Earnings Call Transcript - DOCU Q1 2025

Operator, Operator

Good afternoon, everyone. Thank you for joining DocuSign's First Quarter Fiscal Year 2025 Earnings Conference Call. All participants are currently in a listen-only mode. After the presentations, we will have a question-and-answer session. Please note that this call is being recorded and will be available for replay in the Investor Relations section of the website afterward. I will now turn the call over to Matt Bonistalli, Interim Head of Investor Relations. Please proceed.

Matt Bonistalli, Interim Head of Investor Relations

Thank you, operator. Good afternoon, and welcome to DocuSign's Q1 fiscal 2025 earnings call. Joining me on today's call are DocuSign's CEO, Allan Thygesen; and CFO, Blake Grayson. The press release announcing our first quarter 2025 results was issued earlier today and is posted on our Investor Relations website, as well as the published version of our prepared remarks. Before we begin, 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 product innovation 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 counts 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 the 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 like to turn the call over to Allan.

Allan Thygesen, CEO

Thanks, Matt, and good afternoon, everyone. We're off to a strong start in fiscal 2025. We launched a significant expansion to our company strategy with our announcement of the DocuSign Intelligent Agreement Management platform. We also announced the acquisition of Lexion to accelerate the AI powering our platform. We continue to make clear progress on our three strategic pillars, accelerating product innovation, improving our omnichannel go-to-market capabilities, and increasing operating and financial efficiency. Our core business showed ongoing signs of stabilization. In Q1, revenue was $710 million, up 7% year-over-year. Dollar net retention improved versus the fourth quarter. Q1 non-GAAP operating margin increased approximately 2 percentage points to 28.5% versus 26.6% last year. Free cash flow generation remained strong, improving 8% year-over-year to $232 million, and resulting in a 33% free cash flow margin. Strong cash flow gives us confidence to continue investing in our growth while opportunistically returning capital to shareholders, including through the new $1 billion buyback authorization that we announced today. Blake will share further business and financial details in his comments. Over the last 18 months, we have tightened operating efficiency, stabilized the business and customer relationships, and launched a new platform that will support long-term growth. In Q1, we made a number of announcements that showcase our commitment to increase product innovation for customers. At our flagship customer event Momentum24, we outlined a bold new vision for Intelligent Agreement Management and shared our product roadmap for that vision. We believe the launch of DocuSign Intelligent Agreement Management is a landmark moment in the company's transformation. DocuSign Intelligent Agreement Management, or DocuSign IAM, addresses customer pain points across the agreement journey. Companies experience universal friction and frustration in managing agreements, and the costs add up. According to a recent study by Deloitte, poor agreement management systems and practices cost nearly $2 trillion in global economic value annually and cost workers billions of hours in lost time. With DocuSign IAM, customers can transform agreement data into insights and actions. Our new platform enables customers to create, commit to, and manage agreements all in one place. Our new capabilities help customers improve contract review cycles, streamline workflows, and boost productivity organization-wide. The DocuSign IAM platform is a significant departure from our past approach of only offering standalone products. The platform combines our current products, including our market-leading e-signature and CLM products with new platform services that customers have asked for, including DocuSign Maestro, our new agreement workflow builder to automate the creation of agreements without using code. With Maestro, customers can configure custom agreement workflows in minutes, combining DocuSign capabilities like eSignature, ID verification, and data verification with third-party apps to connect to their business processes. Second, DocuSign Navigator, largely to store, manage, and analyze a customer's entire library of accumulated agreements. This includes past agreements signed using DocuSign eSignature, as well as non-DocuSign agreements. Navigator leverages AI to transform unstructured agreements into structured data, making it easy to find agreements, quickly access vital information, and gain valuable insights from agreements. Third, DocuSign App Center, to help customers easily integrate third-party applications into their agreement workflows without any coding or expensive custom development. This is particularly powerful for DocuSign Admins and Process Builders, who can easily configure IAM for their unique agreement management needs. At launch, our App Center features commonly used apps from Salesforce, ServiceNow, HubSpot, Stripe, and document-sharing services like Google Drive and Microsoft's OneDrive. In addition to creating new platform services, we also unveiled application suites for specific functions within organizations. DocuSign IAM launched starting with IAM for Customer Experience, IAM for Sales, and IAM Core for general-purpose usage. In time, we will also launch IAM applications for legal, procurement, and HR teams, as well as for specific industry verticals. On May 30th, DocuSign IAM launched with availability for our small and mid-market customers in the US, with select plans also available in Canada and Australia. DocuSign IAM will roll out to more customers and more geographies over the next year. As we execute this rollout, we are focused on increasing flexibility for customers. IAM unleashes the ability for companies of all sizes to manage their agreements, significantly expanding the agreement management market. CLM, which remains our sophisticated enterprise offering, showed us the importance of giving customers an advanced set of workflows and deep agreement intelligence. IAM takes the learnings from CLM and applies them to a platform with broader agreement functionality that is accessible for any size customer in any part of their organization. AI is central to our platform vision, and we are thrilled to welcome Lexion to the DocuSign family. Lexion is a proven leader in AI-based agreement technology, which significantly accelerates our IAM platform goals. We maintain a high bar for acquisitions, and Lexion stood out due to its sophisticated AI capabilities, compatible technology architecture, and promising commercial traction with excellent customer feedback, particularly in the legal community. Additionally, we are bringing exceptional talent and strong AI leaders into DocuSign. The acquisition of Lexion marks an important step forward in our platform journey. Let's turn to our omnichannel go-to-market, our second strategic pillar. In Q1, momentum was solid across the direct, partner, and digital routes to market. Overall customer growth remained consistent with Q4 at 11% year-over-year. Envelopes sent and contract utilization both saw modest year-over-year improvements for the second quarter in a row. International and CLM revenue growth continued to meaningfully outpace total revenue growth. The partner channel continued to show improvement with strong growth from key partners like SAP and Microsoft. For example, DocuSign is one of the first copilot integrations in Microsoft 365 and Microsoft Dynamics, and Salesforce Sales Cloud, creating access to agreements in productivity and sales applications. Across all channels, we are focused on creating global engagement with customers. Behind a new DocuSign brand that is focused on bringing agreements to life, we welcomed thousands of customers and partners to our largest customer event of the year, Momentum24. This flagship New York event was the kickoff to a larger Momentum series spanning eight events in five continents. This engagement paves the way for rolling out localized versions of DocuSign IAM in our largest international markets. At these events, we recognized several customers who stand out for their innovation and business impact by deploying DocuSign capabilities within their companies. In sales and customer experience use cases, J.P. Morgan's Commercial Bank Services has quickened its lending process by over two weeks across its base of clients; and Red Hat now has 7,000 users on DocuSign CLM sending over 30,000 sales-related envelopes for signature annually. Customers using DocuSign in procurement and legal use cases stand out as well. Meta used DocuSign to analyze over 1 million contracts across customers, partners, and suppliers; Santander UK transformed its lending fulfillment process in its corporate and commercial bank, including reformatting its facility agreements through automation; and Flowserve, one of the world's leading providers of fluid motion and control panel products and services, manages over $1.4 billion in contracts through DocuSign CLM. What's exciting is that this is just the beginning for DocuSign, helping customers navigate their agreement management journeys. In closing, Q1 was an important step forward as we reimagine DocuSign. With Intelligent Agreement Management, we're leveraging our market leadership in e-signature and CLM to define a broader market opportunity by solving age-old customer problems that have never been addressed. We believe IAM unlocks a new wave of value for customers as the system of record for agreements, and a new phase of growth for DocuSign. Thank you to our entire team for your passion and dedication to realizing our vision for customers. We're proud of what we've accomplished in recent months and quarters. And we're just getting started. With that, let me turn it over to Blake.

