like to turn the call over to Dan. Dan?

Dan Springer, CEO

Thanks, Annie. Good afternoon, everyone, and welcome to our first quarter earnings call for fiscal 2022. We have a lot to cover today, and I’d like to focus my comments on four key areas: our strong Q1 fiscal year 2022 results; more insight into the breadth of our customer journey; the international business landscape and how we see that evolving; finally, the key investments we made in technology and people this quarter. But before we get to the financials, I want to share some observations on our markets overall. Since the start of the pandemic, DocuSign has helped to accelerate access to healthcare, government, education, small business lending, and many other services around the world. What began as an urgent need has now transformed into a strategic priority, and as a result, DocuSign has become an indispensable part of many organizations’ business processes. Put another way, once businesses transform their agreement processes, they simply don’t go back. We believe this trend will only accelerate as the anywhere economy continues to emerge. In fact, just a few weeks ago, we were excited to welcome DocuSign’s one millionth customer to the platform. Now this move to digital has manifested itself in a great start to the year for DocuSign. We saw strong performance on all fronts, delivering balanced growth and profitability at scale. Our revenue grew 58% year-over-year to $416 million for the quarter. International reached a milestone with over $100 million in revenue during the quarter. Non-GAAP operating margin reached an all-time high at 20% as the top line growth outpaced our investments and strong expansion across our existing customer base grew a record high dollar net retention of 125%. From any vantage point, these are exceptional results that reflect continued customer demand and engagement across all industries and use cases. I am particularly proud of the DocuSign team’s ability to execute despite the vast majority of our 6,000 strong workforce still working from home. As we have said consistently, eSignature is the on-ramp to DocuSign for both companies. This quarter was no exception as we saw new and existing customers adopt and expand at record rates with use cases and envelope volumes increasing significantly. Let me give you just a few examples. A large delivery service provider needed to capture, monitor, and report on new benefit structures for its workers. We helped the team leverage eSignature PowerForm and DocuSign Insight Analytics to create an entirely new and streamlined process. This saved hundreds of hours of manual processing and created accurate and efficient management reporting, while providing an extensible solution for future growth. One of our restaurant service customers needed a way to streamline and automate their agreement generation and signing processes as their industry began to reopen. We worked with them to improve turnaround time and increase sales productivity. Importantly, this dramatically decreased the time to complete agreements from two weeks to just three days. Furthermore, one of our leading grocery production customers, which prints over a million pieces of paper a month as part of their manufacturing process, started using eSignature templates and quickly took more than 100,000 sheets of paper out of circulation, a number that will only grow now that other business units can leverage the technology. This expansion was not just domestic but international as well. In Q1, our business outside the U.S. contributed 21% to total revenue, and it continues to be the biggest future growth driver for us and the largest part of our total addressable market. Today, this looks much like our North American business several years ago, with customers growing and expanding in a similar way. Take one of our multinational telecom media customers as an example. They were looking for a way to digitally transform their internal and external contracting processes and reduce their environmental impact. Using the DocuSign API, the company now has defined workflows for verification, validation, and the automatic archiving of the contract. This solution has been deployed in countries across Europe and Sub-Saharan Africa. In response to the pandemic, an international pharmaceutical customer experienced a massive increase in new users in a regulated industry where standard, advanced, and qualified eSignatures are required. Our teams worked together, and the results speak for themselves: amid a 270% increase in new users, they sent 650% more envelopes and completed them 50% faster, while the time to onboard new users dropped from three weeks. We are also driving a variety of strategic initiatives internationally. In late April, we officially opened our virtual doors in Mexico to increase our ability to service customers in Spanish-speaking LATAM. We’re excited by the early traction we’re seeing there online. We also are upping our focus on regional product offering enhancement. DocuSign products are grounded in high availability, reliability, security, data privacy, regulatory compliance, and trust. But we can now take that one step further with products like eWitness in the UK. This product makes it possible to electronically identify witnesses when they are signing an agreement. This is increasingly important in the UK as the country’s Land Registration Authority just began accepting witness electronic signatures for their property transactions. DocuSign executed the first-ever Land Registry deed submitted electronically. Now, we’re enabling a new class of high-volume, high-value agreements that can only be done on paper. So, looking ahead to the rest of fiscal year 2022 and beyond, we remain committed to our vision for the DocuSign Agreement Cloud, which is both the key pillar and the software platform for the anywhere economy. As part of that, there are some important investments in our product, platform, and company as a whole, a couple of which I want to highlight for you today. The first is our acquisition of the technology and the team from Clause. The innovative smart agreement technology from Clause has been a close partner of ours and has built a platform that enables Clause’s agreements to run as computer code. These mark Clause’s and connect to third-party systems and drive a host of actions, like sending notifications, running compliance checks, and sending contract status updates. Their experience developing specific solutions for financial services, insurance, and healthcare companies also complements the way DocuSign helps many of our customers and how we want to architect the Agreement Cloud for the future. We’re really excited to welcome Peter, Dan, and the whole team to DocuSign. Second, I want to highlight our continued expansion of the executive leadership team at DocuSign. As we grow in scale, it’s vital that we optimize our systems, processes, and technology infrastructure to support the needs of today and the rapidly evolving marketplace. It’s equally important that we have the right leaders in place to oversee and drive that evolution. That’s why I’m thrilled to welcome Shanthi Iyer as our new CIO. As the former Chief Data Officer at Cisco, Shanthi will ensure that DocuSign is world-class in all of those areas, and we’re thrilled to have her on board. Also, as we continue our international growth, we’re expanding our local and regional leadership bench as well. In Q1, we appointed former regional Salesforce executive Dan Bognar to help lead our regional efforts in APJ. Before I hand it over to Cynthia, I want to reiterate that I am optimistic about the year ahead. The value we offer in transforming the agreement process and everything our team is doing to help our customers and partners around the world is tremendous. I look forward to talking with you all during the Q&A. And now over to you, Cynthia.

