Earnings Call
Docusign, Inc. (DOCU)
Earnings Call Transcript - DOCU Q4 2023
Heather Harwood, Head of Investor Relations
Thank you, operator. Good afternoon, and welcome to the DocuSign Q4 and fiscal year 2023 earnings call. I’m 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 fourth quarter and fiscal year 2023 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?
Allan Thygesen, CEO
Thanks, Heather, and good afternoon, everyone. Our fourth quarter marked my first full quarter as DocuSign’s CEO. Having led our organization for five months with the opportunity to meet many of our customers, partners and employees, I’m even more optimistic today about the future of DocuSign. We had a solid finish to a transitional year, delivering across key financial metrics in Q4 while making tangible progress against our key priorities. Q4 total revenue came in at $660 million, up 14% versus prior year, finishing the year with $2.5 billion of revenue and 19% year-on-year growth. Driven by our continued focus on profitability and efficiency, we reported a 24% non-GAAP operating margin for the quarter and 21% for the year. While we are pleased with our Q4 results, I also want to acknowledge today’s challenging macro environment. Customer sentiment continues to be cautious, and that is reflected in moderated expansion rates. Before we get further into business updates, I want to acknowledge today’s news that Cynthia Gaylor has decided to step down from her role as Chief Financial Officer. Cynthia has been with DocuSign for nearly 4.5 years, first as a Board member and Chair of our Audit Committee and the last few years as our CFO. I know many of you know Cynthia well and gotten to know her even better over time as part of the DocuSign story. I want to thank Cynthia for her unwavering commitment and strategic leadership these last few years. She’s been a great partner to me during my first month as CEO, and she’s been instrumental to the company and the Board as we’ve navigated a period of dynamic change while laying a strong foundation for sustainable profitable growth at scale. I thank her for her support during the transition as we search for a successor. Let me turn back to the business. During Q4, we refined and communicated DocuSign strategy throughout our organization to drive greater alignment on how our teams can deliver more strategic value to our customers. Today, we have a clearly defined strategy in place. To underscore the key pillars of our strategic vision, inspired by customer feedback, our focus is to deliver smarter, easier and trusted agreements. We’re improving the reach and efficiency of our go-to-market by developing a world-class self-serve experience, strengthening our direct sales productivity and amplifying our sales and marketing partnerships. We’re also strengthening our internal operational efficiency by optimizing and modernizing systems and processes. Now, it’s important to emphasize that even as the market leader in e-signature, we are just at the beginning of capitalizing on the opportunities to redefine and truly reimagine what a smarter agreement looks like. Today eSign provides an online replica of a static document. While that is a huge improvement in convenience and productivity for senders and signers, it’s hardly the endpoint. Just like creating digital copies of maps or recorded music was the beginning of a reimagination of long-established categories, fundamentally altering creation, distribution and use. Our goal is to turn flat agreements into structured data that can be used to make intelligent decisions. Value of an agreement is in the data. Every step of an agreement can deliver more value when it’s automated, intelligent and seamlessly integrated into core business systems. DocuSign is uniquely positioned to redefine the agreement processes across every industry. Along these lines, we released several new product enhancements during the fourth quarter, including expanded integrations to better collaborate with Microsoft Teams, Slack and Zoom. And for eSignature, we enabled new AI-assisted document highlighting and signing capabilities in mobile and web for faster time to value. In April, we will release WebForms which will help customers deliver a better and simpler experience by moving from legacy contract forms to a modern web and app experience. We also plan to accelerate our release cycles in fiscal 2024 with innovative and differentiated solutions that simplify the agreement process while we identify new ways to revolutionize how businesses initiate, negotiate and manage agreements. There’s substantial interest in the industry about rapid advances in AI and large language models in particular. We are already leveraging sophisticated AI models for contract analysis and automation of some workflows, and we’re very excited to harness generative AI, data and pattern identification, as yet another way we can increase productivity, reduce friction and save our customers’ time. As we move forward, we believe these can be a compelling part of our business, and we are encouraged by the significant interest from some of the very largest players in our industry, who recognize our domain leadership and expertise and want to partner with us. Moving to our product led growth and self-serve initiatives. We’ve made solid progress over the last few months, modernizing our commerce experience to reduce friction, improve ease of use and provide customers more flexibility. We’ve expanded seat capacity available via our web and mobile sites, we’ve expanded currency options available to make the buying process easier in