Blake Grayson, CFO

Thanks, Allan, and good afternoon, everyone. We delivered strong business and financial results in Q1 that continued to demonstrate stabilization in our core business. In addition, we maintained our focus on operating efficiency while continuing to invest in the newly launched IAM platform, critical AI capabilities, and omnichannel go-to-market initiatives that we believe can help drive our long-term growth aspirations. Q1 financial performance showed solid top line growth, improving operating metrics, and continued efficiency gains resulting in strong operating income and free cash flow generation. Total revenue in Q1 increased 7% year-over-year to $710 million, and subscription revenue grew 8% year-over-year to $691 million. Billings grew 5% year-over-year to $710 million. The billings' outperformance compared to our guidance was driven primarily by higher early renewals as well as stronger retention rates. International revenue, a key long-term growth driver, continued to grow at approximately double the overall revenue growth rate and now represents 28% of total revenue. We continue to be excited about the long-term opportunity we still have remaining in our international markets. Similar to the past two quarters, we are encouraged by several continued signs of business stabilization. First, as Allan mentioned, our dollar net retention rate improved to 99% in Q1 from 98% in Q4. This is the first sequential quarter-on-quarter improvement in several years. Gross retention rates improved modestly year-over-year, which was the primary driver of the sequential improvement in dollar net retention. We expect that these recent stabilization trends will continue, and in Q2, we anticipate the dollar net retention rate to be flat to down slightly. Longer term, we believe there is significant opportunity for growth across both our core business and with the addition of the Intelligent Agreement Management platform through continued customer penetration and new expansion. Second, usage trends once again showed modest improvement, similar to what we experienced in the second half of fiscal 2024. Envelopes sent increased slightly year-over-year, compared to the year-over-year declines we saw at this time last year. Consumption, a contract utilization measure, also improved slightly year-over-year, led by increases in the healthcare, insurance, and technology verticals. Third, the number of large customers spending at least $300,000 annually remained stable at 1,059 in Q1, relatively similar to customer counts from Q4 and Q1 fiscal 2024. We saw lower volatility in large customers compared to Q1 of last year when the number of customers spending over $300,000 decreased sequentially by 2%. Also, bookings from customers with total contract value over $1 million continued to increase by double-digit year-over-year rates in Q1. Fourth, new customer acquisition growth remained strong in Q1, with total customers increasing by 11% year-over-year, for the third consecutive quarter, to 1.56 million. Our quarterly absolute net account additions of over 50,000 is the highest sequential gain we have seen in two years, since Q1 fiscal 2023. This was driven predominantly by growth in digital customers that grew 11% year-over-year to 1.3 million. We will continue to focus on driving self-service features and adoption through our PLG motions. Direct customers grew 13% year-over-year to 248,000. As we begin the measured rollout of Intelligent Agreement Management across segments and geographies, the scale of our customer base creates strong long-term expansion potential for the business and continues to be a unique asset across the software landscape. Turning to our financials, operating and financial efficiency initiatives drove strong performance in Q1. Non-GAAP gross margin for Q1 was 82.0% versus 82.6% last year, in line with guidance, given the ongoing cloud infrastructure migration that we expect will take place throughout fiscal 2025. Q1 non-GAAP subscription gross margin was 84.2% versus 85.2% last year, also impacted by the migration. Non-GAAP operating income in Q1 was $202 million, up 15% year-over-year to a record-high 28.5% operating margin. This is up nearly 200 basis points versus Q1 last year and a significant increase from the 17.4% operating margin from two years ago. The improvement from last year has largely come from efficiency gains within our sales and marketing departments, where we've been able to reduce our spend as a share of revenue by over 200 basis points from a year ago, to 33% of revenue compared to 42% of revenue two years ago. This has provided us the ability to continue investing in R&D at a consistent percent of revenue. In Q1, non-GAAP operating margin benefitted from lower headcount related to the previously announced restructuring. We incurred $29 million in GAAP-specific restructuring charges in Q1, in line with our previous communications. A portion of the outperformance in non-GAAP operating margin relative to our guidance was driven by expense timing. We ended Q1 with 6,441 employees versus 6,586 at this time last year, approximately 2% lower than the prior year. We will continue to manage our hiring plans to align our sales organization with our digital and partner GTM motions, support long-term growth opportunities in R&D, and realize efficiencies of scale in G&A. We continue to benefit from a business model that generates significant cash flow. Free cash flow in Q1 increased to $232 million with a 33% margin versus 32% in Q1 of last year. Efficiency initiatives continued to yield working capital improvements. In particular, collections efficiency has been a point of strength. We ended Q1 with less than 1% of our accounts receivable over 90 days past due, a significant improvement year-over-year. As discussed last quarter, we anticipate our full-year