Cynthia Gaylor, CFO

Thanks, Dan, and good afternoon, everyone. We followed up an exceptional year in fiscal 2021 with an impressive start to fiscal 2022 driven by strong execution. Continued customer demand for our eSignature offerings led to notable top-line growth at scale. We demonstrated significant leverage in our business model with record operating margin and cash flow in the first quarter. Total revenue increased 58% year-over-year to $469 million, and subscription revenue grew 61% year-over-year to $452 million. Elevated consumption levels by existing customers continue to drive the trend of early renewals and expansions in the quarter, aided by secular tailwinds as customers digitize their businesses. We saw exceptional growth outside of the U.S. with particular strength in EMEA this quarter, as our investments continue to gain traction. In Q1, international revenue crossed the $100 million threshold for the first time. In total, international revenue grew 84% year-over-year to $101 million. Billings also benefited from the strength in customer demand, climbing 54% year-over-year to reach $527 million for the second quarter above $0.5 billion. Customer growth remained healthy with the addition of more than 96,000 new customers in the quarter. This brings our total installed base to over 988,000 customers worldwide as of the end of Q1, an increase of 50% compared to a year ago. This includes another 11,000 direct customers, bringing our total direct customer base to 136,000, an increase of 53% year-over-year. We saw our customers with an annual spend greater than $300,000 grow 42% year-over-year to a total of 673 customers, adding a record 74 customers in Q1. Continued expansions and upsells led to a strong dollar net retention rate of 125% for Q1, highlighting the expansion economics we’ve seen over the past year since the pandemic began. Total non-GAAP gross margin for the quarter was 81%, compared with 79% a year ago, while subscription gross margin was 85%, compared with 84% a year ago. As a result of the outperformance on our top line, we saw demonstrated operating leverage. Non-GAAP operating margin reached our target model range for the first time at 20%, or $93 million, compared with 8% or $23 million in the first quarter of last year. We are still in the early innings of a large market opportunity. We plan to continue investing for long-term growth, particularly in sales capacity, marketing, R&D, and scaling up our operations. Non-GAAP net income for Q1 was $92 million, compared with $24 million in the first quarter of last year. We ended the quarter with 6,080 employees, an increase of 42% over last year. Cash flow also outperformed. Operating cash flow was $136 million, or 29% margin due to top-line performance and strong collections. This compares with $59 million, or 20%, in the same quarter a year ago. Free cash flow came in at $123 million, or 26% margin in the quarter compared to $33 million, or 11% in the prior year. We exited Q1 with $876 million in cash, cash equivalents, restricted cash, and investments. Now, let me turn to guidance. For the second quarter and fiscal year 2022, we anticipate total revenue of $479 million to $485 million in Q2 or growth of 40% to 42% year-over-year, and $2.027 billion to $2.039 billion for fiscal 2022 or growth of 40% year-over-year. Of this, we expect subscription revenue of $459 million to $465 million in Q2 or growth of 42% to 44% year-over-year and $1.953 billion to $1.965 billion for fiscal 2022 or growth of 41% to 42% year-over-year. For billings, we expect $549 million to $561 million in Q2 or growth of 35% to 38% year-over-year and $2.338 billion to $2.362 billion for fiscal 2022 or growth of 36% to 37% year-over-year. We expect non-GAAP gross margin to be 79% to 81% for both Q2 and fiscal 2022. We expect non-GAAP operating margin to be 16% to 18% for Q2 and fiscal 2022. We expect to see a de minimis amount of interest in other income. We also expect a tax provision of approximately $10 to $12 million for fiscal 2022. We expect fully diluted weighted average shares outstanding of $205 million to $210 million for both Q2 and fiscal 2022. In closing, we are incredibly pleased with our Q1 performance. More than ever, we are enabling businesses around the world. As the anywhere economy continues to develop and grow, DocuSign will remain an integral part of our customers’ digital evolution. Thanks for joining us today. We will now open it up for the call for Q&A.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Sterling Auty with JPMorgan. Please go ahead with your question.