international markets. Gain traction with these initiatives as we exited the quarter, and we will continue to keep you updated on our progress. Further, as you saw in an announcement a few weeks ago, I couldn’t be more excited to have Robert Chatwani joining our team as President and General Manager of Growth. Robert brings a wealth of experience, and we look forward to benefiting from his insights and expertise from more than two decades of scaling global technology companies. He joins DocuSign from an organization that’s broadly recognized as having a world-class product-led growth motion. Executing on our product growth strategy is a key priority for the company as it will be a primary driver of customer acquisition, conversion and expansion. I’m thrilled to have Robert leading our efforts in this area. Turning to our go-to-market. We’re just coming off our global sales kickoff last week, and I can tell you that the sales team is incredibly excited and energized for the year ahead. We’re focused on delivering across three complementary channels: direct, self-serve and partners, and to provide world-class customer success in driving customer growth and retention through all three. As an example of global growth and multiproduct expansion, this past quarter, a leading global consulting firm, who has been using eSignature for a decade, expanded and added our CLM cost product. This is a competitive sales cycle since the customer is already in the process of implementing a competitor CLM solution in a few countries. However, DocuSign won preferred vendor status for CLM and the customer has since rolled us out in six countries across two continents and has built integrations with their internal systems and the DocuSign partners Salesforce and ServiceNow. Related to go-to-market, I want to acknowledge the restructuring we recently announced. It was a difficult decision but it was a critically important step for our company to reshape and rightsize our organization for the opportunity ahead. It was not a broad-based restructuring. 95% of the workforce reduction was in our worldwide field organization. Our assessment was that DocuSign could capture more efficiency in our overall go-to-market across all segments and that we could unlock more profitable growth by investing part of the savings in product development and innovation. Now, the direct channel remains absolutely critical to our future. We are rebalancing our approach towards offering a lighter touch experience with more self-serve capabilities that give customers of all sizes, choice in how they engage with DocuSign. That pivot in turn frees up resources to invest more in our self-service motion and expanded roadmap for agreement workflows, new AI capabilities, accelerating our migration to the cloud and improving our internal systems. That, in turn, will create an even stronger and more valuable offering for our customers and for our sales team to sell. Still have some work to do to strengthen our self-serve experience over the next 6 to 12 months. And while we may see some modest near-term disruption, we’re confident these are the right steps going forward to drive innovation and growth for our customers for the long term. Additionally, a stronger self-serve motion will enable greater expansion opportunities internationally. Turning to our internal operations and processes, Anwar Akram recently joined as our Chief Operating Officer and will play a crucial role within our organization. Anwar’s focus is to bring together and transform our strategy, develop new strategies around pricing and packaging, drive incremental efficiencies internally and help evolve early-stage ideas into future growth initiatives. Related to these efforts, I noted on the last call that we rolled out product bundles to introduce more features and functionalities to our customers. I’m pleased to share that these bundled promotions performed better than expected, and we saw good adoption for our new SMB customers in particular. Our experience suggests that customers who adopt a broader set of features tend to renew and expand their commitment with us. You should expect to see more initiatives around pricing and packaging in the future, including bundling and ensuring early adoption of our highest value features. Finally, I would like to update you on our partner ecosystem, another key pillar of our strategy. We’re seeing good progress with a number of our largest software partners. ServiceNow is a good example, highlighted by the launch of the CLM Spoke as part of ServiceNow’s automation engine. Our partnership has gained momentum with several leading organizations utilizing our integration to digitize their agreements. This is directly aligned with our focus on capturing opportunities by integrating more deeply with partner applications. So, in closing, this year has been one of incredible change for DocuSign. And in Q4, we made meaningful strides towards defining our strategy, rightsizing and optimizing our organization. We believe the foundation has been set and that we are in a better position to navigate the evolving macro environment while investing for opportunities that enable long-term profitable growth. We’re optimistic about the year ahead for DocuSign, and we’re committed to delivering meaningful customer and shareholder value. We look forward to sharing further progress on our initiatives as we redefine how the world comes together and agrees. We will enable smarter, easier and trusted agreements. With that, let me once again thank Cynthia and turn the call over to her to walk through the financials.