free cash flow margin will more closely approximate non-GAAP operating margin for fiscal 2025. Related to that, we expect to see a lower free cash flow yield rate in Q2 versus Q1. The balance sheet is in a strong position. At the quarter end, we had $1.2 billion of cash, cash equivalents, and investments. We currently have no debt on the balance sheet. This strong financial foundation allows us to harness significant free cash flow generation to support future investment as well as redeploy excess capital opportunistically to shareholders. To that end, during Q1, we used $149 million in cash to repurchase shares, more than three times greater compared to the $40 million in share repurchases in Q1 of the prior year, and slightly more than we repurchased in all of fiscal 2024. We also used $42 million in cash to pay taxes due on RSU settlements, reducing the dilutive impact of our equity programs. As Allan mentioned, the Board recently authorized an increase to our open-ended buyback program of $1 billion, which is on top of the approximately $140 million we have in remaining existing authorization. With regard to capital allocation, we also closed the Lexion acquisition on May 31. Lexion is a strong strategic fit for DocuSign. We have a disciplined valuation framework and a high culture bar for acquisitions, and I am excited for the opportunities this ultimately can provide for our customers. Lexion's technology will accelerate our AI-powered IAM roadmap and Lexion's founders and team will help strengthen our technical foundation with their AI-industry leadership experience. In terms of financials, Lexion will not have a material impact on revenue and non-GAAP operating margins in fiscal 2025, and the financial impact is reflected in our current fiscal 2025 guidance. Non-GAAP diluted EPS for Q1 was $0.82, a $0.10 per share improvement from $0.72 last year. GAAP diluted EPS was $0.16 versus $0.00 last year. Diluted shares increased approximately 1% year-over-year to 210 million shares. We are encouraged by gains in both non-GAAP and GAAP profitability, and we continue to target improvements in annual GAAP net income and per share profitability as we work to manage the dilution and cost of our equity programs. In Q1, stock compensation expense as a percent of revenue, excluding the impact from restructuring, declined by 170 basis points year-over-year, from 21% in Q1 fiscal 2024 to 19% in Q1 fiscal 2025. We continue to expect stock-based compensation, excluding the impact from restructuring, to be approximately flat year-over-year in fiscal 2025 and expect that cost as a percent of revenue to decline year-over-year. Related to our GAAP financials, in fiscal 2025 it is reasonably possible that we will release a valuation allowance on certain existing deferred tax assets, which was discussed in our 10-K that was published last quarter. When released, we estimate this would have a GAAP-only financial impact of decreasing our non-cash tax expense by approximately $750 million to $850 million. Further details will be found in the 10-Q filing. With that let me turn to guidance. For Q2 '25 and fiscal year 2025, we expect total revenue of $725 million to $729 million in Q2, or a 6% year-over-year increase at the midpoint. For fiscal year 2025, we expect revenue between $2.920 billion to $2.932 billion, or a 6% year-over-year increase at the midpoint. Of this, we expect subscription revenue of $705 million to $709 million in Q2, or a 6% year-over-year increase at the midpoint, and $2.844 billion to $2.856 billion for fiscal 2025, or a 6% year-over-year increase at the midpoint. For billings, we expect $715 million to $725 million in Q2 and $2.980 billion to $3.030 billion for fiscal 2025. As continually shown in recent quarters and years, billings are heavily impacted by the timing of customer renewals, which can create meaningful variability from period to period. This impacts year-over-year and sequential quarter-over-quarter comparisons and is further amplified by the scale of our book of business. As discussed in our results call last quarter, we expect Q2 to have the lowest year-over-year billings growth rate in fiscal 2025 primarily given comparisons versus last year's strong on-time renewal performance and the timing impacts of various customer contracts. We expect non-GAAP gross margin to be 80.5% to 81.5% for Q2 and 81.0% to 82.0% for fiscal 2025. We expect non-GAAP operating margin of 27.0% to 28.0% for Q2 and 26.5% to 28.0% for fiscal 2025. During the year, we continue to expect to realize lower costs from the restructuring announced in February, as well as several ongoing efficiency improvement initiatives across the company. Our ultimate goal is to invest in long-term growth opportunities, in particular in R&D, while generating efficiencies that allow us to scale profitably. We expect non-GAAP fully diluted weighted average shares outstanding of 208 million to 213 million for both Q2 and fiscal 2025. In closing, we are pleased to report another quarter of progress against our three strategic pillars, accelerating product innovation, enhancing our go-to-market initiatives, and strengthening our financial and operational efficiency. Q1 showed solid progress in improving the relationships with our customers and stabilizing business fundamentals, and we remain pleased with our overall profitability and free cash flow generation. We are committed to continuing to invest in realizing our vision of Intelligent Agreement Management. With over 1.5 million customers worldwide and a strong position as the default, trusted partner for customers with their agreements, we believe the future is bright as DocuSign endeavors to execute against our long-term strategy to deliver a new AI-powered IAM platform. That concludes our prepared remarks. With that, operator, let's open up the call for questions.