Sterling Auty, Analyst

Yes. Thanks, guys. So, on the international front, what are some of the takeaways that you learned in your rollout in the U.S. that you’ve been able to apply under Mike’s leadership in Europe that’s helping you accelerate the growth there?

Dan Springer, CEO

We talked about the fact that if you go back a few years to when the U.S. business was the size of the international business, they looked quite a bit alike in all sorts of dimensions. The scale and the growth rates have been amazingly similar. I think the core things that I would point to are the focus on customer success for sure as the first piece. We think we’ve really done a good job at helping the quality of our success organization internationally as a foundation that drives adoption. And as we’ve talked about before, when you get adoption right in a SaaS model, it really tees up the land and expand model. So, I would say the second piece is just that—the way we’ve allocated our sales resources between those who are doing new customer acquisition versus those that are selling to our existing installed base through expansion sales. We followed that same model, and I think those two pieces are really what have driven that tremendous success. Now, if you talk about those numbers being into the 80s for the growth rates, I don’t recall us ever having that in the U.S. So, in some ways, we taught ourselves so well internationally that we’ve exceeded the performance of what had occurred in our own historical context. Those would be the themes that I would focus on.

Sterling Auty, Analyst

Yes, exactly. That makes sense. And one quick follow-up: the call broke up on me a little bit during your prepared remarks, Dan. I didn’t hear any update kind of on the rollout of the notary solution. Can you give us just an update there?

Dan Springer, CEO

Absolutely, yes. We’re really excited that we’ve been able to roll out the first-party notary, which is the piece that we’re primarily focused on because our existing customers, like large financial institutions that have notaries embedded in their business, use their own notaries. That’s the bigger opportunity, and that’s what we’re going after first. And that’s now released, and we’ve had our first transactions occur. We’re really thrilled to see that. So, it’s very early, but we just have that availability now for the market. The second piece we'll be working on over the rest of this year is third-party notary—that's a model where someone has an individual third-party notary that comes in, or two people who need to notarize a transaction, but neither of them is from a large institution that would have their own.

Sterling Auty, Analyst

Got it. Thank you.

Operator, Operator

Thank you. Our next question comes from Karl Keirstead with UBS. Please proceed with your question.

Karl Keirstead, Analyst

Thank you. Cynthia, maybe this one is for you. I just love to ask you about the billings seasonality this fiscal 2022. You did mention early renewals and expansions as a result of elevated consumption, which at first blush sounds a little bit like a pull forward into Q1. But then on the other hand, your Q2 guide is super strong, and you raised the full year guidance by way more than the Q1. So, it sounds like you are signaling strength throughout the year. So, I’m just wondering if you could comment on seasonality and whether it changed as a result of the Q1 performance.