Cynthia Gaylor, CFO
Thanks, Allan, for the kind words. I’d like to start off by thanking our employees for their strong execution. We closed out the year strong, and I’m proud to share that we achieved an impressive milestone for the company, delivering $2.5 billion of revenue for the fiscal year, reflecting 19% growth year-on-year. Our Q4 results were solid, demonstrating the durability in our business model and DocuSign’s important position in the broader ecosystem. While we are pleased with our results and execution in Q4, we continue to experience a challenging macro environment with softening demand trends, including moderating expansion rates. However, we are seeing healthy results as customers recognize that DocuSign offers high ROI applications that are easy to use, efficient and cost-effective. With that, let me turn to our Q4 and fiscal ‘23 results. For the fourth quarter, total revenue increased 14% year-over-year to $660 million, and subscription revenue grew 14% year-over-year to $644 million. Total revenue for the year reached $2.5 billion, a 19% increase over last year and subscription revenue was $2.4 billion, a 20% year-over-year increase. Our international revenue grew 19% year-over-year to reach $165 million in the fourth quarter. For the full year, international revenue grew 29% to $620 million, representing 25% of total revenue for both periods. Fourth quarter billings rose 10% year-over-year to $739 million. For the full year, billings increased 13% to $2.7 billion. We added approximately 30,000 new customers during the quarter, bringing our total installed base to $1.36 million at the end of the year, a 16% increase year-over-year. This includes the addition of approximately 9,000 direct customers to reach a total direct customer base of 211,000, a 24% year-over-year increase. We also saw a 27% year-over-year increase in customers with an annualized contract value greater than $300,000, reaching a total of 1,080 customers. Dollar net retention was 107% for the quarter. The headwinds we’ve highlighted over the last couple of quarters continued to persist. And as a result, we are seeing muted growth in our expansion rates. We expect this to continue into Q1, and as a result, would expect the dollar net retention in Q1 to trend lower. Non-GAAP gross margin for the fourth quarter was 83% compared with 81% a year ago. For the full year, gross margin was 82%, in line with last quarter. Fourth quarter subscription gross margin was 85%, consistent with last year. For the full year, subscription gross margin was also 85%, flat versus prior years. Q4 non-GAAP operating income reached $155 million compared with $104 million last year. Non-GAAP operating margin was 24% compared to 18% last year. For the full year, non-GAAP operating income rose 23% to $570 million and operating margin was 21% versus 20% in fiscal 2022. In Q4, we saw lower expenses for employee-related costs related to the workforce reduction announced in September, which contributed to the strong operating margin in the quarter. Non-GAAP net income for Q4 was $133 million compared with $100 million in the fourth quarter of last year. For the full year, non-GAAP net income was $419 million, up from $411 million in fiscal ‘22, a growth rate of 2% year-over-year. As noted on our Q1 call last year, we introduced a non-GAAP tax rate on our non-GAAP net income calculation for fiscal ‘23 as we reached consistent non-GAAP profits for the prior three years. We are using a non-GAAP tax rate of 20% for fiscal 2023 and fiscal 2024. Q4 non-GAAP EPS was $0.65, while full-year non-GAAP EPS was $2.03. Let me take this opportunity to share a bit more context regarding the recent restructuring. As Allan mentioned, this was a difficult decision and one not made lightly, but it was an important decision aligned with our strategy to reshape the company and free up resources to invest in critical areas across our innovation and product development efforts. As we outlined in the filing last month, we expect to incur related restructuring charges ranging from $25 million to $35 million, with the majority of the expenses and related cash to be incurred in Q1 of this year, with the restructuring substantially completed by the end of the second quarter. We ended Q4 with 7,336 employees compared to 7,461 last year. Operating cash flow in the quarter grew 56% year-over-year to $137 million, representing a 21% margin. This compares with $88 million, a 15% margin in the same quarter a year ago. Free cash flow for the quarter was $113 million, a 17% margin compared to $70 million, a 12% margin in the year prior, a 61% increase year-over-year. As we mentioned on our last call, we went live with a new ERP in Q3 which delayed some of our cash collections last quarter. As a result, we saw strong cash collections this quarter in addition to lower restructuring cash payments on a relative basis. For the full year, operating cash flow was $507 million, representing a 20% margin compared to $506 million, a 24% margin a year ago. Free cash flow declined 4% year-over-year to $429 million, a 17% margin compared to $445 million, a 21% margin to fiscal 2022. We exited Q4 with more than $1.2 billion in cash, cash equivalents, restricted cash and investments. With that, let me turn to our Q1 and fiscal ‘24 guidance. As a reminder, on our Q3 earnings call, we provided a preliminary outlook for fiscal ‘24. We are pleased to narrow the preliminary range we provided, incorporating our Q4 landing and the dynamics of the current environment into our guidance. We anticipate the macro environment will remain challenging as we move through the year. And as Allan mentioned, we may also see modest near-term disruption as we realign our sales force and shift to more of a self-serve motion. For the first quarter and fiscal year ‘24, we anticipate total revenue of $639 million to $643 million in Q1 or growth of 9% year-over-year. And $2.695 billion to $2.707 billion for fiscal ‘24 or growth of 7% to 8% year-over-year. Of this, we expect subscription revenue of $625 million to $629 million in Q1 or growth of 10% to 11% year-over-year. And $2.633 billion to $2.645 billion for fiscal ‘24 or growth of 8% year-over-year. For billings, we expect $615 million to $625 million in Q1 or flat to 2% growth year-over-year and $2.705 billion to $2.725 billion for fiscal ‘24 or growth of 2% year-over-year. We expect non-GAAP gross margin to be 81% to 82% for both Q1 and the fiscal year. We expect non-GAAP operating margin to reach 21% to 22% for Q1 and 21% to 23% for fiscal ‘24. We expect non-GAAP fully diluted weighted average shares outstanding of $207 million to $212 million for both Q1 and fiscal ‘24. Fiscal ‘23 was a year of transition, and we are pleased with our execution and the progress we are making as we navigate a challenging macro environment. We remain committed to delivering sustainable growth and profitability at scale, and we will continue to be disciplined with our investments across strategic priorities. We are focused on delivering long-term value to our customers, partners, employees and shareholders. Looking ahead, we are encouraged by the steps we are taking and look forward to updating you on our progress as we move forward. The journey to $2.5 billion has been hard work and a testament to the compelling value proposition DocuSign brings to our customers. Together, we have played an important role in how the world agrees. I look forward to the future. And finally, I’ll be here a little while longer, as Allan said, so no goodbyes for now. And with that, we will open up the call for questions.