Operator, Operator

Thank you. We will now open the session for questions. Our first question comes from Jake Roberge with William Blair. Please go ahead with your question.

Jake Roberge, Analyst

Hi. Thanks for taking the questions. Blake, could you just help us understand how recent consumption trends were factored into your subscription guide? It sounds like consumption improved in the quarter, but it doesn't look like the full subscription beat was pushed through to the guide. So I'm curious if you started to see any impacts from the macro as you exited the quarter, or if the guide is really just conservatism in getting out in front of any potential macro headwinds. Thanks.

Blake Grayson, CFO

Sure. Thanks, Jake. Thanks for the question. I think if you look at the guide and especially if you look at it into the full year, we actually lifted our full-year midpoint guide in total revenue by slightly more than our beat in Q1. There's a little bit of back-and-forth between the sub-revenue line and then the professional services and other revenue. And that's really just a function of us getting a little bit more granular as far as contracts that may be on-prem versus what we had assumed in our forecast and such. I would say on the macro side, Q1 was highly consistent from a linear monthly perspective, and actually into May as well, which we've been really happy with. I haven't seen any material shift as companies continue to scrutinize investment spend. We've had another quarter of stabilizing signs, both in consumption and usage, both trended up modestly for us. And so I think it's also the fact for us that being able to see the account growth that we had in this quarter of over 50,000 is also encouraging, I think from a macro perspective just because of the size of our book of business and the size of the account base that we have. And so I'm pretty happy about that.

Jake Roberge, Analyst

Great. Thanks for taking the question.

Operator, Operator

Our next question comes from the line of Tyler Radke with Citi. Please proceed with your question.

Tyler Radke, Analyst

Thanks for taking the question. I wanted to ask you clearly, a lot of announcements and momentum with the announcement of IAM. Can you just help us understand how specifically the Lexion deal fits into that vision? Do you feel like with the combination of Lexion, your core eSignature, some of the assets around SpringCM and CL, you have the complete product? Are there other areas you're looking for? And then just any feedback that you could share from customers post that launch, and how it's being perceived? Thank you.

Allan Thygesen, CEO

I'll take that question. First, regarding Lexion, our engagement began last fall when we recognized the potential for accelerating our agreement AI strategy. We closely monitor the venture ecosystem and had a clear understanding of the companies to consider. We established a framework to evaluate their models and found that Lexion performed the best. As we explored further, their integration with our existing platforms was impressive, and I was particularly impressed by their deep engagement with customers. Having hundreds of customers provided significant validation of their platform. Lexion's contribution adds to DocuSign through what I believe will enhance our agreement AI, specifically in terms of extraction quality and quantity. They also lead in legal workflow automation, allowing legal teams to efficiently assess third-party agreements with AI, identify deviations from standard templates, and propose counter language, which boosts productivity. Thus, the partnership is a perfect fit for us, and we are thrilled to have onboarded them, finalizing the deal just last Friday. Regarding IAM, our roadmap was heavily influenced by customer feedback and addressing pain points across the agreement journey. The response during early access and beta has been very positive, with hundreds of clients already live on the platform that we launched for general availability last Thursday. The initial release focuses on North American commercial customers, with plans to expand into other segments and geographies over time. The excitement around the launch has been overwhelming, and we've also received strong feedback from our partner channel, particularly from several global system integrators committed to company transformation and legal agreements. This engagement is very encouraging and serves as great validation for our efforts.

