Earnings Call Transcript
DOCUSIGN, INC. (DOCU)
Earnings Call Transcript - DOCU Q3 2023
Operator, Operator
Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's Third Quarter Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. As a reminder, this call is being recorded and will be available for replay from the Investor Relations section of the website following the call. I will now pass the call over to Heather Harwood, Head of Investor Relations.
Heather Harwood, Head of Investor Relations
Thank you, operator. Good afternoon and welcome to the DocuSign Q3 2023 earnings call. I am Heather Harwood, DocuSign’s Head of Investor Relations. Joining me on the call today are DocuSign’s CEO, Allan Thygesen; and our CFO, Cynthia Gaylor. The press release announcing our third quarter results was issued earlier today and is posted on our Investor Relations website. 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 pace of digital transformation and factors affecting customer demand are based on our best estimates at this time and are therefore subject to change. Please read and consider 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 will present GAAP and non-GAAP financial measures. 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, 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 our website at investor.docusign.com. I'd now like to turn the call over to Allan.
Allan Thygesen, CEO
Thanks, Heather, and good afternoon, everyone. I'm happy to be here for my first earnings call as DocuSign's CEO. I'd like to begin by thanking Maggie Wilderotter for leading the team as Interim CEO. Maggie set the stage for a smooth and seamless transition, and we're grateful to her for her leadership and for her continued stewardship as our Board Chair. There are three main points I'd like you to take away from today's call. First, we delivered solid third quarter results, exceeding the key operating metrics we laid out last quarter despite the continued macro headwinds. Our results are a reflection of the continued signs of stabilization across the business. I'd like to commend our team for their unwavering commitment despite the considerable distraction. Second, as the global leader in the eSignature category, DocuSign is expanding across broader agreement-related workflows. We have challenges to address, but we have an exceptionally strong foundation and meaningful competitive advantage, which leads me to my third point. I believe our future is bright. Along with the team, I'm personally energized by the opportunity and the work that lies ahead. I'm confident in our progress, and I believe we are unequivocally well-positioned for the long-term. Now before I move on to discuss the future of our business, I want to share what compelled me to join DocuSign. I followed the company for many years, and like our over 1 billion users, I find our value proposition distinctive and invaluable. We've built a powerful brand that's recognized by decision-makers well before we even engage with them. That combination of affinity that DocuSign has with customers and users, and our untapped market potential is very rare in the enterprise software space. DocuSign created and built the eSignature category, yet agreement processes are still at the early stages of moving from pen to paper to more automated ways of working. In fact, I believe we're just at the beginning of revolutionizing how businesses initiate, negotiate and manage agreements, and we will lead that as we did for e-Signature. We provide solutions for customers of all sizes, industries, and functions. During my almost 12 years at Google, I first led the global SMB and mid-market business, and then the enterprise business in the Americas, including managing our relationships with our largest global partners. I've experienced firsthand how exceptionally powerful a broad, diversified customer base can be, and I'm excited to bring that experience to DocuSign. For my first 60 days, I've focused on gaining a deeper understanding of our business, meeting with employees across the company as well as spending time with customers and partners. Through these conversations, I've started to identify some critical areas in which we can improve to strengthen our value proposition in addition to scaling the business by streamlining and creating efficiencies. I continue to see customers embrace and expand with our core eSignature offering. For example, this past quarter, one of the UK's largest health care providers expanded their use of e-Signature. They began the journey as a customer during the pandemic, and they've now migrated their entire patient onboarding process and adopted our products across their HR, legal, joint ventures, and other departments. Key criteria in the recent competitive selection process included privacy and security of their customer data, and the ability to utilize the advanced workflow features we offer. Notwithstanding our considerable strengths, I believe it's important to acknowledge where we have not executed as well. It's clear we did not pivot quickly enough, and we were slow to make changes. As we experienced tremendous growth during the pandemic, we did not scale the team properly. We lost some innovation velocity. We didn't fully address the changing market dynamics nor mature our operations and systems sufficiently. We understand those gaps, and we're committed to moving forward with more transparency. I think the good news is that the future is in our own hands. So let me turn to our focus going forward. We are committed to broadening the category. That starts with a more clearly defined product roadmap that leverages our core eSignature strength and our ambition of delivering easier, smarter, trusted agreements. We see opportunities beyond the replacement of paper signatures to deliver innovative new experiences and integrate more deeply with partner applications. If you think about