Operator, Operator
Thank you. One moment, please, we will be polled for questions. Our first question comes from Brad Sills with Bank of America.
Brad Sills, Analyst
Oh, great. Thank you. Cynthia, congratulations on your next move. It’s been a pleasure working with you. I wanted to ask one on the moderating expansion activity that you saw during the quarter. Was it a certain cohort of customer where you saw that? Was it across the board? Was it in that enterprise cohort or just the broader base? Just any color on that? And any segments that you might have seen that occur? Thank you.
Cynthia Gaylor, CFO
Thanks, Brad. Yes. So, I think on the expansion rate, it’s a continuing trend that we’ve been talking about over the last few quarters, which is, as the book of business has grown and the macro environment has softened, the rate at which customers are expanding is slowing. So that growth rate and expansion is slowing. And so, I would say, there wasn’t a big change in Q4 relative to the couple of quarters before, but it is a continuing trend that’s putting some pressure on the top line. On the cohorts, we actually do a lot of analysis on the cohorts. And I would say some of the cohorts are probably expanding at a slower rate and some are moderating the rate at which they’re expanding. But I’d say overall, it’s having the same impact. And part of it is, as we’ve talked about in past quarters, is a little bit of a law of large numbers, as that book of business gets bigger, you need more and more expansion dollars to move in. And so customers are still expanding. But when you look at the top line, that’s probably the biggest factor impacting the compression of some of those growth rates.
Operator, Operator
Our next question is from Brent Thill with Jefferies.
Brent Thill, Analyst
Allan, just on the sales overhaul. Can you just talk to how long you expect this to send kind of wake turbulence through the sales org and when you feel like you kind of resume full strength? And I had a quick follow-up for Cynthia. Just as it relates to the billings growth deceleration from 13% to 2%. Can you just give us a sense of kind of what you’re factoring into that?
Allan Thygesen, CEO
I’ll go first. Thanks, Brent. I think on the sales force, we are in a much more stable situation than we were 6 to 12 months ago. Attrition rates have decreased, and we have a nearly complete team. Steve has done a great job with that. There’s better execution and predictability. Part of the reason we felt confident in taking the restructuring action was our clear view of our sales capacity and recognizing that we had a bit of excess capacity. We also understood where we could reduce investment and reallocate resources. We are being careful in predicting that there could be some disruption, particularly at the very low end of the business, which may have relied more on human interaction. We plan to address that more through our self-serve model. However, I believe this will resolve fairly quickly, within one to two quarters. Overall, the sales force is in the best position it has been in for some time. We just had our global kickoff last week, and I can tell you they are really excited about the roadmap. Plus, they now have slightly larger territories, which contributes to a very positive atmosphere throughout the sales team.
Cynthia Gaylor, CFO
I’ll take the billings question. But before I do that, I realize I misspoke on international revenue. So just to clarify, international revenue grew 29% to $620 million. On the billings question, I think it’s related to a couple of things. One is, as we talked about last quarter, we’re expecting a slower start to the year. I think when you look at the macro environment, we certainly haven’t gotten better and you could probably sense just maybe gotten a little bit worse. And on top of that, we have made some changes to the fields, which we think could cause some disruption. So I think that’s certainly playing into both the revenue and the billings guide we’re giving for the year. I’d also say we always guide to what we can see. I think we can see Q1 better than we can see the rest of the year. But given the 1% guide in Q1, we would expect that to kind of improve as we move through the year and some of the investments we may start to take hold. So I think those are some of the dynamics.