Tyler Radke, Analyst

Thank you.

Operator, Operator

Your next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Brent Thill, Analyst

Thanks, Blake. 20.5% op margin in Q1, yet you're guiding below that at the midpoint for the full year. I guess when you think about the investments that need to happen to kind of hit that range, can you walk through what would cause margins to go down to make that number for the year?

Blake Grayson, CFO

Thank you for the questions. The 28.5% is above the midpoint of our guidance, and a significant part of that is due not only to the revenue beat but also to the timing of expenses. Specifically, our non-GAAP G&A expenses are actually lower in absolute dollars year-over-year. While we anticipate modest growth in those expenses, the decline year-over-year is largely a result of timing. When we look at it more closely, expenses remain consistent throughout the year. At DocuSign, we are focused on balancing operational efficiency while ensuring we invest appropriately to launch Identity Access Management, engage with customers, work with our product team, and facilitate sales. Our goal is to maintain this balance between efficiency and productivity, while also positioning ourselves to support initiatives that we believe will drive long-term growth.

Brent Thill, Analyst

And just quickly for Allan, I understand your goal of achieving double-digit growth. While you're not expecting that this year, is there anything that could be an obstacle preventing you from reaching that longer-term goal?

Allan Thygesen, CEO

No, I think we all agree that this is a reasonable long-term goal for us. Given the significant growth in our addressable market with the launch of IAM, we believe we have ample opportunity to achieve that. This remains an execution-focused endeavor. I want to emphasize that while we reached important milestones this quarter with the product launch and the marketing relaunch of DocuSign, the go-to-market strategy is still in front of us. We believe we are starting from a strong position with a customer base of 1.5 million paying customers monthly and positive relationships built from our experience with eSignature and CLM. We have developed the product extensively based on customer feedback, but it is still evolving. We primarily sell to enterprises, being present in 93% of the Fortune 500 and similar metrics in other regions. However, there is a distinction between selling a specific application and offering an enterprise platform for agreement management, and we still have room to grow in this area. Therefore, my primary focus is on execution. We have a large addressable opportunity, a solid product lineup, and strong customer relationships, and it is up to us to leverage that.

Brent Thill, Analyst

Great. Thank you.

Operator, Operator

The next question comes from the line of Patrick Walravens with JMP. Please proceed with your question.

Patrick Walravens, Analyst

Great. Thank you. So the launch of the IAM platform is super exciting, but it does make me wonder what are you guys going to do in terms of creating a repeatable go-to-market motion, and how are you going to sell this in a consistent manner given the way it's rolling out and the old products versus the new ones?

Allan Thygesen, CEO

I'll check and correct that. First of all, we designed IAM to be very broadly applicable. Historically, in the broader contract management space and specifically CLM, it was mainly accessible to large enterprises that could afford the necessary customization and integration. IAM is more lightweight and can be deployed by a wider range of companies and users. This also means it offers a natural upsell and cross-sell opportunity to our signature product, which has a broader distribution than our CLM product. I don't want to downplay that this represents an evolution in terms of scale, the number of stakeholders, and the complexity of the sales process. However, we're leveraging our entire eSignature business, which is exciting, and we are already starting to close some deals. We just made it available through channels a week ago, so I'm cautious not to draw too many conclusions from that yet. Nevertheless, I feel confident about our ability to establish a repeatable process starting in the commercial space and then progressing to our enterprise customers. We're currently seeing a significant amount of inbound interest on the platform.

Patrick Walravens, Analyst

Great. Thank you.

Operator, Operator

The next question comes from the line of Rishi Jaluria with RBC Capital Markets. Please proceed with your question.

Rishi Jaluria, Analyst

Wonderful. Thank you so much for taking my question. I just want to drill a little bit into Lexion. You mentioned it's immaterial, but you paid $135 million for it. It's got hundreds of customers. Maybe can you walk us through of the raise and the guide for the full year? How much of that is attributable to Lexion versus improved execution? Maybe you could just give us a little bit of color for our own models, how to think about Lexion. Thank you.

Blake Grayson, CFO

We're not providing specific breakdowns due to its size and lack of significance. It doesn't have a material impact on our revenue or operating margin. The key point I want to emphasize about Lexion is that its acquisition is focused on integrating the technology into the DocuSign IAM platform. We believe this integration has the potential to benefit our more than 1 million customers in the long run, which is what excites us about driving that momentum. It's still very early in this process, and we just finalized the transaction six days ago. However, our long-term enthusiasm for Lexion lies in its integration and our ability to accelerate our AI development, ultimately making the IAM platform more valuable for our customers.