Cynthia Gaylor, CFO

Sure. Thanks for that question. Yes, so I think on seasonality, we haven’t seen a big shift in seasonality. We did see a stronger than expected Q1 due to the things that you mentioned, mainly around customer consumption and how they’re using the products. So, we were really encouraged by both the consumption metrics that we’re looking at, as well as the use cases that customers are utilizing our products for. That’s reflected in both the performance for the quarter but also in the forward guide.

Karl Keirstead, Analyst

Got it. Okay, great. Congrats on these numbers, by the way.

Dan Springer, CEO

Thank you.

Operator, Operator

Thank you. Our next question comes from Alex Zukin with Wolfe Research. Please proceed with your question.

Alex Zukin, Analyst

Hey, guys, thanks for that. Dan, one of the fears, I think, people have historically had about DocuSign is that it’s just a COVID stock, and you are going to start decelerating as you start seeing these tough comps. But I think some people forget that you are a capacity-based model. Therefore, if you are seeing these cohorts that you added last year grow at or above previous rates—which it seems like you are with the expanding dollar-based net expansion—you’re very well positioned to actually grow right through this and be even better positioned on the other side. So, just talk through that, what you saw this quarter around the growth rate of those cohorts and kind of how you’re positioned going forward?

Dan Springer, CEO

Yes, Alex, to your point, I don’t know how people are missing it. You write about it in every report, and I appreciate you making that point, so hopefully people will start to listen more to your insight. But I think you nailed it. That's exactly what we’re seeing: the phenomenon of that strong customer growth is why you see the net retention rate so high; that’s why you see, as per the last question from Karl, Cynthia was able to talk about such a strong guide at rates we had not achieved previously for COVID, from a billing standpoint. It’s because we have seen that underlying demand is so strong among our customers. I really think the key to it is what we talked about at the beginning of the call. Once companies see the benefits of digital transformation, particularly around the Agreement Cloud, they don’t go back. In fact, they look for additional opportunities to expand. And so, I don’t think we look at the Q1 pull forward as some fixed amounts of pull forward; we look at it as just increasing demand. It really goes back to what you and I have talked about in the past. We are still in the early days with our eSignature business, with a very low penetration, but a very, very large ocean from which we’re pulling forward that continued strong customer demand. That’s how we look at it. I think it’s fairly straightforward.

Alex Zukin, Analyst

That’s awesome. And then maybe just one quick one for Cynthia. Dollar-based net expansion ticked up again to 125%. I know in the past, you guys have been hesitant to call for a new range or a new normal, but any puts and takes on that figure, how we should think about it? And is any of that starting to be driven by CLM adoption, or is it still mostly the core use case?

Cynthia Gaylor, CFO

Yes. So I would say it’s mainly around the core use case, right? Remember, the Agreement Cloud: we’re very excited about the opportunity there, but it’s still very small from a dollar contribution perspective. So, a lot of that strength in the net retention number is really around what I call the retention economics in many ways: the expansion economics of the customer base and the cohort of how they are expanding—not just the cohort that came over the last 12 months, but the existing cohorts that have continued to expand their usage of the product over time. And then, on the first part of that question, we would expect, as we said last quarter, to maintain at the high end or above the historical range, which had been 112% to 119% historically. So, we expect to retain or maintain high net retention rates throughout the year, but we’re not going to be guiding to that metric specifically.

Alex Zukin, Analyst

Perfect. Congrats, guys, on a great run.

Cynthia Gaylor, CFO

Thank you.

Operator, Operator

Thank you. Our next question comes from Tyler Radke with Citi. Please proceed with your question.

Tyler Radke, Analyst

Hey, thanks for taking my question. I’m curious just at a high level as you’re starting to see things get back to normal here in the U.S. and hopefully shortly overseas. What are you seeing just in terms of the evolution of the pipeline? And specifically, do you find that customers are looking at pursuing larger transactions, maybe more strategic transactions now that most of the COVID impacts are behind them? Just curious how you are seeing the pipeline evolve? Thank you.