it, many use cases don't require editing or completion of the static, unstructured, highly formatted traditional agreement. Instead, I think data capture for agreements should happen through digital forms on the web or in an app. The agreements themselves should be dynamically generated, and the metadata should be automatically captured to enable personalization for future interactions. With our new web forms offering, which is currently in early beta, we're enabling our customers to transition from a PDF-centric experience to guided web-native experiences. We're also continuing to innovate on the CLM front, further solidifying our vision, customer validation, and execution within the CLM space. Most recently, DocuSign was named the leader in the Gartner 2022 Magic Quadrant for CLM for the third consecutive year. We are placed highest of all vendors on the ability to execute access and second highest on the completeness of vision access. These products directly support each other. We're encouraged by how existing eSignature customers continue to embrace our CLM capabilities to enhance and speed their workflows. For example, this past quarter, we expanded our relationship with one of the largest ride-sharing organizations. Our team identified key areas of expansion using our Signature and CLM product to support their evolving business needs. They expanded their eSignature footprint and are now more streamlined in their internal processes, thanks to our CLM offering. Over the next few quarters, we'll expand our work here and augment the roadmap to broaden the power of managing workflows throughout the agreement life cycle. While we're not seeing dramatic shifts recently in the competitive landscape, it is important to recognize that today's market is more competitive, particularly for the basic sign use cases, which further highlights the importance of an innovative and differentiated product portfolio like DocuSign's. I want to touch on our plans to improve operations and sales productivity. While we are continuing to lead with innovation, we are staying hyper-focused on making the customer experience more seamless and integrated, particularly with our go-to-market motion. I think that starts with bolstering our self-service mill initiatives. I was deeply involved in enabling self-serving for every stage of the order cycle for customers of all sizes at Google, and I know the power of a frictionless experience. I'm confident we can achieve both improved customer experiences and greater go-to-market efficiency as we move in this direction. We already have over 1 million customers who self-serve. The inbound traffic to our website continues to grow, and we have a highly recognized and trusted brand. So we have a lot to work with. We also want to create stronger efficiencies in our direct sales and field efforts and strengthen our partner ecosystem. So I'm pleased that sales attrition is continuing to moderate, and we're seeing stabilization in the field. Moving forward, we're focused on improving funnel conversion, consolidating and streamlining our teams, strengthening our focus on customer success and retention, and implementing new incentive structures, all with the goal of driving efficiency and accountability. We're also leaning in on simplifying our pricing and packaging strategy, and we've recently begun rolling out new product bundles to enable customers to more easily access useful and differentiated productivity features, which in turn further enhances customer ROI and improves retention while providing customers a richer experience. We know that customers who use more than three features are more likely to expand their footprint with us, and that will be critical for more profitable growth at scale. We already have an industry-leading partner ecosystem. This represents a significant opportunity to expand customer value and distribution reach through our network of ISVs, resellers, system integrators, and developers. By reimagining how we engage that ecosystem, we expect to create a platform that will see stronger revenue contribution from our partners and help unlock and fuel international expansion opportunities in particular. I personally visited customers and teams in four of our key European markets last week, which reaffirmed that one of our most significant growth opportunities will come from international markets. During the trip, I had the pleasure to meet with one of the world's leading communications carriers. They've been a customer for seven years now. Our account team identified key areas to drive growth with expanded use cases, which accelerated adoption, leading to an early renewal expansion. So we're excited to grow our footprint in their ecosystem as they continue to leverage our products to digitize their customer experience and reduce operating expenses while helping to create a more sustainable future. Lastly, internally, our operational focus has been on streamlining our processes, upgrading our internal systems, and modernizing more of our own workflows to improve efficiency and scalability. As an example, we just closed our first quarter on our new ERP system, which has been a key dependency for automating more of our operations. In summary, I believe we're acting with urgency to recalibrate the business and leverage our strong foundation to adapt to the evolving business landscape and the changing and challenging macro environment. These efforts will take time, and they represent a continued evolution for DocuSign. However, I am fully confident that the opportunity is here for DocuSign and is within our reach with a clear strategy, focus, and execution. Thank you for your time today. I'm thrilled to be leading DocuSign, and I'm committed to being transparent with all of you about our progress as we move forward. Now, I'll hand it over to Cynthia, who will take you through our Q3 financial results and outlook.