Allan Thygesen, CEO

Yeah. And maybe I'll just add to that to say, we took a lot of comfort from the fact that they had validated their platform in hundreds of customers. But as Blake said, the primary motivation here was in being able to deploy that capability across our entire IAM suite. I do want to emphasize we intend to continue to support the Lexion product and Lexion customers. And as IAM integrates Lexion features, then we'll make that platform available to the Lexion customers.

Rishi Jaluria, Analyst

All right. Wonderful. Thank you.

Operator, Operator

The next question comes from the line of Josh Baer with Morgan Stanley. Please proceed with your question.

Josh Baer, Analyst

Thank you very much. I wanted to focus on IAM. I'm curious about what capabilities are lacking or need to be introduced to better serve the broader enterprise market. Also, could you provide some insights into the economic effects as customers start adopting IAM?

Allan Thygesen, CEO

On the first point, there is a long list of features that the largest customers typically desire. For instance, a major concern for large companies is access control, which involves tightly managing who can access specific agreements. This feature must be seamlessly integrated with existing permission systems, and we are actively developing it. Additionally, we plan to introduce functionality later this year that allows for the review, editing, and development of agreements based on playbooks. This playbook approach is generally favored by larger companies, and you will see this functionality incorporated into IAM along with enhanced agreement editing capabilities. Lexion will also play a role in this area. Regarding our pricing structure, our core eSignature product has traditionally been sold based on envelope capacity, meaning customers purchase a specific number of envelopes. We also provide seat configurations, and CLM has mainly been sold on a seat basis. We are transitioning IAM to be mainly sold on a seat basis with adjustments for different user profiles and additional charges for premium features. We are managing this evolution carefully to ensure that customers who only need our basic eSignature product can still purchase it in a familiar way. At the same time, customers who wish to utilize IAM and the extensive features we have introduced can do so, albeit at a premium compared to our previous packages. This is our approach to addressing these needs.

Blake Grayson, CFO

And I would just to pile on to what Allan said. Our overall philosophy as we think about IAM is that if we can create more value for customers, and we believe pretty strongly IAM is going to do just that, customers will agree to share in some of that value with us. And it can come in a number of different ways, right? It can come from perhaps expansion as we become more integral to a customer and their workflows and their processes, or it can also become a stickier relationship, right, where we can drive better retention trends as well. So just to add on top from what Allan said.

Josh Baer, Analyst

Great. Thank you.

Operator, Operator

Our next question comes from the line of Scott Berg with Needham. Please proceed with your question.

Scott Berg, Analyst

Hi, everyone. Thanks for taking my questions. I have two. Let's start with the continuing theme on IAM. I was obviously at the conference, customer interest is high. It sounds like investor interest is high on it too, and it almost seems like this is probably your big bet for the next leg of growth for the company. But how do we think about the impact of the model here going forward? It was just released. I know it's going to be released to the commercial customers first and gradually moved up-market as you build out the future functionality set. But is this a play for fiscal '27 or fiscal '28? Or do you think we can see some revenue impact maybe as early as next year that's at least somewhat meaningful to the overall profile of the company?

Blake Grayson, CFO

Yeah. I think we'll see some lift next year, but we're not ready yet to talk about the exact magnitude. But yes, that would be a reasonable expectation.

Allan Thygesen, CEO

I want to highlight that we just launched this for general availability about a week ago, so it will take time to ramp up. We also need to consider the overall size of our business and the renewal cycles involved. Our full-year guidance is around $3 billion in billings, so moving that needle is going to require some time. I'm mostly excited about getting the launch out and ensuring a positive customer experience, while also encouraging the team to iterate on these aspects. In the early stages of a new product launch, this focus, along with the go-to-market strategy, is crucial. If we get these elements right, we’ll be able to generate momentum in billings moving forward.

Scott Berg, Analyst

Got it. Helpful. And then I just wanted to follow up on the stability comments from earlier. Now that you feel that the business seems to be at least in a right position, how do we think about upside to revenues over the near term? Does it come more from the installed base with some of the stability there, or is the upside driven more from net new sales and net-new customers coming on board in this macro where everything is a little bit challenging? Just wanted to see how you kind of balance those two and what might be the greater driver in the near term. Thanks.

Blake Grayson, CFO

We are focused on both improving our gross retention rates and expanding our business. Our ability to enhance retention within our large customer base can significantly impact our performance. While I am encouraged by the stabilization trends, we recognize that there's still room for improvement. As an organization, we are dedicated to this effort. This past quarter, we implemented several effective strategies to boost retention rates, such as allocating customer success resources and taking a more detailed approach to managing renewals and large contracts. We believe that focusing on the adoption of essential features will help reduce churn, which, in turn, supports revenue growth. On the expansion front, there is still considerable opportunity within eSignature, and our significant investment in IAM will enable us to drive growth in those areas while enhancing our renewal rates. Ultimately, I believe we will find ourselves in a favorable position. As Allan mentioned earlier, our execution is crucial, and we must focus on it, as we genuinely believe there is a substantial opportunity and a clear demand for the products and features we are currently offering to our customers.

Scott Berg, Analyst

Yeah, excellent. Thank you.