Dan Springer, CEO

Yes, I’d say it’s sort of a tale of two products, Tyler. If you think about the core signature business versus the rest of the Agreement Cloud—with the core business, there has been no change. I don’t think we’ve seen anything fundamentally different. Quite frankly, if you think about during COVID, we didn’t see the nature of the signature transactions change; they just were faster. And so, we saw that acceleration occur. As Cynthia pointed out, as we’re rounding those quarters, in many ways, I think we are starting to move into whatever the new normal will be. We’re still seeing an accelerated rate of customer demand. I wouldn’t say the size of the transactions are bigger; I think we still land at about the same size. I think our incremental expansions of the businesses are happening in the same increments, maybe just more of them are occurring each time. With CLM, of course, it was dramatically different. Some really nice demand was starting to build right before the pandemic. Those, which I would say are more strategic and more substantive transactions, require usually a statement of work and some systems integrator work, whether we do the services or one of our wonderful SI partners. Those slowed way down because people stated during the pandemic that they needed to focus on really fast ROI. Now, we see those starting to come back, and I think the pipeline is starting to build as we did in Q4; more aggressively there. We see those larger deal sizes starting to come back, but it’s important to keep those separate between signature and CLM.

Tyler Radke, Analyst

Thanks. And just a quick follow-up for Cynthia. So, operating margins were really strong here in the quarter. Obviously, you saw quite a bit of revenue upside, but I’m curious just on the hiring front or any other expense-related things, if there were kind of some one-offs driving the strength in just how you’re thinking about the pace of hiring throughout the rest of the year? Thank you.

Cynthia Gaylor, CFO

Yes, the operating margin was pretty phenomenal at 20%. In some ways, we would have liked to be able to invest more quickly into that growth and bring down that number. It’s just very difficult to do in quarter. So, we’re really looking through the year at ways to continue to invest for growth, and that’s embedded in the guide as well. I would say there was nothing in particular one-off other than the outperformance of the top line, which immediately drops to operating margin in quarter, but we will look to aggressively invest for the continued growth and the large opportunity ahead of us.

Tyler Radke, Analyst

Thanks.

Operator, Operator

Thank you. Our next question comes from Stan Zlotsky with Morgan Stanley. Please proceed with your question.

Stan Zlotsky, Analyst

Hey guys, good afternoon. Thank you for taking my question. I wanted to follow up on something that you guys mentioned a little bit ago, which is just the broader Agreement Cloud in SpringCM, right. It’s still small numbers, and it’s not really material as far as driving the growth, maybe even as the net revenue retention that you guys are seeing ticking up nicely. How are you thinking about when that could become big enough and material enough to really drive the business moving forward?

Cynthia Gaylor, CFO

So, I would say we’re in the early innings, as Dan was talking about across the Agreement Cloud. It’s a pretty nascent market, but there’s also just a ton of greenfield opportunities. We’re investing heavily both in our go-to-market strategy around that, in customer success, as well as in product innovation. So, I would expect it to be a few years before it’s really a meaningful contributor. When you think about the results that we posted the last few quarters, they are primarily driven by eSignature. Given the scale and the growth rate on the core piece, it’s going to take a while for the Agreement Cloud—even if it’s growing quickly—to really become a meaningful contributor from a top-line perspective.

Stan Zlotsky, Analyst

Got it. Got it. And also, I wanted to follow up on Alex’s question earlier, which is on net revenue retention. I understand you guys are not really moving out to the range that you normally talk about, but in a similar fashion, what would it take for you to move up that range? Is it just the consistency of seeing this 120-plus for x number of quarters? What should we think about as the milestone for you to start moving up that range?

Cynthia Gaylor, CFO

It’s a metric that we watch very closely, just given the consumption trends. As we talked about the last few quarters, looking at kind of these new cohorts and how they are consuming, and how they are expanding, and then existing customers, kind of the more historical cohorts. We’re watching that closely. I wouldn’t anticipate guiding to a net retention range, but as I said, we would expect for the remainder of the year to remain above the historical range, the top end of which was 119. Just given the consumption trends we’re seeing, we would expect it to be above that high end of the range.

Stan Zlotsky, Analyst

Got it. Thank you so much.

Operator, Operator

Thank you. Our next question comes from Scott Berg with Needham & Company. Please proceed with your question.