Cynthia Gaylor, CFO
Excellent. Thanks, Allan, and good afternoon, everyone. We delivered solid Q3 results, delivering on both the top and bottom line. We continue to expand our customer base and remain focused on progress against our key priorities as we execute against our long-term strategy. As the macro environment becomes more challenging, we are seeing softening demand trends materialize, including smaller deal sizes and expansions, with increased customer scrutiny on priorities and budgets in some cases. On the other hand, we are still seeing healthy results as customers recognize DocuSign offers high-ROI applications that are easy to use, efficient, and cost-effective. Let me now review our Q3 results. Total revenue increased 18% year-over-year to $645 million, and subscription revenue grew 18% year-over-year to $624 million. The continued strengthening of the US dollar resulted in a couple-point headwind to total revenue growth in the quarter, in line with our previous expectations. The impact was not material to our results. Our international revenue grew 23% year-over-year to reach $157 million in the third quarter, representing 24% of our total revenue. Third quarter billings grew 17% year-over-year to $659 million as our installed base continued to expand. The strength in billings growth was partially driven by early renewals, particularly renewals from Q4. As a reminder, quarter-to-quarter billings can fluctuate due to the timing and completion of deals, including the timing of renewals and expansions. Customer growth remained strong as we added approximately 42,000 new customers during the quarter, bringing our total installed base to 1.32 million customers worldwide at the end of Q3, a 19% increase compared to a year ago. This includes the addition of approximately 10,000 direct customers to reach a total direct customer base of 202,000, a 26% increase over last year. We also saw a 34% year-over-year increase in customers with an annualized contract value greater than $300,000, reaching a total of 1,052 customers. These results demonstrate progress against our key initiatives. However, we continue to see the effects of a more challenging macro environment. Real estate and financial service verticals continue to face headwinds, but even within these sectors, we see pockets of expansion with customers for specific use cases. Expansion use cases underscore our product differentiation and value for our customers as we continue to invest in innovation around broader agreement workflows. As it relates to verticals, we are also encouraged by relative strength in our manufacturing, retail, business services, and technology sectors, highlighting the important benefit of our diversified customer base. And while the global slowdown presented challenges more generally, we saw varying degrees of strength and weakness across all regions and segments. Dollar net retention was 108% for the quarter. We continue to see more muted buying patterns and slower expansion rates from customers in the current climate. We expect buying patterns to remain cautious in the near term, resulting in dollar net retention continuing to trend downward for the remainder of the year. Total non-GAAP gross margin for the quarter was 83% compared to 82% last year. Q3 non-GAAP operating profit reached $147 million compared with $122 million last year. Non-GAAP operating margin was 23%, up from 22% last year. Non-GAAP net income for Q3 was $118 million compared with $121 million in the third quarter of last year. As noted on our Q1 call this year, we introduced a non-GAAP tax rate within our non-GAAP net income calculation as we reached consistent non-GAAP profits for the prior three years. We're using a non-GAAP tax rate of 20% for fiscal 2023. Q3 non-GAAP EPS was $0.57. In September, we announced a restructuring plan, which included a workforce reduction in response to the changing environment. This was not an easy decision, but was an important step for the health of the business. Our GAAP results include $28 million in Q3 restructuring-related expenses. As we take a long-term view of the opportunity ahead, we will evaluate the best ways to reinvest capital into areas that accelerate initiatives and present the strongest return. We are committed to making progress in a sustainable way towards our long-term target margin. We ended Q3 with 7,522 employees compared to 7,056 last year. The restructuring process is well underway, and we expect to be substantially completed by the end of the fiscal year. The workforce reductions, coupled with more disciplined spending and cost containment throughout the company, drove strong Q3 non-GAAP operating margin. While we are pleased with the Q3 margin, we delayed some spending in the quarter, and we'll continue to evaluate the most critical areas for investment. Operating cash flow in the third quarter was $53 million, representing an 8% margin. Free cash flow was $36 million or a 6% margin. During the third quarter, we implemented a new ERP, a foundational system for our