Operator, Operator
Our next question is from Jackson Ader with SVB.
Jackson Ader, Analyst
On the macro environment, how is it affecting you? Are your customers reducing the number of employees and, therefore, their need for envelopes? I would be surprised if the scrutiny was on the DocuSign line item due to IT budgets. Given the ROI and the relatively quick payback, I'd expect that e-signature would be an area where people are more inclined to invest even in a challenging macro environment. How do I reconcile that?
Allan Thygesen, CEO
Thank you for your question. The overall macro environment affects businesses of all sizes and their willingness to invest in various types of software, including ours. However, I don't believe we are particularly more affected by macro conditions compared to others. We do have some exposure to sectors like real estate that have faced challenges, but we are also quite diversified and have strong performance in areas such as health, manufacturing, and telecommunications, which helps balance things out. Regarding our value proposition, I agree that we are seeing a quick return on investment, and that is an important aspect of DocuSign’s competitive advantage. Customers tend to respond quickly to agreements and have a better overall experience. While the macro environment poses challenges for IT budgets across various companies, we may have a bit more vertical exposure than the average firm, but we remain generally well-balanced. I believe our value proposition is still strong.
Jackson Ader, Analyst
Okay. Great. Just a quick follow-up. How much of the second round of restructuring was included in the preliminary margin guidance for the year that Cynthia provided on last quarter’s call?
Cynthia Gaylor, CFO
Thanks for the question. So to be clear, in the outlook we provided, the most recent restructuring was not factored in as we were evaluating the scenarios for this fiscal year as part of our annual plan in areas that we want to invest in across the strategic priorities. But that wasn’t contemplated specifically at the time or baked into the outlook we provided. That being said, I think as we went through the process of the annual planning, it was clear that we needed more room for investment across the key priorities. And as Allan articulated, the plan is to invest in R&D in particular and innovation and shift some of the investments into that initiative as well as PLG self-serve. So, we were able to come a little bit above the outlook we provided. If you remember in Q3 on margin, we said at the low end of our long-term target range, which is 20% to 22%. The long-term target range, as a reminder, is 20% to 25%, and our guide for the year is 21% to 23%. So, we are going to be reinvesting, but we also increased the margin by a little bit.
Operator, Operator
Our next question is from Tyler Radke with Citi.
Tyler Radke, Analyst
Can you elaborate on the sales reorganization and the strategy going forward, particularly regarding the shift to a self-serve model? What is your vision for the company? How do you determine when a sale becomes self-service? Is it based on a specific deal size, or do you have salespeople specialized by industry, such as CLM? Additionally, for Cynthia, given the downsizing of about 20% of the workforce, why are margins not expected to be higher next year? In Q4, the EBIT margin was around 24% on a non-GAAP basis, which did not include many of the cost-saving benefits. Why do you anticipate margins will not improve next year with a 20% reduction in headcount?
Allan Thygesen, CEO
I'll address the first question. Historically, DocuSign has primarily relied on a direct sales approach for customers of all sizes. We plan to maintain direct sales as our main channel because it is a significant advantage for the company, and we aim to enhance it further. However, we believe it's important to add two additional areas of focus. The first is a self-service option, which is beneficial for customers of all sizes, as it allows them to handle certain tasks independently throughout their journey with us. I will elaborate on that shortly. Secondly, we are keen on developing our partner go-to-market strategy, utilizing distributors and resellers in international markets, and collaborating with ISVs to integrate our solutions directly into their applications. We have considerable activity in this area that can lead to substantial improvements. Returning to the self-service aspect, it's essential to clarify that we aim to merge digital and direct sales over time, giving all customers the chance to self-serve whenever they choose. I anticipate that many customers will take advantage of this option. Additionally, I want our sales teams to view self-service as a beneficial addition to their efforts. This strategy was successful at Google and Atlassian, and many companies with a digital approach have thrived by adopting this model. We see substantial opportunities here. That outlines our overall go-to-market strategy. Cynthia, would you like to address the second part?
Cynthia Gaylor, CFO
Sure. Yes. So I totally understand the question. I would say Q4, the 24% margin was higher than probably what our steady rate is for a couple of reasons. One is we had just gone through the fall restructuring. So that really boosted the margin. And then, in addition, the hiring in Q4 was slower than we had anticipated in the quarter. So as we kind of look into this year, we see the opportunity in front of us, and we want to invest in the key pillars of the strategic priorities that Allan talked about, right, in the product, in innovation and then in PLG self-serve. And so, we’re really putting that money from the second restructuring back into the business to really level set against those key areas.