Operator, Operator

Our next question comes from the line of Brad Sills with Bank of America. Please proceed with your question.

Brad Sills, Analyst

Great. Thank you so much. I wanted to ask a question here on IAM, exciting new launch here. As you guys make the pivot from more transactional eSignature to more of the suite approach here where you're getting more into workflow automation, can you speak to the level of preparedness for the sales channel to make that type of a consultative sale? I know these things don't happen overnight. If you could just speak to kind of the roadmap there for making that transition towards a more strategic vendor in a more consultative sale? Thank you.

Allan Thygesen, CEO

Yeah. So that's been top-of-mind, I'd say internally, and that we have probably the largest enablement program in the company's history that has been underway over the last several months, and its ongoing right now. I think that is a huge effort. At the same time, we're working on revising every aspect of how we organize our teams, how we engage with partners. I mentioned the importance of the SIs, complementing our direct sales efforts with a more robust and more frictionless reseller and distribution channel to further accelerate that and then IAM is available to partners day one. So all of that goes into it. But we can't take our eye off the ball. We have an existing business with velocity that also needs to be maintained. And so we need to be able to execute on both of those at the same time, and we're balancing those, I think so far so good. But look, I'm under no illusions. This will be a journey probably over the next several years as we mature our entire go-to-market to take full advantage of this opportunity. But first, we had to conceive with it, develop it, ship it, and position it overall. And I think now that begins and so far, I'm feeling very good about it. I don't think in my 20 months at DocuSign, I think this is as optimistic and excited as the company has felt ever.

Brad Sills, Analyst

That's great to hear. Thank you, Allan.

Operator, Operator

Our next question comes from the line of Michael Turrin with Wells Fargo. Please proceed with your question.

Michael Turrin, Analyst

Hey, great. Thanks. I appreciate you taking the question. Blake, you had a comment around Q2 as the trough in terms of billings growth, and so I wanted to give you a chance to expand on what drives that. How much is it visibility, how much of it is getting out of tougher renewal cohorts, or other factors at play that are driving the expected improvement as we work further into the year?

Blake Grayson, CFO

Certainly. This aligns with what I mentioned last quarter regarding the quarterly trends. The challenge we face in Q2 is due to two significant tough comparisons, particularly concerning renewals. In the first half of 2024, especially in Q2, we experienced robust on-time renewal volumes. You may remember that we updated our sales force incentive program to promote on-time renewals and retentions, leading to substantial gains. This creates a tough comparison for us. Additionally, as noted in our Q1 remarks, part of the strong performance in Q1 billings relative to our guidance was influenced by early renewals, resulting in some pull-forward from Q2 into Q1. Therefore, consistent with my previous discussion, we anticipate Q2 will be the low point in billings before we see a slight increase in the latter half of the year, which is reflected in our full-year guidance.

Michael Turrin, Analyst

Okay. Just a small follow-up. Is there anything we should be mindful of in terms of the added functionality, the broader agreement platform that could change the renewal dynamics either having kind of pulled any activity into anything ahead of that or could just add complexity that's better longer term but impactful near-term that we should be thinking about at all here?

Blake Grayson, CFO

I think the IAM platform is completely new, so there’s nothing in the Q2 guidance that suggests any expected changes. To be fair, the changes we see, which we will monitor closely, need to be considered in relation to this $3 billion book of business. Therefore, I don’t anticipate significant movements from it, but we will review it over time. There’s nothing specific I would highlight.

Operator, Operator

The next question comes from the line of Alex Zukin with Wolfe Research. Please proceed with your question.

Arsenije Matovic, Analyst

Hi. This is Arsenije Matovic on for Alex Zukin from Wolfe Research. So following up on a prior question and not asking for what the contribution is, but simply excluding Lexion, would your full-year guidance for revenue and subscription revenue have been raised on an organic basis? And just on macro, has your outlook changed since you first set full-year guidance? Thank you.

Allan Thygesen, CEO

Yeah. So let me answer the second question first. So on macro, our macro stability has been very consistent, I would say, through this year. So no change on the macro side for us. And we've actually continued to see consumptions and usage improve. But again and then to your first question on Lexion, we're not breaking out. It's not material to our numbers. It's not material to revenue or operating margin.

Operator, Operator

Our next question comes from the line of Karl Keirstead with UBS. Please proceed with your question.

Karl Keirstead, Analyst

Okay. Great. Thanks. Maybe I'll direct this to Blake. Blake, on the Q1 numbers, it's good to hear your color commentary around the core stabilizing and new logos being good, and transaction volumes being good. But objectively, when we look at Q1, it was a very skinny revenue beat, and revenues were down sequentially and the billings beat was normal to a little bit light. So actually, the numbers don't support the view that things are stable or improving. It feels like there must have been some kind of offset that you saw. Maybe it was that 4Q was super strong and it left the tank a little dry for 1Q. I'm just trying to figure out why Q1 wasn't a little bit more robust if, in fact, your commentary about demand is that it was in fact pretty stable. Thank you.