company. The go-live was successful, with smooth implementation and no material disruptions to our core processes. As noted on our last call, the timing of cash collections and payments were impacted by the ERP transition as we anticipated, and some were pushed from Q3 to Q4. We also incurred one-time cash expenses in Q3 related to the restructuring. On a more normalized basis, excluding the impact from the restructuring and our ERP implementation, our operating cash flow margin would have been approximately 14%, and our free cash flow margin would have been approximately 12%. This compares with operating cash flow of $105 million or a 19% margin and free cash flow of $90 million or a 17% margin for the same period last year. We expect lower restructuring cash payments to benefit fourth-quarter cash flows relative to Q3. We exited Q3 with more than $1.1 billion in cash, cash equivalents, restricted cash, and investments. Turning to our share repurchase program, we repurchased approximately 740,000 shares during the quarter for approximately $38 million, which demonstrates our confidence in the durability of our business and the opportunities ahead. As of the end of Q3, we had approximately $137 million in remaining buyback capacity. We remain committed to opportunistically returning capital to our shareholders. With that, let me turn to our Q4 and fiscal '23 guidance. For the fourth quarter and fiscal year '23, we anticipate total revenue of $637 million to $641 million in Q4 or growth of 10% year-over-year and $2.493 billion to $2.497 billion for fiscal '23 or growth of 18% to 19% year-over-year. Of this, we expect subscription revenue of $624 million to $628 million in Q4 or growth of 11% year-over-year and $2.423 billion to $2.427 billion for fiscal '23 or growth of 19% year-over-year. For billings, we expect $705 million to $715 million in Q4 or growth of 5% to 7% year-over-year and $2.626 billion to $2.636 billion for fiscal '23 or growth of 11% to 12% year-over-year. We expect non-GAAP gross margin to be 82% to 83% for Q4 and 81% to 82% for fiscal '23. We expect non-GAAP operating margin to reach 20% to 22% for Q4 and 18% to 20% for fiscal '23. We expect to see a de minimis amount of interest and other income. We expect non-GAAP fully diluted weighted average shares outstanding of 205 million to 210 million for both Q4 and fiscal '23. Looking ahead, we are in the early stages of planning for next year and focused on executing across our critical priorities to finish the year strong. While we will not be formally providing guidance for next year, we would like to share a preliminary outlook for fiscal '24 informed by what we are seeing across the business and in the broader macro environment. We currently expect a slower start to the fiscal year. For total revenue, we would expect high single-digit growth during fiscal '24. For billings, we would expect low single-digit growth for next year. We're committed to maintaining our disciplined approach to expenses, carefully addressing and prioritizing strategic investments that will drive our sustainable growth at scale. As a result, we expect to operate at the lower end of our long-term target operating margin range of 20% to 25% in fiscal '24. In closing, we delivered a solid Q3 despite a challenging operating environment. To drive growth, we'll continue to invest thoughtfully and closely monitor the returns on our investments, pivot as needed, and evaluate opportunities to drive growth, efficiency, and profitability at scale. Our Q3 results are a meaningful indicator of the strength of our business and the customer value proposition we deliver, allowing us to delight our customers in a meaningful way. We are thrilled to welcome Allan to DocuSign and want to take a moment to also thank our team for their exceptional work and focus during this time of transition. While we know it will take time for our progress to be fully reflected in our financial results, we are committed to advancing the business and executing against our long-term strategy while delivering sustainable growth at scale. We look forward to updating you on our progress. Thank you again for joining us. And with that, operator, let's please now open up the call for questions.
Operator, Operator
And at this time, we'll be conducting a question-and-answer session. And our first question comes from the line of Tyler Radke with Citi. Please proceed with your question.
Tyler Radke, Analyst
Yes, thanks for taking the question and welcome aboard, Allan. I wanted to ask you, you made some comments just around broadening the category, integrating with partner applications. Maybe talk about where you see the most low-hanging fruit. And as you look at the business, I mean, clearly, this is a business that has gone from high-growth into more low-growth mode as you're looking at the outlook. But where do you kind of see the medium-term opportunity here in terms of where you can get back to if you accomplish all your strategic initiatives? And then I had a quick follow-up for Cynthia.