Operator, Operator
Our next question is from George Iwanyc with Oppenheimer.
George Iwanyc, Analyst
Allan, maybe digging into the product bundling traction you’re seeing, can you give us some color on the adoption rates with SMBs and maybe put that in perspective of what you’re also seeing from competitors?
Allan Thygesen, CEO
Yes. First of all, regarding our segments, we have a well-diversified customer portfolio. We have a strong presence in the small and medium-sized business and mid-market sectors, along with a significant focus on expanding our enterprise business. Overall, I don’t notice a major difference in momentum between these sectors. While some companies are facing specific challenges in the SMB space, we are not experiencing that. In fact, we've seen encouraging momentum with new accounts, which I was happy to observe. That covers the segment aspect. What was the other part of your question?
George Iwanyc, Analyst
Just what you think from a competitive perspective on competition.
Allan Thygesen, CEO
Okay. There’s no question that over the last three to five years, the market has gotten more competitive. I don’t know that we’re seeing a material change in how competitive it is here in the last few quarters. I think we continue to be the market leader. We don’t spend as much time worrying about what other people are doing, I think we want to really redefine the category and set the direction for the industry. And I think we’re well on our way to doing that. And that’s where we’re focused from a competitive standpoint, if you will. In terms of the tactics, we are looking on pricing and packaging and how can we be as agile as possible by segment, by country. There might be a few countries where we’ve gotten a little too far off the market. And so, we’re looking at that very carefully. I mentioned some bundling opportunities during my prepared remarks. So, we think there’s a lot of opportunities there. There are some enterprise license agreements. Some of our largest customers, we really want to offer the ubiquitous eSignature solution for in every instance where they want to deploy that. And so, we’re in the process of both building out the product to enable that for embedding as well as direct sales and in structuring our license agreements so that that is as attractive as possible for our large clients.
Cynthia Gaylor, CFO
One thing I would just add on the SMB is we did see some relative strength there across our business. We ran some experiments in Q4, particularly around the bundles or around increasing number of seats. So, we did see kind of a higher volume of SMB deals at lower price points. So, higher volume, lower price, which we thought, especially like in NewCo was a positive sign, as Allan mentioned. So just a little bit more color there.
Operator, Operator
Our next question is from Scott Berg with Needham & Company.
Scott Berg, Analyst
Congrats on the strong finish to the year. I guess, Allan, I wanted to focus on product strategy going forward because product seems to be a big theme of where you want to invest in going forward. But leveraging off your WebForms comments, how should we think about your product roadmap maybe over the next, I don’t know, 12 to 24 months? Is it going to be more of a little small add-on solutions like what WebForms is likely to bring at least from what my assumptions are of that product? Or is there an opportunity to see some product that may be a little bit more transformational something that could give your sales and maybe bookings or billings more of an uplift going forward?
Allan Thygesen, CEO
Yes. Actually, I think WebForms has a little bit more potential than that. We’re very optimistic because I think it really epitomizes the transformation of agreement with sort of a static representation of a traditional form to completely new customer experiences. And the other thing it does, of course, is it makes it much easier to capture all the metadata around the agreements, which is really where we’re heading in the longer term. As you think about what we want to do, we want to decompose agreements into dynamic objects that can be filled both with data from the customer side and from the signer side. And WebForms is the first step of that process. There’s a lot more coming in the remainder of the year along those lines. So, we’re quite bullish on the cumulative impact of all of those launches. But obviously, version 1.0 will have some gaps. In terms of the transformational piece, I think I touched a little on the AI piece. We have a lot of opportunity there. And so, we will be making some announcements on that later this spring, as the beginning of a new product in that area. And over time, I think the work that we’re doing now to completely revamp how we leverage AI is very exciting. So, if you think about the application of AI in the agreement space, a lot of the excitement right now around ChatGPT and the other competitors are around basically text generation, and that has an obvious analogy to the agreement space of drafting contracts. And we do think that’s very exciting and that there’s value to be captured there, and we will absolutely pursue that. But, if you look at where companies actually find value from agreements, it would be more in the extraction of data and value out of the agreements as well as the search and analytics on that. And you can also apply AI to that. And that’s an area where I think we are uniquely positioned to deliver very compelling value, and we got a number of large customers who are very excited to work with us on that type of next-generation AI activity. I don’t think that’s going to hit in the next couple of quarters. But in terms of the longer-term road map and delivering on our vision, it’s incredibly exciting and could really provide transformational growth.
Operator, Operator
Our next question is from Rishi Jaluria with RBC Capital Markets.