Blake Grayson, CFO

Sure. So with regard to your comment on the beat, we beat the top-end of our guide for revenue. I think what you might be referring to is that historically the company has had some larger beats over time. And I think that it's hard to talk to those relative to how you forecast and such, but I'm quite pleased with how we performed in Q1 relative to that. With regard to the other comment you made on the sequential drop, there's a function of days in the quarter that affects that. So as you go from Q4 to Q1, there's two more days in Q4 versus Q1. I think so, you have to keep that in mind as well. So again, I think that the performance of the company actually is quite reflective of the metrics that we called out with the dollar net retention rate improving sequentially for the first time in several years with the account growth doing well, with the billings growth coming in, I think it was $20 million over the midpoint guide. And of course, some of that is early, but some of that's also based on that stronger gross retention rate. So nothing that I would call out and say there was any type of an offset like you were suggesting.

Allan Thygesen, CEO

I mean, if I just add to that. I would just say we've had some significant outperformance on past forecasts. We've been trying to both tighten the range and give you guys more precise guidance. And I think we've got a pretty good handle on the business now so we're able to be a little bit tighter. But I completely agree with Blake. We felt very, very good about it. It was very solid. There was really nothing material changing in the demand environment. As Blake said, several of the underlying operating metrics actually showed meaningful improvement and sort of continued that stabilization theme. So that's the sentiment that we have here and I think it does show in the numbers, and we expect that stabilization theme to continue.

Operator, Operator

Our next question comes from the line of Mark Murphy with J.P. Morgan. Please proceed with your question.

Sonak Kolar, Analyst

Hi. This is Sonak Kolar on for Mark Murphy. Thanks for taking the question. Blake, can you walk us through what might be embedded in the forecast for the back half in some of the more rate-sensitive end markets such as real estate given mortgages? I'm just looking at the concerns around the backdrop of higher for longer and want to see how that might be impacting the guide. And then I also had a quick follow-up on IAM for Allan. Just in the early days of IAM adoption, is it so far trending faster than the initial launch of CLM several years ago?

Blake Grayson, CFO

Yeah. I'll start and then you go ahead. So on the macro side, the way we handle our forecast is we forecast based on what we see and what we know. And so as far as verticals go, real estate continues to be one of those verticals. It's not terribly probably surprising that has been under pressure, and so the general assumption is that would continue. So I don't see any terrible risk for hire for longer because it's based on what it is today. And so as I think those verticals have actually opportunities for us when the interest-rate environment improves. But nothing aggressive. We don't make kind of like future forecasts on the macro side in our guidance. I'll let Allan talk to the second part.

Allan Thygesen, CEO

It's been some time since we entered the CLM space through the acquisitions of Spring and Steel, with those categories already set up at that time. Our aim with IAM is to provide significantly broader functionality that is easier to adopt, more configurable, and applicable to a wider range of customers and users within those organizations. Historically, CLM has been somewhat exclusive due to the effort required and its focus on specific power users. However, this initiative is much more expansive, covering both CLM and eSignature. I expect that over time, our IM business will grow to be considerably larger than our CLM business, although they are currently at different stages of development.

Sonak Kolar, Analyst

Got it. Very helpful. Thank you.

Operator, Operator

And our next question comes from the line of George Iwanyc with Oppenheimer. Please proceed with your question.

George Iwanyc, Analyst

Thank you. Thank you for taking my question. Allan, could you drill down a little bit more into the strength you're seeing with the self-serve motion and the digital efforts, and maybe as you expand on that, provide some perspective on what you're seeing with SMBs?

Allan Thygesen, CEO

Overall, we're seeing strong growth in our digital business, and we're pleased with our progress. Our investment and efforts in this area will continue. This year, we're not only enhancing the experience for customers who are fully digital but also improving self-service options for our direct customers and partners. Much of this functionality will be deployed this year, which will help us save time and resources internally while enhancing customer experience. I'm optimistic about this direction as we have some exciting digital features coming that will help maintain our momentum.

Blake Grayson, CFO

As we examine our quarterly net account additions, the majority, over 50,000, originated from our self-service channel. We've enhanced our marketing targeting and improved the experience for customers transitioning from trial to paid subscriptions. Additionally, we've minimized payment-related issues by launching ACH for our customers and reducing the incidence of payment failures. There are also backend improvements we can undertake to expedite the self-service channel, alongside the longer-term initiatives that have been highlighted.

Allan Thygesen, CEO

Yeah. Maybe one last thing, I think at the end, you also asked about broader SMB trends. So look, I love the SMB business. I think we are blessed to have a very robust SMB business. This provides a balance. And I think if anything, I like having that diversification right now. We're well-represented across enterprise, mid-market, and SMB. And I think the enterprise environment might be slightly tighter than the SMB environment right now. So overall, we have a very balanced book, and I think that is working in our favor.

George Iwanyc, Analyst

Thank you.

Allan Thygesen, CEO

Okay. I think we'll wrap it there. Sorry, that's okay. Thank you, operator. Thank you, all, for joining today's call. In closing, I am proud of the progress DocuSign continues to make and excited for the value we'll create for customers through the Intelligent Agreement Management platform. So we appreciate your support as we continue to realize that vision. Thank you.

Operator, Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.