Allan Thygesen, CEO
Thank you for that. To start, I want to emphasize that while we've effectively addressed the specific use case of signing an agreement, there are still many steps in the agreement workflow that present opportunities for improvement. As I mentioned earlier, we're enthusiastic about redefining what an agreement looks like. It doesn't necessarily need to be a highly formatted document; it can be something filled out on a web page. We already have clients, such as mobile carriers, who facilitate sign-ups via DocuSign in a web interface. Additionally, various health organizations utilize our new features for patient agreements. After the initial process, they can easily pre-fill agreements for future sign-ins. This capability of aiding users in both creating and negotiating agreements online represents a significant opportunity. On the personalization front, we currently collaborate with Salesforce and other platforms, enabling representatives to send customized documents tailored to customers based on existing data, highlighting our integration with third-party applications. Beyond agreements, the contract lifecycle management (CLM) space offers great potential for DocuSign by enhancing business value extraction from agreements and improving risk and compliance management. I've met with several large enterprises that are keen on these use cases, indicating that there is considerable scope here, and we are only beginning to seize this opportunity.
Tyler Radke, Analyst
Great. And Cynthia, you talked about some early renewals in the quarter. And I guess I'm wondering, since the Q4 guidance was kind of in line with the prior implied guide, was the early renewals kind of the driving most of that upside that you saw in the quarter? And if you could just unpack what you think drove those early renewals. Was it customers consuming ahead of contracts that they renegotiated down post-pandemic? And if that's the case, do you still think there could be some more of that as you look out in the coming quarters? Thank you.
Cynthia Gaylor, CFO
Thank you. We were very pleased with the billings number, which exceeded our expectations, primarily due to early renewals. Analyzing the customer dynamics, we noticed a few key points. We typically have a certain level of early renewals each quarter, but this time we saw more early renewals transitioning from Q4 into Q3 than is usual for this period. This trend was mainly influenced by customers reaching their capacity with our product and seeking to expand their usage by adding additional products. Consequently, these customers renewed their subscriptions a quarter earlier than the typical renewal date. I want to commend our sales team for successfully closing deals as they come due in the quarter. We feel confident about our position for Q4. While we do expect some early renewals, this anticipated level is already factored into our Q4 guidance.
Operator, Operator
Our next question comes from the line of Josh Baer with Morgan Stanley. Please proceed with your question.
Josh Baer, Analyst
Great. Congrats on a really strong quarter and welcome, Allan. Wanted to ask you about a comment you made around increasing competition for the core signature use cases. Was wondering how much of your business would you say fits in that category? And then more broadly, as you've been digging in on the space, just wondering for your take or your view on the competitive landscape and DocuSign's positioning? Thanks.
Allan Thygesen, CEO
We feel confident that helping businesses close agreements electronically saves costs and enhances productivity while improving the customer experience, which we believe remains resilient despite macroeconomic conditions. In terms of competition, we do notice some activity at the lower end, particularly from generic eSignature offerings that lack the added value we provide. Therefore, we need to engage more competitively in that area while maintaining our value and premium positioning. However, most of our revenue comes from customers who recognize the value that DocuSign offers. For instance, surveys show that when customers send agreements through DocuSign, they tend to get signed more quickly, have a higher likelihood of being accepted, and report greater satisfaction. This leads to a favorable brand perception, contributing to our premium status. Additionally, we excel in improving internal workflows for companies using DocuSign, resulting in cost savings and efficiencies. I am optimistic about our ability to maintain our position, but it's true that there's increasing competition in the high-volume commodity eSignature market, and we need to be more responsive to that, which we are currently addressing.
Operator, Operator
Our next question comes from the line of Michael Turrin with Wells Fargo. Please proceed with your question.
Austin Williams, Analyst
Hey. Great. This is Austin Williams on for Michael Turrin. I just wanted to go back to the expansion rate. It looked like the expansion ticked down a touch here. Is there anything you would call out as it relates to those expansions and how we should think about that settling in from here?
Cynthia Gaylor, CFO
That was on the dollar net retention number? You broke up a little bit.
Austin Williams, Analyst
Yes.