Rishi Jaluria, Analyst
Two here. First, I wanted to start kind of reembracing more of your routes around self-service and PLG. Allan, I think the strategy makes a ton of sense and should actually help yourselves efficiency as well. From a product standpoint, is there anything that you need to do to make kind of that self-service PLG motion more intuitive or easier, especially outside of your mobile customers, right? If we think about even the mid-market customers, there should be a lot more self-service capabilities. Just anything that you need to invest in or expand from a product perspective? And then I’ve got a follow-up.
Allan Thygesen, CEO
Yes. First of all, when people hear about self-serve, they often think about our website and the ability to place orders there, which we do have. However, what I'm referring to is a much more transformational approach where customers can discover, try, adopt, and fully utilize our products without needing to interact with a DocuSign employee. Once they demonstrate their potential usage, we can engage with them, allowing our sales team to operate more efficiently. This model has been effectively utilized by companies like Atlassian, and I’m excited to implement it at DocuSign. Regarding its application across different segments, it's likely that small and medium-sized business customers will remain entirely digital, which we welcome. However, as customers grow in complexity and needs, utilizing our sales resources becomes both more necessary for them and more beneficial for us. Therefore, I anticipate a greater reliance on our salesforce as we move into larger markets. The mid-market segment has always been a strong area for us, and it continues to be important. Many of our products begin in this segment and expand from there, making it crucial for our enhanced self-serve initiative that I've outlined.
Rishi Jaluria, Analyst
All right. That's really helpful. On the international front, I remember last quarter there was discussion about collaborating more closely with partners, particularly in Japan, which, as you know, is a unique market for enterprise software. Could you provide an update on your initiatives in Japan and the development of your partner ecosystem? It seems that your product is perceived as superior to the competition, and your brand is strong in Japan. However, many of the manual processes that need modernization seem to lag behind. I would like to understand your perspective on the opportunity in Japan and your approach to partnerships there. Thank you.
Allan Thygesen, CEO
Yes. We are in active discussions internally exactly how we want to pursue Japan. I’d say Germany is another market where I don’t think we have fully lived up to our potential. And I agree with you, we’re in a great starting position. Our initial forays into both of those markets were really mostly just a direct sales motion. We didn’t put, I think, quite enough resources behind it and all the other functions, including product and our administrative functions. And as you noted, in markets like Japan, the road is littered with U.S. companies that have tried to go to Japan. So we’re certainly going to be leveraging partners there. So stay tuned. I think we’ll have more to report on both of those countries during the course of fiscal ‘24. But right now, it’s sort of in the planning and decisioning exactly how we’re going to pursue that. But those are definitely strategic priorities within our broader international strategy.
Operator, Operator
Our next question is from Michael Turrin with Wells Fargo.
Michael Turrin, Analyst
Great. I appreciate you taking the question. Can I appreciate the fact that you’re already operating within the stated target range on margin? But I think some of the questions are just digging out a little bit more that it seems like you could potentially push even harder given the product-led growth background, the core efficient base of the business. So, why not do that with a little bit more emphasis here? And what informs the decision around balancing reinvesting into the product versus making sure the cuts you’re making are the right size where you don’t have to potentially go back again and make another tough decision?
Allan Thygesen, CEO
Yes. First of all, we feel like we have successfully turned the organization around and reallocated resources to areas with the highest investment potential. I agree that we have not been sufficiently efficient in sales and marketing. My goal is to improve our efficiency over time. Until I have more confidence in that, I want to be cautious in our projections. However, you can expect a strong focus on becoming increasingly efficient, even more than we currently are. At this point, I am not prepared to incorporate that into our forecasts, but it is certainly my hope and expectation that we can accelerate our top line and improve efficiency in the future. I would like to mention another point regarding our investments. We see a significant opportunity ahead and believe we have been somewhat underinvested in innovation in recent years. We have held a market-leading product that still offers exceptional value. I am eager to revitalize that and take advantage of the broader opportunity I mentioned earlier in this call. The entire team shares this sentiment; we have some new developments scheduled for Q1, with many more expected over the next three quarters, which will set us up for growth in the coming years.
Operator, Operator
Our next question is from Josh Baer with Morgan Stanley.
Josh Baer, Analyst
Great. Thanks for the question. Allan, I think you labeled 2022 well in characterizing it as a year of change. So, if ‘22 is the year of change, what’s 2023 the year of? Is it execution, stabilization, innovation, self-serve? Like, what word would you use to frame 2023?