Scott Berg, Analyst

Hi, everyone, congrats on a fantastic quarter, and thanks for taking my questions. I guess I have two. The first one is, as you look back over the last year, and obviously you’ve seen—I’ll call it a rush in new business based on the pandemic. But has that brought you into any new types of businesses or use cases that are probably, maybe not as well-known? I mean, I think we all know what e-signature is for, obviously from a generic standpoint; we just didn’t know if you are seeing activity somewhere new?

Dan Springer, CEO

Yes, I don’t think there’s anything substantial. There are a couple of things that were new: you think about the PPP loans, right—there’s a small little cottage industry that got built in supporting the banks, so by definition, since that didn’t exist before, that was new. But that’s really a small piece of what we would do. I think you have to consider that we hit our one millionth customer; we’ve got a lot of customers and cover a lot of industries. I look at it this way: I believe every business eventually should use DocuSign, and that’s the way we think about the breadth. But I don't look at sort of particular industries where we haven’t started that journey. I don’t think there are large areas that we just haven’t been able to find a way to serve because we cover both front-office and back-office use cases. Almost every company has internal operations and customers. A few Silicon Valley companies might not, but nearly everyone does. So from that standpoint, we are everywhere and we will be everywhere in the anywhere economy. There hasn’t been a phenomenon that COVID, or anything else, has changed that would open up or introduce new areas. There’s international expansion into new geographies for sure, but not necessarily from a vertical standpoint.

Cynthia Gaylor, CFO

And the one thing I would just add to that is that, while there haven’t been specific industries or verticals that we can point to, one of the strengths of our business is that it’s so diversified across verticals and customer sizes. There haven’t been some COVID-specific use cases that we’ve seen translate into customer adoption and new use cases, except for a few: a good example would be the PPP loans. Both last year and this year, we saw quite a few loans. Some of that we’ll be turning into loan forgiveness or other FinTech sort of use cases. So, we have seen some of that, but also seen consumption into new use cases off the backs of that as an example.

Scott Berg, Analyst

Got it, very helpful. And then, I guess from a brief follow-up perspective, your customer metrics in the quarter were obviously very good and show a level that’s still elevated versus the pre-pandemic level, even as we anniversary it. But how are sales cycles today compared to a year ago? Historically, at the height of the pandemic, there was a rush to sign up and use your product, but today, are the most recent sales cycles more normalized in what you’re used to seeing, or are you still seeing customers speed through this process a little? Thank you.

Dan Springer, CEO

Yes, it’s actually something funny: before each earnings call, Cynthia and I spend time with the team talking about pricing and sort of the tenor in the market. We do that so that when we get questions like this from people like you, we can give you the latest and greatest. Pricing has been, in a good way, boring for pretty much every quarter since we went public; we haven’t seen a lot of change there. In terms of the deal cycle time, we definitely saw some shortened cycles at the height of the pandemic, where there were people calling us up—especially on the NewCo side—who were really in a hurry. So, you go on DocuSign, and that definitely reduced some cycle times, as well as some implementation time. I’d say that has probably reverted back to more normal. At this point, we don’t have the urgency to deploy that we might have had; I wouldn’t say that was a significant portion of our business. And remember, in any given quarter, the amount of revenue that comes from new customers versus from our existing base is obviously very small. We didn’t see that dramatic change in the existing customers because they were quick in the cycle time for new use cases; those don’t have a contracting or NSA type of requirement. So, I think there’s something there, but I wouldn’t say it’s significant; it has reverted to what it would have been before from a cycle time.

Scott Berg, Analyst

Congrats, and thanks again.

Operator, Operator

Thank you. Our next question comes from Rishi Jaluria with RBC. Please proceed with your question.

Rishi Jaluria, Analyst

Hey, Dan, Cynthia, Annie, thanks so much for taking my questions. I wanted to go back to the previous question on customer adds. A lot of us are pleasantly surprised to see customer adds continuing to hit a record, even as we head into a post-pandemic future. But it looks like, especially on the mobile side, you had a really impressive record this quarter. Maybe could you give us a little bit of sense of what is driving that? In spite of the fact that a lot of us would assume urgency has maybe died down since before, is that a function of certain investments you’re making in the self-serve motion and mobile channels or something else? And then I’ve got a follow-up on the large customers.