Cynthia Gaylor, CFO
Yeah. So on last quarter's call, we talked about kind of that trend line. And as I said in my prepared remarks, we would continue to expect the trend line to push downward in Q4. I think what's embedded in that number is mainly expansion rates are moderating, and so the growth and expansion are declining. As a reminder, that's a dollar net retention number. So it's based on our book of business. The book of business is quite large. So it takes larger dollars and larger rates of expansion to move the number up. And just given some of the dynamics we've been talking about the last few quarters around expansion rates and deal sizes contracting, we would expect to see continued pressure on that particular metric for Q4.
Operator, Operator
And our next question comes from the line of Brad Sills with Bank of America. Please proceed with your question.
Brad Sills, Analyst
Wonderful. Thanks for taking my questions, and welcome, Allan. I wanted to ask a question on Agreement Cloud. As the company starts to transition over the longer term, I understand towards a more workflow-oriented business. Today, we think of eSignature as transactional. Do you think there's a different go-to-market that's required here to really materially move the needle and gain some traction there? You talked about some SI efforts there, global SIs, et cetera. I assume they would play a role there. But any thoughts on that? Thank you.
Allan Thygesen, CEO
Yes. So a couple of points there. I think from a customer segment perspective, we have a very nicely balanced book of business now across SMB, mid-market, and enterprise. A lot of our enterprise adoption has been departmental level historic, but we're negotiating more enterprise-level agreements. I think we need to continue to evolve our sophistication and readiness there. We've brought in some leaders with great experience there, but I think we're still coming up the curve in terms of being fully ready to be a broad enterprise platform supplier, if you will. In terms of the other parts of the business, I think the CLM business is already very much an enterprise play. And as we've rolled that out, we've seen a lot of our larger deals have a significant CLM element. So we're pushing hard on that. I think that is still a relatively early-stage market opportunity. As you noted, it's so complicated, and there's so much customization on a vertical or company-specific basis that inevitably, there's a strong service element to that. While we will have a base level of services, we absolutely need third-party partners like the big SIs and others. And they're very eager. In fact, we have a lot of inbound interest to partner with DocuSign in creating combined solutions to address those needs. So, I'm bullish on that, but I want to maintain DocuSign's focus as a SaaS software company with necessary customer success and professional services elements and then augment that with the ecosystem of ISVs and SIs and others to present solutions to enterprises that have more complicated needs.
Brad Sills, Analyst
Great to hear. Thanks Allan. And then one for you, Cynthia, if I may, please. Just on the guidance for next year, low single-digit billings growth. This quarter, you saw, it looks like 19%. Obviously, you had some deals pulled into Q3, but good results in comparison to kind of the guide. So, just what are you factoring in for next year? Is it a worsening macro? You talked about some elongating sales cycles and perhaps deal size compression. Are you just assuming that that environment sustains here? Any color on just what's factored into that next year outlook? Thank you.
Cynthia Gaylor, CFO
Yes. Sure. So, we're not technically guiding to next year. We're kind of giving you our best view of what we're seeing. And again, in the spirit of being transparent, we did want to provide some direction to what we're seeing as we look into Q4 and next year. The embedded assumption there, I guess, when you look at Q3, it was 17%. Q4 is, I think, 6%. And so we're certainly seeing kind of a more challenging macro environment and some softening trends materialize. I talked about smaller deal sizes, smaller expansions and expansions at a slower rate. So, I think those things in particular between the macro and then what we're just seeing with customer behavior on the softening trends of expansions. Customers are still expanding, but they're just expanding at a lower rate, and that puts pressure on the growth rate. I'd also say in the macro, there's just more scrutiny by customers on spending and budgets. So, we're not modeling material degradation there or material improvement. So, we're kind of assuming just kind of a softening macro environment that we're currently seeing.
Operator, Operator
Our next question comes from the line of Mark Murphy with JPMorgan. Please proceed with your question.
Mark Murphy, Analyst
Yes, thank you very much and I'll add my congrats. Allan, I'm interested in how commonly do you sense that some of your customers might have overprovisioned themselves with DocuSign capacity during the pandemic. And maybe now they've been drawing down some of that eSignature inventory in a manner that maybe it could position them to run out of the excess capacity. It sounded like you actually might have seen a little bit of that here in Q3 and where they might be able to reengage on new purchases. Maybe it's in the back half of next year or somewhere out beyond that.