Allan Thygesen, CEO
Yes. I believe that this year, in transitioning from calendar 2022 to fiscal 2023, is about setting the groundwork for growth, and we are fully committed to that. We see a significant opportunity to take advantage of the large total addressable market that we believe we are targeting. As the market leader in e-signature and contract lifecycle management, we are well-positioned to make the most of this opportunity, and now we need to focus on executing our plans. Therefore, this year is about building a solid foundation for growth rather than going through a major turnaround like last year. Yes, we've mentioned before that 13% of our business is digital. However, this is mainly due to the limited number of products and options available on our website. We've been actively encouraging even smaller customers to order through a sales representative, which surprised me when I joined. Our objective is to significantly grow all areas of the business. In the future, distinguishing between digital and direct may become less relevant, as many customers might place some orders online while consulting with their sales reps for others. This blurs the lines a bit. Regarding our partners, we haven't publicly shared details about our partner mix. While partner influence is a notable but minority aspect of our business, the volume of sales made directly through partners is even lower, and both need to expand significantly. I mentioned earlier that there’s a significant opportunity to integrate our leading signature agreement workflow products into third-party solutions. We do some of this currently, but we aren't optimally set up to support developers right now. We have a few quarters of work ahead of us to develop a world-class range of customizable tools that enable developers to select from our offerings to create the most engaging agreement experiences within their products. This will be a crucial driver of growth.
Operator, Operator
Our next question is from Kirk Materne with Evercore ISI.
Kirk Materne, Analyst
Allan, I was wondering if you can just talk about sort of the industry strategy or the vertical strategy, both in terms of what you’re doing with the sales organization, meaning are you going to turn some of that sort of industry focus over to partners? And, is there a way to build more sort of industry functionality into the product? So, it’s just product led in that respect. I was just kind of curious if you could talk about the strategy on that basis. Thanks.
Allan Thygesen, CEO
Yes, it's a great question. I would say we're in the early stages of our verticalization strategy. We have a specialized set of tools for the real estate industry, which I believe are top-notch, and we will keep refining and enhancing them. Recently, we have made significant progress in the healthcare sector by adding compliance with various federal regulations, allowing our products to be utilized for healthcare applications, which has fueled impressive growth. We see opportunities here, and this is an active focus of our product planning. Our goal is to ensure our products are well-structured so that we can easily develop custom workflows tailored to specific industries. For instance, something designed for mortgages is quite similar to a loan application and is akin to an automotive purchase. These are all markets where we already operate and where I see potential for deeper vertical agreements. The government sector is another area with substantial opportunities. However, I would say we still have some work ahead to fully leverage the verticalization opportunities you mentioned, which I completely agree with.
Operator, Operator
Our last question is from Jake Roberge with William Blair.
Jake Roberge, Analyst
Allan, you’ve talked a lot about the reoptimization of those R&D resources. Is that more about going deeper into some of your less mature products that have big opportunities like CLM, or is it about building the self-serve and more frictionless e-signature capabilities that you’ve talked a lot about? And which of those opportunities do you see being larger as we move forward?
Allan Thygesen, CEO
We are focusing our investment dollars on accelerating our product growth and enhancing our agreement workflow roadmap within the CLM space, as well as advancing our cloud migration efforts. We are in the midst of transitioning our suite to Microsoft Azure, which strengthens our relationship with Microsoft. This migration is crucial for moving key workloads and storage, and we believe it warrants increased investment. Once completed, it will provide us with greater scalability and allow us to tailor our offerings to meet local needs in international markets. While this migration won't be finished this year, we expect significant progress in fiscal '24. These areas represent additional product investment beyond our self-serve PLG initiatives.
Jake Roberge, Analyst
Okay. Great. That’s helpful. And then I just wanted to double-click on the product bundles performing better than expected during the quarter. Can you provide some specific examples of those bundles and which products really stood out in terms of customer adoption?
Allan Thygesen, CEO
Yes. I mean, very quickly, I’d say the most successful one, and I alluded to this earlier, was what we call a new co-bundle, so new customer acquisition where we bundled our core e-signature product with a couple of key options, SMS and single sign-on, and we had a baseline services offering to accelerate onboarding. And that was a really nice bundle. Some of our highest value features that we feel are most highly correlated with both customer satisfaction and renewal and getting people off to a good start really is helpful for renewal as well. So again, that was the most successful, worked really well, and we need to do more of that. Okay. Just quick, let’s just wrap up here. Thank you all for joining and for your support as we continue to evolve our business. In closing, while this past year was challenging, the changes we’re making are vital to driving our long-term growth and success. I think we delivered a solid finish to the year, and we are prioritizing our investment focus on the areas, which we believe will drive increased value for our customers, employees, and shareholders. I’m really excited about the steps we’ve taken to accelerate innovation, improve and diversify our go-to-market and support our vision of smarter, easier and trusted agreements. I look forward to sharing more with all of you as the year progresses. Thank you.
Operator, Operator
This concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.