Dan Springer, CEO

Yes, I think you hit it really well. There was some, perhaps, unexpected strength as you said; we’re obviously pleased by that strength. On the web and mobile side, there are two things that we’ve done well, allowing us to reach this goal we set several years ago to hit a million customers. The largest number of our customers exists on that platform. The first thing is we are getting better and better at our online advertising; I think we built that as a key discipline to our long-term success. I think that’s been a huge part of driving that. The second thing is we’re continuing to innovate around our overall digital experience and the process by which people come through, especially as they see online advertising, do a trial after they’ve clicked an ad; that’s generally the most common way. We are continuously making it easier for them to become a customer through that digital flow. I think there’s still a ton of work that we can be better at, but we have made a lot of effort in the last 18 months that is now starting to pay off and driving that. One last thing I’ll add is important to understand: we see their net adds as part of what’s net out of that is when people upgrade and become direct customers. So, some of their most successful—almost all of their most successful customers—we take them and put them into our direct business. This means that this group constantly has to replenish and grow at an even faster rate to make up from the fact that we have what we call positive churn. We churn them out of web and mobile and churn them into the direct business to expand and take on more extensive use of our platform with more advanced functionality. From that standpoint, I think that group has really been far for us.

Rishi Jaluria, Analyst

Got it, that’s really helpful. And then just going to the 300,000 customer adds again, really impressive to see it hit a record this quarter as well. Can you give some color on what’s driving that? Generally, is this existing direct customers expanding usage of the entire Agreement Cloud, or are you actually landing new logos at that level? Thanks.

Dan Springer, CEO

Yes, as is the case prior, the vast, vast majority of both the 300,000 add customers are growth customers, as opposed to net new customers. It’s not that we’ve never had someone start there, but our land-and-expand model, we are not really trying to go out and find that. Because of our customer success orientation, we really believe that the best way to build long-term value is to start small, find some great use cases, deliver fantastic customer success and ROI, and grow the business that way. I don’t think that’s the model that really fits for the Agreement Cloud business. So, that’s definitely the case. In terms of the strength there, it’s highly correlated with the other key metrics that Cynthia outlined. When you see a really high net retention rate, it means the companies that were 250 have a bunch of them grow; they’re now at 300. So, there’s not any particular surprise there—just continued land and expand. It's a number that has some volatility: we know it can go back and forth quarter to quarter because of individual accounts and how they might be adding things. Sometimes someone does a one-time add to the pop-up over 300, and they do that as a one-time use case; they might go below in the next quarter. So, we think it’s important to look at that over time instead of any one quarter. But I think you’re going to see that number continue to scale as we keep delivering on that fantastic customer success.

Rishi Jaluria, Analyst

All right, wonderful. Thank you so much.

Operator, Operator

Thank you. Our next question comes from Kirk Materne with Evercore ISI. Please proceed with your question.

Kirk Materne, Analyst

All right. Thanks very much. And I’ll echo the congrats on the quarter. Dan, I want to circle back on international. Obviously, it’s a huge total addressable market for you all. Are there any technological or regulatory hurdles that you need to clear in certain markets for the sort of adoption rate to kind of get to where you are, say in the U.S. or more markets where you guys are bigger? How are you thinking about placing your bets in terms of making investments in certain regions? And are there regions where you think you’re about to hit sort of a tipping point faster than others? I’m trying to get a sense of whether there’s anything kind of holding back growth and how you’re thinking about bets and investments in certain places.