Allan Thygesen, CEO
I do think that we're on the tail end of that part of the cycle as we've significantly lapped COVID as a broad phenomenon and the stance the companies took at that time. At the same time, of course, some of our customers saw very inflated volumes during COVID and during a very low interest rate environment. You're familiar with the government loan scenario. I think the mortgage and real estate volumes have simply lowered now, even if they have completely exhausted their pre-bought envelope allotments. So, I think I'd like to be cautiously optimistic along the lines that you note. But I think there's that counteracting factor of some of the things that were the most volatile, whether it was the most pre-buying, are probably also people who are now in a different demand environment, if that makes sense.
Mark Murphy, Analyst
Okay. Yeah, understood. And just as a quick follow-up, how are you viewing the partnership between DocuSign and Microsoft? How that might evolve over time? Because I think there's a viewpoint out there that Microsoft is conspicuously absent from this market in some ways in that perhaps they could end up offering eSignature as part of Office 365. And I'm just wondering if you see any opportunity to be involved there or perhaps if you see some other angles to that relationship.
Allan Thygesen, CEO
We are really excited about our evolving partnership with Microsoft. Earlier this year, we entered into a significant strategic partnership with them. We've launched several exciting new integrations with Microsoft, including Teams, SharePoint, Builder, and others. I believe we are still just beginning to explore the integration possibilities with various Microsoft platforms. I anticipate that both Microsoft and Google will incorporate basic eSignature capabilities into their office suites, but I don't see that as our main strength. We offer a lot of additional features and workflow around signatures that go beyond what the core office suites provide. Therefore, I don't consider this to be our biggest competitive threat. We are pleased with the progress of our partnership with Microsoft and other software providers, and I believe most of them see us as a leading partner, which is something we aim to leverage.
Operator, Operator
Our next question comes from the line of Jake Roberge with William Blair. Please proceed with your question.
Jake Roberge, Analyst
Hey thanks for taking my questions, and congrats on the great quarter. So given signature usage from existing customers and the incremental new logo next year may be impacted as a result of the macro, how do you expect your expansion motion? So thinking about CLM, notary or premium pricing insurer capabilities like ID verification to perform next year.
Allan Thygesen, CEO
I believe we will expand the range of products we offer throughout the entire agreement workflow, as I mentioned earlier. However, if we complicate the process too much or require too many items to be purchased, it could deter customers and prevent us from showcasing the features that set us apart from lower-end competitors. One of my main initiatives this quarter has been to implement a better bundling strategy to integrate these features, along with an initial onboarding process for new clients to ensure they get off to a successful start. This way, they will not only utilize the core eSignature function but also the additional features mentioned. The initial results of this strategy look promising. At the same time, we are working on packaging more features related to eSignature and ensuring we comprehensively promote that feature bundle while also expanding into other areas of agreement workflow that we charge for separately.
Jake Roberge, Analyst
Great. Thanks. And then, Cynthia, if you could just add any commentary on the linearity of demand trends month-to-month throughout the quarter and into November. Did anything change over the last months leading into Q4 as it relates to demand or usage of your products?
Cynthia Gaylor, CFO
I would say there haven't been significant changes from the end of Q3 to Q4, which influenced some of our macro comments. Additionally, I want to reiterate what we mentioned on last quarter's call. We've noticed some shifts in linearity within the quarter itself, between the months. This trend continued in Q3 during the third month. We experienced softer linearity as we exited the quarter compared to what we typically see in those quarter linearity trends within the quarter.
Operator, Operator
Our next question comes from the line of Rishi Jaluria with RBC. Please proceed with your question.
Rishi Jaluria, Analyst
Thank you for taking my questions. Allan, welcome, and I look forward to working together. I have two questions regarding the preliminary outlook for next year. I appreciate your insights, as they provide a helpful way to think about things. To start, if we consider low single-digit billings growth for next year, it seems like there would be a cadence with potentially lower growth in the first half and higher in the second half, given the macro environment. This suggests that for calendar year 2024, fiscal year 2025 could see mid-single-digit growth. I understand it's early to discuss guidance, but more importantly, what would need to happen to close the gap from that baseline billings guidance to a growth rate that aligns with your expectations? Given the market opportunity, I can't imagine you would be satisfied with mid to high single-digit growth. Could you elaborate on the execution and market opportunities necessary to achieve the desired growth rate? I have a follow-up after that.