Dan Springer, CEO

Yes, absolutely. A couple of thoughts for you. The first is I don’t believe there are any technological hurdles we would point to. There are really important differences in legal frameworks; we talk a lot about the concept of common law versus civil law legal frameworks—but we deal with this and have made the investments to enable the civil law countries, which are the majority. We feel good about what we’ve done there. Data residency issues could be considered a technical component and could be a governor to the extent that some geographies, like certain institutions, may say we don’t want to let any data leave our national walls, so to speak. Most government clients feel that way, but sometimes you see that with large financial institutions or heavily regulated industries. So sometimes there are complexities; that’s why we’ve been working with Azure to ensure we have a presence in countries like Canada and Australia, leveraging the public cloud while maintaining that testing. We’re continuing to explore ways to accelerate growth in those markets. I wouldn’t say we’ve identified a massive turbocharge there, but I think it continues to be an area for continued investment and growth. In terms of your second question about what regions, we’ve talked about our focus eight, and those are the original eight countries over the last several years that we’ve said are our primary focus areas in Europe, which includes the UK, Ireland, France, and Germany; in the Americas, the U.S. and Canada; and then Brazil, which has been entirely our LATAM focus with Australia, New Zealand, and finally Japan as our focus eight countries. I think now we’re going to talk about our investments in Mexico and considering that as part of regional Spanish-speaking LATAM. While we started in a few months ago, we decided to dramatically increase our investment on the ground due to the positive response we’re seeing in Mexico itself. From a European standpoint, we’ve seen opportunities in the Nordics, in the Netherlands. We also see more in Southern Europe, and each of those geographies represents an opportunity. I don’t know that it will require massive feet on the ground, but we are going to do more in those areas. And then in Asia-Pacific, we’re pleased with our presence in Japan; it’s very small in Singapore, and we're starting to look at Southeast Asia as a key investment area. In fact, Mike and I were literally discussing this morning the growth investment opportunities there and the potential expansion into core countries within Southeast Asia, like the Philippines and Thailand.

Kirk Materne, Analyst

That’s super helpful. Thank you all.

Operator, Operator

Thank you. Our next question comes from Brad Sills with Bank of America Securities. Please go ahead with your question.

Brad Sills, Analyst

Oh, great. Hey, thanks guys, and congrats on a nice quarter. I wanted to ask about an earlier comment you made, Dan, around Insight customers and how you feel that those use cases are extensible for future growth. Is that how we should think about the evolution from customers towards the Agreement Cloud? Maybe starting with CLM or Insight, getting some use cases under their belt there, and then graduating, if you will, into the broader Agreement Cloud? What do those cohorts of customers say about their propensity to buy more?

Dan Springer, CEO

Yes. The way I look at it is that the tip of the spear will still be signature for sure, and that is our primary entry point for most companies. As you indicated, we want to open up the rest of the Agreement Cloud. The areas we see as natural extensions are CLM and the advanced analytics, which increasingly will become a one-two punch. One of our goals is to integrate some of that technology and AI technology into our CLM solution. We feel strongly that for mid-market and up customers, the value of having analytics embedded onto that CLM solution will be a key buying factor. We also are seeing fantastic uptake from our customers across our analytics offerings, particularly with the new product DocuSign Monitor, which helps businesses understand what’s happening in their networks by looking at how people are signing agreements. Our thesis around the Seal acquisition is that companies can run their business better with a thoughtful Agreement Cloud, and this allows them to be smarter about how they grow and execute their core operations. That’s our approach to growing customer adoption across the Agreement Cloud.

Jake Gariup, Analyst

Great. Thanks for taking my question.

Operator, Operator

Thank you. Our next question will come from Pat Walravens with JMP Securities. Please proceed with your question.

Aaron Kimson, Analyst

Hi, this is Aaron Kimson on for Pat. Congrats on the quarter. You mentioned that headcount grew 42% year-over-year. At a high level, can you discuss what percentage of that was sales and customer success versus other functions? And then how is the company thinking about headcount growth going forward?

Dan Springer, CEO

Yes. The simplest way to look at the distribution is to understand that headcount is by far our number one cost. If you take a look at the percentages of our revenue attributable to each of the buckets, you’ll see that sales and marketing, and product engineering are by far the two groups that have traditionally been supported. That will be the same for this quarter and the year ahead. Those are the two core groups that I'd like to see the most headcount growth in. From a philosophy standpoint, I often talk about this concept of line functions and support functions. The support functions are important, but scaling our business means scaling the line functions. We need to have engineers building great software because we’re a software company. So, the number of engineers we can grow is a huge, important driver of our future growth. Likewise, our customer success managers that drive that success are important. Those are the functions we want to see growing headcount. People like me and Cynthia are considered overhead, and while we’re happy to be here, we don’t necessarily need more of us. One CEO and one CFO are sufficient, and we want to focus on growing those line operations.

Aaron Kimson, Analyst

Very helpful. Thank you.

Operator, Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

Dan Springer, CEO

Thank you all for joining us. As Annie mentioned, we’re going to be out in the market a little bit, virtually; hopefully, soon we’ll be out physically. Thank you for joining us, and we look forward to talking to you all next quarter. See you.

Operator, Operator

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.