Allan Thygesen, CEO
We recognize the impact of the macroeconomic environment on our outlook for 2024, and we do not assume that the economy will improve. This uncertainty is reflected in our forecast. Moving forward, our focus is on enhancing our digital strategy, which we believe will help us capture more business. However, we won't incorporate this into our guidance until we have more confidence in its effectiveness. Additionally, we have several product initiatives planned for the next two to three quarters that could significantly expand our market presence, but again, we need more clarity before including them in our outlook. Our international market presents another significant opportunity, and we'll be making substantial investments there in 2024, as that market is still developing and has considerable potential. We are targeting substantial growth, as I am not interested in maintaining low or mid-single-digit revenue levels. I am actively driving efforts to achieve better results, and we anticipate having more positive updates in the coming quarters.
Cynthia Gaylor, CFO
Yes, I would like to add that our fiscal 2024 corresponds to calendar 2023. This is an outlook, not a guide; we will provide a more detailed guide in about 90 days. I understand your point regarding the transition from calendar 2023 to calendar 2024. As mentioned, we expect the first half of next year to start off slowly, influenced by macroeconomic factors and the initiatives Allan discussed. It will take some time to gain traction. If calendar 2024 improves, it would likely be due to macro conditions getting better along with our initiatives starting to gain momentum, which may become evident in the latter half of next year and could carry over into the following year. When we provide guidance and outlook, as you all have been monitoring the company for some time, there are opportunities and risks involved. We believe we have balanced these factors in our messaging, with the 2024 outlook aimed at offering transparency regarding our current observations while still weighing opportunities and risks. I want to ensure that you understand this.
Allan Thygesen, CEO
Yeah. I mean, I think what I would just add to that, Cynthia is exactly right. What we're giving you now is an extrapolation of our current trends. We have a lot of levers that we're pulling, and we hope to be able to update you on those over the course of the next several calls. We're bullish on long-term prospects. We think we have a lot of headroom and are very well-positioned.
Operator, Operator
And our next question comes from the line of Kirk Materne with Evercore ISI. Please proceed with your question.
Kirk Materne, Analyst
Hi, thanks for that. Allan, I wanted to follow up on your last comment regarding the go-to-market strategy. Have most of the changes been implemented so far? I understand that it can be challenging to make adjustments while closing out a fiscal year. Are you planning to wait on some changes, particularly on the direct side, until we enter next year? I'm trying to understand whether the more fundamental changes have already been established, or if that's something you're still planning to address once this fiscal year ends.
Allan Thygesen, CEO
No, we're not planning any broad efforts risk type of structures along the lines of what we did for the whole company last quarter. We're going to continue to tweak. I mean, I think the market environment is dynamic. We're going to continue to move resources around, as I alluded to. Individual functions and departments in the go-to-market function elsewhere, I think we'll see some prioritization or de-prioritization. But I'm not looking to do anything at the macro company-wide level. I do expect that we will get significantly more productive and efficient in our go-to-market motion, and that's a huge focus for us. In addition to the digital side, we've had an all-hands-on-deck effort to remove friction internally and to just realign and combine functions. We were overly segmented, I believe. And so there was just a lot of work to get our field operation organization in a better state. I think Steve Shute, our President of Fuels has done a very nice job pulling that together, bringing in senior leaders. I think we're much better poised to grow with the resources that we have today than we were six months ago. Some of those initiatives that I alluded to on the self-serve side will obviously bear more fruit in the next few quarters.
Operator, Operator
And we have reached the end of the question-and-answer session. I'll now turn the call back over to Allan Thygesen for closing remarks.
Allan Thygesen, CEO
Thank you. Well, thank you all for joining to hear more about where we're headed. I'm excited to be on this call with all of you and to be leading this incredible iconic company. In closing, we believe we delivered a solid Q3, and we're focused on delivering an exciting product roadmap and improving the efficiency of our go-to-market to drive growth and profitability. My first two months have affirmed DocuSign's tremendous headroom, strong customer relationships, and world-class talent. I'd like to thank our employees, our customers, and our partners for their warm welcome and the insights dedication they've shared. I look forward to updating all of you as we make progress. Thank you for joining.
Operator, Operator
And this concludes today's conference. You may now disconnect. Thank you and have a good day.